The leveraged buyout of America

[eridani]

http://ellenbrown.com/2013/08/26/the-leveraged-buyout-of-america/

According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach. They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .

It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.

A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

In an illuminating series of articles on Seeking Alpha titled “Repoed!”, Colin Lokey argues that the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Acquiring a company or a portion of a company mostly with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.



Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities.

[cantbeserious]

1. When The 1% Own All The Wealth - We Become Serfs - Welcome To The New Dark Ages

eom

[3rdwaydem]

2. Dark Ages? Serfs? A bit of an exaggeration isn't it?

[cantbeserious]

3. Hardly - Read Piketty - Read The Princeton Report On Oligarchy - Read The Oxfam Report

eom

[mbperrin]

4. Oh, I don't know. There's a least one man in jail for collecting rainwater.

http://offgridsurvival.com/rainwaterillegal/

Check out the news report video there especially.

More discussion of this at:

http://www.democraticunderground.com/10023406830

[truedelphi]

5. Wait until the next big "banking" crisis rears its ugly ugly head.

At least, that seems to be the message of one Elizabth Warren, when she got a bit snippy with Janet Yellen.

Senator Warren has apparently been looking at the bare bones 35-pages Federal reserve report released to the public for the various “living wills” or wind-down plans if a systemically important (too-big-to-fail) bank gets into trouble again and she compared these to the cryptic, unintelligible tomes of paper that constitute the real wind-down plans behind the Fed’s equally opaque draperies.


Senator Elizabeth Warren Questioning Janet Yellen During Senate Hearing on July 15, 2014

Warren opened her questioning of Yellen by reminding the Fed Chair that Section 165 of the financial reform legislation known as Dodd-Frank mandated that large financial institutions submit plans to the Federal Reserve and the FDIC explaining how they could be “rapidly” liquidated without bringing down the economy – as occurred in 2008.

To drive home her point, Warren compared the situation of Lehman Brothers at the time of its collapse in 2008 to the Wall Street behemoth, JPMorgan today. Lehman, said Warren, had $639 billion in assets and 209 subsidiaries when it failed and it took three years to unwind the bank. Today, said Warren, JPMorgan has $2.5 trillion in assets and a staggering 3,391 subsidiaries.

Warren pointedly asked Yellen if these big Wall Street banks had ever given the Fed wind-down plans that were “credible.”


You can read the entire article here:

http://wallstreetonparade.com/2014/07/senator-warren-lets-yellen-know-shes-had-it-with-the-feds-charade-about-too-big-to-fail/