Banking Crisis

[mukoh]

I highly doubt you will see large amounts of people involved in handcuffs, unless they have been talking out loud in a public place after a few too many.

To realize why, is to know just how the system has worked for a long long time and how many people are involved, and that in reality bending the rules has always been a common practice in the white collar large lending. IndyMac was taken down not for just its huge withdrawls and liquidity issues, but because the people above all knew what went on in that place and nobody wanted to expose the whole system, and have the 120+ top managers lined up in court. If they did that, every bank would be in the same spot.
FDIC at this point doesn't care it is too busy as well as the three letter agencies, as files in IndyMac have disappeared before feds came in. It cleanses the system, but doesn't bring attention to it. Makes it appear as a regular whipeout.

Not sure about WaMu, never knew anyone there, but I think Chase got a steal in the marketplace that they never had presence. Even at the loan losses that are observed on top, it is a great aquisition for 20+ year term.

[rose-colored-coolaid]

Just thinking out loud here, but could a massive "get out the witnesses" campaign change things? What if someone started running "it's your civic duty to see these criminals in chains" advertisements. In many cases, there must be dozens of witnesses.

[mukoh]

RCC,
People who are high up, that have intent and have done things the way they have been done for countless decades will never witness anything. As a gray area where there haven't been prosecutions in my memory. Good luck finding anyone with anything concrete with intent all written out and ready to face the LJ.

I am however happy to see a lot of the regular brokers getting shaftet for forgery which was rampant. However their superiors won't be.

[plymster]

I agree with Mukoh. Much as I like RCC's "suit frogmarch" hope for the future, the past 30 years have proven that this will not be the case. No resources are devoted to prosecuting white-collar crime, even though it is arguably the most damaging to society as a whole.

The next administration is currently touting "bipartisan" agreement, and has no interest in raking the muck. If anything the recent Dem scandals (Rod Blogoyovech, and Bill Richardson) are just warning shots in case the Dems do try to prosecute anyone. I know there were some tinfoil theories floating around about Spitzer getting taken down because he was about to expose a bunch of suits.

If people get pissed enough, you'll see some celebrity business-person get paraded around (like Martha Stuart) to salve the public dignity. You might also have a handful of really obvious crook-suits singled out like Bernie Ebbers and Ken Lay, but you won't have the cleansing you need (like thousands of people from S&P, Fitch, Moody's, Chase, Countrywide, Lehman, Bear Stearns, etc.).

It's sad, too. If we could just enforce some of the damn laws we have on the books, we could put an end to a lot of the fraud that's been raping the country for a generation.

[WestSideBilly]

I'd agree with plymster. I somewhat expect to see a couple token arrests made in a high profile case, but done in a way that doesn't expose the thousands of bankers, "regulators", and other officials that turned a blind eye.

[rose-colored-coolaid]

So, am I the only one who has heard growing rumblings lately about nationalizing the banking sector...or at least creating one really big national bank that is intentionally too big to fail.

[Charles Dean]

I have also heard such rumblings in places other than this board.

[sniglet]

Most banks are technically insolvent, and the only reason they haven't already been seized by regulators is because the government simply doesn't want to take on the ENORMOUS cost of picking up the difference between the assets and liabilities of these institutions. Just look at how much more costly the seizure of IndyMac has proven to be than originally anticipated.

Banks generally are much more thinly capitalized than people realize, and it doesn't take a huge amount of bad loans to drive them into insolvency. Unfortunately, the majority of banks today haven't acknowledged, or written off, all the non-performing assets on their books. There is substantial evidence that banks have been playing games with their books (e.g. delaying foreclosures, etc), to avoid having to officially book losses. Regulators have been turning a blind eye to these shenanigans because the consequences of having half the financial institutions in the world just go bust is too great to contemplate.

Actually, chartered banks are legally allowed to use false values for assets in their financial reports, since they don't have to use current market values. Instead of listing a mortgage security at 20 cents on the dollar (it's current market price), banks can claim the security is still worth a full dollar since they plan on holding it to maturity. This ability to use loose accounting rules is one big reason that all the surviving investment banks transformed themselves into chartered institutions. When Goldman Sachs was an investment bank they had to use mark-to-market accounting, now they they are a chartered institution they are free to blithely fudge their books.

The government really only has two choices over the next few years: allow the majority of financial institutions to go bust, and force depositors to take massive losses or nationalize the banks and socialize the losses. In the end, I think that governments will eventually have to just allow banks to fail, and depositors to lose their savings. The magnitude of costs involved in a complete nationalization are so huge that even an interventionist government can't pull it off.

Here is an article by Nouriel Roubini, claiming that banks are insolvent.

[plymster]

[WestSideBilly]

http://opinionator.blogs.nytimes.com/20 ... citigroup/

Interesting argument from our friends across the pond that the UK should probably nationalize all banks and just be done with it.

Doesn't seem that the US is far behind.

[plymster]

I keep hearing chants of "nationalize", and it scares me. Every day, we get reports that xyz bank is surprised to discover greater and greater losses hiding in their acquisitions. Should the US nationalize without having the vaguest clue as to how deep these private losses run?

And keep in mind that these are global private losses. It could be tens of trillions for all we know. Can the US take that sort of a hit?

The world cannot afford for the US to default.

We do need some sort of nationwide banking safety net to protect large corporate American depositors to keep payrolls moving and trade alive, but we don't need to bail out every Citibank, BofA, JPM Chase, and Wells Fargo depositor the world over.

[rose-colored-coolaid]

[plymster]

[WestSideBilly]

[davidlosh@davidlosh.com]

The bottom line is Real Estate is supposed to be the "safe" investment. When Real Estate is in trouble the rest of it is built on sand.

OK, there is no "nationalizing" the banks in the United States. It can happen in socialist countries or military backed governments, but here we expect a return on investment or a loss.

I'm thinking that the people who made the investments need to take the loss. People owe me money, always have, always will, it's the cost of doing business. I get it back or not, get swindled or come out ahead. I go on, do business, and that's it.

It's time to pull the plug and stop allowing this mega mergers time to 'figure" stuff out. I think the real problem is we have a bunch of college kids running financial models that were engineered by theory rather than by sound business principles. Yea it all looks good on paper but....