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Archive for the ‘Market Meltdown’ Category

Barney Frank Proposes New Bank Resolution Authority

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After years of Fed policies which allowed mergers of massive banks to form the very mega-banks which have now failed, Barney Frank, after his years of rebuking repeated efforts by Republicans to reform the system, is only now rising up to look the hero.

On October 27, 2009, House Financial Services Chairman Barney Frank (D-Mass.) released the latest version of the most complex piece of the financial reform puzzle: solving the “too big to fail” problem by giving the federal government more powers to wind down major financial firms.

barney-frank-pointing

Barney Frank blamed others for the mortgage industry meltdown while literally in bed with Fannie Mae.

Frank’s bill seeks to avoid the kinds of massive taxpayer bailouts that characterized last year’s financial crisis by empowering the federal government to wind down any financial firm, no matter how large, complex or interconnected.

“We’re going to have death panels. But they’re going to have death panels that are going to put to death these institutions before they can cause us problems, not old people,” — Frank said in a CNN interview Tuesday.

Back in 2003, House Ways and Means Committee Chairman Frank led the government charge that helped create the GSE meltdown (time line here). He made this now infamous quote about new terms to lower lending standards of Fannie Mae and Freddie Mac

I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.

Under Frank’s new (I’ve found God) vision, shareholders and unsecured creditors would have to pay for the failure, not taxpayers, according to a summary of the bill. The legislation would require resolution costs to come first from the failed firm’s assets “at the expense of shareholders and creditors,” with any additional cost to be paid from an after-the-fact assessment on the remaining large financial firms.

But as we all know, except for perhaps Frank, the costs of these penalties will ultimately be passed on to the consumer in the form of bank processing and administration fees.

Frank’s proposal reeks of a “let the bank fail and allow the market to absorb the consequences” tactic which the Feds dismissed earlier in the crisis, preferring to instead follow their “too big to fail” philosophies.

The bill’s proposal for an oversight council to act as the so-called “systemic risk regulator” to keep an eye on the overall health of the financial industry also sounds suspiciously like Bush’s proposals first advanced in 2001. The council would be directed to identify risky firms and financial activities, and have the power to slap tougher rules and standards on those firms.

Frank said Tuesday morning on CNN that the systemic risk council would also have the power to break up a company “if its too big.”

Frank’s use of the term “systemic risk” mirrors comments made in April 2005 when Secretary of the Treasury John Snow repeatedly called for GSE reform, saying

“Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America … Half-measures will only exacerbate the risks to our financial system.”

Then house Minority Leader Harry Reid rejected the legislation saying ” we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process.”

Frank’s proposed Council and Fed Board would be banned from publicly releasing a list of “systemically significant” institutions – a major concern in the industry which fears that those singled out would be penalized by the market.

If these institutions were to be publicly singled out, it might have positive results on the market as banks would have a built-in incentive to engage in policies which minimize risk to themselves.

Written by Ben

November 3, 2009 at 12:12 pm

Fiat, Devaluation and Hyper-Inflation

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Fiat money

Most nations have fiat money today, not backed by any physical asset. Its worth is not based on how much is in circulation, rather it is based on the “guess” of how much tax and other revenues the government will receive in the next year.

Issuance to reserve banks, nature of obligation and redemption

Federal reserve notes are issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents.

The notes are obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks for all taxes, customs, and other public dues. They are redeemed as lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.

Hyper-Inflation

The classification of hyper-inflation is: an episode where the inflation rate exceeds 50 per cent per month. In history this has occurred in the 1920s in Austria, Germany, Hungary, Poland and Russia. Germany in 1923, for example, experienced a 3.25 million per cent inflation rate in a single month. Since the 1950s hyperinflations have been experienced in Argentina, Bolivia, Brazil, Peru, Ukraine and Zimbabwe, so confined largely to developing and transitioning economies.

The root cause of hyperinflation is: “excessive money supply growth, usually caused by governments instructing their central banks to help finance expenditures through rapid money creation.”

Could hyper-inflation happen in the U.S.? While possible, certain conditions would have to exist.

  • The rapid expansion of the monetary base by the Fed, European Central Bank (ECB) and Bank of England (BoE) would have to continue and feed into a more rapid and sustained expansion of money in the hands of the general public.
  • Governments would have to face difficulties financing their bailout packages and funding their debt.
  • Public confidence in the government’s ability to service debt without resorting to the printing press would have to disappear, as well as the government’s actual ability to withstand the pressure to do so in the first place.

With the fact that governments are pumping large sums of cash into the banking systems, the creation of government programs designed to stimulate the economy and the bailout of large corporations, a scenario of hyper-inflation cannot be ignored. Markets are currently priced with an opposite view of lasting deflation in the next several years.

More: http://www.shadowstats.com/article/hyperinflation

Written by Ben

October 18, 2009 at 9:12 pm

Posted in Market Meltdown, Politics

Tagged with ,

What’s Michael Jackson got to do with it?

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or – Does anyone smell anything burning?

Being serious (but only for a moment) the media coverage of Michael Jackson’s untimely (and self-inflicted?) demise reflects their understanding about what interests their audience (that would be us).

On that basis alone, it should serve to infuriate all of us.

While we watch media scramble to get the best angle on the story which serves to inflate CD sales for Jackson’s estate, meanwhile, back at the ranch, our economy is in shambles, driven there by the notion that our economic system is somehow flawed and so meddling legislation is warranted to “save us” from our evil capitalist ways.

Never mind the fact that America (once) represented the largest economic force on the face of this planet with greater prosperity than any country in history. Oh no, we must “fix it” with ill conceived legislation driven by the idea that our free market system is “unfair” or “cruel” and casts aside the “less fortunate” and “down-trodden” among us.

Hell if they would just get off their collective butts and quit expecting entitlements maybe we wouldn’t be in the current mess our “leadership” has brought upon us.

So, as we watch the Michael Jackson events unfold which leaves us looking like a bunch of chickens watching a card-trick, Rome burns.

Now, back to my regularly scheduled humor…

… Pssst.. Michael Jackson is still dead… pass it on.

Written by Ben

June 27, 2009 at 11:43 am

Barney Frank – What a piece of work

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‘The private sector got us into this mess. The government has to get us out of it.” – Barney Frank

This is an interesting piece by the Boston Globe. Hopefully, the voters in Massachusetts will gather in 2010 to vote this bag of hooey out of office and into the streets where he rightfully belongs. He can’t even admit to his own failings.

Written by Ben

June 27, 2009 at 11:20 am

Barney Frank is at it again!

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Fannie, Freddie asked to relax condo loan rules

In a letter to the CEO’s of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold “may be too onerous” and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to “make appropriate adjustments” to their underwriting standards for condos.

You can read the whole article as it appears in Reuters here.

What does it take?

What in this world does it take to get this fool out of office? Someone, please, please tell me. Can the collective in Massachusetts be that stupid to believe Barney Frank has acted in their best interest as well as the interest of America? If they would only pull their heads out of their collective butts, maybe the voters in Massachusetts will do the right thing in 2010 and vote this piece of garbage out of office.

Are ya listening Massachusetts?

While I’m at it, someone wake up Connecticut and let them know about their fine leader, Chris Dodd.

Written by Ben

June 27, 2009 at 10:05 am

Fed to pump another $1 trillion into U.S. economy

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Washington: The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.”

Full story here.

ED:

Treasury monetizes debt by printing 1 trillion dollars to inject into economy – effectively borrowing from itself.

Taking such a measure this drastic means the “patient” is almost dead and this “injection” is a last ditch effort to save it.

Written by Ben

March 22, 2009 at 7:38 pm

The (not so) mainstream media agrees Dems obstructed reform

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International Herald Tribune: “Democratic takeover of Congress was major victory for Fannie and Freddie … Fannie Mae and Freddie Mac, the two mortgage finance giants, which have been recovering from accounting scandals, had faced the possibility of tight new oversight laws pushed largely by Republicans. But some powerful Democrats had resisted, preferring to promote the companies’ housing mission over tighter capital standards and portfolio limits. (International Herald Tribune, 11/8/06)

American Banker: “Democrats Oppose White House plan to strengthen Fannie and Freddie oversight.” In late summer Treasury Secretary Henry Paulson Jr. began an effort to reach an agreement in the Senate, where Democrats oppose a White House-favored provision that would force Fannie and Freddie Mac to slash their mortgage portfolios. (American Banker, 12/1/06)

Origination News: “Until recently, the administration and Sen. Shelby have pushed for limits on the size of the GSE portfolios, which Democrats opposed. Now it appears that Secretary Paulson will insist on language that would allow the new GSE regulator to use systemic risk considerations in determining proper size of the portfolios. But the Democrats see systemic risk as a code word for portfolio limits.” (Origination News, 12/1/06)

Written by Ben

March 22, 2009 at 1:52 pm