Derivative Bank Reform

The financial institutions of this country are in a shambles due to poor choices by the nations banking institutions. If you look at small town banks that invest in the local community then you don’t see a problem. When you look at nationwide banks then you see a problem simply because they forgot the original mission of the bank. Sitting on a large pile of cash, yours and mine, they figured it was okay to gamble with it on Wall Street using one tool called derivatives.

What is a derivative you might ask yourself? It is for all intents and purposes a lottery ticket, a throw at the craps table, or a bet. By definition according to Wikipidia…

“A derivative is a financial instrument (or more simply, an agreement between two people/two parties) that has a value determined by the future price of something else. Derivatives can be thought of as bets on the price of something. Suppose you bet with your friend on the price of a bushel of corn. If the price in one year is less than $3 your friend pays you $1. If the price is more than $3 you pay your friend $1. Thus, the underlying in the agreement is the price of corn and the value of the agreement to you depends on that underlying.”

Republican opposition to such reform is outlandish in the face of so many banks that needed the Treasury to bail them out of the financial mess they were in. Banks became lazy and greedy for ever growing easier profits from Wall Street rather than focusing on the business model they started with. Greed lead to more greed and greater risk to not only the bank but individual account holders and that was the downfall of many of the institutions that Republican leaders wanted to not bail out to begin with? Which way do the Republican’s want the pendulum to swing? Our nation is at a catch 22 with some of the biggest banks and financial institutions; if they fail, they will take the nation down with them. We bailed them out when they went to Vegas and now it is time to tell those same banks that they have a gambling problem. It is called and intervention to prevent future bail outs!

Is common sense dead over on the right side of the aisle? If banking institutions are going to belly up to the bar for bailout money because greed superseded simple banking business rule of thumb, then they need big brother telling them that playing the lottery with other peoples money is not going to happen. Quarterly profits should not override common sense when it comes to banking institutions.

Is your bank playing with derivatives? If so, are you sure the check for your electric bill is going to be paid? That is the common sense behind bank reform. Protecting you and the money you deposit into the bank.

Papamoka

Bank Stress Test Proof Positive

Some folks will look at a glass and say that it is half full and others will look at it as half empty. In the case of the banking industry you need to look at the glass and see that certain people will not be sipping from the glass anymore.

If I were one to have disposable income, and I do not, if I did, then I would be buying stocks in these troubled banks as fast and furious and as much as I could. Holding said stocks for five or more years and then taking a profit as investors will do. Over at MSNBC they have this little piece on the survivability of and stress test our largest and not so large banks in America went under the knife by the Federal Reserve…

Among the 10 banks that need to raise more capital, Bank of America Corp. needs by far the most — $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC LLC $11.5 billion, Citigroup Inc. $5.5 billion and Morgan Stanley $1.8 billion.

The five other firms found to need more of a capital cushion are all regional banks — Regions Financial Corp. of Birmingham, Ala.; SunTrust Banks Inc. of Atlanta; KeyCorp of Cleveland; Fifth Third Bancorp of Cincinnati; and PNC Financial Services Group Inc. of Pittsburgh.

The banks will have until June 8 to develop a plan and have it approved by their regulators. If they can’t raise the money on their own, the government said it’s prepared to dip further into its bailout fund.

The stress tests are a big part of the Obama administration’s plan to fortify the financial system. As home prices fell and foreclosures increased, banks took huge hits on mortgages and mortgage-related securities they were holding. - MSNBC

In my honest opinion the banking crisis is over and the only way all of this financial mess will be cleared up is by the banks themselves telling the American people that “We will be Okay!” When they tell the government and the rest of the financial industry that they no longer need assistance is when the crisis is officially over. It has to come from the CEO’s lips of each bank rather than a statement from the White House in a hurried press room briefing.

Citigroup will be fine, Bank of America will be fine. The true test isn’t in a hypothetical situation presented to the balance sheets of these banks by the Federal Reserve but by the actions of the people running the banks. The government has their backs respectively to ensure our economy is sound, now it is up to the big boys and girls running the big banks to scream at the top of their lungs that they will survive this crisis. Act accordingly to make sure that the institution they represent is around for another couple of decades if not more. Only then will the investment dollars start buying up cheap banking industry stocks that in less than a few years will make the oil industry profits look disgusting for investors today.

Now is the time to get back to the basics of what a bank should be doing, should have been doing, and should have not been doing. And for investors to make some long term stock picks in the banking industry that will not be allowed to fail.

Papamoka

USS Enterprise

This is a time warp piece back to the days of old back in World War II. I happen to love the History Channel and today they had a non stop running of Battle 360 and it covered the battles that the carrier U.S.S. Enterprise encountered in the Pacific against the Japanese during WWII. If there was ever a symbol more worthy of the American people it was this ship against the original Axis.

Those guys went through hell more than once. If you are reading this and you are a veteran of the Enterprise then God bless your heart my friend. Holy crap! From battle after battle the Grey Ghost just wouldn’t give up and at one point she was the only surviving carrier the US Navy had during the Pacific Campaign of WWII. If there is anything that comes close to defining the road trip to hell and back, then these guys can explain it all with graphic personal first hand details.

The Enterprise encountered the best the Japanese had to give and beat them back time and time again. That is a tribute to the American spirit of the time and a testimony that many should hear. These men refused to give up and they gave it their all to defend what was right and wrong in the world. Even against overwhelming force they stood and fought and persevered. It was an amazing time and in it we can all take a serious lesson in our lives today. Regardless of all the crap thrown at you at any point in your life, somebody faced a much more dire set of circumstances than we will ever think possible, and they survived to tell the world about it.

Times are tough but times are changing for the better. Things are starting to turn around in the banking industry, stocks and confidence in them shows that. Housing starts are starting to turn the corner and the refinancing of existing homes is turning a page for the better.

Now is the time for people to stop listening to the doom and gloom media and think that it is actually possible that America can survive and get past the current economic crisis. While everyone on the news is spouting more gloom and doom you don’t hear crap about the success stories during this difficult time. Something like General Motors saying that they believe that they will be okay after bankruptcy court. Or the fact that many people able to purchase an existing home from the distressed real-estate market will be launching into home repairs, renovations, upgrades, and out right rebuilds of the existing homes all across America. Then of course it is a must to mention all the folks that still have a job, still pay their bills and pay their mortgages on time as well.

All is not lost, the ship that is the American economy is still able to tread water and make headway. We just can’t barrel ahead at 25 knots and we all need to accept the fact that we have to fix the ship and know that our battle in this economic crisis only acceptable outcome is victory. Just like in WWII, we can fix this and make it seaworthy once more to make her ready for battle on the frontline again. But we can do better. We can make her torpedo proof, make her capable of defending herself, and we can make her survive the long fight ahead of us all. All that we have to do is give her a crew worthy of the sacrifice.

Thank you Enterprise and all that served on her then and now for your courage and your service. Your history and your ship earned a respect unequaled by many and wothy of many more tributes. I just hope that the America of today can live up to your courage in the face of total aniliation and see that survival is possible and you can come back to fight another day.

Papamoka

Panic and the Economy

I'll just let this CSPAN video speak for itself but back in September of 2008 their was in fact a run on the banks here in the States and the Treasury shut down the electronic transfer of funds after pumping in $105 Billion to the banks when they found it happening. $550 Billion was drained out of money market accounts in one hours time and if the draw continued it would have collapsed the world economy. If they did nothing it could have amounted to $5.5 Trillion being drained out of our banking system that would have caused panic all around the world. Check out the video and what Rep. Paul Kanjorski has to say...

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I'm wondering if the Treasury investigated why there was a run on the banks electronically in such a short time span? That was the first question in my mind! Is the Congress investigating this. If they are not, then why not? If they are, then what did they find out? Or is this Congressional member full of crap? Or could the world as we know it really have ended on September 18, 2008? Two plus weeks before the election of President Obama and on George W. Bush watch, makes you wonder doesn't it?

As always, we follow the money and not the messenger... Thank you Memeorandum for the news tip!

Papamoka

Presidential Election and Financial Crisis

I’m of the strong opinion that in order to understand the problem that our nation is facing financially you would need to know all of the facts that caused it. It is wiser to have the facts before you than just present a plan for the sake of saying you have a plan. That is just the wrong way, and a very irresponsible way to do things when your nation is facing financial collapse. There is not a band-aid big enough for this problem facing America! Senator John McCain who is running for President thinks it is as easy as that and it is not.

Anyone that has worked in quality control knows that you just don’t guess on the cause of a systems failure. You wait to get all of the facts, examples, research the probable cause of the failure, investigate all probabilities, and eventually you find the root cause of the failure. CSI (Crime Scene Investigation) is very similar to a very well run quality management system. There are steps that need to be taken before you tell the chicken to stop laying eggs because an egg broke on Wall Street. As any good lawyer will tell you, you don’t ask a question in court when you know what the real answer is. Same thing works for quality control and the same thing needs to be in place before any politician races forward with a quick fix plan such as Senator McCain has done with this nations financial market meltdown.

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Barack Obama did the right thing by not offering a quick fix to this situation till he knows all the facts. Throwing hundreds of billions of dollars if not $1 Trillion dollars at this issue is not the only answer and Obama knows that. Changes in the way our nations financial markets work needs to be looked at very closely and the roll that our government played in this collapse needs to be looked at as well! There is no quick fix and as a Presidential candidate Obama and McCain are not privy to the information that President Bush, Secretary Paulson, and Fed Reserve Chairman Bernake are very well informed of.

When John McCain tells you he knows how to fix this problem and has the experience to back up his words I find serious doubt in his word. When his General Co-Chair campaign manager is Phil Gramm who derailed every opportunity he could to free up Wall Street and the financial markets and stripped the safe guards that Franklyn Roosevelt put in place to prevent another financial collapse. John McCain was right there with Gramm on these votes to suspend regulation of the banking industry so there is some root cause suspect right there.

When you look at what John McCain has said about privatizing Health Care just as he has DONE with BANKING then you see even more root cause for the financial crisis that we all will end up paying for. When you look at the stance that John McCain wanted to privatize Social Security and let it be market driven then you see more root cause to the financial crisis facing America today. Both scenarios point to a future bailout that would dwarf the current one we as American’s will have to pay for.

We all know what a lemon is when we buy it as a car, I think you can spot a lemon in a political candidate when you see one. Just last week John McCain wanted to change our nations Health Care system just like HE CHANGED our nations banking system.

If you know a retiree, then warn them that the checks they receive every month may rise or drop with the market on Wall Street if John McCain is President. Can they afford the gamble that McCain wants to take with all the years they paid into Social Security? Could they afford to live if the same crisis happened to their retirement benefit if it collapsed because Wall Street became greedy and started passing out millions of dollars in bonuses from get rich quick scams. That is exactly what happened in the housing finance markets and those that got paid are sitting fat and happy.

There was a reason why FDR put in the fail safe regulations on the markets and banking industry, it was to protect the people from losing their hard earned money. Their was a reason why John McCain and Phil Gramm removed those protections, there was money to be made by friends.

By all means, you can vote for John McCain for President but you had better learn to say “Paper or plastic” in the job you are going to have to get when you are seventy or eighty years old. Enjoy your golden years but get a job you free loaders that should have a secured retirement benefit from Social Security!

Papamoka

*****Reuters has picked up this entire post! Thank You