NEW YORK — Former Merrill Lynch CEO John Thain, who brokered the investment bank’s controversial sale to Bank of America, is taking over as chairman and CEO of CIT Group as the commercial lender continues to restructure its business following a brief stay in bankruptcy protection last year.

CIT Group Inc., one of the nation’s largest lenders to small and mid-sized businesses, said Thain will take the helm immediately. The 54-year-old replaces acting interim CEO Peter J. Tobin, who will remain on CIT’s board. Tobin had stepped in while CIT searched for a permanent replacement for Jeffrey Peek, who retired as chairman and CEO on Jan. 15.

Read more: Merrill Lynch, John Thain, Wall Street, Economic Crisis, Bank of America, Cit, Goldman, Wall Street Bailout, Bailout, Financial Crisis, Business News

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John Thain To Lead CIT

NEW YORK — Goldman Sachs Group Inc. CEO Lloyd Blankfein is getting a $9 million stock bonus for 2009, a modest payday by Wall Street standards that appears aimed at quelling criticism of the bank’s compensation practices.

Blankfein will receive more than 58,000 shares of restricted stock that can’t be cashed in for five years, the bank said in a securities filing Friday. Blankfein will receive no cash as part of his bonus.

Read more: Tarp, Congress, Bailout, 2009 Bonuses, Goldman Sachs, Chase, Blankfein, Banks, Lloyd Blankfein, Bonuses, Wall Street, Goldman Sachs Bonuses, Jamie Dimon, Business News

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Goldman Sachs Bonuses: CEO Lloyd Blankfein Gets $9 Million Stock Bonus For 2009

The remorseful former banker who made Citigroup what it is today came to Capitol Hill on Thursday and systematically debunked the arguments that his former colleagues use to defend the practices that nearly crashed the financial system.

John S. Reed, 70, served as chairman and CEO of Citicorp from 1984 to 1998. After the 1998 merger with Travelers Group that created Citigroup, Reed served as chairman and co-CEO for two years. Late last year, he apologized for his role in creating the nation’s third-largest bank, a $1.9 trillion behemoth that’s now 34 percent-owned by the Treasury Department.

“There seems to have been a key failure that none of us anticipated,” Reed said in a prepared statement at a Senate Banking Committee hearing, “namely, individual institutions which are thought to take steps and exercise judgments to insure their self-preservation turned out ‘not to have’ or been incapable of so doing.

“This clearly means that in designing a robust system, we cannot count on that capacity.”

Reed came out against the culture that has dominated Wall Street for the past generation. He said policymakers should not rely on banks to do what’s in their own best interest. And he also endorsed reforms related to the broken system of federal banking regulation, the government-sponsored housing finance system, the scope of the financial system, and the way consumer credit is extended.

Reed’s proposals read as if they came from a consumer advocate.

Among them:

• The capital held by financial firms to protect against potential losses “should be significantly increased, maybe doubled.” He added that he thinks the concept of “risk adjusted capital,” a complex system used by regulators to judge whether a bank has adequate cash, “is flawed.”
• The industry should be “compartmentalized” to limit the spread of failures and to preserve “cultural boundaries.”
• Traded products (to the extent possible) should flow through exchanges. Much of the derivatives market is currently in the dark, traded over the phone rather than through a centralized exchange where regulators could know what’s going on.
• A consumer-focused financial protection agency with a “clear and separate mandate” should be created.

The Wall Street Journal noted a particular exchange:

In response to a question from Senator Bob Corker (R-Tenn.), who called Reed’s testimony “fascinating” given that he presided over Citigroup at a time when it was expanding in all these areas, Reed said it was exactly that experience that informs his view now.

“I learned a lot,” Reed said, joking that this may be the first time he has ever agreed with former Federal Reserve chairman Paul Volcker on anything. “There’s no question that when we put Travelers and Citi together we created a monster.”

“My honest belief having experienced it…is that the system would be stronger if we could provide for some separation where major depositories are not major actors in the capital markets,” Reed said.

Coming from the man who presided over the firm that was among the first to create collateralized debt obligations — bundled loans whose cash flow is sold to investors — his swipe against securitized products and derivatives was particularly jarring. He said they were “flawed as credits” and were not distributed to “knowledgeable investors.”

Reed has gone further than the Obama administration, joining some members of Congress, including Republican Senator John McCain of Arizona, in calling for a separation between commercial banking and investment activities. For the past decade, the country’s biggest banks have engaged in both.

Reed called Congress’s 1999 repeal of the 1933 Glass-Steagall Act a mistake. Though Citigroup was formed before the law was officially revoked, the company had the Federal Reserve and the Clinton administration’s blessing to go ahead with the merger.

Read more: Volcker Rules, Derivatives, Regulatory Reform, Financial Reform, Cfpa, John Reed, Reform, Bailout, Consumer Financial Protection Agency, Financial Crisis, Wall Street, Citigroup, Business News

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Remorseful Citigroup Banker John S. Reed Parts With Former Colleagues, Calls For Fundamental Financial Reform

The remorseful former banker who made Citigroup what it is today came to Capitol Hill on Thursday and systematically debunked the arguments that his former colleagues use to defend the practices that nearly crashed the financial system.

John S. Reed, 70, served as chairman and CEO of Citicorp from 1984 to 1998. After the 1998 merger with Travelers Group that created Citigroup, Reed served as chairman and co-CEO for two years. Late last year, he apologized for his role in creating the nation’s third-largest bank, a $1.9 trillion behemoth that’s now 34 percent-owned by the Treasury Department.

“There seems to have been a key failure that none of us anticipated,” Reed said in a prepared statement at a Senate Banking Committee hearing, “namely, individual institutions which are thought to take steps and exercise judgments to insure their self-preservation turned out ‘not to have’ or been incapable of so doing.

“This clearly means that in designing a robust system, we cannot count on that capacity.”

Reed came out against the culture that has dominated Wall Street for the past generation. He said policymakers should not rely on banks to do what’s in their own best interest. And he also endorsed reforms related to the broken system of federal banking regulation, the government-sponsored housing finance system, the scope of the financial system, and the way consumer credit is extended.

Reed’s proposals read as if they came from a consumer advocate.

Among them:

• The capital held by financial firms to protect against potential losses “should be significantly increased, maybe doubled.” He added that he thinks the concept of “risk adjusted capital,” a complex system used by regulators to judge whether a bank has adequate cash, “is flawed.”
• The industry should be “compartmentalized” to limit the spread of failures and to preserve “cultural boundaries.”
• Traded products (to the extent possible) should flow through exchanges. Much of the derivatives market is currently in the dark, traded over the phone rather than through a centralized exchange where regulators could know what’s going on.
• A consumer-focused financial protection agency with a “clear and separate mandate” should be created.

The Wall Street Journal noted a particular exchange:

In response to a question from Senator Bob Corker (R-Tenn.), who called Reed’s testimony “fascinating” given that he presided over Citigroup at a time when it was expanding in all these areas, Reed said it was exactly that experience that informs his view now.

“I learned a lot,” Reed said, joking that this may be the first time he has ever agreed with former Federal Reserve chairman Paul Volcker on anything. “There’s no question that when we put Travelers and Citi together we created a monster.”

“My honest belief having experienced it…is that the system would be stronger if we could provide for some separation where major depositories are not major actors in the capital markets,” Reed said.

Coming from the man who presided over the firm that was among the first to create collateralized debt obligations — bundled loans whose cash flow is sold to investors — his swipe against securitized products and derivatives was particularly jarring. He said they were “flawed as credits” and were not distributed to “knowledgeable investors.”

Reed has gone further than the Obama administration, joining some members of Congress, including Republican Senator John McCain of Arizona, in calling for a separation between commercial banking and investment activities. For the past decade, the country’s biggest banks have engaged in both.

Reed called Congress’s 1999 repeal of the 1933 Glass-Steagall Act a mistake. Though Citigroup was formed before the law was officially revoked, the company had the Federal Reserve and the Clinton administration’s blessing to go ahead with the merger.

Read more: Volcker Rules, Derivatives, Regulatory Reform, Financial Reform, Cfpa, John Reed, Reform, Bailout, Consumer Financial Protection Agency, Financial Crisis, Wall Street, Citigroup, Business News

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Remorseful Citigroup Banker John S. Reed Parts With Former Colleagues, Calls For Fundamental Financial Reform

The remorseful former banker who made Citigroup what it is today came to Capitol Hill on Thursday and systematically debunked the arguments that his former colleagues use to defend the practices that nearly crashed the financial system.

John S. Reed, 70, served as chairman and CEO of Citicorp from 1984 to 1998. After the 1998 merger with Travelers Group that created Citigroup, Reed served as chairman and co-CEO for two years. Late last year, he apologized for his role in creating the nation’s third-largest bank, a $1.9 trillion behemoth that’s now 34 percent-owned by the Treasury Department.

“There seems to have been a key failure that none of us anticipated,” Reed said in a prepared statement at a Senate Banking Committee hearing, “namely, individual institutions which are thought to take steps and exercise judgments to insure their self-preservation turned out ‘not to have’ or been incapable of so doing.

“This clearly means that in designing a robust system, we cannot count on that capacity.”

Reed came out against the culture that has dominated Wall Street for the past generation. He said policymakers should not rely on banks to do what’s in their own best interest. And he also endorsed reforms related to the broken system of federal banking regulation, the government-sponsored housing finance system, the scope of the financial system, and the way consumer credit is extended.

Reed’s proposals read as if they came from a consumer advocate.

Among them:

• The capital held by financial firms to protect against potential losses “should be significantly increased, maybe doubled.” He added that he thinks the concept of “risk adjusted capital,” a complex system used by regulators to judge whether a bank has adequate cash, “is flawed.”
• The industry should be “compartmentalized” to limit the spread of failures and to preserve “cultural boundaries.”
• Traded products (to the extent possible) should flow through exchanges. Much of the derivatives market is currently in the dark, traded over the phone rather than through a centralized exchange where regulators could know what’s going on.
• A consumer-focused financial protection agency with a “clear and separate mandate” should be created.

The Wall Street Journal noted a particular exchange:

In response to a question from Senator Bob Corker (R-Tenn.), who called Reed’s testimony “fascinating” given that he presided over Citigroup at a time when it was expanding in all these areas, Reed said it was exactly that experience that informs his view now.

“I learned a lot,” Reed said, joking that this may be the first time he has ever agreed with former Federal Reserve chairman Paul Volcker on anything. “There’s no question that when we put Travelers and Citi together we created a monster.”

“My honest belief having experienced it…is that the system would be stronger if we could provide for some separation where major depositories are not major actors in the capital markets,” Reed said.

Coming from the man who presided over the firm that was among the first to create collateralized debt obligations — bundled loans whose cash flow is sold to investors — his swipe against securitized products and derivatives was particularly jarring. He said they were “flawed as credits” and were not distributed to “knowledgeable investors.”

Reed has gone further than the Obama administration, joining some members of Congress, including Republican Senator John McCain of Arizona, in calling for a separation between commercial banking and investment activities. For the past decade, the country’s biggest banks have engaged in both.

Reed called Congress’s 1999 repeal of the 1933 Glass-Steagall Act a mistake. Though Citigroup was formed before the law was officially revoked, the company had the Federal Reserve and the Clinton administration’s blessing to go ahead with the merger.

Read more: Volcker Rules, Derivatives, Regulatory Reform, Financial Reform, Cfpa, John Reed, Reform, Bailout, Consumer Financial Protection Agency, Financial Crisis, Wall Street, Citigroup, Business News

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Remorseful Citigroup Banker John S. Reed Parts With Former Colleagues, Calls For Fundamental Financial Reform

Among Bank of America’s 50 million customers, Pierre Falcone was far from ordinary. An infamous global arms dealer who illegally sold weapons to Angola for its civil war and an international fugitive, Falcone was convicted of tax fraud and illegal arms dealing in 2007 and 2009 and is currently serving six years behind bars. Yet for nearly two decades, Falcone and his relatives freely used 29 different bank accounts to funnel at least $60 million into the US from secretive havens…

Read more: Bank of America, Lobbying, Crime, Lobbyists, Money Laundering, Business, Big Banks, Senate Report, Hsbc, Carl Levin, Senate, Bailout, Pierre Falcone, Teodoro Obiang, Cayman Islands, Citibank, Banks, Patriot Act, Shell Companies, Wachovia, Wall Street, Angola, Business News

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How Big Banks, Lobbyists, And Lawyers Moved Dirty Money Into The US

The Obama administration’s new proposal to stimulate the economy would send money to smaller banks, with the hope that they would then lend it to small businesses. But because the program would rely on incentives rather than directives, those banks could conceivably end up using the money for other things.

President Obama on Tuesday announced that $30 billion in repaid TARP money will be funneled to small- and medium-sized banks so they can increase their lending to small businesses.

But the original TARP was supposed to increase lending, too. And it didn’t.

The cost of the new capital under Obama’s program would be five percent, which is what the banks will pay the government annually for its investment. If banks increase their business lending by 10 percent from 2009 levels, the cost would be reduced to one percent — a locked-in rate they’d pay for the following three years.

“The more loans these smaller banks provide to creditworthy small businesses, the better deal we’ll give them on capital from this fund that we’ve set up,” Obama said.

But even the top rate is still cheaper than what banks typically pay to raise new capital in private markets. Banks pay an average of about 7.11 percent for equity capital, according to Aswath Damodaran, a finance professor at New York University’s Stern School of Business. That’s the cost of financing a business in exchange for giving investors a share of ownership.

So if banks want additional capital — whether to guard against future losses or simply strengthen their financial position — it would be cheaper for them to grab government money than to get it from private investors.

That’s what happened frequently with banks that received money from the TARP program. The money was so cheap, and banks were on such bad financial footing, that many simply kept it, rather than increasing their loans.

“It is cheap, and it shouldn’t be given to banks that just want to simply increase their capital,” said Molly Brogan, vice president of public affairs for the National Small Business Association, an advocacy group. However, the potential to lower the cost of the capital to one percent “is a pretty strong incentive” to lend, she said.

The administration is hoping the money will be lent to the type of businesses that have “created roughly 65 percent of all new jobs over the past decade and a half,” as Obama said Tuesday.

But getting smaller banks to take the money at all could be difficult.

“We’ve had a very hard time getting small banks to sign up for anything TARP related, because of the pounding it’s taken in Congress and in the media. So, our view is that even a non-TARP program (but one that utilizes TARP funds) will need somewhat lower dividend rates to be utilized,” said a senior administration official.

The type of banks eligible for this new program — the roughly 8,000 banks with less than $10 billion in assets — “devote the highest percentage of their lending to small businesses in their communities, accounting for over 50 percent of all small business loans nationwide, even though they make up only about 20 percent of all bank assets,” the administration said in a statement outlining its proposal.

The Independent Community Bankers of America support the new initiative. In a statement, the group pointed out that “every dollar of capital that goes into community banks has the potential to be leveraged eight to ten times — a substantial and positive impact for both small businesses and our communities.”

There’s no guarantee that money will go to making new loans.

Banks are already flush with cash — they were hoarding nearly $1.1 trillion in excess reserves as of December, according to federal banking data. That money could be used for making new loans. Supply of money isn’t the problem.

Simply put, demand — for loans, goods and services — is down. It happens in every recession. Thus, increasing the amount of money available for loans doesn’t strike at the heart of the problem.

Also, banks are wary of making more loans during a recession. Loan delinquency rates are up. Banks don’t want to suffer more loan losses, particularly after the hurting they’ve taken over the past two years. With cheap money coming their way, they could use it to buffer against future losses.

One idea that might work better would be to increase the initial cost of the new funds, yet still decreasing it if banks ramp up their lending.

Brogan cautions against making that capital too expensive, however, as it could deter banks from signing up at all.

Also, “offering this money at a higher rate would not have any congressional support,” said the senior administration official.

Creating a new program, separate from TARP, could make it more attractive for banks looking to avoid the TARP stigma, said Tanya Wheeless, president and CEO of the Arizona Bankers Association. Gene Sperling, a counselor to Treasury Secretary Timothy Geithner, said Tuesday that around 600 banks that had applied for TARP funds in early 2009 dropped out of the application process because of that stigma.

Still, Wheeless doesn’t expect too many banks to sign up for the program, particularly since it’s subject to change.

“It may look slightly more attractive now, on paper, but that could change,” Wheeless said, noting that the plan still has to go through Congress. “There’s no confidence the terms would remain.”

Some bankers say a better option would be to increase the government guarantee on loans made through a Small Business Administration program. The administration has done that too, but the $30 billion could instead be used to strengthen that initiative.

As Wheeless put it: “You’ve got the infrastructure already in place, so why design a whole new program?”

Read more: Financial Crisis, Small Business, Small Business Lending, Tarp, New Tarp, Small Banks, Community Banks, Obama Administration, Taxpayers, Bailout, Big Bank Bailout, Wall Street Bailout, Business News

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Banks Could Get Money From New Obama Proposal — And Still Not Lend

WASHINGTON — Fewer banks are erecting new hurdles for people and businesses to get loans, a fresh sign credit problems are easing.

In a quarterly survey released Monday, the Federal Reserve found that “commercial banks generally ceased tightening standards on many loan types” at the end of last year. The one exception: commercial real-estate loans.

Read more: Economy, Bailout, Financial Crisis, Lending Crisis, Lending, Bank Lending, Commercial Real Estate, Commercial Real Estate Loans, Federal Reserve, Business News

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Fed: Fewer Banks Imposed New Restrictions On Loans Last Quarter

Goldman Sachs, the world’s richest investment bank, could be about to pay its chief executive a bumper bonus of up to $100 million in defiance of moves by President Obama to take action against such payouts.

Read more: Lloyd Blankfein, Goldman Sachs, Bailout, Economic Crisis, Investment Banks, Bonus Outrage, Economy, Goldman Sachs Ceo Lloyd Blankfein, Financial Crisis, Banks, Bank Bonuses, Goldman Sachs Bonuses, Business News

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Goldman Sachs May Give Record Bonuses — Up To $100 Million To CEO Lloyd Blankfein

How did this happen. When did it happen? Was it the crash or the Mad(off) men or the shock and awe of the (don’t bet on the) banks and the bailout (rages)? What happened to the good old days? They were never that good, as each successive generation supplanted the one before. “Here Son, stand on my shoulders, reach for the stars.” Higher and higher till you retired. A gold watch and a fixed income, yours for life. When did that change? What happened? A financial Mt. Everest that once was scaled has now let loose a tirade of snow and ice, slippery and treacherous, and we are all struggling for a foothold and purchase as we are pulled closer and closer to the edge. Many we have watched go over it.

Makes me think of Touching the Void, the stunning filmed re-enactment of the true story of Joe Simpson and Simon Yates in the Peruvian Andes. After reaching the peak and during the descent, Simpson breaks his leg. As rescue is impossible they decide that Yates will attempt to lower Simpson down. As Yates was attempting to lower Simpson 300 feet at a time, the gradient went into a vertical drop and he was propelled over a cliff. While Yates was being pulled slowly toward the edge, his footholds slipping and no response coming from his partner hanging below, as a measure of self-preservation as there was no other option, he cut the rope. Simpson survived falling hundreds of feet into a crevice, causing more damage to his shattered body. When deep within the crevice with no way of possibly climbing up out of it Simpson makes the only choice he can. To climb down, deeper into the crevice. Dragging his broken body inches at a time, down darker and darker there was a crack of light through the ice and eventually he was able to make his way to it and out of the crevice. Now in the bitter cold and in abject pain he made his way, crawling, dragging himself miles down the mountain, over the frozen ground. In the pitch black of night in a howling storm he knew that he was near the base camp because he smelled shit. He had in fact crawled through what was their latrine area and was finally able to call out for help. His companions, who thought he was dead, and were leaving in the morning, of course saved him and they all survived.

I thought of this today as I heard another story of a broken dream of a financial life cut off. Another small business closing its doors, employees joining the growing unemployed and another dream gone. Cut off. Dropped. Fired. We are all crawling through shit. I am a lucky one. I anticipated. Probably because I am a child of show-off business and therefore know firsthand how dismissive Hollywood can be as a business, how fickle and ageist and chauvinistic and homophobic. I have seen lives destroyed, as people’s careers were deemed dispensable and were disposed of. SAG sends off the sagging. I saved and lived way below my level and am fine. I will be fine.

I am thinking about the millions of workers who were cut loose by their partners, their government, their businesses, their bosses, their schools, institutions. The rope has been cut. One lost job creates another. Who is going to FIX THE INCOME? Who is going to allow people to age with dignity and safety, that there will be a cushion, a soft seat for them to grow old on, to care for them, to help them to assist the living?

Messages from the good old days? In Britain during the Blitz, the tube stations had a poster that the Government placed there, Keep Calm and Carry On. A simple message of hope and perseverance while the bombs dropped. I was given a replica for my 50th birthday. It makes sense. Carry on. Keep moving; but how can we tell that to a worker in Detroit with three kids who has to decide if he will buy his daughters medicine or food? The shuttered storefronts, the unemployment lines. The economy grew, but not in jobs. How can you fix the income? By keeping with the same team? By holding steady? By carrying on? By keeping calm? The Main Street that is often referred to in speeches needs repairs. There are potholes and cracks in the infrastructure. How about we start by fixing them? And our crumbling schools. And the crumbling infrastructure of our country. Fix the income and we will fix America.

Read more: Jamie Lee Curtis, Touching the Void, Sag, Wall Street, Bailout, Finance, Banking, Main Street, Fixed Income, Business News

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Jamie Lee Curtis: Fix the Income