Basel Capital Rules Reinforce Fascist Financialization Of The Global Economy

Robert Barone for Minyanville summarizes better than anyone else I have read the process whereby banking in partnership with government has grown out of all proportion to the real economy and throttled it, here:

Under all of the Basel regimes, "sovereign" debt is considered riskless.  Everything else has a varying degree of risk to it which requires a capital reserve.  Loans to the private sector have the highest capital requirements. ... The bias imparted with this sort of capital regime makes loans to the private sector unattractive, especially in times of economic stress where bank capital is under pressure.  But, it is in times of such stress that loans to the private sector are needed to create investment, capital spending, and jobs. ... Simply put, the banking model in the west now promotes moral hazard (banks making bets that are implicitly backed by taxpayers) and Too Big To Fail (TBTF) policies while it stifles private sector lending. ... Isn't it clear that the relationship between the US federal government and the banking system is unhealthy, perhaps even incestuous, to the detriment of the private sector?  That very same banking model is emerging in Europe with the emergency funding by the European Financial Stability Fund (EFSF) to recapitalize the Spanish banks and talk of a pan-European regulatory authority and deposit insurance.

What's missing from this otherwise penetrating analysis, however, is an appreciation of the extent to which banking has been redefined, particularly in the US as a result of the Gramm-Leach-Bliley Act of 1999, which finally overturned the Glass-Steagall Act of 1933.

Now companies as diverse as automobile manufacturers, investment banks, insurance companies and highly diversified multinationals like GE are deemed banking institutions which qualify for government TARP bailouts, FDIC protection, or preferred treatment at the Federal Reserve's discount window. Almost any big business that gets in trouble can now get "help" from the taxpayer by becoming a "banking" concern under the new definition of the rules, to the detriment of those trying to compete in our so-called free market.

Moral hazard doesn't extend now just throughout the traditional banking system, stiffing the disciplined, prudent smaller banks with high FDIC premiums to bailout the failures, it now effectively short-circuits the process by which an innovative small firm might grow one day to challenge GE's gargantuan share of the household appliance market, or in aircraft engines, nuclear reactors and the like.

As financialization of the economy deepens and grows, companies as they are with their relative advantages have those advantages locked into place, while those without market heft are frozen-out. Some people call this crony capitalism, others state capitalism. Almost any euphemism will do, it seems, the latest being venture socialism, which gets us closer to the truth.

In the end it's just good old-fashioned fascism from the 1920s. Obama absolutely loves it. George Bush practiced it. Bill Clinton signed it into law, with the help of Newt Gingrich.

But please don't call this stagnating, ossified, economy failed, free-market capitalism. Just like Christianity before it, you can't say something is a failure which isn't at all being practiced.

That Would Be "Invoke," Todd, Not "Evoke"

How embarrassing.

Seen here at Minyanville:

". . . so I’m gonna evoke my literary license and shoot from the hip with some quick and dirty random thoughts."

FDIC Rewards Banks Which Themselves Violate Regulatory Guidelines

Richard Suttmeier noted here on February 22 that three banks which acquired the assets of failed banks on Friday, February 18, 2011, are themselves overexposed to construction and development loans or commercial real estate loans, or both:

Three of the banks that acquired the assets of Friday’s failed banks were also in violation of the regulatory guidelines for exposures of risk-based capital to construction and development loans and to commercial real estate loans. SCBT National Association (SCBT) has risk ratios of 145% for C and D loans and 423.7% for CRE loans that are 89.3% funded. Bank of Marin (BMRC) has a risk ratio of 67.4% for C and D loans, which is fine, but has a 485.2% exposure for CRE loans with a loan pipeline that’s 78.7% funded. First California Bank (FCAL) has a risk ratio of 41.5% for C and D loans, which is fine, but has a 358.2% exposure to CRE loans with a loan pipeline of 86.9%. ValuEngine rates each of these banks a Hold. The FDIC policy of rewarding banks with overexposures to real estate loans is deciding which banks fail and which banks survive, which is wrong.

State capitalism is the official economic policy of the American Fascist Police State.

Minyanville Founder and Dead-Head Asks The Stupid Question of the Year

"What's another word for thesaurus?" (Todd Harrison, here)

You'd think "treasury" would come to the mind of someone whose job it is to talk about money all the time, and preempt the question, but that would presuppose that Syracuse University required its honors graduates to know some Greek.

Real Estate Loan Problems are Significant in Half of All Banks

And the total number of all banks is now fewer than 7800 due to mergers and failures, according to Richard Suttmeier of ValuEngine.com:

The total number of banks with real estate loan pipeline problems is 3938, or 50.7% of all banks in the banking system.

Read more about it, here.

Everything else is happy talk.

Bank Failure Update: FDIC's Deposit Insurance Fund Balance is Minus $19.8 Billion

The insolvent banks are being bailed out by an insolvent FDIC.

From Richard Suttmeier for Minyanville, here:

The FDIC Deposit Insurance fund has now been drained by $2.2 billion in the fourth quarter to date, which brings the DIF Deficit to an estimated $19.8 billion. The FDIC has already burned through the assessments for 2010. The assessments for 2011 and 2012 have been pre-paid at $15.33 billion per year. ...

The three failed banks last Friday had extreme overexposures to C&D and CRE loans. C&D exposures for the three overexposed were between 143.7% and 654.7% versus the 100% regulatory guideline. The CRE exposures were between 896% and 1397% versus the 300% of risk-based capital regulatory guideline. The CRE loan pipelines were between 96% and 99% funded versus a healthy pipeline of 60%.

A Voice Crying in the Wilderness Against Chinese Protectionism

James Kostohryz here doesn't say so explicitly, but he's just a little embarrassed by the fact that Americans are so stupid that he needs to write an article explaining how "China's [currency] policies are blatantly and massively protectionist," because it hoards US dollars to prevent equilibration just like 19th century powers hoarded gold against the rules.

Foreclosure Crisis Not Even Half Over

Based on Richard Suttmeier's take on the data here:

About 2.5 million homes have been lost to foreclosure since “The Great Credit Crunch” began in March 2007, and another 3.3 million homes could be lost to foreclosure or distressed sale before “The Great Credit Crunch” comes to an end.

David Stockman Hates America

David Stockman's latest screed against PIMCO reveals what a creature of his age he has become:

"Housing is a commodity like furniture and automobiles, and inducing citizens to buy more of it is no business of the state."

In truth everything is a commodity to people like David Stockman, and that he'd much prefer a world which puts more people into that category, as the tenants of landlords, says it all.

Without realizing it, he puts his finger on the problem with what has happened in America in our lifetimes. Everything got commodified, not just our jobs, and now our mortgages, but our very selves. It happens to people who forget where they came from, who they are, and God. That we let the vampires get a hold of the American dream and make a bundle off it is only the most acute and visible example of it. It is almost quaint how Stockman likens what's happened to indentured servitude, as if his remedy doesn't resemble the same.

With mortgage securitization, the American dream got carved up, packaged and sold off to the highest bidder like so many sausages at the meat counter. But the intangible assets of four walls and a piece of ground mean nothing to David Stockman. Privacy, peace and quiet. Some flowers for the table and tomatoes for the pasta, the companionship of pets and a place to bury them when they're gone. The sound of the wind blowing through the trees. The glory of a red maple leaf against a blue sky. The goldfinch, the bluejay, the robin, and crows as big as coons. The snowman standing where bright green grass once called you to mow it. Where families gather to give thanks once a year for our many blessings, in spite of it all.

If that makes me a slave, I'll own it. Someone's banking on it, and not just Bill Gross.