Posts filed under “Regulation”

Recall Why TARP Funds Were Necessary

Now that the bulk of the crisis has passed, and the panic has subsided, the banks want to return the money, no strings attached. Return the cash, leave the regulatory environment alone, write downt h warrants, and move on with our lives.

My response is, “Not so fast.”

Let’s not forget how this occurred: A radical deregulatory scheme let these companies operate with little or no oversight. Without adult supervision, they promptly blew themselves up, destroyed billions of dollars in shareholder value, cost the global economy trillions, and scared the beejesus out of everyone else.

When these companies were circling the drain, nobody but Uncle Sam (and the Taxpayers) — and for only Goldman Sachs and GE, Warren Buffett — was willing to fund these companies. The risk levels were extremely high, the potential damage to the dollar, the taxpayer, inflation, and the US credit rating was also very high. As is, the US is still out of pocket trillions of dollars, and are likely to see major losses. Prudent well managed firms are seeing their expenses go thru the roof — especially FDIC insurance.

This is not money that you get to return and say, Thanks, but we no longer need this.

Instead, there are several things that should happen, if our elected officials and regulators have any savvy:

1) The Warrants should be placed into a Trust for the benefit of taxpayers, where it will be held for 5 or 10 years. Then, it can be liquidated for the benefit of the Treasury.

2)Re-instate Glass Steagall, revert the leverage rules, repeal CFMA;

3) Adequately fund and staff the SEC;

4) Remove the incentives for excess risk taking  (i.e., private profits but socialized losses)

5) Align compensation systems with actual risk adjusted profits.

Lastly, I would like to see a bi-partisan, Blue Ribbon panel put together analyzing why this occurred. Put an Elizabeth Warren or a Paul Volcker in charge, and give them 6 months to create a comprehension assessment of what went wrong, along with recommendations on how to fix it.

But a no-strings-attached, return-of-the-money, back-to-business-as-usual ? Not so fast . . .

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Source:
U.S. Weighs How to Let Banks Give Money Back
LOUISE STORY and ERIC DASH
NYT, May 19, 2009

http://www.nytimes.com/2009/05/20/business/20repay.html

Banks seeking to repay TARP billions must wait until June 8
Ronald D. Orol
MarketWatch, May 19, 2009, 5:22 p.m.

http://www.marketwatch.com/story/goldman-morgan-stanley-ask-to-repay-tarp-reports

Fed to Respond to TARP-Repayment Applications in June
Scott Lanman
Bloomberg, May 19 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7MkO._fo1fw&

Category: Bailouts, Credit, Investing, Regulation

Debunking The Notion Of Too Big To Fail

Interview and analysis with Mariner Kemper of UMB Financial regarding about the testifying of Sheila Bair before the congress on the too big to fail situation.

4:16

Bloomberg

Category: Bailouts, Regulation, Video

FDIC’s Bair on U.S. Banks, Executives: Political Capital

Sheila Bair on Political Capital with Al Hunt

Preview

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Click for full video

bair-al-hunt

Category: Bailouts, Credit, Regulation, Video

FDIC Bair: Bank Chiefs Need to Go

“Management needs to be evaluated . Have they been doing a good job? Are there people who can do a better job? I think the review needs to go with both the management and the board as well, absolutely . . . I think there will be an evaluation process. We’re requesting it as part…Read More

Category: Bailouts, Markets, Regulation

Why Are We Bailing Out Insurers?

Will someone please explain to me why we are giving $22 Billion to Insurers? “The Treasury Department will make federal bailout funds available to a number of U.S. life insurers, acting on the embattled sector’s long-running effort to get government help. The Treasury is prepared to inject up to $22 billion into the insurers under…Read More

Category: Bailouts, Corporate Management, Markets, Really, really bad calls, Regulation, Taxes and Policy

Lessons of the Financial Crisis for Banking Supervision

Chairman Ben S. Bernanke

At the Federal Reserve Bank of Chicago Conference on Bank Structure and Competition, Chicago, Illinois (via satellite)

May 7, 2009

Lessons of the Financial Crisis for Banking Supervision

After more than a year and a half of financial crisis, both bankers and policymakers must contend with two questions: What have we learned from this extraordinary episode? And how can we apply those lessons to strengthen our banking system and to avoid or mitigate future crises? Getting the answers to these questions right is critical for our future financial and economic health.1

The Federal Reserve has been intensively evaluating the lessons of the crisis, both with respect to the companies we supervise and to our own policies and procedures, and we are actively incorporating what we have learned into daily supervisory practice. Increasing the effectiveness of supervision must be a top priority for our institution. In my remarks today I will outline some steps that the Federal Reserve has already taken in the wake of the crisis to strengthen capital, liquidity, and risk management in the banking sector, as well as to improve the supervisory process itself. I will also touch on what we have learned about the importance of effective consolidated supervision and the potential benefits of a more macroprudential orientation to financial oversight.

Read More

Category: Credit, Federal Reserve, Regulation, Think Tank

Wachovia Compliance Stuck in 20th Century ?

Those of you at Wachovia may have had hard time lately accessing the blog. (You are probably reading this via RSS). Numerous readers from the firm have written in to say they could access The Big Picture but not post comments. Several readers said they can no longer access the site. Apparently, [some offices at]…Read More

Category: Legal, Regulation, Weblogs

Ratings Agencies Abject Failure

“Ratings agencies just abjectly failed in serving the interests of investors.” -SEC Commissioner Kathleen Casey > Nice takedown on the highly conflicted, over rated ratings agencies in Bloomberg yesterday: “Investors, traders and regulators have been questioning whether credit rating companies serve a good purpose ever since Enron Corp. imploded in 2001. Until four days before…Read More

Category: Bailout Nation, Legal, Markets, Regulation

Speeches & Testimony Remarks by FDIC Chairman Sheila Bair to The Economic Club of New York; New York, New York April 27, 2009 Good afternoon everybody. I’m honored to be here this afternoon. I’m told it’s the first time in your distinguished, 102-year history that you’ve invited an FDIC chairman to speak. You’ve had presidents,…Read More

Category: Regulation, Think Tank

The Prisoners Dilemma: John Thain vs Ken Lewis

“Regulators are supposed to tell you to obey the law, not to disobey the law. If you’re the CEO, your first obligation is not to your regulator, it’s to your institution and shareholders.”

-Jonathan R. Macey, deputy dean of Yale Law School

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I have not commented on the allegations by Bank of America CEO Ken Lewis that he was forced into making a disastrous acquisition of Merrill Lynch.

Why? Because they appeared to me be utter and shameless nonsense, an attempt to worm out of responsibility.  Indeed, the very statements by Bank of America CEO Ken Lewis appeared to be excuse-making for a lousy acquisition (which Bof A has quite the history of). Its the sort of weasely responsibility evading CEO speak we have come to expect these days. To be blunt, I was astonished anyone took them very seriously.

Yet they were taken seriously, by quite a few people — including a huge front page Wall Street Journal article. The mere accusation means that we are likely to see former Treasury Secretary Hank Paulson — a major cause of the credit crisis and a horrific bailout steward — up for a major grilling in Congress.

This morning, in the same WSJ venue, we learn that many of the statements Ken Lewis made under oath were directly contradicted by former Merrill CEO John Thain (but not under oath). Thain claims these understandings were in in writing.

One of these  two CEOs is lying, and if its the guy who was doing so in sworn testimony, he may have a very big problem on his hands.

Read More

Category: Bailouts, Legal, M&A, Regulation, Taxes and Policy