financial regulation

Photo below - remember this? Ask your mom or dad about it, if you were still a kid 20 years ago.

The places where you and I keep our money are NOT a private investment banks. We have presumably safe checking and savings deposits at places like Chase, Bank of America, Citibank, Wells Fargo. However, all of those have been fined or placed under government restrictions for violations and unsafe practices at some point recently. Still, this as safe as it gets for ordinary customers like us.

But these institutions – and dozens of others – have mirror operations: Investment Banking. If some guy with a lot of money and doesn’t like what Bank of America pays as interest on a savings account, they can open an investment bank relationship. Returns will be higher. So will risks, since investment banks shower money on stuff which some regulators frown at. Those investment banks have waaaay different rules, and the money spigot – both in and out – can be turned off overnight. That’s what’s happening right now. (see link below)

“The last time funds blocked investors from getting their money back, Bear Stearns collapsed 6 months later” (direct quote from George Noble). This was, of course 2007-2008. But the crisis didn’t stop there. Practically every money center bank in America with FDIC insured deposits quickly ran into trouble. The government stepped in (President Bush) and started bailing everyone out – real banks, investment banks, wall street brokerages, Fannie Mae . . . even General Motors.

This bailout bonanza became known as TARP, and it cost taxpayers trillions. Historians are divided as to whether this really saved the entire system, or just the most reckless players.

There is no requirement for the government to rescue anything other than an FDIC insured bank. All the other TARP winners were outside of the orbit of US government obligation. Wall Street and automakers and everyone else who got a big check is probably still grateful.

So here we are again. Big shots who have uninsured deposits at risky institutions are demanding their money back. The investment bank managers are saying no. Blackrock/HPS Corporate Lending halted withdrawals when clients tried to withdraw $1.2 billion almost overnight. This is called a “bank run”, when clients become panicked that they will NEVER get their money back, and they run as fast as they can to the exit.

The current gulf war, skyrocketing oil prices, AI job impacts, and a possible global recession are triggering this bank run. Just like the collapse of the risky mortgage lending business did in 2007.

I’m conflicted at this point. Should I root for another nationwide financial bailout to save everyone, because everyone is too big to fail, not just a handful of money center banks? If that happens the national debt is going to the moon. If we refuse to bail out all the brain-dead bad investment banks and corporations, would that really risk the survival of legitimate banks which are regulated by at least 4 government agencies?

And does anyone really trust the Trump administration to (first) make a careful review of the facts and risks, and (then) chart a prudent course of action? This is the White House which recently showered lobster tails, sushi prep tables, and ice cream machines on the Pentagon because it didn’t know what else to do with unspent defense money.

I’m just sayin’ . . .

Veteran fund manager George Noble warns that a private credit crisis may be unfolding in real time

Emergency Economic Stabilization Act of 2008 - Wikipedia

Photo below - remember this? Ask your mom or dad about it, if you were still a kid 20 years ago.

The places where you and I keep our money are NOT a private investment banks. We have presumably safe checking and savings deposits at places like Chase, Bank of America, Citibank, Wells Fargo. However, all of those have been fined or placed under government restrictions for violations and unsafe practices at some point recently. Still, this as safe as it gets for ordinary customers like us.

But these institutions – and dozens of others – have mirror operations: Investment Banking. If some guy with a lot of money and doesn’t like what Bank of America pays as interest on a savings account, they can open an investment bank relationship. Returns will be higher. So will risks, since investment banks shower money on stuff which some regulators frown at. Those investment banks have waaaay different rules, and the money spigot – both in and out – can be turned off overnight. That’s what’s happening right now. (see link below)

“The last time funds blocked investors from getting their money back, Bear Stearns collapsed 6 months later” (direct quote from George Noble). This was, of course 2007-2008. But the crisis didn’t stop there. Practically every money center bank in America with FDIC insured deposits quickly ran into trouble. The government stepped in (President Bush) and started bailing everyone out – real banks, investment banks, wall street brokerages, Fannie Mae . . . even General Motors.

This bailout bonanza became known as TARP, and it cost taxpayers trillions. Historians are divided as to whether this really saved the entire system, or just the most reckless players.

There is no requirement for the government to rescue anything other than an FDIC insured bank. All the other TARP winners were outside of the orbit of US government obligation. Wall Street and automakers and everyone else who got a big check is probably still grateful.

So here we are again. Big shots who have uninsured deposits at risky institutions are demanding their money back. The investment bank managers are saying no. Blackrock/HPS Corporate Lending halted withdrawals when clients tried to withdraw $1.2 billion almost overnight. This is called a “bank run”, when clients become panicked that they will NEVER get their money back, and they run as fast as they can to the exit.

The current gulf war, skyrocketing oil prices, AI job impacts, and a possible global recession are triggering this bank run. Just like the collapse of the risky mortgage lending business did in 2007.

I’m conflicted at this point. Should I root for another nationwide financial bailout to save everyone, because everyone is too big to fail, not just a handful of money center banks? If that happens the national debt is going to the moon. If we refuse to bail out all the brain-dead bad investment banks and corporations, would that really risk the survival of legitimate banks which are regulated by at least 4 government agencies?

And does anyone really trust the Trump administration to (first) make a careful review of the facts and risks, and (then) chart a prudent course of action? This is the White House which recently showered lobster tails, sushi prep tables, and ice cream machines on the Pentagon because it didn’t know what else to do with unspent defense money.

I’m just sayin’ . . .

Veteran fund manager George Noble warns that a private credit crisis may be unfolding in real time

Emergency Economic Stabilization Act of 2008 - Wikipedia