[boriscleto]

EconoMonitor : Great Leap Forward

As the Global Financial Crisis rumbles along in its fifth year, we read the latest revelations of bankster fraud, the LIBOR scandal. This follows the muni bond fixing scam detailed a couple of weeks ago, as well as the J.P. Morgan trading fiasco and the Corzine-MF Global collapse and any number of other scandals in recent months. In every case it was traders run amuck, fixing “markets” to make an easy buck at someone’s expense. In times like these, I always recall Robert Sherrill’s 1990 statement about the S&L crisis that “thievery is what unregulated capitalism is all about.”

After 1990 we removed what was left of financial regulations following the flurry of deregulation of the early 1980s that had freed the thrifts so that they could self-destruct. And we are shocked, SHOCKED!, that thieves took over the financial system.

Nay, they took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.

Financiers are forcing schools, parks, pools, fire departments, senior citizen centers, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in firesales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known.

And since they’ve bought the politicians, the policy-makers, and the courts, no one will stop it. Few will even discuss it, since most university administrations have similarly been bought off—in many cases, the universities are even headed by corporate “leaders”–and their professors are on Wall Street’s payrolls.

We’re screwed.

[Nesster]

The original screwers are having belated second thoughts
Former Citigroup CEO Weill Says Banks Should Be Broken Up - Bloomberg

Sanford “Sandy” Weill, who ushered in the era of supermarket banks with the creation of Citigroup Inc. (C) before the financial crisis, said U.S. lenders should be broken up to protect taxpayers.

“What we should probably do is go and split up investment banking from banking,” Weil, 79, said today in an interview on CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

Weill helped engineered the 1998 merger of Travelers Group Inc. and Citicorp, a deal that required the U.S. government to overturn the Glass-Steagall law that forced deposit-taking companies to be separate from riskier investment banks. The company became the biggest lender in the world before almost failing and taking a $45 billion taxpayer bailout.

“We can have size and scale but it doesn’t have to be connected to a deposit-taking institution,” Weill said. “Have banks be deposit-takers, have banks make commercial loans and real estate loans.”

Weill held the positions of chairman and chief executive officer of New York-based Citigroup after the merger. He retains the title “chairman emeritus.”

Weill said he hasn’t spoken with Citigroup CEO Vikram Pandit or JPMorgan Chase & Co. (JPM)’s Jamie Dimon about breaking up the biggest U.S. banks. Dimon, 56, is a former protege of Weill’s and helped to build Travelers before the merger with Citicorp.

Jon Diat, a spokesman for Citigroup, declined to comment on Weill’s remarks.

Parsons, Reed
Richard Parsons, who earlier this year ended a 16-year tenure on the board of Citigroup, said in April that the 1999 repeal of the Glass-Steagall law made the business more complicated and ultimately helped cause the financial crisis.

Former Citicorp CEO John Reed apologized in 2009 for his role in building Citigroup and said banks that big should be divided into separate parts.

Weill said today he altered his view about the industry because “the world changes.” He has been thinking about it a lot over the last year, he said.

“The world we live in now is not the world we lived in 10 years ago,” Weill said. “Good things are simple.”

Former President Bill Clinton said when he signed the repeal of Glass-Steagall that it was “no longer appropriate” for the economy.

“The world is very different,” Clinton said at a White House signing ceremony.

[jeffkrol]

The original screwers are having belated second thoughts
Former Citigroup CEO Weill Says Banks Should Be Broken Up - Bloomberg

A hint of sanity/morality/remorse??? Of course they could "symbolically" put millions of their own "swag" back into the US Treasury (but of course they probably realize the T doesn't need it)

[Nesster]

...meanwhile, Lehman remains a cash cow...
Lehman Cash Flows May Reach $40.5 Billion, Firm Says - Bloomberg

Lehman Brothers Holdings Inc., which filed the biggest bankruptcy in U.S. history in 2008, said its cash flows may reach $40.5 billion through 2015 and beyond, or $6 billion more than previously anticipated.

---

Under Lehman’s August plan, senior bondholders, including Paulson, would recover about 21 cents on the dollar. Claims on Lehman’s derivatives unit, such as Goldman’s, would be paid about 28 cents to 32 cents, with extra money from a guarantee, while commercial paper claims would get 48 cents to 56 cents, all based on each dollar of their investment, court papers show.

Lehman failed because of too much debt and risky real estate investments, according to a bankruptcy examiner’s report. The firm filed for bankruptcy with $613 billion in debt. Bankruptcy managers and advisers have charged Lehman almost $1.6 billion in fees since it foundered.

[Nesster]

And... more on Weill


Charles Gasparino: Sandy Weill: Too Little, Too Late

[LeDave]

Saw this in the New Posts area, without looking at the section... Thank God it's not the other way around as in Pentax is screwed. Phew!

[Nesster]

Saw this in the New Posts area, without looking at the section... Thank God it's not the other way around as in Pentax is screwed. Phew!

------------

Meanwhile an interesting book review:

Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

Barofsky discloses how, in serving the interests of the banks, Treasury Secretary Timothy Geithner and his team worked with Wall Street executives to design programs that would funnel vast amounts of taxpayer money to their firms and would have allowed them to game the markets and make huge profits with almost no risk and no accountability, while repeatedly fighting Barofsky’s efforts to put the necessary fraud protections in place. His investigations also uncovered abject mismanagement of the bailout of insurance giant AIG and Geithner’s decision to allow the payment of millions of dollars in bonuses - including $7,700 to a kitchen worker and $7,000 to a mail room assistant - and that the Obama administration’s 'TARP czar' lobbied for the executives to retain their high pay.

Providing stark details about how, meanwhile, the interests of homeowners and the broader public were betrayed, Barofsky recounts how Geithner and his team steadfastly failed to fix glaring flaws in the Obama administration’s homeowner relief program pointed out by Barofsky and other bailout watchdogs, rejecting anti-fraud measures, which unleashed a wave of abuses by mortgage providers against homeowners, even causing some who would not have lost their homes otherwise to go into foreclosure.

Ultimately only a small fraction (just $1.4bn at the time he stepped down) of the $50bn allocated to help homeowners was spent, while the funds expended to prop up the financial system - as Barofsky discloses - totaled $4.7 trillion. As Barofsky raised the alarm about the bailout failures, he met with obstruction of his investigations, and he recounts in blow-by-blow detail how an increasingly aggressive war was waged against his efforts, with even the White House launching a broadside against him.

Bailout is a riveting account of his plunge into the political meat grinder of Washington, as well as a vital revelation of just how captured by Wall Street our political system is and why the too-big-to-fail banks have only become bigger and more dangerous in the wake of the crisis.

[reeftool]

The original screwers are having belated second thoughts
Former Citigroup CEO Weill Says Banks Should Be Broken Up - Bloomberg

Of course, now that he's retired with his bonus.

[wildman]

Of course, now that he's retired with his bonus.

Exactly

[Nesster]

Here's an interesting reaction... prophetic, from 1995
Most dangerous words in finance: "This time it's different." - The Term Sheet: Fortune's deals blog Term Sheet

Helping banks lose their bearings (Newsweek, March 13, 1995)

When it comes to banking and money, the four most dangerous words in the world are, "This time, it's different."

Take two of the world's bigger business stories: the overnight collapse of Barings PLC, the big British banking house, and the current push in Washington to repeal the Glass-Steagall Act of 1933 so that commercial banks and investment-banking houses can poach on each other's turf without restriction. What do these two events have to do with each other? Simply this: the collapse of Barings, which was done in by a rogue 28-year-old futures trader in Singapore, is living proof of why ending Glass-Steagall could unleash financial disasters that would make the S&L industry collapse look like a wall in the park.

Here's why. Glass-Steagall separated investment banking and stock brokerage from commercial banking. Investment banks do high-risk, high-profit things like underwriting corporate stocks and bonds, selling securities to investors and wheeling and dealing with their own capital to make a buck. Boring old commercial banks were supposed to merely accept deposits and make loans. Giving up their go-go ways was the sacrifice bankers had to make 60 years ago to get federal insurance of bank deposits. Hundreds of banks had already failed, and without federal deposit insurance, the nation's entire financial structure would probably have collapsed. So bankers really had no choice.

Flash-forward to today. Suddenly, it's become a great time to recombine banking and investment banking. But it's hard to see why. It wasn't all that long ago that some of the nation's largest banks like Citibank were in peril, and big outfits like the Bank of New England closed. Federal Reserve Board chairman Alan Greenspan had to bail out the banks by keeping short-term interest rates artificially low until a year ago. That sharply reduced banks' borrowing costs and let some of their all-but-dead borrowers come off the slab and live long enough to repay their loans. Now, having avoided mass death only with Greenspan's help, banks have miraculously gotten smart enough to become big-time investment bankers.

Meanwhile, investment banking, never terribly stable, has gotten crazier than ever thanks to the rise of global trading and derivatives, which have turned money into mere electronic blips on traders' computer screens. The real Barings lesson isn't that financial derivatives are the Devil's plaything. Rather it's that you can be killed in an eyeblink by a problem you didn't know you had. A Singapore slinger of futures slips his leash, loses a billion dollars and busts a London institution that had survived 233 years of European turmoil and reported record profits in 1994. You think that commercial-bank companies can cope with this kind of stuff?

Even some of the biggest investment-banking firms are alive only because their owners had deep pockets. Lehman Brothers and Kidder, Peabody would have been long dead without parents like American Express and General Electric, which covered their losses from junk bonds, dumb investments and trading disasters. Prudential Securities, which got burned for selling toxic tax shelters to its customers, would have been buried under a rock long ago without bailouts from Prudential Insurance. Without Credit Suisse pouring in capital, First Boston would have been toast.

Imagine what would have happened if any of these firms had been owned by a bank company that was hit by bad loan problems which occur periodically, like seven-year locusts. The idea that you can combine risky institutions like banks with ultrarisky investment banks and somehow make the world safer for everyone doesn't make much sense. Especially when you consider that as a group, neither banks nor investment banks have done particularly well in their own businesses. Why should they do better in other businesses? Besides, financial deregulation tends to have nasty, unintended consequences. Remember how Charles Keating Jr. ran amok in a deregulated S&L? Yes, some Glass-Steagall barriers have broken down over the years, with banks expanding into things like futures trading. But offering unrestricted investment-banking powers to all the nation's commercial banks is like giving booze to alcoholics. You're sure to create new drunks.

Financial folly: The Treasury says that "fire walls" will separate commercial-banking companies from investment-banking companies, allowing an investment-banking house to fail without dragging under the commercial bank that's a sister company. Thus, the deposit-insurance fund and the U.S. taxpayer won't be exposed to any risk. Deputy Treasury Secretary Frank Newman says the administration's main goal in eliminating Glass-Steagall is to let commercial banks peddle corporate bonds and to let investment banks get into commercial banking. Commercial banks, he said, are already allowed to trade the kinds of securities that busted Barings. "Most derivatives activities are already conducted by banks," he said. The fire walls, he said, will protect us from problems.

Yeah, right. Barings thought it had adequate safeguards. Kidder, Peabody thought so, too, but lost its shirt on mortgage-backed securities and on whatever it was that trader Joseph Jett was doing. Why would federal fire walls, however strong they seem to be on paper, work better than safeguards erected by companies that have their own money at risk?

Forgive my skepticism, but I can't help hearing the words, "This time, it's different." When it comes to financial folly and getting around rules, it's never different. Make a fire big enough and hot enough, and the Feds' fire walls will be about as useful as the "watertight bulkhead" that made the Titanic unsinkable.

Goes to show, the more things change the more they stay the same... except for the scale of the disaster