About those [Stress] Test Results

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Peterr had a great post this morning reading some troubling tea leaves at the bottom of Citi’s and Bank of America’s tea cups.

My, the little things you notice when you peruse the job listings at the FDIC website. There are a lot of them to scroll through, but a couple of them caught my eye.

[snip]

Further down the list of positions comes a posting for two Senior Large Financial Institution Specialists, one in the New York office and the other in Charlotte, North Carolina.

Hmmm . . . large institutions, New York and Charlotte?

Can you say "Citibank" and "B of A"? Sure you can.

Speaking of New York, they are also looking for a new Chief, Examination Support and Risk Analysis Section who would be based in either New York or DC. Again, from the major duties section of the posting, the first three are these:

Serves as technical advisor on a broad range of risk management issues particularly regarding the analysis and supervision of large, complex financial institutions.

Reviews and evaluates studies, reports, and proposals prepared by staff members, financial organizations and other government agencies as these relate to large, complex financial institutions.

Directs the monitoring and supervision of large, complex financial institutions to protect the deposit insurance fund.

I’d be getting a little nervous right about now, if I had a corner office at Citibank and saw these two job postings. And if I noticed that the FDIC is also looking for two more of those Senior Large Financial Institution Specialists in their DC office, I’d be getting more than a little nervous. (As if I didn’t already have some banking nightmares to deal with.)

All in all, it looks to me like somebody thinks the FDIC needs some senior folks to deal with eating Very Big Banks — and to judge by the closing dates on these job postings and this little teaser from the Wall Street Journal, they think they need them fast.

The teaser he linked to describes the problem of what to do with the results of the stress tests investigating–among others–BoA and Citi.

Top federal bank regulators plan to meet early this week to discuss how to analyze the results of stress tests being conducted on the country’s 19 largest banks, people familiar with the matter said.

Only, it seems like those bank regulators have decided to punt, at least until we get past earnings season.

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How JP Morgan Chase Plans to Profit Off the 300,000 People It’s Forcing to Lose Their Jobs

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picture-96.thumbnail.pngAs I pointed out Saturday and yesterday, JP Morgan Chase is reportedly pushing Chrysler into bankruptcy. And as I explained yesterday, that will mean 300,000 people will lose their jobs.

So who will be left to bank with Chase in Michigan, you might ask, after JP Morgan Chase forces so many people out of work?

Well, as klynn pointed out, JP Morgan Chase has figured out a way to profit off all the unemployed people it is creating in Michigan. Chase, you see, provides Michigan’s unemployment insurance debit cards. 

And the services can end up being pretty expensive for beneficiaries. Here’s what Chase charges (and will be able to charge those that it causes to lose their job) for use of their debit card.

More than two withdrawals in a 2-week pay period: $1.50 each

Non-Chase withdrawals: $1.50 each

More than one bank teller withdrawal in a pay period:  $4.00 each

Transaction denied for insufficient funds at POS, ATM, or teller: $1.50 each

More than one ATM balance inquiry in a pay period: $1.00 for each

Statement delivered by regular mail: 95¢ per statement

Granted, if an unemployed person manages their meager finances well and has Internet access (those inquiries are free), they probably can get by on one weekly withdrawal. But if someone loses track of their spending or doesn’t have Internet access or likes dealing with human beings, these fees are going to start to take a huge bite out of what little they get.

Though debit card users can spend all they want in stores. As with Chase customers normally, Chase loves when you use your debit card at stores, because they get a bigger fee from merchants (back in the day when we still banked at Chase, that’s what the Chase guy told me) than if you use a credit card.  They’re profiting coming and going.

Now granted, for a company that already has gotten $25 billion from taxpayers (or $83 dollars from every man, woman, and child in this country), even $5 a month in fees from the 300,000 people JP Morgan Chase is pushing into unemployment is chump change–a mere $18 million a year. 

But don’t imagine for a minute that JP Morgan Chase hasn’t already lined up a way to profit from the unemployment it is causing in Michigan. 

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Save American Jobs: Close Your Chase Account

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It’s time we started pressuring the banksters in the only language they understand: their pocket-books. If they begin to lose customers who refuse to let their money be used to gamble away American jobs and taxpayer money, then they might start thinking about the good of the country for a change.

So mr. emptywheel and I took that step today. We closed our Chase accounts (which, because mr. ew recently took a buy-out, was a not-insignificant amount) and put that money into a credit union that’s supporting Michigan, not trying to bankrupt it. 

Here’s how I explained to the Chase people why we were closing our accounts.

I’m closing my Chase accounts because JP Morgan Chase has placed its corporate interests above the jobs and health care of the people of my community, unlike other banks that continue to invest in rebuilding Michigan.

JP Morgan Chase insists on putting Chrysler into bankruptcy

On Saturday, the Wall Street Journal reported that JP Morgan is “resisting government pressure to swap” its Chrysler debt for equity in a restructured Chrysler. But if JP Morgan refuses this swap, then Chrysler will be forced into bankruptcy within a month.

According to the Wall Street Journal, JP Morgan prefers bankruptcy because, “billions of dollars of government debt and the UAW retiree health-care obligation [would] be wiped out before the secured lenders [JP Morgan and other big banks] lose anything.” In other words, JP Morgan wants to force Chrysler into bankruptcy so it would get repaid before all other creditors—including Chrysler retirees and US taxpayers.

JP Morgan Chase has already gotten billions from US taxpayers

Such cynical economic considerations might be understandable coming from other banks.  But JP Morgan Chase has already received $25 billion in TARP funds from American taxpayers. And the taxpayer bailout of AIG ensured JP Morgan Chase got $1.2 .4 billion [corrected] in its AIG deals paid off at full value.

With all that taxpayers have already given to JP Morgan Chase, isn’t it time JP Morgan Chase started to give back to the communities it serves?

JP Morgan Chase’s actions will mean hundreds of thousands lose their jobs and healthcare

Instead, JP Morgan Chase’s corporate single-mindedness threatens to put 40,000 Chrysler workers in Michigan out of a job, along with 150,000 Chrysler dealer employees and tens of thousand workers at Chrysler’s suppliers.

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Chrysler’s Two Options: What JP Morgan’s Insistence on Bankruptcy Will Mean

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Yesterday, I pointed to a WSJ report that JP Morgan wants to force Chrysler into bankruptcy rather than make the concessions necessary for a Fiat merger.

There was some uncertainty about what those two different scenarios really mean–and therefore what the impact of JP Morgan’s intransigence might be. So this is an attempt to lay out what those scenarios are. Details on these two scenarios come from the viability plan Chrysler submitted on February 17, though some of its assumptions are optimistic and both the VEBA numbers and the secured debt numbers are out-of-date. 

The bottom line, though, is this: If Chrysler goes into bankruptcy, it will likely mean 210,000 extra lost jobs and the loss of healthcare for up to 700,000 UAW retirees.

Fiat-Chrysler

Before it will provide $6 billion additional funding to support the Fiat-Chrysler merger, the Obama Administration has demanded:

  • Cerberus and Daimler to write off their stake in Chrysler
  • Fiat to take a 20% stake in the company
  • UAW to accept half of the VEBA payment Chrysler owes–$4.4 billion dollars–to come in the form of equity in the new Fiat-Chrysler (along with some additional concessions)
  • Chrysler’s secured creditors (JP Morgan, Citibank, Morgan Stanley, Goldman Sachs, and others) to accept equity in exchange for over $5 billion in debt
  • Additional $6 billion in government funding

Now, Chrysler doesn’t describe in detail what would happen If the Fiat deal were to go through, so the following is a guesstimate on my part. 

The quickest change would be that Chrysler dealers throughout North America would have Fiats to sell–primarily the small A and B platform cars with which it is competitive in Europe (including its 500, which just won car of the year in Europe).  It would take at least a year and a half to do this, though, and Fiat will face some trouble assembling them cheaply in the US (in Europe 500s are assembled in Poland). Still, if it were able to pull almost inhumanly quick adjustments to the North American market in the next 2.5 years, Fiat (and with it, Chrysler), might be instantly competitive in the A and B segments and with that, dealers might be much more viable. But it remains to be seen whether that would be profitable.

The single biggest problem with the Fiat deal, IMO, is that gas prices are going to be volatile for the foreseeable future, which means being competitive in the A and B segments could either be a godsend (if gas goes up to $5/gallon again) or a blip on the radar (if gas remains cheap).

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Holder Wants to Stop Playing Mukasey’s Whack-a-Mole with Financial Fraud

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Last June, at a time when it was clear the shitpile was a big fraud but before the perpetrators had destroyed the evidence, Michael Mukasey decided he’d rather play whack-a-mole with financial crime than pursuing it at a national level.

For some reason, Michael Mukasey doesn’t want to investigate and prosecute mortgage fraud using a comprehensive, centralized approach.

Attorney General Michael B. Mukasey rejected on Thursday the idea of creating a national task force to combat the country’s mortgage fraud crisis, calling the problem a localized one akin to “white-collar street crimes.”

Mr. Mukasey made clear that he saw the mortgage fraud problem at the root of the nation’s housing crisis as a serious one. But he said he was confident that the Justice Department’s current approach — using local prosecutors’ offices around the country to oversee separate F.B.I. investigations — was adequate.

Eric Holder doesn’t think that was such a good idea (via TPMM). 

Mr. Holder said the Justice Department is planning a new initiative to bring together federal and state prosecutors in combating financial fraud and white-collar crime.

"We will be working with them to come up with a way to deal with these fraud problems and white-collar problems. The federal government can’t do this alone," Mr. Holder said.

[snip]

One change is likely to involve a task force on financial crime, akin to one that was organized during the Bush administration following the collapse of Enron Corp.

Mr. Holder’s predecessor in the Bush administration, Michael Mukasey, was disinclined generally to set up task forces because he thought they could be inefficient. He studied the idea of a national task force to focus on fraud and the mortgage crisis but decided against it because he said the crisis differed in various parts of the country.

Mr. Holder disagreed on the effectiveness of a national strategy and said an official announcement would be coming soon. "Based on my experience, I know that task forces work," he said, adding that state prosecutors have expertise on financial fraud that could benefit the federal government.

Gosh. What a novel idea. Investigating the "too big to fail" criminals at a level that’s almost as big as the crime.

And perhaps someday we’ll learn why Mukasey was so disinclined to focus federal attention on the shitpile just as it was about to collapse.

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Bailed Out Bank, JP Morgan, Dooming Chrysler

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the end of Chrysler

photo courtesy of S and C

The WSJ confirms what we’ve all probably suspected: the creditors that are forcing Chrysler into bankruptcy are the same banks that have been surviving only with the help of the federal government. And of course, they are refusing to offer the same generosity to Chrysler.

Banks that loaned Chrysler LLC $6.8 billion are resisting government pressure to swap more than $5 billion of that for stock to slash the car maker’s debt, according to people familiar with the matter, hindering Chrysler’s effort to restructure outside of bankruptcy court.

[snip]

The lenders, which include J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley, hold great influence in moving the process along. As holders of secured debt, they have the right to take control of Chrysler plants, brands and other assets, which were pledged as collateral for the loans, if the company files for bankruptcy protection.

As a result, Chrysler may be worth more to the lenders in a bankruptcy liquidation than if they agree to restructure the debt, and the government has less leverage to force the banks to make concessions.

The negotiations show how the government’s involvement in both banks and industrial companies is creating uncomfortable circumstances: The U.S. has given aid to some of the very banks that are demanding tough terms from Chrysler, also a recipient of government loans.

[snip]

The Treasury Department began talking with the banks on Wednesday. The bailout money these banks took from the Troubled Asset Relief Program "hasn’t been mentioned, but everyone is aware that issue is there," said a person familiar with the talks.

[snip]

The J.P. Morgan position, said these people, is that concessions by Chrysler’s creditors should be treated as they would be in a normal bankruptcy — meaning the billions of dollars of government debt and the UAW retiree health-care obligation should be wiped out before the secured lenders lose anything on their $6.8 billion.

JP Morgan has been the recipient of bailout love in many forms: direct receipt of TARP funds, the Fed’s honoring of huge loans JP Morgan made, AIG counter-party funds, and low-risk sweet-heart deals for JP Morgan to "rescue" other banksters–for a total of somewhere between $27 billion and $300 billion. And of course, JP Morgan has already been using its TARP funds for acquisitions, not loans. 

But it is unwilling to take a haircut on loans of $2.5 billion that represent a miniscule percentage of all the welfare it has gotten from the Federal government.

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Patrick Kennedy to Introduce Bill to Repeal Gramm-Leach … Maybe

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One thing that astounds me about this whole financial crisis is that no one–no one–in a position of power has seemingly considered undoing the damage that was done when Gramm-Leach-Bliley started allowed agents to dress up as banksters, banksters to dress up as stock brokers, and stock brokers to dress up as insurance agents. Rather than passing new legislation to set up a super regulator to regulate companies that are too big too fail, wouldn’t it be smarter to go back to the laws that prevented companies from getting too big to fail in the first place? And even if there are good reasons not to go back, don’t you think we ought to at least consider it?

So I was thrilled yesterday when Patrick Kennedy said he was goig to introduce a bill to repeall Gramm-Leach-Bliley.

One thing that I think is maybe one of the many causes of this and that I will hold myself accountable for is voting for the Glass-Steagall reform. And I, for one, am going to introduce legislation to repeal that repeal. Because I don’t believe we ought to be having, as has played itself out, AIG insurance companies doing banking business and banking businesses doing insuring business. And having apples over here and oranges over here and everybody’s getting these financial products all mixed and matched. You’ve got derivatives and debt swaps and what are these things happening, you’ve got people taking loans out and then taking insurance out on the loans because of another part of the company. I mean it just seems we’re rife with conflicts of interest. 

Cool! I thought! We can finally talk about putting oranges and apples back where they belong!

So I called Kennedy’s office to find more details. And it sure sounds like Kennedy is less convinced he’s going to pursue repealing the repeal. Here’s his statement.

"We are in the middle of a crisis that has reached around the globe and hit home in Rhode Island. Now is the time to have an open and honest conversation about every aspect of our nation’s financial system. Through my work on the Oversight committee, I look forward to being part of this conversation and making up for eight years of lost time. While we need to take a good hard look at the legal framework established under the Graham-Leach-Bliley Act, this issue is much bigger than any single law.

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Hank Greenberg Sorta Liveblog

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For reasons I explained here, I’m not going to do a full liveblog of Hank Greenberg’s appearance before Oversight today, though will keep half an eye on it. If you want to follow along, it’s on CSPAN3 and this Committee stream (which I can’t get to work).

Most interesting detail, thus far, is that Issa insisted that Greenberg’s lawyer be sworn in, as well as Greenberg. 

Greenberg’s complaining that by nationalizing AIG, it chased employees away. He’s saying it needs a new management team with experience in insurance (as if Edward Liddy doesn’t have insurance experience), emphasizing that said management team needed an internationalist focus, bc that’s what AIG is involved in. He’s arguing too that the govt should just limit its ownership to 15% so that private investors will get involved. He did say that AIGFP should be walled off–that’s a stance I suspect is smart.

Issa just asked Greenberg about the Ferguson case (involving Gen Re) in Connecticut, suggesting Greenberg was an unindicted co-conspirator. Greenberg’s name is all over that, but his lawyer wants to claim he was never tied to that. Also, apparently Greenberg has received a Wells Notice from the SEC. His lawyer didn’t explain what the Wells Notice pertained to.

Hank says to Kanjorski that he is a big fan of transparency. Issa takes that opportunity to introduce an SEC settlement showing that under Hank AIG was engaged in sham reinsurance schemes (this is the Gen Re thing). 

Lynch: The Maiden Lane CDS "are in the toilet."

Hank: Maiden Lane III terrible deal for the taxpayer. Purchased at par, even though the marks on those CDOs way down. 

Hank trying to assure Lynch that it was just chance that they picked OTS as regulator, rather than someone tougher. 

Patrick Kennedy just said he’s going to submit a bill to repeal the repeal of Glass-Steagall!!!

Hank had several conversations with Baxter NYF President, and two conversations with Geithner.

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Car Recovery Czar Ed Montgomery Comes to Michigan

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In a little noticed detail from Monday’s verdict on the auto industry, Obama named Ed Montgomery Director of Recovery for Auto Communities.

Today, the President appointed Ed Montgomery, former Deputy Secretary of the Labor Department and current Dean at the University of Maryland, to become Director of Recovery for Auto Communities and Workers. Dr. Montgomery has more than 25 years experience working on issues related to worker training and local economic development and has worked first hand with State and local government agencies and nonprofits in Michigan and Ohio on strategies to revitalizing areas hit by job loss.

In his new role, Dr. Montgomery will bring all parties – workers, firms, unions, other private sector employers, community-based organizations, state and local governments, and foundations – to the table to maximize communication and cooperation and to develop innovative strategies for relief and recovery. He will ensure that communities and workers can take full advantage of all available resources and to ensure that the funds are distributed quickly, efficiently and equitably He will work with the Administration, relevant Governors and Congressional leaders to launch new executive and legislative initiatives to support these distressed communities and help them retool and revitalize their economies. He will identify and pursue all possible opportunities, including for example,
initiatives to:

  • Maximize the effectiveness of Recovery Act funds for new and more diverse economic development for new jobs, business and industry through various means including local infrastructure, housing, education and new industry.
  • Deploy rapid response unit to communities facing plant closings to both meet immediate needs and to develop strategies for new job growth.
  • Extend Trade-Adjustment-Assistance (TAA) to the auto industry, including retraining, healthcare extensions, income support and wage insurance.
  • Attract major defense, research, green industry and other project to the region. Channel Workforce Investment Act (WIA) and other emergency grant funds to the region.
  • Work with stakeholders to develop new legislative efforts to direct emergency support to affected communities and regions, and bring new jobs and economic opportunities to these areas. 

Today, Montgomery met with Governor Granholm (and, after this presser, with Detroit Mayor Ken Cockrel) to talk about the needs of Michigan’s blighted auto communities.

Montgomery strikes me as a good choice. Unlike Steven Rattner, Montgomery has the background to understand Michigan’s issues (and once taught at MSU), and the bureaucratic chops to actually do some good.

As he explained in the video above, his wife’s family is an auto family. Read more →

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Fire Ken Lewis for the $3 Billion in Merrill Lynch Bonuses

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I’ve been meaning to point to Andy Stern’s call to give Ken Lewis, CEO of Bank of America, the same treatment Obama gave Wagoner–the boot.

Both Rick Wagoner and Ken Lewis sunk large public companies — putting thousands out of work and toppling the American economy — while accepting billions in taxpayer bailouts. Yet only Wagoner got a pink slip. It’s time for Treasury Secretary Geithner to replace Ken Lewis as CEO and let real reform take hold at Bank of America.

And Change to Win’s petition calling to fire Lewis. 

But this tidbit–courtesy of Howie–will really make you want to oust Ken Lewis.

In its last days as an independent company, Merrill gave performance-based bonuses exclusively to employees earning $300,000 a year or more and holding a rank of vice president or higher, according to their financial statements. $3.62 billion was handed out to these executives – a sum equal to 36.2 percent of the $10 billion in taxpayer funds that were allocated to Merrill as part of the Troubled Asset Relief Program (TARP) before the bonuses were paid.

The company had been failing as a result of misadventures in the now infamous mortgaged-backed securities market which began crumbling with the decline of home values as the bubble burst.

The performance bonuses were determined by Merrill’s compensation committee on December 8, 2008, before Merrill revealed that it lost $15 billion in the final three months of 2008, unusual timing according to court documents filed by New York Attorney General Andrew Cuomo in an ongoing suit against Merrill’s former CEO.

In prior years, Merrill paid performance bonuses of this type after the end of the year, in January or February of the next year.

[snip]

The questionable timing and the amounts of these bonuses were not revealed to Bank of America shareholders when they voted to acquire Merrill. These facts raise questions about what government officials knew about the bonuses and when they knew it, according to Kucinich’s letter. 

$3.62 billion would keep all of GM in business for a month or two. Read more →

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