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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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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....

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Beatrice Weder di Mauro of the German Council of Economic Experts points to the needs for beeter incentives for regulators to ensure their is no local regulatory capture and to ensure that regulators are doing their job well. One is to increase the pay of central bankers and bank supervisors and to make the job nearly as attractive as working in the private sector. The other is to give more authority to supranational institutions to regulate. She points out that competition has been kept in the Eu's domain and this has helped ensure consistency in the way bank bail outs are being handled in the European countries. The same needs to happen in Europe for banking reguolation and oversight. She points out the flaw in the argument for national regulators on the basis that the money to bailouts comes locally. a substantial part of the bailouts come in the form of regulatory forbearance, enabling banks to make higher profits because of reduced competition, and implicit support from central banks. And she adds that the temptation to solve the future crises by these "off balance sheet methods" is greater now because no one wants to go to parliament or congress to get bail out money for banking instituitons....

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The governments stress tests most adverse scenario shows that the 19 largest banks could suffer losses of upto $599 billion through the end of 2010 if the economy does wose than expected. It asked these banks to raise a total of $74.6 billion in capital in the financial markets to provide abetter cushion against these losses if they occurred. The tests measured potential losses on mortgages, commerical loans, securities and other assets. This adverse scenario covers 2 year cumulative losses of 9.1% on total loans.

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By a vote of 223 to 202 largely along party lines the House passed a bill that brings sweeping changes to the American financial regulatory system. The 1279 page bill creates anew federal agency for consumer protection, establishes a council of regulators to police the financial system for systemic risks, initiates oversight of the derivatives market, and gives the government power to wind down large firms that are in danger of collapse and pose systemic risk. The bill also gives sharehlders advisory say on executive compensation, increases transparency of credit rating agencies, and sets aside billions in governmet money to help unemployed homeowners.

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The profit squeeze is evident in JP Morgan's net profit margin of 2.14% in the fourth quarter, declining from 2.19% in the prior quarter. Return on assets at 0.78%, down from 0.87% in 2013. Lower interest rates hurt JP Morgan's fixed income, currency and commodities business, and this is not expected to change much in 2015. Legal expenses were $1.1 billion in pretax terms for the fourth quarter 2014.

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A study by the Pew Research center shows minorities are the ones hardest hit in the millions of foreclosures taking place in the US. Counties with black or Latino majorites and the New York region are hit severely. What appeared to be a boon five years ago as black home ownership rose sharply after decades of discriminatory lending and zoning practices, has now turned into a curse with families losing homes to foreclosure, neighborhoods seeing increasing crime and declining house values, and renters being evicted. Lenders like Mozilo's Countrywide and other similiar lenders simply used the idea of home ownership as a flag to get political support for a wild west in lending practices, which allowed predatory lending to take place in the deregulatory atmosphere of the time. See the link to the impact on minorities. Nowhere has it been shown more pointedly that prudence and character in leaders in all areas is the essential conditon for progress, making free enterprise a necessary condition but subject to this essential condition, than in the way the housing and foreclosure crisis is hitting the American and the world economy in so many ways. This is evident in neighborhoods like this one on 145th st. in Jamaica, Queens, whaere black households making more than $68,000 a year are five times as likely to hold high interest subprime mortgages as whites of similiar incomes. Defaults occur three times as often in minority census tracts as mostly white ones. And 85% of the worst hit neighborhoods have majority of black and Latino homeowners. Which may also explain why there is not agroundswell of support for serious government foreclosure prevention measures like bankruptcy legislation and other legislation such as that suggested by Martin Feldstein and others for homeowners nearly or already under water, when faced with fierce lobbying by the banks and financial institutions. Consumer advocates say years ago many banks drew red lines around black neighborhoods and refused to lend, then as deregulation became the rage five years ago, these banks under unscruplous leaders targeted these neighborhoods for subprime lending. A dozen banks and lending companioes that made big profits from subprime loans accounted for half the loans given to the New York region'sblack middle -income borrowers in 2005 and 2006, a case of reverse redlining that the N.A.A.C.P. says in its lawsuit against these lenders. Housing and Urban Development Sec. Shaun Donovan, in aspeech to New York University said that 33% of the subprime mortgages given out in New York City in 2007, went to borrowers with credit scoresthat should have qualitifed them for conventional prevailing-rate loans. For anyone taking out a $350,000 mortgage, says the NYT, a difference of three percentage points - a typical spread between conventional and subprime loans- tacks on $272,000 in additional interest over the life of a 30 year loan. ...

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It is not clear whether Citigroup is off the problem list of banks, banks which rate a 4 or a 5 on the scale of 1 to 5. This could change even now after the stress tests. Here's why. Since late 2007, Citigroup has more than $50 billion in write-downs and loan defaults. The recent stress test of the 19 largest banks produced results that showed additional large losses looming over Citigroup, and questions are raised how Citigroup passed. The test found that estimated losses could reach $104.7 billion in loan losses through 2010 under the government's worst case scenario, and face nearly $20 billion in losses on its credit card portfolio. Yet the Fed's conclusion that Citigroup needed to bolster its capital by only $5.5 billion to withstand another economic shock did not reflect these facts. Investors and analysts also saw Citigroup as being in much worse shape than the other banks. THe FDIC did not agree with the Fed's conclusion. Only the Comptroller of the Currency agrees with Citigroup CEO Pandit, that the Citi model is not broken and just needs more time. THe FDIC wanted the rating lowered for the Citibank unit, and sparred with the Comptroller of the Currency over this. The FDIC has 305 banks on the "problem" list, and would like to add Citigroup to this list, so that it could keep a tighter review of what is going on at Citigroup. FDIC is helping finance a $300 billion loss sharing agreement with Citigroup, and has large exposure to Citigroup. FDIC's Bair thinks Citigroup has not moved fast enough to get rid of unwanted assets which might cause problems if the economy deteriorates, and would like to see a change in management. FDIC officials have approached former US Bancorp CEO, Mr Grundhofer, who is highly regarded in the industry, as a possible replacement. One reason being that while most of the problems of Citi stem from consumer loans, Pandit's experience is in investment banking, and he has not moved fast enough to get rid of risky and unwanted assets. He has failed to bring in managers with experience in handling the kinds of problems Citigroup faces in this crisis. With the FDIC's Bair having anticipated the crisis earlier than other regulators, the FDIC is expected to get additional powers in the new regulatory structure. This may result in tighter supervision of Citigroup. It also shows gaps and flaws in the stress tests that let some banks off too lightly, and make them vulnerable to the next episode in this crisis. ...

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Joe Nocera joins Simon Johnson and other experts in saying that Fed Governor Daniel Tarullo's suggestion to raise capital requirements of U.S. banks to 14% makes sense. He quotes Anat Admati, a fiance professor at Stanford Business School, who says the only way to get rid of bailouts is to raise capital requiremets to an adequate level. The Wall Street Journal editorial on June 16, 2011, also supports the higher Tarullo capital requirements. Why is it that European banks and the Basel III accords provide a 7% capital reserve requirement phased in over many years- to as far out as 2019- if this is the case? The European banks are in much worse shape than the U.S. banks especially with Irish, Greek and other debt on their books and Basel III is designed to accomodate this. The governor of the Bank of England, Mervyn King, is also advocating higher capital reserve requirements than Basel III, including the flexibility for countries like Britain and Sweden to set their own capital reserve requirements based on their own situation and the need to protect taxpayers. The U.S. stands to gain a lot from setting its own standards if France and Germany and other European countries decide to user lower standards through Basel III....

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King points out that trade agreements are not what they used to be as most tariff barriers are whittled down. He says more than 70% of imports come into the U.S. duty free, and the average tariff is about 1.5% declining significantly in the last 2 decades. If all import restraints are lifted it would increase U.S. economic output by less than 0.05% by 2017, according to the International Trade Commission. This figure is also cited by Krugman in the NYT with a column saying the Trans Pacific Partnership(TPP) trade agreement pushed by the Obama administration is no big deal. King also points out that the U.S. already has free trade agreements with Australia, Peru, Chile, Singapore and other TPP countries. Some experts see China's success with setting up the Asian Infrastructure Investment Bank (AIIB) attracting India, UK, Germany, France and other countries, is creating pressure on the U.S. to come up with its own response in the form of TPP with Japan, Vietnam, Malaysia, Peru, Chile and other countries....

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Economist Wu Jinglian, was adviser to Chinese leaders Deng Xiaoping, and Jiang Zemin. He sees risks ahead for China in the crony capitalism that has developed there. Business tycoons and corrupt officials he believes have hijacked CHina's economy and manipulated it for their own ends, which he calls crony capitalism. Its asystem in which the bureaucrats and their allies benefit from bribes and payoffs, and by steering business to their allies in industry. With increasing corruption as theses bureaucrats want to get richer Wu is not optimistic about the future. He sees three dangers, awidening income gap, inefficient monopolies, and crony capitalism. WHile there is corruption and amarket economy in India, the big difference is the free press and strong media in India which keeps corruption out in the open whereas in China there is more scope for this and crony capitalism because of the tight control on the media. Younger economists like the head of its soverieign wealth fund and its central bank have been influenced by Wu....

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Related to Mervy King's stand as Governor of the Bank of England about moral hazard, that if you let them off easy then these crises will recur and no penalty for excesses. But we can see that when this happens people who committed wrongdoing will be investigated, their reputations destroyed and the prospect of jail time.

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Sheila Bair, chairwoman of the the FDIC, says the banking industry is showing "continuing signs of improvement, and the process of repairing bank balance sheets is well along, but not yet complete." The bank failures are easing and the FDIC insurance fund which had a negative balance of $7.4 billion at the end of 2010, now has a negative balance of $1 billion. It should turn positive by July 2011 when Bair's five year term ends.

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U.S. Federal Reserve governor Daniel Tarullo tells the Council on Foreign Relations that so much remains to be done four years after the financial crisis. The law firm of Davis Polk says 67 percent of deadlines were missed for new rules required to be set in place by the Dodd-Frank legislation, including the Volcker Rule. Tarullo said: "It is sobering to recognize that more than four years after the failure of Bear Stearns began the acute phase of the financial crisis, so much remains to be done." Tarullo fears that crucial momentum may be lost because of the long delays stemming from resistance by the banks. Tarullo met with bank CEO's in April 2012. Banks have protested that Fed stress tests have not revealed the parameters for the testing. Tarullo's response given at a recent Fed conference in Chicago were that this would let banks game the exercize by running the Federal Reserve model and not improving risk management and capital planning, making this a mechanical compliance exercize. Banks have particularly opposed a requirement that limits the risk in business between two banks to 10% of their credit risk....

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Ring-fencing the retail operations of UK banks from possible losses in the investment banking activities was part of proposals by the Independent Commission on Banking in the UK. Now a parliamentary commission calls for periodic reviews of such ring-fences to ensure this separation is actually still in place, and not been diluted or otherwise removed by bending the rules to favor banks because of lobbying by the banks. It says "over time the ring-fence will be tested and challenged by the banks. Politicians too could succumb to lobbying from banks and others, adding to pressures to put holes in the ring-fence." The report emphasized that a lot more needs to be done to restore standards in banking, especially after recent reports of LIBOR and other revelations of market rigging and corruption. The emphasis in the report is for banks "to be discouraged from gaming the rules."

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The NYT editorial says the negative feedback loop of foreclosures begetting falling house prices, which beget more foreclosures, and further weaken banks, is well under way. One way to have broken this, was to enable good types of loan modifications, which reduce the principal for homeowners and reduce payments significantly. Sheila Bair at FDIC says 32% of prior payments is about the right amount. The bad types of loan modifications that lead to no reduction in principal, and put homeowners back in redefault because of large payments that homeowners "under water" or a lost job cannot afford, have so far been the dominant kind of loan modification. At present 14 million homeowners are "under water," in that their homes are worth less than what is owed on the mortgage. One of the crucial measures which would have enabled this, has not been pushed by the Obama administration through Congress. This was to pass an amendment that allowed bankruptcy judges to modify troubled mortgages. Banks which have taken billions of dollars in loans from the federal government were allowed to lobby aggressively to kill this amendment, and the Obama administration did little to push this amendment in Congress. 12 Senate Democrats joined 39 Senate Republicans to block a vote on the amendment. Says the NYT editorial "when the time came to stand up to the banking lobbies and cajole yes votes from reluctant senators-the White House did'nt. When the measure failed there wasn't even a statement of regret." This could turn out to be a major mistake, because as the NYT points out voluntary loan modifications have shown poor results. The administration's plan to provide incentives for loan modification is untried and tested, and may not produce significant results. With 14 million homeowners under water, and spiralling foreclosures, the situation may get out of control and seriously damage the economy. After the moratorium in home foreclosures ended there is expected to be a big surge in foreclosures, with estimates of 290,000 to 341,000 foreclosures in March, 2009. If this is allowed to continue it will undo all the good work in other areas, the stimulus spending, rebuilding the auto industry and other steps. It will also be more difficult to reverse as valuable time passes and the cost of the crisis escalates. A consensus among many experts was that stronger action in connection with the banks was required, and Martin Feldstein has warned about the danger posed by foreclosures since early 2008, see links....

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SachsenLB the German bank that took a big hit from subprime mortgage securities is seeing the CEO and the board step down after this finacial disaster.

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Estimates of new rule making as a result of the Financial Reform Bill of 2010, range from 243 new federal rule-makings required based on an analysis made by law firm Davis Polk & Wardwell, to higher numbers made by other experts. The Journal reported in a separate piece on the analysis made by Davis Polk and Wardwell. That estimate includes 67 one time studies and 22 new periodic reports, as being a estimate on the low side. The Journal says the larger banks would benefit by being better able to handle the extra regulatory costs.

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Mervy King, Governor of the Bank of England and his position on the recent mortgage crises, rate cuts , moral hazard in the UK economy. Debate about his standing on principle and having to take action anyway as the crisis deepens as at Northern Rock. His approach contrasted with Bernanke's approach to reduce the damage and still focus on inflation. The issues where a principled stand may not be educated enough in the interests of the whole economy, and all the people in society who may be damaged by a principled approach if a crisis has devastating effects on unemployment, investment and confidence; even though some of those who helped build the crisis are helped along the way. Is the idea of a bailout and moral hazard taken at the surface too simplistic in the modern world with the economic fate of all mankind intertwined with the US economy and the other industrialized and leading economies of the world. Is it impossible to punish a few without punishing the whole? Are their other ways those involved would be chastised such as the CEO's of financial institutions losing their jobs, companies losing their reputation, being disciplined as new CEO's like Pandit at Citigroup and Thain at Merrill Lynch provide new leadership? ...

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What are the prospects for Morgan Stanley? In a crunch would Mitsubishi itself offer up a big credit line or would some other bank buy Morgan outright.