Banking Crisis: Money-Spinning Scam for the Financial Giants

G7 Finance Ministers Reject Protectionist Measures

February 14, 2009

AP – Rejecting protectionism, the Group of Seven finance ministers pledged Saturday to work together to support growth and employment and to strengthen the banking system so the world can overcome its worst financial crisis in 50 years. But the bad news continues. The final statement on their two-day meeting in Rome also predicts a gloomy forecast, with the severe economic downturn continuing through most of 2009.

"The stabilization of the global economy and financial markets remains our highest priority," the statement said, noting that the world's seven most industrialized countries have "collectively taken exceptional measures" to address the challenges.

The statement endorses the U.S. and British approach to fixing the banking system by recapitalizing banks. The ministers also said a way must be found to deal with the banks' toxic assets, however no prescription was laid out.

The meeting marked the international debut of new U.S Treasury Secretary Timothy Geithner, who conferred with Federal Reserve Chairman Ben Bernanke as the session began Saturday at the Italian Finance Ministry.

Geithner smiled at cameras, but declined to respond, when asked if any progress was being made...

Despite Federal Aid, Many Banks Fail to Revive Lending

February 3, 2009

Washington Post - The federal government has invested almost $200 billion in U.S. banks over the last three months to spark new lending to consumers and businesses. So far, it hasn't worked. Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn't.

Consider the case of Bethesda's EagleBank, which received $38.2 million from the Treasury Department in early December. The company, which focuses on lending to local businesses, was delighted to get the money, executives said. Its nine-member board convened an impromptu conference call during the week of Thanksgiving to approve the deal. But EagleBank used roughly half the money to digest the acquisition of Fidelity & Trust Bank, a Bethesda rival with financial problems. And it has struggled to use the rest to increase lending...

Just a Band-Aid on the Foreclosure Problem?

February 3, 2009

Washington Post - Jeanine Wilson continues to struggle despite modifications to the mortgage on her Upper Marlboro home. Her first modification, in May, increased her payments by $200 a month after her lender attached late fees and the missed payments. The second modification came after she was laid off as a social worker for the District government. Her interest rate was reduced, but though she was holding two new jobs, she still continued to miss payments, she said.

"They just kept saying they were in the business of making money, not in the business of helping you save your home -- either you pay it or you don't pay it," Wilson said.

In a recent study, Alan M. White, an assistant law professor at Valparaiso University, found that even with housing prices dropping rapidly, lenders have been reluctant to lower the borrower's principal. Instead, the average modification adds $10,000 to the principal owed by the homeowner, he found...

Banks Still Lending at Many Times Earnings

January 30, 2009

Financial Times - UK banks have become more cautious in the way they make new mortgage loans, but not nearly as cautious as might be expected given the slump in house prices and the deepening recession, official data have revealed.

The Financial Services Authority, the bank’s regulator, recently published detailed statistics on mortgage lending for the quarter ending September 2008, showing that banks were still willing to make loans that were many times borrowers’ incomes.

The percentage of loans granted on high income multiples – defined as 3.5 times income for a single borrower or 2.75 times income for joint borrowers – was just less than 44 per cent in the third quarter, virtually unchanged from 18 months ago before the credit crunch.

The data also show that lenders made little headway in helping borrowers who have fallen behind on payments to avoid repossession, in spite of being urged to do so by the government...

Wall Street Paid $18 Billion in Employee Bonuses Last Year

January 29, 2009

AP - President Barack Obama issued a withering critique Thursday of Wall Street corporate behavior, calling it "the height of irresponsibility" for Wall Street employees to be paid more than $18 billion in bonuses last year while their financial sector was crumbling. "It is shameful," Obama said from the Oval Office. "And part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, and show some discipline, and show some sense of responsibility."

The president's comments, made with new Treasury Secretary Timothy Geithner at his side, came in swift response to a report that employees of the New York financial world garnered an estimated $18.4 billion in bonuses last year. The figure, from the New York state comptroller, drew prominent news coverage...

Banks That have Said 'No Thanks' to U.S. Bailout

January 29, 2009

AP - The following banks have announced they no longer planned to participate in the government-sponsored bank bailout program:

• American River Bankshares, of Rancho Cordova, Calif., said it would not accept $6 million
• Chemical Financial Corp., of Midland, Mich., said it will not accept $84 million
• California United Bank, of Encino, Calif., said it will not accept $8.4 million
• Dime Community Bancshares Inc., of Brooklyn, N.Y., said it will not accept $77.3 million
• Dearborn Bancorp Inc., of Dearborn, Mich., withdrew its application for $29 million
• Eagle Financial Services, Inc., of Berryville, Va., said it will not accept $10 million
• First Capital Inc., of Corydon, Ind., said it would not accept bailout money
• Friendly Hills Bank, of Whittier, Calif., said it would not accept $1.6 million
• Glacier Bancorp Inc., of Kalispell, Mont., said it would not accept bailout money
• Legacy Bancorp Inc., of Pittsfield, Mass., said it would not accept $20 million
• Liberty Bancorp Inc., of Liberty, Mo., said it would not accept $8.5 million
• Mechanics Bank, of Richmond, Calif., said it withdrew its application for $60 million
• NBT Bancorp Inc., of Norwich, N.Y., said it would not accept bailout money
• New York Community Bancorp Inc., of Westbury, N.Y., said it would not accept $596 million
• OptimumBank Holdings Inc., of Fort Lauderdale, Fla., said it would not accept $4.6 million
• Pamrapo Bancorp Inc., of Bayonne, N.J., withdrew its application for $11 million
• Pacific Continental Corp., of Eugene, Ore., said it would not accept $30 million
• Smithtown Bancorp, of Hauppauge, N.Y., said it would not accept $37.8 million
• S.Y. Bancorp Inc., of Louisville, Ky., said it would not accept $43 million
• Tompkins Financial Corp., of Ithaca, N.Y., said it would not accept $15 million

Bank Bailout Could Cost $4 Trillion

January 27, 2009

Fortune - The cost of the bank bailout is likely to be much higher than $700 billion.

While the Obama administration hasn't asked Congress for more money yet, some experts warn that government spending on support for struggling financial services companies will ultimately reach into the trillions of dollars.

The first half of the controversial $700 billion program to help banks has already been spent - mostly on buying up preferred shares of troubled banks. Part of the remaining $350 billion may be used to purchase troubled assets from bank balance sheets and place them in what Federal Deposit Insurance Corp. chief Sheila Bair has dubbed an "aggregator bank."

And while taxpayers will surely recover some of that sum eventually, more money is likely to be needed in order for the bank rescue to work. "The amount of working capital you'd expect the government to take into this would be around $3 trillion to $4 trillion," said Simon Johnson, a senior fellow at the Peterson Institute for International Economics and author of its Baseline Scenario financial crisis blog...

Democrats Open to Additional Taxpayer Money for Banks

January 25, 2009

AP - The White House warned Sunday that the country could face a long and painful financial recovery, even with major government intervention to stimulate the economy and save financial institutions. "We're off and running, but it's going to get worse before it gets better," said Vice President Joe Biden, taking the lead on a theme echoed by other Democratic officials on the Sunday talk shows.

At the end of the Obama administration's first week, the party in power at both ends of Pennsylvania Avenue sought to lower expectations for a quick fix despite legislation expected to pass by next month that would pump billions of dollars into the economy. Democrats also opened the door for even more government aid to struggling banks beyond the $700 billion bailout already in the pipeline.

Congress has given President Barack Obama permission to spend the second $350 billion of a Wall Street bailout package even though lawmakers have criticized the Bush administration for the way it spent the first half. House Speaker Nancy Pelosi, D-Calif., said she is open to additional government rescue money for banks and financial institutions. But she said taxpayers must get an ownership stake in return...