PEB

A Primer on a Chrysler Bankruptcy

From the NY Times

Chrysler is the first major automaker since Studebaker in 1933 to file for bankruptcy and try to reorganize. The process can be complicated. Here is a quick look at how it is likely to play out.

Paul Volcker said the global economic slump is one of the worst in history.

Bloomberg reports.

“The U.S., along with the rest of the world, is in the midst of a great recession,” Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said today at a conference in Washington. Volcker served as head of the central bank from 1979 to 1987.

“Markets remain uncertain, unsteady and dysfunctional despite trillions of dollars of official support for banks and other financial institutions,” Volcker said.

Volcker said the new regulations needed to prevent another financial crisis would not amount to “a resurrection of Glass- Steagall,” the Great Depression era legislation that separated commercial and investment banking activities. Still, he said the 1999 Gramm-Leach-Bliley Act, which removed many banking barriers, might have to be rewritten.

Volcker said banks should be prohibited from sponsoring hedge funds or equity funds.

“The relatively recent participation in capital markets has contributed for some institutions to an unfortunate lack of focus on core banking functions,” he said.

He also advocated keeping banks small. “If we could have less concentration and large institutions are not quite so large, it would be a good idea,” he said.

IMF puts financial losses at $4,100bn

The deteriorating global economy means financial institutions now face total losses of $4,100bn on loans and other assets, the International Monetary Fund said on Tuesday, urging governments to take “bolder steps” to shore up institutions – including nationalising them where necessary.

The IMF said in its Global Financial Stability Report that many loans sitting on institutions’ balance sheets were eroding in value, not just the toxic sub-prime securities which first triggered the crisis.

Losses at $4,100bn

Krugman on Boring Banking

Paul Krugman in The NY Times

After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. By the middle of this decade, it accounted for a third of corporate profits.

As these changes took place, finance again became a high-paying career — spectacularly high-paying for those who built new financial empires. Indeed, soaring incomes in finance played a large role in creating America’s second Gilded Age.

Ex-Chairman of GMAC Financial Services/Madoff

New York's attorney general filed civil fraud charges Monday against a hedge fund manager accused of funneling $2.4 billion to Wall Street swindler Bernard Madoff without telling clients where their money was going.

The complaint accuses J. Ezra Merkin, the former chairman of GMAC Financial Services, of concealing his links to Madoff and lying to investors about what he was doing with their money, telling most he was personally investing their cash in things like distressed debt.

Over the years, Merkin collected $470 million in fees and performance bonuses from his clients, the suit said. Many of those customers, which included several large charities and colleges, had no idea where their money really was until December, when Madoff was arrested.

GMAC Fin Services Chief - Ezra Merkin