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When Banks Become the Lawmakers

24 points by connorblack 12y ago

shawnee_ 12y ago
If all of this is not enough to propel Americans into the streets in mass protests, perhaps the history of how the coddled Citigroup handles the money of its investors and shareholders will stir the pot. The root of this problem is that banks -- especially large ones -- are rewarded for short-term gains made when "gambling with other people's money", while passing the fallout of risk and long-term losses on to the industry as a whole (and thus onto taxpayers). Entities that profit from turnover have an incentive to create hype, fear, and volatility -- anything that increases transaction volume. (Every time a bank writes a new loan, they get to tack on origination fees, and the associated broker gets a cut. Every time a house is bought or sold, realtors and their brokers get a cut) Some economists should do a more in-depth study on the Principal-Agent problem in the broker-managed financial derivatives markets.
rayiner 12y ago
> How much might Citigroup need from the taxpayer if it blows up again? According to the General Accountability Office, Citigroup received more bailout assistance than any other bank in the last collapse. On October 28, 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds. Less than a month later it was back with hat in hand and received another $20 billion. But its finances were so shaky that it simultaneously needed another $306 billion in government asset guarantees. And on top of all that, the New York Fed was secretly funneling it over $2 trillion in emergency loans at interest rates frequently below 1 percent. It would be easier to digest content from a site called "bitcoin warrior" if it didn't mix incompatible numbers in a list and encourage you to add them up.
- melling 12y ago
  TARP was a loan program and I believe many of the participants paid back their loans. It's unclear from a Wikipedia if Citi did. http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program
  - jdmichal 12y ago
    Indeed, according to the official source [0], TARP has recovered 112% of the funds it distributed to banks. The Treasury only has $900 million outstanding within that category, of the original $245.1 billion that was dispersed. Going by just the numbers, this article would find a much more sympathetic audience in discussing the auto bailouts, of which only 86.3% has been recovered and, with only $1.4 billion outstanding, has already pretty much been written off as a losing program. Disclaimer: I'm not in any way saying that there aren't issues to be resolved. But time has shown that the TARP-related aspects of this scenario turned out positively. [0] http://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Tracker.aspx#Bank http://www.treasury.gov/initiatives/financial-stability/repo...
tzs 12y ago
> What Citigroup has now done with the willing participation of Congress and the President is to set the country up for the next financial collapse in which it appears destined to play another starring role, seeing that the Fed gave it a failing grade on its stress test this year. The legislation that was just passed by Congress allows Citigroup and other Wall Street banks to keep their riskiest assets – interest rate swaps and other derivatives – in the banking unit that is backstopped with FDIC deposit insurance, which is, in turn, backstopped by the U.S. taxpayer, thus ensuring another bailout of Citigroup if it blows itself up once again from soured derivative bets. This is a good example of how to write something that contains no actual factual errors, but nevertheless is very misleading by the way it chooses to state facts. It gives the impression that the goal of the legislation, the reason that the majority of Congress supported it as did the President (and the reason the President pushed to get it passed, as mentioned elsewhere in the article) was to free the banks of this restriction. The actual goal of the legislation was to fund the government, in order to avoid another game of chicken like we had last year that led to a government shutdown. The thing with the banks was just a small add-on to a large bill, and was reluctantly accepted by the President and much of Congress because they felt that another long deadlock and shutdown was worse then accepting a few bad add-ons. Yes, it is a bad change, but the way Congress is currently functioning due to (1) the difficulty of getting anything bipartisan through the House, and (2) the splits within the Republican Party between the mainstream and the Tea Party, getting a budget through with only a few pieces of shit attached is a major accomplishment.

24 points by connorblack 12y ago

If all of this is not enough to propel Americans into the streets in mass protests, perhaps the history of how the coddled Citigroup handles the money of its investors and shareholders will stir the pot. The root of this problem is that banks -- especially large ones -- are rewarded for short-term gains made when "gambling with other people's money", while passing the fallout of risk and long-term losses on to the industry as a whole (and thus onto taxpayers). Entities that profit from turnover have an incentive to create hype, fear, and volatility -- anything that increases transaction volume. (Every time a bank writes a new loan, they get to tack on origination fees, and the associated broker gets a cut. Every time a house is bought or sold, realtors and their brokers get a cut) Some economists should do a more in-depth study on the Principal-Agent problem in the broker-managed financial derivatives markets.

rayiner 12y ago

> How much might Citigroup need from the taxpayer if it blows up again? According to the General Accountability Office, Citigroup received more bailout assistance than any other bank in the last collapse. On October 28, 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds. Less than a month later it was back with hat in hand and received another $20 billion. But its finances were so shaky that it simultaneously needed another $306 billion in government asset guarantees. And on top of all that, the New York Fed was secretly funneling it over $2 trillion in emergency loans at interest rates frequently below 1 percent. It would be easier to digest content from a site called "bitcoin warrior" if it didn't mix incompatible numbers in a list and encourage you to add them up.

melling 12y ago
TARP was a loan program and I believe many of the participants paid back their loans. It's unclear from a Wikipedia if Citi did. http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program
- jdmichal 12y ago
  Indeed, according to the official source [0], TARP has recovered 112% of the funds it distributed to banks. The Treasury only has $900 million outstanding within that category, of the original $245.1 billion that was dispersed. Going by just the numbers, this article would find a much more sympathetic audience in discussing the auto bailouts, of which only 86.3% has been recovered and, with only $1.4 billion outstanding, has already pretty much been written off as a losing program. Disclaimer: I'm not in any way saying that there aren't issues to be resolved. But time has shown that the TARP-related aspects of this scenario turned out positively. [0] http://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Tracker.aspx#Bank http://www.treasury.gov/initiatives/financial-stability/repo...

tzs 12y ago

> What Citigroup has now done with the willing participation of Congress and the President is to set the country up for the next financial collapse in which it appears destined to play another starring role, seeing that the Fed gave it a failing grade on its stress test this year. The legislation that was just passed by Congress allows Citigroup and other Wall Street banks to keep their riskiest assets – interest rate swaps and other derivatives – in the banking unit that is backstopped with FDIC deposit insurance, which is, in turn, backstopped by the U.S. taxpayer, thus ensuring another bailout of Citigroup if it blows itself up once again from soured derivative bets. This is a good example of how to write something that contains no actual factual errors, but nevertheless is very misleading by the way it chooses to state facts. It gives the impression that the goal of the legislation, the reason that the majority of Congress supported it as did the President (and the reason the President pushed to get it passed, as mentioned elsewhere in the article) was to free the banks of this restriction. The actual goal of the legislation was to fund the government, in order to avoid another game of chicken like we had last year that led to a government shutdown. The thing with the banks was just a small add-on to a large bill, and was reluctantly accepted by the President and much of Congress because they felt that another long deadlock and shutdown was worse then accepting a few bad add-ons. Yes, it is a bad change, but the way Congress is currently functioning due to (1) the difficulty of getting anything bipartisan through the House, and (2) the splits within the Republican Party between the mainstream and the Tea Party, getting a budget through with only a few pieces of shit attached is a major accomplishment.