Are Big Banks betting America's savings on a market crash?
According to a comment at the Wall Street Journal, they are:
[O]n Aug 20th the fed’s gave Citigroup and Bank of America exemptions, per their request, to the rules limiting how much of their federal insured banks can lend to their borkerage affiliates.The exemption is temporary but they can now lend their brokerage firms $25 billion each from federally insured deposits/accounts.
In my opinion, they are taking peoples saving accounts, loaning it to the brokerage business and betting on the market in a big way. They need to create capital to offset BIG loses [sic] in mortgage and commercial paper markets.
But we know housing is going to get only worse from here as 80% of ARM resets will not even occur until early 2008.
Just my opinion but why the hell is the fed’s [sic] allowing a bank to gamble so big with insured saving deposits?
Are the fed’s [sic] and these two banks in the sack together trying to fix mortagage and commercial paper with a roll of the dice?
May be [sic] this is why somebody is betting on a huge market crash. Can you see BAC and citigroup banks seized by the feds because of insolvency? Could happen if there alleged manipulation backfired.
The entire financial system would collapse as people try to get their money out of the bank. Wait, that was 1929?
Please note that even if these banks 'win' big on their 'bets,' someone in America has to lose because ours is a zero sum economy, where one man's profit is another man's loss.
These intercompany loans are being made because the brokerage business arms are having to make enormous levels of margin and collateral calls that their clients can't meet. Therefore they need to underwrite the positions internally (i.e. honour the brokers' margin payments) to maintain confidence.
The brokerage arms are massively exposed right now and possibly even technically bankrupt. Unwinding client positions has not helped, nay in some circumstances even made the situation worse, because the client positions were unwound at the peak of loss and therefore could not benefit from any market/position recovery. A big 'oops' on this one.
Note that the loans are being made from fed insured accounts. Therefore if the banks don't recover the money from the brokerage arms (legally a third party entity) then the fed has to pay up. Which of course really means these loans are being insured with tax dollars, so don't expect the brokerage companies to be able to repay.
It's a lovely business if you can get into it, because you can't lose unless the fed becomes bankrupt. Fiddle de dee!
Respectfully,
Muhammad.
Disasters, not Masters, of the Universe
Remarks by Chairman Ben S. Bernanke
clever title - I like it
But I disagree with the author's conclusion - that bankers are just as flawed as the rest of us.
Bankers are the greediest most selfish people on earth - NOTHING like the rest of us.
I also reject her prescription - that we let market forces correct themselves.
First of all, the market is rigged to the hilt - in favor of bankers.
What we need is government intervention to FREE it from the monopoly of the so-called money masters - better described as DISASTERS OF THE UNIVERSE.
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"Money" has no value - people do.
Citi Research Discusses a Dow Crash Scenario
Hi Qrswave,
Of course the whole financial system is rigged to the hilt; whether through dodgy legislation, secret societies or good old fashioned nepotism. Not to mention healthy dollops of brown paper envelopes.
As for change, well it certainly can't happen in the UK. An example of dodgy legislation is that it is "against the standing orders of this House" (the House of Commons) to discuss the creation of money or the issuance of the national debt. These rules actually prevent UK politicians from even being able to discuss these subjects in the country's place of legislative debate.
As for 'free markets', only fools believe that such things really exist in the global arena. It is country (or bloc) verses country (or bloc). During the 'rounds' of the WTO meetings the real deals are cut - by politicians for and on behalf of their personal sponsors.
Respectfully,
Muhammad.