Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Banks Stress-Testing Tax-payer Patience!

Politics / Market Regulation Mar 05, 2010 - 05:21 PM GMT

By: Sy_Harding


Best Financial Markets Analysis ArticleCongress is working on plans to rein in the questionable activities of Wall Street, and re-direct the self-serving focus of major banks. I wish them good luck with that.

The financial firms are fighting back with propaganda blitzes aimed at raising public fear.

For instance, independent economists are debating the pros and cons of moves announced in the U.S. and the U.K. to remove some of the stimulus efforts that rescued the financial firms this time, for instance the U.S. Fed’s decision to stop its program of buying mortgage-backed securities, and the U.K.’s decision not to extend its program of allowing banks to exchange mortgage-backed securities for government bonds.

But the Institute of International Finance (IFF) has no doubt about what the outcome would be. It says it would have “a significant impact on the economy”, that mortgage rates will rise, and home sales and home prices will decline. The group also opposes the ‘Volcker Rule’ being considered by Congress, which would prevent banks that take in customer’s deposits from trading for their own profits in markets.

What is the IFF? It’s a global association of commercial and investment banks, insurance companies, and money management firms, which established itself in 1983, after the international debt crisis of the early 1980’s.

Financial firms have already been successful in convincing the SEC not to re-impose the ‘uptick rule’ that impedes relentless short-selling in market declines. Wall Street successfully lobbied to have the rule rescinded in 2007, just in time for the 2007-2009 bear market. The long-standing rule had been imposed in the aftermath of investigations into the causes of the 1929 market crash.

The SEC voted two weeks ago against re-instating the uptick rule, and instead provided a rule that any time a stock has declined 10%, short-selling will be banned for the rest of the day and the following day. It is so ridiculous that even those at Wall Street firms laughed about it and called it ludicrous. So now a stock can still be driven down 10% in a matter of minutes, but it cannot be driven down another 10% until two days later.

Adding to the insult to investors is the memory of how the financial firms howled bloody murder 18 months ago when their own stocks were subjected to heavy short-selling in the aftermath of the collapse of Lehman Brothers. Regulators rushed to their rescue by banning all short-selling in some 799 financial firms for the duration.  The result was instant in creating a ‘short squeeze’ on short-sellers, forcing them to move to the buy side to close out their positions, which in turn sent the shares of banks and other financial firms rocketing to the upside. (The short sale bans were quietly removed a few months later after they had done their job).

Yet the financial firms insist that short-selling is good, contributing to price efficiency and adding market liquidity, and need not be regulated. Well, apparently as long as it doesn’t include short-selling of their stocks.

Meanwhile, how are the banks doing in response to government pressure that they help the economy recover by making loans and modifying troubled mortgages, using some of the $billions they received in stimulus money, and the huge profits they’re making from low interest rates and their high-risk trading in derivatives (probably the next bubble to burst)?

Well, the FDIC reported a few weeks ago that bank lending plunged last year to its lowest level since 1942, with the failure to lend showing up in all forms of loans, including home mortgages, commercial loans, and construction loans. The Federal Reserve reports that lending remains tight.

And how are the major banks doing with their promises to aggressively modify mortgages for qualifying home-owners, those who are behind on payments but able to handle payments if loans are modified to more reasonable rates or extended to longer terms?

The latest report from the Home Affordable Modification Program shows incredible foot-dragging and excuses. Of 3.4 million qualified mortgages only 3% have been modified. The lender with the best record is GMAC, which has modified 17% of the 65,751 qualifying mortgages on its books. One of the worst records has been by Bank of America, by far the largest lender, with 1.1 million delinquent mortgages, of which it has only modified one percent.

As they did after a similar report six months ago, the banks have promised to do better. 

In the other direction, however, many major financial firms are doing just fine.

The latest SEC filing by Goldman Sachs reveals that in 2009 the firm made more than $100 million in trading profits in just one-day on 131 days, an average of every other trading day. It lost money on only 19 days, and on the losing days none of the losses exceeded $100 million. That broke the record it had set the previous year, 2008 (when the financial system was supposedly close to total collapse), when Goldman made more than $100 million in one day on a then record 90 days. With the stock market in a sickening bear market decline in 2008, could one assume there was considerable short-selling involved, easier with the uptick rule abolished?

As for redirecting the focus of financial firms, so far it’s been a case of thanks to taxpayers for bailing us out again, but don’t look for us to return the favor. Dig yourself out of the mess. And to the 16 million unemployed, we’re not hiring you. In fact we’re sending you some company, downsizing our loan operations and closing branches - unless you’re a hot shot trader who can make us $5 million a day trading derivatives in our expanding trading departments – we might offer you a $5 million signing bonus.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - 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