Goldman Sachs Defiant Despite History of Serious Allegations

The SEC lawsuit against Goldman Sachs alleging that it designed a financial product rigged to fail is one among the many that the company has had to face of late.

Back in 2008, Goldman Sachs paid up $60 million to terminate an investigation by the Massachusetts attorney general’s office amidst allegations of irresponsible behavior by co-operating with blacklisted subprime lenders Fremont and New Century. The company claimed that it had done nothing wrong and maintained its innocence. [Read more…]

Debate on Financial Reform Blocked by Senate Republicans

After the financial meltdown was blamed for a major part on unregulated derivatives and credit default swaps (CDS), the Democrats are pushing to pass the financial reform bill that will bring in more regulation of the financial industry. But this has become a case of easier said than done as the Republicans are firmly opposed to the bill and have blocked it from being brought on the Senate floor for debate. Senate Republicans want to add significant changes to the bill and question Democrats’ tough regulations for financial institutions. [Read more…]

Goldman Sachs Dealings Reveal Murky Side of High Finance

As the Goldman Sachs issue continues to draw attention from the public, the media and the government, several facts are coming to light that show the murky side of high finance. Questions are being raised about the ethical standards of financial companies and the dubious dealings they indulge in. [Read more…]

Financial Reform Proposals Draw Mixed Reactions

Even as President Obama’s financial reform looks all set to make a place for itself in the economic fabric of the country, critics within political circles say that these changes will still not address the risks posed by “too big to fail” institutions. [Read more…]

Credit Organizations Charged with Worsening the Recession

An 18-month investigation by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin has revealed that credit organizations played a major role in worsening the economic downturn.

Credit rating agencies (CRAs) such as Moody’s Investors Service and Standard and Poor’s Ratings Services have been accused of grave irresponsibility and unethical practices. Several internal emails exchanged among the internal employees of these agencies show that the agencies were perfectly aware of the consequences of their actions. [Read more…]

Goldman Sachs to Face More Than Just SEC Investigation

Leading investment banking and investment management firm, Goldman Sachs is continuing to bear the brunt of bad publicity and suspicion for its alleged unethical business practices.

Investigators have made it clear that excessive attention to the profits of the company rather than to investor welfare led the firm into promoting unreliable financial products. Analysts believe that these products contributed to the financial crisis, which in turn set off the economic downturn. These allegations have led to investigations and a review of the company’s actions by several bodies, including the SEC. [Read more…]

FDIC Chairwoman Underlines the Importance of Banking Values

The chairwoman of the Federal Deposit Insurance Corp. (FDIC), Sheila Blair recently talked about the importance of banking values to a gathering in the Robert J. Dole Institute of Politics of the University of Kansas. She said that the U.S. economy can prosper and avoid setbacks only if better lending standards are adopted by the banks. She also talked about the need for greater transparency in markets in order to keep recession at bay. [Read more…]

Once Again Citigroup in Question Over Posted Profit

Earlier this week, Citigroup reported earnings of $4.4 billion for the last quarter, along with its best turnover for the last couple of years. It managed to leave behind JP Morgan and Bank of America, its closest competitors, in terms of earnings. The management of the bank claimed that it is now out of all the difficulties that it faced during the recession, because of which it had to be rescued using taxpayers’ money. [Read more…]

Leveraged Buyouts Could Be Revived Soon

Private equity firms have always preferred leveraged buyouts as the main method of acquiring a new company. The past couple of years have seen the private equity market going through a rough phase and activity almost drying up. The last time a major buyout was announced was that of Hilton by Blackstone in July 2007. Ever since the financial downturn, the only major buyout has been that of IMS Health. [Read more…]

FDIC Proposes Higher Fees for Larger and Riskier Banks

The Federal Deposit Insurance Corporation has come up with a new proposal for calculating its fees. According to the proposal, banks that are bigger and riskier will have to pay more for insurance of their deposits so that they are discouraged from indulging in risky behavior. [Read more…]

Government Programs to Prevent Foreclosure Rejected by Major Banks

During the economic boom, many banks had given mortgage loans without checking the ability of the borrowers to pay the loan back. As a result, many Americans are stuck with huge mortgage debts that they cannot pay and face the threat of foreclosure.

In order to help people deal with their underwater mortgages, the government has come up with many schemes such as buying mortgage backed securities and launching debt consolidation programs for mortgages. One such scheme is mortgage modification through reduction of the principal amount of mortgages. [Read more…]

FDIC’s List of Problematic Banks Grows Should You Be Worried?

The ‘Problem List’ of the Federal Deposit Insurance Corporation comprises of all banks that are facing serious financial troubles. Factors that are considered in determining if a bank is vulnerable include assets, income, liquidity, sensitivity to market conditions, and the management of the bank. The number of banks in the list stood at 702 at the end of 2009 and it has been predicted that this year will be even worse. [Read more…]

Banks Caught Hiding Their Debt Levels from Investors and You

The Wall Street Journal has reported that several large banks hid their risk levels for the last five quarters, according to the statistics from the Federal Reserve Bank of New York.

About 20 banks, including J.P. Morgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc, Citigroup Inc. and Bank of America Corp. hid the actual debt that they had taken for funding trading in securities. They used to temporarily lower their debts at the end of each quarter when banks have to publicly disclose their debt data and then they increased their debt levels again in the next quarter. [Read more…]

Can You Rely on Online Bank Statements?

Gone are the days when you had to retain every single record of your dealings with financial companies, utility companies, your employer, and countless other entities. In today’s world most of the data is stored online and you can be much more selective about which paperwork you have to retain and which you can throw away. [Read more…]

J.P. Morgan Boss Criticizes Regulation

J.P. Morgan Chase chief executive, Jamie Dimon, said in his annual letter to the shareholders that the credit card regulations that came into effect recently have negatively affected the company. He said the regulations hurt the company’s ability to offer credit to a large number of its customers. [Read more…]

Britain Shows the Way on How to Deal with Banks

During the recession, many British banks got substantial support from the government, which even acquired a stake in some of them. The government also introduced economic stimulus measures and special liquidity schemes that helped banks. More than one trillion pounds were invested to keep the banks afloat. [Read more…]

Bank of America Announces Loan Forgiveness Plan

Bank of America has announced that it will start forgiving some portion of home loans of borrowers who have underwater mortgages. The company said that the scheme would allow borrowers to save their home from going into foreclosure. [Read more…]

Bank Crimes Down by 11%

It has been reported that bank crimes sharply fell last year, by almost 11% compared to 2008. It’s especially food for thought for those who believe that joblessness and poor economy instigates more crime.

The FBI released the bank crime numbers recently which indicated that the total number of crimes have fallen to 6,065 from the previous year’s 6,857 violations reported in 2008. There are some more interesting facts that came to light with respect to these bank crimes. [Read more…]

Bernanke Supports Current Decentralized Federal Reserve System of Monitoring Financial Institutions

Federal Reserve Chairman Ben S. Bernanke has supported the current decentralized structure of the central bank with 12 regional banks. He said that a central agency monitoring the activity of the larger financial institutions in the country alone is not sufficient. A decentralized network of oversight and monitoring is important to lend support to the smaller banks spread across the country. [Read more…]

Greece and the Eurozone: What Went Wrong?

There was a lot of enthusiasm when the euro was introduced to the world. The adoption of such a currency was intended to encourage the free flow of goods, services and commerce internally in Europe. It seemed ideal at the time, as having one currency enables easier transactions and facilitates trading of stocks/bonds at a common price all over Europe. But for once country it has all gone horribly wrong – Greece. [Read more…]

Number of Failed Banks Reaches 37 for 2010

Regulators have shut down seven more banks as the effect of bad loans on the financial industry continues. This has taken the total number of collapsed banks to 37 this year. [Read more…]

Dodd’s Financial Regulatory Reforms Proposal Fails to Deliver the Punch

The recently proposed financial and bank regulatory reforms by Senate Banking Committee Chairman Chris Dodd has been received with mixed reactions so far. The reforms bill aims to define new regulatory responsibilities and processes for various financial regulatory bodies including the Federal Reserve. [Read more…]

Interchange Fee The Invisible Credit Card Fee

When you use your credit card or debit card for a transaction, another transaction takes place behind the scenes. The bank whose credit card you are using (the issuing bank) gets paid a certain amount by the bank, which processes the payment on the merchant’s behalf (the merchant or acquiring bank) for every transaction. The fee paid by the merchant bank to the issuing bank is called the interchange fee. [Read more…]

Revised Financial Reform Legislation Made Public

Senator Chris Dodd, Chairman of the Senate Banking Committee, has released a revised version of the financial reform legislation that intends to prevent another financial crisis. The bill has been redrafted after consultations with several Republicans and Democrats who had rejected the first draft.

The revised bill has incorporated many of the suggestions made by the Republicans, which critics argue would make the legislation ineffective. However, despite the changes, the Republicans have once again opposed the bill.

The key proposals of the bill are:

Consumer Protection Agency

The biggest change that Dodd has proposed is that there should be a consumer protection agency to prevent banks from exploiting customers. This is in response to the subprime crisis where lenders extended a huge number of risky loans that brought the whole financial industry close to a collapse. Many economists were demanding an independent agency to look after the interests of the consumers, but Dodd has agreed to Republican objections and has suggested creation of an agency under the Fed umbrella.

Regulation of Credit Rating Agencies

Credit rating agencies like Moody’s had come for severe criticism after they incorrectly assessed the risk on mortgage backed securities, which crashed in value once the housing prices fell. The bill proposes that these agencies should now be made responsible for their actions and they should be regulated by the SEC to prevent similar errors in future.

Limits on Trading Activities of Banks

The bill has also given a nod to the Volcker Rule, which will restrict proprietary trading of banks. Currently banks can invest the depositors’ money in risky hedge fund trades. Such trades brought many of the Wall Street banks close to bankruptcy as the financial crisis unfolded. Regulation has also been proposed on derivatives trading by banks.

Financial Stability Oversight Council

The council’s job would be to identify risks in the overall financial system so that they can be dealt with before they result in a large scale crisis. However, once again the Fed has been given most of the duties, while the council will only sign off on decisions.

The bill looks like a compromise formula, and it will certainly face a lot of opposition from both pro-reform and anti-reform camps. Another problem is that even if it is passed, the success of the legislation will not be tested until the economy faces another crisis, and at that stage it will be too late to make any changes.

TARP Fraud Involving Bank President Uncovered

An ex- president of a private New York based bank has achieved the dubious distinction of being the first person to be charged with misappropriation of TARP funds. Charles Antonucci, president of Park Avenue Bank between June 2004 and October 2009, was arrested earlier this week, accused of stealing US Government funds. [Read more…]

Steady Progress on Financial Reform Bill

There has been heightened activity among Democrat lawmakers as they try to give one final push to getting the financial reform bill ready. The contents of the bill are to be made public next week but so far it has faced fierce opposition from the Republicans, and even from some Democrats.

The bill, which is being authored by Senator Christopher Dodd, who is the chairman of the banking committee has attracted controversy and there have already been heated debates on what actions need to be taken to ensure that there is no repeat of the financial crisis.

The latest strategy to secure some bipartisan agreement on the bill has been private consultations with some Republicans to understand their reservations and make appropriate changes to the bill. But this has not gone down well with some Democrats and their supporters as they feel that any major compromises would make the bill ineffective.

Some of the key objectives of the legislation would be to put an end to government bailouts of reckless financial companies. These bailouts cost the taxpayers a huge amount and the policy has attracted a lot of anger from voters. Other proposals that could be included in the bill are restricting private banks from indulging in proprietary trading, where the bank makes investments in hedge funds and private equity funds using its own money. It has been argued that such trading significantly weakens the position of the banks and can lead to accumulation of toxic assets.

The creation of a consumer protection agency to ensure that borrowers do not suffer because of malpractice of large banks could also be one of the proposals in the bill. It would be aimed at preventing another subprime crisis, which was blamed at aggressive lending tactics by banks. Such an agency already exists in some countries, including Canada. These countries remained relatively shielded from the financial crisis. The Republicans have argued that it is the job of the Federal Reserve to oversee the functioning of banks, while Democrats say that the Fed has clearly failed in this duty. A potential compromise could be a new agency that works under the Fed umbrella.

A lot hinges on the success of the financial reform bill and it would be a major test of the Obama administration. Some economists have argued that a weak reform could be worse than no reform, as it would give a false sense of security and make the economy vulnerable to another crisis.

New York Gains, London Slips as Favored Destination for Financial Companies

A recent report released by the City of London Corporation has ranked New York as the top destination for financial companies. The top spot was held by London six months ago, but New York scored the joint highest rating in the latest study. [Read more…]

700 Banks Still Can’t Give Out Loans

The GDP numbers may show that the economy is out of recession and the worst of the crisis is behind us, but most of the banks in the country are not out of trouble yet.

According to the latest report on the health of the banking system from the Federal Deposit Insurance Corporation, or FDIC, more than half of the banks in the country are not being able to give out any new loans. The problem is that bad loans on the books of these banks are constantly rising. With their interest income drying up, they don’t have any money to lend to new customers and are just waiting anxiously for things to improve. [Read more…]

Federal Reserves Role in Banking

In the wake of the financial crisis, the Obama administration had promised sweeping reforms that would prevent a similar crisis in future. One of the key areas of concern was supervision of banks, and the role that the Federal Reserve should play in that. But even after months of bickering on the issue, no clear solution seems to be in sight on which any kind of political consensus can be achieved. [Read more…]

FDIC Closes Four More Banks

Four more banks had to bite to dust, as regulators shut them down in a recent move. These banks in Florida, Illinois, Utah and Maryland were reeling under the pressure of toxic assets that they had accumulated over the past couple of years.

The number of banks shut down this year has now gone up to 26 and it does not seem like this may be the final number for the quarter yet. With these closures, Federal Deposit Insurance Corporation (FDIC) has come under more pressure to keep a stronger hold over the situation and dispose off the piling toxic assets. [Read more…]

Bill Proposed to Limit Risk Taking by Banks

In the aftermath of the financial crisis, the Obama administration has been trying to bring in measures to avoid a similar crisis in future. In another such effort, the administration has proposed a bill that would reduce risk taking by large financial companies.

The bill aims to ban financial companies from involving in risky trades for the benefit of the company itself. This kind of trading, known as proprietary trading, is done to make profits for the bank and not for its customers. The bill would also prevent banks from investing in hedge funds and private equity funds. However, all these rules would apply only on companies that use federally insured deposits. [Read more…]