The most important decision on financial reform seems to have been made by the Administration: to reject Volcker's lead on financial reform to reinstall the wall between commercial and investment banks and repeal the implicit government guarantee to the investment bank lenders link here. Rather Obama chose to follow that of Summers-Geithner-Bernanke (christened the "Summersists", as opposed to the "Volckerists"), to leave the banks big but try to regulate their behavior. This might be the right choice, in order to get it through Congress, but the banks seem happy, apparently in the belief that they can get what they want. Why do I feel that they are right?

Felix Salmon raises questions about write downs in banks' valuation of mortgage servicing rights which give banks a steady income and which they have capitalized on their balance sheets link here. Presumeably, they bought these from mortgage lenders and mortgage derivative creators, but there is no current market price for them so holders can play games with the carrying value on their books. Their value will vary if mortgages are paid off early, ending the service income but also with interest rates on alternative investments. This is another aspect of the enigma that is investment banking. Why should the government guarantee lenders to banks which hold this kind of investment?

Another aspect of the financial crisis was the bailout of Chrysler and GM. Steven Rattner, the car czar or chairman of the President's Automobile Task Force is on the record with a report, an article in Fortune, and a persuasive interview on PBS link here. An aspect of this is that top executive salaries are being imposed by the salary czar on seven companies, two of which are the financings arms of the car companies--so the executive salaries of just three banks are being limited, though taxpayers have bailed out the whole industry. Big deal.

Felix Salmon has another heads up, this one on the hedge fund activities of John W Merriweather, a founder of bankrupted Long Term Capital Management and now of JWM Partners link here. Salmon notes that partner fees end when the fund no longer beats its previous high. Time to close the fund and start a new one with a lower payoff marker. Interesting incentives Wall Street sets for itself.

You can read another chapter of ANDREW ROSS SORKIN's book, Too Big to Fail, this time on The Race to Save Lehman Brothers link here. Bottom line: it was chaos and bankers and officials were talking to each other in terms that would normally have gotten them in trouble with the feds.

A useful fact on which to end: A study found that securitized mortgages were five times as likely to be delinquent as mortgages that were not resold to securitizers link here.