Anandakos

Supreme Court Rules Against Banks: A Win for Consumer Protection

Angry Banker,

I am so VERY willing to "bear the burden of those costs" if it wastes some -- or even lots -- of Dimon's, Kovacevich's, and Lewis' time. That would be time that they would otherwise spend squeezing yet more regional banks in pursuit of their complete oligopoly wet dream.

You go states Attorneys General!!!! (Yes, I know, it's a lame cheer, but heart warming one.)

Schadenfreude: Finally, Countrywide's CEO Getting What He Deserves

Yoda,

You're of course right that it "was not his job to stop the economy from imploding". However, as the CEO of a publicly traded company it WAS his job not to trade on information uniquely available to him.

And it was equally his job NOT to publicly tout his company while at the exact same time selling holdings in it.

The Jedi understands not the rules of logic.

On Jun 05 03:51 PM Fighting Yoda wrote:

> The regulators and the Fed are lot more to be blamed. Mozillo is
> a private entrepreneur trying to maximize profits, he also is not
> an economist or a regulator- it was not his job to stop the economy
> from imploding.

5 Reasons Bank Shareholders Will Take a Hit

It's NOT "YING". It's YIN.

On May 06 03:13 PM Ying & Yang wrote:

> Bankrupting For Profit-JPM-87.4T in Derivatives-G/S 30.2T-B of A
> 38T-C-31.9Trillion
> Feb.6, 2009 the Kazakhstan Tenge went poof and was devalued by 18%
> in a single day.
> “But last week Morgan Stanley and another bank suddenly demanded
> repayment.BTA was unable to comply, and thus tipped into partial
> default.
>
> Morgan Stanley also asked ISDA to start formal proceedings to settle
> credit default swaps contracts written on BTA.”
> CREDIT DEFAULT SWAPS
> A credit default swap (seekingalpha.com/symbo...) is a credit
> derivative contract between two counterparties. The buyer makes periodic
> payments to the seller, and in return receives a payoff if an underlying
> financial instrument defaults.
> Wall Street banks derivative outstanding as 31 December 2008- JP
> Morgan$87.4T-Goldman Sachs-$30.2T-BofA-38.C 31-$ Trillion.
> The Financial Times reports, “As a result speculation is rife that
> Morgan might have deliberately provoked the default of BTA to profit
> on its CDS, since a default makes the US bank a net winner, not a
> loser as logic might suggest.
> In theory, lenders should have an interest in avoiding default. At
> worst, it creates the risk of needless value destruction as creditors
> tip companies into default.”
> Politically privileged banks with worse than worthless toxic assets
> sell them for cash at an inflated fair value lying price to a self-funded
> Special Investment Vehicle (seekingalpha.com/symbo...
>
> For the sake of argument and simplicity assume that Bank G loans
> Company M $1M in either a leveraged buyout or some other type of
> deal that was common over the past few years when credit flowed freely.Then
> Bank G purchases a CDS on Company M’s loan for $30,000 from Bank
> B and the CDS is reinsured by Insurance Company A.
>
> Company M deteriorates because its free cash flow and a little more
> all goes to service debt and Bank G sells 90% of its loan to Bank
> J. Because credit risk has increased Company M’s bond now trades
> in the market for $25,000 and Bank J purchases a CDS from Bank L
> for the current market price of $60,000 and reinsured by Insurance
> Company A.Banks B and L go bankrupt, the trader at Bank L who sold
> Bank J the CDS now either goes to work at Bank J or receives consulting
> fees and the privileged creditors of Banks B and L, such as subsidiaries
> of Bank J and G, receive government bailout payments through Insurance
> Company A.
> Company B, while still able to service its debt, does violate some
> provision of its debt covenant.
> Second, they fund a SIV with $25,000 of cash which borrows another
> $825,000 from the Bank’s government puppets.
> Third, the SIV pays Banks G and J $850,000 of cash for the Company
> M loan which, while trading for $25,000 in the market is being carried
> on their balance sheet for $600,000 and consequently results in a
> $250,000 gain on the income statement for the quarter after having
> written down a couple quarters ago.
> Fourth, Banks G and J receive $2M in bailout funds for the failed
> CDS contracts.
> Fifth, Company M is completely evaporated and thousands of workers
> lose their jobs.
>
> Total profit for Banks G and J:2.85M-$1M-$30k-60k=$... pay for a
> days work
> FINANCIAL WMDs AND FINANCIAL TERRORISTS
>
> The GLD ETF Auth.,Parties-Bear Stearns-Lehman Brothers-Citigroup-Mer...
> Lynch-Goldman Sachs-J.P. Morgan-Morgan Stanley-will use the language
> in the prospectus to do ?
> Derivatives, infest balance sheets of almost every publicly traded
> corp.
> Many local, state and national governments.
> POTENTIAL REMEDIES
> When confronted with financial terrorists society has often had to
> take powerful measures.
> when John Law co-opted the French economyFrench Revolution was sparked.
>
>
> In the United States of America Section 19 Act of 1792 provided,
> “That if any of the coins shall be debased or made worse through
> the default or with the connivance of any of the officers every such
> officersaid offences, shall be deemed guilty of felony, and shall
> suffer "Death.”

5 Reasons Bank Shareholders Will Take a Hit

What is so "evil" about the SPX going back to 1000? My guess is what's so bad is that you missed a VERY tradeable rally.

On May 06 04:58 PM archman82011 wrote:

> It is a traders market.
> Simple as that.
> Hedge funds have driven this rally, they will end it when they want
> to make money on the other side.
> I have a long term buy list with entry points all set for that day,
> when the stocks I want, head back to those prices.
>
> BTW: 25 year continuation trend line on the S & P 500 is 750
> as of today.
>
> As of today's close the S & P is absurdly overvalued. Every single
> time for the past 40 years the S & P has reverted to its continuation
> trend line at some point. As I spoke about in another post, months
> ago, I feared that this market was going to be driven straight back
> up to 1000 on the S & P by all the evil forces (hedge funds,
> FED, Treasury, and all it's partner trading desks) and sadly I appear
> to be right.

5 Reasons Bank Shareholders Will Take a Hit

You are missing one significant point: the common stockholders are ALREADY diluted! Who in 2009 cares about "voting rights" except the big institutional guys? What do your 500 or 5000 shares of C or BAC mean to their management. Squat!

The preferred dividend has to be paid completely before common holders get one cent of dividends. So it really doesn't matter if the preferred is converted to common; the cash flow from holding is going to be nil for years in either case. It's only selling to the next Greater Fool that might be impacted.

But how far can C fall from $3.50? Really.

BofA's State of Denial

ASAF,

You are correct that converting the preferred to common would dilute the voting power of the existing common a great deal. However, it would remove an impediment to increased dividends for the common. The preferred dividend must be paid in full before one cent of common dividend can be paid.

The truth is that the vast majority of common shareholders don't give a fig about their voting rights. They sign management's proxy card or do the same on the web; they're only interested in potential capital gains and/or the common dividend.

That's why compensation has gotten so out of whack and incentives to game the system are rampant. The "owners" of the company aren't interested in its future, just on what they can sell the paper to the next greater fool.

On May 06 01:01 PM asaf123 wrote:

> If the TARP Preferred assets are converted to common shares, doesn't
> that mean a huge dilution for existing share holders? Why would
> the existing common shares rally in that event?

Paulson Throws Bernanke Under the Bus, Backs Ken Lewis

Mr. Cowie,

Absolutely spot on. Break them up into regional regulated depository institutions any one of which is forbidden from holding more than 5% of insured deposits in the country and sell off the rest of the tomfoolery to investors with NO GUARANTEES of any kind.

The problem with doing what must be done is that Congress -- both parties -- is riddled with "representatives of the People" sucking the financial industry tit.

On Apr 23 04:42 PM William Cowie wrote:

> Does it sound to you like Lewis is setting up things so his golden
> parachute (with many, many zeroes) won't be blasted as heavily? Earlier
> comments indicate that he's tired of being vilified for a decision
> into which he was coerced.
>
> It's scary to know how bad business decisions are being forced on
> CEO's by governments of both parties, in the name of supposed national
> interest. The key of course is to split up these "too big to fail"
> entities. It is really not that complicated.
>
>
>

Let's Hurt the American Financial Services Industry

Morph,

The complications you foresee will not occur if regulated and insured depository institutions are FORBIDDEN from any activity other than taking deposits and making loans up to their statutory capital ratio maximum. Not if they are FORBIDDEN from owning any subsidiary or being owned by a holding company that does unregulated activities. Not if any single institution is FORBIDDEN from holding more than 5% of the total deposits in the United States. Not if they are FORBIDDEN from loaning any amount to unregulated financial institutions. Not if they are FORBIDDEN from packaging their liabilities and selling them as opaque derivatives. Allow them to sell the liabilities one at a time as they used to before Freddie Mac invented the MBS, but prevent them (and Fannie and Freddie) from packaging and selling their liabilities in artificial securities.

In other words, make banking the utility it was until the 1970's and should be again, and let the sort of person who today runs a credit union because he or she is interested in public service run the a bank tomorrow.

At the same time, allow the descendants of investment banks and hedge funds to do what they want with invested money, not loans. And make it very clear that there is no Federal guarantee explicit or implied backing any of those investments. Caveat investor.

This would result in the shrunken financial sector Felix envisions operating at the service of the economy, not as its master.

And a fantastic "unintended consequence" -- well, in truth very much intended -- would be the humbling of a large group egregiously smug and reactionary opportunists. Rick Santelli, I'm lookin' at you and your millionaire trading buddies howling for the blood of poor people who listened to shysters in the mortgage origination business.

Volcker's Capital Idea: Getting Back to Real Banking

What shall we call the new legislation limiting the activities of depository institutions, "Steagall-Glass"?

Why Zombie Banks Won't Be Nationalized

You don't "Short For Me" you illiterate moron. Before you go slinging around epithets, LEARN HOW TO SPELL THEM! It's "Bolshevik". And what the hell is "emergently"? Is that a new adjective sourced from "emerging markets"? And if so, are you expecting to sell the the bogus paper your friends of Wall Street created to Rwanda and Bolivia?

And finally, I guess Democrats in the House and Senate will be unbolting their chairs from the desks and urging them to run out the door to attack their constituents? One does not "loose" one's seat in Congress. One "loses" it.

P.S.

You need a do-over in third grade to learn spelling. Apparently you have not noticed that this website puts a red line under any series of characters separated by a space or punctuation mark that it does not recognize as a word. There's one under your alias; there's one under mine. Because they're not WORDS! You might take notice of those red lines when you are typing your post. When one appears it's a hint that what you just typed doesn't make sense!

On Mar 02 01:25 PM Ishortyou wrote:

> well Iooks like the 'stress test' theory from the socialist bolchevics
> democrats is not working that well, already wiping out the retirement
> plans of pop and mom. Looks like cleaning the balance sheet of banks
> from those 'securitized bonds' i.e. MBS, CDO is a viable alternative
> that needs to be implemented emergently, but with the socialists
> bolchevics democrats worried about loosing their seats from the blackmailers
> constituents vote outs, are probably not going to do it, so sit tight
> and expect a major diving for several years to come.

Why Zombie Banks Won't Be Nationalized

@GreenEyes,

"Nationalization" of the money center banks is NOT "socialism"!!!! Please understand that they are members of the Federal Deposit Insurance Corporation -- now THAT has elements of socialism, certainly -- and are therefore subject to conservatorship and restructuring as a part of membership. The "socialism" happened in the mid-30's when the FDIC was established. It's been used before on a large money center bank, Continental Illinois, without dashing the US into the maw of rapacious Socialism. (key dark music). There is no sudden "slippery slope" and it happens all the time to smaller institutions that get into trouble.

However, one problem is that the nominal assets and liabilities of the big five are so huge that the cost may be several trillion dollars. But also, once insolvency is invoked it becomes the FDIC's (or more likely another agency like the S&L Resolution Trust Corporation) responsibility to make decisions about "haircuts" for various holders of the failed institution's liabilities.

Since so many of those liabilities are held by foreign sovereign and near-sovereign investors -- especially those of Citigroup -- taking the step of declaring insolvency and embarking on the impossible to get completely fair and just process of assigning those haircuts is fraught with serious international relationship minefields. So the government is doing exactly what most other people and institutions do when faced with an unpleasant task: equivocating.

Since there is the possibility that aggrieved foreign investors might tank US markets much more severely than they have so far, equivocation has some genuine attractions. Things MIGHT turn up.

On Mar 02 10:50 AM Green Eyes wrote:

> I don't think that moving our country one step closer to socialism
> (nationalization) is the answer...

Why Capping Pay Is Likely to Work

Think,

I believe you are making a fundamental mistake about what banks are and should be. Because banks drank the Wall Street Kool-Aid they abandoned their traditional role and adopted the behavior of investment banks (leverage!). The regulators were drinking too, so they allowed them to act like investment banks, even encouraging them.

This was a disastrous error, and like the last time it was allowed in the 1920's, led to exactly the same sort of excesses. The so-called "talent" you want to reward subsumed the depository function into large casino capitalist enterprises and poisoned the well for all and sundry.

Depository banks should be free from political interference -- we don't want the kind they have in China and Japan. But also they should be strictly regulated and prevented from engaging in behavior that can eviscerate their capital adequacy. Such institutions would not and should not make a gazillions of dollars in profit. So they don't need the sort of buccaneer "leadership" that unlimited compensation attracts.

Those folks have a perfectly valid place in American capitalism: as entrepreneurs, private equity managers, and venture capitalists. But they should not run depository institutions because their gambling ways put the government's insurance programs at risk. Let them reap huge gains and suffer huge losses on their own, without the taxpayer's implicit, explicit, or fantasy backing. And caveat investor when dealing with them.

Banks serve the vital function of providing credit to businesses and citizens, and obviously they need to make a profit to increase their regulatory capital allowing greater loan making capability. But they should NEVER engage in non-depository activities. They also need to be forbidden from becoming "too big to fail". The only real value I can see in Wells-Fargo and Bank of America having become truly "national" banks is that people can visit an ATM in a different state without having to pay a fee.

Thus they will not need enormously compensated CEO's. There are plenty of people running local banks and credit unions profitably for low six figure salaries who are completely capable of running larger enterprises so long as the "financial engineering" element of the mega-banks are not present. Let them.

By the way, credit unions offer the same fee-free "foreign" ATM access through their national co-op. Smaller banks could do the same thing if they wanted to offer the service to their customers.

On Feb 04 11:23 AM Think! wrote:

> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.