Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The End of American Financial Dominance?

By

Rise of the finance-government complex may prove our undoing.

PrintPRINT
Banks remain in intensive care. Even after around $900 billion in new capital, the global banking system remains short of capital by around $1-2 trillion. This translates into an effective reduction in available credit of around 20-30% from previous levels.

Recent excitement about the "stress tests" of US banks misses an essential point: At best, if you accept the premises of the test, the risk of bank failure is greatly reduced. But banks' ability -- from Wells Fargo (WFC) to Bank of New York (BK) to Citigroup (C) -- to support the lending levels that prevailed in, say, 2007, hasn't been restored. In short, the "credit crunch" will continue for an indefinite time.

The financial system will need continued government support for some time to come, though the performance of governments trying to rehabilitate it has been problematic at best. Increasingly, government officials have become focused on reassuring the public and shoring up confidence at any cost. Spin has outstripped substance. Many government proposals are stillborn; for example, progress on the famed Public Private Investment Partnership (PPIP) has been painfully slow.

In April 2009, Elizabeth Warren, chairperson of the TARP Oversight Panel Report, questioned the very approach to resolving the problems of the financial system:

"Six months into the existence of TARP, evidence of success or failure is mixed. One key assumption that underlies Treasury's [PPIP] approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from non-functioning markets for troubled assets. On the other hand, it is possible that Treasury's approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth."

Two other panel members -- Richard Neiman (New York State Superintendent of Banks) and John Sununu (former New Hampshire Senator) -- issued dissenting findings, noting:

"We are concerned that the prominence of alternate approaches presented in the report, particularly reorganization through nationalization, could incorrectly imply both that the banking system is insolvent and that the new administration does not have a workable plan."

Many would question the choice of the words "incorrectly imply."

Constant changes don't suggest a consistent and well-thought-out strategy in dealing with the problems. Less-than-rigorous stress tests, using taxpayer monies in opaque ways, providing lopsided subsidies for private investors to buy distressed assets with minimal risk, or converting preferred stock into shares to avoid having to seek additional Congressional mandates suggest a highly politicized and ideological approach.

One online commentator noted the intersection between Wall Street, Constitution Avenue and Main Street was best named "Confusion Corner."
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE