Global Banking - Regulator Envy.

(cross posted at kickin it with cg and motley moose)

Amid a global economic meltdown - Canada - with its highly regulated banking system has become the envy of the world.  In a survey by the World Economic Forum in October, with the financial crisis and bank failures that have shaken world markets - Canada was voted to have to world's soundest banking system followed by Sweden, Luxembourg and Australia.

Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.  The United States, where some of Wall Street's biggest financial names have collapsed in the fall, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.

The World Economic Forum's Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).  Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).  UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland's banking system scored the same in 16th place, as did Singapore (13th).

The Globe and Mail's Report on Business created a neat little chart that summarizes how some banks around the world are doing:  

Ranked tops in the world by the World Economic Forum for soundness of banks. Canada's big five lenders all reported healthy profits in their most recent quarter, generally beating analysts' expectations. Tightly regulated, with cash-spewing retail banks that can offset losses in other areas of the business.

United States
There are 252 problem banks being tracked by the government's bank insurance program. In 2008, 25 banks failed, including household names like Washington Mutual. The government has rolled out numerous programs and spent at least $1-trillion (U.S.) in a bid to prop up the financial system, but there are no sure signs that the bailouts are working. The Federal Deposit Insurance Co. is now on track to seize 100 failed banks in 2009.

The big economies in South America have had little trouble with bank failures resulting from stumbles on risky assets such as subprime mortgages. Still, they won't be immune to rising defaults from slowing economies, which will be a test of how far financial regulation and bank management have come in recent years.  

The banking system of this tiny island nation -- which boasts a population half the size of Winnipeg -- represents probably the most spectacular rise and fall of the global financial meltdown. In 2003, Iceland's three main banks had just a few billion dollars of assets, but by 2006 this hit $140-billion (U.S.). Today, all three have failed and been nationalized in a bailout that's cost about $330,000 per citizen, leading to the collapse of the country's currency and economy.  

Sweden faced a banking crisis in the 1990s, and was forced to remake its financial sector. This time around, while one bank has failed because of toxic assets, the country has mostly dodged the problems and Sweden's banking sector was ranked second only to Canada's for stability by the World Economic Forum. Exposure at some big banks to Eastern Europe could lead to loan losses.

The British government has been forced to bail out big lenders such as Lloyds Banking Group, Northern Rock Plc and Royal Bank of Scotland, which have been crippled by forays into risky mortgage products before the property market in the UK and in the U.S. fell apart.

The country's reputation as the home of the quiet, prudent banker is in shambles after gambles by Swiss giants UBS AG and Credit Suisse led to massive losses totalling more than $65-billion (U.S.). The government is now looking to write new rules to keep the financial sector out of trouble.

Austria has historically been the bridge between Western Europe and Eastern Europe. In recent years some of its largest lenders focused on expansion in such countries as Czech Republic, Romania and the Ukraine. Lending to the Central and Eastern European region amounts to almost 70 per cent of Austria's gross domestic product, according to Moody's. That was great when those countries were booming, but Eastern Europe is hurting badly and now many loans are likely to go bad.

Spain's banking system has held up better than most with banks reporting gains in profit in large part because of strict regulatation when it comes to high risk assets, a legacy of a banking crisis in the 1970s. As a result, big Spanish banks like Banco Santander focus mostly on low-risk retail banking. Still, there are signs it may not last. The country's swooning property market could lead to loan defaults, and the government and some bank executives warn that the domestic banking sector may have to be restructured should the global financial crisis deepen.

Namibia has the highest-ranked banking system in Africa for stability, well ahead of Spain, the U.S. and Britain. According to the International Monetary Fund, the country's banks entered the financial crisis very profitable and well capitalized. And while the country is being buffeted by the global troubles, the resource-based economy is still expected to grow 1 per cent this year, according to Namibia's central bank.

The Russian government has already invested about $11-billion to try to aid banks, and is looking at another $55-billion stimulus package to restart the economy and support the country's ailing banking system. Lenders are suffering from a fast downturn in the oil-powered economy of Russia.  

China's big banks have avoided troubles with subprime and other toxic assets, and may benefit as the government unveils a big stimulus package designed to keep the country's economy growing quickly. If that doesn't work, though, expect the banks to face bigger loan losses.

Japan's response to the banking bust of the 1990s was a `What not to do' lesson. The country put off dealing with bad loans and propped up bad banks for too long. Just as the country finally started to take big steps to fix the problem, this financial crisis cropped up. So far, Japanese banks have avoided the worst of it, signalling perhaps they've learned from experience.  

Ranked fourth by the World Economic Forum for soundness of banks, Australia's system shares many attributes with Canada's. It's centralized, with a few big players that are making money. The big problem for Australia is an economic one: its banks may not be big enough to take up the slack as global lenders cut back on lending, leaving the country's borrowers in the lurch.  

Maybe government regulation is the way to go - don't you think?

There's more...

The Geithner Plan is the Shit

So, I was on a private BBS formed out of the ashes of Netslaves, and someone asked the following:

CNN keeps talking about it raising the DOW today, but I have no idea what it actually is supposed to do.
So I quickly riffed on this, and the response was very positive, so I thought that I should share my explanation of the Geithner plan with the world:
  • Place your hand in your pocket.
  • Remove wallet
  • Hand to Wall Street Executive.
   Longer version:
  • The Treasury/FDIC/FED will make non recourse loans to allow investors to buy into the big shitpile of mortgage backed securities (MBS), credit default swaps (CDS) and other alphabet soup so that they buyer will put down about 3% for a 20% stake in this shit.
  • A non recourse loan means that if the investment fails, the lender (i.e. the taxpayer) takes back the shit, and the loan is settled, basically, they are only out their 3% (or less) down payment.
  • Basically, it's a subsidy to the big banks and investment houses, who created the shit, because the small investor cannot get the shit for cash deal without going through the big banks and investment houses, and paying a shit load of commissions.
  • This has the effect of creating a taxpayer subsidy for the shit that is (at least, there are other programs that feed in) of at least 30%.
  • So eat your shit sandwich, and know that somewhere a Wall Street banker is spending your money on some prostitute to shit on him.

What can I say but shit?

Cross posted from 40 Years in the Desert.

There's more...

Geithner Goes Back to the Bad Bank

Yep, it's back to bad bank, only this time Geithner has created the fig leaf of private investors to cover up the fact that there will be gross overpayment.

The idea is the government would lend investors the money at sub market rates (ding, subsidy),  for non recourse loans (ding, subsidy) to buy the big sh$#pile.

A non recourse loan is, "secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable," so the if you buy a piece of the big sh$#pile, and it goes bad, you don't have to pay it back.

As a mental exercise, let's assume that you buy 10 CDOs for $1 million each, and the government loans you 90% of the money to do so.  9 of the 10 are worthless, and you thus lose $900,000.00, with the US government losing $8,100,000.00, but that the 10th, which you bought at 33¢ on the dollar, pays off in full, so your $1million purchase is worth $3,000,000.00, so you pay back the US government, leaving $2,100,000.00, and then split the proceeds, so you and Uncle Sam each get $1,050,000.00.

This means that you cleared $50K on a $1 million investment, and Geithner has just lost $7,050,000.00 of taxpayer money.

Not great, but considering the fact that $10 million was put in, and $7 million of that was lost, it's pretty good for you.

As Calculated Risk notes it's another attempt to overpay for bad assets.

Cross posted from 40 Years in the Desert.

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Are Lawyers The Best Way To Save The Earth?

(cross posted at kickin it with cg and motley moose)

Back in August Stephen Hockman QC proposed an interesting idea. Namely proposing that a body similar to the International Court of Justice in The Hague be the supreme legal authority on issues regarding the environment. Hockman argues that for the lack of solutions at hand for addressing climate change, "only an impartial adjudicating body is capable of providing the catalyst for a global consensus as to the fairest way to distribute the burdens that accompany solutions to the climate change problem."

The understandable reluctance of developing countries to sign up to carbon commitments - unless the developed world is prepared to make an equitable contribution - calls for more radical options. Those options must be realised at state, regional and international levels, and they will require political, economic and legal solutions.

In this mix, international legal instruments are crucial. The existing tools lack the necessary jurisdiction, clout and transparency. The time is ripe for a serious consideration of an international court for the environment. Such a court was mooted in Washington in 1999, but sank without trace. Today, however, we cannot afford to drop the ball.

Hockman, who is also a trustee of Client Earth, a nonprofit environmental law group, argued that such an institution would also offer a centralized system, "an enhanced body of law regarding environmental issues, and consistency in the resolution of environmental disputes". He wrote that such a court should be compulsory and have its own scientific body to assess technical issues.

However some are skeptical as to whether this concept would work, as Environmental Capital notes:

But what about the two giants in that global economy? The U.S. and China together account for about half the world's greenhouse-gas emissions. Any meaningful climate-change pact begins and ends with what Washington and Beijing decide. And while both presidential candidates are less hostile to the ICC, ceding control to supra-national jurisdictions generally gives the U.S. pause. Chinese leaders, meanwhile, have not traditionally embraced global law or institutions with open arms.

Concluded Environmental Capital: "Are lawyers really the best way to save the earth?"

There's more...

Bailout Embarrassment

It is time for us to put our actions where our mouths have been for the last 8 long miserable years.   We have complained of the Republicans lack of regulation, lack of oversight, and willingness to look the other way for big business and the folks that line their pockets.

Now it looks like our Democratic leaders in Washington may be doing the same thing.

There's more...


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