With the Mt. Gox Bitcoin exchange offline… a primary concern of customers who had accounts there is getting back lost bitcoins – can they be retrieved?
Everyone wants to know where the billions of dollars big banks have forked over to bank regulators, the SEC, the CFTC, the FERC, and the Department of Justice ends up.
We’ve talked a lot about the so-called Volcker Rule. I’ve called it a “cop-out” and “joke” and tracked its bloated path from 300 pages to nearly 1,000.
Thousands of home equity loans made in the peak years of the housing bubble are just starting to reach their 10th birthday, which for many borrowers will bring very bad news.
Let’s talk about the so-called Volcker Rule.
When the Dodd-Frank Act was signed into law in 2010 – the bank-busting, save the system, “we’ll never again have a financial meltdown that could destroy the world” legislation – it was more of an outline.
By the start of the 1960s, banking in America was in a state of flux.
Boundaries were being blurred – especially those separating “commercial banks” and “investment banks” under Depression-era Glass-Steagall parameters. The banking landscape was shifting. In fact, it was about to go volcanic.
The Truman Administration had championed the break-up of bank cartel arrangements, whereby a powerful coterie of commercial-bank bond underwriters controlled how corporations financed debt and who got to distribute bond offerings. Subsequent regulatory changes (requiring bidding for underwriting assignments) broke up the “Gentleman Bankers Code,” which had been code for cartel.
A more competitive landscape drove banks to expand. Branch banking spread through shopping malls and onto prime locations on America’s Main Streets.
The hunt for deposits was on.
And it got ugly fast…
Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.
Unfortunately, those fears were both overlooked and underestimated.
Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” according to minutes of the council’s Feb. 8 meeting.
In addition, “agricultural land prices are veering further from what makes sense,” the council said. “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”
These warnings come from the Federal Advisory Council, a panel of 12 bankers chosen by the 12 Federal Reserve banks, which consults with and advises the Fed. Members of the council include the CEOs of Morgan Stanley (NYSE: MS), State Street Corp. (NYSE: SST), BB&T Corp. (NYSE: BBT), Bank of Montreal (NYSE: BMO), Capital One Financial Corp. (NYSE: COF) , U.S. Bancorp (NYSE: USB) and the former CEO of PNC Financial Services (NYSE: PNC).
What’s more, the council warned the Fed in September that QE3 and its plan to buy bonds indefinitely would distort bond prices and have a limited impact on the economy and that “uncertain effects” will arise from the eventual unwinding of the balance sheet, including “risks to price and financial stability.”
So while Uncle Ben likes to remind us that the Fed will step in and take appropriate fiscal measures when necessary, the central bank’s own council believes the Fed’s actions are doing more harm than good.
Our last chapter was about how the U.S. Federal Reserve was created and why. But it ended with an extreme example of how the universal central banking model works today.
As another domino threatened the house of cards holding up European banks, more money had to be pumped into Cypriot banks so their doors didn’t close and rapid contagion wouldn’t implode all of Europe, and then the world.
Only this time was different.
The European Central Bank (ECB) reached straight into Cypriot bank depositors’ pockets and stole about $6 billion from them. The “how” isn’t important. It’s a simple equation, as revealed in Part V. Governments are the backstoppers of central banks; that’s where their authority ultimately comes from.
Why did the ECB steal depositors’ money? So they could turn around and lend that and more to the insolvent banks to keep them alive. It’s the latest twist in the old “extend and pretend” game.
The big question is, how did banks get so big and so dangerous in the first place?
Or, how did stodgy traditional banking morph into “casino banking” on a global scale?
Here’s how it started…
This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street…
This is a syndicated repost published with the permission of New Economic Perspectives. To view original, click here. Opinions herein are not those of the Wall…