Bloomberg reports Fed Urges Congress to Ban Banks From Buying Stakes in Companies.
Specifically, the Fed urged Congress to repeal the section of the Bank Holding Act that allows Wall Street firms to make investments in non-financial companies.
Hmmm. What about the Fed buying stakes in companies, state bonds, or in fact anything at all?
My position is there should not be a Fed in the first place. Elimination of any form of QE would be a small step in the right direction.
In regards to banks, I would eliminate fractional reserve lending (which by the way would not stop loans). I would also prohibit banks from lending any money available on demand. Fractional reserve lending and the lending of money available on demand both constitute fraud.
What banks do with their profits should be up to them.
Mike “Mish” Shedlock
Do as I say not as I do
“The Budget should be balanced,
the Treasury should be refilled,
public debt should be
reduced, the arrogance of officialdom should be
tempered and controlled, and the assistance to foreign
lands should be
curtailed, lest Rome will become
bankrupt. People must again learn to work
instead of
living on public assistance.” – Cicero, 55 BC
I’ve read most of Cicero and I don’t remember off hand anything like this. Probably a misattribution.
So, evidently we’ve learned nothing over the past 2,071
years.
.
NO ONE SAID banks were investing their profits
the concern is banks are investing YOUR money that is held
in your account in Their stock funds.
.
.
Banks cannot lend your savings deposits out. These are included in bank reserves which must remain in the banking system. Banks only lend reserves to other banks. It’s actually worse. Banks can only legally lend money they literally don’t have, anywhere. They lend money into existence every time they make a loan. The borrower signs a loan document which the bank posts to its books as an asset and the bank funds a demand account in borrowers name which is a bank liability. Voila. Instant credit money creation. Reserve ratio requirements are s joke. No CB ever lets bank lending tighten because of reserve ratio requirements. They just lend the system reserves if it needs them. Canada has no reserve ratio requirement.
Why be so indirect? They should insist that Bibi come over for a brief joint session of Congress and issue it as an Executive Order.
Is insurance fraud? After all, Allstate could not possibly pay all the claims if everyone totaled their car in the same year. Insurance relies on the probability that only a few percent of policies will make a claim. Similarly, loaning out on demand deposits relies on the probability that only a few percent of depositors will want their money.
yes
Banks loan what they do not have. What a racket!
Depends on how you define insurance. As honest-to-goodness mutual companies, a person with an insurance policy is also a shareholder in the mutual society and so is entitled to a share of the profits AND a share of the losses.
Of course, this exact setup was put in jeopardy when Nixon slammed the gold window shut. In other words – insurance was a legit business until Congress changed the rules in order to sell its debt at a lower price.
It is clear that the Fed wants to prevent banks from gambling on intervention buying up stocks on pure assumption that they’ll be able to unload them onto the Fed.
Yup.
The Fed, through more than two decades of serial policy blunders has created a “casino economy” that is chock-full of moral hazard.
Why would anyone want to start a business actually “making things”, or even run a traditional bank, when it is so much easier and more profitable to be a Fed-sponsored, leveraged speculator?
The Fed should be telling congress to slowly but deliberately limit banks to lending only against collateral whose value is calculated strictly from actual trailing twelve months earnings or honest appraisal of fair market rents. This would stop asset bubbles from starting because credit bubbles are produced when banks assume collateral is worth what the most recent fool has paid (on credit) no matter the ability to pay the debt service from earnings on that collateral. Bank crises happen because banks assume they can just sell the collateral if the borrower defaults at present prices. One bank maybe this can be true but all banks in aggregate assuming this is doomed to collapse. The argument should be over what’s reasonable. Homes maxed out at 100X fair market monthly rent seems good. (3X that now). Stocks at 10X trailing twelve months earnings. (27X earnings now). Bonds are in equilibrium with real estate and equities (including capital gains from top line growth). The Market should thus take care of pricing bonds.
While they are at it, they should kick the banks out of commodities trading.
Sounds like the Fed is saying “Stop me before I buy equities again!”
But I’m pretty sure the Fed wants this so they can buy equities without the banks front running them, Basically, Congress should never take advice from the Fed, especially on proposed legislation.
Federal Reserve Act specifies what the Federal Reserve may purchase.
Equities not on the list.
That is why Yellen at Jackson Hole hinted there may have to be legislative changes (so FR can buy equity).
Banks should not be able to buy main street companies because it invites fraud into markets. Banks can force companies to load up on debt in the interest of the bank, not the company. Banks can print money into existence and buy up all the companies in a given market and create monopolies.
The Fed is doing the right thing here.
I vote yes on #2 and a “maybe” on #1.
I’m voting here since I refuse to sign up for Twitter and my vote won’t show up in the tally.
Thank you, my sentiments exactly. I’m damned sick of reading stuff on the internet and being told that if I want to respond or interact, I have to Twitter or go on Face Book (I totally refuse that) or sign in and give them my total personal info package. Screw them all. My opinion isn’t that much anyhow, but I do like to say what’s on my mind once in a while. [This comment is courtesy of WordPress, I just noticed.]
I do not care what banks do with their profits as long as we the taxpayers do not have to bail them out.
We oftentimes blame bankers when we should be pointing our fingers at out of control budgets at the federal, state, and local levels. Sure the banks enable them to spend but what will they do tell Congress and legislatures no more money? Not going to happen.
Any curtailing on handouts would cause riots in the street and huge companies to cry foul.
The NR that I read included commodities also and named copper as an example. So this seems to be a good proposal on the surface. I hope that “commodities” also includes gold and silver, though that is probably too much to wish for.
Best – Congress bans Fed from buying anything.
Yes, eliminate printing. Inflation is the enemy of the people.
I don’t care what banks do with their profits. As long as we don’t have to bail banks out, and bankers don’t steal their depositor’s money to bail themselves out.
The Federal Reserve is a company (no more Federal than Federal Express) that is owned by banks. Would they have to divest?
More regulation is the answer? To what, the regulatory environment that created this mess? Let the banks buy whatever they want, but make them suffer the consequences when they blow it. If you want to ban something, make it bailouts.