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

To: TimF who wrote (41677)	3/6/2010 2:53:03 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

When financial institutions achieve 'mega' size, the systemic risks to our (and indeed to the entire world's) economy rises along with them. This is the "too-big-to-be-allowed-to-fail" problem in a nut shell. As I have previously indicated... my PERSONAL PREFERENCES for "How to RESOLVE this potentially deadly nation problem?" are contained in these three simple ideas: 1) Anti-Trust law is important, (and can and should be employed when mega-sized institutions wish to merge), but the more clever and less disruptive way to prevent this ever-rising systemic risk is to DE-INCENTIVIZE the "too big to fail" sized institutions. RAISE RESERVE REQUIREMENTS progressively the larger these institutions become. Have 'tiers' established for which each larger tier is REQUIRED to hold more and more back in reserves. This will serve two purposes: A) if the MEGA-sized firms stay mega-sized at least the risk they pose to the economy will be lessened because they are better reserved. B) if, as I think likely, they take the hint and voluntarily split into smaller, more focused, units we will wind up with a more vigorous and likely innovative national economy. And the "too big to fail" heads-private-money-profits-and-tails-the-taxpayers-eat-the-losses problem is spiked... because there will be no more "too big to fail" firms. 2) The 'Volker Rule' --- maintain a legal separation between taxpayer guaranteed deposit taking institutions and all risky (non-traditional banking) sorts of activities which could give rise (AIG or L.T.C.M like) to a company destroying and economy imperiling crisis... (prop. trading, sponsorship of hedge funds, private label non-reserved CDSs, etc.) This provides an even greater circuit breaker between the extremely risky (and predictably often exploding) high margin activities and the broader national economy complete with it's important reliance upon CONFIDENCE in the stability of our financial institutions, (and the safety of deposits and investments therein.) 3) Discipline (long overdue) on the part of government when forced (as they periodically have been) to rescue operations such as the Savings and Loan bailouts of the 'eighties, or the recent financial collapse bailouts of the 'oughts --- Do not OVER PAY. When the letter of the deposit guarantee law only specifies that deposits up to $250,000 are federally insured... do not pay one penny more to any who were careless enough to leave deposits larger then that uninsured. When the letter of the law makes NO GUARANTEE for unsecured bondholders in these institutions (debentures, etc.), then let them EAT THEIR LOSSES, (And learn to be more careful next time, not reliant upon Uncle Sammy coming to the rescue of the rich and well off each and every time), exactly unlike what we did back during the Reagan era S&L bailouts (when taxpayers got stuck paying for even the UNINSURED LOSSES), and unlike the principles that were just followed in 2008 with the AIG rescue... where no haircut AT ALL was forced on the mega-bank counterparties for all those AIG Credit Default Swaps. Three principles and policies to follow, and that's what it will take to solve the problem and dire risk of "too big to fail". Absent such effective action we are doomed for a repeat. And, since each crisis is getting bigger and bigger... the next one will probably doom us....

To: TimF who wrote (41677)	3/6/2010 2:58:11 PM
From: DuckTapeSunroof	Respond to of 71588

Icelanders Set to Reject Depositor Bill in Referendum (Update2) March 06, 2010, 7:56 AM EST Bloomberg businessweek.com (Adds electorate in second paragraph.) By Omar R. Valdimarsson March 6 (Bloomberg) -- Icelanders are voting in a referendum on a bill that would saddle each citizen with $16,400 of debt. Polls show they will reject the measure in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank. The bill obliges the island to take on $5.3 billion, or 45 percent of last year’s economic output, in loans from the U.K. and the Netherlands to compensate the two countries for depositor losses stemming from the collapse of Landsbanki Islands hf more than a year ago. A March 1 poll showed 74 percent of the electorate of 230,014 people will reject the bill. “Ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview yesterday. Failure to reach an agreement on the so-called Icesave bill has left Iceland’s International Monetary Fund-led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached. Prime Minister Johanna Sigurdardottir, who in a March 4 interview called the referendum “pointless,” said she won’t cast a ballot today. Finance Minister Steingrimur Sigfusson has also said he sees no point in voting. Polling ends at 10 p.m. and first results will be available shortly after with a final count to be published early tomorrow. ‘Obsolete’ Political leaders have already moved on and are trying to negotiate a new deal with the U.K. and the Dutch, making the bill in today’s vote “obsolete,” Sigurdardottir said. “This referendum is very peculiar and without any parallel in Iceland’s history,” said Gunnar Helgi Kristinsson, a professor of political science at the University of Iceland, in an interview. The Icesave deal being voted on today passed through parliament with a 33 to 30 vote majority. Grimsson blocked it after receiving a petition from a quarter of the population urging him to do so. The government has said it’s determined any new deal must have broader political backing to avoid meeting a similar fate. Even so, signs of disunity across the political divide have emerged, prompting concerns that the government may be forging ahead without the backing of opposition parties. “It’s extremely important that we try in full to complete the negotiations in harmony with the opposition,” Sigurdardottir said. “If that’s not possible, we will have to try to resolve this by ourselves.” Outrage Icelanders will use the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island’s financial system to create a debt burden more than 10 times the size of the economy. The nation’s three biggest banks, which were placed under state control in October 2008, had enjoyed a decade of market freedoms following the government’s privatizations through the end of the 1990s and the beginning of this decade. Protesters have gathered every week, with regular numbers swelling to about 2,000, according to police estimates. The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled. Icelanders have thrown red paint over house facades and cars of key employees at the failed banks, Kaupthing Bank hf, Landsbanki and Glitnir Bank hf, to vent their anger. The government has appointed a special commission to investigate financial malpractice and has identified more than 20 cases that will result in prosecution. Economic Impact The island’s economy shrank an annual 9.1 percent in the fourth quarter of last year, the statistics office said yesterday, and contracted 6.5 percent in 2009 as a whole. Household debt with major credit institutions has doubled in the past five years and reached about 1.8 trillion kronur ($14 billion) in 2009, compared with the island’s $12 billion gross domestic product, according to the central bank. Icelanders, the world’s fifth-richest per capita as recently as 2007, ended 2009 18 percent poorer and will see their disposable incomes decline a further 10 percent this year, the central bank estimates. Grimsson, who has described his decision to put the depositor bill to a referendum as the “pinnacle of democracy,” says he’s not concerned about the economic fallout of his decision. “The referendum has drawn back the curtain and people see on the stage the matter in a new perspective,” he said in an interview. “That has strengthened our position and our cause.” --With assistance from Ryan Chilcote in Reykjavik. Editors: Tasneem Brogger, Chris Kirkham. To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net To contact the editor responsible for this story: Chris Kirkham at ckirkham@bloomberg.net.