Too big to fail: Ghosts of the Wall Street

Since the 2008 crisis, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley have collectively become 37%, while 1,400 smaller banks have gone out of business. Is the problem of 'too big to fail'  now much worse than in the past?

Human beings often like to delude themselves. Consider the US housing market for instance. Nothing is a better indicator of the state of the market than actual mortgage originations or in other words, how many people are actually buying homes. As demand increases, prices should be increasing. This is the economic reality, but right now we are far from it.

The S&P Case Shiller Home Price Index has shown a dramatic rally of home prices since 2013, aiming to reach the highs of 2005 and 2006. Yet, there are only a few who are actually interested in buying a home. JP Morgan Chase reported a 68% decline in mortgage originations in Q1 of 2014- only $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. The story is the same at Citigroup where mortgage originations declined 71%. This could only mean that prices are rocketing without much demand from people who buy homes to live. What one may conclude is that prices are rising due to none other than institutional investors and self-deceiving market participants.
What is worse is that it is bringing up the bodies from the past. In 2007, months before the crisis, this phenomenon was exactly what the world witnessed in the housing market. The current situation also looks very similar to what happened in the months leading up to the 1970, 1974, 1982 and 1991 recessions. Despite these numbers, the mood in the market is different. This may be because there is a belief that things are getting better, fuelled by the enthusiasm of the US central banker and watchdog politicians. But, if we are to adamantly believe that history shall not repeat itself, it is nevertheless a very troubling sign for the US, and the world economy.

 The boom in the housing prices is not the only ghost from the past. If there was one lesson to learn from the 2008 crisis, then it was this: too much debt is bad for everyone. But consider consumer credit in the US, which is spinning out of control and some 56% of it is sub-prime. During the fourth quarter of 2013, the US witnessed the largest increase in consumer debt in this country that we have seen since 2007. From September 2013 to January 2014, in the US, personal saving rate dropped by an alarming 16% and in January 2014, real disposable income experienced the largest year over year decline that we have seen since 1974. As a result, major retailers are closing thousands of stores all over the US.

The rest of the world is also happily bathing in a debt shower. According to the Bank for International Settlements the total amount of debt in the world has increased by more than 40% since 2007 to about $100 trillion. Bloomberg says that “...The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the US’ gross domestic product.” Many companies have taken advantage of low interest rates and piled up mountains debt in their books. The last year saw a rat race for junk bonds. What nobody asked was: who is going to pay it back (eventually)?
Disappointingly, regulation in the US and the rest of the world is still far detached from reality. The very banks that were at the root of the last crisis are now much larger than they were back then. In fact, the six largest banks in the US, like JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley have collectively become 37% larger since 2008. Meanwhile, 1,400 smaller banks have gone out of business and only one new bank has been started in the US in the last three years. So the problem of "too big to fail" is now much worse than in the past.

A debt-fuelled Wall Street-engineered prosperity that we are enjoying now will not last forever, and when the next great financial crisis will strike, it is going to be absolutely disastrous. We will have to meet the ghosts of our past and many of us may not be able to cope with the shock of reality.

(Shambo Dey, a student of Government Law College, Mumbai, works as a Research Assistant at Vinod Kothari & Company)



Nagesh Kini

3 years ago

There are enough here in India just waiting to happen. we also have had 'too big to fall'.
Some one needs to list yesterday's 'has beens' like JK Synthetics, Nirlon, SKumars.... please add names to the list.

After pledge of sunlight, NY Gov Cuomo officials keep their email in the shadows

New York Gov. Andrew Cuomo entered office promising unprecedented transparency, but his aides’ use of private email offers quite a different picture

Adopting a tactic that has been used by officials ranging from Sarah Palin to staffers of New Jersey Gov. Chris Christie, aides to New York Gov. Andrew Cuomo are sending emails from private accounts to conduct official business.

I know because I got one myself. And three other people who interact with the governor's office on policy or media matters told me they have too. None of the others wanted to be named.

The tactic appears to be another item in the toolbox of an administration that, despite Cuomo's early vows of unprecedented transparency, has become known for an obsession with secrecy. Emailing from private accounts can help officials hide communications and discussions that are supposed to be available to the public.

“Government business should never be conducted through private email accounts. Not only does it make it difficult to retrieve what is a government record, but it just invites the suspicion that a government employee is attempting to evade accountability by supervisors and the public,” said Christopher Dunn of the New York Civil Liberties Union, a frequent requester of records under the state’s Freedom of Information Law.

Emailing from private accounts also may violate state policy. State employees are not to “use a personal email account to conduct State business unless explicitly authorized,” according to a policy bearing the governor's name published by the Office of Information Technology Services.

The Cuomo administration declined to comment on whether any employees are authorized to use private accounts.

Back when he was running for governor, Cuomo pledged, “We must use technology to bring more sunlight to the operation of government.”

The governor himself uses a BlackBerry messaging system that does not save messages to communicate with aides, the Daily News reported in 2012. Under the Freedom of Information Law, those records would typically not have to be released because there is an exemption for internal deliberative material.

But emails with anyone outside of the administration – such as lobbyists, company executives, or reporters – usually have to be made public upon request. It is for those communications, with people outside the administration, that private email accounts have been used.

Last year, I was poking around on a possible story and filed some public records requests that sought emails from Director of State Operations Howard Glaser, a top Cuomo adviser. One day in October, just hours after filing a request with the governor's office, an email appeared in my inbox from Glaser himself.

The email, inquiring what I was working on, was sent from a address rather than a government account. The note had a signature line about not using the email address for official business (even though it appeared to be doing just that). My interest was piqued.

So I filed a request under the state's Freedom of Information Law, asking for all records sent to and from Glaser's private account. It is not supposed to matter if an email is sent from an official account or a private one: If it pertains to government business, it typically has to be released.

A couple of months later, the Cuomo administration responded with a terse denial: “Please be advised that the New York State Executive Chamber has conducted a diligent search, but does not possess records responsive to your request.”

I appealed, noting that I had in my possession a record responsive to the request – Glaser's email to me – and included it as an attachment.

The administration upheld its original denial, now citing a retention issue.

“[T]he fact that this record is in your possession does not mean that the Chamber failed to produce a responsive record in its possession. Emails and certain other correspondence are not required to be preserved indefinitely,” the March letter said.

When I asked about the email this month, Cuomo spokesman Rich Azzopardi took a different tack, now disputing that Glaser was emailing me in his official capacity at all and calling the email “informal.”

“It would be inaccurate to characterize Howard’s email as official business – as he noted, your official business was being handled by the FOIL office, not him,” Azzopardi said.

But I have no personal relationship with Glaser, and my Freedom of Information Law requests focused only on his activities as a state official. When I recently asked Glaser about his email practices, he said, “I don't use personal email to conduct official business.”
He would not say how he defines “official business.”

In its letter denying my request for emails from Glaser’s private account, the administration cited the general retention policy of the State Archives. That policy says that “many email communications are not records and are therefore suitable for immediate destruction” but also that those emails which are records must be preserved.

So how does one determine which emails are “records”?

The governor’s office seems to take a particularly narrow view. The governor’s policy says that emails are only “records” if they are formal documents like press releases and nominations. Azzopardi, the Cuomo spokesman, said: “Official email is not required to be retained unless it meets the definition of a particular kind of record (eg – contract), consistent with the State Archives policy.”

But the Archives, which Cuomo’s office itself cited, takes a more expansive view, even as state law gives the governor leeway to determine which records should be kept.

Quoting the official definition of records, Archives spokeswoman Antonia Valentine said an email is a record if it is created “in connection with the transaction of public business (and provides) … evidence of the organization, functions, policies, decisions, procedures, operations, or other activities (of an agency).”

In practice, Glaser seems to be either eschewing his official email account or promptly deleting messages of substance. When I asked for a 10-day sample of emails from Glaser's official account, I got back little actual communication: 147 pages that are largely filled with newsletters, press releases, and the occasional terse email to set up a phone call.

The use of private accounts can result in even more roadblocks when an official leaves the government. (Glaser is reportedly leaving the administration in June.)

The issue has come up before.

In 2007, executives from the insurance giant AIG filed a public records request with the Office of the Attorney General, seeking, among other things, former Attorney General Eliot Spitzer's communications with the press from the period when he had sued the insurance giant. That request was resisted for years by Spitzer's successor as attorney general: Andrew Cuomo.

While Cuomo’s office eventually released emails sent from official accounts, it maintained that Spitzer's use of a private account put any of those emails beyond its reach.

“[T]he reality is that the Office of the Attorney General lacks access to this account and possession of whatever e-mails it may contain, thus rendering them beyond the scope of petitioner's FOIL request both practically and legally,” Cuomo's office said in a 2009 court filing.

A judge ruled against the attorney general’s office, which has appealed. Seven years since the original request, the case is still in the courts and Spitzer's private email account – which he was known to use in his capacity as a state official – has never been searched for records.

Lawyers for Spitzer joined the case this year, arguing in a March filing that because Spitzer is now a former employee and a private citizen, the Freedom of Information Law doesn't apply.

Beyond the governor's office, the state is reportedly moving toward an email system that would automatically delete emails after 90 days except for those marked by users to save.

It's not clear how that process would work or how the state will ensure that records are not destroyed. The Office of Information and Technology Services declined to provide the memo describing the new policy, requiring that I file a formal public records request to get it.

Transparency advocates have criticized 90 days as too short a period because emails may only become relevant months later after a scandal or other event.

A document on the IT office's website references the possibility in a state email system for “recovery of deleted mailbox contents for the length of the retention period” – another capability that would not exist for officials using private accounts.

Across the river in New Jersey, private email accounts are at the center of the Bridgegate scandal.

The infamous “Time for some traffic problems in Fort Lee” email was sent from a Christie aide's Yahoo account to another official's Gmail account. That tactic held off public access to the email for a time.

In December, the Christie administration claimed it did not have records in response to a request from the Record of Bergen, N.J. The emails became public later, only after the officials were subpoenaed by the state Assembly.

If you have gotten emails from the private account of an official in the governor’s office or other state or city agencies, email me at [email protected]



Sensex, Nifty fails to move higher: Monday closing report

Nifty has to close above 6,715 to regain strength

On Monday the Indian indices opened higher and then managed to move up till around 1.30pm. After that, both the benchmark started giving up gains and closed marginally higher than Friday’s close.

S&P BSE 30-share Sensex opened at 22,413 while NSE 50-share Nifty opened at 6,682. Sensex hit a low of 22,354 while the Nifty hit low of 6,680. Sensex, however, moved lower after hitting a high of 22,592 and closed at 22,445 (up 41 points or 0.18%). Nifty hit a high of 6,741 and closed at 6,699 (up 5 points or 0.07%). The NSE recorded a volume of 64.16 crore shares.

Among the other indices on the NSE, the top five gainers were Metal (1.35%), Energy (1.22%), CPSE (0.93%), PSU Bank (0.71%) and Commodities (0.70%). The top five losers were IT (1.03%), Pharma (0.96%), Media (0.89%), Realty (0.75%) and Service (0.68%).

Of the 50 stocks on the Nifty, 25 ended in the green. The top five gainers were Hindalco (5.13%), Jindal Steel (2.01%), Tata Steel (1.77%), Reliance Industries (1.76%) and ONGC (1.73%). The top five losers were HCL Technologies (3.21%), HDFC (2.64%), Cipla (2.23%), Tata Power (1.93%) and NMDC (1.84%).

Of the 1,544 companies on the NSE, 619 companies closed in the green, 855 companies closed in the red while 70 companies closed flat.

Nearly a year after it blocked India's $5 billion deal to take stake in Kashagan oilfield, Kazakhstan has offered ONGC Videsh Ltd (OVL) a stake in a medium sized Abai oil block in the Caspian Sea. OVL, the overseas arm of ONGC, has been offered 25% interest in the Abai block, which according to Kazakhstan government had an estimated 2.8 billion barrels of oil reserves. ONGC was among the top two gainers in Sensex 30 pack.

Cipla was among the top two losers in the Sensex. Cipla has said that "essential" medicines be made available to people at affordable rates.

Century Textiles revenue and operating profit were up for March 2014 quarter over the year ago period. The company declared a full year dividend of Rs5.50 per share or 55%. In the previous year the same amount was paid as dividend. The stock was the top gainer in ‘A’ group on the BSE.

Financial Technologies has informed BSE that the board met on 2 May 2014 and took note on the progress on the divestment of 24% stake in MCX, since the last Board meeting held on 25 April 2014. The Board was to deliberate on the final bidder at Board Meeting held on 2 May 2014. However, in the light of developments of MCX releasing executive summary of the Report of special audit conducted by PwC, some of the bidders have requested for the full report and also further information about MCX. Their request has been sent to MCX by the investment bankers. In view of this, the bidders have not submitted binding bids. Accordingly, the Board has decided to meet again on 10 May 2014 to review the progress on the divestment of 24% stake in MCX. Financial Technologies, top loser in ‘A’ group on the BSE, fell 4.99% to close at Rs285.70 on the BSE.

US indices closed lower on Friday. The labor market shifted into a higher gear in April with payroll gains showing the most widespread advance in two years, a sign the US economic expansion is on the verge of speeding up. The 288,000 increase in employment marked the biggest upside surprise since February 2012 and followed a 203,000 rise the prior month, Labor Department figures showed in Washington. An index measuring the share of industries hiring climbed to 67, the highest level since January 2012. The jobless rate dropped to 6.3%, the lowest since September 2008.

Except for Shanghai Composite (0.05%), Jakarta Composite (0.08%) and Taiwan Weighted (0.04%) all the other Asian indices closed in the negative. Hang Seng (1.28%) was the top loser.

European indices were showing mixed performance while US Futures were trading lower.


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