Obama: Let’s Start a New Financial Crisis

By John Perazzo – We now learn from the Washington Post that the Obama administration, in its relentless quest for “social justice,” is pushing banks to make more loans to people with weak credit ratings.

No, you aren’t in a time warp. This article wasn’t written ten years ago, before the housing-market crisis plunged the American economy into the proverbial sewer. Difficult as it may be to believe, the current president of the United States is actually prescribing precisely the same practice—government policies pressuring banks to lend money to unqualified applicants—that caused the crisis in the first place. more> http://tinyurl.com/cxkc56x

Related>

• Banks: Why Too-Big-To-Fail Is Not Over, Steve Denning, Forbes
• Obama presses donors to help return Pelosi to Speakership, Amie Parnes and Justin Sink, Hill
• US is halfway to Obama 5-year export-doubling goal, Tom Raum, Associated Press

Germany sees itself as Europe’s grown-up, children sullen

By Paul Taylor – Buoyed by solid finances, roaring exports and low unemployment, Germany increasingly sees itself as the only grown-up in Europe, responsible for bringing wayward children into line to hold the family together.

The mood among German politicians and officials is one of economic self-confidence tinged with a sense of parental duty to provide the euro zone with stiff-backed leadership, even if that makes them unpopular in Europe. more> http://tinyurl.com/cd9a7me

Cyprus Capital Controls First in EU Could Last Years

By Yalman Onaran – Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency.

Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation. Being part of the euro zone may make it harder for the Mediterranean island to enforce restrictions, as any money that leaves the banking system can be taken out of Cyprus without losing value. more> http://tinyurl.com/bp3ahmv

Related>

• The biggest problem, Economist
• The Euro Zone’s Slinky Economy, Alen Mattich, WSJ.com
• Best Predictor of Financial Crisis: Huge Inflows of Foreign Money, Barry Ritholtz, ritholtz.com
• Analysis: Austerity threatens EU’s competitive edge in infrastructure, Anthony Deutsch, Reuters
• Small businesses spell big problems for Italy and Spain, Silvia Aloisi and Sarah White, Reuters

Banks Still Too-Big-To-Fail: Six Things The Fed Must Do

By Steve Denning – At a news conference last Wednesday, Ben Bernanke, the chairman of the Federal Reserve, conceded that the problem of too-big-to-fail is “still here”.

There is no way that the Fed is going to be able to slice a bank like JPMorgan Chase [JPM] with 260,000 employees operating in sixty countries in a multitude of different businesses, or a bank like Citigroup [C] with 200 million customer accounts in 160 countries and processing $3 trillion in transactions every day,  into sets of small, independent, easily monitored entities that can be closed down on Friday and reopened on Monday.

For starters, stop letting the big US banks hide half their assets off their balance sheets—some $5 trillion in derivative assets, according to a recent report from the Milken Institute. more> http://tinyurl.com/czamh44

Europe chokes moral hazard

By James Saft – A new, tougher policy on banking bailouts, made flesh in Cyprus and enunciated by Dutch Finance Minister Jeroen Dijsselbloem, will shrink Europe’s arguably overly-large banking system and, ultimately, may put unbearable pressure on the currency union.

As banking shrinks a large problem is going to be the availability of loans from banks, and their cost. Europe is, in contrast to the U.S., heavily reliant on bank lending and with less well developed capital markets in which to sell bonds. With the continent already suffering from tough credit conditions, this is only going to increase the near term economic hit. more> http://tinyurl.com/ctmfsuf