Obama lays down new rules: Stricter limits to risk-taking, cap in bank sizes, more

[Jhhnn]

Heh. CRA loans are *not* part of the current meltdown, at all-

http://debatebothsides.com/showthre...s-CRA-Loans-Not-Responsible-For-Mortgage-Mess

Don't blame teh ebil gubmint, unless you want to put it on the Bush Admin's doorstep. They demanded, through HUD, that the GSE's take on more "affordable" (subprime) mortgage products.

I think Obama is on the right track, and is attempting to remove some of the inherent conflicts of interest involved in current banking practices.

I don't think we'll see too many organizations giving up their bank holding company status. It allows them to avoid the mark to market rules governing their assets, which would reveal that they're actually bankrupt...

Whether real reform will make it thru congress is another matter entirely. We can hope, anyway.

 

[Vic]

As a banker, I find these proposals to be more or less good across the board. Banks that are too big too fail need to either tighten their books or be made small enough to fail. No more bailouts. Period.

And uh... only morons whose knowledge of banking and economics is limited to whatever Rush Limbaugh spoonfed them this morning believe that the CRA, Fannie, and/or Freddie were the "root causes" of the mortgage meltdown. I'm as small govt as they come, and that's just silly. I've already spent too much time arguing this with propaganda-fed armchairs idiots to want to do it again though. Just look at the default rates, 'nuff said.

edit: and mark-to-market is a garbage standard to apply to banks. Why should, for example, a bank be forced to liquidate (or apply a liquidated value to) a performing asset it intends to hold just because of a temporary market downturn affecting the collateral? Short-term thinking like that is what got us in the mess to begin with.

 

[Modelworks]

This means nothing. All Obama is doing is posturing, his approval is low and he has to give the State of the Union address in 6 days. He will make a bunch of bold speeches this week, he is good at that, then a few weeks later this topic will be replaced by something else and it will fade away.

 

[AMDScooter]

Heh. CRA loans are *not* part of the current meltdown, at all-

http://debatebothsides.com/showthre...s-CRA-Loans-Not-Responsible-For-Mortgage-Mess

Don't blame teh ebil gubmint, unless you want to put it on the Bush Admin's doorstep. They demanded, through HUD, that the GSE's take on more "affordable" (subprime) mortgage products.

I think Obama is on the right track, and is attempting to remove some of the inherent conflicts of interest involved in current banking practices.

I don't think we'll see too many organizations giving up their bank holding company status. It allows them to avoid the mark to market rules governing their assets, which would reveal that they're actually bankrupt...

Whether real reform will make it thru congress is another matter entirely. We can hope, anyway.

Heh is right. You expect me to take that particular source with their mission statement at face value?

The Center's in-depth analyses help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively.

Howabout you find a link to the actual study they supposedly gleaned this information from and we can go from there?

Aside from that. Bush was not pushing for the GSE's to take on more bad paper. So blame b00sh ain't gunna fly either. He tried to unsuccessfully to reign in Fannie and Freddie and got shot down 17 times in 2008 alone:


Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008 Alone… Dems Ignored Warnings

For many years the President and his Administration have not only warned of the systemic consequences of financial turmoil at a housing government-sponsored enterprise (GSE) but also put forward thoughtful plans to reduce the risk that either Fannie Mae or Freddie Mac would encounter such difficulties. President Bush publicly called for GSE reform 17 times in 2008 alone before Congress acted.

Unfortunately, these warnings went unheeded, as the President’s repeated attempts to reform the supervision of these entities were thwarted by the legislative maneuvering of those who emphatically denied there were problems.

The White House released this list of attempts by President Bush to reform Freddie Mae and Freddie Mac since he took office in 2001.
Unfortunately, Congress did not act on the president’s warnings:

** 2001

April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”

** 2002

May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)

** 2003

January: Freddie Mac announces it has to restate financial results for the previous three years.

February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (“Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03)

September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.

September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.

October: Fannie Mae discloses $1.2 billion accounting error.

November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)

** 2004

February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)

February: CEA Chairman Mankiw cautions Congress to “not take [the financial market's] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04)

June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)

** 2005

April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05)

** 2007

July: Two Bear Stearns hedge funds invested in mortgage securities collapse.

August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07)

September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.

September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.

December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07)

** 2008

January: Bank of America announces it will buy Countrywide.

January: Citigroup announces mortgage portfolio lost $18.1 billion in value.

February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)

March: Bear Stearns announces it will sell itself to JPMorgan Chase.

March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)

April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)

May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.

“Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08)

“[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)

“Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08)

June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)

July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.

In 2005– Senator John McCain partnered with three other Senate Republicans to reform the government’s involvement in lending.
Democrats blocked this reform, too.

More… Not only did democrats not act on these warnings but Barack Obama put one of the major Sub-Prime Slime players on his campaign as finance chairperson.

UPDATE: The media is not reporting that the failed financial institutions are big Obama donors.
Hat Tip Larwyn

Obama is trying a populist suit that simply does not fit him no matter how hard the MSM is spinning. He overreached and let Pelosi and Reid run the show for the last year because he had not a clue how to deliver on the promises he made. Voting "present" does not a leader make. His party is paying the price politically and joe taxpayers grand kids are on the hook for the bill. It's been like watching a slow motion train wreck. Unfortunately our economy was laying on the tracks while he signed off on a nearly $800 Billion dollar stimulus stabilization act and then went right to work on cappintrade, health care and ignored the economy as if signing that $787 billion dollar package had cured us. Despite the numbers worsening throughout the year. "Saved or created" my fuzzy arse. So now Mr. wonderful is off to go after bankers who will simply pass any additional overhead onto us thinking it will win back over the independents who have fled his base. Ya.. smartest prezident evar.

 

[Vic]

17 times in 2008

LOL, buddy, the mortgage meltdown began in mid-2006. The credit markets froze in July 2007. Anything Bush may have tried in 2008 was closing the barn door long after the horse got out.

 

[sandorski]

Heh is right. You expect me to take that particular source with their mission statement at face value?



Howabout you find a link to the actual study they supposedly gleaned this information from and we can go from there?

Aside from that. Bush was not pushing for the GSE's to take on more bad paper. So blame b00sh ain't gunna fly either. He tried to unsuccessfully to reign in Fannie and Freddie and got shot down 17 times in 2008 alone:


Bush Called For Reform of Fannie Mae & Freddie Mac 17 Times in 2008 Alone… Dems Ignored Warnings



Obama is trying a populist suit that simply does not fit him no matter how hard the MSM is spinning. He overreached and let Pelosi and Reid run the show for the last year because he had not a clue how to deliver on the promises he made. Voting "present" does not a leader make. His party is paying the price politically and joe taxpayers grand kids are on the hook for the bill. It's been like watching a slow motion train wreck. Unfortunately our economy was laying on the tracks while he signed off on a nearly $800 Billion dollar stimulus stabilization act and then went right to work on cappintrade, health care and ignored the economy as if signing that $787 billion dollar package had cured us. Despite the numbers worsening throughout the year. "Saved or created" my fuzzy arse. So now Mr. wonderful is off to go after bankers who will simply pass any additional overhead onto us thinking it will win back over the independents who have fled his base. Ya.. smartest prezident evar.

Fail again, Strawman.

 

[heyheybooboo]

.... The biggest problems with the financial system has nothing to do with the bankers.

They did nothing illegal.

The problems lie at the central bank and the various regulatory regimes. Instead of making those stronger and more independent the president decides to take a cheap swipe at the banks.

IMHO, the government needs to set clear rules for the financial industry and enforce them blindly...no loopholes, no exceptions.

Also, the Federal Reserve's mandate needs to be simplified and the regulatory regimes need to be able to do their jobs without interference.

Good luck with that bull shit. Good to see that lame-ass support you give to Goldman and Wall Street. You will go far with that.

So leveraging a single dollar 40-95 times through Cayman Island investment vehicles, with no accounting on financial statements passes your smell test?

And then you blame the government?

I believe I'll side with Warren Buffet, Paul Volker, Tim Geithner and President Obama on this one.

The partisan assholes who hate America can feel free to side with the bankers.





--

 

[MotF Bane]

Blame the banks for the government's failings. How predictable.

 

[Dari]

Good luck with that bull shit. Good to see that lame-ass support you give to Goldman and Wall Street. You will go far with that.

So leveraging a single dollar 40-95 times through Cayman Island investment vehicles, with no accounting on financial statements passes your smell test?

And then you blame the government?

I believe I'll side with Warren Buffet, Paul Volker, Tim Geithner and President Obama on this one.

The partisan assholes who hate America can feel free to side with the bankers.

--

Blame the banks for the government's failings. How predictable.

^^^What he said...

 

[yllus]

So far, I haven't seen much reason to oppose this proposal. It may end up being implemented less than perfectly, but that's not a reason to give it a try.

Wall Street reform could stay in spotlight for months

One proposal would ban commercial banks that take deposits from risking their own money in the markets, including through hedge funds and private-equity arms, a process known as proprietary trading. But proprietary trading only makes up a small part of most big banks' profits, some industry observers noted.

The other proposal, which could see caps on the size of financial firms, could actually end up benefiting banks and their investors because some operations could be spun off, some industry observers said.

"Banks would be horrified at first to get out of proprietary trading, but the fact is they weren't in all of these businesses at one point and have only gotten in over last ten or 15 years," said Mr. Smith of New York University. "If banks could get a large part of their business out from under "too big to fail" concerns, they would be better off because they wouldn't have to pay all the [proposed] added tax on the liability."

Peter Morici, a business professor at the Smith School of Business at the University of Maryland, said the latest proposals do nothing to address the root of the problem that exacerbated the financial crisis – the creation of complex financial products, such as bundles of home loans that were sold off many times to investors.

"They're not really cracking down on banks," said Mr. Morici. "What they are proposing has about as much teeth at the Obama administration's tax on banks, which amounts to about one fifteenth of what banks are paying in bonuses and one thirtieth of what banks are making in profits."

Coming up with clear definitions of proprietary trading and other elements in the proposals won't be an easy task and could add to the overall uncertainty surrounding the banking industry.

"As these proposals move into the public domain in more detail there is bound to be an acrimonious debate: times have moved on since the 1930s and how to define certain types of banking activity will be a major task," said Richard Reid, director of research at the U.K.'s International Centre for Financial Regulation. "Part of the attraction of the large, complex banks is that they have customers with large complex financing demands."

The new regulations may be implemented over a three-year time period, if at all.

 

[Pliablemoose]

I'm not impressed, it won't pass, I was one supporting Volker's return to the national stage, but he's wrong on this one.

And you just saw Geithner & Summers getting set up to throw under the bus.

 

[Dari]

I'm not impressed, it won't pass, I was one supporting Volker's return to the national stage, but he's wrong on this one.

And you just saw Geithner & Summers getting set up to throw under the bus.

Of course it won't pass. Look at what Volcker leads and where Summers and Geithner are. This was a sop to the angry voters. It will be quickly forgotten when Obama returns to Wall Street to beg for money like he did when he came here in September...

 

[ModerateRepZero]

Blame the banks for the government's failings. How predictable.

while I'm skeptical that any reforms will succeed, I applaud the attempts at limiting the risk-taking on the part of financial institutions. Look, banking institutions are in business to lend money, not to make leveraged bets or engage in wild speculation. We saw what happened with the S & L (savings and loans) scandal in the 1980s, and LTCM (Long Term capital Management) in the 1990s with regards to financial institutions engaging in risky behavior. This behavior may be legal but it sure as hell isn't sound business practice.

The financial institutions who heavily peddled derivatives such as CDOs also share some blame for at least two reasons:

1) they were creating in some cases, transactions out of whole cloth (and making duplicates of existing transactions).
2) at least one firm is accused of peddling derivatives to prospective clients while on the other hand secretly shorting them.

again this may be legal behavior, but it's neither ethical, nor sound financial/business practice.

and I don't buy the argument that the government is *primarily* to blame for subprime mortgage lending. government didn't force mortgage lenders to falsify documents making minimum-wage housekeepers seem like dot-com millionaires (aka predatory lending). nor did govt. pressure rating agencies like Moody's to certify cruddy derivatives as "AAA" leading investors and institutions to believe that it was gold instead of pyrite.

one article that contributed to my cynicism:
http://www.portfolio.com/news-marke...olio/2008/11/11/The-End-of-Wall-Streets-Boom/

 

[ModerateRepZero]

Blame the banks for the government's failings. How predictable.

while I'm skeptical that any reforms will succeed, I applaud the attempts at limiting the risk-taking on the part of financial institutions. Look, banking institutions are in business to lend money, not to make leveraged bets or engage in wild speculation. We saw what happened with the S & L (savings and loans) scandal in the 1980s, and LTCM (Long Term capital Management) in the 1990s with regards to financial institutions engaging in risky behavior. This behavior may be legal but it sure as hell isn't sound business practice.

The financial institutions who heavily peddled derivatives such as CDOs also share some blame for at least two reasons:

1) they were creating in some cases, transactions out of whole cloth (and making duplicates of existing transactions).
2) at least one firm is accused of peddling derivatives to prospective clients while on the other hand secretly shorting them.

again this may be legal behavior, but it's neither ethical, nor sound financial/business practice.

and I don't buy the argument that the government is *primarily* to blame for subprime mortgage lending. government didn't force mortgage lenders to falsify documents making minimum-wage housekeepers seem like dot-com millionaires (aka predatory lending). nor did govt. pressure rating agencies like Moody's to certify cruddy derivatives as "AAA" leading investors and institutions to believe that it was gold instead of pyrite.

one article that contributed to my cynicism:
http://www.portfolio.com/news-marke...olio/2008/11/11/The-End-of-Wall-Streets-Boom/

 

[Craig234]

while I'm skeptical that any reforms will succeed, I applaud the attempts at limiting the risk-taking on the part of financial institutions. Look, banking institutions are in business to lend money, not to make leveraged bets or engage in wild speculation. We saw what happened with the S & L (savings and loans) scandal in the 1980s, and LTCM (Long Term capital Management) in the 1990s with regards to financial institutions engaging in risky behavior. This behavior may be legal but it sure as hell isn't sound business practice.

The financial institutions who heavily peddled derivatives such as CDOs also share some blame for at least two reasons:

1) they were creating in some cases, transactions out of whole cloth (and making duplicates of existing transactions).
2) at least one firm is accused of peddling derivatives to prospective clients while on the other hand secretly shorting them.

again this may be legal behavior, but it's neither ethical, nor sound financial/business practice.

and I don't buy the argument that the government is *primarily* to blame for subprime mortgage lending. government didn't force mortgage lenders to falsify documents making minimum-wage housekeepers seem like dot-com millionaires (aka predatory lending). nor did govt. pressure rating agencies like Moody's to certify cruddy derivatives as "AAA" leading investors and institutions to believe that it was gold instead of pyrite.

one article that contributed to my cynicism:
http://www.portfolio.com/news-marke...olio/2008/11/11/The-End-of-Wall-Streets-Boom/

Good post and the link had an interesting story. Interesting to contrast the uninformed government haters who will priase WallStreet out of ideology as so wonderfully effiecient versus the facts.

They don't understand that some of Wall Street is great and some is horrible.

They don't understand the need for someone to make rules for business the benefit of society.