Fiscal Cliff

The looming fiscal cliff that will trigger higher tax rates for majority of the Americans and automatic spending cuts come January 1, 2013 has put an urgent pressure on the White House and House Republicans to come up with their versions of mitigation plan. Last week (November 25-December 1, 2012) White House presented its plan to the House Republicans, who poo-poohed it as nothing more than Obama's previous budget outline. The White House plan included:

* $960 billion in tax hike over the next decade (by letting Bush-era tax cuts for wealthy Americans expire)
* $600 billion in other tax revenue such as eliminating tax deductions over the next decade
* $350 billion in savings from Medicaid and Medicare over the next decade

However, White House also included in its plan $287 billion in new stimulus and other spending, on items such as extension of payroll tax cuts and unemployment insurance.

House Republicans unveiled their plan on December 3, 2012 that would raise new tax revenue by half of what Obama's proposal called for. The Republican plan didn't call for hike in tax rates, instead relied on limiting tax deductions, closing loopholes, thus aiming to raise $800 billion (as opposed to $1.6 trillion as per White House plan) in new revenue. The Republican plan aims to save $2.2 trillion over the next decade, and the breakdown is as follows:

* $800 billion in new revenue (by closing loopholes, limiting deductions)
* $600 billion from Healthcare savings by restructuring Medicare and Medicaid
* $800 billion from other spending cuts and savings such as COLA changes

Softbank to Acquire Sprint

Japan's SoftBank on October 15, 2012 announced a $20 billion takeover of Sprint Nextel, a deal expected to close in mid-2013. Softbank will get a 70 percent stake in Sprint Nextel by buying $12.1 billion in existing shares, at $6.30 per share. Softbank will also buy $8 billion in new Sprint shares the Kansas City-based company will issue at $5.25 per share. If the deal doesn't go through, Sprint will receive a $600 million break-up fee.

However, Dish Network offered to buy sprint offering $7 a share. SoftBank countered Dish's offer on June 10, 2013 with a sweetened package--$16.6 billion to Sprint shareholders plus $5 billion in new capital--that includes:

* $7.48 per share
* A pledge from Sprint that any improved offer will be accompanied with "committed financing" (the pledge has been accepted by Sprint)
* Although not asked by SoftBank, Sprint went ahead on June 11, 2013, and included a "poison pill" that prohibits any outside investor other than SoftBank to acquire more than 17 percent of the company.

However, with sweetened offer, SoftBank will acquire 78 percent, instead of 70 percent, of Sprint.

On June 21, 2013, Dish Network ended its effort to acquire Sprint. Dish offered $25.5 billion to acquire all of Sprint as opposed to Softbank's $21.6 billion offer to own 78 percent of the new company.

On June 25, 2013, Sprint Nextel Corporation's shareholders approved the sale to Softbank.

 

MetroPCS and T-Mobile to Join Forces

On October 3, 2012, Richardson-based MetroPCS announced that it would join with T-Mobile, bringing its 9.3 million subscribers with T-Mobile's 33.2 million customer base. After the merger, Deutsche Telekom will own 74 percent of the combined company, while MetroPCS shareholders will own the remaining 26 percent. The new entity will be run by T-Mobile's CEO John Legere. The deal has been structured like a reverse stock split, where MetroPCS will absorb the Bellevue, Washington-based company, and its (MetroPCS') shareholders will get a cash payment of $1.5 billion, or about $4 per share.

BofA to Pay $2.43 billion Over Merrill Acqusition

On September 28, 2012, Charlotte-based Bank of America agreed to settle a case from its shareholders for $2.43 billion. The plaintiffs, including several pension funds such as Teacher Retirement Systemof Texas, accused BofA of misleading the then-shareholders on the health of Merrill Lynch prior to September 2008 acquisition. The $20 billion transaction came under scathing criticism when BofA said afterward that Merrill would lose $27.6 billion that year. Also, the Charlotte-based bank failed to disclose, prior to shareholders' vote, $5.8 billion bonus to be paid to Merrill employees. The Securities and Exchange Commission won a $150 million settlement in 2009 regarding BofA acquisition of Merrill. Now, the $2.43 billion settlement goes to US District Judge Kevin Castel of the Southern District of New York. Bank of America faced host of lawsuits regarding its July 2008 acquisition Countrywide Financial and September 2008 acquisition of Merrill Lynch. BofA on the Countrywide acquisition entered into an $8.4 billion settlement with 12 states and another $600 million with Countrywide shareholders.

Source: The Dallas Morning News

High-Speed Trader Knight's Debacle

A new software almost obliterated the existence of Knight Capital Group and put the focus squarely on high-speed trading on August 1, 2012 as erroneous trading orders for some 140 stocks roiled the stock market for almost 45 minutes, and the high-speed brokerage hod lost almost $440 million. Knight is a trading firm that takes orders from the big firms such as TD Ameritrade and E-Trade, and then funnels them to the markets such as NYSE. One of the roles played by Knight is that of a "designated market maker", who are responsible for keeping trading of stocks they oversee orderly. Knight is responsible for trading of 524 NYSE-listed stocks, a sizable proportion of a total of roughly 2,300. On August 6, 2012, Knight secured a rescue package of $400 million from a  group of financial firms led by Jefferies Group that had also included Blackstone; trading firm Getco, owned by private equity firm General Atlantic; Stephens; Stifel Financial and TD Ameritrade. Knight represents a new generation of traders who are specialized in stock transactions using Mathematical algorithms in lightening speed with a span of milliseconds.

U.S. Drought Reaches Epidemic Proportion

According to a monthly drought report published by Asheville, N.C.-based National Climactic Data Center, 55 percent of the U.S. is now covered by drought as of end of June 2012, rivaling the acute conditions in 1950s and Dust Bowl era of 1930s. The report released on July 16, 2012 depicted a picture a despair and desolation in many parts of West, the Great Plains and the Midwest, fueled by the 14th-warmest and 10th-driest June on record. Fifty-five percent marked the worst drought since December 1956, when 58 percent of the country was afflicted by drought. The July 16, 2012, report was based on the data going back to 1895, and the report is called the Palmer Drought Index. The Palmer Drought Index is used to compare data prior to 2000 as the weekly Drought Monitor goes back only 12 years. The climatologists labeled this year's drought spell as a Flash Drought. This year's drought has already dealt a severe blow to the nation's farmers, who have sowed a record 96.4 million acres in corn, the most since 1937. The Department of Agriculture initially estimated that this year's yield would be 166 bushels per acre, but recently reduced the estimate to 146 bushels per acre. Still, it is better than the average yield a decade ago, 129 bushels per acre.

U.S. Department of Agriculture Secretary Tom Vilsak on August 1, 2012 added 218 counties to the list of primary disaster areas because of severe drought across the country. The addition brought more than half of the U.S. counties--1584 in 32 states--to the designation of PDA.

Facebook IPO: A Buzz Turned on Few Likes on the Opening Day

Investors got their first ever peek for the social networking site on the stock market on May 18, 2012, twelve hours after its much-vaunted IPO that had valued the company around $100 billion. The IPO price was set at $38.00, and the closing price on the first full trading day (May 18) was $38.23, hardly a LIKE. However, for mature investors the lack of skyrocketing in share price may not be a bad thing, and to the contrary, may indicate a degree in stability and appropriate IPO pricing structures by the underwriters. The May 17, 2012, IPO involved 421 million shares, or roughly 15 percent of the company's stocks, and fetched $16 billion, of which Facebook had received $7 billion and early investors had received $9 billion. The other 85 percent is owned by the social networking site's founder Mark Zuckerberg, its executives, employees and early investors. In comparison, Google offered just 7.2 percent of its stock during its 2004 IPO.

Financials of Facebook
Facebook had net income of $205 million on the revenue of $1.06 billion for the first three months of 2012.
In 2011, it earned $1.06 billion on the revenue of $3.7 billion, compared to earnings of $606 million on the revenue of $2 billion a year earlier. That's a marked improvement from 2007 loss of $138 million on the revenue of $153 million. The company makes money mostly from the advertising, and a small share from the cut it takes from the users buying virtual items such as FarmVille.

BANKING, INSURANCE AND FINANCIAL SERVICES INDUSTRY

BANKS' STRESS TESTING

Annual Stress Test for 2012

Two days prior to the official deadline (March 15), the Federal Reserve on March 13, 2012 announced the latest, third round, stress test results that flagged four big banks red. The stress test put banks under a simulated scenario of 13 percent high national unemployment rate, 21 percent drop in housing prices, severe market shocks and economic slowdowns in Europe and Asia. If the banks don't pass muster, Fed may ask them to preserve enough capital level, precluding dividend, stock buyback and other actions. Under the latest stress test, a key measure of capital would hit a low point of 4.9 percent of its assets for Citigroup, doing marginally better than only two other banks--Ally Financial and SunTrust Bank. In 2009, the so-called stress test was first instituted, and as a result, 10 banks were asked to raise the capital. For the latest stress test, the banks had submitted their plans in January 2012 to show that their balance sheets were strong and what they would do with the excess cash. According to the results of the latest sress test, only four of 19 big banks have failed. Now all four big banks--Citigroup, Ally Financial, SunTrust and MetLife--have to resubmit their plans.

Annual Stress Test for 2013

As part of Federal Reserve's 2013 annual stress test, 14 of nation's 18 large banks were given passing grade and go-ahead with their plan with dividend increases to their shareholders. The test, result of which was announced on March 14, 2013, failed two banks--Ally Financial and BBandT Corp--and they had been forbidden from going forward with any dividend increase and share buyback plan outright. JP Morgan and Goldman Sachs were asked to have better capitalization plan before going ahead with any dividend increase and share buyback plan, and given until September 2013 to come up with a plan.

Annual Stress Test for 2014
Feds on March 20, 2014 released the results of the annual stress tests for the country's 30 largest banks. All but Zions Bancorp passed the test to have a minimum amount of capital to withstand a financial crisis. The so-called "stress test" has been carried out based on the following assumptions:

* The jobless rate, currently at 6.7 percent, will rise to 11.25 percent
* Stock market will plunge 50 percent
* Home values will nosedive 25 percent

Under these "severely adverse" scenario, 30 banks will suffer a total loss of $366 billion through the fourth quarter of 2015. Next week, Federal Reserves will make public its decision on the capital plans submitted by nation's largest 30 banks.

On March 26, 2014, Federal Reserves approved capital plan such as bond buyback and dividend hikes for 25 of nation's 30 largest banks. Feds rejected the capital plans for Citi, HSBC North America Holdings, RBS Citizens Financial Group, Santander Holdings USA and Zions Bancorp.

Annual Stress Test for 2015
Federal Reserve on March 6, 2015 released the result of the first of a two-stage process of stress tests for the nation's large banks. All 31banks passed the threshold for the test under a hypothetical scenario of a combination of adverse conditions such a plummeting stock market, soaring unemployment rate and collapsing housing prices.
The results of the second stage of "stress tests" that involves whether the banks have required cushions to carry out their bond buyback and dividend program will be released on March 11, 2015.

Feds on March 11, 2015 issued its second phase of "stress tests" for nation's 31 large banks. Under this phase, Feds approved dividend or equity buyback plans for 28 banks. Federal Reserve gave conditional approval to Bank of America and asked it to re-submit its capital plan by September 30, 2015. Fed rejected plans for U.S. subsidiaries of two European banks, Germany's Deutsche Bank and Spain's Santander.

Annual Stress Test for 2017
In the runoff to April 28, 2017, deadline for bankers' stress-testing on the health of their financial balance sheet, there were allegations that Feds had lowered its guard and bar for the country's major banks. Out of more than 30 banking giants, only Capital One had not passed the so-called "stress test" this year. Now, the bank has to re-submit a detailed report on its cash cushion and safety net measures.

Texas Insurers See Big Profit in 2013
Insurers who offer homeowners coverage in Texas saw big profit margin in 2013 as, according to the Texas Department of Insurance estimate issued on April 2, 2014, the so-called loss ratio for the year stood at 44.8 percent compared to previous year's loss ratio of 54.5 percent. A loss ratio of 60 percent is considered healthy for the industry. The loss ratio doesn't directly reflect profit as it doesn't include items such as agent commissions, administrative costs and other expenses.

INSURANCE and RE-INSURANCE
Primary insurers work with another group of insurers known as "reinsurers" to protect consumers from instances in which disasters strike and many claims have to be satisfied once. Because reinsurers cover big risks, they bundle various risks around the globe such as earthquake risk in New Zealand, hail risk in Texas, risk of terrorism in London. Since the concentration of risk is bad, distributing the risk is a good thing.

Annual Stress Test for 2018
Fed Dings Two Institutions
Federal Reserve on June 28, 2018 released the health report card for the nation's big banking institutions. It gave a clean bill of health for most of them other than Goldman Sachs and Morgan Stanley. Regulators have given green light to 34 institutions to give increased dividends to their shareholders, or buy back shares. For Goldman and Morgan Stanley, the dividends will be frozen at the last year's level.


BANKS AND FINANCIAL INSTITUTIONS


**************************LIBOR-FIXING SCANDAL**************************

The recent scandal surrounding banking industry erupted over an apparent co-ordinated misinformation fed by leading global banks on their borrowing costs that had rigged so-called London Interbank Offered Rate, or LIBOR. The rate is important in setting key loan rates, including mortgage rates. Federal Reserve Bank of New York on July 13, 2012 released documents that showed banks' knowledge of global banking giants understating borrowing costs back in 2007, when the Treasury Secretary Timothy Geithner was the Fed New York's President. The setting of LIBOR came under scrutiny after British Bank Barclays admitted two weeks ago that it had provided false information to keep LIBOR low, and the bank had agreed to settle for $453 million with British and US regulators. Last week (July 2-8, 2012), Barclays Chairman Bob Diamond resigned over the cloud of scandal. How the LIBOR was manipulated:

* A British banking trade group sets the LIBOR every morning after international banks submit their respective borrowing costs. The documents released by New York Fed on July 13 showed that correspondence from Barclays as far back as in 2007 indicated that global banks had been underreporting the costs of borrowing. Then in April 2008, a Barclay employee told more specifically about under-reporting scheme to New York Fed. On June1, 2008, according to the released document, New York Fed President Geithner asked in a letter to Bank of England head, Mervyn King, to change the way LIBOR is claculated. The New York Fed released the document on July 13, 2012 in response to a demand made by Rep. Randy Neugebauer, R-Lubbock, Chairman of the House Financial Services investigative panel. "As much as $800 trillion in financial products are pegged to LIBOR", said Rep. Neugebauer. The latest casualty of LIBOR Manipulation Scandal was the British regulator Financial Services Authority, which oversees the British banking industry. As FSA disbands early 2013, its responsibility will be distributed between Bank of England and a new consumer watchdog.

On July 20, 2012, U.S. Treasury Department's Office of Financial Research, a new agency created as part of the 2010 financial overhaul bill, issued a report that said of faulty procedure of setting LIBOR.

European regulators on December 4, 2013 fined eight financial institutions, including Deutsche ($985 million), JPMorgan Chase ($109 million), Citi ($95 million), Societe Generale, Royal Bank of Scotland and RP Martin, $2.3 billion for LIBOR manipulation. Barclays and UBS avoided fine by cooperating with the investigators, and Citi reduced its fine from $170 million to $95 million. The scandal shook the confidence of public and raised eyebrows of the regulators on the both sides of the Atlantic. The mood of the regulators could be summed up by the statement issued by Joaquin Almunia, EU's Competition Commissioner, on December 4 that it was not only manipulation by these banks, it was also collusion among these banks supposed to compete with each other. On a separate track, European regulators have been investigating the manipulation of the so-called Euribor, or European Interbank Offered Rate, and the inquiry is focused on Credit Agricole, HSBC and JPMorgan.

**************************LIBOR-FIXING SCANDAL**************************

************************** CURRENCY-RIGGING SETTLEMENT ***************
Five Banks Agree to Pay $3.4 Billion in Fine
Regulators in Britain, USA and Switzerland on November 12, 2014 slapped a fine of $3.4 billion on five global banking giants--Citibank, JPMorgan Chase, Royal Bank of Scotland, HSBC Bank and UBS--for fixing the currency markets that host a daily trading of $5.3 trillion, largest among all categories of exchanges, and making profits from unsavory trades. The settlement reached by the banks and U.S. Commodity Futures Trading Commission, U.K. Financial Conduct Authority and Swiss Financial Market Supervisory Authority covers the banks' currency trading practices between January 1, 2008 and October 15, 2013. Other banks are still under investigation.

Five Banks Fined more than $5 Billion
The regulatory agencies and the US Department of Justice on May 20, 2015 fined five of the world's largest banks more than $5.7 billion for currency-rigging and interest rate manipulation. The US Attorney General Loretta Lynch, announcing the fine, said that the banks--Barclays, Citigroup, JPMorgan Chase, RBS and UBS--engaged in "brazenly illegal behavior" on almost daily basis from 2007 to 2013. Barclays ($2.4 billion), Citigroup ($1.3 billion), JPMorgan Chase ($892 million) and RBS ($669 million) were fined currency manipulation, while the UBS ($545 million) was fined for LIBOR-fixing.

************************** CURRENCY-RIGGING SETTLEMENT ***************

*********************** CONSUMER FINANCIAL PROTECTION BUREAU ***********

President Barack Obama on January 4, 2012 nominated Richard Cordray as the new Director of Consumer Financial Protection Bureau. However, there was a firestorm of criticism as the President made the recess appointment by bypassing Congress. However, there may be constitutional challenges to his action since he made the appointment during a brief interval between the first and second sessions of 112th Congress. However, the practice of recess appointment is nothing new as President Clinton and President Bush made 139 and 171 recess appointments respectively, according to the Congressional Research Service. President Obama as of January 4, 2012 made 32 recess appointments.

Dueling Leadership at CFPB

Just before leaving the Consumer Financial Protection Bureau, a consumer watchdog created under the Dodds-Frank Act, on November 24, 2017, Richard Cordray named Leandra English as the new Director of the bureau. At the same time, Trump administration named Office of Management and Budget chief Mick Mulvaney as the new director.

On November 26, 2017, English filed a lawsuit asking that Mulvaney be barred from taking over CFPB.

On November 27, 2017, both English and Mulvaney showed up for the same job, creating a hyper-theatrical scenario. Mulvaney's first action item was to impose a 30-day hiring freeze and suspension of rulemaking. 

Judge Rules in Favor of Trump's Candidate

A federal judge, Judge Timothy Kelly, on November 28, 2017 refused to oblige Leandra English who had filed a lawsuit two days ago seeking to put a hold on the White House OMB head Mick Mulvaney to take over CFPB. The ruling paved the way for Trump's pick to assume the responsibility for an agency that he had lampooned since its creation.

Supreme Court Sides with Consumers on CFPB Funding 

The U.S. Supreme Court on May 16, 2024 overturned lower court rulings by 7-2 verdict. Writing for the majority, Justice Clarence Thomas said that the funding mechanism stood in alignment of what the "First Congress' appropriation practice" had called for, which required Congress to "identify a source of public funds and authorize the expenditure of those funds". The plaintiffs are payday lenders who argue that since the funding mechanism is outside the purview of Congressional appropriation process, it was illegal. The Dodd-Frank Wall Street Reform and Consumer Protection Act insulated the bureau from political influence by assessing a fee on financial institutions. The dissenting voices are of Justices Samuel Alito and Neil Gorsuch. 

New Rules for Credit Scores Unveiled 

Months before the November 2024 Presidential Election, Biden administration on June 11, 2024 unveiled new rules on calculating and influencing the consumer credit scores. Championing the new rules, Vice President Kamala Harris and Consumer Financial Protection Bureau Director Rohit Chopra said on June 11, 2024 that medical debt couldn't be a causal factor to push down the credit score, a crucial tool for consumers to obtain affordable car loans and home mortgages. The rules will ban credit rating agencies from factoring in the medical debt to calculate credit scores, which Experian and Equifax have already banned. According to the CFPB, 15 million American families do have a combined $49 billion in medical debt. 

*********************** CONSUMER FINANCIAL PROTECTION BUREAU ***********

Pyramid vs. Ponzi Schemes

There is a key difference between Pyramid and Ponzi schemes. In a Pyramid scheme, participants get more returns on their investments if they can recruit more investors. In a Ponzi scheme, organizer takes money from the investors and pays out to early investors. Under Texas law, Pyramid schemes are unlawful. 

Financial Scams Cost $8.8 billion in 2022

Financial scams are growing in scope, scale and size. In 2022, financial scams bilked out of circa $8.8 billion in taxpayers' money, nearly 30% increase compared to 2021, according to the August 8, 2023, edition of The Dallas Morning News based on the Federal Trade Commission data. The biggest category of financial scams is that of investment scams, costing taxpayers $3.8 billion, almost double the 2021 losses. 

Biden Targets Overdraft Fees

President Joe Biden on January 17, 2024 unveiled overdraft rules recommended by the Consumer Financial Protection Bureau that would dramatically bring down the overdraft fees from as high $40 to as low as $3. 

ALLY FINANCIAL

Ally IPO Makes US Treasury's Investment in the Company Marginally Profitable
After April 9, 2014, Ally's IPO, US Treasury was able to recoup almost all of its investment of $17.2 billion--plus an additional $500 million--used in 2008 to keep the former General Motors' lending arm floating in the midst of the deepest financial crisis in decades.

BANK OF AMERICA

BOA to Pay $9.5 billion to settle Fraud Charges
Bank of America on March 26, 2014 agreed to settle fraud charges on its mortgage-backed securities it sold during the heyday of financial bubble. Under the terms of settlement, Charlotte-based bank will pay $6.3 billion in cash to Fannie Mae and Freddie Mac, and an additional $3.2 billion to buy back bonds from these two quasi-government agencies.

BOA to Pay $772 Million in Refunds over Credit Monitoring Services
Consumer Financial Protection Bureau on April 9, 2014 asked Charlotte-based Bank of America to pay $772 million in refunds to consumers over what the agency alleged was the bank's failure to provide credit monitoring services as promised. Besides, the bank was slapped a fine of $20 million due to CFPB and an additional fine of $25 million to be paid to Treasury's Office of the Comptroller of the Currency.

BOA Veering toward a $16 billion Settlement
After months of dilly-dallying and dithering, Charlotte-based Bank of America may be inching toward a $16 billion settlement over its sale of toxic mortgage securities in the run-up to the Great Recession. The settlement decision is a prudent one in the backdrop of August 6, 2014, ruling of a New York judge, Judge Jed Rakoff, that ordered BOA to pay $1.3 billion for selling defective mortgages.

BOA Settles a Host of Complaints for $250 million

On July 11, 2023, Bank of America agreed to settle complaints related to "double-dipping", opening credit cards without permission and failure to give customers back accrued rewards for $250 million without admitting or denying the charges. Out of $250 million, $150 million will be in fines to be paid to the Consumer Financial Protection Bureau ($90 million) and the Office of the Comptroller of the Currency ($60 million), respectively, and remaining $100 million to be returned to consumers. CFPB Director Rohit Chopra said in a statement that the penalty and compensation [to consumers] were necessary as "Bank of America wrongfully withheld credit card rewards,  double-dipped on fees and opened accounts without consent". The case is reminiscent of Wells Fargo's opening of millions of unauthorized credit card accounts in 2016 and U.S. Bancorp's similar scandal. Minneapolis-based U.S. Bancorp recently settled the charges related to similar practice brought by the CFPB for $37.5 million. 

BARCLAYS

Barclays CEO Out after Probe into Relationship with Epstein

That Jeffrey Epstein is more damaging in death than in life to his former pals and friends has proven one more time as British regulatory agencies have tied the relationship between the CEO of British financial giant Barclays and the disgraced financier as more intimate and closer than what Jes Staley, CEO of Barclays since late 2015, has acknowledged. The report prepared by a pair of British regulatory agencies--Financial Conduct Authority and Prudential Regulatory Authority--was shared with Staley and his employer on October 29, 2021. The report said clearly that Staley didn't tell his employer full gamut of his relationship with Epstein, who took his life at a federal prison in August 2019. The fallout came swift and fast, with Staley announcing on November 1, 2021 his resignation from the bank. Jes Staley vowed to contest the probe's findings. 

  

BNP PARIBAS SA

The Paris-based banking behemoth BNP Paribas SA pleaded guilty on June 30, 2014 and agreed to pay $9 billion for skirting sanctions on Sudan, Iran and Cuba from 2004 to 2012.

CAPITAL ONE

Capital One Reports Massive Data Breach

Capital One on July 29, 2019 made public that credit card applications of more than 100 million consumers were accessed by a hacker and social security numbers and other personal information for tens of thousands were stolen. A Seattle area transgender woman, Paige Thompson, was taken to custody related to the Capital One data breach. Capital One CEO and Chairman Richard Fairbank apologized, saying "I am deeply sorry for what has happened". The company said that the data breach might cost the financial services company $100 million to $150 million in near term.

CITIGROUP

Citi to Pay $7 billion in Fine
Citigroup on July 14, 2014 agreed to pay $7 billion in fine for its handling of subprime mortgages prior to the Great Recession that had set in late 2007. Citi packaged the subprime loans and sold them to investors such as pension funds, investment funds, financial institutions and other banks, touting the investment sound and safe. The fine included $4 billion civil penalty to be paid to the federal government, $2.5 billion to be paid for consumer relief and an additional $500 million to be paid to settle claims filed by states' Attorneys General and Federal Deposit Insurance Corporation.

CREDIT SUISSE AG

Swiss Bank Pleads Guilty
Credit Suisse AG on May 19, 2014 pleaded guilty and agreed to pay $2.6 billion in penalties for helping wealthy Americans avoid paying federal income tax.

Credit Suisse's Woes Growing

On the heels of U.S.'s second- and third-largest bank failures, U.S., European and U.K. regulators are working deliberatively and collaboratively to prevent any systematic and wider economic malaise from taking hold. Credit Suisse's financial troubles had begun long ago, with risky assets and exposure to volatile investment playing a crucial role in the bank's present economic imbroglio. Credit Suisse's over-exposure to New York-based Archeogos Capital Management, which had failed in March 2021, led to the balance sheet turbulence from which the 167-year-old Swiss banking behemoth was not able to fully recover. As Credit Suisse's economic fortune is going through a downhill trajectory, question about its viability as a going concern can't come at any worse time as the attention of global market is pivoted on the stressed banking industry after the second- and third-largest bank failures in a span of 48 hours. On March 16, 2023, Switzerland's central bank offered a $53.7 billion credit line to Credit Suisse. Credit Suisse is in conversation with UBS for a possible merger. 

Credit Suisse to be Sold to UBS to Prevent Economic Malaise 

At the behest of financial regulators and policymakers, intense negotiation was launched to rescue the Swiss financial behemoth Credit Suisse even after an offer of a $53.7 billion liquidity line of credit had not yielded much of a positive outcome. Swiss banking giant UBS on March 19, 2023 became the suitor of Credit Suisse, and the announcement was made of a $3.25 billion transaction. The negotiation was led by UBS Colm Kelleher, Credit Suisse Chairman Axel Lehmann, Switzerland's Federal President Alain Berset and Swiss Finance Minister Karin Keller-Sutter. 

EQUIFAX

Personal Information of 147 million Customers Stolen; Equifax Settles for $700 million

The credit rating company Equifax in 2017 acknowledged that more than 147 million customers' personal information had been hacked. In the third week of July 2019, Equifax settled this case with the U.S. regulators for $700 million. 

FIRST REPUBLIC BANK

First Republic Bank at Jeopardy of Losing S&P 500 Membership Accreditation 

First Republic Bank on April 28, 2023 suffered one of the worst equity setbacks after its stock plunged 43%, pushing down its market cap to $650 million, lowest market cap in the S&P 500 Index. First Republic Bank lost $22 billion in market capitalization in a span of weeks. Now, the bank's very survival in the S&P 500 Index that tracks more than $15 trillion is in question as its $650 million market capitalization is much lower than the $12.7 billion threshold for the benchmark index fund. 

First Republic Bank's Failure Marks the Second-Worst in Nation's History

Underlining the second-largest banking failure after Washington Mutual and the third bank collapse in two months, the federal government on early May 1, 2023 seized the First Republic Bank and sold its assets to J.P. Morgan Chase. The shareholders of the First Republic Bank, which had $173 billion in loans, $30 billion in securities and $92 billion in deposits, most likely, end up losing everything.

GOLDMAN SACHS

Goldman Reaches Mortgage-related Settlement with Fed
Goldman Sachs on January 14, 2016 agreed to pay $5.1 billion as part of a settlement over its mortgage-backed securitization practice at the peak of housing crisis. As part of the settlement, reached with the U.S. DOJ, New York and Illinois Attorneys General, Goldman Sachs will pay a $2.39 billion in civil penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief, and avoid further litigation from National Credit Union Administration, Federal Home Loan Banks of Chicago and Seattle. After the settlement was announced, the CEO and Chairman of Goldman Sachs Lloyd Blankfein said that he was "pleased to have reached an agreement" to "resolve the matters". Authorities already reached more than $37 billion settlements with the three Wall Street behemoths, namely JP Morgan Chase, CITI and Bank of America, with the Bank of America's settlement of $16.7 billion remained the biggest at the time against a U.S. corporation. Morgan Stanley reached a $2.6 billion settlement with the Justice Department in February 2015.

Goldman to Pay over $5 billion to Settle over Mortgage Malfeasance
As agreed in a January 14, 2016, deal, Goldman Sachs inched a step closer on April 11, 2016 on a $5.06 billion fine for alleged malfeasance over mortgage-backed securitization practice at the peak of housing crisis. The company hashed out the final details since January 14, 2016, and the full breadth of settlement terms were unveiled on April 11, 2016. Reflecting a hardening stance against corporate malfeasance, DOJ civil division head Benjamin Mizer said on April 11, 2016 that "today's settlement is another example of the department's resolve to hold accountable" any companies, big or small, for corporate wrongdoing. The Goldman settlement is the fifth settlement reached by a panel--Residential Mortgage-Backed Securities Working Group--appointed by President Barack Obama in 2012 to look into lending practices of the nation's banks. The other four settlements included the ones with:
(1) JP Morgan Chase for $13 billion
(2) Bank of America for $16.6 billion
(3) Citi for $7 billion
(4) Morgan Stanley for $3.2 billion



HSBC

HSBC Agrees to $470 million Settlement
Banking giant HSBC on February 5, 2016 agreed to a $470 million settlement with the U.S. federal and state authorities for its shoddy mortgage underwriting practices that had led to the worst housing crisis in 2007. As part of the settlement, HSBC will provide $100 million to federal government and $370 million in consumer relief.


JP MORGAN CHASE

JP Morgan's Loss of More than $6 Billion in Complex Trade
JP Morgan CEO Jamie Dimon's May 10, 2012, unexpected after-hour announcement that his bank has lost more than $2 billion in trading bet with its own money over the past six weeks relived the pre-2008 recession scenario again when banks used to take massive risks using often sophisticated and sleazy financial instruments. What JP Morgan did was to come up a two-layer hedging strategy on the risk-based asset management, and eventual failure of that strategy. The bank played with its lending strategy by buying Credit Default Swaps to insure against losses from the bad loans given to various companies. CDS is usually purchased when there is strong likelihood that companies will not pay back their lenders. However, JP Morgan later realized that it might have bought unnecessary protection on its loan, and hedged against its first hedge. It is the second hedge that went sour, contributing to significant loss. According to 2010 Dodd-Frank Act, the CDS-related activities with banks' own capital are not allowed as per a rule, known as Volcker's Rule. The salient feature of the Dodd-Frank Act is the Volcker's Rule.

JP Morgan on May 16, 2012 revealed that the loss from trading bet mounted to $3 billion as various players in the market place had positioned their bet since Jamie Dimon's announcement of $2 billion loss on May 10.

According to a confidential internal analysis carried out in April and published in June 28, 2012, edition of The Dallas Morning News, the loss may mount from $8 billion to $9 billion.

In the second quarter earnings release on July 13, 2012, JPMorgan Chase reported the loss from bad trade to be $5.8 billion this year, almost triple the estimate given by Jamie Dimon, CEO, on May 10, 2012. The bank said that it had lost $1.4 billion in bad trade during the first three months (January through March, 2012) of this year, and $4.4 billion from April to June 2012. If financial condition deteriorates significantly in the coming months, the bank may incur an additional loss of $1.7 billion. Overall the bank earned $5 billion in the second quarter, or $1.21 per share.

Two former JP Morgan employees were charged by the federal prosecutors on August 14, 2013 for crimes related to 2012 trade losses of more than $6 billion. Two former traders, Javier Martin-Artajo, 49, and Julien Grout, 35, with the banking giant's London office were charged for "artificially increasing the market value of securities to hide the true extent of hundreds of millions of dollars of losses". The charges were brought in New York, and the charges had put more onus on Martin-Artajo, who headed the trading strategy out of London office, and was Grout's boss. The case is related to the trading loss attributed to the trader named Bruno Iksil, also known as London Whale, who has been co-operating with the authorities. The Securities and Exchange Commission also brought a civil suit on August 14 against the duo, accusing them of mismarking the investments in a vehicle known as the Synthetic Credit Portfolio.

JP Morgan on September 19, 2013 settled with the US and UK government for $920 million, but with an admission of guilt for lack of supervision and oversight at its London trading office, something which is rare in any settlement. The settlement in almost $6 billion in trading loss included:

* $200 million to SEC
* $200 million to Federal Reserve
* $300 million to Office of Comptroller of the Currency
* $220 million to the U.K. Financial Conduct Authority

The US Justice Department's criminal investigation is still continuing.

Reflecting its legal woes and litigation costs stemming from its trading scandal as well as larger problems of home mortgage issues, the bank behemoth suffered its first loss in several years as it reporting its quarterly earnings report on October 11, 2013. During the third quarter of 2013, Chase lost $380 million, or 17 cents a share, as it had a to take a write-down of $9.15 billion because of its legal expense, part of a pot of $23 billion in litigation reserve.

On October 16, 2013, JP Morgan Chase agreed to pay $100 million in fine for the trade-related losses at its London office as the banking behemoth agreed to plead guilty on the count of violating the new rules under the Frank-Dodd Act. The agreement was reached between JP Morgan Chase and the Commodity Futures Trading Commission, which accused the bank of recklessly "employing a manipulative device" in the market for swaps, financial contracts that allowed the bank to bet on the health of companies such as American Airlines.

After years of talks between the US Department of Justice and JP Morgan Chase, including some intense talks between Attorney General Eric Holder and Chase CEO Jamie Dimon, the bank on October 19, 2013 tentatively agreed on a settlement in a mortgage-related securities malpractices that had happened prior to and during the depth of Great Recession (2007-2008) and pay the largest amount of fine ever. The fine was $13 billion--out of which $9 billion was penalty and $4 billion in consumer relief--topped the previous highs of BP's $4.5 billion in Gulf Oil Spill and $1.9 billion in HSBC's money laundering case.

As part of the $13 billion broader settlement, JP Morgan Chase on October 25, 2013 agreed to pay $5.1 billion fine to the parent company of Fannie Mae and Freddie Mac for misleading information over its sales of $33 billion in mortgage-backed securities in the run-up to financial meltdown in 2008. Federal Housing and Finance Agency, the parent company of Freddie and Fannie, sued 18 financial institutions in 2011 over the sale of $196 billion in risky mortgage-backed securities to the two quasi-government agencies, leading to a massive $187 billion bailout. So far, Freddie and Fannie were able to return $146 billion out of $187 billion taxpayer bailout. JP Morgan Chase sold $33 billion in mortgage-backed securities, second-largest after the Bank of America, to Fannie and Freddie between 2005 and 2007. JP Morgan will pay about $2.74 billion to Freddie, $1.26 billion to Fannie and $1.1 billion to FHFA.

On November 15, 2013, JPMorgan reached a $4.5 billion settlement with a group of investors over claims that the bank had sold shoddy mortgage-backed securities between 2005 and 2008. This settlement is different from the $13 billion settlement the bank had reached with the DOJ October 19, 2013, which will be formally announced in the coming weeks. The settlement reached on November 15 covers about 330 mortgage-backed securities trusts and sold by JPMorgan and Bear Stearns between 2005 and 2008. Bear Stearns has been bought by JPMorgan in 2008 at the behest of Fed's prodding. The settlement doesn't cover the similar mortgage-backed securities sold by Washington Mutual, another bank acquired by JPMorgan during the depth of the worst recession in a generation. JPMorgan disclosed last month that it had set aside a cushion of $23 billion for litigation costs.
JPMorgan settled a similar lawsuit with SEC in June 2011 by agreeing to pay a fine of $153.6 million and another such agreement in November 2012 by agreeing to fine of $296.9 million.

On November 19, 2013, U.S. DOJ and JPMorgan Chase finalized the $13 billion settlement that was initially agreed on October 19, 2013. The settlement resolves an array of state and federal investigations into mortgage-backed securities issued by the bank from 2005 through 2008 to pension funds and other investors. The breakdown of the fine:

(1) $9 billion in penalty
 
     * $2 billion to prosecutors in Sacramento, CA.
     * $4 billion to Freddie and Fannie

(2) $4 billion in consumer relief

      * Half of that will go to reducing the balance of the mortgage
      * Half of that will go to reducing the interest rate for existing customers and helping low-income borrowers to get mortgage loans.

SILICON VALLEY BANK

Worst Bank Failure since Great Recession Sends Recession Fear

The second-worst bank failure in the U.S. history occurred this week as FDIC and California state regulators on March 10, 2023 seized the assets of Silicon Valley Bank in a stunning and shocking downfall of the nation's 16-th largest bank, valued $40 billion in market value as recently as last year. On March 9, 2023, depositors and investors have tried to withdraw circa $42 billion from the bank that exclusively caters the tech startups and venture capital-backed firms. Some of its better known clients are Roku, CrowdStrike and ZipRecruiter. The worst bank failure dated back to 2008 when Washington Mutual had failed. During the Great Recession, mortgage-backed security, specially subprime loans, caused deeper banking and financial malaise that had ended up with failure of iconic names such as Lehman Brothers, a firm founded in 1847. The 2007 failure of Lehman spawned a deeper crisis in the economy, leading to millions of jobs lost in subsequent months and several Congressional reforms of the banking and financial sectors. Referring to those reforms that helped the nation's banks to have achieved healthy balance sheets, Treasury Secretary Janet Yellen said that federal government was "watching closely" the events surrounding the failure of SVC, but assured the American public that a broader banking crisis was not on the horizon. White House Council of Economic Advisers Chair Cecilia Rouse added that "our banking system is fundamentally different place" now. 

On March 10, 2023, Federal Deposit Insurance Corporation and California banking regulators stepped in around noon, very unusual as regulators normally wait until the markets are closed before taking such drastic action, and seized the assets of SVC. Regulators transferred the assets to a newly created entity, Deposit Insurance Bank of Santa Clara. 

Federal Regulators Step in to Provide Backstop to SVB Depositors 

On March 12, 2023, federal regulators stepped in to put a backstop to secure the assets of all Silicon Valley Bank deposits, not just $250,000 federally insured deposits as the fear of a banking industry malaise had spread beyond the Silicon-area bank. Federal regulators assured that the SVB customers would have access to their asset effective March 13, 2023, morning. Coming two days after the second-largest bank failure in the U.S., state regulators seized the asset of another regional bank on March 12, 2023, this time Signature Bank of New York. 

Defending the backstop of all deposits, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation on March 12, 2023 issued a joint statement, justifying the "decisive actions to protect the U.S. economy by strengthening public confidence in our banking system". Treasury Secretary Janet Yellen has said that taxpayers' money will not be used to fund the backstop. This money will come from a pool that nation's banks do send in regularly. The pool now has about $100 billion. 

Separately, Federal Reserve announced on March 12, 2023 that it was creating a new lending program--Bank Term Funding Program--for the nation's banks. Under the new program, banks have to pledge to treasury securities and other government securities as collateral for loans of up to one year. As the Federal Reserve raises the interest rates to fight the inflation, the values of those bonds and securities tend to fall. U.S. banks sustained a collective paper loss of $620 billion as of the end of 2022. The paper loss becomes a loss to be recorded on the book once banks are forced to sell those securities and bonds as a response to cover the withdrawal demand from the customers, which has been the case for SVB. 

Biden Reassures the Nation on Banking Industry's Health as Bank Stocks Plunge

After the second- and third-largest bank failures in a span of 48 hours, stocks of various midsize and regional banks plunged on March 13, 2023 as President Joe Biden said at a White House press conference that the banking industry remained robust, reassuring a leery nation after Silicon Valley Bank failed on March 10, 2023 and New York's Department of Financial Services seized the assets of Signature Bank on March 12, 2023. 

DOJ Joins Probe into Second-largest Banking Collapse

According to a front-page article published by The Dallas Morning News on March 15, 2023, U.S. Department of Justice has launched an investigation into the March 10, 2023, failure of Silicon Valley Bank, which was heavily focused on tech industry, joining probes by other agencies such as Securities and Exchange Commission, Federal Reserve and U.S. Attorney's Office for the Northern District of California. Separately investors filed a class-action lawsuit in the U.S. District Court for the Northern District of California against the bank, its CEO, Greg Becker, and CFO, Daniel Beck, accusing them of failing to carry out the institution's fiduciary responsibilities, irresponsible exposure to risky assets such as bonds and mortgage-backed securities in the rising interest rate regime, and executive stock sales in the months prior to collapse. Federal Reserve Chair Jerome Powell said on March 13, 2023 that Feds would launch a review of the SVC failure and on what lesson could be drawn from it. The review will be led by Feds Vice Chair Michael Barr, who oversees banking on behalf of Federal Reserve. Federal Reserve can't eschew its own responsibility as the oversight of the Silicon Valley Bank falls squarely on the Federal Reserve as well as California Department of Financial Protection and Innovation. The California bank was without a chief risk officer almost for a year. Many financial observers are also blaming the preponderance of portfolios in individual risky sectors, instead of focusing on diversifying the assets, for the second-largest (SVC was heavily invested in struggling Tech sector) and third-largest (Signature Bank in New York was heavily focused on cryptocurrency and digital assets). 

Two Bills Favored to Move through Congress

The Dallas Morning News has reported on March 19, 2023 that two legislative pieces have chances of moving forward through the divided Congress with bipartisan support in the aftermath of the second- and third-largest bank failures. The first bill is co-sponsored by Sen. Elizabeth Warren, D-Massachusetts, and Rep. Katie Porter, D-California, and the second bill by Sen. Richard Blumenthal, R-Connecticut; Rep. Adam Schiff, D-California, and Rep. Mike Levin, D-California, respectively. 

The first bill is intended to reverse the 2018 rollback of Frank-Dodd Act. Under the Frank-Dodd Act, passed in the aftermath of the nation's worst banking crisis in 2007-2008, banks and financial institutions with assets $50 billion or more were required, among other steps, to carry out "annual stress testing" and submit a resolution plan, or "living will" in case of bankruptcy. During the Trump era, banking industry heavily lobbied against the Frank-Dodd Act and the strict provisions were loosened in 2018, leading to retaining the strict regime of rules for banks with $250 billion or more in assets, altogether exempting the banks with less than $100 billion in assets, and case-by-case decision for banks with assets between $100 billion and $250 billion. 

The second bill has better likelihood to pass, and it calls for recouping the executive bonuses and profits from stock sales made within 60 days prior to a bank failure. 

Midsize Banks' Industry Group Asks to Raise the Insurance Coverage on Deposits 

The Dallas Morning News on March 20, 2023 reported that the industry group for midsize banks wrote a letter to Treasury Secretary Janel Yellen, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency and Federal Reserve, seeking all deposits to be insured for the next two years. In the letter, Mid-Size Bank Coalition of America, or MBCA, argued that having the guaranty of insurance for all deposits "will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce the chances of more bank failures". After the failure of Silicon Valley Bank, there was a mad rush for customers to transfer money from regional, small- and mid-size banks to banking behemoths such as J.P. Morgan Chase and Bank of America. 

Yellen Vows to Rescue Small Banks

In remarks at the American Bankers Association conference on March 21, 2023, Treasury Secretary Janet Yellen pledged to protect the nation's smaller banks if they faced a similar situation such as SVB and Signature Bank. Yellen also drew the contrasting financial landscapes between now and what had persisted during the time of Great Recession. She has called the situation at that time a banking "solvency crisis" instead of what we are seeing now: a "bank run crisis". To facilitate the smooth functioning of the nation's banking system, authorities have taken two key measures:

* Change in rules in Federal Reserve's emergency lending facility, or so called Discount Window, to help meet deposit withdrawals

* Launch of a new lending program, Bank Term Funding Program

Yellen has defended both these measures, saying that they are working as expected.

First Citizens to Buy Parts of SVB Assets; SVB Failure to Cost $20 billion

The Associated Press has reported on March 27, 2023 that First Citizens Bank is buying much of the Silicon Valley Bank. 

On a separate note, the failure of SVB is estimated to cost about $20 billion. The loss will not be covered by taxpayers' money. Instead, the loss will be covered by a pool where major banks contribute.

Biden Instructs Regulators to Impose Stricter Conditions on Banking System

Indirectly taking a dig at the rollback of the Frank-Dodd Act of 2010 under his predecessor, President Joe Biden on March 30, 2023 instructed the regulators to impose stricter rules on midsize banks. The second- and third-largest banking failures had happened in a matter of hours as federal and state regulators had to step in to rescue Silicon Valley Bank and Signature Bank. Following those two high-profile failures, First Republic Bank received $30 billion infusion from 11 large private banks. Biden administration believes that there is no new Congressional law needed to impose a stricter regulatory regime on the nation's banking system. The current law and the regulatory authority empowers the federal agencies to require banks with at least $100 billion in assets to undergo mandatory "annual stress testing" and furnish a "living will" among other additional stringent regulatory steps. 

Fed Report Criticizes Its Own Oversight Lapse, Bank's Internal Failure for SVB Collapse

In a report made public on April 28, 2023, Federal Reserve blamed the March 2023 collapse of the Silicon Valley Bank on a host of reasons, including its own regulatory enforcement failure, bank management's lack of risk mitigation procedures and Trump-era rollback of the many regulatory provisions of the Dodd-Frank Act of 2010, especially loosening up the regulatory oversight for banks with assets between $100 billion and $250 billion. 

Federal Reserve's investigative report was authored by the Fed's chief regulator, Michael Barr. Normally Fed's report is shared with a select group of policymakers, lawmakers, officials and public figures. Making the report public is unprecedented, and represents, most likely, a new culture of openness and transparency. 

A separate report by Federal Deposit Insurance Corp. said that Signature Bank's failure might be attributed to the collapse of SVB as well as Signature's overexposure to Cryptocurrency-denominated asset class. 

WELLS FARGO

Feds Fine Wells Fargo $185 million
As the recent reports of unauthorized opening of millions of checking accounts and credit cards tainted the reputation of Wells Fargo, the banking giant was fined $185 million on September 8, 2016, including $100 million by the Consumer Financial Protection Bureau. According to the federal banking regulators, the malpractices, under which thousands of employees of the California-based bank had opened roughly 1.5 million bank accounts and 565,000 credit cards without  consent from the consumers in order to meet sales targets, dated back to 2011.

CEO Quits over Scandal
Wells Fargo CEO John Stumpf had to pay a price for the ensuing scandal that had shocked the nation. Stumpf quit in October 2016. Tim Sloan took over the CEO role, while Stephen Sanger became the Chairman. Both roles were previously held by Stompf.

Chairman to Step down, Former Feds Official to Shoe in
Wells Fargo announced on August 15, 2017 that Chairman Stephen Sanger would quit the board of directors by the end of 2017, and former Federal Reserve official Elizabeth "Betsy" Duke would become the new chairwoman effective January 1, 2018.

Wells Fargo to Pay a Fine of $1 billion
Wells Fargo and Trump administration are expected to announce a $1 billion in settlement on April 20, 2018 as part of the looming scandal over the bank's practice of selling auto insurance policies to consumers without their permission and other misdeeds, including mortgage-related irregularities. The large fine to be imposed as part of the settlement with two federal agencies---Office of Comptroller and Currency and Consumer Financial Protection Bureau--underscores the scale of financial mischief that even an industry-friendly administration can not ignore. 

Facebook to Acquire Instagram

Facebook on April 9, 2012 announced its biggest acquisition ever by offering Instagram, a social network site revolved around photography, $1 billion. Instagram has 30 million users who upload more than 5 million photos a day, even though it was available only for Apple devices until last week, when the company launched an Android app. Kevin Systrom, who founded Instagram with Mike Krieger, developed a service called the Photobox when he was a Stanford sophomore in 2004. The service caught the eye of Mark Zuckerberg, who had offered a job to Systrom. However, Systrom refused the offer, and continued to finish his study. He then started another service called Burbn, which allows people post photos and other updates. Burbn was never a hit, only a few hundred users used the service to upload a lot of photos. So, Systrom and his team created a stripped down and sleeker version of Burbn, called the Instagram, for the iPhone.

E-Book Anti Trust Lawsuit

The US Justice Department on April 11, 2012 filed an antitrust lawsuit against Apple and major book publishers, accusing them of colluding to keep the retail price of e-books higher. Three big publishers investigated by the US DOJ--Hachette Book Group, Simon and Schuster and HarperCollins--have settled the case, while the other big two publishers, Macmillan and Penguin Group USA, refused to settle, and are now facing USDOJ lawsuit. The lawsuit alleges that Apple and the publishers conspired to limit e-book price competition, causing "e-book consumers to pay tens of millions of dollars more for e-books than they otherwise would have paid". However, if consumers get any money, it has to come from states as sixteen states, led by Connecticut AG George Jepsen and Texas AG Greg Abott, filed a lawsuit against Apple and three publishers--Macmillan, Penguin, and Simon and Schuster--on April 11, 2012, while settled with two other publishers, Hachette and HarperCollins. According to the states' lawsuit, the damage to customers is approximately $100 million, or $5 per e-book. The DOJ investigation against Apple and five big publishers began last year (2011) when they had adopted a new pricing model, called the agency model, under which publishers would set the retail prices of e-books and retailers would get a commission. This new model, agency model, is significantly different from the traditional book pricing model, called the wholesale model. Under the wholesale model, publishers would charge the retailers half the cover price in lieu of giving them latitude of setting their own pricing structure. The agency model was originally suggested to the publishers in early 2010 by the then-CEO of Apple, Steve Jobs, as the publishers were becoming increasingly nervous about Amazon's e-book selling practices. Amazon, at that time, often used to sell e-books at $9.99. Prior to the iPAD launch in early 2010, Jobs insisted on the so-called "most favored nation" status as part of the agency model under which the publishers would set the retail price and no retailers could sell e-books below that price. It is this clause of "most favored nation" that came under the radar of USDOJ investigation. Apple was then on the verge of ramping up of its iBookstore through its iPAD platform, posing a direct challenge to the hegemony of Amazon Kindle. The agency model has been responsible for lowering the Amazon's market share from 90 percent to around 60 percent, while Barnes and Noble's Nook stood at 25 percent and iBookstore gained prominence to by capturing a market share of 10 to 15 percent.

Treasury Makes Profit Out of Fannie and Freddie

On March 19, 2012, Treasury said that it had sold the last of $225 billion in mortgage-backed securities acquired from the Freddie Mac and Fannie Mae at the height of housing meltdown. The bonds are mostly 30-year, fixed-rate mortgages and backed by Fannie and Freddie. The US Treasury began to buy them in October 2008 and continued the buying spree through December 2009. The bonds worth of $225 billion were then sold incrementally beginning in March 2011. So far, the U.S. recuperated, Treasury reported on March 19, 2012, $250 billion in sales, principal and interest, netting a profit of $25 billion.

The purchase of $225 billion mortgage-backed securities is different from the bailout provided to Fannie and Freddie. As of March 13, 2012, two companies plus the Federal National Mortgage Association and the Federal Home Mortgage Corporation have received a total of $188 billion in taxpayer money, and Fannie and Freddie paid back about $36 billion in dividends since the bailout began in 2008, leaving the US taxpayers on tenterhook of $152 billion in hole.

On May 9, 2013, Fannie Mae reported that the quasi-governmental mortgage holding company made $58.7 billion in profit in the 2013 first quarter. Fannie had applied $51 billion in tax credit from its losses from delinquent loans to the profit figures. Under a federal policy adopted 2012 summer, Fannie and Freddie must turn over their entire net worth over $3 billion each quarter to the US treasury. Fannie reported that during the first quarter its net worth was $62.4 billion. So, Fannie will give a special dividend of $59.4 billion to the US government, thus raising the total amount it will have paid to $95 billion out of $116 billion it has received from the government as part of 2008 bailout program.

Obama Administration Proposes to Slash Corporate Tax Rate

On February 22, 2012, Trasury Secretary Timothy Geithner proposed Obama administration's far-reaching corporate marginal tax rate reduction plan that would lower the top marginal rate from 35 percent to 28-percent. Although the corporate tax rate for the US companies is 35% as opposed to 23% marginal rate for their counterparts in other OECD nations, the average effective rate for US companies is much lower: 18.5%. In exchange of lowering the marginal rate from 35% to 28%, the Obama administration proposed to eliminate tax breaks for oil and gas companies, thus expecting to raise an estimated $250 billion over 10 years. According to a preliminary report published in Fall 2011 by the Joint Committee on Taxation, reduction in marginal rate from 35% to 28% would cost $700 billion over 10 years. Also as part of funding the marginal rate reduction, Obama administration proposed to tax, not known yet the rate of taxation, on the overseas earning of US companies.

BABY PRODUCTS, BABY FORMULA, President Obama's 2013 Budget Blueprint

President Barack Obama on February 13, 2012 sent Congress the 2013 Fiscal Year (October 1, 2012-September 30, 2013) budget blueprint that envisioned a plan for $4 trillion in the deficit savings over the coming decade, mostly by letting the tax cuts expire for the wealthy. The break-up of the $3.8 billion spending plan includes:

* 43% Mandatory Spending (Medicare, Medicaid, Social Security)

* 7% Interest on Debt

* 22% Defense, Security

* 11% Domestic

* 18% Other entitlements

The projected revenue of $2.9 trillion includes:

* 33% Payroll Tax

* 12% Corporate Income Tax

* 3% Excise Tax

* 47% Income Tax

* 5% Other

Although the projected deficit of $901 billion is less than $1 trillion threshold, it is still a matter of concern as the government needs to borrow 24 cents for each dollar it spends. Part of the revenue growth will come from letting the Bush-era tax cuts for households earning $250,000 per year and on dividend incomes for wealthy taxpayers expire after 2012.

*** SALIENT FEATURES OF 2013 OBAMA BUDGET BLUEPRINT

** Elimination of numerous tax breaks for oil, coal and gas companies (would raise $41 billion over 10 years).

** Purchase cuts of Navy ships and F-35 JSF aircrafts.

** Trimming of 100,000 troops from Defense payroll over the coming years.

** Seeking $476 billion  for transpotation projects, including roads, bridges and a much-criticized high-speed rail initiative. Proposal included $50 billion "upfront" investment for transportation.

** Disbursement of grants to better performing schools as part of the "Race to the Top" initiative.

** Imposition of (10-year, $61 billion ) new tax on banks to partly recover bailout from 2008 financial crisis.

** Investment of $30 billion to modernize at least 35,000 schools, and $30 billion to help states hire teachers, police and fire personnel.

** Creation of $8 billion "Community College to Career Fund" to train 2 million workers for jobs in potential growth areas.

House Republicans' Budget Plan for Fiscal 2012

On March 20, 2012, House Republicans infused in the Presidential Year of Politics their own dose of economic remedy by unveiling their own budget bluprint for Fiscal 2012 (October 1, 2012-September 30, 2013). House Budget Committee Chairman Paul Ryan, R-Wis., this time modified the plan on Medicare reform slightly compared to last year's much villified plan of replacing traditional Medicare by providing seniors subsidy to buy private insurance. According to this year's budget blueprint, seniors (seniors who are currently eligible for Medicare or 55 and older are exempt) will be offered the subsidy to buy private healthcare insurance from the federal insurance exchange, while retaining the traditional Medicare as an alternative offering for the future retirees. Under this year's House Republicans' budget proposal, the Medicare eligibility age will increase to 67 from 65 in 10 years. Medicare spending will be shaved by $205 billion deeper than Obama blueprint over the next decade.

* Medicaid
Medicaid will be cut by $770 billion (over the next 10 years) more than what President Obama has proposed in his budget blueprint. The Medicaid will be given to states as flexible block grants as will be food stamps and housing assistance.

* Changes to Tax Codes
Not clear yet on details, but the existing six tax rates will be simplified to two rates: 10 percent and 25 percent, with most of the tax credits and deductions to be eliminated.

* Corporations
The corporate tax rates will be lowered to 25 percent from 35 percent, and the regime will be changed to "territorial" tax instead of tax on "worldwide profit".

However, Ryan blueprint wants to hasten discretionary and mandatory spending cuts to avoid $110 billion automatic cuts from military and domestic programs ($55 billion in Pentagon spending Plus $43 billion nondefense appropriations Plus $12 billion in other programs) beginning in 2013 as part of August 2011 debt deal between Congress and White House.

Under the House plan, deficit for Fiscal 2012 will fall from the current level of $1.18 trillion to $797 billion as compared to $977 billion under Obama's blueprint. By 2016, the budget deficit will fall, under the House Plan, to $241 billion as compared to $529 billion as estimated by the Congressional Budget Office last week. The Ryan plan will accumulate an additional debt of $3.1 trillion through 2022 as compared to $6.4 trillion under the Obama blueprint. Ryan plan envisions repeal of Obamacare and elimination of Freddie Mac and Fannie Mae.

BABY PRODUCTS AND FORMULA

FDA, Abbott Reach Agreement on Plant Starting

The current baby formula shortage can be traced to a market monopoly by four companies: Abbott, Perrigo, Nestle SA and Mead Johnson. Combined, they control 90% of the U.S. baby formula market. In February 2022, when the contamination at the largest U.S. baby formula plant at Sturgis, Michigan was reported and the operation at the plant run by Abbott was subsequently suspended, an already strained market for baby formula started to plunge into a total chaos of a disbalanced demand-supply equilibrium. In recent weeks, the crisis has become a headwind for Biden administration, and Republicans have blamed President Biden for the scarcity. On May 16, 2022, Abbott and FDA reached an agreement to resume operation at the Sturgis plant, but it would take 6 to eight weeks to normalize the movement of pallets of formula from the plant to store shelves. 

House Unveils a $28 million Aid Package

House Democrats on May 17, 2022 unveiled a $28 million aid package to help address the baby formula crisis that had afflicted the nation and created a political liability for Democrats and President Joe Biden. The aid package unveiled by Rep. Rosa DeLauro, chair of the House Appropriations Committee, will augment staffing level at FDA to accelerate the inspection regime, streamline the regulatory process and cut down the latency between production and shelfing. 

Defense Production Act Invoked to Address Baby Formula Shortage

President Joe Biden on May 18, 2022 invoked the Defense Production Act to ease the baby formula crisis by streamlining all related steps in the production and distribution ecosystem and accelerate the production of baby formula domestically. In addition, the U.S. military will charter commercial flights to import baby formula from overseas makers as part of the Operation Fly Formula. President Biden authorized Agricultural Department and Department of Health and Human Services to request Pentagon to arrange, under the Operation Fly Formula, formula imports as a bridge before the domestic production ramped up. 

78K Pounds of Baby Formula Flown in

U.S. Military on May 22, 2022 flew in approximately 78,000 pounds of baby formula from Germany to Indianapolis. Since U.S. military could not requisition commercial aircraft, it used military plane to fly in pallets of baby formula. Agricultural Secretary Tom Vilsack was on hand on May 22, 2022 to greet the first shipment of baby formula under Operation Fly Formula. 

Abbott Plant in Michigan Resumes Operation

Abbott Nutrition's baby formula plant at Sturgis, Michigan resumed operation on June 4, 2022, bringing a sigh of relief for Biden administration and a leery nation as parents had been searching for baby formulas all over. It will take at least 7 to 8 weeks for the formula to reach store shelves and help ease the supply crisis that had dawned since February 2022. 

Third Tranche of Baby Formula Arrives, This Time to DFW

On June 9, 2022, a gargantuan FedEx Express MD-11 charter flight brought in about 11,000 pounds of baby formula to the DFW International Airport. Large pallets of Nestle baby formula have been flown in as part of Operation Fly Formula and they will be sold entirely online. June 9, 2022, marks the third Operation Fly Formula flight. There will be more Operation Fly Formula flights in the coming days. Operation Fly Formula is a joint endeavor of Health and Human Services, Agricultural Department, General Services Administration and Department of Defense. FDA is also involved to certify the quality of the product imported from overseas.