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Banks Left Bailout Program Early To Avoid Restrictions On Executive Pay: Report

2011-09-30T03:59:00Z

In the wake of the financial crisis, a number of the nation's largest banks were excused from the government's rescue program before they had returned to a position of complete financial security -- in part because they wanted to avoid restrictions on how much their executives would get paid, according to a new report from the program's government overseer.

Citigroup, Wells Fargo, PNC and Bank of America successfully lobbied to leave the federal bailout program early in 2009, even though the Federal Reserve Board and the Federal Deposit Insurance Corporation had recommended they take additional steps to shore up their assets, according to a new report from the Special Inspector General for the Troubled Relief Asset Program, a government watchdog office.

(This post has been updated to include a statement by Treasury Assistant Secretary Tim Massad.)

Regulators, including the Treasury and the Federal Reserve Board, eventually "relaxed" their criteria for letting the banks out of the program, the report says, leaving questions about whether the banks had strengthened their holdings enough to be able to withstand another systemic crisis.

"Ultimately, the federal banking regulators ended up bowing to pressure" to let the banks leave early, said Christy Romero, Acting Special Inspector General for TARP and the author of the report.

Romero added that in the event of another shock, many banks could be left with too little capital to endure, raising the possibility that "it could potentially trigger an avalanche of severe consequences to the broader economy."

SIGTARP's findings do little to change widespread impressions that the government's Wall Street rescue handed out billions of dollars in taxpayer funds without extracting lasting change in return, with many institutions able to continue operating much as they had before the crisis.

The new report shows how several major banks were allowed to exit the program by paying back their government loans even before they had returned to full health. According to SIGTARP, in 2009, these four banks repeatedly tried to leave the bailout program, also known as TARP, ahead of schedule, claiming that the stigma attached to the bailout would damage investor confidence in their stability.

Bank of America was especially persistent, submitting 11 separate exit proposals to the Federal Reserve Board in less than a month.

The banks, particularly Citigroup and Bank of America, also expressed concern that if they stayed in TARP, they would be subject to the program's restrictions on executive compensation.

Romero told The Huffington Post that the matter of executive payment was "a recurring theme" throughout the banks' requests to exit the program.

Once it was clear that these banks wanted to leave TARP sooner rather than later, the Federal Reserve undertook stress tests to determine how much capital the banks would need to have on hand in the event of another emergency, and issued recommendations for how the banks could raise the money.

However, each of the banks ended up negotiating different terms for their exits, and between December 2009 and February 2010, all four banks were allowed to repay their bailout funds and leave TARP, even though doubts remained about whether they'd taken sufficient steps to secure a big enough safety cushion of capital.

In the end, the process by which these banks exited TARP was "ad hoc and inconsistent," the report says.

As a result of this lenience, Romero told The Huffington Post, the financial system is still carrying considerable systemic risk from huge, interconnected banks, well after the meltdown of 2008.

"The institutions that were 'too big to fail' ... are bigger than they were before," said Romero. "It's very critical that regulators remain vigilant to banks' demands to relax capital requirements."

Treasury Assistant Secretary Tim Massad released this statement in response to the report:

“We are pleased that the report acknowledges that the nation’s largest banks are much stronger today as a result of the actions the government took. Treasury wanted the major banks to raise private capital and repay taxpayers because that was necessary to restore stability and strength to the financial system. Moreover, we estimate that taxpayers will realize a $20 billion gain on the assistance to banks provided under TARP.”

Despite Weather And Police Clashes, 'Occupy Wall Street' Protesters Are Settling In

2011-09-29T18:10:00Z

NEW YORK -- The members of Occupy Wall Street are not allowed to use megaphones, so they've adopted a low-tech workaround.

At their twice-daily general meetings in Zuccotti Park in Manhattan's financial district, whoever has an announcement to make speaks slowly and clearly, with a pause every few seconds, so that everyone within earshot of the speaker can repeat back what he or she just said -- amplifying it for the crowd of hundreds to hear.

That crowd, which in some ways resembles an indie-rock concert audience -- mostly young people, with a smattering of Baby Boomers, and a higher than average quotient of hair dye -- has been gathered here, steps from Wall Street, since September 17. They've been addressing a mishmash of concerns and causes -- from war to income inequality to corporate influence in politics -- that has left many onlookers bewildered.

The occupiers' speak-and-repeat technique is time-consuming, but their willingness to use it suggests a group not easily discouraged. Many of the protesters have been camped in this park for what is now nearly two weeks, sleeping on foam pads, cardboard boxes, and a ragtag collection of mattresses and furniture.

Despite lousy weather, media skepticism and clashes with the police -- including an ugly incident this past Saturday in which an officer pepper-sprayed several young women during a march -- the faithful seem to be in it for the long haul.

"Indefinitely," said Shon Botado, one of the protesters staffing the first aid station, a couple of tables spilling over with donated cold medicine, vitamins, tampons and other paraphernalia, when asked how long he was planning to be there. "Until change is made to the financial structure."

What that change might look like, no one can say for sure.

Whatever one might say about Occupy Wall Street, it's hard to accuse it of being a single-issue movement. The crowds of people in and around Zuccotti Park have as many different reasons for being there as you can name.

Some said they have come to register their dismay over the environment. Some are there to protest military occupations in other countries. At least a few were moved to attend after the September 21 execution of Troy Davis.

But economic concerns seem paramount for many. Several hand-lettered placards express outrage that banks and bankers weren't punished more severely in the wake of the financial crisis. And the protesters speak often of the national wealth gap -- the vast differences in income that separate the richest 1 percent of Americans from everybody else.

But the group is also devoting considerable energy simply to keeping itself going.

There are about 200 people sleeping in this one-block park every night, eating donated food and running into nearby restaurants to use the bathroom. An internal structure has emerged, one that seems to be getting more sophisticated every day.

At a megaphone-free meeting Wednesday afternoon, delegates from various committees stood and offered updates, assessments, encouragement and advice.

The Comfort committee, which handles bedding and clothing, needed donations. A woman from the Food committee said that her group was just fine on donations, but asked if anyone was willing to make their kitchen available.

"We have a lot of food that could be cooked and brought back here," she said. It was not an outlandish request: A number of New Yorkers have opened their apartments to the protesters, letting them shower and charge their electronics indoors.

Someone from Community Relations reported that local Financial District residents had voted down a resolution against the protesters at a community board meeting -- a welcome signal of support. But, the speaker added, some locals were still concerned about noise at night, so members of Occupy Wall Street were going to sit down and meet with them.

One young woman weighed in with a grim weather report: The forecast called for rain, followed by plummeting temperatures on Friday. "We are going to have to pick some useful strategies to deal with this weather that we know is coming," she said.

Someone stood up to announce a group meditation session happening later that afternoon. Someone tried to lead the group in a song, which was tabled for after the meeting. Someone else declared that his ukulele had gone missing.

It wasn't exactly a Parliamentary session -- and with everything first being said, then repeated en masse, it took twice as long as it otherwise might have -- but most of those present seemed committed to the process.

With the group's priorities so diverse, it's unclear how long the Occupy Wall Street movement will actually stick around. The group has yet to formalize a list of demands or conditions under which it might disperse.

Yet the protesters seem to be thinking in terms of months, not days. Botado, who has been in Zuccotti Park since the movement launched on September 17, said that the group is open to the idea of spending the winter there.

And while the protesters' run-ins with law enforcement seem like they might deter curious outsiders -- in addition to the pepper-spraying incident, at least 80 members of Occupy Wall Street have been arrested in the past two weeks, and several people have been injured by police batons -- many of the people present on Wednesday said they didn't get involved until after these confrontations.

While this is going on, the cause is gaining momentum outside New York. Similar protests have been held or are being planned in dozens of other cities.

The lack of clear direction may eventually prove a stumbling block to the occupiers, but the mood in lower Manhattan this week was one of cheerful energy. A sign -- one of perhaps 100 strewn about the square, or being waved to and fro by demonstrators -- read, "DEMOCRACY MAY BE HARD BUT AT LEAST WE ARE DOING IT."

"What's change?" said Rob, a protester who said he has worked in minimum wage jobs all his life, and asked not to be identified by his full name. "What isn't change? We're here. That's change."

As Texas Green Movement Gains Momentum, Solar Power Shines In San Antonio

2011-09-26T15:40:00Z

Al Ritter's power bill was pretty high this month. But not as high as it might have been.

Ritter, a retired Air Force electrical engineer, lives in San Antonio -- a city hit hard by the great Texas drought of 2011, the worst in the state's history. Temperatures have regularly topped 100 this summer, and the earth is baking. In the Ritters' front yard, the cedar elm, starved for water, is losing its leaves several months ahead of schedule.

Like everyone else in town, Al and his wife have had the air conditioning working overtime.

"I expected I would've had a bill that was over $300 for the month for electric power," Ritter told The Huffington Post.

Instead, he said, his most recent bill came to $252 -- a savings he attributes to the array of 24 solar panels the Ritters had installed on their roof in August.

The Ritters aren't the only ones going solar in San Antonio. In the past year, more than 150 homes have been outfitted with solar panels, and over 1,000 people have applied to a local nonprofit program that connects homeowners with companies that perform solar installations.

That program, known as Solar San Antonio, was founded by Bill Sinkin -- a former salesman, a community leader, a violinist with the San Antonio symphony and an early champion of racial integration in Texas. Sinkin celebrated his 98th birthday this year, and among the San Antonio business community he is regarded as something of an apostle for solar power.

"Back in 1999, my father started this organization," said Bill's son Lanny, who serves as executive director for Solar San Antonio. "He basically pioneered the whole solar thing here, because very few people in San Antonio knew anything about solar."

That has changed. In 2009, a survey by the Department of Energy's National Renewable Energy Laboratory found that almost 40 percent of the city was interested in using solar power. In a city of 1.3 million, that's about 400,000 potential solar customers.

The solar surge in San Antonio is only one part of the Lone Star State's powerful green movement. While Texas may be best known as a state rich in fossil fuels, some of the most ambitious renewable-energy work in the country is happening there. Texas generates more electricity from wind power than any other state, and the federal government has invested millions in local geothermal energy research.

And solar power, according to those involved, is the state's next big growth industry.

"We might be an oil state and a natural gas state, but we're going solar," said Shelby Ruff, vice president of residential sales at the Texas-based contractor Solar Community. "Solar power's the most abundant thing on earth, and oil and gas are finite."

'EVERYBODY'S FOR IT'

Before Bill Sinkin was the chairman of Solar San Antonio -- before he decided to spread the good word about solar power to a city almost entirely indifferent to it -- he was taking on other little-loved causes.

In the late '40s and early '50s, Sinkin served as chair of the San Antonio Housing Authority, where his push to expand public housing for poor families got him on the mayor's bad side. Later, in 1967, he bought control of the Texas State Bank and made it clear that TSB would be an institution that served, and employed, both blacks and whites -- a principled stance that cost him some customers.

And it was at the Texas State Bank where, in 1982, Sinkin and his colleagues installed a solar system on the roof, largely to see whether it would work.

"We were not highly trained people," Sinkin told The Huffington Post. They knew that solar power was environmentally friendly and that it might save them some money. Beyond that, it was something of an experiment.

Today -- more or less as a result of Sinkin's enthusiasm for solar -- homeowners are finding their way to Solar San Antonio through word of mouth.

As demand grows for photovoltaic panels and sun-powered water heaters, solar companies are expanding their local operations and bringing jobs to the area.

A 14-megawatt solar farm went online in November, and plans are underway for a massive 400-megawatt plant, one that could power 80,000 homes.

Such a facility would be more than four times as large as the biggest solar plant currently in existence, and while it's only in the proposal stages right now, it's expected to be a major employer once it gets off the ground.

Sinkin's advocacy efforts -- the lunches and seminars he held for years to educate San Antonians about the possibilities of solar -- are what got this all underway. Local institutions have lined up behind him, from the mayor's office to the Chamber of Commerce to CPS Energy, San Antonio's municipally-owned utility, which has put solar at the center of its agenda.

"All of the political and economic leadership of the city is on the same page," Lanny Sinkin told the Huffington Post. "Everybody's for it."

It seems fair to say that the elder Sinkin's experiment has been a success.

"I'm very proud of what's happening," Bill said. "There's nothing like it in the country."

'READ BETWEEN THE LINES'

The city of San Antonio may be united in its desire for solar power, but beyond the city limits, the consensus is less clear.

"We don't have state support," said Lanny Sinkin. "We have seen some very good legislation that would have really propelled Texas to the forefront on solar simply just not make it out of the legislative session."

One possible reason for the lack of momentum at the state level, he says, is that Texas has faced a major budget shortfall in recent years, and legislators have been occupied with sorting it out.

But, he says, "I wouldn't be surprised if in the back rooms, the oil and gas and coal lobbies are making their voices heard and are not that anxious to see solar expand rapidly."

Energy is a big tent in Texas, and while the state is home to both robust fossil-fuel concerns and ambitious renewable projects, that doesn't mean the old industries and the new are completely in conflict.

Among oil and gas companies, the opposition to green energy is "not monolithic," according to Russel Smith, executive director of the Texas Renewable Energy Industries Association. Some oil companies, Smith said, are interested in collaborating with sustainable-energy groups.

But sometimes, he said, "you can read between the lines of what happens" when a renewable bill fails in the state legislature -- such as when State Representative Drew Darby's proposal to create a statewide rebate for solar projects stalled out in committee this past spring.

"You start to figure there's a hand back there," said Smith.

Still, despite the push-and-pull of different energy interests -- and the mixed record of governor and Republican presidential candidate Rick Perry, who has done much for the state's wind-power industry but for whom, as Lanny Sinkin puts it, "solar is not a big item" -- the Texas green movement is not expected to reverse course, as long as passions remain strong at the municipal level.

"Renewable energy is in its infancy, but I do think the sky is the limit," said Richard Perez, president and CEO of the Greater San Antonio Chamber of Commerce.

San Antonio's city fathers, including Mayor Julian Castro, see a strong link between green energy and economic growth, said Perez.

Five green businesses -- including an LED lighting company and an electric refrigerated-vehicle manufacturer -- are poised to partner with CPS, the city's utility company, and create more than 200 jobs for the city within the next few years.

"I am very, very confident of our success," said Perez.

As for Al Ritter, who had panels installed on his house this summer, solar power hasn't proven a cure-all: the savings from his roof array only come out to about two dollars a day.

"This is more environmentally good than it is otherwise good," he said. "Nobody's getting rich on this, that's for sure."

Still, from a conservation standpoint, he said, "it's probably the best thing I've ever done."

And from what Ritter hears, the number of solar-curious San Antonians is growing all the time.

"Most of the builders in town are offering a solar option," he said. "Everybody's got work lined up like they can't believe."

Obama's Tax Hikes Expected To Have Little Impact On The Wealthy

2011-09-20T21:10:00Z

Tax the rich, a frequently cited conservative argument goes, and the rich will retreat. They'll stop hiring; they'll stop investing; they'll stop spending. In turn, this will hurt the lower and middle classes. Tax the rich, and the whole economy suffers.

When Obama laid out a proposal on Monday to reap $3 trillion to be put toward the national deficit, with about half of this money coming from higher taxes on corporations and wealthy Americans, Hill Republicans immediately closed ranks against it. And the argument that taxing the rich would stifle economic growth emerged as a popular critique.

But the idea that taxing the rich will slow economic growth and work against job creation doesn't stand up to inspection, say experts.

"We had very high top marginal tax rates in the '50s and '60s, upwards of 90 percent," New York University economics professor Edward Wolff told The Huffington Post. "And we had our highest growth of the post-war period, perhaps the whole century."

By contrast, he said, the presidency of George W. Bush, a time of low tax rates for the rich, was accompanied by underwhelming growth -- or no growth at all, during the years that the economy was in recession.

Historically, there's "essentially no correlation" between tax rates for the rich and economic growth, Wolff said. To argue that taxing the wealthy will necessarily damage the economy "is at best specious, at worst perverse."

One reason that a higher tax rate for the rich might not translate to a drag on economic momentum is that the country's top earners often don't circulate the majority of their wealth.

"People who'd be swept up by this tax are already not spending their whole income," Daniel Markovits, a law professor at Yale Law School, told The Huffington Post. "They're saving it."

The president's plan calls for limiting deductions on high earners, closing tax loopholes on special interests and allowing tax cuts passed during the Bush years to expire. Those tax cuts are believed to have been largely ineffective as a form of stimulus, since evidence suggests that wealthy recipients simply held onto the money they got back.

Assuming Obama can get his tax hikes through Congress, they -- like Bush's tax cuts -- are expected to have relatively little impact on the spending habits of the affluent.

"My sense is that if you're making over a million dollars a year and you have an increase in taxes, that is not really affecting your lifestyle," said Steve Bergerson, a senior consultant at Marks Paneth & Shron, a New York accounting firm that handles wealthy clients.

"When you're in that strata, when you're up there, you've got your spending habits pretty much the way you like it," he said.

Obama's plan also includes a measure known as the "Buffett Rule," which stipulates that Americans who make more than $1 million should be subject to the same tax rates as middle-class earners. The provision earned its nickname from billionaire investor Warren Buffett, who wrote a widely-read op-ed in The New York TImes last month arguing that wealthy Americans pay less than their fair share of taxes.

Buffett's sentiments are far from uncommon -- even among the wealthy, said Annette Nellen, a professor at the San Jose State University College of Business.

"There's a lot of millionaires who want to have a tax increase," Nellen told The Huffington Post.

People like Buffett, or the members of Patriotic Millionaires -- a group of high-earning Americans who have called for a higher tax rate on people like themselves -- don't just represent "a boutique or niche sentiment," according to Markovits.

"If you look at voting patterns, voting for the Democrats in particular is highly correlated with education, and therefore with wealth," Markovits said. "There's a quite big chunk of people who are rich or expect to become rich who are voting for politicians who would raise taxes on them."

Obama's Tax Hikes Expected To Have Little Impact On The Wealthy

2011-09-20T21:10:00Z

But the idea that taxing the rich will slow economic growth and work against job creation doesn't stand up to inspection, say experts.

One reason that a higher tax rate for the rich might not translate to a drag on economic momentum is that the country's top earners often don't circulate the majority of their wealth.

"People who'd be swept up by this tax are already not spending their whole income," Daniel Markovits, a law professor at Yale Law School, told The Huffington Post. "They're saving it."

Assuming Obama can get his tax hikes through Congress, they -- like Bush's tax cuts -- are expected to have relatively little impact on the spending habits of the affluent.

"When you're in that strata, when you're up there, you've got your spending habits pretty much the way you like it," he said.

Buffett's sentiments are far from uncommon -- even among the wealthy, said Annette Nellen, a professor at the San Jose State University College of Business.

"There's a lot of millionaires who want to have a tax increase," Nellen told The Huffington Post.

Obama's Plan To Target Foreclosed Properties Depends On A Broader Recovery

2011-09-10T14:00:43Z

President Obama's plan to reduce the number of foreclosed properties weighing down the housing market may only prove effective insofar as the greater U.S. economy is able to shake off its lethargy, analysts say.

A $15 billion initiative known as Project Rebuild, part of the American Jobs Act that Obama outlined before a joint session of Congress Thursday night, would put money toward restoring vacant and foreclosed properties. A fact sheet on the White House Web site predicts that the plan will spur job growth in the construction industry and result in the rehabilitation of "hundreds of thousands of properties in communities across the country."

But if Project Rebuild does anything to lift the housing sector out of its prolonged slump, it will only be in the context of a broader economic recovery, say experts.

"The housing market will recover with jobs," said Susan Wachter, a professor of financial management at the University of Pennsylvania's Wharton School of Business. "Only now, we don't have jobs growth."

In fact, the U.S. unemployment rate has hovered above 9 percent since May, with no new jobs being created in August, according to the most recent Labor Department reports.

High unemployment can make potential homebuyers reluctant to take the plunge, which in turn drives prices down, thus damaging the wealth of many people who already own homes.

"Policy prescriptions to help the housing market, for me, come down to policy prescriptions to improve the employment picture," said Stan Humphries, chief economist at the real estate company Zillow.

Foreclosures are undeniably a part of the problem. At the moment, there are millions of homes stuck at some stage of the foreclosure process, as banks struggle to make their way through a crush of paperwork. The swollen number of foreclosed properties is thought to be keeping home prices unnaturally low, thus preventing a robust recovery of the housing sector, seen as a key component of the U.S. economy.

But with the health of the housing sector so closely tied to the labor market, a measure like Project Rebuild, which targets distressed residential and commercial properties, can only go so far.

"Foreclosures aren't the only problem going on now," said Shaun Bond, an associate professor of finance at the Carl H. Lindner College of Business at the University of Cincinnati.

It could be as long as "three years or five years... before we see any meaningful improvement in the market," said Bond. Such an improvement would hinge on the overall strength of the economy, he said.

Many analysts don't expect housing prices to hit bottom until next year at the soonest. A recent report from JPMorgan Chase predicted that prices would fall another 6 or 7 percent before bottoming out in early 2012.

Meanwhile, foreclosures are likely to remain a prominent feature of the economic landscape for some time. With banks currently re-examining thousands of mortgage documents that may have been authorized with forged signatures, or signed by people who did not read them, it could take years to clear the docket of all the homes currently in foreclosure -- and another wave of foreclosed properties is expected to follow those.

Still, even if Project Rebuild can't fix the foreclosure problem by itself, it's a step in the right direction, said Wachter.

In some cities, she said, so many houses are standing empty that "whole neighborhoods look like they could be condemned."

But "fifteen billion dollars is a lot of money ... You could, for $15,000 each, deal with one million properties," Wachter added. "You could make a difference in these properties, and you could make a difference in these neighborhoods."