

When Banks Become the Lawmakers - connorblack
http://bitcoinwarrior.net/2014/12/banks-become-lawmakers/

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shawnee_
_If all of this is not enough to propel Americans into the streets in mass
protests, perhaps the history of how the coddled Citigroup handles the money
of its investors and shareholders will stir the pot._

The root of this problem is that banks -- especially large ones -- are
rewarded for short-term gains made when "gambling with other people's money",
while passing the fallout of risk and long-term losses on to the industry as a
whole (and thus onto taxpayers). Entities that profit from turnover have an
incentive to create hype, fear, and volatility -- anything that increases
transaction volume. (Every time a bank writes a new loan, they get to tack on
origination fees, and the associated broker gets a cut. Every time a house is
bought or sold, realtors and their brokers get a cut)

Some economists should do a more in-depth study on the Principal-Agent problem
in the broker-managed financial derivatives markets.

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tzs
> What Citigroup has now done with the willing participation of Congress and
> the President is to set the country up for the next financial collapse in
> which it appears destined to play another starring role, seeing that the Fed
> gave it a failing grade on its stress test this year. The legislation that
> was just passed by Congress allows Citigroup and other Wall Street banks to
> keep their riskiest assets – interest rate swaps and other derivatives – in
> the banking unit that is backstopped with FDIC deposit insurance, which is,
> in turn, backstopped by the U.S. taxpayer, thus ensuring another bailout of
> Citigroup if it blows itself up once again from soured derivative bets.

This is a good example of how to write something that contains no actual
factual errors, but nevertheless is very misleading by the way it chooses to
state facts.

It gives the impression that the goal of the legislation, the reason that the
majority of Congress supported it as did the President (and the reason the
President pushed to get it passed, as mentioned elsewhere in the article) was
to free the banks of this restriction.

The actual goal of the legislation was to fund the government, in order to
avoid another game of chicken like we had last year that led to a government
shutdown. The thing with the banks was just a small add-on to a large bill,
and was reluctantly accepted by the President and much of Congress because
they felt that another long deadlock and shutdown was worse then accepting a
few bad add-ons.

Yes, it is a bad change, but the way Congress is currently functioning due to
(1) the difficulty of getting anything bipartisan through the House, and (2)
the splits within the Republican Party between the mainstream and the Tea
Party, getting a budget through with only a few pieces of shit attached is a
major accomplishment.

------
rayiner
> How much might Citigroup need from the taxpayer if it blows up again?
> According to the General Accountability Office, Citigroup received more
> bailout assistance than any other bank in the last collapse. On October 28,
> 2008, Citigroup received $25 billion in Troubled Asset Relief Program (TARP)
> funds. Less than a month later it was back with hat in hand and received
> another $20 billion. But its finances were so shaky that it simultaneously
> needed another $306 billion in government asset guarantees. And on top of
> all that, the New York Fed was secretly funneling it over $2 trillion in
> emergency loans at interest rates frequently below 1 percent.

It would be easier to digest content from a site called "bitcoin warrior" if
it didn't mix incompatible numbers in a list and encourage you to add them up.

~~~
melling
TARP was a loan program and I believe many of the participants paid back their
loans. It's unclear from a Wikipedia if Citi did.

[http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program](http://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program)

~~~
jdmichal
Indeed, according to the official source [0], TARP has recovered 112% of the
funds it distributed to banks. The Treasury only has $900 million outstanding
within that category, of the original $245.1 _billion_ that was dispersed.
Going by just the numbers, this article would find a much more sympathetic
audience in discussing the auto bailouts, of which only 86.3% has been
recovered and, with only $1.4 billion outstanding, has already pretty much
been written off as a losing program.

Disclaimer: I'm not in any way saying that there aren't issues to be resolved.
But time has shown that the TARP-related aspects of this scenario turned out
positively.

[0] [http://www.treasury.gov/initiatives/financial-
stability/repo...](http://www.treasury.gov/initiatives/financial-
stability/reports/Pages/TARP-Tracker.aspx#Bank)

