Posts Tagged Banks


When Bill Clinton passed the keys of the Oval Office to George W. Bush, on January 20, 2001, the American Economy was in great shape!  Clinton had just balance the Federal Budget for the first time since 1964.  The Unemployment Rate sat at 4.40%, somewhat lower than what the Federal Reserve deems “Full Employment,” at 5.00%.  (The 5.00% is an assumption for those between jobs, changing jobs, recent lay-offs, etc.)

George Bush then took the Economy and devastated it, in order to accomplish ideological goals.  He commenced to take the country into two never-ending wars, first, in Afghanistan, in 2001 and, then, Iraq in 2003.  Both wars are still going on, which causes one to wonder what our Mission Statement was.  Were they necessary? Will we ever leave?

Also early in his First Term, Bush decided to implement a series of Tax Cuts, which were primarily skewed toward the very wealthiest Americans.  Why?  Generally, a nation doesn’t lower taxes when it has one war to finance, let alone two!  Also, tax cuts for the wealthy do not usually encourage consumer spending.  On January 1, 2005, just after he had won his re-election, the Unemployment Rate was 5.30%, and the National Debt had increased from the tax cuts.

That rate began to edge up as the Economy began to stagnate.  Banks, which were undercapitalized had been taking undue risks.  Sub-prime mortgages were sold to homeowners who could least afford them.  Even worse was the packaging of these questionable loans, which were sold to unknowing bond investors as AAA-rated mortgage-backed securities.  And in the end, many of the banks, insurance companies, auto makers, etc., had to be bailed-out by the Taxpayers.

That Banking Crisis, which is commonly referred to as “The Great Recession” was first made public in October of 2007, when George Bush forced the very largest banks to take tens of billion of dollars, at virtually no interest.  He described the scenario as such: “America is looking down into a Financial Abyss.”  If you hadn’t been deeply concerned during the fourth quarter of 2007, when this all began, you certain became so after Bush’s announcement!

The Unemployment Rate of 5.00% at the beginning of 2008 quickly rose to 7.80% at the beginning of 2009.  The Bush Tax cuts, coupled with financing two wars caused the Federal Budget to spike, and the interest on the, now higher, National Debt absorbed a larger slice of the budget, as well.  Lay-offs reduced the tax polls, consumer spending declined considerably, and many small businesses closed their doors.  And credit became virtually non-existent.

Just after Barack Obama took office, on January 20, 2009, the Dow Jones Industrial Average dropped to 6,500, from the prior high of 14,015 in October of 2007.  Unemployment continued upward to 10.00% in early 2010.

The Obama Administration did the reverse of what George Bush did by allowing the Bush Tax Cuts to expire; but, he lowered rates for the middle class who, unlike the wealthy, spent their excess cash, thus giving new life to small businesses—the real job creators!  Obama’s combination of Monetary and Fiscal Stimulus began the economic recovery, which continues to this day.  The Unemployment Rate stood at 4.80%, when Obama left office last January.

Let’s consider how the two prior presidents—before Donald Trump—managed the American Economy.  George W. Bush took over a nation, which had balanced its budget, and he ran it into the ground—turning the budget surplus to a deficit, lumping the expense of ineffective tax cuts and two unnecessary wars, doubling the Unemployment Rate and halving the stock market.

Barack Obama took a completely different stance.  He almost balanced the budget, allowed the ineffective Bush Tax Cuts for wealthy to expire while lowering taxes for the middle class—the consumer class, put many small businesses back on their feet, tried to withdraw from the two Middle East wars in a gradual and rational manner, and he halved the Unemployment Rate while doubling the stock market.

Donald J. Trump seems dead set on following President Bush’s scenario.  Are we ready for another Great Recession?


, , , , , ,

Leave a comment


The Banking Act of 1933, commonly referred to as the Glass-Steagall Act, ushered in various reforms, to assist the Nation’s Recovery from The Great Depression.  “Glass”, which was part of (new) President Franklin D. Roosevelt’s “New Deal”, broke-up the Banking Industry, and created Federal Deposit Insurance.  It was made permanent in 1945.

Prior to “Glass”, companies could engage in both commercial and investment banking, which meant that risky securities actions might jeopardize clients’ deposits, and there wasn’t any deposit insurance either.  In the mid-1980s, however, many of the banking restrictions were lifted, and mostly larger banks transformed themselves into Financial Services Supermarkets.  Also, making “banking” even more precarious: the number of products and financial institutions, has frown considerably since the 1930s.

In October of 2008, President George W. Bush bestowed many billions of dollars on the largest banks, in order to enhance liquidity within the banking system.  Unfortunately, that action was interpreted, by many, as conveying an explicit Federal Government Guarantee of what became to be called the “Too Big to Fail” banks.  That general assumption merely led to an even higher concentration of financial business, on the few, but same, largest—or Too Big to Fail Banks.  Thus, the solution worsened the problem!

Following The Great Recession (4Q07-to-1Q09), President Barack Obama signed the Dodd-Frank Act into Law, in July 2010.  Dodd-Frank reined-in the banks, required required high equity capital standards, and was intended to separate the investment risks from consumer deposits.  The GOP, however, has sought to repeal Dodd-Frank ever since!

Treasury Secretary Steven Mnuchin, who is Donald Trump’s lead-man on banking laws, has been suggesting that he might propose a “21st century version of Glass-Steagall”. Donald Trump has also been saying the same thing!  Today, Senator Elizabeth Warren called Secretary Mnuchin to task, at a Senate Finance Committee Hearing, as linked from CNBC-TV.  She noticed that he had been avoiding the question of whether, or not, the Trump Regime would break-up the banks.

Finally, Secretary Mnuchin realized that he had to answer the question, and his response was still quite convoluted: “it’s a complex issue”; “not a good thing”. and finally “NO!”   He stammered when she asked him how they could be considering a “21st century version of Glass-Steagall—a law which specifically broke-up the banks—with one that would not.” Mr. Mnuchin suggested that he would bring a team from the Treasury Department to brief the Senator’s Staff.

Secretary Mnuchin seemed to be avoiding answers from most of the Senators on the Committee—especially the Democrats—as he offered to provide briefings, similar to those offered Senator Warren, to a number of other Senators.  Surely, the Secretary of the Treasury should be expected to appear before the primary Senate Committee, which regulates his office—and be totally prepared! And it should be obvious to most Americans that, so soon after the 2008 Banking Crisis, that the status of the Banking Laws would be Question Number One, Two and Three!

, , , , ,

Leave a comment


Donald Trump is a true shyster!  From the time he announced his candidacy, back in June of 2015, he has boasted about how truly great each of his promises would be.  The best ever!  You wouldn’t believe it!  And then, of course, the bullshittiest “Just trust me!”  RIGHT!

He has used that Pavlovian sales pitch in every one of his performances, in order to have the audience drooling to the point that they would accept anything!  But now, it seems that the American people are beginning to see through this Bait and Switch charade!  Remember who was going to pay for that Wall?   But now///?

Over the past several weeks, National Security has been front and center.  His Military’s Tomahawk Missile attack on a Syrian air field was so devastating, that the Syrian Air Force was still able to strike that same city, a couple of days later from another air field.  Then, “My Military”, as he calls it, dropped a 22,000 pound bomb on caves in Afghanistan.  But, when you live in a cave, however, surely other accommodations can be easily located!   Donald’s Pentagon” responded to questions about Congressional Authorization, by citing an ancient War Powers Act—for Iraq!

Of course the saber-rattling then pointed toward North Korea, and even true Trumpians would hardly assume that any current attacks could be covered under the 1950 UN Resolution, authorizing that “Police Action”.  But, then, to top-off VP Mike Pence’s “Shield and The Sword” speech at the DMZ, the Trump Regime promptly sent the Carrier Group to the wrong ocean.  (Syria = Iraq?   Indian Ocean = Sea of Japan?)

Honestly, I think that Donald Trump’s two generals—H. R. McMaster, his National Security Advisor, and James Mattis, his Secretary of Defense—are in those positions merely for the cachet that they bring to his personal Tough Guy image.  But, it’s not just the McMaster and Mattis who seem to be mostly invisible.  In fact, most of Trump’s Cabinet Officers seem to remain out-of-sight, and are only paraded-out when Donald needs them for photo-ops.

And now, some 90 days after his Inauguration, Donald seems to be feeling the heat!  Political pundits tend to review what new Presidents have accomplished at the end of their first 100 days in office.  It’s sort of a report card; but, in Trump’s case, it is totally blank—other than the many red checks in the Deportment Section.  So, he’s trying to play catch-up, with smoke and mirrors!

Perhaps that’s why Donald takes great pride in signing meaningless Executive Orders, and then holding them up; but, angles each one into the TV glare, lest we see its irrelevance to the Affairs of State.  In fact, he traveled to the Treasury Department on Friday, and merely signed documents directing Treasury Secretary Mnuchin to do what he has already been doing, and doesn’t need an Executive Order, or a Memorandum to proceed with. For instance:

1. One directs Treasury to review the regulations included in the Dodd-Frank Act, which President Obama signed in 2010.  That Law was intended to rein-in banks after The Great Depression (4Q07-1Q09), which deeply harmed the U. S. Economy, and the contagion spread globally.  “Dodd” was the necessary response to prevent a reoccurrence!

2. The second directs a review of tax regulations, which Obama imposed on corporations to avert “Inversions”, which are acquisitions of foreign corporation for tax purposes.  Ironically, one of Donald Trump’s very mantras—remain and manufacture in America—would seem to benefit completely with that Obama Legislation!

As I watch these meaningless exercises—such as reviewing necessary regulations, with the intent to repeal them—I can only believe that Donald Trump remains committed to eliminate all vestiges of President Barack Obama.  Meanwhile, Donald Trump is thriving on the pompous nature his role, which only he could feel comfortable in, and spending most of his time holding: hateful rallies; photo-ops and his frequent trips to Mar-a-Lago.

And those Cabinet Officers?  No photo-ops until after lunch, please!

, , , ,

Leave a comment


In a recent post, I warned against Donald Trump taking control of the Federal Reserve Board, our central bank, and then directing it toward his own politically biased agenda.  The link for that post is:  Since then, one Fed Governor resigned unexpectedly, thus giving Trump a couple of seats to fill, and then he can nominate his own Chairman, as of February 2018.

The manner in which Donald Trump and his Regime manages the economy, will indeed, have major effects on our Society, in general. Income-inequality, divisiveness and widespread frustration with the government, can have a major effect on Who and What America becomes!


The Role of the Federal Reserve Board, our central bank, is to foster economic conditions that achieve both stable prices and maximum sustainable employment.  The optimum is referred to as the Goldilocks Economy, similar to the mid-to-late 1990s:  “Not too hot, not too cold, but just right.”  The Fed’s goal, in effect, is to manage for Balance.

Republicans in Congress have always wanted to have greater control over the Fed, which would, in effect, politicize it.  If the economy were destined to fluctuate between the policies of one party, and then shift to the other party’s goals, the general results would surely be disastrous for the overall Health of the Economy.

Donald Trump has already announced that he will replace Fed Chair Janet Yellen, when her Chairmanship expires.  With less than one month in office, Trump has already been trying to browbeat the Fed not to raise rates.  There is a reason why democracies insist on their central banks remaining apolitical: wrong moves, especially on purpose, in either direction, or if postponed, may lead to an even more horrendous economic situation.

An interest rate increase, or cut, are usually made after careful economic analysis, based on comprehensive reports, collected from the twelve regional federal reserve banks.  Those reports provide the rationale for monetary policy.  Arbitrarily cutting the “Funds Rate”, or failing to increase it when appropriate, might result in an overheated economy—and high inflation—on the up-side. Improper moves in the other direction, could result in deflation—price implosion—and a similarly dysfunctional economy.

When the Fed’s monetary policy committee raised rates in December, to a range of 0.50%-to-0.75%, it estimated that a 0.25% rate hike was necessary to keep the economy from accelerating.  Balancing the economy assumes that minor adjustments are best, rather than waiting for the economy to either over-inflate on the up-side, or to deflate or the down-side.

Now that Steven Mnuchin has been sworn-in as Secretary of the Treasury, Donald Trump might just turn his attention more toward the Fed nominations.  The key question here, is whether Secretary Mnuchin will work smoothly with the Fed, or merely follow Donald Trump’s incongruous agenda.  Hopefully, he will cooperate with the Fed, and focus on maintaining a stable economy, for all America!

, , , , , , ,

1 Comment


Among the various financial woes that led America to the edge of the Financial Abyss, nothing hits home more directly than the Housing Crisis.  If not your home, then your neighbor’s!   To better understand that, let’s take a trip to the Sausage Factory.  The raw meat goes in one end, and reengineered sausages come out the other.

Interest rates had been declining since 2006; however, the Fed lowered them to barely above zero in 2008.  Consumers took advantage of low loan rates, especially for home mortgages.  Banks began to hire commissioned salesmen to pump-up profits during the housing boom.  Also,  by packaging mortgages, regardless of credit quality, the risk would be sold-off in what are called mortgage “pools”.

Banks sold huge pools of mortgages (up to hundreds of millions of dollars worth) to Fannie Mae and Freddie Mac, the government-sponsored agencies, and received their money back.  Fannie and Freddie, while caring little about credit quality themselves, just slapped their guarantees on the pools, and sold them to investment banks.  The banks, in turn, sold Mortgage-Backed Securities—bonds really—using the underlying stream of mortgage payments as collateral.

At this point in the sausage-making process, the secret ingredient was needed, “credit ratings”.  Moody’s, S & P and Fitch are the major rating services, and their ratings assure marketability, with the coveted “AAA” enabling the highest prices.  Since the rating fees are paid by the investment banks, the profit motive, no doubt, influenced the ratings.  The top rating was almost automatic, lest the banks shop the competition for the highest credit rating.

The last step along the sausage factory production process was the banks’ slicing and dicing area.   Most investors didn’t want to invest over a 30 year term, and to be paid from a fluctuating cash flow.  So, the banks grouped the first year’s cash flow from the entire mortgage pool, and used that to collateralize one-year mortgage-backed securities.  That process was repeated for each of the successive one-year cash flows

Everything was humming along smoothly:  interest rates remained low; home buyers were signing their names to anything; housing “flippers” were even boosting the home prices higher; mortgage originators were hauling-in the huge profits; Fannie and Freddie collected their fees; ditto for the rating agencies; investment bank stock prices spiked; and the investors were pleased with their returns.  And then, suddenly, the gravy train stopped!

Housing prices started falling; homeowners defaulted; the excessive supply of bonds outpaced the demand, and everyone along the way had no one to pass the mortgages on to.  The originating banks, Fannie and Freddie, and the investment banks all had trouble financing the mortgages that were in their possession when the bubble broke!  Remember that this was not the only toxic asset effecting our economy, and most specifically, the lack of liquidity was systemic throughout the banking system.

That meant that the banks could neither extend credit to each other, nor to businesses or individuals.  Consumer spending nose-dived, lay-offs increased and foreclosures continued to surge.  Fannie and Freddie had to be taken-over by the Treasury, AIG Insurance Co. was a basket case, GM and Chrysler had to be bailed-out, and so on…

President Obama signed the Dodd-Frank Act into law in July of 2010.  That legislation was designed to rein-in the banks, and to ensure that a similar systemic banking crisis doesn’t occur again.  Donald Trump, however, wants to repeal Dodd-Frank, which might take us back to those days, of not just a housing bubble, but a systemic Banking Crisis, as well.  So tell me, now that we’ve seen what might potentially lurk, in and around, Donald Trump’s Sausage Factory, do we really want to go back there again?

, , , ,

1 Comment


Today, the Federal Open Market Committee raised the “Fed Funds” rate, by 0.25%, to a range of 0.50%-to-0.75%.  The Fed does not actually set the rates, per se; rather the Fund’s rate is merely a target range in which our central bank suggests financial institutions lend money to one another—generally on an overnight, or very short-term basis.  In this manner, it more or less, nudges rates, which are sometimes reflected throughout the maturity range (three months to 30 years), but sometimes not.

Besides the Federal Reserve Board, which is an arm of the Federal Government in Washington, there are also twelve regional Federal Reserve Banks.  Each of them are privately owned, have their own Boards of Directors, and regulates the banks in their respective Districts.  As you will see in the linked “Rube Goldberg” article, from the New York Times, the Federal Reserve Bank (FRB) of New York actually implements the monetary policies that the FOMC makes. The light-hearted link is as follows:

The Times article was initially published after the FOMC meeting last December, which was the last time that the Fed raised the Funds Rate.  Today’s rate hike was widely expected, since Chairwoman Janet Yellen had recently mentioned its likelihood, at today’s meeting.  The reason that the stock Market immediately plummeted, however, was the inclusion in Mrs. Yellen’s usual after-meeting statement, which suggested that the Fed would probably raise rates three times in 2017.  But, pending changes in various economic metrics, those increases may or may not actuality happen.

Generally, a rate increase signals the Fed’s belief that the economy is improving, while a decrease suggests weakness.  The financial markets, however, tend to be quite fickle.  After 39 years of following the bond market quite closely, I look at the Funds Rate, and recall it being mostly in the four-to-five percent range.  During the early ‘80s, the Fed Funds rate reached a historical high of 20%, as noted in the linked The Balance article: So, even if the rate did increase three times, assumedly to a range of 1.25% to 1.50%, that wouldn’t be overwhelming; but, let’s see what happens.

As I’ve suggested many times in this blog:  financial markets have trouble dealing with Uncertainty; and everything should be taken into context. One other reminder would be:  Don’t try to get ahead—anticipate without reason—of the market!

, , , , ,

1 Comment


In several of my recent posts, I have described various concerns that I have, with how Donald Trump might effect our National Economy, among many other things.  And so far, for a President-Elect who has neither an in-depth understanding of the various policy issues, nor the curiosity to learn them in detail, Trump appears to be in over his head.  Rather than appoint experienced advisors to Cabinet Posts and other key positions, at least so far, he has nominated inexperienced ideologues, whose only redeeming value is that they share his often ignorant points of view.

Right now, 19 days following the Presidential Election, Trump has not nominated any of the Big Three—State, Defense or Treasury Secretaries.  Rumor has it that anyone with valid credentials is afraid to go near him. Perhaps that’s the cause for delay!  But, I certainly wouldn’t mind even a former deputy to a Colin Powell, Robert Gates or Henry Paulson; but, so far, we are still wondering who lurks behind Door #3!

My concern is because the Financial System touches literally every part of the Government: employees throughout it need to be paid and receive benefits; an adequate amount of supplies need to be maintained; buildings and equipment should be updated and maintained; there is research to fund; teachers must be constantly focused on teaching the job skills of the future, etc.  If any of the other departments closed, the nation would probably move backward, but it would still be moving.  The Economy, however, is the Nation’s lifeblood, and it flows through the Financial System.

In September of 2008, President George W. Bush advised the Nation that we were looking down into a “Financial Abyss”, and that he had directed Treasury Secretary Henry Paulson to immediately transfer tens of billions of dollars to the eleven largest banks.  That was just weeks before the Presidential Election and, shortly afterward, in-coming President Barack Obama announced that Timothy Geithner, President of the Federal Reserve Bank of New York would replace Paulson as Treasury Secretary, and (then) Chairman Bernanke would remain at the Fed, as usual.  The transition went quite smoothly.

Soon after President Obama took office in January, he asked Congress to fund a large Stimulus Package—to pump money into rebuilding our Nation’s Infrastructure, thus creating jobs and jump starting the economy.  Although it was approved, Congress significantly reduced the amount funded.  

That Financial Stimulus, did initiate a Recovery; however, a majority of economists have suggested that it would have been more robust, if it had been fully funded. Trump’s recently announced “Infrastructure” Plan, perhaps which might be the harbinger of things to come, is literally an outpouring scam!

Donald Trump has already vowed to repeal the Dodd-Frank Act, which was intended to prevent a financial crisis, similar to one in 2008.  That promise, plus the protectionist tariffs, which  he also intends to pursue, could very well lead the Nation back to the edge of that Abyss.  That’s exactly where his ignorant ideological “leadership” could take us.

Given Donald Trump’s apparent preference for inexperienced loyalists, who share his views, I am most definitely concerned about Who he will nominate as Treasury Secretary.  Will he provide the that Secretary with sufficient leeway to join with current Chairman Janet Yellen, at the Fed, to keep America on the right path of Financial Stability.  Trump sorely needs a Secretary who will stand up to him, offer opposing views and be capable of managing the large bureaucracy. I hope that Donald Trump does the right thing?

, , , , ,

1 Comment