I hate to tell you this, but there is another Republican debate tonight at 8PM, hosted by CNN in Jacksonville, Florida. We’ll be live blogging, as always. Being the twisted individual I am, I’m still enjoying watching the Republicans commit mass suicide, so I’ll be listening and updating even if no one else shows up. But I hope some people do! Now let’s see what’s in the news today.
I missed this in the run up to the SOTU last night: Speaker tells members what not to wear
Just seconds after an emotional tribute to Arizona Democratic Rep Gabby Giffords in the House of Representatives Wednesday, House Speaker John Boehner – who got a little choked up in the moment – suddenly felt the need to remind members that there’s a dress code on the House floor.
Boehner recovered his composure after embracing Giffords, who had just handed him her resignation letter. He looked around the chamber, and announced, “the chair would remind all members to be in proper business attire when you come to the floor of the House.”
Apparently enforcing the House dress code is one of the duties of Speaker that Boehner takes very seriously.
On Monday night, Boehner ran through some of basic rules of decorum on the floor, including the one about proper dress. “Members should wear appropriate attire however brief their presence might be,” the speaker said. And to the wardrobe offenders, Boehner said, “you know who you are.”
I know everyone has heard the news that Tim Geithner doesn’t expect President Obama to ask him to stay on as Treasury Secretary for a second term.
“He’s not going to ask me to stay on, I’m pretty confident,” Geithner said in an interview with Bloomberg Television today. “I’m confident he’ll be president. But I’m also confident he’s going to have the privilege of having another secretary of the Treasury.”
Ralphb commented on the SOTU live blog that Geithner “looked like he’d been gut punched” when Obama spoke about making banks pay fees on “transactions to pay for mortgage relief/refinancing.” Apparently Geithner wasn’t clued in about that ahead of time.
I’m wondering if they’ve been leaving him out of some of the meetings since Confidence Men revealed that Geithner was dismissive of presidential orders. Check out the facial expressions and body language in the above photo taken after the speech (I made it big so you could see detail). To me that doesn’t look like a friendly greeting. What do you think?
According to Business Week (see above link) two possible candidates to replace Geithner are Catfood Commission co-chair Erskine Bowles and North Dakota Senator Kent Conrad–both horrible choices IMO.
Conrad, 63, chairman of the Senate Budget Committee who said a year ago he won’t seek another term, is “a serious budget hawk on the left, well-liked and respected,” Calabria said.
Bowles, 66, is the former co-leader of Obama’s commission that drafted a plan to reduce the federal government’s debt.
President Obama had another difficult interaction on Wednesday when he met wacky Arizona Governor Jan Brewer at Phoenix-Mesa Gateway Airport. From the Chicago Tribune:
During their brief encounter on the tarmac, intended to be a ceremonial welcome, Obama told Governor Jan Brewer that he disagreed with an account she had given of a meeting they had at the White House two years ago.
“He was a little disturbed about my book, ‘Scorpions for Breakfast,'” Brewer told reporters after the conversation. At one point during their chat, she pointed a finger at the president.
Brewer, who has differed with Obama over immigration policy in the past, handed him a letter asking him for a meeting to talk about Arizona’s economy when she greeted him. A White House official said the subject of the book came up after Brewer gave Obama the letter.
“The president said he’d be glad to meet with her again, but did note that after their last meeting, a cordial discussion in the Oval Office, the governor inaccurately described the meeting in her book. The president looks forward to continuing taking steps to help Arizona’s economy grow,” the official said.
I didn’t know she had written a book. In fact, I didn’t know she could read…. ABC News provides a little more detail on what the squabble was about.
Brewer complains in Scorpions for Breakfast that she and her staff were treated coldly by White House aides, prevented from taking pictures in the holding room outside the Oval Office and that their cell phones and cameras were “confiscated” by Secret Service.
“Too bad we weren’t illegal aliens, or we could have sued them,” she writes.
During her meeting with the president, Brewer said Obama was “condescending” and professorial, “lecturing” on his efforts to promote comprehensive immigration reform.
“It wasn’t long before I realized I was hearing the president’s stump speech,” she said. “Only I was supposed to listen without talking. Did he care to hear the view from the actual scene at the border? Did the opinions and observations of the people of Arizona mean anything to him? I didn’t think so.”
“He was patronizing,” she said. “Then it dawned on me: He’s treating me like the cop he had over for a beer after he bad-mouthed the Cambridge police, I thought. He thinks he can humor me and then get rid of me.”
After the interaction, Obama apparently walked away before Brewer finished giving him a piece of her mind (or what’s left of it), but she said she would “regroup.” I guess that means “get over it.”
In the run-up to tonight’s debate, Mitt Romney and Newt Gingrich have been lustily attacking each other. Romney must be doing something right, because he’s now running neck and neck with Newt (36% for Romney and 34% for Gingrich) after being behind the former Speaker by 9 points a couple of days ago. Santorum is trailing at 11% and Paul 9% CNN reports:
Gingrich…disparaged Romney’s personal wealth when asked about the former Massachusetts governor’s call for illegal immigrants to deport themselves.
“I think you have to live in a world of Swiss bank accounts and Cayman Island accounts and automatic, you know, $20 million a year income with no work to have some fantasy this far from reality,” Gingrich said at a “Meet the Candidates” forum in Miami, later adding: “For Romney to believe that somebody’s grandmother is going to be so cut off that she is going to self-deport, I mean this verges — this is an Obama-level fantasy.” [....]
Romney….said in the candidate forum, hosted by the Spanish-language network Univision, that such attacks were “unbecoming” for a presidential hopeful….”It’s very sad for a candidate to resort to that kind of epithet,” Romney said of the pulled ad. “There are differences between the candidates on these issues but we don’t attack each other with those kind of terrible terms.”
Newt Gingrich was heckled about his work for Freddie Mac at a rally in Coral Springs, Florida yesterday.
It was quite a scene as a scrum of journalists ignored the candidate and turned to Cara Jennings, who heckled Gingrich in the face of intimidation from his campaign workers, threats from nearby supporters, and the two police officers who showed up to flank her.
“Do you work for the people or Freddie Mac?” Jennings shouted at the former speaker, who was on a platform in a parking lot about 50 feet away.
“I work for the people,” Gingrich responded.
The woman kept shouting, and Gingrich implored her to give others a chance to hear him. But Jennings kept it up, and Gingrich continued engaging her.
Mitt Romney, feeling pressure over the low taxes he pays, tried to claim that his “real tax rate is closer to 45-50 percent.” Think Progress provides a transcript from Romney’s interview with Univision’s Jorge Ramos:
RAMOS: You just released your tax returns. In 2010 you only paid 13 percent of taxes while most Americans paid much more than that. Is that fair?
ROMNEY: Well, actually, I released two years of taxes and I think the average is almost 15 percent. And then also, on top of that, I gave another more 15 percent to charity. When you add it together with all of the taxes and the charity, particularly in the last year, I think it reaches almost 40 percent that I gave back to the community. One of the reasons why we have a lower tax rate on capital gains is because capital gains are also being taxed at the corporate level. So as businesses earn profits, that’s taxed at 35 percent, then as they distribute those profits as dividends, that’s taxed at 15 percent more. So, all total, the tax rate is really closer to 45 or 50 percent.
RAMOS: But is it fair what you pay, 13 percent, while most pay much more than that?
ROMNEY: Well, again, I go back to the point that the, that the funds are being taxed twice at two different levels.
Sorry Mitt, but you’re not a corporation, and besides, as Think Progress points out, most corporations don’t pay 35 percent taxes–in fact many corporations pay no taxes. Romney constantly tells out and out, bald-face lies. Is that de rigueur for the Mormon church, or does he get a dispensation because of all the money he contributes to them?
Brainwashed cult member Rick Santorum, whose campaign is going nowhere in Florida, appeared at a Baptist church in Naples, Florida. He told the audience that “the left” uses college education to “indoctrinate” young people.
“It’s no wonder President Obama wants every kid to go to college,” said the former Pennsylvania senator. “The indoctrination that occurs in American universities is one of the keys to the left holding and maintaining power in America. And it is indoctrination. If it was the other way around, the ACLU would be out there making sure that there wasn’t one penny of government dollars going to colleges and universities, right?”
He continued: “If they taught Judeo-Christian principles in those colleges and universities, they would be stripped of every dollar. If they teach radical secular ideology, they get all the government support that they can possibly give them. Because you know 62 percent of children who enter college with a faith conviction leave without it.” [....]
“I’ll bet you there are people in this room who give money to colleges and universities who are undermining the very principles of our country every single day by indoctrinating kids with left-wing ideology,” he said. “And you continue to give to these colleges and universities. Let me have a suggestion: Stop it.”
Santorum attended Penn State and went on to earn an MBA from the University of Pittsburgh and a law degree from Dickinson School of Law. But he’d rather have the proles stay uneducated so they’ll buy his crazy theocratic bullsh*t.
Santorum did have a license to practice law, but it has been suspended because he didn’t bother to pay his $70.00 per year fee to keep it active. He stopped paying in 1994 and was suspended in 2010. Maybe he decided being a lawyer was the devil’s work?
OK, that’s it for me. What are you reading and blogging about today?
It’s amazing to me that so many people can get so worked up about one mid level bureaucrat in the White House who is a repentant communist and says he accidentally signed a 9-11 truther petition thinking it was just a request for more information on what the White House knew prior to those terrorist attacks. Meanwhile, we have a Secretary Treasury whose taken gifts from banks, underpaid his taxes by more money than I personally see in years, and seems completely captured by Wall Street and unable to draft decent regulation containing their gambling addiction. Then, there is the fact that I continually write about the same people in Wall Street and the Investment Banking community cooking up death derivatives and going about their merry way, subsidized, unpunished, and totally unrepentant over causing the worst financial crisis since 1929.
I just have to scream: WTF is wrong with you people? Why are we punishing some one for his venture into social activism while completely ignoring people that are making off with our national treasure and the lifeblood of our mixed market economy? These are folks that drove your house prices down, ruined your pension plans and your 401k, and are taking bailouts by the billions. Where’s the sense of balance? How does this resemble justice?
Here’s a REALLY good example from today’s NY Times. Written by Gretchen Morgensen, it’s called “Fair Game-They Left Fannie Mae, but we got the Legal Bills.” It’s all about the government having to bail out Fannie Mae because of the extremely bad management practices, and yes, illegal accounting practices that stuck us with a huge mess and an even bigger bill. Morgensen interviews Representative Alan Grayson, a Florida Democrat, who is one congress critter doing his oversight responsibility while others wallow in the political contributions from their regulatees.
With all the turmoil of the financial crisis, you may have forgotten about the book-cooking that went on at Fannie Mae. Government inquiries found that between 1998 and 2004, senior executives at Fannie manipulated its results to hit earnings targets and generate $115 million in bonus compensation. Fannie had to restate its financial results by $6.3 billion.
Almost two years later, in 2006, Fannie’s regulator concluded an investigation of the accounting with a scathing report. “The conduct of Mr. Raines, chief financial officer J. Timothy Howard, and other members of the inner circle of senior executives at Fannie Mae was inconsistent with the values of responsibility, accountability, and integrity,” it said.
That year, the government sued Mr. Raines, Mr. Howard and Leanne Spencer, Fannie’s former controller, seeking $100 million in fines and $115 million in restitution from bonuses the government contended were not earned. Without admitting wrongdoing, Mr. Raines, Mr. Howard and Ms. Spencer paid $31.4 million in 2008 to settle the litigation.
When these top executives left Fannie, the company was obligated to cover the legal costs associated with shareholder suits brought against them in the wake of the accounting scandal.
Now those costs are ours. Between Sept. 6, 2008, and July 21, we taxpayers spent $2.43 million to defend Mr. Raines, $1.35 million for Mr. Howard, and $2.52 million to defend Ms. Spencer.
“I cannot see the justification of people who led these organizations into insolvency getting a free ride,” Mr. Grayson said. “It goes right to the heart of what people find most disturbing in this situation — the absolute lack of justice.”
What’s the difference between getting justice and getting retribution? Well, in terms of missing it by light years, compare the treatment between social activist Van Jones and practitioners of accounting malpractice like Raines, Howard and Spencer (or tax dodgers who get gifts from Wall Street Bankers like our SOT). It’s the difference between a slap on the wrist and a slap across the face.
When you let lobbyists make public policy, failure is an acceptable outcome. That’s because the point of the policy isn’t the public and isn’t necessarily doing what will work. The point of the policy is to enrich and perpetuate the entrenched interests. Every other possible goal becomes expendable including those that have to do with protecting the public purse and welfare.
Imagine my lack of surprise when I saw that the creation of a “bad bank” policy is back in today’s WaPo headlines. Go take a look at “U.S. Considers Remaking Mortgage Giants:’Bad Bank’ Would Wipe the Slate Clean for Fannie Mae, Freddie Mac by Taking Their Toxic Loans” and weep. This administration will reward bad players as long as there is a political reason for them to exist. So, instead of real reform of Fannie and Freddie, they’re proposing a solution that sweeps past mistakes under the rug and allows these failed institutions to operate in the same irresponsible way that brought them their current fate. There is no such thing as the discipline of the market or the bankruptcy court when you’re big enough to hire K Street impresarios to keep your show running and the federal government enables you.
The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.
The bad debts the firms own would be placed in new government-backed financial institutions — so-called bad banks — that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.
The moves would represent one of the most dramatic reorderings of the badly shattered housing finance system since District-based Fannie Mae was created by Congress to support mortgage lending during the Great Depression. Both Fannie Mae and Freddie Mac, based in McLean, have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers.
The leviathans became emblematic of the financial crisis when they were effectively nationalized in September amid a market meltdown that revealed much of their holdings to be troubled. The government has since pledged more than $1.5 trillion, including $85 billion in direct aid, to keep the mortgage market working through Fannie Mae and Freddie Mac.
The proposal, which is preliminary and one of several under discussion, is scheduled to be taken up by the White House’s National Economic Council on Thursday.
What about the Japanese lost decade and all the papers and studies written about the bad bank policy did these folks miss? Well, of course, you do know that the head of the “White House’s National Economic Council ” is La-La Summers, right? Mister, I got mine from Wall Street? Let’s look at the other players who buy into this. I’ll just highlight them so you can see that it’s basically the same players that had some kind of supporting role in the original failure. Why does Washington D.C. continue to reward the very same people and players? It has too be some thing pathological.
Is The Fed under Chairman Ben Bernanke finally beginning to adopt the tougher lending regulations and rules that would’ve prevented much of the havoc of the last two years? In a speech on April 17, Bernanke stated that damage done to the economy was not likely to be undone any time soon. This gives more credence to the idea that we may see an L-shaped recovery. In other words, be prepared to scuttle across the bottom for a very long time. But did the speech deliver the assurances we need that necessary steps and regulations w lending practices and financial innovations are in the works? I don’t think so.
Here’s some interesting analysis by Craig Torres at Bloomberg.com.
Federal Reserve Chairman Ben S. Bernanke said the collapse of U.S. lending will probably cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.
“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be,” the Fed chairman said today in a speech at the central bank’s community affairs conference in Washington. “The damage from this turn in the credit cycle — in terms of lost wealth, lost homes, and blemished credit histories — is likely to be long-lasting.”
The U.S. central bank has cut the benchmark lending rate to as low as zero and taken unprecedented steps to stem the credit crisis through direct support of consumer finance and mortgage lending. The Fed plans to purchase as much as $1.25 trillion in agency mortgage-backed securities this year to support the housing market and is providing financing for securities backed by loans to consumers and small businesses.
Bernanke and the Federal Reserve Board approved rules last July to toughen restrictions on mortgages, banning high-cost loans to borrowers with no verified income or assets and curbing penalties for repaying a loan early. The action came after members of Congress and other regulators urged the Fed to use its authority to prevent abusive lending.
This suggests Bernanke does not see home values going back up any time soon. It also suggests that the lending markets are not likely to return to their heyday. Does this mean, however, that we’re finally going to see the regulation and enforcement of prudent underwriting standards and no more hide the trash in a bundle and pass it to the next sucker?
As the economy continues its slide towards recession, we now have a pork-laden rescue of many of the folks both responsible for the recession as well as the crisis. TARP may unfreeze the credit markets, but until we responsibly regulate the financial markets that are now shoveling troubled assets onto taxpayers and until we support the prices of their underlying assets (that would be folks’ homes), we will not solve the problem.
I focused recently on the lax lending standards that helped to create the housing bubble (fueled also by the Fed who kept interest rates too low, too long after 2001). It was the red meat thrown into the piranha pool. Let’s talk about what the piranhas did with the red meat once they had it.
Let me mention first that we’ve nearly been here before when Long-Term Capital Management (LTCM) came close to collapse in September 1998 at the time when Russia had difficult repaying its debt. The Fed rescued the fund and showed that some guys are just “too-big-to-fail”. The Fed wanted to stop possible contagion coming from the failure from spreading to commercial banks. Studies at the time showed that losses to investment banks during this type of contagion could be huge (including one done by my Financial Intermediaries Seminar prof). They noticed that investment banks would be far more vulnerable to losses than depository institutes. This small crisis that most folks probably don’t even remember was the canary in the coal mine.
Meanwhile, the primary mortgage market was coming under the spell of the underwrite-nearly-everything mentality spurred on by Fannie and Freddie. We’ve mentioned that Fannie and Freddie also imply a government guarantee. Now, we have a situation where the Fed has shown its readiness to put the tax payer’s money behind anything it deems too big to fail. Both actions were like chumming the waters. Rising house prices were just more blood on the water. It was only time before the piranhas and sharks came to feed. They were being encouraged to ignore risk and that’s not a wise thing to do.
Five investment banks, including Goldman Sachs, approached the SEC with a proposal around 2004. They sought an exemption for their brokerage units from old depression-era regulations that limited the amount of debt they could incur. An exemption from this leverage rule would free up a heckuva lot of money to invest in some new-fangled investments: mortgage-backed securities, credit derivatives, and credit default swaps. They got permission. Enter the net capital rule that enabled the piranhas and the sharks. During the next few years, leverage ratios increased until for about every dollars worth of equity held by an investment bank, there was around $30 in debt.
Credit default swaps act like insurance. They are instruments intended to cover losses to banks and bondholders when companies fail to pay their debts. Since 2000, the market has boomed from about $900 billion to more than $45.5 trillion. This about twice the size of the entire U.S. stock market. The market for credit default swaps as well as the market for mortgage securities were left unregulated. Many folks have been worried about this market for some time.
The Comptroller of the Currency, a federal bank regulator warned that increased trade in swaps during 2007 was putting a strain on processing systems that were used to handle swaps. Swaps are essentially what brought down AIG. Back in the beginning of the year, AIG found that it had incorrectly valued some of the swaps and announced that mistake would cause the company to lose $6.3 billion more than they had estimated before.
Placing correct values on Swaps and Mortgage securities is very difficult. Big banks, insurance companies and hedge funds are among the financial institutions that trade these derivatives. CDS tend to be private agreements where buyers of the protection/insurance agrees to pay a premium to the seller over time. (Much like an insurance policy premium). The seller pays only if a particular crisis occurs. These contracts can also be bought and sold. Because the market is basically unregulated, no one quite knows when the swaps are sold and to whom they are sold. This can be a problem when the protection is required, say like when the Hurricane Katrina of asset bubbles bursts in the housing market. Just so you know, the largest players in this market are JP Morgan Chase, Citibank, and Bank of American. All WAY too big to fail, right?
Enter speculators as this market gets large. Speculators (read HEDGE FUNDS) have used these instruments to bet on a company or a bank’s failure. Funny thing is there is actually more value now out there in the derivatives than there is in the underlying assets. Remember, this is BEFORE the bubble bursts and brings the asset prices down even further. So credit default swaps are basically default insurance, although they can’t be named that. So what happens when every one needs to make a claim on their insurance and can’t exactly locate your contract and it probably resides with some one who is in worse shape than you? (Ah, let your imaginations run away with you, it’s bad.)
So, let’s get back to our Pirahanas and Sharks. They’re being encouraged to loosen up those lending standards by Fannie and Freddie AND they can buy insurance too if their bad loans go bad. How can you lose with a deal like that? It doesn’t appear that you can, does it? So what do you do? Continue underwriting loans for folks without income, folks without credit, folks that are even dead. (Yes, dead, I’m not making that up.)
I think you can see that what we have here is the perfect storm. So let me get back to what this bill doesn’t do. It DOESN’T stop the assets from continuing to go bad, at least in the housing end of things. It DOESN’T regulate any of the players in this market although the investment banks are now under the jurisdictions of bank holding companies and basically the FED. It DOESN’T deal with the leverage issue. It DOESN’T punish any one for lending bad loans even. No one is getting yelled at for encouraging this — not Fannie and Freddie, not the FED and not the SEC. Definitely not the congresscritters that enabled them either, at least not yet.
What we are witnessing is the creation of more TOO BIG TO FAIL critters AND we’re giving them more money to lend out and we have inadequate regulation. It’s time to take the chum out of the water, folks!