Senator Elizabeth Warren (D) MA to re-attempt Glass Stegall

[PiggyBank]

Quote from Martinghoul:

1) No, I respectfully disagree. The problems really started once the issues infected the money markets, IMHO. It turned out that there was a LOT of leverage in things that were perceived as "extremely safe". Rest is history. My point here is that the issue with these crises is always a matter of expectation vs realization. If things that are risky are KNOWN to be risky, while things that are "safe" are KNOWN to be safe, crashes can be dealt with. That is the ultimate point of G-S, really, and I think it's the right thing to do.

2) I have no problem with the idea of "buyer beware", like I said before. But, firstly, I am talking about insured deposits only. Secondly, the various loopholes that allow implicit hidden leverage, such as accrual accounting for money-mkt funds, implicit guarantee for Fannie/Freddie, etc, should be eliminated. In order for the depositor to make an informed decision, you need to have transparency, which you currently don't have.

3) By the end of 2008 insured deposits in the US were projected to reach $4.42trn. Between the end of 2008 and mid 2009 FDIC DIF burned through its entire reserve (estimated at $55bn as of end 2008). Obviously, with Citi/BofA looking shaky, it looked like the tip of the iceberg. That was the problem, IMHO.

1) Do you care to explain or provide a link that explains how money market (i assume accounts) were leveraged? How exactly does that work, i would assume it has something to do with accounting standards which i was talking about in another post. IF that is the case, then the only way to prevent it is to change the accounting standards, otherwise couldn't this happen again even with GS in place?

2) I agree with transparency, depositors should know what their money could potentially be used for, but again that depends on them. There is nothing stopping them from asking right now.

3) The 4.42T that you refer to in insured accounts.. is that the sum of all accounts and not just the portions which are covered by insurance? and does that also include securities accounts, or just deposits? Anyway obviously the FDIC is another joke, as they couldn't even cover a single one of those banks going down. That is bad policy and we should do away with it instead of pretending that we can increase it when the funds aren't there.

 

[Tsing Tao]

Quote from jem:

one of the comments said...

now we find out who the congressman really work for.

any congress person who does not vote to separate govt insured deposits from highly leveraged speculation is clearly working for the banks and not the people.

voting for another tbtf bank scandal over financial security.

opensecrets.org will tell you who they all work for before they even vote on this.

 

[Martinghoul]

Quote from PiggyBank:
1) Do you care to explain or provide a link that explains how money market (i assume accounts) were leveraged? How exactly does that work, i would assume it has something to do with accounting standards which i was talking about in another post. IF that is the case, then the only way to prevent it is to change the accounting standards, otherwise couldn't this happen again even with GS in place?

2) I agree with transparency, depositors should know what their money could potentially be used for, but again that depends on them. There is nothing stopping them from asking right now.

3) The 4.42T that you refer to in insured accounts.. is that the sum of all accounts and not just the portions which are covered by insurance? and does that also include securities accounts, or just deposits? Anyway obviously the FDIC is another joke, as they couldn't even cover a single one of those banks going down. That is bad policy and we should do away with it instead of pretending that we can increase it when the funds aren't there.

1) if you google "money mkt fund reform", you'll find some info. Basically, due to old laws money mkt funds are (still) allowed to not mark to market. So they "guarantee" that their NAV never drops below $1. However, in reality the whole thing is a scam, since they have absolutely no way of guaranteeing the value of the paper they hold, especially when/if they have to liquidate into a distressed mkt (for instance, when there's a wave of redemptions).

So yes, it's a matter of accounting standards, like you say, and not directly related to G-S. Reform is kinda on its way, but the industry is fighting it tooth and nail. My point about the MMF stuff was just that it was another way for the banking system to get more leverage, once they could put it to use.

3) Yeah, $4.42trn is all FDIC-insured deposits and it's just deposits, not securities. The thing about the FDIC is that it is very capable of dealing with commercial bank failures. Such failures are part of capitalism and they are adequately covered by the FDIC insurance levies that the banks pay. Just during the recent crisis FDIC dealt with 414 bank failures (incl a lot of smaller banks in the Midwest that got killed by commercial RE loans). Problem is that the FDIC simply cannot deal with a failure of a megabank like Citi or BofA. If such a failure happens and the FDIC has to act, it will draw on taxpayer funds (full faith and credit of the US Treasury stands behind the FDIC). So you have two choices: either break up the TBTF banks, like the Brown-Vitter bill sorta calls for (won't happen, sadly), or, at the very least, ring-fence (and, if necessary, break up) the insured deposits. Both of these things are anathema to the banking lobby, so I am very pessimistic about the prospects,

 

[nitro]

Prop traders are moving to Hedge Funds:

http://www.elitetrader.com/vb/showt...erpage=6&highlight=glass stegall&pagenumber=1

Hedge Fund advertising rule about to become law:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=276431

Europe strikes deal to push cost of bank failure on investors

http://www.elitetrader.com/vb/showthread.php?s=&threadid=276023


Glass Stegall reinstated? Seems like a logical consequence of the first two above. The argument for the repeal of GS (not Goldman Sachs, although it is an interesting pun) the argument was that Europe did not have a similar law [they move in the opposite direction, see link 3 above], and US banks could not compete and it was actually sold as a national security issue (I don't remember where I read that).

If you put the pieces together posted in this and the Economics forum over the years, the logic of causation is pretty straightforward, and I expect it to pass forcefully.

 

[MarketMasher]

Eliminating TBTF Banks and stopping them from using gov't insured accounts seems to have a general approval by Libs, Conserves, and Indpends as far as I can see (in this thread too).

However, whenever you see it discussed, the reporter will always ask the person interviewed - "What are the chances of it passing?" or some such derivation.

The answer is almost universally "Slim to none."

Now, I'm not sure if that is true because of how bought-and-paid for the slime in DC is, or if there are enough plants in the media to get people watching to just become discouraged and give up on their support for it - sort of a preemptive attempt at derailing it - at least in public perception. Could be both.

BUT - it needs to be VERY prominently posted everywhere who and how many politicians will be voting against it.

The usual argument is "It's not a silver bullet - so let's do nothing."

 

[pspr]

Quote from maxpi:

The one thing I had hope for when Obama took office was that we would get some re-regulation. Then he appointed Wall Streeters as his entire cabinet [well, there was Hillary].

To be honest wasn't Hillary an expert cattle futures trader? I know she made a bundle trading cattle.