The Banking Crisis: Obama's Iraq Part 1

Its a step in the right direction, but its hardly reform.

Everything about the Obama Administration to date has been 'limp,' toothless, almost apologetic.

Obama is on the road to failure, getting an "A" for rhetoric but "F's" for vision, commitment, team-building, and action.


Bloomberg
Volcker Urges Dividing Investment, Commercial Banks
By Matthew Benjamin and Christine Harper

March 6 (Bloomberg) -- Commercial banks should be separated from investment banks in order to avoid another crisis like the U.S. is experiencing, according to former Federal Reserve Chairman Paul Volcker.

“Maybe we ought to have a kind of two-tier financial system,” Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at New York University’s Stern School of Business. (Uh, didn't we have one up until a few months ago when Goldman Sachs and Morgan Stanley put on the Fed feedbag? - Jesse)

Commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, “relatively free of regulation,” Volcker said. (OMG - Jesse)

Volcker’s remarks indicated his preference for reinstating some of the divisions between commercial and investment banks that were removed by Congress’s repeal in 1999 of the Great Depression-era Glass-Steagall Act.

Volcker’s proposals, included in a January report he wrote with the Group of 30, would allow commercial banks to continue to do underwriting and provide merger advice, activities traditionally associated with investment banking, he said.

Still, Goldman Sachs Group Inc. and Morgan Stanley, which converted to banks in September, would have to exit some businesses if they were to remain as commercial banks, he said.

‘Separation’

“What used to be the traditional investment banks, Morgan Stanley, Goldman Sachs so forth, which used to do some underwriting and mergers and acquisitions, are dominated by other activities we would exclude -- very heavy proprietary trading, hedge funds,” he said. “So there’s some separation to be made.”

Jeanmarie McFadden, a spokeswoman for Morgan Stanley, declined to comment. A Goldman spokesman couldn’t be immediately reached.

Volcker also said international regulations on financial firms are probably an inevitable consequence of the industry’s current problems.

“In this world, I don’t see how we can avoid international consistency” on securities regulations going forward, he said. “The U.S. is no longer in a position to dictate that the world does it according to the way we’ve done it.”

Volcker’s comments come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul of finance, especially companies deemed vital to the stability of the financial system.

Glass-Steagall

The new regulatory framework may stop short of reinstating Glass-Steagall, analysts say, though banks may separate their business lines in order to avoid strong regulatory scrutiny.

Volcker, who ran the Fed from 1979 to 1987, said the financial industry’s problems stem from larger issues. “I don’t think this is just a technical problem, it’s a societal problem,” he said. He cited bankers on Wall Street receiving multimillion-dollar bonuses for engineering failed mergers.

“There’s something wrong with the system,” Volcker said. “What are the incentives, what’s going on here?”

British Airways Cut to "Junk"

Hard times for the world's favorite airline.

We hope it endures. It was a blow to traveling civility when SwissAir closed shop.

Many fond memories of the day flight from JFK to Heathrow with the odd chance of an upgrade to the Concorde.

Still, there is always the upstrart Virgin and Branson's Heathrow Clubhouse. And First on Alitalia to Roma. La dolce vita! lol.

Do we lose the frequent flier mileage points in bankruptcy? Oh the humanity!


Reuters
British Airways debt cut to junk after profit warning
By John Bowker
Wed Feb 11, 2009

LONDON, Feb 11 (Reuters) - Moody's cut its debt rating on British Airways to 'junk' status in light of the airline's recent profit warning and future spending plans.

The agency said it expected BA's gearing to rise to more than six times earnings before interest, tax, depreciation and amortisation (EBITDA) after warning it would make an operating loss of 150 million pounds ($216.1 million) in the year to end March -- or a record 240 million pounds in this quarter alone.

It said BA had 5.3 billion pounds in cash and committed debt facilities, but that the majority of it was tied up in spending plans. BA's rating was cut from Baa3 to Ba1 -- the difference between investment grade and junk status.

"In light of stepped up capex planned in full year 2010 and the continued weak outlook for the industry as a whole, the company will be challenged to improve its credit metrics materially," Moody's said in a statement....

"The rating downgrade reflects extremely difficult trading conditions ... we continue to review all aspects of the business to further control costs and preserve our cash position," he added.


Wall Street Journal
British Airways Warns of Revenue Drop for Next Fiscal Year
By KAVERI NITHTHYANANTHAN
MARCH 6, 2009

British Airways PLC lowered its expectations for revenue growth in the current fiscal year and warned sales would fall next year as it cuts capacity in response to softening demand.

The British flag carrier said that in the current fiscal year, which ends March 31, it expects revenue to rise 3.5%, which compares with an earlier estimate of 4% growth. Next fiscal year, the airline expects revenue to decline 5%.

At its investor day on Thursday, BA said that fuel costs for this year will rise by £950 million ($1.35 billion). However, for the coming fiscal year, the airline expects fuel costs to decline 10%, thanks to hedging at levels lower than the peaks seen in the middle of 2008....

Most Chinese Economists Favor Gold Over US Treasuries for Their National Reserves

Barbarously inconvenient to the global dollar hegemon.

Time for another announcement of an IMF gold sale? Sounds as though China would like to know when they will be able to take delivery.

Zimbabwe Ben will simply have to pick up the slack.

In all seriousness, if China starts pressing this issue the US will have no choice but engage in the long overdue revaluation of its national gold reserves significantly higher. This would be one method of reducing the national debt to China and buying back some of the Treasury bonds.

Unfortunately in this case 'higher' would be a factor of x5 at least, or as high as an order of magnitude, x10.

Perhaps the Chinese would settle for an option on West Texas, if Mexico is not interested.

And the angel shouted, "Fallen! Powerful Babylon has fallen..." Revelation 18:2


ChinaStakes
Survey: Over Two-Thirds of Chinese Economists Favor Gold Over US Bonds
by CSC staff, Shanghai
March 02,2009

In a survey of major Chinese economists, more than two-thirds are reportedly bearish on the prospect of China increasing its holdings of US government bonds, and believe instead the nation should putting more of its hard-earned into gold.

According to a China Business News survey of 70 Chinese economists (including one foreign economist), the exact figure is 71.4% anti-bonds and pro-gold.

The use of China's huge foreign exchange reserve is a topic of concern and controversy. The remaining 28.6% of those polled believe China should continue to buy U.S. Treasury bonds. 38.6% think that China should not continue to buy, but also should not to sell US bonds. 32.8% believe that China should unload the bonds, 22.8% of whom think we should have a slight sell-off, while 10% think China should drop them like a bad habit.

All this is against a backdrop of China surpassing Japan to become America's largest US bond holder and of the ever-widening global financial kerfuffle.

The survey also brings to light the question of whether China’s gold reserves should be increased. Recent gold futures prices broke through US$1000/ounce, making gold the most outstanding asset in the financial turmoil. One economist thinks China’s current gold reserve of 600 tons is an unnecessary load and that the opportunity should be grasped to sell off a bunch of it at a good price.

21.4% of economists said that the gold reserve level was fine and leave it alone.

But 75.7% of the economists asked believe that China should increase its holdings of gold, with 48.6% opting for a slight increase while 27.1% think China should pile in.

At US$1000 an ounce?!

Barclays Asked to Account for 3.3 Billion in Lehman Bonus Money

The difference between the monies transferred to Barclay's and the amounts actually disbursed may have accounted for almost a third of Barclay's reported pre-tax profits.

One would have to wonder if the Barclay's executives were paid bonuses on such impressive financial results.

Thus do fees and bonus money provide a cornucopia of personal enrichment to the financiers at the expense of the real economy.

Financial Times
Barclays questioned on funds
By Francesco Guerrera, Greg Farrell and Julie MacIntosh in New York
March 5 2009 11:03

Lehman Brothers’ US liquidators have asked Barclays to explain what happened to an estimated $3.3bn earmarked for bonuses and other liabilities that the UK bank received when it acquired part of the bankrupt Wall Street company last year.

The move by Bryan Marsal, who heads the firm managing Lehman’s US liquidation, underlines the tension between the company’s creditors and Barclays, which acquired the North American arms of the investment bank for $1.5bn after it filed for bankruptcy in September.

The decision by Alvarez & Marsal, charged with recovering funds for creditors, to query Barclays’ use of the money could fuel controversy over bonuses paid to Lehman executives who stayed with the UK bank.

In its yearly results last month, Barclays booked a gain of £2.3bn ($3.3bn) on the difference between the fair value of the assets and liabilities acquired from Lehman and the price paid for them. The gain accounted for about a third of Barclays’ pre-tax profits and helped Barclays Capital, its investment banking arm, to record a profit of £1.3bn.

People close to the situation said Mr Marsal wrote to Barclays on February 19 asking it to reconcile the $4.2bn transferred to the UK bank after the takeover – composed of $2bn for compensation and $2.25bn for other purposes – with his firm’s estimate that BarCap has so far spent about $900m.

Mr Marsal’s letter – sent to Rich Ricci, BarCap’s chief operating officer, and Jonathan Hughes, its general counsel – says that, under the takeover deal, Barclays received $2bn from Lehman to pay bonuses and severance to transferring employees, according to people who have seen the document. However, Alvarez & Marsal estimates Barclays had to pay only about $700m in bonuses and severance, these people say.

The liquidators’ analysis of Lehman’s internal documents concluded that the total amount of compensation set aside for the investment bank’s global workforce until the end of August was $1.3bn. But because Barclays bought only Lehman’s North American operations, whose 10,000-plus employees accounted for 55 per cent of the compensation pool, its expenses should have been about $700m.

The agreement between Barclays and Lehman also provided for the transfer of cash and collateral, including $2.25bn to pay for liabilities to be settled after the takeover, according to people who have seen the letter. However, in the document Alvarez & Marsal calculates that Barclays’ payments for these liabilities have been about $200m, and the estimate for the final amount is much lower than expected, these people said.

People close to the situation said Barclays had written to Mr Marsal on February 23 saying BarCap was open to discussing the issues but rejected the suggestion that the original takeover agreement should be amended.

Barclays said on Wednesday: “Alvarez & Marsal’s position is completely without merit, baseless and a serious misunderstanding of the facts. All of these matters were approved by the New York bankruptcy court in September 2008.”

Lehman Brothers Holdings, the bank’s remaining businesses, now managed by Alvarez & Marsal, said it was “not making any allegations but is simply requesting factual information from Barclays as to certain discrepancies”.