Archive for August 2009

What’s Bigger Than Too Big To Fail?

August 28, 2009

From The Washington Post:  

greengiantBanks ‘Too Big to Fail’ Have Grown Even Bigger

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.
“It is at the top of the list of things that need to be fixed,” said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis.”

Moral hazard alert level: Red.

Advertisements

Why The Fed Is Afraid Of An Audit

August 28, 2009

From Paul Kasriel of Northern Trust, via Clusterstock:

 Today, we have federal deposit insurance. Therefore, the probabilities and magnitude of depositor runs on banks are much reduced compared with 1933. Yet, we can see “runs” by stockholders and other creditors of banks if there is a suspicion of financial problems. If the Fed is required to  publish the names of financial institutions to which it has extended credit and this publication
induces financial institutions to refrain from borrowing from the Fed, one can only speculate if this would be the tinder for another liquidity conflagration in the coming months.

And even in a worst-case scenario, letting insolvent banks fail would be a bad thing, why?

Barney Frank Says Audit the Fed Bill Will Pass

August 28, 2009

This is the most excellent news 13 o’clock has heard in a very long time.  Congressman Frank, we’re going to hold you to your word on this. Do not disappoint us.

 

Transcript from The Washington Times:

“I have been pushing for more openness from the Fed. I want to restrict the powers of the Federal Reserve. First of all, the Fed will be the major losers of power if we are successful, as I believe we will be, setting up a financial product protection commission. The Federal Reserve is now charged with protecting consumers. They were supposed to do subprime mortgage restrictions.

Congress in 1994 gave the Fed powers to ban subprime mortgages. Alan Greenspan refused to do it. They had the power to ban credit card abuses. Under Greenspan they did nothing. Under Bernanke they started but only after Congress acted.That’s one of the reasons why in the new consumer protection agency, we will take away from the Federal reserve the power to go consumer protection.

Secondly, they have has since 1932 a right under Herbert Hoover to intervene in the economy whenever they could. Last September, the Federal Reserve they were going to advance $82 billion to AIG. I was kind of surprised and said, ‘Mr Bernanke do you have $82 billion?’ Mr. Bernanke replied, ‘I have $800 billion and under section 13.3 of the Federal Reserve Act they can lend anything they want.’

We are going to curtail that lending power. We are going to put some restrictions on it.

Finally we will subject them to a complete audit. I have been working with Ron Paul, who is the main sponsor of that bill. He agrees that we don’t want to have the audit appear as if influences monetary policy as that would be inflationary.

One of the things the audit will show you is what the Federal Reserve buys itself. And that will be made public, but not instantly because if it was made instantly people would be trading off it, so the data would be released after a time period of several months, enough time so it will not be market sensitive. This will probably pass in October.”

The Current Banking Crisis Is Much Worse Than The Great Depression

August 25, 2009

I’ve said all along that you can’t compare the actual numbers of failed banks during the Great Depression to the actual numbers of failed banks in the current crisis and use that as proof that things aren’t as bad this time around.

What I wanted to know is what are we talking about in terms of actual dollars, adjusted for inflation? What I mean is, when a bank the size of WaMu, Guaranty, Colonial or IndyMac fails, how many Depression-era banks would it be equvalent to?

Are we approaching the same amount of losses today? Have we surpassed previous losses already?

I finally found what I was looking for at The Street. Adjusted for both population and inflation, this current banking crisis is much worse than the Great Depression. Worse, even, than the S&L crisis of the 1980’s.

The S&L crisis was about five times bigger than the banking crisis of the Great Depression. The current crisis is about 25 times larger than the Great Depression. Both are per capita, adjusted for inflation. The current crisis is so large because the financial sector has grown to unprecedented economic dominance. The financial sector constituted 45% of earnings for the S&P 500 in 2006. If half of your eggs are in one basket, your diet becomes very restricted if you drop that basket.

Read the entire article

Many thanks to John Lounsbury of The Street for doing the research and proving once and for all what a lot of us have suspected for some time now.

That Cash You Got For Your Clunker Is Taxable

August 25, 2009

This just in… there ain’t no such thing as a free lunch!

clunker

Keloland Television: But many of those cashing in on the clunkers program are surprised when they get to the treasurer’s office windows. That’s because the government’s rebate of up to $4500 dollars for every clunker is taxable.

“They didn’t realize that would be taxable. A lot of people don’t realize that. So they’re not happy and kind of surprised when they find that out,” Nelson said.

Karl Denninger explains further at The Market Ticker:

The amusement here is how most (if not all) states compute sales tax (charged when you register the vehicle.)

When you buy a new car you pay tax on the difference between the new car’s purchase price and the trade-in you present to the dealer. This is an intentional distortion in the law that is intended to favor dealers over private-party used car sales; if you sell your used car privately the new buyer pays sales tax but you do not get the offset on the purchase of your replacement vehicle – the only way to get that is to trade the car.

Dealers use this, of course, in negotiations, effectively pocketing the sales tax – and why not? It’s a real difference to you!

But the “cash for clunkers” is not a trade-in. That’s a $4,500 check from the government, basically.

So you get nailed at least once and possibly twice. Specifically, you pay sales tax on the full vehicle price (effectively paying sales tax on the $4,500!) and what’s worse those states that tax income (that would be most of them!) might wind up counting this as income for state income tax purposes too, effectively taxing you twice.

Repeating – It’s All About the Money

August 24, 2009

This just in from The Business Insider

Healthcare Bill Includes $10 Billion Earmarked For Union Retirees

Based on this Detroit News report, it sounds like at least one healthcare reform bill includes a big fat gift to the UAW:

The United Auto Workers is urging its members to back efforts in Congress to reform health care coverage, citing a provision that includes $10 billion to defray the medical costs of union members and others in reitrees.

The bill, approved by a House committee late last month, includes Section 164, a reinsurance program for retirees, according to a summary of the bill from House Speaker Nancy Pelosi’s office. It sets aside $10 billion to establish a temporary reinsurance program to provide reimbursement to participating employment-based plans for part of the cost of providing health benefits to retirees age 55-64 and their families. A Senate version has nearly identical language.

The UAW says the language doesn’t just apply to the UAW, but also to steelworkers and muni unions. As political favors go, that makes it a little more palatable. Still, stories like this don’t help reform efforts, since opponents can latch onto them and blow them all out of proportion, even if $10 billion is pretty tiny by the standards of the healthcare system.

And that, boys and girls, is the Chicago Way.

Town Hall Meeting with U.S. Congressman Brian Baird

August 24, 2009

Thirteen O’Clock salutes David Hedrick’s courage in standing up and speaking for liberty.