New York Times Leader

The lead article in today’s New York Times is titled, “In Surprise Move, Fed Signals Pivot to Normal Policy.” The article describes an increase in the interest rate charged to banks for short-term loans from 0.5 percent to 0.75 percent.

The announcement was made after the stock market closed, and it remains to be seen whether this action will touch off a selling spree on Wall Street. The Fed was careful to say that it still considers the economy very fragile and would be moving deliberately.

On the other hand, many in the financial sector may see this as the beginning of a spiral of increasing interest rates, what many see as the inevitable result of pumping so much money into the economy combined with ever-increasing deficits.

It is disconcerting as a citizen to see the power of the big banks and the financial sector compared to the average American. The lobbying efforts of these industries have resulted in a halt to financial reform. Derivatives are still being traded, and business continues much as it did before the financial crisis.

So the rate increase by the Fed just represents one more potential blow to any growing confidence in the recovery of our economy. Especially when the markets react to it as you can bet they will.

The lead story in today’s New York Times is titled, “Fed Chief Wins a Second Term Despite Critics.” The vote was the weakest in history for the Chairman of the Federal Reserve, 70-30.

Ben Bernanke is simultaneously viewed as the architect and savior of today’s economy. His lax policy positions caused it, and many view his rapid bailouts as saving it.  According to the article, Senator Jeff Merkley of Oregon made one of the most strident remarks, accusing Bernanke of helping to “set the fire that destroyed our economy.”

The attacks on Bernanke, in my opinion, represent a desparate attempt to find a scapegoat. It’s easier to blame the Fed than your own institution. In reality, virtually noone anticipated the bursting of the housing or credit card market bubbles.

The attacks by Senators at the confirmation hearings were mainly meant for the general public who are outraged at the enormous bonuses still being awarded at major banks. This is an election year, and after the upset by Scott Brown, no incumbent feels very much at ease about their own chances.

The alliance of nay voters included some very unusual coalitions including, for example, the only Socialist, Vermont Senator, Barry Sanders, and the Republican conservative, Jeff Sessions of Alabama.

One can only hope the renomination will become less and less important as Happy Days Come Here Again.

The lead article in today’s New York Times is titled, “U.S. Loan Effort is Seen as Adding to Housing Woes.” It describes potentially negative fallout from President Obama’s program to protect homeowners from foreclosure.

The article notes that the $75 billion program, “Making Home Affordable,” may be delaying the inevitable. By temporarily lowering mortgage payments for troubled homeowners, it may just be postoning a day of reckoning. Homeowners who can’t really afford their mortgages will eventually need to make the original payments, and meanwhile, they are wasting their money instead of moving into a rental situation they can afford. In addition, the program may be having the same effect on banks who delay admitting the negative effect of these loans in their portfolio.

In my opinion, the article is unduly critical. By providing temporary relief, the Obama program holds out the hope of a change in circumstance in the financial situation of these homeowners. The change could be as simple as procuring a new job as the economy recovers or finding a new revenue stream. Homeowners in a precarious situation should also be given time to work out new living arrangements or a safe place for their kids to reside should a more serious homeless situation loom.

Even if only a small percentage of homeowners are able to bailout from their current situation, is that too large a price to pay for their rescue?

Today’s lead story in The New York Times is titled, “U.S. is Finding Role in Business Hard to Unwind.” It lists many statistics about the involvement of the U.S. govenment in the national economy since the financial crisis last year and suggests difficulties that will be faced in any return to free market enterprise.

The statistics listed in the article are indeed startling:

– Government spending accounts for 26 percent of the national economy, the largest percentage since World War II.

– 8 out of 10 new mortgages are financed by the United States.

– A car bought from General Motors technically is 60 percent owned by the government.

– Life insurance from AIG is 80 percent owned by the government.

– There are more than 200 civil servants administering the takeover programs with taxpayer money.

However, the article notes $70 billion in loans to many banks have been repayed with a substantial profit for the government, and the possibility of additional paybacks remains.

In my opinion, there is still light at the end of the tunnel, and many enterprises now dependent on U.S. aid will be eager to be rid of federal involvement, if only to regain control over their own paychecks. Money and profits will serve as just as useful an incentive to getting rid of the government as it was in pleading for their assistance.

Yes, power, especially financial power, abhors a vacuum. But the culture of this country is such that the private sector will fill that vacuum more and more as the recession recedes and the country grows stronger.

The lead article in today’s New York Times is titled, “A Year After a Cataclysm, Little Change on Wall St.” It describes the current situation in the financial industry, where little has changed since last year’s chaos and bailouts. Exorbitant salaries are still the rule rather than the exception; banks are still trading in derivatives; and there is little to no action in terms of increased regulation.

According to the article, another collapse is not out of the question. Even though banks are lending less, that posture is typical during a recession. A chart of proposals on financial regulation shows that only credit card reform and limitations on short selling of stocks has passed. Other legislation on foreclosures, mortgages, derivatives and executive compensation are languishing in Congress.

In my opinion, this state of affairs is deplorable. After suffering through the brink of a worldwide financial collapse, we need to take action to reform the system. Status quo ante is not a workable solution.

Of course, financial companies contribute heavily to political campaigns; hire the best possible lobbyists; and unabashedly protect their  prerogatives. Only a concerted effort, and an outcry by the American people, can force our representatives to act.

As long as the chart of failure stays buried in the middle of The New York Times, we will be beholden to the whims and risks assumed by financial organizations.

The lead article in today’s New York Times is titled, “As Banks Repay Bailout Money, U.S. Sees Profit.” The article describes the government’s profits from TARP, the Troubled Asset Relief Program, after some banks have begun to repay loans from the government. The repayment amount so far, $4 billion, represents the equivalent of a 15 percent return annually.

The article comes with some caveats. It does not include bailouts from AIG, Fannie Mae and Freddie Mac, or the automakers General Motors and Chrysler. Nor does it include potentially large losses from toxic assets from Citigroup or Bank of America.

But, in my opinion, the article provides some rare good news. Republicans, who have been quick to criticize TARP as a waste of taxpayers money, even though it was started under President George W. Bush, are sure to be left flatfooted, hemming and hawing about the news. The details represent a vindication for President Obama in his continuing and successful struggle to get the economy to rebound.

According to the article, the main profits come from “warrants,” because they consist of the low fixed price the government paid for shares of the companies, at the time depressed to just a few dollars. But the banks now want to become totally independent of the government and are rushing to pay back the loans. The reason why? In my opinion,  it’s the fact that the government has used the dependency to try and regulate the enormous salaries and bonuses of chief executives, particularly from those banks on the government’s dole.

It’s amazing how much money can serve as a driving force, especially when the shoe is on the other foot!

Today’s lead article in The New York Times is titled, “10 Large Banks Allowed to Exit U.S. Aid Program.” It announces a decision by the Obama administration to let certain banks repay the money they received under the TARP program. A total of $68.3 billion will be repaid to the Treasury, and the taypayer will gain about $1.8 billion in interest.

The banks and their holding companies include American Express, Goldman Sachs, JPMorgan Chase and Morgan Stanley. The amount returned represents almost a quarter of the total bailout given to the nation’s banks since last October.

While some may say that the return of the money represents a triumph of the Administration’s economic plan, in my opinion, the reality may represent a much starker picture. The reason banks have shown such alacrity in returning the government’s money is because organizations under the TARP umbrella were forced to limit the executive compensation for their top 25 employees. So, the banks rushed to return the money because it was in the interest of the top 25 employees to do so. And who has the most influence on this decision to return the money … why, of course, it’s the executives at the top.

Also, by exiting the program, these banks no longer have the cash necessary to increase their lending to businesses and consumers, one of the main reasons for the support in the first place. And the government loses its ability to influence and reform these institutions.

Still, on one level, it does represent a step forward because the banks were capable of returning the money. That’s something we can no longer say about Chrysler and General Motors.

Today’s lead article in The New York Times is titled, “Treasury Plans Wider Oversight of Compensation.” It describes new plans to be announced by the Obama administration regarding limits on the exorbitant bonuses and salaries typically paid to top executives in the financial industry.

More specifically, the plans include especially tight restrictions on companies who have received two (or more) bailouts from the government under the TARP program. These companies, including Citigroup, Bank of America, General Motors and AIG, will have to submit any compensation changes to a specially appointed Czar, Kenneth R. Feinberg. Congress had already restricted TARP recipients to bonuses no greater than one-third of their salaries for their top 25 executives.

The plans are sure to bring controversy by the right wing who oppose nearly any intervention in the financial system. But we should remember it was this very deregulation that almost caused the entire worldwide system to collapse. It seems prudent to increase regulation, if only to protect the public and the taxpayers, who are now supporting these companies.

Of course, the financial industry and major banks are already geared up with intensive efforts to lobby Congress. They are asking that traders and other salespeople be exempted from the “top 25″ list. So far Congress is holding firm, but the final result is far from certain.

Today’s lead story in The New York Times is titled, “U.S. is Planning to Reveal Health of Top 19 Banks.” It describes a plan by the Obama administration to disclose the results of government stress tests or to encourage participating banks to do so.

Apparently, things have been thrown out of skew by disclosures of certain banks, especially Wells Fargo and Goldman Sachs, of their plans to return money from government bailous due to predictions of a healthy first quarter. The rush to return taxpayer money has also been driven by restrictions on executive compensation from banks accepting TARP funds.

This chain of events clearly shows the law of unintended consequences. The actions of the government to restrain clearly excessive bonuses and executive pay has led to a pushback from banks determined to avoid the restrictions. The pushback from the banks separates the healthy ones from the unhealthy ones, at least on a comparative scale, because the unhealthy ones are unable to return any money.

As a result, investors can see what banks are healthy and what ones aren’t, and the resulting revelations will lead to a rush of funds away from the relatively unhealthy banks.

By revealing the results of the stress tests, the Obama administration is trying to avoid this flight of funds. The hope is that a positive stress test will maintain a bank’s support even if it is not quite 100 percent healthy.

It is reassuring that President Obama and his team are applying their programs in such a nuanced manner. We can only hope and pray for their continued success.

The lead story in The New York Times on Sunday was titled, “Crisis Reshaping Wall Street As Stars Begin to Scatter.” It describes a phenomenon of top people leaving financial careers on Wall Street because of government restrictions.

It notes a “brain drain” on Wall Street as top executives, unhappy with government restrictions regading bonuses and other matters, leave large organizations such as Citibank, for smaller yet promising investment firms. Their departure seems to verify CEO claims about the need for “retention” payments, their new terminology for bonuses.

I’m not so sure this is all a bad thing.  An invigorated financial sector with new competition may be just what our nation needs. Competition leads to innovation and is the basis of our capitalistic system. How ironic that the financial sector is one of the last to discover this.

The main question is whether the loss of personnel will prove fatal to big banks. I fail to see how this can occur. Surely these banks have tremendous resources at their disposal, and their dominance of the marketplace still carries major competitive benefits.

The new competition could also destroy the “too big to fail” conundrum we’ve been faced with during the current crisis. With up and coming investment firms and banks to potentially step into a breach, these larger companies will have to pay more attention to providing improved services for their customers, a process that will benefit everyone.