Sheila Bair has turned a corner in her support of the bankers. On the critical issue of accounting clarity she made these remarks today to a bunch of CPA’s. I hear she got a standing ovation from that audience. Her words:
Fair Value Accounting
Another ongoing regulatory process is FASB’s proposal to substantially revise the accounting standards for financial instruments. Under the proposed rule, banks would be required to measure substantially all of their financial instruments at fair value on the balance sheet.
While we understand that the objective of the rule is to make financial statements more transparent, we believe that its effect could be to undermine financial stability by making bank performance more procyclical. In short, we do not believe that a bank – whose business strategy is to hold loans and deposit liabilities for the long term – should be required to measure them at fair value on the balance sheet.
70% of all Americans own some stocks. It is hard to avoid the financials if you’re in a fund, so the consumer’s new champion, Elizabeth Warren, should take up the issue of clarity on bank financial statements. That would be a cat-fight I would like to see.
On the key facts behind the bailouts of 2008, regulators have stonewalled the public, the press and even the inspector general of the Troubled Asset Relief Program. On Wednesday, we’ll find out if they can also stonewall the Financial Crisis Inquiry Commission.
Chairman Phil Angelides and his panel will begin two days of hearings on the subject of "Too Big to Fail," featuring testimony from Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corporation Chairman Sheila Bair. Across bailouts from Bear Stearns to AIG, the government has refused to release its analysis of the "systemic risks" that compelled it to mount unprecedented interventions into the financial system with taxpayer money. Two years after the crisis, Mr. Angelides and his colleagues should finally let the sun shine on this critical period of our economic history.
A year ago we told you about former FDIC official Vern McKinley, who has made a series of Freedom of Information Act requests. He wanted to know what Fed governors meant when they said a Bear Stearns failure would cause a "contagion." This term was used in the minutes of the Fed meeting at which the central bank discussed plans by the Federal Reserve Bank of New York to finance Bear’s sale to J.P. Morgan Chase. The minutes contained no detail on how exactly the fall of Bear would destroy America.
He also requested minutes of the FDIC board meeting at which regulators approved financing for a Citigroup takeover of Wachovia. To provide this assistance, the board had to invoke the "systemic risk" exception in the Federal Deposit Insurance Act, and it therefore had to assert that such assistance was necessary for the health of the financial system. Yet days later, Wachovia cut a better deal to sell itself to Wells Fargo, instead of Citi. So how necessary was the assistance?
The regulators have been giving Mr. McKinley the Heisman, but two weeks ago federal Judge Ellen Segal Huvelle made the FDIC show her the Wachovia documents. She is still…
One of the many massive distortions caused by the Fed’s miserable policies is hitting hard on senior citizens who cannot afford stock market losses but need fixed income to live on.
"California Banker" writes
During the past several weeks we’ve had a lot of seniors coming to the bank as their certificate of deposits of mature. They are very disgruntled about the rate environment in general as bank rates are much lower than a year ago.
Many of these seniors are 70 and up and are using the interest to live on in retirement, so their interest income has taken a hit. I imagine most of those living off their interest will likely need to burn net worth to maintain living expense.
Some are moving their deposits to banking institution that a paying a slightly higher rate, which is typically an institution that is struggling and needs the deposit.
To make a few extra pennies, senior citizens pull money out of rock solid institutions in favor of pathetically undercapitalized, troubled banks. But hey, it’s FDIC insured. Why not?
Hello Sheila Bair, can’t you see what’s happening?
Sheila Bair, one of the chief regulators overseeing Bank of America’s federal rescue, took out two mortgages worth more than $1 million from the banking giant last summer during ongoing negotiations about the bank’s bailout and its repayment.
It gets better…
Mortgage documents for that 14-room home include a provision, known as a second-home rider, stating that Bair and her husband must keep the house for their “exclusive use and enjoyment” and may not use it as a rental or timeshare.
Yet the couple has been renting out part of the house since they left for Washington, with Bair listing income from the “rental property” in Amherst as between $15,000 and $50,000 a year on her most recent financial disclosure form as head of the FDIC.
Oh yeah, there’s no conflict of interest here cough-friends-of-angelo-cough!
Of course the FDIC retroactively gave her a waiver from its conflict of interest rules – AFTER The Huffington Post started snooping around.
And of course the FDIC’s ethics officer says there was nothing wrong with what went on – even though it appears that Bair’s use for the property did not qualify for the loan she got, and that the programs that would qualify would and did carry a higher rate.
If, as the FDIC claims, this was an "innocent mistake" then Bair should immediately demand (and accept) a re-price on that paper to conform with her intended and actual use, retroactive to the issue of the loan, and immediately pay all accrued arrears.
Seven U.S. banks were seized by regulators today, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns.
Banks with $14.4 billion in total assets were closed in six U.S. states, the FDIC said in statements on its Web site. The agency is overseeing the dissolution of banks at the fastest pace in 17 years.
Earlier this week, the FDIC boosted its 2010 budget by 56 percent to $4 billion to manage further shutdowns. The total budget will increase from $2.6 billion and the set-aside for bank failures doubles to $2.5 billion over this year, according to a proposal approved by the FDIC board. The agency staff will increase to 8,653 next year from 7,010 this year.
The budget “will ensure that we are prepared to handle an ever-larger number of bank failures next year, if that becomes necessary,” FDIC Chairman Sheila Bair said in a statement. Today’s bank closings will cost the agency about $1.8 billion, according to the FDIC statements.
U.S. lenders are buckling under the weight of loans tied to commercial real estate, which is plummeting in value. Prices have dropped 43 percent from their peak in October 2007, Moody’s Investors Service said last month.
Because allowances for loan losses are a direct hit to earnings, and because allowances are at ridiculously low levels, bank earnings (and capitalization ratios) are wildly over-stated.
Here is an interesting note from the Fed. "For each size category, the sum of all assets held by banks where this ratio is greater than one is divided by the sum all assets held by banks in the class."
The head of the Federal Deposit Insurance Corp. delivered some bad news personally to uninsured depositors who lost money last year when IndyMac Bank crashed and burned, saying an act of Congress is their only hope for recovering their funds.
“When a bank fails, we have to do what’s least-cost to our deposit insurance fund,” FDIC Chairman Sheila Bair said during a public appearance Wednesday in Los Angeles.
Sheila is correct as far as she goes, but like most government employees, it is what she didn’t say that is the problem, not what she did.
Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.
"Shall" is a specific term of art in legislation. It allows no discretion and mandates action. "May" and "Can" are two other words of course, and mean what they say – as does "shall."
This section of the law goes on to define capitalization "buckets," each of which represents a level above water, or above zero, of the excess of assets .vs. liabilities for depository institutions.
It also contains plenty of other "shall" directives such as:
Each appropriate Federal banking agency shall—
(A)closely monitor the condition of any undercapitalized insured depository institution;
(B)closely monitor compliance with capital restoration plans, restrictions, and requirements imposed under this section; and
(C)periodically review the plan, restrictions, and requirements applicable to any undercapitalized insured depository institution to determine whether the plan, restrictions, and requirements are achieving the purpose of this section.
The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.
Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.
“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”
U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.
Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.
"Flagrant evils cure themselves by being flagrant; and we are sanguine that the time is come when so great an evil…cannot stand its ground against good feeling and common sense…" John Henry Newman
The reporter on Bloomberg television just mentioned as a snide, smirking editorial aside, that Sheila Bair feels that a million dollars is a lot of pay for one year, and that ten million is excessive for a deposit taking institution. He noted that she is obviously a Washingtonian, and not a New Yorker.
That’s right. A million dollars annual pay is ‘nothing.’ Even ten million is not much pay for an average Wall Street banker that is taking billions in public funds and gaming the financial system.
The obvious implication is that Ms. Bair is some hick regulator who is not as sophisticated as, let’s say, Larry Summers, Tim Geithner, or Ben Bernanake when it comes to rewarding their Wall Street cronies for allowing the economy to continue unimpaired.
Perhaps he was attempting to sneak a bit of irony into the propaganda that passes for news in the States these days, but it was not obvious.
But he might be right. When the monetary inflation from all this financial corruption hits, a million dollars per year might yet be a ‘livable wage.’
And so goes the "downward spiral of dumbness." Keep these metrics in mind when you look at your next credit card bill, mortgage payment, and paycheck, rubes, and send your tribute to Caesar.
Aug. 5 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators should set pay standards for U.S. banks to ensure incentives encourage long-term performance without setting specific dollar limits.
Banking agencies should “become more active” in using existing authority to set compensation standards that are “principles-based,” Bair said today in an interview with Bloomberg Television in Washington.
“We do need to revamp the system to make sure that the incentives are long-term,” Bair said. “I do wish some of these firms would exercise better restraint and common sense on what they’re paying their folks.”
Bair echoed concerns of House Financial Services Committee Chairman Barney Frank and other lawmakers…
Sheila Bair on Cramer today. Instead of pandering her flawed policies in front of a small (if any) cable audience, with such pearls as "insured depositors have nothing to worry about", maybe Ms. Bair can finally get back to Zero Hedge in its FOIA request attempting to obtain some/any information on just what is the compensation/fee structure for FDIC’s advisor, and the real man behind the curtain, Perella Weinberg. How is this private investment bank/hedge fund, whose succumbing to Ratner’s bullying attempts recently was the main reason for the non-Tarp lenders to abandon their fight to block the Chrysler 363 asset sale, incentivized to advise Sheila and her henchmen when it comes to deciding which bank(s) to close. And not just that, but one would be interested in finding out just what role did Perella Weinberg play in the negotiations between Carlyle, Blackstone and Ross when they acquired BankUnited, and, more relevantly, what fee did P-W get out of that deal.
Please Ms. Bair – at least a flat out refusal to our FOIA request would be sufficient. In the meantime, if readers would like to join this effort, the FDIC’s FOIA submission page is here.
Listen to the interview below and focus on the language about economists and examiners (~2 minutes into the interview): these are the people on whom the fate of the financial system lies.
If there’s one thing we have learned about Barack Obama, it’s that he is a master of deception and absolutely loves to lie to the public. He seems to enjoy conning the plebs to such a degree, I think he actually receives blasts of dopamine every time he does it. The bigger the lie, the better the rush.
The latest example relates to his issuance of executive orders, or lack thereof, something that Obama Inc...
Break-even rates are the difference between treasuries and the same-duration Treasury Inflation-Protected Securities (TIPS). The break-even rate turned negative yesterday for the first time since 2009.
In theory, break-even rates reflect investors’ expectations for inflation over the life of the securities.
When break-even rates are negative, it's an indication investors expect price deflation for the duration, in this case for two years.
From Bloomberg ... The drop in the break-even rate followed a Labor Depart...
Those who took advantage of markets at Fib levels were rewarded. However, this looked more a 'dead cat' style bounce than a genuine bottom forming low. This can of course change, and one thing I will want to see is narrow action near today's high. Volume was a little light, but with Christmas fast approaching I would expect this trend to continue.
The S&P inched above 2,009, but I would like to see any subsequent weakness hold the 38.2% Fib level at 1,989.
The Nasdaq offered itself more as a support bounce, with a picture perfect play off its 38.2% Fib level. Unlike the S&P, volume did climb in confirmed accumulation. The next upside c...
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Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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