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Source link: http://archive.mises.org/12329/the-current-banking-climate/

The current banking climate

March 29, 2010 by

The USA Today has an instructive article about the current regulatory climate for banks. Washington may be urging banks to make loans, but examiners are making it difficult.

“David Bridgeman, CEO of Pinnacle Bank in Orange City, Fla., described his last examination in November as ‘overwhelming.’ Twenty-one examiners from both the FDIC and the state showed up at his tiny 28-employee bank for the month-long review, spilling into two conference rooms. Typically, he says, about eight examiners complete a review in two weeks.”

{ 15 comments }

michael March 29, 2010 at 12:28 pm

This article, from The Onion, may be of interest:

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world’s largest economy.

“Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…” said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. “You know what? It doesn’t matter. None of this—this so-called ‘money’—really matters at all.”

“It’s just an illusion,” a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. “Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless.”

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, “Oh my God, he’s right. It’s all a mirage. All of it—the money, our whole economy—it’s all a lie!”

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency.

As news of the nation’s collectively held delusion spread, the economy ground to a halt, with dumbfounded citizens everywhere walking out on their jobs as they contemplated the little green drawings of buildings and dead white men they once used to measure their adequacy and importance as human beings.

At the New York Stock Exchange, Wednesday morning’s opening bell echoed across a silent floor as the few traders who arrived for work out of habit looked up blankly at the meaningless scrolling numbers on the flashing screens above.

“I’ve spent 25 years in this room yelling ‘Buy, buy! Sell, sell!’ and for what?” longtime trader Michael Palermo said. “All I’ve done is move arbitrary designations of wealth from one column to another, wasting my life chasing this unattainable hallucination of wealth.”

“What a cruel cosmic joke,” he added. “I’m going home to hug my daughter.”

Sources at the White House said President Obama was “still trying to get his head around all this” and was in seclusion with his coin collection, muttering “it’s just metal, it’s just metal” over and over again.

“The president will be making a statement very soon,” press secretary Robert Gibbs told reporters. “At the moment, though, his mind is just too blown to comment.”

A few U.S. banks have remained open, though most teller windows are unmanned due to a lack of interest in transactions involving mere scraps of paper or, worse, decimal points and computer data signifying mere scraps of paper. At a Bank of America branch in Spokane, WA, curious former customers wandered aimlessly through a large empty vault, while several would-be robbers of a Chase bank in Columbus, OH reportedly put their guns down and exited the building hand in hand with security guards, laughing over the inherent absurdity of the idea of $100 bills.

Likewise, the real estate industry has all but vanished, with mortgage lenders seeing no reason to stop people from reclaiming their foreclosed-upon homes.

“I don’t even know what we were thinking in the first place,” said former banker Nathan Collins of Brandon, MS, as he jimmyed open a door to allow a single mother and her five children to move back into their house. “A bunch of people sign a bunch of papers, and now this family has no place to live? That’s just plain ludicrous.”

The realization that money is nothing more than an elaborate head game seems to have penetrated the entire country: In Wilmington, DE, for instance, a collection agent reportedly broke down in joyful sobs when he informed a woman on the other end of the phone that he had absolutely no reason to harass her anymore, as her Discover Card debt was no longer comprehensible.

For some Americans, the fog of disbelief surrounding the nation’s epiphany has begun to lift, with many building new lives free from the illusion of money.

“It’s back to basics for me,” Bernard Polk of Waverly, OH said. “I’m going to till the soil for my own sustenance and get anything else I need by bartering. If I want milk, I’ll pay for it in tomatoes. If need a new hoe, I’ll pay for it in lettuce.”

When asked, hypothetically, how he would pay for complicated life-saving surgery for a loved one, Polk seemed uncertain.

“That’s a lot of vegetables, isn’t it?” he said.

matt March 29, 2010 at 12:31 pm

simple math with these FDIC reviews. if a bank has enough loans downgraded by regulators then they are downgraded as a bank. banks scoring a 1 or 2 are assessed a risk premium at one rate, when a bank is downgraded to a 3 or 4 then they are assessed at a higher rate. the FDIC has already required 3 years premiums in advance beginning early this year and now they’re systematically downgrading banks to further bolster their coffers.

J Cortez March 29, 2010 at 2:16 pm

This is like the Keystone Cops, always several steps behind.

I think the FDIC has an inkling about how bad things are going to get when real estate has its second collapse and is trying to stem the flow. It isn’t going to work, of course.

HL March 29, 2010 at 3:28 pm

All banks are technically bankrupt. I can’t blame the regulators. Well, let’s say I can and can’t but won’t in this case. If only the Fed has let them all fail. Instant liquidation. We’d be in a boom by now.

Old Mexican March 29, 2010 at 4:24 pm

The USA Today has an instructive article about the current regulatory climate for banks. Washington may be urging banks to make loans, but examiners are making it difficult.

Just goes to show you the schizophrenic side of government regulation.

Mitchell Powell March 29, 2010 at 9:48 pm

As usual, government intervention (in this case easy-credit policies forced on us through fraudulent currency policies) leads to problems (in this case a worldwide banking crisis and depression) which are then used as justification for greater intervention (in this case squads of investigators watching every move banks make). That’s a really harmful feedback loop.

Ohhh Henry March 29, 2010 at 11:25 pm

Bloomberg – Secret Banking Cartel Emerges from AIG shadows.

The NY Fed is crime central. Read here … on page 157, the NY Fed concealed its inflationary bailout of foreigners by pretending that they were trying to save good old ‘Murrican farmers in Kansas. The resemblance between the memos written by the NY Fed 1928 and 2008 emphasizing the necessity to cover up the bailouts is astonishing. To paraphrase Rothbard – to hell with conspiracy theories, the farking conspiracy facts could not be more plain.

Nice to see Congress sniffing around a bit, but nothing is going to be fixed by anyone or anything coming from the District of Mordor. Wall Street depredations on the taxpayer may be finally fixed by bankruptcy and/or a long slow decline of power, or it may be firewalled from its victims by nullification and secession movements.

Rick March 30, 2010 at 2:04 am

The FDIC would close more banks but they’re bankrupt too. They’ll be auctioning off failed banks to stronger ones (not just bigger ones). Stronger banks do exist.

In my conspiracy theory side of the brain, I suppose it’s possible a cash poor FDIC would aggressively audit small banks hoping to find something, anything, that would give them reason to downgrade it and eventually take it over. Then auction it off to bigger banks and pocket the money. That’s one way the socialized deposit insurance scheme could continue to “work”. Take over small no-name banks whether they’re really at risk or not, sell them to big ones, and then tell the ignorant masses that their deposits are “safe” at the brand name stores (stores being what Wells Fargo calls its branches).

That said, savvy investors could make some money investing in the few strong banks remaining who will likely scoop up smaller banks at auction. Not saying that would be the moral thing to do. Then again, protecting your money – fiat or not – and finding ways to make it grow in this insane climate might be the moral thing for Austrians to do so we can live to fight the good fight another day… rather than be wiped out like everyone else.

Mushindo March 30, 2010 at 4:34 am

The intervention weve seen these last few years are to banking what King Canute was to the sea: Its all aimed at preventing assets from being repriced, and hence it gums up the works.

Like any other business, a bank falling over does make it vanish, even if the Fed doesnt bail it out. To the extent that its assets remain viable, they are repriced by willing buyers, and redeployed in the markets in fresh hands. what could be simpler or more elegant?

Mushindo March 30, 2010 at 7:22 am

sorry, I meant to write ‘…does NOT make it vanish, even if the Fed….’.

Jack Roberts March 30, 2010 at 8:51 am

With interest rates so low it is not surprising that they do not want to lend. The manipulation of interest rates on such a grand scale, by the BOE and the FED, is far more disasterous than the threat the action is meant to mitigate.

El Tonno March 30, 2010 at 8:55 am

Speaking of banking, there was a really bizarre alternative reality article on Alternet “The Growing Movement for Publicly Owned Banks”

http://www.alternet.org/story/146123/the_growing_movement_for_publicly_owned_banks

in which the author explains the supposed virtues of publicly-owned banks:

“Virg Bernero, mayor of Lansing, the state [of Michigan]’s capital, and a leading Democratic candidate for governor, proposes to relieve the state’s economic ills by opening a state-owned bank. He says the bank could protect consumers by making low-interest loans to those most in need, including students and small businesses; it could also help community banks by buying mortgages off their books and working with them to fund development projects. Bernero joins a growing list of candidates proposing this sensible solution to their states’ fiscal ills. Local economies have collapsed because of the Wall Street credit freeze. To reinvigorate local business, Main Street needs a heavy infusion of credit, and publicly-owned banks could fill that need.”

Jack Roberts March 30, 2010 at 9:43 am

End the monopoly on currency that the central banks have.

What we need is a plausible plan of transition from a central banking/nationalised currency economic system. To a multiple private currency economy that is modern and dictated by the market, not by self interested globalists set on bankrupting the planet.

The problem comes with transferring the wealth from one currency to the other. No one will be interested in a new currency if it means they will loose wealth. So a working transition to a better economic system would have to keep the rich, rich.

A slow start would be best, allowing the payment of taxes in other currencies and the opportunity for new currencies to exist a long side the national currencies and eventually entering the foreign exchange market to compete as a global currency.

Of course the semantics can be discussed in depth and is something that I try to spend some time on formulating. As without a plausible plan for the transition to a working economic system, we are left arguing over the semantics of economic theory.

Mushindo March 30, 2010 at 11:32 am

If I recall, Jesus Huerta de soto has mapped out just such a proposal in his giant book..

Jack Roberts March 30, 2010 at 11:38 am

Thanks, I will look in to the author you have mentioned.

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