Banking Rules & Blockchain Fears

(12/28/23) Newly proposed rules for raising major banks’ reserve requirements are raising the ire of Bank CEO’s like JPMorgan/Chase’s Jamie Dimon. Boo-hoo. either get completely under government control, or exist as independent private business, and be allowed to fail without bailouts. Why the government wants to force banks to hold more reserves: Buy more bonds. Bitcoin: Why is Dimon so opposed? The alternative to banking. The difference between Bitcoin vs Blockchain; Crypto is the ultimate fiat currency, backed by nothing. Why Dimon should fear blockchain.

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The other problem we have is that we have these five banks that make up almost 60% of our banking you know at some point we need to fragment these major Banks go back to the rules that we had before you can either be a broker or

You can be a bank you can’t be both you’re listening to the real investment show so on Wednesday um the CEOs of major Banks all congregated in front of Congress to push back on new rules it’s this is a proposed set of regulations uh which are aimed at raising the capital

Requirements for the major Banks now of course CEO of Chase Jamie Diamond uh JP Morgan JP Morgan Chase came out was like oh this is terrible this is going to make everything more expensive for Americans and you know makes it harder on banks but I’m not so sure I agree with

Mr Diamond because Mr Diamond’s obviously protecting his his best interest but you know if we didn’t have a situation and Mike I’m just asking you this question but you know what Jamie Diamond says is that the rules would have a predictable and harmful outcome to the economy markets businesses of all sizes American

Households now all we’re asking pretty much is that they they hold more capital and and I would agree with Jamie that maybe this rule would be harmful for Americans if that every time we had an economic down turn we didn’t have to go bail out the banks you know we had to

Bail out the banks during the financial crisis everybody says okay well that’ll never happen again then we had to bail them out again in March 20120 um and we had to bail them out again in March of last year so maybe if banks were required to hold Capital you

Know higher Capital levels we wouldn’t have to bail them out every time we had a financial downturn in the economy um you know you know it’s just one of those things that has been a continued problem you the other problem we have is that we have these five banks that make up

Almost 60% of our banking um you know at some point we need to fragment these major Banks um go back to the rules that we had before you can either be a broker or you can be a bank you can’t be both and you know once we allowed Banks to

Become investment bankers again we allowed the we we removed that barrier that separation between you know between brokerage firms and Banks then we had the financial crisis we’ve had you know repeated you know crashes in the economy the Doom crash Etc so you know maybe it’s time to go back to making Banks

Just do banking I know it’s not as profitable but if you can choose to be a bank or you can choose to be a brokerage firm but you can’t be both look at the end of the day we collectively really the fed and the government have made a

Decision to bail out Banks and it’s not just Jamie Diamond and and the big Banks getting bailed out it’s all banks the FED is always running program not always but a lot of time they’re running programs that allow the banks to do things that they couldn’t do otherwise

Like right now back in March when we had a couple of those big Banks going down they introduced the btfp FP I was going to say d Bank ter Bank term funding program yeah right right otherwise known as by the DIP program but but but what that a lot what

That prevented was a lot of bankruptcies among Banks and I think we have to make it decision do we want to basically bring all banks under the arm of the government or do we want to let them be free market entities and if we’re going to let them be free market entities

Which I would argue they should be when they go under they go under the they don’t get bailed out you know that there maybe they get bailed out and the depositors get bailed out but the executives don’t get bailed out the shareholders the bond holders should lose everything right and if you have

That kind of system in place they would hold enough Capital you wouldn’t have to tell them to hold more Capital well no this and this goes back this and you know this is specifically the argument that goes back to 2008 during the financial crisis um okay so if if you’re

Not aware let’s have let’s have a brief history lesson here real quick um so in 19 from 1920 to 1929 the banks were loaning money to the retail Mom and Pop to invest in the IPOs that the banks were putting out into the market of course this is during the the

Massive runup in the markets during that period of course 1929 you know we talk about the great crash after the crash markets declined by 85% on the Dow in 1933 the we formed the Securities and Exchange Commission in response to this major crash of of Wall Street and then in in 1934 we

Funded all of the the the people to run the Securities and Exchange Commission you know part of all that structure was to ensure that those type of activities never happened again where the banks were on both sides of the transactions that led to this Devastation of the

Average American and so we said okay at that point you can be a bank or you can be a broker but you can’t be both and we and we kept that separation in place until the late 90s in the late 90s under the Clinton Administration we removed

That barrier because the banks were all whining that in the in the 90s broker firms were making money hand over fist but all banks could do was give you free checking right so you know that’s all they could do and so were whining about how much money they were losing it was

Unfair and blah blah blah and the Clinton Administration said okay fine we’ll remove the barrier you can go back into the game and it was just a couple years later that we blew up long-term Capital Management then we had the Enron crisis and then you know basically the

Dot crash in 2000 and then we you know kept going and of course we have a financial crisis in 2008 now you know the the the reason for the history lesson is is that as we go through each one of these crisises these major banks that we keep bailing out

Become larger and larger shares of the of the global banking of the domestic banking system today again five banks used to make up about 20% of the banking system now at 60 now I’m not saying that that’s bad or that’s wrong or anything else but it certainly puts a lot of

Power and control centralized into five banks and they become these what they call these systemic Banks we we’ve got to they’re systemically important Banks right we’ve got to have them and they can’t fail and now we put our ourselves in a position that we have to bail these

Bangs out because if they fail it’ll devastate the economy but back but like Mike said though back in 2008 what we should have done is allow JP Morgan and Goldman and these firms to go bankrupt what would have happened yes it would have been hard on the economy for a

Couple of years but the at the depositors would have been shelved out to Regional Banks all around the country they would got a larger share so if you were in Washington the state of Washington and you were with JP Morgan at the time then your assets would go to

Some Regional Bank in that quadrant of the country if you’re in Florida happen there so you you diversify the banking system the depositors are fine like Mike said we make sure the depositors okay hey sorry if you’re if you’re invested in JP Morgan bonds or invested in JP

Morgan stock you’re going to lose all your money just like happened with Leman but yeah things kind of suck for a year or so but then we get back into a much more healthier Financial system as we move forward but again we haven’t made that decision

To do that we haven’t allowed that to happen now we’re in this problem where now the banks are dictating regulations to the government come back after the break we’ll wrap this up and we’ll talk about his comments on bitcoin as well considering what’s been going on with

Bitcoin lately um we’ll talk about that next don’t go away the real investment show so welcome back to the show this morning Michael lewt joining me in studio so so Mike you know this is a just before the break talking a little bit about these kind of new capital

Rules that the government’s trying to push it’s called basil 3 and there uh basically would increase bank’s Capital requirements by 25% obviously the banks don’t like that because that requires them to put additional capital in their books that they can’t go invest in markets or Securities or Investment

Banking or whatever it is so they certainly don’t like it but you know is it really that bad of a thing and you know or is there is there a a another reason why the government’s talking about this I I think it is a good thing

And I you know they’re they’re doing it in part to protect the banks and ultimately the country and the people but there’s like everything else there’s two sides to the story and what the government is likely trying to do is capital is usually held in the form of

High secure lowrisk assets I.E us treasuries so if they can raise Capital requirements they can essentially make Banks hold more us treasuries and help fund our debt that keeps going up and up and up and we’ve seen the government do that a lot with various Capital rules Reserve regulations they make it

Advantageous to hold us treasuries as capital versus other type of assets and in changing how much those that Capital counts versus their Capital requirements that you know they can really push the banks to basically force their investments into us treasuries and fund this monster of a debt that we have so

There’s both Ides to the argument J I don’t think Jamie Diamond will ever come out and say that’s why they’re doing it um so you know keep that in mind as you think about this uh story well and just one of the thing though too is that you

Know would here’s the question to ask right okay JP Morgan Goldman Sachs you know Etc th those are massive firms and and obviously during the most recent turmoil in the banking system we had back in March you know they weren’t affected but we had a lot of you know

Concerns with pretty big Bank Banks I mean you know Silicon Valley Bank was a $200 billion Bank um Republic Bank was was very large would a higher level of capital requirement for those Banks had that been in place at the time would it have kept those Banks from getting in

Trouble no but what got those banks in trouble were some silly rules they put in place in 2008 to let to keep the banks out of trouble basically in 2008 they told those bank they told all banks that if you plan on holding a bond to

Maturity or a loan to maturity you never have to write down the price of the bond so you know like we we’ve seen recently the price of bonds don’t just sit at par they they go up they go down and in some cases there were bonds that were 30 40

50 cents on the dollar fortunately the banks did not have to report that they had bonds that were 50 cents on the dollar because those losses would have put them out of business and even today a lot of banks would be under if they had to report the value of those but

What did happen was they didn’t hedge it why hedge it if the price isn’t moving up or down some banks didn’t hedge it especially smaller Regional Banks and sure enough deposits start leaving the banks the banks have to sell those assets and recognize the 50 Cent loss on

A bond and it puts them out of business now now was JP Morgan affected JP Morgan probably benefited because they picked up uhal reg one you know one of the big on Regional Bank at a discount and with sorry I’m sorry Republic Bank Republic Bank and with the Court of the fed and

Treasury so so they won they’re a big winner but had they had nothing happen it probably would have spiraled and it would have hurt JP Morgan because they do have exposure to those big Banks and they they have a similar problem they’re probably much better about hedging some

Of that risk but eventually you know the banking system is like dominoes and eventually it’s going to catch up with the big boys just takes a little time let let’s switch gears here real quick because we just got a few minutes left here I I thought thought this was

Interesting obviously Bitcoin has had a huge rally here we were about you know 16,000 you know last year got up to around 20,000 and all of a sudden over the last couple weeks it’s shot up to around 40,000 on uh on bitcoin and of course this has really gotten the

Media’s attention now and all of a sudden uh we’re now getting you know for for a while there we had talked about here on the show is like you know what happened to all the laser eyes on Twitter because there was everybody on Twitter had laser eyes about about

Bitcoin they all disappeared with the crash not surprised and now they’re back and we’re now having people come back you know that 100,000 you know by the end of next year on bitcoin you got to get in now um and and so I thought it was interesting because this always kind

Of happens is every time Bitcoin shows a little bit of life that you know you get the whole kind of speculative Reddit crowd comes back out for you know chasing Bitcoin I thought this was interesting because uh Jamie Diamond yesterday uh talked about Bitcoin uh in particular saying that I’ve always

Always been deeply opposed this is his quote not mine I’ve always been deeply opposed to crypto Bitcoin Etc um the only true use for it is for criminals drug traffickers money laundering and tax avoidance if I was the government I’d close it down now this is obviously

Going to fire up a lot of Bitcoin people but I just you know I thought it was interesting because again this was you know from him in particular because he went through a phase there for a while that he was open to having Bitcoin actually trade you know through JP

Morgan you could buy or sell it through accounts and and now he’s come back out and made this other this other uh you know point now there’s there’s some credibility to this point I mean you know look what’s going on with Sam bankman freed with FTX um we had money laundering going on

With uh binance so you know there’s certainly a CA that you know his statement is not untrue um there’s been a lot of fraud money laundering criminal activities that has occurred with Bitcoin um and it’s still trying to find its footing uh in the world of of what

It is and there’s really not an application yet for Bitcoin uh to a great degree I mean again if you want to use it’s great to own Bitcoin but if you want to use it you’ve got to convert it back to Dollars to to buy stuff with you

Know there were a few attempts where people sayy you could buy a car with Bitcoin or whatever but it’s so volatile that they had to back out of it again you I can’t sell a car today and then the value of my what I receive for the

Car today is worth 20% less tomorrow that’s just not iable for a manufacturer for a producer so you know it’s it’s Bitcoin certainly has its challenges but you know I just want to get your view on on uh on Jim’s remarks yesterday what you thought so first of all there’s been

A lot of fraud with US dollars as well well of course a lot more than Bitcoin yeah but look if you’re Jamie Diamond what is bitcoin it’s an alternative to the banking system yeah so Jamie Diamond is like no we shouldn’t have Bitcoin that’s an alternative to me making money

Uh to me ruling the banking world so of course he’s going to come out and he’s been he’s been against it in the past too um but they are big investors in blockchain and um you know there is a difference between subtle difference but a difference between blockchain and

Bitcoin and cryptocurrencies so uh his remarks don’t surprise me at all and and I guess if anything it strengthens the case to own to own Bitcoin or a cryptocurrency because it that’s exactly what it is it’s something outside of the banking system which is a uh a hedge an

Alternative you know um I personally don’t own any cryptocurrency but hearing remarks like that maybe I should well you know again you know the I own so you know just full disclosure I own some um and I’ve owned it since 2018 uh I started out I just bought some

As a test because I want to learn how the market works and and this is how you you know how you you learn to invest is you buy something and watch it go up and down and what affects it so I bought some in 2018 and still own it um you

Know I was going to sell it and then I just forgot about it honestly did you did you remember your code yeah no I didn’t actually I did not I actually had to go through a whole Rigo to get to get my key back um but anyway you know it’s

Interesting you know from the standpoint you know the the problem you know for me as as an investor so you know people ask like why don’t you why don’t you recommend Bitcoin to your clients I don’t because there’s no fundamentals behind the currency right there’s nothing that supports it you know it is

The ultimate fiat currency um what is you know when people talk about the dollar say oh the Dollar’s Fiat well there’s it just means that we can print it and there’s no Reserve sitting behind it right it’s not tied to gold or it’s not tied to um you know oil or

Whatever but you know the US government has a lot of assets land buildings you know oil reserves Etc there’s a lot of assets behind the US that does back up the full faith and credit of the currency there’s nothing sitting behind Bitcoin except the function of Mike owns

Some and I own some and we want to trade and we’re going to set a price at which we trade something so from a speculative asset it’s great you know the one thing that needs to happen um to make a recommendation to clients to own it is that it needs to be

Tied to something ultimately um you know we need to see adoption of the blockchain technology which Mike was talking about you know the thing that Jamie Diamond should fear is not Bitcoin it’s the blockchain track technology so you know all of a sudden Mike and I can do a real estate transaction via

Blockchain we don’t need Banks anymore we don’t need we don’t need a third party to intervene in transactions that’s terrible for banks so blockchain is is very dangerous for the banks and the one thing that they shouldn’t want and they one thing they don’t want that’s the one big thing they are

Invested in JP Morgan has big investments in blockchain because I think they see the future as you can exchange assets anywhere anytime with anyone Y and so 247 markets 247 real estate transactions 247 you know uh transactions of buying and selling stuff from goods and services it’s it’s it’s a

GameChanger and the question will be you know who ultimately dominates that and obviously you know at the end of the day JP Morgan wants to have would want in that environment JP Morgan want to have their own cryptocurrency of whatever it is so we’ll see what happens but you

Know it’s it’s interesting that you know we continue to see push back and and you don’t see these articles until you see a big spike in Bitcoin right you know this I haven’t seen a big I haven’t seen a cryptocurrency article in probably two years or laser eyes yeah laser eyes and

Now they’re all back so look like I said earlier today you know uh bitcoin’s had a great run here over the last you know month um it’s very overbought you’re you’re more you’re in three standard deviations above moving averages so if you’re long it’s a great time to take

Some profits you’ll probably get an opportunity to buy buy Bitcoin back at you know between 30 and 35,000 um just you know give it some time to to work off some of the overbought conditions and we’ll see what happens I mean again you know I I own it

I don’t plan on selling it we’ll and maybe in 10 years we’ll see where we are there you go Mike thanks so much for coming in today yep great to be what time your playing leave not enough all right we’ll be back tomorrow of course for the next real investment

Show with uh Danny Ratliff Richard Roso here on Friday for financial plan financial Fitness Friday and of course get by the website real investment advice.com send your questions comments emails whatever you need to have more than happy to help you with it real investment device.com have a great Day