Obama Pushes New Bank Regulations

[Admiral Yi]

AIG's losses were primarily due to its massive CDS exposure.

Subprime was really just the canary in the coal mine.  If you recall, about a year ago I posted some of the OECD analyses of credit losses - subprime accounted only for a fraction of the estimated credit losses (unrealized).  The significance of subprime was that b/c it had the weakest collateral, it was the first to be affected by the panic.  The only reason the rest didn't follow was b/c of a massive, unprecdented stabilization by Treasury and Fed + a certain degree of forbearance in strict application of mark-to-market principles while the federal intervention could be felt.

Did AIG suffer massive losses in CDS covering some sort of default aside from subprime mortgages?  If so, that's interesting to know but I don't really see how it relates to the issue of who should pay for the bailout of AIG, GM, and Chrysler.

[The Minsky Moment]

Did AIG suffer massive losses in CDS covering some sort of default aside from subprime mortgages? 

Yes IIRC their CDS portfolio was primarily insuring corporate bonds.

If so, that's interesting to know but I don't really see how it relates to the issue of who should pay for the bailout of AIG, GM, and Chrysler.

The government paid for those bailouts.

[Admiral Yi]

The government paid for those bailouts.

I don't get it.  This thread is about a special tax on the 100 largest financial institutions to help pay for the bailout.  Either you are being uncharacteristically dense or stratospherically clever.

[Hansmeister]

The problem is that the "tax" is a bill of Attainder and clearly unconstitutional.  if only the president had studied constitutional law at an Ivy league university and taught constitutional law at the university level he might know that. 

This is just too funny - Hans is now aligning himself with the his constitutional lawyers friends at ACORN:

http://lawprofessors.typepad.com/conlaw/2009/12/acorn-defunding-is-a-bill-of-attainder-court-enjoins-the-continuining-appropriate-resolution-barring.html

I love the way you complete sidestepped the Constitutional issue.  I guess they didn't teach the Constitution in your law school either?

[Neil]

I love the way you complete sidestepped the Constitutional issue.  I guess they didn't teach the Constitution in your law school either?

Given how rarely taxation and regulation have been overturned as bills of attainder, I rather doubt it is as clearcut as you seem to think.  Then again, I'm not a lawyer.

But I am the LORD your God.

[Fate]

When you have a Supreme Court filled with right wing judicial activists, past precedent is irrelevant.

[alfred russel]

Yi, isn't SunTrust still going strong?

[alfred russel]

Why not empower regulators to nationalize banks that are "too big to fail", which would wipe out equity holders but still allow the company to function and not ruin counterparties, and then allocate any government loss to debt holders?

The problem to me seems to be that once you write off those debts, another set of balance sheets is suddenly in grave danger.  This can go on until everyone is crushed in a deleveraging spiral.

I disagree--not everyone's balance sheet was in grave danger. In those cases, you end up transferring taxpayer wealth to corporate shareholders. Not to mention that American taxpayers end up bailing out a bunch of foreign entities.

[The Minsky Moment]

The government paid for those bailouts.

I don't get it.  This thread is about a special tax on the 100 largest financial institutions to help pay for the bailout.  Either you are being uncharacteristically dense or stratospherically clever.

I thought the thread was about the new regulatory proposals, not the "levy"

The Obama tax proposal as I understand it is simply a tax on financial institution liabilities, with a credit for bank deposits.  To the extent the tax based on the premise the government has become the lender of last resort to the financial industry, to the considerable benefit of that industry, and to the considerable hazard of the government, the tax makes a certain sense.  The idea is that banks should pay a fee for the implicit insurance they are receiving in proportion to their exposure (liabilities) - just like the FDIC charges fees for its explicit insurance.  Indeed, that is the very reason for giving the credit for deposits - they are already "taxed" by the FDIC.

[The Minsky Moment]

I love the way you complete sidestepped the Constitutional issue.  I guess they didn't teach the Constitution in your law school either?

Given how rarely taxation and regulation have been overturned as bills of attainder, I rather doubt it is as clearcut as you seem to think.  Then again, I'm not a lawyer.

But I am the LORD your God.

And in this case your omniscience trumps your lack of a specialized qualification. 

[Admiral Yi]

Yi, isn't SunTrust still going strong?

I might have gotten the name wrong.  Who gave Dodd his VIP mortgage?

[Fate]

Countrywide?

It's now known as Bank of America Home Loans.

[Admiral Yi]

I thought the thread was about the new regulatory proposals, not the "levy"

The Obama tax proposal as I understand it is simply a tax on financial institution liabilities, with a credit for bank deposits.  To the extent the tax based on the premise the government has become the lender of last resort to the financial industry, to the considerable benefit of that industry, and to the considerable hazard of the government, the tax makes a certain sense.  The idea is that banks should pay a fee for the implicit insurance they are receiving in proportion to their exposure (liabilities) - just like the FDIC charges fees for its explicit insurance.  Indeed, that is the very reason for giving the credit for deposits - they are already "taxed" by the FDIC.

It makes a certain amount of sense if in exchange for the new tax on liabilities the banks recieve a de jure or de facto promise of future bailouts.  But the language Obama has been using is that the tax is to pay back the money spent on this bailout.

[Admiral Yi]

Third day in a row the market is tanking.

[Ed Anger]

Third day in a row the market is tanking.

I'm getting a little pissed off now.