Spitfire List Web site and blog of anti-fascist researcher and radio personality Dave Emory.

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FTR #741 Bail, Bail, the Gang’s All Here

Finan­cial Wind­fall for Buf­fett

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NB: This Flash stream con­tains both FTRs 740 and 741 in sequence. Each is a 30-minute broad­cast.

Intro­duc­tion: Recent dis­clo­sures con­cern­ing the Fed­er­al Reserve’s actions dur­ing the finan­cial melt­down have revealed the extent to which for­eign lend­ing insti­tu­tions were the ben­e­fi­cia­ries of the Fed’s ser­vices.

Two of those insti­tu­tions, Dep­fa and Dex­ia, appear to have required the Fed’s assis­tance par­tial­ly in order to mask a gam­bit through which munic­i­pal bonds, were fraud­u­lent­ly manip­u­lat­ed, imper­il­ing the finan­cial integri­ty of Amer­i­can cities.

A great Bloomberg arti­cle fol­lows up on the dis­clo­sure that the two banks were the largest recip­i­ents of Fed “assis­tance” dur­ing the 2007–2008 peri­od of Fed emer­gency lend­ing.  The arti­cle notes that the use of the Fed’s  “dis­count win­dow” by for­eign banks is a 97-year old secret that was only dis­closed because the Fed was forced by con­gress to reveal the details of the emer­gency lend­ing.

The pro­gram also dis­cuss­es how Dex­ia and Dep­fa were major play­ers in the US munic­i­pal bond mar­ket... Dex­ia was also one of the indict­ed play­ers in a mas­sive muni bid-rig­ging scan­dal.  Dex­i­a’s pres­ence in this mar­ket also hap­pened to jump six-fold in the year pre­ced­ing the cri­sis, so it looks like they may have been bank­ing on a bailout (like a lot of the big win­ners of the cri­sis were).

Mon­ey to Burn

The rev­e­la­tions con­cern­ing the Fed’s actions are of spe­cial con­cern because Deutsche Bank chief Josef Ack­er­mann has warned that the hedge funds may prove “too big to fail” and that that will lead to a bailout of those insti­tu­tions as well. Note that Deutsche Bank was the recip­i­ent of Fed funds and that the U.S. gov­ern­ment is suing Deutsche Bank for a bil­lion dol­lars over their role in the sub­prime cri­sis.

War­ren Buf­fett has echoed the sen­ti­ment that more big bailouts may be on the way for firms “too big to fail.”

Pro­gram High­lights Include: Warn­ings that the Oba­ma admin­is­tra­tion’s pro­vi­sions to shore up the finan­cial indus­try are inad­e­quate to pre­vent anoth­er melt­down; the dry­ing up of short-term lend­ing for Euro­pean banks; Euro­pean banks have a great deal of red ink on their banks; the fact that junk bond yields are at an all-time low; the lend­ing of mon­ey to the failed Wachovia Bank (focal point of FTR #740).

1. Recent dis­clo­sures con­cern­ing the Fed­er­al Reserve’s actions dur­ing the finan­cial melt­down have revealed the extent to which for­eign lend­ing insti­tu­tions were the ben­e­fi­cia­ries of the Fed’s ser­vices.

NB: Ital­i­cized and bold-faced excerpts are Mr. Emory’s.

IN August 2007, as world finan­cial mar­kets were seiz­ing up, domes­tic and for­eign banks began lin­ing up for cash from the Fed­er­al Reserve Bank of New York.

That Aug. 20, Com­merzbank of Ger­many bor­rowed $350 mil­lion at the Fed’s dis­count win­dow. Two days lat­er, Cit­i­group, JPMor­gan Chase, Bank of Amer­i­ca and the Wachovia Cor­po­ra­tion each received $500 mil­lion. As col­lat­er­al for all these loans, the banks put up a total of $213 bil­lion in asset-backed secu­ri­ties, com­mer­cial loans and res­i­den­tial mort­gages, includ­ing sec­ond liens.

Thus began the bank run that set off the finan­cial cri­sis of 2008. But unlike oth­er bank runs, this one was invis­i­ble to most Amer­i­cans.

Until last week, that is, when the Fed pulled back the cur­tain. Respond­ing to a court rul­ing, it made pub­lic thou­sands of pages of con­fi­den­tial lend­ing doc­u­ments from the cri­sis.

The data dump arose from a law­suit ini­ti­at­ed by Mark Pittman, a reporter at Bloomberg News, who died in Novem­ber 2009. Upon receiv­ing his request for details on the cen­tral bank’s lend­ing, the Fed argued that the pub­lic had no right to know. The courts dis­agreed.

The Fed doc­u­ments, like much of the infor­ma­tion about the cri­sis that has been pried out of reluc­tant gov­ern­ment agen­cies, reveal what was going on behind the scenes as the finan­cial storm gath­ered. For instance, they show how dire the bank­ing cri­sis was becom­ing dur­ing the sum­mer of 2007. Wash­ing­ton pol­i­cy mak­ers, mean­while, were say­ing that the sub­prime cri­sis would sub­side with lit­tle impact on the broad econ­o­my and that world mar­kets were high­ly liq­uid.

For exam­ple, on July 23, 2007, Hen­ry M. Paul­son Jr., the Trea­sury sec­re­tary at the time, said the hous­ing slump appeared to be “at or near the bot­tom.” Two days lat­er, Tim­o­thy F. Gei­th­n­er, then the pres­i­dent of the New York Fed, declared in a speech before the Forum on Glob­al Lead­er­ship in Wash­ing­ton: “Finan­cial mar­kets out­side the Unit­ed States are now deep­er and more liq­uid than they used to be, mak­ing it eas­i­er for com­pa­nies to raise cap­i­tal domes­ti­cal­ly at rea­son­able cost.”

With­in about a month’s time, how­ev­er, for­eign banks began throng­ing to the Fed’s dis­count win­dow — its mech­a­nism for short-term lend­ing to banks. Over four days in late August and ear­ly Sep­tem­ber, for­eign insti­tu­tions, through their New York branch­es, received a total of almost $1.7 bil­lion in Fed loans.

As the glob­al run pro­gressed, banks increased their bor­row­ings, the doc­u­ments show. For exam­ple, on Sept. 12, 2007, Citibank drove up to the New York Fed’s win­dow. It extract­ed $3.375 bil­lion of cash in exchange for $23 bil­lion worth of assets, includ­ing com­mer­cial mort­gage-backed secu­ri­ties, res­i­den­tial mort­gages and com­mer­cial loans.

THAT trans­ac­tion seemed to get the Fed’s atten­tion. At 1:30 that after­noon, Mr. Gei­th­n­er spent half an hour on the phone with Gary L. Crit­ten­den, Citi’s chief finan­cial offi­cer at the time, Mr. Geithner’s cal­en­dar shows. A few weeks lat­er, Cit­i­group announced that it was writ­ing off $5.9 bil­lion in the third quar­ter, caus­ing its prof­it to drop 60 per­cent from a year ear­li­er — and that was only the begin­ning.

Per­haps the biggest rev­e­la­tion in the Fed doc­u­ments is the extent to which the cen­tral bank was will­ing to lend to for­eign insti­tu­tions. On Nov. 8, 2007, Deutsche Bank took out a $2.4 bil­lion overnight loan secured by $4 bil­lion in col­lat­er­al. And on Dec. 5, 2007, Caly­on of France bor­rowed $2 bil­lion, pro­vid­ing $16 bil­lion in col­lat­er­al.

When the cri­sis was full-on in 2008, for­eign insti­tu­tions became even big­ger ben­e­fi­cia­ries of the Fed’s cred­it pro­grams. On Nov. 4 of that year, the Fed extend­ed $133 bil­lion through var­i­ous facil­i­ties. Two for­eign insti­tu­tions — the Ger­man-Irish bank Dep­fa and Dex­ia Cred­it of Bel­gium — received 39 per­cent of the mon­ey that day.

“The strik­ing thing was the large amount of bor­row­ing that the New York Fed accept­ed dur­ing the cri­sis from Euro­pean banks that had only a min­i­mal pres­ence in the U.S. and arguably posed no threat to the U.S. pay­ment sys­tem,” said Walk­er F. Todd, a research fel­low at the Amer­i­can Insti­tute for Eco­nom­ic Research and a for­mer assis­tant gen­er­al coun­sel and research offi­cer at the Fed­er­al Reserve Bank of Cleve­land. Such a thing would nev­er have occurred 20 years ago, he added.

All of the dis­count-win­dow bor­row­ings extend­ed to insti­tu­tions dur­ing the deba­cle have been repaid. But the prece­dent was set: The Fed was the finan­cial back­stop to the world.

Since 2000 or so, the mind-set at the Fed in New York and Wash­ing­ton has been that the cen­tral bank must step in when there is a glob­al cri­sis, Mr. Todd said, even if it appears to exceed its man­date. . . .

“The Bank Run We Knew So Lit­tle About” by Gretchen Mor­gen­son; The New York Times; 4/2/2011.

2. Dep­fa and Dex­ia appear to have required the Fed’s assis­tance in order to mask a gam­bit through which munic­i­pal bonds were fraud­u­lent­ly manip­u­lat­ed, imper­il­ing the finan­cial integri­ty of Amer­i­can cities.

A great Bloomberg arti­cle reports on the recent dis­clo­sure that the two banks were the largest recip­i­ents of Fed “assis­tance” dur­ing the 2007–2008 peri­od of Fed emer­gency lend­ing.  The arti­cle notes that the use of the Fed’s  “dis­count win­dow” by for­eign banks is a 97-year old secret that was only dis­closed because the Fed was forced by con­gress to reveal the details of the emer­gency lend­ing.

The arti­cle also dis­cuss­es how Dex­ia and Dep­fa wee major play­ers in the US muni mar­ket... Dex­ia was also one of the indict­ed play­ers in a mas­sive muni bid-rig­ging scan­dal  Dex­i­a’s pres­ence in this mar­ket also hap­pened to jump six-fold in the year pre­ced­ing the cri­sis, so it looks like they may have been bank­ing on a bailout (like a lot of the big win­ners of the cri­sis were).

A Euro­pean bank that got the most Fed­er­al Reserve dis­count win­dow help dur­ing the finan­cial cri­sis received a total of about $300 bil­lion in loans, guar­an­tees and cash infu­sions from gov­ern­ments and cen­tral banks. It also owned sub­sidiaries impli­cat­ed in bid-rig­ging that pros­e­cu­tors say defraud­ed U.S. tax­pay­ers.

Details of Fed lend­ing released last week show that Dex­ia SA, based in Brus­sels and Paris, bor­rowed as much as $37 bil­lion, with an aver­age dai­ly loan amount of $12.3 bil­lion in the 18 months after Lehman Broth­ers Hold­ings Inc. col­lapsed in Sep­tem­ber 2008. The House sub­com­mit­tee that over­sees the Fed plans hear­ings on the cen­tral bank’s dis­count win­dow lend­ing to off­shore finan­cial insti­tu­tions next month.

By lend­ing to Dex­ia, the Fed kept mon­ey flow­ing into local gov­ern­ment projects through­out the U.S. as well as the mon­ey mar­ket funds that invest­ed in them. Dex­ia guar­an­teed bonds issued by enti­ties as var­ied as the Texas State Vet­er­ans Land Board in Austin and the Los Ange­les Coun­ty Met­ro­pol­i­tan Trans­porta­tion Author­i­ty.

“If Dex­ia went bank­rupt, it could have been a cat­a­stro­phe for munic­i­pal finance and mon­ey funds,” said Matt Fabi­an, a Con­cord, Mass­a­chu­setts-based senior ana­lyst and man­ag­ing direc­tor at Munic­i­pal Mar­kets Advi­sors, an inde­pen­dent research com­pa­ny. “The mar­ket has exten­sive expo­sure to for­eign banks.”

Over­seas banks account­ed for about 70 per­cent of dis­count win­dow loans when bor­row­ing reached its peak of $113.7 bil­lion in Octo­ber 2008, accord­ing to the Fed’s data. The dis­count win­dow, estab­lished in 1914, is known as the lender of last resort.

By law, most U.S. branch­es of for­eign banks have access to the dis­count win­dow, said David Skid­more, a spokesman for the Amer­i­can cen­tral bank. “They are impor­tant providers of cred­it to U.S. busi­ness­es and house­holds, and dis­count win­dow lend­ing dur­ing the finan­cial cri­sis helped sup­port their con­tin­ued lend­ing in the Unit­ed States,” he said.

The Fed has kept dis­count win­dow bor­row­ers secret for 97 years. Last week’s dis­clo­sures were court-man­dat­ed after legal vic­to­ries by Bloomberg LP, the par­ent of Bloomberg News, and News Corp.’s Fox News Net­work LLC.

Dep­fa Bank Plc, a Ger­man-owned bank based in Dublin, was anoth­er insur­er of munic­i­pal bonds in the U.S. Depfa’s dis­count win­dow bor­row­ing peaked at $28.5 bil­lion in Novem­ber 2008.

Dex­ia, which bor­rowed $37 bil­lion from the dis­count win­dow in Jan­u­ary 2009, said its loans from cen­tral banks peaked at 122 bil­lion euros ($165 bil­lion) in Octo­ber 2008. That month, it also obtained up to 150 bil­lion euros ($202 bil­lion) in debt guar­an­tees from France, Bel­gium and Lux­em­bourg, of which it tapped a max­i­mum of about 96 bil­lion euros ($130 bil­lion) in May 2009. The coun­tries and exist­ing share­hold­ers pro­vid­ed Dex­ia about 6 bil­lion euros ($8.4 bil­lion) in cap­i­tal.

Dex­ia stopped issu­ing guar­an­teed debt in June 2010, said Alexan­dre Joly, a mem­ber of the bank’s man­age­ment board and head of strat­e­gy, port­fo­lios and mar­ket activ­i­ties.

“It’s apples and oranges to mix cen­tral bank loans, debt guar­an­tees and cap­i­tal infu­sions to come up with a big head­line num­ber,” Joly said in a phone inter­view from Brus­sels. “It’s not accu­rate and it can be dam­ag­ing to Dex­ia.”

The bank availed itself of oth­er Fed lend­ing pro­grams too. Its total bor­row­ings from the U.S. cen­tral bank’s Com­mer­cial Paper Fund­ing Facil­i­ty ranked third among users of the emer­gency pro­gram cre­at­ed to sup­port the mar­ket for short-term debt issued by banks and cor­po­ra­tions. Dex­ia used the pro­gram 42 times for a total of $53.5 bil­lion, accord­ing to data the Fed released in Decem­ber.

Dex­ia also tapped the Term Auc­tion Facil­i­ty, the lend­ing mech­a­nism the Fed estab­lished in Decem­ber 2007 to aug­ment the dis­count win­dow. Dex­ia received 24 TAF loans total­ing $105.2 bil­lion, the largest of which was $16.7 bil­lion on Jan. 17, 2008, Fed data show. The lender used TAF about twice a month from Decem­ber 2007 to Sep­tem­ber 2008, then once in August 2009 and once more in Novem­ber 2009. The inter­est rates it paid ranged from 4.65 per­cent in Decem­ber 2007 to 0.25 per­cent for the two loans in 2009.

The Fed loans have been repaid, said Ulrike Pom­mee, a Brus­sels-based Dex­ia spokes­woman. The bank used the Fed’s emer­gency lend­ing facil­i­ties to finance U.S. assets only, Pom­mee said in an e‑mail state­ment.

“We have always been very trans­par­ent in our com­mu­ni­ca­tions about the wear and tear on us in the mar­ket dur­ing the cri­sis,” Pom­mee said.

In 2008, Dex­ia was hit with buy­back pro­vi­sions in munic­i­pal bonds, Pom­mee said. The bank was one of the biggest back­stops of the bonds, pro­vid­ing let­ters of cred­it or so-called stand­by pur­chase agree­ments — guar­an­tees to buy the bonds if investors want­ed out. Dexia’s so-called cred­it enhance­ment made it pos­si­ble for mon­ey mar­ket funds to buy the bonds.

Dex­ia pro­vid­ed $14.7 bil­lion in stand­by agree­ments and let­ters of cred­it in North and South Amer­i­ca, exclud­ing Mex­i­co, in the first half of 2008, a six-fold increase over the same peri­od a year ear­li­er, the bank said in its first-half 2008 report.

“This growth was the direct result of a dwin­dling num­ber of mar­ket par­tic­i­pants able to offer such finan­cial prod­ucts com­bined with the urgent needs of issuers to restruc­ture their debt,” Dex­ia said.

Over most of the last decade, thou­sands of cities, coun­ties, hos­pi­tals and uni­ver­si­ties issued long-term float­ing- rate bonds and paired them with inter­est-rate swaps to try to pro­tect against high­er bor­row­ing costs. The strat­e­gy, which relied on banks such as Dex­ia to guar­an­tee a mar­ket for the vari­able-rate notes, col­lapsed when invest­ment firms and bond insur­ers lost their top-cred­it rat­ings.

Inter­est-rate swaps are deriv­a­tives, or con­tracts whose val­ues are derived from assets includ­ing stocks, bonds, cur­ren­cies and com­modi­ties, or from events such as changes in inter­est rates or the weath­er. Swaps are pri­vate con­tracts and the mar­ket for them isn’t reg­u­lat­ed.

Redemp­tions sapped Dex­ia so much that the bank was “two days from bank­rupt­cy,” Pom­mee said, cit­ing the French min­istry for the econ­o­my.

Inter­est-rate swaps have cost U.S. tax­pay­ers bil­lions. The Den­ver pub­lic school sys­tem is bor­row­ing $800 mil­lion this week to escape a wrong-way bet on rates. A Dex­ia unit that had pro­vid­ed a stand­by pur­chase agree­ment on the school district’s swap declined to renew its cred­it pro­tec­tion this month. The cities of Detroit and Pitts­burgh also have restruc­tured debt after Dex­ia decid­ed not to renew its insur­ance.

Dexia’s life­line from U.S. tax­pay­ers came as fed­er­al offi­cials were inves­ti­gat­ing alle­ga­tions that the bank’s sub­sidiaries col­lud­ed with oth­ers to defraud state and local gov­ern­ments.

Two for­mer Dex­ia units were among more than a dozen finan­cial firms that con­spired to pay below-mar­ket inter­est rates to U.S. state and local gov­ern­ments on so-called guar­an­teed invest­ment con­tracts, or GICs, accord­ing to doc­u­ments filed in a U.S. Jus­tice Depart­ment crim­i­nal antitrust case.

Munic­i­pal­i­ties buy GICs with mon­ey raised by sell­ing bonds, allow­ing them to earn a return until the funds are need­ed for schools, roads and oth­er pub­lic works.

An employ­ee of Finan­cial Secu­ri­ty Assur­ance Hold­ings Ltd., one of the Dex­ia sub­sidiaries, agreed to pay kick­backs rang­ing from $4,500 to $475,000 to a Los Ange­les invest­ment bro­ker called CDR Finan­cial Prod­ucts Inc. in exchange for rig­ging bids, accord­ing to peo­ple famil­iar with the case and pub­lic records.

CDR employ­ees fed infor­ma­tion on com­peti­tors’ bids to FSA, allow­ing the firm to win deals at a low­er inter­est rate than it would have paid, accord­ing to a fed­er­al indict­ment, pub­lic records and the peo­ple.

Steven Gold­berg, a for­mer FSA banker, was indict­ed in July on fraud and con­spir­a­cy charges. He has plead­ed not guilty. FSA, which hasn’t been indict­ed, is fac­ing a law­suit from the U.S. Secu­ri­ties and Exchange Com­mis­sion. While Dex­ia sold the bond insur­ance unit of FSA, it remained exposed to legal risks because it kept anoth­er divi­sion of the com­pa­ny, its Finan­cial Prod­ucts seg­ment, Dex­ia said in its third-quar­ter 2010 report.

Joly said Dexia’s fund­ing from the Euro­pean Cen­tral Bank remains at 17 bil­lion euros today. Its bor­row­ing from the Fed “was a tem­po­rary sit­u­a­tion and now they’re trad­ing just fine,” said Nat Singer of Swap Finan­cial Group LLC in South Orange, New Jer­sey.

“Fed’s Biggest For­eign-Bank Bailout Kept U.S. Munis on Track” by Bob Ivry; Bloomberg Busi­ness Week; 4/6/2011.

3. Deutsche Bank chief Josef Ack­er­mann has pre­dict­ed that the hedge funds may prove “too big to fail” and that that will lead to a bailout of those insti­tu­tions as well. Note that Deutsche Bank was the recip­i­ent of Fed funds and that the U.S. gov­ern­ment is suing Deutsche Bank for a bil­lion dol­lars over their role in the sub­prime cri­sis.

Deutsche Bank AG Chief Exec­u­tive Offi­cer Josef Ack­er­mann said unreg­u­lat­ed finan­cial com­pa­nies such as hedge funds may pose a sys­temic risk to the econ­o­my if over­sight isn’t increased.

“You have an unreg­u­lat­ed area which becomes — as a con­se­quence of all the reg­u­la­to­ry changes — more and more impor­tant,” Ack­er­mann, 62, said in an inter­view at the World Eco­nom­ic Forum in Davos, Switzer­land. “You may one day wake up and real­ize that the sys­temic chal­lenges are so big that you will have to bail out or at least help sup­port the unreg­u­lat­ed sec­tor.”

Ackermann’s warn­ing echoes com­ments made by for­mer U.S. Trea­sury Sec­re­tary Lawrence Sum­mers, who said this week in Davos that reg­u­la­tors haven’t paid enough atten­tion to prob­lems that could emerge in “a large, less healthy buc­ca­neer sec­tor.” Hedge funds have dodged the brunt of new glob­al bank­ing reg­u­la­tion aimed at avoid­ing a repeat of the worst glob­al finan­cial cri­sis since the Great Depres­sion.

“If you sep­a­rate util­i­ty banks from casi­no bank­ing, you will one day real­ize that casi­no banks are also coun­ter­par­ties to cor­po­ra­tions but also to oth­er banks and to asset man­age­ment and to gov­ern­ments,” Ack­er­mann said yes­ter­day. “It would be some­what naïve to assume that if you have a strong reg­u­lat­ed sec­tor and leave the unreg­u­lat­ed in the open, that you will nev­er have sys­temic risk.”

The biggest U.S. banks such as Bank of Amer­i­ca Corp. and Gold­man Sachs Group Inc., also fac­ing tighter scruti­ny and high­er cap­i­tal require­ments, argue they’ll be at a com­pet­i­tive dis­ad­van­tage if hedge funds, mon­ey man­agers and insur­ers aren’t sub­ject to sim­i­lar con­straints.

Rep­re­sen­ta­tives for the lat­ter have fought back in meet­ings with gov­ern­ment offi­cials, say­ing eco­nom­ic sta­bil­i­ty wouldn’t be threat­ened if one of their firms failed. The Alter­na­tive Invest­ment Man­age­ment Asso­ci­a­tion, a Lon­don-based group that rep­re­sents hedge funds, released a state­ment today that says it’s “inac­cu­rate” to call the indus­try unreg­u­lat­ed.

“All the major juris­dic­tions where hedge funds oper­ate, whether in North Amer­i­ca, Europe or Asia-Pacif­ic, have rig­or­ous reg­u­la­tion of the indus­try,” the group’s CEO, Andrew Bak­er, said in the state­ment. “This already rig­or­ous reg­u­la­tion is being increased by new leg­is­la­tion intro­duced since the cri­sis.”

The U.S. Con­gress in July approved the Dodd-Frank Act, which forces hedge funds to under­go rou­tine inspec­tions by the Secu­ri­ties and Exchange Com­mis­sion and requires firms that man­age more than $1 bil­lion to dis­close their invest­ments, lever­age and risk pro­file to reg­u­la­tors.

Euro­pean law­mak­ers in Novem­ber approved reg­u­la­tions requir­ing hedge funds to set lim­its on their use of lever­age and avoid pay prac­tices that encour­age risk tak­ing.

Deutsche Bank, which is sched­uled to pub­lish fourth-quar­ter and full-year earn­ings on Feb. 3, will like­ly pay bonus­es that are in line with oth­er com­peti­tors in the mar­ket, Ack­er­mann said.

When asked about con­sid­er­a­tions by Cred­it Suisse Group AG to pay parts of bonus­es with bonds that con­vert into equi­ty if the company’s cap­i­tal shrinks, he said the Ger­man firm sees “too many chal­lenges” with the so-called CoCos and is not yet plan­ning to use them for pay.

“I think we are pay­ing the bonus which mar­kets require,” he said. He declined to com­ment on whether vari­able pay for 2010 will be low­er or high­er than the year before, say­ing only that com­pen­sa­tion at Frank­furt-based Deutsche Bank, Germany’s biggest bank, com­plies with “all the direc­tives and rec­om­men­da­tions” from pol­i­cy­mak­ers and reg­u­la­tors.

Ack­er­mann said in Decem­ber 2009 that the big Ger­man finan­cial insti­tu­tions, includ­ing Allianz SE and Com­merzbank AG, agreed to impose self-dis­ci­pline on pay based on rec­om­men­da­tions by the Basel, Switzer­land-based Finan­cial Sta­bil­i­ty Board.

“Ack­er­mann Says Bailout Risk Lurks for Hedge Funds” by Aaron Kirch­feld and Ser­e­na Sait­to; bloomberg.com; 1/28/2011.

4. War­ren Buf­fett has echoed the view that it is too late to side­step “too big to fail.”

War­ren Buf­fett, the bil­lion­aire chair­man of Berk­shire Hath­away Inc., told the Finan­cial Cri­sis Inquiry Com­mis­sion that tax­pay­ers will always be on the hook for col­laps­es at the biggest U.S. com­pa­nies.

“You will always have insti­tu­tions that are too big to fail, and some­times they will fail,” Buf­fett, 80, told the FCIC in a May 26 inter­view, accord­ing to a record­ing released by the pan­el yes­ter­day. “We still have them now. We’ll have them after your com­mis­sion report.”

The Dodd-Frank finan­cial reform act, enact­ed in July, was tout­ed by Pres­i­dent Barack Oba­ma as a means to end­ing bailouts and pro­tect­ing tax­pay­ers from firms that are “too big to fail.” Fed­er­al Reserve Chair­man Ben S. Bernanke, who made more than $3 tril­lion of assis­tance avail­able dur­ing the cri­sis, has said the “too-big-to-fail” issue can be elim­i­nat­ed only when investors believe the U.S. won’t res­cue firms.

Investors were res­cued in 2008 by Bernanke and then- Trea­sury Sec­re­tary Hen­ry Paul­son, whose relief pro­grams cush­ioned declines for stock­hold­ers and bailed out bond­hold­ers at firms includ­ing Amer­i­can Inter­na­tion­al Group Inc. Buf­fett, who inject­ed $5 bil­lion in Gold­man Sachs Group Inc. at the depths of the cri­sis, said he was bet­ting on the suc­cess of gov­ern­ment inter­ven­tion. . . .

“Buf­fett Tells FCIC It’s Pow­er­less to Stop ‘Too Big to Fail’ ” by Andrew Frye; bloomberg.com; 2/10/2011.

5. The pro­gram clos­es by not­ing indi­ca­tions that anoth­er finan­cial col­lapse may be com­ing:

 

Discussion

46 comments for “FTR #741 Bail, Bail, the Gang’s All Here”

  1. Posted by tony | May 24, 2011, 6:13 pm
  2. It looks like the Fed’s “dis­count win­dow” is still open for busi­ness, but you don’t nec­es­sar­i­ly want to get in line:

    Can the Fed Help Save Europe’s Banks?
    By Mas­si­mo Cal­abre­si | Novem­ber 22, 2011

    The U.S. Fed­er­al Reserve has been pump­ing bil­lions of dol­lars into the Euro­pean bank­ing sys­tem in recent weeks in an attempt to help sta­bi­lize the continent’s finan­cial cri­sis. And while the effort remains small, it is like­ly to grow in com­ing days as Europe’s banks strug­gle to find lenders will­ing to help them ser­vice their dol­lar denom­i­nat­ed debts.

    ...

    For months the swap lines remained idle, but last Sep­tem­ber the Euro­pean Cen­tral Bank announced it would tap them to help pro­vide dol­lars to banks in Europe, and it began rolling over about $500 mil­lion worth of swaps every 7 days at a lit­tle over 1% annu­al­ized inter­est. In mid-Octo­ber the ECB increased its swaps, draw­ing $1.35 bil­lion for three months, while con­tin­u­ing to rollover the pre­vi­ous $500 mil­lion. Over the fol­low­ing weeks it swapped anoth­er $1 bil­lion in 1‑week and three-month paper, bring­ing the out­stand­ing total to $2.35 bil­lion as of Nov. 16.

    That is a tiny amount in the mul­ti-tril­lion dol­lar world of transat­lantic mon­ey flows, and it shows that in some ways the Fed move to ensure its vast store of dol­lars are avail­able to the Euro­pean banks through this chan­nel is work­ing. “The hope is that when you put the big bazooka [of Fed dol­lars] on the table that you don’t have to use it,” the source says. But the uptick in swap line use shows it is becom­ing hard­er for Euro­pean banks to get their hands on dol­lars from lenders, and sug­gests, as the source says, that at some point the bazooka “may have to be used.” Since the Nov. 16 report on swaps was released by the New York Fed, inter­bank lend­ing in Europe has fur­ther wors­ened.

    The Euro­pean banks are try­ing hard to avoid using the sec­ond mea­sure the Fed has made avail­able to some of them: draw­ing off the dis­count win­dow in the U.S. Since the 2008 finan­cial cri­sis, the Fed’s dis­count win­dow has remained open to all U.S. banks, and to all for­eign banks that have branch­es or agen­cies here. Vir­tu­al­ly no one is cur­rent­ly draw­ing on that source—there was $4 mil­lion out­stand­ing as of Nov. 16—because it is a sign of ulti­mate col­lapse for a bank to have to do so..

    For all the Fed’s will­ing­ness to back-stop Euro­pean banks there is only so much it can do. The Euro­pean banks’ prob­lems are not pri­mar­i­ly with their dol­lar-denom­i­nat­ed debts, but with their Euro debts. They are cur­rent­ly draw­ing 500 bil­lion Euros off the ECB in an effort to ser­vice their debts. In recent weeks, Ital­ian and oth­er banks have pushed the ECB to accept less reli­able forms of col­lat­er­al for loans they take from the ECB. The ECB in the past has accept­ed such col­lat­er­al, down to office fur­ni­ture, for coun­tries receiv­ing help from the IMF, but is only now loos­en­ing the restric­tions for big­ger coun­tries like Italy. With the loos­ened require­ments, the ECB has the poten­tial capac­i­ty to lend 14 tril­lion Euros.

    ...

    Let’s see, we have:
    1. An unprece­dent­ed euro­zone cri­sis denom­i­nat­ed in euros.

    2. Inter­bank lend­ing lock­ups and a big retrench­ment in for­eign invest­ments in euro­zone bank debt.

    3. A bailout fund that’s poten­tial­ly 14 tril­lion Euros.

    and

    4. A “loos­en­ing of restric­tions” for col­lat­er­al swaps in the “big­ger” coun­tries (Italy, Spain, maybe France?).

    Gulp.:

    ECB fund­ing demand surges as bank strains build

    By Marc Jones and Steve Slater

    FRANKFURT/LONDON | Tue Nov 22, 2011 11:11am EST

    (Reuters) — Euro zone banks’ demand for cen­tral fund­ing surged to a two-year high on Tues­day, and U.S. funds cut their lend­ing to the bloc’s banks, tight­en­ing a squeeze that looks unlike­ly to ease this year.

    Fast-spread­ing sov­er­eign debt wor­ries have left lend­ing mar­kets vir­tu­al­ly frozen and the Euro­pean Cen­tral Bank as the only avail­able fund­ing option for many banks.

    The ECB’s week­ly, lim­it-free hand­out of fund­ing under­scored the wide­spread prob­lems, with 178 banks request­ing 247 bil­lion euros, the high­est amount since mid-2009.

    Just as fears about the finan­cial health of Italy and Spain have stopped banks lend­ing to some their peers, U.S. funds have also con­tin­ued to retreat from the region, and Ital­ian and Span­ish banks have seen cor­po­rate deposits flow out to safer havens.

    U.S. mon­ey mar­ket funds, which are key providers of liq­uid­i­ty to banks and have been pulling back from the euro zone since May, cut their expo­sure to Euro­pean banks by a fur­ther 9 per­cent in Octo­ber, accord­ing to rat­ings agency Fitch.

    Bankers said there appeared lit­tle chance of whole­sale fund­ing mar­kets reopen­ing for euro zone banks this year, and the best that can be hoped is for a return to more nor­mal con­di­tions ear­ly in 2012.

    ...

    There are sev­er­al warn­ing signs flash­ing for euro zone banks’ liq­uid­i­ty, lim­it­ing options and rais­ing bor­row­ing costs, leav­ing the Euro­pean Cen­tral Bank as the only option for many of them.

    “There won’t be a cri­sis of liq­uid­i­ty because the ECB flood­gates are open. But that’s not long-term fund­ing that banks need for sus­tain­able plan­ning,” the banker said.

    Finan­cial mar­kets have grown increas­ing­ly wor­ried about banks’ liq­uid­i­ty as the fail­ure to get to grips with Greece’s debt cri­sis has seen wor­ries spread to Italy, Spain and France, rais­ing their bor­row­ing costs and threat­en­ing to sad­dle banks with loss­es on their sov­er­eign debt.

    ...

    Euro­pean lead­ers will meet next week to dis­cuss how to unblock fund­ing, includ­ing poten­tial­ly restart­ing state guar­an­tee schemes to allow banks to access longer-term fund­ing.

    Key euro-priced bank-to-bank lend­ing rates were steady on Tues­day, but the increase in Ital­ian bor­row­ing costs has lift­ed fund­ing costs for banks there near to “junk” bond lev­els.

    U.S. mon­ey mar­ket funds have cut their Euro­pean expo­sure to the low­est in per­cent­age terms since Fitch start­ed com­pil­ing its data in 2006, the rat­ings firm said.

    “Recent trends indi­cate that mon­ey funds are pur­su­ing a range of strate­gies to mit­i­gate euro zone risks, includ­ing reduc­ing expo­sure lev­els, short­en­ing matu­ri­ties, and increas­ing the share of col­lat­er­al­ized trans­ac­tions in the form of repos,” said Robert Gross­man, man­ag­ing direc­tor of Fitch Rat­ings.

    ...

    Citi esti­mat­ed that non-retail deposit out­flows were seen in the third quar­ter at Italy’s Inte­sa (ISP.MI) and Uni­Cred­it (CRDI.MI), Spain’s BBVA (BBVA.MC) and San­tander (SAN.MC) and France’s Soci­ete Gen­erale (SOGN.PA) and BNP Paribas (BNPP.PA).

    The mon­ey head­ed to banks in Ger­many, the Nether­lands and Swe­den, Lakhani said.

    Dou­ble Gulp.

    Novem­ber 22, 2011 6:42 pm
    Cri­sis hits cen­tral and east­ern Europe

    By Ste­fan Wagstyl and Neil Buck­ley in Lon­don

    Aus­tri­a’s move this week to impose tight curbs on its banks’ future lend­ing in cen­tral and east­ern Europe has thrown into sharp relief the poten­tial impact of the euro­zone’s sov­er­eign debt cri­sis.

    To pro­tect its own triple A cred­it rat­ing, Vien­na has instruct­ed Erste Bank, Raif­feisen Bank Inter­na­tion­al and Bank Aus­tria, a sub­sidiary of Italy’s Uni­Cred­it, to boost cap­i­tal reserves and lim­it cross-bor­der loans.

    The deci­sion came just days after Uni­Cred­it announced a review of its exten­sive busi­ness­es in the region, and Ger­many’s Com­merzbank said it would restrict new loans to Ger­many and Poland only. The Lat­vian author­i­ties on Tues­day res­cued Kra­jban­ka, the coun­try’s ninth biggest bank, after Lithuania’s bail-out last week of Sno­ras, its fifth-largest lender.

    These are the most dif­fi­cult times for bank­ing in cen­tral and east­ern Europe (CEE) since the imme­di­ate after­math of the end of com­mu­nism. In the 20 years to 2008, west Euro­pean lenders came to dom­i­nate the sec­tor in most coun­tries except Rus­sia. With the euro­zone in cri­sis, many lenders are pulling in their horns even more dras­ti­cal­ly than they did when the glob­al tur­moil first struck in 2008-09.

    As the charts show, cross-bor­der cred­it is poised to fall rapid­ly – per­haps by 20 per cent accord­ing to Canada’s RBC. The biggest economies, led by Rus­sia and Poland, might respond by accel­er­at­ing the devel­op­ment of domes­tic finan­cial resources: oth­ers will seek new for­eign investors, pos­si­bly from Rus­sia. The most vul­ner­a­ble states will strug­gle, how­ev­er, with their main exter­nal fund­ing source reduced just as their main exter­nal source of growth, exports to west­ern Europe, runs out of steam.

    ...

    Posted by Pterrafractyl | November 23, 2011, 7:13 am
  3. And...let’s make that a
    Triple Gulp

    Weak Ger­man debt sale is a ‘dis­as­ter’ for Europe
    By Aaron Smith @CNNMoneyMarkets Novem­ber 23, 2011: 9:16 AM ET

    NEW YORK (CNN­Money) — Euro­pean bond yields were on the rise Wednes­day after a Ger­man bond auc­tion flopped, under­min­ing trust in euro­zone gov­ern­ment debt.

    “When you can’t even draw good bids on Ger­man bonds, which every­one thinks is sacro­sanct, you real­ly do have a prob­lem,” said Kathy Jones, fixed income strate­gist at Charles Schwab. “It’s fair­ly omi­nous. Peo­ple are sim­ply afraid to be in Euro­pean sov­er­eign bonds.”

    Wednes­day’s auc­tion was “under­sub­scribed,” with Ger­many sell­ing only €3.6 bil­lion worth of Ger­man 10-year bunds. The results sug­gest “that Ger­many is not immune to increas­ing risk aver­sion in the [euro­zone] sov­er­eign debt mar­ket,” wrote Marc Chan­dler of Brown Broth­ers Har­ri­man.

    As a result, the yield of the most secure gov­ern­ment debt in the euro­zone crept above 2%

    Tom­my Mol­loy, chief deal­er at FX Solu­tions, called the auc­tion a “frick­ing dis­as­ter.”

    I don’t think I’ve ever seen a worse auc­tion out of Ger­many,” said Mol­loy, who has been cov­er­ing the bond mar­ket since the 1980s. “The euro­zone looks like a sack of garbage right now. Even though Ger­many is the very best piece of paper in the euro­zone, it’s still in the euro­zone.”
    ...

    Posted by Pterrafractyl | November 23, 2011, 7:23 am
  4. I pre­fer to think of it as $7 tril­lion of finan­cial manure:

    Euro­pean Banks Fran­ti­cal­ly Try­ing To Dump $7 Tril­lion Of Crap Assets — But No One Will Buy Them

    Hen­ry Blod­get | Nov. 25, 2011, 7:31 AM

    The bal­ance sheets of Euro­pean banks are piled high with lega­cy assets — mort­gages, real-estate, and oth­er loans–that are tying up pre­cious cap­i­tal and con­strict­ing the banks’ abil­i­ty to make new, more pro­duc­tive loans.

    ...

    This leaves the banks des­per­ate­ly need­ing to raise cash to sur­vive.

    The first plan was to sell off the crap assets.

    But accord­ing to Gareth Gore in the Inter­na­tion­al Financ­ing Review, this plan has failed, because buy­ers won’t pony up the prices the banks want them to pay.

    ...

    So now that banks are mov­ing to Plan B, says Gore, which is finan­cial engi­neer­ing.

    Specif­i­cal­ly, the banks are pack­ag­ing up bunch­es of crap assets, putting pret­ty bows on the pack­ages, and then using the pack­ages as “col­lat­er­al” with which to obtain emer­gency loans from the ECB.

    In oth­er words, it’s the pre-cri­sis “secu­ri­ti­za­tion” game all over again.

    ....

    Yikes, so $7 tril­lion in crap assets needs to get offloaded onto the ECB, and fast. This reminds me of the clas­sic fairy tale “How Fred Fed the Bear”:

    Once upon a time (ear­ly March 2008), there was a Finan­cial Alchemist named Fred. Fred had seen bet­ter days as the top alchemist in his mag­i­cal for­est. After all, the mag­i­cal for­est was start­ing to catch on fire. This did­n’t both­er Fred too much. “For­est fires are just a part of nature”, Fred would tell him­self, “as nat­ur­al as pyro­ma­nia”. But for­est fires also burn the peas­ants of Fred’s for­est, and burnt peas­ants can be such a pain, espe­cial­ly after they find out about the pyro­ma­nia.

    On this par­tic­u­lar day Fred was vis­it­ing his pyro­ma­ni­ac friend Car­lyle. Car­lyle was upset. He explained to Fred how all of their mutu­al friends were ask­ing Car­lyle for the bil­lions of acorns he bor­rowed from them in order to buy shod­dy flame-retar­dant mush­room con­dos, but he did­n’t have the acorns because the con­dos were burn­ing down and now the whole for­est was at risk of going up in flames (most of the flame-retar­dant con­dos were actu­al­ly made with asbestos and defec­tive fire­works in those days).

    Fred knew Car­lyle’s friends ( Stearn the Bear, Gold­man the vam­pire squid, JP the giant cock­roach, etc.), and Fred knew that his friends would have a very unhap­py Christ­mas if the for­est went up in flames like this (this was in March, but it’s Christ­mas every­day for Fred’s friends).

    Fred’s friends did­n’t actu­al­ly live in the for­est or care much if it burned down...as long as they were insured with cred­it-default swaps (for­est fire-sales are the best bar­gains). But one of Fred’s friends, Stearn the Bear, was also one of the biggest cred­it-default swap sell­ers in the whole for­est, and Car­lyle was one of his biggest clients. Fred knew this meant that if Car­lyle’s con­dos went up in smoke, Stearn the Bear’s insur­ance com­pa­ny might also burn up, along with all of his friend’s insur­ance con­tracts. All of a sud­den, this for­est-fire was seri­ous!

    So Fred pulled out his bag of alchem­i­cal tricks, mum­bled some­thing about “liq­uid­i­ty”, and, *poof*, the Term Secu­ri­ties Lend­ing Facil­i­ty (TSLF) was born.

    The TSLF was the most mag­i­cal sub­si­dized pawn­shop cred­it facil­i­ty Fred’s friends had ever seen. No mat­ter what you gave it, you got gold in return! Every­thing! Even mush­room con­do mort­gages dipped in propane! The only prob­lem was that you would have to return that gold in 28 days and take back your lighter-fuel-scent­ed “col­lat­er­al”. But no wor­ries, you could just exchange it all again! Indef­i­nite­ly.

    “Gath­er around my friends”, Fred declared, “I bring you TSLF, so that Stearn the Bear can make good on his cred­it default swaps and we can all be hap­py once more. Peace can return to our fine land. Just give me a cou­ple of weeks to set it up, ok?”. Final­ly, the for­est fire was fun again.

    Seren­i­ty returned to the burn­ing for­est. Stearn the Bear could just march right up to the TSLF, insert a bunch of garbage, and, voila, mag­i­cal­ly turn it to gold, let­ting Bear pay back Car­lyle for the insur­ance AND still make good all its exist­ing insur­ance con­tracts with Fred’s oth­er friends. He just had to hold on for a cou­ple of weeks before the TSLF opened, and what could go wrong between now and then? The smoke-filled air smelled like Hon­ey to the bear.

    But the sweet scent­ed smoke masked a bit­ter sen­ti­ment. Fred’s friends want­ed to use the TSLF too. Why should Stearn the Bear be the only one to get turn garbage to gold? And then it hit them: why wait for Stearn the Bear to turn his garbage assets into gold just so he can pay them back? With the TSLF now open­ing, why don’t they take all of those flam­ing assets on Stearn’s bal­ance sheets for them­selves so that on they get to trade them in for gold.

    They had to act fast, before the TSLF opened. First, just a day after Fred’s announced the cre­ation of the TSLF, Car­lyle’s cred­i­tors accel­er­at­ed their mar­gin calls on Car­lyle, implod­ing the fund near­ly over night (Don’t feel too bad for Car­lyle, he had already sold most of the shares of his now-defunct crit­ter con­do fund to unsus­pect­ing wood­land pub­lic a while ago). Stearn the Bear need­ed cash fast, but the TSLF was­n’t open yet! The Bear felt both chased and alone. He knew his friends would be look­ing for him.

    “It is time Stearn”. Stearn knew that voice well. They went way back. The cock­roach stepped out from behind the trees, broadsword in hand, “the quick­en­ing is upon us.”

    “Wait!” Stearn cried out. “What about Fred, and the TSLF?”.

    “Oh, I worked all this out with Fred last night,” JP replied with a wry smile, “He’s total­ly cool with it. How does two acorns per share sound?”

    “Two acorns? Why only two? That’s rob­bery

    “Because,” JP sneered with a raised sword, “there can be only one!”

    *Thwak* *Thump* *Thud*. And with a sin­gle slice of his broadsword, JP had felled the Bear, con­sum­ing all of his pow­er and essence (Ok, it was­n’t a sin­gle blow...more of a bloody mess).

    With Stearn the Bear slain and con­sumed by JP, the fires mag­i­cal­ly sub­sided and peace returned to the for­est....for about 6 months. And it was good.

    I’m not sure there’s a moral to the story...maybe some­thing to do with cred­it facil­i­ty imple­men­ta­tion logis­tics and game the­o­ry? Either way, I’d avoid read­ing the sequel. The sto­ry­line is just implau­si­ble.

    Also, I would­n’t feel espe­cial­ly bad for Stearn the Bear. It turns out he was kind of an ass­hole.

    Posted by Pterrafractyl | November 25, 2011, 7:52 pm
  5. It looks like the Dex­ia bailout might need a bailout:

    UPDATE 4‑France, Bel­gium tus­sle over Dex­ia spooks mar­kets

    Wed Nov 23, 2011 9:14am EST

    * Wran­gling over share of tem­po­rary fund­ing guar­an­tees ‑reports

    * Investors spooked that 90 bln euro deal could unrav­el

    * Reports say Bel­gium wants France to take big­ger bur­den

    By Robert-Jan Bar­tunek

    BRUSSELS, Nov 23 (Reuters) — Bel­gium is lean­ing on France to pay more into emer­gency sup­port for failed lender Dex­ia, news­pa­pers report­ed, spook­ing investors who thought a 90 bil­lion euro ($120 bil­lion) res­cue deal only need­ed rub­ber stamp­ing.

    The coun­tries are wran­gling about short-term fund­ing guar­an­tees meant to wean Dex­i­a’s “bad bank” off emer­gency liq­uid­i­ty and allow it to re-enter finan­cial mar­kets, two Bel­gian news­pa­pers report­ed.

    Bel­gium want­ed Paris to guar­an­tee more than had been agreed so far, because France can fund itself at a cheap­er rate than our coun­try,” Bel­gian dai­ly De Tijd said, fol­low­ing a sim­i­lar report in De Stan­daard.

    The news­pa­per did not name its sources.

    Both coun­tries on Wednes­day denied that the restruc­tur­ing plan for Dex­ia was being rene­go­ti­at­ed, with Bel­gian Finance Min­is­ter Didi­er Reyn­ders say­ing he hoped to reach an agree­ment with the Euro­pean Com­mis­sion in the com­ing days.

    ....

    Posted by Pterrafractyl | November 25, 2011, 11:44 pm
  6. No Jamie, that was­n’t “Moti­va­tion” you were pro­vid­ing. Stop being so hum­ble. It’s called lead­er­ship:

    Secret Fed Loans Helped Banks Net $13 Bil­lion
    Q
    By Bob Ivry, Bradley Keoun and Phil Kuntz — Nov 27, 2011 6:01 PM CT
    Bloomberg Mar­kets Mag­a­zine

    The Fed­er­al Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. his­to­ry a secret. Now, the rest of the world can see what it was miss­ing.

    The Fed didn’t tell any­one which banks were in trou­ble so deep they required a com­bined $1.2 tril­lion on Dec. 5, 2008, their sin­gle need­i­est day. Bankers didn’t men­tion that they took tens of bil­lions of dol­lars in emer­gency loans at the same time they were assur­ing investors their firms were healthy. And no one cal­cu­lat­ed until now that banks reaped an esti­mat­ed $13 bil­lion of income by tak­ing advan­tage of the Fed’s below-mar­ket rates, Bloomberg Mar­kets mag­a­zine reports in its Jan­u­ary issue.

    Saved by the bailout, bankers lob­bied against gov­ern­ment reg­u­la­tions, a job made eas­i­er by the Fed, which nev­er dis­closed the details of the res­cue to law­mak­ers even as Con­gress doled out more mon­ey and debat­ed new rules aimed at pre­vent­ing the next col­lapse.

    A fresh nar­ra­tive of the finan­cial cri­sis of 2007 to 2009 emerges from 29,000 pages of Fed doc­u­ments obtained under the Free­dom of Infor­ma­tion Act and cen­tral bank records of more than 21,000 trans­ac­tions. While Fed offi­cials say that almost all of the loans were repaid and there have been no loss­es, details sug­gest tax­pay­ers paid a price beyond dol­lars as the secret fund­ing helped pre­serve a bro­ken sta­tus quo and enabled the biggest banks to grow even big­ger.

    ...

    ‘Moti­vate Oth­ers’

    JPMor­gan Chase & Co. CEO Jamie Dimon told share­hold­ers in a March 26, 2010, let­ter that his bank used the Fed’s Term Auc­tion Facil­i­ty “at the request of the Fed­er­al Reserve to help moti­vate oth­ers to use the sys­tem.” He didn’t say that the New York-based bank’s total TAF bor­row­ings were almost twice its cash hold­ings or that its peak bor­row­ing of $48 bil­lion on Feb. 26, 2009, came more than a year after the program’s cre­ation.

    ...

    Posted by Pterrafractyl | November 28, 2011, 10:54 am
  7. Oh crap, anoth­er round of free mon­ey is on the way for the banksters. This sounds like sit­u­a­tion requir­ing some seri­ous moti­va­tion­al lead­er­ship (I’m look­ing at you Jamie). It’s called team­work:

    Analy­sis: Cen­tral banks buy wig­gle room, not solu­tion

    By Michael Dolan

    LONDON | Wed Nov 30, 2011 11:01am EST

    (Reuters) — Cen­tral bank action on Wednes­day to ease severe fund­ing strains for the world’s pri­vate banks may help cush­ion a brew­ing glob­al cred­it crunch but it only buys some wig­gle room for gov­ern­ments try­ing to resolve the euro debt cri­sis and keep banks lend­ing.

    The inter­ven­tion by top cen­tral banks from the world’s rich­est coun­tries — includ­ing the U.S. Fed­er­al Reserve, Euro­pean Cen­tral Bank, Bank of Japan and Swiss Nation­al Bank — involved low­er­ing the cost of emer­gency U.S. dol­lar fund­ing for banks and expand­ing cur­ren­cy swap lines between coun­tries.

    Although part­ly aimed at eas­ing sea­son­al year-end financ­ing con­di­tions in an already stress­ful envi­ron­ment, the move was an impor­tant show of uni­ty among the cen­tral banks.

    A BIT OF HELP

    On a tech­ni­cal lev­el, the inter­ven­tion makes it cheap­er for non‑U.S. banks to tap local cen­tral banks for dol­lars that have become increas­ing­ly scarce and expen­sive on open mar­kets due to ris­ing mis­trust of bank bal­ance sheet expo­sure to Euro­pean gov­ern­ment bonds.

    “It’s been clear for some time that fund­ing in the dol­lar mar­ket has been dry­ing up,” said Richard Bat­ty, invest­ment direc­tor at Stan­dard Life Invest­ments in Edin­burgh.

    “Reduc­ing fund­ing costs and mak­ing more liq­uid­i­ty avail­able is help­ful. But the sol­ven­cy issue remains.”
    ...

    So mar­ket reac­tion to Wednes­day’s move was based on relief that some­one was try­ing to do some­thing about it.

    This is pro­vid­ing the banks with liq­uid­i­ty, play­ing the lender of the last resort for banks,” said Jan Pos­er, chief econ­o­mist at wealth man­ag­er Sarasin.

    “It’s not the cure. Equi­ties are dri­ven because peo­ple think after this action there won’t be imme­di­ate bank fail­ure and reces­sion may be shal­low.”
    ...

    So does the ECB only become the lender of last resort when it’s lend­ing with oth­er cen­tral banks? They real­ly love their team­work. It’s like we’re ALL on the same team:

    ECB’s Stark Says Euro Area Must Cut Wages to Help Exit Cri­sis

    Meera Louis and Mike Lee, ©2011 Bloomberg News

    Wednes­day, Novem­ber 30, 2011

    Nov. 30 (Bloomberg) — Euro­pean Cen­tral Bank Exec­u­tive Board mem­ber Juer­gen Stark said the only way for the region to exit its debt cri­sis is for gov­ern­ments to reduce bud­get deficits and embrace wage cuts and oth­er struc­tur­al changes.

    There is only one instru­ment left, which is adjust­ment in rel­a­tive prices in wages, in salaries, in costs,” Stark said in remarks after a speech host­ed by the Fed­er­al Reserve Bank of Dal­las yes­ter­day. “The ECB does not have the pow­ers to sup­port gov­ern­ments.”

    The ECB has resist­ed calls to become a lender of last resort, say­ing its man­date pre­vents the bank from prop­ping up irre­spon­si­ble gov­ern­ment spend­ing. Even so, Ger­many is push­ing for gov­er­nance changes at a sum­mit next week that would tight­en enforce­ment of bud­get rules, a move that might make it eas­i­er for the ECB to play a big­ger part in sup­port­ing euro-area nations.

    ...

    Ouch, that’s not going to be easy con­vinc­ing the mass­es of the neces­si­ty of wage cuts. Looks like we need some lead­er­ship:

    The Wall Street Banker Bonus Pool Is Real­ly Look­ing Dis­mal This Year
    Julia La Roche|November 28, 2011

    Bad news, bankers.

    It looks like the bonus pool is real­ly going to stink this year.

    Annu­al com­pen­sa­tion for Wall Street bankers may plum­met between 27–30% com­pared to last year, the Wall Street Jour­nal report­ed cit­ing a com­pen­sa­tion sur­vey from Option Group.

    Even more dis­ap­point­ing for Wall Street is bonus­es, which make up a major­i­ty of bankers’ com­pen­sa­tion, are expect­ed to tank between 35–40%, the report said.

    To pro­vide more con­text, if you’re an invest­ment-grade-bond trad­er who is a man­ag­ing direc­tor at a top firm you’re going to prob­a­bly take home around $1.7 to $1.8 mil­lion this year, com­pared to $2.9 mil­lion last year, the report said.

    ...

    Only $1.8 mil­lion for top invest­ment-grade-bond trad­er? That’s high­way rob­bery! Now I know why they’re called bond “vig­i­lantes”.

    Posted by Pterrafractyl | November 30, 2011, 9:46 am
  8. I real­ly need to stop trash­ing my fel­low wage earn­ers:

    JPMor­gan Chase CEO rails against ‘rich is bad’ talk
    12/07/2011

    NEW YORK (AP) – Jamie Dimon, CEO of JPMor­gan Chase(JPM) is rail­ing against bash­ing the rich.

    Dimon was respond­ing Wednes­day to a ques­tion at an investor con­fer­ence about the hos­tile polit­i­cal envi­ron­ment toward banks.

    “Act­ing like every­one who’s been suc­cess­ful is bad and that every­one who is rich is bad — I just don’t get it,” said Dimon at the con­fer­ence, which was orga­nized by Gold­man Sachs Group (GS).

    Dimon said he’s worked on Wall Street for much of his life and con­tributed his fair share.

    Most of us wage earn­ers are pay­ing 39.6% in tax­es and add in anoth­er 12% in New York state and city tax­es and we’re pay­ing 50% of our income in tax­es,” Dimon said in defense of his fel­low Wall Street bankers.
    ...

    It must real­ly hurt to make so much that it’s almost like your entire salary is taxed at the top tax rate. On top of that, those at the top have to wor­ry about extreme wage volatil­i­ty:

    JPMor­gan CEO Dimon’s pay jumps to $20.8 mil­lion

    By Clare Bald­win and Jonathan Stem­pel

    NEW YORK | Thu Apr 7, 2011 10:57pm EDT

    (Reuters) — After pilot­ing the No. 2 U.S. bank through the finan­cial cri­sis rel­a­tive­ly unscathed, JPMor­gan Chase & Co (JPM.N) Chief Exec­u­tive Offi­cer Jamie Dimon is now being extreme­ly well reward­ed.

    Dimon’s total com­pen­sa­tion jumped near­ly 1,500 per­cent to $20.8 mil­lion in 2010 from $1.3 mil­lion a year ear­li­er, based on the U.S. Secu­ri­ties and Exchange Com­mis­sion’s com­pen­sa­tion for­mu­la, a reg­u­la­to­ry fil­ing showed.

    Dimon did even bet­ter in terms of the val­ue of mon­ey and shares actu­al­ly received: his salary, bonus and stock and options from grants made large­ly in pre­vi­ous years that were actu­al­ly exer­cised in 2010 were worth around $42 mil­lion.

    ...

    Dimon’s 2010 salary remained at $1 mil­lion. He was also award­ed a $5 mil­lion bonus, near­ly $8 mil­lion in stock awards and $6.2 mil­lion in option awards, accord­ing to the SEC’s com­pen­sa­tion for­mu­la.

    His 2010 com­pen­sa­tion also includ­ed $579,624 worth of perks, includ­ing $421,458 of “mov­ing expens­es,” $95,293 to use com­pa­ny air­craft and $45,730 for per­son­al auto­mo­bile use. Most of the rest went toward home secu­ri­ty.

    Like many Amer­i­cans who have had trou­ble sell­ing their homes, Dimon did too. The mov­ing expens­es relate to the sale in 2010 of Dimon’s Chica­go-area home, in which he had lived while head­ing Bank One Corp that was sold to JPMor­gan in 2004.

    Dimon put the home up for sale in 2007 when his fam­i­ly moved to New York.

    Dimon’s total com­pen­sa­tion in 2010 fell short of the $35.8 mil­lion he was award­ed in 2008, accord­ing to the SEC for­mu­la.
    ...

    AND he had trou­ble sell­ing his home? If that’s what it’s like to be ultra wealthy then count me out! It sounds more like a wealth of bur­dens if you ask me.

    Posted by Pterrafractyl | December 7, 2011, 2:43 pm
  9. Some­times the head­line says it all:
    Draghi: ECB to Offer Banks Unlim­it­ed Cash.

    Of course, if you read the arti­cle it isn’t actu­al­ly quite that extreme. The banks don’t get free mon­ey for noth­ing. That would just encour­age more bad behav­ior. Instead, they have to swap their increas­ing­ly tox­ic assets in exchange for the cash. You can’t have a moral­i­ty play with­out morals to uphold.

    Posted by Pterrafractyl | December 8, 2011, 11:33 pm
  10. So accord­ing to the World Eco­nom­ic Forum, the world’s total finan­cial cred­it sup­ply will have to dou­ble over the next decade to sup­port eco­nom­ic growth. There’s a mere 100 tril­lion in new cred­it over the next decade:

    World needs $100 tril­lion more cred­it, says World Eco­nom­ic Forum
    The world’s expect­ed eco­nom­ic growth will have to be sup­port­ed by an extra $100 tril­lion (£63 tril­lion) in cred­it over the next decade, accord­ing to the World Eco­nom­ic Forum.

    ...
    Pock­ets of cred­it grew rapid­ly to excess – and brought the entire finan­cial sys­tem to the brink of col­lapse,” said the report, writ­ten in con­junc­tion with con­sult­ing firm McK­in­sey. “Yet, cred­it is the lifeblood of the econ­o­my, and much more of it will be need­ed to sus­tain the recov­ery and enable the devel­op­ing world to achieve its growth poten­tial.”

    The glob­al cred­it stock has already dou­bled in recent years, from $57 tril­lion to $109 tril­lion between 2000 and 2009, accord­ing to the report.

    ...

    Hmm...now how is the finan­cial sys­tem going to gen­er­ate an extra $100 tril­lion in cred­it, espe­cial­ly dur­ing a depres­sion?

    Well, for starters we might call upon reg­u­la­torsthe Lever­ag­ing Fairy to keep wav­ing her “re-hypoth­e­ca­tion” wand, thus mag­i­cal­ly allow­ing mul­ti­ple finan­cial giants to pledge the same under­ly­ing assets as col­lat­er­al used for lever­aged bets. And if infi­nite shad­ow bank­ing frac­tion­al reserve lever­ag­ing does­n’t do the trick, we’ll just ask the “lever­age fairy” to wave her “Reg­u­la­tion T” wand and mag­i­cal­ly allow bro­ker­ages to secret­ly pledge their clients’ deposits as col­lat­er­al for inter­nal bro­ker­age bets. Per­haps the “T” stands for “ter­ri­bly tricky”?

    And once we’re lever­aged up nice and good, maybe we’ll ask the Lever­age Fairy to wave her “spe­cious argu­ment” wand. That handy lit­tle wand allows every­one to ignore the fal­la­cy of risk elim­i­na­tion by counter-hedg­ing when counter-par­ties can clear­ly fail. When that wand is waved fun things get to hap­pen like the two top cred­it-default swap mar­ket mak­ers (JP Mor­gan and Gold­man Sachs) writ­ing 43% of a $24 tril­lion cred­it-default swap mar­ket while only list­ing $1.5 bil­lion in col­lat­er­al at risk and giv­ing no infor­ma­tion on counter-par­ties because that 43% con­sists of counter-hedged con­tracts, thus neu­tral­iz­ing the risk accord­ing to argu­ments.

    That might be how we’ll find that extra $100 tril­lion.

    Posted by Pterrafractyl | December 12, 2011, 9:51 pm
  11. Here’s a fas­ci­nat­ing quirk of this era of re-hypo­thet­i­ca­tion-induced lever­ag­ing, where finan­cial insti­tu­tions A can make loans to insti­tu­tion B, and then A can take the assets it receives as col­lat­er­al from B to use those assets as col­lat­er­al for a new loan from insti­tu­tion C. And C can do the same and so on...Well, it looks like there’s a bit of a prob­lem with this mag­ic cred­it machine when the cen­tral banks step in: the cen­tral banks don’t re-hypoth­e­cate and the buck (or euro) lit­er­al­ly stops there:

    Bonds Stop Flow­ing as Col­lat­er­al Gets Stuck at ECB: Euro Cred­it
    Q
    By John Glover — Dec 21, 2011 5:32 AM CT

    The chains of loaned secu­ri­ties being pledged and re-pledged in the so-called whole­sale mon­ey mar­kets are grow­ing short­er, as col­lat­er­al piles up at cen­tral banks where it can’t gen­er­ate addi­tion­al bor­row­ing.

    Rehy­poth­e­ca­tion is the finan­cial alche­my that trans­mutes $2.45 tril­lion of assets into $5.8 tril­lion of col­lat­er­al at the 14 largest secu­ri­ties deal­ers, down from a peak of $10 tril­lion in 2007, accord­ing to Man­mo­han Singh, senior finan­cial econ­o­mist at the Inter­na­tion­al Mon­e­tary Fund in Wash­ing­ton. Once col­lat­er­al is parked at the cen­tral bank, it can’t be recy­cled, and may become hard to find in times of need.

    At the end of last year, banks turned each dol­lar of secu­ri­ties into $2.40 of col­lat­er­al, Singh says. As banks grow wary of lend­ing to each oth­er, those assets are being pledged instead to the Euro­pean Cen­tral Bank in one-time trans­ac­tions that mean the secu­ri­ties can’t be recom­mit­ted.

    “The sys­tem is col­laps­ing onto the bal­ance sheet of the most-sol­id mem­ber of the sys­tem, which is the cen­tral bank,” said Per­ry Mehrling, pro­fes­sor of eco­nom­ics at Barnard Col­lege, Colom­bia Uni­ver­si­ty in New York. “The cen­tral bank is on one side of the mar­ket only. The bonds are flow­ing in and they’re not flow­ing out again.

    Short­age of Col­lat­er­al

    “There is an enor­mous short­age of col­lat­er­al,” said Simon Glee­son, a finan­cial-ser­vices lawyer at Clif­ford Chance LLP in Lon­don. “That’s because the Euro­pean banks can no longer raise unse­cured funds. There’s nev­er been enough qual­i­ty col­lat­er­al so the only way to do it was to re-use the secu­ri­ties.”

    ...

    Debt Cri­sis

    Faced with a sit­u­a­tion in which the lack of col­lat­er­al is starv­ing the finan­cial sys­tem of the instru­ments it needs to do busi­ness, the ECB agreed to offer unlim­it­ed three-year fund­ing against col­lat­er­al in two ten­ders start­ing today.

    Banks asked to bor­row 489 bil­lion euros, the most ever in a sin­gle oper­a­tion and almost dou­ble the medi­an esti­mate of 293 bil­lion euros by econ­o­mists in a Bloomberg News sur­vey. The ECB said 523 banks asked for the funds.

    The cen­tral bank also said Dec. 8 it would accept low­er- rat­ed bonds and bank loans as col­lat­er­al in its own lend­ing, and cut reserve require­ments, poten­tial­ly free­ing up anoth­er 100 bil­lion euros of col­lat­er­al, accord­ing to JPMor­gan Chase & Co. esti­mates.

    “Every­one wants col­lat­er­al, every­one wants dol­lars,” said Mehrling at Barnard Col­lege. “If the cen­tral bank accepts bad col­lat­er­al, then bad col­lat­er­al goes out of the sys­tem. But that releas­es good col­lat­er­al that the cen­tral bank would oth­er­wise be demand­ing.”

    The 523 mem­bers of the Free Mon­ey Club want you to know that it is an exclu­sive club. Rab­ble need not apply. That is all.

    Posted by Pterrafractyl | December 21, 2011, 8:12 am
  12. There’s more on the reg­u­la­tion fire­wall that the finan­cial indus­try is con­tin­u­ing to main­tain. This time it’s about oppo­si­tion to reg­u­la­tions cap­ping banker bonus­es:

    Bankers resist reg­u­la­to­ry restraint on bonus­es
    By Par­i­tosh Bansal and Alexan­der Smith | Reuters 01/28/2012

    DAVOS, Switzer­land (Reuters) — Bud­ding bankers expect­ing the bumper bonus­es of years gone by will have to think again, with only the top per­form­ers like­ly to be paid top dol­lar.

    Busi­ness lead­ers and bankers at the annu­al Davos forum were large­ly dis­mis­sive of attempts to cap or restrict com­pen­sa­tion in the finan­cial ser­vices indus­try through reg­u­la­tion.

    But they said a com­bi­na­tion of pub­lic anger, tighter scruti­ny from watch­dogs, tougher per­for­mance mea­sures and a struc­tur­al fall in prof­itabil­i­ty in bank­ing in the post-cri­sis world would curb the excess­es of the past.

    “Com­pared to four years ago its night and day, par­tial­ly because the reg­u­la­tors are insist­ing on it...and part­ly because the super­vi­so­ry board of banks have said we have got to bal­ance the reward of our senior team with the reward of our long-term share­hold­ers. And part of it is the busi­ness mod­el has changed,” a senior invest­ment banker at a major Wall Street firm said.

    Part nation­al­ized Roy­al Bank of Scot­land, for exam­ple, said on Sat­ur­day that Chair­man Philip Hamp­ton would not pick up a share-based bonus, amid a back­drop of pub­lic anger over a 1 mil­lion ($1.6 mil­lion) stock bonus for its chief exec­u­tive.

    Com­pen­sa­tion con­sul­tants esti­mate bonus­es for 2011 fell by about 30 per­cent in 2011, with pay­outs drop­ping across major banks such as Gold­man Sachs and Mor­gan Stan­ley.

    Year-end bonus­es at Bar­clays Plc’s invest­ment bank are expect­ed to be down about 30 per­cent this year, on aver­age, a source famil­iar with the mat­ter said on Thurs­day.

    “Of course bonus­es are falling, so is prof­itabil­i­ty,” a senior Euro­pean banker told Reuters on the side­lines of the con­fer­ence on Sat­ur­day, fol­low­ing a meet­ing on the future of finan­cial ser­vices involv­ing top bankers and reg­u­la­tors.

    SHAREHOLDER SILENCE

    Sev­er­al busi­ness lead­ers, speak­ing can­did­ly dur­ing closed meet­ings, point­ed to grow­ing social inequal­i­ty and said there was a need for more effec­tive tax col­lec­tion from the best paid.

    And while crit­i­cal of reg­u­la­to­ry efforts to cap exec­u­tive remu­ner­a­tion, some blamed over­ly gen­er­ous com­pen­sa­tion pack­ages on a lack of share­hold­er engage­ment in the issue.

    “It should be up to the boards, not the reg­u­la­tors. Where are the share­hold­ers of these banks?” the head of one invest­ment bank told Reuters. Like oth­ers who spoke about the issue, he declined to be named.

    A speak­er on a pan­el on com­pen­sa­tion at the World Eco­nom­ic Forum meet­ing in the Swiss Alps said: “Insti­tu­tion­al investors are not that inter­est­ed because the amount of mon­ey that is involved is total­ly imma­te­r­i­al.

    When asked for a show of hands on whether exec­u­tive com­pen­sa­tion should be reg­u­lat­ed, nobody in the audi­ence of near­ly 100 peo­ple raised their hand.

    The invest­ment bank­ing head said part of the prob­lem was that many bankers had come to believe that they alone were respon­si­ble for the prof­its gen­er­at­ed in their busi­ness, rather than the role which they ful­filled.

    ...

    PAY FOR PERFORMANCE

    Howard Lut­nick, chief exec­u­tive of Can­tor Fitzger­ald LP and BGC Part­ners Inc, said cut­backs at big­ger banks pro­vid­ed an oppor­tu­ni­ty for mid-tier invest­ment banks like his to hire tal­ent­ed indi­vid­u­als. Lut­nick said he planned to hire up to 500 peo­ple this year.

    “If I have a sales­man who makes a sale on a very sophis­ti­cat­ed prod­uct (and) you don’t pay (him) his fair share he won’t make the sale,” Lut­nick said, adding that this lev­el had his­tor­i­cal­ly been around 50 per­cent.

    ...

    I guess it’s nice that shrink­ing bonus­es might make it eas­i­er for “mid-sized” finan­cial oper­a­tions to hire that vital bank­ing “tal­ent” away from big-bonus-pay­ing giants. I won­der what kind of sales job Howard Lut­nick had in mind when he said he was plan­ning on hir­ing 500 indi­vid­u­als from his larg­er com­peti­tors? No doubt those new hires will be sell­ing tools with enor­mous val­ue for soci­ety:

    JANUARY 9, 2012

    Gam­bling IPO Faces Long Odds

    By ROLFE WINKLER

    Howard Lut­nick wants to take his sports-gam­bling oper­a­tion pub­lic. The odds look stacked against investors.

    Can­tor Enter­tain­ment Tech­nol­o­gy, owned by Mr. Lut­nick and Can­tor Fitzger­ald, the finan­cial firm he runs, has made a name for itself using finan­cial-mar­kets tech­nol­o­gy to run the sports book for six Neva­da casi­nos. Launch­ing its busi­ness in 2009, it claimed a 14% share of the Neva­da sports-gam­bling mar­ket as of Sep­tem­ber. That fig­ure like­ly increased in the fourth quar­ter after recent con­tract sign­ings.

    The race- and sports-book busi­ness dri­ves about three-quar­ters of rev­enue and may have rough­ly tripled in 2011 ver­sus 2010. Still, at per­haps $15 mil­lion last year, it isn’t a very siz­able busi­ness. The com­pa­ny is unprof­itable and burned near­ly $90 mil­lion of cash from 2008 through Sep­tem­ber. Can­tor Enter­tain­ment also has a mobile gam­bling busi­ness that rep­re­sents 14% of sales, but its poten­tial looks small since play­ers must be on a casi­no’s grounds.

    ....

    In relat­ed news, Ezra Klein has a recent post on there study of whether or not “pay-for-per­for­mance” bonus­es did, indeed, con­tribute towards risky behav­ior in the finan­cial sec­tor. It’s con­clu­sion? Bonus­es for short-term prof­its don’t actu­al­ly incen­tive exces­sive­ly risky behav­ior because the bankers were get­ting paid huge sums regard­less of per­for­mance. Instead, it looked like the big­ger the bank, the big­ger the bonus and risk-tak­ing, cre­at­ing a pri­ma­ry incen­tive to just keep grow­ing the firms assets (typ­i­cal­ly a debt/risk-based endeav­or). While Ezra points out that there’s dis­agree­ment over the study’s con­clu­sions, it’s anoth­er reminder that these “too big to fail” enti­ties and Mitt-men­tum-based eco­nom­ic dri­ving forces remain a seri­ous threat to the glob­al econ­o­my and, increas­ing­ly, nation­al sov­er­eign­ty.

    Posted by Pterrafractyl | January 28, 2012, 7:58 pm
  13. Well, now we know what a philo­soph­i­cal­ly unac­cept­able bailout is from the per­spec­tive of our finan­cial over­lords:

    Fan­nie Mae Nixed Plan to Reduce Mort­gage Debt, Democ­rats Say
    Q
    By Lor­raine Woellert — Feb 8, 2012 2:00 PM CT

    Fan­nie Mae (FNMA) pulled the plug on a 2010 plan to for­give bor­row­ers’ mort­gage debt because com­pa­ny exec­u­tives were “philo­soph­i­cal­ly opposed” to the idea, a for­mer com­pa­ny employ­ee told House inves­ti­ga­tors.

    In a let­ter today to the Fed­er­al Hous­ing Finance Agency, House Democ­rats chal­lenged a Jan­u­ary analy­sis from Act­ing Direc­tor Edward J. DeMar­co that claimed prin­ci­pal write­downs would raise costs and increase tax­pay­er loss­es at the gov­ern­ment-owned com­pa­ny.

    “We have now become aware of new infor­ma­tion that calls into seri­ous ques­tion the accu­ra­cy and com­plete­ness of your response, as well as your moti­va­tion for con­tin­u­ing to oppose prin­ci­pal reduc­tion pro­grams even when they have the poten­tial to save Amer­i­can tax­pay­ers bil­lions of dol­lars,” said the let­ter from rep­re­sen­ta­tives Eli­jah Cum­mings of Mary­land and John F. Teir­ney of Mass­a­chu­setts, Democ­rats on the House Com­mit­tee on Over­sight and Gov­ern­ment Reform.

    ...

    In mid-2010, two weeks before its launch, senior Fan­nie Mae exec­u­tives can­celled the pro­gram because they were “philo­soph­i­cal­ly opposed to writ­ing down prin­ci­pal bal­ances,” accord­ing to the for­mer work­er, who was quot­ed in the let­ter with­out being iden­ti­fied.

    ...

    Wow, it’s almost like Fred­die mac had some­thing to gain from more fore­clo­sures. Oh that’s right, they did.

    Posted by Pterrafractyl | February 9, 2012, 9:20 am
  14. Oops! Here’s the cor­rect­ed 1st link in the above com­ment

    Posted by Pterrafractyl | February 9, 2012, 9:22 am
  15. Aus­ter­i­ty:

    Draghi’s $158 Bil­lion Free Lunch to Boost EU Bank Prof­its

    By Liam Vaugh­an and Gavin Finch — Feb 13, 2012 8:31 AM CT

    Banks are ben­e­fit­ing from a Euro­pean Cen­tral Bank sub­sidy that could reach 120 bil­lion euros ($158 bil­lion), enough to pay every bonus at finan­cial firms in Lon­don for the next 24 years at today’s lev­els.

    Roy­al Bank of Scot­land Group Plc, BNP Paribas SA (BNP) and Soci­ete Gen­erale SA are among more than 500 banks that took 489 bil­lion euros of three-year loans from the Frank­furt-based ECB at a Decem­ber auc­tion. The loans cur­rent­ly car­ry a 1 per­cent annu­al inter­est rate, less than a quar­ter of the 4.3 per­cent aver­age yield on euro-denom­i­nat­ed senior unse­cured bank debt of all matu­ri­ties in the past year, accord­ing to Com­merzbank AG.

    With bor­row­ing esti­mat­ed to hit a record 1.2 tril­lion euros after a sec­ond auc­tion lat­er this month, banks may save 120 bil­lion euros over three years. That could boost 2012 prof­it by about 10 per­cent for lenders in Italy and Spain, accord­ing to esti­mates by Mor­gan Stan­ley.

    “This is very much a free lunch,” said Arnd Schae­fer, an econ­o­mist at West­LB AG in Dus­sel­dorf, Ger­many. “Banks can get mon­ey for just 1 per­cent and then lend it on for much more. That’s pret­ty good.”

    The ECB is flood­ing the bank­ing sys­tem with cheap mon­ey in a bid to avert a cred­it crunch after the mar­ket for unse­cured bank debt seized up last year and fund­ing from U.S. mon­ey mar­kets dis­ap­peared. Any bank in the region can bor­row an unlim­it­ed amount, pro­vid­ed it pledges eli­gi­ble col­lat­er­al. Lenders won’t face curbs on bonus­es or div­i­dends.

    ‘Cheap Mon­ey’

    “The cen­tral bank has pumped the mar­ket with unbe­liev­ably cheap mon­ey because whole­sale mar­kets are closed,” said Richard Reid, direc­tor of research at lob­by group Inter­na­tion­al Cen­tre for Finan­cial Reg­u­la­tion in Lon­don and a for­mer man­ag­ing direc­tor at Cit­i­group Inc. “Stronger banks will inevitably prof­it, but that is a sec­ondary issue for the ECB.”

    ...

    ‘Mon­ey-Mak­ing Oppor­tu­ni­ty’

    “You are cer­tain­ly going to get banks that don’t need the funds prof­it­ing,” said Richard Wern­er, an econ­o­mist at the Uni­ver­si­ty of Southamp­ton, Eng­land. “It would be much cheap­er to tar­get sup­port for the 20 or so banks that need it, but polit­i­cal­ly the cen­tral bank wants to be seen to be neu­tral. It is a mas­sive mon­ey-mak­ing oppor­tu­ni­ty for those who don’t need it to play the yield curve.

    Euro­pean lenders are being encour­aged by pol­i­cy mak­ers to use the ECB cash to pur­chase domes­tic sov­er­eign debt, push­ing down bor­row­ing costs for gov­ern­ments and reduc­ing the risk that one or more coun­tries in the region default.

    ...

    ‘No Stig­ma’

    The ECB is encour­ag­ing all banks to par­tic­i­pate in the sec­ond auc­tion.

    “There is no stig­ma what­so­ev­er on these facil­i­ties,” ECB Pres­i­dent Mario Draghi said in Frank­furt on Feb. 9. “The use of these pro­ceeds is a busi­ness deci­sion. Our pri­ma­ry inter­est is in lend­ing to the real econ­o­my.”

    If total bor­row­ing from the two auc­tions hits 1.2 tril­lion euros, banks will pay about 12 bil­lion euros a year in inter­est at the cur­rent bench­mark rate of 1 per­cent. The same amount bor­rowed in the senior unse­cured bond mar­ket would cost about 52 bil­lion euros a year, based on Com­merzbank data show­ing a 4.3 per­cent aver­age yield on such debt over the past 12 months. That rep­re­sents a sav­ing of 120 bil­lion euros over three years.

    Bank bonus­es in the City of Lon­don will be about 5.1 bil­lion euros for 2011, accord­ing to the Cen­tre for Eco­nom­ic and Busi­ness Research.

    The ECB can’t lim­it the loans to par­tic­u­lar banks because that would risk vio­lat­ing Euro­pean Union state-aid rules, said Neil Smith, an ana­lyst at West­LB.

    If the ECB start­ed sin­gling out indi­vid­ual banks for spe­cial treat­ment, you could be get­ting into com­pli­cat­ed com­pet­i­tive dis­tor­tion issues,” Smith said.

    ...

    Posted by Pterrafractyl | February 13, 2012, 8:53 pm
  16. War­ren Buf­fett has final­ly had enough with all the bankster bash­ing:

    Buf­fett: Banks Vic­tim­ized by Evict­ed Home­own­ers
    By Andrew Frye — Feb 26, 2012 11:01 PM CT

    War­ren Buf­fett, who con­trols the biggest share­hold­ing of the No. 1 U.S. mort­gage lender, said banks were vic­tim­ized by some home­own­ers who refi­nanced their loans before get­ting evict­ed.

    “Large num­bers of peo­ple who have ‘lost’ their house through fore­clo­sure have actu­al­ly real­ized a prof­it because they car­ried out refi­nanc­ings ear­li­er that gave them cash in excess of their cost,” Buf­fett, chair­man and chief exec­u­tive offi­cer of Berk­shire Hath­away Inc. (BRK/A), said Feb. 25 in his annu­al let­ter. “In these cas­es, the evict­ed home­own­er was the win­ner, and the vic­tim was the lender.”

    ...

    Buf­fett, who pub­licly defend­ed Gold­man Sachs Group Inc. in 2010 against accu­sa­tions it mis­led clients, used the let­ter to renew his sup­port for banks. The indus­try is fac­ing crit­i­cism from Democ­rats includ­ing Pres­i­dent Barack Oba­ma, who in his Jan­u­ary State of the Union address said bets by lenders prompt­ed the 2008 cred­it freeze and “left inno­cent, hard-work­ing Amer­i­cans hold­ing the bag.”

    ‘Enough With the Lam­bast­ing’

    Buf­fett, an ally of Obama’s, has won praise from Demo­c­ra­t­ic law­mak­ers as the bil­lion­aire cam­paigned for high­er tax­es on the wealthy. Oma­ha, Nebras­ka-based Berk­shire owns war­rants to pur­chase $5 bil­lion of stock in New York-based Gold­man Sachs.

    “Maybe this was kind of a mes­sage to his Demo­c­ra­t­ic bud­dies,” said David Rolfe, chief invest­ment offi­cer of Berk­shire share­hold­er Wedge­wood Part­ners Inc. “Buf­fett is say­ing, ‘We know where the egre­gious acts were, so enough with the lam­bast­ing of the bank­ing sys­tem and all these bankers.’”

    Blame for the hous­ing bub­ble and sub­se­quent slump should be shared among lenders and bor­row­ers, as well as the gov­ern­ment, bond-rat­ing firms and the media, Buf­fett has said. In his let­ter, read by investors around the world, Buf­fett praised Jamie Dimon, CEO of JPMor­gan Chase & Co., and Bank of America’s Bri­an T. Moyni­han. JPMor­gan, Gold­man Sachs, Wells Far­go and Bank of Amer­i­ca have all repaid U.S. bailout funds.

    “The bank­ing indus­try is back on its feet,” Buf­fett said.

    ‘Mega­lo­ma­nia, Insan­i­ty’

    Buf­fett and Berk­shire Vice Chair­man Charles Munger, 88, have crit­i­cized bankers for con­tribut­ing to the hous­ing bub­ble. Munger, in July, blamed the real-estate boom on “mega­lo­ma­nia, insan­i­ty and evil in, I would say, invest­ment bank­ing, mort­gage bank­ing.” Buf­fett said in Octo­ber 2010 that Wall Street helps soci­ety through finance, while its bets may do harm, “like a church that’s run­ning raf­fles on the week­end.”

    Charles Ortel, man­ag­ing direc­tor of New­port Val­ue Part­ners, said lenders failed to do suf­fi­cient under­writ­ing because they count­ed on sell­ing the mort­gages to investors.

    “So nobody had any skin in the game, except we the tax­pay­ers, as it turned out,” Ortel said. “Banks didn’t do the required cred­it work.”

    Wells Far­go post­ed record prof­it for the fourth quar­ter as mort­gage financ­ing improved, the San Fran­cis­co-based com­pa­ny said last month. Char­lotte, North Car­oli­na-based Bank of Amer­i­ca has gained 42 per­cent this year in New York through Feb. 24 as it swung to a quar­ter­ly prof­it.

    ...

    Those poor poor banksters. When will the pub­lic final­ly leave them alone:

    Banks Win Reprieve on Home Equi­ty Loans in Set­tle­ment: Mort­gages

    Feb. 27 (Bloomberg) — Bank of Amer­i­ca Corp., Wells Far­go & Co. and three oth­er banks that set­tled a nation­wide probe of fore­clo­sure prac­tices this month will get a bonus from the deal: pro­tec­tion for $308 bil­lion of home-equi­ty loans they hold.

    The banks that ser­vice about half the nation’s mort­gages on behalf of investors will be able to share loss­es on their junior loans with bond­hold­ers and get cred­it toward the cash they pledged to spend in the set­tle­ment, said an Oba­ma admin­is­tra­tion offi­cial involved in draft­ing the $25 bil­lion agree­ment. Sec­ond liens would typ­i­cal­ly be wiped out before senior-mort­gage investors take a loss, said Lau­rie Good­man, man­ag­ing direc­tor at Amherst Secu­ri­ties Group LP in New York.

    It’s “a gift to the banks, at investors’ expense,” said Good­man, a mem­ber of the Fixed Income Ana­lysts Soci­ety’s Hall of Fame. “A pro­por­tion­ate write-down of the first and sec­ond rep­re­sents a rever­sal of nor­mal lien pri­or­i­ty.”

    Loss-shar­ing will break the log­jam that occurs when banks drag their feet pro­cess­ing mod­i­fi­ca­tions on mort­gages that out­rank their junior liens, said the Oba­ma offi­cial, who declined to be iden­ti­fied because this arrange­ment has­n’t been made pub­lic. Gov­ern­ment fore­clo­sure-pre­ven­tion pro­grams have result­ed in less than 1 mil­lion mod­i­fi­ca­tions, a quar­ter of the goal the admin­is­tra­tion set three years ago. Home-equi­ty mort­gages have been a rea­son for that, said Arthur Wilmarth, a pro­fes­sor at George Wash­ing­ton Uni­ver­si­ty Law School in Wash­ing­ton.

    Road­block to Mod­i­fi­ca­tions

    “The road­block to get­ting com­pre­hen­sive mod­i­fi­ca­tions has been the efforts of these banks, the biggest ser­vicers, to pro­tect their sec­ond liens,” Wilmarth said. “To only suf­fer loss­es on an equal basis as first-lien investors is a good out­come for them.

    The ser­vicer agree­ment resolved state and fed­er­al probes into fore­clo­sure abus­es includ­ing robo-sign­ing, the fraud­u­lent endorse­ment of court doc­u­ments. The banks have pledged $20 bil­lion in var­i­ous forms of mort­gage relief, includ­ing prin­ci­pal reduc­tions, plus pay­ments of $5 bil­lion to state and fed­er­al gov­ern­ments.

    The set­tle­ment has been crit­i­cized by mon­ey man­agers includ­ing Scott Simon at Pacif­ic Invest­ment Man­age­ment Co., who said investors who bought mort­gage-backed secu­ri­ties will suf­fer loss­es as banks earn cred­its for eas­ing loan terms.

    “This was a rel­a­tive­ly cheap res­o­lu­tion for the banks,” Simon, the mort­gage head at Pim­co, which runs the world’s largest bond fund, said after the set­tle­men­t’s Feb. 9 announce­ment. “A lot of the prin­ci­pal reduc­tions would have hap­pened on their loans any­way, and they’re using oth­er peo­ple’s mon­ey to pay for a ton of this. Pen­sion funds, 401(k)s and mutu­al funds are going to pick up a lot of the load.”

    Set­tle­ment Sum­ma­ry

    While a sum­ma­ry of the set­tle­ment has been released, the details haven’t been made pub­lic. The doc­u­ment may be issued as soon as this week, accord­ing to the Oba­ma offi­cial. The cred­its banks will get for writ­ing down home equi­ty loans won’t be as much as they will get for reduc­ing the bal­ance on pri­ma­ry mort­gages, the offi­cial said.

    The ser­vicers involved in the agree­ment are Bank of Amer­i­ca, Wells Far­go, JPMor­gan Chase & Co., Cit­i­group Inc. and Ally Finan­cial Inc.

    Bank of Amer­i­ca had $102.9 bil­lion of home equi­ty mort­gages in the third quar­ter, sur­pass­ing its $84.6 bil­lion mar­ket cap, accord­ing to the Fed­er­al Deposit Insur­ance Corp. Wells Far­go had $95 bil­lion, JPMor­gan had $79.7 bil­lion, Cit­i­group was $27.8 bil­lion, and Ally, the bank that sparked the state and fed­er­al inves­ti­ga­tion into fore­clo­sure prac­tices, had $2.2 bil­lion.

    Tom Kel­ly, a spokesman for New York-based JPMor­gan, Rick Simon of Bank of Amer­i­ca, Tom Goy­da of Wells Far­go, Gina Proia of Ally, and Sean Keve­lighan for Cit­i­group declined to com­ment.

    Bank Per­for­mance

    Since Feb. 9, Char­lotte, North Car­oli­na-based Bank of Amer­i­ca has declined 3.7 per­cent, San Fran­cis­co-based Wells Far­go has dropped 1.3 per­cent, Cit­i­group in New York fell 3.9 per­cent and JPMor­gan gained 1.1 per­cent. Ally was bailed out by the gov­ern­ment in 2008 and is pur­su­ing an ini­tial pub­lic offer­ing to repay tax­pay­ers who own the Detroit-based lender.

    About 92 per­cent of home equi­ty loans are held on the bal­ance sheets of U.S. banks, accord­ing to data com­piled by Amherst. The five banks in the mort­gage set­tle­ment own 42 per­cent of the sec­ond liens. That makes it “very like­ly” a ser­vicer of a pri­ma­ry mort­gage will hold a prop­er­ty’s junior loan, Good­man said in a report this month.

    “A con­flict aris­es because the ser­vicer has a finan­cial incen­tive to ser­vice the first lien to the ben­e­fit of the sec­ond-lien hold­er, which may oppose the finan­cial inter­est of the investor,” she wrote.

    ...

    Posted by Pterrafractyl | February 27, 2012, 10:36 am
  17. Good ol’ Gold­man Sachs, where God’s Mam­mon’s work get done.

    Posted by Pterrafractyl | March 14, 2012, 7:06 am
  18. This is interesting...according to the Car­lyle Group, their own­ers’ wal­lets qual­i­fy as “invest­ment prod­ucts” in need of expan­sion:

    Car­lyle Own­ers Took $398.5 Mil­lion Pay­out With Debt Before IPO
    By Cristi­na Alesci, Miles Weiss and Devin Baner­jee — Mar 12, 2012 11:00 PM CT

    Car­lyle Group LP (CG), in a trans­ac­tion nine months before it filed to go pub­lic, sad­dled itself with debt to pay own­ers includ­ing William Con­way, Daniel D’Aniello and David Ruben­stein a $398.5 mil­lion tax-deferred div­i­dend.

    The pri­vate equi­ty firm bor­rowed $500 mil­lion from Abu Dhabi’s Mubadala Devel­op­ment Co. in Decem­ber 2010, say­ing it would use part of that to expand invest­ment prod­ucts. Instead, it paid out almost 80 per­cent of the mon­ey to exist­ing own­ers, accord­ing to reg­u­la­to­ry fil­ings. Sep­a­rate­ly, the Wash­ing­ton- based firm nego­ti­at­ed bank cred­it giv­ing it the option to dis­trib­ute an addi­tion­al $400 mil­lion pri­or to its ini­tial pub­lic offer­ing, lend­ing agree­ments filed last month show.

    ...

    Hmmm...that kind of maneu­ver isn’t exact­ly con­fi­dence-induc­ing with an IPO only months away. Oh well, no doubt it will turn out as prof­itable as the last Car­lye IPO.

    Posted by Pterrafractyl | March 14, 2012, 10:46 am
  19. In the after­math of the Gold­man Sachs exec­u­tive res­ig­na­tion kefuf­fle some pun­dits are point­ing out that the pub­lic real­ly should­n’t care whether or not one of the most pow­er­ful banks in the world has adopt­ed a “screw the client” men­tal­i­ty because the mar­ket­place will even­tu­al­ly solve the prob­lem and avoid Gold­man Sachs alto­geth­er. Atrios has a dif­fer­ent take on the sub­ject worth con­sid­er­ing:

    Wednes­day, March 14, 2012
    Con­nect­ed

    I’m devel­op­ing my excit­ing new the­o­ry (which isn’t real­ly new or excit­ing) about why cer­tain large firms (legal, law, con­sult­ing, pr, com­mu­ni­ca­tions, lob­by­ing, vam­pire squids), get a lot of busi­ness despite every­body know­ing that they’re basi­cal­ly com­plete­ly shady. Tithing to the right firms is just part of the cost of doing busi­ness in cer­tain cir­cles. At low­er lev­els, for exam­ple, you hear tales of per­mits being issued a bit faster if, say, a local busi­ness employs the right con­struc­tion firm. And at upper lev­els, well, Lan­ny Davis is paid for what? A com­pa­ny whose busi­ness mod­el is cen­tered on screw­ing their cus­tomers out of their mon­ey even as they hand that mon­ey over will­ing­ly stays in busi­ness how?
    by Atrios at 13:20

    Posted by Pterrafractyl | March 14, 2012, 1:30 pm
  20. Oh look, Deutsche Bank just dis­cov­ered (a year ago) a fun lit­tle loop­hole that might allow for­eign banks to avoid the new Frank-Dodd finan­cial reform reg­u­la­tions while still ful­ly par­tic­i­pat­ing in future US bailouts:

    For­tune
    Euro­pean banks try to get around Dodd-Frank
    By Stephen Gan­del, senior edi­tor March 21, 2012: 7:40 PM ET

    For for­eign banks, Dodd-Frank might have an escape hatch.

    FORTUNE — For­eign banks may have come up with a way to remain eli­gi­ble for U.S. bailouts with­out hav­ing to fol­low some of the pesky rules that came out of the finan­cial cri­sis, rules that were meant to pre­vent future tax­pay­er res­cues.

    Last month, Ger­man finan­cial giant Deutsche Bank altered the legal struc­ture of its U.S. oper­a­tions so that it’s no longer offi­cial­ly a “bank-hold­ing” com­pa­ny. As such, Deutsche, even though it’s one of the nation’s largest bank­ing oper­a­tions with over $350 bil­lion in assets and over 8,500 U.S. employ­ees, may no longer be required to hold the same amount of cap­i­tal as its Amer­i­can rivals.

    For the time being it appears Deutsche’s U.S. oper­a­tions would still be sub­ject to the Vol­ck­er rule — the part of Dodd-Frank bank­ing reform that bars banks from mak­ing risky trades and invest­ing in hedge funds and has been one of the most con­test­ed por­tions of bank reform by Wall Street — and oth­er soon to be passed reg­u­la­tions. But a fur­ther legal maneu­ver might allow the bank to get around those as well. Worse, because Deutsche bank still has a U.S. sub­sidiary it will be able to bor­row from the Fed when it gets into trou­ble, set­ting up a repeat of the finan­cial cri­sis when the Fed was forced to extend­ed bil­lions of dol­lars in cheap loans to Deutsche and oth­er for­eign banks in order to stave off a wors­en­ing of the cred­it crunch.

    ...

    Get­ting around Dodd-Frank won’t low­er the over­all cap­i­tal the for­eign banks have to have hold. New bank­ing rules require banks in the U.S. and Europe to hold the same amount of mon­ey to cov­er bad loans and oth­er loss­es. But it may save Deutsche from rais­ing the amount of cap­i­tal it keeps at its U.S. sub­sidiary by $20 bil­lion. Some fear that in times of finan­cial stress for­eign banks might not be able or will­ing to bailout their U.S. sub­sidiaries. For­eign reg­u­la­tors, wor­ried about their local economies, might not let banks move cap­i­tal over­seas.

    Barr says reg­u­la­tors knew for­eign banks would have the abil­i­ty to wig­gle out of some of Dodd-Frank’s rules. As a result, the leg­is­la­tion gives the Fed the abil­i­ty to impose cap­i­tal require­ments on for­eign banks even if they are not U.S. bank hold­ing com­pa­nies. Finan­cial firms deemed “sys­tem­i­cal­ly impor­tant,” mean­ing their fail­ure could cause prob­lems for oth­er banks, would have to hold more cap­i­tal in the U.S. whether they are clas­si­fied as a bank or not. Still, the cap­i­tal rules aren’t auto­mat­ic and would have to be approved by the Fed. Fed offi­cials could not be reached for com­ment.

    Posted by Pterrafractyl | March 21, 2012, 6:34 pm
  21. The finan­cial indus­try’s ‘moral hazard’-based oppo­si­tion to prin­ci­ple reduc­tion for under­wa­ter home­own­ers appears to be root­ed in some, ummm, ques­tion­able prici­ples:

    rolling­stone
    Matt Taib­bi
    Anoth­er Hid­den Bailout: Help­ing Wall Street Col­lect Your Rent

    POSTED: March 19, 2012 10:55 AM ET

    ...
    So con­grat­u­la­tions, Amer­i­ca, your qua­si-gov­ern­men­tal hous­ing enti­ty is about to sub­con­tract out mass-land­lord­ing/s­lum­lord­ing jobs to the likes of John Paul­son and War­ren Buf­fett, so that they can add to their bot­tom lines col­lect­ing rent pay­ments in the mid­dle of a nation­wide hous­ing slump.

    As one hedge fund ana­lyst put it to me this morn­ing: “Help inflate the bub­ble, cre­ate a fore­clo­sure cri­sis, buy homes in bulk, and rent them out to the same aver­age home­own­er.”

    Is this what we had in mind when we cre­at­ed the “own­er­ship soci­ety” — help­ing bil­lion­aires col­lect your rent?

    Own­er­ship Soci­ety? That is so 2005. We need to get with the times:

    ‘Own­er­ship Soci­ety’ becomes ‘Oppor­tu­ni­ty Soci­ety’
    By Steve Benen
    -
    Mon Apr 2, 2012 12:47 PM EDT

    ...
    The gist of the “Oppor­tu­ni­ty Soci­ety,” if the can­di­date’s vague remarks are any indi­ca­tion, is that Amer­i­cans will, under a Rom­ney admin­is­tra­tion, sim­ply rely on an unreg­u­lat­ed free mar­ket to solve our prob­lems. We would have the “oppor­tu­ni­ty” to go with­out basic med­ical care, clean and air water, col­lege aid, work­er pro­tec­tions, safe­guards against Wall Street excess­es, and an ade­quate safe­ty net. This will, in turn, cre­ate what Rom­ney described as “an Oppor­tu­ni­ty Nation.”

    ...

    Sounds awe­some!

    Posted by Pterrafractyl | April 11, 2012, 9:40 am
  22. Accord­ing to Deutsche Bank ana­lysts, the finan­cial sup­port from the ECB’s $1.3 tril­lion “longter-term refi­nanc­ing oper­a­tions” (LTRO) and the Fed’s “Oper­a­tion Twist” (which was designed to low­er the rate of 10-year bonds which is critial for a lot of things like mort­gages and cor­po­rate bor­row­ing) is com­ing to an end and the “worst is yet to come”. The last five years are even char­ac­ter­ized as “a peri­od of rel­a­tive calm” com­pared to what they’re pre­dict­ing. They looked in their crys­tal ball (i.e. the cred­it-default swaps deriv­a­tives mar­ket) and all signs point towards “more default”. Putting aside what a joke these deriv­a­tives mar­ket are now, the sad­dest thing is bar­ring the delib­er­ate restruc­tur­ing of our finan­cial sys­tem — one where we basi­cal­ly break the behe­moth banks, resets the rules, reset the debt, and build a finan­cial sys­tem that’s not designed to destroy — bar­ring that, Deutsche Bank is prob­a­bly right. As long as “aus­ter­i­ty” is the pri­ma­ry tool in the ECB’s tool­box these bailouts are just buy­ing more time and big­ger bank bailouts, which is part of the point of keep­ing the crises going. It’s a sys­tem built to fail and then get bailed. And this sys­tem wants more bailouts. And then mass defaults. It’s hun­gry. When you live with mon­sters, you either feed the beast or get eat­en

    Worst Yet to Come as Cri­sis Res­cue Cash Ebbs, Deutsche Bank Says
    By Katie Lin­sell — Apr 18, 2012 3:49 AM CT

    The worst may be yet to come in the glob­al finan­cial cri­sis as the cen­tral bank spend­ing that kept defaults low runs out, accord­ing to Deutsche Bank AG. (DBK)

    Cred­it-default swap prices imply that four or more Euro­pean nations may suf­fer so-called cred­it events such as hav­ing to restruc­ture their debt, strate­gists led by Jim Reid and Nick Burns said in a note. The Mark­it iTraxx SovX West­ern Europe Index of con­tracts on 15 gov­ern­ments includ­ing Spain and Italy jumped 26 per­cent in the past month as the region’s cri­sis flared up.

    If these implied defaults come vague­ly close to being realised then the next five years of cor­po­rate and finan­cial defaults could eas­i­ly be worse than the last five rel­a­tive­ly calm years,” the ana­lysts in Lon­don said. “Much may even­tu­al­ly depend on how much mon­ey-print­ing can be tol­er­at­ed as we are very close to being maxed out fis­cal­ly.”

    Default rates stayed in line with his­tor­i­cal norms between 2007 and 2011 because of the “unprece­dent­ed inter­ven­tion” of Euro­pean and U.S. pol­i­cy mak­ers, the ana­lysts wrote in the report yes­ter­day. Now, cred­it mar­kets are giv­ing up the gains that fol­lowed the Euro­pean Cen­tral Bank’s 1 tril­lion-euro ($1.3 tril­lion) longer-term refi­nanc­ing oper­a­tions and the U.S.’s Oper­a­tion Twist that buoyed gov­ern­ment bonds.

    Although defaults have been low, recov­er­ies are falling because the pub­lic spend­ing that kept non-pay­ments down has failed to spur eco­nom­ic growth, accord­ing to the ana­lysts.

    ...

    Posted by Pterrafractyl | April 18, 2012, 7:33 am
  23. Ahhhh....sweet sweet jus­tice. Final­ly.

    Oh wait:

    Bloomberg
    SEC Staff Ends Probe of Lehman With­out Find­ing Fraud
    By Joshua Gal­lu — May 24, 2012 10:30 PM CT

    U.S. Secu­ri­ties and Exchange Com­mis­sion inves­ti­ga­tors have con­clud­ed their probe of pos­si­ble finan­cial fraud at Lehman Broth­ers Hold­ings Inc. with­out rec­om­mend­ing enforce­ment action against the firm or its for­mer exec­u­tives, accord­ing to an excerpt of an inter­nal agency memo.

    Law­mak­ers and investors have pressed the agency for more than three years to deter­mine whether Lehman mis­rep­re­sent­ed its finan­cial health before fil­ing the biggest bank­rupt­cy in U.S. his­to­ry in Sep­tem­ber 2008.

    Under a head­ing read­ing “Activ­i­ty in Last Four Weeks,” the undat­ed doc­u­ment reads, “The staff has con­clud­ed its inves­ti­ga­tion and deter­mined that charges will like­ly not be rec­om­mend­ed.”

    SEC offi­cials didn’t dis­pute the authen­tic­i­ty of the memo or its con­tents.

    Pres­sure on the agency to pun­ish any wrong­do­ing relat­ed to Lehman’s col­lapse esca­lat­ed after Anton Valukas, the court- appoint­ed bank­rupt­cy exam­in­er, found the firm mis­led investors with “account­ing gim­micks” that dis­guised its lever­age.

    ...

    Posted by Pterrafractyl | May 24, 2012, 10:58 pm
  24. I just can’t believe our bet­ters in JPMor­gan’s risk over­sight office missed this:

    Bloomberg
    JPMor­gan CIO Swaps Pric­ing Said to Dif­fer From Bank
    By Matthew Leis­ing, Mary Childs and Shan­non D. Har­ring­ton — May 31, 2012 12:27 PM CT

    The JPMor­gan Chase & Co. (JPM) unit respon­si­ble for at least $2 bil­lion in loss­es on cred­it deriv­a­tives was valu­ing some of its trades at prices that dif­fered from those of its invest­ment bank, accord­ing to peo­ple famil­iar with the mat­ter.

    The dis­crep­an­cy between prices used by the chief invest­ment office and JPMorgan’s cred­it-swaps deal­er, the biggest in the U.S., may have obscured by hun­dreds of mil­lions of dol­lars the mag­ni­tude of the loss before it was dis­closed May 10, said one of the peo­ple, who asked not to be iden­ti­fied because they aren’t autho­rized to dis­cuss the mat­ter.

    “I’ve nev­er run into any­thing like that,” said San­ford C. Bern­stein & Co.’s Brad Hintz in New York, ranked by Insti­tu­tion­al Investor mag­a­zine as the top ana­lyst cov­er­ing bro­ker­age firms. “That’s why you have a cen­tral­ized account­ing group that’s com­par­ing marks” between dif­fer­ent parts of the bank “to make sure you don’t have any out­liers,” said the for­mer chief finan­cial offi­cer of Lehman Broth­ers Hold­ings Inc.

    ...

    Oh wait, yes I can:

    Bloomberg
    JPMor­gan Gave Risk Over­sight to Muse­um Head With AIG Role
    By Dawn Kopec­ki and Max Abel­son — May 25, 2012 6:39 PM CT

    The three direc­tors who over­see risk at JPMor­gan Chase & Co. (JPM) include a muse­um head who sat on Amer­i­can Inter­na­tion­al Group Inc.’s gov­er­nance com­mit­tee in 2008, the grand­son of a bil­lion­aire and the chief exec­u­tive offi­cer of a com­pa­ny that makes flight con­trols and work boots.

    What the risk com­mit­tee of the biggest U.S. lender lacks, and what the five next largest com­peti­tors have, are direc­tors who worked at a bank or as finan­cial risk man­agers. The only mem­ber with any Wall Street expe­ri­ence, James Crown, hasn’t been employed in the indus­try for more than 25 years.

    “It seems hard to believe that this is good enough,” said Anat Admati, a pro­fes­sor of finance at Stan­ford Uni­ver­si­ty who stud­ies cor­po­rate gov­er­nance. “It’s a mas­sive task to watch the risk of JPMor­gan.”

    ...

    See no evil, hear no evil, do a bunch of evil...human­i­ty’s lat­est awe­some trend in risk man­age­ment.

    Posted by Pterrafractyl | May 31, 2012, 1:05 pm
  25. Posted by Pterrafractyl | July 18, 2012, 7:52 pm
  26. I think this pret­ty much sum­ma­rizes the last decade: Even worse than you think:

    TARP Was Even Worse Than You Think: “An Abysmal Fail­ure,” Barof­sky Says

    By Aaron Task | Dai­ly Tick­er 7/27/2012

    Most Amer­i­cans have a sense TARP was a bad­ly man­aged pro­gram that bailed out “fat cat” bankers at the expense of U.S. tax­pay­ers. Well, it’s even worse than you think, accord­ing to Neil Barof­sky, for­mer spe­cial inspec­tor gen­er­al for TARP (SIGTARP).

    Offi­cials in both the Bush and Oba­ma admin­is­tra­tions took the atti­tude “bankers know best,” Barof­sky recalls. “It was some­what shock­ing how much con­trol big banks had over their own bailout [and] the over­whelm­ing def­er­ence show by Trea­sury offi­cials to the banks.”

    Much has been made about Barof­sky’s crit­i­cism of Trea­sury Sec­re­tary Tim Gei­th­n­er, who told CBS News he is “deeply offend­ed” by how he’s por­trayed in Barof­sky’s book Bailout: An Inside Account of How Wash­ing­ton Aban­doned Main Street While Res­cu­ing Wall Street.

    ...

    Posted by Pterrafractyl | July 27, 2012, 1:33 pm
  27. Well this is sure going to be a relief to the world’s poor and unem­ployed: The big banks got an extra four years to delay the full imple­men­ta­tion of the new, stricter Basel III liq­uid­i­ty rules for inter­na­tion­al lenders. We would­n’t want to, you know, impose too many harsh imped­i­ments to eco­nom­ic growth at this del­i­cate point in the glob­al the econ­o­my. The liq­uid­i­ty-cliff has been avert­ed peo­ple! Now we can all breathe a sigh of relief and get back to busi­ness as usu­al.

    Posted by Pterrafractyl | January 7, 2013, 8:10 am
  28. Rec­om­mend­ed google search­es: Bill Still, Brad­bury Pound, How Guernsey Beat the Bankers, IMF WP12202(Don’t trust), Vic­to­ria Grant, COMER law­suit Bank of Cana­da.

    Gov­ern­ments are print­ing and lend­ing mon­ey to banks at near zero, then bor­row­ing back at high­er inter­est with the tax­pay­ers cov­er­ing the dif­fer­ence. Why not cut out the mid­dle man.

    Posted by Chris | January 7, 2013, 11:19 pm
  29. As we are con­tin­u­ing to learn from JP Mor­gan’s “Whale” deba­cle, rig­ging the assump­tions in a banks’s inter­nal mod­els can be a pre­ferred approach to deal­ing with (delay­ing) cri­sis. It’s sort of the “hide under a pile of coats and hope every­thing works out” approach to cri­sis man­age­ment:

    Busi­ness Insid­er
    This Is Where JP Mor­gan Real­ly Screwed Up In The Infa­mous ‘Whale’ Trade
    Linette Lopez | Jan. 16, 2013, 10:20 AM

    This week­end, the news broke that JP Mor­gan may release a mas­sive report review­ing what caused the painful $6.2 bil­lion loss in its Lon­don Chief Invest­ment Office known as the Lon­don Whale trade.

    Today the 132 page review was released, along with the news that bank CEO Jamie Dimon would take a sub­stan­tial pay cut as a result of his per­son­al neg­li­gence. That buck, after all, stops with him.

    But of course, that isn’t the whole sto­ry. The full report details how (and why) traders in JP Mor­gan’s CIO took such a huge, risky posi­tion in Syn­thet­ic Cred­it Deriv­a­tives.

    Per­haps more impor­tant­ly, it dis­clos­es also excru­ci­at­ing details on why loss­es from that posi­tion were nev­er mean­ing­ful­ly ana­lyzed and dis­closed to senior man­age­ment until it was too late.

    The sto­ry real­ly starts at the end of 2011, as the firm was work­ing on reduc­ing risk weight­ed assets (RWA). Man­age­ment was look­ing to the CIO to help the firm do that.

    Then in Jan­u­ary 2012, the CIO start­ed los­ing a lit­tle mon­ey (pg 28):

    In ear­ly Jan­u­ary, the Syn­thet­ic Cred­it Port­fo­lio incurred mark-to-mar­ket loss­es of approx­i­mate­ly $15 mil­lion. On Jan­u­ary 10, one of the traders informed Ms. Drew that the loss­es result­ed from the fact that (among oth­er things) it “ha[d] been some­what cost­ly to unwind” posi­tions in the port­fo­lio.

    So CIO head Ina Drew start­ed look­ing for some flex­i­bil­i­ty in her man­date to get rid of RWA so that her divi­sion could max­i­mize prof­its and loss­es (p&l).

    In oth­er words, the CIO thought it would be real­ly expen­sive to sim­ply unwind their posi­tions, so they want­ed to pur­sue a dif­fer­ent strat­e­gy that would allow them to hold the posi­tions until the end of the year when man­age­ment and traders alike believed the glob­al econ­o­my would improve.

    This was the new plan (pg 29):

    On or about Jan­u­ary 18, Ms. Drew, Mr. Wilmot, Mr. Wei­land and two senior mem­bers of the Syn­thet­ic Cred­it Port­fo­lio team met to fur­ther dis­cuss the Syn­thet­ic Cred­it Port­fo­lio and RWA reduc­tion. Accord­ing to a trad­er who had not attend­ed the meet­ing, after the meet­ing end­ed, one of the Syn­thet­ic Cred­it Port­fo­lio team mem­bers who had attend­ed the meet­ing informed him that they had decid­ed not to reduce the Syn­thet­ic Cred­it Port­fo­lio, and that the trader’s focus in man­ag­ing the Syn­thet­ic Cred­it Port­fo­lio at that point should be on prof­its and loss­es. Nonethe­less, RWA con­tin­ued to be a mat­ter of real con­cern for that indi­vid­ual and CIO, and he thus also sent a fol­low-up e‑mail to the meet­ing par­tic­i­pants in which he set out a num­ber of options for achiev­ing RWA reduc­tion by the end of 2012. In that e‑mail, he stat­ed that the pre­ferred approach was to select an option under which CIO would attempt to con­vince the Firm to mod­i­fy the mod­el that it used to cal­cu­late RWA for the Syn­thet­ic Cred­it Port­fo­lio, and delay any efforts to reduce RWA through changes in posi­tions in the Syn­thet­ic Cred­it Port­fo­lio until mid-year.

    Yes, by tweak­ing a bank’s mod­els, like the mod­els that deter­mine the assumed val­ue of the “risk weight­ed assets” in a giant port­fo­lio of derivates, many mag­i­cal things can hap­pen, like a sud­den increase or decrease in the val­u­a­tion of the assets and lia­bil­i­ties the bank holds. And since new reg­u­la­tions are requir­ing banks to increase the ratio of assets to lia­bil­i­ties, let’s just say there’s going to be a num­ber of large banks that are going to have a whale of a time swim­ming through this mod­el mud­dle:

    Bloomberg
    Euro­pean Banks to Shrink as U.S. Peers Set Pace: Euro Cred­it
    By John Glover — Jan 17, 2013 4:07 AM CT

    Euro­pean banks, includ­ing Deutsche Bank AG (DBK) and Stan­dard Char­tered Plc, have less equi­ty rel­a­tive to assets than their U.S. peers, and will have to shrink or boost cap­i­tal as reg­u­la­tors demand reduced lever­age.

    Stan­dard Char­tered holds Tier 1 cap­i­tal equiv­a­lent to 7.04 per­cent of its adjust­ed assets, more than its Euro­pean peers and 2 per­cent­age points shy of Wells Far­go & Co. (WFC), the strongest U.S. bank, accord­ing to data com­piled by Char­lottesville, Vir­ginia- based SNL Finan­cial LC. Deutsche Bank AG’s ratio is 3.76 per­cent, based on aver­age assets for 2011, the last full year for which fig­ures are avail­able for com­pa­nies sur­veyed by SNL.

    Before the cred­it cri­sis, Euro­pean reg­u­la­tors focused on banks’ assets weight­ed by risk, encour­ag­ing lenders such as UBS (UBSN) AG to load up on top-rat­ed bonds backed by sub­prime mort­gages, which lat­er plum­met­ed in val­ue. After New York-based Lehman Broth­ers Hold­ings Inc. col­lapsed in 2008, U.S. author­i­ties were faster than their Euro­pean coun­ter­parts to force lenders to raise cash.

    “U.S. reg­u­la­tors and banks act­ed quick­er and more effec­tive­ly, and addressed the issue of lever­age when they could,” said Ketish Pothalingam, a port­fo­lio man­ag­er in Lon­don for Pacif­ic Invest­ment Man­age­ment Co., which runs the world’s biggest bond fund. “As a result, they look a lot bet­ter now. The Euro­pean banks were lag­gards in com­par­i­son.”

    ...

    Mov­ing Mod­els

    Banks assign risk weights to their assets using inter­nal mod­els, mean­ing that sim­i­lar loans or secu­ri­ties bear dif­fer­ent mea­sures of risk depend­ing on the insti­tu­tion that owns them. Start­ing this year, reg­u­la­tors will begin com­pil­ing fig­ures based on com­mon def­i­n­i­tions, in advance of enforc­ing a glob­al stan­dard for assess­ing lever­age.

    “A lever­age ratio is a use­ful addi­tion­al tool to risk- weight­ed assets as an indi­ca­tor,” said Steve Hussey, a cred­it ana­lyst at Alliance­Bern­stein Ltd. in Lon­don. “There can be big dif­fer­ences, espe­cial­ly when banks are using inter­nal mod­els.”

    Dif­fer­ences in the account­ing treat­ment of deriv­a­tives under U.S. and Euro­pean account­ing rules also make it tough for ana­lysts to com­pare lenders.

    Risk weight­ing by itself isn’t an ade­quate mea­sure of the risk­i­ness of a bal­ance sheet,” said Lakhani at Cit­i­group. “There’s no sin­gle mea­sure that is, but on a com­bined basis it’s the out­liers we are try­ing to catch here.”

    Chris­t­ian Streck­ert, a spokesman at Deutsche Bank in Frank­furt, referred to an Oct. 30 pre­sen­ta­tion by Chief Finan­cial Offi­cer Ste­fan Krause that uses adjust­ed “tar­get def­i­n­i­tions.” Krause put the bank’s lever­age ratio at 21 per­cent at the end of the third quar­ter, com­pared with SNL’s end of 2011 fig­ure adjust­ed for deriv­a­tives of 3.76 per­cent.

    Deutsche Bank’s ratio “real­ly isn’t that high, not under the new world order of Basel III and tougher reg­u­la­tion,” said Andrew Lim, an ana­lyst at Espir­i­to San­to Invest­ment Bank in Lon­don. “Deutsche Bank is going to have to shrink or raise cap­i­tal.”

    Posted by Pterrafractyl | January 17, 2013, 1:14 pm
  30. The CEOs of JP Mor­gan and Deutsche Bank may not real­ize what they’re say­ing here:

    Deutsche Bank, JP Mor­gan reject ringfenc­ing units

    Pub­lished Jan­u­ary 22, 2013

    Reuters

    KOENIGSTEIN – The chief exec­u­tives of Deutsche Bank and JP Mor­gan have both reject­ed the idea of split­ting off trad­ing oper­a­tions from retail oper­a­tions to make banks safer.

    “You lose enor­mous economies of scale if you sep­a­rate invest­ment bank­ing,” Deutsche Bank co-chief exec­u­tive Anshu Jain told a pan­el dis­cus­sion on Mon­day.

    “You solve a prob­lem that does not exist and you cre­ate a lot of new ones,” he said in remarks embar­goed for release on Tues­day.

    JP Mor­gan CEO Jamie Dimon said a vital step toward bank reform was not a legal split of invest­ment bank­ing from oth­er oper­a­tions but a frame­work where banks can be allowed to fail with­out con­t­a­m­i­nat­ing the broad­er econ­o­my.

    “We have to make sure that a bank fails with­out cost­ing bil­lions of dol­lars,” Dimon said, refer­ring to tax­pay­er mon­ey.

    In Octo­ber, a Euro­pean Union advi­so­ry group led by Bank of Fin­land Gov­er­nor Erk­ki Liika­nen said banks should split off both trad­ing on their own behalf and “activ­i­ties close­ly linked with secu­ri­ties and deriv­a­tives”.

    The Liika­nen group said ring-fenc­ing trad­ing desks would make it eas­i­er for the part of the bank that holds savers’ deposits and lends to busi­ness­es to keep run­ning even if oth­er bits of the busi­ness col­lapsed.

    Jain said the Liika­nen pro­pos­als could even lead to Euro­pean banks being dis­ad­van­taged. “My con­cern is that you cre­ate an uneven play­ing field when you aban­don uni­ver­sal banks in Europe alone.”

    In Sep­tem­ber, Deutsche Bank announced a new strat­e­gy based on clos­er inte­gra­tion between its invest­ment bank, asset man­age­ment and wealth man­age­ment unit.

    ...

    There is one obvi­ous solu­tion to ensur­ing that ‘too-big-fail’ banks can’t take down the econ­o­my and require a bailout if they implode, but it’s kind of impos­si­ble to imag­ine that these two don’t real­ize that very obvi­ous solu­tion:

    Bloomberg
    Jamie Dimon Laments Too-Big-to-Fail? Give Me a Break
    By Jonathan Weil Jan 22, 2013 9:40 AM CT

    Jamie Dimon is at it again. Speak­ing to his bank’s clients yes­ter­day dur­ing a pan­el dis­cus­sion in Koenig­stein, Ger­many, the chair­man and chief exec­u­tive offi­cer of JPMor­gan Chase & Co. said reg­u­la­tors and banks should come up with a sys­tem that lets lenders go broke with­out hurt­ing the world econ­o­my.

    “We’ve got to get rid of too-big-to-fail,” Dimon said, accord­ing to a Bloomberg News arti­cle this morn­ing. “We have to ensure big banks can be tak­en down with­out harm­ing the pub­lic and at no cost to them.”

    Remarks such as these, com­ing from the head of JPMor­gan, are mad­den­ing. (And Dimon has made sim­i­lar com­ments before.) Here he is say­ing all the right things and mak­ing all the right moves from a pub­lic-rela­tions stand­point. Of course we should elim­i­nate too-big-to-fail, most of us can agree. Of course we should ensure these mon­ster insti­tu­tions can fail with­out harm­ing the pub­lic.

    Yet as things stand now, there’s no way Dimon or any­one else could cred­i­bly argue that the sud­den fail­ure of JPMor­gan could hap­pen today with­out caus­ing mas­sive dam­age to oth­ers. If Dimon means what he says, he should­n’t be com­plain­ing about how soci­ety at large is oblig­ed to fix the prob­lem. JPMor­gan should be doing some­thing about JPMor­gan to make sure it’s not too-big-to-fail — like break itself up.

    ...

    Posted by Pterrafractyl | January 22, 2013, 3:42 pm
  31. It looks like Deutsche Bank has found a way out of its increas­ing cap­i­tal require­ments mod­el mud­dle: mud­dle the mod­els more:

    Deutsche Bank swal­lows $4 bil­lion of charges for cleanup

    By Edward Tay­lor and Arno Schuet­ze

    FRANKFURT | Thu Jan 31, 2013 10:16am EST

    (Reuters) — Deutsche Bank plunged to its worst quar­ter­ly loss in four years on Thurs­day after it took near­ly $4 bil­lion in charges to try and draw a line under a slew of scan­dals and boost its bal­ance sheet with­out ask­ing share­hold­ers for cash.

    Shares in Ger­many’s largest lender hit their high­est lev­el in near­ly a year after it raised its cap­i­tal lev­els clos­er to Euro­pean peers. But with so much uncer­tain­ty sur­round­ing future cap­i­tal require­ments for the indus­try, a rights issue, which would dilute exist­ing investors, remains a risk, Deutsche said.

    ...

    With patchy intro­duc­tion of Basel III glob­al bank cap­i­tal rules, reg­u­la­tors are increas­ing­ly pur­su­ing tougher nation­al regimes to rein in lenders, prompt­ing fears of a reg­u­la­to­ry arms race.

    “We saw reg­u­la­tors in the world come togeth­er in 2009. I am con­cerned this reg­u­la­to­ry cohe­sion will not last,” said Jain.

    Deutsche Bank cut its risk-weight­ed asset (RWA) base by 55 bil­lion euros in the fourth quar­ter, help­ing to raise its core tier one cap­i­tal ratio under Basel III rules to 8 per­cent at the end of 2012 from under 6 per­cent at the end of 2011.

    RWAs are a bank’s assets, usu­al­ly loans, adjust­ed for the like­li­hood of non-pay­ment.

    Changes to Deutsche’s inter­nal risk mod­els helped dri­ve the reduc­tion in RWA, which ana­lysts said could come back to haunt the bank if reg­u­la­tors har­mo­nize the way banks esti­mate the risk­i­ness of their loan books.

    “They might apply some min­i­mum floor for RWAs, which would cost Deutsche Bank a lot ... Their inter­nal mod­els could have to be thrown out the win­dow,” said Espir­i­to San­to ana­lyst Andrew Lim, who has a “sell” rec­om­men­da­tion on Deutsche Bank shares.

    Lim believes the bank needs between 15 bil­lion and 20 bil­lion euros of addi­tion­al cap­i­tal and warned the Euro­pean Cen­tral Bank (ECB), which takes over super­vi­sion of banks across the region next year, might take a hard­er line on cap­i­tal than the Ger­man reg­u­la­tor, BaFin.

    “I think they need that amount ... they might not be made to raise it, they haven’t been made to raise it by BaFin. The ECB might take a much more stern stance and force them to raise equi­ty or reduce their bal­ance sheet,” he added.

    Deutsche Bank’s finance chief Ste­fan Krause how­ev­er said the bank felt com­fort­able with the way its mea­sured risky assets.

    ...

    Posted by Pterrafractyl | January 31, 2013, 8:52 am
  32. Because there can be only one!

    Huff­in­g­ton Post
    JPMor­gan Chase CEO Jamie Dimon: ‘We Actu­al­ly Ben­e­fit From Down­turns’
    Post­ed: 02/26/2013 11:47 am EST | Updat­ed: 02/27/2013 12:41 pm EST
    Mark Gon­gloff

    Like most soft-spined Amer­i­cans, you prob­a­bly have painful mem­o­ries of the finan­cial cri­sis and con­se­quent reces­sion. Per­haps you even think of those things as “bad.” For­tu­nate­ly, Jamie Dimon is not like the rest of you losers.

    That is because, unlike you, Jamie Dimon is CEO of JPMor­gan Frig­gin’ Chase, Amer­i­ca’s great­est bank, which just so hap­pens to snack on finan­cial crises and reces­sions like so much KIND bar.

    “This bank is anti-frag­ile, we actu­al­ly ben­e­fit from down­turns,” Dimon bragged to his bank’s investors at a con­fer­ence on Tues­day.

    And it is true! The bank def­i­nite­ly ben­e­fit­ed from the last down­turn. It got to buy Bear Stearns in a gov­ern­ment-backed fire sale, get­ting itself a bro­ker­age busi­ness on the cheap in exchange for shoul­der­ing only a few tire­some legal bur­dens. It also got bil­lions of dol­lars in gov­ern­ment hand­outs, from $25 bil­lion in TARP funds to bil­lions in sav­ings from low-inter­est-rate bor­row­ing pro­grams to a per­ma­nent sub­sidy aris­ing from the idea that the gov­ern­ment will bail out the bank if it ever gets in trou­ble.

    That per­ma­nent sub­sidy amounts to about $17 bil­lion per year, accord­ing to a recent Bloomberg View study, rep­re­sent­ing near­ly all of the bank’s prof­its. No oth­er bank gets such a large sub­sidy, accord­ing to Bloomberg’s study (although, to be fair, some find Bloomberg’s meth­ods unsound, to quote from Jamie Dimon’s favorite movie).

    Of course, this may not have been the sort of ben­e­fit Dimon was talk­ing about. Instead, he has repeat­ed­ly opined that his bank thrived — was in fact a “port in the storm” — dur­ing the down­turn sim­ply because it was so gigan­tic.

    Fun­ny enough, JPMor­gan is some­times not at its tip-top best when things are actu­al­ly look­ing up. For exam­ple, it man­aged to lose $6 bil­lion on cred­it default swaps last year, at a time when mar­kets were doing just fine. So maybe “anti-frag­ile” is not the best term for JPMor­gan?

    ...

    Posted by Pterrafractyl | February 27, 2013, 2:19 pm
  33. Uh oh!:

    Exclu­sive: Deutsche Bank ‘hor­ri­bly under­cap­i­tal­ized’ — U.S. reg­u­la­tor

    By Emi­ly Stephen­son and Douwe Miede­ma

    WASHINGTON | Fri Jun 14, 2013 6:02pm EDT

    (Reuters) — A top U.S. bank­ing reg­u­la­tor called Deutsche Bank’s cap­i­tal lev­els “hor­ri­ble” and said it is the worst on a list of glob­al banks based on one mea­sure­ment of lever­age ratios.

    “It’s hor­ri­ble, I mean they’re hor­ri­bly under­cap­i­tal­ized,” said Fed­er­al Deposit Insur­ance Corp Vice Chair­man Thomas Hoenig in an inter­view. “They have no mar­gin of error.”

    Hoenig, who is sec­ond-in-com­mand at the reg­u­la­tor, said glob­al cap­i­tal rules, known as the Basel III accord, allow lenders to appear well-cap­i­tal­ized when they are not. That is because the rules allow the banks to use com­pli­cat­ed mea­sure­ments of how risky their loans are to deter­mine the cap­i­tal they must hold, he said.

    But using a tougher lever­age ratio mea­sure­ment — which com­pares a bank’s share­hold­er equi­ty to its total assets with­out using risk-weight­ings — the pic­ture for banks such as Deutsche Bank is very dif­fer­ent, he said.

    Deutsche Bank this year is almost done rais­ing 5 bil­lion euros ($6.67 bil­lion) in new debt and equi­ty, boost­ing its core cap­i­tal ratio to around 9.5 per­cent, which it says has made it one of the best-cap­i­tal­ized banks among its peers.

    “To say that we are under­cap­i­tal­ized is inac­cu­rate because if you look at the Basel frame­work, we’re now one of the best cap­i­tal­ized banks in the world after our cap­i­tal raise,” Deutsche Bank’s Chief Finan­cial Offi­cer Ste­fan Krause told Reuters in an inter­view, when asked about Hoenig’s com­ments.

    “To sug­gest that lever­age puts us in a posi­tion to be a risk to the sys­tem is incor­rect,” Krause said, call­ing the gauge a “mis­lead­ing mea­sure” when used on its own.

    Deutsche’s lever­age ratio stood at 1.63 per­cent, accord­ing to Hoenig’s num­bers, which are based on Euro­pean IFRS account­ing rules as of the end of 2012.

    Deutsche said the num­ber now stands at 2.1 per­cent but that it does not look at the gauge. Using U.S. gen­er­al­ly accept­ed account­ing prin­ci­ples, the ratio stood at a much more com­fort­able 4.5 per­cent, Krause said.

    OUTSPOKEN CRITIC

    The dif­fer­ence is due to the way deriv­a­tives on a bank’s books are mea­sured. Nei­ther num­ber direct­ly cor­re­sponds to the Basel lever­age ratio, which cal­cu­lates cap­i­tal in anoth­er way and sets a 3 per­cent min­i­mum.

    The FDIC — which guar­an­tees deposits at U.S. banks — stressed that Hoenig was speak­ing in a per­son­al capac­i­ty and that the agency did not com­ment on indi­vid­ual banks.

    Hoenig staked out a rep­u­ta­tion as a dis­sent­ing voice against the Fed­er­al Reserve’s loose mon­e­tary pol­i­cy in the imme­di­ate after­math of the finan­cial cri­sis when he was pres­i­dent of the Fed­er­al Reserve Bank of Kansas City.

    He’s also an out­spo­ken crit­ic of the Basel III rules — intro­duced glob­al­ly after the cri­sis — which he says do not do enough to reduce the size of the riski­est banks and are easy for them to game.

    Oth­er banks with a low ratio, accord­ing to Hoenig, are UBS at 2.52 per­cent, Mor­gan Stan­ley at 2.55 per­cent, Cred­it Agri­cole at 2.72 per­cent and Soci­ete Gen­erale at 2.84 per­cent.

    Detailed rules for Basel III, which oth­er U.S. politi­cians and reg­u­la­tors have ques­tioned, are expect­ed to come out in the Unit­ed States in the next few months, well past the Jan­u­ary dead­line agreed upon inter­na­tion­al­ly.

    DESCRIBES “RIDICULOUS” CHANGE

    Hoenig point­ed to the gain in Deutsche Bank shares in Jan­u­ary on the same day it post­ed a big quar­ter­ly loss, because it had improved its Basel III cap­i­tal ratios by cut­ting risk-weight­ed assets.

    “My oth­er exam­ple with poor Deutsche Bank is that they lose $2 bil­lion and raise their cap­i­tal ratio. It’s — I don’t want to say insane, but it’s ridicu­lous,” Hoenig said.

    A lever­age ratio is a bet­ter method to show a fir­m’s abil­i­ty to absorb sud­den loss­es, Hoenig says, and he has float­ed a plan to raise the ratio to 10 per­cent. He said the 3 per­cent lever­age hur­dle under Basel was a “pre­tend num­ber.”

    Oppo­nents of using such a ratio say that it ignores the risk in a bank’s loan books, and can make a bank with only healthy bor­row­ers look equal­ly risky as a bank whose clients are less like­ly to pay back their loans.

    It also fails to take into account how eas­i­ly a bank can sell its assets — so-called liq­uid­i­ty — or whether it is hedged against risk.

    Still, equi­ty ana­lysts said that while Deutsche Bank like­ly will meet reg­u­la­to­ry cap­i­tal require­ments, its ratios look weak.

    ...

    Posted by Pterrafractyl | June 17, 2013, 10:18 am
  34. @Pterrafractyl–

    Stun­ning find! Will be a FFT post before long–I want to wrap up some thoughts on Baby Face Snow­den and the desta­bi­liza­tion of Oba­ma.

    This is what so many can’t stand about Germany–as they self-right­eous­ly dic­tate (and I mean DICTATE) to oth­ers about their fis­cal profli­ga­cy, their largest bank is bad­ly exposed.

    A whore preach­ing absti­nence!

    Best,

    Dave

    Posted by Dave Emory | June 17, 2013, 3:20 pm
  35. @Dave: And here’s a brand new Deutsche Bank-relat­ed scan­dal. Maybe. All we know at this point is that there are alle­ga­tions that for­eign-exchange rates are sys­tem­at­i­cal­ly being rigged by major play­ers in the mas­sive, unreg­u­lat­ed dai­ly for­eign-exchange. The anony­mous traders won’t say which banks are under sus­pi­cion, but what we know is that it would have to involve some very big play­ers in this sec­tor in order to pull it off giv­en the size of the mar­ket. Guess which bank is the biggest:

    Bloomberg
    Traders Said to Rig Cur­ren­cy Rates to Prof­it Off Clients
    By Liam Vaugh­an, Gavin Finch & Ambereen Choud­hury — Jun 12, 2013 1:06 PM CT

    Traders at some of the world’s biggest banks manip­u­lat­ed bench­mark for­eign-exchange rates used to set the val­ue of tril­lions of dol­lars of invest­ments, accord­ing to five deal­ers with knowl­edge of the prac­tice.

    Employ­ees have been front-run­ning client orders and rig­ging WM/Reuters rates by push­ing through trades before and dur­ing the 60-sec­ond win­dows when the bench­marks are set, said the cur­rent and for­mer traders, who request­ed anonymi­ty because the prac­tice is con­tro­ver­sial. Deal­ers col­lud­ed with coun­ter­parts to boost chances of mov­ing the rates, said two of the peo­ple, who worked in the indus­try for a total of more than 20 years.

    The behav­ior occurred dai­ly in the spot for­eign-exchange mar­ket and has been going on for at least a decade, affect­ing the val­ue of funds and deriv­a­tives, the two traders said. The Finan­cial Con­duct Author­i­ty, Britain’s mar­kets super­vi­sor, is con­sid­er­ing open­ing a probe into poten­tial manip­u­la­tion of the rates, accord­ing to a per­son briefed on the mat­ter.

    “The FX mar­ket is like the Wild West,” said James McGee­han, who spent 12 years at banks before co-found­ing Fram­ing­ham, Mass­a­chu­setts-based FX Trans­paren­cy LLC, which advis­es com­pa­nies on for­eign-exchange trad­ing, in 2009. “It’s buy­er beware.”

    The $4.7‑trillion-a-day cur­ren­cy mar­ket, the biggest in the finan­cial sys­tem, is one of the least reg­u­lat­ed. The inher­ent con­flict banks face between exe­cut­ing client orders and prof­it­ing from their own trades is exac­er­bat­ed because most cur­ren­cy trad­ing takes place away from exchanges.
    Bench­mark Inves­ti­ga­tions

    The WM/Reuters rates are used by fund man­agers to com­pute the day-to-day val­ue of their hold­ings and by index providers such as FTSE Group and MSCI Inc. that track stocks and bonds in mul­ti­ple coun­tries. While the rates aren’t fol­lowed by most investors, even small move­ments can affect the val­ue of what Morn­ingstar Inc. (MORN) esti­mates is $3.6 tril­lion in funds includ­ing pen­sion and sav­ings accounts that track glob­al index­es.

    One of Europe’s largest mon­ey man­agers has com­plained about pos­si­ble manip­u­la­tion to British reg­u­la­tors with­in the past 12 months, accord­ing to a per­son with knowl­edge of the mat­ter who asked that nei­ther he nor the firm be iden­ti­fied because he wasn’t autho­rized to speak pub­licly.
    FCA Review

    The FCA already is work­ing with reg­u­la­tors world­wide to review the integri­ty of bench­marks, includ­ing those used in valu­ing deriv­a­tives and com­modi­ties, after three lenders were fined about $2.5 bil­lion for rig­ging the Lon­don inter­bank offered rate, or Libor. Reg­u­la­tors also are inves­ti­gat­ing bench­marks for the crude-oil and swaps mar­kets.

    “The FCA is aware of these alle­ga­tions and has been speak­ing to the rel­e­vant par­ties,” Chris Hamil­ton, a spokesman for the agency, said of the WM/Reuters rates.

    ACI, a trade group for for­eign-exchange and mon­ey-mar­ket traders, said in a state­ment today that it has remind­ed mem­bers of guide­lines adopt­ed in Feb­ru­ary, which say that deal­ers shouldn’t “prof­it or seek to prof­it from con­fi­den­tial infor­ma­tion.” The Paris-based group has 13,000 mem­bers in more than 60 coun­tries, accord­ing to its web­site.

    It may be dif­fi­cult to pros­e­cute traders for mar­ket manip­u­la­tion, as spot for­eign exchange, the trad­ing of one cur­ren­cy with anoth­er at the cur­rent price for deliv­ery with­in two days, isn’t clas­si­fied as a finan­cial instru­ment by reg­u­la­tors, said Arun Sri­vas­ta­va, a part­ner at law firm Bak­er & McKen­zie LLP in Lon­don.

    World Mar­kets

    The WM/Reuters rates data are col­lect­ed and dis­trib­uted by World Mar­kets Co., a unit of Boston-based State Street Corp. (STT), and Thom­son Reuters Corp. (TRI) Bloomberg LP, the par­ent com­pa­ny of Bloomberg News, com­petes with New York-based Thom­son Reuters in pro­vid­ing news and infor­ma­tion, as well as cur­ren­cy-trad­ing sys­tems and pric­ing data. Bloomberg LP also dis­trib­utes the WM/Reuters rates on Bloomberg ter­mi­nals.

    State Street hasn’t been alert­ed to any alle­ga­tions of wrong­do­ing involv­ing the rate, said a per­son with knowl­edge of the mat­ter.

    “The process for cap­tur­ing this infor­ma­tion and cal­cu­lat­ing the spot fix­ings is auto­mat­ed and anony­mous, and the rates are mon­i­tored for qual­i­ty and accu­ra­cy,” State Street said in an e‑mailed state­ment. The data are derived from “mul­ti­ple exe­cu­tion venues through a stream­ing rather than solic­i­ta­tion process,” it said.

    World Mar­kets states in the method­ol­o­gy post­ed online that it doesn’t guar­an­tee the accu­ra­cy of its rates.
    ‘Extreme­ly Cost­ly’

    State Street hired Lon­don-based Fresh­fields Bruck­haus Deringer LLP to ensure that the rates com­ply with the set of draft prin­ci­ples for finan­cial bench­marks pub­lished in April by glob­al reg­u­la­tors fol­low­ing the Libor scan­dal, accord­ing to a per­son briefed on the mat­ter.

    “We asked Fresh­fields to con­firm our under­stand­ing that the cur­rent FCA reg­u­la­tion applied to only Libor at this stage,” State Street said in an e‑mailed state­ment today.

    Nick Park­er, a spokesman for Fresh­fields, declined to com­ment. Thom­son Reuters referred inquiries to State Street.

    Intro­duced in 1994, the WM/Reuters rates pro­vide stan­dard­ized bench­marks allow­ing fund man­agers to val­ue hold­ings and assess per­for­mance. The rates also are used in for­wards and oth­er con­tracts that require an exchange rate at set­tle­ment.

    “The price mech­a­nism is the anchor of our entire eco­nom­ic sys­tem,” said Tom Kirch­maier, a fel­low in the finan­cial-mar­kets group at the Lon­don School of Eco­nom­ics. “Any rig­ging of the price mech­a­nism leads to a mis­al­lo­ca­tion of cap­i­tal and is extreme­ly cost­ly to soci­ety.”
    Pound, Rand

    The rates are pub­lished hourly for 160 cur­ren­cies and half-hourly for 21 of them. For the 21 — major cur­ren­cies from the British pound to the South African rand — the bench­marks are the medi­an of all trades in a minute-long peri­od start­ing 30 sec­onds before the begin­ning of each half-hour.

    If there aren’t enough trans­ac­tions between a pair of cur­ren­cies dur­ing the ref­er­ence peri­od, the rate is based on the medi­an of traders’ orders, which are offers to sell or bids to buy. Rates for the oth­er, less-wide­ly trad­ed cur­ren­cies are cal­cu­lat­ed using quotes dur­ing a two-minute win­dow.

    The bench­marks are based on actu­al trades or quotes, rather than the bank esti­mates used to cal­cu­late Libor. Still, they’re sus­cep­ti­ble to rig­ging, accord­ing to the five traders, who said they had engaged in or wit­nessed the prac­tice.

    Big Four

    While hun­dreds of firms par­tic­i­pate in the for­eign-exchange mar­ket, four banks dom­i­nate, with a com­bined share of more than 50 per­cent, accord­ing to a May sur­vey by Euromoney Insti­tu­tion­al Investor Plc. Deutsche Bank AG (DBK), based in Frank­furt, is No. 1, with a 15.2 per­cent share, fol­lowed by New York-based Cit­i­group Inc. © with 14.9 per­cent, Lon­don-based Bar­clays Plc (BARC) with 10.2 per­cent and Zurich-based UBS AG (UBSN) with 10.1 per­cent.

    The traders inter­viewed by Bloomberg News declined to iden­ti­fy which banks engaged in manip­u­la­tive prac­tices and didn’t specif­i­cal­ly allege that any of the top four firms were involved. Spokes­men for Deutsche Bank, Cit­i­group, Bar­clays and UBS declined to com­ment.

    As mar­ket-mak­ers, banks exe­cute orders to buy and sell for clients as well as trade on their own accounts.

    Com­pa­nies and asset man­agers typ­i­cal­ly ask banks to buy or sell cur­ren­cies at a spec­i­fied WM/Reuters fix lat­er i
    ...

    ISDAfix Probe

    In attempt­ing to rig Libor, traders at Bar­clays, Roy­al Bank of Scot­land Group Plc and UBS mis­stat­ed their firms’ cost of bor­row­ing and col­lud­ed with coun­ter­parts at oth­er banks to prof­it from bets on deriv­a­tives, reg­u­la­tors found.

    Libor is one of at least three bench­marks under inves­ti­ga­tion. The Euro­pean Com­mis­sion is prob­ing com­pa­nies includ­ing Roy­al Dutch Shell Plc, BP Plc and Platts, an oil-pric­ing and news agency, for poten­tial manip­u­la­tion of the $3.4 tril­lion-a-year crude-oil mar­ket. The firms have said they are coop­er­at­ing with the probe. U.S. reg­u­la­tors are inves­ti­gat­ing the ISDAfix rate, the bench­mark used for the swaps mar­ket.

    ...

    Six­teen of the largest banks, includ­ing Bar­clays, JPMor­gan Chase & Co. (JPM) and Deutsche Bank (DBK), signed a vol­un­tary code of con­duct for for­eign-exchange and mon­ey-mar­ket deal­ers in 2001 that was lat­er includ­ed as an annex to guide­lines issued by the Bank of Eng­land in Novem­ber 2011.

    The BOE’s Non-Invest­ment Prod­ucts Code, which some banks use in con­tracts with clients, states “cau­tion should be tak­en so that cus­tomers’ inter­ests are not exploit­ed when finan­cial inter­me­di­aries trade for their own accounts.” It also says that “manip­u­la­tive prac­tices by banks with each oth­er or with clients con­sti­tute unac­cept­able trad­ing behav­ior.”

    That only goes so far, accord­ing to Salu­ja.

    “The thing about the code is it is a vol­un­tary code,” the lawyer said. “It may be that com­pli­ance with that has almost been seen as option­al.”

    Just to rein­ter­ate: “Six­teen of the largest banks, includ­ing Bar­clays, JPMor­gan Chase & Co. (JPM) and Deutsche Bank (DBK), signed a vol­un­tary code of con­duct for for­eign-exchange and mon­ey-mar­ket deal­ers in 2001 that was lat­er includ­ed as an annex to guide­lines issued by the Bank of Eng­land in Novem­ber 2011″.

    Posted by Pterrafractyl | June 17, 2013, 7:03 pm
  36. And anoth­er reg­u­la­to­ry agency look­ing into a mas­sive car­tel goes through the motions...

    Bloomberg
    Swiss Reg­u­la­tors Prob­ing Alleged Cur­ren­cy Manip­u­la­tion
    By Gavin Finch, Liam Vaugh­an & Ele­na Logutenko­va — Oct 4, 2013 12:12 PM CT

    Swiss author­i­ties said they’re inves­ti­gat­ing sev­er­al banks for alleged­ly col­lud­ing to manip­u­late the $5.3 tril­lion-a-day for­eign exchange mar­ket.

    The Swiss Finan­cial Mar­ket Super­vi­so­ry Author­i­ty “is coor­di­nat­ing close­ly with author­i­ties in oth­er coun­tries as mul­ti­ple banks around the world are poten­tial­ly impli­cat­ed,” it said in a state­ment today. Sep­a­rate­ly, the com­pe­ti­tion com­mis­sion said it opened a pre­lim­i­nary probe on Sept. 30 after receiv­ing alle­ga­tions of col­lu­sion among banks to manip­u­late some for­eign-exchange rates.

    The probes come after Bloomberg News report­ed in June that deal­ers at banks pooled infor­ma­tion through instant mes­sages and used client orders to move bench­mark cur­ren­cy rates. Britain’s Finan­cial Con­duct Author­i­ty said that month it was review­ing the alle­ga­tions. The U.S. Com­mod­i­ty Futures Trad­ing Com­mis­sion has also been review­ing poten­tial vio­la­tions of the law with regards to for­eign cur­ren­cy mar­kets, accord­ing to a per­son famil­iar with the mat­ter who asked not to be iden­ti­fied.

    Author­i­ties around the world are inves­ti­gat­ing the alleged abuse of finan­cial bench­marks by the firms that play a cen­tral role in set­ting them. UBS AG (UBSN), Switzerland’s largest bank, was among four firms fined about $2.6 bil­lion for rig­ging the Lon­don inter­bank offered rate, the bench­mark for more than $300 tril­lion of secu­ri­ties world­wide.

    Euro­pean reg­u­la­tors are review­ing alle­ga­tions of col­lu­sion in crude oil and bio­fu­els mar­kets, while the CFTC and FCA are also prob­ing the poten­tial manip­u­la­tion of ISDAfix, a bench­mark for inter­est-rate swaps.
    Shares Rise

    In today’s state­ment, Fin­ma didn’t iden­ti­fy which firms it’s inves­ti­gat­ing or give details of the scope of its probe. The Swiss com­pe­ti­tion com­mis­sion said it will decide at lat­er point on what fur­ther action to take. Vinzenz Math­ys, a spokesman for Bern-based Fin­ma, declined to com­ment fur­ther. UBS spokes­woman Jen­na Ward and Cred­it Suisse Group AG (CSGN) spokesman Marc Dosch declined to com­ment.

    UBS closed at 18.56 francs ($21), up 0.5 per­cent in Zurich, while Cred­it Suisse gained 0.6 per­cent to 28.23 francs.

    Britain’s FCA today reit­er­at­ed its June state­ment say­ing it has been speak­ing to the “rel­e­vant” par­ties. The reg­u­la­tor has sep­a­rate­ly request­ed infor­ma­tion from four banks includ­ing Frank­furt-based Deutsche Bank AG (DBK) and Cit­i­group Inc. ©, a per­son with knowl­edge of the mat­ter who asked not to be iden­ti­fied said in June. The Hong Kong Mon­e­tary Author­i­ty said in a state­ment today it would “close­ly mon­i­tor” devel­op­ments.
    Bar­clays, Cit­i­group

    About four banks account for more than half of all trad­ing in the for­eign-exchange mar­ket, accord­ing to a May sur­vey by Euromoney Insti­tu­tion­al Investor Plc. (ERM) Deutsche Bank is No. 1 with a 15 per­cent share, fol­lowed by Cit­i­group with almost 15 per­cent and Lon­don-based Bar­clays Plc (BARC) and UBS, which each have 10 per­cent. Giles Croot, a spokesman for Bar­clays, Sebas­t­ian How­ell, a spokesman for Deutsche Bank, and Jef­frey French at Cit­i­group all declined to com­ment.

    ...

    Posted by Pterrafractyl | October 4, 2013, 1:16 pm
  37. There’s real­ly one and only one thing JPMor­gan needs to apol­o­gize for over this whole “Lon­don Whale” inci­dent: lov­ing too much. Just because polite soci­ety will nev­er accept man-on-mon­ey love does­n’t make it wrong

    The New York Times
    Octo­ber 16, 2013, 10:25 am
    JPMor­gan to Admit Wrong­do­ing and Pay $100 Mil­lion to Set­tle ‘Lon­don Whale’ Inquiry
    By BEN PROTESS and JESSICA SILVER-GREENBERG

    JPMor­gan Chase has agreed to pay $100 mil­lion and make a ground­break­ing admis­sion of wrong­do­ing to set­tle an inves­ti­ga­tion into mar­ket manip­u­la­tion involv­ing the bank’s multi­bil­lion-dol­lar trad­ing loss in Lon­don, a fed­er­al reg­u­la­tor announced on Wednes­day, under­scor­ing how far the bank was will­ing to go to put the blun­der behind it.

    The reg­u­la­tor, the Com­mod­i­ty Futures Trad­ing Com­mis­sion, took aim at JPMor­gan for trad­ing activ­i­ty that was so large and volu­mi­nous that it vio­lat­ed new rules under the Dodd-Frank Act, the finan­cial reg­u­la­to­ry over­haul passed in response to the finan­cial cri­sis.

    The trad­ing com­mis­sion charged the bank with reck­less­ly “employ­ing a manip­u­la­tive device” in the mar­ket for swaps, finan­cial con­tracts that allowed the bank to bet on the health of com­pa­nies like Amer­i­can Air­lines. The bank sold “a stag­ger­ing vol­ume of these swaps in a con­cen­trat­ed peri­od,” the trad­ing com­mis­sion said.

    ...

    The heart is not a “manip­u­la­tive device”!

    Posted by Pterrafractyl | October 16, 2013, 12:55 pm
  38. Posted by Pterrafractyl | March 16, 2014, 6:31 pm
  39. Here’s a peak at the GOP’s plan for how to han­dle fail­ing Too Big to Fail banks: First, cut the SEC’s bud­get and abil­i­ty to over­see banks and demand that only bank share­hold­ers and cred­i­tors are liable in future bank fail­ures. Then trans­fer the bud­get pow­ers new Con­sumer Finan­cial Pro­tec­tion Bureau to con­gress so it can be sys­tem­at­i­cal­ly under­fund­ed. Then, when the TBTF banks inevitably fail (because con­gress starves the SEC and CFPB of the funds need­ed for mean­ing­ful over­sight ) and lia­bil­i­ties vast­ly exceed what can be extract­ed from the cred­i­tors and share­hold­ers, make sure the FDIC does­n’t have the pow­er to get the Too Big to Fail bailout mon­ey back:

    The Nation
    How Paul Ryan’s Bud­get Paves the Way for Anoth­er Finan­cial Cri­sis
    George Zor­nick on April 2, 2014 — 12:28 PM ET

    Rep­re­sen­ta­tive Paul Ryan released his bud­get blue­print this week, and fans of his work were no doubt pleased: it called for $5 tril­lion in spend­ing cuts over the next decade, focused heav­i­ly on domes­tic, non-mil­i­tary spend­ing. Safe­ty net pro­grams like Med­ic­aid and food stamps would face sav­age cuts, and the Afford­able Health Care Act would be repealed entire­ly. Mean­while, both cor­po­rate and indi­vid­ual tax rates would be low­ered.

    It is easy to make the case that the rich get rich­er and the poor get poor­er under Ryan’s so-called “Path to Pros­per­i­ty” plan: one needs only to look at the lit­er­al­ly tril­lions cut from Med­ic­aid and food stamps while the rich pay much less in tax­es.

    But it’s impor­tant to refine that point and note that the finan­cial sec­tor in par­tic­u­lar gets many spe­cial favors in the Ryan plan. After all, it is one of Ryan’s lead­ing bene­fac­tors and he can even be spot­ted sip­ping $350 bot­tles of wine with indus­try lead­ers from time to time. And his bud­get is no doubt a path to pros­per­i­ty for them.

    More­over, in three cru­cial ways Ryan’s bud­get not only gives Wall Street more lee­way to act reck­less­ly, but makes it more like­ly that aver­age Amer­i­cans face the con­se­quences.

    Cut­ting the Secu­ri­ties and Exchange Com­mis­sion bud­get: Already, the head of the SEC is com­plain­ing that her agency’s bud­get is not near­ly ade­quate to police the country’s mas­sive finan­cial sec­tor. In a speech ear­li­er this year at SEC head­quar­ters, direc­tor Mary Jo White said, “our fund­ing falls sig­nif­i­cant­ly short of the lev­el we need to ful­fill our mis­sion to investors, com­pa­nies and the mar­kets.” The SEC has only 4,200 employ­ees, but must reg­u­late eigh­teen dif­fer­ent stock exchanges and over 25,000 dif­fer­ent mar­ket participants—and the agency’s respon­si­bil­i­ties are grow­ing thanks to new man­dates from the Dodd-Frank finan­cial reform leg­is­la­tion.

    Ryan has a much dif­fer­ent take in his bud­get: he thinks the SEC is just too big. He doesn’t apply a dol­lar fig­ure, but makes it clear the agency’s already mea­ger bud­get should be sub­stan­tial­ly “stream­lined.”

    “In the run-up to the finan­cial cri­sis and its after­math, the SEC repeat­ed­ly failed to ful­fill any part of its mis­sion,” his blue­print notes, tick­ing off a famil­iar list of whiffs, from the unsound nature of Bear Stearns and Lehman Broth­ers to the Ponzi schemes run by Allen Stan­ford and Bernie Mad­off.

    So far, so good. But Ryan goes on: “These fail­ures have tak­en place despite sig­nif­i­cant increas­es in fund­ing at the SEC, which has seen its bud­get increase almost six­ty-six per­cent since 2004.”

    Appar­ent­ly, the extra mon­ey was the prob­lem. “This res­o­lu­tion ques­tions the premise that more fund­ing for the SEC means bet­ter, smarter reg­u­la­tion. Adding reams of reg­u­la­tions to the books and scores of reg­u­la­tors to the pay­rolls will not pro­vide greater trans­paren­cy, con­sumer pro­tec­tion and enforce­ment for increas­ing­ly com­plex mar­kets. Instead, the SEC should stream­line and make more effi­cient its oper­a­tions and resources.”

    In short: since the SEC failed to ade­quate­ly police Wall Street at a time its bud­get was increas­ing, the mag­ic solu­tion would be to cut the agency’s bud­get, because ipso fac­to the agency’s per­for­mance would get bet­ter.

    This line of think­ing would not be unfa­mil­iar to those who fol­low Ryan’s rec­om­men­da­tions for fed­er­al anti-pover­ty pro­grams, and it’s just as wrong here as it is there. As the agency’s direc­tor her­self point­ed out (on sev­er­al dif­fer­ent occa­sions), the SEC plain­ly needs more resources to con­duct bet­ter reg­u­la­tion of a huge finan­cial sec­tor. Ryan pro­vides no evi­dence, aside from that odd log­i­cal twist, that reduc­ing the num­ber of SEC staffers por­ing over fil­ings from hedge funds would some­how increase over­sight of those out­fits.

    Trans­fer­ring the Con­sumer Finan­cial Pro­tec­tion Bureau bud­get to Con­gress: Here Ryan res­ur­rects a long­stand­ing GOP pro­pos­al: that Con­gress, not the Fed­er­al Reserve, should fund the CFPB.

    As it stands now, the bureau’s bud­get is essen­tial­ly guar­an­teed. It can ask the Fed­er­al Reserve for fund­ing up to a cer­tain cap, and that request can­not be denied. The caps are fixed per­cent­ages of the Fed’s oper­at­ing expens­es. This guar­an­tees auton­o­my from a Con­gress where many mem­bers (like, say, Ryan) are elect­ed thanks to cam­paign con­tri­bu­tions from the big finan­cial insti­tu­tions the CFPB polices.

    ...

    CFPB fund­ing would thus be trans­ferred to Con­gress under the Ryan plan, and sub­ject to annu­al appro­pri­a­tions. He doesn’t say what Con­gress should do with that bud­get once its under leg­is­la­tors con­trol, but one needs only to look to his SEC bud­get pro­pos­als to get a sense of what would like­ly hap­pen.

    Ensur­ing Tax­pay­er Bailouts of Big Banks: This is anoth­er up-is-down sit­u­a­tion where a lot of unpack­ing of Ryan’s lan­guage is need­ed. His bud­get says:

    Although the pro­po­nents of Dodd-Frank went to great lengths to denounce bailouts, this law only sus­tains them. The Fed­er­al Deposit Insur­ance Cor­po­ra­tion now has the author­i­ty to access tax­pay­er dol­lars in order to bail out the cred­i­tors of large, ‘‘sys­tem­i­cal­ly sig­nif­i­cant’’ finan­cial insti­tu­tions. This res­o­lu­tion calls for end­ing this regime, now enshrined into law, which paves the way for future bailouts. House Repub­li­cans put forth an enhanced bank­rupt­cy alter­na­tive that—instead of reward­ing cor­po­rate fail­ure with tax­pay­er dollars—would place the respon­si­bil­i­ty for large, fail­ing firms in the hands of the share­hold­ers who own them, the man­agers who run them, and the cred­i­tors who finance them.

    Sounds good! But that would actu­al­ly accom­plish the exact oppo­site.

    Indeed, Dodd-Frank gave the FDIC the pow­er to wind down too-big-to-fail banks, which is called “res­o­lu­tion author­i­ty.” In a cri­sis, if a fail­ing bank is deemed too big for tra­di­tion­al bank­rupt­cy, a pan­el of bank­rupt­cy judges can place it in receiver­ship under the FDIC. That FDIC in turn then makes a plan for wind­ing down the insti­tu­tion safely—something Bar­ney Frank called a “death pan­el” for big banks.

    Cru­cial­ly, under this struc­ture, tax­pay­ers can’t end up pay­ing for this wind down—Dodd-Frank explic­it­ly for­bids it. Any tax­pay­er mon­ey used upfront to ease the firm into bank­rupt­cy would be recouped by a struc­tured sale of the bank’s assets. (Note that Ryan sneak­i­ly says the FDIC has the author­i­ty to “access tax­pay­er dol­lars,” elid­ing the fact that in the end it has to pay them back.)

    Ryan’s alter­na­tive is to end FDIC’s res­o­lu­tion author­i­ty and sim­ply “place the respon­si­bil­i­ty for large, fail­ing firms in the hands of the share­hold­ers who own them, the man­agers who run them, and the cred­i­tors who finance them.”

    That’s akin to just say­ing “it will all work out.” It is unlike­ly in the extreme that the share­hold­ers and man­agers can some­how bail out a fail­ing big bank, espe­cial­ly in a cri­sis. Inevitably, Con­gress and thus tax­pay­ers would have to step in, with­out any of the estab­lished author­i­ty like asset sales that the FDIC now pos­sess­es.

    Ryan’s plan would lead to more tax­pay­er bailouts of fail­ing big banks—and by strip­ping down the bud­gets of the agen­cies meant to over­see those insti­tu­tions, make fail­ure more like­ly in the first place. But in the mean­time, his friends on Wall Street could enjoy less reg­u­la­tion, less over­sight, and more com­fort that tax­pay­ers will some­day come to the res­cue.

    So, if banks aren’t going to have to pay back the bailout pack­ages that exceed the lia­bil­i­ties of the share­hold­ers and cred­i­tors under the Ryan plan, isn’t there an incen­tive, once banks cross a high enough lever­ag­ing thresh­old, for big banks to get as over lever­aged as pos­si­ble? After all, let’s say you had a bank that issues $10 bil­lion in bonds and share­hold­er assets. If that bank implodes and lia­bil­i­ties exceed $10 bil­lion, would the bond hold­ers and share­hold­ers have pre­ferred that the bank had a $30 bil­lion port­fo­lio or a $300 bil­lion port­fo­lio? Would­n’t they pre­fer the big­ger port­fo­lio at that point that was mak­ing mon­ey in the lead up to the melt­down? Why not if the bailout mon­ey nev­er has to be paid back? It’s Too-Rigged-to-Not-Go-Big, isn’t it?

    Posted by Pterrafractyl | April 7, 2014, 2:09 pm
  40. Fight! Fight! Fight!

    Black­Rock, Pim­co sue over bil­lions in mort­gage secu­ri­ties loss­es

    By Karen Freifeld

    NEW YORK, June 18 Wed Jun 18, 2014 8:25pm EDT

    (Reuters) — Insti­tu­tion­al investors includ­ing Black­Rock Inc and Allianz SE’s Pim­co on Wednes­day sued six of the largest bond trustees, accus­ing them of fail­ing to prop­er­ly over­see more than $2 tril­lion in mort­gage-backed secu­ri­ties issued in the run-up to the 2008 finan­cial cri­sis.

    The law­suits, filed in New York state court, claim the trustees breached their duties to investors by fail­ing to force lenders and spon­sors of the secu­ri­ties to repur­chase defec­tive loans, the suits claim.

    The investors are seek­ing dam­ages for loss­es that exceed $250 bil­lion and relate to over 2,200 res­i­den­tial mort­gage-backed secu­ri­ties trusts issued between 2004 and 2008, accord­ing to a per­son famil­iar with the cas­es.

    The trustees that were sued include units of U.S. Bank , Citibank, Deutsche Bank, Wells Far­go & Co., HSBC, and Bank of New York Mel­lon. Rep­re­sen­ta­tives for the banks declined com­ment or did not imme­di­ate­ly respond to requests for com­ment.

    The law­suits come after a New York appeals court rul­ing in Decem­ber that deter­mined the six-year statute of lim­i­ta­tions to bring breach-of-con­tract cas­es against the issuers of mort­gage secu­ri­ties began when the trans­ac­tions were exe­cut­ed. The rul­ing means that for many cas­es it is too late to sue.

    The law­suits claim the trustees dis­re­gard­ed their duties to pro­tect investors despite know­ing that the trusts held a large num­ber of loans that did not meet their con­trac­tu­al oblig­a­tions.

    The trustees were aware of an “indus­try­wide aban­don­ment of under­writ­ing guide­lines” for the loans and “per­va­sive and sys­temic defi­cien­cies infect­ing the trusts’ col­lat­er­al,” as the com­plaint against Citibank says.

    Banks have paid bil­lions of dol­lars in law­suits and set­tle­ments since being accused of pack­ag­ing shod­dy mort­gages into secu­ri­ties that helped lead to the finan­cial cri­sis.
    ...

    It’s great to see the finan­cial giants fight like this since we get to read about things like an “indus­try­wide aban­don­ment of under­writ­ing guide­lines” although you have to won­der what the odds are that Black­Rock and Pim­co weren’t, them­selves, also quite aware of this “indus­try­wide aban­don­ment of under­writ­ing guide­lines” at the time since these two firms are, after all, indus­try giants. Hope­ful­ly we’ll see a “hey, you guys knew this was all crap too” defense. That could be fun.

    Posted by Pterrafractyl | June 18, 2014, 6:05 pm
  41. Not sat­is­fied with its seem­ing­ly impen­e­tra­ble wall of legal pro­tec­tion, JP Mor­gan wants a “safe har­bor” for its ille­gal hir­ing prac­tices. That’s lit­er­al­ly what Jamie Dimon asked for in an inter­view:

    neweconomicperspectives.org
    Jamie Dimon: U.S. Must Cre­ate a “Safe Har­bor” Where JPM’s Cor­rup­tion Is Not “Pun­ished”
    Post­ed on Octo­ber 24, 2014 by William Black

    By William K. Black

    I want to give a hat tip to a recent Wall Street Jour­nal arti­cle that brought to my atten­tion two damn­ing admis­sions by JPMorgan’s (JPM) CEO and Chair­man of the Board, Jamie Dimon. The irony is that Dimon was lulled into mak­ing these admis­sions because he was bask­ing in the per­fect calm cre­at­ed by the con­flu­ence of Sorkin’s and CNBC’s sto­ried syco­phancy at the one place on earth where elite bankers feel most loved, hon­ored, and pro­tect­ed – the annu­al meet­ing of the ultra-wealthy in Davos, Switzer­land. Sorkin was the only inter­view­er, so Dimon faced no risk of tough ques­tions. It may well have been this per­fect set­ting that caused Dimon to let slip the mask and reveal two illus­tra­tive sins of elite bankers report­ed in the WSJ arti­cle.

    “A spokesman for J.P. Mor­gan declined to com­ment on the con­tin­u­ing inves­ti­ga­tions. .Mr. Dimon said in a Jan­u­ary 2014 inter­view on CNBC that it has been a ‘norm of busi­ness for years’ for banks to hire [ex gov­ern­ment offi­cials and the] sons and daugh­ters of com­pa­nies’ [con­trol­ling offi­cers] and to give them ‘prop­er jobs’ with­out vio­lat­ing the law.

    ‘But we got to fig­ure out exact­ly how to cre­ate a safe har­bor for that so you don’t…end up get­ting pun­ished,’ he told the inter­view­er, accord­ing to a CNBC tran­script.”

    Yes, you read that cor­rect­ly. It has been a “norm of busi­ness for years” for multi­na­tion­al cor­po­ra­tions to hire the “sons and daugh­ters of com­pa­nies’ [con­trol­ling offi­cials]” and to hire “ex gov­ern­ment offi­cials” in order to secure the favor of those pow­er­ful offi­cials for the banks. Dimon’s con­cern is that it is essen­tial that firms should be able to con­tin­ue to pur­chase this influ­ence with oth­er elites in this man­ner with no threat of ever “get­ting pun­ished” for buy­ing influ­ence with such pow­er­ful for­eign offi­cials.” JPM’s pri­or­i­ty is “to fig­ure out exact­ly how to cre­ate a safe haven for that.” The elite firms’ “norm of busi­ness for years” is not an admis­sion from Dimon’s per­spec­tive, but rather a claim of right. Any­thing that elite firms have done suc­cess­ful­ly for years to pur­chase influ­ence with oth­er elites (includ­ing hir­ing “ex gov­ern­ment offi­cials”) is obvi­ous­ly some­thing that they have a right to con­tin­ue to do – with total impuni­ty from “get­ting pun­ished.” It’s not bribery, it’s buy­ing influ­ence with pow­er­ful offi­cials who run firms and gov­ern­ment agen­cies and min­istries.

    I prompt­ly found the CNBC inter­view tran­script, and it was such a clas­sic of its genre that one can see how Dimon could let down his guard and make these admis­sions, or as he pre­sent­ed them, legit­i­mate demands on the U.S. gov­ern­ment to cre­ate such a “safe har­bor” for U.S. multi­na­tion­al cor­po­ra­tions.

    ...

    It nev­er dawns on Sorkin dur­ing the inter­view that there might be some­thing des­per­ate­ly wrong about Dimon’s belief that multi­na­tion­al cor­po­ra­tions have the inalien­able right to buy influ­ence through their hires of “ex gov­ern­ment offi­cials” and “Chi­nese princelings” and that the duty of the U.S. gov­ern­ment is to cre­ate a “safe har­bor” for JPM’s offi­cers so that they can be assured that they can freely buy influ­ence with no risk of “get­ting pun­ished.” Their epit­o­me of mer­it-based hir­ing at JPM’s Chi­na oper­a­tions is based on the answer to the col­lo­qui­al ques­tion: “who’s your dad­dy?”

    Beyond the issue of hir­ing Chi­nese “princeling” to get busi­ness, if JP Mor­gan actu­al­ly got its wish for a cor­rupt hir­ing “safe har­bor” pol­i­cy from US author­i­ties you have to won­der how many non-Chi­nese “princelings” around the world would also ben­e­fit from such a safe har­bor pol­i­cy. It seems like it might be a lot.

    Posted by Pterrafractyl | October 27, 2014, 1:17 pm
  42. h gee, imag­ine that: in the midst of a pan­icky last minute attempt to thwart an gov­ern­ment shut­down Wall Street just man­aged to slip in an ear­ly Christ­mas present for them­selves: “The pro­vi­sion enables the big banks once again to use insured deposits and oth­er tax­pay­er sub­si­dies and guar­an­tees to gam­ble in the deriv­a­tives markets—the very type of busi­ness that drove the 2008 finan­cial cri­sis and the eco­nom­ic dev­as­ta­tion that fol­lowed”:

    Forbes
    With Dodd-Frank Roll­back, The Big Bad Banks Are Back

    Steve Den­ning
    12/12/2014 @ 10:46AM
    Around nine o’clock last night, the House passed a mas­sive $1.1 tril­lion spend­ing plan. This action avert­ed a gov­ern­ment shutdown—a good thing. Less good was the fact that the bill also con­tained a pro­vi­sion, said to be writ­ten by Cit­i­group, repeal­ing a key part of the Dodd-Frank Act.

    The pro­vi­sion enables the big banks once again to use insured deposits and oth­er tax­pay­er sub­si­dies and guar­an­tees to gam­ble in the deriv­a­tives markets—the very type of busi­ness that drove the 2008 finan­cial cri­sis and the eco­nom­ic dev­as­ta­tion that fol­lowed.

    The bill now goes to the Sen­ate where it is expect­ed to pass in the com­ing days. After four years of twist­ing arms in Con­gress, Wall Street had final­ly found the per­fect moment to reshape finan­cial regulation—less than three hours before the gov­ern­ment was about to run out of mon­ey.

    Even Oba­ma admin­is­tra­tion offi­cials were forced to work late into the evening lob­by­ing Democ­rats to sup­port the bill, argu­ing that this bill was less bad than any deal than they would get next year when the GOP con­trols both cham­bers of Con­gress. The mea­sure ulti­mate­ly passed 219–206, with 57 Democ­rats sup­port­ing the bill.

    On the sur­face, the House vote was a huge leg­isla­tive vic­to­ry for the big banks.

    “Yet Citi may regret its big vic­to­ry on Capi­tol Hill,” writes by Rob Black­well in the indus­try-friend­ly Amer­i­can Banker. That’s because “in final­ly get­ting what they want­ed, big banks also thrust them­selves back into the lime­light in the worst pos­si­ble way, simul­ta­ne­ous­ly remind­ing the pub­lic of their role in caus­ing the finan­cial cri­sis and in their con­tin­u­ing influ­ence over the var­i­ous levers of the U.S gov­ern­ment. In one fell swoop, they undid what­ev­er recov­ery to their bat­tered rep­u­ta­tion they’d made in the past four years and once again cast them­selves as the pro­to­typ­i­cal supervil­lain in a com­ic book movie.”

    “Wall Street’s deter­mined lob­by­ing on Sec­tion 716 pro­vides com­pelling evi­dence that Wall Street’s busi­ness mod­el depends on the abil­i­ty of large finan­cial con­glom­er­ates to keep exploit­ing the cheap fund­ing pro­vid­ed by their ‘too big to fail’ sub­si­dies,” said Arthur Wilmarth, a pro­fes­sor of law at George Wash­ing­ton Uni­ver­si­ty. “Shame on Con­gress if it allows mega­banks to con­tin­ue to pur­sue the same busi­ness strat­e­gy that brought us the finan­cial cri­sis.”

    “Mak­ing mat­ters poten­tial­ly worse,” writes Rob Black­well, “news reports quick­ly sur­faced that Jamie Dimon, JPMor­gan Chase’s CEO, also per­son­al­ly lob­bied law­mak­ers on the bill. That helped rebut argu­ments by some that the pro­vi­sion wasn’t a big deal to the big banks and that they weren’t lob­by­ing heav­i­ly for it.”

    “On net, Wall St lost this week,” tweet­ed Bri­an Gard­ner, an ana­lyst at Keefe, Bruyette & Woods.

    Wall Street vs The Peo­ple

    As to why Con­gress is act­ing on behalf of the finan­cial sec­tor against the inter­ests of the coun­try as a whole, one doesn’t have to look far. “In the cur­rent elec­tion cycle, Wall Street banks and finan­cial inter­ests have so far report­ed spend­ing more than $1.2 bil­lion to influ­ence deci­sion-mak­ing in Wash­ing­ton, accord­ing to an updat­ed report by Amer­i­cans for Finan­cial Reform. That works out to just under $1.8 mil­lion a day. It rep­re­sents an aver­age of about $2.3 mil­lion spent to elect or influ­ence each of the 535 mem­bers of the Sen­ate and House of Rep­re­sen­ta­tives.”

    ...

    Lest we for­get why we had a finan­cial cri­sis in 2008

    So let’s recap: why did we have a finan­cial cri­sis just a few years ago? The his­to­ry is clear:

    * In 1998, banks got the green light to gam­ble with the repeal of the Glass-Stea­gall leg­is­la­tion
    *Low inter­est rates fueled an appar­ent boom.
    *Asset man­agers sought new ways to make mon­ey in a low inter­est rate envi­ron­ment.
    *The cred­it rat­ing agen­cies gave their bless­ing.
    *Fund man­agers didn’t do their home­work and per­form due dili­gence.
    *Deriv­a­tives were unreg­u­lat­ed.
    *The SEC loos­ened cap­i­tal require­ments.
    *Com­pen­sa­tion schemes encour­aged gam­bling.
    *Wall Street became “cre­ative.”
    *Pri­vate sec­tor lenders fed the demand.
    *Finan­cial gad­gets milked the mar­ket with “inno­v­a­tive” mort­gage prod­ucts.
    *Com­mer­cial banks jumped in.
    *Deriv­a­tives explod­ed uncon­trol­lably.
    *The boom and bust went glob­al.
    *Fan­nie and Fred­die jumped in late in the game to pro­tect their prof­its.
    *It was pri­mar­i­ly pri­vate lenders who relaxed stan­dards.
    The par­al­lels to what’s been hap­pen­ing in the last few years are eerie.

    ...

    Well, the author does make a valid point: This was just shock­ing­ly ‘in your face’ even by Wall Street’s stan­dards. So who knows, maybe this will be a Pyrrhic Vic­to­ry for the banksters.

    But don’t for­get that Wall Street is basi­cal­ly the mas­ter of Pyrrhic Defeats, so you also have to won­der if the US mid term elec­tions did­n’t end up teach­ing Wall Street a very pow­er­ful les­son: A polit­i­cal­ly cyn­i­cal and demor­al­ized US pub­lic prefers to just stay at home rather than vote (because vot­ing “none of the above” is appar­ent­ly too much work to voice your dis­sat­is­fac­tion with the sta­tus quo) and when the vot­ers don’t vote, the oli­garchs win by default. In oth­er words, base on Amer­i­can vot­ing pat­terns, the oli­garchs of the coun­try have an incen­tive to be as open­ly awful as pos­si­ble as long as the awful­ness can be done in a bipar­ti­san man­ner like­ly to demor­al­ize Demo­c­ra­t­ic-lean­ing vot­ers.

    So maybe being extra ‘in your face’ awful is to the banksters’ long-term polit­i­cal advan­tage, at least long as both par­ties get blamed. And what bet­ter way to exe­cute bipar­ti­san awful­ness than dur­ing a giant “Cromin­bus” bill that has to pass in order to pre­vent a gov­ern­ment shut­down?

    And since emer­gency last-minute deal-mak­ing on giant spend­ing bills is pret­ty much the way Con­gress func­tions now it should be hor­ri­fy­ing­ly inter­est­ing to see what kinds oth­er sur­pris­es are hid­ing in the ‘cromin­bus­es’ of the future. Or the present

    Posted by Pterrafractyl | December 12, 2014, 4:10 pm
  43. Revolv­ing doors don’t oil them­selves:

    The New Repub­lic
    Wall Street Pays Bankers to Work in Gov­ern­ment and It Does­n’t Want Any­one to Know

    By David Dayen
    Feb­ru­ary 4, 2015

    Cit­i­group is one of three Wall Street banks attempt­ing to keep hid­den their prac­tice of pay­ing exec­u­tives mul­ti­mil­lion-dol­lar awards for enter­ing gov­ern­ment ser­vice. In let­ters deliv­ered to the Secu­ri­ties and Exchange Com­mis­sion (SEC) over the last month, Citi, Gold­man Sachs and Mor­gan Stan­ley seek exemp­tion from a share­hold­er pro­pos­al, filed by the AFL-CIO labor coali­tion, which would force them to iden­ti­fy all exec­u­tives eli­gi­ble for these finan­cial rewards, and the spe­cif­ic dol­lar amounts at stake. Crit­ics argue these “gold­en para­chutes” ensure more finan­cial insid­ers in pol­i­cy posi­tions and favor­able treat­ment toward Wall Street.

    “As share­hold­ers of these banks, we want to know how much mon­ey we have promised to give away to senior exec­u­tives if they take gov­ern­ment jobs,” said AFL-CIO Pres­i­dent Richard Trum­ka in a state­ment. “It’s a sim­ple ques­tion, but the banks don’t want to answer it. What are they try­ing to hide?”

    The hand­outs recent­ly received atten­tion when Anto­nio Weiss, the for­mer invest­ment banker at Lazard now serv­ing as coun­selor to Trea­sury Sec­re­tary Jack Lew, acknowl­edged in finan­cial dis­clo­sures that he would be paid $21 mil­lion in unvest­ed income and deferred com­pen­sa­tion upon exit­ing the com­pa­ny for a job in gov­ern­ment. Weiss with­drew from con­sid­er­a­tion to become the under­sec­re­tary for domes­tic finance under pres­sure from finan­cial reform­ers, but the coun­selor position—which does not require con­gres­sion­al confirmation—probably still enti­tles him to the $21 mil­lion. The terms of the award are part of a Lazard employ­ee agree­ment that nobody has seen.

    These pay­ments are rou­tine at major banks, sev­er­al of which have explic­it poli­cies, found in fil­ings with the SEC, out­lin­ing auto­mat­ic awards for exec­u­tives who rotate into gov­ern­ment. Gold­man Sachs offers “a lump sum cash pay­ment” for gov­ern­ment ser­vice, for exam­ple.

    Oth­er banks’ poli­cies are sub­tler. Banks often defer cer­tain types of com­pen­sa­tion in order to retain tal­ent. When an exec­u­tive ter­mi­nates employ­ment, unvest­ed stock options and oth­er forms of deferred com­pen­sa­tion are usu­al­ly for­feit­ed. But sev­er­al com­pa­nies let exec­u­tives’ equi­ty options con­tin­ue to vest if they leave for a gov­ern­ment posi­tion, or allow them to keep reten­tion bonus­es that would oth­er­wise be returned to the firm. A 2004 tax law banned accel­er­at­ed pay­ments but made an exemp­tion for employ­ees who leave for gov­ern­ment ser­vice. Crit­ics won­der whether the gifts are intend­ed to fill the gov­ern­ment with friend­ly faces who will act in their for­mer employer’s inter­ests.

    “It fuels the revolv­ing door between banks and the gov­ern­ment,” said Michael Small­berg, an inves­ti­ga­tor for the Project On Gov­ern­ment Over­sight (POGO), whose 22013 report detailed these types of com­pen­sa­tion agree­ments. The aver­age exec­u­tive branch salary is sub­stan­tial­ly less than these mil­lions in awards, so the bonus­es effec­tive­ly sup­ple­ment the low­er pay, rais­ing ques­tions about who the gov­ern­ment offi­cials actu­al­ly work for.

    ...

    While ques­tions about spe­cial Wall Street-to-gov­ern­ment ‘gold­en para­chutes” just are cer­tain­ly impor­tant to ask, it’s also worth point­ing out that, even if there were no gold­en para­chutes at all, you have to ques­tion the wis­dom of hir­ing peo­ple straight out of Wall Street for these posi­tions at all. If you’re try­ing to find the best peo­ple to over­see a noto­ri­ous­ly greed-dri­ven indus­try, why hire some­one that already took the ‘I wants lots of mon­ey and pow­er’ career path in the first place?! Sure, there’s obvi­ous­ly going to be some use­ful tal­ent work­ing in Wall Street, but pre­sum­ably they’re use­ful because they’re dis­gust­ed with how it oper­ates and want to reform it and don’t think all that Wall Street cash is worth the guilt.

    If some­one needs to be basi­cal­ly paid off to work for the gov­ern­ment, how much is their exper­tise real­ly worth even if they’re quite knowl­edge­able? It seems like there are bet­ter tal­ent pools gov­ern­ment agen­cies should be focus­ing on.

    Posted by Pterrafractyl | May 19, 2015, 5:33 pm
  44. Just FYI, Wall Street’s epi­dem­ic of late-onset affluen­za has yet to peak:

    The New York Times
    Many on Wall Street Say It Remains Untamed

    MAY 18, 2015

    Andrew Ross Sorkin

    Wall Street has changed. But per­haps not as much as you would think.

    The past sev­er­al years have been filled with head­line-grab­bing legal set­tle­ments by finan­cial ser­vices firms — $11 bil­lion here, $5 bil­lion there. Most of them involved con­duct that took place before the 2008 cri­sis. Vir­tu­al­ly every major Wall Street firm has pledged to redou­ble its efforts to instill an eth­i­cal cul­ture. And vir­tu­al­ly all the large firms said that if there was bad behav­ior, it is behind them.

    Well, it isn’t.

    A new report on finan­cial pro­fes­sion­als’ views of their indus­try paints a trou­bling pic­ture. Rather than indi­cat­ing that Wall Street has cleaned itself up, it sug­gests that many of the lessons of the cri­sis still haven’t been learned. And the mind-bog­gling set­tle­ment num­bers, as well as strin­gent new rules, like the of Dodd-Frank reg­u­la­to­ry over­haul in 2010, appear to have had lit­tle deter­rent effect.

    In the study, to be released Tues­day, about a third of the peo­ple who said they made more than $500,000 annu­al­ly con­tend that they “have wit­nessed or have first­hand knowl­edge of wrong­do­ing in the work­place.”

    Just as bad: “Near­ly one in five respon­dents feel finan­cial ser­vice pro­fes­sion­als must some­times engage in uneth­i­cal or ille­gal activ­i­ty to be suc­cess­ful in the cur­rent finan­cial envi­ron­ment.”

    One in 10 said they had direct­ly felt pres­sure “to com­pro­mise eth­i­cal stan­dards or vio­late the law.”

    And near­ly half of the high-income earn­ers say law enforce­ment and reg­u­la­to­ry author­i­ties in their coun­try are inef­fec­tive “in detect­ing, inves­ti­gat­ing and pros­e­cut­ing secu­ri­ties vio­la­tions.”

    Two years ago, this col­umn report­ed on an ear­li­er ver­sion of this report. The atti­tudes were con­cern­ing then.

    This year, the Uni­ver­si­ty of Notre Dame — on behalf of the law firm Laba­ton Sucharow — expand­ed its ques­tion­naire to more than 1,200 traders, port­fo­lio man­agers, invest­ment bankers and hedge fund pro­fes­sion­als both in the Unit­ed States and Britain. Its results appear even more note­wor­thy today for the sheer num­ber of indi­vid­u­als who con­tin­ue to say the ethics of the indus­try remain unchanged since the cri­sis (a third said that, by the way).

    Every report has an aster­isk of some sort and this one does, too: Although it was con­duct­ed by Notre Dame and sur­veyed a large num­ber of peo­ple in the indus­try, it was paid for by Laba­ton Sucharow, a firm that often rep­re­sents whis­tle-blow­ers in cas­es against the finan­cial ser­vices firms.

    But if any­thing, the opin­ions expressed demon­strate that despite the very pub­lic cam­paign by the gov­ern­ment to root out bad behav­ior in finance, it remains a prob­lem that still deserves atten­tion, notwith­stand­ing the industry’s protes­ta­tions that it has changed.

    “The pat­tern of bad behav­ior did not end with the finan­cial cri­sis, but con­tin­ued despite the con­sid­er­able pub­lic sec­tor inter­ven­tion that was nec­es­sary to sta­bi­lize the finan­cial sys­tem,” William C. Dud­ley, the pres­i­dent of the Fed­er­al Reserve Bank of New York, said in a speech late last year on Wall Street cul­ture. “I reject the nar­ra­tive that the cur­rent state of affairs is sim­ply the result of the actions of iso­lat­ed rogue traders or a few bad actors with­in these firms.”

    Is there some­thing inher­ent to Wall Street that leads to bad behav­ior?

    Mr. Dud­ley chal­lenged the view that “risk-tak­ers are drawn to finance like they are drawn to For­mu­la One rac­ing.”

    But there is truth to that. Wall Street is a busi­ness of risk-tak­ing and those who seem­ing­ly do it most suc­cess­ful­ly find that edge of the line and get as close to it as pos­si­ble with­out cross­ing it.

    Mr. Dud­ley, how­ev­er, also made the case that “the degree to which an indus­try attracts risk-tak­ers is not pre­or­dained, but reflects the pre­vail­ing incen­tives in the indus­try. After all, risk-tak­ers have options. Sec­ond, and, more impor­tant­ly, incen­tives mat­ter even for risk-tak­ers.”

    If incen­tives are the prob­lem, the per­spec­tives sug­gest a dire sit­u­a­tion. Near­ly one-third of those asked “believe com­pen­sa­tion struc­tures or bonus plans in place at their com­pa­ny could incen­tivize employ­ees to com­pro­mise ethics or vio­late the law.”

    It is unfair to sug­gest the entire indus­try is a den of thieves. In many ways, Wall Street is quite dif­fer­ent than it was before the cri­sis, and for the bet­ter.

    ...

    On vir­tu­al­ly every ques­tion, those in Britain seem to indi­cate that ethics prob­lems could be even more wide­spread there. “Respon­dents from the U.K. are either more will­ing to com­mit a crime they could get away with — or are more frank about it,” the report’s authors write.

    One of the big prob­lems, it seems, is that so few peo­ple in finance are will­ing to speak up and report bad actors, even after the Secu­ri­ties and Exchange Com­mis­sion devel­oped a whis­tle-blow­er pro­gram.

    Many of those asked said they wor­ried “their employ­er would like­ly retal­i­ate if they report­ed wrong­do­ing in the work­place.”

    And quite a few said that they had signed, or been asked to sign, a con­fi­den­tial­i­ty agree­ment that would pro­hib­it them from report­ing ille­gal or uneth­i­cal behav­ior to the author­i­ties.

    Equal­ly dis­turb­ing was that many respon­dents said they would use non­pub­lic infor­ma­tion to make a guar­an­teed $10 mil­lion, if there were no chance of get­ting arrest­ed for insid­er trad­ing. A quar­ter said they would do so. That’s up from two years ago, and it is that atti­tude of “get­ting away with it” that wor­ries many who hope to root out prob­lems in the indus­try.

    “The vast major­i­ty of peo­ple are good and eth­i­cal, but they have become desen­si­tized on Wall Street,” said Jor­dan A. Thomas, a part­ner at Laba­ton Sucharow.

    “The vast major­i­ty of peo­ple are good and eth­i­cal, but they have become desen­si­tized on Wall Street”

    Note that if we’re to take Wall Street’s excus­es seri­ous­ly, that sort of means the rich and pow­er­ful can’t real­ly be trust­ed with their rich­es and pow­er because their inno­cent minds are inevitably going to become infect­ed by the larg­er affluen­za echo-cham­ber they’re oper­at­ing with­in.

    Sure, we often hear about how even if we taxed the rich at 100% you still would­n’t get rid of pover­ty. And while that’s worth debat­ing, it’s impor­tant to keep in mind that heav­i­ly tax­ing the super-rich does­n’t just allow for more mon­ey to help every­one else. It also helps stop the affluen­za-infect­ed indi­vid­u­als from using their rich­es to trash the rest of soci­ety. In oth­er words, tax­ing the rich isn’t just about the redis­tri­b­u­tion of wealth. It’s also about not redis­trib­ut­ing all the hor­ri­ble affluen­za-inspired bad ideas from the rich that inevitably make their way into the halls of pow­er.

    The more mon­ey you have the more con­ta­gious your affluen­za becomes.

    Posted by Pterrafractyl | May 20, 2015, 10:20 am
  45. Ben Bernanke just released a mem­oire which is inevitably going to include some “what should we have done dif­fer­ent­ly?” spec­u­la­tion. Wall Street exec­u­tives prob­a­bly aren’t going to be thrilled to hear his rec­om­men­da­tions for the Jus­tice Depart­ment, but, then again, they should be very excit­ed about the rea­son he has to issue the rec­om­men­da­tion in the first place:

    USA TODAY
    Ben Bernanke: More execs should have gone to jail for caus­ing Great Reces­sion

    Susan Page,
    2:27 p.m. EDT Octo­ber 4, 2015

    WASHINGTON — This sea­son, Ben Bernanke was able to sit through an entire Nation­als game.

    Dur­ing the finan­cial melt­down in 2008, the then-chair­man of the Fed­er­al Reserve would buy a lemon­ade and head to his seats two rows back from the Wash­ing­ton Nation­als dugout, a respite from cri­sis. But often he would find him­self hud­dling in the qui­et of the sta­di­um’s first-aid sta­tion or an emp­ty stair­well for con­sul­ta­tions on his Black­Ber­ry about what­ev­er eco­nom­ic cat­a­stro­phe was loom­ing.

    “I think there was a rea­son­ably good chance that, bar­ring sta­bi­liza­tion of the finan­cial sys­tem, that we could have gone into a 1930s-style depres­sion,” he says now in an inter­view with USA TODAY. “The pan­ic that hit us was enor­mous — I think the worst in U.S. his­to­ry.”

    With pub­li­ca­tion of his mem­oir, The Courage to Act, on Tues­day by W.W. Nor­ton & Co., Bernanke has some thoughts about what went right and what went wrong. For one thing, he says that more cor­po­rate exec­u­tives should have gone to jail for their mis­deeds. The Jus­tice Depart­ment and oth­er law-enforce­ment agen­cies focused on indict­ing or threat­en­ing to indict finan­cial firms, he notes, “but it would have been my pref­er­ence to have more inves­ti­ga­tion of indi­vid­ual action, since obvi­ous­ly every­thing what went wrong or was ille­gal was done by some indi­vid­ual, not by an abstract firm.”

    He also offers a detailed rebut­tal to crit­ics who argue the gov­ern­ment could and should have done more to res­cue Lehman Broth­ers from bank­rupt­cy in the worst week­end of a tumul­tuous time. “We were very, very deter­mined not to let it col­lapse,” he says. “But we were out of bul­lets at that point.”

    Still, he does acknowl­edge some mis­steps by the Fed. Ana­lysts were slow to real­ize just how seri­ous the eco­nom­ic down­turn would become, and he faults him­self for not doing more to explain to Amer­i­cans why it was in their inter­ests to res­cue the finan­cial firms that had helped cause it.

    “Every time I saw a bumper stick­er which said, ‘Where’s my bailout?’ it hurt,” he told Cap­i­tal Down­load.

    ...

    The deci­sion about whether to pros­e­cute indi­vid­u­als was­n’t up to him, he says. “The Fed is not a law-enforce­ment agency,” he says. “The Depart­ment of Jus­tice and oth­ers are respon­si­ble for that, and a lot of their efforts have been to indict or threat­en to indict finan­cial firms. Now a finan­cial firm is of course a legal fic­tion; it’s not a per­son. You can’t put a finan­cial firm in jail.”

    He would have favored more indi­vid­ual account­abil­i­ty. “While you want to do every­thing you can to fix cor­po­ra­tions that have bad cul­tures and encour­age bad behav­ior — and the Fed was very much engaged in doing that — obvi­ous­ly ille­gal acts ulti­mate­ly are done by indi­vid­u­als, not by legal fic­tions.”

    ...

    “While you want to do every­thing you can to fix cor­po­ra­tions that have bad cul­tures and encour­age bad behav­ior — and the Fed was very much engaged in doing that — obvi­ous­ly ille­gal acts ulti­mate­ly are done by indi­vid­u­als, not by legal fic­tions.”
    Cor­po­ra­tions are peo­ple legal fic­tions, and as Bernanke points out, legal fic­tion jus­tice is basi­cal­ly fic­tion­al jus­tice. And you know who agrees: The Jus­tice Depart­ment. Yes, it’s the agency that’s been in charge of actu­al­ly per­pet­u­at­ing the legal fic­tion jus­tice farce, but they now agree it’s far­ci­cal:

    The New York Times
    Finan­cial Cri­sis Cas­es Sput­ter to an End

    White Col­lar Watch
    By Peter J. Hen­ning
    APRIL 20, 2015

    Yogi Berra once said that “it ain’t over ‘til it’s over.” Unlike the final out or win­ning run in a base­ball game, deter­min­ing when cas­es aris­ing from the 2008 finan­cial cri­sis will end is a bit hard­er to dis­cern. But the res­o­lu­tion of two cas­es last week clear­ly indi­cates that enforce­ment actions for con­duct lead­ing up to the cri­sis are pret­ty much done, with no real find­ing of lia­bil­i­ty for vio­la­tions.

    In one case, the Secu­ri­ties and Exchange Com­mis­sion resolved fraud charges against Richard F. Syron, the for­mer chief exec­u­tive of the mort­gage giant Fred­die Mac, and two oth­er senior exec­u­tives relat­ed to state­ments regard­ing the company’s expo­sure to sub­prime mort­gages. The case did not even end with the usu­al set­tle­ment in which the defen­dants nei­ther admit­ted nor denied lia­bil­i­ty. Instead, it con­clud­ed only with an acknowl­edg­ment “that no par­ty is the pre­vail­ing par­ty.”

    In the oth­er case, the New York State attor­ney gen­er­al, Eric T. Schnei­der­man, reached a $10 mil­lion set­tle­ment of account­ing fraud charges against Ernst & Young for its role as the audi­tor for Lehman Broth­ers, whose col­lapse in Sep­tem­ber 2008 in the largest bank­rupt­cy in Amer­i­can his­to­ry ignit­ed the near melt­down of the finan­cial sys­tem. Although Mr. Schnei­der­man assert­ed that the res­o­lu­tion showed that audi­tors can be held account­able for vio­la­tions, Deal­Book report­ed the the account­ing firm’s state­ment that “after many years of cost­ly lit­i­ga­tion, we are pleased to put this mat­ter behind us, with no find­ings of wrong­do­ing by E.Y. or any of its pro­fes­sion­als.”

    Both cas­es took direct aim at con­duct at the cen­ter of the finan­cial cri­sis, and nei­ther yield­ed any­thing close to a find­ing of actu­al wrong­do­ing.

    The S.E.C. dropped its inves­ti­ga­tion into Lehman Broth­ers in 2012 despite an exten­sive report by Anton R. Valukas that con­clud­ed that man­age­ment was aware of account­ing maneu­vers used to make its finances look stronger than they were. No one at the firm ever faced a civ­il action, much less crim­i­nal charges, and the mod­est pay­ment by Ernst & Young looks more like a nui­sance set­tle­ment.

    In addi­tion to the Fred­die Mac defen­dants, three Fan­nie Mae exec­u­tives, includ­ing its for­mer chief exec­u­tive, Daniel H. Mudd, were charged by the S.E.C. in Decem­ber 2011 with the same type of vio­la­tions regard­ing the company’s expo­sure to sub­prime loans. These were among the few cas­es to take aim at the man­age­ment of a top play­er in the sub­prime mort­gage mar­ket for its role in the finan­cial cri­sis.

    The prob­lem the S.E.C. faced in the Fred­die Mac case was that there was no accept­ed def­i­n­i­tion of a sub­prime mort­gage, so prov­ing that Mr. Syron and oth­ers inten­tion­al­ly made mis­state­ments about the effect of those loans on the company’s port­fo­lio was almost impos­si­ble. The case against the Fan­nie Mae defen­dants remains out­stand­ing, but it is unlike­ly the S.E.C. will obtain much more than what it obtained from the Fred­die Mac exec­u­tives, which includ­ed total pay­ments of $350,000 that were cov­ered by the company’s insur­ance pol­i­cy.

    Pros­e­cu­tors have been suc­cess­ful in using a pro­vi­sion of the Finan­cial Insti­tu­tions Reform, Recov­ery and Enforce­ment Act, bet­ter known as Fir­rea, to pur­sue civ­il cas­es against banks for vio­la­tions of the mail and wire fraud statutes for mis­state­ments about sub­prime loans bun­dled into secu­ri­ties that were sold to investors. JPMor­gan Chase, Bank of Amer­i­ca and Cit­i­group all paid multi­bil­lion-dol­lar set­tle­ments for Fir­rea vio­la­tions. The law car­ries a 10-year statute of lim­i­ta­tions, so cas­es from the finan­cial cri­sis remain viable.

    In Feb­ru­ary, Attor­ney Gen­er­al Eric H. Hold­er Jr. said in a speech at the Nation­al Press Club that he had giv­en fed­er­al pros­e­cu­tors 90 days to decide whether to file charges against exec­u­tives for mis­con­duct relat­ed to mort­gage-backed secu­ri­ties. That dead­line is fast approach­ing, and there has been no indi­ca­tion yet that a case will be filed against any indi­vid­u­als.

    Banks have been will­ing to set­tle with hefty pay­ments, but to date only one indi­vid­ual, a for­mer exec­u­tive at Coun­try­wide Finan­cial, has been found liable for a vio­la­tion. Although Fir­rea remains a potent tool, evi­dence from the finan­cial cri­sis is undoubt­ed­ly becom­ing stale because fraud cas­es, unlike fine wine, do not age well.

    Deal­Book report­ed last Novem­ber that pros­e­cu­tors were con­sid­er­ing fil­ing civ­il charges against Ange­lo R. Mozi­lo, Countrywide’s for­mer chief exec­u­tive, but noth­ing has mate­ri­al­ized. Mr. Holder’s 90-day dead­line may push pros­e­cu­tors to file a few cas­es against indi­vid­u­als, but the like­li­hood of any being pur­sued against a top Wall Street exec­u­tive looks to be almost nil.

    For all the bil­lions of dol­lars paid in penal­ties by banks and Wall Street firms, the sense of dis­sat­is­fac­tion with how pros­e­cu­tors inves­ti­gat­ed those involved in the finan­cial cri­sis remains per­va­sive, espe­cial­ly when com­pa­nies enter into mul­ti­ple agree­ments that allow them to avoid charges for repeat­ed mis­con­duct but no indi­vid­u­als are named. The Jus­tice Depart­ment has threat­ened to “tear up” a deferred or non­pros­e­cu­tion agree­ment if a com­pa­ny com­mits addi­tion­al vio­la­tions, but whether that will hap­pen remains to be seen.

    Even that shift drew a rebuke from Sen­a­tor Eliz­a­beth War­ren, who described it in a speech last week as a “timid step.” For cor­po­rate mis­con­duct, she said, “no firm should be allowed to enter into a deferred pros­e­cu­tion or non­pros­e­cu­tion agree­ment if it is already oper­at­ing under such an agree­ment — peri­od.”

    With the era of finan­cial cri­sis cas­es draw­ing to a close, the main les­son the Jus­tice Depart­ment seems to have tak­en away is that the focus should be more on indi­vid­u­als who cause cor­po­ra­tions to engage in mis­con­duct rather than just the orga­ni­za­tions them­selves. In a speech last Fri­day at New York Uni­ver­si­ty, the head of the Jus­tice Department’s crim­i­nal divi­sion, Leslie R. Cald­well, reit­er­at­ed the point that the pri­ma­ry tar­get will be those inside the com­pa­ny who are respon­si­ble for wrong­do­ing.

    Fed­er­al pros­e­cu­tors expect coop­er­a­tion for cor­po­rate mis­con­duct, but self-report­ing will no longer be enough to con­sid­er a com­pa­ny to be coop­er­a­tive. “True coop­er­a­tion, how­ev­er, requires iden­ti­fy­ing the indi­vid­u­als actu­al­ly respon­si­ble for the mis­con­duct — be they exec­u­tives or oth­ers — and the pro­vi­sion of all avail­able facts relat­ing to that mis­con­duct,” Ms. Cald­well said.

    ...

    “With the era of finan­cial cri­sis cas­es draw­ing to a close, the main les­son the Jus­tice Depart­ment seems to have tak­en away is that the focus should be more on indi­vid­u­als who cause cor­po­ra­tions to engage in mis­con­duct rather than just the orga­ni­za­tions them­selves.”

    Posted by Pterrafractyl | October 4, 2015, 7:05 pm
  46. Mega-fines for mega-crimes: It’s just the cost of doing busi­ness:

    Bloomberg Busi­ness
    Deutsche Bank Sets Aside $1.3 Bil­lion, Most­ly for Sub­prime Probe

    Gavin Finch
    Jan­u­ary 28, 2016 — 8:09 AM CST

    * DOJ prob­ing how bank mar­ket­ed mort­gage-backed secu­ri­ties
    * Lit­i­ga­tion cost for 2015 rose 165% to $5.7 bil­lion vs 2014

    Deutsche Bank AG set aside an addi­tion­al 1.2 bil­lion euros ($1.3 bil­lion) in the fourth quar­ter as it pre­pares to resolve a series of long-run­ning reg­u­la­to­ry inves­ti­ga­tions, includ­ing whether it improp­er­ly sold mort­gage-backed secu­ri­ties to investors.

    “We’re work­ing very hard on a num­ber of cas­es where there are signs that we might be able to resolve them rel­a­tive­ly soon,” Chief Exec­u­tive Offi­cer John Cryan told reporters at a press con­fer­ence in Frank­furt. The next two years will “be bur­dened with, sad­ly, either direct costs or more pro­vi­sions,” he said.

    Cryan is bat­tling mul­ti­ple reg­u­la­to­ry inves­ti­ga­tions and ris­ing pub­lic and polit­i­cal oppro­bri­um fol­low­ing a string of scan­dals includ­ing a record fine for manip­u­lat­ing inter­est rates. Author­i­ties are still prob­ing alle­ga­tions of mon­ey laun­der­ing at the firm’s Russ­ian unit, and exam­in­ing what role the bank played in the industry’s manip­u­la­tion of cur­ren­cy exchange rates and pre­cious met­als trad­ing.

    Deutsche Bank is one of sev­er­al Wall Street firms being held to account by the U.S. gov­ern­ment for cre­at­ing and sell­ing sub­prime mort­gage bonds that helped spur the 2008 finan­cial cri­sis.

    Author­i­ties have already penal­ized four of the biggest U.S. banks — JPMor­gan Chase & Co., Bank of Amer­i­ca Corp., Cit­i­group Inc. and Gold­man Sachs Group Inc. — more than $42 bil­lion for mis­rep­re­sent­ing to investors the qual­i­ty of mort­gage loans they secu­ri­tized into risky bonds.

    ‘Mill­stone’

    Cryan said the var­i­ous probes were “a mill­stone around the neck of the bank” after legal charges at Germany’s largest lender more than dou­bled to 5.2 bil­lion euros last year. The firm has now racked up more than 13 bil­lion euros in legal expens­es since 2008, more than any oth­er con­ti­nen­tal Euro­pean insti­tu­tion.

    Deutsche Bank said it set­tled a num­ber of reg­u­la­to­ry inves­ti­ga­tions in the fourth quar­ter. In Novem­ber, it agreed to pay $258 mil­lion to the Fed­er­al Reserve and New York’s Depart­ment of Finan­cial Ser­vices, as well as fire six employ­ees, to resolve a probe into sanc­tions vio­la­tions from 1999 to 2006 for alleged­ly han­dling trans­ac­tions linked to Iran, Libya, Syr­ia, Bur­ma and Sudan.

    The lender said in Octo­ber that its review of Russ­ian trans­ac­tions had turned up vio­la­tions of its inter­nal poli­cies and defi­cien­cies in its anti-mon­ey laun­der­ing con­trols. It told investors that it had increased its lit­i­ga­tion reserves by 1.2 bil­lion euros, main­ly to cov­er pos­si­ble lia­bil­i­ties relat­ed to its Russ­ian oper­a­tion.

    The firm has shut much of its Moscow oper­a­tion and has tak­en dis­ci­pli­nary action against the indi­vid­u­als involved. In Novem­ber, the bank said it would stop accept­ing new cus­tomers in loca­tions with high-risk rat­ings while it reviews how it vets account hold­ers.

    ...

    “Cryan said the var­i­ous probes were “a mill­stone around the neck of the bank” after legal charges at Germany’s largest lender more than dou­bled to 5.2 bil­lion euros last year. The firm has now racked up more than 13 bil­lion euros in legal expens­es since 2008, more than any oth­er con­ti­nen­tal Euro­pean insti­tu­tion.”
    Note that these kind of “mill­stones” dou­ble as a US tax write-off. Again, it’s just a busi­ness expense.

    And in relat­ed news, guess which large bank has a new sub­prime auto loan probe to start sav­ing up for...

    Posted by Pterrafractyl | January 28, 2016, 9:13 am

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