Commentaries

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Government weighed down by bad mortgages

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The Federal Housing Administration – the U.S. agency that actually enjoys full faith and credit of the government – is in quite a pickle. Reuters reporting that its capital reserves stand at a scant 0.53 percent, below the 2 percent regulatory minimum and without spitting distance of the “help me” threshold.

The deterioration has been fast and furious. Last year the ratio stood at 3% and the year before than 6.4%, according to The Wall Street Journal.

New York Times also has a nice data point:

The F.H.A., which insures loans made by private lenders, guaranteed more than $360 billion in mortgages in the last year, four times the amount in 2007.

The FHA has largely stepped in to fill the vacuum left behind by the banks that had been lending to subprime borrowers. Together with Fannie and Freddie, these housing agencies have kept the housing market from completely seizing up, but there’s a big downside: taxpayers are likely to foot the bill.

AIG has debts that no honest man can pay

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Here’s more evidence that it would be better for the federal government to order the break-up of AIG sooner rather than later.

Former AIG chief executive  and chairman Robert Willumstad, in a speech today, says the taxpayer-supported insurer “owes the government more than it has the ability to pay back.”

Citi still loves Beantown

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It appears Citi may not be pulling out of cities like Boston and Houston after all.

The Wall Street Journal is reporting that Citi is giving serious consideration to shrinking its retail banking presence in the US by retreating from cities where its laggard, such as Boston, Houston and Philadelphia. Instead, the bailed out banking giant would focus on six major US cities where its retail presence is strongest.

Profiting from the bailout

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What is it with this belief that somehow the federal government’s role should be to profit from the bank bailout?

I thought the purpose of the bailout was to save the financial system from collapse.  And that’s why I supported it last fall–even if it was poorly designed and poorly explained to the public.

Time to junk AIG

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The federal government’s $180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it’s time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.

A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government’s massive support.

What did rating agencies know about AIG?

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It’s time to start asking the big credit rating agencies just when they realized that American International Group might pose a systemic risk to the global financial system.

And what, if anything, did the rating agencies do to warn financial regulators of the global crisis that might ensue, if AIG’s debt ratings were suddenly slashed.

A death panel for Citi

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It’s way too soon for the federal government to contemplate reducing its considerable equity stake in Citigroup.

If anything, now’s the time for the feds to finally get tough with the troubled giant and establish a firm deadline for forcing Citi to shrink itself.

Obama’s AIG timidity

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I’ve been pretty amazed at how silent the Obama administration has been about Robert Benmosche’s antics since becoming the well-compensated CEO of American International Group–the defacto government owned insurer.

But after reading this story in The New York Times, I was shocked to learn that many in the Obama administration are warying of looking like they are injecting themselves into the company’s affairs. That’s the case, even though many on Team Obama are upset with Benmosche’s $9 million pay package and his desire to move slowly in selling AIG’s assets.

Lehman tales

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Over the past two days, we’ve been treated to two long stories in The New York Times and The Wall Street Journal focusing on employees of Lehman Brothers, one year after the firm’s chaotic bankruptcy filing. Yawn.

Now, don’t get me wrong–both stories are well reported and well written.  I was glad to see that one of the people the Times did a mini-profile on was a former Lehman banker who packaged and sold rotting mortgages and is honest enough to admit he has “blood on my hands.”

The capital games that banks play

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Treasury Secretary Timothy Geithner’s call for the global banks to set aside bigger capital cushions to better absorb losses on souring securities and ailing loans is a good idea. But that alone won’t be enough to prevent another crisis.

Regulators must also clamp down on the kind of AIG-engineered deals that legally enabled German, French, Dutch, Danish and other European banks to dodge existing capital rules and free up some $400 billion on their balance sheets.

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