Is Another Huge Bank Failure Brewing?
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/Xx6rHq43luw/18644Posted on Thursday, July 2nd, 2009 | In Market Commentary
A large “mystery” bank is scrambling for late night cash. At the close of the quarter, an unnamed bank paid 7% for overnight money from the Fed. The mainstream and the Fed claim this to be normal behavior at the end of the quarter, but don’t believe it for a second.
Here’s Karl Denniger at the Market Ticker on why you should be concerned:
Let’s put this in plain language: The discount window is open for any bank that has good collateral at less than 1/10th of that interest rate.
Therefore there is absolutely no reason for any institution to go into the Fed Funds market for overnight money at 7% unless they have no good collateral to post against it and thus cannot go to the window.
So which bank was it? That remains unknown.
But there’s absolutely no reason a well capitalized bank would borrow at 7% when they could do it at 1/10 of the price. And the last time this fishy late night borrowing went down was right before the massive wave of bank failures of Lehman Brothers, Washington Mutual, and Wachovia.
This isn’t stopping banks from paying out huge bonuses (again). The banking hubris that got us into this mess has returned in full force.
According to the Wall Street Journal, Goldman Sachs “is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007… Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year, analysts predict.”
The return of the mega bonus just goes to show how hard it is to break Wall Street’s bad habits. We suspect the financial geniuses are busily crafting the next bubble. Any ideas what it might be?
Last 5 posts by Contrarian Profits
- How do retail sales stack up in an atypical recovery? - November 24th, 2009
- The Best Energy Investments in the World - November 23rd, 2009
- Transportation Sector: powered by recovery - November 23rd, 2009
- The Dollar, the Euro, and being Bullish on Gold - November 20th, 2009
- Audit the Fed – Amendment to a $200 billion bill frightens currency traders! - November 20th, 2009
Bank, Bank Failures, contrarian profits, fed-funds, Federal Reserve System, Goldman Sachs, Karl Denniger, Lehman Brothers, Market Commentary, Morgan Stanley, The Macro Trader, The Wall Street Journal, United States, unnamed bank, USD, wachovia, Wall Street Journal, Washington Mutual, well capitalized bank
ContrarianProfits.com is a financial news and opinion website with a twist. As investment guru Rick Rule puts it, “You are either a contrarian or a victim.” In the financial world, most people are losers because they just don’t know what game they’re playing. They think they can just get “into the market” along with everyone else, do what everyone else does, and they will make money. Not likely. By the time you’ve paid commissions, spreads, fees, taxes – and suffered the consequences of inflation – you’ll be very lucky just to have as much money as you started with.
ContrarianProfits.com is a contrarian site, in the sense that we provide ideas, opinions and recommendations that often run counter to the mainstream financial press. We do this not just to be contrary, but because we’ve realized that Rick is right. You don’t make money by following the crowd; you make money by leading it.
Why is this so? Well, it’s obvious that if you do the same thing everyone else does you’ll get the same results everyone else gets. On average, and over the long run, real investment returns for the typical investor cannot exceed the rate of growth of the economy itself. Everybody can’t get richer faster than everybody else. Real economic growth in the US today averages about 3% per year; if you don’t make any mistakes, that’s about what you can expect. Few people may be satisfied with 3% per year, but most feel comfortable in the middle of the financial herd and are happy to take whatever that gets them. If you’re one of those people, you will probably not like our site. It will make you uncomfortable.
If, on the other hand, you’re willing to look at things a little differently, you’ll appreciate the views of many of our columnists, contributors and visionaries.
No recommendations, either expressed or implied, are being made to buy, sell, hold or short any of the mentioned stocks. No legal, tax or accounting advice is expressed or implied. Always contact your attorney, CPA, or tax advisor before acting on any legal or tax issues. StraightStocks.com is not responsible for the content, products, or services of any of the advertisers on this site. StraightStocks.com receives compensation from advertisers on this blog. Services and products referred to herein are trademarks, registered trademarks, servicemarks, and/or registered servicemarks of their respective trademark or servicemark owners.