Countdown 92 days

TODAY’S THOUGHTS

The Fed is making a request to ease the capital requirements for Banks. What could go wrong? I keep thinking déjà vu with the Republicans wanting to include legislation that would loosen the 10-year-old Dodd-Frank restrictions that provide the banks a cushion in case of a significant downturn, which is now imminent. 

The banks and the Fed claim they need the change to handle the influx of customer deposits as a result of the crisis. This crow doesn’t fly. The cash the banks and Fed are speaking of can be converted to government securities to enhance the capitalization of the banks, but oops that would put the banks in direct competition with the Fed’s efforts to chase the same financial instruments. 

By reducing reserve (Capitalization) requirements, it frees up additional cash to artificially stimulate the economy allowing the banks to take on risky real estate investments since the risk capital markets are Civid-19 adverse.  The outcome of the vaccine development is uncertain at best.  The pandemic continues and the risk for the economy deepens.  The worst is yet to come.

The Republican legislation has long been sought after by banks. It contains broad deregulation that will accomplish a giant giveaway to banks. The reason the banks should be ok this time is due to the existing legislation. As I have said in other blog posts, this is a favorite trick of the Republicans to hide the deferred debt this time reducing regulations, allowing for extreme risk taking then demanding a bailout as a result of the deregulation. Duh!

To that end, the Fed in March has already undermined the capitalization of the banks by allowing them to dip in to reserves to pay dividends to shareholders in defiance of the rules set by congress. In April, the Fed temporarily loosened another capital requirement, the leverage ratio in another such action. This ratio determines the amount of capital required by each bank.

In my opinion, this is only to make markets happy for now, not facing the crisis but putting a candy coating over it. Here’s why my thoughts lean toward the dark side. Jerome Powell of the Fed makes my point when proposing these changes. He said, “I would want it to be temporary, if we do do it”. And I would say this too… it smells like do do.  Just another way the Fed is looking out for business and not the taxpayer and will ultimately pay for stupidity again and again.

 With increasing risk concerning the virus and a potential for a second wave of the pandemic in the fall, the Fed wants to relax the regulations so the banks can take on the added risk? And with failure it’s the taxpayer that must tote that bale. A deeper look into this move may turn up a tie to funding mega projects in-country and overseas by Trump organization or the Kushner group, requiring large sums in loans without assets backing the endeavors.

In other financial news, Caterpillar expects sales to remain depressed due to the virus.  Sales shrunk by 23% and expects similar results in the 3^rd quarter. Ford is having difficulty repaying some of its quarterly U.S. Energy Department re-tooling loans and aid they would still repay the loan in full on time in 2022. This was a $5.9 billion low interest loan that was given in 2009, in the aftermath of the great financial crisis.  Ford says it has 1.26 billion remaining on the principal.

Trump, a named co-conspirator in a felony, goes free for now. The convicted co- conspirator, Michael Cohen, was tortured and put into solitary confinement, only getting a shower every 3 days and living in an 8’x10’ cell for 23 hours a day.  Does Trump deserve equal punishment for his part in the same crime?  Does Trump believe in equal justice under law as is written at the base of the statue of justice on the steps of the Supreme Court? 

If Trump loses, and even if he wins with the latest Supreme Court decision basically held he can be charged and be forced to provide a deposition in any criminal case even if he is re-elected.  The problem becomes with the Barr Department of Justice. Will Barr, if Trump is re-elected, pursue the felony crimes Trump has been accused of committing? He has not yet acted  on this issue since the court’s decision was rendered and I wouldn’t hold my breath for any action by Barr.

Hajj has taken a Covid-19 toll.  Due to the virus 1,000 in country individuals were all that were allowed to participate in the annual Hajj.  The Hajj is normally the largest single gathering of any religious group annually.  Last year 12.5 million pilgrims performed either Hajj or Umrah.  Hajj is a specific time of year in Mecca whereas Umrah continues throughout the year by pilgrims to the holy site of Mecca.  All Muslims must at one time in their life perform the ritual of Hajj. Women that go must be accompanied by a chaperone. Between 2 and 3  million perform Hajj normally and are all housed close together and in close contact with one another.

 Hajj occurs in the 12th month of the Islamic lunar calendar, called Dhul-Hijjah, between the 8th and 13th days of the month.  This gathering, if it were to have taken place, would have been a tragic super spreader event. Imagine someone that had saved for 50 years to become an exalted Hajji is 70 years old and goes to Hajj.  Most Hajj participants are older and are there to punch out another bucket list item.  The lost revenue must be staggering.  1,000 vs 2-3 million for a week.

Be careful what you wish for Donald.  Your tweet about moving the election, challenging the results and potentially not knowing the results for some time may backfire. Trump’s claim that the election will be the most corrupt in history says a lot about him. He has always projected his misdeeds blazingly. “Russia if you’re listening” comes to mind. His claim of corruption could be made of any election this dotard is running. 

 Trump’s lifetime playbook always has been if you know you can’t win legitimately, cheat. Let us assume the election does not have a clear winner for weeks. The courts hear cases and appeals and there is delay after delay. Challenges to the results and the Electoral College are unable to certify the election to congress in December.  If the delay goes through noon on January 20, 2020, Nancy Pelosi will be sworn in. The 20^th Amendment, Section I to the Constitution clearly states, “The term of the President and Vice President shall end at noon on the 20^th day of January,….” In this case where there is no declared winner the line of succession would then revert to the Speaker of the House. Nancy Pelosi will have little chance of losing her seat come November.