Thursday........
State of the union......
- President Obama criticized the Republicans for not being willing to work with him. He conveniently forgot to mention that over 6 months of the White House holding health care talks, Republican leaders were never invited to the White House.
- Obama criticized the banks for the bailout they received. He conveniently left the UAW (and their sweetheart deal from the auto bailout) off of that list.
-- Obama's criticism of the Supreme Court, in last night's address, may be the defining moment of the speech. It seemed heavy handed and disrespectful.
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Dem plan: Split GOP, tea party
Yes, the evil banks. Nothing like a little class warfare to get the SOTU going right.
Obama wants to tax the banks to the sum of $100 billion dollars. On average, for every $1 a bank takes in, it loans out $10. So if you take $100 billion in taxes, that's $1 trillion that will not be loaned out. Tell me again how are we supposed to jump start the economy?
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I don't trust Brian's fuzzy math
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The fuzzy math came from the WSJ.
Notice he talked about Cap and Trade and doubling our exports in almost the same breath. Other than being completely contradictory, was he referring to doubling our export of jobs if Cap and Trade is implemented?
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Help me understand something. If a bank loans out 10:1 that seems to be to be a 90% Loan-to-Value ratio. Banks are traditionally more conservative than that. With today's economic volatility is that smart? Should the management of the bank bear any responsibility? Our laws have allowed banks more flexibility in their means to profit, but bad management is bad management. There is a reason that greed is one of the 7 deadly sins. As for the Cap and Trade, it will not stop global anything if companies will pay to dirty it up. It isn't about clean air, it is just about getting more money out of the bad man (business).
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Couldn't find my original source in WSJ (The WSJ new pay for content rules also makes EIU pay for access through Lexis-Nexis, so all we get are abstracts now via Booth Library). However, here's an article at politico.com
http://www.politico.com/news/stories/0110/31496.html
Who pressured banks to lend out more and more money to riskier and riskier customers? Congress, mainly Barney Frank and Christopher Dodd, while Bush was in office, and even now under Obama. These same people are still pressuring banks to loan money to those that might not otherwise be granted loans.
So, DC loosens the rules, bankers take advantage (forced or willingly) via capitalist ideas of seeing an opportunity and taking it to turn a profit. Meanwhile, all the excess loaning gets the country in trouble, DC gets angry and goes around vilifying those evil bankers, calling hearings, and threatening new taxes/regulations. Meanwhile behind the scenes, those same people that condemn are pushing new rules loosening the lending rules further so we can start the bubble all over again (Barney Frank has already introduced proposed new rules to relax lending to the same people the banks "took advantage of" that helped cause this mess).
So do the bankers bear responsibility? Of course they do, but do they hold all the responsibility? Absolutely not. The condemners were the same ones pushing this kind of risky lending. They share responsibility. Remember Freddie Mac and Fannie Mae? Government owned, publicly traded companies who lent more to those that couldn't afford it. Are you aware that these two entities are now allowing remortgages up to 150% of property value again? So is this now the evil bankers fault or is this the government gurus that have been pushing this (e.g. Barney Frank)?
Greed doesn't stop at Wall St or in DC for that matter. Nobody forced anyone to sign on the dotted line to accept shady loan rates for loans above what they could pay for. I fall in this category as well. When we bought our house, we signed a loan on a variable interest rate, and one loan was interest only (we had an 80/20 split). One loan was at 8.25% the interest only was at 10.6% - both variable. We saw the writing on the wall and refinanced (for exactly what our house was worth) for a 30 yr fixed rate before our rates went up.
So in actuality, responsibility goes from the top all the way down. But only the banks get vilified. All the while Congress quadruples our deficit. Slight of hand in my opinion. Distract the voters on one side, while they do the exact same thing the banks did.
The liberals in Congress need distractions to get elected. It usually comes in the form of class warfare - us vs. them, rich vs. poor, bankers vs. the little guy, business vs. labor, etc. Divide et impera.
Cap and Trade is all about government control (carbon credit trading) and global wealth redistribution via the Copenhagen treaty. It is also involves the above point as well.
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TBD,
What Brian was referring to was the fact that Banks are required to have approximately 10% of their assets as capital. It's somewhat confusing, but a banks assets are the loans that it makes and any investments (bonds) that it holds. It's liabilities are the deposits that they take in from customers. The Net of their Assets less the Liabilities is their Capital. Brian was referring to the idea that Banks are required to have a capital level that is approximately 10% of their total assets. So if a bank has assets of $100 million, they are expected to have approximately $10 million of capital.
For illustrative purposes, assume the bank has $100 million in loans, and 10% (or $10 million) go bad and are worth zero. Now, the bank has $90 million in assets, but the same level of deposits ($90 million). Essentially, their capital level is now $0.
That capital level is the safety for the depositers against bad loans that the bank might make. It's when the capital level gets in the 6% range that the FDIC gets very nervous for the bank and the bank's depositors.
Brian's point (and it's a good one) is that when Obama says "well, we'll just tax the banks for an additional $100 billion dollars, that money comes from their capital. The bank must either raise new capital (a tough prospect in these times, particularly given how "evil" Obama has made banks).
To keep their capital levels "adequate" (or at the 10%) level, the bank can also simply reduce their assets. This means they would push loans out of their bank to get their capital level back up. Hence, taking $100 billion out of the bank's will require them to reduce their loans by $1 Trillion, if they want to keep their 10% capital base.
Of course, this is an "inconvenient truth" that the Democrats won't identify, but which Brian correctly did.
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