Wednesday, December 16, 2009

Laws: Banks Don't Need Laws

It just keeps getting worse.

The Basel Committee has new international bank accounting rules scheduled for 2012, but this week they announced they are considering allowing banks a transition period of ten to twenty years to implement,  The rules would require an 8%  minimum capital ratio and stricter definition of core capital.  Remember Lehman had a Tier 1 ratio of 11% when it failed.

The FDIC is going to create a permanent safe harbor for securitizations and participations existing prior to March 31, 2010 and will consider how to treat new ones created after March 31, 2010.  This effectively removes the banks from putting over $1 trillion of off balance sheet holdings and securitizations at market value rather than par on their balance sheets.  This defeats the FASB rules scheduled to take effect 2010.

The President of the United States summoned bankers to a meeting and Goldman Sachs, J. P Morgan, and Citigroup had more important things to do than meet with the President of the United States and discuss what lending is necessary to create a sustained recovery with jobs.  They have key people in the Treasury and economic policy positions (Geithner and Larry Summers to name just two) in the government and they do not have to listen to the President.

The bankers have given lip service to financial reform, but their lobbyists have defeated and built a false facade in the House bill.  In fact the banks publicly view any attempt at regulation to be a direct threat to liquidity and the stability of interest rates, which is an argument which depends upon the poor education of the public as their real purpose is to protect high risk (and very profitable) trading and investments while they hoard money for cash reserves to bolster their capital ratios, escape TARP, and resume business as usual with renewed grotesque bonuses.  A good description of the bank's political agenda and lobbyist strategy is in a post by Yves Smith on naked capitalist.

How have banks survived the crisis?  We have all been exposed to the Financial Crisis and the necessity to rescue the banks at the expense of common citizen's retirement, savings, homes, and jobs and the victory of recovery and jobless prosperity.  However, the United Nations Office on Drugs and Crime has evidence that the only liquid investment capital banks on the brink of collapse last year had was proceeds from organized crime.  Gang money was used to save some banks when lending seized up.  Drug money funded inter-bank loans.  While these may have been marginal to Central Bank actions, marginal makes a big difference in the banking industry.  Are we to be surprised by the connections between organized crime and drug cartels with banks given the amount of money involved?  The complete Guardian article is here.

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