Is Another Huge Bank Failure Brewing?
Jul 2nd, 2009 | By Contrarian Profits | Category: Top StoryA 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?
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Regarding the next bubble, there appear to be efforts to inflate the market for carbon absorbing technologies under way, i.e., review the climate change bill, just passed.