Ken Lewis Is Gone

Not a bad move by the man about to be raided by the Fed, the AG, the SEC, the Tooth Fairy and who knows who else. In other news, the Chairman wins again.

From the WSJ.

Ken Lewis, his company faced with multiple government probes, will retire at the end of the year.

Mr. Lewis, who has been chief executive since 2001, was stripped of his title as chairman in April after a shareholder resolution passed by a razor-thin margin. Walter Massey was elected to replace him.

Congress, the Securities and Exchange Commission and New York Attorney General Andrew Cuomo are investigating the company. Lawmakers have accused him of misleading investors about year-end bonuses paid to employees at Merrill Lynch & Co. before Bank of America purchased the teetering Wall Street company late last year.

It is said, cause he was doing so damn well:

"Bank of America is well positioned to meet the continuing challenges of the economy and markets," Mr. Lewis said. "The Merrill Lynch and Countrywide integrations are on track and returning value already. We are in position to begin to repay the federal government's TARP investments."

We wish Ken Lewis and his trial defense team all the best as they prepare for the biggest criminal and civil onslaught against his persona in history.

BofA CEO Ken Lewis to Retire

From Bloomberg: Bank of America’s Chief Executive Ken Lewis to Retire Dec. 31

No successor named.

Not sure what to make of this.

BofA Press Release: Ken Lewis Announces His Retirement
"Bank of America is well positioned to meet the continuing challenges of the economy and markets," said Lewis. "I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half."

"The Merrill Lynch and Countrywide integrations are on track and returning value already," Lewis noted. "Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company's history. We are in position to begin to repay the federal government's TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America."

Gold Price Outlook

"I own some gold and I am optimistic about the price of gold but I don’t think I would buy it either. The gold is near its all-time high, I think I would rather buy silver for instance if I had to buy a precious metal. However, I am not buying either at the moment. I certainly would not sell any precious metals — if they go down, I plan to buy more and maybe a lot more."


Saturn No More- Roger Penske Takes a Hike, General Motors to Pull the Plug

I once met Roger Penske, oh, rather- I met his son when I was in the car business.  He was a smooth dude, a good-looking guy who seemed to make the ladies sigh, and put men of all powers and postions shake their heads in the right direction.  They wish they were he; or rather they wish they were his father, Roger Penske.

And who wouldn't want to be Roger Penske?  You're a self-made billionare, a bona fide legend in the business and automotive world.  And hell, you even once raced cars!

So when news that Roger Penske's Penske Auto Group (PAG) signed-on to be the new Saturn, we all knew, if anyone could do it, it was Penske.

General Motors announced today that it's pulling the plug on Saturn, amid an agreement with PAG falling-through.  Concerns of a supply and a production agreement after the initial contract runs out with General Motors sent even Penske running the other way.

"This is very disappointing news and comes after months of hard work by hundreds of dedicated employees and Saturn retailers who tried to make the new Saturn a reality," Henderson said in a written statement according to the Associated Press. "PAG's announcement explained that their decision was not based on interactions with GM or Saturn retailers."

Penske's beef, not with GM or Saturn, but rather, the company that would produce the likable cars "people want to buy" after GM. 

The other manufacturer was not disclosed- at least not yet.

Without the agreement, not even the mega-motor buck hero could assure Saturn's continuation in world and market after Cash for Clunkers.

PAG had agreed to take the driver's seat at the Saturn brand and dealer network, at the height of GM's reorganization as a "new" and "leaner" car manufacturer, with GM producing the cars for a limited time.

Shares of PAG rose in Wednesday's trading. 

Obviously, people want to buy Saturns.  Just not enough for anyone willing to produce them.


On Emerging Markets

"I wouldn’t buy any of them. I would never buy the Russian market. The BRIC is some kind of an artificial thing, which some marketing people put together. I would not ever buy the Russian market. I own China. Brazil is a natural resource-based economy and it is being better managed these days and it has been in the past. So Brazil probably has a good future though I don’t own any Brazilian stocks. The Indian stock market has run up a lot in the last year or so. So I don’t think I would buy it either. I am not buying shares anywhere in the world as we speak."


Praise For Bernanke And Greenspan

“You have to give credit to [Ben] Bernanke and [Alan] Greenspan. They have achieved something no central bankers have achieved in history. They created a bubble in everything…The only asset that went down from 2002 to 2007 was the U.S. dollar.”

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

“You Can’t Find Anyone More Negative About The World Than I Am.”

“You can’t find anyone more negative about the world than I am.” in CLSA Asia Pacific Markets investor conference in Hong Kong

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Guest Post: “Martin Wolf, the FT’s rebel with a cause, and the future of finance

By Swedish Lex, an expert and advisor on EU regulatory and political affairs:

If you belong to those who believe that the debate on how to fix finance is mightily underwhelming when compared to the latter’s monumental failure, then I suggest reading Martin Wolf’s latest column in the Financial Times.

Wolf essentially trashes the financial system and the remedial actions taken thus far, Michael Moore-style:

What entered the crisis was, we now know, an ill-managed, irresponsible, highly concentrated and undercapitalised financial sector, riddled with conflicts of interest and benefiting from implicit state guarantees. What is emerging is a slightly better capitalised financial sector, but one even more concentrated and benefiting from explicit state guarantees. This is not progress: it has to mean still more and bigger crises in the years ahead.

In Wolf’s view, the separation of utility banking from casino activities would be insufficient as there still would be a risk of the temptations of shadow banking leading to new bubbles and collapses. It seems that Wolf has taken the points made by Carmen Reinhart and Kenneth Rogoff in their recent book “This Time Is Different: Eight Centuries of Financial Folly” to heart. Wolf’s review of the book was published in the FT a couple of days ago. A few notable quotes from Wolf:

Cycles of confidence and panic are inevitable in our world of debt, be that debt public or private, domestic or foreign. Credit is extended freely and then withdrawn brutally.

Financial systems are accidents waiting to happen.

The final lesson is that financial liberalisation and financial crises go together like a horse and carriage. It is no surprise, therefore, that the last 30 years have seen waves of financial crises, of which the latest one is merely the biggest.

Importantly, Wolf concludes that regulation thus far has not been the answer but rather part of the problem. He seems to be recommending that large parts of financial activity may have to be outlawed altogether and that status quo is not an option:

The most important point is that where we are now is intolerable. Today’s concentrations of state-insured private wealth and power must surely go. At present, the official sector believes tighter regulation, particularly higher capital requirements, can contain these risks. But this is likely to fail. If it does, we will need to be radical. Yet narrow banking would still not be enough. We would need to rule out quasi-banking. Otherwise, we would soon return to the world of fragility and bail-outs. Funds that replace banks would have to pass the risks directly on to the outside investors. The authorities will not entertain such radical ideas right now. But the financial system is so inherently fragile that radical reform cannot be pronounced dead. It is only dormant.

So, to conclude, Wolf proposes changes to society that would be truly revolutionary, not as a means to achieve lofty and utopian ideals, but rather as a strategy for economic survival. Interestingly, the IMF yesterday published its new Global Financial Stability Report which contains an analysis of the inadequate policy responses by governments thus far and recommendations for future action. The parallels with Wolf’s thinking are striking, although the IMF obviously uses a different language:

A clear vision of future financial system regulation is needed to provide clarity and boost confidence.

In addition to a well-defined strategy for unwinding unconventional policies, confidence in the financial system will be bolstered by clarity over future regulatory reforms needed to address systemic risks. The recent easing of tail risks should not prompt authorities to relax their efforts to map out the path to a more robust financial system. A holistic, understandable approach needs to be formulated so that the private sector can plan appropriately. The priority should be to reform the regulatory environment so that the probability of a recurrence of a systemic crisis is significantly reduced. This includes not only defining the extent to which capital, provisions, and liquidity buffers are to rise, but also how market discipline is to be reestablished following extensive public sector support of systemic institutions in many countries.

There are already proposals that will go some way toward removing procyclicality in the financial system and increasing buffers against losses and liquidity dislocations. But hard work lies ahead in devising capital penalties, insurance premiums, supervisory and resolution regimes, and competition policies to ensure that no institution is believed to be “too big to fail.

So, if we accept that the existing system is deeply flawed and that the necessary and desirable reforms are seriously lagging, the next question is; who is going to do the lifting? Wolf is entirely mute on this point but one has to assume that since the theme of his column is finance as such, unilateral UK action is not what he has on his mind. If Wolf’s thinking is limited to the UK alone then the City as we know it would be transformed into a museum. In order for Wolf’s vision for a new financial order to be effective, action would have to cover as many jurisdictions as possible. In fact the IMF Report discusses what it views as a need for globally coordinated policymaking and warns against regional solutions:

A macroprudential approach to global policymaking is needed to restore market discipline and ensure that the benefits of financial integration are preserved.
The further challenge is to place these reforms in the context of an integrated macroprudential policy framework in which both domestic and cross-border institutions can operate securely. There is now recognition that a combination of microprudential and macroeconomic policies operated procyclically and led to a buildup of leverage and systemic risk. Policymakers will need to address ways in which their own actions exacerbate systemic risks, regardless of whether they oversee monetary, fiscal, or financial policy. Cooperation and consistency in the policy field must extend across borders. Cross-border relationships between institutions and markets have made it impossible for policymakers to act unilaterally without consequences for others. Following the crisis, however, there is a danger that some countries will want to ring-fence their institutions and withdraw from global markets to protect their domestic economies from external shocks. What is needed instead is a way to benefit from increasing financial integration, while ensuring that potential negative spillovers are contained and clarity exists about the roles of home and host authorities. As policymakers move forward on this difficult task, the IMF can play a catalytic role through its surveillance activities and work on global macrofinancial linkages.

While I would agree with the IMF on the principle, I think it is wholly unrealistic to think that the Fund would be in a position to develop and broker the type of fundamental change that Wolf and, as it seems, the IMF, at least to some degree, are advocating. I furthermore have no expectations at all that the U.S. would be in a position to introduce the kind of reforms Wolf are suggesting, even if it, miraculously, wanted to.

This leaves us with the EU. The EU’s response to the crisis thus far clearly falls short of what Wolf is suggesting although a thorough analysis and reform program of EU policy for the financial sector is under way. The EU however possess the legal competence, the scope and the clout to undertake the kind of reforms that Wolf is suggesting although such a program would be as comprehensive and far-reaching as the introduction of the Euro and would entail a clear break with existing policies. Impetus for a grand projet to re-design the EU’s approach to finance would have to come from the highest political level with the full support of Germany and France. With Merkel re-elected on a platform of financial reform, Sarkozy unthreatened on the domestic political scene and with support from the European Parliament and Commission, such a development could not be ruled out entirely. Since the IMF now estimates that we still have a 1,5 trillion in writedowns ahead of us, at least, politicians might soon have to consider all options, including Wolf’s revolutionary ideas.

It would be interesting to hear what Wolf has to say on how his ideas for radical reform should be implemented and by whom. Perhaps for his next FT column?

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