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Tuesday, December 28, 2010

FINANCIAL BITS

I hate banks, I just can't stand 'em
Gimme a shovel and man, I'll plant 'em
-Mojo Nixon and Skid Roper, "I Hate Banks"

Big Pig
A few related banking and finance news items showed up recently and I wanted to just post them to give a feel for what's going on out there.

First is a really short bit from the Financial Times:
Some of the world’s strongest banks have profited from an emergency credit facility set up by the US Federal Reserve to shore up confidence in the global financial system, according to a Financial Times analysis of data released by the Fed.

More than half of lending under the Fed’s term auction facility – the largest of its crisis programmes – went to foreign banks. Details of the varied uses to which they put it may add to political criticism of the Fed.
Why? Because a lot of financial institutions are multinational and because if a really big, important foreign-owned bank collapses, it hurts the US too. The problem is that means US taxpayers are being compelled to - without being asked or told - support non US companies, when we're not all that happy with supporting US companies to begin with.

Meanwhile, we find that a lot of the banks which were bailed out to begin with are teeetering on the edge of collapse anyway. Katya Wetchel writes at Business Insider:
98 American banks that received $4.2 billion in bailout money are teetering on the edge of collapse, according to the Wall Street Journal.

In Q2 the number of unsound banks numbered 86; the increase to almost 100 institutions - most of which are smallish banks with about $439 million in assets - comes as a result of decreasing capital and more bad loans.

Mots of these are smaller banks who played around in the toxic loan market, lending money to people who plainly were unable to repay it, then trading those loans around as investments to other banks. They were some of the ones caught standing when the music ended in 2007. And, given that they were so stupidly run to begin with, is it any surprise they're still having problems today?

According to Eugene Robinson (courtesy Washington Post) the US Federal Reserve leaned on big, healthy financial institutions to take bailout funds even though they didn't need it. Why?

Hank Paulson and, later, Tim Geithner both leaned on relatively healthy financial institutions to participate in the bailout plan. This was to avoid stigmatizing the less-healthy institutions who desperately needed the money. The theory was that if you identified a bank as especially troubled, investors and depositors would flee and you'd inevitably end up with a failed bank. This "everybody in the boat" approach has kept depositors from getting nervous, but it makes investors suspicious of the whole passenger list. So instead of a few big banks sinking catastrophically, we've seen the whole boat taking on water.
So taxpayers were also on the hook to send money to banks that didn't even need it. The Obama administration and other Democrats have been big on demonizing the financial institutions for this big failure and economic collapse. And let's be honest, they deserve some of the blame. Yet in all this tongue lashing and criticism, behind the scenes things really aren't being done to change anything. The Community Reinvestment Act that triggered this all by legalizing loans to people who can't pay them back is still in place. The pressures to make those loans are still there. And as Business Weekly reports, Wall Street got pretty much everything it wanted from the recent financial bill touted as a punishment to fat cats on Wall Street:
The U.S. government, promising to make the system safer, buckled under many of the financial industry’s protests. Lawmakers spurned changes that would wall off deposit-taking banks from riskier trading. They declined to limit the size of lenders or ban any form of derivatives. Higher capital and liquidity requirements agreed to by regulators worldwide have been delayed for years to aid economic recovery.

“We continue to listen to the same people whose errors in judgment were central to the problem,” said John Reed, 71, a former co-chief executive officer of Citigroup Inc., who estimated only 25 percent of needed changes have been enacted. “I’m astounded because we basically dropped the world’s biggest economy because of an error in bank management.”

Basically the same bozos who got us into this mess are still in power, still in management, and still doing the same stuff, protected by the same government officials who did it before.
Ultimately we have to all realize that whatever economic recovery we might hear about or think is happening is a lot less sable and more troubled than it seems. I think a lot of employers and businessmen sense this and are waiting for the next shoe to drop off what seems at time to be a centipede.

1 Comments:

Blogger Philip said...

Back when it was taking flack for sponsoring a golf tournament, Northern Trust's CEO mentioned the strong-arming by the Federal Reserve to take TARP money.

Northern Trust also tried to repay the TARP loan, only to find that there was no one who knew how, or no mechanism set up, to take TARP repayments.

3:53 PM, December 28, 2010  

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