Posted on 01/22/2010 10:42:41 AM PST by Steelfish
January 21, 2010
The End of Wall Street as We Know It
Michael Hirsh
After ignoring Big Paul for a year, Obama finally listened. The result is the end of Wall Street as we know it. Surrounded by economic heavyweights called into the White House, President Obama announced today before the TV cameras that he wasn’t announcing anything new. At least that’s what his top administration officials indicated to the media in a “background” phone call intended to put the best possible spin on things.
The administration officials declared that the new—whoops, I mean, additional—proposal today was in the spirit of what they themselves had already put forward last June and what the House and Senate, in consultation with the Obama-ites, had already inserted in their bills.
That’s the official story. It’s utter nonsense. The actual story is that today’s proposal is totally new, far more radical than anything Obama and his top officials, mainly chief economic adviser Larry Summers and Treasury Secretary Tim Geithner, have proposed in the past. Indeed, they’ve been actively avoiding it for the better part of their first year in office.
The president was gracious enough today to credit the man responsible for it—“we’re calling it the Volcker rule after the tall guy behind me,” he said—but what Obama didn’t say was that, until now, former Federal Reserve chairman Paul Volcker has been virtually ignored by his administration.
Nearly a year before the president’s announcement, Volcker had proposed barring major commercial banks that enjoy federal-deposit guarantees away from big-time speculative or “proprietary” trading—acting like a hedge fund, in effect, with taxpayer-backed money. When I interviewed Volcker about this last summer, he acknowledged that the president "obviously decided not to accept" his recommendations.
(Excerpt) Read more at blog.newsweek.com ...
Keep it up, Obamaloon. I’ll pay extra for HDTV coverage of your upcoming trial.
Heck, I’d pay a lot more in order to be on the jury.
Obama: “ Well, I tried to destroy the economy with Obamacare, but that didn’t fly, so I will make sure every small to large business can’t get bank loans. I must execute my prime directive....destroy the American economy before the average American comes out from underneath the ether”
But I thought insurance cos. were the enemy
OTOH pharmacuticals are always bad
And don't forget the wind fall profits of the oil companies
and of course you can't trust your doctor
or your broker
That just leaves the lawyers, yeah we live in an age when only the lawyers can be trusted...........
YIKES
Banks have zero business acting like hedge funds when they are backed by tax payer $$$$.
Err, it’s a good policy. The banks have been investing in the markets while failing to protect their depositors’ assets. When they profit they keep the proceeds as income. When they lose money they seek taxpayer-funded bailouts on the premise of protecting their depositors assets. I’d love to go to the casino on such terms.
I think when banks acts like hedge fund entities they need to have their losses covered by insurance and not by taxpayers.
Volker also said we need a new economy NOT based on the consumer.
Is this supposed to be an example of Obama’s “Jobs are job #1” philosophy?
I must say that I have a problem with banks taking deposits insured by the taxpayer and engaging in speculative transactions-hedging is a form of risk management and giving up both gains and losses if prices change sometime in future.
Speculation is the deliberate taking on of risk, in some cases a tremendous amount of risk for the possiblity of a substantial gain. If banks speculate with taxpayer insured deposits-they get all the gain and the depositors still get 3%. But if these “investments” fail the banks keep going and the taxpayer bares all the loss. What a deal-taxpayers gain little if the investment succeeds (tax revenue from bank profits and dividends) but bear the entire risk if the “investment” fails.
Let these banks use funds from shareholders for speculation and not taxpayer insured deposits. My guess is the banks will be a lot more careful with shareholder money than with taxpayer insured deposits.
"Speculative or 'proprietary' trading," are we talking about mortgage swaps? If Volker wants to stop mortgage swaps I would think this would be a good thing. Am I wrong?
Banks are good. Unfortunately, the idiots on Wall St. are not banks. They are all insolvent with massive ponzi scheme bets that are worthless setting on their books. All of them are praying for the next bubble to reinflate so they can dump this stuff on others. Since the private suckers have abandoned ship, they are now dumping it on all of us through government sweetheart deals. They all deserve to go to prison. They should be ran through bankruptcy court, dissolved, and made a lesson of so the next group of smart guys who thinks to-big-to-fail means they can bet like drunken sailors on shore leave will not have incentive to do it.
Obama staffed up his economic team with the very guys that created this mess. No one was fooled. Now out of the need for political survival he is changing course. This is smart on his part. The banking class and Wall St. deserve everything that is coming to them. The public has made it clear to the politicians that they want accountability and justice, not more of the same crap that caused the collapse.
Agree. Since the reversal of Glass-Stegall, the banks have been irresponsible. Couple that with the pressure from Fannie and Freddie to make loans to folks who had no business getting them and we’re living with the nightmare now upon us.
Eliminate government backing for commercial banks.
Eliminate government backing for mortgages.
Eliminate government backing for student loans.
Government backing for individual depositor accounts only, provided by depositor INSURANCE FEES.
Commercial accounts are backed by the banks reputation. If they are crooks move your money. If the returns are too good to be true, move your money.
Mortgages are from deposited money only. Stop fractional banking.
If students had to pay for school, schools would not be able to charge the inflated prices they now push.
Stop the madness and return to sound money. No Fiat Money.
That Dear Reader does not do that simple 1st step indicates that this is nothing but a cynical election year propaganda ploy
I respectfully ask you to back up a little further in your history of the ‘problems’ at the banks.
When I was a kid in the 50’s, no such problems existed. I seem to remember the mantra of ‘pay 1% interest and charge 3% interest” was how banks operated.
You must go back to 1977 and the CRA, which was the brainchild of Jimmah Carter and the Democrats. Remember- Jimmah made such a mess of other choices of his that PRIME RATE was 21%. For you youngsters who don’t remember this——look it up.
The CRA demanded that banks give loans to people “who have a right to own a house”, and who’s income consisted of Welfare-Wic-Food stamps, picking seasonal vegetables, etc.
There people didn’t qualify to buy a T-Shirt on time payments. They became what is now known as NINJA applicants: NO INCOME NO JOB OR ASSETS. If they could fog a mirror and sign a name, they were given mortgages to buy a house.
They didn’t have a credit history that would have qualified them- they often lived in Section 8 Housing, where the taxpayer paid up to 80% of the rent, and they had no experience in taking care of a lawn or a property in any manner, shape or form.
The banks were told by Janet Reno, under Bill Clinton, that she would sue them with the power of the Justice Department for discrimination if they didn’t give these loans out.
IF a person is getting 80% of their rent paid by Section 8 funds, and under the terms of the mortgage, that cannot continue-——HOW could anyone expect these loans/mortgages NOT to fail????? HOW?? HOW??
The term sub-prime didn’t even exist, as far as I can remember, before the CRA was created.
Food Stamps for income??? WIC funds for income??? This was a particular kind of total insanity.
Derivitives & other risky investments didn’t exist until the loans to these unqualified recipients started to collapse. The banks had to find some other form of income to replace these losses. Many of those losses were passed on to Fannie & Freddie inside bundles of other loans, which were performing correctly.
Even if more than one family lived in the house- they couldn’t make it, and the density of such arrangements turned normal SINGLE FAMILY homes & neighborhoods into a nightmare of clutter and poor conditions.
The banks have been made the fall guys in a continued attempt by Carter & his protege NObama to destroy America.
Try running any kind of business without a bank. Even if you have spent your entire life signing ONLY the backside of a paycheck—never the front side—where are you going to cash your check without banks?
” My guess is the banks will be a lot more careful with shareholder money than with taxpayer insured deposits”
There’s some support for your position in the credit unions. Depositors are shareholders. CU’s haven’t suffered the same meltdown as banks.
The whole problem, as you point out, is taxpayer guarantees (FDIC, FSLIC) of deposits and taxpayer funded purchasing of mortgages (FNM etc).
Those have been around so long we take them for granted. But maybe we have reached the endgame for taxpayer guarantees of deposits and mortgage purchases.
If we removed FDIC and just required up to the minute financial information from every bank posted on the internet, depositors could evaluate the banks. Marginal changes in deposits would provide major discipline for banks.
If we removed FNM purchases, then banks would have to go to real parties using their own money to buy mortgages on the secondary market. That would impose strong discipline on bank lending.
If you keep FDIC, I don’t know how you reign the banks in on their “risky” investments. That becomes a regulatory issue and eventually congress will take bribes and redefine risky. Is a first mortgage with 20% down risky. Does it change if the borrower is a day laborer? Or if the home is in Compton CA? How do you address that?
But what about T-Bills? Are they speculative? Well, long term t-bills are sure speculative right now. But short term probably aren’t.
So the process of managing the risks banks take is, in the keep FDIC case, something that would mostly have to be managed by the gvt and the gvt is so bad at that.
You’ll recall the CRA was instigated by the Boston Fed’s report on “redlining”. Community organizers and Fed progressives connived to explain the lack of mortgage lending in poor communities as bigotry rather than to sane risk assessment. Carter decided, in his usual holier than thou way, to “fix” the “problem”.
Sure, reverse the CRA also. It’s already brought down Fannie and Freddie.
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