Old Wizard

Charlie Gasparino: Another Crash 'Has to Happen Again'

The analysis by Gasparino is correct as far as it goes in identifying root causes, but doesn't go far enough. I also don't believe that regulations couldn't be adopted that would check the out of control " risk taking" which I would better label gambling and misrepresentation bordering on fraud. Today the banks are borrowing money from the taxpayers [ re; gov] at close to zero and then from the subset of taxpayers, those who are saving money in banks, at 1% and then lending it at 5% or greater. To make matters worse the Gov [ re: taxpayers] under the guise of getting credit flowing again buy 300b of securities from banks much of which banks had loaned to the Gov[re: taxpayers] at between 2and 3% to ensure a safe haven. In all this machination the handlers of all these transactions are profiting[ this includes the government officials as well as the "bank" officials, those in fannie may and freddie mac, past and present, and all the agents of the gov who handle the bond transactions for the Gov of which Goldman Sachs is a big player]. Then the treasury says the people should save more and wall street says that the economic recovery will occur when the consumer spends more. Anybody see any inconsistencies here. The one salient constant here is that the hardworking individual who pays one's bills saves a portion of one's income and generally keeps a positive cash flow is the loser. Now meaningful reform can occur with some simple laws1] No mortgage or loan can be sold in any form more than once 2] Commodity traders must pay at least 50 cents on the dollar on purchases. 3] hedge fund managers must pay at the individual tax rate for income tax 4] No mortgage shall be granted by any lending institution with a down payment of less than 10%. 5] Lines of credit for small businesses will not be greater than 10% of gross sales or for start ups be administered by a special officer of the bank and a pool established by the banks with .1 of 1% of their profits. 6] Credit card limits for any holder will be no more than 10% of an individual's annual income and interest rates will be no higher than 10% annually.7] Rating agencies can not be part of any other company. While these may not do it all , they would go a long way toward decreasing the gambling, exploitation and fraud we've experienced and maybe just maybe get capital to make long term investments borne of the conviction that new products and services will bring adequate returns. All the parties who are now profiting don't have enough skin in the game and until the system allows them to play[gamble] with other people's money with little skin in the game, it ain't goona get any better.

Again ... It Wasn't Fannie and Freddie

I think one of the arguments in this article sounds like the kind of ratioalization that runs rampart in it wasn't me school. Fannie Mae and Freddie Mac were loosing market share so they start taking marginal loans and questionable derivative securities. Maybe they weren't the ones to start the ball rolling they certainly gave it a push. I find it hard to believe that companies that hold trillions of dollars in mortgages and derivatives aren't a large part of the problem. Why was it necessary to keep market share by taking on questionable securities? Might it have something to do with executive compensation and the increased profit these securities generated? These companies recent history of questionable practices including the 400m fine they paid doesn't actually engender the confidence that these company's management were looking out for main street.

Is the U.S. Banking System Safe?

Bravo Janice! This guy has obviously believed the cool aid drinkers who think america[ with a "c" ]is the bad guy. I guess he doesn't know that hundreds of thousands of Cuban-americans would much rather live here than there and that even illegal aliens in this country receive better medical care than the average person living in Cuba. By the way most of those people working multiple jobs in the US can afford to buy a cell phone and have the freedom to use it.

Is the U.S. Banking System Safe?

Muley, I have a different list of obstacles to overcome. Here goes: 1] Greed of the house speculators and many financial managers who pursued the quick get rich schemes that gave birth to the ponsi schemes of derivatives and no money down house specualating.
2] A religious but very unscientific belief in global warming in spite of a decreasing average global temperature over tha last four years.
3] Massive disinformation concerning any comprehensive energy policy.
4] A blatent disregard for the drastic effects on our economy of the impact of importing 12.2m barrels of oil/day@$150/barrel. I believe that a country with a negative cash flow of over $800b/year cannot sustain itself.
5] The almost facetious premise that a country that could go to the moon in 8 years can't drill for new oil in less than ten years and that using what amounts to roughly 60 days worth of our imported oil in the strategic oil reserve will solve the problem.
6] That only non-nuclear, non-fossil fuel sources of new energy will address the most important question concerning our energy problem soon enough to avoid an economic disaster.
7] That before G.W. the world loved us and because of him they don't. Let's recap, in the 90's we considered Pakistan a potential enemy. Libya was developing nuclear weapons, so was N KOREA, France, Russia and China were working against us at every turn and Iran and Syria were causing trouble in the mid-east. Reading Comarade J., A biographical account of a high level russian post cold war spy who defected is an eye-opener. The book is written by a former Washington Post reporter.
8] The misconception that our domestic oil companies can actually be controlled by the actions of the US congress when 75% of their operations are in countries over half of which are contolled by state entities.
9] The constant negative drumbeat of much of our media and sites such as this that the sky is falling, the solutions of which are sell short, buy gold, buy euros, blame it on Bush or dig a hole in the back yard and fill it with a year's worth of survival commodities. All very constructive.
10] Last but not least, the concept that it is Ameica's duty and for sure its obligation, to accept all the folks the rest of the world would like to get rid of, solve the aids epidemic in Africa, stop any genocide that is going on anywhere in the world, come to the aid of any natural disaster anywhere in the world and let any wide-eyed radical philosophic group blow up a govenment building, a skyscraper or one of our embassies whenever they choose and have a discussion about their motives so we can better understand them.

Is the U.S. Banking System Safe?

Too complex for me. I'd like to know when there wasn't a "banking crises" what the cash on hand position relative to non-performing loans was. Isn't it axiomatic that even in good times if the the depositors were to make a run on 2000 banks simultaneously there would not be enough cash for depositors to recover their money. Isn't the real problem that because of derivatives the real amount of non-performing laons wasn't and maybe still isn't known. Beyond that if panic and fear sets in, it will create a run on many banks which will certainly lead to a depression. Let's all yell the sky is falling and race each other to the nearest bank.

Historic Financial Collapse Underway?

Kitkat, you have a very good point on the term limits for Congress. Seems like all that they arei interested in is raising money for the next election. As a test ask your local Congressman how many of the bills he voted for that he actually read. The money raising also brings influence and access as its inevitable by-product. The problem I see in letting many of these institutions fail is that the middle class and to a lesser extent those struggling to get there will be adversely affected to a much larger degree than any of the heads of the financial institutions in question who are most likely very wealthy and adept enough to protect that wealth through the current crisis.

Historic Financial Collapse Underway?

Bullionman, You should come to USA and see for yourself rather than believe all the bashers of the country. Over the last 10 years we've absorbed close to 1.2 million illegal immigrants/yr from latin america. If there are so many homeless on the streets, why do you think so many are risking everything to get in the country? You should look at Denmark, which prides itself on having no homeless on the street, but when Muslim immigrants reached 5% of the population, they closed the border. Illegal immigrants are now estimated to be close to 10% of our population and very few of these folks are homeless. Homelessness has less to do with imposed poverty and more to do with other factors. I, for one, after completing a trip through Northern Europe, am getting tired of hearing about how wonderful places these are, which have such low population density, largely homogenious ethnic population and have been recued by our money and the lives of many of our young twice in the 20th century and still live in the security blanket that this country provides them.

Historic Financial Collapse Underway?

Many of the gloom and doom scenarios come from many of our mass media outlets. CNBC has been sounding the alarm over Freddie Mac and Fannie Mae, day in and day out. More than once has an anchor or a regular staffer talked with convinction about the real potential of these two organizations going belly up or needing a gigantic Gov. bailout. It would seem to me that responsible reporting of the above facts. should be a prerequisite for anyone on this very widely viewed channel. Everyone should know that if there is a run on any banking or mortgage company by depositors/investors that the institution could go under. Why are main media outlets' reporting fueling the kind of speculation that will encourage such runs?

Historic Financial Collapse Underway?

When the sky is falling, let's protect ourselves with an umbrella of gold. If only chicken little knew this, how happy he would be. I'm sitting here wondering whether the mortgage crises or global warming will get all of us first. All of the doomsday prophecies aside, the last comment is right on. Solving the negative cash flow out of the country primarily due to the importation of oil is what we as a people ought to make priority one. Turn on the search for domestic oil recovery and create a Nasa-like organization to produce alternative energy generation like our nation's survival depends on it--because it does. Protecting your lifestyle or your family if the USA falls apart is like taking a bucket of ice into a raging fire to protect yourself against the intense heat. We still can affect the politicians and make it known to them that if they don't stop arguing the either/or position on oil drilling and alternate energy means we will vote for the other guy. The same time it takes all of us to respond to this article could be devoted to writing our Congressman and senators with the above message.