Lawmakers on both sides question power, handling of Wall Street bailouts
The Associated Press | Washington | Nov. 22, 2009 | 2:01 p.m. ET
Suddenly the Federal Reserve is everybody’s punching bag. Strip the Fed of its bank regulation powers, some in Congress are demanding. Get probing audits of its behind-the-scenes operations, others say. The chairman of the Federal Reserve Board is always fair game for criticism and second-guessing, usually over interest rate actions. But this year the criticism is much broader as Congress responds to widespread public anger that the Fed bailed out Wall Street but not ordinary Americans, and with unemployment in double digits. Former Fed Chairman William McChesney Martin Jr. famously said that the central bank’s job was to yank away the punchbowl just when everybody is starting to party. And while Fed Chairman Ben Bernanke has signaled the Fed will keep interest rates low for now, a round of higher rates inevitably will come.
The Fed finds itself both the punchbowl keeper and the punching bag. Imagine the outcry when it does begin to crank up rates — perhaps just ahead of next year’s midterm elections. Fireworks seem likely at Senate confirmation hearings early next month on President Barack Obama’s nomination of Bernanke to a second four-year term as chairman. Many economists and Fed watchers say congressional efforts to rein in the Fed’s powers could interfere with the central bank’s ability to help guide the fragile economy to recovery. The Fed’s very independence and its Continue reading
NYT | ERIC DASH | November 19, 2009
The coroner’s report left no doubt as to the cause of death: toxic loans.
That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December. In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses. At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.
What went wrong? In many instances, the financial overseers failed to act quickly and forcefully to rein in runaway banks, according to reports compiled by the inspectors general of the four major federal banking regulators. Together, they have completed 41 inquests and have Continue reading
Reuters | Yahoo News | Thursday November 19 | 02:00 PM
The number of U.S.-dollar millionaires in China is expected to nearly double in five years, luring private bankers eager to help them invest an expected combined wealth over $7.6 trillion by 2013, Boston Consulting Group (BCG) said on Thursday. Global wealth declined last year for the first time since 2001, the consultancy said, but the number of Chinese individuals with household financial wealth of more than $1 million may grow to 788,000 by 2013 from 417,000 in 2008.
“We believe that China’s wealth market offers an attractive window of opportunity for banks,” Frankie Leung, a BCG partner in Hong Kong, told reporters in Beijing. “How banks should act to capture the opportunities and establish competitive positions would be a key strategic issue to explore.” Foreign banks, including HSBC Holdings Plc, Citigroup Inc and Bank of East Asia, have all started private banking businesses in China, competing for affluent clients with local rivals such as Bank of China. According to the consultancy’s definition, financial wealth includes cash, equities and bonds but excludes real estate and privately owned enterprises.
Globally, total assets of rich individuals declined by 11.7 percent to $92.4 trillion in 2008 due to the global financial crisis, the first decline since 2001, but BCG expects growth to resume over the next few years. “It will take roughly five years for the wealth pools to recover from the crisis and to reach a level that is comparable to wealth growth in 2007,” said Holger Michaelis, a partner and managing director of the firm. He added that the financial crisis has made rich people abandon complex products in favor of simple, less risky investments to protect, rather than grow their wealth.
ABC NEWS Business Unit | Nov. 18, 2009
The Wall Street firm that has arguably taken the most heat for its multibillion-dollar employee compensation will donate $500 million for a new program to help small businesses. Goldman Sachs, widely viewed as the biggest bank to suffer the least damage from the world’s financial crisis, said Tuesday it will join forces with billionaire investor and Goldman stakeholder Warren Buffett on “10,000 Small Businesses.” The program will provide capital to small businesses in underserved areas and education aid to small business owners. “Small businesses play a vital role in creating jobs and growth in America’s economy,” Goldman CEO Lloyd C. Blankfein said in a statement released Tuesday. “We are pleased to work with our partners in this initiative to support small business owners, particularly those in underserved communities.”
Goldman Sachs, which received and later paid back $10 billion in federal Troubled Asset Relief Program funds during the financial crisis, has set aside $16.7 billion for employee compensation so far this year and is on track to pay out an average $700,000 per employee. The $500 million program amounts to less than 3 percent of Goldman’s employee compensation pool. There’s been rampant speculation that the bank Continue reading
BBC NEWS | 2009/11/17 | 10:26:48 GMT
Regulators involved in the rescue of AIG may have overpaid other banks when cutting a deal, a report says. The New York Fed paid AIG’s business partners face value for securities so they would cancel insurance-like contracts AIG had written. But officials used a weak negotiating strategy, Special Inspector General Neil Barofsky’s report said. AIG was initially bailed out for $85bn (£50bn), but its total rescue package eventually amounted to over $180bn. The report criticised both the Federal Reserve Bank of New York and the US Federal Reserve for failing to use their “considerable leverage” to force AIG’s counterparties to accept less than the full amount for the assets. As a result, 16 banks, including Goldman Sachs, Deutsche Bank, Societe Generale and Royal Bank of Scotland, were paid more than $62bn. The initial bail-out “was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG,” the report said. It also criticised the New York Fed, chaired at the time by current Treasury Secretary Timothy Geithner, for insisting that all banks be treated equally in negotiations and for not treating US banks differently from foreign institutions. Continue reading
CalculatedRisk | 11/09/2009 | 11:11:00 AM
The following graph shows the maximum number of net jobs lost after the end of several official recessions (both in numbers and as a percent of peak employment prior to the start of the recession). Even if the economy started adding jobs in November (very unlikely), the 2009 recovery would already be one of weakest for job creation.
The recovery following the 2001 recession was the worst for job creation, with the bottom for employment happening in August 2003, twenty one months after the official end of the recession.
This graph shows the job losses from the start of the employment recession, in percentage terms.
Look at the brown line for the 2001 recession. According to NBER, the 2001 recession lasted 8 months, but the job losses continued for another 21 months (the brown line bottoms in month 29) – and employment didn’t reach the pre-recession level for 46 months. In terms of jobs lost, the 2009 “recovery” might be even worse than the 2001 recovery.
Maybe we should call this a “job loss” recovery?
Please click the pictures above to view them in original size in a new window
Reuters | St. Andrews, Scotland | Sat Nov 7, 2009 | 7:26pm IST
British finance Minister Alistair Darling urged his G20 counterparts on Saturday to work toward a $100 billion deal to tackle climate change but developing nations insisted they did not want to talk about it. Britain is hosting the third meeting of Group of 20 finance ministers and central bankers this year in St Andrews, Scotland. It is determined to push forward on an ambitious target to meet the costs of climate change by 2020, ahead of a major environmental summit in Copenhagen next month. “It really is imperative that when we reach the end of the day that we have shown that we have made some real progress,” Darling said at the start of talks on Saturday. “If there isn’t an agreement on finance … then the Copenhagen agreement is going to be much, much more difficult.” But there appeared to be little chance of a breakthrough with many emerging countries questioning whether it should even be a topic of discussion at the forum of leading economies, just as they did at a London meeting in September. “The issue is whether we talk about it or not. Britain is quite motivated on this subject but there are some quite strong objections,” a French official said. “The emerging market countries say it should not be discussed for procedural reasons, that the G20 is not the right forum.” German officials predicted no meaningful breakthrough. “At the moment the talks on financing climate protection seem to be at a dead-end,” one German delegation source said, picking out China as obstructing progress. China is often denounced by Western critics as a stumbling block to agreement, because it argues developing countries should not submit to binding international caps on emissions while they grow out of poverty. In turn, China and other emerging powers have said the rich countries have done far too little in vowing to cut their own greenhouse gas output, and in offering technology and money to the Third World to help cope with global warming. Continue reading