Too Big To Fail
With Top 4 US Banks Holding $217 Trillion In Derivatives, Total Number Of US Banks Drops To Record LowSubmitted by Tyler Durden on 12/03/2013 09:49 -0500
Overnight, the WSJ reported a financial factoid well-known to regular readers: namely that as a result of a broken system that ever since the LTCM bailout has encouraged banks to become take on so much risk they become systematically important (as in their failure would "end capitalism as we know it"), and thus Too Big To Fail, there has been an unprecedented roll-up of existing financial institutions especially among the top, while the smaller, less "relevant", if far more prudent banks have been forced out of business. "The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed."
Confirming that the brotherhood of the "fairness doctrine" in which everyone is equal to everyone else (but some are too big to fail or prosecute, and are thus a little more equal) will have to do much more work to bring wayward Swizterland, home to some of the world's biggest companies, fattest bank accounts and wealthiest individuals, into the socialist fold was the announcement moments ago that Switzerland roundly rejected a proposal to limit executive salaries to 12 times that of the lowest paid employee, with 66% of the voters opposing. This so-called "1:12 initiative for fair pay," was brought about by the youth wing of the Social Democrats (JUSO) which claimed that nobody should earn more in a month than others earn in a year. The outcome is notable because it was in March when Swiss voters backed proposals to impose some of the world's strictest controls on executive pay, with some 70% of voters thought to have supported plans to give shareholders a veto on compensation and ban big payouts for new and departing managers. Surprisingly, just over six months later, the drive to bring more equality to all appears to have lost it steam.
Sickcare is unsustainable for a number of interlocking reasons: defensive medicine in response to a broken malpractice system; opaque pricing; quasi-monopolies/cartels; systemic disconnect of health from food, diet and fitness; fraud and paperwork consume at least 40% of all sickcare funds; fee-for-service in a cartel system; employers being responsible for healthcare, and a fundamental absence of competition and transparency. Obamacare simply speeds up the coming collapse. The neutron bomb has gone off, unseen by politicos and the Elites who wrote the bill. It is already undercutting fulltime employment, and it will soon add momentum to the free-fall erosion of small business growth and employment.
- When it fails, do more of it - Bank of Japan hints at extending ultra-loose monetary policy (FT)
- PBOC Says No Longer in China’s Interest to Increase Reserves (BBG)
- Fed casts about for endgame on easy-money policy (Hilsenrath)
- Big trucks still rule Detroit in energy-conscious era (Reuters)
- Debt Limit Rise May Not Be Needed Until June, CBO Says (BBG)
- Some Insurance Regulators Turn Down White House Invitation (WSJ)
- Say Goodbye to the Car Salesman (WSJ)
- U.S. drone kills senior militant in Pakistani seminary (Reuters)
- French business sector contracts sharply (FT)
- How Germany's taxman used stolen data to squeeze Switzerland (Reuters)
- Fed casts about for endgame on easy-money policy (WSJ)
- France, Italy call for full-time Eurogroup chief (Reuters)
An interesting overview of Germany's attempt to solidify its hegemony in Europe.
"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal." Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder. "America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."
Would printing the cash to fund pensions for low-income retirees trigger inflation? It's more of an open question than we might imagine at first glance.
Just as the market was expecting, and may have been leaked once again, Janet didn't let anyone down. Today's exuberance in stocks matched only by confirmation that Janet Yellen has gained her helicopter pilot's license and is ready to take over the reigns of printer-in-chief from Bernanke. Key extracts: "Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential... I believe the Federal Reserve has made significant progress toward its goals but has more work to do." In short: Get to work Mr. Chairwoman, and allow Congress to keep doing more of what they have been doing under the Fed's central planning: nothing.
"I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing.... We were working feverishly to preserve the impression that the Fed knew what it was doing... The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.... Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets. As for the rest of America, good luck..... The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy."
The death of the dollar is coming, and it will probably be China that pulls the trigger. What you are about to read is understood by only a very small fraction of all Americans. Right now, the U.S. dollar is the de facto reserve currency of the planet. Most global trade is conducted in U.S. dollars, and almost all oil is sold for U.S. dollars. More than 60 percent of all global foreign exchange reserves are held in U.S. dollars, and far more U.S. dollars are actually used outside of the United States than inside of it. As will be described below, this has given the United States some tremendous economic advantages, and most Americans have no idea how much their current standard of living depends on the dollar remaining the reserve currency of the world. Unfortunately, thanks to reckless money printing by the Federal Reserve and the reckless accumulation of debt by the federal government, the status of the dollar as the reserve currency of the world is now in great jeopardy.
Goldman's (and NY Fed's) Bill Dudley: "I am not yet convinced that breaking up large, complex firms is the right approach. In particular, these firms presumably exist, in large part, because there are scale or network effects that allow these firms to offer certain types of services that have value to their global clients. These benefits might be lost or diminished if such firms were broken up. In addition, the costs incurred in breaking up such firms need to be considered. Finally, the breakup of such firms would not necessarily result in a significant reduction in overall systemic risk if the resulting component firms were still, collectively, systemic. "
"We see upside surprise risks on gold and silver in the years ahead," is how UBS commodity strategy team begins a deep dive into a multi-factor valuation perspective of the precious metals. The key to their expectation, intriguingly, that new regulation will put substantial pressure on banks to deleverage – raising the onus on the Fed to reflate much harder in 2014 than markets are pricing in. In this view UBS commodity team is also more cautious on US macro...
JPMorgan Chase has had a bad year. Not only has the bank just reported its first quarterly loss in more than a decade; it has also agreed to a tentative deal to pay $4 billion to settle claims that it misled the government-sponsored mortgage agencies Fannie Mae and Freddie Mac about the quality of billions of dollars of low-grade mortgages that it sold to them. Other big legal and regulatory costs loom. JPMorgan will bounce back, of course, but its travails have reopened the debate about what to do with banks that are “too big to fail.” We now have a global plan, of sorts, supplemented by various home-grown solutions in the US, the UK, and France, with the possibility of a European plan that would also differ from the others. In testimony to the UK Parliament, Volcker gently observed that “Internationalizing some of the basic regulations [would make] a level playing field. It is obviously not ideal that the US has the Volcker rule and [the UK has] Vickers…” He was surely right, but “too big to fail” is another area in which the initial post-crisis enthusiasm for global solutions has failed. The unfortunate result is an uneven playing field, with incentives for banks to relocate operations, whether geographically or in terms of legal entities. That is not the outcome that the G-20 – or anyone else – sought back in 2009.
Stunning Facts that Your History, Economics and Business Teachers Never Learned ...
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