Posted Apr 15, 2013 by Martin Armstrong
Senators Sherrod Brown, D-Ohio, and David Vitter, R-Louisiana, have a new bill that would make banks keep much higher levels of capital. With this new agreed upon position among governments that it is the DEPOSITOR who should do his own due-diligence, then the megabanks that trade other people’s money MUST be outlawed PERIOD! There can be NO Exceptions. Government is incapable to regulating banks, the courts are bought and paid for, and the prosecutors turn a blind eye to the TOO BIG TO FAIL banks that are now commonly know around the world as the UNTOUCHABLES.
Of course, it is not surprisingly, that representatives for the financial industry are already claiming that such a requirement would ruin the economy. Even Goldman Sachs’ report intent upon killing Brown-Vitter, actually supports now why it is necessary.
A draft of the Brown-Vitter bill, provides a simple straight forward solution to the “too big to fail” problem by requiring all banks to have capital equal to 10 percent of their assets. Keep in mind that Brown is from Ohio, and Vitter is from Louisiana so neither are owned by the NY banks as those representatives from New York State. The bill would also force regulators to impose additional capital requirements on banks with assets of more than $400 billion; that additional capital would increase with the size of the bank, but the total would always be less than 15 percent. This is an idea, but quite frankly, we need to restore Glass-Steagal and break-up the megabanks – period!!!!
Forcing the banks to hold more capital makes sounds logical because it makes them less dependent on government bailouts during a crisis. But lets face reality – in the future they will steal depositor’s money and will still never go to jail. They can only hop that the megabanks are less likely to make brazen gambles, but when they know they will never be prosecuted and CANNOT be sued, let’s get real – fat chance!
Today most banks have capital that is far below the levels proposed by Mr. Brown and Mr. Vitter that is often termed as fractional reserves. The problem is they take your money and trade with it and that NEITHER expands the economy or creates jobs. They are public hedge funds with your money – win they keep it – tails you lose.
Global banking regulators on the Basel committee, which is working on new capital rules, have also proposed setting the minimum capital ratios at just 8 percent. Moreover, Basel’s ratios are calculated using something known as risk-weighted assets. What that means is banks effectively hold less capital against assets considered less risky and more against capital deemed to be very risky. But they also pay off the rating agencies as 2007 demonstrated. So that will not succeed either.
The Bankers are out in full forced to prevent the higher ratios because it reduces how much money they make on each dollar of capital with leverage. They want to risk it all, assume they are never wrong, and when they are, the blame staff as rough traders. To even propose such nonsense means they are INCAPABLE of managing risk. This is like saying you crash your care not because you were driving, but because the bartender made the drinks too strong. They NEVER accept any responsibility and this has to stop.
The bankers never admit that this is just a less-profitable argument. Rather, they tend to argue that higher capital ratios would hurt the economy by making loans more expensive or difficult to get. But they are trading with your money – not lending to the people and when rates are at zero even secured car loans at at 4% and credit card fees are more than double the old usury laws. It does not matter regarding loans for they will not lend without full collateral anyway. The big banks MUST be broken up. They are no longer banks but traders and the DEPOSITORS are now on the hook for undisclosed trading.
Academics merely go off trying to disprove that raising capital would lead to a safer and healthier banking sector and costs would not rise. So when was the last time you beat the kids? That statement forces you to prove a negative and then changes the debate. This is what the bankers are doing. It is bullshit plain and simply and you can see with a drop in wholesale interest rates they did not lower their lending rates in proportion. It is all bullshit in a nice tine foil wrapper.
It is not yet clear that even if the Brown-Vitter bill makes it to the floor through the bankers buying off votes even for that, that there will be a vote that EVER goes against the bankers. The banking lobby is the one that leaked the draft in an effort to ruin its chances. This is how they play the game. The chief’s of staff in the committees on Financial Services protect the SEC & CFTC and will NEVER allow any bill that seriously questions them to rise to a vote. So much for democratic processes.
Politicians had better wake up. This idea of always supporting the bankers is destroying civilization. Now the politicians are exonerating themselves saying it is the DEPOSITOR’s fault if the bank fails so why expect a bailout. They have lost all common sense for the entire argument that we need all these regulators to protect the public makes no sense as soon as you say the depositor’s must do their own due-diligence. Why are we paying taxes? So lawyers can make a name for themselves like the prosecutor signing autographs? Perhaps it is so these people get pensions? Obviously nobody actually has to work or protect anybody.