Capital/Liquidity ratios of 3% emerge triumphantFurther to this morning’s post (things do seem to be speeding up at last) you may recall I mentioned how the ECB thought that ‘a strict definition of bad debt could threaten banks in countries hit hardest by Europe’s debt crisis’. Just to enlarge on this a little, bad debt of the kind we’re talking about is rancid bordering on toxic: it ain’t never going to get paid back, and everyone knows this to be the case. What we’re witnessing here is Mario Draghi doing his Orwellian Ministry of Truth shtick, whereby something with blue paint on it marked Unfit for Human Consumption will be regraded as Quite Possibly Alright.I now bring you news that this is to be extended to include Transatlantic banks as well. The US Federal Reserve, BoE, ECB and others agreed last weekend that the biggest trans-Atlantic banks’ capital ratios should stay at 3% (or about 35:1) indefinitely. This ratio is woefully insufficient, well below the 12% suggested two years ago, and miles below my own belief that it should be 16% at least until all the worms have crawled out of the cans being kicked down the road.
The 3% ‘rule’ (it’s really the world’s shortest suicide note) destroyed Lehman and Bear Stearns, and would have collapsed all the others without TARP, FDIC, and Fed bailouts. So why was it left untouched? Because of what’s been described as “ferocious resistance” by the banks to the idea of raising the ratio even to 6%. The decision was hailed by ECB head Mario Draghi as a major step forward for bank recovery, aka an easy way for every bank to pass the stress tests and then reassure the markets.
At each stage of “reform” since 2008, banking lobbyists have successfully overturned every attempt at, um, reform. Banking reform stands, in terms of the safety features suggested – breakup, ringfence, debt-to-liquidity relationships, capital-to-liquidity ratios, you name it – precisely where it stood five years ago. So we are left wondering what the term ‘regulator’ means in 2014….rent boy perhaps? I have eight teeth less than six months ago, and I can bite better than these gumboys.
The most succinct take on this I’ve seen this week is at the Larouchepac site, and a heavily flourished hat-tip goes to US Slogger Gene Schenk for pointing me at it.
There is, however, just one final question: if the banks are just as vulnerable, amoral and frontally-lobed as they were in 2008, are we the taxpayers any more liable to mopping up the diarrhorea they leave behind the next time silly little boys in romper suits play with the mains electricity? And natch, the answer given to us by the truth-benders is “Of course not! Creditors will have to pay this time, not taxpayers!”
It’s obscenely patronising double-talk like this that really does make me want to man a barricade and throw custard pies at the likes of George Osborne. To stand up before a House of Commons half-full of soi disant socialists (while the statement is going out live to 40 million UK adults) and without a murmur of Opposition get away with calling the same person two things – and somehow pretend they’re separate – requires the kind of neck not even Churchill could’ve envisaged. Much as I’d like to wring the Draper’s worthless Cervicalgia, I won’t because I know only too well what the dangers of exposure to asbestos are. So for the time being, custard pies are my weapon of choice.