More Extortion By The Banks

The Market Ticker ^ | 11-07-2009 | Karl Denninger

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More Extortion By The Banks

The Market Ticker
Saturday, November 7. 2009
Posted by Karl Denninger in Corruption at 13:14

Yeah, that's a strong word.

In my opinion it is also the only word that's appropriate for the circumstances:

The Fed has been informed by dealers that they would be willing to enter into very sizable amounts of reverse repos with the Fed, if asked to do so, provided they could get some relief from Tier I capital constraints, MNI also understands.

Ah, the old "let us lever up and we'll do it, but if it blows up, we'll then be back at the public trough for another bailout since we're too big to fail."

Two words need to be spoken to these clowns by Congress; the first begins with "F" and the second with "Y".

It was precisely the relaxing of leverage limits by Congress and The SEC that got us into the mess in the first place. Henry Paulson, you remember, got the former 12:1 leverage limit dropped, and the consequence is now known.

BEAR STEARNS, AIG, LEHMAN, FANNIE AND FREDDIE - ALL BLEW UP SPECIFICALLY DUE TO EXCESSIVE LEVERAGE. ALL HAD MORE THAN DOUBLE THE PREVIOUS LIMIT.

ALL OF THEM.

NONE OF THEM WOULD HAVE BLOWN UP UNDER A 12:1 LEVERAGE LIMIT.

LET ME REPEAT THAT: NONE OF THEM WOULD HAVE FAILED HAD THEY BEEN OPERATING UNDER THE FORMER LEVERAGE LIMITS.

Zerohedge reported back on October 21st that the repo test was allegedly "a failure." We now have confirmation that it indeed was, and in addition, we now apparently have the primary dealers - once again these are the "really big oligarchs" - Goldman, Morgan Stanley, JP Morgan, Citibank, etc - that are now twisting The Fed's arm to allow them to do exactly what caused the meltdown in the first place as "compensation" for entering into these reverse repos.

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