09/13/10 Baltimore, Maryland – Over the weekend exactly two years ago, a few smartly dressed gentlemen gathered in an otherwise unremarkable boardroom in New York’s Wall Street district. They spoke in hushed tones. They sipped coffee from white porcelain teacups.
While their manner was indistinguishable from any other meeting held before or after in that oak-paneled office, by the end of the day, they’d arranged to rescue Merrill Lynch, allowed Lehman Bros. – one of Wall Street’s most venerable firms – to declare bankruptcy and kicked off a series of events that would lead to the $180 billion taxpayer bailout of insurance megalith AIG.
This past weekend, the meddlers were at it again. Some of the same gentlemen, aided and abetted by a host of international cohorts, met in another more-lavishly appointed room. This time, they devised a plan so audacious it will ensure that a crisis of the magnitude witnessed in ’08 won’t ever happen again. Ever.
The group is called the Basel Committee on Banking Supervision (BCBS). It comprises high-level operatives from 27 countries. They met in seclusion yesterday in the mountain town of Basel, Switzerland.
Many of the usual suspects, at least those that could be identified, were in attendance – Federal Reserve Chairman Ben Bernanke, New York Fed chief William Dudley, FDIC head Sheila Bair. European, British, and German central bank luminaries represented their countries’ wealthy interests, as well.
What they decided today will reverberate through credit markets for years to come: Banks will be required to double their capital reserves.
In practical terms, that means they can’t leverage higher than 22-to-1… And if they want to pay out dividends, they can’t leverage higher than about 14-to-1. This requirement will take effect in 2015. Any sooner and “the measures would make short-term borrowing prohibitively expensive,” explains The Financial Times, and the worthies gathered in Basel surely do not want that.
In the same spirit, further measures aimed at reducing banks’ dependence on short-term funding won’t come into effect until 2018. And the rules do not address the items left off the banks’ balance sheets.
Ah, who are we kidding… We can’t hold up the pretense anymore.
The details of the cleanup after the Panic of ’08 are so pedantic and boring, we’ve come to write about this group like they’re a secret cabal of powerful men and women, rather than the tedious set of snivelers they are.
If nothing else, maybe some of the words we pen will help enflame passions in some future conspiracy buffs’ efforts to connect the dots from Jekyll Island through Bretton Woods to the Trilateral Commission and Vince Foster. We hold no other ambitions…
And it’s going to be a long row to hoe before we get through this mess, so we may as well try to have a little fun along the way.
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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