“The most pressing reform that needs fixing in the aftermath of the crisis, in my judgment, is the level of regulatory risk-adjusted capital,” Greenspan said in a paper prepared for a Brookings Institution conference today. “Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning.”
Banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid-2007 before the financial crisis, Greenspan said.
Really Alan?
Does the capital have to be real? That's the question, you know. Lehman allegedly had plenty of capital and plenty of cash too - $50 billion worth, in fact, that was allegedly "cash" on their balance sheet.
Oh wait - it wasn't real, was it? Well ok, it was real - for a day. Then it went right back to its lender and the garbage can full of used dogfood that they "tendered" to get the $50 billion came back to them!
This is the general problem with Greenspan's "solution" - all solutions for sound lending require regulators that are not corrupt, so when someone tries to pull a scam like that they get arrested and the scammer is outed so the investing public knows what's going on!
This means that FRBNY (and counterparties!) that become aware of such frauds must have a duty to report them. In this case we know for a fact that counterparties were aware of the problem and we have reason to believe from the narrative that FRBNY was. Yet nothing was done.
But we can't have that! Why if we had that happen then we'd be stuck with firms that couldn't hide risks off their balance sheets, we wouldn't have firms that claimed fictitious levels of cash, and we wouldn't have firms that claim HELOCs are all "money good" when behind underwater and defaulted first mortgages!
All of those sins are still occurring.
I agree that "more capital" solves most problems with banks. But the simplest way to do this is to set reasonable standards for excess capital (e.g. 6% Tier 1) and then enforce one dollar of capital (beyond that "last chance" reserve) for each dollar of unsecured lending.
The "last chance" reserve is thus present to cover the liquidation costs and insure that the FDIC doesn't have to cover anything. Bondholders and shareholders are fully exposed to being wiped out, of course.
If you take this approach then the problem disappears. A HELOC behind an underwater first is an unsecured loan, as the collateral is insufficient to cover the paper. Therefore, if a bank wants to hold a HELOC on a home where the first is underwater they must hold one dollar of capital for each dollar out in that HELOC. If the HELOC is then not paid for any reason, the bank is still secure and cannot go bust.
The question we have to ask is this: Do we really want a secure and sound banking system, or do we want a system that has to be bailed out every few years because at the end of the day too many people are crooked and we haven't busted enough of them for the crooks to be concerned about being arrested.
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Pika-steph
Posts: 54697
Incept: 2007-09-11
Live Free Or Die; US Army Est. 1775
Karl wrote..
A HELOC behind an underwater first is an unsecured loan, as the collateral is insufficient to cover the paper. Therefore, if a bank wants to hold a HELOC on a home where the first is underwater they must hold one dollar of capital for each dollar out in that HELOC. If the HELOC is then not paid for any reason, the bank is still secure and cannot go bust.
You're too funny sometimes. That's just much too reasonable and logical.
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Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org/ "The only regulation that really works is failure."--Rick Santelli
You can call me J6P, I had three "tax abuse by mail" regarding accounting issues from the IRS last year. All containing "or else" threats which scared the **** out of me and I quickly jumped into their compliance. Yet day after day I read this crap and it makes me sick.
Interesting idea on making them hold 100% on the unsecured, KD, but wouldn't that have the effect of raising interest rates on such loans? Since they'd now be tying up more money in the unsecured loan process and all, they'd want to compensate through higher rates, no?
Not that this is necessarily a bad thing.
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"Shut up. You don't get a lawyer!" -Senator Lindsey Grahamnesty (and the United States government) on the civil liberties of indefinitely detained American citizens
Of course it would. Unsecured lending should cost more.
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I don't care if it makes sense -- only if it makes money. -- Me Bank (n): See scam, fraud and theft.Eat a bankster -- they're low-carb. What part of "shall not be infringed" was unclear?
Steelhead23
Posts: 2037
Incept: 2008-09-09
Portland OR
Wait just a cotton-pickin minute there Boss. Yesterday the current FRB Chairman said something along the lines of... "We don't need no stinkin reserves." Today, the prior FRB Chairman is saying we should up the reserves because regulating banks at lesser reserve ratios require excessive "regulatory fine-tuning." Talk about cognitive dissonance (think Linda Blair's head spinning projectile vomiting in The Exorcist). Damn, what are these guys drinking? And why aren't they drinking together? Look, I agree with Greenspan's sentiment at least, but have no idea if the numbers are right. Bernanke seems like a creature from outer space. I am having an incredibly hard time conceptualizing fractional reserve banking without the reserves. At some point it will begin to dawn on the world that the Big Dog (U.S.) has gone insane. Unless this is some kind of game of poker or chicken, I can't see how encouraging one's counterparties to think one is certifiably insane is a good idea for a central banker.
Someone who gets this stuff at a PhD level should go to town on Bernanke's zero reserves idea. You've seen what I think but I'm virtually uneducated in finance so my views are woefully uninformed.
At any rate Karl, it would appear that Greenspan is at least admitting his past sins, one wonders what the proper pennance is for blowing up the global economy. Perhaps if he gave every last dime of his personal fortune to charity and got by on social security alone....
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"Give me control of a nation's money and I care not who makes it's laws" —Mayer Amschel Bauer Rothschild Benjamin Bernanke For-profit commercial banks are a menace and should be eradicated
Greenspan is doing no such thing (admitting sins). He's trying to massage his record for posterity and is playing "good cop, bad cop". He'll be down there in Paraguay with the rest of the criminals when TSHTF.
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"Shut up. You don't get a lawyer!" -Senator Lindsey Grahamnesty (and the United States government) on the civil liberties of indefinitely detained American citizens
You couldn't do one dollar for each unsecured dollar. Credit cards outstanding would swamp you. Really all that needs to be done is an honest accounting audit before putting out quarterlies.
Whatever- it doesn't matter - they're all broke - but so is the FDIC so what can they do.
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I'm already visualizing you with duct tape over your mouth.
But haven't governments and central banks so messed with all asset classes that who knows what IS capital anymore and what is it worth? Cash, equities, bonds ( sovereign and corporate) are all suspect when you have a renegade central bank operating in league with desperate governments rigging markets.
Jstanley01
Posts: 8176
Incept: 2008-07-30
San Antonio, Texas
Tickerguy wrote..
Really Alan?
Does the capital have to be real? That's the question, you know. Lehman allegedly had plenty of capital and plenty of cash too - $50 billion worth, in fact, that was allegedly "cash" on their balance sheet.
Oh wait - it wasn't real, was it? Well ok, it was real - for a day. Then it went right back to its lender and the garbage can full of used dogfood that they "tendered" to get the $50 billion came back to them!
This is the general problem with Greenspan's "solution" - all solutions for sound lending require regulators that are not corrupt, so when someone tries to pull a scam like that they get arrested and the scammer is outed so the investing public knows what's going on!
This means that FRBNY (and counterparties!) that become aware of such frauds must have a duty to report them. In this case we know for a fact that counterparties were aware of the problem and we have reason to believe from the narrative that FRBNY was. Yet nothing was done.
But we can't have that! Why if we had that happen then we'd be stuck with firms that couldn't hide risks off their balance sheets, we wouldn't have firms that claimed fictitious levels of cash, and we wouldn't have firms that claim HELOCs are all "money good" when behind underwater and defaulted first mortgages!
All of those sins are still occurring.
Talking about "sins," I dunno. I think you're being awfully judgmental.
Haven't you come to the point of enlightenment yet? Like Allen, and Bennie Boy, and the Tax Cheat have? Where things like "light" and "darkness" are now known to have no existence in the real world, but only in the mind?
If Greenspan did not know there was a bubble, then Bernanke certainly did - even despite what he has said - he bought a house in DC when he took over the Fed!
End_the_bubbles
Posts: 9515
Incept: 2009-03-25
The New 3rd World
Quote:
Greenspan reiterated his view that Fed policy under his chairmanship didn’t lead to the housing bubble and the financial crisis by keeping interest rates too low for too long. Instead, a global savings glut led to low mortgage rates globally and a housing boom across nations, he said.
Pricking an asset-price bubble isn’t possible without damaging the economy, he said.
“Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible,” Greenspan said. “Assuaging their aftermath seems the best we can hope for.”
Right, so the bubble shouldn't be pricked so it can get even bigger and rather than just cause damage, it will cause complete and total system failure. UFB NONSENSE!
Really, if you read what these guys are saying and watch what is going on, they seem to be intentionally blowing up yet ANOTHER bubble.
This ****er really should be strung up!
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In the long run even the most despotic governments with all their brutality and cruelty are no match for ideas. Eventually the ideology that has won the support of the majority will prevail and cut the ground from under the tyrant's feet and rise in rebellion to overthrow their masters.
Obseedian
Posts: 11872
Incept: 2007-07-26
BBRY Central
Quote:
In response, Mr. Greenspan argued that the rise in home prices had become unhinged from other measures of inflation. While conceding that the low fed funds rates, the benchmark interest rate the Fed controls, made it easier for borrowers to use adjustable-rate mortgages, he said he suspected — “but cannot definitively prove” — most home purchasers would have taken out 30-year fixed-rate mortgages had the adjustable-rate ones not been available.
That's right, bitches! Mortgage and securities fraud had nothing to do with it!
Unemployment wines vary with the times. In the thirties Zinfandel and Muscatel were popular with the down and outers. In the seventies it was Ripple and Mad Dog. Apparently in the fifties, Tokay was a hit too:
I could have done a lot worst than sit In Skid Row drinkin wine
To know that nothing really matters after all To know there’s no real difference Between the rich and the poor To know that eternity is neither drunk nor sober, to know it young and to be a poet
Coulda gone into business and ranted And believed that God was concerned
Instead I squatted in lonesome alleys And nobody saw me, just my bottle And what they saw of it was empty
And I did it in cornfields & graveyards
To know that the dead don’t make noise To know that the cornstalks talk (among One another with raspy old arms)
Sitting in alleys diggin the neons And watching cathedral custodians Wring out their rags neath the church steps
Sitting and drinking wine And in railyards being divine
To be a millionaire & yet prefer Curlin up with a poorboy of tokay In a warehouse door, facing long sunsets On railroad fields of grass
To know that the sleepers in the river Are dreaming vain dreams, to squat In the night and know it well
To be dark solitary eye-nerve watcher Of the world’s whirling diamond
Jonathanr
Posts: 3168
Incept: 2008-05-16
Melbourne, Australia
Banned
Karl, I think your points of correct asset valuation and risk weighting is probably more important than what the capitalisation levels should be. It seems to be misrepresentation of asset values which has caused all the problems.
Maybe banks need to be made to "open source" their balance sheets (including SIVs etc), to enable public scruitiny and to prevent regulatory capture or corruption.
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Why do you complain? It's the criminals who decide how proceeds of crime are spent, not the victims.
Jwm_in_sb
Posts: 1037
Incept: 2009-04-16
California Desert
"Maybe banks need to be made to "open source" their balance sheets (including SIVs etc), to enable public scruitiny and to prevent regulatory capture or corruption."
Ah, but then they would be opening up their P&L as well to scrutiny. One flows (P&L) to the other (BS). Only the CF tells the whole truth.
Secretary of Treasury executed by firing.................
No, not the turbo tax, but that one in the North Korea. Korea media reported that the Minister of the Finance ( equivalent to secretary of Treasury), a confidant of the Dear Leader, was executed today for failure in executing currency reform. ( Remember the 100 for 1 reverse currency exchange scheme North Korea implemented some six months ago)
You're too funny sometimes. That's just much too reasonable and logical.
