Rebel Traders – Analysis Without The Hype

“Never Again Will the American Taxpayer be Held Hostage by a Bank that is ‘Too Big to Fail’"

Wow, my ears are still ringing from the sudden and shocking statement made by the President today. All of my readers know all to well that I am a strong advocate for bringing back the Glass-Steagall act.

The statements made by President Obama today, while falling short of actually reinstating Glass-Steagall, still has many merits that I strongly support. It is a good start.

Wall Street – Watch out, your free lunch may be coming to an end.

As I have written and voiced in my market videos over the past many months, the advances have been a bear market rally within a broader secular bear market. The rise in equity prices over the past six months has been, for the most part, a result of easy money at the expense of the tax payers. And a free lunch card is no way to create a healthy and organically robust economy. Today, President Obama has threatened to cancel the free lunch card for good.

The White House

Office of the Press Secretary

For Immediate Release

January 21, 2010

President Obama Calls for New Restrictions on Size and Scope of Financial Institutions to Rein in Excesses and Protect Taxpayers

The proposal would:

1.   Limit the Scope – The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

2.   Limit the Size – The President also announced a new proposal to limit the consolidation of our financial sector.  The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

In the coming weeks, the President will continue to work closely with Chairman Dodd and others to craft a strong, comprehensive financial reform bill that puts in place common sense rules of the road and robust safeguards for the benefit of consumers, closes loopholes, and ends the mentality of “Too Big to Fail.”   Chairman Barney Frank’s financial reform legislation, which passed the House in December, laid the groundwork for this policy by authorizing regulators to restrict or prohibit large firms from engaging in excessively risky activities.

As part of the previously announced reform program, the proposals announced today will help put an end to the risky practices that contributed significantly to the financial crisis.

I am truly impressed. Now the question is will it ever see the light of day? Almost immediately following Obama’s statements came a whole bunch of opposing opinions. Some view the measures, if made into law, would prevent the big Wall Street firms from being able to compete on an international level. My response to that is – tough shit.

Some have said that the new rules could hamper the banks from operating efficiently in the future. My response to that is – too bad, learn how to make money the old fashioned way, by earning it, not placing tax payer funds at risk.

And various congress critters are chiming in and they think it will destroy the banking system. My response – It has already been destroyed, now lets fix it.

The markets sold off significantly today as the idea of the free lunch card may be taken away. Some will criticize President Obama for crashing the stock market. Sorry, it is not his fault the market tanked today. The reason it sank is that it was being propped up on air in the first place. Reality sucks, doesn’t it. If the free lunch is cancelled then equities will be forced to price to reality, not goosed by the taxpayer being robbed every day.

Now we have to make this become a reality. Any senator or representative that opposes the new constraints on Wall Street will be showing his or her cards, and those cards will have been paid and supplied by Wall Street. In that case throw the bum out!

If any financial institution, who has been sucking on the taxpayer teat for the past two years does not like the proposed changes, then I have only one thing to say to them – Live with it, or fail. We won’t shed a tear if you go out of business.

President Obama is expected to announce on Thursday new limits on the size and risk that is allowed to be taken by the country’s biggest banks. If true, and not some watered down nonsense, then this would truly be a step in the right direction.

President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return – at least in spirit – to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The proposal represents a sharply different philosophical shift from the view of banking over the last decade, which saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. The goal, as described by administration officials, would be to prevent banks from using federally insured deposits to finance "speculative activity." […]

[…] The White House’s proposal, one aide said, would not resurrect the exact limits put in place by the Depression-era Glass Steagall Act, which essentially walled off commercial banks from investment banks and was repealed in 1999. Instead, the White House proposal would seek to return the "spirit of Glass Steagall," meant to limit large banks from becoming too big and complex that create enormous risk.[…] WSJ

White House aide says it will be in the ‘spirit’ of Glass-Steagall. Spirit? Now I know this is going to be nothing but BS. As I have opined numerous times, unless Glass-Steagall is reinstated anything else is just more flapping of the gums.

I suspect the tough talk from Obama is in response to the beating the democratic party is taking for being too comfy with Wall Street. Could it be that the Senate election of republican Scott Brown last night finally has President Obama waking up and learning that there are actually people in this nation he has to answer to? Probably not, but it was a nice thought that lasted all of two microseconds.

Anyone care to wager that this never sees the light of day (becoming law), and that it is just ‘tough talk’ on the heels of the massive slap in the face from the defeat in the Massachusetts senate race.

“Alex, I’ll take EMPTY PROMISES for $200 please”

As you are already aware the biggest single mistake this nation made that led us into the financial meltdown was the removal of the Glass-Steagall act in 1999.

That one strike of the pen in 1999 unleashed upon the world a swarm of locusts that devoured every financial instrument which has since left many Americans in a financial desert.

New chatter today that Glass-Steagall is being bantered about in Washington. Please Santa, all I want for Christmas is the return of Glass-Steagall.

John McCain(R) is joining up with Maria Cantwell(D) in a united voice to bring back Glass-Steagall.

[...]The Senate prospects for the success of the McCain-Cantwell bill—which the two plan to announce together on Wednesday morning—seem bleak at best. But McCain and Cantwell join a still small but not insignificant insurgency of chronic doubters, including former Federal Reserve chairman Paul Volcker, who say not nearly enough is being done to change Wall Street and, in particular, to address the “too big to fail” problem. The issue is one of the few in Washington that can unite the left and right sides of the political spectrum. Democrats like Cantwell deplore Wall Street’s outsize role in the real economy and its lobbying influence, and conservatives such as McCain are appalled at the way the market system has been undermined—some would say rigged—by the power of the big banks.[...] (Source: Newsweek)

How about it Santa? You did a miracle on 34th Street a long time ago, how about a miracle on Wall Street? Bring stability and reason back to the financial sector, and free the debt slave tax payers from the Mr. Scrooge bankers of Wall Street.

Now here is something to get excited about. Although the chances of it ever becoming reality are extremely slim.

There are discussions going on in Washington, D.C. to re-instate Glass-Steagall. This idea is being brought from idea to ink on paper by John Tierney(D) of Massachusetts,  Maurice Hinchey(D) of New York, John Conyers(D) of Michigan, Pete DeFazio(D) of Oregon, and  Jay Inslee(D) of Washington.

Five House Democrats will call this week for a return to a Depression-era law that separated Wall Street investment banking from Main Street commercial banking.

If adopted, the measure would give banks one year to choose between being commercial banks or investment banks. The nation’s biggest — those now commonly referred to as “too big to fail” — would be broken up. The Obama administration opposes the measure.[...]

[...] (They) want to restore the Glass-Steagall Act of 1933, which prohibited commercial banks from underwriting stocks and bonds. The act was repealed in 1999 at the urging of, among others, Larry Summers, now President Barack Obama’s chief economic adviser.[...]

[...]The law’s repeal ushered in an era marked by big banks getting even bigger. The country’s four largest — Bank of America, JPMorgan Chase, Citigroup and Wells Fargo – now control more than half of the nation’s mortgages, two-thirds of credit cards and two-fifths of all bank deposits.

And because their deposits are taxpayer-insured, there’s a growing concern that they will feel overly confident about making risky bets through their investment arms because they know that should they suffer huge losses, taxpayers will ultimately be there to bail them out.[...]

[...]Three weeks ago on Capitol Hill, Treasury Secretary Timothy Geithner said: “I would not support reinstating Glass-Steagall. And I don’t actually believe that the end of Glass-Steagall played a significant role in the cause of this crisis.”

But in an interview Monday, Hinchey said that “some of the people around our president are not giving him the appropriate advice.” He added: “And contrary to that, the wrong advice is coming forward — and being implemented.”[...]

[...]Conyers and Hinchey point to Volcker, among others, as being on the right side of this debate. In response to reports that the administration is marginalizing Volcker and disregarding his recommendations, Hinchey lashed out: “He’s someone we should be listening to. It’s very discouraging and annoying and angering to me that someone like him is not being listened to.”

But there’s a reason for that, of course. As Hinchey said Monday, “I think there is excessive influence of some banks on the legislative process in this Congress.”[...] (Huffington Post)

I give a standing ovation to these five soles. Unfortunately Timmy Geithner and President Obama are over powered by Wall Street to allow this to ever become law. I have argued ever since this site went active in the Spring of 2007 that the dismantling of Glass-Steagall in 1999 was one of the worst decisions ever made, and it had a direct and meaningful contribution to the (read more…)

Treasury Secretary Tim (Turbo Tax) Geithner has come under a lot of fire in recent months, and with just cause I might add.

Today Tim Geithner came under heavy fire on Capital Hill for his failed policies, bailouts, and the growing deficit. The pivotal moment for me was when Tim Geithner said the following:

{I do not believe that the removal of Glass-Steagall had any impact on the current crisis}

That my friends is an outright admission that he does not work for the good of America or its citizens, but instead works for the good of Wall Street, even if it means placing the taxpayers at great risk.

It was the elimination of Glass-Steagall in 1999 that allowed banks to cross the line into non banking endeavors such as mortgage backed securities. The Glass-Steagall Act was originally enacted following the Great Depression to prevent banks from putting the financial system at risk. How Mr. Geithner thinks that this had nothing to do with the current financial disaster is simply beyond words.

Recall that before becoming Treasury Secretary he was the President of the Federal Reserve Bank of New York. The very Federal Reserve bank that was instrumental in aiding and abetting the bailouts of the insolvent banks, participated in the meetings and doings of the Bear Stearns collapse, Merrill Lynch, Lehman, and many other “investments” that we as taxpayers were forced to pay. He also allowed non-banks to acquire bank holding company status so they may be able to draw upon the Fed’s (tax payer) funds via the discount window. Something that was until this crisis only available to ‘real’ banks.

Recall that earlier this year Tim Geithner was speaking to a group of university students in China and stated that China’s investments in the United States were safe. This was followed by an outburst of laughter from the audience (some people don’t fall for lies).

Recall that Tim Geithner was instrumental in the behind the scenes arrangement that allowed Goldman Sachs to receive full payment for credit default swaps  that were tied to AIG. Those credit default swaps would normally have paid between 25 and 55 cents on the dollar in this situation. Instead Tim Geithner allowed Goldman Sachs and even some foreign banks to receive par on the default swaps and worst of all it was essentially laundered money. The money went from the tax payer to AIG, from AIG it went directly to Goldman Sachs. Everybody has to save Goldman Sachs… right? This all took place when Geithner was running the show at the New York Federal Reserve and former Goldman Sachs chairman Steve Friedman was on the board of directors of the New York fed when the money laundering operation was devised.

Mr. Tim Geithner – RESIGN NOW

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That is what Senator Bryon Dorgan said on this very day 10 years ago. It was on this day, November 12, 1999 that then President Clinton signed into law the Financial Modernization Act. Contained within that act was the dismantling of the Glass-Steagall Act. The very law that kept “Too Big To Fail” in check was signed away and exactly 10 years later our Government is trying to finds ways to regulate the financial industry after it unleashed a monster just 10 years ago today.

This video from November 1999:

I have written several times in the past about that day in 1999 when Glass-Steagall was wiped off the books. That law prevented banks and investment companies from crossing the line into each others business. But with the destruction of Glass-Steagall came the seeds and fertilizer for what we have on Wall Street today, financial institutions the size of Godzilla and it has taken over Manhattan.

Now that our Government created this monster; which has wiped out trillions of dollars in savings accounts, pension funds, sovereign wealth funds, and the life savings of numerous retired individuals all over this nation the monster is doing everything in its power to keep ‘business as usual’.

The financial regulatory reform draft recently introduced by Senator Chris Dodd is a massive document (1,100 pages) that discusses everything from creating new regulatory departments, increasing accountability, new bank division regulators for the small banks, and lots of mumbo jumbo about how the financial system can be fixed with this draft bill and the problems will never happen again.

<pull my finger>

As Senator Bryon Dorgan so eloquently said on this day ten years ago; “we will look back and say we should have not done this“. He was so right, Washington forgot the lessons of the Great Depression and with the destruction of Glass-Steagall we can clearly and without hesitation say that “they should have never done it”.

When the bill passed the Congress and subsequently signed into law by the President it was not the people of the nation that they were saying how good it would be for, it was how great it would be for the Wall Street firms who would go on to create the biggest financial institutions on the planet who then had the power, the capability, the will, and the desire to suck every dollar from as many people as they can. All the while never worrying about the risks associated with it because the same people they stole from will be the very same ones who will rescue them for they are the tax payers.

Chris Dodd’s financial reform draft is all words with no meat. It was probably written in part by Wall Street themselves and Chris Dodd is simply carrying the torch to show the world that he will reform the system. In actuality nothing significant is in the draft that I can find. The 1,110 page document could easily be reduced to about 20 or 30 pages by simply creating an executive order to reverse the 1999 Financial Modernization Act. But we know that can never happen because you and I don’t have a voice in Washington, D.C. any longer. The only voice they hear is their bosses on Wall Street and they run and control the financial laws of the land.

Just today the Federal Reserve announced new rules on ATM overdraft fees without your knowledge.

The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

A big problem however is that the banks would not be required to comply until July 1, 2010. This gives them plenty of time to come up with new ways to add fees to make up for the overdraft fees they will lose. Why wait until July 1, 2010 instead of making effective within a matter of weeks? Because the lobbyists from Wall Street and  K street in Washington hammered the Feds to ‘give them time’. The banks claim that the new rule will take many months of re-programming the systems to adjust for the overdraft fee rules.

<pull my finger>

The only reason is to allow the banks enough time to create new debit fees that will offset the loss in overdraft fees. Similar to the current credit card fiasco that has customers now unable to pay their credit card bills because the banks jacked their interest rates up to 29.99% in many cases. The banks are front running the rules to gauge as many people as they can and in the fastest amount of time possible.

Do you really think Washington listens to the people anymore? Unless your name is Ken Lewis, Vikram Pandit, Lyodd (Lord aka God) Blankfein, or Jamie (the weasel) Dimon then you have not a chance in hell to have your elected officials listen to you. If you want to offer $1,000,000 to his next campaign fund well then he or she will make time for you, but only enough time to verify the check is good and then you will be out the door.

The only financial reform that will work is the breaking up of the banks and financial institutions again. Build a fence between the two and go back to the days when a bank was a bank, nothing more. And investment firms only handled investments and never dabbled into banking. But these institutions are so big now that just the threat of breaking them up will bring a reaction from them that if they go down then the nation will go down. Remember Lloyd Blankfein (Goldman Sachs CEO) said just this past weekend in an interview that Goldman Sachs “was doing Gods work“. I guess no one would dare interfere with God, now would they.

Lloyd Blankfein…. come closer, closer still…  PULL MY FINGER

… and Bernie Madoff was a caring and honest man.

The Dow Industrial average reached 10,000 with CNBC staff wearing caps that read ‘DOW 10,000‘ and will run a “special” DOW 10,000 TV show this evening.

STOP THE INSANITY

The economy has not been saved, only disguised… akin to putting lipstick on ENRON years ago and calling it a great investment.

Banks and other financial institutions have only been able to report revenues because they no longer have to record ‘actual‘ losses, as long as they don’t sell it they can put whatever value on it they want. We have Congress and the FASB for that brilliant move.

Is Jamie Dimon (JP Morgan CEO) on ‘your‘ side?

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon: Consumer Protection Agency will be “damaging”; will cost customers.

Wednesday, October 14, 2009 9:38:07 AM

JPMorgan Chase and Co CEO Dimon:   Corporate lending continues to trend around all time lows, extended credit lines continue to be drawn at very light levels.

I guess CNBC ‘forgot’ to mention the bad parts

Don’t worry, President Obama has everything under control and will quickly move to solve this problem:

Wednesday, October 14, 2009 3:49:13 PM

White House: Pres Obama supports a $250 payment to seniors, veterans, and the disabled; program could cost up to $13B

- payment may include approx 57M individuals

If one had to pin point a particular point in time when the financial crisis our country faces now began one only has to look to November 5, 1999.

What happened on that day?

Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another’s businesses.

The measure, considered by many the most important banking legislation in 66 years, was approved in the Senate by a vote of 90 to 8 and in the House tonight by 362 to 57. The bill will now be sent to the president, who is expected to sign it, aides said. It would become one of the most significant achievements this year by the White House and the Republicans leading the 106th Congress.

”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

Yes, the very same Larry Summers who now advises the President on economic policy is the very person who spoke highly of deregulating the financial industry. What was done on that day in November 1999 was to essentially throw out the Glass-Steagall Act of 1932 which essentially was to prevent the very problems that has happened to us over the past several years.

In 1999 the decision was made to let banks dabble in other financial endeavors and that was a pivotal moment in the destruction of our financial system.

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.

Today’s action followed a rich Congressional debate about the history of finance in America in this century, the causes of the banking crisis of the 1930’s, the globalization of banking and the future of the nation’s economy.[...]

[...]The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. ”I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

This Wednesday President Obama is scheduled to announce new sweeping rules to address the financial institutions.

WASHINGTON — President Barack Obama is ready to roll out an overhaul of the intricate rules and systems that govern America’s troubled financial institutions, proposing the most ambitious revision since the Great Depression.

The goal is to prevent a recurrence of the economic crisis that erupted in the United States and exploded last fall with devastating consequences still reverberating around the world.

Unless President Obama is prepared to re-introduce the Glass-Steagall Act then then I don’t have much faith in any new regulation.