Welcome to Banking Update, a roundup of articles and news from around the internet.
The FDIC settles a civil lawsuit against Washington Mutual executives for a fraction of the $900 million originally sought. Virtually none of the settlement money came from the three WAMU executives but rather from insurance policies covering professional misconduct. The three WAMU executives, who collected $95 million in pay before the bank failed, were accused by the FDIC of “reckless disregard for WAMU’s longer-term safety and soundness”. The three WAMU executives in turn said that the FDIC and federal regulators who constantly audited WAMU were aware of the bank’s lending policies and practices.
The Federal Housing Administration (FHA) belatedly raises credit standards for borrowers. At the height of the housing boom in 2007, a total of 45% of all borrowers given FHA loans had subprime credit scores below 620. During 2011, total lending to borrowers with credit scores under 620 declined to only 3% of FHA borrowers. Not surprisingly, a significant number of the vintage 2007 mortgages wound up defaulting.
Is the recession morphing into a full blown depression? According to economist Paul Krugman, “It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.” Krugman also sees a bleak future based on the trend towards austerity by overly indebted nations, calling it a failed economic policy which will crush economic growth and ensure a long term depression throughout Europe.
Can we inflate our way to prosperity? Paul Krugman argues that “under depression conditions — which is what we have now — inflation is very much a positive thing.”
Exactly how many trillions of dollars in secret loans were made by the Fed to the banking industry? The Econbrowser argues that the actual amount lent to the banking industry was far less than the $7.7 trillion cited in a Bloomberg story.
Did Fed Chairman Bernanke mislead Congress? The real total of the Fed’s bailout of Wall Street may actually have been $29 trillion.
Martin Weiss asserts that the danger of systemic financial collapse is “far greater today that at almost any time since the debt crisis began.”
Met Life, ranked 12th in mortgage originations, has decided to get out of the mortgage business due to regulatory burdens, high risks and low rewards. However, finding someone to buy their mortgage business is proving to be difficult.
Is the European financial system “heading for an implosion of historic proportions?”
Greece has been experiencing a slow motion run on the banks for months. Over the weekend, panicked depositors in another European country rushed to withdraw their money from the banks.
European banks are in a desperate effort to raise additional cash.
Feds say there is nothing they can do to criminally prosecute wrong doings by financial executives.
Banks refuse to lend – how the European banking crisis is adversely impacting the U.S. economy.
Inspector General goes after Fannie Mae and Freddie Mac.
Large exposure to derivatives by European banks put entire financial system at risk.
Another huge loss for the banking industry as big banks face a $25 billion charge related to bad mortgages.
That’s it for today – have a great evening.