Daily Archive: 04/29/2014

Apr 29 2014

The Good News Just Keeps Coming

Bank of America Finds a Mistake: $4 Billion Less Capital


April 28, 2014, 9:18 am

The mistake, which had gone undetected for several years, led the bank to report recently that it had $4 billion more capital than it actually had. After Bank of America reported its error to the Federal Reserve, the regulator required the bank to suspend a share buyback and a planned increase in its quarterly dividend.

While regulators still believe Bank of America has sufficient capital, the disclosure of the accounting error will most likely add fuel to the debate over whether the nation’s largest banks are too big and complicated to manage.

The error also raises questions about the quality of Bank of America’s own accounting employees, who are supposed to present an accurate financial picture of the bank’s sprawling operations to the public and regulators each quarter. The audit committee of the bank’s board and PricewaterhouseCoopers, its external auditor, also allowed the error to slip by for so long.

Some of the spotlight may also fall on the Fed. Since the financial crisis of 2008, the government has focused its financial system overhaul on increasing capital, the part of a bank that absorbs losses and helps it weather storms. The Fed conducts so-called stress tests of big banks each year to assess whether they have enough capital to withstand shocks. Bank of America passed its test in March, paving the way for the increase in its shareholder payouts. It gained approval for a $4 billion share repurchase plan and a 4-cent increase in its quarterly dividend.

But after the accounting error, Bank of America will have to go back to the Fed to try and resolve the issue. If the Fed is satisfied with Bank of America’s explanations and remedies, it will probably be able to make some payouts, though the bank said on Monday that it expected the distributions to be less than originally announced.

Bank of America’s missteps could be resolved relatively quickly, unlike those of Citigroup, which failed the stress test last month after the Fed found potentially deep-seated problems with the bank’s financial projections, which could take several months to resolve.

(C)racks appeared in the comeback narrative in recent days. As part of its first-quarter earnings earlier this month, Bank of America announced $6 billion in new legal expenses related to defective mortgages, higher than many investors expected. Reports then came out indicating that the bank might later this year face more than $16 billion in penalties to settle claims with the Justice Department that it sold investors faulty mortgages.

Bank of America assumed bonds that Merrill had issued, including a $60 billion portfolio of so-called structured notes.

When Bank of America put the notes on its own balance sheet, it did so at a discount to their original value. Bank of America has since paid off many of the notes or bought them back from investors. When these payouts were higher than the value at which Bank of America assumed the notes, the bank booked a loss because it was paying out more money than its balance sheet said the bank owed.

Bank of America’s capital should have been reduced by these losses. But instead, and in error, the bank did not do that, which artificially lifted its capital over several years.

The size of the capital hole, and the length of time that it was overlooked, could also raise questions about the thoroughness of the Fed’s annual stress tests. In the tests, the banks are supposed to evaluate their own strength under difficult economic and market conditions, but the Fed is also meant to review the banks’ numbers, using its own examination to identify potential red flags. The Bank of America mistake is expected to prompt the Fed to look more closely at this area of capital calculation.

Apr 29 2014

Reversal of Fortune and Mind by a Climate Denier

After over a two year investigation in campaign finance corruption, Representative Michael Grimm (R-NY11) was indicted on Monday, with charges including mail, wire, and healthcare fraud, filing false tax returns, perjury, and employing undocumented immigrants. Grimm, with a history of bad behavior made headlines most recently when he threatened to throw a NY1 reporter, Michael Scotto, off the balcony of the Capitol rotunda when he lost his temper over Scotto’s commentary.

The district that Grimm represents, Staten Island and part of Brooklyn, was hard hit by super storm Sandy in October 2011 and is still has not fully recovered due much to the lax distribution of funds by New York City, a problem that newly elected Mayor Bill De Blasio is working quickly to remedy. Grimm is also, or was, a climate change denier. In episode 3 of the Showtime series on climate change, “Years of Living Dangerously,” Grimm sat down with MSNBC’s Chris Hayes to discuss the devastation, recovery and climate change. In that segment which was taped in August 2012, Grimm revealed that he had changed his mind about climate change and said that the storm was a major factor in his decision. However, he also said that there is nothing that he could do to change the conversation in the House.

This was news to his constituents since since Grimm has consistently voted with his Republican colleagues to block any climate change solutions. He even told Hayes “I don’t think the science is there to tell us what’s causing it…. I don’t want to get into the political debate of what’s causing it.” Ironically, the segment aired on Sunday, the day before Grimm surrendered to authorities to face the 20 count indictment.

Monday night, Hayes revisited his interview with Rep. Grimm where the conversation turned to the environment.

After all this Grimm is not resigning his house seat and he is still the GOP nominee for that district. But even if the Staten Island GOP wanted to replace him, they are hard pressed to try and their choice to replace him is  a former congressman whose career ended with a DUI arrest that exposed an affair, Vito Fossella. If you thought the Republicans in the midwest and south were ignoramuses, you haven’t been to Staten Island, the last stronghold for the GOP in New York City.

Grimm’s constituents deserve better. They deserve someone who will stand up and fight for them.


Apr 29 2014

Punting the Pundits

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Follow us on Twitter @StarsHollowGzt

Dean Baker: What Problem Is Privatizing Fannie and Freddie Meant to Solve?

President Obama’s chief economist, Jason Furman, weighed in behind efforts to privatize Fannie Mae and Freddie Mac last week. The main plan on the table is a bill forward by Senators Tim Johnson and Mike Crapo, the chair and ranking member, respectively, on the Senate Banking Committee.

While Furman’s column (which was co-authored with James Stock, another member of the president’s Council of Economic Advisers) indicated support for the principles behind the Johnson-Crapo bill, it is not clear what problem they are hoping to solve.

At the moment, it seems Fannie Mae and Freddie Mac are doing their job just fine. They are issuing mortgage-backed securities (MBS) that include more than 60 percent of new mortgages. Interest rates on mortgages are low and both companies are making substantial profits that are refunded to the government. Why is there any need to overhaul this system?

Yochai Benkler: The US supreme court needs to keep up with our cellphones – and the NSA

Tuesday’s oral arguments on search and seizure make it clear: the era of incremental justice ends now, because the age of metadata is already getting out of hand

Tuesday’s US supreme court arguments involved a seemingly basic legal question about the future of the Fourth Amendment: do police officers need a warrant to search the cellphone of a person they arrest? But the two privacy cases pit against each other two very different conceptions of what it means to be a supreme court in the first place – and what it means to do constitutional law in the 21st century.

“With computers, it’s a new world,” several justices reportedly said in the chamber. Are they ready to be the kinds of justices who make sense of it?

Cellphones expose so much of our most personal data that the decision should be a 9-0 no-brainer. The basic problem that makes it a harder call is that lawyers and judges are by training and habit incrementalists, while information and communications technology moves too fast for incrementalism to keep up.

Philip Pilkington: Our fragile economy of stock bubbles and luxury goods

Income inequality is creating a new normal of high-end consumption and inflated stock prices driving anemic growth

Imagine a world in which those who work – or try to work- are given mere scraps. Imagine an economy that is driven purely by speculation by the wealthy, the gains of which are then spent in high-end stores, the source of employment for those lucky enough to have a job. Imagine economic institutions that puzzle over the slow growth experienced in this economy, uncertain as to the cause.

Imagine no more, because this is the world we live in. Thankfully, however, two economists have finally pieced together the puzzle from disparate fragments of data to explain this malaise.

In a recent study (PDF), Steven Fazzari and Barry Cynamon start with what seems to be a paradox: Keynesian economic theory, together with common sense, tells us that higher-income groups should spend less in relation to their income than lower-income groups. However, since 1980, inequality in the United States has risen enormously, yet household spending has increased to historic highs.

According to the authors, the reason this occurred is that the debt-to-income ratio for the bottom 95 percent of the population rose enormously.

Robert L. Borosage: The Big Fix: How Congress Rigs the Rules

This week, the House Ways and Means Committee is poised to demonstrate exactly how the rules get rigged. Beginning on Tuesday, the committee will mark up a series of bills on corporate tax breaks — known as “extenders” because they have been extended regularly every year or two for over a decade. Only now the Committee plans to make many of them permanent, at the cost of an estimated $300 billion over 10 years. And it does not plan to pay for them by closing other corporate loopholes or raising rates. The giveaway — almost all of which goes to corporations — will simply add to the deficit. And no doubt those who vote for them will later demand deeper cuts in programs for the vulnerable in order to bring “spending” under control.

The measures range from big to small, sensible to inane. Two centerpieces are glaring loopholes for multinational companies and banks, encouraging them to ship jobs and report profits abroad to avoid an estimated $80 billion in taxes over a decade.

Khaled Fahmy: The Egyptian state must stop killing the Egyptian people

Mass death sentence is the latest outrage by country’s corrupt judiciary

On March 24 and after only two swift sessions, one of them lasting less than an hour, a court in the southern Egyptian city of Minya issued its verdict concerning 529 defendants, reportedly all members of the now banned Muslim Brotherhood. The court referred the papers of the defendants to the mufti, one of the country’s highest officials in Islamic affairs, asking for his opinion on hanging them.

Even by the standards of the Egyptian judiciary, which many local human rights groups have recently accused of corruption and partiality, this ruling constitutes a serious affront to justice. Never before in Egypt’s modern history have so many defendants been sentenced to death in one case and with such haste. Never before has an Egyptian court been so dismissive of basic requirements of the judicial process as stipulated by Egyptian law, denying, as it did, defense lawyers the chance to present their case, preventing witnesses from testifying and ignoring complaints by the defendants about the impartiality and competence of the sitting judge.

Vartan Oskanian: Iran nuclear talks: The ‘trust but verify’ dictate

We can only understand Iran’s real intentions by engaging Iranians – not cornering them.

Although the Iran nuclear talks are officially between Iran and the five UN Security Council permanent members plus Germany, at the core, this tug-of-war is between Iran and the United States. I can even picture the US and Iranian diplomats, alone, behind closed doors, working on drafts of the final document.

The signs and posturing from all sides indicate that the US and Iran are serious, genuine and committed to reaching an agreement. The negotiations are being conducted quietly, and between rounds, the sides are displaying restraint and expressing cautious optimism. When the US, for domestic reasons, refused a visa to Iran’s UN representative, Iran’s response was measured. In the recent UN vote condemning Russia’s actions in Ukraine, Iran did not come in on Russia’s side, as it usually does. All this points to a very real opportunity for a positive outcome by the July deadline they have set for themselves.

How is it that what was unthinkable only a year ago suddenly seems plausible?

Apr 29 2014

The Breakfast Club: 4-29-2014

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover  we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

 photo BeerBreakfast_web_zps646fca37.png

This Day in History

Apr 29 2014

On This Day In History April 29

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge

April 29 is the 119th day of the year (120th in leap years) in the Gregorian calendar. There are 246 days remaining until the end of the year.

On this day in 1946, Hideki Tojo, wartime premier of Japan, is indicted by the International Military Tribunal for the Far East of war crimes. In September 1945, he tried to commit suicide by shooting himself but was saved by an American physician who gave him a transfusion of American blood. He was eventually hanged by the Americans in 1948 after having been found guilty of war crimes.

Capture, trial, and execution

After Japan’s unconditional surrender in 1945, U.S. General Douglas MacArthur issued orders for the arrest of the first forty alleged war criminals, including Tojo. Soon, Tojo’s home in Setagaya was besieged with newsmen and photographers. Inside, a doctor named Suzuki had marked Tojo’s chest with charcoal to indicate the location of his heart. When American military police surrounded the house on 8 September 1945, they heard a muffled shot from inside. Major Paul Kraus and a group of military police burst in, followed by George Jones, a reporter for The New York Times. Tojo had shot himself in the chest with a pistol, but despite shooting directly through the mark, the bullets missed his heart and penetrated his stomach. At 4:29, now disarmed and with blood gushing out of his chest, Tojo began to talk, and two Japanese reporters recorded his words. “I am very sorry it is taking me so long to die,” he murmured. “The Greater East Asia War was justified and righteous. I am very sorry for the nation and all the races of the Greater Asiatic powers. I wait for the righteous judgment of history. I wished to commit suicide but sometimes that fails.”

He was arrested and underwent emergency surgery in a U.S. Army hospital, where he was cared for postoperatively by Captain Roland Ladenson. After recovering from his injuries, Tojo was moved to the Sugamo Prison. While there he received a new set of dentures made by an American dentist. Secretly the phrase Remember Pearl Harbor had been drilled into the teeth in Morse Code.

He was tried by the International Military Tribunal for the Far East for war crimes and found guilty of the following crimes:

   count 1 (waging wars of aggression, and war or wars in violation of international law)

   count 27 (waging unprovoked war against the Republic of China)

   count 29 (waging aggressive war against the United States of America)

   count 31 (waging aggressive war against the British Commonwealth of Nations)

   count 32 (waging aggressive war against the Kingdom of the Netherlands)

   count 33 (waging aggressive war against the French Republic)

   count 54 (ordering, authorizing, and permitting inhumane treatment of Prisoners of War (POWs) and others)

Hideki Tojo accepted full responsibility in the end for his actions during the war. Here is a passage from his statement, which he made during his war crimes trial:

   It is natural that I should bear entire responsibility for the war in general, and, needless to say, I am prepared to do so. Consequently, now that the war has been lost, it is presumably necessary that I be judged so that the circumstances of the time can be clarified and the future peace of the world be assured. Therefore, with respect to my trial, it is my intention to speak frankly, according to my recollection, even though when the vanquished stands before the victor, who has over him the power of life and death, he may be apt to toady and flatter. I mean to pay considerable attention to this in my actions, and say to the end that what is true is true and what is false is false. To shade one’s words in flattery to the point of untruthfulness would falsify the trial and do incalculable harm to the nation, and great care must be taken to avoid this.

He was sentenced to death on 12 November 1948 and executed by hanging on 23 December 1948. In his final statements, he apologized for the atrocities committed by the Japanese military and urged the American military to show compassion toward the Japanese people, who had suffered devastating air attacks and the two atomic bombings.

Apr 29 2014

TDS/TCR (Carmen et Error)


Dead Cow Report

Domestic Spies

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