"Less than a 3 percent drop in asset values could wipe out Wall Street" - Crisis Panel Says In Final Report - Home - The Daily Bail

It's all about leverage. I've been waiting for this public quote for 2 1/2 years. It's very simple math. And it's also the key to understanding the crisis and why all of the banks are insolvent. You've heard it several times here before. Henry Paulson, when he was still CEO of Goldman in 2004, successfully lobbied the SEC to change the rules on capital ratios. Leverage exploded from a previous limit of 12:1 to beyond 40:1 for all 5 firms, and when you consider that a substantial portion of the assets were synthetics then the real leverage numbers were much higher.

By the way, reinstating the pre-2004 rules of 12:1 would go a long way toward a financial fix and yet it was left undone by Dodd-Frank, which only required that the Federal Reserve undertake a study of capital ratios and report findings to Congress. That will certainly solve the problem.

Back to the math. In a world of 40:1, assets don't have much downside. Consider what this means in a simple example.

• If your collective assets drop in value from 100 to 97, you're done. Toast. Game over. At least that's how it's supposed to work.

Here's a further illustration. 

Goldman Sachs could have $1 trillion in assets anchored by just $25 billion in capital. Assume Goldman's asset base loses 30% in value as happened in 2008, creating a paper loss of $300 billion, which if they were forced to mark honestly, would leave them insolvent to the tune of approximately $275 billion. This is what I mean when I've written before that the banks aren't just a little bit insolvent, instead their insolvency depth is a multiple (in this case 6x) of their original capital.

Read more: "Less than a 3 percent drop in asset values could wipe out Wall Street" - Crisis Panel Says In Final Report - Home - The Daily Bail

Open Government is a thing of the past

President Obama promised that his administration would open and transparent. He even went so so far as to memorialize this in a memo to the heads of the Executive Departments and Agencies:
           Memorandum for the Heads of Executive Departments and Agencies

SUBJECT: Transparency and Open Government

My Administration is committed to creating an unprecedented level of openness in Government. We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration. Openness will strengthen our democracy and promote efficiency and effectiveness in Government.

Government should be transparent. Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use. Executive departments and agencies should harness new technologies to put information about their operations and decisions online and readily available to the public. Executive departments and agencies should also solicit public feedback to identify information of greatest use to the public.

http://www.whitehouse.gov/the_press_office/TransparencyandOpenGovernment/

Well that policy was short lived. As a result of the new Financial Regulatory Reform Act the SEC has been exempted from all Freedom of Information Act requests. There will no longer be any more embarrassing stories from the press about the ineptitude of the SEC in its handling of Madoff, Stanford or Pequot when the SEC fails in its job in the future.

So much for transparency.

Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.

That argument comes despite the President saying that one of the cornerstones of the sweeping new legislation was more transparent financial markets. Indeed, in touting the new law, Obama specifically said it would “increase transparency in financial dealings."

The SEC cited the new law Tuesday in a FOIA action brought by FOX Business Network. Steven Mintz, founding partner of law firm Mintz & Gold LLC in New York, lamented what he described as “the backroom deal that was cut between Congress and the SEC to keep the SEC’s failures secret. The only losers here are the American public.”

If the SEC’s interpretation stands, Mintz, who represents FOX Business Network, predicted “the next time there is a Bernie Madoff failure the American public will not be able to obtain the SEC documents that describe the failure,” referring to the shamed broker whose Ponzi scheme cost investors billions.

http://www.foxbusiness.com/markets/2010/07/28/sec-says-new-finreg-law-exempts-public-disclosure/

Racial and Gender Preferences Hidden Away in Dodd-Frank Finance Bill

Racial and Gender Preferences Hidden Away in Dodd-Frank Finance Bill

The Experts have spoken and they agree the Financial Reform Bill is useless and more likely to be harmful

Congress has spoken and they have proven once again they are idiots. As I have said before the Financial Reform Bill will do serious harm to our economy but they don't seem to care in the least. There is still time to act I ask you to please contact your Senators and urge them to vote no on S.3217( http://thomas.loc.gov/cgi-bin/bdquery/z?d111:SN03217:)




The Dodd-Frank Financial Fiasco



The bill all but guarantees bailouts as far as the eye can see, while failing to address real problems like Fan and Fred and our outdated bankruptcy code.
 
By JOHN B. TAYLOR

The sheer complexity of the 2,319-page Dodd-Frank financial reform bill is certainly a threat to future economic growth. But if you sift through the many sections and subsections, you find much more than complexity to worry about.

The main problem with the bill is that it is based on a misdiagnosis of the causes of the financial crisis, which is not surprising since the bill was rolled out before the congressionally mandated Financial Crisis Inquiry Commission finished its diagnosis.

The biggest misdiagnosis is the presumption that the government did not have enough power to avoid the crisis. But the Federal Reserve had the power to avoid the monetary excesses that accelerated the housing boom that went bust in 2007. The New York Fed had the power to stop Citigroup's questionable lending and trading decisions and, with hundreds of regulators on the premises of such large banks, should have had the information to do so. The Securities and Exchange Commission (SEC) could have insisted on reasonable liquidity rules to prevent investment banks from relying so much on short-term borrowing through repurchase agreements to fund long-term investments. And the Treasury working with the Fed had the power to intervene with troubled financial firms, and in fact used this power in a highly discretionary way to create an on-again off-again bailout policy that spooked the markets and led to the panic in the fall of 2008.


But instead of trying to make implementation of existing government regulations more effective, the bill vastly increases the power of government in ways that are unrelated to the recent crisis and may even encourage future crises.

http://online.wsj.com/article/SB10001424052748703426004575338732174405398.html?mod=googlenews_wsj

Consequences of Financial Regulatory Reform- Dire Warning of Things to Come

As is always the case in Washington those with money get what they want and those without money get screwed. It happens all the time, a crisis occurs in our country and Congress begins meddling with the system by passing more laws. The fact of the matter is that the banking crisis could have been avoided if Congress had not demanded that banks provide loans to low income people who couldn't afford the price of the house in the first place. The end result is that Fannie and Freddie are both now broke and continue to require cash infusions by the government each month just stay in business. Congress is now on the verge of passing the largest bank reform bill in history which they say that it will prevent a crisis from occurring next time. But it won't prevent anything. First the current bill was written by the large banks so it contains enough provisions so it doesn't hurt them in the least. Second more regulations always mean more costs to do business which while it can be absorbed by the large banks cannot be absorbed by their competitors, the small community banks. The big banks win and the small banks, the ones that lend to the small farmers and small businesses in this country, lose. Great job as always Congress you have now killed ability of small businesses to get access to the cash they need to create jobs and make this country prosperous.

From the WSJ Opinion Page
The End of Community Banking


Creditworthy borrowers will be denied loans as small banks devote more and more energy to regulatory compliance.

By SARAH WALLACE

The comprehensive financial reform agreed upon by the House and Senate on Friday, along with all the new regulations of the past year, could signal the end of community banking. The new reforms will give more power to the Federal Reserve to regulate how my bank and others like it do business.

What does all this mean for our customers? Less credit will be available, costs will increase, and we will be less able to make loans to regular people who were creditworthy in the past. This is the perfect storm for the small retail banking customer. We will start to see more small community bank failures and mergers because of voluminous regulation.

I have served as the president and now the chair of the board of directors of First Federal Savings and Loan Association in Newark, Ohio, since 1980. First Federal is a $200 million, federal mutual thrift. We were created to provide people a safe place to deposit their money, and loan that money back into the community in order to meet housing needs. Additionally, we utilize a significant portion of our profits to give (yes, I said give—not lend) to worthy community organizations and projects.

http://online.wsj.com/article/SB10001424052748703964104575334611037072320.html?mod=googlenews_wsj