Thomas K. Brown, a banking industry analyst and investor, writing at BankStocks.com, makes a point similar to what I made in my post, Elizabeth Warren’s heroic Senate demagoguery, that Warren’s Banking Committee YouTube performance was pure political grandstanding without substance or legitimate regulatory purpose.
As with her academic work analyzing bankruptcies, Warren took small data points (some banks trade below book value) and extrapolated to grand political gesturing (people think the books are not sound).
Here’s an excerpt from Brown’s post, Elizabeth Warren’s Preposterous Grandstanding:
Oh, now Elizabeth Warren is an expert on the stock market. “[M]any of the Wall Street banks right now are trading below book value,” she commented at a Senate hearing last week. “And I can only think of two reasons why that would be so. One would be because nobody believes that the banks’ books are honest, or the second would be that no one believes that the banks are really manageable.”
Actually, there are a few other possible reasons banks are trading below book. I’ll get to those in a minute. But first: can it possibly be true that after the banking industry has endured three straight years of federally mandated stress tests, four years of post-crisis independent audits, and more severe regulatory scrutiny generally, that Elizabeth Warren still believes the banking industry is cooking its books? How could they be? That would be one vast conspiracy! ….
First off, the vast majority of publicly traded banks do trade above book value. But among those that don’t, one possible reason for the discount that Sen. Warren didn’t mention has to do with the tremendous new regulatory load that Congress imposed on the banking industry, mainly via Dodd-Frank. This mountain of new regulations is making it difficult for some banks to earn their cost of capital. Those banks are trading below book value, therefore, because that book value will likely earn a paltry return and deserves to be discounted. It’s not bad assets that are holding the bank stocks down. It’s hyper-regulation—the kind that’s been championed for years by Elizabeth Warren.
Warren did the same thing with the concept of taking banks “to trial,” as Brown noted:
The Justice Department has spent the better part of the past four years trying to get the goods on some of the highest-profile names associated with the credit meltdown. They went after Dick Fuld and came away with nothing. They went after Angelo Mozilo and came away with nothing. They went after Kerry Killinger and came away with nothing. It could be—although Elizabeth Warren’s view of the world is so blinkered that she’ll never believe it—that while what Fuld, Mozilo, and the rest did might have been unwise and imprudent, it was not criminal. Considering all the time and effort the DoJ has spent looking into the matter, in fact, that would appear to be the case.
But Elizabeth Warren puts on an entertaining YouTube show, just the same. I had assumed her bottom-line goal as a member of the Senate Banking Committee would be to ensure adequate oversight of a banking industry that would still be an important source of credit for the economy generally. That’s entirely reasonable. But based on her harangue last week, it looks like I was wrong. All Elizabeth Warren seems to be interested in doing is bludgeoning the banking industry and the people who oversee it, just to play to her base. Thanks, Massachusetts!
I guess Eric Holder’s Justice Department must be part of the vast conspiracy to hammer the little guy while letting the rich bankers off? During the campaign it was the factory owners, now it’s the bankers.
Rather than rational analysis and reform, progressives yearn for a good old-fashioned political show trial. And they have found their prosecutor.