Basel III: TBTF banks drag us back to the brink

(HT: Vern).  I don't pretend to get this 100%. But here's the upshot: the evil TBTF banks have successfully lobbied for lower liquidity (i.e. cash) requirements from the international "Basel III" Committee on Banking Supervision. Specifically, the banksters have been fighting to include riskier (read: shittier) securities in the numerator of the so-called Liquidity Coverage Ratio that banking regulators use to assess the riskiness of a bank.

Why is liquidity important, and why are the mega-banks lobbying to lower the liquidity requirements? Because the 2007-08 financial crisis started with the collapse of AIG, which in turn caused a run on banks when they couldn't honor their deposits and pay their creditors (because AIG was supposed to "insure" the banks' riskier investments that were a toxic house of cards). In other words, everybody everywhere had a shortage of cash simultaneously, leading us to near-collapse of the global financial system... until the U.S. Treasury, Federal Reserve and other central banks stepped in with huge amounts of free cash for the banks, which continues to this day.

So... now older and wiser, our banking regulators were supposed to pass Basel III reforms to prevent this from happening again... but the banksters and their lobbyists are patient and persistent, and have continued pushing to restore risk, since the only way they can make huge profits for themselves at our expense is through huge amounts of leverage (i.e. using borrowed money to buy assets and securities).  

I know it's tempting to let your eyes glaze over and ignore this stuff, or just buy into the myth that "irresponsible borrowers" and the FMs caused the Great Recession, but you really need to pay attention and tell your Congressmen that you care about banking supervision.  The mere fact that they (the banksters) care about this and spend $ billions to prove it, while you and I are silent, puts them at a huge advantage. 

You Call That Liquid? New Basel III Liquidity Rules Ineffectual

By Mayra Rodriguez Valladares

January 7, 2013 | American Banker

URL: http://www.americanbanker.com/bankthink/you-call-that-liquid-new-basel-iii-liquidity-rules-ineffectual-1055635-1.html

Johnson: Raise equity requirements for TBTF banks

Johnson's argument is a bit technical for us non-bankers, but the gist is this: regulators should force banks to hold more "tangible" equity -- meaning real money from investors -- as a share of their tangible assets.  A bank's tangible assets include customers' deposits (which are liabilities the bank must pay back).  

The truth is that nobody has come up with a good way to assess a bank's riskiness when they are so highly leveraged, no matter how much the banks may assure us they know how.  Right now, the banks basically regulate themselves, telling the regulators how risky they are.  This can't continue. 

Big banks resist a higher Tangible Common Equity (TCE) ratio because: 1) they can make a lot more profit using high leverage (over-borrowing) than they can raising equity from investors; and 2) if they make bad bets with borrowed money then we taxpayers will bail them out anyway.

If you're interested in this somewhat abstruse but absolutely crucial issue, you can learn more here.

A Very Strange Way to Assess the Safety of Banks

By Simon Johnson

October 1, 2012 | Bloomberg

URL: http://www.bloomberg.com/news/2012-09-30/a-very-strange-way-to-assess-the-safety-of-banks.html

Taibbi: Romney's wealth came from debt

Taibbi pointed out: 

What most voters don't know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America's top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.

And who financed Romney's leveraged buyouts?  Wall Street investment banks.  So don't hold your breath waiting for Romney to regulate the TBTF banks.  Romney gives two thumbs up to the financialization of the U.S. economy.

During the GOP primaries, Gov. Rick Perry called Romney a "vulture capitalist."  Taibbi gives an example of what Perry meant: KB Toys in Massachusetts. Bain bought it with just $18 million of its own cash and $302 million in borrowed money, and then induced KB to pay $120 million in dividends to Bain and its investors, and forced KB to take out $60 million in bank loans to finance it.  Plus KB had to pay for the debt that Bain took on to buy the company!  

Bain did the same thing to Dunkin' Donuts.  Taibbi noted that DD must sell 2.5 million cups of coffee every month just to service Bain's debt.  

Romney and Bain Capital were not in the business of "turning around" ailing companies or employing U.S. workers.  Romeny was about making a big, fast return for Bain and its investors by any means necessary.

So why does this matter?  Because Romney's job as POTUS would be the opposite of his job at Bain Capital: not to create a profit for a small in-group by loading up firms with debt and cutting jobs, but rather to create jobs and wealth for the most U.S. citizens possible and cutting the national debt.  Romney does not know how to do that.  Romney's business experience, his vast wealth, came from doing the exact opposite of what America needs today.

Matt Taibbi: The Secret to Mitt Romney's Fortune? Greed, Debt and Forcing Others to Foot the Bill

By Amy Goodman

August 30, 2012 | Democracy Now

URL: http://www.democracynow.org/2012/8/30/matt_taibbi_the_secret_to_mitt

It's safe to forget about the SAFE Act

I hope there is hope for the SAFE Act to break up the TBTF banks, or at least forbid them from having a "leverage ratio" of more than 10 to 1, but I suspect this bill will be DOA, thanks to the campaign money of Wall Street.

Breaking Up Four Big Banks

By Simon Johnson

May 10, 2012 | New York Times

URL:  http://economix.blogs.nytimes.com/2012/05/10/breaking-up-four-big-banks/