http://rrj.ca/caught-on-camera-how-citizen-video-told-sammy-yatims-story/ Canada's Watchdog on the watchdogs Sun, 15 May 2016 11:59:14 +0000 hourly 1 http://rrj.ca/caught-on-camera-how-citizen-video-told-sammy-yatims-story/#comment-334680 Tue, 13 Oct 2015 19:18:28 +0000 http://rrj.journalism.ryerson.ca/?p=163#comment-334680 Finanadcial regaduadlaadtors have focussed on fixading the liaadbiladity side of vaonltiaus…Nah. Regaduadlaadtors have focused on “fixading” both sides of the baladance sheet. To talk about one side withadout talkading about the other only helps to obscure and not to enlighten. For withadout deregaduadlatading the asset side and the potenadtial “profadits” this ostenadsiadbly creadates, the bidadding wars for deposits on the liaadbiladity side would not be posadsiadble. (This is why TruthIsThereIsNoTruth’s and Lyonadwiss’ poradtrayadals are so incomadplete and disadtorted. And the other thing that gets lost in talkading about all this is that all this occurs on the micro level and not the macro level, which is where I believe Steve Keen wants to mainadtain his emphaadsis.) As the FDIC paper explains: [R]egulatory foradbearadance in the thrift indusadtry and moral hazadard creadated market-place disadtoradtions that penaladized well-run finanadcial institutions.43 On the liaadbiladity side of the baladance sheet, the bidadding up of deposit interadest rates by aggresadsive and/or insoladvent S&Ls increased the cost of funds, adversely affectading both comadmeradcial banks and conadseradvadaadtively run thrifts. On the asset side of the baladance sheet, comadmeradcial banks were negadaadtively influadenced by the entrance of inexadpeadriadenced and, in some cases, rogue S&Ls into comadmeradcial and real estate lending.In the 1980s, makading loans to famadiadlies to buy single-family resadiaddences was still a highly regaduadlated affair. There were strict maxadimuns enforced on both the ratio of mortadgage payadment to houseadhold income as well as the ratio of loan value to asset value. And until S&L deregaduadlaadtion, these unglamadouous loans were pretty much the only sort of assets allowed on S&L baladance sheets.With deregaduadlaadtion, howadever, the S&Ls were able to load up their baladance sheets with all sorts of potenadtially “high profit” assets. As the FDIC papera0notes: S&Ls invested in everyadthing from casiadnos to fast-food franadchises, ski resorts, and windadmill farms. Other new investadments included junk bonds, arbiadtrage schemes, and derivadaadtive investadments. It is imporadtant to note, howadever, that while windadmill farms and other exotic investadments made for interadestading readading, high-risk develadopadment loans and the resuladtant mortadgages on same propaderadties were most likely the prinadciadpal cause for thrift failadures aftera01982.By 1986, only 56% of total assets at savadings and loan assoadciadaadtions were in highly regaduadlated, traaddiadtional home mortadgagea0loans. Real estate develadopadment loans, which were deregaduadlated, allowed the bankers the leeadway to indulge their wildest specaduadlaadtive feradvor. As the FDIC report goes on to elaborate: Real estate lendading and investading were potenadtially very lucraadtive for S&Ls. Changes in the fedaderal tax code for real estate investadments in 1981 and favoradable expecadtaadtions regardading oil prices led to a boom in comadmeradcial real estate projects, espeadcially in the Southwest.56 Because S&Ls were allowed to take an equity interadest in real estate develadopadment projects, they stood to share in the upside of a boomading maradket. Addiadtionadally, interadest rates on conadstrucadtion loans are much higher than on other forms of lendading; and regaduadlaadtory accountading pracadtices allowed S&Ls to book loan origadiadnaadtion fees as curadrent income, even though these amounts were actuadally included in the loan to the boradrower. For examadple, a boradrower might have requested a $1 miladlion loan for two years for a housading develadopadment; the instiadtuadtion might have charged four points for the origadiadnal loan and 12 peradcent annual interadest. Howadever, instead of requirading the boradrower to pay the interadest ($240,000) and the fee ($40,000), the S&L would have included these two items in the origadiadnal amount of the loan (which would have increased to $1.28 miladlion), and paid the instiadtuadtion out of the loan proceeds.Also, S&Ls, unlike comadmeradcial banks in the US, had no reserve requireadments. Instead they had capadiadtal requireadments (I think this is the same regaduadlaadtory frameadwork Australia’s comadmeradcial banks operadate under.) With the easading of these capadiadtal requireadments in the “spirit of deregaduadlaadtion” that conadsumed the 1980s, the required $2.0 miladlion iniadtial capadiadtal investadment of a new bank (and the buildading in which the S&L was housed could be used to satadisfy this requireadment) could be leveradaged into $1.3 biladlion in assets by the end of the first year in operadaadtion. So the sky was the limit when it came to loan creation.

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