Financial Meltdown Was 'Avoidable,' Crisis Panel Finds

According to a new report written by Democrats on a panel that investigated the financial collapse and bailouts, the meltdown could have been avoided. In fact, the group is blaming both Washington and top financial firms for the crisis. Small comfort for people who lost everything…

Huffington Post reports:

The Democratic majority of the 10-member Financial Crisis Inquiry Commission spreads the blame widely to regulators, politicians, financial firms and credit rating agencies.

"We conclude this financial crisis was avoidable," the report said.

It said regulators failed to adequately police financial markets, that financial firms had poor risk management and corporate governance practices, and that government was ill-prepared to handle the fallout from excessive borrowing when loans soured.

"The crisis was the result of human action and inaction, not Mother Nature or computer models gone haywire," the draft report reads. "The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public."

The report will be officially released on Thursday but it has been endorsed only by the congressionally appointed panel's six Democratic commissioners. Three Republican members will release a separate minority report and a fourth Republican plans to unveil a report of his own that will focus on government housing policies.

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FDIC May Seek More Than $1 Billion From Failed-Bank Executives

The Federal Deposit Insurance Corp. is going after over 50 failed bank officers and directors, to collect losses caused by the financial crisis. The agency is hoping to recoup more than $1 billion from credit crisis losses.

Bloomberg.com reports:

The lawsuits were authorized during closed sessions of the FDIC board and haven’t been made public. The agency, which has shuttered 294 lenders since the start of 2008, has held off court action while conducting settlement talks with executives whose actions may have led to bank collapses, Richard Osterman, the FDIC’s acting general counsel, said in an interview.

“We’re ready to go,” Osterman said. “We could walk into court tomorrow and file the lawsuits.”

The FDIC, which reviews losses for every bank failure, has brought only one case against officers or directors tied to recent collapses -- a suit filed in July seeking $300 million in damages from four executives of IndyMac Bancorp Inc.

When a bank fails, the agency’s investigators take about 18 months to complete their autopsies, meaning most of the probes stemming from the financial crisis are ongoing, Osterman said.

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Bailout Loss Estimated at $29 Billion

In a new report released yesterday, the Treasury Department announced that they expected to lose around $29 billion from the financial crisis bailouts. More than half of the loss is a result of the bailout of the auto industry, with a considerable amount of funds also going to the departments housing finance program. Check out the following story about the announcement courtesy of NYTimes.com.

The Treasury Department expects to lose $29 billion on the federal bailouts stemming from the financial crisis, with most of the losses in its housing finance program and the auto rescue.

In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program.

The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group.

Treasury officials have declared the bailout a success, emphasizing that much of the program’s money has been returned and that losses are now likely to be less than once expected. The cost, the report says, is far below the $350 billion the Congressional Budget Office once estimated.

“Because of the success of the program, TARP will likely cost a fraction of this amount,” the report said.

Continue reading at NYTimes.com…

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Where Are They Now? Seven Villains of the Financial Crisis

After the financial crisis, a lot of people were looking for someone to point the finger of blame at, but as this article from Daily Finance, there are multiple individuals that contributed to the bank collapse.

In 2008, as the economy seemed to be in free-fall, pundits, politicians and the public cast about in search of the ultimate villain, the Wall Street weasel who could assume the blame for massive foreclosures, skyrocketing unemployment, and plummeting stock values. While the disaster was too big to pin on any single schemer, a handful of likely candidates quickly emerged.

Some, like Ken Lewis and Jimmy Cayne, seemed merely inattentive and inept, while others like Angelo Mozilo and Fabrice Tourre appeared to be actively involved in cheating the public. Yet, whether their position was in Wall Street or Washington, the CEOs office or the analyst's desk, all seven of the people on our list carried some measure of the blame for the events of 2008.

Two years later, most members of the class of 2008 have moved on to new jobs, cushy retirements or fresh challenges -- often involving the Securities & Exchange Commission. Yet, regardless of where they go, all seven will continue to carry the marks of 2008, the end of a ride that gave them billions in salary, yet cost them their reputations.

Jimmy Cayne: Playing Bridge While Bear Burned

In the two and a half years since Bear Stearns went belly up, the company's chairman of the board James E. "Jimmy" Cayne has become famous -- indeed, notorious -- for two things: smoking weed and playing cards.

Winner of 13 national championships, Cayne is among the world's top masters at the game. In 1969, he was playing bridge professionally in New York when fellow player Alan "Ace" Greenberg hired him to be a stock broker at Bear Stearns. Over the next 32 years, Cayne rose to become president, CEO, and ultimately chairman of the company; along the way, he continued to play bridge, becoming famous both for his playing style and for the rumor that he smokes marijuana after tournaments.

Five Critical Steps for Effective Crisis Communications

Over the weekend The Glass Hammer posted a great article contributed by Susan Stern, of Stern & Associates, explaining how to prepare for a communications crisis. I have included a section of the article below, but you can find the full text here.

Few companies or organizations will never face a serious and immediate challenge at some point during their history. How effectively and quickly the organization deals with the threat and communicates with the media, customers, employees and other key publics often determines how its products, services and corporate leaders are viewed – positively or negatively – for many years to come.

What essential steps should executives and managers take to avoid damaging their brand and ensure a positive outcome when a crisis occurs?

Step 1. Create a Written Crisis Communications Plan

Effective crisis communication depends on implementing a thorough plan based on the ordinary challenges a company could face in the course of an ordinary day as well as extraordinary events such as terrorist attacks, natural disasters and workplace violence. The plan must be designed to help your organization’s leaders quickly and effectively communicate important information and key messages to the media, customers, employees and other key publics. A crisis communications plan is an essential corporate tool in today’s world. With social media and text messaging rapidly spreading information – and potential misinformation – to a wide audience in minutes, it’s critical to be able to act swiftly and effectively before the damage begins. Delays caused when organizations need to start framing their response from scratch force them to play “catch up” with the media and other key audiences.

Your plan should be a framework for action, containing the information gathered during your initial organizational work as well as material you’ve developed based on specific scenarios your company could face. It should be flexible enough to be quickly edited and customized for a specific situation so it does not appear that you’re simply issuing off-the-shelf statements.

It is also important that individuals in your company who could potentially speak with the media be trained by a public relations practitioner with crisis experience to understand the preferred communications techniques and effectively deliver key messages on a regular basis and when it counts most.

Continue Reading at TheGlassHammer.com…

Greenspan Says Fed, Regulators ‘Failed’ During Financial Crisis

From Business Week.com:

Former Federal Reserve Chairman Alan Greenspan said the central bank and other U.S. regulators “failed” during the financial crisis because they became too complacent about risks.

“Even with the breakdown of private risk-management, the financial system would have held together had the second bulwark against crisis -- our regulatory system -- functioned effectively,” Greenspan said in the text of a speech at a Brookings Institution conference today. “But, under crisis pressure, it too failed.”

Greenspan echoed comments he made in a paper released yesterday citing the central bank’s failures to rein in the housing bubble and growth of the largest U.S. banks. Greenspan, 84, who ran the central bank from 1987 to 2006, said low interest rates weren’t to blame for inflating the bubble, placing the blame instead on regulators.

“Even though for years our largest 10 to 15 banking institutions have had permanently assigned on-site examiners to oversee daily operations, many of these banks still were able to take on toxic assets that brought them to their knees,” Greenspan said.

The former central bank chief said he and others at the Fed didn’t fully understand the extent of the housing bubble and its ramifications for the economy. In October 2008 testimony before Congress, he said free-market ideology may be flawed in the wake of a “once-in-a-century credit tsunami.”

Bill Gates suggests Tax Increase in the U.S

Well known for being the richest man in the world, Microsoft’s Bill Gates spoke with ABC News yesterday to talk about the economy. He also proposed raising taxes a solution to help bridge the budget gap. Although his opinions are different from President Obama’s, Gates is convinced his solution is in the best interest of the country.

According to LuckyRoom, Gates has also come out against excessive state intervention, while U.S. president Barack Obama stressed that focus should be put upon longer term policy issues, such as education, to remove the effects of the worst recession experienced by the U.S. since the late the 1930s. “When you face a financial crisis like this, it will take years to disappear completely.

The budget currently shows a large deficit, and although the economy seems to be recovering, barring any changes in tax policy and the tax enforcement mechanism will not return the budget to a balanced position, said president Obama. It is worth mentioning that Gates speech takes place just two days before the annual speech by Obama in Congress, which is expected to focus extensively on economic issues, including the need to create new jobs.

The statements made by Gates that the U.S. economy will take years to recover reflect on the sales figures of old homes in the U.S. which showed a greater decline after three consecutive increases in by big tax reduction. Sales of old homes fell 16.7% in December, while analysts were expecting a fall below 11.6%.

Continue reading at LuckyRoom…

Wall Street Chiefs Defend Compensation At Firms

From NPRNews.com:

Wall Street executives said Wednesday they underestimated the severity of the 2008 financial crisis and apologized for risky behavior and poor decisions. They also defended their bonus and compensation practices to a skeptical commission investigating what caused the collapse.

Americans are furious and "have a right to be" about the hefty bonuses banks paid out after getting billions of dollars in federal help, the commission's chairman told chief executives of four major banks, all survivors of the deepest and longest recession since the Depression.

As the hearings opened before the Financial Crisis Inquiry Commission, chairman Phil Angelides pledged "a full and fair inquiry into what brought our financial system to its knees."

The panel began its yearlong inquiry amid rising public fury over bailouts and bankers' pay.

'We Understand The Anger'

"We understand the anger felt by many citizens," said Brian Moynihan, chief executive and president of Bank of America. "We are grateful for the taxpayer assistance we have received."

With Bank of America having repaid its bailout money, he said "the vast majority of our employees played no role in the economic crisis" and do not deserve to be penalized with lower compensation. Moynihan said compensation levels will be higher next year than they were in 2008 — but not at levels before the financial meltdown.

Pathology of a Financial Crisis

Eric Dash, of the New York Times, posted a fascinating article on the pathology of a financial crisis. It includes information discovered by government investigators who are performing financial autopsies on over 100 banks that have collapsed in the United States. They have already looked at over 40 financial intuitions with 75 more to go.

The coroner’s report left no doubt as to the cause of death: toxic loans.

That was the conclusion of a financial autopsy that federal officials performed on Haven Trust Bank, a small bank in Duluth, Ga., that collapsed last December, Eric Dash writes in The New York Times.

In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses.

At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late. At Haven Trust, for instance, regulators raised alarms about lax lending standards, poor risk controls and a buildup of potentially dangerous loans to the boom-and-bust building industry. Despite the warnings — made as far back as 2002 — neither the bank’s management nor the regulators took action. Similar stories played out at small and midsize lenders from Maryland to California.

What went wrong? In many instances, the financial overseers failed to act quickly and forcefully to rein in runaway banks, according to reports compiled by the inspectors general of the four major federal banking regulators.