Its not enough to rig leverage limits as Henry Paulson asked for and was granted when he ran Goldman Sachs.

Its not enough to watch both Bear and Lehman blow up as a consequence of that excessive leverage.

Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks’ balance sheets, in the latest sign that financial market innovation is far from dead.

The schemes, which Goldman insiders refer to as “insurance” and BarCap calls “smart securitisation”, use different mechanisms to achieve the same goal: cutting capital costs by up to half in some cases, at the same time as regulators are threatening to force banks to increase their capital requirements.

This sort of garbage needs to be treated as conspiracy to defraud and land the "inventors" in prison.

The purpose of capital requirements is to insure that a bank's unsecured lending, that is, the loan value outstanding in excess of the collateral's value in a sale at the market, never exceeds the bank's excess capital.

So long as this holds true there while the bank may become insolvent and need to be seized there will never be an insured depositor loss.

The entire purpose of SIVs and other off-balance-sheet games, along with this sort of nonsense being "worked on" here, is to hide capital requirements from regulators and governments so as to increase leverage ratios, thereby increasing the amount of profit that can be earned from a given amount of capital.

The problem is that there is no such thing as a free lunch and for every potential profit from such a scheme the amount of potential loss increases by the same amount.

However, some regulators may be wary of the invention of new pooled asset derivatives, especially if they are perceived as a way to avoid regulatory capital requirements.

Some rival bankers also view the schemes with scepticism. “This is a system of capital arbitrage,” said one senior banker at another investment bank. “The need for capital just miraculously disappears.”

There will never be handcuffs. The mission of the folks currently in power is to bring down the system. They are succeeding. When potential investors can't tell what is going on and so are reluctant to put money at risk Zero and his minions win. It isn't that "they are winning" but they have won. All that now remains is for the breeze to clear away the smoke so the extent of the wreckage can be seen. There is "no way back" to where we were just 6 months ago. When there is "no way out" there is only further in and things are probably going to get much worse. The MidStream Media won't say so and the story we will get from them will be "green shoots" but I would bet on our economy grinding to an absolute sandstill soon.

I think Denninger is an incredibly bright guy who does a great job of telling us what is going on but what we need is someone like him who sees what is going on and can lay out a real plan for how to fix things. I don't think such a person can exist. Witness the MidStream Medias attacks on Palin. Our "enemies domestic" can't allow such a person to interfere with their plans. Hence things will just continue to get progressively worse and worse. That is about as close to optimism as I can come anymore. If someone else sees a rosier path to daylight I sure would like to know about it.

Μολὼν λάβε

The mission of the folks currently in power is to bring down the system.......

You got that right.

Vice-President Joe Biden Admits "We Misread the Economy"
Freedom's Lighthouse | July 5, 2009 | BrianinMO
FR Posted by Federalist Patriot

VP Biden admitted on This Week with George Stephanopoulos that the Obama Admin "misread" the economy when he pushed the stimulus bill. The admin thought unemployment would not exceed 8% this year (it is now at 9.5%). They also discussed economists who say we need another stimulus package.......(STUCK ON STUPID So if the first one did not work, do it again).....(Excerpt) Read more at freedomslighthouse.com. Watch video.

=========================================

POINTS TO PONDER Creating jobs was NOT the point of the stimulus.

POINT ONE On June 9 President Obama called a press conference to announce, "Several financial institutions are set to pay back $68B to taxpayers." While Mr. Obama's announcement was welcome news, it was assumed that any money or profit would be returned to the general funds from whence it had come in order to pay down the debt. The truth, however, is that the money returned by the banks is finding new life as part of what amounts to a Treasury Department-controlled slush fund.

POINT TWO We keep reading and hearing Congress rushed to approve the "$787 billion stimulus package" early this year, but very little of it has been used. Now uber-Lobbyist Thomas Hale Boggs, Esq (Patton Boggs) was interviewed by nightly network news last week. Boggs said there's $2 TRILLION federal stimulus waiting to be distributed..... AND that he is getting unprecendented numbers of calls from all over the US......from those who want a piece of it. Boggs is the son of former Cong Hale Boggs and sister of ABC-TV commentator Cokie Roberts.

POINT THREE Obama tapped VP Joe Biden to "allocate" the stimlulus $$trillions. Biden's family was involved with Texas financier H. Allen Stanford, now charged with an $8 billion offshore fraud, the WSJ said. The Bidens $50 million fund was jointly branded between the Bidens' Paradigm Global Advisors LLC and a Stanford Financial Group entity, and was known as the Paradigm Stanford Capital Management Core Alternative Fund, the paper said. Stanford-related companies marketed the fund to global investors and also invested about $2.7 million of their own money in the fund, the paper said, citing a lawyer for Paradigm.......... Paradigm Global Advisors is owned through a holding company by the VP's son, Hunter, and Joe Biden's brother, James, according to newspapers.

POINT FOUR How can this be legal? A jaw-dropping policy the White House released late on a Saturday afternoon........hoping we would not notice. "Following OMB’s review, the Obama Administration has decided to make a number of changes to the rules that we think make them even tougher on special interests and more focused on merits-based decision making. First, we will expand the restriction on oral communications to cover all persons, not just federally registered lobbyists. For the first time, we will reach contacts not only by registered lobbyists but also by unregistered ones, as well as anyone else exerting influence on the process. We concluded this was necessary under the unique circumstances of the stimulus program."

POINT FIVE The Reserve Primary Fund's recent failure was "a tragedy" said Crane Data. Without details, sounds like a very strange charge. It may just be a diversion and scapegoating in a broad "War on Wall Street" that Obama, Soros and FDIC's Sheila Bair, among others, are engaged in right now, to get complete control of our financial system.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.