Talk Back

These are the personal views of Thomas Lam, group chief economist at OSK Group/DMG & Partners:

The improvement in bank lending is crucial in fostering a healthy and sustainable economic recovery. A simple correlation between the growth in real GDP and real bank lending is close to 70%, with GDP typically leading the latter by a couple of quarters.

The sluggish bottoming out in real bank-lending growth following the business cycle trough in the second quarter of 2009 seems comparable to the 1990-91 episode; however, the extent of the recent contraction mirrors the 1973-75 period.

The dynamics of bank lending are extremely complicated, especially following a negative financial-led adjustment. Loose monetary policy per se does not necessarily promote bank lending. Capital availability and the regulatory environment could actually play a bigger role in influencing lending.

Both supply and demand conditions affect the extent of bank lending. A healthy recovery in lending requires an increase in the willingness of banks to extend credit combined with strong demand for loans.

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These are the personal views of Anthony Accetta, a former assistant U.S. Attorney in New York:

In the classic three-card Monte game, the hustler puts out three cards in plain sight, shows the victim one of the cards with a quick swipe and a wink, and then slips the cards in and out, ’round and ’round, in a blurring whirl of activity, until the target card is lost forever. The hustler makes his living by knowing the victim will never find the real card.

The Senate Permanent Subcommittee on Investigations, led by Sen. Carl Levin (D-Mich.), is in the process of sending the mortgage fraud card ’round and ’round.

The Senate Subcommittee has defined the Goldman Sachs card as being whether Goldman “bet against its customers” and made money by selling securities backed by bad mortgages short in its own portfolio, while selling the same securities on the open market without disclosing its bet that the securities would decrease in value. What the Senate is leaving out, however, is how did they know the securities and the mortgages backing them would be bad? That’s the wild card being shuffled right under the public’s collective nose, and the question that is not being asked.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Derivatives are as ancient as civilization.

Greek farmers insured crops with investors prepared to speculate on the weather, just as life insurers hedge mortgage-backed securities by purchasing credit default swaps.

When written against real assets, whether farmers’ crops or homes, derivatives spread risk, lower capital costs and foster growth.

Like any other financial contract, derivatives can be abused, and the big-bonus culture on Wall Street has given us some high-profile shenanigans.

How derivatives are regulated or overregulated is central not just to curbing excess, but to ensuring that farmers can plant, home buyers can borrow and businesses can invest.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

President Obama announced he wants to prohibit banks from forming hedge funds, private equity funds and trading securities on their own accounts, and he wants to limit the size of banks and financial institutions generally.

Hedge funds, private equity funds and proprietary securities trading did not cause the banks to get into trouble, and the size of banks did not cause the credit crisis.

Banks, small and large, failed or required bailouts because of poorly considered loans, and the kinds of engineered products that were created from those loans by non-bank entities.

Collateralized debt obligations and swaps created and marketed by non-bank financial institutions, such as Lehman Brothers and Goldman Sachs, compounded the errors of foolish bankers. Later, Goldman Sachs and other financial institutions became banks to access inexpensive credit from the Federal Reserve, but those decisions could be reversed if bank holding companies are not permitted to trade on their own accounts.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Goldman Sachs, J.P. Morgan and other big Wall Street banks are awarding multi-million dollar bonuses to the same financiers who pushed the nation to the brink of financial ruin.

President Barack Obama voices outrage but fails to stem the abuse.

Wall Street leaders argue those bonuses were earned, much like jewel thieves refer to a big heist snatched from an impenetrable safe.

Wall Street has kept its mischief legal by salting the pockets of politicians running for Congress and president, and by making certain that key policy makers at the Treasury Department and the Federal Reserve are faithful Goldman Sachs alumni. Continue reading…

By Al Lewis

A DOW JONES NEWSWIRES COLUMN

Terry Smiljanich was an Assistant U.S. Attorney in Tampa, Fla., in the 1970s, prosecuting loan sharks.

“Just like in the movies, guys would come down from New York to collect,” he recalls.

A deadbeat borrower in one of Smiljanich’s cases even survived the cinematic cliche:

“They went into a bar and grabbed him, took him for a little ride, and told him that if he didn’t find a way to pay them off within 24 hours they were going to break his legs.”

High-interest loans with terrifying consequences is such a lucrative business that America’s banking industry lobbied for years to make them legal.

“Bank of America doesn’t break your legs, but they will ruin your credit and they will hound you to death,” Smiljanich said. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Wall Street greed and irresponsibility have nearly destroyed the U.S. economy. Big bonuses for bankers encourage reckless risk taking and were a principal cause of the credit crisis and Great Recession.

Pay must be regulated to avoid another calamity.

A generation ago, banks took deposits, made loans and collected payments. Bankers quickly felt the consequences of money lent to folks unlikely to repay.

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 By Donna Childs 
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Bank of America Corp. (BAC) should view its assets through the eyes of a restructuring banker, rather than the lens its management and regulators appear to be using.

A day before the U.S. Treasury is scheduled to release results of its stress test for the large U.S. banks, reports suggest a possible capital shortfall of $35 billion for Bank of America.

Regulators and analysts have suggested various ways to close this gap, ranging from additional infusions of government money to asset sales.

But some of the past events may not have caught up with Bank of America’s current reported results, such that the shortfall may exceed $35 billion in the near future.

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NEW YORK — It’s time for some radical thinking at Citigroup (C).

The bank has been selling parts of its sprawling empire in the past year as part of efforts to restructure its capital. Noted among them was the sale last year of its German retail banking operation, on which it booked an after-tax gain of $4 billion.

For Citi, international assets are particularly attractive candidates for divestiture, as credit deterioration is becoming worse abroad than in the U.S. However, divestitures are confounded by the dearth of buyers in the financial services industry relative to motivated sellers.

Now is the time for Citi to think outside of the financial services paradigm: Call Wal-Mart Stores Inc. (WMT).

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Will the Financial Accounting Standards Board decision to allow bankers more leeway in valuing securities in their investment portfolio help steady financial stocks? Continue reading…