The nation’s small banks, as the conventional wisdom has it, were victims of a financial crisis brought on by greed and excess on Wall Street, but the small bank-TARP recipients that are likely to generate big taxpayer losses.
Goldman Case a Win for SEC
July 16, 2010 By
At first blush, the SEC’s settlement with Goldman Sachs over fraud charges looked like a victory for the bank
What’s in Financial Reform Bill? Most Americans Don’t Know
July 15, 2010 By
The broadest overhaul of US financial rules since the Great Depression won final approval in the Senate on Thursday. Yet over 70% of Americans know nothing about the legislation.
Grading The Bill: WSJ.com
July 15, 2010 By
Economists and other prominent members of the financial community gave the overhaul legislation mixed reviews
Goldman Shares Up: SEC To Make ‘Significant Announcement’
July 15, 2010 By
Shares of Goldman Sachs Group Inc. (GS) climbed 4% late Thursday after the U.S. Securities and Exchange Commission announced it intends to make a “significant announcement” at 4:45 p.m. EDT.
Devil in the Details: Do Banks Really Need $221 Billion of New Capital?
February 17, 2010 By 3 Comments
Today’s NYT Dealbook headline reads (underlines added for emphasis):
Top banks will need an extra $221 billion of capital and see annual profits slump by $110 billion if all proposed regulations to reform the industry are brought in, leading analysts said on Wednesday, Reuters reported.
If all the initiatives from regulators are implemented it would cut the average return on equity to 5.4 percent from 13.3 percent next year, hurt economic growth and raise costs for bank services, JPMorgan analysts warned, according to the news service.
Defusing “Financial Weapons of Mass Destruction”
February 15, 2010 By 2 Comments
In 2002 Warren Buffett wrote that in his view, credit derivatives were financial weapons of mass destruction (“FWMDs”). He made the comment while explaining to shareholders why he was unwinding a Berkshire Hathaway subsidiary dealing in them, and few outside of the value investor community paid much heed.
Eight years later we could be singing a different tune in both the media and Congress. After all, we’ve had a financial crisis, $23.7 trillion of potential government financial backstops and a “Great Recession” that were all exacerbated and partially caused by a FWMD explosion. With some notable exceptions however we haven’t changed enough, and these contracts remain poorly understood even as the markets have evolved beyond the levels for which Mr. Buffett first expressed concern.
Where Elizabeth Warren Got It Wrong
February 9, 2010 By 8 Comments
I adore Elizabeth Warren and consider her one of the more courageous policy leaders in Washington today. Her simple, prescient toaster metaphors of 2007 (which I’ve previously mentioned) were brilliant.
However, in her most recent Wall Street Journal Op-Ed, “Wall Street’s Race to the Bottom,” I believe Professor Warren makes unfortunate leaps that weaken her purpose and give credence (if not, outright strength) to the destructive ongoing debate around financial regulation. This debate continues to paralyze our political system, change nothing about the underlying causes of the crisis and offend just about everyone. As American citizens we need to hold our elected officials accountable to get something done now, or history is bound to repeat itself.
The Retro-Reacta-Tax: Lamenting Poor Term Sheets
January 15, 2010 By Leave a Comment
When $23.7 trillion in government programs were variously created to provide direct (and indirect) support to the financial system it seems everyone involved either conveniently forgot or didn’t know that firms lay aside 50%+ of revenue for compensation as standard operating procedure. If the goal was to allow banks to “earn” their way out of cataclysmic loss rather than to forcibly unwind them, the synthetic creation of bank revenue would lead to only one possibility with regards industry bonuses.
An Adversarial Relationship…The Missing Ingredient?
December 23, 2009 By 7 Comments
It is neither controversial that mistakes were made leading into the crisis nor that the Fed bears much responsibility. That said, I’m unclear the institution (or Bernanke) deserve such aggression as demonstrated in this article.
Instead of focusing on the Chairman, I’d like to see more interest in the system-wide incentives that drive the current structure. Arguably, almost anyone could have been chairman and the results would have been the same (or far worse).
Polifinancial Forecasting
December 23, 2009 By 2 Comments
As Mark Thoma notes, when the original 3rd quarter growth was announced, the BEA headline figure of 3.5% GDP was big news because it represented a reasonable growth recovery stage. One direct policy implication of this was it took wind from the sails of secondary fiscal stimulus.
Two revisions later — first down to 2.8% and yesterday to 2.2% — and things don’t look nearly as rosy. I wholeheartedly agree that policymakers need better forecasting tools; there were other private sector analysts with better forecasts even without the benefit of government data.
Strategic Default vs Corporate Fiduciary Responsibility
December 21, 2009 By 9 Comments
Elizabeth Warren has a fondness for exploding toasters that she’s been arguing since at least 2007:
It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time.
Predictions for 2010
December 21, 2009 By Leave a Comment
For anyone interested in risk analytics of the banking system, The Institutional Risk Analyst is a useful resource. Chris Whalen (a regular on my favorite Bloomberg podcasts with Tom Keene) is worth following in particular.
Today, the group released its high level predictions for 2010. They suggest:
- We are officially in a “post real estate boom phase” and shedding exposure is a tactical necessity (Whitney Tilson at T2 Partners argues similar points and is one of smartest investors I know on the subject).
- The US banking industry will continue to shrink but hit its peak loss rates during the upcoming year.
FDIC Busy Bees
December 19, 2009 By Leave a Comment
Mish commentary on bank failures:
Seven Banks Fail, 140 YTD total, Sheila Bair “prepared to handle an ever-larger number of bank failures next year”
A total of 140 banks have failed year to date and FDIC Chairman Sheila Bair is adding staff, prepared for even more failures next year.
Please consider Seven U.S. Banks Are Seized, Raising Year’s Failure Toll to 140
Seven U.S. banks were seized by regulators today, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns.
Congress and Swiss Cheese Legislation
December 10, 2009 By Leave a Comment
Lobbying has long been a sore point for politics and unfortunately the activity does reflect a conflicting agenda vis-à-vis taxpayers on occasion. This is probably one of those times.
OTC derivatives are ground zero that led to the cascading bilateral counterparty collapse of 2008.
$344 Million Buys A Lot Of Loopholes
The world financial system nearly melted down in 2008. This was a result of the interlocking web of exposures between major financial institutions caused by the unregulated and completely opaque over-the-counter (OTC) derivatives market. The U.S. taxpayer was forced to pledge nearly $24 trillion in cash and loan guarantees to avert financial Armageddon. That amounts to approximately $200,000 for every household in America!
Jason Paez (