May you all have a happy Memorial Day, 2015; special blessings go out to everyone--and their immediate families and progeny--who served our nation in the armed forces, especially those who made the ultimate sacrifice and gave their lives. We forever will owe you.
Shelby, etc. Don’t Underestimate Him
Congress has departed for its Memorial Day holiday, but the Senate Banking Committee, chaired by Dick Shelby (R-Ala.) -- on a party line vote (12-10)--left behind a steaming, smelly mess, which requires someone to clean up.
Who will it be?
Logical candidates are the Senate D’s, the White House, the media, "Fannie Gate patrons," or nobody?
Oh ,and a warning to you folks back home--also known as citizens and constituents--remember to lock your front and back doors, take in the small children, the elderly, your animals, Aunt Bessie, Uncle Fred, Cousin Delilah, and closely watch any of those politicians if they come near your neighborhoods (although many will be traveling on “fact finding missions” to exotic international places). Those visiting pols still might lie and bamboozle you, which you easily can tell if you see their lips move.
SBC Last Week
In an action cheered only by the institutions which benefited, Shelby and his committee posse removed some federal financial regulation from bank holding companies with assets between $$51 Billion and $499 Billion (current regulatory practices has eyes on anything below $500 Billion) and also made various Fannie and Freddie changes, which should make it easier for these same big banks to swallow the F&F operations, if Shelby and his boys, notably Sen. Bob Corker (R-Tenn.) complete their goal of dismantling F&F, which currently provides structure and overall management of the nation’s primary and secondary mortgage markets.
The Competitive Enterprise Institute’s John Breslau grasped the same linkage I did, when I blogged against this bill, mid-last week. The Libertarian think tank saw the Shelby language as an undesirable statutory highway to add—at some future point—last year’s failed CorkerWarnerJohnsonCrapo (CWJC) GSE legislation.
That concern stopped nobody—because they were feasting on screwing with the Fed and satisfying the big banks--and the SBC Republicans plowed forward and voted out the Shelby bill—with no Democrat votes-- vowing that it needs additional work before it could be brought the Senate floor later this year. (An understatement ranking with, “Hey General Custer, do those look like Indians out there?”)
How do you like these "apples?"
Bank fines in the past 7 years; Why Senate action was so wrong
The links below list some major bank fines paid in the past few years. (Excuse any news report overlap or duplication)
I'm certain I missed some roguish financial services behavior, law breaking and reg busting fines; but note the variety of sanctioned bank violations:
--manipulating the London Interbank Borrowing Rate (LIBOR), to which most US adjustable rate mortgages (ARMs) are indexed (and lenders want you to take);
--violating the Service Members Relief Act;
--deceiving and selling billions of dollars’ worth of corrupted mortgage backed securities to Fannie and Freddie;
--laundering money for Mexican drug cartels;
--business engagements with Middle Eastern extremist political and business interests, supporting entities in conflict with US foreign and defense policies;
--withholding bond revenue which should have been dispensed to bond investors;
--wrongful residential foreclosures and evictions;
--defrauding/misleading investors by withholding key investment information;
--cornering precious metal markets; price fixing;
--and rigging the Euro-Dollar exchange rate.
To GOP members of the Senate Banking Committee members, please THINK?
Why do these banking interests and their TBTF brethren—which have deceit and anti-consumer corner cutting running through their institutional DNA—want you to create fewer federal eyes on them rather than more?
Thanks to my good friend and former colleague Gwenn Hibbs for sharing this recent Atlantic Monthly article discussing a Notre Dame University survey of financial services employees
Almost a quarter of finance professionals surveyed have witnessed illegal conduct, and 50 percent of those with <10 caught.="" experience="" get="" happily="" if="" insider="" laws="" nbsp="" o:p="" t="" they="" trading="" violate="" would="" wouldn="" yrs.="">10>
Read Jena McGregor’s Wash Post story about the same ND study.
Better yet is this colorful and so accurate column from the British newspaper Independent by Andrew Newsom. (Thanks to Mr. F for sending it to me.)
The Senate GOP Needs to Answer
We all know, it’s in the banking industry’s charlatan blood and lineage to cheat. Banks have bamboozled and have gotten caught. But, they’ll continue to be larcenous because the fines are bubkis when compared with their corporate profits.
So, why do the Senate R’s think the changes they made in the Shelby bill will slow down bank trickery and are good for the American people, who always are the losers when these big fat cat bankers screw up?
And please don’t throw out the old saw about “helping them better compete against foreign banks,” which is total BS.
How’s this? Put Them Behind Bars
Fines, no matter the size, won’t stop this industry banditry, but jail time might slow it down and, if severe enough, stop it.
The $5.7 Billion paid last week by five banks admitting guilt in the Dollar-Euro hijinks, was about 23 days profits for this group. Start putting in the slammer those who were caught and we might find some consistently honest bankers out there, especially among the big guys who haven’t always been.
Shelby/Corker and the GSEs
In last weeks’ steps making it easier for large banks to do whatever they want in contravention of federal regulatory policies, the Senate Republicans, obeying their GSE guru Senator Bob Corker (R-Tenn.), also limited the government’s ability to use its GSE preferred stock warrants to restructure F&F or alter some of the “Conservatorship” rules. (See, again, Breslau article above.)
Breslau and others on both the Libertarian/conservative side of the political spectrum get it; banks are not worthy stewards of the nation’s mortgage finance system, but that exactly is the end game in the GOP crush F&F and let the banks decide who gets what home mortgage loan and how much they pay for it.
Part of me things the Senate R’s are desperate to stop Mel Watt and FHFA from carrying out any administrative reforms, hence the language in Shelby.
The American public doesn’t trust large financial institutions nor should the Congress put all of its mortgage eggs in one major industry basket which is why this GOP drive pell-mell exercise to destroy F&F makes little sense relative to the American public’s home mortgage needs/desires.
It’s Hardly Over....
Admittedly, the Shelby language may or may not survive the Senate floor debate, a conference, or a presidential veto. But, that hardly means it should be dismissed, since I can easily constrict a scenario where Shelby—if some of the more egregious bank reg relief is dropped and more honey/sugar added—could attract some D’s, with its current or even more anti-F&F proposal in it, and get through that chamber.
Policy makers need to look at what mortgage system elements the Corker changes (in the Shelby bill) are setting up and that’s when this part of the exercise should fall through or collapse of its own weight.
Corker is trying desperately to work the big banks into the process of F&F developing a Common Securitization Platform (CSP) and a single F&F mortgage backed security (with the Fannie bond the model since it trades better than the Freddie counterpart, because of structure and cash flow).
It seems to me that Corker and whomever helps him are seeking ways to take advantage of GSE resources for his bank buddies and leverage F&F out of their business and current roles.
A major cautionary word to those who might see Shelby’s 12-10 all GOP votes akin to last year’s Jeb Hensarling (R-Texas) “Path Act” legislation, which got Democrat meager but a majority of votes, and then died. Don’t light up your victory cigars.
Shelby is many times the political player as Hensarling; don’t miscalculate and underrate the senior Senator from Alabama.
Stegman, CSP, Single Security and Deposition
Mike Stegman’s move from Treasury counselor to the WH (which I am told by legal sources won’t shield him from being deposed, if that’s what Third Amendment plaintiff’s lawyers seek) reportedly is a step to give him authority to drive the current CSP and single security exercises toward the non-F&F users. (A move which I think should anger Mel Watt and his allies. Are you listening CBC and Ms. Jarret?)
Every mortgage alternative to the current F&F model (Bipartisan Commission, CWJC, and the Jeb Hensarling, banks only approach) has major flaws, as does the plain transition from one mortgage paradigm to another. But the congressional and Treasury rocket scientists are loathe to explore the one approach that can be near seamless and without chaos and massive disruption and that, simply, is making minimal changes in the GSE model and moving forward with recapitalization.
They seem intent on doing away with the GSEs—which in the mortgage world act as a governor on the major banks worst inclinations—shouting abuses at the old “business model” and seeking an ill-defined alternative.
I believe an honest poll of mortgage industry stakeholders, including the American consumer, overwhelmingly would support sprucing up what we have, which is easily done as Jim Millstein and others, including those advocating for F&F as utilities) have proposed.
Why is that simple voyage such a scary odyssey for many politicians?
GSE Courts Cases
One hope I have is to see—finally—an honest account of why the GSEs were put into conservatorship.
It exists, between the “GOP’s get F&F ideology”, Obama’s the “government needs money and F&F are cash cow candidates”, Treasury was “stressed so it bent/broke the HERA law,” and government officials totally and willfully misread the F&F functional market role and didn’t understand the government’s forced changes (both “conservatorship” and “Third Amendment”) would reap mortgage market anger, confusion, lawsuits, and bitterness.
I have theories but none of which can accurately cut through what I hope will be emerging facts, coming out of the miasma in the Sweeney and Lamberth—if it ever gets successfully appealed—court hearings/decisions.
What Others Are Saying
Speaking at a journalism awards dinner last week in Minneapolis, the NYT’s Gretchen Morgenson slammed the Obama Administration for its secrecy, after the President promised he would preside over the most transparent White House in recent memory.
The National Communicate Reinvestment Corporation’s John Taylor comments on the Shelby bill.
The Brits see the bank problem, too. See Will Hutton’s column in the “Guardian.”