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Citation: By Joe Bel Bruno; “Failed Banks Weighing on FDIC, Amounts tapped by agency

reminiscent of savings-and-loan crisis.” Monday, August 17, 2009. C1, continued on 3

Summary:
The Federal Deposit Insurance Corporation has taken a huge hit this year. A total of 77
banks had failed and the financial hit goes to the FDIC and was expected to be about 50% of
their assets. The FDIC has not suffered this big of a hit since the late 80’s and early 90’s. At that
time 747 financial institutions had closed, and the estimated cost was about 24%. Today the cost
has reached an estimated cost of 34%.
One of the major problems is the fact that so many banks took large risk, while the
economy was booming. Now, they are watching their capital dissipate with uncontrollable speed.
The article said, “As the number of bank failures escalates, FDIC officials have been trying to
find investors and buyers for terminally ill financial institutions, increasingly by agreeing to
shield acquires from certain losses on assets of the failed bank.” But, FIC Chairman Shelia C.
Bair said that the failures “are lower than projected.”
Regulators are being blamed for not taking action and allowing these banks to suffer to
the point of closure. Agents at the Treasury Department and the FDIC have issued reports and
concluded that the regulators were not paying attention while the banks they watched plowed
ahead with rapid and unsteady growth.
This is the best quote to describe what has happened. Bert Ely, a longtime banking-
industry consultant told reporters that, “When you get these failing banks, they are much more
like a fresh-caught fish than a fine wine. They don’t get better with age, and the losses keep
piling up.”

Discussion:
I choose this article because banks were failing. The FDIC has some flexibility, but you
can only bend something so far before it breaks. The final quote, in my summary, explains
exactly what this article was about. When you catch a fish, you must preserve it, especially if you
are not going to consume it after the catch. Well, these banks opened and got their customers.
The economy was doing well, so they took some risks. The risk have apparently come back to
bite them, and now their doors are closed. The growth was too fast for these banks and the risk
were too much for the banks to handle.
In class we discussed the responsibilities of the FDIC. This article explained how the
FDIC has to fund the failures of the closed banks and to compensate the customers of the failed
bank. We have also discussed the importance of risk in financial markets. Sometime the risks
come out in the favor of investors, but they can also cause a devastating loss. The interest rates
played a huge part in the failures. While the economy was booming, the interest rates were low.
As the economy began to decline, the interest rates increased and caused an unexpected change
in everybody’s budgets. Owing more than what was planned to be spent causes a negative
spread. Eventually the money will run out and that is what happened to the closed banks in this
article.
October 10, 2009
Citation:
Ng, Seena, and Aarron Lucchetti. “Congress takes on Rating Firms; Ex-Moody’s analyst says
inflated ratings continue; Moral Responsibility.” Wall Street Journal, September 23, 2009. P. C1
and continues on C3.

Summary:
Eric Kolchinsky, a former Moody’s Corp. Analyst, is planning to testify in court against
the major credit firm for their responsibility of giving credit, where credit was not due. In
January, Kolchinsky says they gave a high rating to a complicated debt security when they knew
it was planning to downgrade assets that backed the security. He said his concerns to Moody’s
officials in July but says his superiors did not treat his complaint seriously enough. Kolchinsky is
to testy on the ratings firm reform before the House Committee on Oversight and Government
Reform, with panelist including a lawyer representative from rival ratings firm Standard &
Poor’s.
These allegations come when the debate on Wall Street and in Washington over the role
and influences of the credit ratings, and whether recent reforms are sufficient to prevent a repeat
of past missteps. During the financial crisis, major credit-ratings firms have been blamed for
giving good ratings to companies they knew where going to fail and in turn has cost many
investors billions of dollars.
Between 2000 and 2007, Kolchinsky worked in the ratings group and oversaw the credit
ratings of mortgage-linked securities, which took the hardest hit during this crisis. Kolchinsky
feels a “moral responsibility for the poor CDO ratings” that was issued under his watch. In 2007,
when Kolchinsky filed his complaint, Moody’s adjusted their credit ratings. But by October of
2007, they told Kolchinsky he was no longer needed in CDO ratings, and moved to Analytics.
In July of 2009, when Kolchinsky wrote a 13 page letter, that contained all of his
complaints and his allegations. On September 3, 2009, a Moody’s human resource manager
asked him to meet with an external lawyer, to which Kolchinsky declined because he had already
spoken with a lawyer. Moody’s suspended him after his refusal, and he left the firm 13 days
later.

Discussion:
While we were studying Chapter 6, we discussed the credit-rating firm, Moody’s, which
is why I chose this article. Investors use the credit ratings to make decisions about investments,
especially large investments. For Moody to knowingly default on a rating would be a serious
offense. These kind of allegations need to be addressed promptly and as accurately as possible. If
Kolchinsky can prove his allegations in court, the firm will lose a lot of creditability and could
suffer the loss of a lot of business. It also showed what happens when an employee knows too
much. Moody did everything they could to keep this quiet, and try to work with Kolchinsky to
alienate the problems. After he left the firm, however, it is apparent that he feels that it is his
responsibility to take this issue to the next level and help put more enforcement upon the credit-
rating firms through the government.
October 10, 2009

Citation
Reddy, Sudeep and James R. Hagerty. “Home buyers get a reprieve; Fed etrends mortagage-
purchase program as consumer spending stays ‘constrained.’” Wall Street Journal, September
24, 2009. P. A1, continued on A2.

Summary:
The Federal Reserve took action to keep interest rates low for house owners by extending
a gradually phasing out its purchase of mortgage-backed securities. This action signals that the
economy remains fragile, but has seen improvements and is trying to pull out of the economic
slump. So far, the Fed is about two-thirds through the mortgage-purchase program, but still plans
to buy $200 billion in debt that was issued by Fannie Mae and Freddie Mac.
Housing sales have increased in some states, mostly from first-time home buyers who are
taking advantage of bargains on foreclosed properties. But because the market is still fragile,
many investors are staying on the sidelines. In the article, Housing Economist, Tom Lawler from
Virginia, told reporters that, “Nobody seems to know how big the overhang is.” This is causing
stress among investors and keeping them out of the housing market.
Household spending has also been constrained because of the job losses and sluggish
income growth, lower housing wealth and tight credit. The Feds says that it would keep the
federal fund rates low for an extended period of time. Mortgage rates were expected to rise
throughout the fall and winter, but with this new plan the rates are less likely to increase as
sharply given the Fed’s longer time horzion.

Discussion:
I chose this article because of our discussion in class about the Federal Reserve and their
effects on the interest rates. This particular action by the Fed could really help in the housing
market. By extending the lower interest rates, investors may be more willing to invest in the
housing market. In class, we discussed how the Fed is an independent unit and has control of
interest rates and the money supply. The Fed is being watched like never before and every
decision they make is critical during the nation’s economic struggles. People are loosing their
homes and their houses. Time is will tell whether their decision was for the best or the worst.
October 11, 2009
Citation:
Worden, Nat. “Ad Revenue Eludes Papers.” Wall Street Journal, November 4, 2009.
http://online.wsj.com/article/SB10001424052748703740004574513522033216210.html

Summary:
Newspapers have suffered devastating losses over the years. Consumers are turning
towards the internet for their news. Due to the shift in interest, companies have cut back on
advertising expenses with newspaper. The biggest problem is that newspapers have already cut
their costs, but how much farther will they need to go?
Advertising is a primary source of revenue to any newspaper business. This year alone,
most of the major papers in the country have suffered double digit losses in revenues.
Subscription circulations are suffering a downward slope as well. Even investors are beginning
to think it will be a long-shot to save the print business.
Executives in the newspaper business believe that things will turn around as the economy
gets better which “has done wonders for stocks. Shares of the New York Times Co. have more
than doubled in price since early March. Gannett shares have more than quadrupled. McClatchy
Co., E.W Scripps Co., Media General Inc. and Lee Enterprises Inc. have made even more
spectacular gains.”
Without some kind of stable revenue coming in, newspapers will be forced to cut costs to
a level that will cause customers to lean towards other outlets. Proof of these changes have been
released by the Audit Bureau of Circulation who reported that there has been a sharp decline in
circulations across the board for the nation’s top newspapers.

Discussion:
Advertising is a cost for most businesses but for a newspaper it is revenue. Newspapers
sell the space in the paper to create a profit for their customers. More and more consumers are
turning to the internet to satisfy their needs, in which ever form of communication they need. If
newspapers do not figure out how to drive the market back to print, this long standing source of
news will become extinct and there will be even more job losses in the United States.
I did find it interesting that even as the newspapers are failing, their stock revenues are
increasing. Stocks are low just now and if the major papers can make a good come back,
investors will have a chance to make a very nice return.
November 4, 2009

Citation:
Hilsenrath, Jon. “Brian Sack Will Make Big Move for Fed.” Wall Street Journal. November 3,
2009. p. C1 continued on C7.

Summary:
Brian Sack, 39, economist who runs the market group at the Federal Reserve, has a job
that no one wants. Sacks and his group have to figure out how to get the $1 trillion dollars back
that the Fed has put into the market place to help during the financial crisis. Sacks and the market
group are responsible for bridging the Federal Reserve to Washington.
During the economic crisis the Fed has stepped out of the box to help keep the country
from failing. They have been purchasing mortgage backed securities, extended commercial-
paper loans and reviving asset-backed securities. Under normal circumstances, the Fed only sells
and buys Treasury securities to influence the levels of interest rates. The Fed has pumped so
much money into the market that it has created the question of how to get it back?
Investors worry that the Fed will raise interest rates, which is a decision that Sack will
heavily influence. But right now, Sack is developing a program that will switch the Fed from
being a massive lender to being a massive borrower. One program that Sack and the group are
developing is a ‘reverse repo,’ in which the Fed will put a large growing portfolio of Treasury
bonds, mortgage-backed securities and debt issues by Fannie Mae and Freddie Mac into the
market as collateral for loans, taking in cash in return.
The market group and FOMC are still sorting out issues about how to pull reserves from
the financial system. The Fed normally trades with 18 security firms called primary dealers. The
group and Sack are afraid that these dealers do not have the capacity to handle the hundreds of
billions of dollars that will be funneled through the market.
“We’re exploring a range of possibilities for counterparties,” Sack said.

Discussion:
There are a number of terms within this article that have been discussed during class. The
article is about the Fed and the programs that they have and are creating to help the financial
market. It also discusses the purchase and sell of security and treasury bonds. We just started
discussing the trading floors of the NYSE (which was mentioned by the article), and the job of
dealers on the floor.
I definitely learned that I do not want the job of Mr. Brian Sack. I could study all my life
and still would not have a clue how to handle such a position of power. I worry for him though.
If he is unable to successfully do his job, then he will be fired and publicly embarrassed for the
decision he makes. On the other hand, if he is successful then he will go down in history as a
genius who figured out how to fix some of the financial crisis. Only time will tell what kind of
job Mr. Sack will do.
November 6, 2009
Citation:
Frangos, Alex and Bob Davis. “Fears of a New Bubble as Cash Pours In.” Wall Street Journal.
November 4, 2009. p. A1 continued on A4.

Summary:

The World Bank has warned that the sudden reappearance of billions of dollars may
create an “asset price bubble.” Lately there has been a surge of investments in the capital market
in East Asia. This is creating another concern for the International Monetary Fund who said the
risk is being driven “from a flood of capital divorced from fundamental forces of supply and
demand.”
This trend has been “created from cutting interest rates and pumping money into financial
systems, which have left parts of the world awash in cash and at risk of bubbles, or run-ups in
asset prices beyond what economic fundamentals suggest are reasonable,” according to the
article. Policy makers from Beijing and London are searching for away to keep these bubbles
from happening, especially after finding ways to clean up the mess from previous “bubbles.”
Symptoms from this rise in assets are found in Asia and in the Pacific, where the
economies are recovering the quickest. Also, stock prices in the Asian markets are raising
because of the low interest rates in the U.S. Investors are looking for higher yields are borrowing
in U. S. dollars and then investing in other countries that are experiencing rapid growth.
So far, the problems of this “bubble” are having policy makers ask, “what if?” type of
questions. Turning philosophical problems into operational situations has these policy makers
working overtime to keep Asia and the Pacific from having any more economic problems.

Discussion:
The financial crisis the world has been experiencing has caused a lot of policies to be
changed, made and/or regulated. This article explains the impact that interest rates hold on
financial systems. When the rates are low, investors make investments to make some money.
When they are high, investors stop making investments. With the financial markets being as
fragile as they are now, policy makers worry about the sudden growth in Asia, fear that the
people who are making these investments in equity will suffer in the future. Trying to create a
balance for investors and the market has become a huge guessing game for policy makers. The
question is how to handle these bubbles before and after they emerge.
November 6, 2009

Citation:
Rappaport, Liz, and Serena Ng. “Credit Ratings Now Optional, Firms Find.” Wall Street
Journal, October, 29, 2009. p. C1 continued on C4.
Summary:
Once upon a time, credit ratings from firms like Moody’s Investors Service and Standard
& Poor’s were an important ingredient for debt issuers to find investors in their firm. Over the
last few months, many companies are selling bonds and structured securities without credit
ratings. Credit firms have been blamed for failing recognize risks in markets that caused trillions
of dollars in losses over the last couple of years. The once powerful stamp from the credit rating
companies are becoming a thing of the past as companies are finding new ways to get their
securities in the market.
Debt issuers are spending more money to sell these unrated deals, but the deals are
getting done at a much quicker speed. Investors who are buying the unrated debt are doing their
own analysis of the collateral and expect cash flows on the debt. This situation creates its own
problems, but Wall Street isn’t the only one moving away from the credit ratings. Insurance
regulators are calculating their own capital requirements to remove ties from credit rating firms
on some securities.
The SEC has voted to amend some of the security laws that require credit ratings. The
Federal Reserve is positioning themselves to perform their own risk assessments on securities.
The “U. S. House panel has approved a credit ratings bill that would subject rating firms to more
regulation and require federal agencies and departments to review their reliance on ratings and
consider using other risk measure for debt instruments,” according to the article.

Discussion:
As the world continues to turn, so do the people who want to get ahead. The credit rating
firms have always been a standing force on decisions made by investors. Their creditability has
been away for investors to know whether or not they are making the right decision. As the
economic crisis has caused the loss of trillions of dollars in the market, the credit rating firms are
being blamed and are now considered untrustworthy. Investors have to find a way around the
problem and they have by not using the credit rating firms. As other companies begin to follow
in suit, the credit rating firms are faced with a huge problem to change their policies and to fix
their reputation and reestablish their role in the market.
November 6, 2009

Citation:
Lucchetti, Aaron. “Downside to More Stock, Less Cash On Street.” Wall Street Journal,
November 11, 2009. p. C1

Summary:

Wall Street firms have made the move to compensate employees with stocks instead of
cash. According to the article, “Analysts estimate that per-share earnings at banks and securities
firms pushed to align pay with performance will be diluted by all the shares being issued to
employees starting this year,” which means that more stock options and restricted shares will
increase the total outstanding shares of many companies.
The following are companies that are planning to pay their employees at least 50% of
their 2009 incentive compensations in stocks: Deutsche Bank AG, Royal Bank of Canada,
Goldman Sachs Group Inc, and Morgan Stanley.
The “supporters of the stock-based pay contend that stock will make traders, loan officers
and risk managers more leery of big bets that could blow up.” Banks usually soften buy back
shares to soften the “blow” of stock-based compensation. But regulators are putting the buybacks
on hold, so they can refocus on rebuilding a capital cushion.

Discussion:

Times are tough. Companies are stepping out of their boxes trying to keep their
employees happy and their business on top. By offering more stocks to the employees,
companies are creating new incentives. The employees now have some ownership of the
company. The problem is that the banks do not want to cash in the stocks. Employees now have
a chance to trade and work in the market, but the banks do not want to take the risk.
In the article, Michael Garland, the director of value strategies at the investment arm of
Change to Win, a union group that advises labor-affiliated pension funds on corporate-
governance issues, stated that, “Companies that rev up stock-based compensation are likely to
run into some shareholder opposition.”
By putting more shares out into the market, companies are cutting into an already small
pie. The current shareholders are going to want the biggest pieces possible. The employees are
going to now want their cut. But the fact remains, that there is only one pie and the more people
you have to feed, the smaller and smaller the pieces are going to get.
November 26, 2009

Citation:
Busttillo, Miguel. “Can Wal-Mart Build on Year-ago Gain?” Wall Street Journal, November 12,
2009. p. C1.
Summary:
With the holidays drawing near, Wal-Mart is showing concerns of continued growth.
Most retailers do not need to do better and better each year, but Wal-Mart has too! Some analysts
have proven that Wal-Mart has not been cutting their prices back (like they usually do). During
the second fiscal quarter, Wal-Mart notched unusually high gross margins, but this was from cost
cuts and other operating improvements.
“These margins will be hard to maintain, as Wal-Mart tries to entice customers to shop
with aggressive promotions heading into the holidays,” according to the article. Wal-Mart has
already sold popular books and DVDs at low prices that were almost certainly below what it
paid. Such promotions are limited in scope, but they come at a cost.
To drive growth, Wal-Mart is pushing promotions in non-U.S. territories. But investors
are skeptical because stocks are down 5.5% this year. The earnings per-share has toned down
expectations at 81 cents a share. Wal-Mart predicts earnings per share of between 78 cents and
82 cents for the quarter. It was just above 77 cents last year.
The question is can Wal-Mart show sales growth beyond its projections? If it can, then it
will “sound a jolly note about holiday prospects.” This growth will also help persuade skeptics
that Wal-Mart “can shine after the economy improves.”

Discussion:
Wal-Mart has experienced significant growth during the recession. Consumers are
spending less. Unemployment rates are continuously increasing. More and more consumers are
moving their shopping to the “guaranteed low prices” in an effort to save every penny possible.
Continued sales growth is critical for Wal-Mart. Being the leader of the pack is the
mission of the retailer and they will stop at nothing to maintain dominance. But they can only cut
so much! The recession is causing consumer to cut their spending back at higher levels than ever
(even at Wal-Mart). The article said that the retailer has suffered some sluggish times over the
last year. Obviously they have suffered to the point that they are not “cutting back prices” they
way they use too.
I believe that Wal-Mart will make it through the recession. And I think they will open up
more stores in and out of the U.S. Wal-Mart is a giant that cannot be stopped! It is taking over
the world a little more every day because you can get EVERYTHING at Wal-Mart for the lowest
prices.
November 28, 2009

Citation:
Tracy, Tennille. “Traders Take a Longer View of Dell.” Wall Street Journal, November 17,
2009. p. C5.
Summary:
Goldman Sachs ratings really made a difference for Dell, CommVault Systems, and
Weatherford International. After releasing new information, many traders decided to take a
longer look at these shares and make a more long term investment.
Speculators caused investors to take a different stance on their put options in Dell stock.
Traders sold December $14 puts, and collected 15 cents for the position that will make money if
Dell shares stay above $13.85. On November 16, shares had closed at $15.96. Goldman Sacks
reinstated their buy rating on Dell, saying “the company will generate sales as corporations look
to buy new computers.”
After Goldman Sachs upgrade the CommVault’s from “neutral” to “buy,” trading
increased 10 times the normal level. This storage and data-management software company
watched their stock prices soar to $22.92, which was a 52-week high. Investors picked up 14,000
calls and 500 puts. The call options convey the right to buy the company’s stock at a fixed price,
while the put options convey the right to sell it.
As for Weatherford International, most of the action took place as part of their “stock
replacement strategy.” Investors sought positions in longer-dated February contracts. The traders
who sold the shares they owned locked in gains in the stock that has been gained over the
months, while buying calls that continued to provide exposure to future upside.

Discussion:
There are many terms in this article that we discussed in class. Speculators have help
bring Dell stocks up. The rating firm’s upgrade caused for CommVault’s stocks to increase
dramatically! And smart maneuvering has placed a lot of investors in a good position for
Weatherford International.
The put options are giving investors an opportunity to sell their stocks, while the call
option is to buy. The fact that the expiration date is drawing close for these options is the reason
that investors are crunching the number and trying to make the best decision as to how to make
the most money.
This article was published on a Tuesday, and the actual expiration dates were set for that
Friday. The article was a preview for investors. It gave them specific information that would be
beneficial to their decision making process. Should we buy? Or should we sell?
November 29, 2009

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