Wall Street and Washington are not known for subtleties, but bailout discourse is getting to be like the dialogue in a Jane Austen novel with coy hints, convoluted language and hidden meanings in every line.
In "a delicate balancing act," we are told, "The administration has decided to reveal some sensitive details of the stress tests now being completed" to offset rumors about some of the weakest institutions.
This breach of etiquette is prompted by recent declarations of some impoverished but proud banks that they are actually making money again and will pay back or decline future government charity.
Translation: Banks want the money but only without being told how to pay not only top executives but, as one returner of bailout cash puts it, "our best sales people, our best relationship bankers."
If Obama is Mr. Darcy in all this folderol, Goldman Sachs is turning out to be his Elizabeth Bennet, pridefully announcing plans to disdain further help: “We just think that operating our business without the government capital would be an easier thing to do. We’d be under less scrutiny, and under less pressure."
But Goldman's newfound haughtiness can't cover the fact that it has been kept afloat by billions of never-to-be-returned Federal Reserve money paying off AIG obligations at face value rather than deep discounts, as the Wall Street Journal observes:
"The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller. Either that, or we need a new financial resolution or bankruptcy process that lets these companies fail while protecting the larger banking system."
Meanwhile, the plots keep thickening and, unlike Jane Austen's works, are not guaranteed to have happy endings.
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Thursday, April 16, 2009
Monday, March 16, 2009
Bailout Roulette
Connoisseurs of irony may relish this round trip of millions of taxpayer dollars--from the Federal Reserve to AIG to UBS and back to the US Treasury.
Under pressure from Congress and the public, AIG yesterday released names of financial institutions that benefited from the Federal Reserve’s decision last fall to bail out the giant insurer. Among them was the Swiss Bank UBS, which got $5 billion.
Last month, UBS had to pay $780 million to settle federal charges of helping customers defraud the IRS with offshore accounts. As part of the deal, UBS agreed to cooperate with a summons by the Justice Department to turn over names of account holders under the threat that the bank's executives could be indicted if UBS failed to do so.
So here we have bailout money spinning from the US government to a too-big-to-fail financial giant that blew billions to a crooked Swiss bank that help rich Americans cheat on their taxes and now has to give some of it back in fines for doing so.
Amid all this wheeling and dealing among incompetents and thieves, there is a little extra touch that one of the UBS executives who could be hauled into court is John McCain's campaign economic adviser, former Sen. Phil Gramm, a vice chairman of UBS who recently told Wall Street Journal readers that it wasn't the deregulation he sponsored that started the mortgage meltdown.
The money just keeps going round and round and, as croupiers like to say, where it stops nobody knows.
Under pressure from Congress and the public, AIG yesterday released names of financial institutions that benefited from the Federal Reserve’s decision last fall to bail out the giant insurer. Among them was the Swiss Bank UBS, which got $5 billion.
Last month, UBS had to pay $780 million to settle federal charges of helping customers defraud the IRS with offshore accounts. As part of the deal, UBS agreed to cooperate with a summons by the Justice Department to turn over names of account holders under the threat that the bank's executives could be indicted if UBS failed to do so.
So here we have bailout money spinning from the US government to a too-big-to-fail financial giant that blew billions to a crooked Swiss bank that help rich Americans cheat on their taxes and now has to give some of it back in fines for doing so.
Amid all this wheeling and dealing among incompetents and thieves, there is a little extra touch that one of the UBS executives who could be hauled into court is John McCain's campaign economic adviser, former Sen. Phil Gramm, a vice chairman of UBS who recently told Wall Street Journal readers that it wasn't the deregulation he sponsored that started the mortgage meltdown.
The money just keeps going round and round and, as croupiers like to say, where it stops nobody knows.
Tuesday, February 03, 2009
Bailout Boomerang
Taxpayer money pouring into banks has not only failed to get loans flowing but even worsened the practices of those that received it.
"The federal government," the Washington Post reports, "has invested almost $200 billion in U.S. banks over the last three months to spark new lending to consumers and businesses.
"So far, it hasn't worked. Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn't."
In the Paulson free-money giveaway, recipients have used government funds to merge with weaker institutions, increase reserves and improve their balance sheets.
But the total volume of loans outstanding from all banks fell about 1 percent, according to Federal Reserve data, declining more than twice as much among those that accepted taxpayer money. Some of the first to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops.
An irony that emerges is that depositors are shying away from big banks seen to be in bad shape and, encouraged by the increase in FDIC protection, putting money into weaker institutions that offer higher interest rates.
In the face of this bailout boomerang, members of Congress from both parties are now looking for ways to pressure recipients into making more loans, starting with more closely tracking how banks use the money they get.
Barney Frank, chairman of the House Financial Services Committee, expects the Obama Administration to pressure banks harder to increase lending, saying the initial bailout should have come with tougher conditions. He plans to hold hearings this week to push the effort.
This dispiriting picture raises larger questions about the "too big to fail" premise of the bailouts. So far results based on that assumption with a hands-off approach by the government have not been encouraging.
"The federal government," the Washington Post reports, "has invested almost $200 billion in U.S. banks over the last three months to spark new lending to consumers and businesses.
"So far, it hasn't worked. Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn't."
In the Paulson free-money giveaway, recipients have used government funds to merge with weaker institutions, increase reserves and improve their balance sheets.
But the total volume of loans outstanding from all banks fell about 1 percent, according to Federal Reserve data, declining more than twice as much among those that accepted taxpayer money. Some of the first to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops.
An irony that emerges is that depositors are shying away from big banks seen to be in bad shape and, encouraged by the increase in FDIC protection, putting money into weaker institutions that offer higher interest rates.
In the face of this bailout boomerang, members of Congress from both parties are now looking for ways to pressure recipients into making more loans, starting with more closely tracking how banks use the money they get.
Barney Frank, chairman of the House Financial Services Committee, expects the Obama Administration to pressure banks harder to increase lending, saying the initial bailout should have come with tougher conditions. He plans to hold hearings this week to push the effort.
This dispiriting picture raises larger questions about the "too big to fail" premise of the bailouts. So far results based on that assumption with a hands-off approach by the government have not been encouraging.
Wednesday, November 12, 2008
Making Book on Paulson
An editor once proposed a picture book titled "They Must Know What They're Doing or They Wouldn't Be Where They Are," featuring the captain of the Titanic, the designer of the Edsel, LBJ running the Vietnam war and other disaster-prone people in high places.
Add Henry Paulson to the list. After pushing Congress into a panic to let him buy toxic mortgage assets, Bush's Treasury Secretary today said maybe not, announcing the plan is on hold.
At a news conference, Paulson said the $700 billion will be used instead to bolster the financial markets and, in turn, make loans more accessible for creditworthy borrowers:
“During times like these with a slowing economy and some deterioration in credit conditions, even the healthiest banks tend to become more risk-averse and restrain lending, and regulators’ actions have reinforced this lending restraint in the past.”
Four federal agencies, including the Federal Reserve and the FDIC, joined in by issuing a statement practically begging banks to step up: “Lending to creditworthy borrowers provides sustainable returns for the lending organization and is constructive for the economy as a whole.”
Paulson's turning on a dime is analogous to what the Bush Administration might have done five years ago if, after getting Congress to authorize invasion of Iraq and starting the shock and awe, they suddenly decided to stop and bomb Iran instead.
No wonder, in the face of all this fumbling, the stock market keeps going down, waiting for a signal about where all this confusion is heading.
The naming of Obama's Treasury Secretary, along with a clear statement of intentions about the financial markets, gets more urgent with each passing day.
Add Henry Paulson to the list. After pushing Congress into a panic to let him buy toxic mortgage assets, Bush's Treasury Secretary today said maybe not, announcing the plan is on hold.
At a news conference, Paulson said the $700 billion will be used instead to bolster the financial markets and, in turn, make loans more accessible for creditworthy borrowers:
“During times like these with a slowing economy and some deterioration in credit conditions, even the healthiest banks tend to become more risk-averse and restrain lending, and regulators’ actions have reinforced this lending restraint in the past.”
Four federal agencies, including the Federal Reserve and the FDIC, joined in by issuing a statement practically begging banks to step up: “Lending to creditworthy borrowers provides sustainable returns for the lending organization and is constructive for the economy as a whole.”
Paulson's turning on a dime is analogous to what the Bush Administration might have done five years ago if, after getting Congress to authorize invasion of Iraq and starting the shock and awe, they suddenly decided to stop and bomb Iran instead.
No wonder, in the face of all this fumbling, the stock market keeps going down, waiting for a signal about where all this confusion is heading.
The naming of Obama's Treasury Secretary, along with a clear statement of intentions about the financial markets, gets more urgent with each passing day.
Monday, July 14, 2008
Day-Late-and-Dollar-Short Government
Trot out the clichés about closing the barn door for news today that the Federal Reserve is cracking down on shady lending practices to home buyers and President Bush is fighting high gas prices by lifting a ban on offshore drilling for oil.
As Americans drown in bad economic news, these daring rescue moves are the equivalent of throwing them concrete life preservers.
The Fed's new rules to protect the public against predatory lenders of subprime mortgages are too little for future home buyers and too late for the millions who are losing their homes at the highest rate in history.
The regulations, which take effect in October, will require more disclosure, but bank lobbyists have managed to make sure they contain "loopholes that would allow shady lending practices to continue" and reassure financial industry executives, "who feared increasing oversight would lead to less lending."
But the Fed's attempt to ease public fears is positively heroic when compared to the Presidential move, which has no meaning whatsoever unless Congress acts as well and, even after that, would have no effect on gas prices for years. But that didn't deter the White House from staging a White House signing for the evening news.
There may be a pony somewhere in one of those barns, but the public would be well-advised not to invest in riding clothes.
As Americans drown in bad economic news, these daring rescue moves are the equivalent of throwing them concrete life preservers.
The Fed's new rules to protect the public against predatory lenders of subprime mortgages are too little for future home buyers and too late for the millions who are losing their homes at the highest rate in history.
The regulations, which take effect in October, will require more disclosure, but bank lobbyists have managed to make sure they contain "loopholes that would allow shady lending practices to continue" and reassure financial industry executives, "who feared increasing oversight would lead to less lending."
But the Fed's attempt to ease public fears is positively heroic when compared to the Presidential move, which has no meaning whatsoever unless Congress acts as well and, even after that, would have no effect on gas prices for years. But that didn't deter the White House from staging a White House signing for the evening news.
There may be a pony somewhere in one of those barns, but the public would be well-advised not to invest in riding clothes.
Friday, May 02, 2008
Credit-Card Crackdown
Being held up at gunpoint is a minor problem for most Americans compared to having money stolen from them by credit-card companies. Now, as the economy worsens, regulators are finally bestirring themselves to prevent some of the theft.
The Washington Post reports: "The Federal Reserve and two other banking regulators are set to unveil today one of the most aggressive efforts in decades to crack down on the credit card industry, prohibiting practices such as arbitrarily raising interest rates on outstanding balances.
"The proposed regulations, which could be finalized by year's end, would label as 'unfair or deceptive' practices that consumers have long complained about. That includes charging interest on debt that has been repaid and assessing late fees when consumers are not given a reasonable amount of time to make a payment."
More than a year after hearings on the industry's "unfair or abusive" practices, Congress has done nothing about the loan-shark tactics of large banks that charge as much as 30 percent interest for late payments and cash advances.
After being burned by the sub-prime mortgage scandal, federal regulators are taking some action to head off massive credit-card defaults beyond their efforts to educate consumers on how issuers use fine print to steal from them.
The Washington Post reports: "The Federal Reserve and two other banking regulators are set to unveil today one of the most aggressive efforts in decades to crack down on the credit card industry, prohibiting practices such as arbitrarily raising interest rates on outstanding balances.
"The proposed regulations, which could be finalized by year's end, would label as 'unfair or deceptive' practices that consumers have long complained about. That includes charging interest on debt that has been repaid and assessing late fees when consumers are not given a reasonable amount of time to make a payment."
More than a year after hearings on the industry's "unfair or abusive" practices, Congress has done nothing about the loan-shark tactics of large banks that charge as much as 30 percent interest for late payments and cash advances.
After being burned by the sub-prime mortgage scandal, federal regulators are taking some action to head off massive credit-card defaults beyond their efforts to educate consumers on how issuers use fine print to steal from them.
Monday, March 17, 2008
A Trillion Here, a Trillion There
A publisher I knew once proposed a picture book, "They Must Know What They're Doing or They Wouldn't Be Where They Are," to show the captain of the Titanic, the designers of the Edsel, LBJ running the War in Viet Nam and other overseers of spectacular 20th century blunders.
The Bush Administration now rates a sequel all its own for being in charge of two cataclysms, in the Middle East and here at home.
As Bear Stearns, the poster boy for Wall Street greed, gets gobbled up with the help of taxpayer money, Paul Krugman today asks, "When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?"
Not much is the answer, he points out, citing "false beliefs in the private sector" that "led to an epidemic of bad lending" and how "false beliefs in the political arena --the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing--led Washington to ignore the warning signs."
Now even the temple of free enterprise, Rupert Murdoch's Wall Street Journal, is yelling "Uncle," editorially calling for a "more aggressive, and pre-emptive, regulatory role for the Fed...to restore its monetary credibility, or today's panic could become tomorrow's crash."
In assessing the cost of Iraq and the financial meltdown here, Washington is going to have update Everett Dirksen's old maxim, "A billion here, a billion there, and pretty soon you're talking about real money." Just add the zeroes and pray for some real brains and leadership in the White House next year.
The Bush Administration now rates a sequel all its own for being in charge of two cataclysms, in the Middle East and here at home.
As Bear Stearns, the poster boy for Wall Street greed, gets gobbled up with the help of taxpayer money, Paul Krugman today asks, "When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?"
Not much is the answer, he points out, citing "false beliefs in the private sector" that "led to an epidemic of bad lending" and how "false beliefs in the political arena --the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing--led Washington to ignore the warning signs."
Now even the temple of free enterprise, Rupert Murdoch's Wall Street Journal, is yelling "Uncle," editorially calling for a "more aggressive, and pre-emptive, regulatory role for the Fed...to restore its monetary credibility, or today's panic could become tomorrow's crash."
In assessing the cost of Iraq and the financial meltdown here, Washington is going to have update Everett Dirksen's old maxim, "A billion here, a billion there, and pretty soon you're talking about real money." Just add the zeroes and pray for some real brains and leadership in the White House next year.
Saturday, September 15, 2007
Greenspan and Groucho
In his complex commentaries, the former Fed chairman always seemed the ultimate anti-Groucho, immune to pith and irony.
But ironies abound. Even as Alan Greenspan sums up his public life, news of the book itself reflects a central lesson from it--the difficulty of controlling events in a free-enterprise society.
The New York Times was given an exclusive first look to report on publication date, Monday. But the Wall Street Journal bought a copy, published excerpts last night, and other news organizations followed.
The big news, according to the Journal, is Greenspan’s assertion that “the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles.”
“They swapped principle for power,” the Times quotes him as writing. “They ended up with neither. They deserved to lose.”
In coming days, there will be debate over Greenspan’s role in promoting the housing bubble and his apparent approval of sub-prime lending, which has now led to a credit disaster, as well as other facets of his management of the Fed under four presidents.
In the media blitz next week to push his book, Greenspan may want to revert to his show-business roots as a saxophone player and give interviewers a few of Groucho’s cryptic one-liners. Otherwise they won’t understand his explanations any more than they did when what he said really mattered.
But ironies abound. Even as Alan Greenspan sums up his public life, news of the book itself reflects a central lesson from it--the difficulty of controlling events in a free-enterprise society.
The New York Times was given an exclusive first look to report on publication date, Monday. But the Wall Street Journal bought a copy, published excerpts last night, and other news organizations followed.
The big news, according to the Journal, is Greenspan’s assertion that “the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles.”
“They swapped principle for power,” the Times quotes him as writing. “They ended up with neither. They deserved to lose.”
In coming days, there will be debate over Greenspan’s role in promoting the housing bubble and his apparent approval of sub-prime lending, which has now led to a credit disaster, as well as other facets of his management of the Fed under four presidents.
In the media blitz next week to push his book, Greenspan may want to revert to his show-business roots as a saxophone player and give interviewers a few of Groucho’s cryptic one-liners. Otherwise they won’t understand his explanations any more than they did when what he said really mattered.
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