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

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. [1] (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

Lis­ten:
MP3 One Seg­ment [2]


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 [3] 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 [4] 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).

The rev­e­la­tions con­cern­ing the Fed’s actions are of spe­cial con­cern because Deutsche Bank chief Josef Ack­er­mann has warned [5] 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 [6] for a bil­lion dol­lars over their role in the sub­prime cri­sis.

War­ren Buf­fett has echoed the sen­ti­ment [7] 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 [8] to shore up the finan­cial indus­try are inad­e­quate to pre­vent anoth­er melt­down; the dry­ing up of short-term lend­ing [9] for Euro­pean banks; Euro­pean banks have a great deal of red ink [10] on their banks; the fact that junk bond yields [11] are at an all-time low; the lend­ing of mon­ey to the failed Wachovia Bank (focal point of FTR #740 [12]).

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 [13] and Dex­ia Cred­it of Bel­gium [14] — 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. [3]

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. [4]

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 [6] 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. [5]

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. [7]

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