Investing in the stock market - Discussion

[The Arrogant Worms]

Congress Was Told Deregulating Banks Increased Crisis Risks. They Did It Anyway.

 

 

 

 

 

 

 

In 2018, Congress passed bipartisan legislation signed into law by President Donald Trump weakening regulations on mid-sized financial institutions like Silicon Valley Bank, whose collapse last week set off fears of another 2008-like financial crisis.

 

The measure was supported by 33 House Democrats and 17 Democratic senators, delivering Trump and the banking industry a key bipartisan victory.

But lawmakers had been explicitly told that the bill increased the risk of a financial crisis because it relaxed rules designed to strengthen banks in case of an unexpected shock — like the run on deposits last week that resulted in Silicon Valley Bank’s failure.

 

The Congressional Budget Office, in its estimate of how much the legislation might cost the government, said the bill would slightly increase the risk that a mid-sized regional institution would fail, potentially exposing the government to much higher costs.

 

The legislation would exclude some bank assets from stricter regulation, the CBO explained to lawmakers, so passing it “would thus increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.” Silicon Valley Bank said it had $212 billion in assets at the close of 2022.

 

The 2018 legislation rolled back parts of the Dodd-Frank Act, which Congress passed in the wake of the 2008 financial crisis, imposing stiffer regulations on banks with more than $50 billion in assets. The rules were designed to prevent the government from having to do another massive bank bailout like the one lawmakers approved in 2008.

 

The 2018 bill raised the threshold for stricter regulation, from banks with $50 billion in assets to $250 billion in assets, but allowed regulators to maintain heightened scrutiny of banks with more than $100 billion.

 

Proponents of the change argued that it would benefit rural and community banks, which primarily lend to main street businesses (it also benefitted larger banks). A handful of vulnerable Senate Democrats who backed the bill ended up losing their reelection bids later that year anyway.

 

Critics warned at the time that Congress would be inviting another banking crisis if it passed. Some, like Sen. Elizabeth Warren (D-Mass.), even took the extraordinary step of calling out Democratic colleagues who supported the measure.

 

“I wish I’d been wrong,” Warren wrote in an op-ed published by The New York Times on Monday. “These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018.”

 

Todd Phillips, a former attorney with the Federal Deposit Insurance Corp. — the bank regulator that seized Silicon Valley Bank’s assets over the weekend — said it’s still unclear how the 2018 law may have contributed to the bank’s demise.

 

“In my mind, however, there was just such a clear vibe shift in 2018 that gave bank regulators permission to take their eyes off of some of these regional banks,” Phillips told HuffPost.

 

Sen. Mark Warner (D-Va.), who helped author the 2018 bank deregulation legislation, defended his work during an interview over the weekend.

“I do think these mid-sized banks needed some regulatory relief,” Warner said when asked on ABC’s “This Week” if he regretted voting for the 2018 rollback. “I think it put in place an appropriate level of regulation on midsized banks.”

 

Warner, a wealthy former venture capitalist and senior member of the Senate Banking Committee, suggested that a mix of mismanagement, high interest rates, and an “unprecedented” run on deposits contributed to Silicon Valley Bank’s downfall.

 

Warren, however, argued in her op-ed that the kind of mismanagement that took down Silicon Valley Bank wouldn’t have been possible with tougher federal supervision. She called for repealing the 2018 law and reimposing Dodd-Frank capital requirements.

 

Warren’s fierce criticism of the proposal in 2018 prompted some major intraparty feuding. Red-state Democrats like Sen. Heidi Heitkamp (N.D.) hoped the bill would boost their reelection prospects; in Heitkamp’s case, it wasn’t enough.

 

It wasn’t just the Congressional Budget Office that warned lawmakers about bank deregulation. Former Federal Reserve Chair Paul Volcker said that while it might have been wise to reconsider Dodd-Frank’s $50 billion threshold for tougher prudential standards, $250 billion was too high.

 

“It would have the effect of substantially reducing the regulation of 25 of the 38 largest banks to which these standards now apply,” Volcker wrote in a 2018 letter to Sen. Sherrod Brown (D-Ohio), the top Democrat on the Senate Banking Committee and an opponent of the legislation.

 

Other prominent banking experts, including Federal Reserve Board Chair Jerome Powell, supported the legislation, arguing regulators like the Fed had made the financial system much safer than it was in 2008. But critics of the legislation were not hard to find.

 

“Without any compelling public policy rationale — other than the deceptive guise of aiding regional and community banks — this bill now seeks to undo key bulwarks of public protection designed to avert future crises,” wrote Phil Angelides, the chair of the Financial Crisis Inquiry Commission, which produced an authoritative report on the causes of the 2008 financial crisis.

 

Former Rep. Barney Frank (D-Mass.), co-author of the post-crisis banking regulation that bears his name, said he didn’t think the rollback caused the recent bank failures. But he has also said he thought the $250 billion threshold was too high.

 

Frank serves on the board of Signature Bank in New York, which regulators took over to avoid another failure over the weekend.

 

Biden’s administration on Sunday announced emergency steps to prevent more instability in the banking sector. The Treasury Department, Federal Reserve and FDIC said that all Silicon Valley Bank clients will be protected and able to recover their money, even though federal deposit insurance is only supposed to cover a depositor’s first $250,000. The vast majority of Silicon Valley Bank’s deposits were over the threshold, meaning they were uninsured and are now getting bailed out.

 

Regulators said that their bank takeovers would prevent a broader financial crisis and that fees on banks, not taxpayers, would cover the cost.

“Americans can rest assured that the banking system is safe,” Biden said in a speech at the White House on Monday. “Your deposits will be there when you need them.”

Edited March 13, 2023 by The Arrogant Worms

[Elias Pettersson]

31 minutes ago, UnkNuk said:

There's supposed to be a limit of $250,000 on the amount of deposits that are insured.

 

But in regards to SVB I read that:

 

"The U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. said the government would back Silicon Valley Bank deposits beyond the federally insured ceiling of $250,000. The decision addressed concerns around the fate of uninsured funds held at the Santa Clara, California-based bank — the country’s 16th largest — which had $209 billion in assets and more than $175 billion in deposits."

 

https://www.nbcnews.com/business/business-news/treasury-says-will-back-silicon-valley-bank-deposits-rcna74570

 

And I also read:

 

" At the end of 2022, the FDIC reported that its Deposit Insurance Fund had a balance of $128 billion, about 1.27% of the total insured deposits."

 

https://www.barrons.com/articles/svb-fdic-news-what-to-know-10bd0471

 

So, seemingly, the FDIC will pay out all its reserves bailing out SVB?  Or is the idea that the US Treasury and Federal Reserve will simply print more money to reimburse the SVB depositors?

 

 

They will print more money.  And the cycle will continue.  Printing money out of thin air will eventually catch up to them.  The US is theoretically bankrupt.  The only thing that keeps them in business is the printing press.  Most companies who are $30 trillion in debt would need to declare bankruptcy...

[Elias Pettersson]

 

[Elias Pettersson]

This is from the Wall Street Journal on why Silicon Valley Bank failed...

 

 

[The Arrogant Worms]

Just now, Elias Pettersson said:

This is from the Wall Street Journal on why Silicon Valley Bank failed...

 

 

Not racist at all.

[4petesake]

21 minutes ago, Elias Pettersson said:

This is from the Wall Street Journal on why Silicon Valley Bank failed...

 

 

I wonder what the WSJ has to say about the Lehman Brothers collapse in 2008? Curious what their “distractions” were. I’ll go out on a limb and guess diversity wasn’t a thing with their Board of Directors.

[Elias Pettersson]

47 minutes ago, 4petesake said:

I wonder what the WSJ has to say about the Lehman Brothers collapse in 2008? Curious what their “distractions” were. I’ll go out on a limb and guess diversity wasn’t a thing with their Board of Directors.

 

[Elias Pettersson]

Here comes Jim Cramer to the rescue…

 

 

[I.Am.Ironman]

21 minutes ago, Elias Pettersson said:

Here comes Jim Cramer to the rescue…

 

 

I believe he also 'liked SBV' at $270.

[Elias Pettersson]

This seems to relate to my theory that alot of the smaller banks may go under as people move their money to the larger banks...

 

 

[Warhippy]

8 hours ago, Elias Pettersson said:

This seems to relate to my theory that alot of the smaller banks may go under as people move their money to the larger banks...

 

 

This in itself is relatively dangerous in terms of diversity in the financial markets. Americans have something we don't have in options.  They have so many that it keeps fees relatively low and give options on various financial securities and measures like loans and mortgages.  We have 5?  I think 5 major banks and they tend to move lockstep in everything from fees to rates with minimal differences.

 

The moment America starts allowing these big banks to grow while allowing smaller banks to completely fail they lose that freedom of choice and give these larger banks a greater monopoly in the financial world.

 

Money to be made here by smart investors as recessions and bank failures breed millionaires; but this is still something to keep an eye on.

 

Without of course mentioning how larger US banks with less oversight and more money might act in regards to investments or bonds

[ronthecivil]

3 hours ago, Warhippy said:

This in itself is relatively dangerous in terms of diversity in the financial markets. Americans have something we don't have in options.  They have so many that it keeps fees relatively low and give options on various financial securities and measures like loans and mortgages.  We have 5?  I think 5 major banks and they tend to move lockstep in everything from fees to rates with minimal differences.

 

The moment America starts allowing these big banks to grow while allowing smaller banks to completely fail they lose that freedom of choice and give these larger banks a greater monopoly in the financial world.

 

Money to be made here by smart investors as recessions and bank failures breed millionaires; but this is still something to keep an eye on.

 

Without of course mentioning how larger US banks with less oversight and more money might act in regards to investments or bonds

An American system, with Dodd Frank rules that made the banks more solvent and an FDIC that stuck to it's guns, so that taxpayers took no risk, and the stockholders and bondholders did, would be very American, and far superior to our Oligarchy. Of course, if you own shares in such Oligarchy, you don't sell them, you just buy more when they go down.

[Warhippy]

1 hour ago, ronthecivil said:

An American system, with Dodd Frank rules that made the banks more solvent and an FDIC that stuck to it's guns, so that taxpayers took no risk, and the stockholders and bondholders did, would be very American, and far superior to our Oligarchy. Of course, if you own shares in such Oligarchy, you don't sell them, you just buy more when they go down.

What's the expression again?

 

recessions and financial turmoil breeds millionaires?

[ronthecivil]

3 minutes ago, Warhippy said:

What's the expression again?

 

recessions and financial turmoil breeds millionaires?

I am clearing up cap space so I can go "all in" if things go truely south, so I sure as hell hope so.........

[Warhippy]

3 hours ago, ronthecivil said:

I am clearing up cap space so I can go "all in" if things go truely south, so I sure as hell hope so.........

the wife and I are freeing up 30-50k to move in to the banking sector over the next 10 days or so because some institutions will always be around and those dividends are nice.  the moment they become more affordable....

[Elias Pettersson]

Sell all of your Charles Schwab shares tomorrow:

 

 

[flat land fish]

12 hours ago, Warhippy said:

This in itself is relatively dangerous in terms of diversity in the financial markets. Americans have something we don't have in options.  They have so many that it keeps fees relatively low and give options on various financial securities and measures like loans and mortgages.  We have 5?  I think 5 major banks and they tend to move lockstep in everything from fees to rates with minimal differences.

 

The moment America starts allowing these big banks to grow while allowing smaller banks to completely fail they lose that freedom of choice and give these larger banks a greater monopoly in the financial world.

 

Money to be made here by smart investors as recessions and bank failures breed millionaires; but this is still something to keep an eye on.

 

Without of course mentioning how larger US banks with less oversight and more money might act in regards to investments or bonds

You say that but in the era of mortgage brokers and numerous investment firms not including credit unions Canada has tons of options outside the big 5 banks.

[Ilunga]

On 3/14/2023 at 7:28 AM, Elias Pettersson said:

They will print more money.  And the cycle will continue.  Printing money out of thin air will eventually catch up to them.  The US is theoretically bankrupt.  The only thing that keeps them in business is the printing press.  Most companies who are $30 trillion in debt would need to declare bankruptcy...

In the mid 1930's America was 272 billion in debt.

Their entire currency was 6 billion. 

 

The US is 31.5T in debt this year 

Their total currency as of February 2021 is 2.1T with the same amount supposedly held outside of the country. 

 

Doing those sums, if we count all US currency then let's round the numbers off and say 32 divided by 4 equals 8. 

 

Back in the 1930's 276 divided by 6 equals 46.

 

So they were in debt to the tune of 46 times their entire currency.

Kinda dwarfs 8 times their entire currency today.

 

 

[ronthecivil]

5 hours ago, Warhippy said:

the wife and I are freeing up 30-50k to move in to the banking sector over the next 10 days or so because some institutions will always be around and those dividends are nice.  the moment they become more affordable....

You do you, I am not an orical of timing (I fail at it) but long term play, get cap space, buy when it's low, and write off the high interest of the loan that made it possible? I dreamed about it last time, this time I am doing it.

[Ilunga]

10 hours ago, ronthecivil said:

An American system, with Dodd Frank rules that made the banks more solvent and an FDIC that stuck to it's guns, so that taxpayers took no risk, and the stockholders and bondholders did, would be very American, and far superior to our Oligarchy. Of course, if you own shares in such Oligarchy, you don't sell them, you just buy more when they go down.

Dodd/Frank was dead dead in the water basically from day 1.

 

https://www.rollingstone.com/politics/politics-news/how-wall-street-killed-financial-reform-190802/

 

Just like Clinton when repealed Glass/Steagall in 1999, both democrats and repugs show their true loyalties lie with their corporate donors and lobby groups.

 

Gee I wonder why the GFC happened less than 10 years after Glass/Steagall was repealed and all those dodgy mortgage products were considered  financial investments ?

Edited March 15, 2023 by Ilunga