David Kirkpatrick

June 17, 2010

Fed clamping down on financial sector

As I’ve written many, many times, I’m no fan of government regulation, but increased oversight is probably necessary in the financial world right now. You can’t blame the sector’s companies for seeking as much profit as possible, but the United States’ — and the world’s for that matter –economy simply can’t handle bad actors that are deemed “too big to fail.

Too big to fail should mean too big to have autonomy. Any financial institution that wants to get out from under the thumb of the Fed ought to have the opportunity to break down into separate, more streamlined units that could fail if the market so determines without taking everyone else out with them.

From the link:

The Federal Reserve is working to beef up oversight of financial companies to better protect the nation from another financial crisis in the future, chairman Ben Bernanke said Wednesday.

May 27, 2010

Fallout from the financial meltdown and bailout

Lehman Brothers Holdings is suing JP Morgan Chase.

From the link:

Lehman claims JP Morgan “siphoned off” billions of dollars of assets in the days leading up to its bankruptcy.

JP Morgan was Lehman’s main short-term lender before its September 2008 collapse. It is accused of contributing to the failure by demanding $8.6bn of collateral as credit markets tightened.

JP Morgan has called the lawsuit “ill-conceived”.

November 10, 2009

2009 Wall Street bonuses …

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 2:38 pm

… are not going to go over all that great. I understand the nature of compensation in the financial industry, but sometimes image is everything, and the industry has a pretty shabby image on Main Street.

From the link:

Ask yourself, in this day and age, with officially reported unemployment at 10.2%, the highest since 1983, should a 36-year-old derivatives trader get $10 million or $15 million in bonus money on top of a $400,000 to $1 million direct salary. It’s the hot-button money issue of our time, the only visible totem of Wall Street that the public can easily understand. The public sees headlines about stocks being up 62%, the Dow over 10,000, gold at $1,100 an ounce, interest rates at zero and a handful of financiers able to buy $40 million apartments.

It’s a great time to play the market, sure, but the overall effect on the economy is pretty hollow when small and medium businesses cannot borrow money. Treasury Secretary Geithner admits to this huge vacuum, but he has no concrete or meaningful solution.

October 17, 2009

The credit card industry got greedy

No surprise there. Credit is certainly a privilege and not a right, but the industry players have proven to be bad actors when operating without significant oversight. With the Credit Card Accountability, Responsibility and Disclosure Act scheduled to go into full effect over the next year — different provisions begin at different times — the industry took the grace period as an opportunity to gouge customers in the midst of this economic climate.

Needless to say Congress isn’t looking too kindly on Main Street being put under that much more economic pressure. The credit industry might want to start making major concessions and end predatory practices lest Congress decides the new act doesn’t go far enough.Now that the recovery is looking quite jobless and by appearance, if nothing else, mostly benefits Wall Street and the topmost tier of “haves,” a Democrat-controlled government may want a few pounds of flesh for the “have-nots” in this scenario.

From today’s NYT op-ed:

Some of the worst (and most common) abuses are now scheduled to be outlawed in February. These include the practice of arbitrarily raising interest rates, penalizing customers when they are late paying a bill unrelated to the credit card — so-called universal default — and charging customers interest on debt that they paid off a month or more earlier.

The banks claimed that they needed the long lead time to rework their computer processing system. Consumer advocates warned that this would invite banks and credit card companies to wring as much as possible out of consumers before the law finally took effect.

They were right.

A forthcoming study from the Pew Charitable Trusts’ Safe Credit Cards Project shows that credit card interests rates — already too high — rose by 20 percent in the first two quarters of this year, even though the cost of lending went down as a result of low federal interest rates. In testimony before Congress earlier this month, one consumer advocate cited case after case of struggling consumers who had seen their credit card rates more than double for no apparent reason, even when they had faithfully paid on time.

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March 16, 2009

New banking rules

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 3:32 pm

Regulation is coming fast to the banking world. I’m no fan of business regulation, but the financial sector has no one to blame but itself for any rules imposed from above. Particularly after taking handouts from the taxpayers.

From the link:

U.S. Treasury Secretary Timothy Geithner will soon propose an overhaul of the financial regulatory system that is expected to give the Federal Reserve powers to monitor broad economic risks, a Treasury spokesman confirmed on Monday.

As officials grapple with the worst financial meltdown since the Great Depression, government officials plan to outline a revamp of controls over banks and financial institutions aimed at preventing a repeat of the crisis.

Geithner is due to soon outline proposed changes that are also expected to include tougher capital standards for banks, according to a report in the Wall Street Journal that a Treasury spokesman said is accurate.

The administration’s goal is to unveil its proposals before the meeting of the heads of state of the Group of 20 rich and developing economies in early April, the report said.

The rules are further expected to aim to ensure that banks cannot shop among different regulatory agencies to obtain the most lenient supervision and require more transparency and stricter rules for the way money flows between banks.

February 4, 2009

Those Wall Street bonuses

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 12:01 pm

There’s been a lot of ink — actual and virtual — spilled over the bonuses paid out on Wall Street, particularly after the bailout. I’ve been guilty of the very thing even though I knew the reality wasn’t nearly as bad as it was easy to make it seem.

To my defense I only complained about post-bailout bonusing that either just looked very bad PR-wise, or came from companies that wouldn’t have any money to bonus with at all if that cash hadn’t come from the taxpayers pocket.

At the same time I never spent much time on the other side of the coin. A good example is a holiday party mid-December where I spent a good while talking to a trader at a major, and solvent, investment banker who is getting stiffed for six figures of earned bonuses over all of last year because of the bailout and various terms and conditions placed on his firm. He earned the money long before the crisis or bailout, but won’t see a penny of it.

Here’s a CIO.com article with some facts and figures on Wall Street and bonuses. It might open a few eyes.

From the link:

By now I’m sure you’ve all heard about the $18.4 billion worth of bonuses that Wall Street firms paid out to employees in 2008. Here are a few facts about that $18.4 billion—and Wall Street bonuses in general—that you may not know:

  • The $18.4 billion bonus pool was spread out across all Wall Street employees; it didn’t just go to top executives (if that’s any consolation), some of whom wisely forfeited their bonuses for the year, according to the New York State Comptroller’s Office, which broke the news about Wall Street bonuses on January 28.
  • A total of 165,000 employees benefitted from the bonus money, according to the Comptroller’s Office.