“We have the track record of them failing to take action when they should have and potentially could have averted this foreclosure crisis.”
-John Taylor, CEO of National Community Reinvestment Coalition


I cannot figure out the thought process behind putting a consumer protection agency into the hands of the Fed. This is the same regulatory body that gave a total pass to the non-bank lenders at the heart of the sub-prime, APR, and exotic loan issues.

Bloomberg sums it up perfectly with their headline: Consumer Agency Within Fed Seen as Victory for Banks.

Here’s your excerpt:

“If the Fed doesn’t start to use that authority to roll out the rules, then we’ll give it to somebody who will,” Frank said.

The Fed drafted tougher mortgage lending rules in 2007 and completed them in 2008. The rules prevented mortgages for borrowers with no documented income, required lenders to write loans borrowers could repay and made escrow accounts mandatory for high-cost mortgages. The Fed also toughened restrictions on prepayment penalties.

Separately, the Fed has forced credit-card companies to improve disclosure and has increased its scrutiny of possible discrimination in lending. The central bank referred 17 cases to the Justice Department in the three-year period ending 2009, up from nine the prior three years.

The Fed’s actions came too late, consumer advocates say.”


Consumer Agency Within Fed Seen as Victory for Banks
Craig Torres and Yalman Onaran
Bloomberg, March 3 2010

Category: Bailouts, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Do-Nothing Fed Regulator = Huge Bank Victory”

  1. holulu says:

    It does not surprise me at all. Owners (mega corporations, mega banks, mega etc.) of this country are not going to give up their control.

  2. cognos says:

    So what?! EVERYONE “failed to take action”.

    The “failed” camp includes:

    - congress (repubs and demos)
    - president Bush
    - OFHEO, Fed, FDIC, Treasury, Fannie/Freddie
    - every single major bank exec
    - many homeowners, speculators, real estate professionals, etc

    So whats the point of saying, “the Fed failed”? Ergo… what?

  3. cognos says:

    Small banks failed too. More tax payers and FDIC losses have occured at small banks than large ones.

  4. alfred e says:

    Oh, I get it.

    As long as there are some inattentive chickens running around the coop, keep on plucking.

    Make just enough peace to keep the chickens thinking they’re safe.

    And who exactly is the Fed protecting with their rules? The stupid borrowers or the greedily stupid lenders?

    Think fox.

    Think status quo.

    Think non-transparency.

    When the fed opens up to transparency, then there’s change you can not only believe in but trust.

    Otherwise assume the turtle position.

  5. David Merkel says:

    Why are you surprised? The Fed, for all its failings, has very broad support on Capitol Hill, the Treasury, and the White House. You and I might consider the Fed to be inept, bloated, and in the pocket of the banks, but who are we? Just two bloggers with brains, and what does that do? Not much… sadly.

  6. scharfy says:

    Look the housing bubble is popped.. Maybe the damage is done and maybe more to come, but no matter either way. Lets let lenders AND borrowers take their medicine – give everyone the haircut they KNOW is coming and get back to some real growth..

    This is what baffles me – the last price point of the housing market means NOTHING to real economic growth! It’s just a mark on a ledger sheet, subject to the many complex winds of our economy. Should housing prices rise -we are not wealthier, if they fall we are not poorer.

    You only get per capita wealth by producing.. producing.. producing.. We must disavow the belief that “asset fueled prosperity” is the stairway to heaven.

    Build an ipod, write a program, design a car, teach a student, slaughter a cow, grow some corn, drill some oil, install some solar panels, and for the love of God - CREATE some VALUE in our economy.

    But seriously folks, regarding the above article – putting the bubble police at the bubble factory seems pointless….

  7. Simon says:

    I think there is a bigger issue. The source of the easy money that was lent out was Chinese foreign reserves building up. How could this massive imbalance be overlooked? This something that is not often mentioned so I guess it must not be any kind of regulatory issue. As I understand it there are accusations against the FED to do with cognitive capture among economists. This happens along the lines of… if you don’t demonstrate the correct ideology in your doctorate thesis you won’t get a job with the major employers who are the big banks the regulator for whom is the FED. So here is the FED arguably performing a different kind of regulation that results in a particular mindset among economists. The result is that China’s build up of foreign reserves is not seen as dangerous. Spiraling private debt levels are ignored as insignificant. This suits the banks and broker dealers well because they can book large fees using the easy money to financing everything from sub-prime to leveraged buyouts. So on one hand the FED was not carrying out its role as regulator for banks at the micro level while at the macro level managing thinking in such a way that important macro issues were overlooked. Thanks Guys! Keep up the good work. NOT

  8. hgordon says:

    There is some interesting maneuvering here – Dodd and Shelby seem to be doing their damnedest to block the Volcker rule and direct the consumer protection agency to the Fed, but Obama seems to be pushing back –

    As usual, Geithner’s statements are devoid of content. But it would be something if Obama actually did the right thing here – it seems he has that opportunity …

  9. Assassin says:

    More tax payers and FDIC losses have occured at small banks than large ones.

    large banks didn’t incur FDIC losses, because they were bailed out, and the FDIC wouldn’t even attempt to shut them down.

  10. Michael M says:

    Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System ‘Corrupt’

    Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve’s — in which regional Feds are partly governed by the very banks they’re supposed to police — it would have raised alarms.

    “If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure,” Stiglitz said during a conference on financial reform in New York.


  11. Nomi Prins says:

    The drama currently swirling around the creation of a new Consumer Financial Protection Agency has captured the most public attention. With passionate support from progressives and widespread approval among the general public, the establishment of some kind of new consumer agency has been certain since President Barack Obama proposed it in June 2009. But the bank lobby and Republicans are fiercely opposed to creating a new agency that goes to bat for consumers, not bankers. Since June, we’ve been waiting to see whether Democrats had the spine to make sure the final agency would actually do something, or quietly gut reform with a barrage of loopholes.

    What we need is a prominent, independent agency with its own budget and the ability to both write and enforce strong rules. In essence, Congress needs to take every consumer protection power the Federal Reserve currently wields, and give it to a new agency that won’t ignore abuses in the name of bank profits. Sadly, in a misguided effort at bipartisan hand-holding, Dodd appears to have abandoned this vision.

    Dodd actually offered two separate proposals in the past few days. Last week he suggested housing the new consumer agency—dubbed the Bureau of Financial Protection in Dodd’s language—within the Treasury Department, where it would have to consult with other bank regulators before issuing rules. Treasury? The place that shoved trillions of dollars into Wall Street’s rapacious mouth after it nearly over-leveraged itself into oblivion? We already know where Treasury stands in conflicts between bank balance sheets and the public.

  12. flipspiceland says:

    Easy. For the same reason insider trading violations were given to the SEC.

    The FED will hire from within an incestuous group of people, a Tribe, who will do little or nothing about it.

    They will operate like the SEC which prosecuted and convicted Martha to distract from the monstrous violators at the time, since then and forever which are given a pass, like the day before yesterday when $21 million or 50 million was made on a put option for the company that Pfizer partnered with and the drug failed. 5 minutes before the closing bell.

    If you want to get something done give it to a busy man. And those pulling the puppets strings KNOW what they want done. Or Not.

  13. torrie-amos says:

    forrest gump, said it best, stupid is as stupid does

    democrats, more…….., insert whatever, verses enforcing existing laws, like a new plan will work better if you ignored your last plan

    insanity continues

  14. Marginalist Panaceas to Today’s Structural Problems

    It looks like bookstores are about to be swamped this summer and fall by a forest of advice for which publishers gave respectable advances a year ago as the economy was going off the rails. Seeking to minimize the risk of cognitive dissonance, the marketing strategy seems to be to offer advice by well-placed or celebrity insiders on how to recover the kind of free lunch that American pension plans – and popular hopes for easy wealth – have long assumed to be part of the natural law of economic growth, if only it can be better managed. The fantasy people want to buy is that the happy 1981-2007 era of debt-leveraged price gains for real estate, stocks and bonds can be brought back. But the Bubble Economy was so debt-leveraged that it cannot reasonably be restored. This means that publishers have achieved the marketer’s dream of planned obsolescence: Readers a year or so from now will have to buy a new slew of books as they feel hungry again from the lack of intellectual protein.

    For the time being we are supposed to be satisfied Wall Street defenses of the Bush-Obama (Paulson-Geithner) attempt to re-inflate the Bubble by a bailout giveaway that has tripled America’s national debt in the hope of getting bank credit (that is, more debt) growing again. The problem is that debt leveraging is what caused the economic collapse. A third of U.S. real estate is now estimated to be in negative equity, with foreclosure rates still rising. So publishers have only a short window of opportunity to sell the current spate of books before people wake up to the fact that attempts to renew the Bubble Economy will make our financial overhead heavier.

    In the face of this stultifying financial trend, the book-buying public is being fed appetizers pretending that economic recovery simply requires more “incentives” (a euphemism for special tax breaks for the rich) to encourage more “saving,” as if savings automatically finance new capital investment and hiring rather than what really happens: Money is being lent out to create yet more debt owed by the bottom 90 percent to the economy’s top 10 percent. Publishers evidently believe that the way to attract readers – and certainly to get reviews in the major media – is to propose easy solutions. The theme of most of this year’s Bubble books therefore is how we could have avoided the Bubble “if only…” If only there had been better regulation, for instance. ..”

    “..The theme of most of this year’s Bubble books therefore is how we could have avoided the Bubble “if only…” If only there had been better regulation, for instance. ..”

  15. doug says:

    cognos, that was the silliest thing yet you have posted. I did not think you could top yourself….

  16. farmera1 says:

    This country has officially ” jumped the shark “.

    Ungovernable. But on the other hand the people get the government they deserve. Brother we are all in this together and we will either stand together to get some meaningful laws, or we will surely go down
    as individuals, fighting to the end to protect the orthodoxy/idealogs.

  17. VennData says:

    It’s about the managers, as Buffett might say. You have ideologues like Greenspan, and of course they gut the oversight, that’s their ideology (By the way, thanks for Greenspan, Reagan.)

    Voting has consequences.

  18. cognos says:

    Doug —

    dont understand?

    you guys dont like “the Fed” bc they “failed”.

    WHO didnt fail? (Personally I would prefer to replace every Congressman… at least every one involved in Finance oversight, Fannie/Freddie, voted for the Mortgage Interest deduction, etc.)

    The Fed appears to have done the BEST job of any of those listed. (Although they should’ve regulated the downpayment on residential bank mbs, or at least tried, in the boom).

  19. cognos says:

    Assassin — I included “tax payer” losses alongside FDIC. Despite the “bailouts” there were no costs. Lots of small banks got TARP funds too. My point is simply that small banks and small bank balance sheets were (and are) arguably WORSE than large ones.

    Now, I am not a blame guy. This is not some unbelievable fault of theirs. They lend money. Typically on regional construction projects. Hard business to grow in 2005-07. If you did grow alot then, your toast.

  20. rktbrkr says:

    Cognos, You don’t think many of the TBTF banks would have failed if they hadn’t gotten extraordinary help from the US and Fed? If all banks had been treated fairly they would have been among the first to fail. GMAC, sayonara, CITI adios, BAC auf weidersein, Wells Farge byebyeee

    It’s WAYYYY to early to measure the costs of these actions CITI alone has $300B+ of US guarantees, it they had to go out and “buy” some sort of private guarantee we’d see it really isn’t zero cost. The US may account for these guarantees as zero cost but if CITI, AIG or BAC stake their claims then suddenly we could have a half trillion cost in a bad week.

    There still more than enough bad stuff in the pipeline to make for exciting times for these banks.

  21. rktbrkr says:

    Time for a 60′s-70′s flashback “if you’re not part of the solution, then you’re part of the problem”, I can’t think of an institution that fits better than the Fed (although the SEC could be the non-banking winner)

  22. Haigh says:

    The next meltdown will change everything.

  23. cognos says:

    rktbrkr — I think you are wrong. I think the numbers and “facts” you are throwing around are non-sense. I think the big down-up swing was CAUSED by regulatory policy and ironically is going to benefit the biggest banks.

    Regulators clearly had this STUPID idea that things should be allowed to fail outright. They tried it with Lehman. Caused massive worldwide damage. And now they no better.

    The basic phrase “T-B-T-F” misses the point. Bear, Lehman, AIG, Fannie/Freddie ALL failed. They were BIG. AIG was amongst the biggest. The point is that a “crisis” is just that. It feeds on itself. Generally its better NOT to create the big down move… only to the have speculators make 100-500% on the way back, IN UNDER 1 YEAR! The idea of “m-t-m” was also made silly. The fundamentals and credit losses were never worrisome. It was a classic panic. And the govt supported that panic.

    Its tragic. I dont know what you want. BUT I WANT — a regulatory system that leans against the bubble and leans AGAINST the panic. You seem to want the opposite… why?

  24. cognos says:

    Rktbrk — Dont forget the US Govt looks like its UP maybe $50B on TARP monies and warrants that have already been paid back. They charged 10% interest plus warrants. They made $2B on BAC warrants alone! If John Paulson is right, the US govt may make $25B on its stake in Citibank.

    They might lose some money on Fannie/Freddie (quasi-govt projects anyway) and GM, Chrysler, GMAC, and some small banks. But it looks likely they will be net profitable, especially if recovery continues.

    PLUS — dont forget the banking/finance sector PAYS $500B/yr in taxes. Right?

  25. cognos says:

    Sorry… looks like TARP was 5% interest plus warrants. Still, effective rates (and govt profit) have been consistently above 10% return. What % of the money is paid back… 75%?

  26. [...] putting a consumer protection agency into the hands of the Fed,” FusionIQ CEO Barry Ritholtz notes. “This is the same regulatory body that gave a total pass to the non-bank lenders at the [...]

  27. [...] Do-Nothing Fed Regulator = Huge Bank Victory (March 3, 2010) [...]