Kinabalu

Ultimately, Who Benefits from Too-Big-To-Fail

A review of FRB staff studies reveals a 1994 review of Merger Performance Studies in Banking, 1980-93, and an Assessment of whether bank mergers actually yielded any effeciency gains.

www.federalreserve.gov...

Conclusions? "findings indicate consistently that bank mergers do not generally result in gains in efficiency or general operating performance."

Ultimately, Who Benefits from Too-Big-To-Fail

"Given the technological advances that were occurring in the 1990s, it is very possible that much of the productivity experienced across all industries had more to do with a secular movement in technology as opposed to efficiencies realized by managerial acumen."

We have a winner!! Give the man a Kewpie Doll. The FDIC promoted bank mergers for 2 decades because they thought that larger banks had lower loss ratios. They never tried to claim that larger banks were more efficient because all of American industry was experiencing productivity improvement.

TooBigToFail has refuted the loss ratio concept but now someone is trying to ascribe broad productivity gains to merger activity? Except for monopolistic situations, mergers have traditionally been shown to have ineffective results across industries. Banking is no exception.

Moral Hazard, Goldman Edition

"Goldman knows it is too big to fail"

Goldman's CFO has repeatedly said they have not changed their business model since becoming a bank holding company. I don't mind them taking as much risk as they want with private capital, but clearly there is public capital at risk here that needs oversight.

Who Watches over the New York Fed?

"the majority of views should be separate from Wall Street and ensure that Wall Street's actions are serving the interests of the entire economy"

I would agree with this conclusion. The problem is getting financial expertise on the Board and not political noise. My first reaction to seeing Denis Hughes on the board is negative. What does a journeyman electrician and union organizer know about the operation of a central bank.

To What Degree Were AIG's Operating Insurance Subsidiaries Sound? (Part 2)

The characterization of these losses as securities lending losses doesn't sound right to me. It looks like a portfolio decision to invest in higher yield securities that had equivalent ratings. The fact that the securities became subject to securities lending was an ancillary decision. The cause of the loss was not securities lending it was the investment in the wrong securities in the first place. What am I missing?

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

That was possible reason No. 3 in my comment:
> 3) There really is a Wall St - Government cabal to benefit the priviliged few (an option with heavy populist support).


On Mar 30 08:52 PM dcb wrote:

> You do not understand. this is happening with the consent of our
> government, not against it. After all the little slips that have
> happened do you really think they want to cathc this. they don't
> catching things lowers amount of campaign dollars and cushy jobs.
> the american public doesn't read much so there is no worry of getting
> caught. Surprise of the day Dodd was AIG's biggest money recipient.
> WAKE UP. HOW MUCH PROOF DO YOU NEED TO SEE WHAT IS CLEARLY OUT THERE>
> JUST CONNECT THE DOTS

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

I forgot to mention that the reason the SEC should be monitoring this situation is, of course, because of the immediate and substantial effect the comments had on the institutions stock prices.


On Mar 30 05:41 PM Kinabalu wrote:

> This is exactly the kind of situation the SEC should be monitoring.
> Two major financial institutions make positive mid-quarter comments on earnings...

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

This is exactly the kind of situation the SEC should be monitoring. Two major financial institutions make positive mid-quarter comments on earnings. The SEC should be asking for expanded disclosure in the next 10Qs to address the basis for the comments and any divergence in the remainder of the quarter.

That said, there are several possible reasons that we see nothing to validate this articles hypothesis:
1) None of the authors allegations are true.
2) Better Financial Institution profitability is due to favorable credit spreads with relatively little positive benefit to Citi or BofA from the AIG trades(entirely possible).
3) There really is a Wall St - Government cabal to benefit the priviliged few (an option with heavy populist support).
4) The SEC misses its chance again (highly likely).

I, for one, will be carefully reading the 1st Quarter 10Qs.

Geithner's Financial Reform Is Doomed to Fail

<<One problem with banking is that it does not meet the test of capitalism. Either your money is at risk or it is not at risk. Banks are stuck halfway in between. We are trying to pretend banks are capitalist institutions.>>


This article is so ridiculous its hard to know where to start my criticism. The concept that a bank is not a capitalist institution is absurd. The author ignores the shadow banking phenomenon of the last 2 decades. The concept that Geithner doesn't know how to solve "Too Big to Fail" is simplistic in the extreme. The fact that the authors sycophants are lined up to praise this dreck is a definitive exhibition of why it is possible for someone like Madoff to "manage" billions of dollars. Are there no longer any critical readers on this site?

The author, and many of the above commenters, need a basic understanding of the natural evolution of an economic cycle. I would suggest they start with Hyman Minsky's Financial Instability Hypothesis recapped by Paul McCulley here:

rolfe.winkler.googlepa...

Why Goldman Sachs Should Return Its TARP Money

Goldman paid bonuses of $16 billion for 2006. It shouldn't be too hard for them to come up with a paltry $10 billion.

Ashamed of AIG

The only thing worse than the old AIG management continuing to run the Company is the Government trying to run it. This simplistic 6 point plan for this incredibly complex Company would be a disaster! California created "The Deal of the Century" when it sold the junk bond portfolio of the much smaller Executive Life Insurance Company to Apollo Investors in the early '90's. No one company or fund is big enough to buy AIG but there will be a lot of vultures getting very fat on this carcass. These bonus amounts will be miniscule by comparison.

Don't Blame Mark-to-Market for This Crisis

For the best description I've seen as to what caused the housing and derivative crises read this article by a PIMCO portfolio manager. Paul McCulley recaps a Minsky journey from hedged to speculative to ponzi as a natural economic progression. Minsky died in 1996 or he would be a certain Nobel prize winner.

rolfe.winkler.googlepa...

The AIG Scandal

"I wouldn't be surprised to learn that Hank Greenberg was still a billionaire,"

Greenberg told Congress, under oath, that all his wealth was tied up in AIG stock and that he lost it all with the drop in their stock price. Greenberg was the one who approved AIG's entry into Credit Default Swaps, but he was always insistent that CDS exposure, which he didn't fully understand, be kept at modest levels. The big jump in their exposure came after he, and the original group that ran that division, was gone.

Felix, usually you do better research. This article, and especially the comments, sound like the ranting of a lynch mob.

Great Depression Not Imminent, But Inevitable

"But it is common knowledge that CDS price-makers have been using probability and option driven models which are increasingly proving to be divorced from reality....This writer’s view is that, though there is broad array of quotes available from CDS and CDO brokers on a daily basis, actual deals are extremely limited"

This is the same author that was telling us a month ago that the CDS market was the best indicator of future equity prices (GE).

I guess it all depends on what point you're trying to make.

The Ten Most Egregious Assumptions of 2008

"Banks will be careful with their money"

Of the 10 listed items this is the one that surprises me the most. I confess to being in Greenspans company of "shocked disbelief". I worked in a bank holding company for 10 years, including during the last real estate recession in the early '90s. I developed a healthy respect for the credit assessment abilities of bank officers. I still don't understand how they could have generated so much bad paper 15 years later.

Part of the blame has to go to their regulators. Congressional Democrats have fawned over Sheila Bair, a Republican appointee as Chairman of the FDIC, but she has presided over a terrible breakdown in loan quality and should be taken to task for that.