Why the Fed Ignored Warnings and Let Banks Pay Shareholders Billions

[xchrom]

http://motherjones.com/politics/2012/03/fed-shrugged-warnings-let-banks-pay-shareholders-billions

In early November 2010, as the Federal Reserve began to weigh whether the nation's biggest financial firms were healthy enough to return money to their shareholders, a top regulator bluntly warned: Don't let them.

"We remain concerned over their ability to withstand stress in an uncertain economic environment," wrote Sheila Bair, the head of the Federal Deposit Insurance Corp., in a previously unreported letter obtained by ProPublica.

The letter came as the Fed was launching a "stress test" to decide whether the biggest US financial firms could pay out dividends and buy back their shares instead of putting aside that money as capital. It was one of the central bank's most critical oversight decisions in the wake of the financial crisis.

"We strongly encourage" that the Fed "delay any dividends or compensation increases until they can show" that their earnings are strong and their assets sound, she wrote. Given the continued uncertainty in the markets, "we do not believe it is the right time to allow transactions that will weaken their capital and liquidity positions."

[denverbill]

1. We need to start putting 'regulator' in quotes. Banks are the true regulators.

We should just stop insuring deposits of any bank which controls more than 1% of the country's assets.

[xchrom]

2. yeah -- it's a euphemism at best. nt

[Lasher]

3. Why should the banks worry?

It is abundantly clear the taxpayers will bankroll their indiscretions while they keep the profits.

[xchrom]

4. Banks & corporations have been very successful at

Tapping the Ever Renewing Well of Taxes.

With help from grateful politicians - they don't even have to pay their fair share of taxes.

[Lasher]

5. The moral hazard precedent was set when Saint Ronnie created the S&L crisis

Deregulation was going to free the benevolent invisible hand so that we would all prosper, you see. Instead we got a disaster that took until the 1990s to rectify, at a cost of $88 billion.

But we didn't learn any lesson from that. Au contraire, we continued with our foolish neoliberal ideology, deregulating more. And now we have the inevitable result: the Subprime Mortgage Crisis and the Great Recession. All paid for by the taxpayer.

Yet there have still been no significant reforms to restore the controls that prevented these nightmares ever since the Great Depression. And without such steps we are doomed to repeat history over and over.

[xchrom]

6. anything less than serious reulation leaves too much wiggle room for these guys. nt

[Hotler]

7. Tens of thousnds of citizens should be...

marching on the gated communities of the banksters. And some of the bankers need to hang from lamp post. I hate those fuckers.