Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bank Mortgage Settlements - There’s a Cost to All This Good News

Companies / Banksters Sep 03, 2014 - 01:22 PM GMT

By: Money_Morning

Companies

Shah Gilani writes: Too-big-too-fail banks are paying record amounts to settle mortgage-related malfeasance dating back to the financial crisis, and everyone seems to think that’s good news.

It is… and it isn’t.

Not including legal costs and other lawsuits, Bank of America Corp. just settled for $16.65 billion, which beats the previous record $13 billion JPMorgan Chase & Co. paid.


The total and final tab for both banks’ forays into the mortgage securitization sinkhole will never be known. But based on what they’ve paid out so far, their combined costs will easily exceed $100 billion.

Think about that number: $100 billion.

Don’t get me wrong. I’m happy the banks are paying up. And I’ll be sad when they’re done paying, because the damage they caused will linger for decades.

But I’m worried about the cost…

Earning Their “Thank You” Cards

I’m not worried about what the past cost. I’m worried that the TBTF banks won’t do what they did during the last crisis again.

Lest we forget, JPMorgan Chase bought Bear Stearns, and Washington Mutual and Bank of America bought Countrywide Financial and Merrill Lynch & Co. While both banks would have had losses and faced litigation even if they didn’t “rescue” the failing giants, the hasty acquisitions are costing them now.

Will these costly acquisitions ever pay off? Maybe they will. Maybe they already have. That’s not the point.

What worries me is that when the next crisis hits, and it’s brewing, the TBTF banks aren’t going to make the same mistakes they made last time. They’re not going to “rescue” anybody without a never be jailed/never be sued “thank you” card… hand signed by the Treasury secretary and the president.

Why on Earth would they ever again expose themselves to all these lawsuits, settlements and “distractions” when they can have their cake next time and eat it, too?

That’s what’s going to happen. That’s the bad news with all these settlements.

The TBTF banks are all a lot bigger. And their competitors are all getting bigger, too, in order to compete with the giants.

Size matters when there are failures. Only the biggest banks can absorb giants, and they’ll have to. And they’ll do it gladly, because they won’t have any contingent liabilities to worry about next time.

It’s really simple math.

The Federal Deposit Insurance Corp. can’t bail out a giant insolvent bank without a lot of taxpayer assistance. The FDIC’s guarantee fund is relatively tiny compared to the losses any single giant bank failing would cost.

That’s why failed banks are almost always merged into healthier or bigger banks. And even then the FDIC sometimes has to pony up some money.

So when the next banking crisis comes and TBTF banks are asked to rescue failing big banks or, heaven forbid, another TBTF bank, they’ll say, “Not without a hand-signed thank you card.”

And they’ll get it.

The so-called “living wills” that banks submitted last month – the worthless plans they put together to convince their regulators they could be liquidated in an orderly fashion if the implode – didn’t fly with the regulators.

After all, pigs will never be able to fly. And once one of these TBTF institutions fails, it’s over.

One giant will topple another – it will be like dominos falling. And the only way to rescue them will be to merge them with a thank you card.

Is there a better way? Sure there is. But it’s never going to happen.

The only way to secure the banking and financial services engines of modern-day monster economies is to make them all smaller and have more of them. That way a one-off failure won’t infect the entire system as it did in 2008.

But don’t worry. Everything is going to be fine… until it isn’t.

Source : http://www.wallstreetinsightsandindictments.com/2014/09/theres-cost-good-news/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in