Regulating Large Financial Institutions

http://federalreserve.gov/newsevents/speech/stein20130417a.htm 

"Thank you. I'm delighted to be here, and want to thank the International Monetary Fund and the organizers of the conference for including me in a discussion of these important topics. I will focus my remarks today on the ongoing regulatory challenges associated with large, systemically important financial institutions, or SIFIs.¹  In part, this focus amounts to asking a question that seems to be on everyone's mind these days: Where do we stand with respect to fixing the problem of "too big to fail" (TBTF)? Are we making satisfactory progress, or it is time to think about further measures?

I should note at the outset that solving the TBTF problem has two distinct aspects. First, and most obviously, one goal is to get to the point where all market participants understand with certainty that if a large SIFI were to fail, the losses would fall on its shareholders and creditors, and taxpayers would have no exposure. However, this is only a necessary condition for success, but not a sufficient one. A second aim is that the failure of a SIFI must not impose significant spillovers on the rest of the financial system, in the form of contagion effects, fire sales, widespread credit crunches, and the like. Clearly, these two goals are closely related. If policy does a better job of mitigating spillovers, it becomes more credible to claim that a SIFI will be allowed to fail without government bailout." - Jeremy Stein, Federal Reserve Governor

Bail-out Is Out, Bail-in Is In: Time for Some Publicly Owned Banks

http://www.huffingtonpost.com/ellen-brown/bailout-is-out-bailin-is-_b_3178702.html

China Just Killed All "China Bails Out Europe" Rumors For Good

http://www.zerohedge.com/news/2012-10-02/china-just-killed-all-china-bails-out-europe-rumors-good

"China would be interested in buying into a Eurobond backed by core euro zone countries and considers investment in bonds issued by heavily indebted European countries unrealistic, a senior official with China's $480 billion sovereign wealth fund said. Jin Liqun, chairman of the supervisory board of the China Investment Corporation (CIC), said until fundamental problems of fiscal, social and monetary policies in euro zone countries burdened by debt are solved, there could be no investment."

Guess who’s bailing out bankrupt western governments now…

Mr. President, learn some valuable lessons from your Indonesian roots.  Default, while painful, is also necessary, when debts are out of control.  This is not a partisan swipe at Democrats.  In fact, whomever gets elected/re-elected as President will eventually regret it when the ship sinks under his watch.  The debt will be repudiated--whether by default or by design. 

http://www.sovereignman.com/expat/guess-whos-bailing-out-bankrupt-western-governments-now/

Debt crisis: Spain and Italy to be bailed out in £600bn deal

Only 600 billion Euro?  And pundits are advising people to sell their gold?  lol

http://www.telegraph.co.uk/finance/financialcrisis/9343049/Debt-crisis-Spain-and-Italy-to-be-bailed-out-in-600bn-deal.html

Matt Taibbi Asks Why The Fed Gave $220 Million In Bailout Money To The Wives Of Two Morgan Stanley "Bigwigs"

http://www.zerohedge.com/article/matt-taibbi-asks-why-fed-gave-220-million-bailout-money-wives-two-morgan-stanley-bigwigs

Two words:  Marie Antoinette.

"We Don't Need A Bailout... We Don't Need A Bailout...Uh, We Need A Bailout": Portugal Admits To Needing EU Rescue

One of my axioms:  when a central banker or finance minister opens his/her pie hole, don't believe a word of it.

http://www.zerohedge.com/article/we-dont-need-bailout-we-dont-need-bailoutuh-we-need-bailout-portugal-admits-needing-eu-rescu

Wow, who wooda thunk?  Portugal needs a bail out--after repeated denials from their financial authorities.  Spain is on deck.

Intellectual retardation

http://belacquajones.blogspot.com/2009/11/can-they-get-any-smarter.html

Tim Geithner personifies a new phenomenon that is sweeping the financial world: intellectual retardation. This is a condition in which an individual’s thinking becomes so sophisticated and so immersed in detail that it becomes incapable of functioning in a sensible manner.

It’s a simple proposition—if a firm accepts public money then the public sets the terms and conditions.

Another government official spoke of “sophisticated financial institutions.”

It now appears that sophisticated is just another word for stupid.

The only question, now, is who is more sophisticated, finance corporatism or the government. Or, are they so joined at the hip that they are indistinguishable.

Ireland bailout rumors spook markets

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8010097/Ireland-IMF-bail-out-rumours-spook-markets.html

IMF expands crisis-prevention credit lines

http://www.bloomberg.com/news/2010-08-30/imf-expands-crisis-prevention-credit-lines-extends-duration-to-two-years.html

Its flexible credit line, reserved for countries that pre- qualify based on sound fundamentals, will be extended for up to two years and have no set limits.

Strauss-Kahn has sought to enhance the institution’s role as a buttress against financial crises, convincing member countries to pledge $500 billion in emergency funds in 2009. Today’s decision is part of a push before the Group of 20 summit in November to attract more countries to its contingency financing program.

Talks are ongoing with member countries to raise the IMF lending capacity to $1 trillion as part of G-20 discussions.

Guess which member country pledges the largest capital funding to the IMF? The US does, which also happens to be the most indebted country. In essence, the US taxpayer will bail out other sovereign countries at risk of default. Meanwhile, the US itself is in danger of defaulting on its own financial obligations.

The theater of the absurd has reached the hallowed halls of the IMF, the ECB, and the Fed. They are following the Zimbabwe version of Moore's Law in doubling their deficits every 18 months in lieu of increasing the number of transistors on a semiconductor chip.

Freddie and Fannie need billions more in aid

Both Freddie Mac and Fannie Mae lost billions more last quarter and will need billions more in aid from the federal government. Gee--what a shock.

http://www.google.com/hostednews/ap/article/ALeqM5i61IvzXZ9v93-0lhav_WRztb1aIgD9HG0A0G1

Government-controlled mortgage buyer Freddie Mac is asking for $1.8 billion in additional federal aid after posting a larger loss in the second quarter.

Freddie Mac said Monday it lost $6 billion, or $1.85 per share, in the April-to-June period.

The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac.

Both Fannie Mae and Freddie Mac have both lost tens of billions of dollars during the past two years and both are asking the government to prop them up. Last week, Fannie Mae requested $1.5 billion after posting a loss of $3.13 billion, or 55 cents per share, in the second quarter.

"We recognize that high unemployment and other factors still pose very real challenges for the housing market," CEO Charles Haldeman said in a statement.

Ya think?

"With that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds."

Ha-ha, that's a good one...

http://www.knx1070.com/Fed--Full-Economic-Recovery-Could-Take-5-6-Years/7689645

The headline reads: "Fed: Full Economic Recovery Could Take 5-6 Years".

Gee, it took this long to finally admit it? Notice how financial TV (i.e. government mouthpiece) is spinning it as if they had called this all along. What about hope and change? What about green shoots? What about Keynesian stimulus? What about the V-shaped recovery? Oh, that's right: that's so five minutes ago.

http://www.knx1070.com/Fed--Full-Economic-Recovery-Could-Take-5-6-Years/7689645

Financial media and government economists are pathological liars. They missed the two biggest bubbles in human history: the internet bust and subprime mortgage crisis. At least the Fed is now making an attempt to restore its credibility, espousing fiscal discipline and responsibility. This call for austerity will last about 3 months.

It's an election year, after all, and states, counties and municipalities are going belly up. Don't be surprised if a financial crash is engineered, as justification for a gargantuan bailout in the trillions. Indeed, "We're the government; we're here to help."

The government expects us to have the memory of a gnat, so it would not surprise me if they will use another financial crisis to help us forget cries for fiscal and monetary discipline. This time it won't be banks that are too big to fail. It will be states too fat to starve. Wash, rinse, repeat...

IMF bailouts

Watch this exchange between Ron Paul and Ben Bernanke and you will better understand why the US is bankrupt.



http://www.youtube.com/watch?v=JzO_D8TjvKw&feature=player_embedded

Ron Paul: "The IMF has announced that they are going to open up the NAB which coincides with the crisis in Greece and Europe and how they are going to bailed out. The irony of this promise is that in the new arrangement Greece is going to put in $2.5 billion in. I think only a fiat monetary system worldwide can come up and have Greece help bail out Greece and be prepared to bail out even other countries."

"Where will this money come from? We are bankrupt too."

FDIC

Many observers know the FDIC is broke. Let's further examine the FDIC website to fully understand the ramifications of a bankrupt FDIC.

http://www.fdic.gov/about/mission/index.html

Mission

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by:

* insuring deposits,
* examining and supervising financial institutions for safety and soundness and consumer protection, and
* managing receiverships.

The insured banks themselves--not the US government--fund the FDIC. Even if their bank fees are increased, there is no way those fees will cover the funds required to close failed banks into receivership. Too many banks will collapse.

Which means the US Treasury will have to step in and bail out the FDIC. Which means it is on the US taxpayer again to subsidize the failures of bankers gone wild. Notice how this all flows down?

Deflation or Inflation?

I've posed this question before, but if you own gold, the answer is it doesn't matter.

According to Porter Stansberry:

"This is really shaping up as the Great Depression Part II, with Obama's nearly $900 billion bailout package as the first episode of the New New Deal. Protectionism was one of the highly destructive ideas that helped keep the U.S. economy down during the 1930s. The bailout includes "Buy American" language, requiring bailout money to be spent on U.S. goods, something U.S. trading partners like China, India, Russia, and other signers of trade treaties with the U.S. aren't crazy about.


I bet you some day soon we get something very much like the New Deal's Committee on Continuity of Business and Employment, which put out a report in 1931 stating: "A freedom of action which might have been justified in the relatively simple life of the last century cannot be tolerated today... We have left the period of extreme individualism and are living in a period in which national economy must be recognized as a controlling factor."


Where do you invest if the Great Depression II is in our future? Believe it or not, gold stocks. Homestake Mining shares rose sixfold from October 1929 to December 1935, during which time the Dow Jones Industrials Average lost 64% of its value. A huge run up in Homestake's share price came after FDR stole everyone's gold. It's foolish to think you can impair gold's value by making it illegal. Prohibition usually increases the price of the outlawed commodity."

Bailout or No Bailout?

I'm from the school of let 'em die. If you and I make poor investment decisions, we have to suffer the consequences. These executives applied far too much leverage, took on way too much risk, and after plundering their firms, they get golden parachutes. Where's the accountability factor?

I'm all for the founders of Google earnings billions because they have created a lot of value for consumers, business, shareholders, and employees. But when executives run their firms to the ground, they should not profit from said disasters, whether their firms get bailed out or not. A meritocracy rewards those who add value, not those who detract from it.

As much as I hate that the taxpayers bear the brunt of rescuing an AIG, I reluctantly agree they should probably be bailed out, because if they implode, the cascading illiquidity would essentially freeze up markets worldwide, as the sovereign funds, hedge funds, pension funds, mutual funds, private equity firms, and every financial institution would suffer a loss of confidence in the US financial markets, which would bring about a dark age analogous to the Great Depression. No one wins in that scenario, save the few bottom fishers with cash and balls to step up and play in the deep end of the pool.

But make no mistake: the intended recipients of these bail outs are the big institutions--not necessarily the common man, altho we all are in the same boat.

Having said that, there is a downside to this massive injection of liquidty--re-inflation. Interest rates should be favorable short-term, but when oil approaches $150 a barrel, when gold flirts with $1500/oz, the Fed will have no choice but to raise rates. Again, the lesser of two evils, but still an evil...Eventually, the economic shocks worldwide and the domestic slowdown will eventually dampen demand and cost of living increases, but until then, gold seems more stable than the US Dollar.

You know the world is turned upside down when there is more concern about the USD than the Brazilian currency, Russia has a flat tax, and the US has the 2nd highest tax brackets in the western world. Our leaders have forgotten what has made this country (and California) great.