Too Big to Fail

[Magox]

This is a difficult situation for the US Treasury and lawmakers to be in. It was absolutely moronic to allow Wachovia and Merril Lynch to be bought out by B of A and Wells Fargo, instead of breaking them up to more responsible smaller regional banks they sold them off to banks that had terrible risk management, who accepted TARP funds and then used the TARP funds to buy out other huge banks. I never understood this logic, 2 bad banks equal 1 super good bank??????

 

http://www.bloomberg.com/apps/news?pid=206...id=aJ8HPmNUfchg

 

Greenspan Says U.S. Should Consider Breaking Up Large Banks

 

Oct. 15 (Bloomberg) -- U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.

 

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

 

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

 

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

 

“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

 

I found this comment to be interesting:

 

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

 

Something the Bush and Obama administration don't understand.

[meazza]

This is a difficult situation for the US Treasury and lawmakers to be in. It was absolutely moronic to allow Wachovia and Merril Lynch to be bought out by B of A and Wells Fargo, instead of breaking them up to more responsible smaller regional banks they sold them off to banks that had terrible risk management, who accepted TARP funds and then used the TARP funds to buy out other huge banks. I never understood this logic, 2 bad banks equal 1 super good bank??????

 

http://www.bloomberg.com/apps/news?pid=206...id=aJ8HPmNUfchg

 

Greenspan Says U.S. Should Consider Breaking Up Large Banks

 

Oct. 15 (Bloomberg) -- U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.

 

Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

 

“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

 

At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

 

“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

 

I found this comment to be interesting:

 

“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”

 

Something the Bush and Obama administration don't understand.

 

The point wasn't to make the banks bigger, just to make sure that the banks that were going to fail had sufficient cash to honor their debt payments and counterparty obligations.

 

If not, the resulting crash would have been substantially worse.

[KD in CA]

Nonsense.

 

Just think how many lawyers would be out of work if we put the brakes on rampant corporate consolidation.

[Magox]

The point wasn't to make the banks bigger, just to make sure that the banks that were going to fail had sufficient cash to honor their debt payments and counterparty obligations.

 

If not, the resulting crash would have been substantially worse.

Of course the "point" wasn't to make the banks bigger. But the reality is that they are bigger, and that they never should of been as big as they were in the first place, which means that we are more dependent of them today than we were before, and of course that means they are more dependent of the government to bail them out if need be.

 

Treasury from the last administration and this one have totally dropped the ball. Terrible decision, and I have spoken about this for close to a year now, this article didn't inspire my views, I've repeatedly made my case about this on this board for a while now.

 

And in regards to "If not, the resulting crash would have been substantially worse." I don't buy it. The original TARP was suppose to have purchased "toxic assets" off of the banks balance sheet, and if we hadn't, then the world would of ended, so to speak. Then at the last minute they decided to go the route of the Brits, which was to recapitalize the banks to help ensure confidence to the capital markets that our government was there to backstop them. Which did have an impact, in regards to confidence. But the fact of the matter is, we never bought 1$ worth of "toxic assets", which was the original plan of the TARP.

 

But to believe that this was the single greatest action that helped averted the "crash" is simply not true. The single greatest action was done by the Federal Reserve, which was the creation of the (CPFF). The reason why there was a run on the banks wasn't so much a capital issue as it was a lack of short term funding through the over night commercial paper markets. Banks weren't trusting any banks, because no one really knew what "toxic assets" they had on their balance sheets, and no one knew which bank was the next one to drop, so as a result, over night lending halted.

 

It was the creation of the (CPFF) that averted the "crash", the Federal Reserve was the lendor of last resort.

 

So when I hear people tell me about the TARP bailout being the main reason for helping pull this economy out of the abyss, I dismiss it, because the reality of the matter is that the source of the panic had just about everything to do with short term lending, and at the end of the day, the FED stepped up to the plate, when no one else would.

[bills_fan]

This is a difficult situation for the US Treasury and lawmakers to be in. It was absolutely moronic to allow Wachovia and Merril Lynch to be bought out by B of A and Wells Fargo, instead of breaking them up to more responsible smaller regional banks they sold them off to banks that had terrible risk management, who accepted TARP funds and then used the TARP funds to buy out other huge banks. I never understood this logic, 2 bad banks equal 1 super good bank??????

 

 

Thats already happening at Citi, its getting much smaller.

See Article

[Magox]

Thats already happening at Citi, its getting much smaller.

See Article

Citi is screwed, as they should be. When they sold Phibro last week for $250 Million, I was wondering to myself "what the hell was that?" Phibro was a very successful Energy trading unit that profited well over $400 Million a year and now they were being sold for pennies on the dollar.

 

I'm glad to see Citi get sold off, I think overall it is a step in the right direction. Obviously the losers on this are going to be the shareholders and taxpayers. In my view, we will most likely lose billions of dollars on that deal, as they won't be able to generate the revenues to be able to pay off the debt.

 

I don't quite understand why their "crown jewels" are getting sold so cheaply, I would think that if they exercised patience (which I'm sure the government is not allowing them to), that they would be able to get better value for some of their top assets.

[GG]

Citi is screwed, as they should be. When they sold Phibro last week for $250 Million, I was wondering to myself "what the hell was that?"

 

You didn't know what Phibro was at Citi?

 

[Magox]

You didn't know what Phibro was at Citi?

 

I was surprised that it was sold for only $250 Million. I've been following Citi's/Phibro's analysts for years, and was stunned to hear of the cheap price tag.

[Magox]

Looks like some people are "sorry" about the Repeal of GS

 

http://www.bloomberg.com/apps/news?pid=206...7D578&pos=6

 

Reed Says ‘I’m Sorry’ for Role in Creating Citigroup

 

Nov. 6 (Bloomberg) -- John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

 

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are people I love and care about. You could imagine emotionally it’s not easy to see what’s happened.”

 

Citigroup was formed in 1998 when Citicorp, a commercial bank, combined with Sanford I. Weill’s Travelers Group Inc., which owned the investment firm Salomon Smith Barney Holdings Inc. The New York-based company lost $27.7 billion in 2008 and took $118 billion in writedowns. Now 34 percent-owned by the Treasury Department, Citigroup sought help in the wake of a credit freeze that claimed three of Wall Street’s biggest firms and led to the deepest recession in 70 years.

 

Congress’ overhaul of U.S. financial regulations should include ordering banks to hold more capital, ensuring executives’ compensation is aligned with long-term profitability and banning firms that take deposits from also engaging in equities and fixed-income trading, Reed said.

 

Glass-Steagall Repeal

 

Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.

 

“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities. “When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”

[drnykterstein]

Bernie Sanders just finished a bill proposal that would make banks to big to fail break up. I assume he'll introduce it to the senate soon.