A Banking Crisis Shouldn’t Be the Taxpayer’s Problem.
Chairman and CEO of JPMorgan Chase, Jamie Dimon wrote shareholders about banking turmoil, “As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
IGI Global defines a banking crisis:
1. Banking crisis reflects the crisis of liquidity and insolvency of one or more banks in the financial system. Due to bank’s sizable losses, bank encounters critical liquidity shortage…disrupting its ability in repaying the debt contracts and the withdrawals demanded by depositors.
2. A subset of financial crises that are felt acutely within the banking sector…having national and international implications wherein either the given capital of the banking system is practically exhausted,…or where the cost of resolving the problems of a financial system amounts to at least 3-5% of the national Gross Domestic Product.
Banks lose billions on high-risk investments, creating a tsunami of economic problems. Private businesses fail all the time. Why is the banking system treated differently?
|“Crisis is the rallying cry of the tyrant.”
— James Madison
No one worried about a “banking crisis” until 2008. The bank bailouts amounted to trillions, punishing savers & taxpayers in the process. Repealing the Glass-Steagall act in 1999 created “too big to fail”, mega casino-banks. JP Morgan, Wells Fargo, Bank of America, Citigroup and US Bancorp control 40% of the wealth of the nation.
Former colleague, John Mauldin discusses the failed Silicon Valley Bank: (Emphasis mine)
“We’ll begin by noting something odd at Silicon Valley Bank: At the time it failed, some 96% of SVB’s deposits were in excess of the FDIC limit ($250,000 in most cases) and therefore uninsured.
More accurately, they would have been uninsured except that the FDIC, in consultation with the Federal Reserve Board and Treasury Secretary Janet Yellen, invoked a ‘systemic risk’ clause to extend unlimited coverage to all SVB deposits.
This decision wasn’t cost-free. Last week the FDIC announced it had, after liquidating SVB’s assets, paid out an additional $20 billion to make depositors whole.
This was charged to the FDIC’s Deposit Insurance Fund, which is funded by assessments on all banks and must now be replenished.
Also keep in mind, the FDIC is backstopped by the US Treasury if its own funds are insufficient. ‘Taxpayers’ didn’t pay anything this time but are potentially at risk.
That makes it harder to deny SVB depositors received a ‘bailout.’ …. The FDIC essentially unloaded SVB’s easily tradeable assets, sold the rest to another bank, and still had to draw from its own reserves to make good on the expanded deposit insurance guarantee.
Those who received the benefit had been clearly warned not to expect any such thing, yet they got it anyway. ‘Bailout’ seems to fit. SVB wasn’t systemic until it was.
…. We are now in a situation where many presume the insurer (FDIC) will cover far more damages than it should under its current rules.
This incentivizes both depositors and banks to take more risks on the assumption they will be bailed out if necessary.
…. The key point is to avoid privatizing profits and socializing losses.”
Bill Bonner adds:
|“Why are these big banks willing to accept such high risks even though they know the risks have the potential to cause bankruptcy? They expect the government will bail them out.”
— Urs Vrijhof-Drose
“As with all the other efforts made by the elites…they can’t prevent the grim consequences of their own mistakes. They just move the costs onto people who don’t deserve them…and make it worse.”
So, the FDIC, in consultation with the Federal Reserve (Owned by the banks) and Treasury Secretary (former Fed head) Janet Yellen decide to invoke a “systemic risk” clause to “bail out” all SVB deposits. Unelected government bureaucrats, with total conflict of interest, put taxpayers on the hook – while Congress fiddles.
Jamie Dimon, head of the largest casino-bank lectures us about what should be done. Let’s dissect some of his preaching – with my emphasis and comments….
“The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves. Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight.”
Hiding in plain sight? Your bank is part owner of the Fed, the bank regulator. The President of SVB was a director of the San Francisco Fed when it failed. No surprise the obvious risks were hidden, the system is wrong, the regulators (Fed) should not be owned by the companies they oversee….
His pontification continues:
“While this crisis will pass, lessons will be learned, which will result in some changes to the regulatory system. It is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended.
…. America (has) the best and most dynamic financial system in the world – from various types of investors to its banks, rule of law, investor protections, transparency, exchanges and other features.”
Investor protections? Wall Street On Parade (WSOP) reports, A Growing Lack of Confidence in the Fed Is Spilling Over into a Lack of Confidence in U.S. Banks.
“Millions of Americans are beginning to ask:
Is the Federal Reserve (the ‘Fed’) a competent central bank or a terminally compromised regulator that simply does the bidding of Wall Street’s mega banks to the peril of average Americans and the U.S. economy? Millions of other Americans have already made up their minds on this point.
These persistent doubts about an institution with an $8.8 trillion balance sheet – that is backstopped by the U.S. taxpayer – is very bad for confidence in the U.S. banking system, especially when the Fed pivots from one banking bailout to the next. …. The Fed’s balance sheet…has soared by 847 percent in just over 15 years of serial bailouts.
…. When the Levy Institute of Economics tallied up all of the Fed’s lending programs,…it came up with a cumulative tally of $29 trillion in emergency Fed loans.”
WSOP shines the spotlight:
“Wall Street mega banks have a long history of talking a good game while surreptitiously doing deceitful things behind a dark curtain. Let’s not forget that some of the biggest names on Wall Street, in the leadup to the financial crisis of 2008, were driving the U.S. housing market deeper into despair by shorting (making bets against) the residential mortgage bonds they had sold to their own customers as solid investments.”
Rule of law? Cut the crap! The top five banks have been fined around $200 billion for breaking the law.
“Wall Street On Parade…continues to demand accountability for the former President of the Dallas Fed, Robert Kaplan, making million dollar plus trades in S&P 500 futures while sitting on inside information as a voting member of the Federal Reserve’s Federal Open Market Committee (FOMC). …. The Chair of the Fed, Jerome Powell, had the audacity to refer this investigation to the Fed’s own Inspector General, who reports to the Fed Board of Governors that is chaired by Powell.”
WSOP reminds us:
“The Board of Directors of JPMorgan Chase Bank have allowed Jamie Dimon to remain as Chairman and CEO despite five felony counts (to which the bank admitted) and a rap sheet that is unprecedented in the annals of banking in the U.S.”
Jamie, you were on the board of the NY Fed, were your misdeeds in plain sight?
Transparency? The Fed has constantly fought Freedom Of Information Act requests, appealed court rulings and stonewalled requests for information.
I agree with Dimon’s “common goals”:
- We should want a system in which a bank failure does not cause undue panic and financial harm.
- We want proper transparency and strong regulations.
- Regulation, particularly stress testing, should be more thoughtful and forward looking.
- We should decide a priori what should stay in the regulatory system and what shouldn’t.The debate should not always be about more or less regulation but about what mix of regulations will keep America’s banking system the best in the world, such as capital and leverage ratios, liquidity,…resolution rules, deposit insurance, securitization, stress testing,…and other requirements.
Phony prose…. A reporter should ask him if he advocates reinstatement of the Glass-Steagall Act.
A responsible Congress, keeping bankers out of the process, should follow his guidelines and do the following:
- Immediately reinstate Glass-Steagall, outlawing all banks from privatizing profits and socializing losses.
- Bank executives should be prosecuted for wrongdoing, with mandatory jail time for felony convictions. Executives should lose their jobs, benefits and golden parachutes.
- End the Fed; their track record is clear; including shielding criminal behavior at the expense of those they are supposed to protect.
- All banks must have adequate reserves on deposit at their bank to handle liquidity concerns.
- If a bank is deemed “too big to fail” it is too big. Break them up immediately.
Friend Chuck Butler read my recent about the corrupt banks and commented, “You said what needs to be said – but, you come off pretty harsh.” Perhaps so, unless the people stand and FORCE Congress to crack down on the Fed and banks, our entire economic system will collapse!
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On The Lighter Side
I want to thank the readers who have written in, many encouraging me to continue to drive home the point that something has to change, and quickly. It is going to take something dramatic to get Congress to do something positive to fix the situation. In the past they have scoffed that voters throw a “hissy fit” and tend to pay lip service while they do nothing. This time IS different.
One small pleasure, we are in Indiana and celebrated my 83rd birthday this week. “Where did the time go?”
Speaking of small pleasures, Jo was eagerly waiting for our cactus flowers to start blooming.
She took a couple photos before we left.
The one on the left is on a huge cactus with hundreds more blooms ready to burst open.
It will be beautiful.
Our neighborhood was ablaze with color as we left for the airport. As we drive through the neighborhood, our head is on a swivel, marveling at the beauty of the desert flowers. The temperatures were in the 80s and we know when we return in late June they will be in triple digits. I’ve always thought there was something special about springtime, beautiful flowers, winter is over and life begins anew.
One nice thing is we get to experience springtime in Indiana with its own helping of breathtaking beauty.
Quote of the week…
“I’ve always appreciated simple things, driving though the countryside looking at nature’s beautiful creations, sitting at the seashore watching the waves roll in or gazing at the stars twinkling on a cool summer night.
The musical, “Stop the world, I want to get off” is all about the cycles of life. Make the time to smell the flowers, breath in the ocean air and daydream as you look at the stars.” — Dennis Miller
Friend Alex N. sends some more Indian Hills signs for out enjoyment:
And my favorite…
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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