Reports say buyout firms looking to acquire Fidelity National Information Services Inc. (FIS)

Posted: May 6, 2010 – 1:19pm Jacksonville.com

By Mark Basch

Two large private equity firms are in talks to buy out Jacksonville-based Fidelity National Information Services Inc., according to news reports today.

The Wall Street Journal reported that Blackstone Group LP was considering the deal along with other firms. Bloomberg News later reported that Thomas H. Lee Partners LP is joining Blackstone in the bid.

Fidelity said the company’s policy is to not comment on speculation about acquisitions.

Fidelity National Information Services, or FIS, provide technology services for financial companies. It was spun off from title insurance company Fidelity National Financial Inc. Another publicly-traded company, Lender Processing Services Inc., was spun off from FIS.

The two Fidelity companies and LPS are all headquartered in Jacksonville, but all three operate independently.

Bloomberg reported that “two people with knowledge of the situation” said the deal is “under discussion and may not happen.”

mark.basch@jacksonville.com, (904) 359-4308

RELATED STORIES: HERE

Car bomb causes terror scare, forces evacuation in Times Square: New York Post

Nothing to do with Foreclosures, but this is a wake up call for all us to watch our backs!

By LARRY CELONA, FRANK ROSARIO and TIM PERONE

Last Updated: 10:32 AM, May 2, 2010

Posted: 9:28 PM, May 1, 2010

A car bomb nearly caused a bloodbath in the heart of Times Square yesterday as a homemade explosive device in an SUV parked outside the doors of “The Lion King” fizzled out.

The bomb caused a terror scare that forced thousands of people to evacuate the Crossroads of the World and turned Times Square into a ghost town for hours.

 Bomb squad members wearing protective suits examine the suspicious vehicle.
Christopher Sadowski
Bomb squad members wearing protective suits examine the suspicious vehicle.

Photos: Times Square bomb scare

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Photos: Times Square bomb scare

 Police Officer Wayne Rhatigan, the mounted patrol cop who first investigated the smoking Nissan Pathfinder at around 6:30 p.m. last night.
SETh GOTTFRIED
Police Officer Wayne Rhatigan, the mounted patrol cop who first investigated the smoking Nissan Pathfinder at around 6:30 p.m. last night.

Photos: Times Square bomb scare

An unidentified T-shirt vendor, who is a Vietnam veteran, saw smoke billowing from a Nissan Pathfinder and alerted Police Officer Wayne Rhatigan, a mounted patrol cop, who looked inside the smoldering vehicle at around 6:30 p.m. on West 45th Street near Seventh Avenue in front of an entrance to the Minskoff Theatre, which houses the hugely popular Disney musical, Mayor Bloomberg said early this morning.

Rhatigan, who has been on the force for 19 years, the last four in the Mounted Unit, smelled gunpowder and called in the Fire Department, which put out the car fire as he and two patrol officers cleared the area of civilians.

Bomb Squad members then searched the SUV, which bore Connecticut license plates that were actually registered to a Ford F-150, and found two gasoline cans, three propane tanks, electrical wires, black powder, consumer grade fireworks and two clocks, Police Commissioner Ray Kelly said.

PHOTOS: TIMES SQUARE BOMB SCARE

VIDEO: TIMES SCARE

“I think the intent was to cause a significant ball of fire,” Kelly said.

A Bomb Squad robot was used to handle the suspicious package in the back of the vehicle, officials said.

Bloomberg called the device “amateurish” but said that the city was “very lucky” because of the quick-thinking actions of the hero T-shirt vendor and Rhatigan.

There was a “box within a box” in the car, a 2X2X4 black gun locker, Kelly said.

Officials dismantled the first device and were in the process of rendering the second box safe this morning at the department’s firing range in the Bronx.

An NYPD security camera caught the Pathfinder travelling west on West 45th Street at 6:28 p.m. and at 6:34 p.m. the 911 call came in, Kelly said.

The Mayor added that the cameras, “couldn’t detect who was in the vehicle, how many were in the vehicle and what was in the vehicle.”

Cops were looking at other security videos from various cameras in the area that may have captured images of the suspect.

Authorities searched the immediate area for any possible secondary devices, but no other areas were evacuated. Also an NYPD and federal manhunt for the suspect began.

Investigators interviewed the person who had the license plates before they were put on the Pathfinder. That person is not a suspect and told officials that he dropped the plates off at a junkyard. Police are trying to track down the owner of that junkyard.

Honey, I Lost the House. Now It’s Time to Party

 
Caroline Baum

Honey, I Lost the House. Now It’s Time to Party: Caroline Baum

Commentary by Caroline Baum

April 22 (Bloomberg) — “What a relief, Marge, not to have that huge mortgage payment hanging over our head anymore.”

“You can say that again, Harry. Let’s celebrate. Maybe take a nice vacation. Or buy a new car.”

“What if the bank forecloses on our house? We could be living on the street next year.”

“Exactly. Which is why we need a new car. Maybe something roomy like a Chevy Suburban.”

By now you’ve probably seen the analysis, if you can call it that, on how mortgage defaults are driving consumer spending.

Yes, you read that correctly. Those deadbeat homeowners, facing possible eviction and in some cases unemployed, are throwing caution to the wind — and money at retailers.

In an attempt to explain strong retail sales in the face of high unemployment, depressed consumer confidence and declining real incomes, Paul Jackson, publisher of HousingWire, alit on an idea that he conceded might sound far-fetched: “People are spending their mortgages,” he opined in an April 5 column.

Because the consequences of missing a mortgage payment are so far in the future, thanks to the multitude of government assistance programs, consumers are behaving as if they’ve just been handed a free lunch, he said.

Other economists jumped on the bandwagon. Mark Zandi, chief economist at Moody’s Economy.com, told the Wall Street Journal this week that 5 million households aren’t making payments on their mortgages, giving them “as much as $60 billion to spend.”

Nonsense Exposed

Economists at Goldman Sachs Group Inc. came at it differently. In an attempt to explain how consumer spending exceeded their forecast, they acknowledged their “standard net worth model overstated savings” if households treated residential investment as just another form of consumer spending. Uh-huh.

Blogger Barry Ritholtz called the proponents of the defaults-are-good theory on the carpet, saying in an April 16 post that the analysis got it backward. “Those people voluntarily not paying their mortgages are not buying luxury goods, for the simple reason they cannot afford them,” Ritholtz wrote.

Maybe it’s my age or my upbringing, but I can’t imagine frittering away the interest payments on a delinquent mortgage when the sheriff might show up any day with an eviction notice.

Not everyone lives that way or acts rationally all of the time, the housing bubble being a case in point. After biting off more home than they could afford, consumers are more likely to compensate by being overly cautious. Once bitten, twice shy.

Just ask the banks, which, after an extended period of lax lending and big loan losses, tend to tighten credit standards to an extreme.

Double-Entry Bookkeeping

There’s an even bigger problem with the idea that mortgage defaults are driving consumer spending. When a homeowner misses a mortgage payment, “somebody’s not getting a payment” on the other side, said Thomas Lawler, founder and president of Lawler Housing and Economic Consulting in Leesburg, Virginia.

A mortgage lender or bank experiences reduced cash flow, which means less money flowing to shareholders who, the last time I checked, were consumers in their own right.

Sure, one can argue that the borrower has a greater propensity to consume than the lender, but this is a case of what Lawler calls “single-entry analysis for double-entry bookkeeping” and what I view as an example of Bastiat’s broken window. (See Bastiat, Frederic, “That Which is Seen and That Which is Unseen.”)

It’s like robbing Peter to pay Paul or, more applicable to the current situation, borrowing or taxing the public and calling it “fiscal stimulus.” There is no net gain from transferring spending power from one entity to the next.

Reductio Ad Absurdum

Lawler, a man after my own heart when it comes to carrying an idea to its logical conclusion, offered the following advice to President Barack Obama:

If you believe what the economy needs is a boost to spending, “forget the stupid stimulus,” he said. “Let’s get everyone to stop paying their mortgage.”

Why stop there? Instead of sticking it to renters, who tend to be less well-off than homeowners, Obama should make the plan fairer by spreading some of the wealth around. “Nobody has to pay,” Lawler said. “Let’s have a rent moratorium as well.”

Now there’s a stimulus plan that won’t cost the taxpayer a dime!

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: April 21, 2010 21:00 EDT

Move Over Fannie Mae…Revealing the “TRIPLETS” Maiden Lane, Maiden Lane II and Maiden Lane III

Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue (Bloomberg)

By Craig Torres, Bob Ivry and Scott Lanman

April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.

In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.

The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time.

“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”

The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.

‘Panic’ Cause

“Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.”

Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok, chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey.

Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank.

Early Failure

“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”

The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.

The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.

More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.

Lending Standards

For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.

The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.

CDO Holdings

Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash.

Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible.

The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings.

CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc.

“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.

Bernanke Defense

Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility.

“The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions.

Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said.

Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III.

Market Value

Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.

Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.

“The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement.

Deal With Chase

The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios.

Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.

In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.

Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.

The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.

The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.

Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: April 1, 2010 01:34 EDT

Greenspan, Rubin, Prince to Testify for Financial Crisis Panel: Bloomberg

I wonder if wifey Andrea Mitchell will report? NBC?

March 31, 2010, 9:29 PM EDT

By Jesse Westbrook

March 31 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan, ex-U.S. Treasury Secretary Robert Rubin and Charles Prince, who stepped down as Citigroup Inc. chief executive officer in 2007, will testify next week before the panel probing the financial crisis.

The Financial Crisis Inquiry Commission will hear from Greenspan on April 7, the panel said in a statement today. Rubin and Prince will testify the following day.

The FCIC, charged with determining what caused the worst U.S. economic slump since the Great Depression, is investigating the roles banks and regulators played in spurring or failing to prevent a crisis that led to more than $1.7 trillion in writedowns and credit losses at financial companies worldwide.

Testimony from Greenspan, Rubin and Prince shows the panel is shifting its focus to the Fed, where Greenspan served until 2006, and Citigroup, where Rubin became a senior adviser after serving in the Treasury post under President Bill Clinton. Citigroup got $45 billion in U.S. government bailout funds in 2008 after the collapse of the mortgage market froze credit.

U.S. Comptroller of the Currency John Dugan, whose agency oversees national banks, will also testify on April 8. Former Fannie Mae Chief Executive officer Daniel Mudd will appear April 9 along with former directors of the Office of the Federal Housing Enterprise Oversight.

The U.S. government rescued Fannie Mae in August 2008 after the housing slump threatened the survival of the government- sponsored company.

The FCIC, whose members were appointed by Congress, has been investigating the financial crisis since last year. It is supposed to deliver its findings to lawmakers in December.

–Editors: Gregory Mott, William Ahearn

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net.

NYC Residents Facing Foreclosure to Receive Free Legal Assistance

nyc

A new initiative spearheaded by mayor Michael Bloomberg aims to provide free legal aid to New York City residents facing foreclosure.

The so-called “NYC Service Legal Outreach” will support homeowners with free legal assistance during the mandatory settlement conference stage, which is a meeting between the bank and homeowner where foreclosure alternatives are negotiated.

Such conferences give homeowners an opportunity to avoid foreclosure, and the presence of legal representatives will likely improve a homeowner’s chances.

The NYC Service Legal Outreach program intends to recruit 300 volunteer attorneys over the next three months – 100 will be stationed at courthouses to screen homeowners and provide counsel.

An additional 200 attorneys will be directly matched with individual homeowners and will advocate for the homeowners throughout the foreclosure settlement process.

“The City’s legal community has a long, proud history of pro bono work, and we are tapping into that tradition to bolster our comprehensive effort to prevent foreclosures,” said NYC Mayor Michael Bloomberg, in a release.

“The City has not been hit as hard as some other areas by the foreclosure crisis, in part due to our efforts, but we are seeing a serious impact. No family facing the loss of their home should be without representation.”

Last year, there were 20,773 foreclosure filings in New York City, up from roughly 14,000 in 2007 and 2008.

That compares to less than 7,000 foreclosure filings in the City in 2004.

The NYC neighborhoods most impacted by foreclosure filings include Jamaica, Bellrose/Rosedale, Flatlands/Canarsie, East New York and the North Shore of Staten Island.

Homeowners facing foreclosure who are interested in retaining free legal services should go to www.nyc.gov or call 311.

Source: TheTruthAboutMortgage

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Could Bloomberg Lawsuit Mean Death to Zombie Banks?

Center for Media and Democracy and http://www.BanksterUSA.org

Posted: March 28, 2010 09:43 AM
My recollection is a bit hazy. How does one kill a zombie exactly? Do you stake it? Cut off its head? Nationalize it? Perhaps it’s time to ask the experts at Bloomberg News.

Lost in the haze of the hoopla surrounding the insurance reform bill was some big news on the financial reform front. On March 19, Bloomberg won its lawsuit against the Federal Reserve for information that could expose which “too big to fail” banks in the United States are walking zombies and which banks were merely rotting.

Bloomberg, which has done some of the best reporting on the financial crisis, is also leading the charge on the fight for transparency at the Federal Reserve and in the financial sector. While many policymakers and reporters were focusing their attention on the $700 billion Troubled Asset Relief Program (TARP) bailout bill passed by Congress, Bloomberg was one of the first to notice that the TARP program was small change compared to the estimated $2-3 trillion flowing out the back door of the Federal Reserve to prop up the financial system in the early months of the crisis.

Way back in November 2008, Bloomberg filed a Freedom of Information Act request asking the Fed what institutions were receiving the money, how much, and what collateral was being posted for these loans. Their basic argument: when trillions in taxpayer money is being loaned out to shaky institutions, don’t the taxpayers deserve to know their chances of being paid back?

Not according to the Fed. The Fed declined to respond, forcing Bloomberg to sue in Federal Court. In August of 2009, Bloomberg won the suit. With the backing of the big banks, the Fed appealed , and this month, Bloomberg won again. A three judge appellate panel dismissed the Fed’s arguments that the information was protect “confidential business information” and told the Fed that the public deserved answers.

The Fed is the only institution in the United States that can print money. It can drag this case out as long as it wants, but isn’t it a bid odd that taxpayer dollars are being used to keep information from the taxpayers?

After an unexpectedly rocky confirmation battle, Ben Bernanke kicked off his new term as Fed Chair in February with pledges of openness and transparency. “It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls,” said Bernanke. President Obama also pledged a new era of transparency when he entered office. What is going on here?

One theory is that Fed is hiding the secret assistance it provided to the financial sector, because it would expose how many Wall Street institutions are truly walking zombies, kept alive by accounting tricks like deferred-tax assets, “a fancy term for pent-up losses that the bank hopes to use later to cut its tax bills,” according to Bloomberg’s Jonathan Wiel. If this is the case, it raises doubts about the wisdom of Congress’ only plan to take care of the “too big to fail” problem by trusting regulators to “resolve” failing banks. If there is no will to resolve them now, why should we think regulators will resolve them in the future?

Another theory is that the Fed is hiding the fact that it broke the law by accepting a boatload of toxic assets as collateral. The law says the Fed is only supposed to take “investment grade” assets as collateral.

In either case, the public deserves answers. “This money does not belong to the Federal Reserve,” Senator Bernie Sanders. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”

The President and the Fed Chairman must live up to their pledges of transparency. They can start by abandoning this lawsuit and opening the doors on the Secrets of the Temple.

Too BIG to Fail, Too BIG for Jail? Bid-Rigging Conspiracy

March 26 (Bloomberg) — JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24.

The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

None of the firms or individuals named on the list has been charged with wrongdoing. The court records mark the first time these companies have been identified as co-conspirators. They provide the broadest look yet at alleged collusion in the $2.8 trillion municipal securities market that the government says delivered profits to Wall Street at taxpayers’ expense.

‘Sufficient Evidence’

“If the government is saying they are co-conspirators, the government believes they have sufficient evidence that they can show they were part of the conspiracy,” said Richard Donovan, a partner at New York-based law firm Kelley Drye & Warren LLP and co-chair of its antitrust practice. Donovan isn’t involved in the case.

The government’s case centers on investments known as guaranteed investment contracts that cities, states and school districts buy with the money they receive through municipal bond sales. Some $400 billion of municipal bonds are issued each year, and localities use the contracts to earn a return on some of the money until they need it for construction or other projects.

The Internal Revenue Service sometimes collects earnings on those investments and requires that they be awarded by competitive bidding to ensure that governments receive a fair return. The government charges that CDR ran sham auctions that allowed the banks to pay below-market interest rates to local governments.

CDR Fights Case

CDR, a Los Angeles-based local-government adviser, was indicted in October along with David Rubin, Zevi Wolmark and Evan Zarefsky, three current or former executives. The company and the three men have denied wrongdoing. Since last month, three former CDR employees who weren’t charged in the initial indictment have pleaded guilty and agreed to cooperate with the Justice Department.

More than a dozen financial firms are also facing civil suits filed by municipalities over the alleged conspiracy. Yesterday, U.S. District Judge Victor Marrero in Manhattan refused to toss out a lawsuit brought by Mississippi and other bond issuers.

Brian Marchiony, a spokesman for JPMorgan in New York; Doug Morris, a spokesman for UBS in New York; and Danielle Romero- Apsilos, a spokeswoman for Citigroup in New York, all declined to comment. A Societe Generale spokesman, Jim Galvin; Lehman spokeswoman Kimberly MacLeod, and GE Capital spokesman Ned Reynolds in Stamford, Connecticut, also declined to comment. Bank of America spokeswoman Shirley Norton in San Francisco declined to comment. Bear Stearns was bought by JPMorgan in 2008, the same year Lehman Brothers collapsed.

‘Absolute Disaster’

Laura Sweeney, a Justice Department spokeswoman in Washington, declined to comment.

Banks may choose to cooperate with prosecutors because in light of the government bailout funds they’ve received “a guilty plea would just be an absolute disaster for some of these companies,” said Nathan Muyskens, a partner at Shook, Hardy & Bacon in Washington and former trial attorney with the Federal Trade Commission’s Bureau of Competition.

“There have been antitrust investigations where there have been companies involved that were just never indicted,” he said in a phone interview.

At the same time, the government will probably focus on seeking to convict individual bankers, he said.

“When someone goes to jail for five years, that resonates,” he said. “When a company pays $200 million, it’s simply a balance sheet issue. Jail time is what captures corporate America’s attention.”

Lawyers’ Filing

In a court filing yesterday, defense lawyers said they “inadvertently” included the names of individual and company co-conspirators in a motion asking the court to compel the government to provide more specific evidence of the alleged misconduct. They asked the court to strike the entire exhibit in which the list appears. Judge Marrero granted the request.

The government’s probe became public in 2006 when federal investigators raided CDR and two competitors and issued subpoenas to more than a dozen firms. The “co-conspirators” on the list released in court this week also included Wachovia Corp., which was purchased by San Francisco-based Wells Fargo & Co. in 2008. Elise Wilkinson, a Wells Fargo spokeswoman in Charlotte, North Carolina, didn’t return a call today seeking comment.

October Indictments

The indictments released in October didn’t identify any of the sellers of the investment contracts involved in the alleged conspiracy. They were identified only as Provider A and Provider B. They paid kickbacks to CDR after winning investment deals brokered by the firm, according to the indictments.

The firms did this by paying sham fees tied to financial transactions entered into with other companies, prosecutors said. Kickbacks were paid from 2001 to 2005, ranging from $4,500 to $475,000 each, according to the Justice Department.

According to the list contained in the court filing this week, the investment contracts involved were created by units of GE and divisions of Financial Security Assurance Holdings Ltd., a bond insurer formerly part of Brussels-based lender Dexia SA.

The kickbacks were paid out of fees generated by transactions entered into with two financial institutions that weren’t identified in the October court filing. The March 24 list filed by the defense named the two firms as UBS and Royal Bank of Canada.

Dexia Sale

Dexia completed the sale of FSA’s bond-insurance business in July to Assured Guaranty Ltd. of Hamilton, Bermuda, while retaining its outstanding investment contracts.

Thierry Martiny, a spokesman for Dexia in Brussels, declined to comment. FSA, based in New York, was the biggest insurer of U.S. municipal bonds in 2007 and 2008.

“We have no comment,” said Betsy Castenir, a spokeswoman for Assured Guaranty in New York, in an e-mail response. “Dexia has responsibility for the liabilities of the Financial Products business.”

Royal Bank of Canada “has been fully cooperating with the government,” Kevin Foster, a spokesman for the bank in New York, said in an e-mailed statement. “We have no knowledge or evidence of wrongdoing by any of our employees.”

The case is U.S. v. Rubin/Chambers, Dunhill Insurance Services Inc., 09-CR-01058, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: William Selway in San Francisco at wselway@bloomberg.net; Martin Z. Braun in New York at mbraun6@bloomberg.net

Last Updated: March 26, 2010 13:09 EDT

13 BANKERS: MIT’s Johnson Says Too-Big-to-Fail Banks Will Spark New Crisis

Review by James Pressley :BLOOMBERG REVIEWS

March 22 (Bloomberg) — Alan Greenspan, the master of monetary mumbo jumbo, leaned back in his chair and grew uncharacteristically forthright.

“If they’re too big to fail, they’re too big,” the former Federal Reserve chairman said when asked about the dangers of outsized financial institutions.

It was October 2009, and the man who helped make megabanks possible was sounding more like Teddy Roosevelt than the Maestro as he entertained what he called a radical solution.

“You know, break them up,” he told an audience at the Council on Foreign Relations in New York. “In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole.”

Greenspan the bank buster crops up near the end of “13 Bankers,” Simon Johnson and James Kwak’s reasoned look at how Wall Street became what they call “the American oligarchy,” a group of megabanks whose economic power has given them political power. Unless these too-big-to-fail banks are broken up, they will trigger a second meltdown, the authors write.

“And when that crisis comes,” they say, “the government will face the same choice it faced in 2008: to bail out a banking system that has grown even larger and more concentrated, or to let it collapse and risk an economic disaster.”

The banks in their sights include Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. Though Wall Street may not like “13 Bankers,” the authors can’t be dismissed as populist rabble-rousers.

Cash for Favors

Johnson is an ex-chief economist for the International Monetary Fund who teaches at the Massachusetts Institute of Technology. Kwak is a former McKinsey & Co. consultant. In September 2008, they started the Baseline Scenario, a blog that became essential reading on the crisis. When they call Wall Street an oligarchy, they’re not speaking lightly.

Drawing parallels to the U.S. industrial trusts of the late 19th century and Russian businessmen who rose to economic dominance in the 1990s, the authors apply the term to any country where “well-connected business leaders trade cash and political support for favors from the government.”

Oligarchies weaken democracy and distort competition. The Wall Street bailouts boosted the clout of the survivors, making them bigger and enlarging their market shares in derivatives, new mortgages and new credit cards, the authors say.

Suicidal Risk-Taking

These megabanks emerged from the meltdown more opposed to regulation than ever, the authors say. If they get their way — and they will, judging from current congressional maneuvering over President Barack Obama’s proposed regulatory overhaul — Wall Street will retain its license to gamble with the taxpayer’s money. This isn’t good for anyone, including the banks themselves, which often feel compelled by competitive pressure to take suicidal risks.

“There is another choice,” they write: “the choice to finish the job that Roosevelt began a century ago, and to take a stand against concentrated financial power just as he took a stand against concentrated industrial power.”

Obama finds himself in the middle of a struggle that has coursed throughout U.S. history — the struggle between democracy and powerful banking interests. The book’s title alludes to one Friday last March when 13 of the nation’s most powerful bankers met with Obama at the White House amid a public furor over bailouts and bonuses.

The material that sets this book apart can be found at the beginning and end. Chapters three through six present an all- too-familiar, though meticulously researched, primer on how the economy became “financialized” over the past 30 years.

Regulatory Arbitrage

Crisis buffs won’t miss much if they skip ahead to the last chapter, where the authors debunk arguments that curbing the size of banks is too simplistic. A more complex approach, they say, would invite “regulatory arbitrage, such as reshuffling where assets are parked.”

They propose that no financial institution should be allowed to control or have an ownership interest in assets worth more than 4 percent of U.S. gross domestic product, or roughly $570 billion in assets today. A lower limit should be imposed on investment banks — effectively 2 percent of GDP, or roughly $285 billion, they say.

If hard caps sound unreasonable, consider this: These ceilings would affect only six banks, the authors say: Bank of America, JPMorgan Chase, Citigroup Inc., Wells Fargo & Co., Goldman Sachs and Morgan Stanley.

“Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies,” they say. “That thought should frighten us into action.”

Though Jamie Dimon won’t like this (any more than John D. Rockefeller did), incremental regulatory changes and populist rhetoric about “banksters” are getting us nowhere. It’s time for practical solutions. This might be a place to start.

“13 Bankers: The Wall Street Takeover and the Next Financial Meltdown” is from Pantheon (304 pages, $26.95). To buy this book in North America, click here.

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)

To contact the writer on the story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: March 21, 2010 20:00 EDT

By: Simon Johnson
The Baseline Scenario

Fed Ends Bank Exemption Aimed at Boosting Mortgage Liquidity: Bloomberg

By Craig Torres

March 20 (Bloomberg) — The Federal Reserve Board removed an exemption it had given to six banks at the start of the crisis in 2007 aimed at boosting liquidity in financing markets for securities backed by mortgage- and asset-backed securities.

The so-called 23-A exemptions, named after a section of the Federal Reserve Act that limits such trades to protect bank depositors, were granted days after the Fed cut the discount rate by half a percentage point on Aug. 17, 2007. Their removal, announced yesterday in Washington, is part of a broad wind-down of emergency liquidity backstops by the Fed as markets normalize.

The decision in 2007 underscores how Fed officials defined the mortgage-market disruptions that year as partly driven by liquidity constraints. In hindsight, some analysts say that diagnosis turned out to be wrong.

“It was a way to prevent further deleveraging of the financial system, but that happened anyway,” said Dino Kos, managing director at Portales Partners LLC and former head of the New York Fed’s open market operations. “The underlying problem was solvency. The Fed was slow to recognize that.”

The Fed ended the exemptions in nearly identical letters to the Royal Bank of Scotland Plc, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Deutsche Bank AG, and Barclays Bank Plc posted on its Web site.

Backstop Liquidity

The Fed’s intent in 2007 was to provide backstop liquidity for financial markets through the discount window. In a chain of credit, investors would obtain collateralized loans from dealers, dealers would obtain collateralized loans from banks, and then banks could pledge collateral to the Fed’s discount window for 30-day credit. In Citigroup’s case, the exemption allowed such lending to its securities unit up to $25 billion.

“The goal was to stop the hemorrhaging of risk capital,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Investors were being forced out of the securities market because they couldn’t fund their positions, even in higher-quality assets in some cases.”

Using mortgage bonds without government-backed guarantees as collateral for private-market financing began to get more difficult in August 2007 following the collapse of two Bear Stearns Cos. hedge funds.

As terms for loans secured by mortgage bonds got “massively” tighter, haircuts, or the excess in collateral above the amount borrowed, on AAA home-loan securities rose that month from as little as 3 percent to as much as 10 percent, according to a UBS AG report.

Lehman Collapse

By February 2008, haircuts climbed to 20 percent, investor Luminent Mortgage Capital Inc. said at the time. After Lehman Brothers Holdings Inc. collapsed in September 2008, the loans almost disappeared.

“These activities were intended to allow the bank to extend credit to market participants in need of short-term liquidity to finance” holdings of mortgage loans and asset- backed securities, said the Fed board’s letter dated yesterday to Kathleen Juhase, associate general counsel of JPMorgan. “In light of this normalization of the term for discount window loans, the Board has terminated the temporary section 23-A exemption.”

The “normalization” refers to the Fed’s reduction in the term of discount window loans to overnight credit starting two days ago from a month previously.

The Fed eventually loaned directly to securities firms and opened the discount window to primary dealers in March 2008. Borrowings under the Primary Dealer Credit Facility soared to $146.5 billion on Oct. 1, 2008, following the collapse of Lehman Brothers two weeks earlier. Borrowings fell to zero in May 2009. The Fed closed the facility last month, along with three other emergency liquidity backstops.

Discount Rate

The Fed also raised the discount rate a quarter point in February to 0.75 percent, moving it closer to its normal spread over the federal funds rate of 1 percentage point.

The one interest rate the Fed hasn’t changed since the depths of the crisis is the benchmark lending rate. Officials kept the target for overnight loans among banks in a range of zero to 0.25 percent on March 16, where it has stood since December 2008, while retaining a pledge to keep rates low “for an extended period.”

Removing the 23-A exemptions shows the Fed wants to get “back to normal,” said Laurence Meyer, a former Fed governor and vice chairman of Macroeconomic Advisers LLC in Washington. “Everything has gone back to normal except monetary policy.”

To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: March 20, 2010 00:00 EDT