2011 February 16 Wednesday
Big Banks Leveraging Up At Our Risk Again

Simon Johnson says the US government is encouraging the biggest US banks to once again over-leverage. Of course this is at our risk.

If shareholders are protected from being wiped out by the implicit too-big-to-fail guarantee, they should welcome the arrival of additional leverage as the economy improves. In fact, as the latest quarterly earnings results appear, the financial press has started to ask Goldman Sachs Group Inc. and other banks why they don’t increase their leverage even more.

Top bankers are also pressing hard for the right to increase dividend payments. That’s effectively a transfer from creditors and taxpayers tomorrow (because of the guarantee) to shareholders today.

Dimon also wants JPMorgan to become more global, especially by expanding more into emerging markets. U.S. Treasury Secretary Timothy Geithner endorsed this approach in an interview he gave to the New Republic, effectively arguing that we should want big, highly leveraged U.S. banks to make large bets on highly volatile emerging markets.

What could go wrong?

Share |      By Randall Parker at 2011 February 16 11:15 PM  Economics Financial Regulation


Comments
kurt9 said at February 17, 2011 9:27 AM:

They never learn, do they?

Engineer-Poet said at February 18, 2011 1:55 PM:

They've learned only too well.  Their bought pols bail them out every time, with our money.

This will go on until the pols are thrown out of office, or (if the stolen money keeps being used to buy elections) the banksters and pols both start winding up dead.

kurt9 said at February 19, 2011 10:47 AM:

Yeah, I have no problem with the mass execution of rent-seeking parasites, both in the private and public sectors. The problem is that this solution tends to get out of control very quickly.

Engineer-Poet said at February 19, 2011 8:19 PM:

I'm hoping that some "extremist" movement gives the elites enough trepidations about how bad it could be that they decide it's important to make it better, even if it means giving up their game.

kurt9 said at February 20, 2011 2:34 PM:

Speaking of which, the guy who ran Country Wide Mortgage got off free. However, he is being hit with a shareholder's lawsuit that may end up clawing back his $365 million in bonus money.

You should also be aware that it is your tax money that is being used for the legal defense of the swine that ran Freddie and Fannie.

no i don't said at February 21, 2011 2:31 PM:

The world needs to be rescued from the power and money making addicts who just can't give it up.

They are hooked in their perpetual high, man! So the rest of the world has to put up with this crap.

As the old man in "Zeitgeist, Moving Forward" says: "This shit's got to go!" Big time...

RealBillsDoctrine said at February 24, 2011 8:46 PM:

http://2013rainbowroundtable.ning.com/profiles/blogs/this-monetary-reform-bill-will HR6550 would put a stake through the heart of the banksters and return money power to the people. This revolutionary bill didn't get much press, but I'm sure it will be back because it is an idea whose time has come. Our debt problems would go away as debt free U.S. dollars are loaned out to replace federal reserve debt money. (Some would know this as the Chicago Plan and the 100 percent reserve solution.) Virtually all of our current reality e.g. immigration/job loss are attacks of the plutocracy against middle class labor. At its root our problems are a function of the money system.

Pat Young said at April 4, 2011 1:33 AM:

I am tired of all the economic negative news. I think the reason the economy sounds bad has less to do with an actual recession than media sensationalism and doomsday pessimism. Everyone was in a panic in 1997 because of the Asian financial crisis, but the sky did not fall. I don’t think the media should lie about a high unemployment rate, but I would like to hear more positive news stories. Just like news reports about Y2K, killer bees in 1985, Firestone tires in 2000, shark attacks in 2001, and the oil spill in 2010, people will soon realize any economic downturn is partly due to hype and life will go on.

http://www.usnews.com/money/blogs/alpha-consumer/2009/1/8/did-the-media-cause-the-recession.html

http://www.time.com/time/magazine/1998/int/980706/cover_story.one_year_aft33.html

I did some research and found that there is plenty of good news out there:

The recession officially ended in June 2009:

http://money.cnn.com/2010/09/20/news/economy/recession_over/?section=money_latest

The unemployment rate is falling:

http://www.greenbaypressgazette.com/article/20110402/GPG0101/104020692/U-S-unemployment-rate-falls-2-year-low?odyssey=tab%7Ctopnews%7Ctext%7CGPG-News

The stock market has risen 53% recently and is still cheap:

http://www3.signonsandiego.com/stories/2009/oct/15/cautious-optimism/?uniontrib

Wells Fargo, Apple, Ford, SkyWest, Adidas, Men’s Wearhouse, Kroger’s, General Mills, AutoZone, CarMax, Walgreen, Dell, Disney, and Discover are some of the many respected companies to have declared profits recently:

http://www.bloomberg.com/apps/news?pid=20601100&sid=az6fjhaa_gsg

http://www.usatoday.com/travel/flights/2009-11-05-skywest-q3-profit_n.htm

http://www.sanluisobispo.com/topnews/story/906588.html

http://blog.seattlepi.com/microsoft/archives/182538.asp?from=blog_last3

http://www.latimes.com/business/la-fi-earns22-2009oct22,0,1394503.story

http://www.businessweek.com/news/2010-06-10/men-s-wearhouse-surges-most-since-09-as-profit-rises-update2-.html

http://www.nytimes.com/2010/09/15/business/15kroger.html?src=busln

http://www.bloomberg.com/news/2010-09-22/general-mills-first-quarter-profit-rises-12-on-sales-of-cereals-snacks.html

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092101256.html

http://www.fayobserver.com/articles/2010/09/22/1033100?sac=Bus

http://www.nytimes.com/2010/09/29/business/29walgreen.html

http://www.bloomberg.com/news/2011-02-15/dell-reports-profit-that-tops-estimates-on-business-pc-demand.html

http://www.sfgate.com/cgi-bin/article.cgi?f=%2Fg%2Fa%2F2011%2F02%2F08%2Fbloomberg1376-LG9TY20D9L3501-0G67SN2ECLJ7PKT7EQBGOISSMQ.DTL

http://www.bloomberg.com/news/2011-03-22/discover-beats-estimates-on-declining-defaults-boosts-payout-shares-gain.html

US housing starts have increased:

http://blog.al.com/breaking/2009/10/us_housing_starts_rise.html

Business confidence has risen:

http://www.bostonherald.com/business/general/view.bg?articleid=1203965&srvc=rss

Factory orders have increased:

http://www.telegram.com/article/20110203/NEWS/110209884/1002/busines

Consumer confidence has risen:

http://money.cnn.com/2010/08/31/news/economy/consumer_confidence/index.htm?section=money_latest

Consumer spending is up:

http://www.reuters.com/article/idUSTRE65M2WK20100628?loomia_ow=t0:s0:a49:g43:r5:c0.051546:b35270006:z0

The US GDP rose 3.1%:

http://finance.yahoo.com/news/Stocks-rise-on-Oracle-apf-2813128403.html?x=0

North Dakota has an unemployment rate of 3.7%. South Dakota and Nebraska have unemployment rates of less than 5%. Singapore has an unemployment rate
of just 2.2%. Unemployed people who move to these places can find work in agriculture, oil fields, schools, and hospitals. These newcomers will need to buy homes, food, and services creating more jobs. If you don’t have a job, move to an area with a better economy. If you can’t sell your house at the price you want, you shouldn’t have paid so much for it. If you don't want to move and make trade-offs, I guess that you aren't that desperate for work.

http://www.bls.gov/lau/

http://online.wsj.com/article/SB10001424052748703803904576152630710927512.html

http://www.jamestownsun.com/event/article/id/81609/

http://www.economist.com/node/18488276?story_id=18488276

The United States will face a labor SHORTAGE in the next few years as millions of baby boomers retire. There are 76 million baby boomers, but
Generation X only has 46 million people.

http://seattletimes.nwsource.com/html/nationworld/2002185894_boomers21.html

http://www.argusleader.com/article/20091107/business/911070331/1001/news

If you really want to stay where you are and haven’t found a job, think of a way to make money from your hobbies. Find a need and fill it.
Do you like to cook? Are you good at fixing things? Do you like to paint? Optimists make more money and I
strongly believe that if you do what you love, the money will follow. Whatever the mind of man can conceive and believe, it can achieve.
Just because someone says there is a recession, doesn’t make it true. Just because most people used to believe the world was flat, did that make it true? If you are feeling negative, I highly recommend the book “You Can Have it All”:

http://www.librarything.com/work/508754

http://www.entrepreneur.com/management/managementcolumnistscotthalford/article207648.html

You might also feel less sorry for yourself or the economy if put your life in perspective. How would you like to trade places with someone in North Korea? Would you rather live in Burundi where the GDP per capita income is $300 per YEAR?

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html?countryName=Burundi&countryCode=by®ionCode=af&rank=228

Even if things are really bad for you and you become homeless, there is a safety net of food banks, shelters, general relief, and food stamps. You could join a commune or a monastary.

America needs a good pep talk instead of negativity. I really think Obama would be more helpful to the economy by talking about the positive sides instead of pushing expensive stimulus programs. People should live within their means to avoid crashing the economy, but even when overextended, the United States has managed to pay the massive debts of the Depression and WWII.

http://zfacts.com/p/318.html

Americans need to think more like immigrants. Politicians are too afraid to say it, but Americans should stop whining, get up, take responsibility, lower their standards, bite their lips, tough it out, and get busy. Americans should stop buying SUV’s and McMansions they can’t afford and pay off their debts. I have no sympathy for the sheep who went in debt to buy expensive restaurant meals, clothes, vacations, cars, and overpriced homes when times were good instead of saving for a rainy day. Buy LOW and sell HIGH. If people had put their money in the bank instead of wasting it they would still have it. The United States is capitalist not Communist. There is social Darwinism and survival of the fittest here. If Americans want a handout, they should move to Sweden. I have seen refugees from places like Vietnam immigrate to the US with NOTHING and own houses and cars five years later, while some lazy Americans who haved lived in public housing and on welfare for GENERATIONS complain about how poor they are. Why can a third world immigrant who doesn’t speak English make more money in five years than some Americans who have lived in the US their entire life?

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/09/27/financial/f063017D17.DTL&ao=all

http://online.wsj.com/article/SB10001424052748704895004575395491314812452.html

The negative thinking about “tough times” and the supposedly “decline of the US” kills me. The USA is by far the richest and most powerful country in the world. Who invented the assembly line, telephones, movies, light bulbs, airplanes, air conditioning, elevators, skyscapers, television, the atomic bomb, the pill, calculators, microwaves, lasers, the Internet, mobile phones, the space shuttle, and landed on the moon? What country wins the most medals at the Olympics despite having only 5% of the world’s population? If the United States is dying, why do so many people want to immigrate there?

http://www.statemaster.com/encyclopedia/List-of-United-States-inventions

http://englishrussia.com/index.php/2010/02/14/russian-or-not-russian/

http://sports.espn.go.com/oly/summer08/medals

I think the best years of the United States are ahead of us, not behind us. I would be shocked if the USA won’t be the first country to put a person on Mars, invent mass-produced hydrogen and solar cars, and cure cancer. Americans who worry about the future are ignoring the facts and aren’t doing anyone any favors.

While I am not blind to the difficulties that may exist in the present economy, I just think people should be more optimistic and look at the good sides. I
remember when I was in middle school in the mid 1980’s and had a teacher who asked my classmates whether the USA was on the way to the peak of power,
at the peak, or on the way down. I was the only student who said the US hasn’t reached the peak yet. A few years later the Soviet Union collapsed, the Japanese economy crashed, and America was the only superpower.

I am not sure if there is a recession, but if there is one, I think it will be soon be a distant memory.

http://www.nytimes.com/2010/07/05/opinion/05douthat.html?_r=1
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