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Thread: Obama to Propose Limits on Risks Taken by Banks

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by washunut View Post
    Our banking system has to be able to compete on the world stage. Credit is a key to growth of any economy. If folks think things are bad now ( and they are) continue to find ways to shrink our credit markets and see what happens to this economy.

    This adminsistration feels that the economy needs to shrink and perhaps they are correct. Just be prepared for a downtrend in our standard of living. We have been living beyond our means for the last 20+ years as debt grew; federal, state and individuals.
    Where do you get that idea from?

    And other countries which seek tighter regulation all come across that arguement: "our financial system need to be able to compete in the world stage". But think about the nature of some of these firms, they have offices in most financial centres in the world. If New York becomes tougher about capital requirement, would they pull their offices out of New York? I highly doubt it. Follow that argument will allow banks to play governments against each other. On the other hand, there are of course costs to regulations, the key is to seek the best trade-off between tax-payer protection and less regulation. I think partitioning the commercial banks from investment bank is really not that heavy a burden on the banks, and of course, whatever the government comes up with, be sure that there will be lots of smart ambitious bankers looking for ways around them.

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by danarhea View Post
    I disagree. The big banks survived because of the Bush-Obama bailouts. These new regulations are the first step in restoring the type of Glass-Steagal regulation that was removed by government, via Gramm-Bliley, and once again walling off sectors of the financial markets from each other, so that one sector does not take the other sectors down with it if it fails.
    actually if the government enforced the laws many of the big banks are still dead, all of the regional ones and about 4000 of the smaller ones

    few banks can actually meet the lawful reserve requirements without cooking the crap of their books and the FED is holding massive amounts of paper for them that if sold might get 5-10 cents on the dollar which if that happens means the losses become realized and the banks are dead anyway

    the Treasury and FED have painted themselves into a corner with no exit

    have they decided to enforce exiting law? no

    have they hired like 20,000 forensic accountants to unravel all the corrupt books and closeout the dead banks? no

    have they reigned in Freddie Mac and Fannie Mae? no, they removed the debt caps

    do not be fooled by the ruse of regulation and actual action towards the banks unless it has some teeth and meanigful action behind it

    GSE losses to the tax payer by year end should be up around $1 trillion with much more coming later

    basic math and leverage.......you ramp up to 25 or 30 or even 60:1 and even tiny little changes in assets put you out of business and quickly and the banks did exactly that.....they can't meet the margin calls and the assets based on residential realestate and commercial realesate are WORTHLESS, no amount of time will cure this

    they can't lend which means they can't earn and they are underwater already, only thing allowing most banks to live is the govt refuses to enforce the law and shut them down because it is politically untenable cause the banks own them and have been openly extorting the govt for months

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by washunut View Post
    Our banking system has to be able to compete on the world stage. Credit is a key to growth of any economy. If folks think things are bad now ( and they are) continue to find ways to shrink our credit markets and see what happens to this economy.

    This adminsistration feels that the economy needs to shrink and perhaps they are correct. Just be prepared for a downtrend in our standard of living. We have been living beyond our means for the last 20+ years as debt grew; federal, state and individuals.
    Household overleverage was a big reason the financial crisis unfolded. As recently as 2000, household debt came to 70% of GDP. In 2009 Q3, even after household deleveraging had been occurring for a year, household debt stood at 96% of GDP as it had been rising at a multiple of GDP on a consistent basis. Debt cannot grow at a multiple of income indefinitely with no adverse consequences.

    All said, credit is important. But easy credit at a time when too much leverage exists or risk management practices are ineffectual is a problem.

    It should be noted that the lack of a robust regulatory structure in an environment of dismal risk management fueled the housing bubble. When that bubble collapsed, its collapse led to a full-blown credit crunch, as typically follows housing busts. Reducing prospects for excessive risktaking will, in the long-run, assure better credit market performance.

    Finally, no Administration official has made any statements that the economy needs to shrink. They have all argued that it is in the national interest for economic growth to resume and become sustained.
    Last edited by donsutherland1; 01-22-10 at 01:36 AM.

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    Re: Obama to Propose Limits on Risks Taken by Banks

    I'm happy to see more conservatives voicing their support of the idea. In additional to the National Review, the Wall Street Journal and Bloomberg have now signaled their tentative approval as well.
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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by donsutherland1 View Post
    Washunut,

    Several quick points:

    1) I favor FDIC insurance. It was an invaluable reform from the Great Depression. My point was that if financial institutions want unfettered ability to take on risk, then those institutions should forego any direct or indirect taxpayer support. I was not calling for the elimination of FDIC insurance. Such a move would be highly counterproductive.

    2) I favor resolution authority to deal with institutions that pose systemic risk. Unfortunately, I have serious concerns that political interests will generally trump the kind of difficult decisions that would be necessary to resolve a large, failed institution.

    3) The GSEs had no government guarantee. That the federal government intervened to bail them out instead of cleaning them up, breaking them into small pieces, etc., does not change the reality that there actually was no statutory guarantee. As a result of a perceived guarantee, not to mention very bad practices, there was an inherent bias toward underwriting too many mortgages at abnormally low rates of interest. Allowing them access to additional Treasury funds is counterproductive and may well be delaying their making the structural and policy reforms necessary to become viable.
    All fair points but allow me to rebut:

    1. FDIC is for the pure banking side of any institution. If we had a proper. regulated Chineese wall between entites so that the monies you are rightfully concerned about do not get siphoned off that would materially sove the problem here. Also it would be appropriate to have different leverage ratios for different types of risk. This could be established under current law.
    We did a poor job in many areas, risk management, ratings of securities and regulatory. Let's not pounce on one area, that by the way creates a lot of wealth in America albeit the last couple of years for political expediency.

    2. The Fed with of all the actors is probably the most apolitical also took some drastic actions. I wish they had had done so earlier. leading up to the bubble. That talks to the individual philosophy of the charmen , not our ability to take tough stances.

    Let's remember that these people essentiallt wiped out the equity of Bear Sterns, Lehman and Merrill. From the secretaries up, peoples like savings and retirement funds were wiped out not to mention the billions lost by investors, like pension funds etc. So they showed they would step up and make hard decisions when needed. I think if they had the resolution authority they would have taken down Citi and maybe Bank of America. Let's remember that GS raised $12 billion in provate money before TARP, including something like $5 billion from Buffet the greatest investor of our time.

    3. While the guarentee of the GSEs is only implied. There was no way the government would step away from that implied guarentee. The dirty little secret here is not keeping this company alive for stockholders they are essentially wiped out already. The bonds had to be saved because so such of this debt is held by Chineese and other foreigners. They considered this debt guarenteed.

    Now we have shown we can afford to screw the US investors and managers, what we will not do is wipe out the Chineese debt in Fannie and Freddie, thus the need to save them.

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    Re: Obama to Propose Limits on Risks Taken by Banks

    obama is surely displeased that his own treas secty is not coming along

    also, that geithner's gripes made it out to the public

    typical

    the most incompetent administration the unites states has ever seen

    UPDATE 3-Geithner aired concern on bank limits-sources | Markets | US Markets | Reuters

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by nonpareil View Post
    Where do you get that idea from?

    And other countries which seek tighter regulation all come across that arguement: "our financial system need to be able to compete in the world stage". But think about the nature of some of these firms, they have offices in most financial centres in the world. If New York becomes tougher about capital requirement, would they pull their offices out of New York? I highly doubt it. Follow that argument will allow banks to play governments against each other. On the other hand, there are of course costs to regulations, the key is to seek the best trade-off between tax-payer protection and less regulation. I think partitioning the commercial banks from investment bank is really not that heavy a burden on the banks, and of course, whatever the government comes up with, be sure that there will be lots of smart ambitious bankers looking for ways around them.

    Not sure what the first comment refers to.

    Capital will flow to whereever it is allowed to earn the best return. So if regulation creates a difference in regulation between London and America, yes capital will flow there. No one has to completely leave town like you mention, they shift the work, profit, employment, taxes paid to government ( which is never mentioned) to another part of the world.

    This is an international world, we should have learned that over the last 15 years as our manufacturing base has been hollowed out by foreign competition. Those factories in China are there because they get a greater return than building one in Ohio.

    I am in favor of finding ways to not contaminate the the money guarenteed by FDIC from more speculative trades. Although almost everyone will concede that is not the reason for the banking problems.

    This is another political gimmick so that the administrative can turn the pitchforks against bankers. It is Obama being a politician which he is.

    Not change we can believe in. But we were the dopes who bought that snake oil in 2008.

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Whew! You guy's are way over my head with some of this....But in simplistic terms, what I see is that after years of demo's driving the banks to do the practices that landed them in the gutter, Bush, and Obama (both Progressive btw.) swoop in to bail them out. However, it was Obama that carried it over to the unions, and Auto sector, as well as his buddies in non traditional lending sources like GE. Now, he needs to assert his power that he holds over them, and in what should be apparent as a blatant move on his part he is taxing those large entities that have already paid back their portions and letting off the hook those that submitted to his Marx like take over of their industries.

    He is displaying the tendencies of most hard core progressives in here and in the world of forcing large capitalist entities to shrink in order to avoid this unconstitutional move on his part. It is unconscionable, and corrupt, and should be called out.

    What have you libs subjected us to with this despot?


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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by Baralis View Post
    Im not sure If I agree with Obamas approach but I agree something needs to be done. The free market is one area I disagree with the right on simply because we have no "free" market. It has become as corrupt as washington thanks in a large part to washington. The banking sector is just one aspect that needs a overhaul from the bottom up. I read an article recently that stated that if you allocated all the wealth in the world that 3/5's of it is based on absolutly nothing. Its all a numbers game that starts in the banking sector. The banking sector is allowed to purchase items with no hard capital to back it up. This in a large part has led to many of our recent issues. Its all a shell game and when it goes wrong we all pay for it.
    I agree somewhat... however, the party in power has a track record of supporting the most corrupt banking policies in recent history - not that the republicans are totally innocent. I flat out do not trust Obama, Pelosi, and Reid to do anything that is truly good for the American people, especially new banking policy. Let's see this saga aired out with TRUE TRANSPARENCY... something we've yet to see from Obama and company.
    Obama lied... Ambassador Stevens died!

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    Re: Obama to Propose Limits on Risks Taken by Banks

    Quote Originally Posted by j-mac View Post
    Whew! You guy's are way over my head with some of this....But in simplistic terms, what I see is that after years of demo's driving the banks to do the practices that landed them in the gutter, Bush, and Obama (both Progressive btw.) swoop in to bail them out.
    Any president that cared at all about the country would've done the same thing. It would have been unbelievably irresponsible to let the entire financial sector collapse.That's exactly why these reforms are necessary. To prevent this from happening again, where the banks put us in a position where we HAVE to bail them out.
    Last edited by Kandahar; 01-22-10 at 12:56 PM.
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