Tag Archive: Federal Reserve

Feb 28 2013

US Tax Payers Still Bailing Out TBTF

With sequestration looming, many Americans are still struggling to recover from the the 2008 recession that cost them billions in lost savings and jobs but not the banks who were the chief perpetrators for the housing crash. As a matter of fact, American tax payers are still bailing out the “Too Big To Jail” banks $83 billion a year:

So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? [..]

Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail. [..]

The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc [..] with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

It is outrageous that Americans are being bludgeoned with $85 billion in austerity cuts that will most likely halt any recovery while handing banking shareholders an $83 billion gift.

During his appearance before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke was asked by freshman Sen. Elizabeth Warren about about the risks and fairness of having banks that are “too big to fail

Warren quizzed Bernanke on that study. “I understand that we’re all trying to get to the end of too big to fail, but my question, Mr. Chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion subsidy that they’re getting?”

Bernanke responded, “The subsidy is coming because of market expectations that the government would bail out these firms if they failed. Those expectations are incorrect.”

After some back and forth, Warren countered, “$83 billion says there really will be a bailout for the largest institutions.”

“That’s the expectation of markets. But that doesn’t mean we have to do it,” Bernanke responded.

Warren insisted that the large banks should pay for the subsidy. “Ordinary folks pay for homeowners’ insurance, ordinary folks pay for car insurance, and these big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year simply because people believe that the government would step in and bail them out. I’m just saying, if they’re getting it, why shouldn’t they pay for it?” she said.

“I think we should get rid of it,” Bernanke said. He said he agreed with her that government should address the problem of “too big to fail.”

Meanwhile, as Chris in Paris at AMERICAblog points out these banking executives are the forefront of the attack on the social safety net:

You may recall Goldman Sachs CEO Lloyd Blankfein, the guy who Obama has a strange bromance with, adjusted bonus payout dates in both the US and UK to avoid paying taxes. You know, as in the taxes that saved his entire lifestyle.

Even worse is Blankfein’s insistence on bashing programs that are critical to middle class Americans. It’s the Blankfeins of the world that want to take your Medicare and Social Security away.  God forbid we ran out of money and there weren’t any left to bail out the banks next time, right?

Then there’s my other favorite bankster, good old Jamie Dimon of JPMorgan. Dimon is the delightful fellow who ignored the warnings and ended up costing the bank, and our taxpayers, billions.

Since these banks really aren’t turning a profit without government welfare, what would JPMorgan look like without those handouts? For Dimon, banking rules that help protect taxpayers from bailing out the gambling banks are “un-American.”

The major bank chiefs have been quite vocal about trashing the social system, just as they trashed our economy. But when it comes to helping Americans, the banks have little interest beyond their next bailout.

Speaking of Jamie, our favorite vampire capitalist, “thoughtfully” explained why he’s richer than anyone else” in this exchange with Mike Mayo, an analyst at CLSA and Dimon critic:

Mayo: I think what I hear UBS saying in the presentation is that if I’m an affluent customer I’ll feel a lot better going to UBS if they have 13.5 (percent) capital ratio than another big bank with a 10 percent ratio. Do you agree with that?

Dimon: You would go to UBS and not JPMorgan?

Mayo: I didn’t say that. That’s their argument.

Dimon: That’s why I’m richer than you. [..]

FDL New Desk‘s DSWright found Dimon’s response arrogant but indicative of something even more offensive:

Dimon is right, he did get rich having low capital ratios – which is why his form of banking is dangerous. It’s the precise reason the banks could not protect themselves during the crisis, they were over-leveraged.

   “The real issue isn’t who is rich, but rather whose interests are being fairly served and whose aren’t. Dimon’s approach gives short shrift to both shareholders and taxpayers. Taxpayers still carry substantial risks for which they are not being compensated, a state that will only change when regulations are tightened, and hopefully vastly simplified.

   Shareholders do badly because the kind of bank Dimon runs is prone to loss and volatility, leading markets to set a low value on the bank’s earnings.”

Mathematician Albert Einstein said that doing the same thing over and over expecting different results was the definition of insanity. Continuing to bail out these banks on tax payer’s “dime” when there is no evidence that breaking them up would harm the economy is just insane.

Nov 16 2012

Warning: Swallowing the President’s Bitter Pills May Cause Harsh Austerity

We are being told that the mess this President caused when he helped pass the Bush tax cuts in exchange for 1 year of unemployment insurance – which was unnecessary because Republicans caved on UE extension before – WITHOUT even securing a rise in the debt ceiling by putting his full trust in John Boehner with the full faith and credit of the US. This of course gave Boehner immense political power and the right hostage needed to cause the debt ceiling debacle just like I predicted. Well here are are again dealing with the fallout.

Already? Obama Tells Supporters to Expect ‘Bitter Pills’

As the Huffington Post, who listened in on the call, reports:

The president, speaking from a White House phone, cautioned listeners to expect disappointments during his second term. As he has in the past, Obama warned that he was prepared to swallow some bitter pills during the negotiations, including some that would agitate the base.

“As we move forward there are going to be new wrinkles and new frustrations, we can’t predict them yet,” he said. “We are going to have some triumphs and some successes, but there are going to be some tough days, starting with some of these negotiations around the fiscal cliff that you probably read about.”

Though his encouragement to his activist base may be encouraging to some, the President’s preemptive admission that he’s willing to give away bargaining chips so early in the game will surely irk those who criticized Obama for his negotiating style throughout his first term. That will be doubly true for progressives who have publicly called for a more hardline stance when it comes to defending key social programs like Social Security, Medicare, and Medicaid.

We know from the president’s interview with the Des Moines register that much of what was in the memo revealed by Bob Woodward as part and parcel of all of this nonsense we shouldn’t even have to be dealing with in the first place is a starting point. Oh yes, many will screech about how Simpson Bowles is dead because the commission was a failure, but the horrible ideas live on through our elected leaders that keeps bringing them back to life.

Obama vows debt-cutting ‘grand bargain,’ immigration reform in Des Moines Register interview

“I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs,” Obama said. (The White House quickly clarified that he meant $2.50 of spending cuts for every dollar in new tax revenue.)

We can easily meet-‘easily’ is the wrong word-we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years …

This is not going to help the unemployed and it’s economic illiteracy. When you hear things like, “We all agree we must pay down the deficit,” it might as well be, “We all agree on economic illiteracy. Come on. Everybody’s doing it.”  Anyone who is still making excuses for this doesn’t even understand why this fake fiscal cliff, really an austerity bomb as Brian Beutler of TPM puts it, is coming back up in the first place.

“The past isn’t dead. It isn’t even past.” – William Faulkner

This is quite literally true so for all those “that was then this is now” excuse makers, you have a lot of studying and reading to do.

Oct 25 2012

The Election is Essentially Over and Spoiler Alert: Wall Street Won

I know it. You know it, so who are we kidding? I suppose anything can happen, but essentially the election is over and our President will very likely win the electoral college and the Democrats will keep the Senate and maybe pick up some new seats in the House. So I’m here to find meaning within it all, because I have not been able to grasp how shutting up during election season, but then speaking up after the election will make us “move froward.” Especially when the President and the filibuster-loving-set-to-do-nothing Congress do not have to care what we think at all afterwards.

They may get together for their grand bargain since many so called Democrats and Republicans are deficit terrorists and will work to tear down our social safety net in a bipartisan way for the mythical bond vigilantes and confidence fairies they believe in because Peter Peterson told them some scary bedtime stories in the chambers of Congress. This will all be hashed out in unrepresentative undemocratic gangs of 6 or 8 or 12 without our input. So what are we supposed to do when that happens and we are cut out? Make believe they still love us?

Or perhaps some think pointing this out is me being seduced by cynicism. Though I respect some who are arguing this now as opposed to the past, I have to vehemently disagree and I think I have a good case to make to counter that narrative.

Oct 23 2012

Stock Market Tumbles on Bad News

U.S. Stocks Fall Sharply

by Nathaniel Popper, New York Times

The Dow Jones industrial average finished the day down 1.8 percent, or 243.36 points, to end at 13,102.53, its worst performance since June. The losses added to the big declines on Friday, and dropped leading indexes to their lowest levels since early September, before the Federal Reserve announced its latest monetary stimulus program.

Since the Standard & Poor’s 500 index hit this year’s high of 1,465.77 on Sept. 14, the benchmark index has fallen 3.6 percent. It finished Tuesday down 1.4 percent, or 20.71 points, to 1,413.11.

Share futures were falling even before the opening bell because of disappointing financial results from American companies. The chemical maker DuPont said Tuesday morning that its revenue was down 9 percent in the third quarter from a year ago, and that it would eliminate 1,500 jobs. The company’s stock ended down 9.1 percent.

Thomson Reuters said Tuesday that 63 percent of the companies that have reported earnings so far have given revenue figures for the third quarter that were lower than what analysts expected.

Stock Market Suffers Worst Day In Months On Bernanke Separation Anxiety

by Mark Gongloff, Huffington Post

The stock market is freaking out like Bill Paxton’s panicky marine in “Aliens,” yelling “Game over, man! Game over!” All because it’s afraid of losing Ben Bernanke.

Late in the trading day on Tuesday, the Dow Jones Industrial Average was down more than 200 points, on track for its worst one-day loss since June. What had it in such a tizzy? There were lots of good reasons — third-quarter corporate earnings have been kind of awful, and Europe’s endless debt crisis continues.

But the main catalyst, according to Wall Street‘s best and brightest, are a couple of New York Times stories today, one by the well-sourced Andrew Ross Sorkin, suggesting that Federal Reserve Chairman Ben Bernanke probably won’t sign up for another term when his second term as Fed Chairman ends in January 2014. Binyamin Appelbaum runs through a handful of the possible replacements in a Mitt Romney administration, and at least one of them — Stanford’s John Taylor — is known to be opposed to Bernanke’s easy-money policies.

Of course the idea that Bernanke might be leaving should shock nobody, really. After eight years of riding herd on the worst economic crisis since the Great Depression, all the while being accused of treason and threatened with old-fashioned Texas lynchings, did anybody really expect that Ben would want another four years of this?

Apparently so. The market indeed seems shocked and horrified by the idea that it will no longer be able to depend on what’s come to be known as the “Bernanke Put” — the implied promise that Bernanke won’t let the stock market fall too far before riding to the rescue with another helicopter-load of money.

Sounds like a combination of the continued recession at the bottom of the economic stratus is trickling up to the top, at last, and the poor dears on Wall St. are concerned that they’re losing their “sugar daddy”. Tell me again why they hate Obama?

Aug 30 2012

People That Excuse Wasting the Crisis in 2008 Don’t Get to Lecture Anyone

Cross posted at out new beta site Voices on the Square and in Orange

In lieu of meaningless political convention coverage, my title is absolutely still true. Decades and decades of history refutes any excuses about the so called political expediency of wasting any crisis economic or otherwise. That is one of the only things I agree with Rahm Emanuel on when he said it at the beginning of this administration. Sadly, the White House only listened to his hippy punching BS. The prospect that this economic disaster wouldn’t go to waste or enrich bankers was where the hope used to reside when there was any at all to confide in as far as any real economic recovery is concerned.

But when we mention these real world problems still abound from these failures we hear the same old tired excuses trotted out to excuse this administration from loyal partisans who are proud of what they never learn. This involves excusing the the bailout, housing, and foreclosure crisis. Ironically, this is why there is any chance at all for insane Republicans to make hay in this election at all so it might be smart to pay attention to it at some point even if the media won’t cover it. The bottom line is that coddling too big to fail banks with trillions in bailouts and more bailout guarantees on top of that (29 trillion globally when counted all up) to make Capital whole at the expense of laborers didn’t help and many of us knew it wouldn’t from the get go.

During an election it is treated like a crime to say so. You know, other countries have actually learned this lesson as we have forgotten from the past. Alas Iceland handled their crisis well, like Sweden, and like we did during the S&L crisis but not in 2008 where our fate is now a lost decade or two. With too many loyal “Democrats” looking the other way, this administration and their point man in the Treasury let Wall St have the most say even though public anger at Wall St was and is still at an all time high. This explains why the public was against the bailout, and how it failed in the House at first.

Jun 29 2012

Federal Reserve Lies About Foreclosures

While the attention was on the SCOTUS ruling on the affordable Care Act, this is what was going on under the radar at the Federal Reserve:

Federal Reserve, Regulators Arguing for More, Quicker Foreclosures

by David Dayen

The Federal Reserve has decided to put their thumbs on the scales of justice, explicitly attempting to overturn state-based anti-foreclosure laws on the spurious grounds that they hurt the economy.

This story by Tim Reid in Reuters cites the Fed arguing against the kind of laws in states like Nevada – and soon, California – that have saved hundreds of thousands of homes from foreclosure.

   “State and federal laws enacted to protect homeowners from eviction in the wake of the 2008 housing crash may be extending the slump, according to a growing number of economists and industry experts.

   Foreclosures have all but ground to a halt in Nevada, which passed one of the stiffest borrower-protection laws in the country last year. Yet the housing market is further than ever from recovery, local real estate agents say, with a lack of inventory feeding a “mini-bubble” in prices that few believe is sustainable.

   A recent U.S. Federal Reserve study found that in states requiring a judicial review for foreclosure, delays associated with the process had no measurable long-term benefits and often prolonged the problems with the housing market.”

There’s been a concerted effort to overturn due process in these judicial foreclosure states, on the theory that foreclosures must be quickly flushed through the system so the market can “clear.” Incredibly, house organs like the Fed still express this opinion even after years of documented evidence of illegal foreclosures using false and forged documents in court. The explicit recommendation from the Federal Reserve is to react to systematic foreclosure fraud by closing the courthouse doors to troubled borrowers.

The entire premise that judicial foreclosure states are prolonging the housing slump is completely spurious. Nothing furthers the housing slump more than a spate of foreclosures flooding the market, increasing the supply of distressed homes that sell cheaply and bringing down property values in a particular area. That’s what the Fed is arguing for.

Yes, they’re serious. This is basically siding with the banks, giving fraud as pass and screwing the homeowners and housing market with a flood of foreclosures. And Reuters and other trade publications have decided to publish the propaganda that keeping people in their homes is causing the market to slump and the solution is more foreclosures.

Freelance writer and attorney who helped expose the foreclosure fraud, Abigail Field takes on the Reuters “b.S.” sentence by sentence, shredding the propaganda that the housing crisis was caused by homeowners but by the banks themselves who created the shadow market of foreclosed homes and the underwater crisis. She makes these four points:

  • First, en route to committing mass securities fraud the banks dishonored their contracts and failed to document the mortgage loans as they promised investors they would. As a result, they’ve had to fabricate nonsensical, obviously fraudulent and often sworn statements to try to foreclose. It’s that swamp of fraud that’s causing the delays.
  • Second, banks are manipulating housing market inventory, letting properties they own rot, not listing them for sale, and when auctioning them, sometimes outbidding third parties.
  • Third, bankers’ securities fraud broke the secondary market for non-government backed mortgages. As a result, there’s a lot less capital to lend wannabe homeowners.
  • Fourth, lender-driven appraisal fraud led to such inflated prices that the underwater problem is directly attributable to them.
  • Rather than deal in the reality that our housing crisis is banker driven and dare push the meme that bankers must be held accountable, Reuters is helping bankers (and their government allies) push the idea that if only we made it easy for bankers to use their fraudulent documents, the housing market would heal quickly.

    There’s even more that exposes not just the Federal Reserve’s pass on bank fraud but the how the Obama administration’s so called homeowner bail out is just more hand outs to the banks:

    Sentences ten and eleven:

    “The increasing doubt about the impact of anti-foreclosure laws on the long-term health of the housing market calls into question a basic principle of the Obama Administration’s approach to the housing crisis.

    Many Democrats, including Obama, say struggling homeowners should get more time to make good on their mortgage arrears, or have the breathing room to renegotiate their loans with lenders, especially in the wake of the “robo-signing” scandal in which banks were found to have falsified foreclosure paperwork.”

    How I wish the Obama Administration’s approach had really been about helping struggling homeowners. Instead it has been mostly theatrics with gifts to the banks thrown in. Most recent example – the latest refinancing program has become a fee/profit center for the big banks. Moreover, if homeowners did “make good”, that would be better for everyone involved, including the broader market, but in the era of maximally predatory servicing, it’s not easy. Ditto with mortgage mods that work – and when they include principal reduction that’s meaningful, they work.

    Hey, look! In sentence 11 we get the first whiff of banker wrongdoing. And wow, he not only uses the misleading “robo-signing“, but he also says “falsified foreclosure paperwork.” Foreclosure “paperwork” doesn’t sound that serious, though, does it? How about “falsified documents affecting property title”? Or, “lied under oath about how much borrowers owed and to whom?”

    And as Yves Smith at naked capitalism notes in her article the lies get repeated ad nauseum:

    The way Big Lies get sold is by dint of relentless repetition. In the wake of the heinous mortgage settlement, foreclosure fatigue has set in. A lot of policy people want to move on because the topic has no upside for them. Nothing got fixed, the negotiation process took a lot of political capital (meaning, as we pointed out, it forestalls any large national initiatives in the near-to-medium term), and Good Dems don’t want to dwell on a crass Obama sellout (not that that should be a surprise by now). But the fact that this issue, which ought to be front burner given its importance both to individuals and the economy, is being relegated to background status creates the perfect setting for hammering away at bank-friendly memes. When people are less engaged, they read stories in a cursory fashion, or just glance at the headline, and don’t bother to think whether the storyline makes sense or the claims are substantiated.

    Just look at the headline: “Evidence suggests anti-foreclosure laws may backfire.” First, it says there are such things as “anti-foreclosure laws.” In fact, the laws under discussion are more accurately called “Foreclose legally, damnit” laws. Servicers and their foreclosure mill arms and legs have so flagrantly violated long-standing real estate laws in how they execute foreclosures that some states have decided to up the ante in terms of penalties to get the miscreants to cut it out. [..]

    And that is perhaps the most remarkable bit, the failure to consider that gutting the protections to the parties to a contract undermines commerce. Borrowers in judicial foreclosure states paid higher interest rates due to the greater difficulty of foreclosure. So now they are to be denied what they paid for because the banks recklessly disregarded the procedures they set up and committed to perform? What kind of incentive system is it when we reward massive institutional failure with a bank-favoring settlement and supportive messaging from central bank economists? As Dayen stated:

       “So when these officials argue against laws like those in Nevada, which merely criminalize a criminal practice, or California, which provides due process for people having their homes taken from them, they’re arguing in favor of what amounts to a dissolution of justice.”

    I don’t think you’ll read anything like this at Reuters. Shameful

    May 29 2012

    Fed Bank Examiners Go Native

    Not only did they go native, they were hand picked by the same bank CEO’s that sit on the Federal Reserve board of directors. This is great article of how that works from Prof William K. Black, associate professor of economics and law at the University of Missouri-Kansas City, who explains some more of the reasons the TBTF banks need to be broken into smaller pieces.

    Embedded Examiners always married the Natives, but now their Bosses Do Hook Ups

    Jessica Silver-Greenberg and Ben Protess have written an extraordinarily important column for the New York Times about embedded examiners at JPMorgan.

    Embedded examiners’ are federal regulators whose normal work station is a desk at the bank.  We only embed examiners for systemically dangerous institutions (SDIs) – banks so large that they pose a systemic risk to global economy.

    Embedded examiners do not work.  They get too close to the bank officers and employees.  In the regulatory ranks we called this “marrying the natives.”  Nothing works with SDIs – they are too big to manage, too big to fail, and too big to regulate.  A conventional bank examination, scaled up to size to fit an SDI the size of JPMorgan would have 500 examiners and take 18 months to “complete.”  (Obviously, when it takes that long to complete an examination it is impossible to “complete” an examination in any meaningful sense – by the time you’ve spent 18 months examining an SDI it can be a radically different bank.)  One cannot conduct an effective conventional bank examination of even a medium-sized bank on a “real time” basis because of the amount of new information pouring in every minute.  Conventional examinations examine a bank’s records and operations “as of” some date (typically the last quarter-end for which reports have been filed).  Embedding examiners is an effort at achieving an “early warning” system.  It has one virtue – it indicates that some senior regulator(s) recognized that they cannot rely on the bank’s own reports to determine whether it is steering toward trouble.

    In fairness, twenty-five years ago the proponents of embedding recognize the severity of the “marrying the natives” problem.  They simply viewed embedding as the least bad manner of attempting the impossible – effectively regulating SDIs.  Here is the key passage of the NYT column.

       Roughly 40 examiners from the Federal Reserve Bank of New York and 70 staff members from the Office of the Comptroller of the Currency are embedded in the nation’s largest bank. They are typically assigned to the departments undertaking the greatest risks, like the structured products trading desk. Even as the chief investment office swelled in size and made increasingly large bets, regulators did not put any examiners in the unit’s offices in London or New York, according to current and former regulators who spoke only on condition of anonymity.

       Senior JPMorgan executives assured the bank’s watchdogs after the financial crisis that the chief investment office, with hundreds of billions in investments, was not taking risks that would be a cause for concern, people briefed on the matter said. Just weeks before the trading losses became public, bank officials also dismissed the worry of a senior New York Fed examiner about the mounting size of the bets, according to current Fed officials.

    The authors of the article frame the issue as whether Jamie Dimon’s role as Director of the Federal Reserve Bank of New York poses a conflict of interest and could have led to the regulatory failure to place any examiners in the chief investment office (CIO).  The CIO appears to be the largest de facto hedge fund in the world.  (Note: “hedge fund” is a deliberately misleading term.  Entities called hedge funds typically speculate rather than hedge.  When I call the CIO a “hedge fund” I mean that it largely speculates and disingenuously calls its bets “hedges.”) [..]

    SDIs are not simply dangerous, they are also inefficient.  Shrinking the SDIs to the point where they no longer posed a systemic risk would also increase their efficiency, make them small enough to regulate, and help recover our democracy.

    SDIs that function as banks pose intolerable risks to the global economy.  SDIs that function as (thinly disguised) hedge funds should be far beyond the pale.  Conservative and libertarian philosophy rightly condemn providing enormous federal subsidies to a private entity whose senior officers claim any wins and socialize any severe losses.

    Feb 15 2012

    The Mortgage Settlement: More Jokes

    The Big Five Banks received another love tap from the Federal Reserve just a few day after the 49 state mortgage settlement was announced. They were fined a mere $766.5 million on February 9, 2012.  The release of documents also revealed this:

    NOW, THEREFORE, before the filing of any notices, or taking of any testimony or adjudication of or finding on any issues of fact or law herein, and without this Consent Assessment Order constituting an admission by (bank) of any allegation made or implied by the Board of Governors in connection with this matter, and solely for the purpose of settling this matter without a formal proceeding being filed and without the necessity for protracted or extended hearings or testimony, it is hereby ORDERED by the Board of Governors…”

    In other words not only was the fine piteously low considering the amount of equity that was lost by the victims through fraud, the banks don’t have to even admit that they committed a crime.

    The other joke is the National Mortgage Settlement website. Remember David Dayen at FDL questioned why the site was a .com and not a .gov well the Department of Justice slapped a disclaimer on the site.

    Photobucket Pictures, Images and Photos

    Click on image to enlarge

    And Richard (RJ) Eskow takes to task Edward J. DeMarco. He is the Bush holder-over head of the Federal Housing Finance Agency (FHFA) which overseas Freddie Mac and Fannie Mae. DeMarco is refusing to issue principal reductions, negotiate lower interest rates, push refinancing deals through the system that would dramatically reduce foreclosures. It would do far more than last week’s settlement deal can ever hope to accomplish and without Congressional approval. It only requires the stroke of its DeMarco’s pen. Fannie and Freddie, which taxpayers repurchased and bailed out after they were destroyed by ‘privatized’ mismanagement and Wall Street greed, hold more than half the mortgages in the country.

    De Marco refuses to carry out his agency’s assignment for ideological reasons. The Defense Department’s mission is to protect the American people from attack, and the FHFA’s mission is to protect American homeowners – and in so doing, help the economy as well.

    But instead of making it easier for homeowners to get relief, De Marco and his lieutenants are making it harder. Outrageously, they’re even paying a financial manipulator millions in taxpayer money to bet billions against the same homeowners.They’re betting that these homeowners can’t refinance, while at the same time making it harder for the to do it..[..]

    As a letter from Reps. Elijah Cummings and John Tierney reveals, a former FHFA employee testified that there was a pilot program in principal reduction but “was terminated by senior officials at Fannie Mae who were ‘philosophically opposed’ to the concept of reducing principal.”

    The more these homeowners lose out, the more money the financial guy makes. [..]

    DeMarco didn’t reveal the existence of this program or its termination in his Congressional testimony. He also misled Congress and the public when he said that principal forgiveness for all (underwater) mortgages would cost “almost $100 billion,” since $100 billion is the estimated total of all underwater principal, not just the amount that would be reduced for distressed homeowners.

    Another FHFA study showed that not reducing principal on these mortgages would cost more than $100 billion, as Cummings and Tierney noted, while yet another showed that a well-designed principal reduction program would actually save taxpayers $28 billion.

    DeMarco didn’t mention those studies, either. [..]

    DeMarco defends his unwillingness to carry out his duties by claiming that principal reductions for underwater homeowners – some of whom are still paying seven percent interest or more for nonexistent home value, when the prevailing rate is as much as three points lower – “would not meet (the FHFA’s) responsibilities as conservator of Fannie and Freddie.” He told Congress that “FHFA has a statutory responsibility to preserve and conserve the enterprises’ assets.”

    What agency on Earth has a greater responsibility to not spend money serving its purpose than it does to do its job? It seems absurd, doesn’t it? DeMarco’s suggesting that not doing anything is a greater obligation for his agency than carrying out the function for which it was created.

    And President Obama is stuck with this right wing banker crony because Congress won’t confirm Obama’s nominee and he can’t be fired because the FHFA is an independent agency. At least that’s the claim by the White House and DeMarco.

    Read the rest Eskow’s article, it will leave you head shaking.

    Dec 07 2011

    The Fed Strikes Back And Fails

    Poor Federal Reserve Chairman Ben Bernanke, he got dissed by Bloomberg News investigation of his $7.7 trillion give away, so he sends a six page complaint (pdf) to Congress. Bloomberg News responded to Ben’s whining with a blow by blow response:

    Federal Reserve Chairman Ben S. Bernanke said in a letter to four senior lawmakers today that recent news articles about the central bank’s emergency lending programs contained “egregious errors.”

    While Bernanke’s letter and an accompanying four-page staff memo posted on the Fed’s website didn’t mention any news organizations by name, Bloomberg News has published a series of articles this year examining the bailout. The latest, “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” appeared Nov. 28.

    “Bloomberg stands by its reporting,” said Matthew Winkler, editor-in-chief of Bloomberg News.

    Yves Smith weighs in on the “food fight”:

    First, it [the Fed] tries the sneaky device of complaining about all the bad press it is getting, and alludes in passing to the latest Bloomberg report (“one last week”). So are we dealing with the general or the specific? The attachment to the letter, which makes a series of specific claims of where the coverage allegedly was off beam, was rebutted with great speed and vigor by Bloomberg. So trying to have it both ways (attacking Bloomberg but trying to depict it as part of general critic wrongheadedness) backfired.

    But what is even more striking is the tone and substance of the letter: overreaching words like “egregious,” the patently false claims that there is nothing new in the latest (and by implication, earlier) Bloomberg stories, that the disclosure issues are settled. If there was no new information given to Bloomberg, then why did the Fed fight so hard to prevent the release of information? The Fed has never been cooperative. Even with the Congressional Oversight Panel, the so called Sanders report coming out of Audit the Fed (and remember, the Fed succeeded in lobbying to narrow the scope of Audit the Fed), a new GAO report, the latest Bloomberg FOIA still pried loose more information. The Fed is clearly not interested in transparency, but keeps trying to claims that everything that anyone would want to know is public, and there really is nothing here to discuss any more. [..]

    But the biggest lie in this fabric of Big Lies is that the banks were just suffering a wee liquidity crisis in the crisis, not a solvency crisis. If that was true, why did we need a TARP plus making failed credit default swap hedges good via the AIG rescue? In addition, Steve Waldman has described, long form, that bank equity is such an abstraction, in that there is a very high degree of uncertainty in the value of both assets and liabilities, that you need much bigger buffers of equity than anyone now has to properly deem a bank to be solvent […] The regulators determine whether a bank was insolvent. And since no regulator was willing to say a bank was insolvent (although Sheila Bair was clearly close to doing so with Citi), ipso facto, they were all solvent. Nice to have such accommodating people handing out grades.

    The most laughable part of the Fed’s defense is the claim that Congress was fully informed about their actions. Really? Not according to Rep. Barnie Frank, former chairman of the House Financial Services Committee, who said “”We didn’t know the specifics.”

    It is well past time for Congress to rein in the Fed. Anyone have a toga?

    Dec 06 2011

    GAO Report: Free Money

    Former US Congressman Alan Grayson (D-FL) and Rep. Ron Paul (R-TX) pushed for an audit of the Federal Reserve, the first in its 99 year existence, that produced a massive 251-page GAO report entitled “Opportunities Exist to Strengthen Policies and Processes for Managing Emergency Assistance” (pdf). Rep. Grayson summarized some his favorite parts and explains what it all means in an article in the Huffington Post:

    (1) In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street. That’s now how a democracy should function, or even can function.

    (2) The notion that this was all without risk, just because the Fed can keep printing money, is both laughable and cryable (if that were a word). Leaving aside the example of Germany’s hyperinflation in 1923, we have the more recent examples of Iceland (75% of GNP gone when the central bank took over three failed banks) and Ireland (100% of GNP gone when the central bank tried to rescue property firms).

    (3) In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine. But there is no reason why our money should be involved in that.

    (4) For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism. The Fed is a central bank, not a barber shop.

    (5) The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success. (If you don’t believe me, ask Jamie Dimon at JP Morgan.) The Fed helped the losers to squander and destroy even more capital.

    (6) During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

    There is nothing to stop the Federal Reserve from doing this again. More money please but only if you’re a bank.

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