Obama Goes All Out For Dirty Banker Deal

[SK in CV]

I haven’t commented on this thread mostly because my disappointment in the administration in dealing with the criminal element that lead to the financial crisis is beyond words. Which makes yesterdays news of the FHFA, acting as conservator for Fannie Mae and Freddie Mac, filing 17 suits against major banks and dozens of their subsidiaries, partners and related entities perplexing.

Theoretically, the FHFA is an independent arm of the federal government, under the jurisdiction (I think, maybe someone knows better) of the Treasury Department. Either the FHFA is truly acting indepently of the administration, or the administration acquiesced or even supports the action. I’m not sure which seems more likely, given the apparent opposition of Obama, (the corrupt and incomptetent) Treasury Secretary Tim Geithner, and AG Eric Holder to pursue legal (both civil and criminal) remedies against the big banks. The administration most surely could have stopped it had they wanted.

Anyway, the 17 suits, (I’ve only read one, I suspect they’re almost identical), charge the banks with a variety of securities law violations, as well as fraud, negligence, and conspiracy covering hundreds of specific offerings. They seek damages totalling 100% of the GSE’s losses on these securities. (At least one article puts these losses at $61 billion. I’m not sure of the source of that amount. Possibly the plaintiffs announced this amount, but it seems very low to me.)

Conspicuously absent from the causes of action, are RICO charges, which most certainly could apply. (If the case is proven, then the RICO violations have been proven.) Pure speculation on my part, but this could be the administration’s influence on the suits.

This could spell the end of the state AG’s plan. Or not. It certainly doesn’t have to, since these are all federal charges, with very specific damages, exclusive to the GSE’s. In any case, this is a very positive series of events.

http://www.huffingtonpost.com/2011/09/02/banks-sued-subprime-mortgage-deals_n_947349.html

[ucodegen]

[quote davelj]Forget about your last post. You’re putting the cart before the horse. There’s no point in discussing this further until you have the VERY basics down.[/quote]I wasn’t trying to get into a c**k fight here. I ‘yielded the floor’ to allow you to post the accurate rendition. This is ridiculous considering that you are taking me more to task than people who were claiming that the banks are making a mint off of the fed loans. I don’t know what your real point is here.. but here goes (unfortunately this posting interface doesn’t allow me to create tables.) REMEMBER: I did not say what those assets were from…

Cash & Equivalents = 100M(paid in capital, undivided earnings)
Securities
Loans
Other Assets

Total Assets = 100M

Deposits
Fed Borrowings
FHLB Borrowings
Other Liabilities

Total Liabilities
Common Equity = 100M

Followed by

Cash & Equivalents = 100M(paid in capital, undivided earnings) + 500M(proceeds from sale of issued bonds)
Securities
Loans
Other Assets

Total Assets = 600M

Deposits
Fed Borrowings
FHLB Borrowings
Other Liabilities = 500M(issued bonds)

Total Liabilities = 500M
Common Equity = 100M

NOTE: Bank bonds are often bought by.. pensions.

Of course I could have started with something like

Cash & Equivalents = 100M(paid in capital + deposits)
Securities
Loans
Other Assets

Total Assets = 100M

Deposits = 50M
Fed Borrowings
FHLB Borrowings
Other Liabilities

Total Liabilities = 50M
Common Equity = 50M

[davelj]

[quote=ucodegen][quote davelj]Forget about your last post. You’re putting the cart before the horse. There’s no point in discussing this further until you have the VERY basics down.[/quote]I wasn’t trying to get into a c**k fight here. I ‘yielded the floor’ to allow you to post the accurate rendition. [/quote]

You brought the issue up in the first place – not me – and explained it rather incorrectly, and in a manner of detail that suggested that you clearly thought you knew what you were talking about.
[quote=ucodegen]
This is ridiculous considering that you are taking me more to task than people who were claiming that the banks are making a mint off of the fed loans.[/quote]

I’d addressed this issue before in a previous post so I didn’t see any reason to repeat myself.

[quote=ucodegen]
I don’t know what your real point is here.. but here goes (unfortunately this posting interface doesn’t allow me to create tables.) REMEMBER: I did not say what those assets were from…

Cash & Equivalents = 100M(paid in capital, undivided earnings)
Securities
Loans
Other Assets

Total Assets = 100M

Deposits
Fed Borrowings
FHLB Borrowings
Other Liabilities

Total Liabilities
Common Equity = 100M

[/quote]

Ok, the bank you’re beginning with here is unlike the bank you described in your original post, which was as follows (I quote):

“Imagine if you are a bank and have 100mil in assets, you have to hold back a percentage.. ie 20% and can loan 80% (20% reserve)”

First problem: the only reason a bank has to hold back a percentage of its assets as “reserves” (or, my preference, “liquidity”) is because those reserves are there to ensure adequate liquidity for depositors. In the example above, you assume no deposits, therefore no reserves would be necessary. So we’ve got a fundamental misunderstanding to rectify before moving forward. (Moreover, if you’re not going to fund yourself with deposits… why bother going through the hassle of getting a bank charter at all? The only value of being a bank is the ability to raise deposits insured by the FDIC.)

So, start with a bank that looks like the one you described originally: one that would require 20% of its assets to be held in “reserves.” This should take less than 2 minutes, but you will need to make assumptions about each individual line item of assets and liabilities. This is simple – don’t worry, I’ll be able to follow it. But remember, you gotta have deposits… or you don’t need reserves.

[ucodegen]

[quote davelj]First problem: the only reason a bank has to hold back a percentage of its assets as “reserves” (or, my preference, “liquidity”) is because those reserves are there to ensure adequate liquidity for depositors. In the example above, you assume no deposits, therefore no reserves would be necessary. So we’ve got a fundamental misunderstanding to rectify before moving forward.[/quote]
As I mentioned, I drastically simplified it.. maybe too much. As I was going down the path to try to describe why a bank would require more fed money than their ‘market cap’, I realized that if I threw a lot of stuff in, I loose the ‘banks are making a mint off the loan’ people, so I had to isolate the description to the bare minimum to show what would happen. The initial all ‘paid in capital’ could also be the starting/founding position for a bank before the doors open. – so at this point I’m done. I am not going to continue this game of yours. You have the floor, you can decide to show an accurate rendition that average people could follow, or continue to try to berate me on this public forum. What you decide to do probably reflects more on you than me.

[davelj]

[quote=ucodegen][quote davelj]First problem: the only reason a bank has to hold back a percentage of its assets as “reserves” (or, my preference, “liquidity”) is because those reserves are there to ensure adequate liquidity for depositors. In the example above, you assume no deposits, therefore no reserves would be necessary. So we’ve got a fundamental misunderstanding to rectify before moving forward.[/quote]
As I mentioned, I drastically simplified it.. maybe too much. As I was going down the path to try to describe why a bank would require more fed money than their ‘market cap’, I realized that if I threw a lot of stuff in, I loose the ‘banks are making a mint off the loan’ people, so I had to isolate the description to the bare minimum to show what would happen. [/quote]

It goes beyond “simplification” – your accounting’s incorrect. You clearly don’t understand what a bank’s balance sheet looks like or what’s required to increase leverage.

[quote=ucodegen]
The initial all ‘paid in capital’ could also be the starting/founding position for a bank before the doors open. – so at this point I’m done. I am not going to continue this game of yours.[/quote]

It’s not a game. You started this whole discussion and I’m trying to help you reduce your confusion. But if you don’t want to continue the discussion it’s perfectly alright by me.

[quote=ucodegen]
You have the floor, you can decide to show an accurate rendition that average people could follow, or continue to try to berate me on this public forum. What you decide to do probably reflects more on you than me.[/quote]

I’m not berating you. And I’ll be happy to show “an accurate rendition that average people could follow”. But first you have to admit that you don’t know what you’re talking about, which you’re resisting in the extreme.

[Arraya]

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