Wednesday, May 11, 2011
How To Poison Banking For Good
For what it's worth, these small banks were the only chance we had of pulling out, but I think the causists in this administration, as with Boeing, will destroy our chances.
Oh, and in case you were wondering....
The number of full-time jobs declined by 49,100 in April, and part-time employment rose by 26,900, today’s report showed. Australia’s participation rate, which measures the labor force as a percentage of the population over 15 years old, fell to 65.6 percent in April from 65.8 percent a month earlier, it showed.Everything's unexpected, these days.
Australian retail sales unexpectedly fell in March for the first time in five months, a report showed last week.
spring is in the air
the air within a bubble
balloon pieces fall
"LOL! Looks a lot like COMEX raising silver margin requirements."
Hahaha! There is much to be gleaned from the balloon party video.
u-boats of the war
german shephards hunt their prey
greece! torpedo... los!
Nice. Back at you!
cold dark emptiness
in deflationary space
no one hears you scream
Quell the Winter Queen's spell
We need a Volcker,
But we have a Bernank,
And that's no lion.
He has been running comments from his subscribers describing their travails in trying to obtain mortgages. The Catch-22 seems to be that, unless you have perfect credit and enough liquid assets that you really don't need the loan, the loan will not be approved. Most forms of employment in the private sector are now considered to be too risky and "temporary." Retirees pensions are not considered to be stable or without risk. Long story made short, unless you have a solid government job with little chance of furlough, you are a bad credit risk. Thus, you see 30 year loans for 4.25% and 15 year loans for 3.75% but few can actually qualify for those rates or any loan. The banks find it easier to satisfy the examiners by doing short term, collateralized loans or just buy treasuries and live off the spread.
Not going to increase the velocity of money that way. Nor is the housing market likely to be resuscitated.
Of course the Feds are pushing for more loans to sub prime borrowers called for by the CRA. That should work out well.
I didn't think so. This is just the motivating idea behind the CRA, carried to it's logical conclusion. Who, really, can say they are surprised?
But I wrote last year, I think, about why mortgage rates were too low. No one is going to take on 30 years of debt at 3.75% unless you can sell it off. You are virtually assured to take a loss in the future, even if it is just from rate movements.
Look, 30 year treasuries with no risk are currently returning 4.32. And you don't have to qualify, report, service, etc. If you write a 30 year for 3.75%, you can't expect it to age in the same way that mortgages have historically done. You're in it for way more than 7 or 10 years, on average.
5.5%? Maybe. But I need a downpayment large enough to cover anticipated losses and cost of resale if I have to foreclose.
The purpose of lending money is to make money; it appears that a lot of people have forgotten that.
I was driving around in the NE and heard a home equity line advertised at 2.75% recently. I forget the name of the bank.
When you drop interest rates this low, you are forcing risk to assume a massive role. That's mathematics.
This article describes a very different tactic - forcing banks to open branches in areas in which they would not normally choose to do so as a price of opening branches where they want to.
It's the Boeing thing all over again. It's one thing to prevent a company from firing workers because they engage in union activity. It's quite another thing to prevent a company from opening a new factory in a right-to-work state.
All of life is checks and balances. What you are seeing here are government causists that don't like the results of the rules that they have set up, and are seeking to force the behavior that they want by use of raw power.
My point is that once you allow the government the authority granted in CRA, not even the sky is the limit. It is naive to think that politicians would never wield the power given them by the CRA to club private banks into submission.
All US government is based on precedent, and this is simply a logical extension of CRA.
The philosophy you express -" The original focus of CRA was to prevent banks from opening branches, taking deposits, and moving the money outside the area to where it could be lent for higher returns." - supports the present mugging of the banks.
You clearly believe that the fixers and rentiers of the ruling class are an absolute necessity; and in fact you're view of economic behavior expresses disbelief in profit motives, incentives, and rational self-maximizing behavior as the drivers that create rising living standards for all citizens.
That sort of thinking has been dominant at the Federal level for 20 years, and has allowed unscrupulous people the political leeway they need to implement political muggings like the present CRA one without opposition.
Maybe it's time for second ( first ? ) thoughts?
In other words, regulation will inevitably become destructive if it does not allow the option of non-participation.
It should be obvious from the above statement that I have a deep philosophical disagreement with mandating individual insurance participation; it appears obvious that such a solution will in the end be destructive to individual.
But so will mandating that small banks open branches in areas in which they cannot really lend.
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