How to Cover Wall Street

Though the layperson may still not completely get just how the credit crunch could affect them, it could become pretty clear when it starts to affect his or her spending. A common denominator that is a staple in many people’s financial lives is credit cards. The economic crisis has already had adverse effects on the credit-card industry. You may have noticed fewer credit card offers in your mailbox, and fewer still with offers of zero-percent interest rates. This year, banks like HSBC and Citibank have cut their mailings by as much as half.

Also, your credit limits may start to decrease without your knowledge. Or, if you have a credit card that you  keep around for emergencies but has been rendered inactive, it may be canceled so the issuer can cut the cost of maintaining the account. These may seem like small changes, but they can hurt your credit score, so it’s a good idea to keep a close eye on your accounts these days. The Wall Street Journal reports how you can track what’s being done to your credit score.

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John Mack “quickly signed,” the Wall Street Journal said in its coverage of the Treasury meeting with America’s top nine banking chiefs on Monday.

Maybe he did, or maybe he actually signed in alphabetical order — which would put him somewhere in the middle. “Before the meeting, John J. Mack said his bank, Morgan Stanley, did not need capital from the Treasury. It had just sealed a $9 billion deal with a large Japanese bank,” according to the New York Times account of the same event.

The details here might paint different pictures of Morgan Stanley, but the outcome is all the same. Mack and each of his peers definitively signed away on a $125 billion cash injection (executive pay caps included). Both papers clearly made that point in their coverage of the Washington gathering between the nine CEOs, Henry Paulson, Ben Bernanke and other government officials.

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A few weeks ago, California Governor Arnold Schwarzenegger said his state might need a $7 billion loan from the federal government just to keep making payroll and securing basic services. Virginia faces a $3 billion shortfall, our very own New York has a $2 billion hole in its budget and there are many more states facing huge deficits.

This wouldn’t be as much of a problem if state governments didn’t have state laws or constitutional amendments that demand a balanced budget. They just can’t run a deficit and be done with it (what would the federal government do if that was the case in D.C.?). Many states were in a precarious position with the slowdown in the economy and the credit crisis has only exacerbated their woes.

But what is bad for state governments could be good for investors.
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“SOVEREIGN is a fundamentally sound financial institution,” CEO Joseph P. Campanelli said, noting: “Importantly, our capital exceeds the levels defined as ‘well capitalized’ by our regulators.”

New York’s smaller, non-money center banks could soon be hit by a wave of defaults on loans for commercial real estate. Many of these regional banks have so far endured the crisis that toppled larger rivals such as Wachovia, IndyMac and Washington Mutual, but that may be about to change.

A sputtering economy may force other regional banks to face the same decision Sovereign Bancorp did this week: sell themselves to larger banks or fail. (hear the bank’s earning call below) With comparatively few toxic credit derivatives on their balance sheets, many of New York’s community-based banks, have relied on a conservative asset mix of mortgages, business and commercial real estate loans for revenue. Like Sovereign, which held half of its $57.8 billion loan portfolio in commercial real estate loans of as December 2007, many smaller banks assumed these loans would generate steady income until their maturity dates. Now that some economists are predicting a prolonged recession that would force businesses to go belly up, some of these loans may not be repaid. Banks will then have to tap their reserves to stay afloat but many of them may not have enough to cover their potential losses.
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Richard Fuld said on Monday that he takes full responsibility for his actions. Of course, the 62-year-old believes he did nothing wrong as the CEO of Lehman Brothers. Appearing in front of the House Oversight and Government Reform Committe, Fuld’s Q & A session was rife with excuses.

Fuld’s list of blame looks like this:

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