Volcker Rule Gets Poor Marks Out of the Box

What is the Volcker rule?  The headlines in the press describe a nebulously defined financial regulation as being the second coming of financial reform  Yet the only thing clear about the Volcker rule is who it is named after, former Federal Reserve chair Paul Volcker.  The Volcker rule was a last minute financial regulation rule in an attempt to stop speculative trading by Wall Street.  It has been politicized, lobbied against, delayed, watered down and modified heavily.

Payday Predators Move to the Internet

Payday loans have to be the poster child for exploiting the poor.  People should never get a payday loan.  Selling blood or begging in the streets is a better option.  The Pew Chartable Trust has been on the warpath to expose these exploitive sorts of financial ripoffs which it turns out are quite the profitable business.

Is The FDIC Doing Death By 1000 Cuts Against TBTF Banks?

mersJust when you think Justice will never be done, another civil lawsuit is filed. The FDIC filed three lawsuits against Goldman Sachs, JP Morgan Chase and BoA among others for peddling bad mortgage backed securities stuffed with toxic mortgages to their sucker, Guaranty Bank of Austin, Texas. Guaranty Bank later failed in 2009. Housing Wire:

This week, the regulator filed multiple lawsuits in Travis County (Austin), suggesting Guaranty suffered major losses from toxic RMBS loans sold and packaged by mega banks and other financial institutions.

Defendants named in the multibillion-dollar lawsuits include Countrywide, JPMorgan Chase ($38.04 0%), Ally Financial, Deutsche Bank Securities ($34.07 0%), Bank of America ($8.19 0%) and Goldman Sachs ($105.32 0%) among others.

FDIC, on behalf of Guaranty, claims the banks misrepresented loan-to-value ratios, underwriting criteria and appraisal amounts when selling, packaging and underwriting home loans that became collateral for mortgage securities sold to Guaranty.

Bank of America's Socialize the Risk and Reap the Reward Business Model

boycott BoABank of America just made $6.2 billion dollars in record profit.

Buoyed by one-time gains from accounting changes and the sale of assets, Bank of America reported a $6.23 billion profit for the third-quarter

What were those accounting changes and sale of assets? It appears Bank of America moved Merrill Lynch derivatives to a FDIC insured subsidiary. Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Swipe Fees, Profits, Banks and the Politicians Who Love Them

Earlier we saw banks posted record profits for the first three months of this year.

Quarterly net income rose to a three-year high. Net income was the best for the industry since the $36.8 billion earned in the second quarter of 2007. More than half of all institutions (56 percent) reported higher net income than a year earlier. Fifteen percent reported negative net income, down from 19 percent in the first quarter of 2010.

The Story of Citigroup's Extraordinary Financial Assistance

SIGTARP released a new audit report, Extraordinary Financial Assistance Provided to Citigroup which should shock and awe.
Citigroup was bailed out in November 2008, with $20 billion dollars plus $301 billion in asset guarantees. Now the Special Inspector General of TARP has gone back and done an audit, a forensic accounting of what really happened.

It appears Citigroup poses systemic risk was just screamed from the roof tops like Chicken Little and the solution was to throw money at it. No one bothered to check if this was even true, that Citigroup presented a systemic collapse of the global financial system if it failed. Even worse, while systemic risk is so complex, kind of a domino theory of multi-dimensions, yet to ascertain the possibility, it was implied why bother? From the report:

First, the conclusion of the various Government actors that Citigroup had to be saved was strikingly ad hoc. While there was consensus that Citigroup was too systemically significant to be allowed to fail, that consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria. Given the urgent nature of the crisis surrounding Citigroup, the ad hoc character of the systemic risk determination is not surprising, and SIGTARP found no evidence that the determination was incorrect.

Government in the Securitization Business

Thought bail outs were over?   Think again.    Last Friday the government bought $50 billion in toxic assets from three corporate credit unions.

The government’s National Credit Union Administration seized three corporate credit unions on Friday and announced a plan to separate the $50 billion of troubled assets from the industry.

What is a corporate credit union you ask? A corporate credit union is kind of a wholesale or bank to the regular credit unions which consumers use.

The NCUA press release overviews their Corporate System Resolution to deal with buying billions of worthless crap derivatives. What are they doing? Repackaging $50 billion in worthless derivatives as $35 billion in government backed derivatives. I kid you not. The government is in the securitization business.

La de da, look at the NCUA's statement on how the corporate credit unions got into trouble:

Several large corporate credit unions made large investments in private label mortgage-backed securities that are now worth much less than the amount the corporates originally paid for them. This affected corporate credit unions in two significant ways.

FDIC Proposal: Link Banks Risk to Executive pay

Earlier we mentioned the FDIC might take on executive pay.

Now the FDIC is asking for comments on this proposal.

The FDIC is seeking comment on how these types of risks should be accounted for when setting an institution’s risk-based assessment.

Employee compensation programs have been cited as a contributing factor in 35 percent of the reports prepared in 2009 investigating the causes of insured depository institution failures and the associated losses to the DIF.

Bloomberg reports the FDIC board vote.

FDIC may take on Executive Pay

The headline, FDIC eyes linking levies to bank pay, is yet another media sound byte which might be yet another PR stunt with no action.

US banks’ contributions to a multi-billion dollar fund that insures depositors’ savings could be linked to regulators’ assessment of bank pay plans, under preliminary discussions being held by top banking watchdogs.

So, there is no commitment or comment. At least the FDIC is considering such a move, while Congress does nothing.

The FDIC is Broke

When Colonial Bank failed on Friday, the 77th bank to fail this year, very few people noted that it was the largest bank failure of 2009. Even fewer people noted that the cost of cleaning it up required more capital resources than the FDIC had.
The total losses of Friday's five bank failures, according to the FDIC, would be $3.67 Billion. The problem is that the FDIC had less than $650 million in its Deposit Insurance Fund at the time.

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