Subprime Subplime

Federal regulators for the first time are laying out rules aimed at ensuring that mortgage borrowers can afford to repay the loans they take out.

IMAGINE THAT!

Wow! what a concept!

Funny, since the rules they laid previously were the CAUSE of this “problem” in the first place!

Funny how that worked out. 🙂

The rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky “interest-only” and “no documentation” loans that helped inflate the housing bubble.

Funny, the Liberals were the ones who forced it on the industry in the name of “fairness”.

Lenders will be required to verify and inspect borrowers’ financial records. The rules discourage them from saddling borrowers with total debt payments totaling more than 43 percent of the person’s annual income. That includes existing debts like credit cards and student loans.

But the government can still continue to spend on it’s Credit Card ad infintum. 🙂

CFPB Director Richard Cordray, in remarks prepared for an event Thursday, called the rules “the true essence of `responsible lending.'”

Oooh, look the Obama Consumer Protection Bureau is doing something good for consumers !(sarcasm).

“Responsible lending”  Ooohhh! aaaaahhh! Isn’t just so wonderful! They care!

So where were they 20 years ago?

Oh, right THEY WERE THE ONES PUSHING the irresponsible lending in the name of “fairness” and “compassion”… 🙂

NOW, Decades later the Liberals want to protect the people from the Community Reinvestment Act and Clinton’s Housing initiatives that were the primary reason for the 2008 housing bubble crash to begin with.

So the liberals are going to pass regulations to protect consumers from the regulations they passed previously to “help” consumers. Got it! 🙂

Wow! is government just so wonderful!!! 🙂

And of course, the Ministry of Truth will be gushing praise all over them like a love sick stalkerotzi puppy and we’ll drown in the slobber. It won’t even occur to them as “journalists” that this is two-faced.

And the low-information, moron voter will think Obama is just the greatest guy since the invention of man and that he cares about them.

They should look at their shrinking paychecks and the inflation in their living costs first before kissing The Emperor’s Ring!

Cordray noted that in years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years banks tightened lending so much that few could qualify for a home loan.

But, we all know from the liberal memes that the reason everything crashed was not the subprime ponzi scheme set up by Liberals, but GEORGE W BUSH!! (isn’t everything? 🙂 ), his evil tax cuts (which the Democrats just made permanent by the way) and those evil “illegal” wars (Libya excluded). You know, the ones that cost just as much as the rise in the cost of servicing an ever growing debt- think credit card payments rising. The amount of increase in the debt payments equals the cost of those wars. Funny, how liberals don’t mention this… 🙂

The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said.

Protect the bank from more lawsuits and protect consumers from “predatory bankers”. 🙂

These would be the same banks that the Government told by laws and regulations to lend to people who couldn’t afford the loans to begin with because that was more “fair”. 🙂

So the Banks were bad people for not lending and now they are bad for doing what the Government wanted them to. Got it! 🙂

So they took all that bad debt, created derivatives and traded it around like hot potato toxic waste until it melted down all over everyone!

WHAT WE REALLY NEED IS PROTECTION FROM LIBERALS! And anytime they think something is “fair” because we are going to get an enema like the world has never seen every time.

The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.

Yeah, we don’t want to upset the morons who vote for Democrats now do we.

Which means this is all for show, as usual. It’s just Politics. Not economics. It’s all for Show. Yet Again.

“We are from the Government and we are here to help you” 🙂

(Thanks to Scotty Starnes for the story lead)

1,307 Days

Political Cartoons by Eric Allie

ROTFL!

Political Cartoons by Glenn McCoy

Political Cartoons by Nate Beeler

How Goes the War?

The grand plan of Obama is working.

High Gas Prices, low employment and a stagnant economy riddled with inflation is making people use less fossil fuels.

Traffic congestion dropped 30% last year from 2010 in the USA’s 100 largest metropolitan areas, driven largely by higher gas prices and a spotty economic recovery, according to a new study by a Washington-state firm that tracks traffic flows.

But they better off than they were 4 years ago. OF COURSE NOT.

But the Solyndra-Loving, fossil fuel hating Liberals I bet are all over the moon excited.

It’s not like they care WHY the numbers have dropped. Because they don’t.

******

A group of disgruntled stay-at-home moms is fighting back against a 2009 law that limits credit card access to people with proof of income.

The group says the Credit CARD Act of 2009 sets women back half a century, according to an online petition at change.org.

2009? When the Democrats had a majority in both houses. Hmm…

I guess Stay-At-Home Moms along with “never having held a job their lives” and since they don’t “understand” economics after all they just don’t need credit cards. Let that be the Man of The House’s Job! 🙂

Intending to limit irresponsible lending, the law requires credit card applicants to provide proof of income in order to qualify. Stay-at-home moms, with no income, do not qualify for approval, unless their husbands co-sign for the card, which has the group of angered moms fighting back.

“It is 2012, and because I’m a stay at home mom, I can’t get my own credit card,” the petition reads. “My husband has to give me permission to get my own line of credit. This is demeaning and flat out unfair.”

So would this be the Democrats “War on Women”?? 🙂
Bet the Minsitry of Truth will be all over this 24/7/365! 🙂
Or do you have to be a “rich” woman with her own money (like Teresa Hines Kerry) or one that can afford the $38,500 per plate at an Obama Fundraiser?
The group is also asking their members to send a letter to the Consumer Financial Protection Bureau, claiming “the new rules send a message that stay-at-home parents are not as credit-worthy as young adults still in school without their own income.”
This was the board set up in Dodd-Frank that was going to save us all from the unscrupulous, evil, greedy, bankers and mortgage companies that forced people to take loans they could afford to pay back and then they traded them around as derivatives until they crashed.
Imagine what they can do with Health Care! 🙂

Obama: “As you begin the next stage in your journey, you will encounter greed and selfishness; ignorance and cruelty. …  (and that’s just from Democrats and Unions) You will meet people who try to build themselves up by tearing others down (Liberals); who believe looking after others is only for suckers,” (that’s the governments job after all) he said.

“My deepest hope for all of you … [is that] you can serve as a reminder that we’re not meant to walk this road alone (Government is right at every step to “help” you); that we’re not expected to face down adversity by ourselves,” (You have the government largess to fall back on) he told his audience. “We’re stronger together than we are on our own.”

Yes, Comrade, it Takes a Village!!!
Maybe they need government issued Credit Cards? 🙂
Oh, that’s right, that happened during Katrina and their was massive fraud! 🙂

But don’t worry, he gets a pass on anything he says.

Pelosi: “We know we have to balance the budget.  (1,1,30 Days since the Senate passed a budget at all- so we believe you Nancy!) We have to establish our priorities and make the cuts accordingly (The Military and every other “right wing” program we can get our hands on). We have to have revenue on the table (Screw the rich!) and we have to invest in growth (Spend even more!) because the creation of jobs (and the unemployment over 8% for 3 1/4 years and millions and millions deserting the workforce all together has certainly shown they way) is what will bring revenue to the Treasury (But not like taxing the rich will) and continue our economic recovery which is important to the American people,” (what recovery? where in your liberal fantasies?) Pelosi said Thursday at the Capitol.

“So to toss this into the mix right now, saying we have to have cuts that exceed even the lifting of the extent to which we lift the debt ceiling is really immature, irresponsible, let’s get serious.” (DC)

Who cares if we are spending 50% more than we  take in. All we have to do is tax the rich into oblivion and  submission and then cut the military to two tricycles and a pop-gun and everything will be rosy and wonderful!

It’s the Republicans fault, after all, that we haven’t passed a budget in well over 3 1/4 years and voted down Obama’s budget 2 years running…

Thomas Sowell: The fact that so many successful politicians are such shameless liars is not only a reflection on them, it is also a reflection on us. When the people want the impossible, only liars can satisfy them, and only in the short run. The current outbreaks of riots in Europe show what happens when the truth catches up with both the politicians and the people in the long run.Among the biggest lies of the welfare states on both sides of the Atlantic is the notion that the government can supply the people with things they want but cannot afford. Since the government gets its resources from the people, if the people as a whole cannot afford something, neither can the government.There is, of course, the perennial fallacy that the government can simply raise taxes on “the rich” and use that additional revenue to pay for things that most people cannot afford. What is amazing is the implicit assumption that “the rich” are all such complete fools that they will do nothing to prevent their money from being taxed away. History shows otherwise.

After the Constitution of the United States was amended to permit a federal income tax, in 1916, the number of people reporting taxable incomes of $300,000 a year or more fell from well over a thousand to fewer than three hundred by 1921.

Were the rich all getting poorer? Not at all. They were investing huge sums of money in tax-exempt securities. The amount of money invested in tax-exempt securities was larger than the federal budget, and nearly half as large as the national debt.

This was not unique to the United States or to that era. After the British government raised their income tax on the top income earners in 2010, they discovered that they collected less tax revenue than before. Other countries have had similar experiences. Apparently the rich are not all fools, after all.

In today’s globalized world economy, the rich can simply invest their money in countries where tax rates are lower.

So, if you cannot rely on “the rich” to pick up the slack, what can you rely on? Lies.

Nothing is easier for a politician than promising government benefits that cannot be delivered. Pensions such as Social Security are perfect for this role. The promises that are made are for money to be paid many years from now — and somebody else will be in power then, left with the job of figuring out what to say and do when the money runs out and the riots start.

There are all sorts of ways of postponing the day of reckoning. The government can refuse to pay what it costs to get things done. Cutting what doctors are paid for treating Medicare patients is one obvious example.

That of course leads some doctors to refuse to take on new Medicare patients. But this process takes time to really make its full impact felt — and elections are held in the short run. This is another growing problem that can be left for someone else to try to cope with in future years.

Increasing amounts of paperwork for doctors in welfare states with government-run medical care, and reduced payments to those doctors, in order to stave off the day of bankruptcy, mean that the medical profession is likely to attract fewer of the brightest young people who have other occupations available to them — paying more money and having fewer hassles. But this too is a long-run problem — and elections are still held in the short run.

Eventually, all these long-run problems can catch up with the wonderful-sounding lies that are the lifeblood of welfare state politics. But there can be a lot of elections between now and eventually — and those who are good at political lies can win a lot of those elections.

As the day of reckoning approaches, there are a number of ways of seeming to overcome the crisis. If the government is running out of money, it can print more money. That does not make the country any richer, but it quietly transfers part of the value of existing money from people’s savings and income to the government, whose newly printed money is worth just as much as the money that people worked for and saved.

Printing more money means inflation — and inflation is a quiet lie, by which a government can keep its promises on paper, but with money worth much less than when the promises were made.

Is it so surprising voters with unrealistic hopes elect politicians who lie about being able to fulfill those hopes?

Not Really. And with nearly half the country not paying any income taxes and record levels of food stamps and 99 weeks of unemployment payments will they vote to cut their own throats or yours first?

Political Cartoons by Ken Catalino

Political Cartoons by Glenn Foden

Political Cartoons by Bob Gorrell

Political Cartoons by Gary Varvel

The Regime

Residents of Leesburg, Florida were shocked to see their local Social Security office turned into a random Homeland Security checkpoint Tuesday morning, as DHS officers armed with semiautomatic rifles and accompanied by sniffer dogs checked identifications of locals.

The activity was part of Operation Shield, an unannounced drill conducted by the DHS’ Federal Protective Service centered around “detecting the presence of unauthorized persons and potentially disruptive or dangerous activities.”

Thomas Milligan, district manager for the Social Security Administration office, said staff were not informed their offices were about to be stormed by armed FPS officers. DHS officials refused to answer questions asked by local media and left with no explanation at noon.

“Part of the U.S. Department of Homeland Security, FPS is the federal law enforcement agency that provides integrated security and law enforcement services to over 9,000 federally-owned and leased buildings, facilities, properties and other assets.

But they can’t find the Border and don’t know what an “illegal alien” is but they can find YOU and if you do know what they are you’re a racist and will be sued by them. 🙂

Big Brother is watching YOU (and ignoring Illegal aliens and you better do it or else!).

Rush: Obama said, “When Congress refuses to act — and as a result, hurts our economy and puts our people at risk — then I have an obligation as president to do what I can without them.” He got applause. “I have an obligation to act on behalf of the American people. I’m not going to stand by while a minority in the Senate puts party ideology ahead of the people that we elected to serve. Not with so much at stake, not at this make-or-break moment for middle class Americans. We’re not gonna let that happen.”

Now, the Founding Fathers said this is exactly what’s supposed to happen! It’s called “the separation of powers,” and it’s to make sure that things like this do not happen, that an all-powerful executive does not run roughshod over the government. But President Obama has just said: Because the Congress won’t do what I want them to do I’m gonna do it myself. Reuters again: “Hammering populist themes that show him to be a champion of the middle class, aides say the president will keep taking steps to show voters he’ll make moves on his own to help the economy if Congress refuses to act.”

If Congress “refuses to act,” it is his job to sit down and talk to ’em and make ’em act and get them to vote the way he wants. He does not have — unless they grant it to him (and they’re doing it, by the way) — the authority to run roughshod over them. But if they don’t stop him, he can do it. We can’t. Congress has to stand up for itself. Now, the Democrats run the Senate. I think they’re happy for this to happen. Dingy Harry loves for this to happen because they’re sitting there blaming it on the House Republicans who have no role in this. It’s an election year, so blame the Republicans for it. Folks, it is clearly lawless. If you regard the Constitution as law, this is lawless behavior by an out-of-control, rogue executive. This is what happens in banana republics, tinhorn dictatorships. In places like Venezuela, this is what happens — all under the guise of populism and helping the middle class.

On Thursday’s “The Laura Ingraham Show,” <New York Times Liberal Columinist David>Brooks said he still admired Obama, but conceded the president was more liberal than he originally thought.

“Yeah, I still like him — admire him personally,” Brooks said. “He’s certainly more liberal than I thought he was. And he’s more liberal than he thinks he is. He thinks he is just slightly center-left. But when you got down to his instincts, they’re pretty left. And his problem is he can’t really act on them because it would be political disaster. And so that means, I think he is doing very little — proposing very little.”

Michelle Malkin: Here is the operating motto of the Obama White House: “So let it be written, so let it be done!” Like Yul Brynner’s Pharaoh Ramses character in Cecil B. DeMille’s “The Ten Commandments,” the demander in chief stands with arms akimbo issuing daily edicts to his constitution-subverting minions with an imperious wave of his hand. His entourage of insatiable usurpers never rests.

Can’t delude legislators into adopting a $1.5 billion Kabuki summer-jobs makework boondoggle? Create an unfunded program through executive fiat.

Can’t muster up a filibuster-proof majority for radical nominees? Czar-ify ’em.

Can’t get Congress to approve vast wild lands designations? Grab them under cover of a holiday lame-duck session.

Can’t get the illegal alien bailout DREAM Act passed on Capitol Hill? Executive-order it.

“So let it be written, so let it be done!”

In keeping with the dark and defiant habits of this administration, the new head of the half-billion-dollar Consumer Financial Protection Bureau was sworn in behind closed doors on Wednesday night. The nomination of former Democratic Ohio Attorney General Richard Cordray to serve as Dodd-Frank regulatory enforcer had been soundly defeated in the Senate before Christmas. But as I reported last month, progressive zealots funded by billionaire George Soros goaded Obama to ignore the Senate’s constitutionally grounded advice and consent role.

At his left flank’s urging, Obama vowed to follow in President Theodore Roosevelt’s footsteps (TR recess-appointed 160 officials during a recess of less than one day) and install Cordray even though the Senate technically remained in pro forma session. Fresh from his Hawaii vacation, Obama returned to Washington and for once delivered on a promise.

White House Press Secretary Jay Carney told reporters Thursday that the administration expects no retaliation for the end-run around the deliberative process. Playing the pharaoh’s helper, Carney airily dismissed widespread bipartisan questions about the legality of the power grab as “esoteric discussion.”

The GOP knew the installation of Obama’s latest super-czar was coming a month ago, but is now scrambling to respond. Republicans will get clobbered with the class warfare card again unless they forcefully counter the Democrats’ narrative of the president’s “bold” actions for “middle-class Americans.”

Obama’s liberal media supporters have rationalized the tyrannical maneuver as a response to GOP “nullification.” But it’s those who oppose common-sense reforms of the gravely flawed Dodd-Frank law — a 2,600-page monstrosity that no lawmaker read before passing it — who are obstructing good government.

As Senate Republicans have been pointing out for months, Dodd-Frank threw out judicial review, removed CFPB from the congressional appropriations process, provided five-year tenure protection for the director and transferred the agency from the Treasury Department to the opaque and unaccountable Federal Reserve.

Obama and Democratic leaders themselves recognize the recklessness of vesting so much unfettered power in a single individual. In 2009, Obama floated a bipartisan board to oversee enforcement. Democratic Sens. Dick Durbin of Illinois, Charles Schumer of New York and Sheldon Whitehouse of Rhode Island all co-sponsored legislation backing a commission. Massachusetts Democratic Rep. Barney Frank was also an original sponsor of a bill creating the very kind of five-member panel Republicans have proposed.

The House passed these and other structural reforms last year, but the Senate has failed to act, and the White House insists on demagoguing reformers. Moreover, taxpayers remain in the dark about how and how much the CFPB is spending, because Dodd-Frank allows the agency to draw funds from the Federal Reserve’s operating expenses. Out of sight, out of mind.

This is not “bold.” It’s jackboot. It won’t benefit “middle-class Americans.” It’ll line lobbyist pockets, soak taxpayer dollars and fuel a Beltway rule-making bonanza. It’s not about reining in Wall Street abuses. It’s about consolidating bureaucratic authority and granting unprecedented immunity to a single super-cop from congressional and public oversight.

Where, ahem, are those Occupiers when you need them?

And what’s really funny is that the Dodd-Frank Bill that created this new Czar says he has to be confirmed by the Senate to have any power or legitimacy!!

But an obscure paragraph in the 2010 law that created the bureau may keep Cordray in check unless the Senate formally approves of his hiring — an approval Obama sought to circumvent by making him a so-called “recess” appointment.

Section 1066 of the law says many of the bureau’s new powers are to be held by the secretary of the Treasury “until the Director of the Bureau is confirmed by the Senate.”

That legal technicality ensures that Cordray’s power will be legally crippled, said Roger Pilon, the founder and director of the Cato Institute’s Center for Constitutional Studies.

“I don’t think he would have the authority to act” because he still hasn’t been confirmed by the Senate, Pilon said. “As soon as he did [try to impose a decision], it would be challenged [in court] by one of the people or entities that is affected.”

But since Obama couldn’t get his crony in there he just appointed him, which means he technically has NO POWER. But do you think he or any of his minions will take that seriously??

They want what they want when they want it!

And it’s a “bold” political move! 🙂

Political Cartoons by Bob Gorrell

Political Cartoons by Eric Allie

Political Cartoons by Eric Allie

Moral Hazard

Ineptocracy (in-ep-toc-ra-cy)- a system of government where the least capable to lead are elected by the least capable of producing,and where the members of society least likely to sustain themselves or succeed,are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

THE $7 Trillion Dollar Secret

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
‘Change Their Votes’

“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”

The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort — and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.

$7.77 Trillion

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
‘Motivate Others’

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.

Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment.

The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.
‘Core Function’

“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”

The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland.

The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.

The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
Big Six

The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment.

The six — JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley — accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.
Bank Supervision

While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says.

Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”

On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.
‘Need Transparency’

Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup.

“I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee.

Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark.

“We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs.

“We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”
Disclose Lending

Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival.

It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank.

“The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.”

The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.
Protecting TARP

TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says.

“Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says.

Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.
No Clue

Lawmakers knew none of this.

They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.

Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs.

Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.
Moral Hazard

Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard — the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers.

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company.

If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks.

Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.

“Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.
Getting Bigger

Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.

For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”

Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.
‘Wanted to Pretend’

“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”

Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.
Prevent Collapse

Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase.

“These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo.

JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.
‘Regulatory Discretion’

“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.”

The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms.

“When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”

Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.

‘Can We Survive?’

“The amount of pain that people, through no fault of their own, had to endure — and the prospect of putting them through it again — is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?”

Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up — a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported.

Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF.

The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.
‘Serious Burden’

In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.

“The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.”

The Moral Hazard.

Dearie says his group didn’t mean to imply that Williamson endorsed big banks.

Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.
Geithner, Kaufman

On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission.

At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman.

Anthony Coley, a spokesman for Geithner, declined to comment.
‘Punishing Success’

Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says.

The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble.

Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner.

“Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”
Below Market

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter — getting loans at below-market rates during a financial crisis — is quite a gift.”

The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.

The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest.

Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.
Added Income

The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.

The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.

“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.

While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out.

Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.
Standing Access

Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.

“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise — to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).
Occupy Wall Street

The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California.

The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor.

“The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”

In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries.

They take full effect in 2019.

Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”(Bloomberg)

Feel better now? 🙂

Political Cartoons by Henry Payne

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