“You can bank on a banking crisis. You can bank on bankers who are primarily interested in their own portfolios.
You can bank on banks remaining key behind-the-scenes players in our politics and outspoken when they sense that regulators are moving in on their permanent party of payouts.
You can bank on their outrage when someone, anyone, suggests that they should pay their fair share or that their greed has to be checked or practices punished.
Bankers are circling their guilded wagons to fight off attacks on many fronts.
In the public arena, they are increasingly fed up with the “imbecilic” – stronger language to come – critics from the likes of Occupy Wall Street that they fear are inspiring public hostility to the lords of finance.
There have even been protests at recruiting conferences on campuses where the MBA’s used to stand in line for a chance to rake in the outsized salaries that awaited kids blessed as bankster-worthy.
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This is upsetting to Jamie Dimon, the $23m a year CEO of JP Morgan Chase, who is taking umbrage, telling an investor’s conference: “Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it.”
Bernard Marcus, a co-founder of Home Depot, and self-described “job creator” didn’t mince his words, according to Bloomberg News.
“If successful business people don’t go public to share their stories and talk about their troubles, they deserve what they’re going to get.” He said he isn’t worried that speaking out might make him a target of protesters.
“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”
Marcus and Diamon and the small .01 per cent of the one per cent they are part of are not kidding about fighting back either. The protesters may piss them off, but they are fighting a deeper trench warfare now against regulators and central banks who say they want to save them from themselves.
Comments David Dayan on the website Firedog Lake:
|“It should come as no surprise that this coterie of self-pitying “job creators” lines up pretty perfectly with right-wing Republicans and free-market fundamentalists. Just because this attitude completely crashed the economy about three years ago doesn’t mean they should be made to feel bad about it, however.”
He cites an article on the Roman Empire which says that, even with all its slaves, it had a more equitable income distribution than the US has today. Writes Tim DeChant:
|“To determine the size of the Roman economy and the distribution of income, historians Walter Schiedel and Steven Friesen pored over papyri ledgers, previous scholarly estimates, imperial edicts and Biblical passages. Their target was the state of the economy when the empire was at its population zenith, around 150 CE. Schiedel and Friesen estimate that the top one per cent of Roman society controlled 16 per cent of the wealth, less than half of what America’s top one per cent control.”
Keeping wealth concentrated seems to be what the bankers do – but sometimes with enough excess and irresponsibility to bring themselves down.
In Washington, the Federal Reserve Bank, ironically founded and run by the very banks who have been blessed with secret subsidies in the trillions, fears another financial crisis driven by a banking crisis.
They want American banks to hold more capital – and to keep it more easily accessible. According to the New York Times, they have already compromised with pressure from their clients, adding that “the final capital rules were unlikely to be more stringent than international limits that were still under development. That is a small victory for banks who warned that they would be severely disadvantaged if capital requirements here were stricter than those governing overseas banks.”
Meanwhile, overseas, the same battle royale is underway. In England, regulators are considering new rules that would outlaw investment banking by commercial banks. This is the very problem that America’s Glass-Steagal Act was passed to prevent in the l930s.
When that law was “modernised” – ie dumped as unnecessary – by Congress with Bill Clinton’s blessing, the banks rushed into the game of largely unregulated speculation with disastrous consequences clear for all to see.
The international regulators have their own too big to fail list of 29 banks they call “G Sifis” to insure higher capital levels. The risky banks that first opposed the designation, are now using it to market themselves as safer. Go figure!
While many in the world support a tax on financial transactions, the US bank lobby has killed it here. They also colluded with subprime lenders, and before them, red-lining discriminatory lenders to scalp borrowers and promote fraudulent loans with little push back by politicians who were clearly bought off.
In Switzerland, Europe’s bank capital, a central banker trying to make the industry more prudent has come under sustained personal attack by his colleagues.
The New York Times reports:
Mr (Phillip M) Hildebrand, the president of the Swiss central bank, was called “arrogant” and “egotistical” by bankers quoted anonymously in the pages of Swiss newspapers. His supposed sin: Wanting banks to hold extra capital. The fact that Mr Hildebrand was himself a former hedge fund manager in New York seemed only to heighten the sense that he had betrayed his profession.
“He’ll never find another job in Switzerland”, the Swiss newspaper Der Sonntag quoted an unnamed high-ranking banker as threatening Mr. Hildebrand in 2010.
The unusually bitter attacks on a central bank chief were a measure of what was at stake. Mr Hildebrand, 48, had a high-visibility role in a struggle between bankers trying to preserve their most lucrative business practices and regulators trying to defuse a system that, many believe, nearly blew up the world economy.
This very public food fight offers a window into why bankers are fighting – and often winning their war on politicians and the public. They are relentless in pursuit of their interests and have the ability to pay for the best law firms and PR flacks.
The bankers are trying to come with theories for our depressing economic woes that places the blame on everyone but them. Fedhead Ben Bernanke says it was all a “global savings glut” that did us in. Hence, anyone that was more of a saver than an investor is responsible.
Hyun Song Shin, another Princeton professor, says bullocks to his colleague Benanke in a detailed paper refuting his strawman, arguing the crisis was caused by “a ‘global banking glut’, ie the rise in cross-border lending, than the ‘global savings glut’.”
Without falling down the rabbit hole of endless well-footnoted debates, the truth is that millions of savers have seen their savings shrink and most bankers, thanks to bailouts and cheap money, watched their holdings rise.
Blaming the victim for the crime has a long and dishonourable history,
As bad as the economy gets, and most forecasters suggest little hope for a rebound in the year ahead, even as there are blips of “positive data”, the bankers seem determined to save themselves if and when the ship sinks.
They already own the lifeboats.
The challenge facing the 99 per cent is how to organise more broadly and build the political muscle to break up the big banks, dissolve the “zombies” (failed banks on borrowed time) among them and rebuild an economy that works for all of us.”
via A new banking crisis: You can bank on it – Opinion – Al Jazeera English.
‘An Avoidable History’
Wilkinson’s report, titled “The Financial Crisis of 2015: An Avoidable History,” isn’t so sanguine. The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system.
The report urges bank executives and shareholders to accept that returns of the past are unsustainable and that they need to do a better job of monitoring risks, especially in areas that produce unusually high profits.
“Banks need to be less leveraged,” said Wilkinson, 38, who has an engineering degree from the University of Cambridge’s Trinity College and has worked since 1993 at Oliver Wyman, where he focuses on risk management. “The true test for me of whether they’ve deleveraged is if the industrywide ROEs come down. If they don’t, I’m very suspicious that there are hidden risks in the system.”
via Loneliest Man in Davos Foresees 2015 Bank Crisis While Global Elites Party – Bloomberg.
Interesting how creative banking gets, and how the Banks, the Regulators, and the Buyout Groups interplay in the behind the scenes financial world.
“The use of such funding can reduce the riskiness of the assets and free up regulatory capital, David Abrams, in charge of European nonperforming loan investments at Apollo Global Management in London, said in an interview.
“The risk for the banks changes,” he said. “In a way, they are turning nonperforming loans into performing loans.”
The buyers need to inject sufficient equity for the banks providing vendor financing to benefit from a regulatory capital point of view, said Alexander Greene, managing partner at New York-based private-equity firm Brookfield Asset Management LLC.
“Ultimately, regulators scrutinize those deals,” Greene said. “The question is then, will the investors be able to earn their returns if they overcapitalize?”
Banks must be innovative to sell the “stickiest” of their assets, said Ian Gordon, an analyst at Evolution Securities Ltd. in London.
“Banks will be naive if they use vendor finance to notionally dispose of assets at whatever price the market will take,” he said. “They could fall in the trap in giving away the upside without meaningfully reducing the downside.” “
via European Banks Get ‘False Deleveraging’ – Bloomberg.
Islamic Banking and Finance are not that well known in the West. Is indeed having a significant role in Arab and other predominantly Moslem countries.
“If Islamic banks were to follow this development path they could fill an important role in supporting the Economic Transformation Program (ETP) in several ways. Financing of SME’s would bring capital and advancement to many of the designated NKEAs of the program and development of Islamic finance products itself is also stipulated under the financial services category.
The benefits to society as a whole from Islamic banking can also not be overlooked. By offering an alternative interest free financing route, clear possibilities arise for development in areas such as microfinance for the most needy in the nation, allowing currently struggling families’ access to the initial capital that they may need to begin a meaningful small business.
Islamic Financial Institutes (IFIs) could play a key role in assisting to eradicate poverty and consequentially lifting overall GDP and living standards in the nation.
The more intrinsic values of Islamic banking as being a more morally sound and sustainable form of banking makes it an ideal partner for “Green” investment concepts (Investment only in organizations who contribute internally to sustainability and environmental issues) which have recently started to take a foothold.
A potential ethical banking partnership of the moral based and environmentally sound foundations of the two could even prove to have more convincing buy in capability for socially aware customers in the market.”
via What role do Islamic Financial Institutes have in the Finance world of tomorrow? | Asian Banking & Finance.
“Some banks have been around for a couple of centuries or more, particularly in Switzerland, and yet they continue to thrive without government help. Only one Swiss bank out of 350 required state intervention in the financial crisis of the past few years. If you look at the big banks that have been in trouble or the banks that regulators and others worry about being in financial trouble, you will notice that virtually all have a corporate form of ownership and are heavily regulated. Yet banks that are organized as general partnerships, such as Swiss private banks, where the owners of the banks have unlimited liability, have, in almost all cases, avoided failure or having to go to the government for a bailout.”
via Why Swiss banks don’t go broke | FP Comment | Financial Post.
A discussion on financial regulation , Basel III , and SISI or Systemically Important Financial Firms.
Last fall central bank governors and heads of supervision from countries represented on the Basel Committee on Banking Supervision agreed to the important package of reforms in capital regulation known as Basel III. The Basel III requirements for better quality of capital, improved risk weightings, higher minimum capital ratios, and a capital conservation buffer comprise a key component of the post-crisis reform agenda. But they are just that – a component. Although a few features of Basel III reflect macroprudential concerns, in the main it was a microprudential exercise. The new minimum equity capital ratio and conservation buffer were calibrated on the basis of an historical examination of the individual loss experiences of banks in the United States and six other countries.
via Regulating systemically important financial firms | The Financial Regulation Forum.
“According to a report published by consultants PricewaterhouseCoopers (PwC) on Friday, India is expected to leapfrog Japan to rank three in terms of domestic banking by 2035 and could pass China as its population rapidly ages.
PwC’s chief economist John Hawksworth urged current banking leaders, whose power has been sapped by the credit crisis, to heed the accelerating shift in global economic power and claim a share of emerging markets’ relatively unbanked populations.”
via China will become global banking leader by 2023, says PwC – The Economic Times.
The business shift to the E7 from the G7 has great implications for capital and power.
“European banks have very low levels of capital, meaning they are highly leveraged – having a great deal of debt relative to their equity. They are not in a position to withstand losses on their large portfolios of European government securities if, as seems likely, Greek problems cause a fall in the market price of Spanish, Italian, Belgian, or other euro zone sovereign debt.
The banks convinced themselves – and their regulators – that lending to all these governments was “riskless.” This was the structural mistake at the heart of the euro zone.”
via The Euro Zone’s Structural Problem – Room for Debate – NYTimes.com.
This is a very critical analysis and simple deduction. The global financial situations have to look past the proverbial “finger-in-the-dyck ” solutions . They have to, as this authir has done, get to the core matter and the priority solutions and grapple with the structural matters.
Cities ( wherein over 50% of the world’s population resisde ) are facing an “Infrastructure Deficit ” ie they have crumbling and aged : roads, bridges, transportation systems, sewer , water and utilities and not enough capital allocated to the building and re-building of these critical infrastructure components.