Who’s this guy?

Meet Kenneth R. Feinberg, the new pay “czar” for the White House. He’s tasked with reigning in the out of control compensation at companies the government helped recently.

I think it should be noted right off the bat that this is tied to executive compensation and bonuses…two pots of money that are so out of step with compensation in the real world it’s obscene. I mean, one year after all of these places went under and they’re giving out billions in bonuses?

Here’s more from Wash Post:

The cuts will affect 25 of the most highly paid executives at each of five major financial companies and two automakers, according to the sources, who spoke on the condition of anonymity because the plan has not been made public. Cash salaries will be cut by about 90 percent compared with last year, they said.

The administration will also curtail many corporate perks, including the use of corporate jets for personal travel, chauffeured drivers and country club fee reimbursement, people familiar with the matter have said. Individual perks worth more than $25,000 have received particular scrutiny.

And here are the companies affected…

The seven companies under Feinberg’s purview are Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group. These firms have received a total of about $250 billion in bailout funds from the Troubled Assets Relief Program, adopted last year by Congress, and benefited from hundreds of billions of dollars more in government guarantees and other support.

Personally, I’d like to see executive pay at publicly traded companies capped at a set price with stock options/bonuses only triggering when those folks actually produce provable results. But this “failing up” nonsense that CEOs continue to do decade after decade is ridiculous.

Of course I know this won’t happen because Wall Street firms will continue to claim that these compensation models are key to attracting the right talent, even though there are usually dozens of qualified applicants for every position they have.

Still, one can dream…

I don’t care if these bonuses were contractual or not. New circumstances (you know…like BANKRUPTCY!) could allow them to renegotiate with their employees.

From the AP comes the list…

Citigroup…

Citigroup Inc., one of the biggest recipients of government bailout money, gave employees $5.33 billion in bonuses for 2008, New York’s attorney general said Thursday in a report detailing the payouts by nine big banks.

Bank of America…

Bank of America Corp., which also received $45 billion in TARP money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million. Of those, 28 received bonuses of more than $3 million.

Merrill Lynch…

Merrill Lynch, which Charlotte, N.C.-based Bank of America acquired during the credit crisis, paid out $3.6 billion. Cuomo’s office said Merrill Lynch doled out 696 bonuses of at least $1 million for 2008, with 149 of those workers getting bonuses of at least $3 million.

And less offensive are JPMorgan and Goldman Sachs, but it still makes you wonder why they took money in the first place…

JPMorgan, which gave 1,626 employees of at least $1 million, paid back the $25 billion it received in TARP money last month. Goldman, which repaid its $10 billion in government money last month as well, gave 953 workers bonuses of at least $1 million. The two banks each gave more than 200 employees bonuses of more than $3 million.

Yes, they learned nothing from last year. They’re simply taking advantage of the position they put all of us (including the government) in and doing whatever they want. Business as usual.

Amazing.

Most people don’t realize that the insane gas prices last year had nothing to do with increased demand and had everything to do with market speculation and hoarding encouraged by the top investment banks.

Now True/Slant’s own Matt Taibbi uncovers the truth behind the scam.

Read the rest at True/Slant.

Even though he’s only been in office for 5 months, this has still be a long time coming.

And there are some important measures being introduced for home loans and consumer protection.

From Wash Post:

Many of the specific proposals will require legislation, and today’s announcement will drop the plan into an already heated debate on Capitol Hill about the eventual shape of reform. The financial crisis has forced broad consensus that changes are necessary, but there are wide disagreements about the details.

The proposed Consumer Financial Protection Agency would have broad authority to regulate the relationship between financial companies and consumers of mortgage loans, credit cards, checking accounts and other financial products. It would define standards, police compliance and penalize delinquent firms. Other agencies, particularly the Federal Reserve, would surrender some powers.

One idea highlighted by the administration is to require that lenders offer all customers standard “plain vanilla” loans with simple features and streamlined pricing, such as 30-year, fixed-rate mortgages. The sale of more loans with more complicated terms would be subjected to greater scrutiny by the agency. It could even require that customers make a written choice to select anything other than a vanilla loan.

The agency would have authority to overhaul a tangled mess of federal regulations that many financial experts regard as outdated, insufficient and inadequately enforced. An oft-cited example is the massive stack of paperwork handed to mortgage borrowers at closing, including several calculations of the true cost of the loan itself.

“Consumers should have clear disclosure regarding the consequences of their financial decisions,” the plan states.

Agreed. And while we can blame consumers all we want for overreaching in the past couple decades, let’s not kid ourselves…had these measures been in place this situation never would have happened.

However, I think the biggest news to come out of this (which isn’t in the story) is that all of the agencies that used to regulate banks will now be folded into one entity. This is so banks can’t pick and choose who will regulate them…and the notion that they could do that before makes my stomach turn. Gee, I wonder who they’re going to pick…perhaps the laziest agency?

Seriously, you don’t think the current system was royally screwed up? Check out how it worked…

Under the current system, banks can choose their regulator. Because the OCC, OTS and FDIC are funded by fees from the banks, the regulators have an incentive to compete for business by offering more lenient oversight. The system also divides supervision of the largest financial conglomerates among multiple agencies, each with responsibility for certain subsidiaries, creating gaps in coverage that companies have exploited. Many experts say these failures of regulation contributed to the financial crisis.

I don’t think you have to be an expert to see that this could easily lead to all sorts of irregularities. So, again, having one agency do this is the smart way to go.

More as it develops…

From McClatchy:

In addition to returning the $68 billion, the 10 banks paid the government $1.8 billion in dividends on the preferred shares of stock the government owned. That translates to an annualized rate of return of about 4.64 percent on the $68 billion.

In all, the government has received $4.5 billion from all bailout recipients, who’ve received $200 billion, for an annualized rate of return since Nov. 12, 2008, when the money was lent out, of 3.94 percent.

But the government had to borrow to pay for the bailout and pay interest on those borrowings. Once the interest costs are factored in, how’d the government do?

Not bad. The annualized rate of return of 4.64 percent on the $68 billion is well above the 2 percent interest the government was paying Monday to investors who were purchasing three-year bonds. The profit margin is even higher when measured against the interest the government is paying on a six-month bond — 0.31 percent.

There are certainly other factors involved and nobody’s saying the government should make a practice of this. Still, this seems like a silver lining…at least if these banks are truly out of harm’s way.

If not, well, this will all be remembered as yet another chapter in a massive boondoggle that paved the way for a decade of little to no growth in the GDP.

In any event, here are the banks who’ve paid back their loans and those that have yet to…

More as it develops…

In other words, nearly 30% of the money that we would NEVER see again is being paid back. And the government could actually make a profit if they choose to exercise stock options, but there’s word they won’t do that.

Here’s more from Wash Post:

The decision is a milestone for the Obama administration’s financial rescue plan, reflecting new confidence that some large banks have returned to stable profitability. It is also a victory for the banks, which have pressed for permission to show strength and to avoid restrictions including limits on executive pay. But senior officials cautioned that the repayments are not a sign of a broader economic revival.

“These repayments are an encouraging sign of financial repair, but we still have work to do,” Treasury Secretary Timothy F. Geithner said in a statement.

The list of banks was longer than many financial analysts had expected, in part because banks have been able to attract billions of dollars in new capital from private investors following the conclusion of government stress tests.

And those are just the big banks. Much smaller banks have already repaid their TARP funds…

The government already has allowed 22 community banks to repay about $1.8 billion in federal aid, but this marks the first time large banks have been given permission to return money. Treasury officials say they now are comfortable that these banks can weather the recession without the benefit of direct government support. The government continues to support banks through a variety of other, less visible programs, including debt guarantees, cheap loans and a pledge that the largest banks will not be allowed to fail.

No doubt there’s still a hell of a lot of taxpayer money out there, but you can’t say the Obama administration doesn’t have a plan to get this money back. And now we’re seeing that plan work, so some very encouraging signs of progress.

By the way, if you want to see the banks that went through the stress tests and the amount of TARP funds they were given, go here.

Today, Congress sent President Obama the much talked-about bill setting in place new rules for the credit card industry.

The new restrictions will protect debt-ridden consumers from many of the surprise charges common in the industry, like over-the-limit fees and a charge to pay the bill by phone. People under 21 also will find it difficult to get a card.

In addition to outlawing other hidden/unexpected fees, the bill puts into place a measure that will allow credit card holders who miss a payment and see their rates rise to lower their rate back to the original level if they pay on time for six consecutive months.

Of course, there are expected to be some negative consequences:

As banks scramble to make up for the lost revenue, cardholders who pay off their balance in full each month could see annual fees become the norm and lucrative rewards programs canceled.

Annual fees? No more thank you points? I have a feeling that competitive forces will still push credit card companies to offer perks to desirable customers. But I also have a feeling that the lost revenue from the now out-lawed fees will be recouped through various shifts and alterations of still-legal fees and rates. As long as so many of us rely on credit cards, the companies who offer us the credit will find a way to remain profitable.

I don’t think think this comes as a huge surprise, and it’s certainly disheartening.

From Wash Post:

The government signaled yesterday that its financial rescue efforts may have reached their high-water mark, announcing that the much-anticipated “stress tests” of 19 large banks showed that only one, GMAC, was likely to need additional taxpayer aid and that it would begin to unwind assistance for the healthiest firms.

Despite a deepening recession and projections that banks will continue to lose money, the government will require the firms to increase their combined capital by as little as $9.5 billion. The government will require the banks to further strengthen their capacity to absorb losses by adding $74.6 billion to the portion of their capital that comes from common equity. Banks are likely to raise some of that money from investors and some by converting other forms of capital.

The announcement at the Treasury Department yesterday culminated a three-month process designed to show that banks are returning to health after a crisis that left much of the industry dependent on federal aid.

Officials said that banks continue to hold vast quantities of ill-considered loans and could suffer losses totaling $600 billion over the next 20 months as the borrowers default. But in showing that the banks can absorb those losses, the administration hopes to restore investors’ confidence. If banks can start raising money again, they can increase lending to consumers and small businesses, a critical piece in the government’s broader strategy for renewing economic growth.

So that’s the bad news. But the good news is that healthy banks will begin repaying the money the federal government gave them…

Nine of the 19 banks were found to have sufficient capital reserves. Firms that repay the government no longer face restrictions on executive compensation.

Applicants will first be required to show that they do not need the shelter of a Federal Deposit Insurance Corp. program that helps banks raise money at lower interest rates. But banks may continue borrowing from the Federal Reserve’s emergency programs, which do not impose pay restrictions.

More as it develops…

It’s almost been two months since Geithner announced the details of how the stress tests would go down, and now the government is set to announce the results for a bunch of banks.

Still, the focus is certainly on the top two.

From Financial Times:

Citigroup and Bank of America are working on plans to raise more than $10bn each in fresh capital, even as they launch last-ditch attempts to convince the US government they do not need to bolster their balance sheets.

People close to the situation said Citi, BofA and at least two other lenders will on Monday attempt to convince the Treasury and the Federal Reserve that the findings of “stress tests” into their financial health were too pessimistic.

But with time running out – the government will present the final test results to 19 banks tomorrow with an announcement scheduled for Thursday – both Citi and BofA are looking at how they could raise extra capital.

Preliminary findings have revealed that Citi, which has already been bailed out three times by the authorities, could need an extra $10bn or more if the economy worsens. BofA, which has had $45bn in government aid, was found to need well in excess of $10bn, people familiar with the matter said.

Here’s the thing…Treasury and the Fed may indeed be too pessimistic, but I’d rather have that so the banks are flush with cash than anything close to what we once had.

In other words, maybe these banks don’t know what pessimism is anymore after two decades of irrational optimism that led to the near collapse our entire economy.

I’m just saying…

On Thursday, President Obama announced support for a new bill aimed at protecting credit card holders.

As early as next week, House Democrats expect to act on a bill that would make it harder for the industry to slap new fees and rates on cardholders while also requiring clearer disclosure of the costs and risks for cardholders. The bill would codify and expedite rules already proposed by the Federal Reserve Board, rules that would not be implemented until 2010.

Legislation pending in the Senate would go further, barring lenders from imposing interest rate increases on existing balances.

As usual with these things, the specifics will be hashed out in Congress. But the credit card companies are already warning that new restrictions will inhibit their ability to provide credit in these tough times. And Republicans are calling Obama a hypocrite for going after credit card companies when his own policies are unfairly heaping debt onto the American public.

I do not doubt that some credit card companies knowingly participate in ethically questionable business practices. But, in my mind, the central problem isn’t that new fees are created without warning or that finance charges are applied without explanation, but that too many of these companies actively exploit consumers by handing out credit to those without the means of paying off debts and by creating too-good-to-be-true offers which are designed to fool consumers into making bad decisions. Even for savvy credit card holders with good habits, picking through the small print on a new offer can be a frustrating and confusing undertaking. It’s no surprise some people end up with massive bills, choked with unaffordable finance charges.

I’m not sure what the appropriate government solution to these problems would be. Transparency in credit card offers would be a good start. No more advertising 0% finance charges for 18 months while hiding the fact that being late on one payment by one day will cause you to lose the deal and end up with 20-something percent in finance charges.

After that, I’d support some form of initiative that holds credit card companies partially liable for extending credit to consumers who clearly lack the means to pay off debts. That’s a subjective matter, so the issue would probably need to be handled through bankruptcy court. But creating some form of shared liability would help prevent cases of blatant exploitation.

Obviously, credit card companies need the freedom to earn profits and wastrel consumers shouldn’t be protected from their mistakes. But I do believe there is an unhealthy imbalance between credit card companies and their consumers. As always, I fear Congress will overreach and/or focus on the wrong aspects of the problem, but I’m not upset that the matter is being considered.

Between Wells Fargo and this news, doesn’t anybody think that this may put a slight damper on those Tea Parties on Wednesday?

From MarketWatch:

Goldman Sachs Group Inc. said Monday it swung to a profit in the first-quarter compared to the prior period, and announced it has commenced a public offering of $5 billion of its common stock.

Goldman Sachs said net earnings for the period ended in March were $1.8 billion, or $3.39 a share, compared to $1.5 billion, [...] Analysts had been anticipating earnings of $1.64 a share, according to Thomson Reuters data. [...]

Goldman Sachs said in a statement that it intends to use proceeds of the $5 billion offering to help redeem “all of the TARP capital.”

And yes, I think it’s definitely too soon to tell if these institutions are pulling out of the insolvency mess, but I can’t help but think if we’re seeing these kinds of numbers, it’s a relatively good sign that the worst could be behind us.

However, we still have yet to see the fallout from the next batch of toxic assets, but now that we have a system currently in place to deal with the subprime mess, maybe that’ll address any additional problems we face?

More as it develops…

And there was much rejoicing…

From MarketWatch:

NEW YORK (MarketWatch) — Wells Fargo & Co. said Thursday that first-quarter earnings will surge to a record $3 billion, well ahead of analyst forecasts, as loan losses and provisions dropped from the previous difficult quarter and its mortgage business thrived.

Wells shares jumped 22% as the bank also noted its Wachovia acquisition is exceeding expectations and reported another quarter of double-digit revenue growth.

Wells said first-quarter net income will be roughly $3 billion, or 55 cents a share, after paying dividends on preferred securities, including $372 million to the Treasury Department. Analysts surveyed by FactSet Research expected profits of 31 cents a share on average.

And, according to Credit Writedowns, there could be some money to be made here…

I see financial services companies shedding troubled assets, not marking other assets to market and having an enormous margin spread due to ridiculously low interest rates. To me, this is a huge buy signal. Last week, I thought a small position in out-of-the-money calls on BofA or Wells was a good idea before Wells gapped up this morning (I still think Citi is dead money). This is now less of a good risk-reward opportunity. But, don’t think Wells is alone in expecting a monster quarter here. Could we see the same at JPM or BAC? BAC has a huge tax dodge from its Countrywide acquisition so unless they haven’t finished with monster surprise writedowns, I expect a good number there as well and that looks like the best play in the space right now (despite a 20% rally today).

Still, while profits are all well and good, we still need these banks to start lending again.

This is Danielle Ivory, reporting from the American News Project and Alternet.

Back in February, in the House Financial Service Committee, when asked a question about the value of Citigroup’s assets, CEO Vikram Pandit provided a less-than-clear response: “It’s an extraordinarily difficult question.”

Click the video below to WATCH the exchange between Rep. Louis Gutierrez (D-IL) and Vikram Pandit.

Rob Weissman, director of the corporate watchdog group, Essential Action, and author of a new report called Sold Out: How Wall Street and Washington Betrayed America, said that, in addition to what Pandit said, there’s an additional factor that could fog the test results: off-the-book assets.

“If you don’t include the off-balance sheet assets in the stress test, then it’s not a legitimate stress test,” Weissman said. “It’s pretty plain that the off-balance-sheet operations are a central part of the story of why we don’t know what the banks own.” The Treasury Department declined to comment on whether they would take off-book-assets into account when running the stress tests.

Weissman says that recipients of bailout money, like Citigroup, Bank of America and JP Morgan, have been engaging in “fanciful accounting” of what they owe and what they own by relocating of their less-than-healthy assets off the books, in shadow corporations. Rep. Brad Sherman has described the process as, “apples on one balance sheet and oranges on another.”

According to RGE Monitor, off-balance-sheet operations have skyrocketed over the last 15 years. From 1992 to 2007, on-balance-sheet assets grew by 200 percent, while off-balance-sheet assets grew by 1,518 percent. In 2007, it was estimated that there was 15.9 times more money parked in off-balance-sheet operations than in on-the-book operations. Not all off-book assets are toxic. Some financial institutions might park assets off their books if they are planning, for instance, to sell them. However, in rough economic times, off-balance sheet accounting allows banks to veil their losses from investors, regulators, and even insiders.

“This turns out to be a really important benefit [for a bank] if it happens to be insolvent,” Weissman added. “And many believe that if you total Citigroup’s assets and liabilities, it is insolvent.”

As of July, Citigroup appeared to have the most off-book assets — an estimated $1.1 trillion. But they aren’t alone. As of July 2008, JP Morgan Chase & Co. had more than $400 billion off their books. Bank of America had $48.2 billion off the books before it bought Merrill Lynch. “If you start adding up all the potential exposures, it’s a huge number,” Sam Golden, former ombudsman for the U.S. Office of the Comptroller of the Currency, told Bloomberg. “The banks will say that it was disclosed. Investors are saying, ‘Yeah, but it was cryptic.’”

Disclosure rules for off-balance sheet operations are notably less strict than those for assets on the books. Neri Bukspan, chief accountant for Standard & Poor’s told Bloomberg, “A lot of information tends to disappear.”

The use of the off-balance-sheet assets was a core part of the Enron scandal, where they were able to wrap debt inside of debt, using obscure corporations, so no one could track what they owed and what they owned. After the Sarbanes-Oxley Act of 2002 was set in place, there were efforts to address the problems with off-book assets. But after heavy lobbying by two main trade groups, the Securities Industry and Financial Markets Association and the American Securitization Forum, banks were given special exemptions.

In September of 2008 as the financial crisis was coming into full view, the Senate Baking, Housing, and Urban Affairs Committee held a hearing, discussing off-balance sheet operations. Senator Jack Reed recalled Enron: “This phenomenon of moving assets off the balance sheets is eerily familiar. We recall back in the days of Enron that its schemes to manufacture false profits included special purpose entities that conducted transactions off-balance sheet. The goal was to avoid financial reporting. While no one is necessarily suggesting scandals of the Enron kind, we cannot fail to admit the irony. We are dealing with a similar problem yet again, only six years later.”

George P. Miller, Executive Director of the American Securitization Forum, said that moving assets off-book back on to the books would cause dangerous swelling of balance sheets. He added, “There are many other steps that the industry can and should undertake to promote broader and better transparency about risk exposures in these vehicles, whether they are on or off-balance sheet.”

But Donald Young, former member of the Financial Accounting Standards Board countered, “We just had an investment bank [Lehman Brothers] go bankrupt with a fair value balance sheet that showed it had plenty of assets and liabilities. And it almost seems like financial reporting is out of control and not trusted and not believed in. And I think what we do here has got to establish transparency. If the transparency is such that we’re going to bring out some bad news that wasn’t there before, that’s a risk. But I think the benefits of reestablishing confidence in the markets will overwhelm that.”

The Financial Accounting Standards Board (FASB) are revising the rules so some off-book assets will have to be reported on the books. However, the changes won’t be effective until January 2010 at the earliest. In March at a House Financial Services Subcommittee hearing, Rep. Sherman complained about this lag. He told the chairman of the FASB, Bob Herz, “If you guys can’t act quickly and logically, perhaps the regulatory accountants need to act and depart from what is a somewhat illogical and certainly slow process that you’ve got.”

In the meantime, in a recent letter to his employees, Pandit has said Citigroup is having its best quarter since 2007 and the bank had conducted its own internal stress tests with positive results. But Weissman says something doesn’t add up. “Either they’ve done a lot of due diligence in a short amount of time that they hadn’t done before, or the stories are incompatible.”

Crossposted at Alternet.

“Be careful how you make those statements, gentlemen. The public isn’t buying that. My administration is the only thing between you and the pitchforks.”
- Obama cautioning bank executives on justifying high salaries in a recent private meeting

I think it’s pretty clear that the bank executives simply don’t get how angry folks are. And that’s understandable. Because for the past 30 years they’ve been accustomed to getting whatever they want. So it makes sense that they feel entitled to do whatever they like. That’ll obviously change, but it’s hard to teach these old dogs anything new.

But to that point of training these folks for the hard road that lies ahead, I like this description of the meeting…

There were signs from the outset that this was a business event, not a social gathering. At each place around the table sat a single glass of water. No ice. For those who finished their glass, no refills were offered. There was no group photograph taken of the CEOs with the president, which typically happens at ceremonial White House gatherings but not at serious strategy sessions.

“The only way they could have sent a more Spartan message is if they had served bread along with the water,” says a person who attended the meeting. “The signal from Obama’s body language and demeanor was, ‘I’m the president, and you’re not.’”

According to the accounts of sources inside the room, President Obama told the CEOs exactly what he expects from them, and pushed back forcefully when they attempted to defend Wall Street’s legendarily high-paying ways.

How these bankers think they can take trillions from the federal government and not be treated as if they seriously screwed up is beyond me, but hey…we’ll see how the adjust.

If you really know what’s going on with how Geithner’s plan is structured and how the banks can take advantage of it, then this is the type of behavior is incredibly suspect because it appears as if they’re gambling with the TARP money when they should be lending it instead.

From NY Post:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.

Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

I’ll have to find out more about this, but right now it just doesn’t look kosher. Not when they accepted bailout money. Because, as I mentioned above, that money should be going towards lending, not buying. Or, if nothing else, the banks should keep the money in the vault so they don’t overleverage themselves again.

More as it develops…

Marron makes the point that Geithner’s plan won’t solve the entire problem, but it will allow us to actually price these assets once and for all, and that will rid ourselves of the “catching a falling knife” problem that is plaguing the mortgage backed securities right now. Because they could be worth a lot more than many think, but nobody wants to put money into something that everybody knows will go down. And that will, in turn, get it all moving again. At least that’s the hope.

Take a look…

Part One

Part Two


(h/t: The Big Picture)

Senate Banking Committee Chair Chris Dodd has had better days. Looks like the AIG bonus scandal just found a political whipping boy:

Dodd just admitted on CNN that he inserted a loophole in the stimulus legislation that allowed million-dollar bonuses to insurance giant AIG to go forward – after previously denying any involvement in writing the controversial provision.

“We wrote the language in the bill, the deal with bonuses, golden parachutes, excessive executive compensation that was adopted unanimously by the United States Senate in the stimulus bill,” Dodd told CNN’s Wolf Blitzer this afternoon.

“But for that language, there would have been no language to deal with this at all.”

Dodd had previously said that he played no role in writing the controversial language, and was not a part of the conference committee that inserted the language in the bill.

I like the “But for that language” part of the quote. If Dodd thought the language was good, he wouldn’t have hid from his involvement in it. He’ll have a hard time defending his role now. Sure, a lot of people voted for the bill, but the “I didn’t read that part” excuse is better than the “I wrote that part and then denied and am now hoping it all goes away” excuse.

Too much easy credit, not enough income and scant capitalization have created yet another perfect storm.

From Reuters:

AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate — debts companies believe they will never be able to collect — rose to 8.70 percent in February from 8.30 percent in January.

The credit card company’s shares wiped out early gains and ended down 3.3 percent as loan losses exceeded expectations. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast.

In addition, Citigroup Inc (C.N) — one of the largest issuers of MasterCard cards — disappointed analysts as its default rate soared to 9.33 percent in February, from 6.95 percent a month earlier, according to a report based on trusts representing a portion of securitized credit card debt.

“There is a continued deterioration. Trends in credit cards will get worse before they start getting better,” said Walter Todd, a portfolio manager at Greenwood Capital Associates.

How many of you have had the credit card companies cancel your accounts because you weren’t using your cards? I know I have, and usually they just send you a new card.

The game is changing, but, honestly, thank god for that. Credit shouldn’t be easy to get. People shouldn’t be allowed to easily fall into debt. That should be hard. Because our economy doesn’t grow in any credible way if people are overleveraged to the hilt and too much anymore we’re hearing that people carry an average credit card debt of $10K…which is crazy.

More as it develops…

AIG’s decision to pay out bonuses despite the financial company’s massive troubles has angered a lot of people. Place the president in the angry category.

Joining a wave of public anger, President Barack Obama blistered insurance giant AIG for “recklessness and greed” Monday and pledged to try to block it from handing its executives $165 million in bonuses after taking billions in federal bailout money.

“How do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama asked. “This isn’t just a matter of dollars and cents. It’s about our fundamental values.”

It’s unknown what Obama can or will do about the bonuses, but he’s asked the Treasury Department to pursue every legal avenue.

While the president’s statement is obviously meant to keep the bailout backlash from damaging the White House, he’s right that this is not just a matter of money but of values. AIG had no business rewarding employees after many of them helped make the disastrous decisions which would have doomed the company if not for massive government assistance. While I’m sure there are employees at AIG who are competent and, in any other situation, worthy of a bonus, the company proved, yet again, that senior management is out of touch with the reality of the situation.

This is yet another example of how TARP’s rush to approval left a lot of gaping holes. Nevertheless, AIG deserves the public outcry.