Potash Confirms Deal Talks with Israel Chemicals

OTTAWA —The Potash Corporation of Saskatchewan confirmed on Wednesday that it has approached the government of Israel about increasing its stake in Israel Chemicals, another fertilizer maker.

In a separate regulatory filing, Israel Corporation, the holding company which currently owns 52.5 percent of Israel Chemical said that representatives of Potash met with Prime Minister Benjamin Netanyahu “in connection with the examination of a possibility for a merger” of the two companies. The Canadian company has also met with other Israeli government officials, although Israel Corp. added that neither it nor Israel Chemical have been directly approached.

Potash, which currently owns 13.84 percent of Israel Chemical, and Israel Corporation offered no details about the size or scope of any merger and both noted that no deal has been negotiated.

The Israeli government does control Israel Corporation, which is owned by the Ofer family. But its approval would be critical to any attempt by Potash to take control of Israel Chemical. In June, Potash abandoned an attempt to increase its holdings in Israel Chemicals to as much as 25 percent, expressing frustration about delays in the regulatory approval process.

Potash know the other side of that process as well. In 2010, the government of Canada blocked a hostile $38.6 billion bid for Potash by BHP Billiton, the large Australian mining company.

Analysts were divided about whether Israel would support an acquisition of Israel Chemicals by Potash. There is speculation that the companies may attempt to limit any political backlash by structuring the transaction in a way that would leave Israel Corporation as a substantial minority holding in Potash.

In an investment note, Joel Jackson of BMO Capital Markets, a unit of the Bank of Montreal, said that Potash would likely have to pay premium of perhaps more than 30 percent to acquire control of Israel Chemicals, which has a market value of about $16 billion.

Icahn Takes Stake and Netflix Shares Surge

We have seen this movie before, though the ending this time is unclear.

The billionaire investor Carl Icahn announced late Wednesday that his hedge fund, Icahn Capital, had acquired a roughly 10 percent stake in Netflix. The news caused shares of the media company to soar as much as 22 percent. Toward the close, the stock was up 14.4 percent, at $79.60.

In a filing with the Securities and Exchange Commission, Mr. Icahan said that he thought Netflix was undervalued and suggested that it could make a strong acquisition candidate for a larger entertainment company.

“The reporting persons acquired the shares with the belief that the shares were undervalued due to the issuer’s dominant market position and international growth prospects,” said the filing. “The reporting persons believe Netflix may hold significant strategic value for a variety of significantly larger companies that are engaging in more direct competition with one another due to the evolut ion of the internet, mobile, and traditional industry.”

The filing by Mr. Icahn is the latest in a string of activist positions taken by the 76-year-old investor. His playbook consists of accumulating a large stake in a company and then agitating for change.

Mr. Icahn has recently had a mixed track record with his large activist positions. He won seats on the board of Blockbuster, only to see the movie-rental chain end up in bankruptcy in 2010. A more successful investment was in ImClone, accumulating stock in the low $40s, taking over as the biotechnology company’s chairman, and then selling it to Eli Lilly for $70 a share in 2008.

More recently, last year Mr. Icahn failed in his bid to force a sale of the consumer products giant Clorox. After he put the company in play with a $10 billion bid, Mr. Icahn acknowledged that he lacked the support of Clorox shareholders to get any deal done.

Mr. Icahn hopes to have better luck with Netflix, the Los Gato s, Calif.-based company started by the entrepreneur Reed Hastings. Netflix’s stock, before Wednesday’s news, had dropped about 75 percent from its 2011 peak. Even though the company recently reached a milestone, streaming video service into 25 million homes in the United States, investors have sold Netflix shares as its growth has slowed in recent quarters.

Knight Capital Suffers Power Failure

The Knight Capital Group suffered a power disruption at its headquarters in Jersey City on Wednesday and told clients to route their orders elsewhere, a spokeswoman for the trading firm confirmed.

Knight had been running on a backup generator since Hurricane Sandy bowled through the metropolitan area, and it was that system that failed, the spokeswoman said.

It is the first time that the trading firm has run into significant issues since it was rescued by a group of investors in August. The move came after Knight Capital sustained a $440 million trading loss stemming from a technology error that generated erroneous orders to buy shares of major stocks.

Shares in Knight fell 3.4 percent by Wednesday afternoon, to $2.53.

So far, the firm’s predicament appears to be the only hiccup in the resumption of market trading on Wednesday in the aftermath of Hurricane Sandy.

The Winners and Losers Under Romney’s Tax Plan

Tax reform always has its winners and losers. Mitt Romney’s proposed plan to lower tax rates and limit deductions is no different, but it takes some digging to sort it out.

Mr. Romney has indicated that the plan is revenue-neutral, raising as much revenue as current law. He has also said it is “distributionally neutral” – meaning that the rich, middle class and poor would all continue to bear the same aggregate tax burden as they do now.

The idea seems to be that lowering tax rates would spur economic growth, and the reduction in revenue from lowering rates would be at least partly offset by increased revenue through limitations on deductions, credits and exclusions.

In recent weeks, the focus has been on whether the math “works” in the sense of whether cutting deductions for the wealthy would actually generate enough revenue to finance the proposed rate cuts. The implication, based on a study by the Tax Policy Center, is that in order to remain r evenue-neutral, the middle class would have to share the pain of limited deductions. That would effectively shift the tax burden from the rich to the middle class and violate the stated goal of distribution neutrality.

What has been missing from the conversation is a discussion of who wins and loses if, as Mr. Romney insists, the plan sticks to its goal of distribution neutrality.

Distribution neutrality is a funny concept. Even if the plan is distributionally neutral, there still must be winners and losers. After all, if everyone paid exactly the same amount in taxes as before, then tax reform would not be reform: it would be the same as no change at all in the tax code.

Some people will pay a lot more and some will pay a lot less, even if the rich, middle class and poor each continue to pay the same amount in the aggregate. The fairness of the plan will depend on how finely calibrated each group is defined. Economists often group taxpayers by income quint iles, but a definition this broad places both middle-class homeowners and billionaires in the same group, even though ability to pay varies greatly.

Who are the likely winners and losers under the Romney plan? Most of the action will occur within this top quintile of taxpayers. These households make at least $100,000, and they make about $250,000 on average, before tax. In the aggregate, they pay most of the federal income tax burden.

Assume, as Mr. Romney suggested in one debate, that deductions, in total, would be limited to $25,000. The winners would be those who would enjoy the lower rates but do not take a lot of deductions. Their tax burden would shift onto heavy users of deductions.

And who is that? Let’s focus on three important tax breaks: the mortgage interest deduction, the charitable deduction and the deduction for state and local taxes. The pain would be concentrated in areas with a high cost of living like New York, New Jersey, Connecticut and California, where home prices and state and local taxes are high.

The mortgage interest deduction, under current law, is capped at a million dollars of mortgage debt. Under the Romney plan, even homeowners with a mortgage of $500,000 would quickly fill their “bucket” of deductions. Limiting the mortgage interest deduction is good tax policy, but it will also depress home prices at the high end and lead to substantial opposition from the real estate industry.

Now consider the charitable deduction. Under current law, the deduction is limited to 50 percent of one’s adjusted gross income – a limitation few people run up against. If total deductions are limited to $25,000, however, many people will use up that amount through the mortgage interest deduction, removing the tax incentive to donate.

Finally, consider the state and local tax deduction. The state and local tax deduction is an indirect subsidy to high-tax states like New York, New Jersey and Califo rnia.

Allowing state and local taxes to be deducted from the federal return reduces the political pressure to keep state and local taxes low. Similarly, the exclusion of municipal bond interest, another tax break that is on the table, mainly benefits state and local governments, while investors pay an implicit tax in the form of accepting a lower interest rate.

The point is not to defend these tax breaks. Rather, it’s to emphasize that tax reform is easy to talk about and hard to do. For every unsympathetic group like insurance companies or oil and gas multinationals, there’s a charity like the Red Cross or the Salvation Army. And one voter’s loophole is another’s livelihood.

Even in advance of the election results, lobbyists are getting ready for action. The Chronicle of Philanthropy reports that some large nonprofits sent letters to President Obama and Mr. Romney last week urging them to maintain the charitable tax deduction as is. This grouping of nonpro fits also announced “a gathering on Dec. 4 and 5 to bring hundreds of its members to Washington to tell members of Congress that any tax changes that led to decline in private giving would devastate nonprofits and the people they serve.”

From an academic perspective, there is much to like in the Romney plan, with its broader base and lower rates. But it is not a win for everyone. And history shows that those who would be made worse off have great success in persuading Congress to maintain the status quo.

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. Twitter: @vicfleischer

JPMorgan Sues Boss of ‘London Whale’

The fallout continues from the multibillion-dollar trading loss at JPMorgan Chase.

Now JPMorgan, the nation’s largest bank, is taking aim at one of its former executives in the chief investment office, a once little-known unit at the center of the bungled trades. JPMorgan is suing Javier Martin-Artajo, the manager who directly supervised Bruno Iksil, the so-called London Whale, according to a lawsuit made public on Wednesday.

Mr. Iksil gained that now infamous moniker after reports emerged in April that he had built up an outsize position in an obscure corner of the credit markets. That position ultimately proved devastating for the bank, resulting in a $6.2 billion loss.

The lawsuit did not disclose the details of JPMorgan’s claims against Mr. Martin-Artajo, according to a person with knowledge of the complaint. Mr. Martin-Artajo and Mr. Iksil have left the bank. A spokeswoman for JPMorgan declined to comment on the lawsuit. Mr. Martin-Artajo’s lawyer c ould not be reached immediately for comment.

Since announcing the problem in May, JPMorgan has worked to move beyond the loss and reassure skittish investors. JPMorgan has broadly reshuffled its management ranks and united some of its business operations.

As part of that effort, the bank conducted an internal investigation, combing through thousands of e-mails and phone records of traders to determine what went wrong at the chief investment office.

The investigation, led by Michael J. Cavanagh, the bank’s former chief financial officer, uncovered that some traders within the unit might have improperly valued their positions as losses began to mount. Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions in a favorable manner, according to people with knowledge of the situation.

Mr. Martin-Artajo, Mr. Iksil and two other employees who worked in the chief investment office are under investigation by crimina l and civil authorities. Authorities are examining whether the group mismarked the positions to cover up losses, according to the people. After revising the valuations on those trades, JPMorgan had to restate its first-quarter earnings.

Timeline: JPMorgan Trading Loss

Federal authorities face a high legal bar. Traders are given significant leeway to price certain financial instruments like the complex credit derivatives at the center of the bet. None of the people have been accused of any wrongdoing.

JPMorgan, too, faces scrutiny. The Securities and Exchange Commission, the Office of the Comptroller of the Currency, and the Federal Reserve Bank are all looking into the botched trade.

The aftershocks of the trading blowup have reverberated throughout the bank. The multibillion-dollar loss tarnished the reputation of Jamie Dimon, the bank’s chief executive, who is considered one of Wall Street’s best risk navigators. In J uly, Mr. Dimon appeared before Congress to try to account for the misstep.

The trading debacle has also claimed the job of one of the Mr. Dimon’s most-seasoned and trusted lieutenants, Ina R. Drew, who resigned as head of the chief investment office shortly after the trading losses and volunteered to give back her pay. The bank also clawed back millions of dollars of compensation from Mr. Martin-Artajo, Mr. Iksil and others.

Mr. Dimon has also moved swiftly in the last few months to remake his management team. Douglas L. Braunstein, the bank’s chief financial officer since 2010, will resign by the end of the year, according to former and current executives. Mr. Braunstein initially played down concerns about the chief investment office that emerged in April. Barry Zubrow, a former chief risk officer who now runs the bank’s regulatory affairs, announced his own resignation last month from his current post.

The huge loss stemmed from a complex wager on credit derivatives made by Mr. Iksil out of the London unit of the chief investment office, which was formed five years ago. The chief investment office morphed from a relatively sleepy operation into a profit center as the complexity and risk of its positions swelled.

The risk controls did not keep up with the group’s increasingly large bets, according to several current and former executives familiar with the unit. Part of the problem, the executives said, was that the London branch operated without sufficient oversight. Even when some executives in New York, for example, called for greater risk controls, they were ignored or shouted down.

During JPMorgan’s latest earnings call, Mr. Dimon emphasized that the bank had contained the loss from the troubled trade. It closed out the position and moved the remainder of the credit derivative trade to the investment bank.

Ben Protess contributed reporting.

Why I Manage My Own AdWords Campaigns

Thank you to everyone who took the time to read “My AdWords Debacle” – and especially to those who left comments. I’d like to respond to some of the most commonly asked questions. So without further ado:

Why didn’t you spot the pattern sooner?

Am I just plain stupid? Not really. When I sat down to write these posts, the theme I had in mind was how difficult it was for this small-business owner to identify patterns in the blizzard of incoming data and to figure out what to do next. I hope that this idea wasn’t lost as the post changed into a story about AdWords.

Life doesn’t present itself as a tightly formed narrative. It’s my job as a blogger to turn messy reality into an entertaining and informative story. Unfortunately, the format of this blog precludes a full exploration of the many twists and turns along the way. For instance, the sales problem could have been presented as simply a random variation that is mathematic ally inevitable when incoming jobs range widely in size (which ours do, by a factor of 10). The sales data conform very well to this hypothesis, and that’s a pattern I have often seen in the past.

If I had decided to believe that story, then the post I wrote might have been about planning for inevitable downturns, and I could have expounded on how my cash management and backlog forecasting systems allowed me to ride out the dip without layoffs. Or the story could have been about how we were responding to incoming inquiries and what happened when I decided to completely overhaul our sales process. In fact, I did do that, and I believe that it had a large effect on our return to a profitable level of sales.

Or it could have been about how I responded to a big problem with a multi-pronged counterattack involving my marketing, my sales operations, our shop management, and my own financial planning. That’s what actually happened – I tried everything I could think of, and each change probably had some effect on the ultimate result. But that story is very difficult to tell, in particular as it is happening. It would be better suited for a book, where each thread in the narrative can be developed fully.

It’s also easy to forget that a story that took five days to recount took five months to develop. It’s hard to interpret data until you have enough to draw conclusions. And it’s hard to see how responses will work without giving them some time. It can take quite a while for a situation to develop to the point where it can be understood and even longer to see whether the fixes are working.

One commenter suggested that I could have avoided all of this by simply thinking about what might happen before I took action. Apparently, a little “scenario planning” allows one to see the future with perfect clarity. Really? I’d like to know what planet he lives on. Certainly not Earth, where even plans developed by the richest and smartes t businesses and governments can go badly awry.

I’m sure that I am not the only small-business owner who tries lots of things to improve sales and operations. News flash: some of them don’t work and sometimes for reasons that aren’t readily apparent. Any plan you can think of has potential negative consequences. Sure, some plans are so stupid that their downsides would give anyone pause. For instance, I can clearly see that it would be a bad idea to heat my shop by setting my lumber supplies on fire. But then there are plans that seem perfectly reasonable, like introducing new products to see how they will do in the market. Sometimes they succeed, sometimes they fail. Sometimes the failure is complex and subtle. I can’t let that possibility keep me from trying things.

Why don’t you stop managing your own advertising and hire an expert?

Plenty of commenters took me to task for trying to run my own AdWords campaign. Oddly enough, 100 percent of them – by my r ough count – were people who make their living as search-engine marketing consultants. But if I look beyond that fact, there is merit to considering the question.

AdWords, after all, is an extremely complicated program. Aside from the mysterious algorithms that drive search results and keyword quality scores, there is the incredibly complex set of controls and reporting functions that Google has provided. If I were starting from scratch today, I would hire someone to help, just as I have hired a bookkeeper and accountant to do my taxes, and a Web site developer to do my Web site. Please keep in mind, though, that I have been running the account for years and have reached a point where it is, by any reasonable standard, successful. If you measure gross sales as the metric by which R.O.I. is calculated, my return is between 15 and 20 to one. It’s worked well enough to expand the business for the last three years and, with improvements we are making to the way we handle i nquiries, it should work even better in the future.

I get lots of calls and e-mails from S.E.M. consultants, even on weeks when I’m not writing about AdWords. I take the time to talk to quite a few of them, just out of curiosity. Most of them are reading from a script. “Hi, Paul. I’ve been looking at your Web site, and we think that with the proper help, we can get your search results onto the first page.” Dude, if you were actually looking at my Web site, you’d know that we are already at the top of free results for the search strings I care about.

“Hi, Paul. Did you realize that you could be saving money by optimizing S.E.O. results, which would let you turn off AdWords entirely?” No, pal, I don’t realize that because I don’t believe you, and my grand experiment last year proved that turning off AdWords was a bad idea for me.

“Hi Paul, did you know that optimizing your bids would save you money?”

“Really, that’s interesting. Suppose I’ m spending $10,000 a month. How much could I save?”

“Up to 20 percent!”

“And how much would it cost me to hire you?”

“At that level of service, about $2,500 a month.” Sigh.

I had a phone meeting last week with an S.E.M. company that had been recommended by some colleagues. I had contacted them and given them read-only access to my AdWords account so they could look at whatever they wanted to look at. They commented that the campaigns were well organized and that all of the obvious things – split-testing ads, using negative keywords, separate ad groups and separate campaigns, etc. – were already in use. They suggested that I increase my budget to $15,000 a month to get more clicks. But I don’t need a consultant to tell me that increasing my spend by 50 percent will get me more traffic.

Here’s what I would want a consultant to do: First, tell me something I don’t already know about my campaign. Second, offer to provide services free for two months, so that I can see what the results are. I would happily agree to pay for those months, maybe even with a bonus, if the results were to my liking. Also, the consultant needs to be able to explain to me, up front, the thinking behind any suggested changes, and it has to make sense to me. I wouldn’t hire an accountant who believed that the government didn’t actually have the power to tax individuals, and I won’t hire an S.E.M. consultant whose view of how Google works conflicted with mine.

There’s another reason I continue to run my own AdWords campaigns – because I’m interested in it. I’ve always found that marketing is the most challenging and fascinating part of being in business. At its root is the whole concept of getting money, freely given, from people in exchange for the stuff that I have designed and built.

One of the main rewards of owning a small business is the ability to do something you like to do, and I like to think about complex prob lems. AdWords is just one part of a whole chain of interactions with clients that ultimately results in a sale. I need to understand it to think about how to keep the entire marketing operation working. If I outsource that piece of it, I am handing over a very important piece of our sales operation to people who neither know nor care about how the rest of the process works. There is no one better than I am, at this time, at overseeing our sales operation. I might well create a position within the company to do this, but I am not ready to outsource it.

What else did you do to fix the problem?

I did hire a consultant to examine our selling process and to recommend changes. This has been very interesting and has led to a marked upgrade in the way we respond to inquiries. I’ll be writing about this in the near future.

Are you going to diversify your lead sources?

A number of commenters were concerned that I rely so heavily on AdWords. That’s a legitimate point. In addition to beginning to explore exports and joint ventures, we are submitting (at long last) our application for a General Services Administration contract this month. If accepted, this will allow us to expand the business we do with the federal government. And I am finally beginning an organized effort to establish regular contacts with potential repeat customers. I’ll be writing about that, soon, as well.

Thank you again for your comments. Please feel free to address anything I have missed.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Stocks Little Changed as Market Reopens

The major stock indexes were little changed in light trading on Wednesday morning as the market reopened after a two-day shutdown caused by Hurricane Sandy.

A bevy of TV news crews and camera-toting tourists thronged the New York Stock Exchange for the opening, but the famed trading floor betrayed little that was unusual.

A small crowd enveloped Mayor Michael R. Bloomberg of New York City as he briefly stepped onto the floor to greet exchange workers. He later took to the balcony overlooking the pits to ring the opening bell, flanked by Duncan L. Niederauer, the chief executive of NYSE Euronext, and Robert Steel, a deputy mayor.

As the familiar clang rang through the hall for the first time this week, a small cheer erupted from the floor.

The dozen staffers at “the ramp,” an important N.Y.S.E nerve center on the floor, scanned a wall of monitors to check on market activity.

Milling about the floor was Larry Leibowitz, NYSE Euronext’s chief operating officer, checking on the state of operations. It was his second straight day at the exchange, having waded from his home to Wall Street and slept there overnight.

“There have been very few, very isolated problems,” he said. He pointed to blank monitors that were shut off because the data provider was providing incorrect market data.

“If that’s the worst of our problems, we’re in good shape,” he added.

Mr. Leibowitz’s boss, Mr. Niederauer, seemed pleased as well. Wednesday was his first day back at the exchange since last week, having worked remotely because he could not come into the city.

“We’re pleased to see the turnout of staff,” he said, with many market makers being nearly fully represented.

He said that many technical issues had been resolved, though technicians from Verizon were on hand to patch spotty communications and network connections. Many trading firms resorted to sharing working Internet and phone lines, w hile specialists ducked outside to get cellphone service unavailable on the floor.

At midday, the Dow Jones industrial average was down 0.11 percent; the Standard & Poor’s 500-stock index was down 0.16 percent, and the Nasdaq composite index was down 0.55 percent.

Several specialists said that in some ways, the morning had been easier. Commuting was smoother, they said, with little traffic on the road and the exchange providing special dispensation to park on nearby streets.

Jonathan D. Corpina, a senior managing partner at Meridian Equity Partners, came armed with a flashlight to navigate the darkened streets of lower Manhattan. But he found it easy to find the exchange, illuminated thanks to backup generators, and dive into work.

“We’re here filling orders, and it’s business as usual,” he said.

Another trader, Peter Costa, said that he noticed little unusual activity, except perhaps slightly lower volume.

“To me, this feels like a Monday, but on a Wednesday,” he said.

Stocks Little Changed as Market Reopens

The major stock indexes were little changed in light trading on Wednesday morning as the market reopened after a two-day shutdown caused by Hurricane Sandy.

A bevy of TV news crews and camera-toting tourists thronged the New York Stock Exchange for the opening, but the famed trading floor betrayed little that was unusual.

A small crowd enveloped Mayor Michael R. Bloomberg of New York City as he briefly stepped onto the floor to greet exchange workers. He later took to the balcony overlooking the pits to ring the opening bell, flanked by Duncan L. Niederauer, the chief executive of NYSE Euronext, and Robert Steel, a deputy mayor.

As the familiar clang rang through the hall for the first time this week, a small cheer erupted from the floor.

The dozen staffers at “the ramp,” an important N.Y.S.E nerve center on the floor, scanned a wall of monitors to check on market activity.

Milling about the floor was Larry Leibowitz, NYSE Euronext’s chief operating officer, checking on the state of operations. It was his second straight day at the exchange, having waded from his home to Wall Street and slept there overnight.

“There have been very few, very isolated problems,” he said. He pointed to blank monitors that were shut off because the data provider was providing incorrect market data.

“If that’s the worst of our problems, we’re in good shape,” he added.

Mr. Leibowitz’s boss, Mr. Niederauer, seemed pleased as well. Wednesday was his first day back at the exchange since last week, having worked remotely because he could not come into the city.

“We’re pleased to see the turnout of staff,” he said, with many market makers being nearly fully represented.

He said that many technical issues had been resolved, though technicians from Verizon were on hand to patch spotty communications and network connections. Many trading firms resorted to sharing working Internet and phone lines, w hile specialists ducked outside to get cellphone service unavailable on the floor.

At midday, the Dow Jones industrial average was down 0.11 percent; the Standard & Poor’s 500-stock index was down 0.16 percent, and the Nasdaq composite index was down 0.55 percent.

Several specialists said that in some ways, the morning had been easier. Commuting was smoother, they said, with little traffic on the road and the exchange providing special dispensation to park on nearby streets.

Jonathan D. Corpina, a senior managing partner at Meridian Equity Partners, came armed with a flashlight to navigate the darkened streets of lower Manhattan. But he found it easy to find the exchange, illuminated thanks to backup generators, and dive into work.

“We’re here filling orders, and it’s business as usual,” he said.

Another trader, Peter Costa, said that he noticed little unusual activity, except perhaps slightly lower volume.

“To me, this feels like a Monday, but on a Wednesday,” he said.

After Bailout, Giants Allowed to Dominate the Mortgage Business

Mortgage rates are so low that it may seem like a great time to get a mortgage. For banks, however, it probably is the greatest time ever.

The profit margin on the rates that they can charge customers and the price they can earn for selling those mortgages to investors is at a record. This is measured as the “spread,” or difference, between mortgage securities yields and mortgage rates.

Given that housing prices are beaten up and borrowers must put down bigger cushions than in recent years, it is “the most profitable, safest time ever to be a mortgage bank,” says Scott Simon, who is the head of mortgage investing at Pimco.

In the old days, there used to be a word for this kind of thing: price gouging.

And who is doing the gouging? Mainly, Wells Fargo and JPMorgan Chase. In the third quarter, reported in the last several weeks, both banks earned robust profits from the mortgage business.

The president of the Federal Reserve Bank of New York, William C. Dudley, vented this frustration in a recent speech, blaming the concentration of mortgage-making power at a few big banks.

Mr. Dudley is right. But what he didn’t say was that his own institution (the Fed), his former boss (Treasury Secretary Timothy F. Geithner) and the Bush and Obama administrations delivered us this mess.

The broken mortgage market is the unintended consequence of the flawed banking bailout and the flaccid regulatory response in the aftermath of the financial crisis.

The government and the regulators have had two broad approaches to banking oversight during the crisis and its aftermath. First, regulators coddled the troubled big banks. The two weak behemoths, Citigroup and Bank of America, were granted time to work off their bad loans. Regulators practiced forbearance, overlooking the self-inflicted debacles – mostly housing related – on their balance sheets.

Regulators, meanwhile, encouraged the healthy giants to get even bigger by gobbling up the small and weak. So Wells Fargo bought Wachovia, and JPMorgan snapped up Washington Mutual.

It would be foolish to blame Wells Fargo and JPMorgan for this situation. Restaurants with 100 customers waiting in line outside the door wouldn’t, and shouldn’t, be expected to lower their prices; why should banks?

Yet allowing takeovers without forcing weak competitors to get healthy quickly leads to an oligopoly. Exhibit A: Wells Fargo and JPMorgan dominate the mortgage business. They should face some competition. Instead, their biggest threats, Citigroup and Bank of America, are, astonishingly, pulling out.

Citigroup and Bank of America appear to have made a profound mistake. It’s one of the many strategic errors that ultimately got Vikram S. Pandit ousted as Citi’s chief executive. Mr. Pandit viewed mortgages as a “noncore” business for Citigroup. Whoops.

But it’s not a surprising one. These are traumatized institutio ns, limping along, preoccupied by the past and unable to look forward, says Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation and author of the new crisis account, “Bull by the Horns.” She rightly calls it “another downside of the bailouts. We simply propped up weak institutions instead of making them restructure.”

The odd twist is that the Federal Reserve is a victim here, too. Despite its move to buy mortgage-backed securities in its latest round of extraordinary measures to lower interest rates, it can nudge them only so far because of the dysfunctional, noncompetitive market.

Regulators could have broken up Citigroup and Bank of America, spinning off their mortgage operations into well-capitalized, nimble competitors. Perhaps they could have forced those banks to take big write-downs on their mortgage assets, settled their lawsuits and moved on, putting the past where it belongs.

Bankers, of course, don’t like this analysis. It’s common for them and others to argue that what’s really ailing the mortgage market are delays in putting new Dodd-Frank mortgage rules in place, like the ones that define the standards for mortgages that can be bundled into securities.

And, yes, that is probably hindering new competition from entering the market, though it certainly can’t fully, or even mostly, explain Citigroup and Bank of America abandoning the field. And, of course, the banks themselves bear much of the blame because they went all out to obstruct the rollout of new regulations. But, ultimately, the Dodd Frank delay is yet another example of how the government’s inefficient postcrisis process has hurt the marketplace.

There has been plenty of talk about how the government saved the financial system after the crisis. And it did. Now the question is: Is this what we saved it for?