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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (41647)	3/5/2010 2:23:33 AM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

I believe that the true (and very pernicious) status quo nature of the "too big to be allowed to fail" problem has ESCAPED you somehow.... If we do not FIX that huge problem then we are condemned to suffer a REPEAT of the financial crisis and crash... or else a Great Depression II this time FOR REAL. It is the interlocking nature of these huge institutions (and their global linkages) that CREATES the systemic risk.... Risk to the world, and risk to the economy, and risk to the TAXPAYERS. Why did all the I-banks convert to bank holding corps? A - to get ACCESS to the fed window and fed support in time of crisis and secure the low cost funding stream that is MADE POSSIBLE by taxpayer backed-up federal deposit insurance. (But, as I have just stated... that is but one of the three main reasons.) Cheap funding can then be diverted to proprietary trading, subsidiary 'hedge funds', Credit Default Swap or Securitization shops, or any damn thing ELSE that they might dream up to get rich off of. And, you forget the nature of federal deposit insurance --- the sinking fund for it can easily be overwhelmed because it's account is holding but a tiny almost insignificant fraction of the gross amount of the deposits it is insuring. A system-wide financial panic (caused by any of the mega-sized financial titans blowing up like AIG... or L.T.C.M... or Lehman...) can EASILY overwhelm all the reserves and RESULT IN DIRECT ASSESSMENTS on the federal government... because there is no other source in time of panic, with enough SIZE. That is the problem. WHAT POSSIBLE WAY can we think of that can GUARANTEE that none of these titanic firms can go rogue and then BLOW UP disastrously? Write paper in such size that they not only cannot make good on it all, but are destroyed themselves... and drag the entire global financial system down into 'no one trusts any one else' gridlock and financial collapse?

To: TimF who wrote (41647)	3/5/2010 2:34:04 AM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Head of Dallas Fed calls for banks’ break-up By Henny Sender in New York Published: March 3 2010 23:59 Last updated: March 3 2010 23:59 ft.com Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, has called for large institutions to be broken up in the US and abroad to guard against the problem of them becoming “too big to fail”. In a speech in New York on Wednesday Mr Fisher said banks that were too big to fail and too complex to manage posed the biggest threat to the stability of the financial system. “Big banks and many of their creditors assume the Fed and other government agencies will cushion the fall and assume the damages even if their troubles stem from negligence or trickery,” he said. “They have only to look at recent experience to confirm that assumption. My preference is for a more prophylactic approach, an international accord to break up these institutions into ones of more manageable size.” If this needed to be done unilaterally, he said, “we should. And this should be done before the next financial crisis because it surely cannot be done in the middle of a crisis”. Mr Fisher has a reputation for taking an independent stance on regulation. His approach is not likely to find a sympathetic reception among US regulators or private sector bankers, who argue that such a stand would hurt America’s global competitiveness. Mr Fisher made his remarks against a backdrop of increasing concentration in the banking system. By last year the 10 largest banks in the US accounted for 60 per cent of all banking assets, up from 26 per cent 20 years ago. Government action at the height of the crisis has contributed to that concentration by encouraging JPMorgan Chase to take over Bear Stearns and Washington Mutual. Mr Fisher was also critical of the fact that, in many of the government-orchestrated rescues, creditors and shareholders should have paid a price but did not. A big part of the resolution regime now being thrashed out is likely to involve unsecured creditors being paid less than 100 cents on the dollar. At the same time, Mr Fisher adopted a more conventional line when it came to arguing in favour of central bank independence, noting “a politicised central bank is a crippled central bank”. He cited Greece as an example of the virtues of an independent central bank since Athens was no longer able to print money and inflate its way out of fiscal profligacy. “The burden for fiscal malfeasance now rests on the shoulders of those responsible for it,” he said. Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

To: TimF who wrote (41647)	3/5/2010 3:42:08 AM
From: DuckTapeSunroof	Respond to of 71588

Obama Sends ‘Volcker Rule’ Proposal on Bank Trading to Congress By Phil Mattingly and Rebecca Christie bloomberg.com March 3 (Bloomberg) -- President Barack Obama sent Congress proposed legislation on the so-called Volcker Rule that would ban banks from hazardous trading and impose limits on how large they can grow. The five-page plan released today seeks to prohibit lenders from trading solely for their own profit and to stop them from grabbing more than 10 percent of the total liabilities in the banking system through acquisitions. The measure instructs regulators to block mergers that would put bank market share over the limit, unless they are acquiring a failing bank with approval from regulators. The proposal, named for its main proponent, former Federal Reserve Chairman and White House adviser Paul Volcker, is aimed helping prevent a repeat of the worst financial crisis since the Great Depression by reducing risk-taking by banks. The proposed limit on liabilities is similar to the existing cap on bank deposits. U.S. commercial banks held $10.4 trillion in liabilities as of Feb. 17, according to data from the Federal Reserve. JPMorgan Chase & Co. held $1.5 trillion of total commercial bank liabilities as of Dec. 31, according to the Federal Deposit Insurance Corp. Charlotte, North Carolina- based Bank of America Corp. had $1.3 trillion and New York-based Citigroup Inc. $1 trillion. An exception would be made for acquisitions of “one or more banks in default or in danger of default.” That language would likely allow acquisitions similar to those that took place during the worst of the financial crisis; the measure also would allow banks that are already over the 10 percent limit to acquire small banks that don’t change their market share. Two-Year Transition The legislation calls for a two-year transition, shorter than five years, which House Financial Services Chairman Barney Frank, a Massachusetts Democrat, said he would propose when Obama introduced the rule Jan. 21. Obama asked Congress in January to adopt the Volcker Rule to restrict risk-taking after financial companies worldwide reported more than $1.7 trillion in writedowns and credit losses following the subprime mortgage market collapse in 2007. Lawmakers including Senate Banking Committee Chairman Christopher Dodd have called the plan a political ploy and said it could complicate efforts to overhaul rules governing financial companies. The proposal also would tighten supervision and capital and liquidity requirements on non-bank companies engaged in proprietary trading. The president’s proposal would bar banks from owning or controlling hedge funds and private-equity firms. Banks also would be barred from acting as a prime broker to hedge funds they advise. Regulatory Overhaul The House of Representatives in December passed regulatory- overhaul legislation including Pennsylvania Democrat Paul E. Kanjorski’s plan giving regulators power to require companies to divest businesses deemed systemically risky. The Obama proposal would require regulators to break up those companies. Dodd, a Connecticut Democrat, is negotiating with Republican senators aiming to reach bipartisan compromise on measures guarding against potential threats to the U.S. economy and resolving systemically important companies when they fail. In a hearing last month, Dodd said the Obama administration proposal was seen by some lawmakers as “transparently political and not substantive.” Obama outlined the proposal alongside Volcker, chairman of his Economic Recovery Advisory Board, who has advocated restrictions on banks to limit risks after the U.S. government set aside $700 billion in 2008 to bail out companies including Citigroup Inc. and Bank of America Corp. To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Rebecca Christie in Washington at rchristie4@bloomberg.net. Last Updated: March 3, 2010 20:17 EST