How can a financial company become a threat to the entire economy? If its failure would be catastrophic for the economy and the financial system, it’s considered “too big to fail.” That concept was formalized as part of the Dodd-Frank financial legislation of 2010, and the government has special requirements for institutions considered too big to fail. Today, a federal court ruling was unsealed where a judge ruled that the government didn’t sufficiently prove that one such company, MetLife, really fit the requirements. [More]
too big to fail
Under federal law, colleges that record a student loan default rate of 30% or more for three consecutive years – or 40% in a single year – can lose their access to federal aid. While the rule is meant to weed out bad players and schools that don’t provide students with means for gainful employment, a new report shows that the government often intervenes, propping up schools just before they fail. [More]
In every common-sense, everyday way, a corporation is not a person. Corporations don’t date, don’t have families, don’t go catch a movie on Friday night. They also don’t go to jail when they do something criminal. But in the eyes of the law, corporations enjoy many of the same rights — including free speech and religious expression — and protections afforded to individuals.
Bank of America poses “a grave threat to U.S. financial stability,” according to watchdog group Public Citizen, which has called for the bank to be broken up.
Back in July, Capital One announced a deal to purchase online bank ING Direct USA for around $9 billion. And even though Cap One tried hard to quell ING customers’ screams of “nooooooo,” the folks at the Federal Reserve are reportedly a bit worried that the deal might create another bank so big that its failure would have a disastrous impact on the economy.
Looks like Goldman has been a more frequent visitor to the Federal trough than they’ve been letting on. Despite testifying before Congress that they had only accessed the Federal Reserve’s discount window, which lets banks borrow cash from the government quickly and on favorable terms, just once, Bloomberg reports that recently released data shows they actually took at least five overnight loans from the Fed between September 2008 and 2010.
Ben Bernanke doesn’t like systemic risk! Shocking, we know. In a speech he gave in Orlando, Florida, the Chairman expressed outrage at the bailouts of too big to fail companies and said shareholders should not be sheltered from losses.
Three top Wall Street financial firms, Morgan Stanley, JP Morgan Chase and Goldman Sachs, plan to cut the bonuses offered to their top executives, as part of an effort to show that they’re willing to cut back on what the White House recently called “obscene” compensation. For 2009, the three banks will award themselves just $39.9 billion, down from $44.7 billion in 2007.
According to Bloomberg, “even with lower amounts allocated in the fourth quarter, the compensation costs are enough to pay each employee at the three firms $336,843, more than six times the U.S. median household income of $50,303 in 2008.”
So, Bank of America is writing a big, fat, $45 billion check to the U.S. to pay back the money we handed the bank under the TARP program. Great news, right? Not so fast. Wall Street bad boy Henry Blodget points out that BofA is paying the money back while taking out ultra-low-interest loans from the government — loans that don’t come with any of the restrictions bundled with TARP funds.
Only two short years ago, Citibank was worth $244 billion. Now, after its stock lost half of its value in just the past week, the bank is estimated to be worth $20.5 billion. What happened? The New York Times attempted to answer that question Saturday, and it pointed the finger at the usual suspects — conflicts of interest between those who were supposed to manage risk — and those who stood to benefit from making risky bets.
About a year ago, CNBC’s Jim Cramer completely lost his sh*t on CNBC, screaming at Bernanke to lower interest rates before millions of borrowers went into foreclosure. Now, as the “Armageddon” that he was carrying on about is in full swing, Cramer is taking this opportunity to gloat.
Freddie and Fanny lost about half of their value overnight as investors became more certain that the government was going to have to bail out the two GSEs (Government Sponsored Enterprises.) The New York Times says that senior members of the Bush administration are considering a takeover of Freddie and Fannie that would leave their shares “worth little or nothing,” and where taxpayers would pay “any losses on mortgages they own or guarantee.”
Freddie Mac and Fannie Mae, the “government sponsored” enterprises that are supposed to bail us out of the current mortgage crisis, may be in danger of collapsing, according to William Poole, the former president of the St. Louis Federal Reserve, who told Bloomberg the companies are already “insolvent.”