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Markets Today
Today's share price percentage change as of now:
| Citigroup Inc. |
-25.10 |
Bank
of America Corporation |
-17.05 |
Allied
Irish Banks, plc. (ADR) |
-10.37 |
Royal Bank of Scotland Group
plc (ADR) |
-9.32 |
| U.S. Bancorp |
-7.81 |
ICICI
Bank Limited (ADR) |
-7.79 |
Bancolombia
S.A. (ADR) |
-6.46 |
BBVA
Banco Frances S.A. (ADR) |
-6.28 |
The
Bank of Nova Scotia (USA) |
-6.18 |
Deutsche
Bank AG (USA) |
-5.72 |
Finally people start to recognize that these banks, and others, are zombies.
A solution I can agree with:
- The memo goes out in the AM to every bank in America: No more lies. If you lie, even once, your bank gets seized and you will be criminally charged personally. Period.
I am particularly interested in Mr. Lewis' claims on national
television (CNBC) that Bank America had a "great" January. That sounds
an awful lot like Dick Fuld who said he was going to "burn the shorts"
and was "well-capitalized". Oh by the way, I'd refer Mr. Fuld's
statements over to Justice immediately, along with everyone else who
said something similar (Bear Stearns anyone?)
-
I would then amend OTS and OCC rules: All bank examinations are public data. All examinations must either have every asset marked to the market or the full model and data inputs must be disclosed, without exception.
-
Next, I would take the stage and give every bank in America
72 hours to disclose their current Tier Capital numbers under those
rules. They have 'em in the possession of their Risk Manager. Let's
have it. In public. You publish it, we print it. Everyone who is
under-capitalized and has been hiding it – your shares are suspended.
We'll get to you.
-
For those who are under-capitalized: If you have sufficient
capital in your debt to be crammed down, that's what happens. Your
common equity is gone. Preferred is crammed down, if that's
insufficient it is gone. Next we do subordinateds, and repeat until
sufficient capital is restored. End of discussion.
-
For those who cannot be crammed down we seize you. Your deposits
and good assets are auctioned off to sound institutions, spread among
the physical locations of those assets and deposits so no
concentration of more than 5% in one bank occurs. The rest of the
assets go the FDIC and are run down or auctioned off as they deem
appropriate.
-
Any bank with more than 5% of the deposit base has 12 months to reduce it to under 5%. This affects fewer than 20 institutions.
-
No bank may transact in any instrument that is (1) not a whole
loan or (2) is not traded on an exchange. Period. Any such "assets"
currently held must be disposed of within six months. No exceptions.
I recognize that this makes banks a "utility" – entities that take
deposits and make loans. So what? Its a good and profitable business,
has been for hundreds of years, and forces proper underwriting since
you must retain the risk.
-
Any bank that finds (7) onerous (and most will) is free to split
itself into two firms, one a bank and the second a non-bank affiliate
held by the parent. The affiliate may not utilize depositor capital or
otherwise be cross-contaminated with bank assets and support, but is of
course free to raise money via debt offerings in the marketplace such
as it is. Said non-bank firm may trade in whatever it would like,
however, it will not receive any government support of any kind.
Cross-contamination of any sort between a regulated bank and a non-bank
sub will be treated and prosecuted as bank fraud. Any existing
"affiliate" bank credit lines must be extinguished within 90 days and
"23A letters" are explicitly disallowed.
-
Reserve ratios are set at 8% with no exceptions.
-
Bernanke will do as the above directs without complaint or I will
exercise my lawful and Constitutional authority to issue United States
Notes, bypassing The Fed entirely. Ben and The Fed work under my
direction, not the other way around. End of discussion.
-
Any bank that does not want TARP money may repay it immediately.
If you keep it, no employee may receive total compensation exceeding
that of the President of The United States, without exception and in
all forms, including stock, options as valued under Black-Scholes,
deferred compensation, benefits and cash. Period. You are working for us, therefore we set your salaries.
Sounds like what I proposed six month ago and what Helmut Schmidt prescribed with his Six steps to curb speculation. The big point Karl Denninger misses is that this has to be done in concerted international action, not just as a U.S. solution.
Here’s my view of the subject;
I first began questioning economic orthodoxy by trying to figure out how Paul Volcker cured inflation by raising interest rates. Yes, inflation is caused by loose money, but higher rates hurt demand, ie, the borrower, while rewarding supply, ie, the lender. How do you cure an oversupply by reducing demand through higher cost and rewarding supply? You don’t. What cured inflation was Reagan’s deficit spending. Not only was it direct demand for capital, but the public spending had a multiplier effect in the private economy. Meanwhile those loaning the money have its value supported and get paid interest. Interesting how a surplus of currency gets blamed on those lacking wealth, while those with a surplus of capital get rewarded. So I’m concerned that Volcker is now President Obama’s financial guru.
One of my arguments over the years has been that money has become a tax based public utility and our current financial system is a transition state between private banks issuing private currency, to now a publicly supported currency leased out to a private banking system and the next step will be a public banking system that will be incorporated at all levels of government, so that profits are re-cycled back through the communities which created them and depositors would naturally bank with those institutions that support the services they are most likely to use. Competition would be a function of the various communities trying to provide the best environment for people and business.
That is why it is interesting to watch the banking system being rapidly nationalized. Rather than spending untold wealth to restore it to health and return it to the private sector, it needs to be broken up and distributed to the various levels of government, from counties and towns, to cities and states, with some degree of federal oversight of the banks and control of the currency. Though even the function of currency might be dispersed as well, with state and regional currencies supplementing a broad national currency.
The problem with supply side economics is that money is saved by investing it. This means loaning it to someone else. Therefore total savings are determined by how much can be prudently loaned, not by how much can be reserved from earnings. In order to accommodate surplus savings, loan standards were lowered and fantasy investment vehicles were created, resulting in a bubble of excess circulation far greater than a few trillion can patch up. The borrower is the foundation of capitalism and when the borrower is tapped out, it’s like planting seed in barren soil.
That is why it is necessary to understand money as the public commons/wealth that it is, not the private property we have been led to believe. As an analogy, you own your house, car, business, etc. but not the roads connecting them. Money is similar to the roads. It’s the interchangeability that makes it work. It is both medium of exchange and store of value, but as store of value it amounts to fat cells in the economy. Necessary in moderation and broadly dispersed, but dangerous in excess and concentration. If those administering transportation systems insisted on squeezing as much profit from the rest of the economy as possible and that they were the only ones capable of making it work, it would be viewed as corruption, pure and simple. In fact, that’s what the railroads did and it was.
Viewing money as a public utility would incline us to store wealth in our communities and environment, rather than drain value out to put in a bank. Like democracy, it’s about strengthening the bottom up growth process, while defining the top down control mechanism to its most efficient functions.
Growth is bottom up, not top down. The problem with treating the economy like a game of Monopoly is that when one person owns everything, the game is over and then starts again. In real life, this stage is called revolution. The economy must function as a convective cycle of rising assets and precipitating benefits, otherwise we have the current situation of large storm clouds of marginally productive wealth hanging over a parched economy.
This isn’t an ideology, just an observation of how to differentiate between public and private functions. There are potential problems with any model, but this seems to me to be what the next step up the evolutionary ladder entails.
Posted by: John Merryman | Feb 20 2009 23:04 utc | 14
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