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Tag >> Banks
One of the more specious arguments made against derivatives regulation at yesterday's hearing of the House Financial Services Committee was that this would hurt companies' ability to get credit and manage their risks.
Several Republicans who made this argument went unchallenged, which prompts me to weigh in with a question: How many non-financial companies use derivatives to hedge?
Sorry to spoil the party, but revenues at leading technology bellwethers Intel and IBM aren't signaling as strong a recovery as the articles ballyhooing their improvement would suggest.
Ignore earnings entirely because better- than-expected profits are too often achieved by cost cuts, which are unsustainable. And while Q3 revenues for the two tech giants also beat expectations, they were still down from a year earlier.
It's easy to forget about the little guy.
Given the tumult in the banking sector and the economy in general over the past year, it's almost understandable that small businesses haven't been everyone's biggest concern.
That seems to be changing now that banks -- while likely not out of out harm's way -- have stabilized and corporate earnings season is a bit less terrifying.
I wrote last Saturday about Federal Reserve Governor Dan Tarullo's embrace of contingent capital for banks as a more effective way to improve their solvency during a financial crisis. The idea is to require banks to issue debt that automatically converts to equity during times of stress.
Proponents, such as the Squam Lake Working Group, which includes such academic heavyweights as former Fed Governor Frederic Mishkin, contend that such a hybrid regulatory security would be transparent, less costly to taxpayers, and more effective than what the group calls "the ad-hoc measures" taken in the current crisis.
By Ronald Fink
The idea that global corporations want one bank that can handle all their needs everywhere is absurd, and therefore no argument against breaking up megaliths like Citigroup. After all, investors were clamoring for its break-up even before the bailout had folks ranging from Simon Johnson to Yves Smith chiming in.
This segment of the Bill Moyers television show was a angry screed against Wall Street, and perhaps an easily dismissible rant from the embittered left.
But it contained an interesting revelation that might cause banks and regulators to sit up and take note. According to Ohio Congresswoman Marcy Kaptur, a court ruling in Cleveland has let home buyers who have defaulted on their mortgages stay in their homes even though the banks have foreclosed.
I have to admit, a computer model that can do real-time analysis of the aggregate Value at Risk of every financial institution of any significance sounds pretty cool.
But somehow I think the idea misses the point. After all, if the banks' own models failed to show that what they were up to wasn't at all hunky dory, then how can adding that all together come any closer to the mark?
Yesterday's hearings on derivatives regulation were yet another Capitol Hill head-scratcher that leaves one depressed about the prospects for fixing the financial system.
As we've noted before, there's a simple solution for OTC derivatives that can't be cleared on exchanges. And that is to ban naked swaps.
This analysis of problems in the securitization market ends up with the usual inadequate explanation for the basic issue confronting the financial system, i.e, "confidence," or rather the lack thereof.
As I reported in yesterday's piece on banks' off-balance-sheet vehicles known as qualified special purpose entities, the problem is that no one in a position of authority seems prepared to confront the question of how you establish confidence in a system that relies on opacity.
I find it amusing that the Fed concurs with the SIGTARP'S concerns that the Treasury failed to level with the public about the health of banks back as the bailout funds began to flow.
As if the Fed's really, truly concerned that the public understands exactly what's going on in with the inner workings of the financial system. (I mean, if that's the case, why is it fighting Bloomberg's FOIA requests for disclosure of its negotiations with bailed out banks all the way to the Supreme Court?)