US banks told to have collapse plans

US regulators directed five of the country's biggest banks, including Bank of America and Goldman Sachs Group, to develop plans for staving off collapse if they faced serious problems, emphasising that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticised for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.

Read more: US banks told to have collapse plans | Fin24

Moody’s Bank Downgrades of Bank of America and Wells FargoAssailed as ‘Too-Big-to-Fail’ Persists - by Dakin Campbell and Donal Griffin

Moody’s cut the long-term credit ratings for Bank of America and Wells Fargo yesterday and said the government is “more likely now than during the financial crisis” to let a large U.S. bank collapse, according to a statement. The ratings firm said the two banks and Citigroup Inc., which had its short- term rating downgraded, benefitted more than others from underlying government support.

“They need to defend this move with logic, not just, ‘This is our methodology,’” said Nancy Bush, an analyst at SNL Financial, a bank-research firm in Charlottesville, Virginia. Moody’s likely is protecting itself “in case there is another downdraft, since they were caught absolutely flat-footed in 2008 by slapping AAA on everything,” she said.

For more: Moody’s Bank Downgrades of Bank of America and Wells Fargo Assailed as ‘Too-Big-to-Fail’ Persists - Businessweek

US Banking System:: China wanted to invest in U.S. banks during '08 crisis - by Rick Rothacker

During the throes of the 2008 financial crisis, a top Chinese banker told U.S. officials that his company and others in China were interested in taking significant stakes in U.S. banks but expected a backlash from regulators and the American public, according to U.S. diplomatic memos.

The chairman of China Construction Bank, one of the world's largest banks, made the comment during two separate meetings in November 2008, according to State Department cables obtained by McClatchy through WikiLeaks.

At the time, U.S. banks were desperate for capital to absorb losses from mortgage-related investments and rising loan losses. But no Chinese investments were made, apparently because it would have opened the Chinese banks to regulatory scrutiny in the United States.

Still, the memos provide a window into the thinking of Chinese banking officials as their counterparts in the U.S. suffered through an epic financial meltdown. One of the Chinese investment funds eventually won Federal Reserve approval for an investment in New York-based Morgan Stanley, although not until last year.

WikiLeaks: China wanted to invest in U.S. banks during '08 crisis - National Business - MiamiHerald.com

EU Trouble: US Banks Helped Hide Government Debt -by Alex Newman

American banks helped Greece and possibly other governments to run massive deficits and conceal them from European Union officials and the public, according to international news reports. Meanwhile, the consequences of the deception are echoing through world currency and debt markets while shaking the very foundations of the Eurozone. Under EU rules implemented with the Maastricht treaty, all Eurozone countries are supposed to maintain an annual budget deficit of less than three percent of Gross Domestic Product (GDP) and an overall debt of less than 60 percent of GDP. Nonconforming nations can face fines and other action. But Greece has never been able to stick to the 60 percent rule, and has now been caught lying about its deficits. Last year the government ran a deficit of over 12 percent, an enormous figure by any standard.

In an effort to raise even more money and conceal the staggering levels of debt, Greece turned to American banks — Goldman Sachs in particular, according to an explosive story published by the German magazine Der Spiegel. The report, entitled "How Goldman Sachs Helped Greece to Mask its True Debt," alleges that the Greek government used obscure derivatives provided by U.S. banks to delay payment on obligations, borrow even more money and to keep the true figures off the official.

For more: EU Trouble: US Banks Helped Hide Government Debt

Eric Margolis: The Axis of Sleaze - by Eric Margolis

For the complete report from The Huffington Post click on this link

The Axis of Sleaze - by Eric Margolis

In spite of all the cheery talk about spending our way out of the financial crisis, America will not claw its way back to growth and prosperity until it forces the financial industry to come clean about its huge, hidden losses. So far, that is not happening. None of our politicians have the courage to tell the public that America has too long lived above its means and indulged in reckless, debt-fueled consumerism. The bloated US economy was probably a third too large and must go on a painful diet.

The US financial industry has grown far too powerful. Today, finance is America's leading industry at about 24% of GDP. Manufacturing has shrunken to 12%. Wall Street's `Masters of the Universe' grew so rich they were able to buy or manipulate most politicians and government regulators. Investment banks like Bear Sterns, Lehman, and Goldman Sachs routinely borrowed $20-30 billion daily, and lent out US $35-50 per dollar of assets they owned (commercial banks generally were restricted to a 10:1 ratio). In what became known as the `carry trade,' banks borrowed money at 1% and invested in billions worth of fraudulent sub-prime mortgages at 4-7%, netting huge profits for simply passing around paper. Money was made from money, not productivity.

Note EU-Digest: If the US does not take some real action to remedy the disastrous situation Europe should take the initiative and decouple itself from the defunct Anglo Saxon financial system and seek new partners to solve the crises.

Seeking Alpha: The U.S. Banking System's Terrifying Balance Sheet - Today's Wells Fargo Figures Somewhat Hocus Pocus - by Felix Salmon

For the complete report from Seeking Alpha click on this link

The U.S. Banking System's Terrifying Balance Sheet - by Felix Salmon

On the asset side of the US banking system’s balance sheet, the $4.8 trillion in mortgages is a problem — but there’s another $3.1 trillion in bank loans and consumer credit which is looking increasingly shaky. Against that there’s less than $1 trillion in common stock, supporting over $12 trillion in liabilities. Meanwhile, when you line up the US government’s support programs along with the relevant parts of the right-hand side of the banking system’s balance sheet. Add them all up, and they come to just over $9 trillion, or 67% of the banking system’s total assets. It’s an absolutely astonishing amount of support, and it brings home the scale of the problem facing the government. In a nutshell, the problem is the classic one: on the left-hand side nothing is right, and on the right-hand side nothing is left, at least absent government intervention.

Note EU-Digest: Today's Wells Fargo announcement of surprisingly strong earnings for its first quarter seem somewhat "hocus-pocus". Wells Fargo’s problems are not solved, and analysts and investors will comb other measures of the bank’s health, including its rate of non-performing mortgage loans and its accounting treatment of mortgage loans it wants to sell. Richard Ramsden of Goldman Sachs noted today, “several critical pieces of information were missing, including asset quality and securities exposure.” Given recent regulatory changes and the pressure on banks to send out some good news, caution is the order of the day until it becomes clear how Wells Fargo reached those sky-high new numbers. One thing this Wells Fargo report did achieve was that it gave the "Wall-Street Casino Operation" a boost.

NYT - Banking on the Brink - by Paul Krugman

For the complete report from the NYTimes.com click on this link

Banking on the Brink - by Paul Krugman

The case for nationalization rests on three observations. *First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.*Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode. *Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

Bloomberg.com/EU-Digest: Krugman Proves Keynesianism Isn't Dead After All - by William Pesek

For the complete report from Bloomberg.com click on this link

Krugman Proves Keynesianism Isn't Dead After All - by William Pesek

Krugman, 55, didn't get the Nobel for his work on Japan's lost decade, but for ``analysis of trade patterns and locations of economic activity.'' The Princeton University professor and New York Times columnist is among President George W. Bush's most prominent critics. Coming less than a month before an election, the award left some economists wondering if the Nobel committee was playing politics. Krugman's work is getting considerable attention in Asia, and for good reason. His reputation in this region was made in the mid-1990s when he was among the most consistent predictors of the 1997 Asian crisis. A couple of years later, Krugman correctly opined that Asia would stage an impressive comeback. Far from it. At the rate the U.S. is socializing its financial system, it seems only a matter of time before airlines, automakers and major retailers find their way onto the government's balance sheet. It would be the ultimate irony if the U.S. had to bail out Wal-Mart Stores Inc. with borrowed Chinese money so that it can support all those Chinese factory workers. Globalization is bringing the world full circle -- from state-owned companies to privatization to the re-nationalization of those enterprises. It's no wonder Venezuelan President Hugo Chavez is referring to the U.S. leader as ``Comrade Bush'' and saying ``now Bush is to the left of even me.''

Note EU-Digest: What could probably immediately stimulate the US economy is for the Government to advice those banks which received bailout money to earmark some of that liquidity to provide credit card holders in the US a one year moratorium on their credit card payments. Total US consumer debt (which includes installment debt, but not mortgage debt) reached $2.46 Trillion in June 2007, up from $2.398 Trillion at the end of 2006 (Source: Federal Reserve). Total US consumer revolving debt reached $904 Billion in June 2007, up from $879 billion at the end of 2006 (Source: Federal Reserve) The median U.S. household income is currently $43,200 and the typical family's credit card balance is now almost 5 percent of their annual income. (Source: Federal Reserve) Of the households that do owe money on credit cards, the median balance was $2,200 -- meaning half owe more, half less. (Source: MSN Money)National credit card debt in the US per credit card borrower increased 8.6 percent to $1,717 in the second quarter of 2008, compared to the same period 2007, according to a study by TransUnion.