Banker tells the truth, gets ignored

[n2doc]

This came out over the weekend. Very interesting article
The Good Banker
By JOE NOCERA
Published: May 30, 2011

Not long ago, as I was leaving a business lunch, my luncheon companion handed me a thin manila envelope. He didn’t tell me what was in it or why he had given it to me, but as soon as I opened it up, I immediately understood.

It contained a copy of the 2010 annual report to shareholders by a bank executive I’d never met: Robert G. Wilmers. For nearly 30 years, Wilmers has run the M&T Bank, based in Buffalo. When he took it over, M&T had $2 billion in assets; today, its assets exceed $68 billion, and it’s one of the most highly regarded regional bank holding companies. It has also been one of the best performing stocks in the Standard & Poor’s 500-stock index; indeed, M&T was one of only two banks in the S.& P. 500 that didn’t cut its dividend during the financial crisis.

Wilmers’s report, however, was less about the company’s numbers than about the dismal state of his beloved profession. Wilmers, it turns out, is that rarest of birds: a banker willing to tell harsh truths about banking. That, for instance, much of the money the big banks earn comes from trading profits “rather than the prudent extension of credit that furthers commerce.” That derivatives had helped bring about the crisis and needed to be regulated. That bank executives were wildly overpaid. That the biggest banks — the Too Big to Fail Banks — were operating, as he put it, an “unsafe business model.”

...

Finally — and this is what particularly galled him — trading derivatives and other securities really had nothing to do with the underlying purpose of banking. He told me that he thought the Glass-Steagall Act — the Depression-era law that separated commercial and investment banks — should never have been abolished and that derivatives need to be brought under government control. “It doesn’t need to be studied for two years,” he said. “I would put derivative trading in a subsidiary and tax it at a higher rate. If they fail, they fail.”

more

http://www.nytimes.com/2011/05/31/opinion/31nocera.html

[Arctic Dave]

1. Good article. nt

[truedelphi]

2. Oh but Obama changed all that - at least in e-mails I get each week

From those who claim that Obama "Signed a significant financial reform law prohibiting banks from engaging in proprietary trading"
(trading the bank's own money to turn a profit, often in conflict with their customers' interests)

I have the feeling that is not the case, so this article might help me query them on why they keep saying this.

I mean, maybe there is some section of the very weak financial reform law that forbid this, but I have the feeling that the loopholes are big enough to drive a bank through.

[Angry Dragon]

3. K&R

[scarletwoman]

4. Rec'd and kick. (nt)

[Dawson Leery]

5. $68 billion in assets is alot of money.

Note that the TBTF banks "assets" increased exponentially over the past decade (since regulations were removed) as where M & T took decades to reach a fraction of what the TBTF banks have.

[slipslidingaway]

6. Feingold: 'Standing Up to the Unholy Alliance Between Washington and Wall Street'

http://www.commondreams.org/headline/2010/06/30-9

"...On this bill, like the others that preceded it, the biggest financial interests have won.

...Those two measures -- the 1994 law and the 1999 law -- accelerated the trend toward increased concentration of financial assets, aggravating the problem of "too big to fail." Before those two laws were enacted, the six largest U.S. banks had assets equal to 17 percent of our GDP. Today the six largest U.S. banks have assets equal to more than 60 percent of our GDP.

Ultimately, it was the threat of the failure of the nation's largest financial institutions that spurred the Wall Street bailout. I opposed that measure as well, in part because it was not tied to any fundamental reforms of our financial system that would prevent a future crisis and the need for another bailout. We could have had a much tougher reform package if the bailout had been tied to such a measure.

...Every single one of those bills caved to Wall Street and the biggest financial interests, and so does the current regulatory reform bill. Economist Dean Baker called this bill a "fig leaf," and former IMF Economist Simon Johnson has slammed the bill's failure to address "too big to fail." These experts paint an accurate picture of this bill's failings, and frankly those failings shouldn't come as a surprise. Many of the critical actors who shaped this bill were present at the creation of the financial crisis. They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the "too big to fail" skids. It shouldn't be a surprise to anyone that the final version of the bill looks the way it does, or that I won't fall in line with their version of "reform."

This bill caves to Wall Street interests, it doesn't meet the test of preventing another financial crisis, and it won't get my vote."

[Wind Dancer]

7. K&R

Excellent article!

[defendandprotect]

8. Of course -- Glass Steagall Act should be restored --

[lonestarnot]

9. K & R!

[slipslidingaway]

10. September 2000 ... DERIVATIVES EXPOSURE: UPDATE 2Q 2000

Good thing nobody had a clue until Paulson came by with his three page bailout bill.

:mad:

http://www.contraryinvestor.com/2000archives/mo091200.htm

"Thirty Nine and Holding...Thirty nine trillion that is. That's right, as we told you last Thursday, the 2Q '00 Bank Derivatives report has hit the street. Well, in this case, the backstreet as we just never find mention of it in the popular financial press or the Wall Street analytical community. We keep you updated with the highlights of this report quarterly as the derivatives complex is inextricably linked with the credit markets. They are self reinforcing. Although the report shows the total notional value of derivatives held by the US banking system at $ 39.3 trillion as of 2Q quarter end, there is simply no question in our mind that by now, banks have rolled over the big Four-O. Is it really all downhill from here? (Unless money and credit creation in the financial system slows, not a chance.)

...At The Wire...After the close, it was announced that the Board's of Chase and JP Morgan "are talking" (about a potential merger). Looking at the 2Q derivatives report, our humble and meek response is HOLY GOD! These are clearly the two largest players in the derivatives market among the banks. Put them together and the single entity alone would account for over 50% of all US banking system derivatives exposure. The combined Chase/JPM would be exposed to over $20 trillion in notional derivatives securities/contracts. (Once again an unfair comparison, but a notional value greater than the entire value of the US equity market.) Remember, these are the two entities with outsized reliance on trading and the greatest derivatives credit exposure as a percentage of risk based capital. We truly live in remarkable times. We guess it is a new era after all.


Notional values and actual dollar values...
From February 2000

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352021

"....Let's get one thing straight, one must draw a clear distinction between notional values and actual dollar values. The whole premise of derivatives transactions is that a few real dollars can be spent to control a large amount of notional dollars. Hence the leverage..."

[slipslidingaway]

11. kick nt

[bvar22]

12. The Holy Grail of Big Business = Too Big to Fail.

At that point, under our current system, they are allowed to gamble without worry.
If they lose, they dip into the Public Treasury to cover their bad bets and pay themselves HUGE Bonuses.
If they WIN, they get to keep all the money!!!!
"Its the Uniquely American Solution,"
endorsed by the leadership of BOTH Political parties.


Now THIS is "bi-partisanship"!
Better get used to it!
Hahahahahahahahahaha!

[Godhumor]

13. Link to the annual report if you want to see his comments

http://files.shareholder.com/downloads/MTB/1240591057x0x440155/F91AA1A8-3BE5-40C1-A564-DA17FE5CECF3/2010_Annual_Report.pdf

Reguulation starts on pg 16 of the pdf (pg xii if you're following actual page numbers).

[slipslidingaway]

15. Thanks for the link, small snip ...

"...Specifically, I am concerned about a powerful combination of factors: increased
concentration in the financial services sector, where profits are driven by how well
one trades rather than the prudent extension of credit that furthers commerce; a
resulting outsized-compensation system which disproportionately draws talents away
not just from traditional banking but other professions crucial to economic growth; a
government regulatory regime which both enables what I have described as this “virtual
casino” to continue, notwithstanding its role in precipitating the financial crisis — and
which, by not recognizing the difference between Main Street and Wall Street banks,
financially burdens the “real economy.”

..."

[Dawson Leery]

16. Thanks

[DirkGently]

14. Glass-Steagall. Got that back yet, do we?

[sarcasmo]

17. The numbers are all a lie.