Comments on: Legislation coming to break up big banks? http://blogs.reuters.com/rolfe-winkler/2009/11/05/legislation-coming-to-break-up-big-banks/ Option ARMageddon Tue, 14 Oct 2014 13:06:34 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: James Reginald Harris, Jr http://blogs.reuters.com/rolfe-winkler/2009/11/05/legislation-coming-to-break-up-big-banks/comment-page-1/#comment-3040 Fri, 06 Nov 2009 16:17:58 +0000 http://blogs.reuters.com/rolfe-winkler/?p=4212#comment-3040 The financial crisis was a result of poor internal operations models that have not been repaired, these operational dysfunctions are more prevelant in larger institutions. There is no need to legislate the break up of large institutions as they will begin to disintigrate on their own whenever the next shoe drops and there is not an extra 4 trillion lying around to support their balance sheets.

Citigroup is looking at writing down 39 billion and Goldman Sachs is taking home a 20 billion dollar bonus year. The market is a Win/Lose Game and when such large institutions are enabled to play the Win/Lose Game with unlimited Federal Funds (which are in fact, not unlimited), then ultimately the pressure on the losers will cause an irreconcilable financial loss to the support mechanism.

They do not need to regulate the size of the institution but regulate the size of the TRADING POSITIONS of any one institution and its related entities.

This will cause a natural divestiture of TBTF’s into smaller enterprizes that can war with each other for trading profits without causing the extreme damage to the countries core that is done lately.

Regulating Proprietary Trading Positions of Commercial Banks is the answer.

This will reduce systemic risk while not reducing service delivery to customers.

Sure, they’ll complain but hey, glad its not my job.

]]>
By: Rick Dean http://blogs.reuters.com/rolfe-winkler/2009/11/05/legislation-coming-to-break-up-big-banks/comment-page-1/#comment-3036 Fri, 06 Nov 2009 03:30:41 +0000 http://blogs.reuters.com/rolfe-winkler/?p=4212#comment-3036 “trigger a systemic event” is not always true. The legislature could declare such contract clauses are unenforceable as is done in many other areas of law. Likewise would be a good idea for CDS which do not demand the return of the defaulted asset, and prohibit the CDS reuse of such as asset.

]]>
By: clawback http://blogs.reuters.com/rolfe-winkler/2009/11/05/legislation-coming-to-break-up-big-banks/comment-page-1/#comment-3035 Fri, 06 Nov 2009 02:06:06 +0000 http://blogs.reuters.com/rolfe-winkler/?p=4212#comment-3035 This idea that CDS and other derivatives work like a physics equation or a string of firecrackers is nonsense. It IS possible to say “we don’t have your cash right now,” or “no, that doesn’t count as a default,” or “let’s renegotiate because it beats getting nothing,” etc. I know the Fed and Treasury claim they’re not competent to handle it, but why is virtually no one talking (publicly) about how to unwind these positions, either by fiat (e.g. change in BK law, or some other measure covering derivatives in non-BK situations) or through negotiation? At some point, someone is going to have to just say “tough” on derivatives and associated collateral calls. I know Geithner believes the entire world will come to an end if CDS aren’t paid out at 100 cents on the dollar, but refusing to write down the value of credit (of all types) doesn’t change reality. All we’re doing is passing that credit risk on to the taxpayer, without extracting any pain from the responsible parties. The alternatives might result in bond defaults and a hit to pension funds and insurance companies, but SOMEONE is going to have to take the hit. And there’s no good reason why taxpayers in general should take that hit instead of particular banks, their bondholders, and the companies and funds that hold those bonds. I think Geithner just fundamentally misunderstands the mathematical and economic realities at work here — he really believes that if they can just hold the thing together long enough, it will all work out fine.

]]>
By: LH http://blogs.reuters.com/rolfe-winkler/2009/11/05/legislation-coming-to-break-up-big-banks/comment-page-1/#comment-3028 Thu, 05 Nov 2009 19:43:26 +0000 http://blogs.reuters.com/rolfe-winkler/?p=4212#comment-3028 I wonder if a workable answer to Bair’s comment about not knowing how to break up TBTFs is to set criteria (asset size, Glass-Steagall-like limits, whatever) and let the banks figure out how to downsize themselves so as to meet the criteria.

]]>