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Tags: federal | greenspan | reserve

It Was Great to Be a Banker After 2008 Crash

the financial crisis and crash of eleven years ago when investments lost value
(Lucian Alexandru Motoc)

Hans Baumann By Tuesday, 05 March 2019 05:27 PM Current | Bio | Archive

First, a little history is in order.

The March 10, 2000 ".com" market collapse of high-flying tech-stocks caused a major financial crisis due in part by the fact that substantial amounts of high-tech stocks were bought on margin — with cash provided by major banks.

With the collapse in stock prices there was no more collateral for these margin loans and holders of these stocks refused or were unable to pay back the amount owed to banks. This caused a huge drain in cash reserves at the banks. One of the biggest banks affected was Citibank, which lost nearly all of their legally required reserves and as a result faced bankruptcy.

The Federal Reserve Bank under Alan Greenspan decided not to let this happen since a collapse of such a big bank could have a snowball effect on other banks.

So, they had to do something.

At that time there was a legal ceiling of how much interest banks could charge on credit card loans. The limit then was five percent. In order to help the banks the Federal Reserve abolished the limit. As a result, interest rates swelled to ten percent and higher giving the banks, being major clearing houses for credit cards, a badly needed windfall of cash.

As a result, Citibank (for one) was saved and again operated in the black after only one year.

The 2008 banking crisis was much worse and the old credit card trick was no longer available. The Fed had to think of something else in order to bailout U.S. banks.

To their credit, they thought of something.

To bolster their credit balance sheets, the Fed offered banks treasury notes.

Here's the trick: In order that banks legally could add the dollar face value of those notes to their assets (even though there was no payment made by the banks) the Fed declared the notes to be a "joint property."

This was the most advertised "stimulus"and slowly put the banks on sound footing.

The Fed even went a step further by paying the banks interest on those notes.

This was great business for the banks, for they received interest on notes they legally did not own.

Sometimes, it's good to be a banker.

Unfortunately, there was an end to the good times when the Federal Reserve decided to "unwind" this effort and began to recall their notes from the banks. According to Federal Reserve statistics, on Jan. 3, 2019 there were still $ 1.6 trillion dollars worth of notes held by depositary institutions. This amount was still left after a recall of $ 587 billion during 2018.

Finally, more comments on electric cars.

Big oil companies may wonder about losing business due to the greater spread of electric cars. I tell them not to worry, since electric cars, being very inefficient require 25 to 30 percent extra fuel for power plants in order to create the additional wattages to cover the need of transformers, transmission lines battery inefficiency, and so on (see my column of March 23, 2015).

This means the increase in fuel production for gas or oil fired power plants will far exceed the expected loss in gasoline sales.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Dr. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history, including "Hitler's Escape," which suggests that Adolf Hitler did not commit suicide and survived World War II. In his latest book, "Atomic Irony" he proves that the Hirshoma Atom Bomb contained captured German Uranium. For more of his reports, Go Here Now.

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The 2008 banking crisis was much worse and the old credit card trick was no longer avaiable. The Fed had to think of something else in order to bail-out U.S. banks.
federal, greenspan, reserve
Tuesday, 05 March 2019 05:27 PM
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