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Author Topic: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them  (Read 1298 times)

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Offline Libertas

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FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« on: September 21, 2011, 02:02:43 PM »
Stupid is as stupid does...

http://www.zerohedge.com/news/2s10s-30-year-yield-pancakes-bernanke-sets-bank-carry-trade-deathwish

 ::unknowncomic::

In other news...

Wells downgraded -

http://www.zerohedge.com/news/double-tap-octogenarian-omaha-wells-downgraded-a1-a2

"I got double penetrated by Moody's on Central Planning day"

 ::hysterical::

B of A hit again -

http://www.zerohedge.com/news/suck-it-warren-moodys-downgrades-bank-america-a2-baa1

Get used to these announcements...

 ::mooning::
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Offline Pandora

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #1 on: September 21, 2011, 02:18:59 PM »
Libertas, can you please translate?  What gun did the Feds put to the heads of banks and what does it mean that "customers not rescuing them"?  How have customers ever rescued banks?
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Offline Libertas

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #2 on: September 21, 2011, 02:31:54 PM »
The Fed is trying (failing at) backdoor stimulus...I think they fear they are losing support for more QE...even todays announcement revealed 3 Fedheads disagreeing with Der Bernanke decision (that's 3 times as many as last announcement!)...Rush called it QE3, but it is different from that...he used that term more as a pejorative aimed at all Neo-Keynesian's.

Basically the Fed is going to hoard LT bonds...the effect is meant to tell banks to lend if they want to make any money, cause they are not going to raise rates...the problem for banks is you can't make people borrow money...with interest rates so low if there are people motived to re-fi or buy they likely did it already or are not interested in taking on even cheap debt due to their own financial concerns over continued employment or lack of business opportunities given the sorry-assed state of the economy.  The move also prevents banks from buying LT bonds to invest excess cash they may have and ST rates are low enough to not offer much incentive as an investment...so the Fed is basically saying if you want to make any juice, lend more...but lend to whom?  IN a thirving economy the action may have some impact, as it is it will have none.  It means no juice for banks, no customers to will come to their rescue and borrow heaping gobs.  ZeroHedge calls this killing the "curve carry" for banks...banks make money on assets (loans) it wants to make on a higher interest rate than it owes in liabilities (deposits).  Flattening the spread means flattening bank profits.

In short it is a big   ::doublebird::  to banks.
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Offline Pandora

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #3 on: September 21, 2011, 02:41:02 PM »
I see.  Thank you.  I am very relieved to find I actually understood that.  ;D

So, what happens now?  More bank failures?  Gawd!  It just never.stops.
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Offline IronDioPriest

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #4 on: September 21, 2011, 02:53:14 PM »
Damn good translation Libertas.  ::bows:: Are you in the financial services industry, or are you Jason Lewis in disguise?  ::thinking::
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Offline AlanS

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #5 on: September 21, 2011, 07:36:55 PM »
Quote from: IronDioPriest on September 21, 2011, 02:53:14 PM
Damn good translation Libertas.  ::bows:: Are you in the financial services industry, or are you Jason Lewis in disguise?  ::thinking::


I agree and have wondered also. His insight into economics is waaaaaay above my paygrade.
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Offline Libertas

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #6 on: September 22, 2011, 06:33:57 AM »
No.  I have undergrad & grad degrees in finance and I was in banking for about 17 years before going over into healthcare.  I've been following this stuff an awful long time.  If I was Jason Lewis I wouldn't need a disguise and I'd probably do better with the ladies!
 ;D
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Offline IronDioPriest

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #7 on: September 22, 2011, 06:36:48 AM »
Quote from: Libertas on September 22, 2011, 06:33:57 AM
No.  I have undergrad & grad degrees in finance and I was in banking for about 17 years before going over into healthcare.  I've been following this stuff an awful long time.  If I was Jason Lewis I wouldn't need a disguise and I'd probably do better with the ladies!
 ;D

May I ask your role in health care? My wife is in that business as well. If you don't want to share, you can reply via PM or not at all. Just curious.
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"A strict observance of the written laws is doubtless one of the high duties of a good citizen, but it is not the highest. The laws of necessity, of self-preservation, of saving our country when in danger, are of higher obligation. To lose our country by a scrupulous adherence to written law, would be to lose the law itself, with life, liberty, property and all those who are enjoying them with us; thus absurdly sacrificing the end to the means."

- Thomas Jefferson

Offline Libertas

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #8 on: September 22, 2011, 06:53:28 AM »
Quote from: IronDioPriest on September 22, 2011, 06:36:48 AM
Quote from: Libertas on September 22, 2011, 06:33:57 AM
No.  I have undergrad & grad degrees in finance and I was in banking for about 17 years before going over into healthcare.  I've been following this stuff an awful long time.  If I was Jason Lewis I wouldn't need a disguise and I'd probably do better with the ladies!
 ;D

May I ask your role in health care? My wife is in that business as well. If you don't want to share, you can reply via PM or not at all. Just curious.

Still wearing the financial hat.  I keep bouncing around between accountant, analyst, budget guru & system administrator and back again.  Back to accountant again (less hassles!).  Industry-wise I just exchanged one Byzantine bureaucratic nightmare for another!
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Offline Libertas

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Re: FOMC - Fed puts gun to bankers heads, banks know customers won't rescue them
« Reply #9 on: September 22, 2011, 07:17:18 AM »
Quote from: Pandora on September 21, 2011, 02:41:02 PM
I see.  Thank you.  I am very relieved to find I actually understood that.  ;D

So, what happens now?  More bank failures?  Gawd!  It just never.stops.

Heh.  I guess I missed one stimulus impact...institutional investors already holding long bonds...the Fed just propped up support for existing holders...so some pensions may benefit...as would any other holders...but what if any real stimulus will that provide?  Retired folks aren't exactly a bunch of free-spending types ya know?!  You want stimulus you hit the pre-retirement income groups, especially the 30-60 range where people are in their peak earning years.

Any banks on the edge could result in the failure rate increasing down the road, it is practically guaranteed if Fed solvency keeps getting eroded by the Neo-Keynesians and structural reforms and entitlement reforms remain elusive.  The weak economy basically takes any consumer driven demand off the table and growth prospects dismal.  We have any significant Act of God hit now and it could get downright fugly.

Thinking some more, the only real recourse for banks with LT bonds off the table is for them to double-down on the mortgage market and buy Mortgaged Backed Securities (MBS), which has its own apparent risks.  Other corporate paper would normally be an option and in some cases may have less risk than anything else out there...but you are not going to get that great a return on the top shelf paper, so eating more risk for a juicier return just tilts the scales back to more risk than reward.  But I see part of Operation Twist is the Fed reinvesting early payment of mortgage securities back into debt issued by Fannie Mae and Freddie Mac, so MBS looks the obvious strategy for banks to employ.  Can't say I really like that option, but the options for banks are contracting. 

The Fed is obviously going all-in and hoping lower LT rates stimulate lending, but as I said before I just don't see much appetite for that, so banks get their margins flattened and no new lending volume which could make up the difference seems likely to roll in anytime soon.

God forbid ST rates start climbing!  Otherwise their margins will go negative, then it'll be headless chicken time.
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