LyrArc Article Gist
An hour by hour, day by day account of how Thain and Fuld, two men at the top of Merrill and Lehman, handled the crisis facing their firm. Also an account of how both men acted in the year and the months before the climactic week when Lehman filed for bankruptcy and Merrill Thain arranged for Bank of America to buyout Merrill. How Thain did it and how Fuld failed to save his firm, their background and personalities offer a striking contrast to different approaches to the crisis one facing reality and taking actions one after the other palatable or not, and the other too complacent and missing opportunites to save the firm even after the collapse of Bear Stearns left Lehman exposed to the next crisis of confidence. For example while Lehman failed to raise capital and get rid of undesirable or toxic assets, Thain sold $31.1 billion in toxic assets to a investment company Lone Star for 22 cents on the dollar, even financing 75% of the sale. It raised $8.8 billion in a deal that diluted Merrill's shareholders severely, and announced Merrill would sell its stake in Bloomberg for $4.4 billion. Lehman and Merrill were both heavily leveraged. So are Morgan Stanley and Goldman Sachs at this time in a financial market that is coming down hard on these highly leveraged investment banks....

LyrArc Article Gist
Ann Lee a former investment banker and now adjunct Professor at New York University, gives us facts that show the smaller banks that lend to small and medium sized businesses in the country are being closed by the FDIC. According to ADP small business that employs between 1 to 49 people, accounts for 48 million jobs, those between 50 and 499 employees account for 42 million jobs, and large business for only 17 million jobs. Without access to capital these small and medium sized businesses will continue to layoff employees, creating a vicious cycle of falling credit and demand. According to Automatic Data Processing's August employment report large business shed 60,000 jobs, medium sized business 116,000 jobs and small businesses shed 122,000 jobs. These smaller banks says Lee have done most of the lending to small and medium sized businesses. And overall lending has dropped from pre-crisis levels. Treasury's Capital Purchase Monthly Lending Report shows that banks that received government money actually reduced loan balance by $54 billion. According to reports issued by major credit rating agencies $700 billion of asset backed securities were underwitten in 2007. In 2009 only $10 billion was issued. This has a significant impact in every area. Banks have no incentive to lend with all the bad nonperforming loans on their books. They only hope that over time renegotiated loan terms would enable to recover these loans. But this might take a decade says Lee, if this is similiar to other crises like the one in Japan. She says what the banks do to make money is to borrow virtually unlimited amounts from the Fed at near zero rates and earn money from the spread when they lend to the Treasury. Does our current banking system make sense she asks. Banks are not investing in economic activity, in real products and services,but engaged in agovernment backed shell game that enriches bankers at the expense of everyone else. She says that the banking lobby may prevail in preventing the nationalization of the banking system, but this will not prevent questions about the status quo and its assumptions from arising if the recovery and regulatory reforms fail. ...

LyrArc Article Gist
This New York Times editorial asks whose side the Republicans are on when they try to water down needed financial reforms. Are they simply speaking for the banks who stand to lose billions of dollars in profits through unregulated derivates trading but increase systemwide financial risk. The NYT supports senator Blance Lincoln, an Arkansas Democrat who is chairwoman of the agriculture committee, and who took a strong position in favor of controlling derivatives. Her proposal requires nearly all derivatives be traded on exchanges with exemptions only for unique contracts which would be supervised by regulators, and for a strictly defined group of companies with specific purposes.

LyrArc Article Gist
Some straight talk from Bethany McLean on why Congress which repealed Glass-Steagall and refused to regulate derivatives. She says the Fed and the SEC which did nothing while all the excesses and risky behaviour were playing out on Wall Street should also join Goldman on the hot seat. The Office of Thrift Supervision and the Comptroller of the Currency, she points out actually used their power not to protect but to prevent predatory lending laws. And the ratings agencies signed off with AA ratings for a lot of junk. McLean tells readers Goldman's idea that what is good for Goldman is good for America is downright scary. She is a former Goldman employee who reminds readers that Goldman's 14 principles had integrity right up on the list, something Tourre and other higherups at Goldman simply lost sight of.

LyrArc Article Gist
Brooks takes a different view about the 1986 Reagan tax reforms providing a way forward in 2013. He says growth is slower now in the U.S. with changes in the global economy and any growth killing tax increases or disincentives for investment are risky changes. He suggests taxing consumption and providing incentives for savings and investment. Closing loopholes will have to tackle the major deductions such as charitable deductions says Brooks.

LyrArc Article Gist
The Economist asks whether the government can have the resolve to take strong action where necessary with the banks. The feeling is that the government was too close to the banks during the boom, and banks like Goldman have so much influence in the government and many bankers work inside the government, making it difficult to separate the public interest from the interest of the banks. This makes it more difficult to take necessary action when it comes to the banks.

LyrArc Article Gist
Barney Frank, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is interviewed by the New York Times one year after the passage of the legislation. He says we did not punt anything, it was because the legislators couldn't get everything right that they set up the provision for extensive rule making. He would rather forget financial matters as they are not his strong point, he has learnt more about repos and derivatives than he ever wanted. Critics have pointed to the extensive rule making delegated to regulators in Dodd Frank as a major weakness. It makes Dodd-Frank as effective as the regulators want it to be, something that goes back to an earlier period before 2008 when lack of regulatory discipline led to the financial crisis. He gives the regulatory agencies CFTC and the S.E.C. good grades for writing some of the rules because of the difficult conditions they face. His main fear is the stalling by Republicans in Congress and efforts to weaken the law by crimping resources for the agencies. And he fears the Republicans with support from the banking industry see the 2012 presidential elections as an opportunity to reverse the legislation....

LyrArc Article Gist
Federal Reserve proposals in Dec 2011 for large U.S. banks leave capital cushions at 5% of assets. This phases in the higher 7% of assets rule for capital reserves and a surcharge of upto 2.5% based on bank risk levels under new Basel III regulations for implementation in 2016.

LyrArc Article Gist
Reports from the Sixth China North-South Lung Cancer Summit meeting of 300 experts focusses on controlling tobacco use and promoting early detection and treatment of lung cancer. Lung cancer is now the leading form of cancer in China, with 22.7% of cancer deaths each year. Currently about 1 million die in China from smoking related illness each year. CCTV reports this is increasing by 26.9% a year. Causes cited are aging population, air pollution, and widespread smoking. About one in three of China's people smoke, or about 350 million. Awareness of the dangers of tobacco use is not high outside two or three major cities. China manufactures about 1.7 trillion cigarettes a year, according to CCTV, and tobacco contributes 7-10 percent of state revenues.

LyrArc Article Gist
Elizabeth Warren on the need for a new consumer protection agency as suggested by President Obama in his proposals.

LyrArc Article Gist
An analysis done for the Wall Street Journal by real estate portal Zillow.com, shows the median down payment in nine major U.S. cities rose to 22% in 2010 on properties purchased with conventional mortgages. Banks favor higher down payments today because it reduces the chances of delinquencies. Median down payments were at about 20% in 1990, then the payments declined in the nine cities Zillow looked at: Chicago, Stockton, Las Vegas, Miami, Phoenix, San Diego, San Francisco and Tampa. The drop went as far as 4% in 4th quarter 2006, and in some places close to zero. Experts say these are the markets where more home buyers are under water. A 2009 study by the Federal Reserve Bank of St Louis shows that buyers with smaller down payments are more likely to default in unfavorable economic situations. A contributing cause of the 2008 sub-prime mortgage crisis was the very low down payments. Federal Deposit Insurance Corporation chairwoman Sheila Bair, says she supports minimum 20% down payments....

LyrArc Article Gist
The Fed announced that it will review compensation policies of 28 of the large complex banking organizations in the USA. The review will be an horizontal one that compares them to each other. The other significant move is that the Fed wants to see employees who take greater risks and use large amounts of borrowed money, to receive negative points in evaluating how well they have done, and consequently to be compensated less than other employees who earn money for banking firms while controlling the risks associated with transactions. This ties in with the discussions at the G-20 meeting in Pittsburgh, where the Europeans pushed for tighter regulation on bonuses and pay, to control the excessive risktaking of banking firms. This is because the prevailing culture in global financial institutions is a high risk high return culture, which ignores the social consequences of bad decisions. There is no cost to individuals taking the risks on other people's money, and regulations discouraging risk are not in place. The question remains, is this an adequate response to prevent future crises, or too little too late? If the banking community does not see it this way, and financial regulation is watered down in Congress- see the links to this- then it will much like Don Quixote swinging at windmills. In this sense the title of this piece is a misnomer, as the Fed has not hit banks with sweeping pay limits. It only said it would review pay practices. It is jawboning of the mild kind to show the public something is done. See Paul Volcker's point that pay practices would adjust and desirable goal of less risktaking and reasonable salaries would be achieved by separating deposit taking banks from banks engaged in trading activities. Similiarly, the governor of the Bank of England, Mervyn King, made the point recently that the biggest banks should be broken up. That is supported by the intuitive sense of experts that banks engaged with depositors should be engaged in the social functions of society, lending and supporting economic activity, and the trading desks of investment banks should operate entirely separately from this. One should be insulated from the other. In this sense there is a bit of evasion in these actions. A Wall Street capture of regulatory activity continues, of regulators and senior economic advisors in the administration, as the coziness between the two lingers on from a previous era of deregulation. This has the potential to cost the country and the global economy dearly in another crisis, and the jobless and young jobless people especially. In this economy both in Europe and the USA, the jobless young have been left with the least hope. ...