Posts filed under “Regulation”
“The biggest obstacle to Volcker’s reform agenda is Summers”
There is a long article at Bloomberg very much worth reading about Tall Paul: Volcker Gets Less Than He Wants in Curbing Wall Street Excesses.
Consider the following:
“If Volcker is at one end of the spectrum arguing for tougher financial rules, Summers and Geithner are at the other. Summers pushed for deregulation while Treasury secretary under President Bill Clinton, advocating the repeal of the Glass- Steagall Act, which had separated investment and commercial banking for more than 60 years. Geithner was president of the Federal Reserve Bank of New York during a period when banks ratcheted up their leverage.
Both men are proteges of Robert Rubin, a former Clinton Treasury secretary who served on Citigroup Inc.’s board from 1999 until this year and has been criticized for allowing the bank to pile up $544 billion of derivatives and securities before it became the recipient of more government assistance than any other bank. Rubin declined to comment.”
When it comes to regulatory reform, the Geithner Summers pairing are the phlegmatic duo.
And, they epitomize why Team Obama’s economic legacy will likely amount to very little in terms of lasting change or significant legislation.
O may aspire to FDR’s greatness and legacy, but it is wildly obvious that when it comes to either economics or financial regulations, O is no FDR.
What is it that Volcker wants?
-Impose capital requirements on trading parties, people familiar with his thinking say.
-Make bigger banks smaller
-Reduce the role of an overstretched Fed
-Force Derivatives to be traded on exchanges
-Transparent investor prices of Derivatives;
-More-aggressive capital reserve requirement
-Bigger role for exchanges.
Of course, major Wall Street banks, (such as JPM and Goldman Sachs) ALREADY sent a letter to the New York Fed supporting less supervised clearinghouse.
Obama Reform Plan Fails to Fix Whats Broken (June 18th, 2009)
Obama to Dramatically Reshape FOMC (June 23rd, 2009)
Volcker Gets Less Than He Wants in Curbing Wall Street Excesses
Bloomberg, June 25 2009
Our critique yesterday of the lobbying efforts of the commission sales people’s organization (Realtors and Mortgage brokers) included letters from these groups to their members and public officials. Be sure to see these Lobbying Letters from the NAMB and the NAR here: NAR Urges 18 Month Moratorium on Appraisal Reform Mortgage Broker’s Anti-Appraisal Reform Lobbying…Read More
I am beginning to suspect that the Realtor’s association and the Mortgage Broker’s association are pro-fraud.
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals.
I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the The National Association of Mortgage Brokers (NAMB) and The National Association of Realtors (NAR) against honest appraisals.
For more proof of this lobbying effort, see the letters to mortgage brokers and real estate agents from their trade associations to mobilize against mandating honest appraisals ( Mortgage Broker’s Anti-Appraisal Reform Lobbying and Effort and this NAR Lobbying letter).
Why is this significant?
Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.
A Bernie Madoff-like 100% success rate is often cause for suspicion, but we have much harder evidence than a statistical fluke. For that, let’s go to the big book of real estate fraud, Bailout Nation:
Fraud in Real Estate, Mortgages, and Home Building
Minor amounts of real estate–related fraud have always existed. During the housing boom years of 2002 to 2007, it became a pandemic. These various fraudulent actions helped make the housing boom much bigger—and the bust that much more painful:
Appraisal fraud: Historically, there was no incentive to inﬂate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inﬂating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed signiﬁcantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.
So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.
The NAR and NAMB apparently have no ethics to speak of. Their shameless self-interest, regardless of the damage it may cause, disgusts me . . .
Fraud in Real Estate, Mortgages & Homebuilders (August 17th, 2008)
Nonfeasance in Financial Oversight (August 18th, 2008)
TO: State Association Executive Officers State Association Presidents FROM: NAR Government Affairs DATE: 19 June 2009 RE: Fly-In Head’s Up Please note this notice is going to all state executive officers and state presidents. We will be sending Fly-In details on Monday June 22, 2009 to the states who have Members of Congress and/or United…Read More
Letter from Charles McMillan, 2009 President, National Association of REALTORS urging an 18 month moratorium on the Home Valuation Code of Conduct (HVCC) to Andrew Cuomo, NY Attorney General and James B. Lockhart III, Federal Housing Finance Agency: HVCC Moratorium Lockheart
The Obama administration continues to demonstrate their lack of understanding about a) how derivatives work, and b) their role in the crisis and collapse. The proposals to regulate derivatives are weak and ineffective. CDOs and CDS may be trading at healthy discounts to their notational value, but at least Wall Street is getting 100 cents…Read More
I just love this info/chart porn: > Proposed Changes in Federal Regulation of the Financial Industry click for ginormous graphic via NYT > Source: Some Lawmakers Question Expanded Reach for the Fed STEPHEN LABATON NYT, June 17, 2009 http://www.nytimes.com/2009/06/18/business/18regulate.html
If they are too big to fail, make them smaller.”
-Nixon Treasury Secretary George Shultz about Fannie Mae and Freddie Mac
This Sunday NYT seems to be all about one of our favorite crisis whipping boys: The concept of TBTF — “Too Big to Fail.” There are numerous articles, stories, blog posts on this pernicious policy, including our own “Too Big to Succeed” meme (aka chapter 18: Too Big to Succeed? in Bailout Nation).
• Gretchen Morgenson asks: Too Big to Fail, or Too Big to Handle?:
Rather than propose ways to shrink these companies and the risks they pose, the Geithner plan argues instead for enhanced regulatory oversight of the behemoths. This suggests the taxpayer safety net will be larger after our national financial train wreck, not smaller.
More than two years after the crisis began, “too big to fail” remains “too problematic to address” with anything other than more souped-up regulation. Given that earlier efforts at policing these entities failed so miserably, why should anyone think that a new-and-improved regulatory approach will fare better?
• Eric Dash asks If It’s Too Big to Fail, Is It Too Big to Exist?:
Today, amid the wreckage of the gravest financial crisis since the Great Depression, bigness is one of our biggest problems. Major banks, the Detroit automakers, the financial basket case that is the American International Group — the only reason these giant, sclerotic companies are still standing is that they have been deemed “too big to fail.”
Or, more precisely, too big to be allowed to fail. Policy makers fear companies like these are so enormous and so intertwined in the fabric of the economy that their collapse would be catastrophic. Hence, all those multibillion-dollar, taxpayer-financed bailouts.
In its overhaul of financial regulation last week, the Obama administration proposed several measures to try to contain the biggest of America’s big banks. But it stopped far short of calling for the dismantling of those institutions.”
Paul Krugman gets meta on the idea — Too big to fail FAIL — and surprisingly argues that we can never eliminate TBTF:
“I’m a big advocate of much strengthened financial regulation. One argument I don’t buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, it’s just not possible . . .
So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary; there’s no way to make this automatic.”
I totally disagree — size is problem, for it not only creates companies too large to effectively practice risk management with, the mere size creates other issues. The fact that CitiGroup was able to get Glass Steagall repealed, but did so by forcing the government’s hand via a technically illegal merger is quite telling.
When companies get to be that large, their vast wealth buys influence and power and corrupts the political system. Despite the crisis caused by the banks, just look at how successful their lobbying effort was. Their enormous pushback effectively neutered any true regulation of the finacial sector.
I think that from now on, I will be referring to the President as Barack W. Obama — since he is adopting Bush’s economic policies, he might as well as adopt his middle initial.
Too Big To Succeed . . . (January 14th, 2009)
Obama Reform Plan Fails to Fix Whats Broken (June 18th, 2009)