Too big to fail banks... gambling again...

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The Almighty
http://www.realclearpolitics.com/ar..._banks_gamble_with_bernanke_bucks_116646.html

"...So, where is Ben's money actually going? The data show that it is being stuffed onto the balance sheets of the Too-Big-To-Fail (TBTF) banks, some of which only became "banks" overnight when their brokerage businesses faced imminent collapse. Recapitalizing these "banks" after their housing market malinvestments and the crash of their derivatives casino -- the inevitable outcome of Alan Greenspan's money printing to fuel Fannie Mae's doomsday machine -- has been the principal goal of both the Bush and Obama administrations.


With the boundaries between Goldman Sachs, Treasury, the Fed and the administration virtually disappearing; the big banks' Democratic and Republican handmaidens running interference; and the media distracted while pursuing pissant stories about debit card fees, consumer protection rules, and shareholder gadfly proxy access; all is hunky dory in TBTF land."
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"Banks" are supposed to be chartered to take in deposits and use them to make loans. Under the magic of fractional reserve banking, only a percentage of the deposited money needs to be retained as ready reserves, while the rest is put to work in the real economy. And yet here we have a "banking system" that for the first time in history has $2 trillion more in deposits than outstanding loans!


If you think this makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these "banks" to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation, this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around. (They don't call it gambling, they call it "hedging," which is a legitimate investment function, but I defy you or any regulator to define the difference.)


Remember JPMorgan's London Whale, the character that racked up $6.2 billion in trading losses before he was shown the door? Like cockroaches, you can expect more where he came from.


We have learned nothing. The Dodd-Frank bill enacted to make sure "this never happens again" has accomplished nothing. The Sarbanes-Oxley bill enacted after the last crisis to make sure "this never happens again" accomplished nothing.


Well, nothing except grind the wheels of legitimate commerce to a halt while crony capitalists with the right connections in Washington party like there's no tomorrow.


And who can blame them? Anyone who believes our innumerate Congress and the career civil servants who staff our regulatory agencies can outsmart the wizards of Wall Street is dreaming. These government buffoons couldn't catch Bernie Madoff even after someone shoved a roadmap to his fraud scheme in their hands, or find a way to prosecute Jon Corzine when he was caught red handed looting client accounts.
So buckle up for the next roller coaster plunge, followed by the inevitable rush in Washington to "do something," namely bail out the same banking potentates that trashed the economy last time. Naturally, this will require tiding the economy over by printing even more money -- all of which will explode into double digit inflation the moment key players realize that money at rest quickly evaporates if left at rest under an inflationary regime.
And when all of this comes to pass, like clockwork journalists and pundits will be sure to blame it on capitalism! As if real capitalism could exist when investors aren't obliged to bear the risk of their own losses. Foisting losses on taxpayers, then debauching the money supply to cover it up, is not capitalism. Alas, it has become business as usual.
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Nothing to see here... move along... all is well...
 
Must say thank you to the rest of the world, While all your banks fail our Aussie banks get bigger and stronger to soon rule the world economically mwuhahahaha xD
 
Gatorman said:
Isn't realclearpolitics just another rightwing blahblahblah site? I think so.
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RCP has become the "go to" site for tracking all of the national polls for elections. I'm told their editorial section leans right, but I imagine that will change as they become more competitive at maintaining their popularity as a major elections resource.
 
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uscitizen too said:
No worries, we all know that the banks will self regulate to the benefit of the USA.
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If you allowed the free market to work, the market would regulate them. But instead you have abrogated your responsibilities to the federal gobblement thinking they will look out for you. How exactly is that working out for you?

Enron?
AIG?
Fannie Mae?
Freddie Mac?
Lehman?
Bear Stearns?
CountryWide?

Yeah, it is working out swell.
 
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