Commentaries

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Lehman the tax scofflaw

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Wow, Lehman Brothers really didn’t like paying taxes.

Back in June, New York City’s tax department filed a $626 million claim for back taxes against the bankrupt investment bank. And now comes New York State with an even bigger $1.2 billion tax claim.

Most of Lehman’s unpaid taxes to the state stem from last year, not surprising given what happened to the firm. But the state lists Lehman as having a $223 million outstanding corporate tax liability from 1999.

The unpaid liability from 1999 is so old that the interest owed to the Empire State actually exceeds the amount in unpaid taxes.

It makes you wonder is other Wall Street are equally as stingy when it comes to paying the taxman.

UBS’ days of wine and CDOs

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Expensive wines and toxic assets are rarely mentioned in the same breath.

But that was the talk at UBS during the summer of 2007, when the Swiss banking giant sold some $35 million in soon-to-be rotten collateralized debt obligations to Pursuit Partners, a Connecticut hedge fund, which is now suing the bank.

Last week, a Connecticut judge ruled that Pursuit had presented sufficient evidence that UBS sold the CDOs even though the bank had confidential information that Moody’s Investors Service was planning to slash its credit ratings on those subprime-backed securities.

Obama urging Wall Street to do the right thing

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In his speech, Obama emphasizes that big banks should take it upon themselves to give back to the community after the tax payer has done so much to put them on them on the road to recovery. While I agree with the point in theory, I’m not sure Wall Street is built to think about the moral imperative of creating a better society when it’s primary goal is to make money.

Wall Street, and I use this term broadly, has already demonstrated that when it’s presented with a  choice, it chooses the money. While many bristle at the thought of more regulation, especially when it means it could undermine financial innovation – God forbid – one of the important take aways from the crisis should be there needs to be a counterweight to greed. The industry cannot regulate itself.

Has the moment passed for bank reform?

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LEHMAN/A year on from the collapse of Lehman Brothers and there is plenty being written and broadcast about the lessons, the winners and losers and where we go from here.

Amidst all the noise, a relatively short (765 word) commentary from Barbara Ridpath who is head of the International Centre for Financial Regulation (ICFR) — a think tank set up to shape regulatory cooperation and best practice – makes some worthwhile points:

Securitization survives the fall

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A year after the government’s seizure of Fannie Mae, Freddie Mac and AIG , not to mention the bankruptcy of Lehman Brothers that sent the global financial system into a tailspin, very little has changed to prevent debt from being sliced and diced, again and again.

This is a mistake. Although there were many factors contributing to the downfall of the global financial system, the repackaging of toxic debt into esoteric financial products was at the heart of the credit crisis when it erupted in 2007.

‘Living wills’ easier said than done

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In the wake of the widespread chaos that accompanied the bankruptcy of Lehman Brothers last September, regulators have sought to find a better way to unwind global financial giants. One approach is that the banks themselves should prepare for their own orderly demise — a kind of “living will”.

That idea has been gathering steam of late. The G20 group of finance ministers and central bankers meeting in London over the weekend agreed to require “systemic firms to develop firm-specific contingency plans.”

Banking? Keep it simple stupid

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In 1873, Walter Bagehot wrote that “the business of banking ought to be simple; if it is hard it is wrong.” He would have struggled to recognize today’s banking system.

It is not just ever more ornate derivatives that bend the mind. Financial firms themselves have become fabulously complicated. Citigroup lists 2,061 subsidiaries and affiliates while the institutional chart of JPMorgan Chase is 267 pages long.

A year on, it’s still a housing story

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Around the time Lehman Brothers’ collapse nearly pushed the global banking system off a cliff, Rose Barrett’s own personal financial crisis began.

Recently separated from her husband, the Kissimmee, Florida resident quickly found it hard to keep making her monthly $1,939 mortgage payment on her salary as a night nurse at a local rehabilitation center. She made a hardship application to her lender, the subprime banking arm of Banco Popular seeking relief from her 40-year fixed rate $200,000 mortgage with a hefty 9.45 percent interest rate.

Defoliating JC Flowers

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William Cohan has a great takedown of J. Christopher Flowers and his struggling private equity firm in Fortune.

The story sheds light on how Flowers lost a good deal of money for his investors over the past few years and how this has tarnished the reputation he earned years ago at Goldman Sachs.

Recycle the TARP

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The U.S. insurance fund for bank deposits is running out of money. At the same time, some of the big institutions that received federal bailouts last fall have repaid more than $70 billion to the Treasury Department, and more checks to the government may be in the mail soon.

Right hand, meet left hand.

Indeed, one way of dealing with this looming crisis at the Federal Deposit Insurance Corp would be to take all that repaid bailout money and simply inject it into the bank insurance fund. Such a move would instantly bolster the deposit insurance fund, which at the end of June had just $10.4 billion in the kitty.

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