Category

Banking

Washington

After 14 Years of Free-for-All, Glass-Steagall Is Back

Three cheers for Elizabeth Warren!

Yesterday she launched a wire-guided Scud missile at the too-big-to-fail banks.

The freshman senator from Massachusetts, formerly a Harvard Law School professor specializing in bankruptcy law, introduced her "21st Century Glass-Steagall Act" co-sponsored with Sens. John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus King (I-Maine).

And it's got the Big Banks shaking in their boots.

Here's why.

The 21st Century Act would separate institutions with savings and checking accounts, in other words FDIC-insured depository commercial banks, from investment and trading "banks" engaged in capital markets activities, most of which are on the border between speculation and manipulation.

Finally!

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Washington

Senators Move to Create 21st Century Glass-Steagall Act

Warren, John McCain (R-Ariz.), Maria Cantwell (D-Wash.), and Angus Kin (I-Maine) introduced legislation that would again separate bank's traditional activities (like deposits currently backed by the Federal Deposit Insurance Corp.) from riskier activities like investment banking, insurance underwriting, swap dealing, and hedge funds.

Glass-Steagall was repealed by Congress back in 1999.

When the news broke of Warren’s determined attempt to bring back Glass-Steagall last week, it covered front pages across the country and instigated a firestorm of commentary on the future of the U.S. economy.

The problem, of course, is the ability to cut through the hype and understand if financial reform is necessary to fix the U.S. economy.

Rarely do I find myself championing regulatory efforts by the Federal Government, but the financial sector is an entirely different beast from energy, agriculture, and other resource sectors.

But reinstituting key elements of the Glass-Steagall Act is just one step on a long return to sanity for the economy.

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Global Economy

New Basel Banking Regulations Mean Every Bank is its Own Cop

The Basel Committee on Banking Supervision, a global group made up of central banks, just came out with its new bank capital standards, the Third Basel Accord (Basel III), to address some of the problems and weaknesses in global financial regulation.

These problems were seen to have been a partial cause of the global financial crisis.

When banking systems adopt the regulations, which are completely voluntary, it's seen as a step towards greater transparency, a more robust system. It's seen as regulators finally getting tough. This is all part of the mad, frantic scramble for… credibility among regulators.

Sounds Good In Theory

The latest round of Basel III regulations, which were approved and adopted by the Fed just last week, call for banks to begin strengthening and improving the quality of their capital reserves. Quantity and quality of capital are absolutely vital to a healthy banking system.

It was the paradigm of the "honest-to-god, AAA mortgage-backed security," with all of its rubbish quality, willfully overstated and overestimated by U.S. ratings agencies, which helped lead us down the path to collapse just five years ago.

So why not have the banks shore up their defenses, take on more capital of good quality?

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Top News

Abuses at McDonald’s and JPMorgan Chase Help Keep America Poor

Natalie Gunshannon, a McDonald's worker from Pennsylvania, has just won the right to… draw a paycheck. Work-for-pay is a fairly straightforward system that the Western World has been using for the past six or seven centuries, give or take.

Ms. Gunshannon was an hourly employee at a McDonald's franchise in Shavertown, Pennsylvania. Her degree is in massage therapy, but jobs in that field are scarce. A single mother, she took whatever work was available, which brought her to McDonalds, where she worked the line for $7.44 an hour, 30 to 70 hours per week.

After her first pay period, she was given not a paycheck, but a "debit" card loaded with her wages. This card, backed by JPMorgan Chase & Co. (NYSE:JPM), could be used anywhere Visa was accepted – including ATMs. It all seemed very convenient.

It wasn't.

Washington

It's Enough to Make Your Blood Boil

Here are two items that will upset you…

First, back in February, Attorney General Eric Holder christened the unofficial official doctrine of "Too Big to Jail."

He told Congress, "The size of some of these institutions [TBTF banks] becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute – if we do bring a criminal charge – it will have a negative impact on the national economy, perhaps even the world economy."

Of course, it was only the christening of another neat little name.

Top News

Check Out Who's Hiding $32 Trillion in Offshore Accounts

More than two million emails that shed light on the biggest tax dodge in history – trillions of dollars hidden in offshore accounts – have been uncovered by the British newspaper The Guardian and the Washington, D.C.-based International Consortium of Investigative Journalists (ICIJ).

Some $32 trillion has been hidden in small island banking hubs which host a bevy of trust funds, shell corporations and other tax havens, the Tax Justice Network estimates.

This money is to the financial world what the Higgs boson and dark matter are to particle physics: It's tough to prove it's there, but the universe doesn't make much sense without it. It's just a matter of connecting the money to the people hiding it.

That's been a tall order… until now.

Banking

A Simple, Scary Way to Neuter Goldman Sachs and Friends 

TBTF is the acronym for "too big to fail."

It's the crazy notion that certain banks are so large and systematically important (which really means so threatening to financial systems) that they must be kept alive by the government, because their failure would wreak havoc on the economy.

How will they be saved from their own greed? And how will we be saved from their greed so we can kneel at their altars another day?

Central banks and governments, who are not as powerful as central banks, will backstop them with printed paper and taxpayer blood. That's how they'll be saved, grow bigger, and one day rule the world.

Oh, that already happened… never mind

U.S. Economy

There is No Such Thing as a "Safe" Big Bank

Thank goodness we have the FDIC and the Federal Reserve and Congressmen and women.

Thank goodness they're willing to tap the captive citizenry for as much cash as they need to back the Fed and the FDIC to safeguard our big, beautiful banks from… themselves.

Only, there's a problem.

Big bank "safety" is only a myth.

Stock Market

Why It's Time to Sell Too-Big-to-Fail Banks

I'm not buying any bank stocks here. I don't own any at present. And if I did, I'd either sell them or at least hedge them.

It's not that they're doing poorly. They're not. Bank stocks have been strong because they've been making record profits. It's been a good ride if you're a Too Big To Fail bank or a shareholder.

But, being the cautious trader I am, I'm inclined to take profits when I have them in hand. That's why I'm out of the banks. I've banked my gains and turned cautious.

Citigroup beat analysts' expectations and finished up yesterday-even though the Dow took a big tumble.

Wells Fargo and JPMorgan Chase didn't do badly last week, in terms of their earnings and profit numbers either, but investors were disappointed.

But here's why I'm cautious…

Top News

Bank Stress Tests Could Lead to Higher Dividends for These Investors

The U.S. Federal Reserve will announce results of its annual bank stress tests Thursday – which means higher dividend payouts could be on the way from a handful of U.S. banks.

The bank stress tests are designed to assess if big U.S. financial institutions can weather a major economic storm.

Then, on March 14, the Fed will announce whether or not it approves of the banks' plans to distribute profits to shareholders.

The two-stage announcement process was put into place to give banks a chance to amend their payout plans, depending upon the results of the stress tests, before announcing them publicly. The Fed must approve any plans for the nation's biggest banks to distribute profits to shareholders after assessing the impact of those distributions on the banks' capital.

"You've gone from a few years ago, when the industry as a whole didn't have enough capital, to the point where in the not- too-distant future, it's going to have too much," Jason Goldberg, a New York-based banking analyst at Barclays Plc, told Bloomberg News. "The Fed's endorsement is "a Good Housekeeping seal of approval.'"

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