Goldman's E-mails Reveal Profits Soared As Housing Bubble Burst

Goldman E-Mails Cited Serious Profit on Mortgages


In late 2007, as the mortgage crisis gained momentum and many banks were suffering losses, Goldman Sachs executives traded e-mail messages saying that they would make “some serious money” betting against the housing markets, The New York Times’s Louise Story and Sewell Chan report.

The messages, released Saturday by the Senate Permanent Subcommittee on Investigations, appear to contradict statements by Goldman that left the impression that the firm lost money on mortgage-related investments.

In the messages, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. “Of course we didn’t dodge the mortgage mess,” he wrote. “We lost money, then made more than we lost because of shorts.”

He added, “It’s not over, so who knows how it will turn out ultimately.”

In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, reacted to figures that said the company had made a $51 million profit from bets that housing securities would drop in value. “Tells you what might be happening to people who don’t have the big short,” he wrote to Gary D. Cohn, now Goldman’s president.

Actions taken by Wall Street firms during the housing collapse have become a major factor in the contentious debate over financial reform. In his weekly radio address on Saturday, President Obama said Wall Street had “hurt just about every sector of our economy” and again pressed the case for tighter regulation. On Monday, Senate Democrats will try to prevent a Republican filibuster in the first major test of the administration’s effort to push through legislation.

Goldman on Saturday denied that it made a significant profit on mortgage-related products in 2007 and 2008. It said the subcommittee had “cherry-picked” e-mail messages from the nearly 20 million pages of documents it provided. This sets up a showdown between the Senate subcommittee and Goldman, which has aggressively defended itself since the Securities and Exchange Commission filed a security fraud complaint against it nine days ago. On Tuesday, seven current and former Goldman employees, including Mr. Blankfein, are expected to testify at a Congressional hearing.

Carl Levin, Democrat of Michigan and head of the Permanent Subcommittee on Investigations, said that the e-mail messages contrasted with Goldman’s public statements about its trading results. “The 2009 Goldman Sachs annual report stated that the firm ‘did not generate enormous net revenues by betting against residential related products,’ ” Senator Levin said in a statement Saturday. “These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

The messages appear to connect some of the dots at a crucial moment of Goldman history. They show that in 2007, as most other banks hemorrhaged money from plummeting mortgage holdings, Goldman prospered.

At first, Goldman openly discussed its prescience in calling the housing downfall. In the third quarter of 2007, the investment bank reported publicly that it had made big profits on its negative bet on mortgages.

But by the end of 2007, the firm curtailed disclosures about its mortgage trading results. Its chief financial officer told analysts that they should not expect Goldman to reveal whether it was long or short on the housing market. By late 2008, Goldman was emphasizing its losses, rather than its profits, pointing regularly to write-downs of $1.7 billion on mortgage assets in 2008 and not disclosing the amount it made on its negative bets.

Goldman and other firms often take positions on both sides of an investment. Some are long, which are bets that the investment will do well, and some are shorts, which are bets the investment will do poorly.

Goldman has said it added shorts to balance its mortgage book, not to make a directional bet on a market collapse. But the messages released by the subcommittee Saturday appear to show that in 2007, at least, Goldman’s short bets were eclipsing the losses on its long positions.

In May 2007, for instance, Goldman workers e-mailed one another about losses on a bundle of mortgages issued by Long Beach Mortgage Securities. Though the firm lost money on those, a worker wrote, there was “good news”: “we own 10 mm in protection.” That meant Goldman had enough of a bet against the bond that, over all, it profited by $5 million.

On Oct. 11, 2007, one Goldman manager in the trading unit wrote to another, “Sounds like we will make some serious money,” and received the response, “Yes we are well positioned.”



Documents released by the Senate subcommittee appear to indicate that in July 2007, Goldman’s accounting showed losses of $322 million on positive mortgage positions, but its negative bet — what Mr. Viniar called “the big short” — brought in $373 million.

As recently as a week ago, a Goldman spokesman emphasized that the firm had tried only to hedge its mortgage holdings in 2007.

The firm said in its annual report this month that it did not know back then where housing was headed, a sentiment expressed by Mr. Blankfein the last time he appeared before Congress.

“We did not know at any minute what would happen next, even though there was a lot of writing,” he told the Financial Crisis Inquiry Commission in January.

It is not known how much money in total Goldman made on its negative housing bets. Neither Goldman nor the panel issued information about Goldman’s mortgage earnings in 2009

In its response on Saturday, Goldman Sachs released an assortment of internal e-mail messages. They showed workers disagreeing at some junctures over the direction of the mortgage market. In 2008, Goldman was stung by some losses on higher-quality mortgage bonds it held, when the crisis expanded from losses on risky bonds with subprime loans to losses in mortgages that were given to people with better credit histories.

Still, in late 2006, there are messages that show Goldman executives discussing ways to get rid of the firm’s positive mortgage positions by selling them to clients. In one message, Goldman’s chief financial officer, Mr. Viniar, wrote, “Let’s be aggressive distributing things.”

Goldman also released detailed financial statements for its mortgage trading unit. Those statements showed that a group of traders in what was known as the structured products group made a profit of $3.69 billion as of Oct. 26, 2007, which more than covered losses in other parts of Goldman’s mortgage unit.

Several traders from that group will testify on Tuesday, and their profitable short positions are likely to be of interest to the Senate committee. The Abacus deal that is involved in the S.E.C. complaint and others like it were created within that group.

The messages released by Goldman included many written by Fabrice Tourre, the executive who is the only Goldman employee named in the S.E.C. complaint. They reveal his skepticism about the direction of the subprime mortgage market in 2007. In a March 7 message to his girlfriend, he wrote, “According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long.” He was referring to Dan Sparks, then the head of Goldman’s mortgage trading unit.

The Senate subcommittee began its investigation in November 2008, but its work attracted little attention until a series of hearings in the last month.

The Senate announced that it would convene a hearing on Goldman Sachs within a week of the S.E.C.’s fraud suit. Some members of Congress questioned whether the two investigations had been coordinated.

Mr. Levin’s staff said there was no connection between the two investigations. The subcommittee issued subpoenas to Goldman on June 30 of last year and again on March 12, and informed Goldman about who would be called as witnesses on April 5. The S.E.C. has said there was no political motivation in the timing of its complaint.

Among the lawyers Goldman has hired to deal with the Senate inquiry are Michael D. Bopp, a partner at Gibson, Dunn & Crutcher, and K. Lee Blalack II, a partner at O’Melveny & Myers.

Mr. Bopp and Mr. Blalack are based in Washington and both once worked as lawyers for the Permanent Subcommittee on Investigations. Mr. Blalack was the subcommittee’s chief counsel and staff director.


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Pres. Obama Praises Auto Industry, Challenges Wall Street - Weekly Address

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Did Geithner Conspire With SEC To Hide AIG Bailout?

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Inside Goldman Sachs...CNN Report

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Federal Reserve Stopping Emergency Credit Market Programs

Federal Reserve to wind down several emergency programs


The Federal Reserve will allow several of its special programs supporting credit markets to expire early next year, winding down some of the unconventional efforts to prop up the financial system during the depths of the 2008 crisis.

The Fed said Wednesday, following a two-day policy making meeting, that it will allow five special lending programs -- designed to support money market mutual funds, short-term corporate lending and investment banks -- to cease to exist Feb. 1. It will also move to wind down special arrangements to pump hundreds of billions of dollars into other nations' banking systems.

It represents the clearest step yet by the Fed to return its policy to normal , though it continues its expansive effort to stimulate the economy overall. At the same meeting, the Federal Open Market Committee kept its target for short-term interest rates near zero, where it has been for a year, and said that it is likely to keep rates "exceptionally low" for "an extended period."

The Fed leaders implicitly acknowledged recent signs of economic improvement -- the unemployment rate ticked down in November, among other positive indicators -- even as they signaled that they intend to keep their foot on the accelerator to try to spur stronger growth.

Recent evidence suggests that "economic activity has continued to pick up and that the deterioration in the labor market is abating," said the Federal Open Market Committee in a statement following its final meeting of the year. "The housing sector has shown some signs of improvement over recent months."

The special lending programs being wound down were created over the course of 2008, using an emergency lending authority under which the Fed can lend to almost any entity in "unusual and exigent circumstances." Fed leaders have long known that they must eventually eliminate the programs, but they had repeatedly extended those efforts. Many of the programs have fallen into disuse as financial markets broadly have stabilized.

With the announcement Wednesday, the Fed indicated that there will be no more extensions for the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility and the Term Securities Lending Facility.

Another program, the Term Asset-Backed Securities Loan Facility, or TALF, is not scheduled to expire until March 31 for some parts of the programs and June 30 for others.

The meeting came at an unusual time for the Fed and for its chairman, Ben S. Bernanke. The central bank is under considerable fire on Capitol Hill for its actions during the crisis, and some lawmakers want to strip it of its power to supervise banks. And Bernanke is up for confirmation for a second four-year term as chairman, which the Senate Banking Committee is scheduled to vote on Thursday. Also Wednesday, Bernanke was named Time magazine's Person of the Year, for his expansive efforts to contain the financial crisis and the recession over the course of 2008.


Sources: Washington Post

Dubai's Debt Crisis Shakes Financial World...Too Big To Fail?

Dubai Stocks fall! Wall Street took stock prices lower on worries about potential fallout from crushing debt in Dubai. The Washington Post's Neil Irwin explains.

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Stocks sell off on Dubai.

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Is Dubai Abu Dhabi's case of too big to fail?



As world markets absorbed the shock of Dubai's debt crisis, the ruler of the once-booming city-state left town for an important meeting in a desert palace. His hosts: the leaders of neighboring Abu Dhabi whose balance sheets are flush with oil revenue.

It's not known what promises were made inside the halls in Al Ain during the parade of visitors for an important Islamic feast day on Friday. But their new relationship is clear. Abu Dhabi has the cash and cache to be Dubai's white knight — in a Gulf version of a too-big-to-fail bailout or to help calm markets with promises to intervene if Dubai's fiscal mess deepens.

The direction Abu Dhabi takes will likely set the tone for the coming week as analysts try to sort out what banks and institutions have the most at stake in the money crunch — which has suddenly shifted Dubai's image from a desert dream factory of indoor ski slopes and a "seven-star" hotel to a reckless spender sideswiped by the recession and unable to pay its bills.

Just this month, Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, assured international investors that all was well with Dubai's finances and told media critics to "shut up."

"Depleting market confidence in Dubai carries serious risks for Abu Dhabi," said Hani Sabra of Eurasia Group, a U.S.-based research firm that assesses political risk for foreign investors in Dubai and the Gulf.

"Differences between the two city-states remain on how to approach the economy and the financial crisis," Sabra added. "But now Abu Dhabi is obviously the more dominant emirate."

Dubai's empty pockets — mostly drained by collapsing real estate prices and over-ambitious development plans — touched off panic selling across world markets on fears that the reckoning from the global recession is not over.

$3.5 billion due Dec. 14

In a surprise announcement Wednesday, Dubai said it seeks a six-month delay in paying creditors on nearly $60 billion in debt held by its main development arm, Dubai World, whose holdings range from port operations around the world, Dubai's iconic palm-shaped island and the luxury retailer Barneys New York. The next tranche was a $3.52 billion bond due Dec. 14 by Dubai World's troubled real estate division, Nakheel.

On Friday, the Dow Jones industrial average suffered its biggest drop in nearly a month — closing down 154.48, or 1.5 percent, to 10,309.92, in a shorted trading day because of the Thanksgiving break. Asian exchanges fell sharply for a second day, but European markets bounced back on confidence the Dubai damage would not spread to other Gulf economies.

Dubai and other Middle East financial markets reopen Monday after an Islamic holiday.

But much attention will remain on Abu Dhabi's response. It stepped in earlier this year with a $10 billion bailout for Dubai when the first blast of the recession hit. Dubai ruler Sheik Mohammed has stressed the close bonds between the two most powerful emirates in the UAE, which celebrates its national day on Wednesday and offers a perfect forum to display unity.

An editorial in The National newspaper — which is bankrolled by Abu Dhabi and closely reflects the opinions of its rulers — said Dubai's infrastructure is sound and pointed out General Motors' revival after receiving a U.S.-backed bailout in comments that suggested an unchecked Dubai meltdown could harm the entire country.

"Confidence is a fragile commodity," said the Friday editorial.

Yet Abu Dhabi's largesse may be reaching some limits. On the same day that Dubai announced its debt payment "standstill," two Abu Dhabi-controlled banks bought $5 billion in Dubai bonds for a stopgap cash infusion, but went no further.

"I guess Abu Dhabi is saying there will be no blank check for Dubai," said Jane Kinninmont, a London-based specialist on Gulf economies at the Economist Intelligence Unit.

What Abu Dhabi could get for their money, however, is greater long-term influence over Dubai's development policies. That would essentially mean giving the wealthy and more conservative rulers in the UAE's capital the task of trying to rein in Dubai after years of living beyond its means.

Dubai crash landed about a year ago as the global economic downturn ended a sizzling property boom, which saw prices skyrocket and investors lining up for new projects. The state-backed Dubai World led the charge with a catalog brimming with ever-bigger ideas and the bold motto: "The sun never sets on Dubai World."

Some were completed before the bubble burst, such as the Palm Jumeirah island that included a Hollywood A-list opening of the Atlantis resort in November 2008. But dozens of major projects, including entire mini-cities in the desert, have been shelved.

Abu Dhabi has moved ahead with more caution — comfortable in the fact it has vast oil wealth that Dubai does not enjoy.

Its rulers have concentrated on what they see as attempts to gain global stature as hub for culture and innovation: funding an alternative energy research center and building satellite museums for the Louvre and Guggenheim. The Abu Dhabi sovereign wealth fund is constantly on the hunt for new investments, including U.S. companies such as Citigroup Inc.

Abu Dhabi's strategists are expected to dig deeper into Dubai World's books before deciding their next move, analysts say.

Dubai officials said plans to restructure Dubai World will not include its profitable ports management division, DP World, which has a presence in nearly 50 facilities around the world. The main retooling will be to Dubai World's battered real estate units, led by Nakheel.

A report from Goldman Sachs said the lenders HSBC Holdings PLC and Standard Chartered PLC could have the most exposure to Dubai debt, but the potential credit losses appeared relatively small. The deeper risks could directly hit Emirates' banks and investment firms.

Christopher Davidson, an expert in Emirate affairs at Britain's Durham University, wondered if Abu Dhabi wanted to become too deeply involved in lifting Dubai from its fiscal wreckage.

"There is no point throwing good money into Dubai's black holes," Davidson said. "These are mistakes of Sheik Mohammed and he needs to deal with them."



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CIT Enters Bankruptcy...Creditors Back Reorganization Plan

Creditors Back CIT’s Bankruptcy


As the CIT Group sought desperately to avoid bankruptcy this summer, it argued that being forced into Chapter 11 protection would spell disaster for its customers: a wide swath of the nation’s small and midsize businesses who rely on the 101-year-old company for financing.

On Sunday, CIT entered what it called a different kind of bankruptcy, one that will let it reemerge from court protection by the end of the year under the ownership of its creditors, who widely supported the reorganization plan.

The filing marks the culmination of months of bargaining among CIT, its creditors and the federal government over the company’s fate. Bank regulators concluded over the summer that even though CIT was vital to many small businesses that needed financing, the company’s problems did not pose the type of systemic risk that led to the aggressive rescues of Citigroup and Bank of America.

Even so, the bankruptcy filing means taxpayers will lose the $2.3 billion investment they made in CIT as part of the government’s sweeping financial rescue last fall, marking the first such loss of the bailout program.

Even though the government has been repaid with interest for its investments in companies like Goldman Sachs and Morgan Stanley, it will probably see more losses in companies like the American International Group and Chrysler.

By filing a so-called prepackaged bankruptcy plan, CIT is aiming to limit the damage inflicted on the scores of retailers and other companies that depend on the specialized financing it provides. It is the dominant provider of factoring, in which a company sells the debt it is owed to a company like CIT at a discount.

Many companies that provide factoring have been hit hard by the faltering economy and have closed their doors, leaving more businesses dependent on the likes of CIT, according to Michael C. Appel, the head of the retail and consumer practice at Quest Turnaround Advisors, a consulting firm.

“In the long run it will be good for CIT,” said Emanuel Weintraub, chief executive of Emanuel Weintraub and Associates, a management consultancy. “In the short term it will not be good for thinly financed companies that may not be immediately taken in by other lenders.”

When CIT disclosed its troubles in July, many retailers were preparing their orders for the holiday season and were terrified by the prospects of a sudden and uncontrolled Chapter 11 filing, said Ellen Davis, vice president of the National Retail Federation.

CIT’s filing will test whether a financial company can survive the Chapter 11 process. Bankruptcy has long been considered a death knell for lenders, whose very existence depends on the confidence of its creditors and customers. The company’s struggles have been watched with interest and trepidation by analysts and its clients.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” Jeffrey M. Peek, CIT’s chairman and chief executive, said in a written statement.

It also means the end of CIT’s efforts to transcend its roots as a sleepy financier of retailers, restaurants and manufacturers. Under Mr. Peek, a former high-ranking Merrill Lynch executive, the company branched out into student lending and investment advisory services. Befitting its ambitions, it moved from an office park in Livingston, N.J., to a flashy tower in Midtown Manhattan.

But the company was laid low by the turmoil in the credit markets, which sapped its ability to finance its daily operations. Even after receiving the initial $2.3 billion in government aid, it went to its regulators for additional help, only to be told it needed to find a solution in the private markets. It subsequently bargained with its creditors over a restructuring plan that would keep it operating and cut $10 billion in unsecured debt.

While CIT had hoped to stay out of bankruptcy court through a bond exchange offer, that plan failed to win enough support from bondholders, the company said in a statement.

With $71 billion in assets and nearly $65 billion in liabilities, CIT’s bankruptcy ranks among the largest in corporate history, though it is dwarfed by the bankruptcies of Lehman Brothers and Washington Mutual. CIT said in its bankruptcy petition that $800 million of its bonds would mature from Sunday through Tuesday.

CIT said that only its holding company was filing for bankruptcy, and that most of its important operating subsidiaries, including its Utah bank, would continue to operate normally. As part of an effort to revamp its business model, the company plans to move more of its operations into its bank instead of relying on the more volatile capital markets.

Bondholders will receive about 70 cents for each dollar owed them through the prepackaged bankruptcy. CIT said investors would have received as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.

CIT said in a statement that holders of about 85 percent of its $30 billion in bond debt participated in the voting. Those investors voted almost unanimously to support the prepackaged bankruptcy plan.

Last week, the company got a $4.5 billion loan from several investors. It also reached an accord with Goldman Sachs that would preserve a $2.13 billion loan.

Sources: NY Times

Debtor's Revolution: "I Refuse To Pay Off My BOFA Credit Card" (Video)

Huffington Post----

Debtor's Revolt: Woman Refuses To Pay Off Bank Of America Credit Card




For years, Ann Minch of Red Bluff, Calif., has carried a balance of several thousand dollars on her Bank of America credit card, making minimum monthly payments of about $130, sometimes paying an extra $50 or $100. She says she's never missed a payment.

Bank of America rewarded her loyalty this year by repeatedly raising her interest rate, which reached 30 percent in July.

Fed up, the 46-year-old stepmother of two turned to YouTube.

"There comes a time when a person must be willing to sacrifice in order to take a stand for what's right," said Minch in a Sept. 8 webcam video. "Now, this is one of those times, and if I'm successful this will be the proverbial first shot fired in an American debtors' revolution against the usury and plunder perpetrated by the banking elite, the Federal Reserve and the federal government."

Minch announced that she'd be dumping Bank of America, refusing to pay off her credit card debt unless she was offered a lower rate. She explained that she'd been a reliable customer even though she'd lost her job as a mental health case manager. She said bank reps refused to negotiate her interest rate when she called them to complain a few weeks ago.

"You are evil, thieving bastards," she said in her video. "Stick that in your bailout pipe and smoke it."

The video made a splash online, getting links from all kinds of venues and garnering over 96,000 views as of Monday morning.

Minch told the Huffington Post she fulfilled part of her threat on Saturday, when she went to her local BofA branch and closed out her checking and savings accounts. She took her money (around $5,000, she said) and put in a local community bank. She brought printouts of web pages that had linked to her video, but a manager wasn't interested in looking at them.

"No, we're just going to let corporate handle it. In fact, I don't really even need to talk to you," she said she was told. Bank of America declined to comment when contacted by the Huffington Post.

Ed Mierzwinski, program director of the U.S. Public Interest Research Group, said credit card lenders had better be paying attention.

"Historically, powerful and arrogant corporations, often protected by lazy regulators, have ignored consumer complaints -- now social media tools are leveling the playing field for victimized consumers," Mierzwinski wrote in an email to the Huffington Post. "The old web 1.0 mybanksucks.com sites that no one found are being replaced with realtime viral outrage that will require big business to start treating consumers more fairly or pay the price."

The credit card industry made a villain of itself this year by benefiting from billions in taxpayer bailout dollars and then thanking taxpayers by raising interest rates and minimum monthly payments, even on their good customers.

Minch said she hadn't been paying much attention to her account -- she didn't even notice when her interest rate went from 12.99 percent to 25.49 percent in January -- but that the more she read about the $700 billion bank bailout, the angrier she got. Still, the decision to stage her one-woman revolt wasn't easy.

"When I finally made my decision about what I needed to do, it was scary," she said. "I knew I was probably going to ruin my credit."

Indeed. But Bank of America will be out $5,943.34. Minch shared some of her statements with the Huffington Post.

Minch sent Bank of America CEO Ken Lewis a letter demanding that he watch her video and get in touch.

"If you would like to collect payment for this account, it will be necessary for you to view my video and then contact me with your response," she wrote. "The video will take less than 5 minutes of your time, which I know must be extremely valuable because of the gargantuan amount of money you are paid."

Minch said that regular folks will continue getting "bent over" by the government and the global financial industry unless consumers take a stand.

"Tea parties and letters to representatives hasn't done squat," she said. "We need to form a cyber revolution."

Sources: Huffington Post, Youtube

Pres. Obama vs. Wall Street...Who's Going To Win? (Speech Text)

MSNBC, Huffington Post----

Pres. Obama challenges Wall Street to change

(Speaking at Federal Hall in the heart of Wall Street President Obama says, "We will not go back to the days of reckless behavior and unchecked excess.")

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(Will Pres. Obama's efforts to regulate Wall Street be successful?)

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(Has Wall Street learned anything from the failure of Lehman Brothers?)

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NEW YORK - President Barack Obama sternly warned Wall Street Monday against returning to reckless and unchecked behavior that had threatened the nation with a second Great Depression.

Even as he noted the U.S. economy and financial system were pulling out of a downward spiral, Pres. Obama warned financial titans on the first anniversary of the Lehman Brothers collapse that they could not count on any more bailouts.

He credited his administration and the $787 billion stimulus package rammed through Congress in the first days of his taking office for pulling the country back from the brink.

"We can be confident that the storms of the past two years are beginning to break," he said.

And even as the economy begins a "return to normalcy," Pres. Obama said, "normalcy cannot lead to complacency."

Nevertheless, Pres. Obama said, "Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them."

His tough message warned the financial community to "hear my words: We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses."

Pres. Obama spoke at Federal Hall in the heart of Wall Street before an audience that included members of the financial community, lawmakers, and top administration officials. He planned lunch with former President Bill Clinton after the speech, before returning to Washington. Administration officials would not disclose any details of the luncheon discussion.

In marking his determination to prevent a repeat of the crisis that nearly brought down the global financial system last fall, Pres. Obama said he was attacking the problem on several broad fronts, including new rules to protect consumers and a new Consumer Financial Protection Agency to enforce those rules and closure of regulator loopholes and overlap that "were at the heart of the crisis" because it left key officials without "the authority to take action."

At the Pittsburgh G-20 economic meeting later this month, the U.S. will focus on ways "to spur global demand but also to address the underlying problems that caused such a deep and lasting global recession," Pres. Obama said.

Pres. Obama and others seeking ways to better monitor the financial system and to police the products banks sell to consumers have been opposed by lobbyists, lawmakers and turf-protecting regulators. Mergers and sales of banks have consolidated lending power in even few hands. And those large firms still bet far more than the capital they have on hand.

Yet regulations have not moved. Much of the legislative motivation in Washington has been consumed by the contentious debate over changes to the health care system. Government intervention into private automakers such as General Motors have left lawmakers skittish to move further into corporate board rooms. And it's not as if another collapse is obviously imminent.

Five of the biggest banks — Goldman Sachs, JPMorgan Chase, Wells Fargo, Citigroup and Bank of America — posted second-quarter profits totaling $13 billion. That's more than double what they made in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the second quarter of 2007 — when the economy was considered strong.

The failure of Lehman Brothers — the biggest bankruptcy in U.S. history — and the panicky sales of Bear Stearns to JPMorgan Chase and Merrill Lynch to Bank of America transformed Wall Street and gave fewer competitors increased market power.

As of June 30, three banks — JPMorgan Chase, Wells Fargo and Bank of America — held $2.3 trillion in domestic deposits, or $3 out of every $10 in deposit in the United States. Three years ago those three institutions held about 20 percent of the industry total.

Pres. Obama has sought tougher capital requirements for banks, arguing that banks' buying of exotic financial products without keeping enough cash on reserve was a key cause of the crisis. Treasury Secretary Timothy Geithner has urged the Group of 20 nations to agree on new capital levels by the end of 2010 and put them in place two years later.

The administration also has proposed increased transparency of markets in which banks trade the most complex — and potentially risky — financial products. Pres. Obama's broad plan also would give the Fed new oversight powers and impose conditions designed to discourage companies from getting too big.

Sen. Chris Dodd, the Democratic chairman of the Senate Banking Committee, is leading the push for those new rules and his aides hope to have legislation together before the year's end. Already they have conducted hearings on the source of the problem and how best to prevent another.

But a key component of Pres. Obama's plan — creating an agency to oversee marketing financial products to consumers — faces a tough road to become a law. Industry lobbying against it and other proposed financial rules has been fierce and the president's fellow Democrats have been slow to take up the cause.

(Here's the link of President Obama's address on Financial Reform (Text), as prepared for delivery, September 14, 2009.)



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Ben Bernanke Gets To Keep His Job...President Obama Highly Recommends His Experienced Leadership

MSNBC, Wall Street Journal----


(President Obama reappoints Ben Bernanke to a second term as head of the Federal Reserve.)

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Ben Bernanke's Resume:

Age: 55. Born Dec. 13, 1953, in Augusta, Ga.

Education: B.A. in economics, 1975, Harvard University; Ph.D. in economics, 1979, The Massachusetts Institute of Technology.

Experience: Feb. 1, 2006, to present, chairman of the Federal Reserve; June 2005 to Jan. 31, 2006, chairman, President's Council of Economic Advisers; 2002-2005, member, Board of Governors of the Federal Reserve System; 1996-2002, professor and chairman of the Economics Department at Princeton University; 1985-2002, economics professor, Princeton University.

Family: Wife, Anna; two children.

Quote: "I was not going to be the Federal Reserve chairman who presided over the second Great Depression," Bernanke in a July 26 town-hall meeting moderated by PBS' Jim Lehrer.


President Barack Obama announced Tuesday he wants to keep Ben Bernanke on as Fed chairman, saying he shepherded America through the worst economic crisis since the Great Depression.

"Ben approached a financial system on the verge of collapse with calm and wisdom; with bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall," said Obama, with Bernanke standing by his side. "Almost none of the decisions he or any of us made have been easy."

Obama made the announcement while on vacation on the island of Martha's Vineyard off the coast of Massachusetts after aides said initially that the president intended a news-free week there. Both he and Bernanke sported the open-collar look.

Bernanke, 55, is credited with turning the economy away from its deepest and longest recession since the 1930s. Now he faces the challenge of meeting White House expectations to chart the full economic recovery considered critical to Obama's legacy.

In sticking with a Republican for the nation's top banker, the Democratic president was aiming for stability at a time of continuing, though easing, crisis. The move was designed to reassure the U.S. financial sector as well as foreign central banks that the Obama administration isn't changing course on its largely well-received approaches to the financial meltdown and overall monetary policy.

The announcement also came nearly concurrently with a piece of bad economic news. Obama interrupted his vacation to telegraph his decision just ahead of a White House report that gave more bleak assessments of the nation's deficit picture.

Figures released by the White House budget office on Monday foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May. Moreover, the figures show the public debt doubling by 2019 and reaching three quarters the size of the entire national economy. Also Monday, analysts with the nonpartisan Congressional Budget Office projected a cumulative $7 trillion deficit from 2010-2019, more in line with the administration's May estimate.

The White House said Obama decided on the last-minute schedule addition to help "put him more in `vacation mode." "There's been a lot of speculation out there, and the president wanted to put it to rest," Deputy Press Secretary Bill Burton told reporters as the presidential entourage headed from the site of the announcement to a golf course.

Bernanke's early tenure was as complicated as the crisis facing the banks he sought to save.

The Fed chairman's successful, although unconventional, strategy to move the economy away from recession, unlock frozen credit and stabilize spiraling financial markets depended in large part on creating radical and unprecedented lending programs. But he's not without his detractors, and the Democratic chairman of the Senate Banking Committee, Connecticut's Chris Dodd, immediately warned of a thorough hearing before Bernanke would be confirmed for a second four-year term.

With such controversy surrounding some of his decisions, Bernanke's fate had been the subject of speculation for months.

Many on Wall Street and in academic circles had viewed Bernanke as the best choice to tackle continued high unemployment, fight off any threat of inflation and take on the next set of risky, difficult decisions.

Announcing his decision to bypass prominent Democratic economic figures for the job, Obama had nothing but praise for Bernanke.

The president also put in a plug for his own administration's actions to stabilize the financial system, restructure the auto industry and approve $787 billion in stimulus spending.

Appearing in makeshift press workspace on the island, Bernanke said that if confirmed by the Senate, he'd work to provide "a strong foundation for growth and stability" in the economy.

"The Federal Reserve, like other economic policy makers, has been challenged by the unprecedented events of the past few years," Bernanke said. "We have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable financial and economic environment in which opportunity can again flourish and in which Americans hard work and creativity can receive their proper rewards."

The economy is emerging from recession and is poised for growth. However, it will be slow-going and the unemployment rate, now at 9.4 percent, is likely to top 10 percent this year before it starts going down.

For Obama, there was little political downside in choosing to nominate Bernanke. The move displays bipartisanship and a steady, unchanging hand on the economic tiller. Fully occupied with an attempted health care overhaul, Obama's team could little afford the distraction of changing the head of the Fed.

Bernanke was appointed Fed chairman by President George W. Bush and sworn in Feb. 1, 2006, following Alan Greenspan's 18-year tenure.

Sources: MSNBC, Wall Street Journal, The Daily Beast

Creative Mother Bakes Her Way Out Of Foreclosure..."Mortgage Apple Cake" (Partial Recipe)

MSNBC----


(How baking cakes saved her home.
TODAY’s Ann Curry talks to Angela Logan about how her cake, known as the “Mortgage Apple Cake,” helped her keep her home.)

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During the Great Depression, people sold apples in the streets to get enough money for their next meal. Fast-forward 80 years to another recession and meet Angela Logan, who is selling apple cakes to friends, neighbors and total strangers over the Internet to get enough money to save her home from foreclosure.

Like so many great ideas, it was born of sheer desperation, Logan told TODAY’s Ann Curry Tuesday in New York. After 20 years of living in her home in Teaneck, N.J., a double financial whammy pushed her to the brink of losing it.

Double whammy:

The first hit was a home construction project to repair storm damage and make other improvements. The contractor turned out to be less than honest and hit Logan with thousands of dollars in overcharges she hadn’t planned on. Then an agency that represented Logan in her work as an actor went under, taking thousands of dollars she had coming to her with it.

Logan’s fiance and one of her three sons exhausted their savings trying to help keep her afloat. Finally, she applied for help under President Obama’s Making Home Affordable Plan. After three months of waiting for a response from the holder of her mortgage, she learned just two weeks ago that she had 10 days to make a $2,500 mortgage payment that would begin to qualify her for the federal program.

“We were in limbo for a long time. Then, all of a sudden, bam, we had to have this amount of money three months in a row in order to have our mortgage,” Logan told Curry. “I didn’t want to miss out on this opportunity to come out of foreclosure.”

Logan, the 55-year-old mother of three sons, is also a substitute teacher and is studying at Bergen Community College in New Jersey to become a nurse. She hit on the idea of selling the scrumptious apple cake her grandmother taught her to bake when she was a child in Atlanta.

“I asked the kids, ‘What do you think about me selling this cake to pay the mortgage?’ ” Logan related to Curry. “The kids — who usually say, ‘Nah, that’s a bad idea ’cause Mom said it’ — said, ‘Yeah, we love your cake. We think it would be a great idea.’

“So we said, ‘What will we call it? We’ll call it Mortgage Apple Cake.’ ”

Selling like (hot) cakes:

The cake is made with organic ingredients, and after some research, Logan decided that $40 was a reasonable price. She figured if she could sell 100 cakes, she could keep her home.

The next day, Thursday, July 16, Logan started spreading the word. “I set out to ask family and friends. I stood up in class and asked my classmates. I told them about the situation and they just gave me money for cakes. I went to my church; they gave me money for cakes. My friends from organizations I have worked for doing nonprofit fundraising events — they told all their friends. And between the Wednesday when I started and the next Thursday, I sold 42 cakes from my home with four pans, one bowl and one mixer.”

Her local newspaper, The Record of Hackensack, N.J., heard about Logan’s efforts to bake herself out of foreclosure and wrote a story about her. Other newspapers followed up, along with local television stations. Before Logan knew what had hit her, she had orders for 500 cakes.

She was getting up at 3 a.m. to bake the cakes one at a time in her own kitchen, but there was no way she could fill so many orders. She also didn’t know how she could deliver cakes to addresses all over the United States as well as overseas.

Angels to the rescue:

Into the breach stepped two angels. The Hilton Hotel in Hasbrouck Heights, N.J., read about her efforts and offered her the use of its kitchen, free of charge. That was vital, because health officials in her hometown had decided she couldn’t run a commercial bakery from her home.

The second angel showed up on her doorstep, also after reading about Logan’s story. He is Josh Kaye, founder and president of Bake Me A Wish, a not-for-profit bakery that sells delicious goodies for charitable causes. He volunteered his organization’s kitchens to take over the bulk baking, as well as to deliver the cakes.

“She was staying up all hours of the night trying to bake cakes,” said Kaye, who joined Logan on TODAY. “I said, ‘Bake Me A Wish is going to come here and we’re going to bail you out. We’re going to help you pay your mortgage.’ And we started to bake cakes for her.”

Logan delivered her first mortgage payment on time, and expects to make the next two payments, which will make her eligible for a renegotiated loan that will knock $1,000 off her monthly mortgage payment.

Meanwhile, she and Kaye are working to make her success help others.

“We’re going to give a portion of all the sales we have to giving back to other people in need,” Kaye said. “We’re negotiating with a charity right now to enable them to do that.”

Said Logan as Curry dug a fork into a big wedge of the moist and delectable Mortgage Apple Cake, “It’s all so fast, I cannot believe it. It’s like a dream come true. It’s surreal.”

The complete recipe of Angela Logan’s apple mortgage cake is her secret — but this much can be revealed. The cake includes:
— Buttercream cheese frosting
— Fresh Gala and Red Delicious apples, cut fresh
— Whole grain and unbleached flour
— Saigon cinnamon
— A secret ingredient that makes it moist



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Sources: MSNBC, Today's Show, Whitehouse.gov, Makinghomeaffordable.gov, Google Maps

Citigroup Working On Secret Deal With U.S. Bank Regulator

Huffington Post, Financial Times----


Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.

People close to the situation said that the deal had been discussed in recent weeks amid increased pressure on Citi from the Federal Deposit Insurance Corporation, the regulator, and could be finalised soon.

The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity, these people added.
EDITOR’S CHOICE
In depth: US banks - May-07

The regulator’s action highlights concern over Citi’s financial health, governance and the strength of its management team, led by Vikram Pandit, chief executive. The FDIC is known to be frustrated with the slow pace of Citi’s “toxic” assets sales, its losses and the lack of commercial banking experience at the top.

An agreement would strengthen the FDIC’s position in its dealings with Citi and its demands for detailed financial information as it deliberates over whether to include it on its list of “problem banks”.

Citi, which is about to cede a 34 per cent stake to the US government as part of its latest rescue, struck a similar agreement with another regulator late last year, industry executives say.

The bank and its main regulators – the Office of the Comptroller of the Currency, the Federal Reserve and the FDIC – declined to comment.

Agreements between regulators and a bank’s management and board – known as “informal actions” – are not made public to avoid stoking investors’ fears. They can be in a “memorandum of understanding” or a “commitment letter” from the bank to the authorities and are fairly unusual and less serious than formal enforcement actions.

Some MOUs and commitment letters can restrict the company’s ability to operate in certain markets or products but it is unclear whether Citi’s latest agreement contains such provisions.

Citi, which is expected to report a second-quarter loss on Friday, is already addressing some of the regulators’ concerns. It has hired five new directors and is looking for three more, bolstered its balance sheet and recruited executives with commercial banking expertise. It has also pledged to sell billions of dollars in non-core businesses and assets.

The proposed agreement with the FDIC focuses on Citi’s business and governance rather than its executives and was not a direct cause for last week’s switch of its finance chief Ned Kelly to another role, said people close to the situation.

Sources: Huffington Post, Financial Times

WATCH: Pres. Obama Proposes New Financial Regulations, Beefs Up The Federal Reserve's Power (Video)

"Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and the failure of their government to provide adequate oversight."

"Mortgage brokers will be held to higher standards, exotic mortgages that hide exploding costs will no longer be the norm, home mortgage disclosures will be reasonable, clearly written, and concise."

President Barack Obama, June 17, 2009

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Sources: MSNBC, Whitehouse.gov

Pres. Obama Promises Sweeping, Historic Changes For Wall Street

MSNBC----

WASHINGTON - President Barack Obama proposed sweeping new “rules of the road” for the nation’s financial system Wednesday, casting the changes as a critically important response to the economic crisis and the greatest regulatory transformation since the Great Depression.

Obama blamed the financial crisis on “a culture of irresponsibility” that he said had taken root from Wall Street to Washington to Main Street, and he said regulations crafted to deal with the depression of the 1930s had been “overwhelmed by the speed, scope and sophistication of a 21st century global economy.”

The Obama plan would give new powers to the Federal Reserve to oversee the entire financial system and would also create a new consumer protection agency to guard against credit and other abuses that played a big role in the current crisis.

Obama, speaking from the White House, attributed much of the country’s current problem to “a cascade of mistakes and missed opportunities” that occurred over decades. His initiative would reverse a campaign begun in the 1980s by President Ronald Reagan to cut back on federal regulations.

Two lawmakers whose committees will play a major role said they would move quickly.

“We’ll have it done this year,” Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said after Obama’s address.

“Absolutely,” agreed Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. He joked that the White House had “threatened us with a severe chastening if we don’t.”

“There will be maybe some debate ... but I think we’re all seeking the same results,” Dodd said. He has advocated an alternative plan to strip the Federal Reserve of its regulatory role entirely and create a new consolidated bank regulator who would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks. “There’s not a lot of confidence in the Fed at this juncture,” Dodd said.

The Fed’s expanded authority and the rest of the new rules would reach into currently unregulated regions of the financial markets. An 88-page white paper released by the administration detailed an effort to change a regime that Obama’s economic team maintained had become too porous for the innovations and intricacies of today’s financial markets.

Obama said the plan was designed in consultation with lawmakers, regulators and the institutions it seeks to police.

“We seek a careful balance,” Obama said.

The plan would do away with the Office of Thrift Supervision, replacing it with a system aimed at closing gaps in coverage and keeping institutions from shopping for the most lenient bank regulator. The consumer agency would place new restrictions on lenders and mortgage brokers, requiring them to offer simple loans to consumers.

“Mortgage brokers will be held to higher standards, exotic mortgages that hide exploding costs will no longer be the norm, home mortgage disclosures will be reasonable, clearly written, and concise,” Obama said.

The president offered his version of the source of the financial crisis, tracing the troubles to complex financial instruments such as asset-backed securities that ended up concentrating risk. “It was easy money,” he said. “But these schemes were built on a pile of sand.”

The regulatory system either had gaps or overlaps with little accountability, he said.

“Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and the failure of their government to provide adequate oversight,” Obama said.

The financial sector and lawmakers from both parties concede the need for significant changes in the rules that govern the intricate and interconnected world of banking and investment. But the details of Obama’s proposal already are facing resistance, signaling a tough sell for a president who is spending major political capital on his health care overhaul.

Under Obama’s plan, the Federal Reserve would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation’s financial system. But even as it gained new powers, the Fed would lose some banking authority to the new Consumer Financial Protection Agency.

Obama’s proposal would require the Federal Reserve, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury Department approval before extending credit to institutions in “unusual and exigent circumstances.”

The plan does not attempt major consolidation of turf-conscious regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight. Administration officials said those efforts would have distracted from the central mission of addressing the weaknesses that led to the current crisis.

The president predicted that critics will find that his efforts go too far or fall short. The expanded Fed role and the new consumer regulator will be subjects of fierce debate in Congress. Many bankers oppose a new consumer protection regulator, and many lawmakers worry the Fed could become too powerful.

In conjunction with the Fed’s authority over large financial institutions and the new consumer agency, Obama also proposed:

Additional protections for investors, including greater disclosure by hedge funds, regulation of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight, and new conditions on brokers and originators of asset-backed securities.
A system for the orderly disposition of any troubled, interconnected firm whose failure would pose a risk to the entire financial system, together with rules that insist that financial institutions hold more capital for safety’s sake.


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Sources: MSNBC, Whitehouse.gov, Wikipedia, Google Maps