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As a federal criminal probe gets underway into AIG, questions remain about whether AIG misled investors, and whether AIG executives themselves suppressed information from their own internal auditors and ignored the advice of their external auditors Price Waterhouse. The internal auditor raised questions with his boss Mr Cassano about the credit default swaps that AIG had written for its clients. An requests for collateral from AIG to support the credit default swaps were kept hidden. The internal auditor Mr. St. Dennis wrote" I was gravely concerned about this (the request by clients for collateral from AIG worth billions for the derivatives called credit default swaps AIG had sold) and AIG believed that the likelihood of makig payouts was remote." Mr Cassano kept Mr Dennis out of important meetings because he said "I was concerned that you would pollute the process." An important aspect of all this is how it relates to executive compensation that has motivated some of these actions. Mr. Cassano according to the audit committee chairman, earned $280 million over 8 years at AIG, left the company in March and was slated to receive $1 million a month through the end of 2008. The contract was terminated the day before the Congressional hearing. This is a huge amount about $35 million a year and not only is this executive compensation but it is paying someone enough that he would do something that is unethical, or lead to large negative consequences, or even commit fraud, depending on the ethical base of that individual. And this is where executive compensation has ceased to be executive compensation but almost enough to pay someone to do something equivalent in consequences to robbing the bank....

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Of 21 reader comments to this piece on banker pay, all except for 4-5, were very critical of the bankers behaviour, including many of their colleagues in the financial industry who commented. The lack of any response from the FSA on the grounds that its not the FSA's job, or from the Treasury, is disconcerting. Treasury is said to have not said a word, when RBS hired a head trader for a rumored 7 million pounds. All this coming on the heels of the RBS and Lloyds debacle, makes the Labor government open to attack from the Conservatives under Osborne and Cameron. and from Mervyn King of the Bank of England. They have expressed strong disapproval of the busines as usual attitude of bankers.

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A behind the scenes account of what happened at JP Morgan Chase after CEO Jamie Dimon discovered the trading losses of the London Whale through the pages of the Wall Street Journal, on April 6, 2012.

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With the UK budget deficit approaching 12%, Mervyn King, Governor of the Bank of England, said at a postelection conference that he intended to intervene as little as possible in the election, yet it was important that he comment on the measures for reducing the fiscal deficit as it would color monetary policy for years to come. During the election King warned the the UK's top credit rating, "was ours to lose," and his comments were seized by Cameron to question Brown's handling of the economy. King said that Greece was a clear warning of what could happen if budget deficits were not brought under control. He also described the agreement to trim the budget deficit reached between the Liberals and the Conservatives as a very strong and powerful agreement. Conservatives say they plan $6 billion pounds in budget cuts this fiscal year.

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Kadish says interest on the national debt is 383 billion dollars or over 40% of the national individual income tax revenues of $904 billion. This according to Treasury's Bureau of the Public Debt. THe COngressional Budget Offfice estimates the 2009 budget deficit to be about $1.4 trillion or about 10% of GDP. OMB estimates total government revenues at $2 trillion. As of 2009 the national debt waas $12 trillion according to Treasury. and OMB forecasts $9 trillion of projected deficits over the nexxt 10 years. This means the natioanl debt could reach $21 trillion by 2019. OMB projects $13.5 trillion of revenue increases over the next 10 years but this says Kadish is optimistic and minimizes the rise in interest rates from larger debt burden. In the light of this adding more social programs he says could lead to asituation of high interest rates double or triple the 2.9% now, on refinanced or new debt.

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Bank of England's governor Mervyn King disgrees with the Gordon Brown government on the issues of financial regulatory reforms.

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Two way trade is expanding at 35% for the last 5 years to $15 billion. A new goal is being set for expanding it to $50 billion by 2010. Senior executives of big Chinese infrastructure companies are involved and the exchange is at the highest level, with Bo Xilai, Commerce Minister of China, heading a 200 member delegation to New Delhi. This includes senior executives of Shanghai Electric Power Generation Group, ZTE Corp, and China Corporation Bank. US- India trade growth goals were set by President Bush in a recent visit. With Bo's visit China- India trade growth goals are being set on the same scale. Bo said China and India can learn a lot from each other- "China has a lot to offer in infrastructure development to India and we can learn about developing software, information technology, and how to improve the services sector."

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A 35% rise against the dollar of the Brazilian real and a rise of 80% of the Brazilian Bovespa index in 2009, following quickly after the global financial crisis, shows the big swings in emerging markets stock and currency values. Brazil is a big exporter of agricultural and mining commodities. Brazilian government is concerned about short term investors who are piling into investments there, but could pull out quickly in another crisis. The government imposed a 2% tax on foreign investments- designed to reduce currency volatility and discourage short term speculative investors. A slowdown in demand for commodities from China or other countries could quickly reverse this rise. And a rise of this proportion in so short a time, coming on the heels of a financial crisis, shows the nature of swings in the global economy that are of increasig concern today. In October 2008 Brazil's currency lost a third of its value compared to August 2008, and the Bovespa index fell by 50%. The central bank had to use its currency reserves to prevent a severe drop in the value of the real. Short term investors were pulling money out of the stock market resulting in dollar outflows, and many Brazilian companies that had bet against the dollar in currency derivative contracts suffered huge losses. The situation was similiar in Mexico. It shows the fragility of economies depending on commodities exports, and the lack of mechanisms to track these derivatives and to restrain speculative short term investors. ...

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This Wall Street Journal editorial comes out in favor of higher capital reserve requirements similiar to that suggested by Federal Reserve Board governor Daniel Tarullo. The Journal says that if regulators are serious in the U.S. about controlling systemic risk, then the 14% rule or a 15% rule for assets held in reserve by banks should be adopted. Daniel Tarullo had suggested a 14% capital reserve requirement. These requirements would be phased in gradually over several years. Basel III requirements require only a 7% requirement and is phased in over many years. Capital standards are likely to be gamed. For this reason the requirement for only Tier 1 capital to be eligible is essential. What about the Basel III standards and the European banks? Would this put them in a better position to earn higher returns. This should be a problem left for European taxpayers to tackle says the Journal. As long as U.S. taxpayers are supporting U.S. banks with an implicit subsidy to take on larger amounts of risk -because they will be saved in a crisis with taxpayer dollars- the Journal says it makes sense to require 10-14% in capital reserves. It cites the Japanese banks which were highly overleveraged with lower capital reserves compared to American banks, and fared poorly. The Dodd-Frank bill imposes a complicated set of regulatory requirements with regulators required to write new sets of rules. The editorial concludes that it is far better to tackle the problems in the banking system with a sufficiently high requirement for capital reserves to manage risks than to have the detailed rule making on every subject that Dodd-Frank suggests....

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Reinhart is saying something similiar to what Krugman said earlier, and Peter Eavis said in the Heard on the Street column on March 24, 2009. The Geithner plan is similiar to the Paulson plan. It is trying to get private investors to buy up toxic assets by offering incentives. But the pricing issue like before is left vague and unanswered. And its success looks increasingly doubtful as the is not only the problem of confidence and illiquidity that these plans are confronting, but something more structural and basic about how much these toxic assets are worh and whether it makes sense to bid for them and at what price so that ooooooone is protected on the downside. Reinhart points out that the stress tests are also there, and it may just be that the government is waiting for public support to build for taking on the losses involved in getting rid of toxic assets, and is right now going the longer circuitous route. At some point the government may decide the time is right to sort out the banking institutions finances through the stress tests, make the tough decisions for banks that are not healthy by government takeover, and deal with the toxic assets as owner of these failed banks....

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Under IMF and US presssure S. Korea's government took tough steps to resolve its banking crisis in 1997. The government closed or restructured 12 of the 32 largest banks and put in $60 billion to write off bad loans and replenish cash reserves of remaining banks, says Prof. Eichengreen. The Korea Asset Management Corporation, a public fund, bought about two-thirds of the problem loans on the bank's books, to free up capital for new loans. This was also done in a compressed period of time under US pressure. In the US because of heavy lobbying influence in Washington and with the Bush and Obama administrations, and the lack of any external pressures such as S. Korea experienced, the banking industry has not undergone a serious restructuring. Volcker recommended reforms have actually been watered down. The difference in the two approaches is striking. S. Korea had the advantage of being able to rebound with exports to a growing US and Europe during that period. A serious restructuring of the banking industry was the first step, something that has not taken place in the US. And there is a failure to cleanup the problem of mortgage backed securities in the US financial system. ...

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The potential default of Shanghai Chaori Solar Energy Science and Technology Company on a 2012 bond of one billion renminbi, as the company says it cannot make a payment of 89.9 million renminbi or $14.6 million. China's corporate bond market is now the third largest in the world after the U.S. and Japan, according to BIS. The Asian Development Bank figures are total corporate bonds outstanding of 500 billion renminbi in 2005 growing to 8.5 trillion renminbi in 2013 (or about $1.4 trillion).

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Pearlstein says in the WPost that the analysts at Goldman Sachs who says companies are undervalued in October 2009, are acting the part of Goldman's marketing machine so that Goldman can use its M&A activity, its trading desk and other financial stock and bond issues to make higher profits. But this risks creating another bubble as there has been a50% runup in stock prices with the DJ average close to 10,000 in October 2009. He says GOldman analysts are talking about how the cash that is on the balance sheets of companies can now be used for acquisitions instead of product development or productive investments. This is dangerous because finance ended up in shaky products like mortgage securities in the last decade instead of being put to productive use in investments for the nation's future. See the links to groups on US National Debt and UK national debt, articles by Kandish on the debt and the risks the US is facing. All the liquidity run up by the Fed can create another bubble if not mopped up. If the Fed moves too quickly at some point when it sees the bubble get out of hand, unemployment and credit tightening could throw the economy into a downward spiral....

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With fewer banks and securities houses remaining, the remaining banks like Chase and securties houses like Goldaman and Morgan Stanley are using the spreads between the price of buying and selling bonds- and the easy access to government money and FDIC guanrantees for their bonds- to make large profits. In effect the Fed is pouring money into the system to help financial institutions recover and in the process is making it possible for firms like Morgan and Goldman that were on the verge of collapsing to be able to make large profits through cheap money from the Fed. The resulting large bonuses are likely to upset a public and taxpayers who shoulder the dual burdens of a bailout of large banks, which is not making credit easier for small and medium businesses that form the backbone for employment. The smaller banks that support these businesses are failing and being closed by the FDIC. THe result- increasing joblessness and shrinking consumer demand. This is outlined by Ms. Lee in her op-ed article- The Banking System is Broken, WSJ, October 16, 2009. See this link. Meantime banks like Citigroup and Bank of America continue to see losses, so that even these profits are happening in only some parts of Wall Street....

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Jack Draper of Britain joins the ranks of inspiring British sports athletes such as Brayshaw of the British women's Olympic rowing team who had suffered injuries in an accident to come back for the gold medal. Draper after suffering hip pain flareup and much preparation, hard work, gets to the finals of the Indian Wells Open to bean Rune of Denmark. Draper had no sign of nerves throughout his game. He had struggled in pre-season with flareups of hip pain. “I felt like I deserve it, in all honesty. The amount of adversity I’ve been through, the amount of sacrifices and time all the people around me have put in and the hard work, it’s an emotional feeling to know how much you’ve gone through and put in. To be here now and say I’m going to be No 7 in the world, honestly I can’t tell you how much that means to me.” Draper acknowledged the efforts of his team in a picture shown here in The Times. About his own effort Draper says- “I wasn’t expecting this. I put in a lot of work over time. I am just so grateful and so happy to be out there and able to play with my body feeling healthy and my mind feeling great. Just all the work I have done in the last few years, it feels like it is coming together on the big stage." In 2022 a new player 19 year old Carlos Alacaraz of Spain burst into the top ten by winning the US Open over 23 year old Casper Ruud of Norway. In 2025  23 year old Jack Draper of Britain beat Alcaraz and 21 year old Rune of Denmark to win the finals 6-2, 6-2 of the Indian Wells US tennis championship. There is now a generational shift in tennis. And not just men's tennis. The women's tennis final was won by 17 year old Mira Andreeva of Russia after losing the first set to Sabalenka 6-1, she maintained composure after a toilet break to win 2-6, 6-4, 6-3. ...

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Mr Carney's calm demeanor and performance as head of the Bank of Canada, Canada's central bank, during the period before and after the financial crisis of 2008, and his 13 years of private sector experience at Goldman Sachs including handling of sovereign debt and emerging market debt, were part of the invaluable experience considered in the selection process for the next Governor of the Bank of England. Britain's chancellor of the Exchequer, Mr. Osborne, encouraged Mr. Carney to apply for the position. Carney is head of the Financial Stability Board, which has responsibilities to reduce systemic risk. This experience is also considered valuable because of the expanded responsibilities of the Bank of England, Britain's central bank, which now include overseeing and regulating British financial institutions. The Financial Services Authority was scrapped and its responsibilities placed in the central bank with the Governor overseeing a committe inside the bank that is in charge of regulatory affairs....

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This Journal editorial says the Bankia bailout continues to be handled poorly by the Spanish government, with Bankia continuing to be a drain on the government funds.

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Raghuram Rajan, Professor of Finance at the Graduate School of Business, University of Chicago, was appointed chief economist at the IMF in 2003. He presented a paper, titled "Has Financial Development Made the World Riskier," at the annual Jackson Hole meeting of economists and central bankers for 2005. Rajan says he had planned to write about how financial developments during Greenspan's 18 year old tenure had made things safer, but the more he looked the more evidence came up that the risk reward relationships in a normal functioning financial market had been terribly distorted. Market participants were being rewarded for wins but were not being asked to take on commensurate risks and impacts on their bonuses and rewards. He also cautioned about the use of credit default swaps which acted as insurance against bond defaults, and said insurers were generating big returns on this but with the appearance of little risk- even though the pain could be immense in a default. Banks were carrying credit securties on their books that posed risks to the whole financial system if things went wrong with the credit securities. Reaction from the gathering was unfavorable. Lawrence Summers, a former Treasury Secretary said, "the basic, slightly lead eyed premise of the paper was misguided."...

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One of the big changes is to give responsibility to younger managers. Chairman Whitacre's marching orders are to cut executive ranks and gve responsibility to a whole new group of younger managers. Performance reviews and goal setting is short-one page. The organizational chart for vehicle reviews that required 70 or so executives to pass on it is gone. Product decisions are made at weekly meetings with the President present. And people are not supposed to fear speaking up if a change is needed to what they are doing for a product. Debate is in and seniority is not supposed to be the factor it once was. 50 page presentations are out. Reuss, who heads global engineering, describes his start in 1983 as a student intern, and the lack of debate that made it impossible for him to say anything about the failed Aztek van, that his bosses might not like to hear.Its as if these types of product decisions were somehow the work of higherups with managers not having an equal or more important say....