By Jeffrey Snider
If there is one thing Ben Bernanke got right, it was this. In 2009 during the worst of the worst monetary crisis in four generations, the Federal Reserve’s Chairman was asked in front of Congress if we all should be worried about zombies. Senator Bob Corker wasn’t talking about the literal undead, rather a scenario much like Japan where the financial system entered a period of sustained agony – leading to the same in the real economy, one lost decade becoming a second and then a third.
Bernanke retorted that there weren’t going to be zombies in the United States. The American people needn’t worry because the key to staving off economic apocalypse was pretty simple.
If there is one message that I’d like to leave you with, if we’re going to have a strong recovery, it has got to be on the back of a stabilization of the financial system.
Bernanke was already busily trying to do just that, steady the banking system. Unfortunately for all of us, while he could see what needed to be done, doing it was altogether a different matter. His tenure was a total failure for this one thing. Neither he nor any of his fellow central bankers had any idea how to put this theory into practice.
Continue reading US Banks Haven’t Behaved Like This Since 2009
By Anthony B. Sanders
No one was expecting any interest rate changes from The Federal Reserve yesterday, but I was hoping that The Fed was going to announce a reversal in their policy of paying interest to banks for depositing their excess reserves with The Fed as opposed to lending it out to businesses and individuals.
(Bloomberg) — The Federal Reserve left interest rates unchanged and stayed on course to hike in December despite recent jitters in financial markets and a critical president.
The U.S. central bank said “economic activity has been rising at a strong rate” and job gains “have been strong,” acknowledging a drop in the unemployment rate, while repeating its outlook for “further gradual” rate increases in its statement Thursday following a two-day meeting in Washington.
Risks to the outlook appear “roughly balanced,” the Federal Open Market Committee said, leaving that language unchanged from the prior meeting in late September. Inflation expectations, which have slipped slightly in recent weeks according to some measures, were described as “little changed, on balance,” the same as in the last statement.
Well, if risk is so roughly balanced, why do banks still have so much money parked at The Federal Reserve in the form of Excess Reserves?
Continue reading Excess Reserves Provide $38 Billion In Riskless Bank Profits A Year
By Anthony B. Sanders
As Banks Reduce Their Excessive Reserves
It has been an agonizing 10 years since the housing bubble collapse and the financial crisis, not mention a surge in banking regulations such as Dodd-Frank and the creation of the Consumer Financial Protection Bureau.
But 10 years after, the M1 Money Multiplier has FINALLY broken through the 1.0 barrier.
The M1 Multiplier means that every dollar created by the FED (an increase in the monetary base M0) will result in a <1 dollar increase of the money supply (M1), as is evident from the figure below. So, the credit and deposit creation of commercial banks is limited in this case. The banks are still holding on to a lot of excess reserves, but that amount is finally starting to comedown so that the M1 Money Multiplier has finally broken the 1.0 barrier.
Continue reading M1 Money Multiplier FINALLY Exceeds 1.0
By Tim Knight
As I trust I have made clear, the financial sector is a favorite right now for shorting. This chart of the XLF is, based on over 30 years of staring at charts, one of the most exciting and enticing opportunities I have ever laid eyes on. The analog and breakdown have, thus far, been spot-on.
As the earnings season kicks off, some of the earliest reporters are big banks like Wells Fargo and Citigroup. I was thus eager to see this morning how pre-market trading was going now that their earnings are released. It’s a step in the right direction.
Continue reading Tank de la Bank
By Tim Knight
What is it with Texas politicians and the banking industry?
I thought Texans were supposed to be all about cattle and oil. Yet over the decades it seems like they are first in line, shoving themselves even in front of New Yorkers, to provide whatever aid, assistance, and comfort that big banks require. It’s bizarre.
The most famous example, of course, being the Gramm–Leach–Bliley Act in 1999, championed by this genius:
When public “servants” are whoring themselves out to any particular industry, they couch it in the mask of freedom and progress. This was no exception, as Senator Gramm said at the time:
Continue reading In Dodd We Trust
By Jeffrey Snider
If the road to Hell is paved with good intentions, in economic terms the paving is done by zombies. We’ve all heard of the convention regarding Japanification. In desperation trying to avoid a worse fate, many of Japan’s tortured financial institutions were left open and operating so as to not force losses too much at a time. Rather than allow for recovery, these zombie banks locked Japan’s economy into its so-called deflationary mindset from which it has yet to escape almost three decades later.
Zombie banks were not the only undead firms in Japan’s lasting fall. These eventually gave way to a proliferation of zombie firms, largely industrial, who made up the vast majority of that country’s NPL problem lingering well into the 21st century. Firms that creative destruction would have destroyed long ago were purposefully propped up often on official approval simply because central bankers fear 1929 as if that is the only route to long-lasting depression.
Just as the global economy has exhibited the same symptoms as Japan’s did in the nineties, starting with one lost decade for it already, several OECD researchers last year raised the zombie issue in the non-financial context (at least with regard to Europe).
Policies that spur more efficient corporate restructuring can revive productivity growth by targeting three inter-related sources of labour productivity weakness: the survival of “zombie” firms (low productivity firms that would typically exit in a competitive market), capital misallocation and stalling technological diffusion…As the zombie firm problem may partly stem from bank forbearance, complementary reforms to insolvency regimes are essential to ensure that a more aggressive policy to resolve non-performing loans is effective.
In places like Italy where Italian banks are bursting with NPL’s, there is an obvious link between them and Italy’s descent into further upheaval.
Continue reading Curse of the Zombie Junk