Banking Law Prof Blog

Will the Bailouts Cost Less Than We Thought?

A recent Treasury Report concludes that the final loss figure for the $370 Billion it has lent to failing companies could be only $42 Billion (compared with Treasury's summer estimate of $341 Billion in potential losses from TARP.  The summer estimate was based on projected need for financial bailout assistance that did not materialize. 

Bailout loans to banks are expected to earn money for Treasury -- only a "slight profit," but not bad!  However, there could be an additional $100 Billion in losses yet to come from future troubled bank loans and assistance to homeowners and small businesses.

Link to story:  http://www.nytimes.com/2009/12/07/business/07tarp.html?_r=1

(ag) Dec. 7, 2009, in Economy

Fireworks Between Geithner and Representative Brady

In today's Joint House and Senate Economic Committee hearing, Republican Representative from Texas  Kevin Brady asked Treasury Secretary Timothy Geithner to resign.  Geithner responded in the negative, pointing out that President Obama inherited an economy "falling off the cliff." 

Link:  http://blogs.wsj.com/washwire/2009/11/19/geithner-says-he-wont-quit-takes-swings-at-gop-rep-brady/

(ag) Nov. 19, 2009, in Economy

Geithner Tells Banks They Should Lend More To Small Businesses

Bloomberg's Rebecca Christie has an article today discussing Treasury Secretary Timothy Geithner's perspective that bank's are "obligated" to extend more loans to small businesses.  The point is that if the economy is to recover, small businesses must have access to credit in order to preserve and create jobs. 

Loan originations by the biggest banks, specifically Bank of America and Wells Fargo, are dropping.  The article quotes Geithner as saying, "Large businesses get 30 percent of their financing from banks, while small businesses rely on banks for 90 percent for their credit."

Link to article:  http://www.bloombergtv.com/apps/news?pid=20670001&sid=aSGqj0grrrwM

(ag) Nov. 18, 2009, in Economy

Determining Who Gets A Bailout

Thanks to my Banking Law students for this insight into which financial entities receive government assistance and which do not:

Link: http://www.ebaumsworld.com/video/watch/80617042/

(ag) Nov. 17, 2009, in Economy

Government Overpaid for AIG Bailout

Special Inspector General for the Troubled Asset Program (SIGTARP) Neil Barovsky has issued a report concluding that negotiations conducted by then-New York Federal Reserve Bank President Timothy Geithner were "bungled." 

The amount of bailout funds to AIG increased from $85 Billion to $180 Billion.  And "billions more than necessary went to U.S. banks including Goldman Sachs Group Inc.; Merrill Lynch, now part of Bank of America Corp.; and Wachovia, now part of Wells Fargo & Co.; and European banks including Societe Generale, Deutsche Banke, UBS and Calyon."

Link to story:   http://news.yahoo.com/s/ap/20091117/ap_on_bi_ge/us_aig_bailouts

(ag) Nov. 16, 2009, in Economy

Report on SCAP Institutions Needing More Capital

Last Spring, 19 financial holding companies were required to undergo "stress testing" in the Supervisory Capital Assessment Program (SCAP).  Ten were determine to need more capital.  The Federal Reserve now says that nine of those have met increased capital targets.  The one exception is GMAC, which should meet increased capital standards through the TARP Automotive Industry Financing Program.

Link to FRB Press Release:  http://www.federalreserve.gov/newsevents/press/bcreg/20091109a.htm

(ag) Nov. 11, 2009, in Economy/Capital

Black Tuesday - Oct. 29, 2009

For an informative comparison to today's crisis, see this clip of PBS documentary discussing the 1929 Stock Market Crash on Black Tuesday, Oct. 29, 2009 . . . "The Wall Street economy disconnected from the real economy":

Link:  http://www.youtube.com/watch?v=RJpLMvgUXe8

(ag) Oct. 31, 2009, in Economy

An Opinion About Giving the Fed Too Much Power

In today's Forbes.com commentary, there's an interesting letter from Jagadeesh Gokhale, currently a Senior Fellow at the Cato Institute and formerly a Senior Economic Advisor at the Federal Reserve Bank of Cleveland.  Here's part of his message:

"In light of the recent asset price implosions and failures of large investment banks, should the Fed try to pre-emptively prick asset price bubbles? Furthermore, should the Fed be vested with the responsibility of regulating all financial institutions? Short answer: 'no' and 'no.'"

LInk: http://www.forbes.com/2009/10/28/fed-regulation-asset-bubbles-opinions-contributors-jagadeesh-gokhale.html

(ag) October 29, 2009, in Economy

Will the Bailouts Never End?

Bloomberg news reports that GMAC may get a third bailout.  They've already received two government bailouts totaling $13.5 billion, and are currently negotiating with the Treasury Department for a possible third capital injection of $2.8 billion to $5.6 billion.

Link to story:  http://www.bloomberg.com/apps/news?pid=20601087&sid=abvqTkQC.Ft4

(ag) Oct. 28, 2009, in Economy

Consumer Credit, Debt and Bankruptcy

Consumer Credit, Debt and Bankruptcy:  Comparative and International Perspectives

Edited by Johanna Niemi, Iain Ramsay and William C Whitford

The following is an abstract of an intriguing book of essays: 

"After a long period of prosperity and steady economic growth, the world's leading economies are now in crisis, and although there will be debate about its origins, the scale and seriousness of the crisis is in no doubt. There is also no doubt that excessive amounts of consumer credit, allied to a weak understanding of how globalised credit markets might react to a crisis, have played a significant part. This book, which is primarily about credit, debt and the trouble they have led to, is written by authors who have specialised in researching into over-indebtedness, that is, situations in which an individual's debt burden has become overwhelming.  For these authors the plight of individuals is a primary concern, but the wider issue is how credit is used and how it changes societies.  

The essays in this volume, addressing topics which are fundamental to our understanding of the current crisis, range widely across the whole sector of consumer finance, including mortgages, 'credit-binges', the regulation of consumer lending, insolvency, repayment plans, debt counselling and much more besides. The conclusions drawn from the book are equally wide-ranging, but above all the lesson learned from these essays is that the financialisation of contemporary life ensures that issues of the appropriate role of credit remain of critical importance in society."

(ag) Oct. 21, 2009, in Economy, Consumer Protection 

E-mails Indicate High Level Finagling in the BofA Acquisition of Merrill

Bloomberg reports today that e-mails show "interesting" discussions among Bank of America CEO Ken Lewis, Henry Paulson, Ben Bernanke, Timothy Geithner, and Lawrence Summers.

"Merrill, the world’s biggest broker, agreed to be acquired
after more than $50 billion of losses and writedowns tied to the
collapse of the subprime-mortgage market. By Jan. 8, a week
after the deal was completed and before details were disclosed,
federal officials changed their view of the purchase, according
to an e-mail from former Bank of America Treasurer Jeff Brown.
Fed and Office of the Comptroller of the Currency officials
“assign high probability the market will ‘attack us’ after
learning of the ‘government assistance’ to us,” Brown said in a
Jan. 8 e-mail to Price. Brown reminded the regulators that “1)
they forced us into this position and 2) they had provided every
assurance of a positive market response to any action from their
chairman to our chairman. They just got silent.”
The U.S. provided $20 billion in fresh capital and a $118
billion backstop on loans and mortgage-based securities to shore
up the purchase. Michelle Smith, a Fed spokeswoman, didn’t have
a comment."

Link to full story:  http://www.bloomberg.com/apps/news?pid=20601103&sid=aDv9AGUzXNRM

(ag) Oct. 20, 2009, in Economy

Bank Executive Bonuses Contrast with Unemployment Figures

Bank executives are criticized for excessive bonuses, especially when the profitability of their institutions comes more from government bailouts than from market performance.  Unemployment figures in the general economy provide a dismal contrast. 

The Obama administration is pointing out that the institutions giving excessive bonuses are the same ones that accepted government aid and now oppose financial regulatory reform to prevent a future financial crisis.

LInk to story:  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/18/AR2009101802542.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter

(ag) Oct. 19, 2009, in Executive Compensation, Financial Regulatory Reform, Economy

Accounting Changes and the Future of Securitization

Here's a link to a thoughtful analysis of how FASB changes may improve the long-run health of the mortgage securitization market but slow economic recovery in the general economy in the short run.

LInk:  http://www.stroock.com/SiteFiles/Pub839.pdf

(ag) Oct. 16, 2009, in Economy

Stimulus Report Card Today

Today, the government will release reports on how effective the $787 Billion stimulus package has been.

Link to story:  http://www.washingtonpost.com/wp-dyn/content/article/2009/10/14/AR2009101403760.html?wpisrc=newsletter&wpisrc=newsletter&wpisrc=newsletter

(ag) Oct. 15, 2009, in Economy

Ohio Attorney General Sues Bank of America

Ohio Attorney General Richard Cordray has filed suit against Bank of America in NY District Court on behalf of pension funds in Ohio, Texas, Sweden, and the Netherlands.  The alleged basis for the lawsuit is BofA's failure to disclose bonuses paid to Merrill Lynch executives.  BofA's stock price fell dramatically after it acquired Merrill.  

The SEC and BofA have been fighting over this same issue.

LInk to Wall Street Journal story:  http://online.wsj.com/article/SB125414739616946369.html

(ag) Oct. 12, 2009, in Economy, Executive Compensation

New President for Minneapolis Fed

The Federal Reserve Bank of Minneapolis has named a new President to replace Gary Stern, who recently retired.  Effective Oct. 8, the new President and CEO is Dr. Narayana Kocherlakota (the website even tells us how to pronouce it:  Nair-ah-yah-nah Koach-er-lah-ko-tah).   Dr. Kocherlakota is currently a professor of economics at the University of Minnesota.

Link to Announcement: http://www.minneapolisfed.org/news_events/rel/2009/093009.cfm

(ag) Sept. 7, 2009, in FRB, Economy

Merrill Lynch . . . It's Back!

The more things change, the more they don't -- even with a government bailout or maybe especially with a government bailout.

Reuters reports that Bank of America is "relaunching" Merrill Lynch's name and bull logo.

Of course, Bank of America is still searching for a CEO in the wake of bailout-related scandal (as in why should I tell B of A shareholders anything about bonuses for Merrill Lynch execs?) but one of their spokespeople "called the Merrill Lynch operations and the U.S. Trust business, the other main unit, two of the industry's 'crown jewels,' adding that she feels the industry is beginning to rebound."  Either that or she feels (correctly) that the American public is beginning to develop amnesia as usual.

LInk to story:  http://news.yahoo.com/s/nm/20091005/bs_nm/us_bankofamerica_merrill

(ag) Oct. 5, 2009, in Economy

The Minneapolis Fed - Great Source for TBTF Research Papers

The Federal Reserve Bank of Minneapolis, under the leadership of recently-retired President Gary Stern, has a long list of papers addressing the issue of "Too Big to Fail."

Evolution of Minneapolis Fed Thought:

• Macrostability Ratings: A Preliminary Proposal, Gary Stern and Ron Feldman, June 16, 2009.
  Addressing the Too Big to Fail Problem,
• Gary Stern Testimony before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington D.C., May 6, 2009 [PDF]
• Addressing TBTF by Shrinking Financial Institutions: An Initial Assessment Gary Stern and Ron Feldman, April 17, 2009, revised May 20, 2009
• Better Late Than Never: Addressing Too-Big-To-Fail,
  Gary Stern Speech, Washington D.C., March 31, 2009
• Banking Policies and Too Big To Fail,
  Gary Stern Speech, Minneapolis, Minnesota, March 26, 2009
• Prospects for Macro- and Financial Policy,
  Gary Stern Speech, St. Paul, Minnesota, February 5, 2009
• Prospects for Macro- and Financial Policy,
  Gary Stern Speech, Cedar Rapids, Iowa, January 14, 2009
• Too Big to Fail: The Way Forward
  Gary Stern Speech, November 13, 2008
• Policy and the Economy in the Wake of the Shock,
  Gary Stern speech, October 21, 2008
• Limiting Spillovers Through Focused Supervision, The Region, September 2008
• Message from the President
  Introducing the 2007 Annual Report Essay
• Managing the Expanded Safety Net, 2007 Annual Report Essay
• Repercussions from the Financial Shock, Gary Stern speech,
  August 14, 2008
• Too Big To Fail: The Hazards of Bank Bailouts, Excerpt from book by Gary H. Stern and Ron Feldman, The Region, December 2003
• More Information on Too Big To Fail: The Hazards of Bank Bailouts is available from Brookings Institution Press.

Link to Minneapolis Federal Reserve:  http://www.minneapolisfed.org/publications_papers/studies/tbtf/index.cfm

(ag) Oct. 5, 2009, in Financial Regulatory Reform, Economy

Bank Consolidation - Big Fish Gobbling Up Smaller Fish

Bank consolidation research led me to the graphical representation of bank consolidations to date which have produced the four largest U.S. banks:  Bank of America, JP Morgan Chase, Wells Fargo, and Citibank.

Enjoy:  http://www.creditloan.com/blog/the-great-bank-consolidation/

(ag) Oct. 4, 2009, in Economy

G-20 Becomes the Group to Watch

The Group of Seven (G-7) comprises the Finance Ministers of the U.S., U.K, France, Germany, Japan, Italy, and Canada.  G-8 includes these countries plus Russia.

The Group of Twenty (G-20) represents both developed and developing nations, including:  Argentina, Australia, Brazil, Canada, China, France, Germany, India , Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, U.K., U.S. and the EU.

The U.S. recently hosted the G-20 meeting in Pittsburgh.  G-7 Finance Ministers and Central Bankers are concluding a meeting in Istanbul, Turkey.  Their Statement issued Oct. 3, 009, commits to working with the other nations of the G-20. 

The G-20 brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population.

See story:  World leaders relaunch G-20 as top economic forum:  http://www.guardian.co.uk/world/2009/sep/25/g20-reform-pittsburgh-developing-nations

See G-7 Statement:  http://www.g8.utoronto.ca/finance/fm091003.htm

Home Page for the G-20:  http://www.g20.org/

(ag) Oct. 3, 2009, in Economy