Banks on The Huffington Post

Too Big To Fail: Market Says Some Banks Only Slightly Less Likely To Default Than U.S. Treasury

2009-12-24T08:39:59Z

Has the government's implicit policy of rescuing "too big too fail" banks ended? Not according to the market.

As Peter Boone and Simon Johnson slyly notes in this post, the market does not believe that the government has made -- or will make -- any significant changes to its approach to dealing with ailing mega-banks.

In their post, Boone and Johnson consider whether or not Ben Bernanke should be reconfirmed for a second term as head of the Federal Reserve. In defending his tenure, Bernanke has pointed out that the government will not continue a policy of "too big to fail" and will find an orderly way to unwind failed banks. (To be fair, this is one of the key components of pending financial reform bills.)

Johnson, however, argues that the market doesn't believe Bernanke. The implied probability of Bank Of America defaulting on its credit default swaps is only slightly higher than the probability of the U.S. treasury defaulting, Johnson notes.

Here's Johnson:

The market view is that Bank of America, despite all its problems and a risky balance sheet, is only slightly more likely to default than is the United States government (which, despite recent criticism, is still one of the most reliable borrowers in the world). The market view for all other major United States banks is essentially the same.

In other words, Mr. Bernanke's crucial audiences -- in financial markets -- do not find him credible on the central issue of the day, presumably because he is unwilling to condone measures that would ensure today's huge banks become "small enough to fail."

If potential creditors do not fear losses, they will provide funds on easy terms to our big banks and we will re-run some version of our previous bubble. This is how our financial system works.

Investors use credit default swaps (CDS) as a kind of insurance against a certain events occurring. What all this means, essentially, is that investors believe that Bank of America is almost as stable as the American government.

Earlier this month, at the Wall Street Journal Matt Phillips noted that the CDS spreads for the nation's largest banks has returned to those halcyon pre-crisis levels, which has drawn the ire of the Congressional TARP panel:

Since [Sept. 2008], Morgan Stanley, Bank of America and Citigroup [CDS prices] have fallen back into a range roughly in line with where they were before the crisis struck. AIG, on the other hand, remains persistently elevated, signaling that the market remains skeptical on the outlook for the troubled, government-controlled insurance giant.

Interestingly, the TARP panel threw this tidbit into their analysis of exactly why the CDS spreads have contracted for the institutions that were bailed out by the government. "It is unclear the extent to which this decline in CDS spreads is due to confidence in major banks' stand-alone creditworthiness and to what degree this decline reflects CDS market confidence in implicit government guarantees of large banks.

The too-big-too-fail issue is alive and well. And it likely will be for a while..."

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Banks That Sold Bad Debt Also Bet Against It

2009-12-24T08:19:59Z

In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman's own clients who bought them, however, were less fortunate.

John Taylor: Where's The Plan On Foreclosures? Force Banks To Reduce Loans!

2009-12-23T12:41:02Z

Some people may not like them, but we've got very detailed plans to help the banks, create jobs and improve health care. But where's the plan to help families facing foreclosures? What's the airdate for the primetime address on how to prevent potentially over a million families from losing the roof over their heads in 2010?

The only plan I know about involves relying on the good faith effort of banks. In other words, there is no plan because there is no good faith. And, as we know, the Administration's Home Affordable Modification Program, also known as HAMP, has been deemed a failure.

With the help of taxpayers and a big, fat kiss from the IRS, bank CEOs are paying back their bailout money and returning to their private jets, posh offices and second homes - but not before blaming their inability to stop foreclosures on the borrowers. It's a tried and tested strategy; blame the victim or the other guy and the focus shifts from you.

How are these banks doing in addressing the rising tide of foreclosures dragging down real estate values and our economy?

Short answer? Not very well. In fact, they've permanently modified fewer than 50,000 loans under the HAMP program. But for the 9th straight month, more than 300,000 properties have entered foreclosure, according to Realty Trac.

A year of cajoling by Secretary Paulson and President Bush urging the banks to cooperate in modifying loans failed miserably. That was followed by a year of Secretary Geithner and President Obama doing their cajoling, also without success.

It's time to stop the cajoling and insist that these bailed out banks cooperate with the government's plans to end the foreclosures. The Fed's needs to go on the offensive and force banks to reduce loans to reflect their real property values - not the values based on a Wall Street Ponzi scheme that drove up housing costs beyond imagination. Some people, including journalists, think I'm crazy for proposing such measures and believe they have no chance of happening.

When first proposed, this seemed like a radical idea. Now, not so much. Our federal government has sunk over $11 trillion into the economy to prevent another Great Depression, and it has had minimal impact on the number one factor keeping our economy in this Great Recession: foreclosures.

Here's how our plan would work:

The National Community Reinvestment Coalition, the organization I work for, first called for a broad-scale loan modification program in March 2007. We proposed that the Treasury Department acquire mortgage loans at a discount through the powers granted to the Administration under TARP or through the power of eminent domain. This would allow for the permanent and sustainable modification of loans, including principal reductions, which could then be packaged and resold to the market. Prof. Howell Jackson of Harvard Law School has demonstrated how the government could use eminent domain in this instance. Here's a paper on his proposal.

No one doubts the economic destruction that foreclosures wreak upon families, communities and the national economy. We've witnessed it firsthand during the past year. There's also no question that stopping foreclosures is not as expensive as creating jobs. And, we have to stop this vicious cycle underway now, with job losses feeding foreclosures and foreclosures feeding more job loss.

President Obama's strong words to "fat cat" bankers must translate into strong actions, requiring banks to adjust loan principals to home values and modify loans in a timely fashion to stop foreclosures and the drag on the economy.

President Bush never even considered this option, and President Obama missed a golden opportunity after his election, giving the banks way too much credit - figuratively and literally. He clearly, though, has the courage to tackle tough problems; we are seeing him do it with the health care bill and job stimulus measures. Hopefully, it's not too late for foreclosures.

TARP Repayments Mean Huge Fees For Bailed-Out Banks: Andrew Ross Sorkin

2009-12-22T08:04:30Z

Here's what the post-bailout bonanza means for all the banks that helped find investors for the new shares: Bank of America's $19.3 billion offering generated $482 million in fees; Citigroup's $17 billion offering resulted in $425 million in fees; and Wells Fargo's $12.2 billion offering led to $275.6 million in fees. (The banks paid themselves roughly 2.5 percent of the offering price.)

Taxpayers Help Goldman Sachs Reach Height Of Profit In New Skyscraper

2009-12-22T01:37:29Z

In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.

The building was a bargain -- and not just because the final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government's determination to avoid losing jobs in lower Manhattan after the Sept. 11, 2001, terrorist attacks.

Reese Schonfeld: Glass-Steagall and Insider Trading

2009-12-21T17:01:25Z

I wish to make clear upfront that this is purely hypothetical. If anything like this actually happened, I was not in the room, and nobody I know was in the room. Therefore, I ask you to consider it as purely a supposition:

Let us assume, hypothetically, that a major investment bank has acquired a major bank holding company (a company that has control over a bank and therefore is subject to Federal Reserve regulations). Let us assume that the bank holding company played a major role in the mortgage servicing industry. Let us also assume that the investment bank held among its assets many mortgage-backed securities. Let us assume that the Chairman in the investment bank/bank holding company held regular meetings at which both companies' department heads reported to him about their results:

Now, let us suppose that sometime late in 2007 or early in 2008, at one such meeting, the parent company Chairman asked his department heads if they knew of any developments that might affect the bank's financial performance. Suppose the head of the mortgage servicing division told the Chairman that homeowners were falling behind in the mortgage payments to his division. Assume that at that point the Chairman then called the company Treasurer and told him to "get us out of the mortgage-backed security business as quickly as you can." If the Treasurer did as he was told, the Chairman saved his company from the worst effects of the collapse of the sub-prime mortgage market. This would have been a very good thing for the company and for its shareholders. Moreover, since the repeal of the Glass-Steagall Act in 1999, it would've been entirely legal.

Glass-Steagall, which was one of the most important of the New Deal regulations passed in 1933, would have prevented the merger of the investment bank with the bank holding company. If the investment bank had learned about it from an outside source other than its own bank holding company, the use of it for its own profit, the Chairman and the Treasurer of the parent company would've gone to jail and their company would have been fined billions of dollars. But, since the information came from a division within the parent company, there were no legal problems. The investment bank that knew of the information would've flourished, while some of its rivals who had no access to such information would've crashed, as of course several did at the end of last year.

I'm sure that many Huffington Post readers have read about the dire effects of the repeal of Glass-Steagall, but I have yet to see any comments about the informational advantages it provides to financial institutions that sit on both sides of the fence. If I were running a financial institution now, I'd want to make sure that I owned a mortgage servicing company and a credit card servicing company, so that I'd have legal insider information and be able to shed assets when Americans were no longer meeting their credit obligations.

Of course, another solution would be the repeal of the repeal of Glass-Steagall, but I'm afraid that will be a long time coming.

Federal Reserve's Failures: How The Central Bank Repeatedly Failed To Grasp The Crisis

2009-12-21T08:05:47Z

Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.

The central bank's performance has sparked a great debate about its future as a regulator, pitting those who want to expand its role against those who want to strip its powers. It also has come under pressure from politicians seeking greater oversight of its primary job, adjusting interest rates to moderate economic growth. The battles have complicated Bernanke's bid for a second term as chairman. The Senate Banking Committee voted to approve Bernanke 16 to 7 on Thursday, setting the stage for a January battle on the Senate floor.

Alan Schram: Low Interest Rates are Bonanza to the Banks

2009-12-21T00:26:20Z

Banks have been frustrating the administration's efforts of economic revival by being reluctant to lend, and the president has been complaining about it.

But that is to be expected. Banks are behaving rationally in response to the environment created by the Treasury and the Federal Reserve, i.e. interest rates at effectively zero. They are simply engaged in yield curve arbitrage.

Zero interest rates mean that banks can borrow short-term and use the money to buy risk-free 10-year Treasury bonds that yield 3.5%. That trade is very profitable and makes sense for the banks.

Banks are in the business of lending and do not need encouragement to sell their product, any more than a grocery store needs incentive to sell milk or bread. However, why would anyone take unnecessary risk when the spread is so easy, and so obvious? Traditional lending is hard work, and a risky endeavor to boot.

In addition, with yields on investment grade debt higher than the economy's growth rate, it is not financially viable to lend. The cost of new debt is higher than what most businesses can earn. That is why businesses are delevering and banks are loath to lend.

Banks were already earning oligopolistic profits on mortgage spreads. And they already had the PPIP initiative, which is essentially a leveraged transaction aimed at transferring the bank's worst assets to greater fools (in this case an unsuspecting public), saving them from their own toxic assets. Low interest rates are just another boost to their business, at a time when they need a boost, having gone to the brink of implosion last year.

So the policy of the Federal Reserve Bank is creating massive profits for banks. That may be the constituency the Obama administration wants to serve at the moment, despite its vocal admonitions to the contrary. But it will not help consumers and small businesses, who depend on banks for credit.

And without small businesses, economic growth and job growth will not return.

Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.

2000s Most Dismal Stock Market Decade In History: "WSJ"

2009-12-20T23:58:19Z

The U.S. stock market is wrapping up what is likely to be its worst decade ever.

In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.

FDIC Shuts Down Seven More Banks

2009-12-19T10:24:22Z

WASHINGTON — Regulators on Friday shut down two big California banks, as well as banks in Alabama, Florida, Georgia, Michigan and Illinois, bringing to 140 the number of U.S. banks brought down this year by the weak economy and mounting loan defaults.

The Federal Deposit Insurance Corp. took over all seven.

Michael Winship: Happy Holidays from America's Banks

2009-12-18T15:27:28Z

Never mind Barack Obama's Audacity of Hope. It's the audacity of the banks that takes your breath away. Mean old Mr. Potter in "It's a Wonderful Life" seems like Father Christmas by comparison.

A recent report that Citigroup and Goldman Sachs may have received preferential treatment getting doses of the swine flu vaccine was enough to give Ebenezer Scrooge the yips. Then came news that in order for us to get back the taxpayer bailout money we loaned them, Citigroup is receiving billions of dollars in tax breaks from the IRS.

And there's a new study this week, "Rewarding Failure," from the public interest group Public Citizen, revealing that in the years leading up to the financial meltdown, the CEO's of the 10 Wall Street giants that either collapsed or got huge amounts of TARP money were paid an average of $28.9 million dollars a year.

In 2007, that amounted to 575 times the median income of an American family. Now, thanks in part to the banks' monumental malfeasance that led to our economic swan dive, food stamps are now being used to feed one in eight Americans, and a quarter of all the kids in this country. A new poll from the New York Times and CBS News reports that more than half of our unemployed have borrowed money from friends and relatives and have cut back on medical treatment.

The Times wrote that, "Joblessness has wreaked financial and emotional havoc on the lives of many of those out of work... causing major life changes, mental health issues and trouble maintaining even basic necessities."

Yet according to the non-profit Americans for Financial Reform the reported $150 billion that Wall Street is paying itself in compensation and bonuses this year would be enough to solve the budget crisis of every one of the fifty states or create millions of jobs or prevent all foreclosures for four years.

All of this wretched excess is occurring as more and more people can't afford a roof over their heads. Foreclosures were up another five percent in the third quarter -- 23 percent more than a year ago. Fewer Americans are willing to buy foreclosed properties, and the Obama administration's foreclosure prevention plan has been a bust so far - way too timid, critics say, and many of the banks won't play ball, refusing to negotiate in good faith with homeowners desperate to hold on.

We got a first hand look at the crisis this week, when thousands lined up at the Jacob Javits Convention Center just a few blocks from our Manhattan offices to attend a mortgage assistance event sponsored by the non-profit Neighborhood Assistance Corporation of America (NACA). So many showed up for this leg of the "Save the Dream Tour" that on many days, staff and volunteers stayed to help until one in the morning.

NACA has had success getting homeowners and banks together to work out a deal to prevent foreclosure. But the big banks' return to the government of the TARP bailout money with which we underwrote them over the last 14 months is a mixed blessing -- great to have the cash returned so quickly, terrible because any leverage Washington held over the banks because of the loans virtually vanishes with the payback. They're back in the saddle and not inclined to be of much assistance helping anyone else out, especially those in mortgage trouble.

As Andrew Ross Sorkin of the New York Times wrote in the wake of President Obama's Monday meeting with Wall Street's top guns (three of whom failed to show up because of airport delays), "Executive compensation, leverage limits and lending standards were all issues that Washington said it planned to change -- and when the taxpayers were the shareholders of these firms, it probably could have done so. But now the White House has been left in the position of extending invitations, rather than exercising its clout. And in the figurative and literal sense, it is getting stood up."

Afterwards, Obama said, "The problem is there's a big gap between what I'm hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they're a member up on Capitol Hill."

That's putting it mildly. This week, the American Bankers Association sent out an update and "call to action" memorandum crowing over its success watering down the bank reform bill that was approved by the House and urging its members to beat back similar legislation in the Senate. Self-righteously, it concludes, "As one of your New Year's resolutions, please vow to do everything in your power to show, and to have your colleagues in your bank show, your Senators the right path to true reform."

It helps when the right path is paved with silver and gold. As "Crossing Wall Street," a November report from the Center for Responsive Politics notes, "The finance, insurance and real estate sector has given $2.3 billion to candidates, leadership PACs and party committees since 1989, which eclipses every other sector...

"The financial sector has also been a voracious lobbying force, spending an unprecedented $3.8 billion since 1998, while sending an army of lobbyists to Capitol Hill to make its case. That's more money than any other sector has spent on influence peddling. Not even the health care sector, which spun up a lobbying frenzy this year over health reform, has spent more."

The banks are making a list and checking it twice. And lest we forget, during his run for the White House, the finance sector filled Barack Obama's stocking with $39.5 million dollars worth of campaign contributions, more than any other presidential candidate.

God bless us, every one!

Michael Winship is senior writer of the weekly public affairs program Bill Moyers Journal, which airs Friday night on PBS. Check local airtimes or comment at The Moyers Blog at www.pbs.org/moyers. Research support provided by producer William Brangham and associate producer Katia Maguire.

Trading Profits Up 11 Percent For Banks; JPMorgan Chase Leads The Way

2009-12-18T13:27:04Z

Despite controversy surrounding the financial instruments known as derivatives -- and legislation that might finally start to regulate them -- the nation's top five banks are, for now, maintaining their stranglehold on the derivatives market, accounting for 97 percent of the $204.3 trillion in total volume last quarter, the Office of the Comptroller of the Currency reported Friday.

The lobbyists for the nation's biggest banks are fighting ferociously against legislation that would regulate the over-the-counter derivatives market. What is now essentially a market in which traders deal directly with one another would instead be diverted to public exchanges or other central facilities, though major loopholes remain.

Overall, the nation's banks saw an 11 percent increase in their trading revenue last quarter, turning a $5.7 billion profit -- their fourth-best quarter ever.

JPMorgan Chase led the way in the third quarter, making nearly $3.1 billion off its trading and derivatives activity, a 60 percent increase from the previous quarter. The banking behemoth has earned more than $8.1 billion trading thus far this year, already eclipsing its year-end totals for each of the last two years.

Goldman Sachs's profits declined 37 percent to $691 million, due to big losses on its foreign exchange trading, according to the report. Those losses were hedged by profits on interest rate contracts, but they weren't enough to make up for the substantial decrease in overall profits.

Citibank continues to lose money off its trading and derivatives contracts. The partially-taxpayer owned bank lost $211 million last quarter and $238 million in the second quarter, the report shows.

Bank of America made $467 million last quarter, a $650 million swing from its second-quarter loss. Wells Fargo, on the other hand, turned a loss, losing $78 million in the third quarter compared to its $306 million profit during the second quarter.

At Goldman Sachs, trading continues to make up a significant part of the banks' profits. Trading revenue accounts for 59% of Goldman Sachs' overall revenues, according to the report. The firm, which last year became a bank in order to accept TARP money, is the beneficiary of taxpayer-funded guarantees. Goldman Sachs owns a bank; its deposits are guaranteed by the Federal Deposit Insurance Corporation. The firm also has access to the Federal Reserve's cash, just like Main Street commercial banks. And it still has more than $22 billion in taxpayer-guaranteed debt, thanks to an FDIC program instituted last fall.

Financial and economic luminaries like former Federal Reserve Chairman Paul Volcker argue that banks with access to taxpayer cash shouldn't be allowed to also engage in trading activities like the kind the nation's biggest banks engage in every day. Though some movement is afoot in Congress to make this change, Volcker's arguments are largely falling on deaf ears in Washington.

Homeowners Often Rejected Under Obama's Make Home Affordable Loan Modification Plan

2009-12-17T21:27:28Z

WASHINGTON -- Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.

Jim Cramer's Insanely Passionate Citigroup Recommendation Falls Flat (VIDEO)

2009-12-17T17:34:33Z

UPDATE: See Jim Cramer's response below

Though we think the following clip from CNBC's Jim Cramer speaks for itself, here's some explanation.

On Monday, Cramer went on a breathless -- and rather unbelievable -- rant about the merits of buying Citigroup's stock. (Yes, he was referring to everyone's favorite bailed-out, quasi-zombie financial firm.) His logic: Citigroup's stock was priced so low that it could sit in your portfolio for years, it has a great reputation abroad and was much less exposed to the mortgage market than, say, Wells Fargo.

Here's Cramer: "We're looking for doorbusters and you're getting a doorbuster! You're getting a discount and getting it big time and getting a huge piece of marked-down Citigroup merchandise."

So, what's happened since Monday?

Citigroup recently announced that it planned to repay the government's $20.5 billion in bailout funds by issuing stock in a secondary offering. At the same time, the government announced that it would sell off its stake in the bank.

But, last night, news surfaced that Citigroup's stock offering was going so incredibly poorly that the government, fearing it would take a loss, decided to delay its plans to sell its stake in the bank.

Jim Cramer's advice, however, was to "buy, buy, buy" Citigroup.

From the below video, it seems unclear whether or not Cramer is recommending the stock's secondary offering price ($3.15) or just telling viewers to go out out and buy the stock. Here's the accompanying piece from CNBC.com:

The share price is just $3.70, a near lottery-ticket price with somewhat similar potential. While the dollar amount doesn't matter, Cramer does bless this as a single-digit speculation play, the kind that investors seem to love so much.

"You have to take advantage of the discount, even if you don't like the company!" Cramer said on air.

How's that investment doing so far? Citi's stock stood at $3.20 early Thursday night -- just about a 14 percent loss in three days if you had bought Citi shares outside of the secondary offering price, as Zero Hedge pointed out.

Maybe Cramer's pick just needs some time to even out -- or maybe it will fare just as poorly as his housing bottom call from last spring.

WATCH:

(UPDATE: Jim Cramer wrote in and said that he intended his recommendation to only apply to Citigroup's secondary stock offering price, which was $3.15. CNBC.com's accompanying piece, however, and many of Cramer's other comments in the video suggest that Citi's main stock price of $3.70 was still quite low.

For example:

- Cramer says Citigroup's stock price will triple in the next few years.

- Cramer's fourth reason to buy the stock is that it was already at trading at low price -- before the secondary offering, in other words.

- At one point in the video, Cramer argues against buying the stock at any other price than at the secondary offering price, but then spends the next several minutes arguing why the stock is generally undervalued.)
Read more: Citi, Cnbc, $C, Banks, Jim Cramer, Citigroup, Business News

Cate Long: Banks with Glass Walls

2009-12-17T16:21:31Z
We could use some banks with glass walls... Banks that don't operate like black boxes and put the entire economic system at risk with their risky trading ventures.

Congress is hearing the roar coming from the people.

No more bailouts... fair fees... access to credit No predatory lending. No more favored treatment for the giant banks.

Building a stable financial system that helps Main Street thrive is a core requirement for the nations recovery. So, how do we get there?

Senators John McCain (R-Ariz.) and Maria Cantwell (D-Wash.) have unveiled legislation that aims to restore Glass-Steagall, a banking law repealed in 1999 that required banks that take deposits to be separate from banks that perform Wall Street trading and have insurance operations.

In simple terms the Glass-Steagall Act says don't put all your eggs in one basket.

Sen. Cantwell said:

With big banks using depositor money to gamble on Wall Street, it's only a matter of time. Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes. We must return stability, security and confidence to commercial banking for the American public. The first step is this bill.

Now this matter belongs in the balliwick of the Senate Banking Committee . I haven't even heard one statement from the Committee that they would take up the legislation. Hopefully they will hold some hearings on the issue.

Now of course the well paid inside the beltway types are lining up to defend the status quo. here is my favorite former bank regulator in charge, Eugene Ludwig, on Bloomberg declaring how the financial institutions that imploded last year (Bear, Lehman, AIG) would not be affected by restoring Glass Steagall.

In a "through the looking glass" world the former regulator is correct.

But it was the high levels of leverage and the very deep interconnectedness between our "too big to fail" institutions that wreaked havoc.

We do know that Goldman Sachs and Morgan Stanley, who are now technically "commercial banks" were saved only by a miraculous late Sunday night conversion to bank holding companies.

Rep. Glass Steagall would make interconnections like the insurance written by AIG on risky structured finance products of Goldman Sachs unlikely. Those insurance contracts that AIG wrote for Goldman brought it near to collapse and shook the whole system.

This was the bailout by the Federal Reserve and the US Treasury of $182 billion that went to Goldman Sachs and foreign banks. To put that number in perspective the whole state budget for California for 2009-2010 was $119 billion.

Wall Street activities are so distant from Main Street that we shouldn't call them "banking." We should call them "gambling," and it's time to stop gambling with the stability of the nation.

* * *

See Sen. Cantwell discuss her vision of a stable financial system here.

* * *

In the House a similar measure was offered on Wednesday by seven Democrats, including Judiciary Committee Chairman John Conyers and Maurice Hinchey.... and House Majority Leader Steny Hoyer says it's under discussion.

Rep. Maurice Hinchey, a New York Democrat, talks to Bloomberg (news video) about the U.S. House's consideration of the Glass-Steagall Act.

The Glass-Steagall law, which barred bank holding companies from owning other financial companies, was repealed in 1999 to help pave the way for the formation of Citigroup Inc. by the $46 billion merger of Citicorp and Travelers Group Inc.
Read more: Investment Banks, John McCain, Congress, Steny Hoyer, Maurice Hinchey, Maria Cantwell, Financial Crisis, Banks, Glass-Steagall, Business News

After TARP Exits, Obama Searching For New Ways To Boost Credit

2009-12-17T14:25:33Z
It will take more than a guilt trip to boost credit. With Citigroup (C) and Wells Fargo (WFC) joining JPMorgan Chase (JPM) and Bank of America (BAC) in repaying their rescue funds, the feds have lost a big lever for lending. Not that the Troubled Asset Relief Program proved effective in getting credit flowing again. Even when they had the federal funds, banks hunkered down in the face of losses. Loan originations totaled just $239 billion in September, down 14% from the average of $279 billion in the previous six months, according to a Treasury survey of the 22 biggest bailout recipients. Without TARP over their heads, bank CEOs are even less likely to lend.
Read more: Banks Lending, Citigroup, Wall Street, Credit Markets, Banks, Wells Fargo, Troubled Asset Relief Program, Bank of America, Main Street, Obama, Lending, Tarp, Business News

Damien Hoffman: Credit Suisse Circumvents Iran Sanctions to Make Money

2009-12-17T13:10:16Z
As if banks don't already need to completely rebrand, yesterday Credit Suisse (CS) admitted to violating U.S. economic sanctions and agreed to pay $536 million to settle a Justice Department probe.

Seriously? With all the schemes these banks have run in the past few years they are now using Iran-Contra as a model in a fancy Excel spreadsheet? This is yet another glaring example that the people who run these paper entities are complete profiteers and worship the almighty dollar more than anything else in the universe. But don't worry, their self-interest will bring the most benefit to ... to ... to themselves.

Will the US strip Credit Suisse of their charter to do business in the US? No. We live in the wild West. Pay a fine and go back on your merry way of screwing the people who have invited you to do business in our local communities.

Well, you can't really blame the Swiss bankers. They pride themselves on their neutrality. It's the politically correct way to be a profiteering scumbag with great bedfellows like the Nazis and now nuke-building megalomaniacs (which, like the US government, should be understood as a separate party from innocent citizens who work hard and are good members of their communities).

We are truly living through the Golden Era of Legally Criminal Corporations ...
Read more: Iran, Banks, Treason, Iran-Contra, Credit Suisse, Swiss Bankers, Business News

Lending To Businesses Down Across The Globe

2009-12-17T12:53:35Z
Loans, commercial paper - you name it and banks are lending less of it.

And that's not just in the US. It's happening all around the world.
Read more: Banks, Financial Crisis, Economic Downturn, Bank Lending, Fiscal Policy, Business News

Rep. Maurice Hinchey: Bring Back the Glass-Steagall Act to Break Up the MegaBanks that Caused the Crisis

2009-12-16T18:31:06Z
In the midst of the Great Depression, Congress approved the Banking Act of 1933, which among other things, separated investment banking from commercial banking. This measure, more commonly referred to as the Glass-Steagall Act, was adopted after many banks had taken depositors' money, invested it in the stock market, and lost big time. This resulted in people pulling their money out of banks and led to a financial disaster. By separating commercial lending from investment activity through the Glass-Steagall Act, Congress took a prudent step to protect the American public from greedy banks.

Unfortunately, Congress ignored history and reversed the Glass-Steagall Act in 1999 through what is commonly referred to as the Gramm-Leach-Bliley Act. The repeal of Glass-Steagall contributed a great deal to the financial collapse we recently experienced. The greed of these megabanks resulted in the American people having to pay the price as they bailed out these oversized financial institutions.

We must learn from history once more and restore commonsense safeguards to the financial sector. That is why today I introduced the Glass-Steagall Restoration Act, which would separate investment banking from commercial banking. I was pleased to have U.S. Reps. Peter DeFazio (D-OR), Jay Inslee (D-WA), Marcy Kaptur (D-OH), Jim McDermott (D-WA), and John Tierney (D-MA) all sign on as original cosponsors to this bill, which would break up these oversized banks, restore consumer protections, and avoid future financial collapses like the one that began last year.

The repeal of Glass-Steagall has exposed the U.S. economy to a level of risk that is simply unacceptable. This bill reinstates an important protection that will help ensure average Americans are not taken advantage of by banks and help mitigate the risk of another financial meltdown like the one from which we're still recovering.

Today, just four huge financial institutions hold half the mortgages in America, issue nearly two-thirds of credit cards, and control about 40 percent of all bank deposits in the U.S. In addition, the face value of over-the-counter derivatives at commercial banks has grown to $290 trillion, 95 percent of which are held at just five financial institutions. We cannot allow the security of the American economy to rest in the hands of so few institutions.

When you take a look at history and see the situation in which we find ourselves today, it is clear that we need to bring back the Glass-Steagall Act. The bill I introduced today would statutorily require banking giants to decide whether they want to serve as a commercial bank or an investment bank and require them to cease activities in one of those areas within one year of the bill's enactment. This bill would help right the ship and return our country to the days when banks either participated in commercial lending activities or investment activities, but not both.

We need to bring the American banking system back to earth so that it functions in a way that benefits all Americans, not just bank executives who stand to make a fortune if things go well and a smaller fortune if they don't. The financial system in this country has been rigged and this bill will help undo the circumstances that led to this most recent collapse while helping to prevent future ones.

Congressman Maurice Hinchey (D-NY) is serving in his ninth term representing New York's 22nd Congressional District. He is a member of the Joint Economic Committee.
Read more: Maurice Hinchey, Wall Street, Financial Crisis, Glass-Steagall Act, Banks, Glass-Steagall, Business News

Pat Choate: Why Are the Banks Not Lending More?

2009-12-16T13:34:43Z
The Treasury Department reports that October was the ninth consecutive month of declining loans by the 22 top recipients of federal bailout funds. Yet, most of these banks are also reporting significant gains in profits. The vital question is: Why are these banks not lending more?

The answer is White House politicking and old-fashioned banker greed.

The White House realizes that the voting public is furious about the bank bailout. To remove the issue from public view, therefore, the Obama Treasury has pushed the big banks to repay the federal loans before the end of 2009. By year's end, the 22 biggest recipients will have fully repaid their loans to the Treasury ($185 billion), though most will still owe unknown billions to the Federal Reserve System.

The banks are anxious to comply with the Administration's prodding because a total repayment frees them from federal oversight of their salaries and bonuses. Consequently, the same bankers who created the global financial crisis and destroyed millions of jobs are now legally able to take billions of dollars in 2009 as bonuses. Wall Street reportedly has set aside more than $140 billion for this.

Therefore, the arithmetic of the decline in bank loans is that the banks are using $325 billion of what otherwise would be their capital ($185 billion plus $140 billion) to repay the Treasury and to reward their executives.

The harm to the economy and job creation is already enormous. Consider this: the Treasury reports that the average balance of loans made by all these 22 banks in October 2009 was $4.1 trillion, a decline of almost one percent from September. If that $325 billion had been used as capital for loans at a conservative four-to-one reserve, the banks could have easily and safely loaned another $1.3 trillion -- that is, about 30 percent more than they did.

The supposed good news is that the Treasury reports that the total losses in the federal bailout program, called TARP, will "only" be $141 billion (almost exactly equal to the 2009 Wall Street bonuses).

Because of the repayments and bonuses, bank lending in 2010 will continue to be tight. And tight capital means that many potential borrowers will be unable to get the monies they need to expand, unemployment is likely remain at double-digit levels, and the demands for unemployment insurance, Medicaid and other public services will rise even further.

The response of Britain and France to a similar situation is to impose a one-time 50-percent tax on such bonuses. Their political leaders are forcing those who created the financial crisis to pay a significant part of the costs.

A wise policy for the United States would have been to demand that the banks forego any bonuses in 2009 and use the public monies as capital to make solid business loans that will create the millions of new jobs the nation requires. A responsible policy would have continued such demands on Wall Street until national unemployment has dropped to what it was before the crisis -- 4 to 5 percent.

Instead, our leaders have chosen to shift the burdens onto the U.S. public and refuse to regulate Wall Street. It's almost as if Wall Street owns Washington.

Read more: Bailout, Wall Street, Banks, Unemployment Insurance, Treasury, Timothy Geithner, Medicaid, Tarp, Capital, Unemployment, Business News

Nation's 4 Biggest Banks Cut Business Lending By $100 Billion Since April

2009-12-16T12:14:52Z
While the administration and Congress work to increase bank lending, the nation's four biggest banks have collectively cut their loans to businesses by more than $100 billion over the past six months, according to new federal data released on Tuesday.

Bank of America, JPMorgan Chase, Citigroup and Wells Fargo cut their commercial and industrial lending by a combined 15 percent from April to October, representing $100 billion, according to the most recent Treasury Department data. Loans to small businesses are down $7 billion, or four percent.

President Barack Obama announced his administration's small business lending initiative in March. As the unemployment rate hovers around 10 percent, there's been an increased push recently by the administration and members of Congress to stimulate lending to small businesses in hopes of increasing the availability of jobs. But loans to businesses by the top four banks are down $107 billion since April.

The reduced lending by the four biggest bank-holding companies, all of which are largely considered to be "too big to fail," appears to be steeper than in the overall banking sector. Over the same time period, commercial and industrial loans at all banks declined about 10.8 percent, or $166 billion, according to Federal Reserve data -- that figure includes Bank of America, Citibank, Wells Fargo and JPMorgan Chase.

Among the big four, Wells Fargo had the smallest decline at 5 percent; Citigroup had the largest at 29 percent. JPMorgan Chase cut its loans by $21 billion, or 13 percent.

Bank of America led the pack in terms of its cuts. The bank slashed commercial and industrial loans by 21 percent. Thanks to its enormous size, that translated into a $58 billion decrease -- by far the largest decline in business lending by any U.S. bank.

After Monday's meeting at the White House with Obama and the nation's top bankers, Bank of America pledged to increase lending to small- and medium-sized businesses next year by at least $5 billion.

There's no clear reason to explains big banks' decline in lending. Analysts have pointed to a number of different possibilities including decreased loan demand, a decrease in credit-worthy borrowers with sufficient collateral, cautious regulators protecting banks from potential losses and banks' need to shore up their balance sheets in anticipation of future, unrealized loan losses.

And big banks are able to generate large profits through their trading desks, enabling them to book profits without having to lend in an uncertain economic environment. After all, the banks' borrowing costs are at historic lows; for the biggest banks it's even lower. So why not roll the dice if one can borrow cheaply?

While Federal Reserve survey data and the banks themselves point to decreased demand for loans, small business advocates say the fact remains that banks are cutting back, making it even more difficult for credit-worthy businesses to secure financing.

"Lending isn't easing. It's just as difficult to get loans now as it was six months," said Molly Brogan, vice president of public affairs for the National Small Business Association, an advocacy group. "For months we've heard the administration talking about getting TARP funds to small businesses" in the form of increased bank lending. "But the proof is in the pudding. You're either going to do something about it or you can keep talking," Brogan said.
Read more: Small Business Loans, Tarp, Wall Street Bailout, Small Business, Wells Fargo, Bank of America, Small Business Lending, JPMorgan Chase, Bank Lending, Bailout, Citibank, Financial Crisis, Banks, Citigroup, Business News

After TARP Repayments, Banks Are Now 'Free To Fail Again': Steven Pearlstein

2009-12-16T08:58:51Z
As far as I can tell, top administration officials are fixated on voter rage over bank bailouts and the resulting hit to the president's poll ratings. So they're looking for any way to show that the economy is improving and that the government will not only get its bailout money back, but earn a profit besides.
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By rushing to cash in their chips, however, the administration not only gave up political leverage and additional profit, but took the risk that one or more of the banks may find that it can't make it on its own.
Read more: Tarp, Goldman Sachs, TARP Repayments, Jpmorgan, Troubled Asset Relief Program, Financial Reform, Too Big to Fail, Banks, Steven Pearlstein, Obama, Washington Post, Citigroup, Business News

Goldman Sachs' Lost 'Ethos' Puts Traders -- And Profits -- Ahead Of Clients

2009-12-16T08:37:18Z
But as President Obama prods the financial industry to do more to help ordinary Americans -- he chided 'fat cat' bankers -- on Sunday for increasing their pay some current and former Goldman executives say Mr. Blankfein has built a money machine that, while it still values its customers, culture and reputation, puts profits above all.

Interviews with nearly 20 current and former Goldman partners paint a portrait of a bank driven by hard-charging traders like Mr. Blankfein, who wager vast sums in world markets in hopes of quick profits.
Read more: Wall Street Arthur Levitt, Lloyd Blankfein, Goldman Sachs, Traders, Banks, Goldman Sachs Ethos, Business News

Obama And The Banks: No Real Consensus On Financial Reform

2009-12-16T07:57:57Z
WASHINGTON — After meeting with bank executives, President Barack Obama noted "a big gap" between the CEOs and their lobbyists on his campaign to rewrite the rules governing the financial industry. The CEOs "support reform," Obama said, but their lobbyists have been sending a different message.

Appearing separately after the meeting, the bankers seemed to agree. "We're going to do a better job ... to work with the lobbyists" to address that disconnect, US Bancorp CEO Richard Davis said.
Read more: Goldman Sachs, JPMorgan Chase, Wall Street, Lobbyists, Financial Reform, American Bankers Associatin, Banks, Consumer Protection Agency, Obama, Financial Lobby, Business News

Goldman Sachs Traders: Firm's Ethos Fading With Blankfein As CEO

2009-12-16T00:00:17Z
...Current and former Goldman executives say Mr. Blankfein has built a money machine that, while it still values its customers, culture and reputation, puts profits above all.

Interviews with nearly 20 current and former Goldman partners paint a portrait of a bank driven by hard-charging traders...
Read more: Tarp, Bailout, Goldman Sachs, Banks, Lloyd Blankfein, Compensation, Bonuses, Goldman Sachs 14 Principles, Wall Street, Home News