Category: regulation

Bair Says More Bank Failures in 2010 than in 2009

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Statement about Bank Failures at 2:00

By way of context, remember that we’ve had 133 failures so far this year.

It’s nice that she’s honest about the situation, but all those Wall Street pukes in the Obama administration, must really, really, hate her, because they make it much harder to return to business (obscene pay and bonuses for failure) as usual in the finance industry:

Bank failures will continue to accelerate into next year despite “some encouraging signs” that things are turning around for the battered industry, FDIC Chair Sheila Bair told CNBC.

There are a lot of people in the Obama administration who want to declare success, and walk away from the “real change” that both the finance industry, and the economy, deeply need.

Economics Update

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Surprise! Geithner and Bernanke:
As popular as a case of the Clap.
H/t Calculated Risk


And ore Americans than ever are on food stamps, h/t Naked Capitalism

Well, we have a bunch of good news on the consumer front, with retail sales growing by 1.3% in November, more than the 0.6% forecast, and the Reuters/University of Michigan Consumer Sentiment Index rose to 73.4 in early December, up from 67.4 last month, and well above the forecast of 69.0, which is all very good, since the holiday season is a huge part of retail sales, but the Discover Financial Services survey is showing that consumers are looking to slash their spending by 15%.

Yeah, I’m confused too.

I would also note that the number of people collecting food stamps hit a record, 37.2 million, which raises the question if, “food stamps are the soup lines of this Great Depression?”

We are now seeing some rumblings of inflation on the other side of the pond, with UK factory input prices rising at fastest pace in a year, 4%:

Input prices gained by 4% last month from November 2008, and by 0.4% from October.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

So we are likely going to have some of the central banks out there, most likely the ECB, panicking and jacking up rates at just the wrong time.

Still, the retail sales numbers drove the dollar rises to a 2-month high, though interestingly enough, oil fell for the 8th straight day, to $69.87/bbl, which is kind of odd, increased consumer sales implies increased demand, but a rising dollar may trump that in the mind of oil speculators.

House Votes to Tighten Regulation of Financial System – NYTimes.com

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House Votes to Tighten Regulation of Financial System – NYTimes.com thankfully, the CFPA survives, but they voted down cramdown on mortgages in bankruptcy, and voted for the contemptible Melissa Bean’s contemptible preemption language, which allows the Office of the Comptroller of the Currency, to strike down state consumer protections.

USA Today, of all people was right hen it said that, “The Comptroller of the Currency, for example, behaved much like a banking lobby embedded in the Treasury Department,” so this is simply repulsive.

Bullet points:

  • The Creates the Consumer Financial Protection Agency (CFPA) is created.
  • A Financial Stability Council is created.
  • Dissolution Authority, though the way that it is structured, it may be considered a “perpetual TARP”.
  • Shareholders get a non-binding “say on pay”, which means nothing.
  • Increases the SEC’s powers.
  • Regulation of Derivatives, but it’s full of loopholes.
  • Mortgage Reform.
  • Reform of Credit Rating Agencies:a biggie if the reforms mean anything, but they seem to be weak tea.
  • Registration of hedge funds, though it seems weak.
  • Creates an Office of Insurance, which is a big thing, since insurers are likely the to be in the meltdown shortly.

In the least surprising news of the day, it appears that no Republican voted for the bill.

A long list of the amendments is here.

It’s better than nothing, but not by much, and you know that the bad parts will be kept, and the good parts thrown overboard, in conference committee.

Another Jewel from Taibbi

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I posted the video of him going over the basics of this article last week, and this week, Matt Taibbi’s full article in Rolling Stone, Obama’s Big Sellout, goes into more detail.

Taibbi is more charitable than I am, because he wonders, “Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we’ve been seeing on TV this fall who Obama really is?”

Cynic that I am, I don’t think that he’s a wet behind the ears politico hoodwinked by Wall Street: Every action that he has taken has been about what makes things easier for Barack Obama, whether it be the banks, or torture, or gay rights, or the Afghanistan and Iraq wars.

It’s no surprise then that he goes for the bankers over the ordinary people: The bankers could bankroll someone like Sarah Palin, and the ordinary people have no where else to go.

Taibbi’s article is a blistering indictment of what Barack Obama, and to a lesser extent Barney Frank have been doing, or more accurately not doing, about wall street.

To get a sense of the article, you need only read this paragraph:

The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. “You can’t expect these people to do anything other than protect Wall Street,” says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama’s first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. “Credit is the lifeblood of the economy,” he declared, pledging “the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money.” A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.

Though I would say that I enjoyed this slam of “Eddie Haskell” too:

That probably won’t happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary’s fingerprints on virtually all the gross giveaways in the new reform legislation, he’s a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — “he almost has to,” says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.

If you think that eleventy dimensional chess is going on here, you have the political acumen of Little Orphan Annie®.

Now go read the article.

Why is the Best Person on Obama’s Economic Team is a Bush Appointee

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I am referring, of course to Sheila Bair, who is now trying to use the FDIC’s leverage over banks that have loan loss sharing agreements with the agency to offer principal reductions on homes:

Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

The FDIC, which has taken over 124 failed banks this year, may seek to have lenders that sign loss-sharing agreements when acquiring the assets do more than cut interest rates or defer the loan’s principal, Bair said today in an interview at Bloomberg’s Washington office.

“We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”

Good for her, though it reflects very poorly on Obama that his people are being shown to be in the pockets of the finance industry.

Thank You Blue Dogs

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Well, it looks like everyone’s corporate whores, Melissa Bean and Walt Minnick getting deals that are likely to scuttle any and all state consumer protection of financial companies and the Consumer Financial Protection Agency, respectively.

What makes it worse is that Bean’s primary challenger has been bounced from the ballot, so the choice of the voters in IL-8 is the Bean, the Green, or the Crazy Mean.* (Republican)

*No, I’m not saying how long it took me to make up that bit of doggerel.

Economics Update

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There is no wealth creation for ordinary folk, just bubble creation, h/t Calculated Risk


Crude prices, h/t OilEnergy

So, today is “Jobless Thursday, and initial unemployment claims spiked unexpectedly to 474,000.

Truth be told, it’s not a surprise. Non-farm payrolls need to rise at about 300,000 a month, so the “really good” NFP numbers in November, which had a -11,000 number indicates that things still really suck.

We have seen a drop in the U.S. trade deficit in November, which has been driven by export growth, though falling oil prices (see lower pic), and the fact that US consumers are still not in the mood to buy anything, including imports.

We have some good news on household net worth which grew by $2.7 trillion in the 3rd quarter, largely on the recent stock market bubble rally.

In real estate, the 30-year fixed mortgage rate rose this week, and
foreclosures fell in November, though, as the article notes, this may be a a pause more than anything else:

“They’re artificially low because of underlying causes,” said Rick Sharga, vice president of RealtyTrac.

He cites three reasons why foreclosures have dropped in certain states: The holiday season, when foreclosures typically slow down; the government’s mortgage modification program, which has created a slowdown in delinquent loans; and mandatory mediation in more states between homeowners and lenders before going into foreclosure.

In the world of central banks, the Bank of England left its benchmark rate unchanged at ½%, while maintaining its asset purchase (printing money) program.

Something interesting occurring in the world of US Treasurys though, the yield curve is the steepest since 1980.

The nickel tour is that when you buy a 2-year bond, you get less interest than if you buy a 30-year bond, because the risks of a 30-year bond are higher, not in terms of default, but because your money is locked up, and interest rates can go up, or you can need the money in a hurry, etc.

The difference is now 373 basis points (3.73%), with average over the past 5 years being 132 basis points.

It may be a market burp, or it may be inflationary concerns.

In currency, the dollar was essentially unchanged, while in energy, oil fell for the 7th day in a row on economic concerns.

I Really Want to Live in the UK

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Well, we now have the details on Alistair Darling’s proposal to tax bonuses in the UK, and it looks very good: It’s a 50% tax on all bonuses in the banking industry in excess of £25,000.00 ($40,700).

What is interesting is that this is not a tax on income, but a tax on the bonus reserves themselves, so it avoids the human rights:

Instead of legislating for a levy on individual bankers, the Treasury has focused on the simpler and potentially legally safer route of taxing the bonus pool used by banks for staff compensation.

The recipient of such a bonus would still have to pay personal income tax, so, if he would normally have received a bonus of £100K, he would get a bonus of £50K, and that would be subject to taxation by Her Majesty’s Revenue and Customs. (see also here)

It disincentivizes the huge bonus awards, and it fills a significant hole in the UK budget, raising £550 million this year, and £3 billion in the future.

In any case, Bloomberg decided to waste a reporter’s day by making him write a story about how it probably won’t happen in the United States.

Well, duh, banks here are largely succeeding in gutting financial reform here.

Make them pay their fair share of taxes? Fuggedaboudit!

I Spoke Too Soon

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It looks like Barack Obama’s pay Czar will back down on pay restrictions:

Kenneth Feinberg, the U.S. paymaster for rescued companies, will exempt some executives at American International Group Inc. from a $500,000 salary cap after at least five employees threatened to quit because of the limits, people familiar with the matter said.

Feinberg may issue a ruling as early as next week on pay limits for 75 of the bailed-out insurer’s executives, the people said. Last week, five executives said they were prepared to resign if their compensation was significantly cut, according to the people, who declined to be named because the talks are ongoing. Two have since retracted the threat, the people said.

I kind of expected it from “Status Quo O”, change you can’t believe in.

Don’t Let the Door Hit Your Ass on the Way Out

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Senior executives at AIG are threatening to quit if the pay Czar cuts their salaries.

The appropriate response here is, “Fine …… Go …… But we will scrupulously enforce your non-compete contracts, so if you go to a competitor who has had dealings with AIG, or with a firm that would benefit from your knowledge of AIG we will go after you.”

Note that this means pretty much everyone in high finance world wide.

Wishing That I Was a Brit

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Chancellor of the Exchequer Alistair Darling will be levying a tax on excessive bonuses:

Alistair Darling will try to force a “permanent culture shift” in the City as he announces a one-off punitive super-tax of more than 50% on the bonuses of tens of thousands of bankers as the centrepiece of the pre-budget report.

The chancellor intends his targeted, one-off levy as a clear message that the City has to “start living in the real world” as the financial sector prepares to lavish hefty payouts on its staff.

The new super-tax rate will be aimed at any bonus above a fixed rate, rather than the basic salary of the employee. It is intended to hit many thousands of bankers, but low-paid staff in bank branches will be exempt.

The tax will be set higher than the 50% income tax rate coming in from April for those earning more than £150,000 a year, sources indicate.

Needless to say, the bankers don’t like this, calling the measure, “populist, political and penal.”

I think that they meant the statement as a condemnation, but I found it to be a complement, though I do like the alliteration.

The details are not clear, but I would suggest something on the order of 93% of anything in excess of £400,000.