Masters of the Universe category archive

Bryan Gould, writing in the Guardian, skewers the banksters’ bonus culture.

The absurdity of the whole “pay for performance” nonsense is the masters of the universe continued to be get their “bonuses for performance” even as the recipients companies have gone down in flames.

It was never about company performance. It was about accumulation of personal wealth.

The supposed need to pay a top executive 100 times the income of his skilled employees is a self-serving nonsense produced by a small charmed circle who claim the right to set their own (and their mates’) pay rates. But the bonus culture which seems to have emerged unscathed from the recession is objectionable, not just because it produces scandalous inequities in terms of total remuneration, but because it is seriously deficient as a means of producing better economic performance.

To review the evidence, read the whole thing.

A continuing series of mastery of the universe.

First Bank of Kansas City, Kansas City, Missouri

Vantus Bank, Sioux City, Iowa

InBank, Oak Forest, Illinois

Platinum Community Bank, Rolling Meadows, Illinois

And they haven’t even made it to the Mountain Time Zone yet.

(The next morning)

Now they have:

First State Bank, Flagstaff, Arizona

I’ve been staring at this story since yesterday.

The tale of fiduciary failure is really quite amazing. I guess the moral is, “Don’t trust salespersons, especially if they are wearing power ties.”

Go read it.

After all, Friday is commonly the day when banks bite the dust. That gives the FDIC and the receiving bank, if any, the weekend to allow the dust to settle.

The U.S. added 111 lenders to its list of “problem banks,” a jump that suggests rising bank failures may force the Federal Deposit Insurance Corp. to deplete a reserve fund that shrank 40 percent this year.

A total of 416 banks with combined assets of $299.8 billion failed the FDIC’s grading system for asset quality, liquidity and earnings in the second quarter, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.

We’ve gone from MBA’s to MBE’s–Masters of Business Embalming.

Securitization returns to the Street. And people are still willing to buy this stuff.

One down. So far.

ebank, Atlanta, Georgia

Like flies:

CapitalSouth Bank, Birmingham, Alabama

First Coweta Bank, Newnan, Georgia

The hits just keep coming.

Guaranty Bank, Austin, Texas

Afterthought: The FDIC has a great website. It reloads faster than any other website I regularly visit. Then, again, with all the failures, it has to.

Christopher Swann considers pay in the banking industry and finds it grossly overblown.

That does not surprise. But he goes on to demolish the arguments the banksters use to claim that they are somehow different and deserve to be overpaid. A nugget:

Nor, Woolley (Paul Woolley, an academic at the London School of Economics–ed.) argues, do the activities of the financial sector add as much value as they claim. The boast, for example, that financiers funnel savings to their most productive use is overdone. As fund managers compete to beat the market they are often forced to follow trends. This momentum trading causes an over-allocation of capital to frothy sectors — as seen during the Internet bubble.

Aside: If they were as smart as they claim to be, they wouldn’t keep blowing all those bubbles, now, would they?

’nuff said:

“The banks have lost their money in bad loans,” Mr Sanusi told reporters in Lagos. “We have questions about the management, so we have put in new management.”

(No, I’m not advocating instituting the Nigerian form of government in the United States, but a little accountability for incompetence would be nice.)

I missed the unemployment figures because I had somewhere to go and something to do (no, it was not remunerative). Atrios caught them here.

Lots of dust getting bitten today. This is a big one:

Colonial Bank, Montgomery, Alabama.

Bloomberg has more:

Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest bank failure since Washington Mutual Inc. collapsed last year.

Branches and deposits of Colonial, Alabama’s second-largest bank, were turned over to Winston-Salem, North Carolina-based BB&T in a deal brokered by the Federal Deposit Insurance Corp., the regulator said today. The failure of Montgomery-based Colonial followed a Florida expansion that saddled the lender with more than $1.7 billion in soured real-estate loans.

BB&T pretty much stayed out of the real estate orgy, concentrating on, like, banking.

Biting more dust:

Dwelling House Savings and Loan Association, Pittsburgh, Pennsylvania

Betcha without mark to market, they could still claim they were solvent.

Aside: A friend of mine was telling me about a friend of hers in Florida whose house was foreclosed a couple of years ago. Her friend had a 30-year straight mortgage. As the real estate bubble expanded, the assessment went up. As the assessment went up, the real estate taxes increased, upping the annual escrow amount that was added to the monthly mortgage payment. The PITI payment eventually became so large that the homeowner, who could still afford the PI, could no longer afford the PITI. She now lives in Rhode Island and has a foreclosure on her credit record.

And thus the innocent are punished.

Addendum:

More blanked banks:

Community Bank of Nevada, Las Vegas, Nevada

Community Bank of Arizona, Phoenix, Arizona

Union Bank, National Association, Gilbert, Arizona

Bank exec decries “mark to market.”

What “mark to market means” is valuing assets based on what they are worth (the market value) rather than based on what the financial outfit which owns them wishes they were worth. Since Reago-Bushonomics was based on wishful theorizing, it’s proponents want their balance sheets based on wishful accounting.

Investors should beware the Financial Accounting Standards Board’s decision yesterday to consider expanding fair-value rules, said Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, Illinois.

“Like a horror flick monster that just won’t stay dead, FASB’s accountants are proposing to expand the application of mark-to-market accounting rules across the board to include all financial assets, including regular loans,” Wesbury said.

Gosh. Expecting them to tell the truth about what their businesses are worth is now a “horror flick monster” to bankers. There are, natch, the same bankers that ran their banks down the drain. Stuff like this is why.

“The truth shall set you free” becomes now “the lie shall set your fee.”

Words fail me.

I got busy over at LQ last night and forgot to check who you can no longer bank on.

Community First Bank, Prineville, Oregon

Community National Bank of Sarasota County, Venice, Florida

First State Bank, Sarasota, Florida

Pay for performance my anatomy. This is nothing more than getting incentive pay for showing up.

“When the banks did well, their employees were paid well,” Cuomo said in the report. “When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well.”

Follow the link for the gory details.

H/T Karen for the link.

Pay for performance at work, Wall Street Edition:

That people would intentionally default on loans they never should have gotten in the first place took lenders by surprise. “I’m astonished that people would walk away from their homes,” Bank of America chief executive Kenneth Lewis said in late 2007.

As I have discussed before, a basic tenet of Wall Street in recent years has been borrowing your way to wealth.

It is not called “borrowing,” natch, it’s called “leverage.”

Buy something.

Borrow against it.

Buy something else.

Borrow against it.

And so on, until you “own” lots of stuff.

This works just fine as long as you can keep borrowing. The thing is, it doesn’t “create” anything, except the appearance of money as it flies by from one debt to another. It looks like wealth because, as the money flies by from debt to bigger debt to even bigger debt, the amount of flying money gets larger. But nothing is being created.

This works fine until you can’t borrow any more. Then it all goes, you will pardon the epression, “crash.”

Well, the Brits didn’t particularly like it when Americans used that practice to ruin the finances of the Liverpool football club:

Fans partied in the streets with Tom Hicks and George Gillett Jr. in 2007 when the Americans attended one of their first matches as owners of Liverpool Football Club. A year later, Gillett was getting death threats.

Liverpudlians turned on the men for breaking what supporters saw as a promise not to put the 117-year-old soccer team in hock. They complained the pair borrowed so much that interest payments ate up the cash needed to restore “the Reds” to glory. The owners have been negotiating with Royal Bank of Scotland Group Plc and Wachovia Corp. to renew a 350.5 million- pound ($578 million) credit line before it expires today.

The concept of “leverage” is a fancy word for legal Ponzi scheme.

Today’s question: Are there any banks left in Georgia?

Security Bank of Jones County, Gray, Georgia

Security Bank of Houston County, Perry, Georgia

Security Bank of Bibb County, Macon, Georgia

Security Bank of North Metro, Woodstock, Georgia

Security Bank of North Fulton, Alpharetta, Georgia

Security Bank of Gwinnett County, Suwanee, Georgia

Waterford Village Bank, Williamsville, New York

That was a trick question, of course. All those “Security Banks” were tendrils of the same vine.

Just for grins and giggles, here is Security Bank’s new website.

The Sarasota, Florida, Herald-Tribune flips over the rocks and finds night creatures running for cover.

The year-long investigation found that more than 50,000 Florida properties flipped under suspicious circumstances from 2000 through 2008. Those flips artificially drove up housing prices and tax bills and contributed to the crush of foreclosures that has gutted the real estate market.

The fee hand of the market at work.

One more time, the flaw in the thinking of the idolaters of wealth is the belief that wealth means virtue and that the wealthy are therefore ipso facto virtuous.

Via Atrios.

From Steve at ASZ:

Remember the scandal when AIG executives attended a retreat at the luxury resort St. Regis Monarch Beach last October? They spent hundreds of thousands of dollars to entertain executives who had helped run the company into the ground, and taxpayers who helped bail out AIG were upset. Now the irony. CitiGroup, also a troubled company that accepted bailout dollars, has foreclosed on St. Regis Monarch Beach.

For quite a while, Wall Street has been patting itself on the back for “creating wealth” by devising “new financial products.”

More accurately, they have been repainting the shells in the same old shell games and touting them as something new. Their motto has not been “innovation.” It has been, “There’s one born every minute.”

Paul Krugman on Goldman Sachs:

Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.

And Wall Streeters have every incentive to keep playing that kind of game.

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

When it’s gone:

As of June 30, nearly 1.53 million U.S. properties were subject to a default notice, auction-sale notice, or bank repossession, RealtyTrac reported.

Nearly 1.2% of all U.S. housing units — 1 in 84 — were subject to a foreclosure filing in the first half, RealtyTrac reported.

Despite an industrywide moratorium on foreclosures earlier this year plus legislative action and more efforts by lenders to modify the terms of mortgages, “foreclosure activity continues to increase to record levels,” RealtyTrac Chief Executive James J. Saccacio said in a statement.

People who’ve lost jobs “account for much” of the increase, and borrowers who owe more on their mortgages than their homes are worth represent a significant risk going forward, he said.

Via Susie.