Category: Bailouts

Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms

Washington post | Thursday, December 2, 2010 | 12:15 AM

The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.

The Fed’s efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household name companies such as Verizon, Harley-Davidson and Toyota. The central bank’s aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.

The biggest users of the Fed lending programs were some of the world’s largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain’s Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation. The data reveal banks turning to the Fed for help almost daily in the fall of 2008 as the central bank lowered lending standards and extended relief to all kinds of institutions it had never assisted before.

Fed officials emphasize that their actions were meant to stabilize a financial system that was on the verge of collapse in late 2008. They note that the actions worked to prevent a complete financial meltdown and that none of the special lending programs has lost money. (Some have recorded healthy profits for taxpayers.) But the extent of the lending to major banks – and the generous terms of some of those deals – heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion in U.S. bonds.

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Big Firm Bonuses Back to pre-Crisis Level

Article first published as Big Firm Bonuses Back to pre-Crisis Level on Technorati.

Violent Greek protests Bonuses to executive directors are back to pre-crisis level in the U.K. Though pace of increases is slowed, the levels of payment have reached almost pre-crisis level. A business advisory firm Deloitte conducted a survey to find the developments occurred in pays and bonuses after the crisis. The survey revealed that pay increases for the executives might be history for now. The BBC News quoted Stephen Cahill of Deloitte as saying, “Last year we saw a very large number of companies freezing executive salaries, but at the time it was difficult to predict whether this was a one-off. Now it appears that the years of executive salaries increasing at rates far in excess of inflation and the increase in average earnings are, at least for the moment, well and truly over.”

Toppers at Top

The survey found that the average bonuses for executive directors of FTSE 100 companies were equal to 100% of their basic salary for the year. It said the top 30 companies increased the bonuses to their executives by 140%. Coming to mid-sized FTSE 250 companies, one in Seven paid no bonus to their bosses. For the present year also the difference between the trends of bonuses in FTSE 100 and FTSE 250 companies are expected to continue. While for the bosses of FTSE 100 companies, the bonuses are expected to be greater than the last year in the present year; they would be lower for FTSE 250 companies.

Bonus vs. Austerity

While European Countries are burdened with high levels of debts and deficits and their governments are already on the path of aggressive austerity measures and spending cuts, trade unions or giving warning signals that the workers’ pay

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Top German banker found guilty of market manipulation

Deutsche Welle | 14.07.2010

The former chief of German bank IKB has been found guilty of market manipulation and given a 10-month suspended sentence. He was also given a hefty fine for misstating investment risks. The former head of German lender IKB Deutsche Industriebank, Stefan Ortseifen, was found guilty on Wednesday of manipulating the bank’s share price at the start of subprime crisis. He was given a 10-month suspended sentence. Ortseifen, who took up a position on the IKB board of directors in 1994, was also fined 100,000 euros ($127,000), which must be paid to charities.

"Ortseifen wanted to manipulate IKB’s share price, that was his goal," said prosecutor Nils Bussee. "He wanted to make the impression that, when it comes to subprime risks, everything was fine." The prosecution had argued that Ortseifen intentionally tried to raise the share price of his company by misstating the effect the US subprime mortgage crisis had had on IKB. The bank deals mainly with small and medium-sized businesses. Prosecutors had sought a 10-month sentence during the case brought before Duesseldorf District Court.  

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Obama signs sweeping Wall Street overhaul into law

Reuters | Thu Jul 22, 2010 | 2:29am IST

President Barack Obama signed into law on Wednesday the most comprehensive financial regulatory overhaul since the Great Depression, vowing to stop risky behavior on Wall Street that imperiled the U.S. economy. Influential business groups lined up to criticize the new law, underscoring Obama’s uneasy relationship with America’s business community. Some on Wall Street, however, welcomed the clarity offered by the law after months of wrangling in Congress over what should be in the legislation. The law, which got final approval from the Senate last week, targets the kind of Wall Street risk-taking that helped trigger a global financial meltdown in 2007-2009 and also aims to strengthen consumer protections. Obama, facing voter unrest over Wall Street bailouts that have failed to spark a strong Main Street job recovery, pledged taxpayers would never again have to pump billions of dollars into failing firms to protect the economy. "There will be no more taxpayer-funded bailouts. Period" said Obama.

With Republicans poised to make gains in the November congressional elections, Obama’s Democrats are eager to show voters that they have taken steps to tame an industry that dragged the economy into its deepest recession in 70 years. Obama and Democrats have yet to gain political traction from the legislative victory, with Americans still anxious about a 9.5 percent jobless rate and ballooning deficits. The financial regulatory reforms were a major achievement for Obama and his ambitious domestic agenda. Earlier this year he signed into law sweeping reforms of the United States’ $2.5 trillion healthcare system. The financial reforms won Democrats few friends on Wall Street. Wealthy donors have started to steer more campaign contributions to Republicans, who voted overwhelmingly against the reforms.

"UNSCRUPULOUS LENDERS"

Obama had harsh words for "unscrupulous" lenders and others he said had taken risks that endangered the economy. He said the new law was aimed at curbing abuses and excesses on Wall Street and stopping taxpayer bailouts of failing companies. The law would provide certainty "to everybody from bankers to farmers to business owners. And unless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform," Obama said. The U.S. Chamber of Commerce, an influential business group that often  

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Criminal probe targets 6 Wall Street firms – source

Reuters | Fri May 14, 2010 | 7:19am IST

Wall Street subway stop sign U.S. prosecutors are conducting a broad criminal investigation of six major Wall Street banks, including JPMorgan Chase & Co and Citigroup Inc, to determine if they misled investors, a person familiar with the matter said on Thursday. The others are Deutsche Bank AG, UBS AG, Morgan Stanley and Goldman Sachs Group Inc, the source said. The investigation, being conducted with the Securities and Exchange Commission, comes as Wall Street and major banks around the world are attracting scrutiny from regulators who are looking at transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis. The source said the investigation includes mortgage-bond deals, that it is in an early stage, and that it might not necessarily lead to criminal charges against all of the firms. The person spoke anonymously because the probe is ongoing.

Separately, New York authorities opened an investigation into whether eight banks, including Citigroup, Goldman Sachs and Morgan Stanley, misled rating agencies with regard to mortgage-derivative deals, a separate source familiar with the matter said on Thursday. New York Attorney General Andrew Cuomo’s office served subpoenas on Wednesday to four U.S. banks and four European lenders, the source said. Cuomo is also targeting Credit Agricole SA, Credit Suisse Groupe AG, Deutsche Bank, UBS and Merrill Lynch, now owned by Bank of America Corp, the second source said. The companies that rated the mortgage deals were McGraw-Hill Cos Inc’s Standard & Poor’s, Fitch Ratings, majority-owned by Fimalac, and Moody’s Investors Service, a unit of Moody’s Corp.  

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Germany backs euro package as markets sober up

Reuters | Tue May 11, 2010 | 4:15pm IST

Germany’s cabinet approved the biggest national contribution to a $1 trillion emergency rescue package intended to stabilise the euro as global markets sobered up after Monday’s euphoria. Relief at the European Union’s bold move to restore investor confidence gave way on Tuesday to doubts about whether weaker euro zone economies can meet their part of the bargain and deliver drastic debt cuts, driving the euro and stocks lower. The 16-nation single currency, which surged above $1.30 early on Monday, slipped below $1.27 as traders weighed debt worries and a perceived blow to the European Central Bank’s independence in its weekend policy reversal to start buying euro zone government bonds. The emergency plan — the biggest since G20 leaders threw money at the global economy following the collapse of Lehman Brothers in 2008 — wowed markets with its sheer size and sparked a spectacular rally in world stocks and the euro.

Yet stock and bond markets turned cautious when they reopened for business in Asia and Europe on Tuesday, with investors concerned that the plan was not a long-term solution to problems plaguing the 11-year old single currency area. EU Economic and Monetary Affairs Commissioner Olli Rehn raised pressure on Italy, which has the euro zone’s highest debt after Greece as a proportion of national output, and France, which has a heavy structural budget deficit, to do more quickly to improve their public finances. Wasting no time after having been accused for months of procrastination, German Chancellor Angela Merkel secured cabinet backing for a share of 123 billion euros in loan guarantees, which could be exceeded by up to 20 percent if parliament’s budget committee approves, government sources said.    

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Finnish PM: no economy safe if crisis not contained

Reuters | Sat May 8, 2010 | 4:39am EDT

The euro zone is facing its worst crisis and, if the crisis sparked by Greece is not solved, there is a risk of a new recession, Finnish Prime Minister Matti Vanhanen said on Saturday. "If the domino effect begins, no economy is safe," Vanhanen told national Finnish broadcaster YLE in an interview. "No one has a model from history for how the euro zone or the EU should act now. We are doing this with our best knowledge and consideration." But Vanhanen said efforts now under way would ensure the common currency will not collapse. "Actions are being taken in such a way that there is no fear of this," he said.

Euro zone leaders agreed on Friday that they would have special measures ready before financial markets open on Monday to prevent financial turmoil in Greece spreading to other countries such as Spain and Portugal. The leaders of the 16 countries that use the single currency said after talks with the European Central Bank and the executive European Commission that they were ready to take whatever steps were needed to protect the stability of the euro area. "Surely not it is not in the interest of markets that this situation should drift into chaos," Vanhanen said.