Debate rages around Treasury plan
By Matt Carter, Monday, September 22, 2008.
Inman News
The Bush administration's plan to allow the Treasury Department to buy up to $700 billion in troubled mortgage-related assets could help thaw the credit crunch by helping big financial firms move bad loans off their books.
But critics of the plan want the government to provide more protections for taxpayers and help for individuals struggling with their mortgage payments -- goals that may be inherently contradictory.
The battle that's shaping up in Congress over the plan isn't expected to derail it, but the debate over its particulars could complicate or delay its implementation, as lawmakers must authorize the issuance of the Treasury securities that would finance it.
While the plan put forward by Treasury Secretary Henry Paulson on Saturday seems simple enough on its face, the details of how it is implemented could have profound implications for the hardest-hit housing markets and the plan's ultimate cost to taxpayers.
Once taxpayers are in charge of these assets, will troubled borrowers be more likely to get loan modifications or workouts to keep them in their homes? If the government becomes the owner of hundreds of thousands of foreclosed homes, will it sell them quickly at fire-sale prices to investors, or more gradually over time to earn a better return?
While there is general agreement that the government must take action to keep the financial system functioning, the question then becomes: What happens next?
"You save the banking system, now what are you going to do with all this distressed property?" said Dennis Hedlund, president and founder of the mortgage market forecasting firm iEmergent.
As detailed by Paulson, the plan envisions that the mortgage-related assets Treasury buys would be managed by private managers "to meet program objectives."
If the government creates aggressive objectives to keep people in their homes -- by forgiving some of the principal on their loans, for instance -- "that could very quickly solve a lot of problems" in housing markets where prices continue to fall, Hedlund said. But that approach would mean larger losses up front, and perhaps a bigger bill for taxpayers in the long run.
"If the government does more modest workouts and hopes home values sort of correct themselves, there's a danger home prices would continue to fall, and this could really stretch out," Hedlund said. "It's really a question of how fast do you want to get it over with? The faster you want to get it over with, the more the government will foot the bill, so there will be political pressure not to do that."
Hedlund said a less aggressive approach at preserving home ownership could have a "devastating" impact on 50 to 60 urban areas, and rural communities with large numbers of moderate-income homeowners.
"My opinion is that the recovery back to normal lending patterns and purchase trends easily could be five years," Hedlund said. "This thing could go on forever, especially if nothing happens to (check the decline in) home prices."
In an e-mail to clients, K&L Gates attorney Larry Platt noted that Treasury has not spelled out any requirement to seek to preserve home ownership or otherwise deal with foreclosures and loss mitigation, "which is one of the biggest criticisms leveled at the plan by the Democrats. That doesn't mean that Treasury will not implement an ambitious loan modification program; it just means that (as proposed Saturday) Treasury does not have to do so."
During the savings and loan crisis, the Resolution Trust Corp. disposed of assets over a period of four years, said Donald Kelly, a spokesman for real estate valuation company Zaio Inc.
Kelly said commentators are suggesting that the Treasury would buy troubled assets at a discount, but with the design of managing them with a possibility of a positive return for the government down the road.
"There is a real sense of urgency, in the financial markets, within the administration, and in Congress," Kelly said in an e-mail. "One thing is clear: Decisive action must be taken and taken soon. Postponing a solution will only cause additional instability. From what I have seen, FHA and the secondary market players are ready to continue operations now, but to some extent it is conditional as everyone awaits the details of the financial stability package."
Many securities are being valued at pennies on the dollar due to the very high leverage ratio and illiquidity of some mortgage-backed securities, National Association of Realtors President Richard Gaylord said in a statement.
"Unrealistically low valuations are paralyzing the balance sheets of financial institutions and have hindered liquidity flow," Gaylord said, urging Congress to take action to "stabilize financial markets to allow rational valuation of assets, expedite refinancing and relief efforts for homeowners, and ... reestablish a level of confidence in the housing credit markets."
Some Democrats and consumer groups see the Paulson plan as an opportunity to push through new restrictions on lenders and help for borrowers that didn't make it into HR 3221 -- the sweeping housing bill signed into law on July 30 -- or other recent housing legislation.
The Center for Responsible Lending, for example, has renewed a push for Congress to allow bankruptcy judges to rewrite the terms of troubled borrowers' mortgages -- an idea that has the support of presidential candidate Barack Obama. The lending industry has opposed granting judges such power, saying it would worsen the credit crunch by undermining investors' confidence in mortgage-backed securities.
The center maintains that judicial modifications -- derided as "cramdowns" by industry critics -- would save 600,000 homes from foreclosure, while the Paulson plan to buy mortgage-related assets would save none.
"Only by preventing the 6.5 million foreclosures expected in the next few years -- and the $356 billion drop in surrounding property values that will result for an additional 46 million families -- will the economy begin to recover," the center said in a statement.
Rep. Henry A. Waxman, the California Democrat who chairs the House Committee on Oversight and Government Reform, expressed "serious reservations" about the Paulson plan in a statement, saying it "appears designed to maximize returns for Wall Street and minimize protections for the taxpayer."
The Mortgage Bankers Association said resurrecting bankruptcy cramdowns would be "wholly unproductive" and "runs counter to the bipartisan efforts to restore liquidity to the global capital markets." The issue is irrelevant, the group said in a statement, because once the Treasury buys distressed mortgages, it can write down loan balances itself, without Congress giving bankruptcy judges that authority.
Senate Banking Committee Chairman Chris Dodd, D-Conn., today released Democrats' proposed changes to the Treasury plan, which include granting bankruptcy judges the power to modify mortgages.
"After a year of efforts to get servicers and lenders to modify loans, the industry's voluntary HOPE Now program has fallen far short of what is needed," Dodd said in a statement posted on the Banking Committee's Web site.
Dodd's proposal would allow the Treasury Department to buy a wide range of troubled assets but would require it to hand over mortgage loans and mortgage-backed securities to the Federal Deposit Insurance Corp. (FDIC) for management.
The FDIC, Dodd said, "has shown a commitment to modifying mortgages both to ensure long-term affordability and to protect the taxpayer. The FDIC estimate performing loans are worth about 87 percent of their face value, while nonperforming loans are worth only about 36 percent of par. "Modifying loans to ensure affordability increases the value of the loans," Dodd said.
Democrats will also push for looser criteria for the Federal Housing Administration's HOPE for Homeowners loan guarantee program, which was authorized at $300 billion in HR 3221
Supporters of the Paulson plan say that without quick government intervention, the financial system is in danger of collapse. Keeping investment dollars flowing into mortgage lending will eventually help slow the decline in home prices in some markets, they say.
In a statement, President Bush acknowledged there will be differences over some details of the plan, "and we will have to work through them. That is an understandable part of the policy-making process. But it would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
As Congress kicks off a week of debate -- Dodd's Senate Banking Committee will hear from Paulson and Federal Reserve Chairman Ben Bernanke Tuesday, and the House Financial Services Committee has scheduled a hearing for Wednesday -- lawmakers will also be looking for clarification on details of the plan that are, for the moment, unclear.
In his e-mail to clients, Washington, D.C.-based K&L Gates attorney Platt outlined some important issues still to be resolved, such as what assets Treasury would be authorized to buy.
The Treasury Department has defined "mortgage-related assets" as "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages" originated or issued on or before Sept. 17.
Platt said Treasury appears to be preparing to buy loans regardless of priority of the lien or the purpose of the loan -- meaning investor loans would be eligible. While it doesn't look like credit default swaps or other "synthetic instruments" tied to performance of mortgage pools would be included in the plan, "the phrase 'related to' could encompass a wide array of instruments that bear some indirect relationship to mortgage loans," Platt said. "We'll have to see."
Tuesday, September 23, 2008
Monday, September 15, 2008
Repeal of The Glass Steagall Act Has Produced The Highly Leveraged Investment Imbroglio That Is Just Now Starting To Unwind
Monday, 10. March 2008, 01:29:42 From the Resourceful Bear Blog
I. Introduction
The repeal of the Glass Steagall Act led by Robert Rubin and others of the CFR, has produced our current investment dilemma of the breakdown of the residential mortgage investment sector and created financialization -- a relatively new term used to discuss the emergence of a new form of capitalism in which financial markets dominate over the traditional industrial economy.
Greta Krippner of the University of California - Los Angeles has written that “financialization” refers to a “pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production.
”More popularly, however, financialization is understood to mean the vastly expanded role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies.
In his 2006 book, American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, American writer and commentator Kevin Phillips presented financialization on page 268 as “a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in a national economy.”
And Charles Harman reports that the Marxist economist Robert Brenner has used official US statistics to produce figures that show manufacturing profit rates in 2000-5 at levels lower than in either the early 1970s or the 1990s (although higher than in the late 1970s and 1980s). His calculations for all non-financial corporations show them as about a third lower in 2000-6 than in the 1950s and 1960s, and about 18 percent lower than in the early 1970s.
II. Details
The CFR is The Sovereign in North America's commerce, investment and governmental activity and endeavors.
The CFR, through its agents, primarily Sanford Weill, Bill Clinton and Robert Rubin repealed the Glass Steagall Act.
The repeal was the foundation, that is the keystone, that provided for non transparent financial manipulation and use of leverage to revolutionize the activities of investment beginning in 1999, to amass huge fortunes for the investment bankers who designed, marketed and oversaw the use of leveraged investments, and to generate awesomely speculative endeavors at hedge funds, which have gone unregulated by government oversight.
The repeal has produced an oligarchy of power and elite, in intertwined media, retail banking, investment banking, home mortgage sectors, via interwoven board of director memberships of the Federal Reserve, corporations and government administration, extending into the the White House, via secretary of the Treasury Paulson, former executive of Goldman Sachs.
And the repeal enabled leverage, to be conceived, deployed and expand, not only in the residential mortgage sector, but a host of other sectors as well, such as, municipal bonds, and derivatives such as credit default swaps.
Investment leverage snapped this last week with the $20 Billion Carlyle bond fund experiencing margin calls, where risk was multiplied by 33 to 1, that is, the underlying assets represented only 3% of the portfolio value; and those assets were illiquid, thinly traded issues: it was reasonable that this fund would be the first of many countless to break causing a sharp sell off in the finance, real estate and banking sectors as investments were sold at fire sale prices to meet the margin calls.
And now, to the aid of illiquid banks (and most likely insolvent banks) comes a rescue by the Federal Reserve in expanded TAFin the near future, as there is a greater unraveling of investments, there is likely coming a 'continental response', to provide security and prosperity, under the provisions of the SPP, which has its origins in the activity of CFR's Robert A. Pastor, instructor at American University.
So likely soon, the CFR will be providing the remedy for a crisis it created.
The result of implementation of the SPP's provisions will be a state corporate combine of elite stakeholders actively ruling in principles of security and prosperity over the resources and people of the North American Continent.
III. The Facts (snips from various authors)
A. Redpillguy writes in The Media Moguls, the Bankers, and the CFR that Robert Edward Rubin (born August 29, 1938) is an American banker who served as the 70th United States Secretary of the Treasury during both the first and second Clinton Administrations. During his time in the private sector, Rubin has served on the board of directors of the New York Stock Exchange, the Ford Motor Company, the Harvard Corporation, the New York Futures Exchange, the New York City Partnership and the Center for National Policy. He has also served on the board of trustees of the Carnegie Corporation of New York, Mt. Sinai Hospital and Medical School, the President's Advisory Committee for Trade Negotiations, the U.S. Securities and Exchange Commission Market Oversight and Financial Services Advisory Committee, the Mayor of New York's Council of Economic Advisors and the Governor's Council on Fiscal and Economic Priorities for the State of New York. He is currently the co-chairman of the board of directors of the Council on Foreign Relations.
In April 1998 Travelers Group announced an agreement to undertake the $76 billion merger between Travelers and Citicorp, and the merger was completed on October 8, 1998. The possibility remained that the merger would run into problems connected with federal law. Ever since the Glass-Steagall Act banking and insurance businesses had been kept separate. Weill and Reed bet that Congress would soon pass legislation overturning those regulations, which Weill and Reed and many other businesspeople considered obsolete. To speed up the process, they recruited ex-President Gerald Ford (Republican) to the Board of Directors and Robert Rubin (Secretary of Treasury during Democratic Clinton Administration) whom Weill was close to. With both Democrats and Republican on their side, the law was taken down in less than 2 years. (Many European countries, for instance, had already torn down the firewall between banking and insurance.) During a two-to-five-year grace period allowed by law, Citigroup could conduct business in its merged form; should that period have elapsed without a change in the law, Citigroup would have had to spin off its insurance businesses.
In November 1998 Jamie Dimon was forced to resign from Citigroup.In 2001, Sanford A. Weill became a Class A Director of the Federal Reserve Bank of New York. Class A Directors are Board Members who are elected by Member Banks (of the Federal Reserve System) to represent the interests of Member Banks. (See article on Federal Reserve Bank Board Membership).
In 2002 the company was hit by the wave of "scandals" that followed the stock market downturn of 2002. Chuck Prince replaced Mr. Weill as the CEO of Citigroup on October 1, 2003.
B. Judith Moriarty writes in Foreclosures - The Untold Story that the chief aim of the money men (assisted by both Republicans and Democrats) for decades was to roll back FDR's New Deal. Anti-government rhetoric ( distracting labeling) has hidden this from public view. The 'Banking Act' of the New Deal was a priority by vested interests in being repealed. The undoing of this Act took decades and approximately $200 million in lobbying funds to accomplish.
"Billionaire Sanford Weill made 'Citigroup' into the most powerful financial institutions since the House of Morgan a century ago. A major trophy of Sanford's is the pen Bill Clinton used to sign the REPEAL of FDR's Banking Act - a move which allowed Weill to create Citigroup. " Sanford Weill called President Clinton to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup LOBBYIST Roger Levy that Weill has to get the White House moving on the bill or he would shut down the House-Senate Conference. A deal was announced at 2:45 a.m. Just days after the Clinton administration (including the Treasury Department) agrees to support the REPEAL, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government." Progressive Historian
With the stroke of a pen, Bill Clinton ended the long saga of Republicans and Democrats, working in concert, for their puppet masters (the bankers) with his signing of the 'Financial Modernization Bill' (Nov 12, 1991). Clinton ended an era that stretched back to William Jennings Bryan and Woodrow Wilson and reached fruition with FDR and Harry Truman. As he signed his name, William Jefferson Clinton symbolically signed the death warrant of a level playing field that had guided the Democratic Party. Clinton (both parties) knew better than FDR and our Supreme Court. Nov 12-1999, President Clinton stated, " Glass- Stegal (FDR Banking Bill) is no longer appropriate for our economy. This was good for the industrial age. The (1999) Financial Modernization Bill is the key to rising paycheck and great security for ordinary Americans". Tell this to Michigan - NH - California - Georgia etc. The public was distracted from one of the most important pieces of legislation in this nation's history being signed by Bill Clinton, with round the clock coverage, of the Monica debacle. Seeing how Clinton came out of this shameful episode lauded as heroic - super stud - and a multi-millionaire, why one one would almost think that the whole sordid affair was contrived? Most especially with Lieberman acting as the holier than thou apologist ! Missed was Clinton's reason for the undoing of FDR's landmark bill Press release: http://Treas.gov/press/releases/ls241.htm
What does this repeal mean? The hedge fund industry and subprime mortgage market is out of control. The New York Times in a June 2007 profile of Goldman Sachs: "While Wall Street still mints money advising companies on mergers and taking them public, real money - staggering money - is made trading and investing capital through a global array of mind bending products and strategies unimaginable a decade ago." Goldman Sachs head Lloyd Blankfein paints the perfect picture of what has happened: "We've come full circle, because this is exactly what the Rothschild's or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act (FDRs - Banking Act)." Blankfein, like his cohorts in corporate greed, sees the New Deal as an aberration and longs for a return to the Gilded Age.
Level playing field? Notice how flat it was before the REPEAL of FDR's Banking Act. Those subprime loans amount to nothing more than an organized ripoff of millions of Americans with the steepness of the graph illustrates how far the playing field has titled. Robert Kutter (Stanford University) testified before Barney Frank's Committee on Banking and Financial Services in Oct 2007 " Since repeal of Glass Stegall (FDR Banking Act) in 1999, after more than a decade of de facto inroads, super banks have been able to re-enact the same kinds of structual conflicts of interest that were endemic in the 1920s - tending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way. And, much of this paper is even more opaque to bank examiners than its counterparts were in the 1920s. Much of it isn't paper at all, and the whole process is supercharged and automated formulas."
To the Victor goes the spoils - burp! It's lonely at the top, but you eat better!
2008 - Citigroup. The repeal (Clinton's Financial Modernization Bill) of FDR's Banking Act - was responsible for the creation of Citigroup as an all-purpose financial supermarket and too - big- to fail banking marvel..(much like the unsinkable Titanic?). Investment bankers lobbied for thirty years to repeal the Glass-Steagall Act, which separated commercial banking from its investment house cousins. Wall Street hated the law but failed year after year to win repeal. The problem was always the Democrats (since Republicans were supporters). In enters a reincarnation of our old carnival snake oil salesman. Bill Clinton delivered his 'New Democrat Party' with a lot of the usual scripted rhetoric. Meaningless made up words. The combination of insurance, investment banking, and old-line commercial banks, have multiplied the conflicts of interest within banks, despite so-called 'firewalls'. Much like Enron, placing some deals in off-balance sheet entries did not insulate Citigroup from losses in its swollen subprime housing lending. The bank (Citigroup) has so far written off something like $15 billion and there's more to come. Ah - but meantime we're going to see these presidential canidates argue over who loves Blacks the most - or the miracle of Hillary's tears ! It's interesting that in the Neveda debates (Nov 15), when Hillary was asked about Citigroup and the subprime debacle she responded, that that she was concerned over these huge pools of money, and that Congress and the Federal Reserve need to ask questions. She went on to remark on how mortgages (subprime and conventional) were being bundled and sold to foreign investors. THE 64,000 QUESTION (yet to be addressed in these debates) was not asked: 'Senator Clinton, its a known fact, that Citigroup would not exist, except for President Clinton's repeal of FDR's 'Banking Act'. Would you (other canidates) not agree with the 1971 Supreme Court ruling, Goldman Sachs, and testimony by economists, that we have re-enacted the same conflicts of interest that were in place before the Great Depression and thus are doing the very same things that the Rothschild's and J.P Morgan were guilty of?' This is the question that has yet to be asked in any of these 'debates' (Republican or Democrat). The media and canidates blame the victims or wander off into some escoteric meaningless gibberish.
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. They have no vision and where there is no vision the people perish". FDR First Inaugural Address
Rest assured we'll hear the same sorry blame game - with each party (both complicit in this debacle) them) blaming the other. Hillary is worried about repairing the image of America. Nobody is asking these candidates about the disasterous REPEAL of the Banking Act of 1933, which is leaving millions (not them) foreclosed on and losing jobs, investments, and pensions etc! When people are losing their jobs, homes, and children's futures; like their grandparents or great grandparents of old, they don't give a damn about 'image'. They are focused on having a roof over their heads and food to eat. The attention to the export of jobs in the U.S. did not develop until white - collar jobs began to evaporate along with manufacturing jobs with no replacement jobs. A U.S. company can hire a software developer in India for $6.00 an hour according to the McKinsey Global Institute. A data - entry clerk earns $2.00 an hour in India.
The repeal of FDR's Banking Act in 1999, with the promise of "increased wages and security for workers" sees auctions such as the one above (California) taking place from coast to coast. These folks (speculators) are benefiting from the hardships of others. The Penny Auction to help one's neighbor against the greed of banks and lenders, has been replaced with the thought of getting a 'real deal'.
Now in 2008, the promise of Bill Clinton (repeal of Banking Act) of rising wages and security for Americans is being realized with millions of layoffs and foreclosures. Not reported on the major news stations were the 10,000 + people showing up to apply for a job at Wal-Mart in Atlanta Georgia. Besides homeowners - renters are being put out in the cold with landlords being foreclosed on. "Remember you are just an extra in everyone else's play". FDR
Detroit (no debates held here) has been in a free fall for the past seven years. Hundreds of thousands in Michigan are without work. The drop out rate in schools is 70%. With foreclosures the highest in the nation (there's great competition) funds needed for local programs, schools, etc, are unavailable. No tax revenue. Per usual, you'll hear the victims being blamed, not disreputable bankers. If only they hadn't asked for a living wage (to keep up with inflation). If only they (auto workers) would work for Third World wages they wouldn't be out of work. Meantime the CEOs (corporate) of these echoing plants make 400X that of the ordinary worker. Their pensions aren't stolen. The golden parachutes they receive are in the multi - millions (even if they have brought their company to ruination). Hotels, office buildings, and thousands of homes are boarded up in Detroit. Meantime hundreds of thousands are homeless or forgotten in noxious formaldehyde FEMA trailers. Go figure?
C. Robert Kuttner writes in Friendly Takeover that Goldman Sachs, which Rubin left to join Clinton, was a prime underwriter of Mexican bonds both before and immediately after the passage of NAFTA, as Jef Faux points out in his book, The Global Class War.
Goldman was also the investment bank that underwrote the privatization of the Mexican national phone company, Telmex, in the late 80s.
After NAFTA created a gold rush of foreign money into Mexico, enriching Goldman Sachs and its clients and triggering an unsustainable speculative boom followed by a crash, Rubin promoted the bailout of Mexico that made foreign bondholders whole. A little-noticed provision of NAFTA permitted foreign banks to acquire Mexican ones. In 2001, Rubin, back in the private sector, negotiated Citigroup's $12.5 billion acquisition of Mexico's leading bank, Banamex.
Rubin's crowning achievement was the repeal of the 1933 Glass-Steagall Act, which had separated largely unregulated and more speculative investment banks like Goldman Sachs from government-supervised and insured commercial banks like Citi, which play a key role in the nation's monetary policy.
Glass-Steagall was designed to prevent the kinds of speculative conflicts of interests that pervaded Wall Street in the 1920s and helped bring about the Great Depression (and reappeared in the 1990s).Glass-Steagall was steadily weakened by regulatory exceptions under three administrations going back to George Bush Senior. The premise was that tearing down the regulatory walls would promote competition. But the effect was to create greater concentration and renewed opportunities for insider enrichment.
Financier Sanford Weill gradually assembled the empire of insurance, commercial-banking, and investment-banking pieces that ultimately became Citigroup, helped by indulgent regulatory policies promoted by Federal Reserve Chairman Alan Greenspan and Rubin. When Congress formally repealed Glass-Steagall, in November 1999, the act was termed in some circles the "Citigroup Authorization Act." Rubin had stepped down as treasury secretary that July. His new job, announced in late October, was chairman of Citi's executive committee. Rubin's initial annual compensation was around $40 million.
As a top Citigroup executive, Rubin uses his unequaled Democratic contacts to resist reregulation. In a recent interview, I asked Rubin whether he saw any need for tighter regulation of hedge funds, the massive, nominally private investment funds that enjoy a wholesale exemption from the system of financial disclosure that has kept financial markets tolerably transparent since the New Deal.
"I don't know why you would single out hedge funds," Rubin replied, in a sincere tone that suggested genuine puzzlement at the question.
Why, indeed? Citigroup has hedge-fund and private-equity subsidiaries, lends to hedge funds, places trades for hedge funds through its brokerage affiliates, and works with hedge funds through its investment-banking arms.
"There is an immense [regulatory] cumbersomeness that we've created in corporate America," Rubin added. "It's not just that it's costly; it's the deterrent effect that it's created on people's willingness to take risks."
So how are Bob Rubin and Rubinomics positioned for 2008? All too powerfully, one suspects.
The Hamilton Project will continue to turn out centrist policy papers trying to signal boldness with scant resources. Rubin will continue promoting his grand bargain to cap social insurance, raise taxes, offer token benefits, and further liberate global private capital.
He will continue to have unparalleled influence with Democrats, and to receive an adoring press.
In presidential politics, Rubin is personally close to Hillary Clinton, but this trader covers his bets. His son, Jamie Rubin, is a major Wall Street fund-raiser for Barack Obama. His former deputy chief of staff, Karen Kornbluh, is Obama's chief domestic policy adviser, and Rubin is also close to Obama's chief of staff, Steve Hildebrand, who used to hold the same position for former Senate Democratic Leader Tom Daschle, another Rubin ally.
D. William Engdahl writes in The Financial Tsunami and the Evolving Economic Crisis: Greenspan’s Grand Design that Goldman Sachs was a prime contributor to the Clinton campaign and even sent Clinton its chairman Robert Rubin in 1993, first as “economic czar” then in 1995 as Treasury Secretary. Today, another former Goldman Sachs chairman, Henry Paulson is again US Treasury Secretary under Republican Bush. Money power knows no party.
Dow Jones Market Watch commentator Thomas Kostigen, writing in the early weeks of the unraveling sub-prime crisis, remarked about the role of Glass-Steagall repeal in opening the floodgates to fraud, manipulation and the excesses of credit leverage in the expanding world of securitization:
“Time was when banks and brokerages were separate entities, banned from uniting for fear of conflicts of interest, a financial meltdown, a monopoly on the markets, all of these things.
“In 1999, the law banning brokerages and banks from marrying one another — the Glass-Steagall Act of 1933 — was lifted, and voila, the financial supermarket has grown to be the places we know as Citigroup, UBS, Deutsche Bank, et al. But now that banks seemingly have stumbled over their bad mortgages, it’s worth asking whether the fallout would be wreaking so much havoc on the rest of the financial markets had Glass-Steagall been kept in place.
“Diversity has always been the pathway to lowering risk. And Glass-Steagall kept diversity in place by separating the financial powers that be: banks and brokerages. Glass-Steagall was passed by Congress to prohibit banks from owning full-service brokerage firms and vice versa so investment banking activities, such as underwriting corporate or municipal securities, couldn’t be called into question and also to insulate bank depositors from the risks of a stock market collapse such as the one that precipitated the Great Depression.
E. Bertrand Benoit and James Wilson write in Financial Times on May 15, 2008: "Global financial markets have become 'a monster' that 'must be put back in its place', the German president has said, comparing bankers with alchemists who were responsible for 'massive destruction of assets'. In some of the toughest comments by a leading European politician since the start of the subprime crisis, Horst Köhler - a former head of the International Monetary Fund - called for tougher regulations and the reconstruction of a 'continental European banking culture'... 'The complexity of financial products and the possibility to carry out huge leveraged trades with little own capital have allowed the monster to grow . . . also responsible [is] the grotesquely high compensation of individual finance managers...' Bankers 'have made huge mistakes', Mr Köhler told Stern magazine... 'I am still waiting for a clear, audible mea culpa. The only good thing about this crisis is that it has made clear to any thinking, responsible person in the sector that international financial markets have developed into a monster that must be put back in its place,' Mr Köhler said... The German president's spectacular attack reflects the broader feeling of contempt among German politicians towards bankers since the start of the subprime crisis...
"F. PBS Frontline Research Staff provides A chronology tracing the life of the Glass-Steagall ActHere is a complete history of The Act, from its passage in 1933, to its death throes in the 1990s, and how Citigroup's Sandy Weill dealt the coup de grâce.
IV. The Future
Chris Harman relates the George Soros quote that “credit expansion must now be followed by a period of contraction because some of the new credit instruments and practices are unsound and unsustainable”.
And Chirs Harman relates that Nouriel Roubini of New York University’s Stern School of Business sees “a rising probability of a ‘catastrophic’ financial and economic outcome” with “a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe”.
I believe that soon the governmnet will provide a 'continental response' via the security and prosperity provisions of the SPP, where a state corporate combine of stakeholders appointed by the North American Competitiveness Council, the NACC, to respond to a disaster of its own making -- some type of 'financial emergency' steming from insolvent banks, KBE, Level-3 leveraged investment bankers, KCE, a failed commerical credit sector, COF, as well as the disaster of a depreciating dollar, $USD, and falling US Treasury Bonds, $USB, that has come via continually lower interest rates charged by the Fed to the banks and the facilities of TAF, TSLF, and PDCF.
I. Introduction
The repeal of the Glass Steagall Act led by Robert Rubin and others of the CFR, has produced our current investment dilemma of the breakdown of the residential mortgage investment sector and created financialization -- a relatively new term used to discuss the emergence of a new form of capitalism in which financial markets dominate over the traditional industrial economy.
Greta Krippner of the University of California - Los Angeles has written that “financialization” refers to a “pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production.
”More popularly, however, financialization is understood to mean the vastly expanded role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies.
In his 2006 book, American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, American writer and commentator Kevin Phillips presented financialization on page 268 as “a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in a national economy.”
And Charles Harman reports that the Marxist economist Robert Brenner has used official US statistics to produce figures that show manufacturing profit rates in 2000-5 at levels lower than in either the early 1970s or the 1990s (although higher than in the late 1970s and 1980s). His calculations for all non-financial corporations show them as about a third lower in 2000-6 than in the 1950s and 1960s, and about 18 percent lower than in the early 1970s.
II. Details
The CFR is The Sovereign in North America's commerce, investment and governmental activity and endeavors.
The CFR, through its agents, primarily Sanford Weill, Bill Clinton and Robert Rubin repealed the Glass Steagall Act.
The repeal was the foundation, that is the keystone, that provided for non transparent financial manipulation and use of leverage to revolutionize the activities of investment beginning in 1999, to amass huge fortunes for the investment bankers who designed, marketed and oversaw the use of leveraged investments, and to generate awesomely speculative endeavors at hedge funds, which have gone unregulated by government oversight.
The repeal has produced an oligarchy of power and elite, in intertwined media, retail banking, investment banking, home mortgage sectors, via interwoven board of director memberships of the Federal Reserve, corporations and government administration, extending into the the White House, via secretary of the Treasury Paulson, former executive of Goldman Sachs.
And the repeal enabled leverage, to be conceived, deployed and expand, not only in the residential mortgage sector, but a host of other sectors as well, such as, municipal bonds, and derivatives such as credit default swaps.
Investment leverage snapped this last week with the $20 Billion Carlyle bond fund experiencing margin calls, where risk was multiplied by 33 to 1, that is, the underlying assets represented only 3% of the portfolio value; and those assets were illiquid, thinly traded issues: it was reasonable that this fund would be the first of many countless to break causing a sharp sell off in the finance, real estate and banking sectors as investments were sold at fire sale prices to meet the margin calls.
And now, to the aid of illiquid banks (and most likely insolvent banks) comes a rescue by the Federal Reserve in expanded TAFin the near future, as there is a greater unraveling of investments, there is likely coming a 'continental response', to provide security and prosperity, under the provisions of the SPP, which has its origins in the activity of CFR's Robert A. Pastor, instructor at American University.
So likely soon, the CFR will be providing the remedy for a crisis it created.
The result of implementation of the SPP's provisions will be a state corporate combine of elite stakeholders actively ruling in principles of security and prosperity over the resources and people of the North American Continent.
III. The Facts (snips from various authors)
A. Redpillguy writes in The Media Moguls, the Bankers, and the CFR that Robert Edward Rubin (born August 29, 1938) is an American banker who served as the 70th United States Secretary of the Treasury during both the first and second Clinton Administrations. During his time in the private sector, Rubin has served on the board of directors of the New York Stock Exchange, the Ford Motor Company, the Harvard Corporation, the New York Futures Exchange, the New York City Partnership and the Center for National Policy. He has also served on the board of trustees of the Carnegie Corporation of New York, Mt. Sinai Hospital and Medical School, the President's Advisory Committee for Trade Negotiations, the U.S. Securities and Exchange Commission Market Oversight and Financial Services Advisory Committee, the Mayor of New York's Council of Economic Advisors and the Governor's Council on Fiscal and Economic Priorities for the State of New York. He is currently the co-chairman of the board of directors of the Council on Foreign Relations.
In April 1998 Travelers Group announced an agreement to undertake the $76 billion merger between Travelers and Citicorp, and the merger was completed on October 8, 1998. The possibility remained that the merger would run into problems connected with federal law. Ever since the Glass-Steagall Act banking and insurance businesses had been kept separate. Weill and Reed bet that Congress would soon pass legislation overturning those regulations, which Weill and Reed and many other businesspeople considered obsolete. To speed up the process, they recruited ex-President Gerald Ford (Republican) to the Board of Directors and Robert Rubin (Secretary of Treasury during Democratic Clinton Administration) whom Weill was close to. With both Democrats and Republican on their side, the law was taken down in less than 2 years. (Many European countries, for instance, had already torn down the firewall between banking and insurance.) During a two-to-five-year grace period allowed by law, Citigroup could conduct business in its merged form; should that period have elapsed without a change in the law, Citigroup would have had to spin off its insurance businesses.
In November 1998 Jamie Dimon was forced to resign from Citigroup.In 2001, Sanford A. Weill became a Class A Director of the Federal Reserve Bank of New York. Class A Directors are Board Members who are elected by Member Banks (of the Federal Reserve System) to represent the interests of Member Banks. (See article on Federal Reserve Bank Board Membership).
In 2002 the company was hit by the wave of "scandals" that followed the stock market downturn of 2002. Chuck Prince replaced Mr. Weill as the CEO of Citigroup on October 1, 2003.
B. Judith Moriarty writes in Foreclosures - The Untold Story that the chief aim of the money men (assisted by both Republicans and Democrats) for decades was to roll back FDR's New Deal. Anti-government rhetoric ( distracting labeling) has hidden this from public view. The 'Banking Act' of the New Deal was a priority by vested interests in being repealed. The undoing of this Act took decades and approximately $200 million in lobbying funds to accomplish.
"Billionaire Sanford Weill made 'Citigroup' into the most powerful financial institutions since the House of Morgan a century ago. A major trophy of Sanford's is the pen Bill Clinton used to sign the REPEAL of FDR's Banking Act - a move which allowed Weill to create Citigroup. " Sanford Weill called President Clinton to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup LOBBYIST Roger Levy that Weill has to get the White House moving on the bill or he would shut down the House-Senate Conference. A deal was announced at 2:45 a.m. Just days after the Clinton administration (including the Treasury Department) agrees to support the REPEAL, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government." Progressive Historian
With the stroke of a pen, Bill Clinton ended the long saga of Republicans and Democrats, working in concert, for their puppet masters (the bankers) with his signing of the 'Financial Modernization Bill' (Nov 12, 1991). Clinton ended an era that stretched back to William Jennings Bryan and Woodrow Wilson and reached fruition with FDR and Harry Truman. As he signed his name, William Jefferson Clinton symbolically signed the death warrant of a level playing field that had guided the Democratic Party. Clinton (both parties) knew better than FDR and our Supreme Court. Nov 12-1999, President Clinton stated, " Glass- Stegal (FDR Banking Bill) is no longer appropriate for our economy. This was good for the industrial age. The (1999) Financial Modernization Bill is the key to rising paycheck and great security for ordinary Americans". Tell this to Michigan - NH - California - Georgia etc. The public was distracted from one of the most important pieces of legislation in this nation's history being signed by Bill Clinton, with round the clock coverage, of the Monica debacle. Seeing how Clinton came out of this shameful episode lauded as heroic - super stud - and a multi-millionaire, why one one would almost think that the whole sordid affair was contrived? Most especially with Lieberman acting as the holier than thou apologist ! Missed was Clinton's reason for the undoing of FDR's landmark bill Press release: http://Treas.gov/press/releases/ls241.htm
What does this repeal mean? The hedge fund industry and subprime mortgage market is out of control. The New York Times in a June 2007 profile of Goldman Sachs: "While Wall Street still mints money advising companies on mergers and taking them public, real money - staggering money - is made trading and investing capital through a global array of mind bending products and strategies unimaginable a decade ago." Goldman Sachs head Lloyd Blankfein paints the perfect picture of what has happened: "We've come full circle, because this is exactly what the Rothschild's or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act (FDRs - Banking Act)." Blankfein, like his cohorts in corporate greed, sees the New Deal as an aberration and longs for a return to the Gilded Age.
Level playing field? Notice how flat it was before the REPEAL of FDR's Banking Act. Those subprime loans amount to nothing more than an organized ripoff of millions of Americans with the steepness of the graph illustrates how far the playing field has titled. Robert Kutter (Stanford University) testified before Barney Frank's Committee on Banking and Financial Services in Oct 2007 " Since repeal of Glass Stegall (FDR Banking Act) in 1999, after more than a decade of de facto inroads, super banks have been able to re-enact the same kinds of structual conflicts of interest that were endemic in the 1920s - tending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way. And, much of this paper is even more opaque to bank examiners than its counterparts were in the 1920s. Much of it isn't paper at all, and the whole process is supercharged and automated formulas."
To the Victor goes the spoils - burp! It's lonely at the top, but you eat better!
2008 - Citigroup. The repeal (Clinton's Financial Modernization Bill) of FDR's Banking Act - was responsible for the creation of Citigroup as an all-purpose financial supermarket and too - big- to fail banking marvel..(much like the unsinkable Titanic?). Investment bankers lobbied for thirty years to repeal the Glass-Steagall Act, which separated commercial banking from its investment house cousins. Wall Street hated the law but failed year after year to win repeal. The problem was always the Democrats (since Republicans were supporters). In enters a reincarnation of our old carnival snake oil salesman. Bill Clinton delivered his 'New Democrat Party' with a lot of the usual scripted rhetoric. Meaningless made up words. The combination of insurance, investment banking, and old-line commercial banks, have multiplied the conflicts of interest within banks, despite so-called 'firewalls'. Much like Enron, placing some deals in off-balance sheet entries did not insulate Citigroup from losses in its swollen subprime housing lending. The bank (Citigroup) has so far written off something like $15 billion and there's more to come. Ah - but meantime we're going to see these presidential canidates argue over who loves Blacks the most - or the miracle of Hillary's tears ! It's interesting that in the Neveda debates (Nov 15), when Hillary was asked about Citigroup and the subprime debacle she responded, that that she was concerned over these huge pools of money, and that Congress and the Federal Reserve need to ask questions. She went on to remark on how mortgages (subprime and conventional) were being bundled and sold to foreign investors. THE 64,000 QUESTION (yet to be addressed in these debates) was not asked: 'Senator Clinton, its a known fact, that Citigroup would not exist, except for President Clinton's repeal of FDR's 'Banking Act'. Would you (other canidates) not agree with the 1971 Supreme Court ruling, Goldman Sachs, and testimony by economists, that we have re-enacted the same conflicts of interest that were in place before the Great Depression and thus are doing the very same things that the Rothschild's and J.P Morgan were guilty of?' This is the question that has yet to be asked in any of these 'debates' (Republican or Democrat). The media and canidates blame the victims or wander off into some escoteric meaningless gibberish.
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. They have no vision and where there is no vision the people perish". FDR First Inaugural Address
Rest assured we'll hear the same sorry blame game - with each party (both complicit in this debacle) them) blaming the other. Hillary is worried about repairing the image of America. Nobody is asking these candidates about the disasterous REPEAL of the Banking Act of 1933, which is leaving millions (not them) foreclosed on and losing jobs, investments, and pensions etc! When people are losing their jobs, homes, and children's futures; like their grandparents or great grandparents of old, they don't give a damn about 'image'. They are focused on having a roof over their heads and food to eat. The attention to the export of jobs in the U.S. did not develop until white - collar jobs began to evaporate along with manufacturing jobs with no replacement jobs. A U.S. company can hire a software developer in India for $6.00 an hour according to the McKinsey Global Institute. A data - entry clerk earns $2.00 an hour in India.
The repeal of FDR's Banking Act in 1999, with the promise of "increased wages and security for workers" sees auctions such as the one above (California) taking place from coast to coast. These folks (speculators) are benefiting from the hardships of others. The Penny Auction to help one's neighbor against the greed of banks and lenders, has been replaced with the thought of getting a 'real deal'.
Now in 2008, the promise of Bill Clinton (repeal of Banking Act) of rising wages and security for Americans is being realized with millions of layoffs and foreclosures. Not reported on the major news stations were the 10,000 + people showing up to apply for a job at Wal-Mart in Atlanta Georgia. Besides homeowners - renters are being put out in the cold with landlords being foreclosed on. "Remember you are just an extra in everyone else's play". FDR
Detroit (no debates held here) has been in a free fall for the past seven years. Hundreds of thousands in Michigan are without work. The drop out rate in schools is 70%. With foreclosures the highest in the nation (there's great competition) funds needed for local programs, schools, etc, are unavailable. No tax revenue. Per usual, you'll hear the victims being blamed, not disreputable bankers. If only they hadn't asked for a living wage (to keep up with inflation). If only they (auto workers) would work for Third World wages they wouldn't be out of work. Meantime the CEOs (corporate) of these echoing plants make 400X that of the ordinary worker. Their pensions aren't stolen. The golden parachutes they receive are in the multi - millions (even if they have brought their company to ruination). Hotels, office buildings, and thousands of homes are boarded up in Detroit. Meantime hundreds of thousands are homeless or forgotten in noxious formaldehyde FEMA trailers. Go figure?
C. Robert Kuttner writes in Friendly Takeover that Goldman Sachs, which Rubin left to join Clinton, was a prime underwriter of Mexican bonds both before and immediately after the passage of NAFTA, as Jef Faux points out in his book, The Global Class War.
Goldman was also the investment bank that underwrote the privatization of the Mexican national phone company, Telmex, in the late 80s.
After NAFTA created a gold rush of foreign money into Mexico, enriching Goldman Sachs and its clients and triggering an unsustainable speculative boom followed by a crash, Rubin promoted the bailout of Mexico that made foreign bondholders whole. A little-noticed provision of NAFTA permitted foreign banks to acquire Mexican ones. In 2001, Rubin, back in the private sector, negotiated Citigroup's $12.5 billion acquisition of Mexico's leading bank, Banamex.
Rubin's crowning achievement was the repeal of the 1933 Glass-Steagall Act, which had separated largely unregulated and more speculative investment banks like Goldman Sachs from government-supervised and insured commercial banks like Citi, which play a key role in the nation's monetary policy.
Glass-Steagall was designed to prevent the kinds of speculative conflicts of interests that pervaded Wall Street in the 1920s and helped bring about the Great Depression (and reappeared in the 1990s).Glass-Steagall was steadily weakened by regulatory exceptions under three administrations going back to George Bush Senior. The premise was that tearing down the regulatory walls would promote competition. But the effect was to create greater concentration and renewed opportunities for insider enrichment.
Financier Sanford Weill gradually assembled the empire of insurance, commercial-banking, and investment-banking pieces that ultimately became Citigroup, helped by indulgent regulatory policies promoted by Federal Reserve Chairman Alan Greenspan and Rubin. When Congress formally repealed Glass-Steagall, in November 1999, the act was termed in some circles the "Citigroup Authorization Act." Rubin had stepped down as treasury secretary that July. His new job, announced in late October, was chairman of Citi's executive committee. Rubin's initial annual compensation was around $40 million.
As a top Citigroup executive, Rubin uses his unequaled Democratic contacts to resist reregulation. In a recent interview, I asked Rubin whether he saw any need for tighter regulation of hedge funds, the massive, nominally private investment funds that enjoy a wholesale exemption from the system of financial disclosure that has kept financial markets tolerably transparent since the New Deal.
"I don't know why you would single out hedge funds," Rubin replied, in a sincere tone that suggested genuine puzzlement at the question.
Why, indeed? Citigroup has hedge-fund and private-equity subsidiaries, lends to hedge funds, places trades for hedge funds through its brokerage affiliates, and works with hedge funds through its investment-banking arms.
"There is an immense [regulatory] cumbersomeness that we've created in corporate America," Rubin added. "It's not just that it's costly; it's the deterrent effect that it's created on people's willingness to take risks."
So how are Bob Rubin and Rubinomics positioned for 2008? All too powerfully, one suspects.
The Hamilton Project will continue to turn out centrist policy papers trying to signal boldness with scant resources. Rubin will continue promoting his grand bargain to cap social insurance, raise taxes, offer token benefits, and further liberate global private capital.
He will continue to have unparalleled influence with Democrats, and to receive an adoring press.
In presidential politics, Rubin is personally close to Hillary Clinton, but this trader covers his bets. His son, Jamie Rubin, is a major Wall Street fund-raiser for Barack Obama. His former deputy chief of staff, Karen Kornbluh, is Obama's chief domestic policy adviser, and Rubin is also close to Obama's chief of staff, Steve Hildebrand, who used to hold the same position for former Senate Democratic Leader Tom Daschle, another Rubin ally.
D. William Engdahl writes in The Financial Tsunami and the Evolving Economic Crisis: Greenspan’s Grand Design that Goldman Sachs was a prime contributor to the Clinton campaign and even sent Clinton its chairman Robert Rubin in 1993, first as “economic czar” then in 1995 as Treasury Secretary. Today, another former Goldman Sachs chairman, Henry Paulson is again US Treasury Secretary under Republican Bush. Money power knows no party.
Dow Jones Market Watch commentator Thomas Kostigen, writing in the early weeks of the unraveling sub-prime crisis, remarked about the role of Glass-Steagall repeal in opening the floodgates to fraud, manipulation and the excesses of credit leverage in the expanding world of securitization:
“Time was when banks and brokerages were separate entities, banned from uniting for fear of conflicts of interest, a financial meltdown, a monopoly on the markets, all of these things.
“In 1999, the law banning brokerages and banks from marrying one another — the Glass-Steagall Act of 1933 — was lifted, and voila, the financial supermarket has grown to be the places we know as Citigroup, UBS, Deutsche Bank, et al. But now that banks seemingly have stumbled over their bad mortgages, it’s worth asking whether the fallout would be wreaking so much havoc on the rest of the financial markets had Glass-Steagall been kept in place.
“Diversity has always been the pathway to lowering risk. And Glass-Steagall kept diversity in place by separating the financial powers that be: banks and brokerages. Glass-Steagall was passed by Congress to prohibit banks from owning full-service brokerage firms and vice versa so investment banking activities, such as underwriting corporate or municipal securities, couldn’t be called into question and also to insulate bank depositors from the risks of a stock market collapse such as the one that precipitated the Great Depression.
E. Bertrand Benoit and James Wilson write in Financial Times on May 15, 2008: "Global financial markets have become 'a monster' that 'must be put back in its place', the German president has said, comparing bankers with alchemists who were responsible for 'massive destruction of assets'. In some of the toughest comments by a leading European politician since the start of the subprime crisis, Horst Köhler - a former head of the International Monetary Fund - called for tougher regulations and the reconstruction of a 'continental European banking culture'... 'The complexity of financial products and the possibility to carry out huge leveraged trades with little own capital have allowed the monster to grow . . . also responsible [is] the grotesquely high compensation of individual finance managers...' Bankers 'have made huge mistakes', Mr Köhler told Stern magazine... 'I am still waiting for a clear, audible mea culpa. The only good thing about this crisis is that it has made clear to any thinking, responsible person in the sector that international financial markets have developed into a monster that must be put back in its place,' Mr Köhler said... The German president's spectacular attack reflects the broader feeling of contempt among German politicians towards bankers since the start of the subprime crisis...
"F. PBS Frontline Research Staff provides A chronology tracing the life of the Glass-Steagall ActHere is a complete history of The Act, from its passage in 1933, to its death throes in the 1990s, and how Citigroup's Sandy Weill dealt the coup de grâce.
IV. The Future
Chris Harman relates the George Soros quote that “credit expansion must now be followed by a period of contraction because some of the new credit instruments and practices are unsound and unsustainable”.
And Chirs Harman relates that Nouriel Roubini of New York University’s Stern School of Business sees “a rising probability of a ‘catastrophic’ financial and economic outcome” with “a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe”.
I believe that soon the governmnet will provide a 'continental response' via the security and prosperity provisions of the SPP, where a state corporate combine of stakeholders appointed by the North American Competitiveness Council, the NACC, to respond to a disaster of its own making -- some type of 'financial emergency' steming from insolvent banks, KBE, Level-3 leveraged investment bankers, KCE, a failed commerical credit sector, COF, as well as the disaster of a depreciating dollar, $USD, and falling US Treasury Bonds, $USB, that has come via continually lower interest rates charged by the Fed to the banks and the facilities of TAF, TSLF, and PDCF.
Friday, September 5, 2008
Press Release: Federal Housing Finance Agency (FHFA) Established - Oversight Authority for Fannie, Freddie, FHLB
FHFA “NOTICE OF ESTABLISHMENT” SENT TO THE FEDERAL REGISTER
Washington, DC – The Federal Housing Finance Agency (FHFA) has transmitted to the Federal Register a Notice of “Establishment of a New Independent Agency.” This provides formal public notice of the existence of the Agency, its purpose and the chapter of the Code of Federal Regulations (CFR) that it will employ for public dissemination of regulations, guidances and other publications. The new chapter of the Code is Title 12 CFR Chapter XII.
FHFA was established July 30, 2008 and is making good progress in integrating the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board and HUD mission and affordable housing programs. Additional announcements will be forthcoming on issues relating to the joining of the agencies as well as regulations from the new Agency.
New regulations will be necessary to address routine “merger” matters, but as well to implement, where necessary, the many new authorities, powers and directions given to FHFA that modernize and strengthen supervision of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. All existing regulations, orders and decisions of OFHEO and the Finance Board remain in effect until modified or superseded.
“FHFA was established to ensure that Fannie Mae, Freddie Mac and the Federal Home Loan Banks operate in a safe and sound manner,” said FHFA Director James B Lockhart. “We are working quickly to set up the regulatory framework needed to make certain that their operations and activities foster liquid, efficient, competitive, and resilient national housing finance markets.”
Washington, DC – The Federal Housing Finance Agency (FHFA) has transmitted to the Federal Register a Notice of “Establishment of a New Independent Agency.” This provides formal public notice of the existence of the Agency, its purpose and the chapter of the Code of Federal Regulations (CFR) that it will employ for public dissemination of regulations, guidances and other publications. The new chapter of the Code is Title 12 CFR Chapter XII.
FHFA was established July 30, 2008 and is making good progress in integrating the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board and HUD mission and affordable housing programs. Additional announcements will be forthcoming on issues relating to the joining of the agencies as well as regulations from the new Agency.
New regulations will be necessary to address routine “merger” matters, but as well to implement, where necessary, the many new authorities, powers and directions given to FHFA that modernize and strengthen supervision of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. All existing regulations, orders and decisions of OFHEO and the Finance Board remain in effect until modified or superseded.
“FHFA was established to ensure that Fannie Mae, Freddie Mac and the Federal Home Loan Banks operate in a safe and sound manner,” said FHFA Director James B Lockhart. “We are working quickly to set up the regulatory framework needed to make certain that their operations and activities foster liquid, efficient, competitive, and resilient national housing finance markets.”
Thursday, August 28, 2008
Bay area's economy looks healthy in rearview mirror
By Helen Huntley, St. PetersburgTimes (FL) Personal Finance Editor
Last year turned out to be a pretty good year for Florida families. Too bad it's over.
The Census Bureau said median household income rose and poverty rates fell in the Tampa Bay area and statewide during 2007. From today's perspective of high unemployment and low consumer confidence, it's easy to forget how good things used to be. Last year, household incomes rose 6.6 percent in the Tampa Bay area and 5.1 percent statewide.
"It's a glance in the rearview mirror," said University of Central Florida economist Sean Snaith.
The housing boom gave incomes a boost, and the bust has been bringing them down. "We're going to move from the head of the class to the back of the class next year," Snaith said.
In the case of Hernando County, the bureau's numbers are suspect because they make things look so dramatically rosier. They show the poverty rate for children in Hernando County falling from 22.2 percent in 2006 to 6.7 percent in 2007.
"I wish I could believe that, but I doubt that it's changed much," said David Miles, a demographic specialist in the Hernando County Planning Department. "I just think it's a data error."
Nationally , the Census Bureau reported household income rose slightly to $50,233, the poverty rate held steady at 12.5 percent, and the number of uninsured dropped from 47-million to 45.7-million, representing 15.3 percent of the population.
The numbers show Americans were better off in 2007 than in 2006, but about the same as in 2000, adjusted for inflation.
Some highlights from the 2007 report:
• Women's full-time earnings were 78 percent of what men earned, but that's an all-time high.
• African-American households had 38 percent less income than non-Hispanic white households.
• The decline in the percentage of uninsured was largely due to an increase in those covered by government health care programs as private insurance coverage continued to shrink.
Household income and poverty rates
Region Household income 2007 % change % below poverty level % change
Changes are from 2006, not adjusted for inflation
Last year turned out to be a pretty good year for Florida families. Too bad it's over.
The Census Bureau said median household income rose and poverty rates fell in the Tampa Bay area and statewide during 2007. From today's perspective of high unemployment and low consumer confidence, it's easy to forget how good things used to be. Last year, household incomes rose 6.6 percent in the Tampa Bay area and 5.1 percent statewide.
"It's a glance in the rearview mirror," said University of Central Florida economist Sean Snaith.
The housing boom gave incomes a boost, and the bust has been bringing them down. "We're going to move from the head of the class to the back of the class next year," Snaith said.
In the case of Hernando County, the bureau's numbers are suspect because they make things look so dramatically rosier. They show the poverty rate for children in Hernando County falling from 22.2 percent in 2006 to 6.7 percent in 2007.
"I wish I could believe that, but I doubt that it's changed much," said David Miles, a demographic specialist in the Hernando County Planning Department. "I just think it's a data error."
Nationally , the Census Bureau reported household income rose slightly to $50,233, the poverty rate held steady at 12.5 percent, and the number of uninsured dropped from 47-million to 45.7-million, representing 15.3 percent of the population.
The numbers show Americans were better off in 2007 than in 2006, but about the same as in 2000, adjusted for inflation.
Some highlights from the 2007 report:
• Women's full-time earnings were 78 percent of what men earned, but that's an all-time high.
• African-American households had 38 percent less income than non-Hispanic white households.
• The decline in the percentage of uninsured was largely due to an increase in those covered by government health care programs as private insurance coverage continued to shrink.
Household income and poverty rates
Region Household income 2007 % change % below poverty level % change
Citrus $35,810 + 2.4% 11.8% + 1.1%
Hernando $44,172 + 9.5% 7.1% – 42.7%
Hillsborough $50,572 + 8.1% 11.5% – 10.1%
Pasco $44,526 + 6.2% 12.2% + 23.2%
Pinellas $44,292 + 5.6% 11.2% – 8.9%
Tampa Bay $46,607 + 6.6% 11.3% 6.6%
Florida $47,804 + 5.1% 12.1% – 4%
Changes are from 2006, not adjusted for inflation
Wednesday, August 27, 2008
Fannie Mae announces management shakeup
WASHINGTON (Reuters) - Mortgage-finance company Fannie Mae on Wednesday announced a management shake-up in an effort to come to grips with mounting credit losses and a shrinking capital base.
The company's chief financial officer, Stephen Swad, was replaced, and the chief business officer, Peter Niculescu, will take on an expanded role. A new chief risk officer was also named.
Daniel Mudd, the company's chief executive, will remain in place and has the confidence of the board of directors, said board chairman Stephen Ashley.
"The board of directors is firmly committed to Dan Mudd," Ashley said in a statement. "The board will continue to work closely with Dan and his management team to guide the company and support the housing finance system through a very challenging period."
Fannie Mae and Freddie Mac, its sibling agency, have so far this year booked billions of dollars in losses as the national housing market has been hit by a wave of loan defaults and falling home prices.
The companies have also seen more than 90 percent of their market capitalization evaporate since January and last month the U.S. Treasury promised to re-finance Fannie Mae and Freddie Mac if either were facing collapse.
In a statement on Wednesday, Mudd said management changes would help the company better provide support for a U.S. housing market in the worst downturn since the Great Depression.
"This team will be responsible for meeting the dual objectives of conserving capital and controlling credit losses while Fannie Mae continues to provide crucial liquidity to the U.S. housing and mortgage markets," Mudd said.
Trading in shares of Fannie Mae was briefly suspended for the announcement and prices fell 2.0 percent in extended trade after the news.
"This was probably a necessary step but not one that's going to determine the future of Fannie Mae. Clearly, the fate of Fannie and Freddie is in the hands of policymakers," said Eric Kuby, chief investment officer, North Start Investment Management Corp, Chicago.
Wall Street has been on edge for several weeks on talk that the U.S. Treasury would put the companies through a wrenching restructuring or even nationalize them.
The management shakeup means a greatly expanded role for Niculescu who will run three divisions: single-family mortgage guaranty, capital markets, and housing and community development. He joined Fannie Mae in March 1999 after leaving investment bank Goldman Sachs where he was the managing director and co-head of Fixed-Income Research and Strategy.
Steve Swad, the departing CFO, joined the company only a year ago and the chief risk officer, Enrico Dallavecchia, has also stepped down.
The company's chief financial officer, Stephen Swad, was replaced, and the chief business officer, Peter Niculescu, will take on an expanded role. A new chief risk officer was also named.
Daniel Mudd, the company's chief executive, will remain in place and has the confidence of the board of directors, said board chairman Stephen Ashley.
"The board of directors is firmly committed to Dan Mudd," Ashley said in a statement. "The board will continue to work closely with Dan and his management team to guide the company and support the housing finance system through a very challenging period."
Fannie Mae and Freddie Mac, its sibling agency, have so far this year booked billions of dollars in losses as the national housing market has been hit by a wave of loan defaults and falling home prices.
The companies have also seen more than 90 percent of their market capitalization evaporate since January and last month the U.S. Treasury promised to re-finance Fannie Mae and Freddie Mac if either were facing collapse.
In a statement on Wednesday, Mudd said management changes would help the company better provide support for a U.S. housing market in the worst downturn since the Great Depression.
"This team will be responsible for meeting the dual objectives of conserving capital and controlling credit losses while Fannie Mae continues to provide crucial liquidity to the U.S. housing and mortgage markets," Mudd said.
Trading in shares of Fannie Mae was briefly suspended for the announcement and prices fell 2.0 percent in extended trade after the news.
"This was probably a necessary step but not one that's going to determine the future of Fannie Mae. Clearly, the fate of Fannie and Freddie is in the hands of policymakers," said Eric Kuby, chief investment officer, North Start Investment Management Corp, Chicago.
Wall Street has been on edge for several weeks on talk that the U.S. Treasury would put the companies through a wrenching restructuring or even nationalize them.
The management shakeup means a greatly expanded role for Niculescu who will run three divisions: single-family mortgage guaranty, capital markets, and housing and community development. He joined Fannie Mae in March 1999 after leaving investment bank Goldman Sachs where he was the managing director and co-head of Fixed-Income Research and Strategy.
Steve Swad, the departing CFO, joined the company only a year ago and the chief risk officer, Enrico Dallavecchia, has also stepped down.
Tuesday, August 19, 2008
Fannie Mae, Freddie Mac fall on Barron’s curtain call
Washington Business Journal - by Jeff Clabaugh Staff Reporter
Fannie Mae and Freddie Mac shares reached the lowest levels in almost two decades Monday after a Barron’s report said it is increasingly likely the government will have to bail out the mortgage giants.
“It may be curtains soon for the management and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac,” wrote Barron’s Jonathan Laing, saying the Treasury Department is likely to recapitalize them in the months ahead.
“Such a move would almost certainly wipe out existing holders of the agenies’ common stock,” Laing wrote.
He also predicted a bailout would also mean losses for holders of the companies’ preferred shares and holders of their combined $19 billion in subordinated debt.
Fannie Mae stock fell as much as 17 percent Monday. Freddie Mac shares fell as much as 14 percent. Both stocks have lost more than 80 percent of their value this year.
Neither company issued public comments Monday on the Barron’s report. Both companies have previously said they are able to raise sufficient capital on their own. Treasury Secretary Henry Paulson earlier this month indicated a bailout would not be necessary.
The housing bill passed by Congress in July gave the Treasury authority to pump money into Fannie Mae and Freddie Mac by buying their stock, debt or mortgage backed securities.
Fannie Mae and Freddie Mac reported a combined second quarter loss of $3.1 billion. Both companies also slashed their shareholder dividends this month.
Freddie Mac stock (NYSE: FRE) was down 98 cents to $4.87 per share in afternoon trading. Fannie Mae (NYSE: FNM) was down $1.21 to $6.70 per share.
Sunday, August 17, 2008
Weak rules cripple appraiser oversight
By Mitch Weiss, Associated Press Writer
CHARLOTTE, N.C. (AP) -- As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal -- the real estate appraisal -- was undermined from within.
After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals.
But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud.And despite ample evidence appraisers are pressured into inflating home values -- sometimes to prices in support of loans that are more than buyers can afford -- the federal regulators charged with protecting consumers have thus far made a conscious choice not to act.
"The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year. "It's amazing that the system ever worked at all."
The AP conducted dozens of interviews and reviewed thousands of state and federal documents, and found:
-- Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. Some complaints sat uninvestigated for as long as four years. As a result, hundreds of appraisers accused of wrongdoing remained in business.
-- The only tool federal regulators have to force states into compliance is so draconian -- it would effectively halt all mortgage lending in a state -- that it has never been used.
-- Both state appraisal boards and the federal agency charged with overseeing them are chronically understaffed, many with only one full-time investigator to handle the hundreds of complaints that arrive each year. Some don't even have an investigator.
"The appraisal reforms of the late 1980s were good reforms," said Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School of Business. "But they were not sufficient to prevent what we have seen ... because regulation without teeth is not regulation."
To be sure, there are many causes of the housing crisis -- lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay, investment bankers who bought and sold risky mortgage-backed securities. A few of the worst offenders -- appraisers included -- have been put behind bars.
But experts and industry insiders, including appraisers who feel betrayed by colleagues who don't follow the rules, believe the failure to effectively monitor the real estate appraisal industry contributed to housing's collapse.
There is no doubt, Wachter said, "that fraud has increased and appraisal fraud has increased in a way to exacerbate the problems."
This is the way the system is supposed to work:
Typically, an appraiser receives an order from a real estate agent, lender or mortgage broker to inspect a property. Based on a physical inspection of the home and comparable sales in the area, they develop an estimated value for the property. That figure is used by banks to set the home's value as collateral for the mortgage loan.
Appraisers are supposed to come up with a value free of any outside pressure. But more than three dozen appraisers nationwide interviewed by the AP said they often felt pushed by a real estate agent or mortgage broker to fraudulently inflate a property's value. They supplied the AP with documents from lenders asking them to "hit a number."
"The higher the loan amount, the more money brokers and lenders make in the deal," said Ray Haynes, an appraiser from Cherryville, N.C. "And they threaten you. They say, 'If you don't play ball with us, we'll go somewhere else.' And they do. I've seen my business shrink. They're all doing it. It's hard to stay honest."
Documents obtained by the AP also show that hundreds of appraisers complained to federal and state agencies about such fraudulent inflation of property values.
The appraisal system has broken down before. In 1989, Congress concluded that "faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the saving and loan crisis." And it passed the Financial Institutions Reform, Recovery and Enforcement Act.
Under the law's reforms, a private group known as the Appraisal Foundation wrote the rules governing appraisers. The law also recommended that states begin licensing appraisers and disciplining those who break the rules.
A federal agency called the Appraisal Subcommittee, an independent federal agency that answers to Congress, would conduct field reviews and audits, and maintain a national registry of appraisers -- including dossiers on those who break the rules.
But problems plagued the system from the start. It took years for some states to set up the independent review boards to supervise appraisers or hire personnel to investigate complaints. Even today, eight states still do not require appraisers to obtain a license or certification.
"We got to this point by a lack of enforcement. ... The public has the right to expect the appraisal boards are taking care of that problem," said Bob Ipock, an appraiser from Gastonia, N.C., who is a critic of the current system. "And they are not. They're looking the other way."
The Appraisal Subcommittee is supposed to help states remove from the system those appraisers who agree to "hit a number." But it has only four employees to conduct field reviews and audits of 50 states and four U.S. territories, and hasn't even had a permanent director since the agency's former chief retired at the end of last year.
Following Weinberg's subsequent departure in February as acting director, none of the agency's current employees -- including interim director Vicki Ledbetter -- returned more than a dozen messages left by the AP over a period of several months seeking comment.
When the agency does find a state failing to follow the law, the only tool available to force compliance is a death sentence known as "non-recognition" -- a penalty that would ban all appraisers in that state from handling deals involving a federal agency.
"Do you know what that would have meant? The net effect is it would have effectively shut down mortgage lending in that state," former subcommittee director Ben Henson, who retired in December, told the AP. "To take that action would have been an unbelievable disruption to the economy. I wasn't going to do that."
When field reviews began in the 1990s, states were repeatedly warned they were failing to comply with the law -- warnings that continue to this day. But without the ability to issue fines or impose a less destructive punishment, the Appraisal Subcommittee is powerless. It has never taken any action against a state for not obeying the law.
"Either you shut it off completely in a state, or you just send letters," said Gary Taylor, an appraiser from New York who sits on the Appraisal Foundation board that writes qualification guidelines. "The threat of the atomic bomb is the only thing."
And so, the violations stack up year after year, largely without consequence.
In the last three years alone, as the nation's housing market went from boom to bust, 27 states or territories failed to investigate and resolve complaints within a year. In Washington, D.C., the agency found last August that 32 of the district's 35 pending cases were older than two years. In Florida, almost 50 percent of 169 cases older than a year concerned appraisers involved in "fraud and flipping."
Faced with such backlogs, some states just give up. In New Hampshire, the state appraisal board decided in July 2006 to close all outstanding files dating to 2002 -- some of which included allegation of fraud -- because they "were too old to investigate."
In Ohio, the Appraisal Subcommittee found in 2005 that 40 percent of the state's 199 outstanding cases were older than a year, many older than two. To help clear the backlog, Ohio began allowing appraisers to sign consent orders -- a deal similar to a plea bargain in which an appraiser agrees to the facts of a case in exchange for a reduced punishment. That could be a short-term suspension, for example, instead of a license revocation.
In 2006, 11 appraisers signed such consent orders in Ohio. That figure swelled to 148 the following year.
"They know they can keep doing what they're doing because they can get away with it," said Carl Schneider, an appraiser who serves on the Oklahoma appraisal board's disciplinary procedures committee. "They're not getting punished. And states aren't doing more because they know regulators won't do a thing."
By law, the Appraisal Subcommittee must maintain a registry of appraisers that includes a disciplinary history. But a disciplinary action stays on the Web site only as long as it's current -- once the suspension is over, the action is removed, making it appear as if the appraiser has never been in trouble.
The flaws in the system also allow appraisers to stay in business while complaints against them are under investigation. North Carolina appraiser Jerry Gooden had eight complaints filed against him between 2001 and 2003, all related to a trainee who performed dozens of appraisals under his supervision and later pleaded guilty to mortgage fraud.
All the while, Gooden remained listed in good standing on the Appraisal Subcommittee's Web registry of appraisers. His license was suspended in 2005 for nine months because of the complaints. But even today, his entry shows he's never been disciplined. When contacted recently by telephone, Gooden said he was busy and didn't have time to talk.
When Illinois appraiser Donald Martin wrote to the Appraisal Subcommittee in December 2000, he told of how lenders, mortgage brokers and real estate agents withheld business from appraisers who refused to inflate values, guarantee a predetermined value or ignore deficiencies in a property.
Honest appraisers, he wrote, were blacklisted in favor of those with a "rubber stamp." He begged the agency to take action.
But as it would say in response to nearly a dozen such letters, the subcommittee answered that it didn't have the statutory authority to investigate such complaints. It promised to forward the complaint to the appropriate federal agencies, such as the Federal Reserve, which could have acted out of concerns for the health of the appraisal industry.
There is no evidence that ever happened.
"They just blew me off," Martin said. "I wasn't alone. We had appraisers from all over the nation writing in and urging them to take action."
That same month, subcommittee board member Thomas Watson Jr. -- then the national bank examiner at the federal Office of the Comptroller of the Currency -- did propose action. In a letter to appraiser groups and banking regulators, he called a meeting to discuss concerns "resulting from inappropriate pressure being placed on real estate property appraisers to 'hit a certain value.'"
Henson, the subcommittee's director at the time, attended the meeting and remembers hearing story after story about appraisers being pressured. But he called the information "mostly anecdotal," never forwarded the information to the full board and never followed up to see if any federal regulator looked into the complaints.
"People who say we should have done more don't understand how the system works," Henson said. "Agencies just don't lobby to change things. We had no interest in doing anything like that. It just wasn't our area."
The American Society of Appraisers formally asked the Appraisal Subcommittee to act in January 2001, noting the agency was in a "good position to work with bank regulators and others on the problem." Again, the agency responded by saying it did not have the authority to examine the issue.
"It didn't surprise me they didn't do anything," said Richard Amoling, the society's former president. "Everything related to the issue went into a black hole. Why, I just don't know."
Weinberg, who worked at the Securities and Exchange Commission before he was hired as the Appraisal Subcommittee's attorney in 1991, said the agency could have pushed more.
"I tried to push, but nobody wanted to hear what I was saying," he said.
That included Congress. When serving as president of a national appraisers trade association in June 2004, Taylor -- the Appraisal Foundation committee member -- told a House subcommittee field hearing that "problem appraisals are being allowed, and in some ways even encouraged, by a regulatory structure that promotes lax enforcement and ineffective oversight."
Taylor, president of Rogers & Taylor Appraisers Inc. in Hauppauge, N.Y., pleaded for help: "We are here to alert Congress that the licensing system it created for appraisers is broken ... and needs to be fixed." It wasn't.
Records obtained by the AP also show that complaints about individual appraisers filed at the state level are left unresolved for months -- and often for years -- but for a different reason: Many states have only one full-time inspector. Some appraisal boards also are rolled into bigger regulatory agencies, where inspectors with little or no experience are assigned to investigate complaints.
"I think the design of the system is excellent," said Philip Humphries, the current director of the North Carolina Appraisal Board. "But states don't have the money to hire personnel to carry out what the system was designed to do."
Henson said most of the complaints are frivolous, involving consumers upset because an appraiser "may have been rude or said my house wasn't worth as much as I thought." He said few of the complaints have anything to do with inflated appraisals. "That was just not a problem," he said.
Filed complaints are considered private and are not open to public inspection. But consent orders are public, and the AP's investigation found that Henson's assessment that most complaints are frivolous is simply wrong. In North Carolina, for example, of the more than 300 consent orders filed since 1994, 65 percent involved mistakes that inflated a home's value.
Even when states do investigate and find problems, rogue appraisers are rarely disciplined. Since 1994, only 13 appraisers -- there are currently about 3,500 licenesed appraisers in the state -- have had their licenses taken away by North Carolina's appraisal board. During the same period, California, the nation's most populous state, revoked 89 licenses; Tennessee, West Virginia and Wyoming did not revoke any, according to Appraisal Subcommittee records.
Violators are usually only reprimanded or, if their licenses are suspended, the suspension often is reduced if they agree to take remedial education classes.
Since 1994, consumers have filed 23 complaints against Richard Chapman, an appraiser from Emerald Isle, N.C. His license was suspended for five years in a case in which he was accused of submitting appraisals with "misleading information" and "inaccurate data." Since his license was reinstated in 2000, 11 new complaints have arrived.
"Just because you're disciplined, that doesn't make you a bad appraiser," said Chapman, who estimated he's been involved in 80,000 appraisals since 1980 and trained about 60 appraisers. "I may have done some technical things wrong, but I've done a good job. I'm proud of my work."
The North Carolina board dismissed two of the 11 recent complaints outright, while two others were dismissed with warnings to be more careful. Six were dismissed on the condition that Chapman complete appraiser education classes, and he was reprimanded for one complaint.
"There no habitual felon law for appraisers," said board attorney Roberta Ouellette, defending the agency's action. "Why should he get super-zapped for doing a lot of little things that a lot of other appraisers are doing every day but haven't had complaints turned in on them?"
The failings of the appraisal regulatory system and its impact on the nation's housing market led Andrew Cuomo, the New York attorney general, to reach a deal in March with Fannie Mae and Freddie Mac, which purchase mortgages from other financial institutions.
Cuomo's deal requires Fannie Mae and Freddie Mac to buy mortgages only from lenders who use independent appraisers. The new rules also prevent lenders who want to sell loans to Fannie Mae or Freddie Mac from using in-house appraisers to do the first evaluation.
The agreement, which will take effect in 2009, will create a watchdog to monitor the appraisal business: Fannie Mae and Freddie Mac will spend $24 million to create the Independent Valuation Protection Institute, which will accept complaints from consumers and appraisers. It will also monitor the enforcement and report to Cuomo's office.
But such a system duplicates the regulations already in place, including the same lack of enforcement tools that led the existing system to failure. And it's already under fire. John Dugan, the U.S. comptroller of the currency, wants the deal scrapped, arguing it would increase the cost of home loans for borrowers without strengthening consumer protections.
Cuomo didn't return repeated requests for comment. But Taylor, the Appraiser Foundation board member who asked Congress for action in 2004, doesn't see much hope for his success.
"There has to be effective enforcement of some sort. There has to be reality to it," Taylor said.
"What are you going to do if there is pressure on appraisers? How are you going to penalize someone who puts that pressure on appraisers? Who's going to do it? Who's going to enforce it? They need to have that or it won't work."
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