Monthly Archives: September 2008
Why are so many banks failing..is the government covering the wrong asses?
It’s a legitimate question. I think the reasons are similar. Over at ProPublica, a great site btw, they have a good piece up entitled: Anatomy of a Bank Failure. In the writeup, they examine the failure of California’s IndyMac, aka Independent National Mortgage Corporation. IndyMac was the first big bank to fail in this nightmare on wall street. They hit the skids in July.
The article is interesting in that it points a finger at the federal government office known as the Office of Thrift Supervision or OTS. John Reich, the head cheese at OTS has faced questioning before, and usually blames someone else it seems, namely a Senate banking committee member.
On June 26th of this year, Chuckie Schumer wrote a letter to the OTS and the SEC asking wtf was going on with IndyMac. The letter was published in the media and immediately customers started pulling out their money. The ProPublica article paints a different picture of what was going down:
While Schumer’s famously ill-timed letter clearly hastened IndyMac’s end, a detailed review of filings with the Securities and Exchange Commission and the Office of Thrift Supervision for December 2007 and March 2008 suggest that prospects for keeping the S&L afloat were all but nonexistent: The lender’s demise was a matter of when, not if.
The filings raise the question of whether federal regulators felt it was more important to protect the bank’s shareholders and executives than to safeguard the Federal Deposit Insurance Fund that would ultimately pay for the losses. The current cost of the IndyMac failure, according to the FDIC, is $8.9 billion – a number that would undoubtedly have been smaller had the OTS called in the FDIC six months earlier.
As was the case with WaMu IndyMac, also a Savings and Loan, was neck-deep in the subprime mortgage debacle. When it was known that IndyMac was struggling, the OTS didn’t do what they could of to keep the taxpayers ass covered, in other words, they covered the banks ass. Again from the ProPublica writeup:
A conservative strategy by the OTS would have been to downgrade the S&L, and thereby limit the risk to the FDIC fund that protects insured deposits. Instead, to buy time in the hope that a new business plan would improve IndyMac’s earnings, regulators let the firm take modest write-downs of 5 percent or so in some of its troubled mortgage assets. This helped IndyMac keep its risk-based capital ratio barely above the 10 percent floor and allowed it to qualify as “well-capitalized,” thus avoiding being added to the FDIC’s list of problem institutions.
As a result, IndyMac was able to keep borrowing from the Federal Home Loan Bank and pulling in insured deposits. The insured deposits rose to $16 billion as of March 31, compared with $8.8 billion on June 30, 2007. The result: much greater exposure for the FDIC when IndyMac finally collapsed.
That was wrong on every level. This is a nation of people, not corporations. Or its supposed to be. It’s disgusting that time and time again, the OTS refused to turn IndyMac over to the control of the FDIC, buying their bullshit lines that things were getting better, when in reality they were lying their collective asses off.
In other words, they protected the CEO’s and shareholders as long as they could…to the detriment of the American Taxpayer which was left holding the bag of toxic mortgages and covering all the checking and savings accounts insured by the FDIC. IndyMac was sucking wind in 2007 and the OTS knew it. As this article from the Boston Herald notes about the loans IndyMac was holding at the time they collapsed:
IndyMac had 742,000 mortgages in its portfolio at the time – 60,000 of which were 60 days delinquent or at some stage of foreclosure.
That is a lot of payments that were not being made. But remember, these loans were primarily crap loans known as “Alt-A loans, dubbed “stated income” or “liar” loans, because people who received them often couldn’t demonstrate they could pay the interest on the loan, particularly if, after a period of time, the loan reset at a higher rate.“~ProPublica.
The first thing the FDIC did when they took over IndyMac was to halt all foreclosure proceedings and reexamine the loans and the individuals that got them. Of the 60,000 non-paying mortgages, 40,000 will most likely qualify for the governments mortgage loan rewrite program. This was not only a good thing for the homeowners it is also a good thing for the folks holding those ‘mortgage-backed securities’. As this Reuters article explains:
Restoring troubled loans into performing ones has yielded 87 cents on the dollar for a mortgage later sold, compared with 32 cents for nonperforming mortgages, Bair said, citing data over the past few years.
Of course Ms. Bair, the FDIC chairwoman could be full of shit too. The government is…cough..banking on older financial models for their optimistic data, plus they are praying to God that once the loans are rewritten, the individuals will continue to make the mortgage payments.
The truth is…no one friggin knows how this crap is going to turnout. No one..and its gonna take years to figure it the hell out because so many people got home loans they never would of gotten if rules, regulations and just common-fucking-sense had not been ignored.
Gasoline-Americas Crack
Betty Bowers new video below is a must-see. If you watch any television, surely you have seen the commercials from the American Petroleum Institute. (I won’t link to the bastards, so the link goes to Wiki.) A nice looking blonde tells us how much oil and natural gas we got under our feet here in the US and then tells you to go check it out…fuck that shit. That site under a different name is here.
Offshore drilling will be happening again…until there is a major oil spill off our coast, then once again people will become horrified by the death and destruction..and outlaw it again. Assholes..friggin assholes…thanks Democrats, you fucktards.
Graphic filched from Ms. Bowers website.
Bailout bill fails…was it political?
I bet most of the no votes at least from the Rethug side were political. Chuck Todd ran down the list of the no votes today and finds most of them in highly contested races.
Frankly, I don’t care why anyone voted no, I am just glad it didn’t pass. A pox on Wall Street. And its great that Weathervane McCain stuck his foot in his mouth…up to his knee evidently when he said he had brokered a deal and would be supporting the bill..
lol… love the irony. Love it! From the NYT:
The vote against the measure was 228 to 205, with 133 Republicans joining 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.
Looking for a list of who voted how…will post it when I get it. The Dow plunged 700 points as soon as the vote was announced..oh fucking well.
Update: I am pretty sure this is the bill. The vote tally is the same as the bailout bill. You can drill down from that page to find out who voted and how…only one guy didn’t vote..a Rethug..
Party Yes No Not Voting
Dem 140 95 0
Repub 65 133 1
Total 205 228 1
The bailout bill explained…
I am not a financial wizard, so I rely on folks I trust to tell me if we are getting the shaft. From ThinkProgress.org, the Progress Report:
Yesterday, the Bush administration and congressional leaders “said they had struck an accord,” agreeing to spend “up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages.” The bailout legislation, titled the Emergency Economic Stabilization Act of 2008, was discussed by both congressional chambers throughout the weekend, and is expected to come to the House floor for a vote today. Senate Majority Leader Harry Reid (D-NV) said that the Senate will vote on the bill by Oct. 1. The final legislation, which President Bush praised as a “very good bill,” is necessary to prevent a wider financial meltdown that would cause more job losses. Also, the bill charges the Treasury Department with attempting “to prevent avoidable foreclosures.” That said, the legislation still falls short, and does not give adequate coverage to taxpayers and homeowners struggling to stay in their homes.
BETTER THAN THE ALTERNATIVES: New York Times columnist Paul Krugman writes today, “The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis.” Indeed, the bill does provide some important improvements over prior proposals. Instead of giving $700 billion to the Treasury all at once, the money will be doled out in three installments: an initial $250 billion, another $100 billion “upon a Presidential certification of need,” and the final $350 billion if the President submits a written request to Congress, which Congress can deny within 15 days. The bill also establishes a Financial Stability Oversight Board “to review and make recommendations regarding the exercise of authority” and “ensure that the policies implemented by the [Treasury] Secretary protect taxpayers.” By contrast, the initial Bush administration proposal included no oversight mechanism. The bill also includes provisions limiting compensation for senior executives, “with especially severe limits on ‘golden parachutes’ at failing firms.” It allows the Treasury to conduct reverse auctions of securities, which means “firms that can afford to will dump their toxic waste at low prices, the way some already have on the private market, and taxpayers may end up making money in the end.” The proposal does not include some of the more radical ideas put forward by the Republican Study Committee — and backed by former Speaker of the House Newt Gingrich — like removing the capital gains tax, which favors wealthy investors while doing nothing to correct the financial crisis.
PROBLEMS REMAIN: However, the bill does have serious flaws. One facet of the bill by House Minority Leader John Boehner (R-OH) and Rep. Eric Cantor (R-VA) that remains in the final product requires the Treasury “to establish a new federal insurance program, funded by the banks, that would protect firms against loss from troubled assets.” As Time reported, the only way for this plan to work is “for every last one of those $6 trillion in mortgage securities to be insured. Otherwise you’d just get the financial institutions with the [worst] loans on their books choosing to participate–which would amount to a giant bailout of the bad guys by taxpayers.” Furthermore, the bill gives the chairman of the Securities and Exchange Commission ability to suspend mark-to-market accounting, which could remove market transparency and allow financial institutions to continue “pretending bad assets are good and in the process dra[g] down our economy.” Also, the legislation gives the Treasury the ability to buy assets beyond mortgages — like student loan debt or credit card debt — which is “a very bad idea,” according to Center for American Progress Vice President Ed Paisley. “The current financial crisis did not arise because of souring commercial real estate debt, or credit card debt, or auto loan debt, or student debt. … That kind of debt has traded in the markets for many years now, and continues to trade today even as the value of these securities falls amid the current economic downturn.” The origin of the crisis lies with home mortgages, but the legislation merely says that the Treasury Secretary “must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs.” There is no explicit directive to the Treasury to actively restructure mortgages, and it is far from certain that servicers would feel they had the legal authority to make substantive loan modifications under their contracts, even at the Treasury’s behest. The Center for American Progress’s SAFE loan program would have made the necessary adjustments to tax and accounting regulations to obtain servicer participation. Finally, the bill does not allow bankruptcy judges to restructure troubled mortgages, as Sen. Chris Dodd’s (D-CT) would have.
WHAT NEEDS TO BE DONE: For the bailout to be successful, it needs to be coupled with further support for taxpayers. First, a second stimulus package must be passed, to give help to those squeezed by the current crisis. Next, a serious investment must be made in infrastructure. An analysis by the Center for American Progress shows that a $100 billion investment over two years in a Green Recovery program will jumpstart the economy and create 2 million new jobs. Finally, something still needs to be done to help keep taxpayers in their homes. Without provisions “expressly aimed at helping these borrowers restructure their mortgages…this grand plan to buy ‘toxic’ assets from the financial institutions that engineered this market meltdown will not help the U.S. housing market recover.” While the bill does say that the Treasury Secretary Paulson “shall implement a plan that seeks to maximize assistance for homeowners,” there is still not a proper mechanism in place to prevent foreclosures actively. Also, if Paulson uses the bailout money to purchase mortgage securities, instead of mortgages, he’ll be unable to affect restructuring without first gaining ownership of most of the securities from a single investment trust. So while the tools to protect homeowners do exist in the bill, progressives will have to hold Paulson’s feet to the fire to ensure that these tools are used.
So, yes, we are still getting the shaft. The Wall Streeters got the gold mine
Its my Right to be Left of the Center 