So What Exactly Does 'Bank Recapitalization' Really Mean?

[JimBowie1958]

I keep hearing this phrase in the news related to the European markets banks that are on the verge of collapse.

'Recapitalization' I understand means 'to receive more money/capital in order to increase credit to capital ratios' that a bank must maintain in order to legally engage in fractional reserve lending. Right?

But where is this money supposed to come from?

Answer: government debt.

But who is responsible for that debt?

Answer: taxpayers.

So ineffect 'bank recapitalization' means to shift the burden of poor business decisions by some massive, too-big-to-fail banks onto tax payers instead through the act of governments simply giving/loaning trillions of dollars to banks that have proven they cannot competently compete in the free market. The banks in turn then 'restructure' their debts so they do not have to repay the loans at a reasonable rate if at all.

OK, now the follow up question:

Why do we tax payers put up with banks stealing trillions of dollars from future tax payers, our children and grand children?

While the first question puzzles me, the second question just leaves me stunned.

 

[Mad Scientist]

I don't know why the EuroTrash put up with it but Americans seem to be ony concerned with Monday Night Football and Dancing With the Stars.

Until hyper-inflation hits, they won't even care.

 

[Toro]

I don't know why the EuroTrash put up with it but Americans seem to be ony concerned with Monday Night Football and Dancing With the Stars.

Until hyper-inflation hits, they won't even care.

Americans already put up with it.

It was called "TARP"

 

[JimBowie1958]

I don't know why the EuroTrash put up with it but Americans seem to be ony concerned with Monday Night Football and Dancing With the Stars.

Until hyper-inflation hits, they won't even care.

Americans already put up with it.

It was called "TARP"

And dont forget QE1&2.

 

[editec]

So ineffect 'bank recapitalization' means to shift the burden of poor business decisions by some massive, too-big-to-fail banks onto tax payers instead through the act of governments simply giving/loaning trillions of dollars to banks that have proven they cannot competently compete in the free market. The banks in turn then 'restructure' their debts so they do not have to repay the loans at a reasonable rate if at all.

Yes, that is what TARP was to be sure. Mostly what we had to do was guarantee to cover the bad debts that were in the bank's books.

Must be nice to have the FED backing one up like that. When the banks got into debt trouble the FED became their CO-SIGNER

OK, now the follow up question:

Why do we tax payers put up with banks stealing trillions of dollars from future tax payers, our children and grand children?

While the first question puzzles me, the second question just leaves me stunned.

We don't do that.

The MASTERS do that.

Why do they do it?

Because they love themselves, naturally.

 

[JimBowie1958]

More hopium for the masses:
Europe again steps back from brink in debt crisis | Reuters

Reuters) - Following a now-familiar script, Europe again averted disaster in its debt crisis when German lawmakers rallied behind Chancellor Angela Merkel to approve a stronger euro zone bailout fund on Thursday.

But bigger challenges loom for the euro zone now. Financial markets are already anticipating a likely Greek default and demanding more far-reaching measures to prevent the crisis that began in Athens from spreading far beyond Europe and its banks.

The Bundestag (lower house) overwhelmingly approved new powers for the 440-billion-euro EFSF fund to make precautionary loans, help recapitalize banks and buy distressed countries' bonds in the secondary market.

Despite a rebellion by 15 backbench Euroskeptics, Merkel won 315 votes from her own center-right coalition, enough to avoid the humiliation of having to rely on the opposition Social Democrats and Greens to pass the plan.

"The result of the vote is a strong signal for Europe. The broad majority in parliament clearly shows that Germany is committed to the euro and to protecting our currency," said Hermann Groehe, general secretary of her Christian Democratic party.

This did not fix anything. The same bad subprime mortgages are still going bad and putting banks that invested in securities containing said debt on the brink of bankruptcy and due to fail at any time. It is literally an exponentially growing problem whenone considers the leverage involved and the dirivitives that magnify every failure, like CDS that allow anyone to take a sort of insurance policy on equities one doesnt even own and so are nothing more than a gamble with other peoples money.

The Greeks will drag all the others down with them because of how the Euro zone was set up with all the banks buying bonds from each other with leverage of five to one or ten to one. Thatmeans a 20% 'haircut' will wipe out an entire investment of bonds bought at 5 to 1 or more.

The only real questionis how long the Euroman can cling to the dry root sticking out from the 1000 foot cliff while the elephant tied to his ankles gets bigger and bigger with each passing day.

 

[expat_panama]

...banks stealing trillions of dollars from future tax payers, our children and grand children? While the first question puzzles me, the second question just leaves me stunned.

We don't do that. The MASTERS do that...

 

[iamwhatiseem]

I am not sure when it happened...but we lost control of America a long time ago.
We are appeased by thinking we control things by voting, which is a mere formality really.

I think to a point in the movie Gladiator...when a Senator said to another speaking of the surprising popularity of the new Emperor - "he knows what Rome is, Rome is the mob. Conjure magic for them,and they'll be distracted. Take away their freedoms and they will still cheer. The beating heart of Rome is not the marbled floor of the Senate, it is the sands of the Coliseum.

Our "sands of the Coliseum" is cable TV. Americans have lost tremendous freedoms in the past 60 years, life in America is now a comfortable, though glorified, version of an indentured slave. We are quickly becoming a society of serfdom. We get a job as soon as we begin puberty - and the vast majority will work till they die or just a couple years from it.

 

[editec]

I cannot help but note how many of youy object to my use of the word MASTERS.

As is evidenced by EXpats implied suggestion that I am a conspiracy theorist for my having the unmitaged gall to use of that term.

Call them what pleases you, of course, but know that they are the folks calling all the shots.

And since most of us are virtually enslaved by this economic system that serves them so well, I think my choice of words to describe this relationship we have to the BANSTER class is rather fitting.

I know some of you hate to be reminded that you are nothing but pawns in the game of life, but I intend to continue rattling your chains to remind you all that you are still nothing more than peasants to the MASTERS of YOUR universe.

Those of you who imagine that you are truly FREE who don tinfoil hats, folks.

 

[expat_panama]

...some of you hate to be reminded that you are nothing but pawns in the game of life...

You misinterpret our response as that of hatred. We are not hating. We are laughing.

Dang, I hate it when I burst out laughing with a mouth full of coffee...

 

[JimBowie1958]

...some of you hate to be reminded that you are nothing but pawns in the game of life...

You misinterpret our response as that of hatred. We are not hating. We are laughing.

Dang, I hate it when I burst out laughing with a mouth full of coffee...

So what are you laughing at? The possibility that the EU can crash? That oligarchs totally dominate our political system?

Just what exactly?

Because if it is either of the two subjects I list above, dude, you are an imbecile.

 

[expat_panama]

...dude, you are an imbecile.

--which is a lot easier to prove given that I'm spending my evening here with a bunch of lunatics.

Seriously guy, this thread went wrong at the beginning with the idea that the Fed's bank recapitalization was funded by borrowing. That trillion wasn't borrowed, it was simply issued Zimbabwe style-- the difference being that the Zimba's went from low inflation to orbital inflation, and we went from serious deflation up into hardly any inflation. Where I really lost it was going from there into THE MASTERS moving us pawns around and all.

I can see why y'all are taking in on this because bankers love to strut and impress people as to how important they are, but they aren't. A couple decades ago our big important bankers convinced the State Dept. that they could oust Noriega by shutting down Panama's banks. What happened is the entire population lived their lives as normal (ok, normal for Panamanians) and after a year or so they let the banks come back because they weren't really missed.

The current situation deserves our respect maybe, but it is not the end of the world. In fact, from where we are we can't even see the end of the world.

 

[JimBowie1958]

...dude, you are an imbecile.

--which is a lot easier to prove given that I'm spending my evening here with a bunch of lunatics.

Seriously guy, this thread went wrong at the beginning with the idea that the Fed's bank recapitalization was funded by borrowing. That trillion wasn't borrowed, it was simply issued Zimbabwe style-- the difference being that the Zimba's went from low inflation to orbital inflation, and we went from serious deflation up into hardly any inflation.

TARP was not mere printing money out of thin air, though QE 1&2 were. I was mostly thinking of the EU problems where the various governments are bailing out troubled banks by loaning these banks money and then eventually nationalizing them in many cases, passing the debt oad onto the tax payers of their country.

Where I really lost it was going from there into THE MASTERS moving us pawns around and all.

I wouldnt call them masters necesarily, but there is an oligarchy in most nations that have a disproportionate amount of power relative to their population. And right now the oligarchs control the Republican and Democratic parties.

I can see why y'all are taking in on this because bankers love to strut and impress people as to how important they are, but they aren't. A couple decades ago our big important bankers convinced the State Dept. that they could oust Noriega by shutting down Panama's banks. What happened is the entire population lived their lives as normal (ok, normal for Panamanians) and after a year or so they let the banks come back because they weren't really missed.

That is hilarious. These guys are nicknamed 'Masters of the Universe' after all, arent they?

The current situation deserves our respect maybe, but it is not the end of the world. In fact, from where we are we can't even see the end of the world.

Not the physical world, of course, but the destruction of M3 wealth and credit available to the world economy is going to much worse than what happened in 2008. The folks I have found to be reliable in predicting macro-economic trends over the last 20 years, Mike Shedlok and the guys at 'The Daily Reckoning', think this coming collapse will be much worse than the Great Depression.

It is going to end the world that we know and change much of the power structure of our nations. From what I gather from my own reading of history, these types of crises are revolutionary socially and politically. If the common people come out on top we will have a major move toward restoration of populist democracy, but if the oligarchs win, we will have nothing other than a severe authoritarian government that will make our current government look Mickey Mouse.

But of course, YMMV.

 

[expat_panama]

...TARP was not mere printing money out of thin air, though QE 1&2 were....

FRB: TARP Program Information explains how TARP was a Fed program while Obama's later bailouts were plain old tax'n'spending. PBS explains at When the Government Writes Checks, Where Does the Money Come From? | Online NewsHour | March 17, 2009 | PBS that the "...Treasury Department borrows money; the Federal Reserve creates it." Bank Recapitalization is putting money into banks. Federal borrowing takes money out of banks while creating new money puts it in.

...there is an oligarchy in most nations that have a disproportionate amount of power relative to their population. And right now the oligarchs control the Republican and Democratic parties...

There are a lot of greenies and third worlders that complain to me that the US has only 1/20th of the world's population and yet runs a third of the world's economy and it owns half the world's wealth. I tell them it's a lie. 1/20th of the world that are Americans own 100% of America's wealth and zero % of everyone else's. The fact that we've created as much wealth as all the other 95% of the world put together means it's time for them to either shut up or work hard like us.

I created all the wealth I want, and if some oligarch clown feels like creating more than me then I got no problem with that.

...folks I have found to be reliable in predicting macro-economic trends over the last 20 years, Mike Shedlok and the guys at 'The Daily Reckoning', think this coming collapse will be much worse than the Great Depression...

Over the past 20 years the average American household has become $150k more wealthy --after correcting for inflation. That's a total private wealth increase of almost $40 trillion. If "Mike Shedlok and the guys at 'The Daily Reckoning'" predicted that 20 years ago then I'll listen to them. If not then they're just a bunch of doom'n'gloom morons.

 

[JimBowie1958]

...TARP was not mere printing money out of thin air, though QE 1&2 were....

FRB: TARP Program Information explains how TARP was a Fed program while Obama's later bailouts were plain old tax'n'spending. PBS explains at When the Government Writes Checks, Where Does the Money Come From? | Online NewsHour | March 17, 2009 | PBS that the "...Treasury Department borrows money; the Federal Reserve creates it." Bank Recapitalization is putting money into banks. Federal borrowing takes money out of banks while creating new money puts it in.

It isnt that simple. With the quantitative easing policies, the primary dealer banks are buying bonds they normally wouldnt on the assurance that the Fed will then in turn buy it from them, paying interest to the banks each step of the way. And the banks in the federal reserve are for the most part owned by the same people that own the primary dealer banks, thus why they get all this inside information on what the Fed is going to do and they get ahead of the rest of the market.

So this debt is money invented from thin air by the federal reserve banks like banks do when they do fractional reserve lending then loan to their associated banks while charging us to do it. This huge creation of money dilutes the value of everyone elses money by putting more money 'in circulation' but really these banks mostly just sit on it. This amounts to a stealth robbery of Americans savings by devaluing the USD which has dropped between 20 and 25% relative to commodity prices globally.

In the end, tax payers are paying for it all one way or another.

...there is an oligarchy in most nations that have a disproportionate amount of power relative to their population. And right now the oligarchs control the Republican and Democratic parties...

There are a lot of greenies and third worlders that complain to me that the US has only 1/20th of the world's population and yet runs a third of the world's economy and it owns half the world's wealth. I tell them it's a lie. 1/20th of the world that are Americans own 100% of America's wealth and zero % of everyone else's. The fact that we've created as much wealth as all the other 95% of the world put together means it's time for them to either shut up or work hard like us.

I created all the wealth I want, and if some oligarch clown feels like creating more than me then I got no problem with that.

Nor with me, if they actually create money/wealth in some form. Microsoft and Apple do this, but those engaged in Crony Capitalism dont nearly so much as they use social networking witht he government to give themselves unfair and unlawful advantage over their competitors and corrupt our government.

I do have a problem with that.

...folks I have found to be reliable in predicting macro-economic trends over the last 20 years, Mike Shedlok and the guys at 'The Daily Reckoning', think this coming collapse will be much worse than the Great Depression...

Over the past 20 years the average American household has become $150k more wealthy --after correcting for inflation. That's a total private wealth increase of almost $40 trillion. If "Mike Shedlok and the guys at 'The Daily Reckoning'" predicted that 20 years ago then I'll listen to them. If not then they're just a bunch of doom'n'gloom morons.

I suspect the data on the increase of private wealth is based on housing prices around 2006 which was when housing was overpriced in a real estate bubble.

Since the 2008 recession, housing values have plummetted and that added wealth you speak of was largely lost across the board.

Late-2000s financial crisis - Wikipedia, the free encyclopedia

 

[editec]

This nation saw trillions of unrealized profit dollar lost in 2008.

But the DEBT remains.

That problem needs to be addressed.

Except households are paying down their debts (thus the economy is weak) AND businesses are not seeking to maximize profits, but instead are ALSO paying down their debts.

But in OUR system, for any debt to be paid, some additional debt must be made.

Not enough money is attempting to pay off existing debt, folks.

That won't work.

Either debts must be written off, or more money must be invented.

Take your pick, but one or the other, or some combination of both, is what is needed.

 

[JimBowie1958]

Not enough money is attempting to pay off existing debt, folks.

That won't work.

Either debts must be written off, or more money must be invented.

Take your pick, but one or the other, or some combination of both, is what is needed.

But a lot of this debt is in the form of debt to the Federal Reserve, I forget how much, but it is huge.

Since the Fed can invent money, why not wipe the debt owed to the fed off the books and let the fed replace it by inventing more to replace it if they must?

Honestly, I do not care for the arrangement of having the fed manage the currency of the worlds largest economy. These are private banks and who knows what they are doing behind closed doors?

 

[expat_panama]

...a stealth robbery of Americans savings by devaluing the USD which has dropped between 20 and 25% relative to commodity prices globally. In the end, tax payers are paying for it all one way or another...

OK, at least we're dropping the idea that TARP was funded with borrowed money, but commodity prices have been falling since last March--

--and have risen more slowly since the '08 crisis than before.

...they use social networking witht he government to give themselves unfair and unlawful advantage over their competitors and corrupt our government...

We're seeing more of that lately with Obama (GE, GM, Solyndra, etc.), and considering that America has flourished for hundreds of years in spite of corrupt Democrats we can expect America to continue flourishing.

Over the past 20 years the average American household has become $150k more wealthy --after correcting for inflation. That's a total private wealth increase of almost $40 trillion. If "Mike Shedlok and the guys at 'The Daily Reckoning'" predicted that 20 years ago then I'll listen to them. If not then they're just a bunch of doom'n'gloom morons.

...I suspect the data on the increase of private wealth is based on housing prices around 2006 which was when housing was overpriced in a real estate bubble...

The Fed says the average household had $150k more in June 2011 than it had in June 1991 after adjusting for inflation. That includes the housing crunch. I got the info from FRB Z1: Data Download - Download, and you can ping me if you want the 'walk-though' I wrote up on another thread. I like wikipeadia as much as the next guy, but I don't need their take on the some pundit's hash of the fed's numbers when I take and hash the fed's numbers all by myself without their help.

 

[editec]

Not enough money is attempting to pay off existing debt, folks.

That won't work.

Either debts must be written off, or more money must be invented.

Take your pick, but one or the other, or some combination of both, is what is needed.

But a lot of this debt is in the form of debt to the Federal Reserve, I forget how much, but it is huge.

Yeah sorry, but I really am not qualified to comment on that intra-banking lending and borrowing.

ABout the only thing I can get is that basically the banks are sitting on debt instruments of dubious value and rather than have the banks freeze like deers in tyhe headlights, the FED and TREASURY worked damned hard to recapitalize them mostly be standing BEHIND the banks to insure that the public didn't lose all confidence in them.

Honestly, I do not care for the arrangement of having the fed manage the currency of the worlds largest economy. These are private banks and who knows what they are doing behind closed doors?

Honestly I am still trying to figure out why we don't have an authentic FEDERAL reserve.

I see no good reason why we've given private banks the right to invent money (based on somebody taking a loan from them) when we might have elected instead to have people borrow directly from the PEOPLE'S FEDERAL bank.

I guess the argument against that would be that the government ought not be in the business of banking.

Except it IS in that business anyway.

And if the argument is that the government is incapable of managing money sanely, then I guess my response is

And the BANKSTERS are doing such a good job?

They are basically BROKE, ya know.

If it weren't for the FED and TREASURY, there wouldn't be a bank open in the country.

Basically there are six privately owned megabanks which control our economy.

Why?

 

[JimBowie1958]

...a stealth robbery of Americans savings by devaluing the USD which has dropped between 20 and 25% relative to commodity prices globally. In the end, tax payers are paying for it all one way or another...

OK, at least we're dropping the idea that TARP was funded with borrowed money, but commodity prices have been falling since last March--

--and have risen more slowly since the '08 crisis than before.

...they use social networking witht he government to give themselves unfair and unlawful advantage over their competitors and corrupt our government...

We're seeing more of that lately with Obama (GE, GM, Solyndra, etc.), and considering that America has flourished for hundreds of years in spite of corrupt Democrats we can expect America to continue flourishing.

Over the next 20 years, sure, I doubt the wheels are going to come completely off.

The American people and our general system of economics and politics are very resilient.

But there are plausible scenarios of what our political and macro-economic picture will look like that are not the kind I want my kids living in.

As to the commodity prices, your chart shows them doubling over the last three years. Compared to 2008, it is about a 30% increase (just eye-balling your chart) but in a recession like we have been in, the USD should be going UP in value not down as this is one of the ways in which consumers regain confidence in their economic position and return to consuming more and thus growing the consumer market.

So lately we have been getting a double whammy with lower business activity AND a weaker USD on top of that.

Over the past 20 years the average American household has become $150k more wealthy --after correcting for inflation. That's a total private wealth increase of almost $40 trillion. If "Mike Shedlok and the guys at 'The Daily Reckoning'" predicted that 20 years ago then I'll listen to them. If not then they're just a bunch of doom'n'gloom morons.

...I suspect the data on the increase of private wealth is based on housing prices around 2006 which was when housing was overpriced in a real estate bubble...

The Fed says the average household had $150k more in June 2011 than it had in June 1991 after adjusting for inflation. That includes the housing crunch. I got the info from FRB Z1: Data Download - Download, and you can ping me if you want the 'walk-though' I wrote up on another thread. I like wikipeadia as much as the next guy, but I don't need their take on the some pundit's hash of the fed's numbers when I take and hash the fed's numbers all by myself without their help.

The time frame I have been following this is from 1995 to the present, and what initiated it was the governmnet and some special interests groups essentially forcing banks to make sub-prime loans. The concerns voiced came to fruition with the real estate market collapse in 2008.

The numbers you give in column E show the impact these gentlemen warned of. In 2007 total owner occupied real estate to be valued at $22,742,851,000,000 and it fell to $16,507,757,000,000. This is a total loss for most individual household occupied real estate of more than $6.2 Trillion. This loss of equity has been a large factor in our current economic downturn as shell-shocked families scramble to pay off debt and restore some of what they thought they had as wealth in 2006.

Let the banks fail if they cant stay in business, just like any other business. At most the government should assist the economy by playing the credit providing role until regional banks can put together the resources to step into the place of the formerly 'too big to fail' banks. That is how a free market capitalism is supposed to work, right? How do the incompetent bankers get shaken out of the economy if they are not allowed to go out of business?