Category: financialization
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.
Goldman Faces ‘Near Record’ U.K. Fine
Market Watch | 08/09/2010 | 04:50 PM ED
Goldman Sachs faces a large fine from the U.K.’s financial regulator related to its business practices in London, according to a Financial Times report published late Wednesday. Citing unidentified sources, the report says the fine from the Financial Services Authority (FSA) will be "near-record." The FSA’s largest-ever fine came three months ago, when JPMorgan Chase paid £33.3 for failing to hold its clients’ money in separate accounts.
The fine, which the report states could be announced as early as Thursday morning, is the result of a five month investigation announced four days after the Securities and Exchange Commission charged Goldman with civil fraud related to Abacus, a complex debt instrument it sold. Goldman settled that case for $550 million.
Job Crisis: Machines Over Manpower
Bloomberg Businessweek | July 29, 2010 | 5:00PM EST
The recession, economists say, technically ended in mid-2009. A year later the unemployment rate is still stuck above 9 percent, and it may take until 2012 for it to reach 8 percent, according to a survey of economists by Bloomberg News. The general explanation for this stubbornly high rate is that companies face an unprecedented era of uncertainty, with questions on the impact of health-care reform, the strength of the real estate market, and the cost of financial regulations all remaining unanswered. Until companies get clarity, they will be reluctant to hire new full-time employees.The job crisis could be seen another way: as a continuation of a trend that started 20 years ago. Before 1990, recessions in the U.S. followed a similar pattern. The downturn would end, and companies would start adding jobs in a little more than two months, according to the National Bureau of Economic Research. In 1990-91 hiring began outpacing firing three months after the end of the recession. It took seven months after the 2001 recession’s technical end before hiring trends turned positive, and 27 months before companies hired in large enough numbers to cut seriously into unemployment. This time the lag is even longer.Economist Allen Sinai, who runs the consulting firm Decision Economics, has an explanation for this emerging pattern. He sees the capital-labor ratio—total capital invested as a percentage of hours worked—as the key to the puzzle. Capital spending boosts productivity and, in the short run at least, often eliminates the need for extra workers on the factory floor or in the office. Continue reading
Goldman Sachs Lost Money on 10 Days in Second Quarter
Bloomberg News | Aug 9, 2010 | 4:02 PM GMT+0530 document.write(dateFormat(new Date(1281349941000),”mmm d, yyyy h:MM TT Z”));
Goldman Sachs Group Inc., the bank that makes the most revenue trading stocks and bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak of loss-free days at the start of the year. Losses on Goldman Sachs’s trading desks exceeded $100 million on three days during the period that ended on June 30, according to a filing today by the New York-based company with the U.S. Securities and Exchange Commission. The firm also disclosed that trading losses surpassed its value-at-risk estimate, a measure of potential losses, on two days.
Trading results across Wall Street firms declined after Goldman Sachs and its biggest rivals posted perfect results, with no losing days, in the first quarter. Goldman Sachs’s $5.61 billion in second-quarter trading revenue exceeded all of its Wall Street competitors. The bank, overseen by Chairman and Chief Executive Officer Lloyd Blankfein, relied on trading for 71 percent of its revenue in the first half of the year, down from 80 percent a year earlier. Today’s filing also shows that the firm’s traders generated more than $100 million on 17 days during the quarter. Of the 65 days in the quarter, Goldman Sachs traders made money on 55 days, or 85 percent of the time. Continue reading
Fed May `Ease’ Policy at Next Meeting Aug. 10, Primary Dealer Nomura Says
Bloomberg | Jul 31, 2010 | 2:29 AM GMT+0530
Nomura Holdings Inc., one of the 18 primary dealers that trade with the Federal Reserve, said policy makers will “ease” at their Aug. 10 meeting, though what form it takes is debatable. Central bankers may change the language of their policy statement to signal that the Fed’s balance sheet will remain expanded and change policy on the mortgage program to start reinvesting paydowns, the firm said in a note to clients today. There is also a chance of other actions, such as a cut in the rate on excess reserves, Nomura’s global economics team said. Nomura changed its viewpoint because of a softening of the comments from policy makers such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard. The firm also cited the Fed’s downward revision for growth and the slack in the economy that threatens to push inflation to an unacceptably low level for Fed Chairman Ben S. Bernanke.
“Easing is going to be very seriously considered given several months of disappointing data and the very dovish tone of public commentary across the spectrum,” said Zach Pandl, an economist at Nomura Securities International in New York. “If the Fed is averse to buying more assets, then cutting the rates of interest on reserves could be the next option.” Bullard said yesterday that the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.
Recession in U.S. Was Even Worse Than Estimated, Revisions Show
Bloomberg | Jul 30, 2010 | 10:07 PM GMT+0530
The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to revised figures. The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942. “We do tend to get bigger revisions at turning points in the economy,” Steven Landefeld, director of the Commerce Department’s Bureau of Economic Analysis, said in a press conference this week. On the more positive side, “in the past, we’ve tended to undershoot the recovery” as well, he said.
The data better explain why the jobless rate doubled, reaching a 26-year high of 10.1 percent in October, and has been slow to subside. The government also boosted personal income levels for each of the past three years, propelling the savings rate higher and signaling households are further along the process of repairing finances. The rebound from the recession has been more subdued in the last six months of 2009, as the economy grew at an average 3.3 annual pace from July 2009 through December, instead of the 3.9 percent previously projected. By comparison, growth averaged 7.2 percent in the two quarters following the 1981-82 recession, during which the economy contracted just 2.9 percent.
Lehman Collapse
The worst quarter of the current economic slump is now the final three months of 2008, in the immediate aftermath of the collapse of Lehman Brothers Holdings Inc., rather than the first quarter of 2009. GDP shrank at a 6.8 percent pace from October to December 2008, exceeding the prior estimate of 5.4 percent, making it the deepest quarterly drop since 1980. The new data showed the peak of the last expansion occurred in the fourth quarter of 2007 rather than the second quarter of 2008. The figures are more in sync with the recession chronology prescribed by the National Bureau of Economic Research, the accepted arbiter of U.S. business cycles. The Cambridge, Massachusetts-based private group determined the slump began in December 2007, and has yet to announce when it ended. Consumer purchases, which account for 70 percent of the economy, were cut for each of the past three years, with the biggest reduction taking place last year. Less spending on services than previously estimated, including financial services and auto repair, was responsible for the change.
UK interest rates to stay at record low ‘until 2014’
BBC News | 25 July 2010 | 15:47 GMT
The Bank of England will have to keep interest rates at their record low of 0.5% until 2014, a leading economic forecaster has said. The Ernst & Young Item Club said rates would need to be kept low to counter-balance the government’s spending cuts. "A base rate of 0.5% will begin to look like the new normal," Professor Peter Spencer from the Item Club said.
The Office for Budget Responsibility (OBR) has said that it expects rates to start to rise next year. Interest rates have stood at 0.5% since March 2009. "The new coalition’s plans to cut the deficit are certainly ambitious," said Prof Spencer. "On the assumption that the government is able to implement the overall reduction of £40bn set out in the Budget, we expect that UK growth will struggle to reach 1% this year but will gradually speed up in the following years to give the UK a high-quality recovery based on trade and investment."
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
Goldman settles with SEC for $550 mln; shares surge
Reuters | Fri Jul 16, 2010 | 6:07am IST
Goldman Sachs Group Inc agreed to pay $550 million to settle civil fraud charges over how it marketed a subprime mortgage product, ending months of negotiations that rattled the bank’s clients and investors. The U.S. Securities and Exchange Commission said the penalty was the largest ever for a financial institution, and leaves the door open for future civil suits. But many investors viewed the $550 million settlement as a slap on the wrist for a bank that earned more than $13 billion last year. "They pay $550 million and they get an $800 million pop in their stock price … they got off easy," said Kevin Caron, a market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey. The company’s shares later rose further, bringing the total gain in Goldman’s market value on Thursday to about $6.6 billion. In the months after the SEC pressed charges on April 16, Goldman’s market value fell by more than $25 billion.
Goldman, which regretted failing to disclose information in marketing materials, agreed to require two internal committees to vet complex deals linked to residential mortgages. It also agreed to run by its legal or compliance department all marketing materials used in connection with mortgage securities offerings. And even if the monetary impact is relatively slight, it has been a black eye for a bank that takes pride in its reputation. In some quarters, Goldman has come to epitomize the sins of Wall Street in general, with a "Rolling Stone" article last year famously calling it a "great vampire squid wrapped around the face of humanity." The lawsuit forced Goldman executives to go into overdrive meeting with clients to reassure them about the overall health of the firm.
Major clients have generally stuck with Goldman, although some customers with large public profiles have been more cautious in working with the firm recently. And some investors and former employees have speculated that Goldman Chief Executive Lloyd Blankfein’s days at the helm could be numbered. The settlement came just days before Goldman had been due to issue an answer to the SEC charges and post quarterly results. A Goldman Sachs employee stepping outside of the firm’s downtown Manhattan headquarters for a cigarette Thursday afternoon said he was "pleasantly surprised that it didn’t drag on longer," and added that people inside the firm were relieved the suit was over.
EU fails to reach deal on financial supervision
Reuters | Wed Jul 14, 2010 | 9:09pm IST
Efforts to clinch a deal on the way banks, insurers and markets in the European Union are supervised failed on Wednesday and talks will resume in late August or early September. The talks on creating pan-European authorities to prevent any repetition of the financial crisis are deadlocked because of differences between EU governments and the European Parliament over how much power the new supervisors will have. "We are getting closer to the finish line but there is still some way to go. A dynamic and balanced deal is now in reach," EU Internal Market Commissioner Michel Barnier said in a statement to Reuters. A European Parliament source said: "Talks have not led to an agreement this morning. Negotiations have now been postponed until the end of August, early September."
Despite the delay, the parliament could still vote on the supervision package in September and the new institutions could still become operational next year as planned. Some European diplomats had hoped a deal would be reached this week after EU finance ministers agreed on Tuesday to offer concessions to the parliament, which is pushing for a more centralised approach to supervising the financial sector. But although differences were narrowed at talks on Wednesday, the parliament’s negotiators decided the offer was not sufficient. "The feeling is that the Council (EU governments) still should move one or two steps in the direction of the parliament," said an official from the executive European Commission, which is trying to broker a compromise.
Goldman Sachs faces Brazil police probe – report
Reuters | Tue Jul 13, 2010 | 7:09pm IST
Brazil’s federal police are investigating Goldman Sachs Group Inc. for the alleged use of insider information in the takeover of pulp company Ripasa by rival Suzano Celulose in 2004, Brazilian newspaper Valor Economico reported on Tuesday. Goldman, the most profitable securities firm in Wall Street history, advised some of the families selling their stakes in Ripasa, Valor said. The case could be examined in civil court, it said, without elaborating. Currently, Brazilian courts are investigating two insider trading cases, Valor reported. Goldman declined to comment on the Valor story.
Suzano and rival VCP — today part of Fibria — bought all shares of Ripasa in late 2004. The police say Goldman traders sold Suzano shares between September and October 2004 before the disclosure of the Ripasa deal in November of that year, Valor reported. This allowed Goldman to avoid about $141,000 in trading losses, the newspaper said. Often the stock price of an acquiring company falls when a takeover is announced. The federal police declined to comment on the Valor story. Suzano said through a spokeswoman that it would not comment on the report.
Goldman sued by Liberty Mutual over Fannie stock
Reuters | Yahoo | Sat, Jul 2010 | 02:12 AM
Goldman Sachs Group Inc was sued by Liberty Mutual Insurance Co, which accused the Wall Street bank of fraudulently misleading it into buying preferred stock of mortgage financier Fannie Mae that would become "virtually worthless." In a lawsuit filed Thursday in Boston federal court, Liberty Mutual said it deserves to be reimbursed for losses on the $62.5 million of Fannie Mae preferred stock it had bought in late 2007 through offerings underwritten by Goldman. Liberty Mutual, one of the nation’s largest insurers, said Goldman knew of "significant problems" in subprime and other risky mortgages in late 2006 and throughout 2007, and generated large profits for itself by betting against the market. It also said Goldman falsely stated that the purpose of the offerings was to let Fannie Mae raise excess capital, when in fact Fannie Mae "was severely undercapitalized" and needed to raise money to stay in business.
"As a knowledgeable and sophisticated investor in the U.S. real estate financial markets, and with access to Fannie Mae’s financial records, Goldman Sachs knew or recklessly disregarded the actual status of Fannie Mae’s capital structure," Boston-based Liberty Mutual said. "As a result of plaintiffs’ reliance on Goldman Sachs’ material misrepresentations, plaintiffs’ investments are virtually worthless." The U.S. Treasury Department in September 2008 effectively nationalized Fannie Mae and Freddie Mac, which together owned or guaranteed nearly half of all U.S. mortgages, by putting them into a conservatorship. Preferred stock investors, including many large banks, suffered losses because the bailout ended dividend payouts and included the issuance to the government of new preferred shares that were senior to the existing preferred stock. "We think the suit is entirely without merit and we will contest it vigorously," a Goldman spokesman said in an e-mail.
Media chieftains still gloomy on U.S. economy
Reuters | Fri Jul 9, 2010 | 3:30am IST
Media executives hold a dim view of the U.S. economy and consumer spending in the coming year, nervous about a weak jobs market, expected tax rises and the prospect of a double-dip recession. Executives say the mood at Sun Valley — at an annual gathering of the industry’s prime movers and shakers — had brightened somewhat from a year ago, when they were grappling with the deepest recession in decades. Advertising has bounced back and share prices outpaced the market this year. But uncertainty reigned at this year’s conference, with jobs data grim and housing numbers underwhelming. Europe’s economic woes threaten to derail a nascent global recovery. "The poison is the uncertainty," said Martin Sorrell, chief executive of WPP Plc., the world’s second-largest advertising holding company. "It’s not that you see anything, or you hear anything."
The downbeat mood defies a recovery in advertising and a rebound in the share value of most publicly traded media companies, which have outperformed the S&P 500 index in the past year. News Corp, for instance, is up more than 30 percent in the past 12 months, about twice the gain of the S&P 500. Yet away from the back-slapping, rounds of golf, white-water rafting and presentations on the future of business, the media executives and financiers convened in the Western U.S. resort town of Sun Valley this year sounded a uniformly cautious tone. "It’s fragile out there, definitely very fragile," said Sony Corp USA Chief Financial Officer Rob Wiesenthal. Joining the chorus, cable mogul John Malone — who controls Liberty Media Corp — also said he was "concerned" about the economy.
Financial firms boost salaries, cut bonuses – survey
Reuters | Thu Jul 8, 2010 | 8:07am IST
U.S. and European financial firms have cut back on cash bonuses, moving instead to higher base salaries, a survey released on Wednesday showed. Mercer, a consulting and investment firm said its survey of 39 financial services firms revealed almost all of the participants rejiggered pay formulas, with 70 percent increasing base salaries and decreasing annual cash bonuses. The shift occurred in the wake of the 2007-2009 financial crisis, during which bonuses were blamed for encouraging wild risk-taking that fueled the global meltdown. Bonuses became a flash point, with the Obama administration railing against Wall Street pay as U.S. unemployment soared. "For a bunch of reasons, including regulatory and political pressure, base salary has increased, which I think is by and large a good thing," said Alan Johnson, a Wall Street compensation consultant.
Mercer said financial firms have made significant progress reforming pay practices, but noted more work needs to be done, particularly to ensure pay is linked to long-term performance. The survey, which was conducted in April and included banks, insurance companies and other financial services organizations, found 56 percent of the respondents increased the importance of long-term incentives, while 38 percent have reduced the weight of stock options in the mix. Almost two thirds of the firms require bonus payments to be deferred — but only about 40 percent of the surveyed firms have linked these deferred bonus payments to performance by workers. Only 10 percent of North American firms have performance-based deferrals, compared with over half of the European respondents in the survey.
Investors Pick U.S. Over BRICs in Bloomberg User Poll
Bloomberg | June 07, 2010 | 9:22 PM EDT
The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis. Investors are putting their money on President Barack Obama’s stewardship of the U.S. economy even as his job-approval rating has declined, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers. Almost 4 of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That’s more than double the portion who said so last October, when the U.S. was rated the market posing the greatest downside risk by a plurality of respondents.
Lawrence Summers, director of the White House National Economic Council, said this attests to Obama’s efforts at “restoring the United States to strong economic fundamentals.” He added that “while there remains much to do, the U.S. economy is growing.” “We’ve seen the bottom; we’re firm, and the United States is slowly moving forward,” said Wayne Smith, 51, managing director of fixed-income trading at Uniondale, New York-based Northeast Securities, which manages $3.5 billion. Following the U.S.’s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so- called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia. In a poll taken in January, China was the favorite followed by Brazil. Respondents were allowed to pick multiple countries.
‘Least Dirty Shirt’
The U.S. is one of the few relative bright spots in a global market rattled by the Greek debt crisis. Bill Gross, co- chief investment officer of Pacific Investment Management Co. and manager of the world’s largest bond fund, called the U.S. “the least dirty shirt,” in a Bloomberg Radio interview. Forty-two percent of investors now believe the world economy is deteriorating, double the 21 percent who
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