Washington Mutual Wasn’t in Wall St Inner Circle According to Ex-CEO
Well that was very apparent when they were left to fail and have JPMorgan come in and purchase the nation former largest deposit taking institution. I actually go into the conference for JPMorgan when they announced this to their shareholders. I have never and I mean never heard a more excited group of males, puts Super Bowl celebrations to shame.
They knew they got the deal of a century. They were going over the numbers and they basically said no matter what the losses were from all their lending assets, it was a once in a lifetime opportunity.
You would think that the deposit institutions would be the banks we would bailout but it was not the case. In is my feeling as well that because they didn’t have a direct line to the Fed or U.S. Treasury is why they were left to have WaMu’s financial position deteriorate to the point where they only got cents on the dollar for the largest base of deposits in the country. Yes, they made bad choices like doing refinances and home equity lines of credit on inflated homes, but all banks did this but we decided to pick winners and losers and the winners seem to be the same old “boy club”.
Bloomberg - Kerry Killinger, the former chief executive officer of Washington Mutual Inc., said his company became the largest bank failure in U.S. history in part because it was excluded from a group of financial institutions favored by U.S. policy makers.
Washington Mutual wasn’t protected from short sellers and the U.S. Treasury Department excluded the company from information sessions it held with competitors, Killinger said today in testimony for the Senate Permanent Subcommittee on Investigations. Other former Washington Mutual executives at the hearing and subcommittee chairman Senator Carl Levin, a Michigan Democrat, blamed Killinger for ineffective management controls and lax lending standards.
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New York Fed Warehousing Junk Loans On Their Books
Representative Grayson is correct that the New York Fed overstepped their bounds by law when they took on a bunch of junk grade loans on their books. We have a Federal Reserve System which was created to create independence from our politicians so we would not be tempted to print money without bounds and debauch our way of life through inflation. In the same sense, our Fed is not suppose help out bad banks and purchase their toxic loans and give them good U.S. dollars for them.
The Fed should be the lender of last resort and that is only in the case if there is a panic and you as a bank have good collateral and you need help to weather the storm. This did not happen during the financial crisis of 2008. They purchased knowingly bad loans to increase profits (aka: greed) and they should pay the price for those actions. Don’t let the bad money / banks chase out the good.
We need to reward prudence and foresight and punish greed and ignorance. These are bankers we are talking about, they should be our more astute professionals in the financial world and they should know the risks and bare the pain for their choices no matter what. PERIOD.
Huffington Post - As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.
The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.
Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.
Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.
“The Fed legally is forbidden from taking such assets. There’s a legal requirement that the Fed’s assets be investment grade,” Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed.
Source: Huffington Post
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Bank Repo Market Moves Into Focus
The Wall Street Journal has a nice little descriptive piece on the repurchase transaction market that bank participate in for short term funding. The Federal Reserve is testing this out to get back the cash they have injected into the banking system during the height of the Great Recession to purchase the “toxic assets” from the balance-sheets of all major financial institutions to give them the liquidity needed to operate.
I am still skeptical that they will do this in a timely manner if it would threaten the solvency of any banks. Many of these assets are non-performing and will require write-downs which have been coming very slowly as of late. This is more symbolic to show the Fed is doing something in my honest opinion. On the other hand, the FDIC has been talking about the lack of write-downs of the home equity lines and helocs that defaulted or will never be paid back, those are more likely to cause real harm in the banking system.
Wall Street Journal - The revelation that Lehman Brothers used repo shenanigans to hide its true weakness is bringing more attention to the repo market–and not a minute too soon. The repo market is huge, critically important to the banking system and, as indicated by last week’s bankruptcy-court examiner’s report, subject to abuse. Yet it’s little understood or scrutinized.
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SF Fed’s Janet Yellen contender for Federal Reserve’s vice chair
This is most likely the best choice available to the Fed. Janet Yellen is a known quantity and should do a good job at the Vice Chairmanship. Ms. Yellen will have a huge job ahead of her, we have a massive amount of liquidity in the U.S. banking sector that will need to be withdrawn or we will see inflation on the rise when all that cash goes into some asset class.
Reuters, Washington D.C. - San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be nominated by President Barack Obama as vice chair of the central bank, a senior administration official said on Friday.
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Bank of America to End Overdraft Fees on Debit Cards
This is great news and I applaud BofA for taking to the essence of the credit card reform bill and ended this predatory type of fee. Even myself, was under the impression that the reason we enter our pin number for debit purchases was to authorize a purchase and at that moment the terminal checked to make sure sufficient funds were in the account before running the transaction. I learned this was not the case and realized that a debt card holder could be charged thousands of percents of interest for the smallest transaction based on the fee that was charged on an annual basis. I hope to see more banks step up and do away with these fees and focus more on core banking tasks and true financial innovation to produce profits and value.
New York Times - In a move that could bring an end to the $40 cup of coffee, said on Tuesday that it was doing away with overdraft fees on purchases made with debit cards, a decision that could cost the bank tens of millions a year in revenue and put pressure on other to do the same.
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BofA modifies 12,700 mortgages under government HAMP program
Good to hear some homeowners are getting a reduction in their mortgage through the HAMP program. Problem is they need to really ramp it up because a total of 25,000 homeowners are a drop in the bucket. Still it is good to see some movement with BofA on trying to address these underwater mortgages to give the borrowers incentive to stay in the home.
Reuters - Bank of America has permanently amended home loan terms for more than 12,700 borrowers under the Obama administration’s main mortgage modification program, the bank said on Tuesday.
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Goldman Sachs Posts Nearly $5 Billion In Profit While Restrains Compensation In Q4
Quite a good quarter for the Goldman Sachs boys. With the amount of bailout they got through AIG via the treasury, you better be able to make money. We have a huge swing in the markets in 2009 and GS was flush with cash and was able to deploy it and ride the wave up. I do like they are trying compensation packages to stocks and not cash so the employees goals are aligned with long-term profitability of the firm.
I personally have no problem with a investment bank being profitably, but if we are going to have them unregulated, we need to let them fail when they get to greedy and lets them be rewarded by our markets when they are more clever than the rest, THAT is real capitalism.
New York – Dow Jones - Goldman Sachs Group Inc. (GS) on Thursday delivered its richest quarterly profit in the investment bank’s 140-year history, driven in part because it restrained compensation amid a public outcry about excessive pay.
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