Four at Four

1. Spiegel reports Banks reopen the global casino. “Investment banks… are making serious money again, thanks in part to government aid… They are benefiting from the crisis they helped to create. As profits go up, so do salaries — only this time, it’s the taxpayers who are shouldering the risks.”

   The casino is open again, worldwide. Many investment banks are raking in massive profits once again, driving up risks and attracting talent with high salaries. It’s as if nothing had happened, and as if it hadn’t been precisely this type of behavior that brought the financial system to the brink of collapse last fall and then plunged the world economy into its worst crisis since World War II.

   The collapse of the financial system was averted, but only through colossal public spending, as governments bolstered ailing banks with loan guarantees and equity injections and central banks pumped billions in liquidity into the markets.

   But now that the worst seems to be over, banks are back to behaving the same way they did before the crisis. Even worse, thanks to government guarantees for the financial sector and cheap money from central banks, it has never been easier for banks to make money…

   “The taxpayer is paying for the chips in the casino,” the head of the German operations of an international investment bank says quite openly, but anonymously nevertheless. “It doesn’t get any better.” … Investment banks, for their part, have bought the securities with money they borrowed from central banks at ridiculously low rates.

   Meanwhile, the CS Monitor reports Fed chairman Ben Bernanke defends bailouts – and himself. “Bernanke’s term as chairman of the Federal Reserve expires at the end of January”. “He’s running to keep his office and defend the Fed,” says Robert Brusca of Fact & Opinion Economics in New York.

   Bernanke DOES NOT merit reappointment, but I doubt Obama sees it that way. Instead of Bernanke doesn’t get the nod, speculation is that Larry Summers, Obama’s economic policy head, will get the job, which, of course, will be even worse.

   For his part, Bernanke wants MORE power for the Federal Reserve. Last week, the AP reported Bernanke told the Senate a new consumer protection agency isn’t needed, because the Fed is doing such a good job protecting the consumer already.

   “Bernanke also said he did not think conflicts existed between the Fed’s consumer protection and bank oversight roles.” And the Independent reported that Bernanke warned against meddling with Fed. Bernanke doesn’t want legislation passed by Congress that “would subject the Fed’s actions in these areas to audits by the Government Accountability Office, the investigative arm of Congress.”

   “Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence,” Bernanke said.

Four at Four continues with more banks behaving badly, Eric Holder, and calls for a Congressional inquiry into the CIA.

2. The Washington Post reports Foreclosures are often in a lenders’ best interest. “A study released last month by the Federal Reserve Bank of Boston was downbeat on the prospects for widespread modifications. The analysis, which looked at the performance of loans in 2007 and 2008, found that lenders lowered the monthly payments of only 3 percent of delinquent borrowers, those who had missed at least two payments. Lenders tried to avoid modifying the loans of borrowers who could ‘self-cure,’ or catch up on their payments without help, and those who would fall behind again even after receiving help, the study found.”

   Meanwhile, the Boston Globe reports Credit card firms raise fees before law changes. “A number of major credit card companies… are jacking up interest rates and fees, or laying the groundwork to do so, before new federal legislation that cracks down on some of the practices goes into effect in February.”

   “Bank of America, Chase, and Discover Card have switched many of their cards from fixed to variable interest rates that are tied to an underlying index. But since benchmark indexes are extremely low – the prime rate is near zero – analysts said credit card interest rates will almost certainly go up in the future.”

3. The Washington Independent reports a Holder probe would be a big break from the Bush torture policy. Attorney General Eric Holder may reopen cases previously swept under the carpet by the Bush administration. He “has reportedly indicated an interest in re-investigating… extreme cases of abuse, identified in a classified 2004 CIA inspector general report.”

   “Having read the inspector general report himself, Attorney General Eric Holder now appears to believe that his predecessors weren’t doing a very objective assessment, considering the brutality of the facts, like leaving a naked man to die in the cold or beating a man to death – which far exceeded even the Justice Department’s permissive guidelines.”

4. The Washington Independent reports Rep. Rush Holt calls for a broad inquiry into the Central Intelligence Agency. The New Jersey Democrat and “mportant member of the House intelligence committee is exploring an option that many in the intelligence community view with apprehension: a comprehensive investigation of all intelligence-community operations over years and perhaps even decades.”

   “I’d like to see something on the scope of the Church committee,” he said.

Also as a scheduling note — Four at Four is on vacation until August 4.