Tuesday, December 11, 2012

More Stupid Stuff From D.C.


Reid TAGs Up


We’re going to get an important vote in the Senate later today. The vote will be on S.3637.



This about TAG; an emergency measure taken in 2008 where the FDIC guaranteed 100% of all money in checking accounts. Originally, it was intended that TAG would be around for only two years, in 2010 it was extended for another two. Now Harry Reid wants two more.


As is required with any proposed law, the Congressional Budget Office gave Reid’s bill a review. Some words from the CBO on S. 3637:


CBO estimates that fees collected by the FDIC would not offset the full risk of the additional insurance coverage.


CBO expects that, using recent history, the FDIC would underestimate probable losses when setting fees to charge for this additional coverage.


Because the fees charged for the additional insurance would be insufficient, in CBO’s estimate, to offset the expected value of the cost, enacting S. 3637 would have a net cost to the FDIC over the next 10 years.



This is a D- report from CBO, yet Democratic Senators will line up to sign S. 3637.


The CBO calculated that extending TAG would cost about $20m a year. That seems like a very low number to me. It comes to an insurance premium of only  0.001% on the $2 Trillion of account balances that are getting the protection.


TAG is the poster boy for TBTF. Trillions of bank deposits are guaranteed by the FDIC without any insurance premiums being paid. TAG is not necessary in 2012 anymore than it was for the hundred odd years that the banking system worked before TAG came into being.


TAG is a free subsidy for big and medium sized banks. Reid’s motivations are questionable on this legislation. Either this is payback for corporate donations, or, even worse, it is a show pony law designed to piss off Republicans; possibly both.


Reid is a little guy, but has big clout in D.C. He might have the votes in the Senate to past this bill tonight, and send it to the House. But House Republicans are not going to go for this. Nor should they. It’s a bad law that makes big government bigger.


When the House does reject the Senate Bill, the Democrats will be able to cry that the “Reds” are the ones who are resisting progress. The American people don’t understand what TAG is about; they will believe that the Republicans are to blame (once again) for the lack of movement in Washington.


I don’t think Reid is a complete ass. He knows that the Bill he is sponsoring is bad law. This is about pay back. What a horrible place Washington is.




Eddie D. Takes a Walk


The Wall Street Journal reported yesterday that Ed Demarco, the current boss at the FHFA, is out of his job at the end of the month.



This development is no surprise to me, I wrote about this happening on November 7 (Link). Liberal Democrats in the House (Elijah Cumming and Maxine Waters), have been trying to get DeMarco out of his job for the past two years. Obama has used his Treasury Secretary, Tim Geithner in an attempt to push Ed out. But Ed has hung in. His survival has been assured, up till now, by a very powerful player, Senator Richard Shelby (R- AL).


DeMarco has, in my opinion, done a very good job with America’s busted mortgage lenders. The principal objective of the FHFA was to protect taxpayers from losses at these two dogs. F/F have proved to be a disaster for the country, but the losses that could have been incurred were many times larger than the actual results. DeMarco has saved the country tens of billions, possibly as much as $100B. For that, he is being shown the door.


A new, White House placed head of the FHFA will open the door for a massive Mortgage Mod program. Obama has been trying to do this for the past few years, DeMarco stood in the way. Come January, there will be a new person running the show, a lapdog for the Administration. A Mod program will follow, F/F will get stuck with the losses. In the end, the taxpayers will pay the bill.



You have to put Reid’s Bill and the “Public” announcement that DeMarco is out, in the proper context. (Leaks at the WSJ are now public announcements) Democrats are strutting their stuff. The “big win” a month ago gives them that right, at least that is what they think. Now that they have a “mandate”, they can pass stupid laws (S.3637 is stupid), and they can do back backdoor bailouts that cost hundreds of billions, without asking a soul.


Hopefully, intelligent people in the House will see through the Reid scam. I don’t think that good ole Harry’s law comes into being. It will get through the Senate, but it will die in the House. All Reid will have accomplished is to set up the opportunity for another pissing match.


As for Senator Shelby, well, unlike Reid, he’s a big guy, but like Reid, he too has lots of  clout. The President has hit his hot button with DeMarco. I can’t imagine that the good Senator is too  pleased with this outcome.  It’s hard to get deals done in D.C. without guys like Shelby stepping up.


The fiscal cliff debate gets center stage. But offstage, the Democrats are throwing knives on unrelated issues. Dumb ones at that.  It’s as if they are trying to poison the well.



  1. Bruce,

    I understand that the biggest banks have been the net beneficiary of the TAG program in terms of deposits, but I actually believe that it is relatively important for the community banks that the program remain. As a small business owner, I would not be willing to leave significant deposits above the FDIC limit in most community banks. On the other hand, the smaller banks are generally the biggest source of credit for businesses like mine. Remove TAG, and my excess deposits will disappear–most likely to a bank with an implicit government guarantee…

    • You keeping more than $250K in the company checking account? I’m thinking your business is not as small as you make it out to be.

      You say you borrow from a community bank, and if TAG goes, you worry about the exposure. Ask your lawyer about this. If you borrow $500k from a community bank, but also have a payroll account with $400k, and the bank goes down, where do you stand?

      Without TAG you think you might be at risk for $150k (difference between $250 and $400k). But actually you have a full right of offset to anything that you might owe to the now busted bank.

      Basically, you want your bank to go bust, provided you owe them more than you could lose. If your transaction balances are larger than that, then you should go to a bigger bank.

      PS Glad you have the problem of too much cash.

      • If you want a loan without a personal guarantee at many banks, you will have to put money on deposit. That leads to big balances, which will not feel safe when TAG is removed.

  2. More deadbeats with more plans to piss away money they don’t have.

    John Boehner is an idiot — but even he has figured out the government is financially bankrupt. Now we are just waiting on all the Rhodes Scholars and Nobel Prize winners to catch up with the idiot

    • Greg, I’ve read a number of your posts and you seem to be a guy who is angry with the world. No doubt for reasons unrelated to politics, banksters, etc….these things are just your convenient punching bag. But,the value in your commentary is not there….they’re just rants. Might want to get down to the real deal of what you’ve got going on.

    • @Warrior1 — The emperor has no clothes. Period.

      Calling the kid (or me) a malcontent, and/or attacking the messenger doesn’t change the facts or the message either.

      All your psycho-babble will not make the losers in Washington DC solvent.

      • @Greg, I’m not disputing with your “facts” (more in the realm of opinions)….I largely agree with them.
        You wouldn’t have grasped that because you’re very self-involved and seem to think the world in consipiring against you.

        My issue is that your views are just cranky rants and don’t constructively add to the discussion.

  3. It would be hard to sit down with a pad of paper and pen and come up with ideas that are as bad as what we are seeing. Thankfully, there is a city full of lobbyists doing all the thinking for us.

  4. Bruce. pme key DeMarco has been working on is making sure Fannie and Freddie enforce mortgage documentation upfront before accepting a mortgage. With the Fed, now buying $40 billion a month in MBS the integrity of Fannie and Freddie is very important. Please keep us advised as DeMarco’s successor takes over.

  5. how come i can’t comment on some of your post?

    I saw your article on busting the HKMA. What exactly will happen if the HKD is forced to depeg however? And I can’t see why the HKMA will be forced to depeg. They just keep buying up the currency and we get more bubbles. If the currency depegs, Hong Kong just becomes another massive bubble as interest rates stay low and the HKMA takes a massive hit on its USD funds.