Friday, January 22, 2010
Anyone who has read my posts on the banking situation, particularly this one:
knows where I stand on the present banking situation. I was actually astonished to see Glass Steagall repealed in the first place. What happened was completely predictable and was worsened by its ability to spread into the global financial system also. The time frames for the debacle was also completely predictable in that I though a collapse was likely just before the end of Bush’s presidency. Bush himself did not have the insight and knowledge to lead on this and besides they were preoccupied with a difficult war.
Putting Glass Steagall back into full force and effect is totally necessary. My only regret comes from waiting an extra year, but then the economy itself had to settle down and we certainly had the time.
The breakup of the banking combine system is completely necessary also for the exact reason outlined. Failure must mean a trip through bankruptcy courts without including the taxpayer. This can be safely done if no one bank has less than perhaps twenty same size competitors.
gets away with six such general retail banks who are tightly constrained in the type of gross risk they can accept. Three more would be welcome. The Canada would be well served with possibly sixty to one hundred large retail banks. US
In that environment failure becomes no big thing.
Large financings will still get done, but as before they will be distributed to the banks and others.
Of course this does not yet solve the real problem dragging on the
economy. The mortgage market needs a major innovative reform of the foreclosure laws to jump start the market and to clean out the inventory overhang. Maybe we will get that also before this is done. US
Banks also have to figure out how to manage commercial property risk better than has been apparent. They are walking out on deals almost at a whim and merely making the market impossible. After all a market setback will put the whole market underwater and without bank participation, it cannot be resolved.
In the event, this is the first truly positive step made by the Obama regime to right the financial ship and it is welcome, if perhaps a bit early because of the need to over come the kick in the pants provided by Mr. Brown.
European bank stocks drop on Obama plans
European banking shares have dropped following President Barack Obama's far-reaching plans to curb the activities of the biggest banks in the
London, Barclays shares dropped 3.5% and the Stock Exchange fell by 2.2%. London
Deutsche Bank led banking falls in Europe, down 3.4%.
's BNP Paribas and other banks also dropped. France
Mr Obama - who said he was "ready for a fight" with banks - plans to limit their size and restrict risky trading.
"Never again will the American taxpayer be held hostage by banks that are too big to fail," Mr Obama said.
US Dow Jones industrial average fell 2% - its worst fall since October - while 's Nikkei closed at a three-week low. Japan
Shares in major US banks Goldman Sachs and Bank of
also fell. America
Politicians in the
were quick to sign up to Mr Obama's proposals. UK
The Treasury said it would consider the
US bank reform plans "very carefully," while City Minister Lord Myners said the proposals were "very much in accordance with the direction we have been setting". US
Shadow chancellor George Osborne said that the Conservatives would impose an identical dismantling of
banks if elected. UK
But he said he would want to see international agreement before implementing any change in the
BBC business editor Robert Peston said Mr Osborne's comments would "generate profound fear in the boardrooms of Barclays and Royal Bank of
"Banking reforms do not come bigger than those proposed by President Obama," he added.
Limiting risk taking
"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Mr Obama said.
His proposals may mean that some of the biggest
banks have to be broken up. US
What this means for foreign banks working in the
is still unclear. US
They also include a ban on retail banks using their own money in investments - known as proprietary trading. Instead, banks would be limited to investing their customers' funds.
The moves follow popular anger at financial institutions, who have been paying large bonuses to staff even as they accepted government bail-outs to keep them going.
Mr Obama's move is also a political risk.
It is his first proposal since Republican Scott Brown's shock victory in
to win a Senate seat. Massachusetts
Banks have also been lobbying against more stringent regulation.
"If these folks want a fight, it's a fight I'm ready to have," Mr Obama vowed.
He has already proposed a $117bn (£72bn) levy on banks to recoup money US taxpayers spent bailing out the banks.
The tax will claw back some of the losses from a $700bn taxpayer bail-out of US banks known amid the financial crisis last year.