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Posts Tagged ‘Banking’
December 6th, 2012 at 1:00 pm
TAG, We’re All “It” — And That’s Not Good

A good source reports this to me, in his own words which I have shamelessly appropriated:

Here’s the skinny, a part of TARP was the so called TAG program.  What it did was remove the cap on insured deposits without limit as long as there was no interest being paid on the account.  Now tell me who is paying interest bearing checking anymore?  So in other words, TAG now makes the federal taxpayers liable for another 1.4 trillion dollars in deposits.  Like TARP, it was supposed to be a temporary measure to calm bank depositors, but it was extended in Dodd Frank and now the bankers (who love it of course) are racing to get it extended.  The scary part is that a number of Republicans may help the Dems jam it through the Senate next week on a party line vote without amendment.  Pretty ironic that Reid and Schumer think taxes need to go up on people making 250k per year, but they are willing to lift the insurance cap on deposits of a similar size for their buddies in the banking industry and dump the liability of the Treasury.  It stinks.

See this WSJ editorial from August.  It was assumed this thing was dead but it looks very live according to sources in the GOP Senate leadership and Banking Committee.  BTW, worth noting as usual Shelby, who opposed TARP and is Ranking on Banking is opposing it.

Reid may file cloture and move to a vote as early next week.  Republicans, as if is possible, should be ashamed to let this happen and bless it in the midst of the beating they are taking on the Cliff issues and  all their moaning about spending and federal liabilities.

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April 3rd, 2012 at 12:53 pm
How to Avoid Bank Bailouts: Make the Bankers Liable
Posted by Print

Over at the Wall Street Journal, James Grant, editor of Grant’s Interest Rate Observer has a perceptive review of the new book, “White House Burning: The Founding Fathers, our National Debt, and Why it Matters to You,” by former IMF Chief Economist Simon Johnson and University of Connecticut law professor James Kwak. Two passages deserve special attention.

On the banking system, Grant writes:

Here’s an idea: Let’s try capitalism for a change.

Rather than the bureaucratic monstrosity called the Dodd-Frank Act, for instance, why not hold the bankers personally accountable for the solvency of the institutions that employ them? Until 1935, bank stockholders would get a capital call if the company in which they had invested became impaired or insolvent. It was their problem, not the government’s. In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year’s worth but rather seven year’s worth—after all, big banks don’t go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them.

And on the endless invocation of the Great Depression as the sole object lesson in how to respond to a severe economic downturn:

Messrs. Johnson and Kwak, who draw the usual conclusions from 1929-33, fail to mention the depression of 1920-21. Yet this cyclical downturn was as instructively brief as it was ugly. Peak to trough, nominal GDP plunged by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was then inexactly measured, soared to 14% from a boomtime low of 2%. And how did the successive administrations of Woodrow Wilson and Warren G. Harding, along with the Federal Reserve, meet this national disaster? Why, they balanced the budget and raised interest rates. Yet for reasons never examined in the pages of this book, that depression promptly ended and the 1920s roared.

Grant’s theme? Responsibility, both personal and collective. That has the great virtue of being the right thing to do. It also has one even greater virtue: it works.