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A really big bank blunder

J.P. Morgan's $2 billion trading loss is the big story today, and has tongues wagging.


It is the lead story in both the Wall Street Journal , Forbes and the New York Times, but for bank reformers, the story is like manna from heaven.

While he failed to foresee his company's huge losses from risky trading, J.P. Morgan CEO Jamie Dimon did accurately predict the feeding frenzy among critics that would ensue.

"It plays into the hands of a bunch of pundits but you have to deal with that and that’s life,” Dimon said in a conference call., a non-profit reform group, said the incident at J.P. Morgan is all the proof necessary to show that reform is needed.

"Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage," writes Dennis Kelleher, the group's president.

Here is more of Kelleher's statement:

"Ignoring the trillions in dollars of damage done by Wall Street in causing the economic collapse, JPMorgan Chase CEO Jamie Dimon has been a relentless critic of financial reform.  He has denied that the biggest banks continue to threaten our financial system and our economy and claims they are well run and know how to manage risk.  JPM's announcement today of a surprise $2 billion in losses from illiquid derivatives proves him wrong and shows the need for financial reform, especially a strong Volcker Rule, to limit such risky betting."


The Volcker Rule would, among other things, restrict banks' ability to make risky trades.

"Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets," said U.S. Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations and co-author of the Merkley-Levin language establishing the Volcker Rule.

But more than making the case for a Volcker rule, some say the incident exposes a major flaw in the proposed legislation.

Matthew Yglesias at writes:

"Dimon repeatedly insisted that the whole operation is Volcker-compliant, and JP Morgan is describing the operation as an effort at hedging gone wrong. Nobody knows exactly what happened, but in general if you just lost $2 billion that's a good sign that you're not hedging. The idea of hedging is to accept a small cost in order to insure yourself against the risk of a big loss. Two billion dollars is a big loss even for JP Morgan. So why call it hedging? Presumably because the Volcker Rule allows proprietary trading for the purposes of hedging. This turns out to be a big loophole."

Americans for Financial Reform believes that's why the Volcker Rule not only needs to be enacted, but strengthened.


"The regulators current rule has a loose, permissive standard for portfolio hedging that might have permitted these trades under a hedge exemption, even though they clearly violated the proprietary trading ban. We hope that regulators will heed the warning here, and move speedily to finalize a Volcker Rule that is stronger than their initial proposed rule," its statement reads. 

But according to the Journal's Steve Goldstein, blogging in MarketWatch, "The simple fact is that no rule is going to be strong enough to prevent a bank from acting with hubris and stupidity."

"The best way to combat 'too big to fail' is to make banks small enough that failures wouldn’t matter," Goldstein writes. "Short of that obvious step, best to be prepared for the worst."

How much more will the eurozone crisis affect us?

Unemployment in the eurozone rose by 169,000 in March, bringing the unemployment rate to its highest ever since the euro was created n 1999.


Bad jobs reports coming out of Europe and the United States caused stock prices to drop Wednesday. The Dow Jones industrial average fell by 87 points before closing down 10.75, while the Standard & Poor's 500 fell 3.51 points to 1,402.31.

You can follow the history of the crisis in this archive  of related articles compiled by Bloomberg.

Catherine Rampell, writing for the New York Times, sums up the three dangers the eurozone's problems pose to the U.S.: trade, the stock market and credit. Europe's struggle leaves a smaller customer base for our exports, makes our dollar (and thus our goods) more expensive and sends stocks down. Worse, because European countries own so much of each other's debt, one country's troubles will have a domino effect on those tied up with it. That would make it harder for Americans to borrow money.

Reuters wades through several different scenarios, ranging from a mild eurozone recession to a financial meltdown. 


In the case of the latter, Stella Dawson writes that the risk of one or more countries leaving the eurozone "would cause political, economic and market upheaval."

This audio report from Marketplace in 2010 shows how European troubles don't affect all regions of the U.S. in the same way. Cities tied to the automobile and pharmaceutical industries could be hit harder, for example.

As usual, the Economic Collapse blog does not disappoint with its, "27 Statistics About the European Economic Crisis That Are Almost Too Crazy to Believe." It includes Spain's sky-high unemployment rate (now at 24.1 percent) and asks "Just how far can you stretch the rubberband before it snaps? Perhaps we are about to find out."


It continues:

"The European financial system is leveraged like crazy right now.  Even banking systems in countries that you think of as 'stable' are leveraged to extremes. For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt. When Lehman Brothers finally collapsed, it was only leveraged 30 to 1."


Embrace our Canadian visitors.

From Business Today:


 Retailers in Western New York know what a boon Canadian shoppers are to their bottom line, but businesses in other industries apparently don't, according to new market research. Visiting Canadians spent $933 million here last year, but just 13 percent of it was spent on sightseeing and recreation. That's an untapped audience with huge potential and spending clout. Executives from Visit Buffalo Niagara and the Niagara Tourism and Convention Corp. shared ideas for how local businesses could better take advantage of the opportunity at two seminars Monday.


A public authority oversight agency has determined that, according to current laws, a company that eliminated workers here committed no job piracy. After taking 15 years of tax breaks from the ECIDA, VWR Education eliminated 41 jobs at its warehouse in the Town of Tonawanda. At the same time, it added seven jobs at its facility near Rochester, and received tax breaks from the Monroe County IDA for doing so. Politicians and activists filed a complaint, saying the company was shifting jobs around New York State at taxpayer expense, but the New York State Authorities Budget Office disagreed, according to a report resulting from its investigation.


Profits were up during the first quarter at a Buffalo-based information technology staffing and services company. Computer Task Group saw an 18.8 percent increase in profits. It reported net income of $3.36 million, or 20 cents per share, up from 42.83 million, or 17 cents per share, compared to the same period a year ago. The increase is attributed to higher revenues, especially from electronic medical records and other health care technology solutions.


After being ordered by state regulators to check their insurance records against federal death data, life insurance companies found that hundreds of millions of dollars in insurance policy claims have gone unpaid. More than 30,000 policies and $262.2 million in benefits went unpaid because insurers failed to check whether their policyholders had died. In New York State, 7,525 policyholders have received $95.9 million in unpaid benefits. The results came after an investigation was launched by the state Department of Financial Services. To search for a lost policy, click here.

Who is getting hired, promoted and honored?

Looks like another lovely spring day:


Buffalo needs more venture capital

From Business Today:


Rep. Kathleen C. Hochul, D-Amherst, organized an economic action forum with several local leaders that was held at the University at Buffalo Tuesday. Elected officials, community organizers and business leaders and owners gave their thoughts on what it will take to rebuild Western New York. The region needs more venture capital, better ties among companies and colleges and locally-driven solutions, rather than plans from Albany, said Howard Zemsky, a Buffalo developer and the regional co-chairman of the Western New York Economic Development Council. 


Unemployment in the Buffalo Niagara region rose to its second-highest rate in 22 years for January. The local unemployment rate rose to 9.1 percent during the first month of the year. During January 2010, the unemployment rate jumped as high as 9.6 percent here. By comparison, the rate was 5.6 percent in January 2007, before the recession hit. 


One day after cancelling all its flights without notice and stranding travelers at the Niagara Falls International Airport, Direct Air has announced it will suspend all service until May 15. The company said it had to ground Monday's flights because it couldn't afford the bill to fuel up its planes. Direct Air said the two month hiatus will allow it to address "operational matters." The company is telling travelers who have booked flights before May 15 to arrange for a refund with their credit card company.


 Synacor Inc. made a good showing during its first quarter as a publicly traded company. The Buffalo-based Internet content provider earned $7.7 million, or 34 cents per share, during the fourth quarter, compared with a loss of $369,000, or 2 cents per share, a year ago. $6.1 million of its profits came from an income tax benefit stemming from a reduction in the company’s deferred tax assets.


Independent Health has been ranked number one by J.D. Power & Associatesfor the third year. The Williamsville-based insurance company ranked highest in customer satisfaction out of 13 companies in New York and New Jersey.



The company that owns the Great Wolf Lodge water park in Niagara Falls, Ontario has a new owner. Wall Street private equity firm Apollo Global Management LLC said Tuesday it bought Great Wolf Resorts for $703 million. 


County ExecutiveMark Poloncarz has criticized the tax breaks doled out by local economic development agencies, and Lancaster Supervisor Dino J. Fudoli is not happy about it. At Tuesday's Lancaster IDA meeting, he accused Poloncarz of making changes to agency policies in order to reward political allies and suck up to union groups.  


Noco has bought three lubricant distribution warehouses in Pennsylvania from Windward Petroleum. The purchase widens Noco's lubricant distribution territory, which will now stretch from Buffalo to Vermont, and Ottawa, Ont., to Pittsburgh, Pennsylvania.


Who is getting hired, promoted and honored?

It's Wednesday. That's halfway to Friday:


Watching medical bills

From Business Today:


The Department of Financial Services released a report Wednesday saying consumers are at risk for receiving unexpected medical bills they can't afford. The state's insurance regulators are looking into unexpected, out-of-network medical costs and whether some insurance companies bill too much or reimburse at too-low rates.


An investors' group is recommending National Fuel Gas shareholders to vote against a proposed executive pay package. The Amherst-based energy company's CEO David F. Smith made $7 million last year, and would get $38,000 less this year, according to the proposal. But Institutional Shareholder Services advised that Smith's paycheck is out of whack when compared to National Fuel's stock performance and the pay received by other natural gas utility executives. 


As both houses prepare to pass 2012 budget proposals, Senate Republicans are passing a proposed budget of their own. Their plan includes a 20 percent tax cut for 200,000 small businesses in New York. The tax breaks would cost $65 million and bring the state's tax rate from 6.85 percent to 5.5 percent.

Who is getting hired, promoted and honored?

 What were you doing when you were 13?


Sportmen's Tavern gets some video love

From Business Today:


The top management at a local company is getting shuffled around.

Sovran Self Storage, which owns the Uncle Bob's self-storage chain, is promoting its current chief financial officer, David Rogers, to CEO. Former CEO Robert Attea will become the executive chairman. 

The changes are part of the company's succession plan and will take place March 1.


A Hamburg building products maker has bought a small metal grating company in Alberta. Gibraltar Industries has acquired Edvan Industries, which makes metal grating primarily for the oil and gas industry. Gibraltar has targeted its metal mesh business for growth, and this latest acquisition will help propel that growth along. The addition is expected to add $5 million to Gibraltar's annual sales. 



A Tonawanda of Tonawanda homeowner is getting more exposure than she expected when she first listed her home for sale. Producers of the Today Show chose a house for sale at 61 St. John's Avenue in the Town for a segment it is doing on homes that cost less than $200,000.


 Office Depot confirmed it is closing its locationat 2309 Eggert Road. About 20 employees will be out of work when the struggling office supply store closes its doors at the end of March.   

Who is  etting hired, promoted and honored?

Check out Visit Buffalo Niagara's new promotional video about iconic local bar and music venue, the Sportsmen's Tavern:


Unemployment rises slightly, insurance rate hikes OK'ed and more

From Business Today:


Your health insurance rates are probably about to go up. The state Department of Financial Services approved almost all the requests it received from insurers to increase rates.

Rates at Western New York's three major health insurance companies will soar as much as 15 percent or more.


Buffalo Niagara's unemployment rate was up slightly in September from the previous month, but still the lowest unemployment rate for any September since 2008.

The region's 7.3 percent rate is much better than the previous year's 7.9 percent rate for the same month.


Profits are up at Northwest Bancshares. The Pennsylvania company reported profits of $16.7 million, or 17 cents per share, up from $15.5 million, or 14 cents per share, a year ago.

The parent of Northwest Savings Bank said net income rose 7.7 percent.



The Occupational Safety and Health Administration has hit Wegmans with more than $195,000 worth of fines. The grocer's corporate bakery and distribution center is accused of repeatedly violating safety rules concerning cutting off all electricity to machines before workers maintain them. The repeat nature of four of those violations makes up $140,000 of the penalties. Workers were observed doing things like reaching into live machinery to fix jams--putting themselves at risk for serious injury, OSHA said.


Who is getting hired, promoted and honored?

Need a quick vacation?


Investors react to the market, Verizon on strike, and Amherst gets betting call center

From Business Today:


Wall Street reeled after the Dow's biggest one-day point drop since December 2008. But investors here say there is still opportunity for investors, even though stocks will continue to plunge. Thomas S. Quealy, Jr., the chief executive officer at Nottingham Advisors in Amherst, said strong corporate profits, lots of cash in corporate treasuries and reasonable stock valuations can all be counted as positives.


Verizon Communication land line and FiOS workers are out on strike and it is already getting ugly. Verizon is claiming workers have sabotaged work sites around the country, while two picketers here claim a replacement worker hit them with his vehicle when crossing the picket line to enter the company's Amherst offices. The Communications Workers of America Locals 1122,1115 and 1117 as well as the International Brotherhood of Electrical Workers Local 2213 walked off the job late Saturday night after union and company representatives failed to negotiate a contract. Verizon is seeking concessions on wages, health care, vacation, sick time, work rules and job security. Workers have vowed to do "whatever it takes" to protect their standard of living in the face of the company's record profits.


Western New York is getting yet another call center, this time bringing 60 jobs with it. Churchill Downs Technology Initiatives Co., the company that handles phone betting services for the New York Racing Association, will invest $750,000 to build a call center at 4226 Ridge Lea Road in Amherst. Those 60 jobs had originally been filled by workers in New York City before being outsourced to Oregon.

Who is getting hired, promoted and honored?

It's still raining out there, huh?


Economists make a living explaining slow economy

   "If all the economists were laid end to end, they would not reach a conclusion."
-  George Bernard Shaw

   Wednesday saw two big-time economists visiting Buffalo, with a message of a long slog ahead. Though there was some good news for the no boom/no bust Buffalo experience: When you're not so far up, you not only don't have so far to fall, you also benefit the most from federal stimulus programs designed to help those areas of the country that did really crash.

- Praise for the region's pluck - David Robinson/The Buffalo News
   The Buffalo Niagara region's response to economic pain over the last three decades and its stable Williamdudley housing market have helped it weather the Great Recession better than most other parts of the country, a top Federal Reserve official said Wednesday.
   William C. Dudley [right], president of the Federal Reserve Bank of New York, said the painful decline in manufacturing in Buffalo Niagara has helped spawn a more diversified local economy. Combined with a stable housing market, he said, this has limited the job losses locally and helped the region weather the downturn relatively well.
   "I think the region is in a better position," Dudley said in an interview before giving a speech at the University at Buffalo's North Campus in Amherst.

Recovery will take years, bank economist says - Jonathan D. Epstein
   The nation’s recovery from the worst recession in decades will take years, as consumers and businesses alike must first work to overcome severe uncertainty, fear and a lack of confidence, a national economist told local investors Wednesday.
   Consumers, businesses and governments — whose combined spending is necessary for the country to pull out of the economic doldrums — remain constrained by a mix of financial and emotional factors that haven’t been seen before, said Bruce McCain, chief investment strategist for Key Private Bank, a division of Cleveland-based KeyCorp. ...
   “An economic collapse, much like a major heart attack, takes some rebuilding,” he said. “Economies are adaptive. They will work their way through the problems, but it doesn’t come quickly. For that reason, we may see slower growth for some period into the future.”

- Business spending begins to cool down - AP/Buffalo News
  The Commerce Department says orders for durable goods rose 3.3 percent last month. Overall, it was the best showing since January. But excluding transportation, orders fell 0.8 percent after having risen 1.9 percent in August. ...
   The new report suggests manufacturing is moving forward but at a slower pace than earlier this year.
- New home sales rise slightly, stay dismal - AP/Buffalo News
   The Commerce Department says new home sales grew 6.6 percent from August to a seasonally adjusted annual sales pace of 307,000. Even with the increase, the past five months have been the worst for new home sales on records dating back to 1963. 

   Bet our two distinguished visitors didn't have this much fun:


-- George Pyle/The Buffalo News

More tax breaks. More foreclosures.

   In Business Today, lots of tax breaks are being handed out in Erie County.  And, around the country, lots more home mortgages are going to be foreclosed.

Conversion receives tax breaks - David Robinson/The Buffalo News
  Plans to convert the former Larkin Co. U Building on Van Rensselaer Street into high-end offices got a boost Monday when the Erie County Industrial Development Agency approved more than $210,000 in tax Larkinmap breaks for the project.
   The developer, LCo Building LLC, which is primarily owned by Howard A. Zemsky, plans to convert the three-story brick building into 42,000 square feet of Class A office space, along with 12,000 square feet of basement storage and office space.
   The $8.4 million project, scheduled to be completed by the middle of next year, will continue the revitalization of the Larkin District that began eight years ago when Zemsky and his partners purchased the nearby former Graphic Controls plant and converted the renamed Larkin Building into offices.

IDA helps Alliance in office move to Buffalo - David Robinson/The Buffalo News
  Alliance Advisory Group is moving its headquarters from Amherst to the long-vacant former Rural/ Metro Medical Services headquarters building on Delaware Avenue in Buffalo, with help from $24,000 in mortgage tax breaks through the Erie County Industrial Development Agency.
   IDA officials said Monday that even more lucrative tax breaks are also likely to be approved for the $2.75 million project next month. ...
   In addition:
   • The agency approved more tax breaks for developer and gubernatorial candidate Carl P. Paladino’s plans to turn the long-vacant Baker Shoe building in the 400 block of Main Street into commercial space and loft-style apartments.
   The agency expanded the scope of the project to include 600 square feet of space in the former Courtyard Mall, 460 Main St., boosting the total of sales and mortgage tax breaks for the $7.1 million project to $245,000, up from the estimated $218,000 when the agency first approved incentives.
   Bryant & Stratton College is expected to occupy about 18,000 square feet of space on the first three floors of the renovated building for both classrooms and offices. The upper floors will include 12 market-rate loft apartments.
   • The IDA also approved $324,000 in sales and mortgage tax breaks for an entity controlled by Paladino’s Ellicott Development, which is building a new 43,000-square-foot elementary school for the Tapestry Charter School. The new school will be located next to the Tapestry school’s high school at 65 Great Arrow Drive. ...
   • An IDA affiliate, Buffalo & Erie County Industrial Land Development Corp., approved $12 million in bond financing for Medaille College to expand two facilities on its Buffalo campus. ...
   • Another IDA affiliate, Regional Development Corp., approved a $600,000 loan to Griffin Acquisition Corp. to help finance its $2.3 million acquisition of Dylix Corp., a Grand Island company that makes fluid meters. Dylix, which is located at 347 Lang Blvd., employs 22 workers.

   Enough tax breaks. Back to the way the rest of us live:
-  BofA to resume seizing homes - AP/Buffalo News
  The pace of U.S. home foreclosures may not slow much after all.
  Bank of America said Monday that it plans to resume seizing more than 100,000 homes in 23 states next week.

-- George Pyle/The Buffalo News

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