From the Right

Observing my upside down America

Archive for the ‘Fannie Mae Freddie Mac Bailout’ Category

Barney Frank Proposes New Bank Resolution Authority

with one comment

After years of Fed policies which allowed mergers of massive banks to form the very mega-banks which have now failed, Barney Frank, after his years of rebuking repeated efforts by Republicans to reform the system, is only now rising up to look the hero.

On October 27, 2009, House Financial Services Chairman Barney Frank (D-Mass.) released the latest version of the most complex piece of the financial reform puzzle: solving the “too big to fail” problem by giving the federal government more powers to wind down major financial firms.

barney-frank-pointing

Barney Frank blamed others for the mortgage industry meltdown while literally in bed with Fannie Mae.

Frank’s bill seeks to avoid the kinds of massive taxpayer bailouts that characterized last year’s financial crisis by empowering the federal government to wind down any financial firm, no matter how large, complex or interconnected.

“We’re going to have death panels. But they’re going to have death panels that are going to put to death these institutions before they can cause us problems, not old people,” — Frank said in a CNN interview Tuesday.

Back in 2003, House Ways and Means Committee Chairman Frank led the government charge that helped create the GSE meltdown (time line here). He made this now infamous quote about new terms to lower lending standards of Fannie Mae and Freddie Mac

I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.

Under Frank’s new (I’ve found God) vision, shareholders and unsecured creditors would have to pay for the failure, not taxpayers, according to a summary of the bill. The legislation would require resolution costs to come first from the failed firm’s assets “at the expense of shareholders and creditors,” with any additional cost to be paid from an after-the-fact assessment on the remaining large financial firms.

But as we all know, except for perhaps Frank, the costs of these penalties will ultimately be passed on to the consumer in the form of bank processing and administration fees.

Frank’s proposal reeks of a “let the bank fail and allow the market to absorb the consequences” tactic which the Feds dismissed earlier in the crisis, preferring to instead follow their “too big to fail” philosophies.

The bill’s proposal for an oversight council to act as the so-called “systemic risk regulator” to keep an eye on the overall health of the financial industry also sounds suspiciously like Bush’s proposals first advanced in 2001. The council would be directed to identify risky firms and financial activities, and have the power to slap tougher rules and standards on those firms.

Frank said Tuesday morning on CNN that the systemic risk council would also have the power to break up a company “if its too big.”

Frank’s use of the term “systemic risk” mirrors comments made in April 2005 when Secretary of the Treasury John Snow repeatedly called for GSE reform, saying

“Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America … Half-measures will only exacerbate the risks to our financial system.”

Then house Minority Leader Harry Reid rejected the legislation saying ” we cannot pass legislation that could limit Americans from owning homes and potentially harm our economy in the process.”

Frank’s proposed Council and Fed Board would be banned from publicly releasing a list of “systemically significant” institutions – a major concern in the industry which fears that those singled out would be penalized by the market.

If these institutions were to be publicly singled out, it might have positive results on the market as banks would have a built-in incentive to engage in policies which minimize risk to themselves.

Written by Ben

November 3, 2009 at 12:12 pm

The famous meltdown began in what!!? 1977??

leave a comment »

Let the meltdown begin

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining. The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.

Where did this bill get started?

The CRA was passed as a result of national pressure to address the deteriorating conditions of American cities particularly lower-income and minority neighborhoods. Community activists, such as Gale Cincotta of National People’s Action in Chicago, had led the national fight to pass, and later to enforce the Act.

Hmmm… community activist. Rings a faint bell.

And who signed this beautiful piece of legislation into law?

The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977.

A democrat. Who woulda thunk?

…and the effects?

Some economists, politicians and other commentators have charged that the CRA contributed in part to the 2008 financial crisis by encouraging banks to make unsafe loans. Others however, including the economists from the Federal Reserve and the FDIC, dispute this contention. The Federal Reserve and the FDIC holds that empirical research has not validated any relationship between the CRA and the 2008 financial crisis.

You can read the time line of events here.

Written by Ben

June 27, 2009 at 11:06 am

Barney Frank is at it again!

leave a comment »

Fannie, Freddie asked to relax condo loan rules

In a letter to the CEO’s of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold “may be too onerous” and could lead condo buyers to shun new developments, according to the paper.

The legislators asked the companies to “make appropriate adjustments” to their underwriting standards for condos.

You can read the whole article as it appears in Reuters here.

What does it take?

What in this world does it take to get this fool out of office? Someone, please, please tell me. Can the collective in Massachusetts be that stupid to believe Barney Frank has acted in their best interest as well as the interest of America? If they would only pull their heads out of their collective butts, maybe the voters in Massachusetts will do the right thing in 2010 and vote this piece of garbage out of office.

Are ya listening Massachusetts?

While I’m at it, someone wake up Connecticut and let them know about their fine leader, Chris Dodd.

Written by Ben

June 27, 2009 at 10:05 am

Fed to pump another $1 trillion into U.S. economy

leave a comment »

Washington: The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.”

Full story here.

ED:

Treasury monetizes debt by printing 1 trillion dollars to inject into economy – effectively borrowing from itself.

Taking such a measure this drastic means the “patient” is almost dead and this “injection” is a last ditch effort to save it.

Written by Ben

March 22, 2009 at 7:38 pm

Who benefits from this meltdown?

leave a comment »

Since 1989, Rep. Frank has received $42,350 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Senator Reid has received $77,000 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Dodd has received $165,400 from Fannie Mae and Freddie Mac, more than any other Member of Congress. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Carper has received $55,889 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

In just four years, Sen. Barack Obama (D-IL) has received $126,349 from Fannie Mae and Freddie Mac, more than any Member of Congress except for Sen. Dodd. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. John Kerry (D-MA) has received $111,000 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Sen. Hillary Clinton (D-NY) has received $76,050 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, House Speaker Nancy Pelosi (D-CA) has received $56,250 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Since 1989, Rep. Rahm Emanuel (D-IL) has received $51,750 from Fannie Mae and Freddie Mac. (Lindsay Renick Mayer, “Fannie Mae And Freddie Mac Invest In Lawmakers,” Center For Responsive Politics’ “Capital Eye” Blog, www.opensecrets.org)

Former Fannie Mae, Freddie Mac Executives Ignored Warnings

with 2 comments

(AP – Tuesday, December 09, 2008)

WASHINGTON–Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans long before the housing market plunged, according to documents released Tuesday by a House committee.

E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.

“Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored” by the two chief executives, said Rep. Henry Waxman, D-Calif., the committee’s chairman. “Their irresponsible decisions are now costing the taxpayers billions of dollars.”

The two companies were seized by government regulators in September. A month later, Freddie Mac asked for an injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so soon.

Lawmakers questioned Mudd about an internal Fannie Mae presentation from June 2005 that showed the company at a “strategic crossroads,” at which it could either delve into riskier loans or focus on more secure ones.

Questioned about the presentation, Mudd defended his company’s effort to compete against Wall Street banks that were pouring money into subprime and other exotic loans.

“We couldn’t afford to make the bet that the changes were not going to be permanent,” Mudd said.

Mudd and three other former executives of the two companies defended their stewardship in a hearing held by the House committee.

“It’s important to remember that Freddie and its sister institution, Fannie Mae, did not create the subprime market,” said Richard Syron, Freddie Mac’s former CEO.

But Rep. Darrell Issa, R. Calif., blasted Syron and Mudd, along with former Fannie Mae CEO Franklin Raines, and former Freddie Mac CEO Leland Brendsel.

“All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this. Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it. If we don’t do it, we’ll be left out.”

Fannie and Freddie own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt. The two companies are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

Republicans blame Fannie and Freddie, and homeownership policies of the Clinton administration for sowing the seeds of the financial meltdown. Democrats defend the companies’ role in encouraging homeownership and stress that Wall Street banks — not Fannie and Freddie — led the dramatic decline in lending standards.

For years the two companies flexed their lobbying muscle in Washington to thwart efforts to impose tighter regulation.

Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D’Amato of New York were recruited with six-figure contracts.

The more difficult questions, however, will come next year, when lawmakers weigh what role, if any, the two companies play should play in the mortgage market.

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

A watershed moment

with one comment

Clinton signs banking overhaul measure

November 12, 1999

WASHINGTON (CNN) — The biggest change in the nation’s banking system since the Great Depression became law Friday, when President Bill Clinton signed a measure overhauling federal rules governing the way financial institutions operate.

“This legislation is truly historic and it indicates what can happen when Republicans and Democrats work together in a spirit of genuine cooperation,” Clinton said at a White House signing ceremony. The event brought together the president and several Republican members of Congress who have been among Clinton’s sternest critics — a sign of the bipartisan support that eventually developed for the package.

Congress passed the bipartisan measure November 5, opening the way for a blossoming of financial “supermarkets” selling loans, investments and insurance. Proponents had pushed the legislation in Congress for two decades, and Wall Street and the banking and insurance industries had poured millions of dollars into lobbying for it in the past few years.

“The world changes, and Congress and the laws have to change with it,” said Senate Banking Committee Chairman Phil Gramm (R-Texas), who has fought for years for the overhaul. Gramm said the bill would improve banking competition and stability.

“This is a bill that is bipartisan, bicameral and tri-institutional,” said Rep. Jim Leach (R-Iowa), chairman of the House Banking and Financial Services Committee. He noted that the House, Senate and White House had worked together on the compromise that became law.

Clinton said the measure will “save consumers billions of dollars a year through enhanced competition.” He said it also would protect consumers’ rights and require banks to expand the availability of funds for community development.

At stake is an estimated $350 billion that Americans spend annually on fees and commissions for banking, brokerage and insurance services. Proponents say the legislation will save consumers some $15 billion each year, offering them greater choice and convenience and spurring competition. Consumer groups and other opponents maintain it will bring higher prices and jeopardize consumers’ financial privacy.

The overhaul measure is one of the few major pieces of bipartisan legislation to emerge from the Republican-controlled Congress this year.

Clinton’s support for the legislation comes despite warnings from Democratic critics and consumer activists that it could lead to price-gouging of consumers and the erosion of their privacy by newly formed financial conglomerates that are too big and powerful.

“The bill is anti-consumer and anti-community,” advocate Ralph Nader declared. “It will mean higher prices and fewer choices for low-, moderate- and middle-income families across the nation.”

In addition, he said, “Personal privacy will be virtually eliminated” under provisions allowing affiliated businesses of the newly merged companies to share customers’ personal financial data as they offer one-stop shopping.

And up until a few weeks ago, the Clinton Administration itself had threatened a veto of the legislation as it took various forms that raised a series of White House objections. In recent months, the administration objected most sharply to the issue of rules requiring that banks make loans in minority and low-income communities where they operate.

Gramm, an outspoken conservative who opposes the rules, last year managed to kill a similar bill that would have overhauled the community lending laws. The White House insisted that banks be required to have a strong track record in local loan-making as a condition for being allowed to expand into other financial activities.

The big breakthrough came in the wee hours of October 22 when administration officials — including Treasury Secretary Lawrence Summers — and key Republican lawmakers reached a compromise after negotiating for days behind closed doors. The White House then lifted its longstanding veto threat.

“It was sweaty, it was tense, but it had momentum,” Sen. Charles Schumer (D-New York) said of the final bargaining session. He and Sen. Christopher Dodd (D-Connecticut) whose states are home to Wall Street and the banking industry (New York) and the insurance industry (Connecticut), helped broker the agreement.