Banks and the Rich

 

Putting the bank bailout in context

https://robertreich.substack.com/p/the-undeserving-rich?utm_source=post-email-title&publication_id=365422&post_id=108471930&isFreemail=true&utm_medium=email

The undeserving rich Putting the bank bailout in context robertreich.substack.com

Bankers and Finance Seek a Bail Out

While Austerity is urged for you and I. ( see prior post on Social Security)s.

The Well Off seek a bank bail out for themselves.

Dayen on TAP

The Fed-Induced Bank Wobble

Silicon Valley Bank’s collapse is a function of the Fed rate spike, and will surely trigger calls for its well-heeled tech and venture capital clients to get a bailout.

On Thursday, officials at Silicon Valley Bank, the nation’s 16th-largest, were urging clients to "stay calm" after a run of depositor withdrawals amid loud calls from venture capital firms (including Peter Thiel’s Founders Fund) for companies to move their money. On Friday, the bank collapsed, taken into receivership by the Federal Deposit Insurance Corporation. It was the first FDIC-led bank failure in the U.S. since late 2020, but a significant one, with approximately $175 billion in customer deposits, making it the second-largest bank collapse in U.S. history, rivaled only by Washington Mutual in 2008. The vast majority of them are business accounts, mostly from tech and bioscience startups, as well as personal accounts for founders and executives of those companies. While the typical bank has something between 40 and 60 percent of assets above the $250,000 limit for FDIC insurance, at SVB it was an incredible 93 percent, meaning that over $150 billion is not government-guaranteed. SVB was mostly invested in long-term government bonds, which are normally pretty safe. (They also had a large batch of those mortgage-backed securities, which you might remember from 2008.) The bank really succumbed to the wild swings in the tech industry, which soared in the immediate aftermath of the pandemic but has plummeted recently, as rising Federal Reserve interest rates put cheap money out of reach. SVB grew massively in 2020 and 2021, but with tech startups suffering, its customers pulled their money, and because of the interest rate spike, those government bonds were worth less. When SVB conducted a fire sale of some of those assets to cover the depositor losses, it came up $2 billion short. In total, the bank was underwater by around $15 billion, according to the Financial Times. The bank run from the startup world forced the realization of some of those losses. There are a couple of important lessons here. First and foremost, the Fed’s rapid pivot on interest rates couldn’t help but spill over into the broader economy. As Dennis Kelleher of Better Markets, who sees this as just the beginning, explained, banks had no time to adjust to the rate changes, which caused mismatches between the expected and real value of their assets. Indeed, stock in First Republic Bank, a regional lender in California and elsewhere, plunged 50 percent in Friday trading. "The Fed’s actions to fight increasing inflation will need to be materially adjusted, which it should be anyway because inflation is driven by many factors that are beyond the Fed’s control," Kelleher said. "Causing financial instability and a recession (of any depth and length) while missing the mark on inflation should cause a fundamental rethinking of the Fed’s powers, authorities, and role." Second, because the depositors holding the bag at SVB are Very Important People, there’s going to be intense pressure for a bailout. Hedge fund titan Bill Ackman is already calling for one. Larry Summers told Bloomberg that the financial system should be fine, as long as depositors get every penny of their money back, which would be a $150 billion bailout. The character of the depositors as "job creators" will be used to push this narrative, as Atrios points out. We just had a crisis where government stepped in to protect regular people; the job market roared back to life. The employment-population ratio for prime-age workers passed the pre-pandemic peak in today’s jobs report in just three years. In the 2008 crisis, predicated on bailing out banks and the rich, it took 12 years to hit that milestone. Let that be a warning as we brace for the fallout.

~ DAVID DAYEN Follow David Dayen on Twitter

 

Public Banks As a Part of the Solution

Socialism at Its Finest after Fed’s Bazooka Fails

Posted on March 21, 2020 by Ellen Brown

In what is being called the worst financial crisis since 1929, the US stock market has lost a third of its value in the space of a month, wiping out all of its gains of the last three years. When the Federal Reserve tried to ride to the rescue, it only succeeded in making matters worse. The government then pulled out all the stops. To our staunchly capitalist leaders, socialism is suddenly looking good.  

The financial crisis began in late February, when the World Health Organization announced that it was time to prepare for a global pandemic. The Russia-Saudi oil price war added fuel to the flames, causing all three Wall Street indices to fall more than 7 percent on March 9. It was called Black Monday, the worst drop since the Great Recession in 2008; but it would get worse. 

On March 12, the Fed announced new capital injections totaling an unprecedented $1.5 trillion in the repo market, where banks now borrow to stay afloat. The market responded by driving stocks 8% lower.

On Sunday, March 15, the Fed emptied its bazooka by lowering the fed funds rate nearly to zero and announcing that it would be purchasing $700 billion in assets, including federal securities of all maturities, restarting its quantitative easing program. It also eliminated bank reserve requirements and slashed Interest on Excess Reserves (the interest it pays to banks for parking their cash at the Fed) to 0.10%. The result was to cause the stock market to open on Monday nearly 10% lower. Rather than projecting confidence, the Fed’s measures were generating panic.

As financial analyst George Gammon observes, the Fed’s massive $1.5 trillion in expanded repo operations had few takers. Why? He says the shortage in the repo market was not in “liquidity” (money available to lend) but in “pristine collateral” (the securities that must be put up for the loans). Pristine collateral consists mainly of short-term Treasury bills. The Fed can inject as much liquidity as it likes, but it cannot create T-bills, something only the Treasury can do. That means the government (which is already $23 trillion in debt) must add yet more debt to its balance sheet in order to rescue the repo market that now funds the banks.

The Fed’s tools alone are obviously incapable of stemming the bloodletting from the forced shutdown of businesses across the country. Fed chair Jerome Powell admitted as much at his March 15 press conference, stating, “[W]e don’t have the tools to reach individuals and particularly small businesses and other businesses and people who may be out of work …. We do think fiscal response is critical.” “Fiscal policy” means the administration and Congress must step up to the plate.

Here Comes Deregulation - Again !

Condemned to Repeat the History of Bank Failures?

The 2008 crisis showed what happens when financial regulation is weakened while the economy is strong. The Trump administration is doing it again.

NY times.

https://www.nytimes.com/2019/03/20/opinion/trump-bank-regulation.html

Sanders: Banks Remain Too Big To Fail

Sanders:  Banks still too big to fail.

https://www.rollingstone.com/politics/politics-features/taibbi-bernie-sanders-banks-732633/

Republican Congress Seeks to Roll Back Dodd-Frank

Congress just approved a bill to dismantle parts of the Dodd-Frank banking rule. NBC: “The House voted late on Tuesday to pass a bill that will change significant aspects of Dodd-Frank, the banking reform bill introduced after loose lending and risky maneuvers by financial institutions led to the country’s worst recession since the Great Depression. Since it passed in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act has been the target of animosity by many conservatives and the banking industry. Given President Donald Trump’s animosity toward Dodd-Frank, it seems likely the bill will become law, having already passed in the Senate in March. Those in favor say changes will enable smaller banks to lend and compete more easily. Others call the move a giveaway. ‘These banks are back to making record profits, but Washington insists on doing them more favors, even if it means raising the risk of another bailout,’ Sen. Elizabeth Warren, D-Mass., told NBC News.”

Donald Trump and the Next Crash Making the Fed an Instrument for Disaster | Portside

Donald Trump and the Next Crash Making the Fed an Instrument for Disaster | Portside
Nomi Prins

Republicans Reward Bankers- endanger you and I

Courting the Next Financial Collapse. You’d almost think the Republicans want the banks to melt down again. Bit by bit, they’ve been gutting the Dodd-Frank Act. The Consumer Financial Protection Bureau has been put on ice, placed in the hands of one of its sworn enemies, OMB Director Mick Mulvaney.

Giving banks free rein to screw consumers is one thing. Letting banks play roulette with the entire economy is something else. But the latest bad idea from the Comptroller of the Currency, the agency that regulates national banks, and the Federal Reserve, goes at the heart of the abuses that Dodd-Frank sought to remedy.

At the core of the financial crisis of 2008 was the tendency of banks to make increasingly risky bets, where the potential loss far exceeded their own capital. If all the bets went bad, all the banks would be insolvent. That’s what happened in the fall of 2008, and it took a massive government bailout to keep the banking collapse from taking down the rest of the economy.

Now the Fed and the Comptroller want to allow banks to have larger multiples of debt to capital. One of the core reforms of Dodd-Frank was to limit excess bank leverage. It’s not as if these strictures are draconian—banks today need to keep only six cents capital for every 94 cents they lend out. 

But the bankers have lobbied the administration for even more generous rules, and the administration seems inclined to do their bidding. Like the tax cut, these policy changes have nothing to do with making the economy more efficient. They are entirely about rewarding the already rich, and increasing risks for the rest of us.

This proposal is so perverse that two Republican regulatory officials, one former head of the FDIC and the current vice chairman wrote an op-ed piece that The Wall Street Journal published warning against it.

Tom Hoenig and Sheila Bair wrote: "These proposals would weaken system resiliency either to benefit shareholder distributions or to allow the eight largest banks to become even bigger by taking on more leverage and more risk."

You get the sense that the Trump crowd knows their days are numbered—and want to deliver everything that’s not nailed down to their corporate allies before they are tossed out. ~ ROBERT KUTTNER

Elizabeth Warren on Banks, Republicans, & Democrats

In 2008, Wall Street’s reckless greed crashed our economy.

While millions of hard-working people lost their jobs, their homes, and their life savings, the big banks got a $700 billion no-strings-attached bailout from the American taxpayers. A bailout and nobody went to jail for causing the worst financial crisis since the Great Depression.

After the crash, Congress passed legislation called Dodd-Frank, which put new rules in place for the biggest financial institutions to stop another crisis and taxpayer bailout.

But now, less than a decade later, Senate Republicans – and some Senate Democrats – are getting ready to gut a lot of those rules for some of the country’s biggest banks. The bank lobbyists have been hitting Capitol Hill hard, and they have a Dodd-Frank rollback bill lined up with the support of every Republican and twelve Democrats.

We need to make some noise about this big wet kiss to the big banks by reminding Senators as loudly as possible: they work for the American people, not for big bank lobbyists. Sign our urgent petition right now to tell the Senate not to weaken the rules on big banks.

Dodd-Frank said that every bank with more than $50 billion in assets – that’s roughly the 40 biggest banks, or the top 0.5% of all banks by size – would have tougher rules than smaller banks. That means mandatory stress tests to analyze how they would react to another financial crisis and plans for how they would break apart, sell off assets, and liquidate in bankruptcy if they started to fail.

There’s a reason for this common-sense oversight of big banks: They are so big that they could potentially bring down the whole economy again if they failed and taxpayers didn’t bail them out again.

The bill that could be up in the Senate in the next few weeks would let almost 30 of the 40 biggest banks in the country could go back to looser rules like the ones that let them run wild before the 2008 crisis.

What could possibly go wrong?!?

The big bank lobbyists want you to believe that this bill is protecting poor little mom and pop banks from getting buried under red tape. But this bill is aimed at helping the big guys. These 30 banks got nearly $50 billion in taxpayer bailouts during the 2008 crisis.

And remember Countrywide? It was at the heart of the financial crisis. At its peak, Countrywide was financing one out of every five mortgages in the country. It was a major player in blowing up the economy. You know how big Countrywide was when it was leading the toxic mortgages that blew up our economy? About $200 billion – smaller than some of the banks that would be turned loose by this bill.

Let’s be clear: Banks of all sizes are making record profits right now. And if that wasn’t enough, the Republican tax bill just gave away billions to the big banks. They are swimming in money. There is no reason at all to roll back the rules on these big banks so they can pad their pockets even more – and cut them loose to take on wild risks again.

The American people – Democrats, Republicans, and Independents – want tougher rules on big banks, not weaker ones. It’s time to hold Republican AND Democratic Senators who support this bill accountable for siding with their big bank donors instead of working families.

I get it: Wall Street has money and power. But there are a lot more of us than there are of them. The only way to slow down this Bank Lobbyist Act is if we speak out and fight back. Sign our petition to protect Dodd-Frank and make your voice heard – and ask your friends to sign as well.

The big banks will do anything they can to pass this dangerous bill into law. We need you out there giving everything you’ve got.

Thanks for being a part of this,

Elizabeth 

The Soup Kitchen of Athens

The continuing crisis of Austerity imposed upon Greece.

http://www.nytimes.com/2016/06/01/opinion/yanis-varoufakis-greece-still-paying-for-europes-spite.html?_r=0

Yannis Varoufakis,

Republicans seek to stop CFPB- Elizabeth Warren

Elizabeth Warren

You'll never guess who's going around Washington, trolling the halls of Congress, talking about the importance of protecting the long-term health of the Consumer Financial Protection Bureau.

The banking industry.

That's right: After years of trying to kill, then delay, and then defang the agency, the banking industry and their Republican friends in Congress have launched a new effort to attract Democratic support for their latest attack by claiming that they just want to help the agency and the consumers it protects. Surely Democrats will not be taken in by yet another attempt to weaken the CFPB. 

The latest industry-sponsored bill would fundamentally change the structure of the CFPB by replacing the agency's single, independent director with a commission of political appointees. 

The banks can't point to any difficulties with the agency's operations. In fact, the CFPB has been operating for only four years, but the success of the single-director structure is already apparent. Under the leadership of Director Richard Cordray, the CFPB already has:

• returned more than $11 billion to over 25 million consumers who were cheatedon their credit cards, checking accounts or other financial products; 
• built a complaint hotline that has exceeded all expectations, handling more than 700,000 complaints and building an information database that is beginning to level the playing field for consumers; and 

Hillary Clinton's Take on Banks Does Not Stand Up.

Matt Tiabbi.

….The other drama was serious and highly charged argument between two extremes on the political campaigning spectrum, pitting the unapologetic idealist Bernie Sanders against the master strategist Hillary Clinton. (Martin O'Malley seemed like an irrelevant spectator to both narratives.)

One of the most revealing exchanges in the Clinton-Sanders tilt involved the question of Wall Street corruption. Sanders has always been a passionate crusader against Wall Street perfidy, but Hillary's take on the subject was fascinating.

Asked about it Tuesday night, she gave an answer that to me sums up her candidacy and the conundrum of the modern Democratic Party in general. She seemed to hit a lot of correct notes, while at the same time over-thinking and over-nuancing a question where a few simple unequivocal answers would probably have won everyone over.

The key exchange began with a question from CNN's Anderson Cooper:

"Just for viewers at home who may not be reading up on this, Glass-Steagall is the Depression-era banking law repealed in 1999 that prevented commercial banks from engaging in investment banking and insurance activities. Secretary Clinton, he raises a fundamental difference on this stage. Sen. Sanders wants to break up the big Wall Street banks. You don't. You say charge the banks more, continue to monitor them. Why is your plan better?"

Krugman : China and Friday's Stock Plunge

And, perhaps Monday's.


What caused Friday’s stock plunge? What does it mean for the future? Nobody knows, and not much.

Attempts to explain daily stock movements are usually foolish: a real-time survey of the 1987 stock crash found no evidence for any of the rationalizations economists and journalists offered after the fact, finding instead that people were selling because, you guessed it, prices were falling. And the stock market is a terrible guide to the economic future: Paul Samuelson once quipped that the market had predicted nine of the last five recessions, and nothing has changed on that front.


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Still, investors are clearly jittery — with good reason. U.S. economic news has been good though not great lately, but the world as a whole still seems remarkably accident-prone. For seven years and counting we’ve lived in a global economy that lurches from crisis to crisis: Every time one part of the world finally seems to get back on its feet, another part stumbles. And America can’t insulate itself completely from these global woes.

But why does the world economy keep stumbling?

On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength.

But these aren’t just a series of unrelated accidents. Instead, what we’re seeing is what happens when too much money is chasing too few investment opportunities.

Obama Admin helps Banks Found Guilty of Felonies

osted: 08/11/2015 04:24 PM EDT | Edited: 2 hours ago

With the blessing of the White House and the Justice Department, the Department of Housing and Urban Development is attempting to sneak through a major policy change that would enable big banks convicted of felonies to continue lending through a federal mortgage program, according to federal records and government officials.

The housing agency wants to quietly delete a requirement for lenders to certify they haven’t been convicted of violating federal antitrust laws or committing other serious crimes. HUD proposed the move on May 15, without detailing the reasoning behind the change. It’s now considering public comment, with an eye towards finalizing the proposal.

Five years after lawmakers and the Obama administration said the Dodd-Frank financial reform law would end the problems caused by banks perceived to be “too big to fail,” HUD's move could represent yet another capitulation from federal officials who want to appear to be tough on Wall Street’s crimes, but don’t want big banks to suffer the consequences typically associated with felony convictions.

New Glass-Steagal Act

Seven years ago, Wall Street’s high-risk bets brought our economy to its knees.

We’ve made progress since then. The Dodd-Frank Act was the strongest financial reform law in three generations, and it gave regulators a number of common-sense tools to prevent future crises.

But let’s get real: Dodd-Frank did not end the “too big to fail” problem – the problem posed by financial institutions that are so large that their failure would threaten the whole economy. Last summer, both the Fed and FDIC reported publicly that eleven of the big banks were still so risky that if any one of them started to fail, they would need a government bailout or they would risk taking down the American economy – again.

That’s not a statistic that should make anyone sleep well tonight.

That’s why I’ve partnered with Senators John McCain, Maria Cantwell, and Angus King to reintroduce the 21st Century Glass-Steagall Act, a bill to reduce taxpayers’ risk in the financial system and decrease the likelihood of future financial crises. Sign up now to show your support.

Four years after the 1929 Wall Street crash, Congress passed the original Glass-Steagall Act to build a wall between boring, commercial banking – savings and checking accounts – and riskier investment banking.

The Secret Goldman Sachs tapes

http://www.bloombergview.com/articles/2014-09-26/the-secret-goldman-sachs-tapes

Portside Date: 

September 26, 2014

Author: 

Michael Lewis

Date of Source: 

Friday, September 26, 2014

Bloomberg View

Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations.
Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.
That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life [1]" will air a jaw-dropping story [2] about Wall Street regulation, and the public will have no trouble at all understanding it.
The reporter, Jake Bernstein [3], has obtained 46 hours of tape recordings [4], made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.
First, a bit of background -- which you might get equally well from today's broadcast as well as from this article [5] by ProPublica. After the 2008 financial crisis, the New York Fed, now the chief U.S. bank regulator, commissioned a study of itself. This study, which the Fed also intended to keep to itself, set out to understand why the Fed hadn't spotted the insane and destructive behavior inside the big banks, and stopped it before it got out of control. The "discussion draft" of the Fed's internal study, led by a Columbia Business School professor and former banker named David Beim, was sent to the Fed on Aug. 18, 2009.
It's an extraordinary document. There is not space here to do it justice, but the gist is this: The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems.

The People vs.Federal Bank Settlements

The People vs. Federal Bank Settlements and Liquidity Rules

By Nomi Prins

Last week, in an interview with Bloomberg News, former Countrywide CEO, Angelo Mozilo gave the nation the middle finger. He expressed zero remorse or culpability for his very personal (and personally lucrative) role in the subprime crisis that catalyzed a global economic recession. Apparently baffled by a potential lawsuit that could be levied by the Los Angeles US Attorney’s Office, he said, ““Countrywide didn’t change. I didn’t change. The world changed.” After blaming the world, he ended his segment by stating, “We didn’t do anything wrong.”

To him, the culprit was the real estate collapse itself.  The same excuse was used by Big Six bank CEOs before multiple Congressional hearings and business news hosts. “OMG, how could we have known prices could GO DOWN?” By placing the blame on the ‘market’, they spun their actions as reactive or ancillary to its apparently random whims, as opposed to proactive on practices leading to crisis events.

The more temporal distance from those events and airtime given to the bankers that inflated the market before crashing it, and Treasury Secretaries that did ‘what they had to do’ in an emergency, the more the Mozillian narrative is cemented in the main annals of history and the plight of the public is rendered a footnote.  Yet, it was not just the loans themselves, but more so, the immense and profitable re-packaging and global re-distribution of those loans in a pyramid of toxic assets wrapped with credit derivatives that blew up in the face of the nation and the world, The economic implosion that followed ignited by the weight of such epic fraud and CEO directed salesmanship, impacted initial borrowers with conditions beyond their control, on top of initial fraud and voracious pushing of those loans to begin with. Thus, banks concocted $14 trillion worth of assets using $1.5 trillion of high-interest loans, compounding and adding to each bit of fraud, instability and risk along the way.

Forbes ranked Mozillo one of the top ten highest paid CEOs in 2006. By 2009, the SEC charged him with fraud for lying about the quality of the loans he sold to Bank of America and insider trading for pocketing $140 million from selling his stock when he knew those loans, and his company, were crumbling. He wound up paying a $22.5 million fine to settle the charge of misleading investors and $45 million for the insider trading charge – leaving him a cool $72.5 million.