Am I wrong for being stressed about the recent Citigroup bailout provision?

[repoman]

Something like this was to be expected to be attempted by financial sector lobbyists. Also the timing on the cusp of the second half a lame duck presidential term makes a lot of sense.

I also have a worry that because this is law now that it will lead to a 2008 level or higher crisis in the near term - before the provision is removed or judicially invalidated. Could there be something about the current FDIC regulations that makes the provision invalid on its face? I mean there is no way that the spirit of the FDIC was meant for this.

What effect will this have in the opinion of the more knowledgable members here?

 

[Nice Squirrel]

You are not wrong, but remember who is really in charge of our country.

 

[bleubird]

not quite on point,but gets to the heart of the problem.
https://www.youtube.com/watch?v=F3_EXqJ8f-0

 

[repoman]

I have seen that before, and yeah that is even a bigger tangent than even I normally make. Seems pretty accurate.

I feel like the boom and bust cycle even without financial chicanery and lobbyist writing laws is bound to happen. Also, it seems like we are soon to be due for a massive downturn. But now we are also ready to have a massive write off of these derivative positions - this what was not easy a month ago.

I don't know what the timeline is for any of this. I guess that you could search for people who were correct about 2008 and who also are not constant doomsayers who have predicted 20 of the last 4 recessions.

Part of what I have been doing is working like a dog in my job and scraping like mad to save because I am not in a recession proof job. I have saved ~30 months living expenses this year. Not a healthy way to live, though.

 

[boneyard bill]

Something like this was to be expected to be attempted by financial sector lobbyists. Also the timing on the cusp of the second half a lame duck presidential term makes a lot of sense.

I also have a worry that because this is law now that it will lead to a 2008 level or higher crisis in the near term - before the provision is removed or judicially invalidated. Could there be something about the current FDIC regulations that makes the provision invalid on its face? I mean there is no way that the spirit of the FDIC was meant for this.

What effect will this have in the opinion of the more knowledgable members here?

Your post here seems to me to be a bit confusing. Are you referring the recent "cromnibus" bill that Congress passed that essentially repeals the Volcker Rule? If so, I don't know why you singled out Citigroup in particular.

This is a bad decision, but I think it's a minor one. The Wall Street banks are insolvent with or without the Volcker Rule. They won't survive the next crash unless the Fed bails them out, but the Fed is insolvent as well so it is questionable whether or not the Fed will act. The fundamentals of the US economy are terrible, particularly the deficits and the debt, but our foreign trade and payments balances are also terribly out of whack. This all has to come unraveled. There's no way to prevent it at this late date.

 

[laughing dog]

This is a bad decision, but I think it's a minor one. The Wall Street banks are insolvent with or without the Volcker Rule. They won't survive the next crash unless the Fed bails them out, but the Fed is insolvent as well so it is questionable whether or not the Fed will act. The fundamentals of the US economy are terrible, particularly the deficits and the debt, but our foreign trade and payments balances are also terribly out of whack. This all has to come unraveled. There's no way to prevent it at this late date.

You persist in posting these unsubstantiated claims about the "insolvency" of Wall Street banks and the Fed. What definition of "insolvent" are you using to make these claims and which actual banks are you making these claims about?

 

[repoman]

http://www.motherjones.com/politics/2014/12/spending-bill-992-derivatives-citigroup-lobbyists

A year ago, Mother Jones reported that a House bill that would allow banks like Citigroup to do more high-risk trading with taxpayer-backed money was written almost entirely by Citigroup lobbyists. The bill passed the House in October 2013, but the Senate never voted on it. For months, it was all but dead. Yet on Tuesday night, the Citi-written bill resurfaced. Lawmakers snuck the measure into a massive 11th-hour government funding bill that congressional leaders negotiated in the hopes of averting a government shutdown. President Barack Obama is expected to sign the legislation.

"This is outrageous," says Marcus Stanley, the financial policy director at the advocacy group Americans for Financial Reform. "This is to benefit big banks, bottom line."

As I reported last year, the bill eviscerates a section of the 2010 Dodd-Frank financial reform act called the "push-out rule":

Banks hate the push-out rule…because this provision will forbid them from trading certain derivatives (which are complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates). Under this rule, banks will have to move these risky trades into separate non-bank affiliates that aren't insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive government bailouts. The bill would smother the push-out rule in its crib by permitting banks to use government-insured deposits to bet on a wider range of these risky derivatives.

The Citi-drafted legislation will benefit five of the largest banks in the country—Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Wells Fargo. These financial institutions control more than 90 percent of the $700 trillion derivatives market. If this measure becomes law, these banks will be able to use FDIC-insured money to bet on nearly anything they want. And if there's another economic downturn, they can count on a taxpayer bailout of their derivatives trading business.

 

[boneyard bill]

This is a bad decision, but I think it's a minor one. The Wall Street banks are insolvent with or without the Volcker Rule. They won't survive the next crash unless the Fed bails them out, but the Fed is insolvent as well so it is questionable whether or not the Fed will act. The fundamentals of the US economy are terrible, particularly the deficits and the debt, but our foreign trade and payments balances are also terribly out of whack. This all has to come unraveled. There's no way to prevent it at this late date.

You persist in posting these unsubstantiated claims about the "insolvency" of Wall Street banks and the Fed. What definition of "insolvent" are you using to make these claims and which actual banks are you making these claims about?

The SEC has not re-instated the "mark to market" rule. That is prima fascie evidence that the banks are not solvent under that rule. There is no reason otherwise not to re-instate it. The big Wall Street banks are known to be heavily involved with derivatives and these derivatives are very highly leveraged so many of their assets have to be at risk. Meanwhile, under QE, the Fed was buying up billions of dollars a month in MBS's from the banks to help shore them up. These facts lead me to conclude that those analysts who are saying that the Wall Street banks are insolvent are correct.

 

[boneyard bill]

http://www.motherjones.com/politics/2014/12/spending-bill-992-derivatives-citigroup-lobbyists

A year ago, Mother Jones reported that a House bill that would allow banks like Citigroup to do more high-risk trading with taxpayer-backed money was written almost entirely by Citigroup lobbyists. The bill passed the House in October 2013, but the Senate never voted on it. For months, it was all but dead. Yet on Tuesday night, the Citi-written bill resurfaced. Lawmakers snuck the measure into a massive 11th-hour government funding bill that congressional leaders negotiated in the hopes of averting a government shutdown. President Barack Obama is expected to sign the legislation.

"This is outrageous," says Marcus Stanley, the financial policy director at the advocacy group Americans for Financial Reform. "This is to benefit big banks, bottom line."

As I reported last year, the bill eviscerates a section of the 2010 Dodd-Frank financial reform act called the "push-out rule":

Banks hate the push-out rule…because this provision will forbid them from trading certain derivatives (which are complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates). Under this rule, banks will have to move these risky trades into separate non-bank affiliates that aren't insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive government bailouts. The bill would smother the push-out rule in its crib by permitting banks to use government-insured deposits to bet on a wider range of these risky derivatives.

The Citi-drafted legislation will benefit five of the largest banks in the country—Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Wells Fargo. These financial institutions control more than 90 percent of the $700 trillion derivatives market. If this measure becomes law, these banks will be able to use FDIC-insured money to bet on nearly anything they want. And if there's another economic downturn, they can count on a taxpayer bailout of their derivatives trading business.

The "push-out" rule seems to be the same as the Volcker Rule. It was supposed to replace the Glass-Steagel repeal with a system that would allow commercial banks to continue to act as investment banks but with strictly segregated assets in which risky investments would not receive FDIC protection.

This is the reason the "Omnibus bill" has been re-named the "Cromnibus bill" (as in crony omnibus) by opponents of the measure.

 

[Togo]

You persist in posting these unsubstantiated claims about the "insolvency" of Wall Street banks and the Fed. What definition of "insolvent" are you using to make these claims and which actual banks are you making these claims about?

The SEC has not re-instated the "mark to market" rule. That is prima fascie evidence that the banks are not solvent under that rule.

<sigh> What is the value of an asset for which there is not a liquid market, and how on earth would you 'mark it to market'?

I know you're fond of this idea that not marking to market means something is somehow worthless, but most assets aren't marked to market most of the time, so why would a universal 'mark to market' rule be even vaguely sensible? To be clear, you're advocating that an asset that produces a regular income of, say, a million $ a year should be treated as worthless. Can you state why this would be an accurate measure?

The big Wall Street banks are known to be heavily involved with derivatives and these derivatives are very highly leveraged so many of their assets have to be at risk.

That doesn't follow.

 

[repoman]

crony omnibus makes sense, but I think it means continuing resolution omnibus.

 

[laughing dog]

You persist in posting these unsubstantiated claims about the "insolvency" of Wall Street banks and the Fed. What definition of "insolvent" are you using to make these claims and which actual banks are you making these claims about?

The SEC has not re-instated the "mark to market" rule. That is prima fascie evidence that the banks are not solvent under that rule. There is no reason otherwise not to re-instate it. The big Wall Street banks are known to be heavily involved with derivatives and these derivatives are very highly leveraged so many of their assets have to be at risk. Meanwhile, under QE, the Fed was buying up billions of dollars a month in MBS's from the banks to help shore them up. These facts lead me to conclude that those analysts who are saying that the Wall Street banks are insolvent are correct.

I will rephrase the questions again. First, which actual banks are "insolvent"? Second, on what actual basis - not some conspiracy deduction - are these actual banks insovlent? Third, on what actual basis is the Fed insolvent?

 

[Harry Bosch]

I will rephrase the questions again. First, which actual banks are "insolvent"? Second, on what actual basis - not some conspiracy deduction - are these actual banks insovlent? Third, on what actual basis is the Fed insolvent?

?? You are the one asserting that there is a conspiracy to keep some insolvent banks open! I think that the burden is on you to produce some evidence to support your claim.

 

[laughing dog]

I will rephrase the questions again. First, which actual banks are "insolvent"? Second, on what actual basis - not some conspiracy deduction - are these actual banks insovlent? Third, on what actual basis is the Fed insolvent?

?? You are the one asserting that there is a conspiracy to keep some insolvent banks open! I think that the burden is on you to produce some evidence to support your claim.

This must be sarcasm.

 

[Harry Bosch]

This must be sarcasm.

I'm sorry! I'm on my iPhone and thought your post was from Bill! My fault!