A.J. DiCintio
The tea party and the banks
By A.J. DiCintio
Precisely because the Tea Party represents the most credible threat to the nation's corrupt status quo, we ought not be surprised it is constantly attacked with the hateful vulgarity that has always been a principle tactic of pathologically arrogant liberals.
But the Party is not just the enemy of ideologues who praise the dictatorial nanny state as the good state; for it also finds itself in the crosshairs of despicable free marketeer poseurs in government and the private sector.
As unfortunate as they are, however, those two realities do not fully explain the Party's falling approval among the general public.
What completes the explanation is that being a young, disparate reform movement, the Tea Party has not developed specific, common sense positions regarding some of the nation's most important problems and energetically communicated them to the public.
For example, though its adherents rightly oppose bank bailouts, the movement has not created and promulgated a detailed alternative to the TARP approach to bank failures. Nor has it done the same with respect to the banking system in general.
Of course, Honesty requires the admission that even if the Tea Party were advancing rational policies regarding banks, it would currently lose the fight in Congress.
Yet, by engaging the battle, it would force the perverse groups mentioned above to defend the indefensible, thereby placing itself in the rare, enviable position of doing the right thing and receiving huge public approval for it.
I have previously written about how independent-minded financial experts would treat a bank that has gone belly-up because of the amoral, perfectly stupid behavior of its highest executives.
Here, therefore, I'll discuss reforms to the entire banking system, which, out of a love of country, the Tea Party ought to make a key part of its platform.
Regarding the argument for this reform, it is necessary to begin by stating what has happened since a bipartisan coalition headed by Bill Clinton and his Borrowed From Wall Street Treasury Secretary Robert Rubin repealed the Glass-Steagall Act, the Depression era law that prevented commercial banks from engaging in the risky activities permitted investment banks.
Coming as no surprise to people who refuse to deny or sugar coat the realities of human nature, what has occurred is this:
America's biggest banks, whose depositors' money is guaranteed by the FDIC, have thrown the traditional banking model into the trash can in order to pursue increased profits (and bigger bonuses to top execs) through speculative investments that include derivatives and the insanely risky "sub-prime" mortgage packages that led to the banking crisis of '08.
Making this kind of speculation all the more dangerous is the incredible size of the largest banks.
Indeed, the following statistics provided by the Federal Reserve reveal that the total assets of the seven biggest American banks are larger today than they were at the height of the bubble.
Bank of America, $2.26 trillion; JP Morgan Chase, $2.25 trillion; Citigroup, $1.96 trillion; Wells Fargo, $1.26 trillion; Goldman Sachs, $937 billion; Morgan Stanley, $830 billion; and Metlife, $771 billion.
Only a person who is a kindred spirit to the mindless, depraved leaders who ruled over Late Rome could argue that without causing excruciating consequences for the American people, banks this big can be permitted to behave like addicted gamblers and then simply be allowed to "fail" when the inevitable day of disaster arrives.
With that reality established, it is essential to expose the size of the casino that produces the lion's share of today's banking profits.
For this information, we may thank a post at washingtonsblog.com, the writer's data taken from the latest quarterly report of the Office of the Currency Controller. (The post also available at ritholtz.com)
"As I noted in 2009, 5 banks held 80% of America's derivatives risk. Since then, the percent of derivatives held by the top 5 banks has only increased."
"Specifically, [with respect to current derivative holdings] . . . the top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure."
The writer's conclusion?
"And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from [this year's first quarter] as they have to risk ever more in the derivatives market to generate that incremental penny of return."
To further illuminate the insane nature of our banking system, we can turn to no better source than Thomas Hoenig, the retiring president of the Kansas City Fed, a financial expert admired by everyone except true-believing liberals.
As reported by the WSJ's Luca Di Leo, the man who has voted against Ben Bernanke's proposals more than any other Fed president has said this about the nation's megabanks:
"Beginning to break them, to dismember them, is a fair thing to consider."
In addition to suggesting the breakup of the dangerous monstrosities, Hoenig has this to say about their casino departments:
"We do need to consider some activities that are in these largest institutions that probably should not be: trading for their account, gambling. [Those activities ought]. . . to be separated out."
Mr. Hoenig certainly understands the danger and corruption gambling brings to the contemporary banking system.
But even he is likely to be surprised at the madly irrational minds of the gamblers, as revealed by research conducted at Switzerland's University of St. Gallen (reported at spiegel.de/international) which used tests and competitive computer simulations to compare the behavior of 28 professional banking traders against that of psychopaths.
Observing that the traders cannot be regarded as "deranged," one of the co-authors, a lead administrator at a Swiss prison, reported that they nevertheless "behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test."
The researcher further explained that while the traders worked extremely hard to get ahead of their fellow competitors, they displayed sociopathic behavior as they "spent a lot of energy trying to damage [them]."
It was as if, he concluded, having noticed that their neighbors own the same car, the traders "took after it with a baseball bat so they could look better themselves."
What is there to say about this study except that it leaves us wondering who in the banking industry might be more mentally unstable, the traders or their bosses.
Tea Party leaders and every other reasonable citizen ought to keep in mind not just the study's findings but the whole truth about the banking system when Republican and Democratic leaders behave as if it's impossible to differentiate smart, economically sound, socially responsible banking regulation from harmful, wasteful over-regulation or the anarchy of no regulation at all.
The same comment about truth is warranted when those same politicians argue (as they certainly will) for huge additional U.S. contributions to the IMF so that it can bail out the EU (whose combined GDP is equal to ours) without mentioning they have been paid off by fat cat banking hypocrites desperate to avoid the painful consequences sure to occur if free markets are allowed to place a fair value on the reeking piles of European debt they either hold or have insured.
© A.J. DiCintio
October 1, 2011
Precisely because the Tea Party represents the most credible threat to the nation's corrupt status quo, we ought not be surprised it is constantly attacked with the hateful vulgarity that has always been a principle tactic of pathologically arrogant liberals.
But the Party is not just the enemy of ideologues who praise the dictatorial nanny state as the good state; for it also finds itself in the crosshairs of despicable free marketeer poseurs in government and the private sector.
As unfortunate as they are, however, those two realities do not fully explain the Party's falling approval among the general public.
What completes the explanation is that being a young, disparate reform movement, the Tea Party has not developed specific, common sense positions regarding some of the nation's most important problems and energetically communicated them to the public.
For example, though its adherents rightly oppose bank bailouts, the movement has not created and promulgated a detailed alternative to the TARP approach to bank failures. Nor has it done the same with respect to the banking system in general.
Of course, Honesty requires the admission that even if the Tea Party were advancing rational policies regarding banks, it would currently lose the fight in Congress.
Yet, by engaging the battle, it would force the perverse groups mentioned above to defend the indefensible, thereby placing itself in the rare, enviable position of doing the right thing and receiving huge public approval for it.
I have previously written about how independent-minded financial experts would treat a bank that has gone belly-up because of the amoral, perfectly stupid behavior of its highest executives.
Here, therefore, I'll discuss reforms to the entire banking system, which, out of a love of country, the Tea Party ought to make a key part of its platform.
Regarding the argument for this reform, it is necessary to begin by stating what has happened since a bipartisan coalition headed by Bill Clinton and his Borrowed From Wall Street Treasury Secretary Robert Rubin repealed the Glass-Steagall Act, the Depression era law that prevented commercial banks from engaging in the risky activities permitted investment banks.
Coming as no surprise to people who refuse to deny or sugar coat the realities of human nature, what has occurred is this:
America's biggest banks, whose depositors' money is guaranteed by the FDIC, have thrown the traditional banking model into the trash can in order to pursue increased profits (and bigger bonuses to top execs) through speculative investments that include derivatives and the insanely risky "sub-prime" mortgage packages that led to the banking crisis of '08.
Making this kind of speculation all the more dangerous is the incredible size of the largest banks.
Indeed, the following statistics provided by the Federal Reserve reveal that the total assets of the seven biggest American banks are larger today than they were at the height of the bubble.
Bank of America, $2.26 trillion; JP Morgan Chase, $2.25 trillion; Citigroup, $1.96 trillion; Wells Fargo, $1.26 trillion; Goldman Sachs, $937 billion; Morgan Stanley, $830 billion; and Metlife, $771 billion.
Only a person who is a kindred spirit to the mindless, depraved leaders who ruled over Late Rome could argue that without causing excruciating consequences for the American people, banks this big can be permitted to behave like addicted gamblers and then simply be allowed to "fail" when the inevitable day of disaster arrives.
With that reality established, it is essential to expose the size of the casino that produces the lion's share of today's banking profits.
For this information, we may thank a post at washingtonsblog.com, the writer's data taken from the latest quarterly report of the Office of the Currency Controller. (The post also available at ritholtz.com)
"As I noted in 2009, 5 banks held 80% of America's derivatives risk. Since then, the percent of derivatives held by the top 5 banks has only increased."
"Specifically, [with respect to current derivative holdings] . . . the top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure."
The writer's conclusion?
"And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from [this year's first quarter] as they have to risk ever more in the derivatives market to generate that incremental penny of return."
To further illuminate the insane nature of our banking system, we can turn to no better source than Thomas Hoenig, the retiring president of the Kansas City Fed, a financial expert admired by everyone except true-believing liberals.
As reported by the WSJ's Luca Di Leo, the man who has voted against Ben Bernanke's proposals more than any other Fed president has said this about the nation's megabanks:
"Beginning to break them, to dismember them, is a fair thing to consider."
In addition to suggesting the breakup of the dangerous monstrosities, Hoenig has this to say about their casino departments:
"We do need to consider some activities that are in these largest institutions that probably should not be: trading for their account, gambling. [Those activities ought]. . . to be separated out."
Mr. Hoenig certainly understands the danger and corruption gambling brings to the contemporary banking system.
But even he is likely to be surprised at the madly irrational minds of the gamblers, as revealed by research conducted at Switzerland's University of St. Gallen (reported at spiegel.de/international) which used tests and competitive computer simulations to compare the behavior of 28 professional banking traders against that of psychopaths.
Observing that the traders cannot be regarded as "deranged," one of the co-authors, a lead administrator at a Swiss prison, reported that they nevertheless "behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test."
The researcher further explained that while the traders worked extremely hard to get ahead of their fellow competitors, they displayed sociopathic behavior as they "spent a lot of energy trying to damage [them]."
It was as if, he concluded, having noticed that their neighbors own the same car, the traders "took after it with a baseball bat so they could look better themselves."
What is there to say about this study except that it leaves us wondering who in the banking industry might be more mentally unstable, the traders or their bosses.
Tea Party leaders and every other reasonable citizen ought to keep in mind not just the study's findings but the whole truth about the banking system when Republican and Democratic leaders behave as if it's impossible to differentiate smart, economically sound, socially responsible banking regulation from harmful, wasteful over-regulation or the anarchy of no regulation at all.
The same comment about truth is warranted when those same politicians argue (as they certainly will) for huge additional U.S. contributions to the IMF so that it can bail out the EU (whose combined GDP is equal to ours) without mentioning they have been paid off by fat cat banking hypocrites desperate to avoid the painful consequences sure to occur if free markets are allowed to place a fair value on the reeking piles of European debt they either hold or have insured.
© A.J. DiCintio
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