Tag: banks

Obama is still trying to let the big banks get away with the massive quantities of criminal activity in which they engaged during the housing boom and bust:

The Associated Press reports that a proposed deal could be announced within weeks. Five banks—Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC)—would pay the federal government $25 billion. About $17 billion would be used to reduce the principal that some struggling homeowners owe, $5 billion more would be used for future federal and state programs and $3 billion would be used to help homeowners refinance at 5.25 percent. Civil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations.

Once more, we see that there is absolutely no law whatsoever in the USA. There is barely even the pretense of it here. And looking at it from a political perspective, one would think the Republicans could easily ride this issue of tremendous bank-related corruption and abuse of the home-owning public to victory in November except for one small problem: both Romney and Gingrich are as wholly-owned by the banks as is Obama.

If only there was a candidate who wasn’t a banker’s puppet. Surely he would be the ideal presidential nominee under these circumstances!

The pretense of Greek solvency continues:

Talks between Greece and its creditor banks to slash the country’s towering debt pile broke down on Friday, with the Greeks warning of “catastrophic” results if a deal to swap bonds is not reached soon. The sides remain divided over the interest rate Greece will end up paying, which determines how much of a hit banks take….

The stumbling block in the negotiations was the low coupon, or interest payment, offered on the new bonds, one source familiar with the matter and one banking source said.

“The main problem was the (European Union and International Monetary Fund’s) insistence on a coupon lower than 4 percent on the new bonds,” the banking source said. It could mean an accounting loss of more than 70 percent for banks on their books, far more than the actual 50 percent cut in the original value of the old bonds laid down in the original deal.

The reason for the charade is that the banks are desperately attempting to avoid the Greek default triggering all the credit default swaps they have made with each other. In order to avoid a complete meltdown, it is necessary to pretend a 50% – or 70% – loss on a failure to repay a loan is somehow not a default.

To grasp how absurd this is, keep in mind that homeowners are in default when they fail to make a single mortgage paymentfall 120 days behind on their mortgage payments, never mind when they openly admit that they can’t make interest payments without taking out a loan to do so or repay more than half the principal of the original loan.

Tyler Durden explains why the latest Eurorescue deal is not only smaller than it looks, but even more ludicrous too:

On the day of the 3 Year European LTRO, in a whim of fancy we wondered if contrary to all expectations, the European banks would not instead of using the money for any real releveraging (carry Trade) or deleveraging (switching out of expensive into cheaper debt) purposes, just park it with the ECB’s deposit facility, an outcome which would be the worst possible case as it simply recycles ECB cash from on pocket into another without any incremental velocity. As it turns out, we were only half kidding: as of yesterday, the day after the LTRO, European banks parked almost half of the free €210 billion (recall that while gross LTRO proceeds were €489 billion, only €210 billion was net), or €82 billion, with the ECB’s deposit facility…. And that is what monetary policy failure is all about.

In other words, the ECB loaned $640 billion to 532 banks, but $365 billion simply went to roll over existing debt. Of the remaining $275 billion, $110 billion was simply deposited… in the ECB. That means that the much-publicized $640 billion in “new loans” meant to stimulize the global economy was actually $165 billion.

This behavior is in sync with that predicted by the debt-deflationist position. The money for loans is available, but there simply isn’t anyone who wants to borrow the money, even at interest rates that are effectively zero. In an inflationary environment, people are inclined to borrow as much as they can.

European banks on the verge of collapse:

Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.

The European Central Bank admitted it had held meetings about providing emergency funding to the region’s struggling banks, however City figures said a “collateral crunch” was looming.

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.

Stage 1 was the 2008 credit crunch that led to the autumn banking bailouts. Stage 2 is the “recovery” which was nothing but the banks borrowing free money and gambling it in order to “shore up” their balance sheets. Stage 3 is the 2012 credit crunch that leads to the collapse of many of the banks that were propped up in Stage 1 as the Stage 2 bets fail to prove sufficient.

One thing that hasn’t been much discussed is the way in which the EU’s designs on the City (London) would probably kill the majority of the big UK and US banks within months. That is probably why Cameron found the backbone to exercise the British veto; it wasn’t in the interest of the British people, but rather in the interest of the Anglo-American banks.

And as Ambrose Evans-Pritchard notes, the new Merkozy-led EU treaty has nothing to do with resolving the burgeoning financial crisis.

The leaders of France and Germany have more or less bulldozed Britain out of the European Union for the sake of a treaty that offers absolutely no solution to the crisis at hand, or indeed any future crisis. It is EU institutional chair shuffling at its worst, with venom for good measure.

Of course, Evans-Pritchard fails to note that for Britain, being bulldozed out of the EU would be the best thing for it.

The European banks are seriously desperate for cheap credit:

The European Central Bank said demand for three-month dollar loans surged after it cut the cost of the financing almost in half in a coordinated action last week with five other central banks including the Federal Reserve.

The European Central Bank, based in Frankfurt, will lend $50.7 billion to 34 euro area banks on Thursday for 84 days at a fixed rate of 0.59 percent. That compares with the $395 million lent in the last three-month offering on Nov. 9 at a rate of 1.09 percent. The E.C.B. also lent five banks $1.6 billion in its regular weekly dollar operation, up from $352 million last week.

On an anecdotal note, I’ve observed of late that even firms in the European distribution chain are preferring to buy and sell in USD wherever possible. I was discussing a new product with someone today and they said we didn’t need to bother with EUR pricing… not even for the European customers.

Bank of America arranges for mutually assured financial destruction:

Recently Bank of America transferred a bunch of derivatives into their banking arm. “A bunch” means somewhere around $80 trillion worth. Now pay very careful attention, because part of the bankruptcy “reform” law in 2005 placed derivative claims in front of depositors in a business failure – including a bank failure.

What JP Morgan is claiming in the MF Global case is that the derivative trade (which is exactly what a “Repo to Maturity” trade is – it’s a derivative) is entitled to preference in the case of MF Global over those who had cash there for safekeeping either as a margin deposit or just as free cash as you would hold free cash in a bank.

If a major bank blows up this very same claim, supported in existing Bankruptcy Law with the changes signed by George Bush in 2005, will be used to steal the entirety of your bank account, and if you detect the impending blowup shortly before it happens — say, 90 days before — you’re still exposed to the risk through clawback!

There is a fairly cogent argument to be made that what BofA did is tantamount to intentionally placing an armed financial nuclear device in the center of the board room table and then daring anyone — including the government — to come tamper with it and risk setting it off, knowing full well that if it explodes it is utterly impossible to contain the damage to our economy and financial system.

Translation: your FDIC guarantees won’t matter if you’re a BoA depositor. Whatever can be salvaged from the mass destruction will go towards paying back its derivative bookie, most likely Goldman Sachs. This sounds rather as if BoA’s executives are planning to abandon ship.

And notice that it was that conservative Republican, George W. Bush, who signed that law into place, again confirming that Republicans are part of the problem, and therefore cannot be part of the solution.

Don’t be surprised if the Dow jump from the Fed’s latest desperation effort fades within a week:

Six central banks led by the Federal Reserve lowered the cost of emergency dollar funding for financial companies in a global effort to ease Europe’s sovereign-debt crisis. The new interest rate is the dollar overnight index swap rate plus 50 basis points, a half percentage-point cut, and the program was extended by six months to Feb. 1, 2013, the Fed said today in a statement in Washington….

The dollar swap lines were previously set to expire Aug. 1, 2012. The new pricing will be applied to operations starting on Dec. 5. Seven-day loans would carry an interest rate of about 0.58 percent, down from 1.08 percent, based on the current one- week OIS rate of 0.08 percent.

They can cut it to zero and it’s not going to work. It’s supposed to be “confidence-inspiring” that all the central banks are “working together”. Of course, the fact that they are doing so only underlies how impotent and desperate they are. No amount of jump-starting will revive a battery that is truly dead.

Zerohedge has a theory concerning what galvanized them into action: “It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.” >

For the time being…. Here’s what happened last time.