Standard Chartered Agrees To $340 Million Fine From NYS Regulator

Federal and state regulations prohibit certain kinds of conduct by banks. That includes money laundering and dealing with Iran. Standard Chartered violated both ends of that - they not only engaged in money laundering deals with Iran, but lied to regulators and sought to cover up their activities.

Benjamin M. Lawsky, New York Superintendent of Financial Services, claimed that Standard Chartered engaged in $250 billion of money laundering. There was much hand wringing, including from federal regulators who didn't necessarily like the idea of the state regulator jumping on Standard Chartered.

The bank steadfastly refused and rejected the claims.

That is, right up until the moment that the bank agreed to settle the case with New York for a civil fine of $340 million.

In addition to the civil penalty, Lawsky said the bank agreed to an outside monitor for at least two years to check on controls on money-laundering at its New York branch.

Lawsky's aggressive stance heightened his public profile just months after the Department of Financial Services, the agency he heads, was created out of the state's banking and insurance regulators.

Within minutes of the announcement, New York Governor Andrew Cuomo lauded the "effectiveness and leadership" of the new agency.

"New York needed a tough and fair regulator for the banking and insurance industries to protect consumers and investors," Cuomo said.

But Lawsky has also drawn fire by jumping ahead of a two-year probe into Standard Chartered by the U.S. Treasury, the Federal Reserve, the Justice Department, and New York prosecutors.

"It's very unfortunate this wasn't done as a global state and federal settlement," said Ed Wilson, a former senior attorney at the U.S. Treasury Department.

As negotiations with Lawsky progressed last week and this week, the bank held separate talks with other authorities. It had hoped to land a deal on both fronts, but Lawsky's solo announcement Tuesday made clear that had not happened.

Underscoring a continuing divide with Lawsky, the other authorities issued short statements saying they would continue to work together.

"Treasury will continue working with our state and federal partners to hold Standard Chartered accountable for any sanctionable activity that may have occurred," the Treasury Department said.

Lawsky says that the bank agreed that the conduct at issue involved transactions of at least $250 billion, even if the bank claims that it amounted to $14 million.

In his announcement on Tuesday, Lawsky said the bank had "agreed that the conduct at issue involved transactions of at least $250 billion." But he gave no details on what protections the deal gave Standard Chartered.

Standard Chartered believes that it limited its liability further by entering the deal, but what I'd like to know is where all this money is going to go. The money is being collected by the NYS DFS, and that potentially represents a windfall to the state. I'd like to see an accounting of these funds.

At the same time, there's still the potential for the Treasury Department to impose its own penalties against the bank. That could result in a comparable sum but it also highlights that banking and financial regulators have a long way to go before they can claim to have gotten these kinds of transactions to stop.

The Student Loan Debacle Just Got Even Messier

The fight over interest rates on Stafford loans is a sideshow. The rate was temporarily reduced to 3.4%, and Congress was looking to extend that rate and had to find alternative places to cut funding to offset the federal subsidy.

Never mind that banks themselves are making money hand over fist on student loans - both on origination fees and the interest they charge. The federal government set subsidy levels.

Now, as part of a one-year extension on those 3.4% rates, students looking to get loans on advanced degrees will find that they can no longer obtain Stafford loans and will have to see much more expensive private student loans.

Even as Congress moves to prevent undergraduate student loan rates from doubling, lawmakers have decided to eliminate two federal subsidies that will increase the cost of higher education.

One would hit the same college students who are benefiting from the interest rate freeze. Though their rates will be only 3.4 percent, they will be responsible for paying that interest as soon as they throw their graduation caps in the air — a change that is expected to cost them more than $2 billion.

Meanwhile, students hoping to earn the advanced degrees that have become mandatory for many white-collar jobs will no longer be eligible for federally subsidized loans. That means graduate students are facing an $18 billion increase in interest rate payments over the next decade, about three times the amount at stake in the debate over undergrad interest rates.

Both measures will take effect Sunday.

That means that the overall interest load for those students seeking advanced degrees will increase far more than the Stafford loan deal could potentially save.

It also highlights the failure of the entire student loan system.

The current interest rate being charged is vastly inflated regardless of whether you're talking about the Stafford loans or private loans. It's a profit center, and the banks don't want to do anything to change that. Neither does Congress, which has set in motion this mess.

The solution would be to free the student loans from the current system and let the rate float at a set number of points above the 10 year treasury note. So, if the banks want to charge 3 points above the 10 year bill, that would mean a rate of 4.66% based on the current trading level. Congress could set a cap, so as to limit any spike that would limit access to higher education, and any time the interest rate on the 10 year Treasury plus the points exceeded that level, Congress would step in with a subsidy, but the current setup is a mess.

Further exacerbating the mess is that students cannot refinance their student loans to take advantage of lower interest rates. Consolidation doesn't allow refinancing at a lower rate - only averaging the rates currently imposed across the student's loans. That too should change, allowing students to free up their debt burden by converting higher interest loans into lower cost loans that enable them to not only pay their student loans in a timely fashion, but frees up income to afford other expenses, including starting families, buying cars or homes, or starting up a business.

Are We Overstating the Problems At JP Morgan Chase?

When you take the topline figure that JP Morgan Chase lost $2 billion on a bad hedge position that presented undue risk to the bank, that looks like tremendously bad news. Even the Justice Department is opening investigations into the circumstances behind the loss. The investigation centers on whether the bank was hedging risk or seeking to profit from risky trades (and semantics is what this is all about - there's no hard and fast rule to work with here).

Yet, the bank is still expected to make $4 billion for the quarter.

Let that bit sink in.

The overall health of the bank remains strong, even with the additional losses, and JPMorgan has been able to increase its stock dividend faster than its rivals because of stronger earnings and a more solid capital buffer.

Still, the huge trading losses rocked Wall Street and reignited the debate over how tightly giant financial institutions should be regulated. Bank analysts say that while the bank’s stability is not threatened, if the losses continue to mount, the outlook for the bank’s dividend will grow uncertain.

The bank’s leadership has discussed the impact of the losses on future earnings, although a dividend cut remains highly unlikely for now. In March, the company raised the quarterly dividend by 5 cents, to 30 cents, which will cost the bank about $190 million more this quarter.

A spokeswoman for the bank said a dividend cut has not been discussed internally.

At the bank’s annual meeting in Tampa, Fla., on Tuesday, Mr. Dimon did not definitively rule out cutting the dividend, although he said that he “hoped” it would not be cut.

John Lackey, a shareholder from Richmond, Va., who attended the meeting precisely to ask about the dividend, was not reassured. “That wasn’t a very clear answer,” he said of Mr. Dimon’s response. “I expect that shareholders are going to suffer because of this.”

Analysts expect the bank to earn $4 billion in the second quarter, factoring in the original estimated loss of $2 billion. Even if the additional trading losses were to double, the bank could still earn a profit of $2 billion.

And many analysts and investors remain optimistic about the bank’s long-term prospects.

There are serious concerns as to how and why the bank was able to establish this hedge position and took on more risk than it might otherwise should have.

Yet, the loss - and the resulting hit on the share price - might actually benefit Chase shareholders in the long term because of the decision in March to expand the company's stock buyback program:

The bank is authorized to buy back up to $12 billion in 2012 and another $3 billion through the end of the first quarter of 2013. It expects to buy back at least the same amount of shares it issues for employee stock-based incentive awards.

Dimon said the company intends to repurchase equity only when it is generating more capital than it needs to fund organic growth and when it thinks the investment will provide “excellent value” to existing shareholders.

Corzine's Big Bets Bust Major Financial Firm; Regulators Want To Know Where Investor Money Went

One of the sacrosanct rules in finance (and law) is that you never commingle investor/client funds with your own. It's one of the few automatic ways that a lawyer can find themselves disbarred.

Yet, we're now learning that the financial firm headed up by none other than former New Jersey Jon Corzine is potentially in hot water over being incapable of accounting for hundreds of millions of dollars of investor funds after MF Global went belly up after Corzine bet big on foreign funds and lost.

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

Sloppy controls my ass. Banks and financial firms know down to the penny how much is in individual accounts and that MF Global was playing games and can't account for where all the investor money was is not just troubling, but it shows that regulators failed in basic oversight to make sure that the brokerage was playing by the rules.

How did MF Global get in this mess? Corzine bet company money on European debt - and didn't have sufficient capital to back up the bets. He did the same kind of thing at Goldman Sachs where some of those decisions went bust, but Goldman Sachs could absorb some of those losses. Here, he's dealing with a much smaller firm and by buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount, he thought he could turn around and profit if the Eurozone fixed its mess. However, it wasn't to be.

So, while the bonds may have matured in less than a year - we've repeatedly seen that failure to have proper capitalization can lay low major financial firms. MF Global was taking inordinate risk and lacked sufficient capital reserves; that's where the issue of investor money comes into play. Regulators are now poring over whether the company used those investor funds to paper over and increase the capital behind the bond bet.

The CME and other regulatory bodies are already saying that MF Global broke the rules. The question will be determining the extent of the mess.

And criminal charges should be coming down the road too. You break these kinds of rules, and you're essentially stealing from your clients in the hopes that you can make back your money. It's a losing proposition and the brokerage industry needs to know that these rules aren't to be trifled with.

What's Wrong With the Financial/Banking Industry

What's wrong with the finance industry? They're sitting on money they can't or wont lend:

Ordinarily, in a more robust environment, an influx of deposits would be used to finance new businesses, expansion plans and home purchases. But in today’s fragile economy, the bulk of the new money is doing little to spur growth. Of the $41.8 billion of deposits that Wells Fargo collected in the third quarter, for example, only about $8.2 billion was earmarked to finance new loans.

Normally, banks earn healthy profits by taking in deposits and then investing them or lending them out at substantially higher interest rates than what they pay savers. But that traditional banking model has broken down.

Today, banks are paying savers almost nothing for their deposits. As it turns out, the banks are not minting money on those piles of cash. Lending levels have not bounced back from only a few years ago and the loans going out are not keeping pace with the deposits rushing in.

What’s more, the profitability of each new loan has shrunk. Because the Federal Reserve effectively sets the floor off which banks price their lending rates, its decision to lower interest rates to near zero means the banks earn less money on the deposits they lend out.

The banks are also earning less on the deposits left over to invest. They typically park that money overnight at the Fed for a pittance, or invest it in ultra-safe securities, like bonds backed by the government. But with interest rates so low, the yields on those investments have been crushed.

In other words, what bankers call the spread is being squeezed — they are making less money on each dollar they hold. “It’s very hard for us to take deposits and make any meaningful spread,” said William D. Parent, Hyde Park’s chief executive.

Yet, they're sitting on piles of cash and aren't lending (because the demand isn't there, or aren't particularly qualified, or a combination of other economic factors).

With the banks sitting on so much cash, they should be opening the doors to new investments via loans, but that hasn't happened. That's a big problem. The banks are still worried about risk on loans so what do they do instead? They're pushing more fees on people putting money in the banks - hoping that will spur what exactly? Oh wait - it ups the bottom line, when they need to be spurring investment and getting the ball rolling again.

The Obama Administration Tweaks Its HARP

The Obama Administration is touting a new program to deal with the ongoing real estate mess, but in reality, it's a repackaging and tweaking of an older set of programs that didn't get the job done.

I've written about the Home Affordable Refinance Program (HARP) program in the past, and we actually refinanced under this program through our lender. JP Morgan Chase sent us the information via FedEx noting that this was a limited time refinancing option and that we could refinance with no strings attached and for limited costs.

The program itself is pretty straight forward if you meet the qualifications. You have to be current on your mortgage and have shown an ability to repay your loans. There's little in the way of paperwork - and is primarily done through your existing lender as long as your mortgage is owned by Freddie Mac or Fannie Mae.

The program was meant to help 5 million homeowners, but to date it's helped about 890,000 homeowners. The Administration hopes that tweaking the loan-to-value limits will enable more homeowners to take advantage of refinancing into lower rates or more stable mortgage products that would allow the homeowner to spend more on other things.

While I continue spending money on doing all kinds of projects around the house, the refinancing has meant that I can now pay off the loan faster (lower piti but paying the same as previously). It gave me a cushion to work with in case I need to curtail spending elsewhere or need emergency funds.

Short Sales Increase As Sign that Real Estate Market May Be Improving

Some real estate indicators are showing that short sales are picking up as banks try to avoid foreclosures.

The transactions, known as short sales, typically change hands at a discount of about 20 percent to homes not in financial distress, compared with a 40 percent price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19 percent in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.

"Banks have become much more supportive of short sales," said Peltier, whose Minneapolis-based company is a unit of Warren Buffett's Berkshire Hathaway Inc. "That's better for the lenders, who have smaller losses on a short sale, and it's going to be better for homeowners, who won't have as much psychological distress as a foreclosure."

Distressed sales brokered by HomeServices used to be 60 percent foreclosures and 40 percent short sales, Peltier said in an interview at Bloomberg headquarters in New York. Now, that ratio has flipped, according to the CEO, whose company is second in size to NRT LLC, a unit of Realogy Corp. in Parsippany that has about 700 offices under the Coldwell Banker brand.

"There's a huge backlog of homes in default that the banks want to get rid of," said Thomas Popik, research director for Campbell Surveys in Washington, D.C. "They don't want to be homeowners."

Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors. While short sales were flat compared with a year earlier, the trade group's count only includes deals completed with a broker, and short sales often are handled directly with lenders.

Banks are not only approving more short sales, they're doing it in less time. In the second quarter, short-sale homes, also known as pre-foreclosures, sold an average of 245 days after default, down from 256 days in the previous period, according to Irvine, Calif.-based RealtyTrac. That reversed three straight quarters of increases.

The time frame remains a lot longer than traditional sales. In a normal transaction, a buyer bids on a home and gets a decision from its owners within days, if not hours. Getting a bank response to a short-sale offer can take two months or more.

"No matter how streamlined a short sale may be, it's always going to be a frustrating experience," Popik said. "Too many people are involved — investors, servicers, owners, real estate brokers, mortgage insurance companies."

Half of troubled mortgages have so-called second liens, such as home equity lines of credit, according to the Treasury Department, so there may be two mortgage holders with a stake in a short sale. If the property has mortgage insurance, that company may be involved in the negotiations as well.

Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values, according to Popik. Prices for distressed homes often are used by appraisers to gauge surrounding values, even if the nearby homes aren't in default. Also, owners who voluntarily give up their homes tend to leave them in better shape than people who are evicted, reducing costs for banks, he said.

You take the good news where you can get it. Short sales are preferred over foreclosures since the banks avoid having to take ownership of real estate. It means the banks take a loss, but it's less of a loss than it would take if the property goes into foreclosure and the bank has to sell it at an even greater loss.

For buyers, the short sales are a gold mine since they can get a property at a reasonable price compared to other properties, and banks avoid the headaches of foreclosure. Sellers are more likely to leave the property in better shape and aren't being forced from the property. However, it takes a mindset change by the banks to accept a 20% loss rather than a 40% or more loss if allowed to go into foreclosure. Neighboring properties also benefit from the short sales since they don't adversely affect comparable pricing nearly as much as foreclosed properties - and they don't have the chance to become an eyesore as foreclosed properties often do.

Yet, the short sale process is far more lengthy due to the complicated arrangements involved, including dealing with secondary mortgages or other liens against the property. Streamlining that process could alleviate the problems and increase the chances that a bank would take a short sale over pushing a foreclosure process that benefits no one.

Massive Iranian Bank Scandal Threatens To Take Down Ahmadinejad?

Karma's a bitch. Mahmoud Ahmadinejad, the President of Iran, is threatened by a huge banking scandal in Iran where he's alleged to have been in on a $2.5 billion dollar bank scam.

The largest case of bank fraud in Iranian history is threatening to engulf President Mahmoud Ahmadinejad after a parliamentary commission decided to investigate his office for possible connections to the crime, Iranian state media has reported.

To add insult to injury, Islamist hard-line legislators loyal to Iran's Supreme Leader, the Ayatollah Sayyed Ali Khamenei, subsequently sent the commission a letter requesting specifically that Ahmadinejad be included in the investigation. They have since said they would not follow up on the letter out of respect for Khamenei.

It is one move of many by Islamists to link the president to the alleged embezzlement of 30 trillion Iranian rials -- more than $2.5 billion.

To frame the extent of allegations in U.S. terms: It would be akin to religious conservative legislators attempting to implicate a sitting American president in the infamous Madoff Ponzi scheme, in which disgraced financier Bernie Madoff cheated investors out of $50 billion.

Ahmadinejad has vehemently rejected accusations that anyone in his government is linked to what is currently the highest-profile crime in the country, according to the semi-official Mehr News Agency.

Ahmadinejad and the Islamist hardliners within the mullahs have been at each other since before the disputed elections resulted in massive protests and a violent crackdown against the opposition led by Mirhussin Mousavi. Candidates in Iranian elections are vetted and approved by the religious council - the mullahs - so the crackdown was seen as a schism among the mullahs or a potential power grab by Ahmadinejad. That political and religious tension continues and this latest scandal is an outgrowth of that earlier mess.

Does this have legs? Well, a $2.5 billion bank scandal is nothing to be trifled with - not when most Iranians live in deplorable living conditions and wonder where all the oil wealth has gone.

Ahmadinejad's close economic advisers are tied to the case:

The main suspect in the case has ties to the Iranian president's chief adviser, Esfandiar Rahim Mashaei, who used his influence in a bank business deal for the accused man, Amir Mansoor Khosravi.

Khosravi had opened a private bank known as the Bank Arya. Getting a license is usually difficult, but Mashaei used his political pull to help pave the way, said economist Dr. Behrooz Hady Zonooz from Tehran.

Add close family ties, and tribal-style alliances, and you've got grounds for collusion, back-room deals, and opportunities for fraud on a massive scale.

The scams involve a greater percentage of Iranian GDP than even the Madoff Ponzi scheme ($50 billion) - and has the potential to take down some of Iran's largest and most prestigious banks.

Iran's New York Nuclear Connection

The NY Daily News has learned that the Iranian nuclear program was getting aid and support through various New York banking transactions used by Chinese individuals:

The Manhattan district attorney's office has smashed a sinister plot to smuggle nuclear weapons materials to Iran through unwitting New York banks, the Daily News has learned.

Officials plan to unseal a 118-count indictment Tuesday accusing a Chinese national of setting up a handful of fake companies to hide that he was selling millions of dollars in potential nuclear materials to Tehran.

"This case will cut off a major source of supply to Iran and it shows how they are going ahead full steam to get a nuclear bomb. Long-range missiles they pretty much have already," a law enforcement source close to the case said.

"We think it is one of the largest suppliers of weapons of mass destruction to Iran."

Experts say Iran, under the leadership of President Mahmoud Ahmadinejad, appears close to amassing enough nuclear material to make an atom bomb. A United Nations embargo bans Iran from acquiring the high-tech metals needed to make a long-range nuclear weapon a reality.

The indictment will outline the financial conspiracy behind 58 different transactions, including shipments of various banned materials from China to Iran between 2006 and late 2008.

Among them:

* 33,000 pounds of a specialized aluminum alloy used almost exclusively in long-range missile production.
* 66,000 pounds of tungsten copper plate, which is used in missile guidance systems.
* 53,900 pounds of maraging steel rods, a superhard metal used in uranium enrichment and to make the casings for nuclear bombs.

The recipient is believed to have been a subsidiary of the Iranian Defense Ministry.

The suspect, who is not believed to be in the U.S., set up four bogus import-export companies that did business with six Iranian shell firms, one source said.

"They took elaborate steps to conceal the identity of the shipper and the recipient," the source said.

The deals went through "several" New York banks, which cooperated when the alleged plot was uncovered.

"The New York banks were completely unaware," the source said.

Expect those involved to claim that these are dual-use materials and that they are not meant for Iran's nuclear program, but the fact that all of these materials were involved suggests that they were for Iran's nuclear weapons program.

Iran has long sought nuclear weapons and the technologies to use them against Iran's far-flung enemies, whether it is the US, Israel, or various Muslim countries in the Middle East. Iran has been working on developing long range missiles, and has been developing enrichment technologies and built thousands of advanced centrifuges to separate and refine uranium into materials suitable for nuclear weapons.

UPDATE:
The District Attorney's office has issued a press release and the full indictment. The press release notes the following:

In June 2006, the United States Department of the Treasury, Office of Foreign Assets Control (OFAC) sanctioned LIMMT for its support of and role in the proliferation of weapons of mass destruction (WMD) to Iran. As a result of the sanctions, LIMMT was banned from engaging in transactions with or through the U.S. financial system, and remains banned to this day. Subsequently, LI FANG WEI and LIMMT used alias names and shell companies to continue LIMMT’s international business. LI FANG WEI and LIMMT’s purpose in doing so was to use fraud and deception to gain access to the U.S. financial system, to deceive U.S. and international authorities, and to continue the proliferation of banned weapons material to the Iranian military. The aliases presented above and charged in the indictment were some of the names employed by LIMMT in its fraudulent scheme.

The indictment charges that during the period from November 2006 through September 2008, LIMMT sent and received dozens of illegal payments through U.S. banks by using aliases and shell companies. Because LIMMT was banned from transacting with U.S. banks, any transfers sent in its real name would have been blocked by the U.S. banks. U.S. banks employ sophisticated anti-fraud and anti-money laundering computer systems to detect illegal payments from sanctioned entities and people. By substituting aliases in the place of its true name, LIMMT deceived U.S. banks into processing its transactions. The result was the falsification of the records of banks located in Manhattan relating to dozens of illegal transactions.

Mr. Morgenthau said, “Our banks have high standards and sophisticated systems to stop these transactions, but this conduct was specifically designed to defeat their systems.”

Mr. Morgenthau noted the parallels between this investigation and his Office’s ongoing investigation into “stripping,” as announced in the recent $350 million settlement with Lloyds TSB Bank of the United Kingdom. Like that investigation, the investigation of LI FANG WEI and LIMMT presents an example of the use of fraud and deceit to access the world’s financial systems, including banks in Manhattan.

LIMMT conducted its non-military commercial business primarily with U.S. dollar payments. These payments were processed, or “cleared,” by U.S. banks. These payments, although from non-military customers, were nonetheless illegal under U.S. law because of LIMMT’s status as a proliferator of WMD. LIMMT’s Iranian military shipments were paid for primarily in Euros. For all of these payments, from both the Iranian military subsidiaries and LIMMT’s commercial customers, LIMMT used its alias names to complete the transactions.

In all of LIMMT’s transactions, the wire payments were sent to and from a limited number of Chinese banks that handled the accounts of LIMMT’s front companies. The investigation into the role of the stripping banks and the Chinese banks continues. Mr. Morgenthau said, “Banks that provide access to the world’s financial systems to criminals, proliferators and terrorists should expect that they will be found out and prosecuted. Sanctions are effective only if they are enforced. We may not be able to shut down Mr. LI’s factories, but we can shine a spotlight on his conduct and the conduct of the foreign banks that permit these types of operations to flourish.”

UPDATE:
As Hot Air notes, this undermines the NIE that claimed that Iran was no longer working on its nuclear program. It also undermines the credibility of the intelligence community that doesn't seem to have a firm grasp of Iran's intentions.

Obama Administration Refuses Bank TARP Repayments

Isn't this how the TARP system was supposed to work? We were told that as banks become more capable of lending on their own, the banks could repay TARP and end their involvement in the program.

However, the Administration is proving itself more adept at changing the rules to maintain control over the financial institutions than it is at filling slots at the Treasury Department. They are now telling banks that they can't escape the TARP program, even if they want to.

I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn't much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street's black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell 'em what to do. Control. Direct. Command.

It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration's thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.

If the banks are forced to keep TARP cash -- which was often forced on them in the first place -- the Obama team can work its will on the financial system to unprecedented degree. That's what's happening right now.

It is all about control, and now that the door was opened by the Bush Administration as a temporary measure, President Obama pushing ahead with a series of corrosive and destructive policies that will undermine the US fiscal and monetary system all in the name of expanded government control.

Meanwhile, Treasury Secretary Geithner continues threatening to fire bank CEOs. Henry Blodget thinks that this is a natural outgrowth of the double standard between the way that the administration was treating Detroit and the automakers and Wall Street. There is no double standard; the auto industry, for all of its heft and size, is an emotional attachment to a bygone era. Wall Street is the lever on which all capital and investment passes. In the course of the toxic paper crisis, Wall Street's facility to provide new credit lines evaporated. That was the crux of the reason why the Bush Administration felt the need to act so precipitously and intrude into the marketplace with the TARP program. The automakers situation is not analogous.

Yet, President Obama essentially fired GM Chairman Jeff Wagoner because he couldn't turn the failed company around quickly enough. That act goes beyond the bounds of what a President can or should do in interfering in the private markets. So, instead of using that as a cautionary tale of how government interference in the marketplace has gone too far, Blodget is going in the exact opposite in calling for more government intrusion into the marketplace, despite repeated examples of government miscalculation of the value of companies and pressure to make deals.

The government opted to bailout AIG instead of letting it go the route of bankruptcy, and sent hundreds of billions of dollars into that morass. The government tried to arrange shotgun weddings for multiple banks, and each time seriously and egregiously miscalculated the value of the parties involved.

Misleading Headline of the Day

Here's the headline and the link:

Analysts say more U.S. banks will fail

Can we get a timeline or any frame of reference?

Actually, if you did that, the story would fall on its face. The report actually acknowledges as much in the third paragraph, noting that the banking industry is in far better shape than in the late 1980s and early 1990s.

They worry that as many as 150 banks may fail in the next 12-18 months.

Out of 7,500.

So far, this year only six banks have failed:

Still, only six lenders have failed so far this year, including IndyMac. In 1994, the Federal Deposit Insurance Corporation listed 575 banks that it considered to be troubled. As of this spring, the agency was worried about just 90 banks. That number may go up in August, when the government releases an updated list.

Things may be bad for some banks because they followed Congressional directives to provide loans to more people without the bothersome requirement to make sure that they had the capacity to repay because that might limit minority ownership of homes, but the vast majority of banks are on sound fiscal footing.

However, it's the rumor of bank problems that are feeding the current problems - most notably the IndyMac bank rush due to Sen. Chuck Schumer's letter urging the FDIC to take steps to prevent a bank rush. Far from quelling worried depositors, that letter spurred the bank rush that forced the FDIC's hand and required it to step in.

While IndyMac wasn't on the FDIC radar, it was Schumer's actions that led to the FDIC having to step in as a last resort.

Some major banks may still fall before all is said and done, but the end result will be a banking industry that is in far better shape to handle these crises going forward and whose lending practices will be shaped by the lessons learned the hard way.