Forex Blog - Got a Beef with US Bank Executives...How About Buying Some US Treasuries?
Got a Beef with US Bank
Executives...How About Buying Some US Treasuries?
No I donâ€™t believe the US government can run banks or auto companies better
than privately-incentivized skilled executives. But not all executives
are created equalâ€¦some have proven to be worse at running banks and auto companies
than the governmentâ€¦if this were not true we would not have seen anything like
what we did in the last 18 months.
And even skilled bank
executives like Dimon and Blankfein seem to have forgotten that without the
government intervention, not even the top of the class would have survived the
bank panic of 2008. Using FDIC insurance on debt issuance, receiving full
settlement on counterparty liabilities with AIG, gaining access to the discount
window for investment banks, taking all sorts of collateral for Fed funds,
insuring money market liquidity, underwriting commercial paper, supporting
mortgage market with massive liquidity and making $700bln in federal money
available to banks to raise capital in exchange for preferred stock kept even
Dimon and Blankfein employed. With TARP funds about to be repaid some of
these banks executives are back to their old arrogant waysâ€¦we did US Treasury a
favor taking TARP, buying Bear and Merrill and want as little government say
over our business as possible. Good riddance Fed and Treasury.
What a bunch of
ingrates. They seem to have forgotten the forest for the trees. The
problem is not government overreach but private sector malfeasance.
Private sector (banks and shadow banks) blew it. And all the warts of
government overreach are part of the therapy for curing the illnessâ€¦like a
cancer patient cured by chemotherapy turning on his or her oncologist for loss
of hair and a compromised immune system.
So this brings me to the
latest bank head peeve. Why are US banks not buying US Treasuries with record cash
balances and record low cost of overnight money? I am not a banker, but I
would guess that a 30year US bond is counted as Tier 1 capital just as a cash
deposit at the Fed is counted as Tier 1 capital. In Japan the banks bought JGBâ€™s until the cows came
I think markets learned this
week that large activist foreign central banks are still accumulating US
Treasuries and are not dumping the dollar for gold or euros in any meaningful
way (some SWFs and smaller central banks however may well be).
Maybe the Fed and Treasury
never sent the memo. If I had to guess, UST and Fed are walking on
egg shells with the banks after all the blow back on compensation, TARP and
TARP strings. Like spoiled children. Again I think bankers should
run banks, but bad bankers were in charge of banks (and allowed to go to town
by bad bank regulators) and they pushed the peddle to the metal. It is
US banks may be waiting for
even higher yields (or memo from regulators) before doing their part of the
public-private cure. If the US authorities and their partners running the banks
canâ€™t keep US rates from rising, well the prospects for a recovery are dim,
very dim. Real estate investment and valuations will resume a steep rate
of decline and foreclosures will rise even more rapidly. Remember the
mantra on recovery in 2008 â€“ canâ€™t solve the economic and banking crisis until
the real estate (residential and commercial) market stabilizes and starts to improve.
Mantra of 2009 is stock market rally (built on hope) is necessary and
sufficient condition for a recovery and end to the financial crisis.
Just because stocks are up
and bank stocks are up a lot, should not put Treasury and Fed officials on
their back feet when it comes to temporarily setting the rules of the game for
the banks. Unfortunately, the Treasury forgot to set a minimum of Tier 1
capital to be held in US government debt as one of the prerequisites for
exiting TARP. And this could mean a W-shaped recovery at best or an
L-shaped lost decade at worst.
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