Finally, a highly positioned man within the financial sector – speaking up.
Richard Fisher – President of the Dallas Federal Reserve Bank. *****

http://rt.com/business/news/fisher-fed-banks-crisis-191/

US “megabanks” with large toxic assets accumulated during the crisis should be split into smaller units, according to a senior Fed official. Thus they won’t be able to use the “too big to fail” excuse to get another government bailout.
“We recommend that TBTF (too-big-to-fail) financial institutions be restructured into multiple business entities,” Reuters quotes Richard Fisher, President of the Dallas Federal Reserve Bank.
The Fed official identified 12 “megabanks” with above $250bn in assets that could be classified as “too big to fail”. Among the so-called “behemoth” institutions are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup and Morgan Stanley.

Under the proposal only the commercial banking could rely on federal help, with such units as insurance or brokerage relying on their own resources. Customers of banking businesses other than commercial would need to sign an official disclaimer, proving they understand the risks. Fisher didn’t specify the exact limits for the size of the banks, saying that would be up to market forces.
“They should completely separate investment banking from commercial banking, that’s the only thing that matters. Otherwise commercial banks are run by hedge funds which is crazy,” agreed Robert Allen, professor of Economic History at Oxford University, talking to Business RT.

On a global scale, the biggest central banks have injected above $11tn into the world financial system since the start of the financial crisis in 2007, according to Wall Street Journal (WSJ) calculations. A lion’s share of this money has been aimed to help banking giants remain afloat
While representing just 0.2% of the country’s total 5,600 banks, this dozen “megabanks” account for 69% of all US banking assets.

Spending billions on the rescue of a handful of banks creates “an unfair tax” on ordinary people and prevents monetary policy from working smoothly, Fisher concluded.
Tired by the need to inject massive amounts of money to help huge lenders out of a bankruptcy, monetary authorities across the globe have already started to urge banks towards better self-sufficiency. Stress tests aimed at identifying whether a lender would have enough funds to cope with an unexpected shock now seem to be turning into regular practice. Most recently, the Central Bank of Russia (CBR) said it would release recommendations for the country’s lenders on how to create ‘emergency plans’ in case of another banking crisis. CBR wants Russian banks to make up such plans to be sure they will have enough reserves and planning to tackle a crisis without state aid.

too

wookiemeister said:

too

Duely noted, if we had an edit button I would make the adjustment

I’m going to bed now.

Aquila said:

wookiemeister said:

too

Duely noted, if we had an edit button I would make the adjustment

I’m going to bed now.

you’ll be up all night worrying about that now

actually i’m going to be up all night worrying about this

i hope you’re happy

I thought this was going to be about Bubblecar.

Drowned they say, or did he, I think something’s afoot Watson.

http://www.abc.net.au/news/2013-01-23/australian-tourist-drowns-in-hawaiian-surf-rescue/4480124?WT.svl=news0

I read somewhere that with this idea of breaking up banks into smaller entities the worry was that the banks would form smaller companies, sell them the toxic loans then declare the smaller companies bankrupt, and get themselves out of the shit with no expense or liability.

I don’t pretend to be a finance genius so feel free to say why I’m wrong :)

pommiejohn said:

I read somewhere that with this idea of breaking up banks into smaller entities the worry was that the banks would form smaller companies, sell them the toxic loans then declare the smaller companies bankrupt, and get themselves out of the shit with no expense or liability.

I don’t pretend to be a finance genius so feel free to say why I’m wrong :)

They’d still lose doing that…they bought and sold the same loan to themselves (who would fund the smaller company to buy the toxic loans?).

What they should have done was insist on some control over the boards of these banks, some sort of list of guidelines which the board must agree to before they get the bail-out.

pommiejohn said:

I read somewhere that with this idea of breaking up banks into smaller entities the worry was that the banks would form smaller companies, sell them the toxic loans then declare the smaller companies bankrupt, and get themselves out of the shit with no expense or liability.

I don’t pretend to be a finance genius so feel free to say why I’m wrong :)

I don’t think there would be any concern that this would happen, as it would defeat the purpose of what the bank would be trying to do in the first instance (make profit from newly created products) such as derivatives, or other “products/instruments” created by the investment bank.
Although it might have potential in some specific scenario, beyond my understanding.

This is the main issue addressed by this article, seperating “investment banks” from “commercial banks”.
These massive financial institutions like Goldman Sachs & Bank of America are essentially investment banks, with the commercial banks being run by ‘Hedge Funds’, these are the dudes who packaged “toxic” mortgage backed products and on-sold them to unsuspecting investors and nearly brought down the world financial system in ’07/ ’08.

Unbeknown to most, here in Australia, our big banks have also been tinkering with sub-prime style loans (low doc/no doc) home loans.
Also, NAB & Westpac received ‘emergency funding’ from the US Fed a few years ago, from memory it was via the US Fed’s / Treasury, TARP programme.

Aquila said:

Unbeknown to most, here in Australia, our big banks have also been tinkering with sub-prime style loans (low doc/no doc) home loans.
Also, NAB & Westpac received ‘emergency funding’ from the US Fed a few years ago, from memory it was via the US Fed’s / Treasury, TARP programme.

Low doc and no doc loans are not sub-prime.

The TARP program funded was to fund good banks to keep them operating. Getting funding friom TARP is not a sign of weakness in that institution, it is a sign of strength. Furthermore, these are not bailouts, these are loans which need to be paid back.

No more New Zealand pussy.

http://www.abc.net.au/news/2013-01-23/fur-flies-over-call-to-rid-new-zealand-of-cats/4480946?WT.svl=news2

party_pants said:

Aquila said:

Unbeknown to most, here in Australia, our big banks have also been tinkering with sub-prime style loans (low doc/no doc) home loans.
Also, NAB & Westpac received ‘emergency funding’ from the US Fed a few years ago, from memory it was via the US Fed’s / Treasury, TARP programme.

Low doc and no doc loans are not sub-prime.

Damn straight. In fact they have a higher level of risk so a higher level of interest than other home loans. They are designed for self employed and people who cannot supply the normal home loan requirements of tax returns and wage slips over an extended period.

Bit many on the arse a few years ago. The tax office took an interest in a lot of people who had been claiming bugger all income who could suddenly prove to the banks they could service huge home loans. Dohhhhh.

The main qualification for low doc home loans was that you already have substantial assets which you can mortgage to the bank. The amount the bank is willing to lend is of course much less than the value of the mortgaged property, the bank had a significant buffer.

Sub prime was lending to people with no job and no savings or assets.

http://www.abc.net.au/7.30/content/2012/s3566922.htm

http://www.macrobusiness.com.au/2012/08/australias-sub-prime-mortgage-scandal-grows/

The banks who used the TARP programme would have been insolvent and gone bankrupt….is you think that means they are “financially sound”….we’ll have to part ways

)

Aquila said:

http://www.abc.net.au/7.30/content/2012/s3566922.htm

http://www.macrobusiness.com.au/2012/08/australias-sub-prime-mortgage-scandal-grows/

The banks who used the TARP programme would have been insolvent and gone bankrupt….is you think that means they are “financially sound”….we’ll have to part ways

)

That’s just plain outright fraud. Sub prime loans were obtained legally in the USA without the need to falsify documents – you just told the bank you had no income, assets, job or prospects and they gave you a loan anyway. In Australia the banks couldn’t offer such loans, so some mortgage brokers resorted to fraud. But a small amount of fraud wasn’t enough to compromise the whole system, because most mortgage brokers were honest(ish).

party_pants, I can understand why you wanting to support your original position, but you are arguing the wrong points.

The “specifics” between the US & Australia may be different, but there was fraud, dodgy ethics, and down right lies going on everywhere.
The investment banks in the US, on-sold the toxic sub-prime loans, (repackaged)
The aussie banks were complicate in aiding illegal and unethical practice.

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.
The US keep raising their debt ceiling but it’s just kicking the can down the road, the debt mountains keeps rising.
Even needing the Government to step in and “verbally guarantee” backing says, the financial system in Oz was not sound, if it truely was, the Government wouldn’t need to do a thing.

Read the transcript on the Macrobussiness link.

Aquila said:

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.

Which banks in Oz? Any of the big four? I thought emergency funding was offered but at a certain interest rate and none of the oz banks took it up.

I remember reading that there was about 10 banks, worldwide, with an AA credit rating. Four of those were the Oz big four.

Aquila said:

party_pants, I can understand why you wanting to support your original position, but you are arguing the wrong points.

The “specifics” between the US & Australia may be different, but there was fraud, dodgy ethics, and down right lies going on everywhere.
The investment banks in the US, on-sold the toxic sub-prime loans, (repackaged)
The aussie banks were complicate in aiding illegal and unethical practice.

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.
The US keep raising their debt ceiling but it’s just kicking the can down the road, the debt mountains keeps rising.
Even needing the Government to step in and “verbally guarantee” backing says, the financial system in Oz was not sound, if it truely was, the Government wouldn’t need to do a thing.

Read the transcript on the Macrobussiness link.

I think you misunderstand what the Global Financial Crisis was. The real problem was that banks stopped lending to each other. That was the crisis. The US Fedral government bailout supplied loans.as a lender of last resort when the usual source of loans, other banks, dried up because they all found out they had all this toxic debt on their books. The financial crises and the freezing of cash flows between banks affected the good banks through no fault of their own. The US stepped in to keep the banking system running. Aid from the US to foreign banks was not to prop up badly run foreign banks.

The Australian government guarantee to underwrite the banks was to sure up public confidence on the Australian banks. They knew they could do it because the Australian banking sector was sound. They knew they wouldn’t have to cough up any money to back up their promise.

Skunkworks said:

Aquila said:

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.

Which banks in Oz? Any of the big four? I thought emergency funding was offered but at a certain interest rate and none of the oz banks took it up.

Two of them got billion(s) from the US fed.

NAB & Westpac

poikilotherm said:

Skunkworks said:

Aquila said:

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.

Which banks in Oz? Any of the big four? I thought emergency funding was offered but at a certain interest rate and none of the oz banks took it up.

Two of them got billion(s) from the US fed.

Which two and a reference thanks.

Skunkworks said:

poikilotherm said:

Skunkworks said:

Which banks in Oz? Any of the big four? I thought emergency funding was offered but at a certain interest rate and none of the oz banks took it up.

Two of them got billion(s) from the US fed.

Which two and a reference thanks.

http://www.google.com.au/search?q=NAB+westpac+US+fed&rlz=1C1GGGE_enAU452AU462&oq=NAB+westpac+US+fed&sourceid=chrome&ie=UTF-8

poikilotherm said:

http://www.google.com.au/search?q=NAB+westpac+US+fed&rlz=1C1GGGE_enAU452AU462&oq=NAB+westpac+US+fed&sourceid=chrome&ie=UTF-8

Well there ya go, I didn’t know that. My learning for the day.

I new the NAB was relying on emergency funding GUARENTEES for a little while there..

Credit where credit is due though, the government backing the banks as soon as they did quietened the local market and stopped any impetus for runs, dead.

poikilotherm said:

Skunkworks said:

Aquila said:

Lets not forget, many banks around the world, including Australia, required emergency funding or they would have become insolvent, and it’s still happening, the EU is a mess.

Which banks in Oz? Any of the big four? I thought emergency funding was offered but at a certain interest rate and none of the oz banks took it up.

Two of them got billion(s) from the US fed.

It’s not a sign of weakness*.

It’s a sign that Australian banks were still doing business as usual and needed funds to finance new lending approvals. Not having enough deposits on hand to fund the approvals they have to go and borrow the money from someone who has. The US banking system was the usual supplier of these extra funds. With the US banking system frozen from within they could get no money and would have had to start refusing new loan applications. The funds from the US Federal Reserve were a loan that covered this gap in the market.

*The lack of domestic savings in Australia is still a big weakness for our financial system. Even with compulsory superannuation we still don’t have enough money to fund our growth. We still have to source funds offshore.

party_pants said:

I think you misunderstand what the Global Financial Crisis was. The real problem was that banks stopped lending to each other. That was the crisis. Aid from the US to foreign banks was not to prop up badly run foreign banks.

*BLINK
Um, no. That was a “side affect” of the financial crisis.

party_pants said:

Aid from the US to foreign banks was not to prop up badly run foreign banks.

So, what you’re saying is ALL banks around the world are immune to human error, greed, and poor management?

they allowed the loans to continue so that the war on the middle east could continue

wookiemeister said:

they allowed the loans to continue so that the war on the middle east could continue

yes dear

No.

pommiejohn said:

I read somewhere that with this idea of breaking up banks into smaller entities the worry was that the banks would form smaller companies, sell them the toxic loans then declare the smaller companies bankrupt, and get themselves out of the shit with no expense or liability.

I don’t pretend to be a finance genius so feel free to say why I’m wrong :)

you can out source many types of problems this way

mad cow disease

“All this is fully consistent with the Purdey hypothesis. These manganese-tipped prions could be the principal cause of the neurological degeneration seen in BSE. But manganese is only the bullet — organophosphate insecticide is the high-velocity gun. It fires manganese into the brain by depleting copper which the manganese then replaces. Purdey says the manganese-tipped prions set off lethal chain reactions that neurologically burn through the animal. Phosmet organophosphate has been used at high doses in British warble fly campaigns. Privately, scientists will confirm that prions in the bovine spine — along which this insecticide is applied — can be damaged by ICI’s Phosmet organophosphate insecticide. But few will state it publicly or publish it as scientific finding. In 1996, former ICI subsidiary Zeneca sold the phosmet patent to a PO Box company in Arizona called Gowan — just one week before the UK government admitted to a link between BSE and nvCJD”

Dropbear said:

wookiemeister said:

they allowed the loans to continue so that the war on the middle east could continue

yes dear

its not my fault that they fund wars with loans – they’ve been doing it for donkeys years

i notice all the luminaries didn’t predict the GFC

i made a muted comment in february of 2008 of the sssf pointing out that nothing about everythign made any sense and it pointed towards a “correction”

people didn’t like it then

they don’t like it now

you choose to believe what you want to believe

http://www.cdms.net/LDat/mp1AC003.pdf

wookiemeister said:

i notice all the luminaries didn’t predict the GFC

Luminaries where? There was certainly commentary in the couple of years before the GFC questioning the logic of sub-prime backed securities. The Economist magazine being a famous example.

Witty Rejoinder said:

wookiemeister said:

i notice all the luminaries didn’t predict the GFC

Luminaries where? There was certainly commentary in the couple of years before the GFC questioning the logic of sub-prime backed securities. The Economist magazine being a famous example.

right right

so assuming that anyone in the entire banking business might have read this – how come so many banks fell on the wayside?

no – its not by coincidence that america was fighting a war and also making sure that easy loans could be found

Cost of war at least $3.7 trillion and counting
http://www.reuters.com/article/2011/06/29/us-usa-war-idUSTRE75S25320110629

do you want the red pill or the blue pill neo?

if you notice the french have gone the other way

they are taxing the rich at the same time as putting their armee into mali

someone has to pay for the war

one way or the other