A Quote by Steve Eisman
We need the government to force the banks to write down all their bad assets now and then recapitalize themselves, preferably with private capital. Those banks that cannot raise sufficient capital should be seized and their deposits sold off.
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One of the things that the public sector banks need to do is to raise private capital from the market and not rely on government largesse.
The financial crisis was linked to the fact that banks had excessive leverage and too many risky assets. The solution is not to try to dictate to banks what they can do or not do, but to require them to strengthen their capital to absorb potential losses and hold less risky assets.
I admit that one should never underestimate the capacity of banks to destroy enormous amounts of accumulated capital and reduce, temporarily, the supply. After all, capital is the accumulated savings of mankind. And banks are great masters in destroying enormous amounts of capital with great regularity.
Learn to raise capital by any means necessary. That's your primary job as an entrepreneur. You must continually raise capital from family and friends, banks, suppliers, customers and investors.
Separating out banks and investment banks right now under Glass-Steagall would have very big implications to the liquidity and the capital markets and banks being able to perform necessary lending.
I mean, everyone agrees with stress tests for banks. I mean that's clear. But banks should do that on their own. And they should worry about their own capital functioning. That's what they should do. It shouldn't be a government function.
The Bankers' New Clothes makes a simple, powerful argument: that banks need to raise more capital. It is entirely persuasive that the extent of their leverage makes the financial system fragile, and it clearly and patiently demolishes all the counter-arguments made by the banks and their lobbyists.
Banks don't want certain asset classes, and that's created opportunities for private equity, hedge funds, Silicon Valley. In this case I think he was referring to some of the European banks shedding assets, and the big buyers are probably not going to be big American banks. Someone like Blackstone may have a very good chance to buy those assets, leverage them, borrow up a little bit, and do something good there.
What does reflect reality very well is complexity theory, which comes from physics. I'm the one pioneering the idea of bringing it to capital markets. When you look at capital markets through the lens of complexity theory, you ask "what's the scale of the system?" Scale is a fancy word for size. What measures are you using? If you look at total debt, the concentration of assets in the five largest banks, what percentage of the total assets of the five largest banks are interconnected? What you see is a very densely connected, fragile system that could collapse at any moment.
Temporary nationalization of the banks that are in very bad shape would mean basically that the government is the temporary owner. I always believe that the government should focus on its comparative advantages, and banking is not one of them. It should, therefore, if it nationalizes banks, sell them back to the private sector.
Some banks won’t make it. Other banks are going to make sure that we strengthen. All deposits are going to be safe for ordinary people, but we’re going to have to bring out some of these bad assets.
The big issue is how much money can the government infuse for the capitalisation of the banks when we have quite a few private banks doing well. Does the government of India really require this number of public sector banks?
I passionately disagreed with Treasury Secretary Hank Paulson's plan to bail out the banks by using a public fund called the Troubled Asset Relief Program (TARP) to help banks take toxic assets off their balance sheets. I argued that it would be much better to put the money where the hole was and replenish the equity of the banks themselves.
It is no wonder that bank capital is regulated. When borrowing and lending is profitable, it is tempting for banks to scale up their operations and to borrow and lend too much in relation to their capital, in effect reducing the effectiveness of the potential capital cushion.
Overpaying the banks for their toxic assets could contribute capital, but that may not be politically feasible or attractive.
If you punish the banks, all you are doing is reducing the banks' capital, which you want to increase, and punishing shareholders, who have done nothing wrong.
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