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View Diary: Explosive Bloomberg Editorial: Bank Profits are "almost entirely" Taxpayer Money (125 comments)

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  •  Breakdown of Banks Stranglehold (17+ / 0-)

    Out of 5600 banks

    12 Banks have  69% of all assets
    88 Banks have 18% of all Assets
    5500 Banks /Credit unions  have 12% of all assets

    People were justifying the bailout of these banks because of the Bank holidays taken in the first depression. By bailing them out initially and continuing to bail them out we have made the 12 banks bigger and more dangerous than they were in 2008.

    Right now the FED is printing 85 Billion a month to buy agency Mortgage Backed securities..i.e. toxic waste. Increasing the money supply leads to inflation provided the govt includes the things that we need to live in the Core inflation rate which it doesn't .

    This a indirect Bailout of the banks as the GSEs were performing "PutBacks". That's when banks have sold them fraudulent mortgages . They then push the mortgages back to the bank with a cash demand. That would have produced billions of losses, 100s of billions of losses. So instead, the Fed starts buying the Mortgages at Par value from the GSEs which saves the quasi private banks from putbacks.

    We pay for this with indirect taxes  as prices have gone up substantially at the grocery store, at the pump , in Health care and insurance of all types among the many items we have to buy to exist . It also weakens our currency so all multi-nationals show profits  through exchange rate manipulation.

    The FED allows the Bank Holding companies to put their risky derivatives into their depository institutions. This would have never been allowed under Glass Steagull.

    The Govt threatened FASB with extinction through legislation if they didn't get rid of Mark-to market on assets in March of 2009. Yet Mark-to-Market on bank's bond debt is allowed. So if the ratings agencies downgrade the Bank's Bonds, the bonds face value are reduced as the yield increases. The bank marks the debt to market which means it shows lower debt from the Mark downs of the bonds, yet the Banks are responsible for 100% of the debt .  They use that trick regularly  to show profits were there are none in the last two years.

    According to Neil Barofsky, SIGTARP, author of "Bailout"  the bank Bailout in real dollars has reached over 3.8 trillion in four years.

    The idea that they are making profits organically is a joke.  

    •  Well, the good news is (2+ / 0-)
      Recommended by:
      ozsea1, Dburn

      ...the Federal Government cannot afford to bail out the banks again. And the FDIC is cutting way back on what they insure.

      Denial is a drug.

      by Pluto on Thu Feb 21, 2013 at 05:16:34 PM PST

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      •  The FDIC is not cutting way back on what is (5+ / 0-)
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        shrike, splintersawry, Pluto, tardis10, MKinTN

        insured. Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provided temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions from December 31, 2010 through December 31, 2012. That temporary coverage has now expired.

        "It ain't what you don't know that gets you into trouble. It's the thing you know for sure that just ain't so." Mark Twain

        by Expat Okie on Thu Feb 21, 2013 at 06:08:00 PM PST

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        •  There is a big difference between a (1+ / 0-)
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          Transaction account - checking, business account, etc- over a savings  account. Businesses especially were rightly concerned if a Bank went down right  when they have a high balance in a Transaction account before issuing checks for payroll,  accounts payable , taxes etc.

      •  Good Point Pluto: They have 38 Billion (2+ / 0-)
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        trevzb, Pluto

        Covering trillions of deposits. When Sheila Bair was President of the FDIC and no friend of Geithner, the FDIC was in the red. The reason? The Banks had not paid into the fund from 1996-2006. Bair convinced congress to force the banks to start paying back into the insurance fund.

        At the time the Banks "lobbied" congress to stop that payments the FDIC had 52 Billion in it's account. When the FDIC went into the RED, it stated that it would borrow 500 Billion from the treasury.  Then the GOP got the house and that 500 Billion dollar prop was no longer taken seriously as the Treasury would have to borrow 500 Billion. But it worked well with the low info people on finance .

        The problem was the FDIC could only afford to take-over small banks. Once they took over Indy Mac, that pretty much set the FDIC back on it's heels.

        Today the FDIC is in the Black but nowhere near covering the deposits of a single TBTF bank. This dovetails neatly  with the Quantitative Easing (QE111) of 85 Billion a month...up to 1 Trillion by the Fed. If the banks were forced into buying back mortgages that were defective they would have had to use depositors money to do it. They have been lying on their financials for so long by depending on the Fed for liquidity to help buttress the BS Financials, no one has any real idea how how deep the hole is.

        One analyst complained that they didn't have a Plug number for fraud so they could issue target prices for the stocks. You have to laugh. Can you imagine that in quarter end CC? "Yes, Thank -You Mr. Dimon, could you venture a guess, just a guess on how much you cooked the books so we have a better idea of how to value the banks - with the 'fortress balance sheet'?"

    •  You could not be more wrong about this (3+ / 0-)
      Recommended by:
      FG, johnny wurster, Deep Texan
      Right now the FED is printing 85 Billion a month to buy agency Mortgage Backed securities..i.e. toxic waste.
      GSE MBS are 100% implicitly guaranteed by the US government and even during the worst of the crisis they never missed a coupon payment.  GSE MBS are the opposite of "toxic".

      The Fed does this so that $85 billion/month will seek other investment and thus stimulate economic activity.  

      GSE securities carry no explicit government guarantee of creditworthiness,[6] but lenders grant them favorable interest rates, and the buyers of their securities offer them high prices. This is partly due to an "implicit guarantee" that the government would not allow such important institutions to fail or default on debt.[7] This perception has allowed Fannie Mae and Freddie Mac to save an estimated $2 billion per year in borrowing costs.[8] This implicit guarantee was tested by the subprime mortgage crisis, which caused the U.S. government to bail out and put into conservatorship Fannie Mae and Freddie Mac in September, 2008.

      "The way to see by faith is to shut the eye of reason." - Thomas Paine

      by shrike on Thu Feb 21, 2013 at 06:02:02 PM PST

      [ Parent ]

      •  Toxic because (3+ / 0-)

        the underlying asset - in this case a house - is not worth the value of the note. Yes the government can make it good. But the house is a molding trash heap. The government just bought a bag of shit. Toxic shit.

      •  are we even talking about the same thing? (2+ / 0-)
        Recommended by:
        emal, lotlizard

        They are buying 85 billion a month in bad bank mortgages (MBS) sold to the GSEs. If you recall the CEOs of Feddie and Frannie felt they had to get in the market of buying MBS from the banks or they would lose "market share"

        Why do you think Freddie and Fannie were put into receivership?

         Specifically the mortgages that the GSEs bought from the banks that they were in the process of doing a "Putback"

        What is a Putback? A Putback is when a bank sells a defective mortgage to a GSE or any other entity and the Mortgage is found to be defective. If the mortgage is defective the the bank is then forced to buy the mortgage back at face value. There are hundreds of billions of these.

        This has nothing to do with the the implicit or explicit guarantees that cover the  GSEs. This was to stop the GSEs from demanding full compensation for defective mortgages from the banks. No matter what the Banks books say, they would not be able to cover the cost of all the Putbacks.    

        The FED is planning on buying 1 Trillion dollars worth before  QExx ends. Why would the FED buy these? So the Banks wouldn't be forced to as a matter of law. The banks HAVE to buy back defective mortgages and that includes mortgages that have no traceable paperwork to ownership. Anything from no payment to bad paperwork can cause a bank mortgage to be defective.

        An analogy is,  when the Treasury department bought CDOs at face value to make sure that Credit default Swaps were worthless. Congress slammed Geithner for buying them at full value rather than offer to buy them at a discount, as long as a "credit Event" didn't occur.

        Here is the link and quote from when the program first started in 08-09 which was picked back up last year starting at 40 Billion a month then increased to 85 Billion a month, so there is no doubt that you are talking about something completely different.

        Pgae 1 & 2 of a PDF (Standford University)
        As part of its response to the financial crisis, the Federal Reserve introduced a host of new credit and liquidity programs in 2008 and 2009. The largest of the new programs was the mortgage-backed securities (MBS) purchase program. This program was part of a
        quantitative easing or credit easing policy which replaced the usual tool of monetary policy—the federal funds rate—when it hit the lower bound of zero. The mortgage-backed securities that the Federal Reserve purchased were guaranteed by Fannie Mae and Freddie
        Mac, the two government-sponsored enterprises (GSEs) with this role, as well as by Ginnie Mae, the U.S. government-owned corporation within the Department of Housing and Urban Development.

        The program was set up with an initial limit of $500 billion but was later expanded to $1.25 trillion. It expired on March 31, 2010. The Federal Reserve also created a program to buy GSE debt initially up to $100 billion and later expanded to $200 billion—and a program to purchase $300 billion of medium-term Treasury securities. The Federal Reserve’s MBS purchases came on top of an earlier-announced MBS purchase program by the Treasury.

        The reason for the Fed Bail-out?
        NEW YORK (TheStreet) -- Four years on, banks are still seeing increases in mortgage putback demands that are again pressuring shares following the recent Moody's debt downgrade.

        A more aggressive stance on mortgage repurchase demands by Fannie Mae (FNMA_) and Freddie Mac (FMCC_) -- the two government-sponsored mortgage giants, or GSEs, that were taken under government conservatorship in September 2008 -- is prolonging the mortgage mess for several of the nation's largest lenders, which are taking their time about settling the GSE putbacks.

        Freddie Mac reported that as of March 31, its outstanding mortgage loan repurchase requests -- based on unpaid principal balances (UPB) -- totaled $3.229 billion, increasing from $2.716 billion at the end of 2011. That's a 19% increase over just three months.

        Before you start throwing pie, it might be helpful if you knew exactly what you were talking about.
        •  You are spouting CT when you state that the (0+ / 0-)

          Fed is buying bad mortgages so the banks won't be putback.  That is absurd.

          The credit quality of any mortgage contained in a GSE bond is irrelevant because the bond is GUARANTEED.  Is that hard to understand?

          This is an easy way to loosen investment capital at zero risk - much like buying Treasuries.

          This is basic monetary policy you seem unable to comprehend.  

          "The way to see by faith is to shut the eye of reason." - Thomas Paine

          by shrike on Fri Feb 22, 2013 at 05:12:42 PM PST

          [ Parent ]

          •  You know I purposely (1+ / 0-)
            Recommended by:

            made sure that the full explanation of this was by someone else because I could tell you not only didn't understand it, but that you had to show I was some sort of idiot for mentioning it.  I assure you, I am not an idiot and I do know what I'm talking about. It's you that seems to have a basic comprehension problem.

            Based on the above: Do you know what a Putback is?

            •  I worked many years for a large lease/loan (0+ / 0-)

              accounting software company and mortgage servicing software was our specialty.  Putbacks are nothing uncommon.  But that is irrelevant to the issue of whether the Fed is buying "toxic" mortgages.  They are not.  End of story.

              They are buying federally GUARANTEED bonds.  That is my point you are evading.

              "The way to see by faith is to shut the eye of reason." - Thomas Paine

              by shrike on Sat Feb 23, 2013 at 05:06:54 AM PST

              [ Parent ]

            •  So you think the Fed is intercepting (0+ / 0-)

              the bad loans before they can be putback to the originating bank.

              That is preposterous.   The Fed cannot service a single mortgage nor will they.   The putbacks are going on at record rates as it is.

              Yeah, yours is very imaginative CT.

              "The way to see by faith is to shut the eye of reason." - Thomas Paine

              by shrike on Sat Feb 23, 2013 at 05:13:46 AM PST

              [ Parent ]

              •  You didn't read the Stanford document (0+ / 0-)

                You didn't read the  Link.

                You are acting as if the 2008 banking crisis never happened and that even if it did, it's all been resolved. Nice try there former software company employee ...

                There was never any CT in the FED saving the Banks.  That definitely includes doing whatever they can to save them from being forced to buy back mortgages that are WORTHLESS. These aren't mortgages that just have a problem. They are worthless. There is no servicing that needs to be done. There are 100s of billions of dollars worth of these mortgages that have a face value but zero in real value. No one knows who owns them. There is no proper documentation on them. All the Big banks sold as many as they could to Freddie and Fannie.

                Lets remind ourselves what Fannie and Freddie do:

                The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts
                So many of them that Freddie and Fannie still owe 140 Billion to Taxpayers for their own bail out.

                The mortgages that the banks got stuck with at the end of Musical Mortgages they  used as collateral to borrow hundreds of billions at 0%  that they then "invested" in the fed that paid them 3%. It has been discussed here by numerous authors . So has QE111. The fact that you didn't read any of them and  apparently didn't read any coverage of it anywhere since 2008 doesn't make you more knowledgeable. It makes you look like a large black hole void of knowledge. Working at a software company at some unknown time at some unknown place with unknown clients in some unknown job description doesn't do anything to elevate your credibility.

                This conversation has no more purpose because it's quite obvious , you have done no research, you didn't even bother to mention that Freddie and Fannie are in Receivership for buying way too much of this junk and that it would be in the interest of both institutions  to be offloading as much of the toxic waste as  they can back to the TBTF banks. .

                 The FED who has done nothing but Bail out the banks would not want the banks to take precious cash it just printed up for them to buy these back and show lower profits which would put even more doubt in their long term or short term viability.

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