Well, of course they do….
by Tom on December 30, 2009
in Market Musings, banks
Okay, call me Captain Obvious, but this doesn’t surprise me at all. Let me lay it out:
- TARP cost taxpayers $787 Billion (or it will eventually).
- There was a huge public backlash and anti-banker sentiment was running rampant during the time that this was put into place.
- The rules regarding TARP cost bank executives (aka bankers many levels up the food chain from me) a LOT of money because of salary caps and bonus caps.
So, of course the majority of them are going to say that it didn’t have a positive impact. It cost the bankers money, cost them public prestige and made them “not liked” by people. Of course they don’t like it.
The second part of this is a similar type of statement. Let me explain:
- As part of the banking crisis last year, the FDIC increased the insurance on deposit accounts to $250,000, from $100,000.
- They did so because many people were concerned (and rightly so) about their banks.
- The banking executives said, “We think that was a very good thing to do!”
Well, why would they say that? A couple of potential reasons:
- By increasing the limit, it kept their clients from moving their money elsewhere.
- That made these executives’ banks more profitable.
- That made the bonuses that they could get larger.
Unexpected? Nope. But you need to ask yourself the questions that you didn’t know you should ask. It puts a different spin on things.
Tom Vanderwell
While larger financial institutions complete full repayment of the Troubled Asset Relief Program (TARP), as is the case with the $45bn repaid last week by Citi (C: 3.31 -1.78%) and Wells Fargo (WFC: 26.6101 -0.26%), a bank survey completed by the Bank Administration Institute (BAI) claims only 12% of respondents feel the program positively impacted their operations.The BAI & Finacle Bank Executive Index tracked the opinion of banking executives from the top 100 financial institutions in the United States. The executives, who staff commercial and savings banks, as well as credit unions, filled out an online survey regarding questions on the overall health of the economy as well as factors that improve customer satisfaction.
While respondents feel negative towards TARP, 87% of those surveyed said the government’s action to raise FDIC insurance to $250,000 helped drive confidence in consumer bank deposits.
Technorati Tags: Markets, Banks, FDIC
Translating “Bankerese…..”
This is pretty funny and I hate to say it, probably pretty accurate…..
Translating Citigroup’s CEO | The Big Picture
By Barry Ritholtz – December 19th, 2009, 3:00PM
Charlie Peabody of Portales Partners “deconstructed” an internal memo of Vikram Pandit, Citi’s CEO, on the bank’s repayment of the TARP loan:Citigroup: “Today we announce a series of transactions to repay the $20 billion of TARP outstanding and terminate the asset guarantee we received from the U.S. Government.”
Translation: I am sick of working for $1 per year.
Citigroup: “Today we are strongly capitalized…”
Translation: We have diluted the shareholders by a factor of six.
Citigroup: “… efficient…”
Translation: We have cut the company in half.Citigroup: “…and created a strong foundation for the future.”
Translation: We are working on a strategy.
Citigroup: “There are still economic challenges ahead…”
Translation: Forget about any kind of bonus.Citigroup: “Over the past few months, I have visited many of you in the U.S and around the world…”
Translation: I am trying to avoid the home office.
Fun stuff!
Technorati Tags: Citigroup, Banks, Wall Street
Government “Out of Bullets?” or just out of the ones they want to use?
by Tom on December 8, 2009
in Market Musings, banks
An interesting and disturbing interview with Meredith Whitney. I don’t have time to go into it in great detail, but a couple of thoughts:
- I think she’s right in terms of consumers getting cut out of the system. On the one hand, some of those who were in the system were too far into the system and borrowed a lot of money they couldn’t handle. On the other hand, there are a lot of people who have had bad things happen and are in tough times that aren’t their own fault. There needs to be a “middle ground” for the second type.
- I don’t agree that the government is “out of bullets” yet. I think that they are out of traditional bullets and at this point, they don’t want to consider using the non-traditional bullets.
What would those non-traditional bullets be? That’s way too long of a topic for this morning…..
Tom Vanderwell
Government ‘Out of Bullets,’ Consumers in Trouble: Whitney – CNBC
The government is running out of ways to help the economy as the US faces major issues regarding credit and employment ahead, banking analyst Meredith Whitney told CNBC.“I think they’re out of bullets,” Whitney said in an interview during which she reinforced remarks she made last month indicating she is strongly pessimistic about the prospects for recovery.
Primary among her concerns is the lack of credit access for consumers who she said are “getting kicked out of the financial system.” She said that will be the prevailing trend in 2010.
Despite being able to borrow at near-zero percent interest, banks are not taking that money and putting it back into the marketplace. The Federal Reserve said Monday that consumer lending dropped 1.7 percent on an annualized basis in October, the ninth straight monthly decline.
The solution, she said, is for the government to take proactive steps that will give consumers more money to spend.
“I don’t think you can cut taxes enough to stimulate demand,” Whitney said. “For a 2010 prediction, which is so disturbing on so many levels to have so many Americans be kicked out of the financial system and the consequences both political and economic of that, it’s a real issue. You can’t get around it. This has never happened before in this country.”
Technorati Tags: Banks, meredith Whitney, Lending, Consumer Spending
The System is Broke? Humpty Dumpty
I’m just quoting the conclusion of the article that was up on Calculated Risk over the weekend. It was about a lot of the technical aspects of mortgage servicing and the way that mortgages are sold and bundled. A couple of main comments and then read the conclusion below:
- Many of the problems in the mortgage world are because of the way that the mortgage world is structured. That means that it is going to take systematic and structural changes to get us back to a system that really works.
- When there is a lack of accountability, things won’t work the way they are planned.
- Do you think that this lack of accountability and lack of responsibility is part of the reason why short sales and foreclosures are so hard to get approved? There is no incentive for the servicer to make the decisions that need to be made.
Check it out below…..
Tom Vanderwell
Calculated Risk: Thanksgiving Weekend Mortgage Litigation Roundup
In other words, as many of you suspected all along, “hoocoodanode?” was officially part of the plan for creating mortgage backed securities. Systematic and willful ignorance was incentivized. If Wall Street created a system where each bogus mortgage passed through the hands of a couple of intermediaries who had no ability to do any due diligence on the quality of the loan, then the end buyer of the loan would, legally speaking, be in a better position to collect than the original lender by virtue of BFP status. Did the mortgage broker tell the borrower the loan was fixed rate when it really wasn’t? Oh well, no way the mortgage pool trustee could have known about that after the loan passed through the hands of an originating lender, an unrelated depositor and a legally separate issuer.
Whether for better or for worse, this system is pretty clearly not playing out as intended. BFP status does nothing to protect lenders from broke borrowers and half price houses, both of which were foreseen by knowledgeable people who were not willfully ignorant of details about loan origination. And even the limited protection of BFP status may not be available in cases that are actively litigated, since it won’t be hard to prove that everyone in the industry knew brokers were filling in the blanks on stated income loans with whatever numbers were needed to make the applications go through.So I guess this is just one more reason why all the Fed’s ponies and all the Treasury’s men are not going to be able to put Humpty Dumpty back together again.
Technorati Tags: Mortgage Backed Securities, Systemic Fraud
Moral Hazard and Too Big to Fail
While some might be inclined to say, “It’s different over here.” I think that they are fooling themselves. Many of the issues that banking is facing in England are the same as they are here. Many of the banks who run Wall Street have significant operations in London and vice versa.
What is Moral Hazard again? It’s basically creating a scenario where there is no risk with the reward. Kind of like saying, if you win, you get the prize and if you don’t win, we’ll still give you the prize anyway.
Mr. King is England’s Ben Bernanke and his point is essentially that we need to make sure that the banking system doesn’t allow the people who take risks to put the financial welfare of so many at risk through their activities.
Food for thought, that’s for sure.
Tom Vanderwell
Mervyn King: bail-outs created ‘biggest moral hazard in history’ – Telegraph
In comments which will be seen as a clarion call for a potential break-up of Britain’s banks, the Bank of England Governor warned that the support handed out by the Government had “created possibly the biggest moral hazard in history”. He said that it was insufficient to expect that in the future tighter regulations alone would be enough to prevent banks from generating financial crises.
The warning goes against the grain of efforts by Governments on both sides of the Atlantic, which have tacitly ruled out splitting up the biggest banks and opted instead to scrutinise them more actively. Mr King, who said earlier this year that if banks are “too big to fail, then…they are too big,” said that there is a risk the financial crisis comes and goes but the current system, in which big banks enjoy an effective guarantee from the state, remains.
In a speech in Edinburgh, he said “It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong.”
Technorati Tags: Banks, Too Big to Fail, Moral Hazard
Interest Only Loan Modifications? How about Rent to Own?
by Tom on October 19, 2009
in Market Musings, banks
Okay, this is kind of scary. The “large banks” want to set up a proposal where borrowers who need a loan modification are given the option of making interest only payments. Let’s look at this a moment:
- Due to either poor financial planning or bad things happening to good people, these borrowers are the true definition of struggling borrowers. I’m not going to get into a discussion of the reasons now.
- They aren’t able to make the payments on their mortgage.
- The value of the property has dropped, in many cases, substantially.
So what do the banks want to do? Let them make interest only payments for 5 years and then what?
Let’s call it what it is, it’s a rent to own scam and it has one true purpose:
Kick the can down the road and put off having to deal with a likely foreclosure.
If a borrower can’t afford to make a payment that includes principal and interest on a 30 year term, then they really can’t afford the house and other alternatives should be looked at and they should be looked at sooner rather than later.
It’s a tough situation but doing an interest only payment for 5 years will help very few people out of the whole scheme of things. It will help the banks in the near future though, because they won’t have to put the foreclosures on the books.
Tom Vanderwell
The Mortgage Investors Coalition called on the Treasury Department to reject a proposal to offer distressed borrowers interest-only payments for a certain length of time as part of the terms of a Making Home Affordable Modification Program (HAMP) workout.The coalition said a proposal being formed by large banks to allow borrowers the option to make interest-only payments as part of a new HAMP workout plan fails to address the issue of negative equity. Such a proposal is not in the best interest of the housing industry and consumers, said the coalition, a recently formed trade group of asset managers holding more than $100bn in residential mortgage-backed securitizations (RMBS) on behalf of pension funds, college endowments and other investors.
258449%?
All I can say is, Wow.
Single Best Investment in History = 258,449% | The Big Picture
The single best investment — in terms of greatest return on invested dollars — has been the lobbying efforts of the major banks and finance firms.They spent $114.2 million dollars in contributions toward the 2008 election, according to the the nonpartisan Center for Responsive Politics. The companies that have been awarded taxpayers’ money from Congress’s bailout bill spent $77 million on lobbying and $37 million on federal campaign contributions, the Center finds.
These firms political activities have yielded them $295.2 billion from Recapitalization, TARP and other assorted bailouts.
The return on investment: 258,449 percent.
Technorati Tags: Bank Bailout
Banks – Right or Wrong?
by Tom on July 8, 2009
in Market Musings, banks
Every day I talk to and hear from people who are seriously struggling right now. They could benefit from being able to rewrite their mortgage or restructure other debts but they can’t because tightened bank lending requirements have tightened up and they don’t qualify.
I was talking with a friend of mine from Atlanta about it today and he summed it up quite well. “On a macro level, only lending to people who don’t need it makes sense. But on a personal level, there are so many people who need help and that hurts.”
So tell me, what do you think? Are the banks doing it right?
I’ll tell you my thoughts later.
Tom Vanderwell
Haven’t heard this much lately…..
I can’t say that this surprises me…..
The government came up with this idea of buying bad assets from the banks to help the banks get going. They were going to pay too much for them so that we didn’t have to admit that banks are insolvent. Well, guess what?
The deal is off! And guess why it’s off? It’s off because the banks want too much for their junk!
Makes you feel real good about the government and real good about the banks and their financial assessment of what they own as assets.
Tom Vanderwell
U.S. Program to Help Banks Sell Bad Assets Is Halted – NYTimes.com
The Federal Deposit Insurance Corporation indefinitely postponed a central element of the Obama administration’s bank rescue plan on Wednesday, acknowledging that it could not persuade enough banks to sell off their bad assets.
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Related
Times Topics: Credit Crisis — The EssentialsIn a move that confirmed the suspicions of many analysts, the agency called off plans to start a $1 billion pilot program this month that was intended to help banks clean up their balance sheets and eventually sell off hundreds of billions of dollars worth of troubled mortgages and other loans.
Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.
