cash will be king in post-volcker-rule era

if volcker is able to break up too big to fail (via the current unlimited fed backstop of banks like goldman sachs) get ready for another market crash and the dollar to rally. long term we’re gonna be better off but its going to be painful for usa + world in short term.

goldman’s special ‘bank holding company’ status gives them the following: As a result of the Global financial crisis of 2008, many traditional investment banks and finance corporations such as Goldman Sachs, American Express, CIT Group and General Motors Acceptance Corporation^[3] successfully converted to bank holding companies in order to gain access to liquidity and funding. This arrangement allows them access to the Federal Reserve’s discount window and benefit from the Troubled Asset Relief Program, but the companies are now subject to more regulation and their ability to have exposure to risk will be limited.

excerpt from volcker article 1:

Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House, Paul Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said.

“The implication for Goldman Sachs or any other institution is, do you want to be a bank?” Mr Volcker said in a video interview with the Financial Times. “If you don’t want to follow those [banking] rules, you want to go out and do a lot of proprietary stuff, fine, but don’t do it with a banking licence.”

http://www.ft.com/cms/s/0/121fe9d0-1753-11df-94f6-00144feab49a.html

interview with volcker: http://www.ft.com/cms/s/0/780d9d64-175d-11df-87f6-00144feab49a.html?nclick_check=1

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great volcker interview on what needs to be done for permanent, stabilizing recovery

excerpt:

SPIEGEL: You have been clear about your ideas. Do you really believe we have to break up the big banks in order to create a more sustainable financial system?

Volcker: Well, breaking them up is difficult. I would prefer to say, let’s just slice them up. I don’t want them to get heavily involved in capital market activities so my view is: Hedge funds, no. Equity funds, no. Proprietary trading, no. Trading in commodities, no. And that in itself would reduce the size of the big banks. So you get some reduction in size. Equally important, you make them more manageable and easier to deal with if they do get in trouble.

http://www.spiegel.de/international/business/0,1518,666757-2,00.html

utilitize dem’ banks

The former US Federal Reserve chairman told an audience that included some of the world’s most senior financiers that their industry’s “single most important” contribution in the last 25 years has been automatic telling machines, which he said had at least proved “useful”.

Echoing FSA chairman Lord Turner’s comments that banks are “socially useless”, Mr Volcker told delegates who had been discussing how to rebuild the financial system to “wake up”. He said credit default swaps and collateralised debt obligations had taken the economy “right to the brink of disaster” and added that the economy had grown at “greater rates of speed” during the 1960s without such products.

When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed “nothing at all”, he replied: “You can innovate as much as you like, but do it within a structure that doesn’t put the whole economy at risk.”

http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-chief-Paul-Volckers-telling-words-on-derivatives-industry.html

nervous volcker interview on economy

makes me want to crawl into my bomb shelter :)…

american real estate bank

just watched paul volcker’s interview with charlie rose….he basically says no one knows wtf any of these derivatives “paper” is worth because they represent a rats nest of all the sh$tty mortgages that failed. how do you seperate billy bob’s trailer default from dexter flinkerton’s abandoned florida condo???

what you do is you just buy ALL the defaulted mortgages in the country —> American Real Estate Bank is born (or fannie/freddie get a bigger brother).

volcker also talks about the real possibility of the dollar being removed as the ‘reserve’ currency of the world. if that happens game over. no more credit card for usa.