Monthly Archives: January 2010

Watchdog: Bailouts created more risk in system – Yahoo! Finance

WASHINGTON AP — The governments response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.”Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” Barofsky wrote.Since Congress passed $700 billion financial bailout, the remaining institutions considered “too big to fail” have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

via Watchdog: Bailouts created more risk in system – Yahoo! Finance.

via Watchdog: Bailouts created more risk in system – Yahoo! Finance.

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Changing Landscape of Bank Stocks in 2010 – Yee Ong — Seeking Alpha

The fundamentals, dynamics, and structure of banks have changed dramatically after the financial crisis. �They are living on life support, will continue to lose their growth potential, and are no longer profitable investments.Banks today are like an indicted criminal whose fate lies in the government’s hands.� They have been found guilty of taking excessive risks and causing the near collapse of our country’s or even the world’s economy.� In the government’s eyes, they are as good as dead.� What keeps them alive are TARP money, stimulus programs, easy monetary policies from the Federal Reserve, and our government’s effort to make them appear healthier than they really are with accommodative accounting standards that mask certain losses. �But it is important that the Obama administration keeps this healthy banking system façade as he has used an exorbitant amount of taxpayers’ money to fund his rescue effort, and claiming victory is clearly a political necessity.� Now, he also has to walk a very fine line on this subject matter as a rosy picture of the bank will also anger the American taxpayers who are suffering at a time of a 24-year high unemployment rate of 10%, weak economy, and swelling budget deficits.� The recent loss of a Senate seat by the Democratic Party in Massachusetts has obviously caused Obama to rethink his political position, and the announcement of his plan to stem proprietary trading and hedge-fund investments at banks right after this politically significant event depicts the administration’s position to cap bank profits.We are in an environment where there are three stakeholders – the American taxpayers, the government, and the banks – and at most two winners can arise out of the current economy.� Since the ball is in the government’s hands and Obama needs taxpayers more than he does banks, the answer to the Wall Street or Washington question cannot be anymore obvious.�

via Changing Landscape of Bank Stocks in 2010 – Yee Ong — Seeking Alpha.

via Changing Landscape of Bank Stocks in 2010 – Yee Ong — Seeking Alpha.

Obama to Propose New Limits on Banks – WSJ.com

WASHINGTON—President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.

via Obama to Propose New Limits on Banks – WSJ.com.

via Obama to Propose New Limits on Banks – WSJ.com.

Morgan Stanley Allots 62% of Revenue to Employee Pay Update2 – Bloomberg.com

Jan. 20 Bloomberg — Morgan Stanley, the world’s biggest brokerage, allocated 62 percent of revenue to pay employees in 2009, the highest ratio in more than a decade, as the firm added staff faster than it made money.The compensation and benefits expense rose 31 percent to $14.4 billion as revenue climbed 28 percent, the New York-based company said today. Because Morgan Stanley added more than 15,000 employees in June through its Morgan Stanley Smith Barney wealth-management joint venture, average compensation per employee fell to $235,193 from $244,000 last year.Wall Street firms including Morgan Stanley are under pressure from politicians and regulators to curb year-end bonuses after taxpayer funds helped the companies rebound from the financial crisis. At the same time, Morgan Stanley’s efforts to keep brokers at Smith Barney and hire 400 people for sales and trading added to compensation costs. The bank posted fourth- quarter earnings from continuing operations of $413 million today, missing analysts’ estimates on lower trading revenue.

via Morgan Stanley Allots 62% of Revenue to Employee Pay Update2 – Bloomberg.com.

via Morgan Stanley Allots 62% of Revenue to Employee Pay Update2 – Bloomberg.com.

Obama Calls for New Tax on Banks – NYTimes.com

Flanked by his economic advisers at the White House, Mr. Obama used some of his harshest language to date against the resurgent financial industry.“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair, that by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”Mr. Obama continued, “What I say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.”

via Obama Calls for New Tax on Banks – NYTimes.com.

via Obama Calls for New Tax on Banks – NYTimes.com.

Turner Plan on ‘Socially Useless’ Trades Make Bankers See Red – Bloomberg.com

To reduce the appetite for speculative risk, Turner is promoting a levy on financial transactions to divert money to the poor and support efforts to address climate change. The so-called Tobin tax is named after the late U.S. economist James Tobin, a Nobel laureate who proposed a surcharge on currency trading to deter speculation.

“I believe in markets; I believe in enterprise,” says Turner, who numbers Franklin D. Roosevelt and British economist John Maynard Keynes among his personal heroes. “But I have always believed that market economies will not of themselves combine that with environmental sustainability or with a reasonably just and good society. I believe that capitalism needs to be saved from itself.”

via Turner Plan on ‘Socially Useless’ Trades Make Bankers See Red – Bloomberg.com.

via Turner Plan on ‘Socially Useless’ Trades Make Bankers See Red – Bloomberg.com.

For Wall St., Question on Top Bonuses Is 7 Figures or 8 – NYTimes.com

Goldman Sachs is expected to pay its employees an average of about $595,000 apiece for 2009, one of the most profitable years in its 141-year history. Workers in the investment bank of JPMorgan Chase stand to collect about $463,000 on average.Many executives are bracing for more scrutiny of pay from Washington, as well as from officials like Andrew M. Cuomo, the attorney general of New York, who last year demanded that banks disclose details about their bonus payments. Some bankers worry that the United States, like Britain, might create an extra tax on bank bonuses, and Representative Dennis J. Kucinich, Democrat of Ohio, is proposing legislation to do so.Those worries aside, few banks are taking immediate steps to reduce bonuses substantially. Instead, Wall Street is confronting a dilemma of riches: How to wrap its eye-popping paychecks in a mantle of moderation.

via For Wall St., Question on Top Bonuses Is 7 Figures or 8 – NYTimes.com.

via For Wall St., Question on Top Bonuses Is 7 Figures or 8 – NYTimes.com.