Tuesday, September 30, 2008

Asterix Kerviel et al

Charles Bremner is Paris Correspondent for The Times. He has previously reported from New York and Brussels. He maintains a blog that can be quite amusing. Here is a link to his January entries. He tells us the new Asterix movie is very unFrench and not very funny. He has great fun with Jerome Kerviel and His Royal Highness, President Nicolas Sarkozy.


Friday, September 26, 2008

Is James Dimon the Banker of the Year?

"In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co." report Robin Sidel David Enrich and Dan Fitzpatrick in the Wall Street Journal this morning (9/26).

James Dimon, J.P. Morgan's chairman and chief executive, has proven the power of holding back and managing your hand carefully. Build your capital when times are good and run a large universal bank like the commercial bankers are in charge. Then pounce when you can acquire franchises cheaply that augment your strategy. That has proven to be the winning end game strategy.

The Journal notes his building a "fortress balance sheet:"

"Since taking the reins of J.P. Morgan nearly three years ago, Mr. Dimon has transformed the bank. Much of those efforts came during a period of prosperity for the banking industry, giving him time to upend the bank's culture and computer systems. Along the way, he has emphasized the need to create a 'fortress balance sheet' that can withstand a weak economy."

So much for the strategy of growth at any cost and fatten yourself on fees. Dimon's power house has bought the fattened calf's dessicated bones.

J.P. Morgan paid a steep price for a rather shaky bank which found itself subject to an old fashioned run: It contributed $1.8 billion to the FDIC fund and plans to take a $31 billion write off. It now plans to raise another $8 billion in capital. Why? J.P. Morgan bank emerges as the #1 bank in the U.S. It takes over a large network of mortgage banking and acquires a big retail footprint in two huge markets it has long coveted: Florida (New York South) and California.

Glass Steagal and McFadden are dead, long live J.P. Morgan!

That rumble you hear is Senator Glass rolling over in his grave!

Wednesday, September 17, 2008

History provides little comfort

In the Financial Times, September 16 2008, historian, Harold James, tells us:

"The drama of the past days – the collapse of Lehman Brothers, the rapid purchase of Merrill Lynch, the weakness of AIG, the threats to other institutions – all have no real historical precedent."

Is this an issue of liquidity or solvency?

AIG Is Rescued

The rescue of AIG:

1) The Federal Reserve (not the federal government) lent AIG $85 billion.

2) AIG pays LIBOR plus 8.5% (The Financial Times described it as: "The Fed’s rescue is on punishing terms: AIG must repay the $85bn loan at a storecard-like 8.5 percentage points over Libor, liquidating perfectly fine assets to do so.")

3) The federal government gets 79.9% of AIG's equity.

4) AIG's CEO steps down (involuntarily.)

5) The Treasury is supplying the Fed with extra funds.

6) Why Do It? Too many banks had bonds insured by AIG that would have had their capital impaired if AIG was downgraded

7) Why the draconian measures? To avoid moral hazard.

Earlier Bank of America bought Merrill Lynch.

The CPI is down!

The Wall Street Journal's Kelsey Hubbard and Kelly Evans discuss the first "good news" on inflation.

Tuesday, September 09, 2008

Welcome to our merry band of "ideologues," Mr. Secretary.

The Wall Street Journal feels vindicated by the nationalization of Freddie Mac and Fannie Mae, but worries that the reforms will not be soon through to the end. In today's editorial, they are feeling their oats. Meanwhile Senator John McCain and Governor Sarah Palin pledge to see that job through in an Op Ed piece today. Sen. McCain reminds us he warned over two years ago, "If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose."