BankThink

Smart phones have not only changed the way we communicate with one another, they have also transformed the business landscape, connecting members with online resources from the palm of their hand.

Like the nuclear meltdown that devastated Japan a year ago, America's financial crisis resulted in part from collusion between the regulators in the capital and the regulated in the executive suites. Unlike the Japanese, we didn't learn from our calamity.

Many financial product innovations sound brilliant, but are prone to blow up after 5 or 15 years of increasing emulation and bloat, as discipline declines. Then, after the horses are long gone, Washington thinks about painting the barn. Some of that happened with inventive mortgages and their securitization, with collateral default swaps, with overinvestment in commercial real estate, and — some would allege — with money market funds.

IMGCAP(1)]

Many private-equity firms hoped to capitalize on the financial crisis through two waves of bank investments. The first, in 2007-8, focused on large investments in major banks. These disappointing investments were too early as industry conditions worsened dragging down these investments.

Receiving Wide Coverage ...B of A’s Side Deal: Bank of America has pledged to make bigger cuts to borrowers’ mortgage balances than the other servicers in the $25 billion robo-settlement, the papers report. In return, federal and state officials agreed to reduce B of A’s fines under the pact. The Journal notes there is likely to be some controversy about this side deal because, like the broader settlement, it allows B of A to reduce principal on loans it services for others but doesn’t own. An anonymouse from the Obama administration assures the paper that “principal reductions will be done only when there is a benefit to investors, meaning that the cost of the principal reduction will be less over time than taking the loan through foreclosure.” A Journal reader responds in the comment thread: “We shall see.” Of course, as we’ve said before, all of this information is as reliable as hearsay until the settlement documents are made public. Both the Journal and the Times say the legal papers could finally be filed today — nearly a month after the press conference fanfare. Also coming as soon as today is a report from HUD’s inspector general, which anonymice tell the Times “is likely to find a broad pattern of mistakes, and … could ignite fresh outrage toward the banks.” Meanwhile the Post analyzes the various housing policy changes the administration has announced in recent months and finds the White House has softened its stance against providing relief to those who didn’t “deserve” it — i.e. speculators and people who took on too much debt. Administration officials “have concluded that it is important to prevent homes from going into foreclosure whether owned by an investor or a family — because rising foreclosures of any kind hurt communities,” the Post says. Maybe the president’s advisers dusted off one of their Ivy League economics textbooks and brushed up on “negative externality,” a concept that’s at least as powerful as moral hazard. Or maybe they visited a forlorn neighborhood in Florida or Nevada. Or just studied the poll numbers. Like Clint Eastwood says in “Unforgiven,” “deserve’s got nothing to do with it.” Also in the Times, “BreakingViews” defends Ed DeMarco, the head of the Federal Housing Finance Agency, who’s been criticized for resisting principal reductions. Other types of loan modifications often work just as well, without producing as big a loss for Fannie and Freddie, the column says. “Critics are also ignoring DeMarco’s mandate to minimize losses from bailing out the two mortgage agencies. By attacking him, they are trying to force him to put struggling homeowners’ needs ahead of all taxpayers.” Wall Street Journal, New York Times, Washington Post

Suddenly, it seems like almost everyone is offering a mobile wallet. Major issuers, telco consortiums, search engines and other third-party intermediaries are clamoring for attention.

Most reasonably intelligent readers are finally willing to admit the financial crisis was neither an unpredictable, uncontrollable, once in a blue-moon "black swan" event nor the result of a conspiracy by shadow bankers who've implemented a new world order while flying from Manhattan to Islip in black helicopters.

Receiving Wide Coverage ...Pandit on the Pulpit: In a speech at an investor conference yesterday Citigroup CEO Vikram Pandit played the goody two shoes, defending much of the Dodd-Frank regulatory reform law that his peers have complained about. For some time, “Pandit has struck a more humble tone than his competitors, perhaps because his bank relied so heavily on taxpayers to stay afloat at the height of the financial crisis,” the Times notes. In a separate Times article, columnist Peter Eavis politely calls Pandit’s bluff on transparency. The CEO reiterated his call for regulators to require new disclosures from banks that would help investors make apples-to-apples comparisons. “That’s an admirable aim, but Citigroup could start by catching up with other big banks and releasing how much capital it has supporting its investment banking unit” as JPMorgan does, Eavis writes. To be fair, he notes that the figure at JPM “has been at $40 billion exactly for several quarters, raising questions about the number’s usefulness.” Meanwhile, FT columnist Robert Shrimsley makes light of Citi’s deal to use IBM’s Watson supercomputer. Among the questions raised by this arrangement, he writes, “will be whether Watson is executing unauthorised trades and covering them up thanks to its personal relationship with the database server at the Federal Reserve — the two were Intel chips together when young.”

There are several factors that Bank of America's managers must have known when they recently started testing a new fee schedule for consumers.