Financial News

[southsider2k5]

So then how was it the Fed was sitting on $1 trillion before the bailouts started?

 

For the exact reason that they are now sitting with more.

[Balta1701]

For the exact reason that they are now sitting with more.

So, basically, what you're telling me is that since the Fed sets the rules, if they want to set the rules such that it doesn't matter if they lose money, and then change the rules if things ever recover, there's really no issue with it. Even if they wind up being in a place where they're technically losing money, they can just essentially print more (a good thing in a near-deflation setting), and if that winds up driving inflationary pressures, they celebrate because they're able to raise interest rates.

[southsider2k5]

So, basically, what you're telling me is that since the Fed sets the rules, if they want to set the rules such that it doesn't matter if they lose money, and then change the rules if things ever recover, there's really no issue with it. Even if they wind up being in a place where they're technically losing money, they can just essentially print more (a good thing in a near-deflation setting), and if that winds up driving inflationary pressures, they celebrate because they're able to raise interest rates.

 

I'm telling you that the federal government set up a system which subsidized risky lending behavior by setting up its own pseudo banking companies to facilitate. Once the private agencies caught on to this and realized that all they had to do was sell them off to the feds in order to keep making more loans, they jumped in with both feet. Obviously if the Fed bank had a bunch of stuff on its books, this isn't a new thing. There is no one to bail out the fed, well except for us taxpayers, or we can just ignore it, like we have forever. There is no reason to believe that any of this is going to change from the Fed, or from any of the governmental regulating agencies which have not done what they were created for in decades now. The more the fed has become obligated to the executive branch, the less effective they are, and it shows. That hasn't changed, and actually it is getting worse.

[Balta1701]

The more the fed has become obligated to the executive branch, the less effective they are, and it shows. That hasn't changed, and actually it is getting worse.

Really, you'd argue that the Fed has become increasingly more folded into the executive branch?

[Cknolls]

The Federal Reserve's job according to Wikipedia is:

I think you could make a legitimate argument that taking a loss on those securities falls under any of those. Yeah, there's likely some corruption built in that we need to correct, don't bother lecturing me about that, i'll be the first to admit it. I want to know a priori why I should worry if the Fed loses money.

 

 

I think you could argue only the first two apply.

[kapkomet]

Really, you'd argue that the Fed has become increasingly more folded into the executive branch?

 

 

I would agree with that, and without regard to political party.

[bmags]

possibly, but bernanke isn't really doing any favors to Obama right now. I think a bigger problem is this new inevitability with the fed, where clearly only one person can run it.

[Balta1701]

John Boehner, trying to keep the spirits up of bank industry lobbyists.

Boehner's comments come as bankers prepare to descend upon Capitol Hill to press for changes to the bank-reform legislation, which they wouldn't support in its present form. Boehner said he urged bankers not to be shy when meeting with the lawmaker staff members and to send a message that new regulations and taxes translates to into banks having less available for lending.

 

"Don't let those little punk staffers take advantage of you and stand up for yourselves," Boehner said. "All of us are hearing from our friends and constituents on lack of credit, you can't get a loan, the more your government takes and taxes, the more regulations you have to comply with the more cost you have there and less amount you are going to have available to loan to customers."

[Balta1701]

This horrible ad for Geico is worth enduring just to see who's dressed up in the Axl Rose style getup.

 

[southsider2k5]

http://www.cbc.ca/money/story/2010/03/18/b...ator-bonus.html

 

Bank regulators drew lavish bonuses

Payouts nearly 25 per cent of salary in some cases

Last Updated: Thursday, March 18, 2010 | 9:04 AM ET Comments54Recommend21

The Associated Press

 

Banks weren't the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The U.S. government was handing out millions of dollars to bank regulators, rewarding "superior" work even as an avalanche of risky mortgages helped create the meltdown.

Former Merrill Lynch executive John Thain speaks at a 2008 news conference in New York. Thain came under fire after news that Merrill moved up its year-end bonuses, paying them just before the company sought more government aid.Former Merrill Lynch executive John Thain speaks at a 2008 news conference in New York. Thain came under fire after news that Merrill moved up its year-end bonuses, paying them just before the company sought more government aid. (Bebeto Matthews/Associated Press)

 

The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government's false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

 

The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 per cent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.

 

During the 2003-06 boom, the three agencies that supervise most U.S. banks — the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency — gave out at least $19 million in bonuses, records show.

 

Nearly all that money was spent recognizing "superior" performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.

 

After the meltdown, the government's internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough:

 

* "OTS did not react in a timely and forceful manner to certain repeated indications of problems," the Treasury Department's inspector general said of the thrift supervision office following the $2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.

* "OCC did not issue a formal enforcement action in a timely manner and was not aggressive enough in the supervision of ANB in light of the bank's rapid growth," the inspector general said of the currency comptroller after the $2.1 billion failure of ANB Financial National Association

* "In retrospect, a stronger supervisory response at earlier examinations may have been prudent," FDIC's inspector general concluded following the $1.8 billion collapse of New Frontier Bank.

* "OTS examiners did not identify or sufficiently address the core weaknesses that ultimately caused the thrift to fail until it was too late," Treasury's inspector general said regarding IndyMac, which in 2008 became one of the largest bank failures in history. "They believed their supervision was adequate. We disagree."

* "OCC's supervision of Omni National Bank was inadequate, Treasury investigators concluded following Omni's $956 million failure."

 

Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it's impossible to determine how many auditors got bonuses despite working on major banks that failed.

 

Regulators say it's unfair to use those missteps, seen with the benefit of hindsight, to suggest any of the bonuses was improper.

 

"These are meant to motivate employees, have them work hard," thrift office spokesman William Ruberry said. "The economy has taken a downturn in recent years. I'm not sure that negates the hard work or good ideas of our employees."

 

At the OCC, spokesman Kevin Mukri noted that the national banks his agencies regulate generally fared better than others during the financial crisis.

 

"In making compensation decisions, the OCC is mindful of the need to recruit and retain the very best people, and our merit system is aimed at accomplishing that," Mukri said. "We also believe it is important to reward those who worked so hard and showed such great professionalism throughout the crisis."

 

David Barr, a spokesman for the FDIC, which handed out two-thirds of the bonuses during the boom, had no comment.

 

In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.

 

The bonus data released to the AP does not say specifically why each person received a bonus. For instance, one person in the OCC's financial examining division got a $41,000 recruitment bonus on top of a $179,000 salary in 2005. In 2006, the last boom year for banks buying risky mortgages, the FDIC gave out more than 2,000 bonuses to financial examiners.

 

In 2008, the year the market collapsed, OTS gave 96 financial examiners bonuses of up to $3,000 for exceptional work.

 

At the three regulatory agencies, the value of the bonuses stayed roughly constant from before the banking boom, through the good times and into the collapse. While the total pales in comparison with the billions spent on Wall Street perks, the justification was similar.

Trader Bradley Silverman works on the floor of the New York Stock Exchange in late 2008. Investor anger over lavish Wall Street bonuses was a major issue throughout 2009. Trader Bradley Silverman works on the floor of the New York Stock Exchange in late 2008. Investor anger over lavish Wall Street bonuses was a major issue throughout 2009. (Richard Drew/Associated Press)

 

"Bonuses were determined based upon the performance and the retention of the people," said John Thain, the former CEO of Merrill Lynch, the troubled brokerage firm that paid out $3.6 billion in bonuses just before selling itself to Bank of America. "And there is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing."

 

To be sure, Washington policymakers eased regulations and encouraged banks to write risky loans. Families bought homes they couldn't afford. Brokers found them mortgages. Bankers quickly snatched them up, never asking whether they could be repaid. And rating agencies certified it all as safe.

 

But regulators were part of the problem, and the bonuses were a symptom, said Ellen Seidman, a research fellow at the New America Foundation think-tank and the head of OTS from 1997 to 2001.

 

"Is it probably the case that the standards for evaluating how well people in the regulatory system were doing were not as high as they should have been? Probably," Seidman said.

 

But the bigger question, she said, is why government regulators thought they were doing so well: "Why did the system fool itself?"

 

Read more: http://www.cbc.ca/money/story/2010/03/18/b...l#ixzz0iZ2gxrHj

[Balta1701]

At least I can take solace in the fact that the head of the NY Federal Reserve in 2008 lost his job and is no longer working at the Fed, right?

Securities and Exchange Commission and Federal Reserve officials were warned by a leading Wall Street rival that Lehman Brothers was incorrectly calculating a key measure of its financial health months before its collapse in 2008, people familiar with the matter say.

 

Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons.

 

The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less ­liquid than Lehman.

 

The warnings take on a special significance after last week’s report by Anton Valukas, the Lehman bankruptcy court examiner, who found that Lehman had used questionable financing tools to flatter its balance sheet before its September 2008 collapse.

 

The findings raise questions over what federal regulators knew about Lehman’s accounting and when they knew it. In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.

[Balta1701]

Obama's pay Czar casually notes that the bankers may threaten to leave their jobs if they have their pay slashed. Then they realize unemployment actually sucks. And they don't leave.

The Treasury, where Feinberg's office is housed, tried to prove that Feinberg's rulings have not been overly harsh. It said about 84 percent of the top earners under the pay czar's jurisdiction are still with their firms despite having their pay dramatically cut back.

 

"People at these five companies are not leaving the companies to go elsewhere," Feinberg told a news briefing. "There is a striking number of holdovers."

[kapkomet]

Obama's pay Czar casually notes that the bankers may threaten to leave their jobs if they have their pay slashed. Then they realize unemployment actually sucks. And they don't leave.

 

 

Woot! Yea for no one being able to get jobs!

[Rex Kickass]

160K jobs added this month. Most in three years.

Less than the Street expected, but fewer census jobs added than expected as well.

[Cknolls]

160K jobs added this month. Most in three years.

Less than the Street expected, but fewer census jobs added than expected as well.

 

 

Underemployed= 20.3%

[Balta1701]

An NYT Op-Ed on how Greenspan missed the housing bubble.

The market for subprime mortgages and the derivatives thereof would not begin its spectacular collapse until roughly two years after Mr. Greenspan’s speech. But the signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences, and when the government could have acted to minimize the fallout.

 

Instead, our leaders in Washington either willfully or ignorantly aided and abetted the bubble. And even when the full extent of the financial crisis became painfully clear early in 2007, the Federal Reserve chairman, the Treasury secretary, the president and senior members of Congress repeatedly underestimated the severity of the problem, ultimately leaving themselves with only one policy tool — the epic and unfair taxpayer-financed bailouts. Now, in exchange for that extra year or two of consumer bliss we all enjoyed, our children and our children’s children will suffer terrible financial consequences.

 

It did not have to be this way. And at this point there is no reason to reflexively dismiss the analysis of those who foresaw the crisis. Mr. Greenspan should use his substantial intellect and unsurpassed knowledge of government to ascertain and explain exactly how he and other officials missed the boat. If the mistakes were properly outlined, that might both inform Congress’s efforts to improve financial regulation and help keep future Fed chairmen from making the same errors again.

[Balta1701]

From the "It worked so well for Lehman Brothers that everyone should get into the act!" file.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

 

That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.

 

"You want your leverage to look better at quarter-end than it actually was during the quarter, to suggest that you're taking less risk," says William Tanona, a former Goldman analyst who now heads U.S. financials research at Collins Stewart, a U.K. investment bank.

[bmags]

a look at what to do with greece:

http://baselinescenario.com/2010/04/06/gre...-an-imf-rescue/

 

my vote: they should default and leave the eurozone

[Balta1701]

Robert Shiller (yes, that one) on the Housing market.

So, because home prices have been climbing of late, isn’t it plausible that they’ll keep doing so?

 

If only it were that simple.

 

Home price booms and busts do end, sometimes quite suddenly, as was the case for the boom of 1995 to 2006 and the bust of 2006 to 2009. Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.

 

Consider some leading indicators. The National Association of Home Builders index of traffic of prospective home buyers measures the number of people who are just starting to think about buying. In the past, it has predicted market turning points: the index peaked in June 2005, 10 months before the 2006 peak in home prices, and bottomed in November 2008, six months before the 2009 bottom in prices.

 

The index’s current signals are negative. After peaking again in September 2009, it has been falling steadily, suggesting that home prices may have reached another downward turning point.

The government supports for the housing market pretty much all end over the next month or two. After that, you've got a couple of months while things that close are absorbed into the data, and by the middle of the summer, we may start getting a sign about whether or not I'm right and the housing market still has a decent ways to fall.

[southsider2k5]

Robert Shiller (yes, that one) on the Housing market.

The government supports for the housing market pretty much all end over the next month or two. After that, you've got a couple of months while things that close are absorbed into the data, and by the middle of the summer, we may start getting a sign about whether or not I'm right and the housing market still has a decent ways to fall.

 

I want to see at least 6 months of growth after the housing credit expires before I will considering it recovering nationally. Even then you are going to have some major markets that will lag for quite a while just because of the NASDAQ like boom and bust they had.

[Balta1701]

The LAT story is a bit iffy on some of the details, but supposedly the OTS has a report on the demise of Washington Mutual due later this week. One of the conclusions appears to be that the employees at WaMu were deliberately shuttling their clients money into investments filled with mortgage-backed securities that they knew were likely to go bad in order to rake in the short-term profits before things got bad and they got out.

[Balta1701]

Here's more on WaMu from the WSJ.

Officials at the failed banking operations of Washington Mutual Inc. securitized substantial volumes of risky, fraudulent loans in the run-up to the financial meltdown despite repeated internal warning signs, according to a Senate probe.

 

The Senate Permanent Subcommittee on Investigations found that problems lending at the Seattle thrift grew so chronic and severe that one mortgage insurer warned it would stop writing coverage for loans generated by one of Washington Mutual's highest-volume offices in California. Internal auditors and federal regulators also were heavily critical of the bank's deficient lending and securitization practices, according to the subcommittee.

WSJ Professional

 

Stephen Rotella, a former president and chief operating officer at Washington Mutual, wrote in a 2007 email: "I said the other day that HLs [Washington Mutual's home-loan division] was the worst managed business I had seen in my career." He added: "(That is, until we got below the hood of Long beach)," the company's subprime unit.

 

Investigators for the subcommittee concluded that little was done to stem the flood of problem loans despite multiple investigations going back at least as far as 2003. One major factor: compensation incentives that rewarded employees for generating more risky, high-yielding loans...

 

 

The subcommittee has obtained documents showing that "at a critical point Washington Mutual included loans in its securities because they were likely to suffer a high rate of default, and they failed to disclose that to the buyers," Sen. Levin said. "They also allowed loans that had been identified as fraudulent to be sold to buyers, again without alerting buyers when the fraud was discovered."

 

Tuesday's hearing also will include former mortgage and securitization executives, risk officers and auditors.

 

The documents to be disclosed on Tuesday also reflect that employees routinely fabricated lending documents. "One Sales Associate admitted that during that crunch time some of the Associates would 'manufacture' asset statements…and submit them to the" loan processing center, according to one document. "She said the pressure was tremendous… since the loan had already [been] funded.".

A serious question that I'm going to direct in 2k5's direction but I'd be happy for other responses.

 

This whole time, you've argued as far as I can tell that each and every one of these problems in the markets over the last year has come from too much regulation/the government forcing these companies to make loans that went bad.

 

We've recently gotten reports on AIG, Lehman, and now WaMu, and the story winds up, to my eyes, being exactly the same at every single one of them. Large amounts of liabilities were kept off the books so that regulators couldn't touch them and they didn't have to be disclosed to investors. At AIG they did so through the credit default swap market, at Lehman they did so using short-term financing to make their disclosures look better, at WaMu they appear to have relied on a combination of falsehoods and bundling practices. All 3 of them were aided and abetted by the ratings agencies who were more than willing to slap the AAA seal on their crap.

 

I can't see how there's any rational argument that "Less regulation" is the solution here. In every single case, these institutions have gone down because of things that they were doing that the regulators were forbidden from touching. They were allowed to over-leverage without having to keep sufficient collateral on the books to cover their potential liabilities, they were allowed to make assumptions that regulators weren't allowed to challenge, they were allowed to keep so much off of their books that neither regulators nor investors could actually understand what the company's situation was.

 

At least to me, the problem at every level seems to be associated with banks being able to write the rules such that the things that bring the banks down are things that the regulators can't touch. They can't touch stuff that the banks are legally allowed to keep off the books, they can't touch stuff that the ratings agencies slap a AAA sticker on, and in every case, it's the off-the-books stuff or the stuff that can't be regulated that brought these institutions down.

[southsider2k5]

Here's more on WaMu from the WSJ.

A serious question that I'm going to direct in 2k5's direction but I'd be happy for other responses.

 

This whole time, you've argued as far as I can tell that each and every one of these problems in the markets over the last year has come from too much regulation/the government forcing these companies to make loans that went bad.

 

We've recently gotten reports on AIG, Lehman, and now WaMu, and the story winds up, to my eyes, being exactly the same at every single one of them. Large amounts of liabilities were kept off the books so that regulators couldn't touch them and they didn't have to be disclosed to investors. At AIG they did so through the credit default swap market, at Lehman they did so using short-term financing to make their disclosures look better, at WaMu they appear to have relied on a combination of falsehoods and bundling practices. All 3 of them were aided and abetted by the ratings agencies who were more than willing to slap the AAA seal on their crap.

 

I can't see how there's any rational argument that "Less regulation" is the solution here. In every single case, these institutions have gone down because of things that they were doing that the regulators were forbidden from touching. They were allowed to over-leverage without having to keep sufficient collateral on the books to cover their potential liabilities, they were allowed to make assumptions that regulators weren't allowed to challenge, they were allowed to keep so much off of their books that neither regulators nor investors could actually understand what the company's situation was.

 

At least to me, the problem at every level seems to be associated with banks being able to write the rules such that the things that bring the banks down are things that the regulators can't touch. They can't touch stuff that the banks are legally allowed to keep off the books, they can't touch stuff that the ratings agencies slap a AAA sticker on, and in every case, it's the off-the-books stuff or the stuff that can't be regulated that brought these institutions down.

 

You really want my response? You don't read a thing I post about this stuff or you wouldn't have written this in reference to me. I have never said LESS REGULATION. It irritates me to no end when you just make up stuff for what I said.

 

I have always arguing that we don't regulate correctly. There is a MASSIVE difference between "less" and "wrong". Reading your post you seem to actually agree on the surface with me that how the government regulates now doesn't work. We are wasting a whole lot of money on regulation if the responsible oversight bodies take years after the fact recognize alleged illegal activity, which by the way means there are already rules against it. If a company was willing to break rules, how would more rules stop that? That doesn't make a lick of sense. The entire regulation system needs to be blown up and started again with a process that recognizes that we are now in 2010 and not the Great Depression.

 

I have also always argued that while the government was subsidizing risky behavior which was more profitable than safe behavior, companies were going to opt for the profits, and you saw it here. And yup, the government subsidized it. What exactly is the downside for a corporation to not act like this? You know you won't get caught, you know the government is going to fix losses, and you know that if it works, you will be making lots of money.

[Balta1701]

If a company was willing to break rules, how would more rules stop that?

I think my argument is...they're not breaking rules. They've whittled away at the Depression-era regulations so much that they're able to keep these things off their balance sheets legally, without breaking any of the rules. IMO, the only way that arguing we're in 2010 and not in the great depression is important is that the banks have found more high-tech ways to follow the letter of the law while still being able to get around the intent...and a key element of that is that they've been writing their own rules for 30 years to allow themselves to.

 

I have also always argued that while the government was subsidizing risky behavior which was more profitable than safe behavior, companies were going to opt for the profits, and you saw it here. And yup, the government subsidized it. What exactly is the downside for a corporation to not act like this? You know you won't get caught, you know the government is going to fix losses, and you know that if it works, you will be making lots of money.

You can argue that I've distorted your words in places and I'll disagree, but you've explicitly argued in many places that the compensation/bonus culture is totally unimportant and I shouldn't care about it, and I don't think you can disagree with that. But right here, as far as I can tell, you just made the argument for how important it really is. Each of the companies has been wiped out. The shareholders got killed, the workers got killed. The only people who didn't get killed are the people who took their bonuses and got out early to leave the government holding the bag for the mess they made. There's a huge downside in a corporation acting like that; it destroys the corporation. There's no downside for people getting paid entirely based on short-term gains to act like that, though.

 

Anyway, thanks for replying. I found it quite edifying.

[kapkomet]

I think my argument is...they're not breaking rules. They've whittled away at the Depression-era regulations so much that they're able to keep these things off their balance sheets legally, without breaking any of the rules. IMO, the only way that arguing we're in 2010 and not in the great depression is important is that the banks have found more high-tech ways to follow the letter of the law while still being able to get around the intent...and a key element of that is that they've been writing their own rules for 30 years to allow themselves to.

 

You can argue that I've distorted your words in places and I'll disagree, but you've explicitly argued in many places that the compensation/bonus culture is totally unimportant and I shouldn't care about it, and I don't think you can disagree with that. But right here, as far as I can tell, you just made the argument for how important it really is. Each of the companies has been wiped out. The shareholders got killed, the workers got killed. The only people who didn't get killed are the people who took their bonuses and got out early to leave the government holding the bag for the mess they made. There's a huge downside in a corporation acting like that; it destroys the corporation. There's no downside for people getting paid entirely based on short-term gains to act like that, though.

 

Anyway, thanks for replying. I found it quite edifying.

 

But you want it both ways, unless I'm misunderstanding what you're trying to say (and no, I'm not being a Kaperbolisitic ™ jerk.)