nvestmentwatchblog.com / Submitted by IWB, on March 15th, 2015

"The US Federal Reserve has slammed the breaks on the German bank’s plans to raise dividends and buy back shares. The central bank says its US operations are too weak to survive another major economic crisis.

Fed tells Deutsche Bank US to reduce risk
The US divisions of Germany’s biggest bank failed a crucial stress test on Wednesday after the Federal Reserve in Washington deemed its financial foundation too weak to withstand a crisis like the one that threatened to crash the global economy in 2008.
The Fed faulted the capital plans of some 12 to 14 percent of Deutsche Bank’s US operations, saying they showed “numerous and significant deficiencies.”
For the second year in a row, the central bank also vetoed the US plans of Spain’s largest bank, Santander, pointing to “widespread and critical deficiencies” with regard to governance, planning for risks and other areas.
Santander and Deutsche Bank have $118 billion (111.1 billion euros) and $55 billion in assets in the US respectively.
Deutsche Bank offensive
For Deutsche Bank, it was the first US stress test since the Fed launched its review in 2009.
Reacting to the Fed’s objections, a Deutsche Bank spokeswoman in New York said the company had already recruited 500 employees and launched an investment offensive to the tune of 1 billion euros ($1.06 billion) meant to improve the shortcomings."

Even the big banks are buying their own shares. Our banks are 40% owned by HSBC, Citibank and JP Morgan. They are all connected.

Yet more nonsense, Arjay.

>>Our banks are 40% owned by HSBC, Citibank and JP Morgan<<

No, they are not. If you are going to post garbage like this, at least have the courtesy to declare your sources. I often wonder what is going through your head when you write such stuff, but for sure it has a great deal of space in which to move around.

>>Banks consider derivatives to be a form of insurance but how can your insurance policy be 6 times your assets?<<

You must surely realize by now that writing this kind of sentence - which you do on a regular basis - does nothing but shine the spotlight on your total ignorance of derivatives, their function, and the means by which they are measured. The only puzzle remaining is why you think it smart to show off your lack of knowledge. Are you looking for sympathy, perhaps?

>>If our banks are so safe ,why did they pass "bail in" at the last G20 meeting in Brisbane?<<

So the question is this: would you prefer the banks to be responsible for their own actions and activities, and to "bail-in" their shareholders, bondholders and customers when they are in trouble, or would you like the government to "bail out" the failing outfits instead? Does it not occur to you that "bail-out" arrangements, or the tacit understanding that they exist, would serve to encourage an even looser risk management regime?

If you knew that you could get the government to write off what you owe on your credit card, would you be a) more or b) less inclined to spend like there's no tomorrow?

>>The normal fractional reserve ratio is that $1 of deposit can create $10 worth of loans. That ratio here and in the USA is now far greater. Fannie and Freddie May had ratios of 1:300<<

Fannie May and Freddie Mac provide home loans. They don't take deposits from which to create loans, they secure the loan against property.

I am perpetually amazed at how little you actually research before you write, Arjay.

Commentators have noted that my article did not describe who would create money and the role of banks. These points and how a unit of value might be defined were omitted because of the word limit. They are discussed in my academic article whose link was missing at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417826. To encourage discussion I will also use this article to identify 16 reasons why Australian money is not fit for purposed because:
1. It creates government debt instead of government assets;
2. Australians cannot control its value;
3. It has been overvalued in recent years closing down manufacturing and other industries to create unemployment;
4. It is impossible for the central bank to carry out its purpose: “to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people”;
5. It misallocates resources by creating misleading price signals;
6. Its value is not defined or determined by Australian sustainable resources;
7. Unlike Bitcoin it can earn interest;
8. By earning interest it creates a disincentive for investment in assets that increase productivity that however lose value by wearing out of possessing limited life like patents;
9. It increases inequality by making the rich richer from interest payments whether or not the money owner or the money necessarily increases prosperity;
10. It is not created by producers of wealth but mostly by bankers who consume a disproportion of wealth for their services;
11. It is not tagged like Bitcoin to stop its duplication;
12. Its creation is not limited like Bitcoin;
13. It allows a “black” economy to exist from the use of untraceable notes and coins;
14. It cannot be traced like Bitcoin to identify fraud, bribery, money laundering, profit shifting, tax avoidance, criminal activities or the funding of terrorists;
15. It does not incur a storage cost when not used like any real commodity used as money;
16. It does not inoculate the economy from internally or externally created financial crisis.
My short article on who should create money is posted at: http://www.ethicalmarkets.com/2012/06/14/who-should-create-money-and-credit

Shann, going through your 16 points:
1. Misleading. Government assets don't spontaneously appear; people work to create them and that requires money. Because we use interest rates to control the rate at which money is spent, it is sensible to regard the net amount of money our government creates as a debt, though ultimately this is just a matter of accounting convention.

2. This is true or false depending on what you mean by "control". Australia can not and should not maintain its value above or below the market value, but we can create the market conditions necessary to give us all the control over its value we need.

3. This shows a change of policy would be desirable, but it does not make it unfit for purpose.

4. False. It is possible, though it would require a change of policy.

5. Markets do that sometimes, but a centrally planned system would be even worse in that regard.

6. Not exclusively, but they are a factor that influences it.

7. This is an advantage not a flaw. It allows inflation to be controlled without having to resort to the use of fiscal policy. But it doesn't prevent us from using fiscal policy to control inflation, and there is a long term trade towards doing so.

8. Hardy. A limited life patent would be less sensitive to interest rates than something that lasts a century or more!

9. True! Therefore IMO we should gradually move towards a system of using fiscal policy to control inflation. However interest rates are low enough that I don't think it's currently a big problem.

10. Partially true. Money is created by lending to producers of wealth, and the role of banks does seem to be rather overvalued at the moment.

11. Irrelevant. Existing arrangements are sufficient to control the amount of money in circulation and prevent counterfeiting.

TBC

(continued)

12. This does not make it unfit for purpose; quite the reverse! Limiting its creation like Bitcoin would make it unfit for purpose because it would introduce a risk of the government running out of money, and it would remove the link between money creation and the needs of the economy.

13. A black economy will always exist if there's a perceived need for one.

14. Bitcoin is so difficult to trace that the point is moot.

15. This is a good thing. Incurring a storage cost would discourage people from saving it, and without people saving money the government would be unable to run a deficit except when there's an external surplus.

16. It enables the economy to withstand any internally or externally created financial crisis. Unlike your proposal which would CREATE an enormous internal financial crisis.

Your plan would send us the way of Argentina in a pathetic attempt to fix problems that are mostly imaginary.

From Shann's site "Today, governments define what is legal tender. However, governments create less than five percent of the money used in modern economies. Banks create more that 95% of the deposits. Customers use bank created deposits as a source of funds to lend to the government by buying its bonds.

The government then taxes its citizens to pay interest on the bonds. This practice is indefensible. It should be the other way around. It should be the government that creates money and lends it to the banks. The government would not then need to tax its citizens and could earn interest from the money lent to the banks."

Aidan you and Pericles can go and suck eggs. Shann agrees with me. It should be Govt that creates money and loans it too the banks