naked capitalism Fri 2009-10-23 09:20 EDT

Paul Volcker, Mervyn King, Glass Steagall, and the Real TBTF Problem

Paul Volcker wants to roll the clock back and restore Glass Steagall, the 1933 rule that separated commercial banking from investment banking, but Team Obama is politely ignoring him. Mervyn King, the Governor of the Bank of England, is giving a more strident version of the same message...I think Volcker is wrong, but not for reasons one might expect...The problem is that we have had a thirty year growth in securitization. A lot of activities that were once done strictly on bank balance sheets are merely originated by banks and are sold into capital markets...you could in theory go back to having much more on balance sheet intermediation (finance speak for ``dial the clock back 35 years and have banks keep pretty much all their loans''). Conceptually, that is a tidy solution, but it has a massive flaw: it would take a simply enormous amount of equity to provide enough equity to all those banks with their vastly bigger balance sheets. We're having enough trouble recapitalizing the banking system we have...I have yet to see anything even remotely approaching a realistic discussion of how to deal with too big too fail firms, and we have been at this for months. My knowledge of the industry is not fully current, but even so, the difficulties are far greater than I have seen acknowledged anywhere. That pretty much guarantees none of the proposals are serious, and nothing will be done on this front. That further implies the system will have to break down catastrophically before anything effective can be done. I really hope I am wrong on this one.

Glass Steagall; Mervyn King; naked capitalism; Paul Volcker; Real TBTF Problem.

ClubOrlov Wed 2009-08-26 14:22 EDT

That Bastion of American Socialism...the United States military

kollapsnik

Over the past few months the American mainstream chatter has experienced a sudden spike in the gratuitous use of the term "Socialist." It was prompted by the attempts of the federal government to resuscitate insolvent financial institutions. These attempts included offers of guarantees to their clients, injections of large sums of borrowed public money, and granting them access to almost-free credit that was magically summoned ex nihilo by the Federal Reserve. To some observers, these attempts looked like an emergency nationalization of the finance sector was underway, prompting them to cry "Socialism!" Their cries were not as strident as one would expect, bereft of the usual disdain that normally accompanies the use of this term. Rather, it was proffered with a wan smile, because the commentators could find nothing... ``Since the end of the Civil War, Americans have become accustomed to thinking of war as something that happens elsewhere, to other people. Thus, the news that the US is bombing this or that land, for no adequate reason, killing and maiming numerous civilians, produces in us neither the normal human reaction of revulsion, nausea and disgust, nor the conviction that we must take the fight to our own monstrous leaders, lest we too become monsters. Life under domestic military occupation might bring home some welcome realizations, and start Americans down the long road of atoning for the sins of their forefathers, who have run roughshod over much of the rest of the planet for far too long.''

American social; bastion; ClubOrlov; United States military.