2009 Feb 19 Fortunate Banks top is comprehensive
2009 Feb 6 TARP Report surprise, surprise
2009 Jan 27 Banking Solution
2009 Jan 24 Fannie & Freddie (not a love story)
2009 Jan 4 The Solution is Local. But the Problem is in Washington. Here is educated offer of some relief to the problem of unfettered GREED: Part 1 Background; Part 2 Possible Improvements; or: Extracts.
2008 Dec 10 First oversight Report -- troublesome to say the least! http://www.nytimes.com/2008/12/10/business/economy/10tarp.html?ref=business
GentleFolks: The solution is Local. But if one must have a central solution, the focus is Interest Rate. The ridiculous, longstanding model has been to punish irregular credit customers by increasing the probability of their irregularity. Many people wring their hands and guilty conscience about regressive taxation. How can those folks be so insensitive! There is no more evil, regressive taxation, than to raise the usury rate on those least able to accommodate the rise.
Our democratically elected congress has permitted egregious usury by abusive banks and now rewarded them with hundreds of billions of dollars our children must work like slaves to pay. Why do you accept this??????? See above Banking Solution.
2008 October 6 humbled America in the post-Greed world. --Wall Street Journal
Powerful Delusion history update -- how did it happen? -- see below Must Read
2008 10 03 The folks in Washington are hoping to clean up their mess, by extending the mess !!
Let us answer clearly in the tradition of Thomas Paine.
Before you drive us off the cliff, let us offer the concept of Reverse!!
The mess is: we Americans have been fleeced; and we have no more blood to spare.
The unit of LIFE / Home is the Family.
In this blessed Nation, 5 bedrocks of the Family are:
We Americans are grappling with the systematic desecration of these bedrocks by governmental negligence. The cause? – in a single word GREED, an aspect of EVIL. The focus today is Mortgage.
Greedy, Money-grubbing, financiers, lobbyists, Representatives, Senators, and the President’s Men are conspiring one last HAIL MARY, a final fix on their cancerous addiction, before emperor George retires to his Crawfordsville reward.
Today, we celebrate our wiser Founding Fathers, and the diminishing light of Democracy that acted by GOD courageously on 2008 Sep 29 by valiant US Representatives, including Geoff Davis, on behalf of the many cries from Americans striving to keep their last pint of blood before it is sucked by Evil and d i s p e r s e d globally, like our Mortgage, as dust into the cosmos.
The solution is Get Local. Re-Localize Mortgages
The founding and development of America was first an ugly destruction of the local reality discovered by Europeans: enduring populations of humans on the (oldest) NorthAmerican tectonic plate.
After usurpation of local, native populations by misguided, cancerous human growth, a new foundation was established on European concepts of property, based on the rationale promulgated by 17th century Englishmen Thomas Hobbes and John Locke. This rationale was incorporated in the foundation of Democracy on this planet:
The Fifth Amendment states:
Nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The Fourteenth Amendment states:
No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law.
Let us be clear. Take my home Mortgage, is to take my property, is to break my Family, is to take my LIFE.
Until about 1970, the Mortgage was Local and concomitantly Sacred. The Mortgage holder (lender / mortgagee) was located near the property supporting the Home of the borrower / mortgagor, based on the concept of Equity of Redemption. This time-honored principle of locality assured the most prudently managed result based on efficient communication and immediate awareness of reality. Our Nation grew strong and became Liberty’s light. The lender is interested in preserving the value of the property and assuring collection of receipts in exchange for enjoyment of the property in support of LIFE by the borrower, who develops the land, produces our food, manufactures our stuff, and fights our wars.
Some details are emerging accounting for the dis-Location of Mortgage by the rampant vine of GREED > financier / lobbyist / blackmail / government person > Law. But we must reverse. We must return to Local control. Mortgage must not be securitized, i.e. fractured, and d i s p e r s e d globally.
To implement this Great Reverse to the Goodness of Mortgage is the challenge to our Government. Any other solution simply extends the Evil.
Here is a simple strategy:
Every Mortgage is based on a property at a location. Every affected (securitized) property is located within a county of a state within these United States of America. An appropriate, responsible role for the Federal Government, facilitating the Great Reverse is to supervise the reconnection of each affected property to a Local Lendor by the appropriate county official process.
It is an incredible Delusion of Washington Power to centralize remote control of my property !!! any Property !!!!!
john r. schmidt, Master of Science
President, NCAD Corporation
In 1938, a governmental agency named the National Mortgage Association of Washington was formed and soon was renamed Federal National Mortgage Association (FNMA or Fannie Mae). It was chartered by the US government as a corporation which buys Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages on the secondary market, pools them, and sells them as "mortgage-backed securities" to investors on the open market. FNMA was later privatized.
NYTimes 2008 10 05
Additionally, in 1970 the Emergency Home Finance Act created a new secondary mortgage market participant, the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), which had as its stated objective providing secondary mortgage support for conventional mortgages originated by thrift institutions. The Act also allowed FNMA to buy conventional mortgages in addition to FHA & VA.
Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk
By Stephen Labaton Published: October 3, 2008
As rumors swirled that Bear Stearns faced imminent collapse in early March,
Christopher Cox was told by his staff that Bear Stearns had $17 billion in cash
and other assets — more than enough to weather the storm.
Drained of most of its cash three days later, Bear Stearns was forced into a hastily arranged marriage with JPMorgan Chase — backed by a $29 billion taxpayer dowry.
Within six months, other lions of Wall Street would also either disappear or transform themselves to survive the financial maelstrom — Merrill Lynch sold itself to Bank of America, Lehman Brothers filed for bankruptcy protection, and Goldman Sachs and Morgan Stanley converted to commercial banks.
How could Mr. Cox have been so wrong?
Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.
On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.
A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.
One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told — those with assets greater than $5 billion.
“We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”
Mr. Goldschmid, an authority on securities law from Columbia, was a behind-the-scenes adviser in 2002 to Senator Paul S. Sarbanes when he rewrote the nation’s corporate laws after a wave of accounting scandals. “Do we feel secure if there are these drops in capital we really will have investor protection?” Mr. Goldschmid asked. A senior staff member said the commission would hire the best minds, including people with strong quantitative skills to parse the banks’ balance sheets.
Annette L. Nazareth, the head of market regulation, reassured the commission that under the new rules, the companies for the first time could be restricted by the commission from excessively risky activity. She was later appointed a commissioner and served until January 2008.
“I’m very happy to support it,” said Commissioner Roel C. Campos, a former federal prosecutor and owner of a small radio broadcasting company from Houston, who then deadpanned: “And I keep my fingers crossed for the future.”
The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.
After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.
With that, the five big independent investment firms were unleashed.
In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly.
The 2004 decision for the first time gave the S.E.C. a window on the banks’ increasingly risky investments in mortgage-related securities.
But the agency never took true advantage of that part of the bargain. The supervisory program under Mr. Cox, who arrived at the agency a year later, was a low priority.
The commission assigned seven
people to examine the parent companies — which last year controlled financial
empires with combined assets of more than $4 trillion.
Since March 2007, the office has not had a director. And as of last month, the
office had not completed a single inspection since it was reshuffled by Mr. Cox
more than a year and a half ago.
The commission’s division of trading and markets “became aware of numerous potential red flags prior to Bear Stearns’s collapse, regarding its concentration of mortgage securities, high leverage, shortcomings of risk management in mortgage-backed securities and lack of compliance with the spirit of certain” capital standards, said an inspector general’s report issued last Friday. But the division “did not take actions to limit these risk factors.”
The commission’s decision effectively to outsource its oversight to the firms themselves fit squarely in the broader Washington culture of the last eight years under President Bush.
A similar closeness to industry and laissez-faire philosophy has driven a push for deregulation throughout the government, from the Consumer Product Safety Commission and the Environmental Protection Agency to worker safety and transportation agencies.
“It’s a fair criticism of the Bush administration that regulators have relied on many voluntary regulatory programs,” said Roderick M. Hills, a Republican who was chairman of the S.E.C. under President Gerald R. Ford. “The problem with such voluntary programs is that, as we’ve seen throughout history, they often don’t work.”
As was the case with other agencies, the commission’s decision was motivated by industry complaints of excessive regulation at a time of growing competition from overseas. The 2004 decision was aimed at easing regulatory burdens that the European Union was about to impose on the foreign operations of United States investment banks.
The Europeans said they would agree not to regulate the foreign subsidiaries of the investment banks on one condition — that the commission regulate the parent companies, along with the brokerage units that the S.E.C. already oversaw.
A 1999 law, however, had left a gap that did not give the commission explicit oversight of the parent companies. To get around that problem, and in exchange for the relaxed capital rules, the banks volunteered to let the commission examine the books of their parent companies and subsidiaries.
The 2004 decision also reflected a faith that Wall Street’s financial interests coincided with Washington’s regulatory interests.
“We foolishly believed that the firms had a strong culture of self-preservation and responsibility and would have the discipline not to be excessively borrowing,” said Professor James D. Cox, an expert on securities law and accounting at Duke School of Law (and no relationship to Christopher Cox).
“Letting the firms police themselves made sense to me because I didn’t think the S.E.C. had the staff and wherewithal to impose its own standards and I foolishly thought the market would impose its own self-discipline. We’ve all learned a terrible lesson,” he added.
In letters to the commissioners, senior executives at the five investment banks complained about what they called unnecessary regulation and oversight by both American and European authorities. A lone voice of dissent in the 2004 proceeding came from a software consultant from Valparaiso, Ind., who said the computer models run by the firms — which the regulators would be relying on — could not anticipate moments of severe market turbulence.
“With the stroke of a pen, capital requirements are removed!” the consultant, Leonard D. Bole, wrote to the commission on Jan. 22, 2004. “Has the trading environment changed sufficiently since 1997, when the current requirements were enacted, that the commission is confident that current requirements in examples such as these can be disregarded?”
He said that similar computer standards had failed to protect Long-Term Capital Management, the hedge fund that collapsed in 1998, and could not protect companies from the market plunge of October 1987.
Mr. Bole, who earned a master’s degree in business administration at the University of Chicago, helps write computer programs that financial institutions use to meet capital requirements.
He said in a recent interview that he was never called by anyone from the commission.
“I’m a little guy in the land of giants,” he said. “I thought that the reduction in capital was rather dramatic.”
A once-proud agency with a rich
history at the intersection of Washington and Wall Street, the Securities and
Exchange Commission was created during the Great Depression as part of the
broader effort to restore confidence to battered investors. It was led in its
formative years by heavyweight New Dealers, including James Landis and William
O. Douglas. When President Franklin D. Roosevelt was asked in 1934 why he
appointed Joseph P. Kennedy, a spectacularly
successful stock speculator, as the agency’s first chairman, Roosevelt replied:
“Set a thief to catch a thief.”
The commission’s most public role in policing Wall Street is its enforcement efforts. But critics say that in recent years it has failed to deter market problems. “It seems to me the enforcement effort in recent years has fallen short of what one Supreme Court justice once called the fear of the shotgun behind the door,” said Arthur Levitt Jr., who was S.E.C. chairman in the Clinton administration. “With this commission, the shotgun too rarely came out from behind the door.”
Christopher Cox had been a close
ally of business groups in his 17 years as a House member from one of the most
conservative districts in Southern California. Mr. Cox had led the effort to
rewrite securities laws to make investor lawsuits harder to file. He also fought
against accounting rules that would give less favorable treatment to executive
Under Mr. Cox, the commission responded to
complaints by some businesses by making it more difficult for the enforcement
staff to investigate and bring cases against companies. The commission has
repeatedly reversed or reduced proposed settlements that companies had
tentatively agreed upon. While the number of enforcement cases has risen, the
number of cases involving significant players or large amounts of money has
Mr. Cox dismantled a risk management office created by Mr. Donaldson that was assigned to watch for future problems. While other financial regulatory agencies criticized a blueprint by Mr. Paulson, the Treasury secretary, that proposed to reduce their stature — and that of the S.E.C. — Mr. Cox did not challenge the plan, leaving it to three former Democratic and Republican commission chairmen to complain that the blueprint would neuter the agency.
In the process, Mr. Cox has surrounded himself with conservative lawyers, economists and accountants who, before the market turmoil of recent months, had embraced a far more limited vision for the commission than many of his predecessors.
Last Friday, the commission formally ended the 2004 program, acknowledging that it had failed to anticipate the problems at Bear Stearns and the four other major investment banks.
“The last six months have made it abundantly clear that voluntary regulation does not work,” Mr. Cox said.
The decision to shutter the program came after Mr. Cox was blamed by Senator John McCain, the Republican presidential candidate, for the crisis. Mr. McCain has demanded Mr. Cox’s resignation.
Mr. Cox has said that the 2004 program was flawed from its inception. But former officials as well as the inspector general’s report have suggested that a major reason for its failure was Mr. Cox’s use of it.
“In retrospect, the tragedy is that the 2004 rule making gave us the ability to get information that would have been critical to sensible monitoring, and yet the S.E.C. didn’t oversee well enough,” Mr. Goldschmid said in an interview. He and Mr. Donaldson left the commission in 2005.
Mr. Cox declined requests for an interview. In response to written questions, including whether he or the commission had made any mistakes over the last three years that contributed to the current crisis, he said, “There will be no shortage of retrospective analyses about what happened and what should have happened.” He said that by last March he had concluded that the monitoring program’s “metrics were inadequate.”
He said that because the commission did not have the authority to curtail the heavy borrowing at Bear Stearns and the other firms, he and the commission were powerless to stop it.
“Implementing a purely voluntary program was very difficult because the commission’s regulations shouldn’t be suggestions,” he said. “The fact these companies could withdraw from voluntary supervision at their discretion diminished the mandate of the program and weakened its effectiveness. Experience has shown that the S.E.C. could not bootstrap itself into authority it didn’t have.”
But critics say that the commission could have done more, and that the agency’s effectiveness comes from the tone set at the top by the chairman, or what Mr. Levitt, the longest-serving S.E.C. chairman in history, calls “stakes in the ground.”
“If you go back to the chairmen in recent years, you will see that each spoke about a variety of issues that were important to them,” Mr. Levitt said. “This commission placed very few stakes in the ground.”