NOCERA: Banking’s Moment of Truth




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EDITOR’S NOTE: For a long time the banks managed to get everyone talking about homeowners buying houses they could not afford. They didn’t have the wherewithal to complete the deal and they knew it so why shouldn’t they lose the house?

Now the shoe is being fitted for the other foot as regulators look at the capital requirements for banks to engage in the crazy deals they created over the last decade. If they had any real money at risk, none of it would have happened.

The banks want to engage in huge trading and underwriting opportunities they create without the capital to back it up — in other words, we already saw that they did the deals and could not afford it which is why they needed a taxpayer bailout that amounts to something like $7 trillion. SO regulators are looking to make sure that doesn’t happen again and banks are advancing arguments that are simply wrong, just as they are doing in court with the foreclosure actions.

The outcome of this debate will determine the future stability of our financial system. If the banks win, there won’t be any stability. There will be more wild sprees, more losses and more bailouts.

Banking’s Moment of Truth


Capital matters. Let me put that another way. The current fight over additional capital requirements for the banking industry, eye-glazing though it is, also happens to be the most important reform moment since the financial crisis broke out three years ago. More important than the wrangling over Dodd-Frank. More important than the ongoing effort to regulate derivatives. More important even than the jousting over the new Consumer Financial Protection Bureau.

If investment banks like Merrill Lynch had had adequate capital requirements, they would not have been able to pile on so much disastrous debt. If A.I.G. had been required to put up enough capital against its credit default swaps, it’s quite likely that the government would not have had to take over the company. If the big banks had not been able to so easily game their capital requirements, they might not have needed taxpayer bailouts. A real capital cushion would have allowed the banks to absorb the losses instead of the taxpayers. That’s the role capital serves.

Adequate capital hides a plethora of sins. And because, by definition, it forces banks to use less debt, it can also prevent sins from being committed in the first place. “There is no credible way to get rid of bailouts except with capital,” says Anat Admati, a finance professor at Stanford Business School and a leading voice for higher capital requirements. “The only cure is capital,” says Daniel Alpert, a founding managing partner of Westwood Capital. A few days ago, The Wall Street Journal wrote an editorial applauding the recent suggestion by Daniel Tarullo, a Federal Reserve governor, that the biggest banks hold as much as 14 percent of assets in capital. I couldn’t agree more.

Which is why a hearing held last week by the House Financial Services Committee was such a sorry sight. Under the guise of examining whether the new financial regulations — including proposed capital requirements — were making American banks less competitive, the Republican majority peppered U.S. regulators, including Tarullo, with skeptical questions about the need for increased capital requirements. It was pathetic.

I should point out that the proposed international standards — Basel III, as they’re called, which are still being negotiated by regulators around the globe — would require banks to hew to capital requirements of only 7 percent, not 14 percent. They are also talking about adding capital surcharges of up to 3 percent, on a sliding scale, to the 30 largest, most systemically important institutions worldwide, meaning that JPMorgan Chase, for instance, would have capital requirements of 10 percent.

There are many experts, including Admati and, one suspects, Tarullo himself, who think this is still too low. The Basel committee has already agreed, somewhat absurdly, to delay the implementation of the requirements until 2019. (Good thing the world’s banks aren’t going to have any big problems between now and then!) And because the Basel standards, whatever their final form, must still be enacted and enforced by individual country regulators, there is no guarantee that every country will agree to them.

But the U.S. should, no matter what other countries do. Banks always want capital requirements to be as low as possible, because the less capital they have, the more risk they can take and thus the more money they can make (and the bigger the executives’ bonuses). But so what? Trading some bank profits for a safer financial system is a deal most Americans would take in a heartbeat.

Indeed, every argument put forth by the big banks and their Congressional spokesmen against higher capital requirements have been demolished by Admati as well as Simon Johnson, the banking expert, whose devastating rebuttal can be found in The New York Times’s Economix blog. But the idea that they will make U.S. banks less competitive with European banks deserves particular scorn.

European banks, to be sure, have fought fiercely against higher capital requirements. It’s not really because they hope to get a leg up on the rest of the world, though. It is because these banks are in far worse shape than the banks in other parts of the world; they can’t afford higher capital requirements. If Europe began insisting that its banks begin holding enough capital to cushion against all the risk on their books — starting with Greek debt — the truth would be out: Their insolvency would suddenly be apparent. If Europe wants to keep kicking the can, by turning its back on the surest measure to increase the safety of its financial system, why on earth would we want to go along?

Tarullo will soon travel to Basel, Switzerland, (yes, that’s why they call them the Basel accords) to push for the highest capital requirements he can get the rest of the world to agree to. He will also try to convince the international standard-setters that a significant surcharge on the most systemically important banks is vitally important. Really, there’s only one appropriate response:

Good luck, sir.

23 Responses

  1. @ E, Tolle
    You are absolutely right, No one understands the underlining fraud better than Neil, And he does wonders in educating all of us.

    Before Neil and Livinglies came into out lives I was on my own against Fidelity NY FSB a bank that hid four of my mortgage checks and said they didn’t get them in order to fake a default, accelerate and demand real real money for their fake money.

    I am not what some want to call me a militia mentality . When no state judge cared about a bank hiding my payments and trying to steal my two condos I found my way into bankruptcy court.

    The average reaction to whatever agency I went to was “banks don’t do this” The four checks the bank said they never got had markings and had been posted to the bank ledger

    Alonge the way Fidelity NY FSB went under and Astoria Federal S & L became Successor in Interest and continued on with the fraudulent forecloses

    The Hon Cornelius Blackshear telling him what happened told me to file a 510 motion against a fraudulent credit. It was while I was doing research for the 510 motion that I discovered that the purpose of the bank hiding my checks was to demand real money for the banks fake money (credit) from that the Hon Blackshear told me too file a Federal Secus Petition

    The Hon Louis L Stanton, read it, accepted for filing , paid my fee and annexed the state court record, received a docket number and the Hon Stanton issued his first order also with the directive I make a demand for a money settlement against the bank.

    Three months into the Federal case the bank put on pressure to remand the case because while I was under Federal Jurisdiction
    the state court without jurisdiction signed two foreclosure judgments
    and without Astoria Federal ever owning my two properties, their then corrupt attorneys Mullolly Jeffrey Rooney & Flynn and their corrrupt referee Penny Stark auctioned off my two condos to a serial straw buyer Fang Li (who is using my social secutiry number) and to Cheetah Realty.

    I was ousted by these crooks. I wrote a little book and sent it to Federal Senators, Federal Judges, Occ SEC OTS etc etc and one kind federal judge told there are no latches to forged deeds go back and open up and claim your properties,

    In 2008 Astoria had gotten rid of their corrupt attorneys MJRF (seven year prior) and Astoria’s New attorney Mr Arthur Walsh and his law firm apparently looking at the fact they never owned my two condos stated in court to Judge Schlesinger Its Indemnify Indemnfy Indemnify we are stepping aside and the title attorneys are stepping in,

    And the corrupt title attorney Frank P Malone from Fidelity National Title and the corrupt attorney David K Fiveson from Coronet Title did not want to indemnify but wanted to be Intervenors and be heard and what they told the court was time makes a forged deed good besides they had equity,

    The only equity the corrupt title attorneys were talking of was money under the table and Judge Schlesinger took the payoff and ruled against a US Supreme court case of Elliot v Piersol,

    The fake money issue is the basis of the fraud they all perpertrated against me in stealing possession of my two condos,

    If Neil has any idea of what I should do from here I would gladly listen, meanwhile I have to continue fighting for my two condos

  2. marilyn lane, of course you’re right. Anyone who has looked into the fractional reserve deal understands the fiction taking place in lending. But the bottom line on this wordpress site is….is it the goal of Living Lies and Neil Garfield to upend that whole travesty? No. Neil has made it very clear over the years that the goal of this site is to educate and claim eventual victories against bankers who have no claims, plain and simple.

    You wouldn’t expect a “Joy of Gardening” forum to bring down Monsanto single handed. Nor can LL adequately address or solve the myriad of problems from the issuance of debt as a way of life, and the absurdity of that whole complex.

    This site, when you clear out all of the clutter and name calling, is doing exactly what Mr. Garfield started out to do nearly four years ago, that is, clear away the crap and expose the underlying fraud. And that is going quite well, albeit slower than I would hope….but that’s not his fault. The courts are reluctant to rule in favor of borrowers, and against their nest eggs.

    All that is slowly changing. Maybe when the smoke has cleared from the foreclosure battlefield, we can all get together and kill the creature from Jeckyll Island.

  3. What if their diabolical plan was for the government to take over AIG and bailout the US mess! A win for the owners surely.

  4. @usedkarguy

    Banks doen’t want the public to know that a homeowner’s mortgage loan
    is made by a bank lending you their credit..
    Loans made with credit not money are absolutely illegal.
    Whether you understand that or not, it is against the Constitution.
    Almost every mortgage loan is an “ultra Vires” contract”
    Whether you understand that or not that is the law

    They then take the illegal mortgage and sell it to Wall Street.
    Wall streeters know how a Ponzi scheme works so why should they get their money back before the defauded hhomeowners are made whole

    You can call me any names you want, but this is what the victims of this
    Ponzi fraud have to know.

    Usedkarguy your attitude is shoot the messenger.

  5. @usedkarguy

    Mary Cochrane understands this issue, you don’t

  6. @marylin, this is the doo-doo I’m talking about. There is no cause of action here. You’re wasting everybody’s time.

    somebody go find mario kenny……

    I think he’s working for an attorney now.

  7. .@carie

    Where is the money going to come from after the Investors lawsuits?

  8. The big picture is that the “whole truth” is finally getting out there—getting publicity—which I firmly believe will eventually force the LAW upon the banks—which includes having to deal with fraudulent foreclosures—IT WILL HAPPEN.

  9. @carie
    this is not going to help one homeowner that lost their property to a fraudulent foreclosure.

  10. This bickering is SO dumb—

    just watch this—

    we should be united, not divisive!!

  11. @tn

    If you don’t follow the law, what you get is what is happening to our country now,

    Banks are unjustly enriching themself and passing their fakery along to their friends at wall street,

  12. @tn

    It is not a black hole, It is the US Constitution

    The basic reason we changed from the Articles of Confederation to the US Constitution was the “who can create money issue”

    Under the Articles of Confederation every state could create their own money So we had as many mediums of exchange as we had states

    It wasn’t working and our fore fathers reasoned the only way our Country could survive and prosper was to give the Federal Government control of the money supply, That is what is meant by “no state shall coin money, nor emit bills of credit..”

    Congress was given the right to add to our money supply. Congress has never given the right to create money to the banks. A bank lending its credit and pretending it is money is illegal

    Tell me, by what authority?, by what law?, a bank is allowed to lend its credit and collect interest on their credit –Illegal


    Watch this from today’s Dylan Ratigan show–it’s AWESOME!!!
    Finally—publicity on a national TV media show about what is REALLY going on—this is fantastic…the “wall” is cracking!!!

    Neil—can’t you get on his show???

  14. @marilyn – i’m not going down the freemen black hole with you. if you can make that work, great for you. but I’d try to find some alternative claims as well if I were in your shoes.

    and yes, i’ve worked for the banks and i’ve worked for the homeowners. i’ve been pretty up front about that previously.

  15. @carie – reverse mortgages aren’t mods of existing mortgages generally. they are their own loans. beyond that, i just don’t have that much background in them

  16. @tn
    It has been established in Federal Courts that a national bank
    (or any lending bank – Wamu?)does not have the power to lend it’s credit,
    It is illegal for a bank to lend its credit, (credit is not money)
    TN go do some research on what that clause of Article 1 of the Constitution means? Then you will understand that what WAMU is doing is illegal

    do you work for a bank that you don’t want people to know this issue?

  17. tn—I forgot to add that I just inherited a house in Oregon that has a reverse mortgage–no equity—that a family friend is trying to sell…I’m just wondering if I can keep the house from being “stolen” by the bank (or somebody), if it doesn’t sell…

  18. Personally, I think the banks should have capital requirements at 20 percent. That would solve lots of instability problems. They are not lending money to anybody, because they don’t have the money. I think the really big questions is: what do we need the mega banks for? All they do is steal, lie, misrepresent, commit fraud, forgery, ruination of families, etc. It sill astounds me that they are still operating in the same old way which is a disaster. Securitization should be either subject to heavy regulation or outlawed altogether.

  19. tn—do you have any info about reverse mortgages? I tried to talk to my mother-in-law about all this stuff, and she said she had a reverse mortgage…she seems to think she isn’t affected… I see a lot of commercials on tv focusing on seniors with regards to reverse mortgages…but isn’t that (if they had a subprime) just the bank doing their own form of “modifing” the same bogus “fake loan” that we have been talking about? Getting the seniors to sign away their rights to take any action when they find out the’ve been had???

  20. ok Marilyn, I’ll bite…where are you going with this? The Constitution says “no state shall…”. Wells Fargo is not a state, nor are they coining money or emitting bills of credit.

  21. oh boy, another wacky start to the day…

  22. […] Source: Livinglies’s Weblog […]

  23. Why is it no one is paying attention to Art 1 Para 10 Cl 1 of the US Constititon
    (…no state shall coin money, nor emit bills of credit…

    All bank contracts of credit are “Ultra Vires” contracts.

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