The Democrats’ bill, sponsored by Senator Christopher J. Dodd of Connecticut, would give the Federal Reserve oversight of the largest financial institutions, those with at least $50 billion in assets. And it would let the Treasury secretary — with support from regulators and the approval of a special panel of three bankruptcy judges — take over any giant company that posed systemic risk to financial stability, and essentially force it out of business.
Under the bill, once the Treasury stepped in to take over a failing firm, the Federal Deposit Insurance Corporation would be appointed as a receiver. The Federal Reserve could punish any institution that failed to submit a “resolution plan” — also known as a living will or a funeral plan — that would spell out its orderly demise.
A $50 billion “orderly liquidation fund,” created from fees charged to the largest banks, would help pay for the takeover. The House version of the bill, approved in December, would create a $150 billion fund. The Obama administration does not support such a fund, signaling at least one potential area of compromise.
I’m not sure the Dodd bill is I’m not sure the Dodd bill is the solution. I’m for repealing the Gramm-Leach-Bliley act of 1999… In other words restoring Glass Steagall… But the genie’s out of the bottle and it may be hard to separate out insurance/banks/investment banks again.
CA renter
April 14, 2010 @
6:30 PM
UCGal wrote:I’m not sure the [quote=UCGal]I’m not sure the Dodd bill is the solution. I’m for repealing the Gramm-Leach-Bliley act of 1999… In other words restoring Glass Steagall… But the genie’s out of the bottle and it may be hard to separate out insurance/banks/investment banks again.[/quote]
Agree 100%.
poorgradstudent
April 14, 2010 @
4:48 PM
Without commenting on any Without commenting on any specific legislation being discussed, I strongly support minimally giving regulatory agencies the power to actually do their jobs.
jpinpb
April 14, 2010 @
5:03 PM
In a perfect world, In a perfect world, regulation would solve the problem. The reality is if the fox is guarding the hen house, then that’s not going to help. I believe TPTB knew full well what was happening and did nothing. Regulation will give them more control and may still not help.
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.
Arraya
April 14, 2010 @
6:41 PM
jpinpb wrote:
We have laws [quote=jpinpb]
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.[/quote]
According to Brooksley Born, Alan Greenspan told her he did not want fraud investigated.
Arraya wrote:Also, 1 minute [quote=Arraya]Also, 1 minute in: Elizabeth Warren on regulation http://www.youtube.com/watch?v=I8vj3fYmGc8&feature=related%5B/quote%5D
It’s nice to see that PBS skipped an episode or two of “Memiors of a dead poet’s cabin boy” to put out something that actually could help the public.
briansd1
April 14, 2010 @
8:04 PM
jpinpb wrote:
We have laws in [quote=jpinpb]
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.[/quote]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.
Allan from Fallbrook
April 15, 2010 @
9:19 AM
briansd1 wrote:
I agree that [quote=briansd1]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.[/quote]
Brian: And who handles the audit? The IRS? For shits and giggles, call five separate IRS agents and ask them the same question regarding the tax code. Are you surprised when you get five different answers?
Regarding regulation and enforcement: The SEC is woefully understaffed and has been for years and years (through both Republican and Democratic administrations). The larger issue, however, is a fundamental lack of capability. On one hand, you have investment banks, private equity groups and hedge funds hiring “quants” and financial engineers capable of unbelievable high-order analytics and, on the other hand, you have the SEC with some $50k per year investigator attempting to follow the trail and make sense of what was done.
It isn’t just regulation and enforcement. Its having the requisite understanding of the markets, the products and how it all interconnects.
If you read the transcripts from interviews with Jimmy Cayne (CEO of Bear Stearns) and Dick Fuld (CEO of Lehman Bros), it becomes quickly apparent that they had no idea of their underlying risk positions on all of these various, arcane financial products, like CDOs, CDSs, CMOs, etc. We haven’t even gotten into counterparty risks or the connections to overseas markets yet, and you feel that the SEC, FSA (UK) or IRS is going to be able to oversee, regulate and enforce?
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.
Arraya
April 15, 2010 @
9:24 AM
We have 8 million people We have 8 million people sitting in their home now on the brink of default, with 3 million defaults last year. It could be a new boom industry investigating mortgage fraud as well as the prisons we would have to build.
briansd1
April 15, 2010 @
10:03 AM
Allan from Fallbrook [quote=Allan from Fallbrook]
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.[/quote]
I don’t see it either. Laws should be enforced. But they aren’t.
I actually believe that once all the millions of homeowners have walked away, we will need to find ways for them to buy again, notwithstanding their lack of credit worthiness.
That’s how the economy works. We need to create turnover to keep the wheels of commerce turning.
Arraya
April 15, 2010 @
11:10 AM
Wait a minute, I thought you Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”
briansd1
April 15, 2010 @
11:26 AM
Arraya wrote:Wait a minute, I [quote=Arraya]Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”[/quote]
I’m morally flexible. 😉
If we really want to end the craziness, then yes, we should enforce existing fraud laws.
But if not, then what other choice is there but to keep the wheels turning?
Allan from Fallbrook
April 15, 2010 @
12:40 PM
briansd1 wrote:Arraya [quote=briansd1][quote=Arraya]Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”[/quote]
I’m morally flexible. 😉
If we really want to end the craziness, then yes, we should enforce existing fraud laws.
But if not, then what other choice is there but to keep the wheels turning?[/quote]
Brian: Essentially, you’re advocating “business as usual”, right?
You enjoy pillorying the “Real Estate Republicans” for queuing up for bailout money, but you’re also okay with giving out bailout money, if it “keeps the wheels turning”?
Not be a wise-ass, but how does that work? You lay claim to being on the “right side of history” as a Progressive (well, your version of same), but admit to have no morals or scruples, if it gets the job done.
Do you not feel this robs you of really having a say when it comes to having an ethical or moral discussion? You know, along the lines of: “Well, I’m really fervently opposed to X on moral/ethical grounds, unless X helps contribute to the Greater Good (with myself as the arbiter of that), and then I’m fully supportive of X, morals/ethics notwithstanding”.
That’s known as the “Good German” argument, by the way.
briansd1
April 15, 2010 @
1:22 PM
I understand what you’re I understand what you’re saying Allan, but life is not black and white.
I believe that it’s essential, for the greater good, that the wheels of commerce turn uninterrupted, even if they turn very slowly.
I think that people deserve a second chance even if there’s a high likelihood of recidivism.
Look at the 3-strike laws in CA. What did they accomplish? It felt good to throw people in jail but the costs are bankrupting the state. That’s doing more harm than good.
As for the Good German term, the same would apply to the Good American with regard to slavery, war, environmental degradation, etc…
And Allan, I agree with what you just posted above with regard to bonuses.
Human nature is all about individual incentives. In order for the system to work, individual goals must be in line with institutional preservation.
Anonymous
April 16, 2010 @
7:41 AM
thebrainsd1 wrote:I [quote=thebrainsd1]I understand what you’re saying Allan, but life is not black and white.
I believe that it’s essential, for the greater good, that the wheels of commerce turn uninterrupted, even if they turn very slowly.
I think that people deserve a second chance even if there’s a high likelihood of recidivism.
Look at the 3-strike laws in CA. What did they accomplish? It felt good to throw people in jail but the costs are bankrupting the state. That’s doing more harm than good.
As for the Good German term, the same would apply to the Good American with regard to slavery, war, environmental degradation, etc…
And Allan, I agree with what you just posted above with regard to bonuses.
Human nature is all about individual incentives. In order for the system to work, individual goals must be in line with institutional preservation.[/quote]
Excellent rebuttal. It’s amazing watching you continue to vanquish all challengers.
patientrenter
April 20, 2010 @
6:18 PM
briansd1 wrote:…..I think [quote=briansd1]…..I think that people deserve a second chance even if there’s a high likelihood of recidivism…..
[/quote]
I’ll take that second chance. I’ll buy a 2000 sq ft new home on the bluffs of Newport Beach for $400K, just like 1996.
I am so glad you are offering second chances to everyone. Or is that only to some people, at the expense of others?
jpinpb
April 15, 2010 @
11:44 AM
briansd1 wrote:
Laws should [quote=briansd1]
Laws should be enforced. But they aren’t.
[/quote]
Which is why coming up w/regulation will be just another thing that won’t be enforced. JMO. It would be nice to be proven wrong and that will be the one law that is abided by and enforced. Talking about regulation is just a way to quiet the roaring lions. Actually enforcing it would be surprising. But since they don’t enforce things that should and can be enforced, I’m not holding my breath. Even if they did pass regulation.
I need to comment on both I need to comment on both these comments.
[quote=Allan from Fallbrook][quote=briansd1]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.[/quote]
Brian: And who handles the audit? The IRS? For shits and giggles, call five separate IRS agents and ask them the same question regarding the tax code. Are you surprised when you get five different answers?
Regarding regulation and enforcement: The SEC is woefully understaffed and has been for years and years (through both Republican and Democratic administrations). The larger issue, however, is a fundamental lack of capability. On one hand, you have investment banks, private equity groups and hedge funds hiring “quants” and financial engineers capable of unbelievable high-order analytics and, on the other hand, you have the SEC with some $50k per year investigator attempting to follow the trail and make sense of what was done.
It isn’t just regulation and enforcement. Its having the requisite understanding of the markets, the products and how it all interconnects.
If you read the transcripts from interviews with Jimmy Cayne (CEO of Bear Stearns) and Dick Fuld (CEO of Lehman Bros), it becomes quickly apparent that they had no idea of their underlying risk positions on all of these various, arcane financial products, like CDOs, CDSs, CMOs, etc. We haven’t even gotten into counterparty risks or the connections to overseas markets yet, and you feel that the SEC, FSA (UK) or IRS is going to be able to oversee, regulate and enforce?
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.[/quote]
As to Brian’s, I don’t entirely disagree. However…
In late 2007 (maybe it was 2008? I’m not sure.)I volunteered a few hours every week reviewing documents for a non-profit credit counseling organization which catered primarily to the working poor. Most were related to impending foreclosures. Included in the documents I reviewed were original loan applications. I probably reviewed a couple hundred mortgage applications before I got disgusted and quit volunteering my time. 100% contained innacuracies. Most could very easily be considered fraudulent. Though I never interviewed any of the clients, the case workers who did, almost invariably documented that the clients claimed that they never filled out the loan applications, and that they were entirely filled out by lenders or lender’s agents. Back when I was in private practice, educated and savvy business people paid me good money to help fill out and review those forms before submission. When less educated, and less equipped borrowers followed the advice of people, to whom they were paying good money for that advice (in the form of points and fees on the loans), I find it hard to fault them.
You can argue that they should have known better. But the fact is, many of them didn’t. Those that were hired to protect them did know better. In those cases, the agents and lenders involved are the ones who should be prosecuted.
That doesn’t mean I don’t think that many borrowers also knew what they were doing. Many obviously did. And those that did should be prosecuted, or at very least, those that submitted fraudulent applications should be ineligible for even partially government funded modifications. (Interesting side note to this, and something that I have yet to see any note holder argue. Knowingly submitting a false loan application can be a federal crime. It also can be non-dischargeable in bankruptcy. It can also potentially void the california one shot protection and the exemption from deficiencies on purchase money loans. One reason that it hasn’t been done may be the lender’s complicity. Speculation on my part, but it’s a good guess.)
And as to Allan’s comment about the claims from Bear Stearns and Lehman Bros CEOs (and many other CEO’s for that matter) having no idea of the underlying risk, that also should be prosecutable for gross negligence on their part. They should have known. They provided the fuel for the runup and the subsequent collapse. They created the MBSs and CMO’s, and their never ending hunger for more product, which put more money in their pockets, fomented an environment where risk was unrelated to reward. Loan underwriting was a nonexistent safeguard. They either knew exactly what they were buying and packaging or were grossly incompetent at their jobs. They, and most everyone in the chain of command in the MBS industry are the ones that should be in jail.
Allan from Fallbrook
April 15, 2010 @
1:11 PM
SK: Completely agree and SK: Completely agree and without reservation. Back in my corporate days, I worked as a CFO for a large international insurance broker. In 1994, I was the CFO for their Orange County office. Back then, derivatives were all the rage and the office CEO and I sat in on a sales presentation offered by one of the investment banks (either Goldman or Merrill). Upshot of all this, neither the CEO (who was an Ohio State MBA and a former Bear Stearns alum) nor I had a clue as to how derivatives worked or why we should invest, other than the touted 18+% return (and this was from Goldman or Merrill, not some bucket shop operation).
We declined the opportunity and about two months later Orange County declared BK when their derivatives position unwound and the margin call hit.
Point of all this? Regardless of the “who” (Citi, Lehman, AIG, etc), its all about the “what” (BONUSES). Its all short-term thinking and its driven by the promise of those massive year-end bonuses.
You want to have some fun? Look at the salary structures for the senior Wall Street players like Fuld, Cayne, Greenberg, etc. Their annual salaries are piddling (generally in the high six figure range). The bonuses, however, are staggering. I’m talking millions of dollars. All driven by these same arcane financial products that most of them can’t even begin to understand.
Nope, SK is right: Jail the lot of them. You know they (TPTB) won’t, though, because they’re in on it, too.
Allan from Fallbrook
April 16, 2010 @
8:48 AM
IForget: I know, right? He IForget: I know, right? He is amazing. He is constantly getting caught in all manner of contradictions, ties himself in these tortured knots of illogic, and has admitted repeatedly to actually not holding to the values he strongly espouses and supposedly holds dear.
Yes, he is an opponent of incredible talent and unflagging verve. Aside from the above, of course.
You might want to think about changing your handle from “IForget” to “Baghdad Bob”. Just a thought. Or, given your love of all things Brian: “Catamite”.
Don’t forget to rub the belly of your Trotsky doll today for good luck!
sdduuuude
April 16, 2010 @
10:39 AM
I’d be OK with “appropriate” I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.
sdduuuude
April 16, 2010 @
10:44 AM
Furthermore, if we wouldn’t Furthermore, if we wouldn’t bail out these companies, we wouldn’t care if they were regulated or not. Just let them go south on their own dime.
Instead, we bail them out, then put in place regulation to try and prevent them from needing the bailout ? Costs us on both ends – to make and enforce the rules, and to bail them out, which only encourages them to bend the rules as far as possible.
It’s just crazy.
“Hey – you. Mr. Bank. Don’t you dare break these rules or we’ll be forced to bail you out again.”
Ooooooo. Scary threat there.
jpinpb
April 16, 2010 @
10:54 AM
sdduuuude wrote:I’d be OK [quote=sdduuuude]I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.[/quote]
Thank you. Exactly.
sdduuuude
April 16, 2010 @
8:24 PM
You are welcome.
Some You are welcome.
Some relevant Mish comments:
http://thinkprogress.org/2010 http://thinkprogress.org/2010/04/13/mcconnell-financial-hedge-fund/
This morning, Senate Minority Leader Mitch McConnell (R-KY) declared his opposition to the financial reform bill before the Senate. McConnell claimed to have principled objections to the bill, saying that it “institutionalizes” bailouts of Wall Street and that it would give the Federal Reserve “enhanced emergency lending authority that is far too open to abuse.”
What McConnell did not mention was that, last week, he traveled alongside National Republican Senatorial Committee chairman Sen. John Cornyn (TX) to New York City for a private meeting with elite hedge fund managers and other Wall Street executives. The purpose of the meeting between the top Republicans and the financial executives was to enlist “Wall Street’s help” in funding Republican campaigns in the fall and killing any tough financial reform
Of course, this differs slightly from what Sheila Bair says,
Would this bill perpetuate bailouts?
SHEILA BAIR: The status quo is bailouts. That’s what we have now. If you don’t do anything, you are going to keep having bailouts.
:
briansd1
April 20, 2010 @
1:23 PM
Latest news on financial Latest news on financial reform:
McConnell softens tone on finance regulation bill
Updated: 4:20 p.m.
By Shailagh Murray
A Democratic Wall Street overhaul bill may be gaining an unlikely champion: Senate Minority Leader Mitch McConnell (R-Ky.).
After a week of attacking the pending legislation as a ticket to new taxpayer “bailouts,” McConnell is striking a different tone. Monday on the Senate floor, he called for lawmakers to move beyond “personal attacks and questioning each others’ motives” to “fixing the problems in this bill.”
Since the news surfaced that McConnell and Sen. John Cornyn (R-Tex.) met with financial chiefs in New York this month, on the eve of the Senate debate on a regulatory reform bill, Democrats have suggested Republicans are organizing against the legislation to curry favor and campaign donations from Wall Street, as Cornyn is the head of the Senate Republican campaign arm. Both men have denied that charge.
jpinpb wrote:sdduuuude [quote=jpinpb][quote=sdduuuude]I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.[/quote]
Thank you. Exactly.[/quote]
What jp and sduuude said. Better regulators and regulations, not more or less regulation, is what we most need.
j
April 20, 2010 @
8:46 PM
I believe a good first step I believe a good first step would be to prosecute those that broke the existing laws. More laws will do little if they are not enforced.
Yes, derivatives need to be regulated, and underwriter needs to become a real profession. I think an underwriter should require a CPA and passing an eight hour test. Then all loan defaults should be tracked by underwriter. But then again, CPAs audited AIG’s and Enron’s financials.
Right now, loan officers tell “underwriters” what do? Underwriters need to have the authority to say no, not get a bonus if the the mortgage company meets its monthly sales goals.
briansd1
April 23, 2010 @
9:24 AM
If you look at it more If you look at it more carefully, financial products and innovation basically allow us to:
1) Front-load consumption and spending.
2) Spread and shift the risk around.
For that, the banks make a commission/interest.
I don’t see how fiscal conservatives would support:
a) making it easier to borrow and spend money we don’t have. (if anything borrowing should become harder).
b) spreading the risk around from financial investors to society at large. (if anything investors should go into their investments fully aware of the risks and not be able to spread their own risks around).
Aecetia
April 23, 2010 @
9:40 AM
You’re in good hands with You’re in good hands with SEC:
SEC and Pornography: Workers Spent Hours on Porn Sites Instead of Stopping Fraud
Gov’t Report Finds Securities and Exchange Commission Employees Surfing Pornographic Websites at Work
Eight Hours a Day Spent on Porn Sites
One senior attorney at SEC headquarters in Washington spent up to eight hours a day accessing Internet porn. When he filled all the space on his government computer with pornographic images, he downloaded more to CDs and DVDs that accumulated in boxes in his offices.
An SEC accountant attempted to access porn websites 1,800 times in a two-week period and had 600 pornographic images on her computer hard drive.
Another SEC accountant attempted to access porn sites 16,000 times in a single month.
In one case, the report said, an employee tried hundreds of times to access pornographic sites and was denied access. When he used a flash drive, he successfully bypassed the filter to visit a “significant number” of porn sites.
Aecetia wrote:an employee [quote=Aecetia]an employee tried hundreds of times to access pornographic sites and was denied access. [/quote]
That’s very stupid. Bring your own laptop with 3G service. 😉 LTE is on the way. 😉
ucodegen
April 23, 2010 @
3:04 PM
Yes, derivatives need to be
Yes, derivatives need to be regulated, and underwriter needs to become a real profession. I think an underwriter should require a CPA and passing an eight hour test.
Actually, you need a background in statistics. Having a CPA cert does not help you, it would be better to have a background as an actuary.
The problem was that most of the models for probability of default were ‘momentum’ based and not ‘fundamental’ based. “Since real-estate has always gone up in the near past, it will continue to do so”. The models didn’t look at individual debt load at a global scale. The banks liked a nice little magic number that they felt would tell them everything.. called the FICO score. This way they could decide with little effort whether they should loan money or not. The problem with the FICO score is that it shows the use and availability of credit. It does not tell whether a person has the ability to repay a loan. Is some ways, it is a contra-indicator of the ability to repay a loan. If a person has the easy resources to pay without using credit, it is likely that they are more likely and able to clear any debt that they undertake.
Right now, loan officers tell “underwriters” what do? Underwriters need to have the authority to say no, not get a bonus if the the mortgage company meets its monthly sales goals.
No they don’t.. where did you get that from? The underwriters mis-judged the risk of default. The only people that the loan officers were able to badger were the appraisers, who effectively work for the loan originator. If the loan originators don’t get the appraisal to approve the loan, they go elsewhere. If the loan originators or CDO writers can’t get someone to underwrite the CDS.. they could shop around; BUT from the aspect of the CDS, they will not underwrite a CDO in the form of CDSs if they feel that the amount of money they will receive in premiums will not exceed the risk of loss. The underwriters take a pure ‘investment’ point of view. What the underwriter is likely to do is ask for a higher premium. For a while, some of the CDOs were requiring a 10% yearly premium on their CDSs (once things started going south)
April 14, 2010 @ 3:07 PM
The Democrats’ bill,
April 14, 2010 @ 3:43 PM
I’m not sure the Dodd bill is
I’m not sure the Dodd bill is the solution. I’m for repealing the Gramm-Leach-Bliley act of 1999… In other words restoring Glass Steagall… But the genie’s out of the bottle and it may be hard to separate out insurance/banks/investment banks again.
April 14, 2010 @ 6:30 PM
UCGal wrote:I’m not sure the
[quote=UCGal]I’m not sure the Dodd bill is the solution. I’m for repealing the Gramm-Leach-Bliley act of 1999… In other words restoring Glass Steagall… But the genie’s out of the bottle and it may be hard to separate out insurance/banks/investment banks again.[/quote]
Agree 100%.
April 14, 2010 @ 4:48 PM
Without commenting on any
Without commenting on any specific legislation being discussed, I strongly support minimally giving regulatory agencies the power to actually do their jobs.
April 14, 2010 @ 5:03 PM
In a perfect world,
In a perfect world, regulation would solve the problem. The reality is if the fox is guarding the hen house, then that’s not going to help. I believe TPTB knew full well what was happening and did nothing. Regulation will give them more control and may still not help.
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.
April 14, 2010 @ 6:41 PM
jpinpb wrote:
We have laws
[quote=jpinpb]
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.[/quote]
According to Brooksley Born, Alan Greenspan told her he did not want fraud investigated.
http://www.pbs.org/wgbh/pages/frontline/warning/
April 14, 2010 @ 6:44 PM
Arraya wrote:
According to
[quote=Arraya]
According to Brooksley Born, Alan Greenspan told her he did not want fraud investigated.
http://www.pbs.org/wgbh/pages/frontline/warning/%5B/quote%5D
That was exactly another one that came to mind. Thanks, Arraya.
This is why regulation won’t matter. It will comfort those who think our government has our interest.
April 14, 2010 @ 6:51 PM
Also, 1 minute in: Elizabeth
Also, 1 minute in: Elizabeth Warren on regulation
http://www.youtube.com/watch?v=I8vj3fYmGc8&feature=related
April 15, 2010 @ 7:09 PM
Arraya wrote:Also, 1 minute
[quote=Arraya]Also, 1 minute in: Elizabeth Warren on regulation
http://www.youtube.com/watch?v=I8vj3fYmGc8&feature=related%5B/quote%5D
It’s nice to see that PBS skipped an episode or two of “Memiors of a dead poet’s cabin boy” to put out something that actually could help the public.
April 14, 2010 @ 8:04 PM
jpinpb wrote:
We have laws in
[quote=jpinpb]
We have laws in place that are not enforced. Fraud is one that comes to mind. No one is bothering to do anything about it. Madoff was a fall guy compared to so many other cases out there. He was in the spotlight and made an example.
As time goes on, the tendency will be to forget and many who committed fraud will have gotten away w/it.[/quote]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.
April 15, 2010 @ 9:19 AM
briansd1 wrote:
I agree that
[quote=briansd1]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.[/quote]
Brian: And who handles the audit? The IRS? For shits and giggles, call five separate IRS agents and ask them the same question regarding the tax code. Are you surprised when you get five different answers?
Regarding regulation and enforcement: The SEC is woefully understaffed and has been for years and years (through both Republican and Democratic administrations). The larger issue, however, is a fundamental lack of capability. On one hand, you have investment banks, private equity groups and hedge funds hiring “quants” and financial engineers capable of unbelievable high-order analytics and, on the other hand, you have the SEC with some $50k per year investigator attempting to follow the trail and make sense of what was done.
It isn’t just regulation and enforcement. Its having the requisite understanding of the markets, the products and how it all interconnects.
If you read the transcripts from interviews with Jimmy Cayne (CEO of Bear Stearns) and Dick Fuld (CEO of Lehman Bros), it becomes quickly apparent that they had no idea of their underlying risk positions on all of these various, arcane financial products, like CDOs, CDSs, CMOs, etc. We haven’t even gotten into counterparty risks or the connections to overseas markets yet, and you feel that the SEC, FSA (UK) or IRS is going to be able to oversee, regulate and enforce?
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.
April 15, 2010 @ 9:24 AM
We have 8 million people
We have 8 million people sitting in their home now on the brink of default, with 3 million defaults last year. It could be a new boom industry investigating mortgage fraud as well as the prisons we would have to build.
April 15, 2010 @ 10:03 AM
Allan from Fallbrook
[quote=Allan from Fallbrook]
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.[/quote]
I don’t see it either. Laws should be enforced. But they aren’t.
I actually believe that once all the millions of homeowners have walked away, we will need to find ways for them to buy again, notwithstanding their lack of credit worthiness.
That’s how the economy works. We need to create turnover to keep the wheels of commerce turning.
April 15, 2010 @ 11:10 AM
Wait a minute, I thought you
Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”
April 15, 2010 @ 11:26 AM
Arraya wrote:Wait a minute, I
[quote=Arraya]Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”[/quote]
I’m morally flexible. 😉
If we really want to end the craziness, then yes, we should enforce existing fraud laws.
But if not, then what other choice is there but to keep the wheels turning?
April 15, 2010 @ 12:40 PM
briansd1 wrote:Arraya
[quote=briansd1][quote=Arraya]Wait a minute, I thought you supported “putting people who lied in jail” and now you want to “find ways for them to buy again”[/quote]
I’m morally flexible. 😉
If we really want to end the craziness, then yes, we should enforce existing fraud laws.
But if not, then what other choice is there but to keep the wheels turning?[/quote]
Brian: Essentially, you’re advocating “business as usual”, right?
You enjoy pillorying the “Real Estate Republicans” for queuing up for bailout money, but you’re also okay with giving out bailout money, if it “keeps the wheels turning”?
Not be a wise-ass, but how does that work? You lay claim to being on the “right side of history” as a Progressive (well, your version of same), but admit to have no morals or scruples, if it gets the job done.
Do you not feel this robs you of really having a say when it comes to having an ethical or moral discussion? You know, along the lines of: “Well, I’m really fervently opposed to X on moral/ethical grounds, unless X helps contribute to the Greater Good (with myself as the arbiter of that), and then I’m fully supportive of X, morals/ethics notwithstanding”.
That’s known as the “Good German” argument, by the way.
April 15, 2010 @ 1:22 PM
I understand what you’re
I understand what you’re saying Allan, but life is not black and white.
I believe that it’s essential, for the greater good, that the wheels of commerce turn uninterrupted, even if they turn very slowly.
I think that people deserve a second chance even if there’s a high likelihood of recidivism.
Look at the 3-strike laws in CA. What did they accomplish? It felt good to throw people in jail but the costs are bankrupting the state. That’s doing more harm than good.
As for the Good German term, the same would apply to the Good American with regard to slavery, war, environmental degradation, etc…
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×1892737
*
And Allan, I agree with what you just posted above with regard to bonuses.
Human nature is all about individual incentives. In order for the system to work, individual goals must be in line with institutional preservation.
April 16, 2010 @ 7:41 AM
thebrainsd1 wrote:I
[quote=thebrainsd1]I understand what you’re saying Allan, but life is not black and white.
I believe that it’s essential, for the greater good, that the wheels of commerce turn uninterrupted, even if they turn very slowly.
I think that people deserve a second chance even if there’s a high likelihood of recidivism.
Look at the 3-strike laws in CA. What did they accomplish? It felt good to throw people in jail but the costs are bankrupting the state. That’s doing more harm than good.
As for the Good German term, the same would apply to the Good American with regard to slavery, war, environmental degradation, etc…
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×1892737
*
And Allan, I agree with what you just posted above with regard to bonuses.
Human nature is all about individual incentives. In order for the system to work, individual goals must be in line with institutional preservation.[/quote]
Excellent rebuttal. It’s amazing watching you continue to vanquish all challengers.
April 20, 2010 @ 6:18 PM
briansd1 wrote:…..I think
[quote=briansd1]…..I think that people deserve a second chance even if there’s a high likelihood of recidivism…..
[/quote]
I’ll take that second chance. I’ll buy a 2000 sq ft new home on the bluffs of Newport Beach for $400K, just like 1996.
I am so glad you are offering second chances to everyone. Or is that only to some people, at the expense of others?
April 15, 2010 @ 11:44 AM
briansd1 wrote:
Laws should
[quote=briansd1]
Laws should be enforced. But they aren’t.
[/quote]
Which is why coming up w/regulation will be just another thing that won’t be enforced. JMO. It would be nice to be proven wrong and that will be the one law that is abided by and enforced. Talking about regulation is just a way to quiet the roaring lions. Actually enforcing it would be surprising. But since they don’t enforce things that should and can be enforced, I’m not holding my breath. Even if they did pass regulation.
April 15, 2010 @ 12:04 PM
Morally flexible= spineless.
Morally flexible= spineless.
April 15, 2010 @ 12:45 PM
I need to comment on both
I need to comment on both these comments.
[quote=Allan from Fallbrook][quote=briansd1]
I agree that existing laws should be enforced.
A good first step would be to audit loan applications of defaulters and putting people who lied in jail. But instead, we are rewarding the liars and fraudsters by giving them loan modifications.
A default should automatically trigger an audit.[/quote]
Brian: And who handles the audit? The IRS? For shits and giggles, call five separate IRS agents and ask them the same question regarding the tax code. Are you surprised when you get five different answers?
Regarding regulation and enforcement: The SEC is woefully understaffed and has been for years and years (through both Republican and Democratic administrations). The larger issue, however, is a fundamental lack of capability. On one hand, you have investment banks, private equity groups and hedge funds hiring “quants” and financial engineers capable of unbelievable high-order analytics and, on the other hand, you have the SEC with some $50k per year investigator attempting to follow the trail and make sense of what was done.
It isn’t just regulation and enforcement. Its having the requisite understanding of the markets, the products and how it all interconnects.
If you read the transcripts from interviews with Jimmy Cayne (CEO of Bear Stearns) and Dick Fuld (CEO of Lehman Bros), it becomes quickly apparent that they had no idea of their underlying risk positions on all of these various, arcane financial products, like CDOs, CDSs, CMOs, etc. We haven’t even gotten into counterparty risks or the connections to overseas markets yet, and you feel that the SEC, FSA (UK) or IRS is going to be able to oversee, regulate and enforce?
Maybe its just me, but I don’t see it. If you honestly expect elected officials, who receive millions in campaign donations, to vigorously enforce laws and regulations, well, I think you’re being a mite naive and overly hopeful.
How many crises do you need to realize that the fix is in? The S&L Crisis? Pru-Bache? Long-Term Capital Management (LTCM)? Enron? Lehman? Dude.[/quote]
As to Brian’s, I don’t entirely disagree. However…
In late 2007 (maybe it was 2008? I’m not sure.)I volunteered a few hours every week reviewing documents for a non-profit credit counseling organization which catered primarily to the working poor. Most were related to impending foreclosures. Included in the documents I reviewed were original loan applications. I probably reviewed a couple hundred mortgage applications before I got disgusted and quit volunteering my time. 100% contained innacuracies. Most could very easily be considered fraudulent. Though I never interviewed any of the clients, the case workers who did, almost invariably documented that the clients claimed that they never filled out the loan applications, and that they were entirely filled out by lenders or lender’s agents. Back when I was in private practice, educated and savvy business people paid me good money to help fill out and review those forms before submission. When less educated, and less equipped borrowers followed the advice of people, to whom they were paying good money for that advice (in the form of points and fees on the loans), I find it hard to fault them.
You can argue that they should have known better. But the fact is, many of them didn’t. Those that were hired to protect them did know better. In those cases, the agents and lenders involved are the ones who should be prosecuted.
That doesn’t mean I don’t think that many borrowers also knew what they were doing. Many obviously did. And those that did should be prosecuted, or at very least, those that submitted fraudulent applications should be ineligible for even partially government funded modifications. (Interesting side note to this, and something that I have yet to see any note holder argue. Knowingly submitting a false loan application can be a federal crime. It also can be non-dischargeable in bankruptcy. It can also potentially void the california one shot protection and the exemption from deficiencies on purchase money loans. One reason that it hasn’t been done may be the lender’s complicity. Speculation on my part, but it’s a good guess.)
And as to Allan’s comment about the claims from Bear Stearns and Lehman Bros CEOs (and many other CEO’s for that matter) having no idea of the underlying risk, that also should be prosecutable for gross negligence on their part. They should have known. They provided the fuel for the runup and the subsequent collapse. They created the MBSs and CMO’s, and their never ending hunger for more product, which put more money in their pockets, fomented an environment where risk was unrelated to reward. Loan underwriting was a nonexistent safeguard. They either knew exactly what they were buying and packaging or were grossly incompetent at their jobs. They, and most everyone in the chain of command in the MBS industry are the ones that should be in jail.
April 15, 2010 @ 1:11 PM
SK: Completely agree and
SK: Completely agree and without reservation. Back in my corporate days, I worked as a CFO for a large international insurance broker. In 1994, I was the CFO for their Orange County office. Back then, derivatives were all the rage and the office CEO and I sat in on a sales presentation offered by one of the investment banks (either Goldman or Merrill). Upshot of all this, neither the CEO (who was an Ohio State MBA and a former Bear Stearns alum) nor I had a clue as to how derivatives worked or why we should invest, other than the touted 18+% return (and this was from Goldman or Merrill, not some bucket shop operation).
We declined the opportunity and about two months later Orange County declared BK when their derivatives position unwound and the margin call hit.
Point of all this? Regardless of the “who” (Citi, Lehman, AIG, etc), its all about the “what” (BONUSES). Its all short-term thinking and its driven by the promise of those massive year-end bonuses.
You want to have some fun? Look at the salary structures for the senior Wall Street players like Fuld, Cayne, Greenberg, etc. Their annual salaries are piddling (generally in the high six figure range). The bonuses, however, are staggering. I’m talking millions of dollars. All driven by these same arcane financial products that most of them can’t even begin to understand.
Nope, SK is right: Jail the lot of them. You know they (TPTB) won’t, though, because they’re in on it, too.
April 16, 2010 @ 8:48 AM
IForget: I know, right? He
IForget: I know, right? He is amazing. He is constantly getting caught in all manner of contradictions, ties himself in these tortured knots of illogic, and has admitted repeatedly to actually not holding to the values he strongly espouses and supposedly holds dear.
Yes, he is an opponent of incredible talent and unflagging verve. Aside from the above, of course.
You might want to think about changing your handle from “IForget” to “Baghdad Bob”. Just a thought. Or, given your love of all things Brian: “Catamite”.
Don’t forget to rub the belly of your Trotsky doll today for good luck!
April 16, 2010 @ 10:39 AM
I’d be OK with “appropriate”
I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.
April 16, 2010 @ 10:44 AM
Furthermore, if we wouldn’t
Furthermore, if we wouldn’t bail out these companies, we wouldn’t care if they were regulated or not. Just let them go south on their own dime.
Instead, we bail them out, then put in place regulation to try and prevent them from needing the bailout ? Costs us on both ends – to make and enforce the rules, and to bail them out, which only encourages them to bend the rules as far as possible.
It’s just crazy.
“Hey – you. Mr. Bank. Don’t you dare break these rules or we’ll be forced to bail you out again.”
Ooooooo. Scary threat there.
April 16, 2010 @ 10:54 AM
sdduuuude wrote:I’d be OK
[quote=sdduuuude]I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.[/quote]
Thank you. Exactly.
April 16, 2010 @ 8:24 PM
You are welcome.
Some
You are welcome.
Some relevant Mish comments:
http://globaleconomicanalysis.blogspot.com/2010/04/no-ethics-no-fiduciary-responsibility.html
April 19, 2010 @ 8:35 AM
http://thinkprogress.org/2010
http://thinkprogress.org/2010/04/13/mcconnell-financial-hedge-fund/
This morning, Senate Minority Leader Mitch McConnell (R-KY) declared his opposition to the financial reform bill before the Senate. McConnell claimed to have principled objections to the bill, saying that it “institutionalizes” bailouts of Wall Street and that it would give the Federal Reserve “enhanced emergency lending authority that is far too open to abuse.”
What McConnell did not mention was that, last week, he traveled alongside National Republican Senatorial Committee chairman Sen. John Cornyn (TX) to New York City for a private meeting with elite hedge fund managers and other Wall Street executives. The purpose of the meeting between the top Republicans and the financial executives was to enlist “Wall Street’s help” in funding Republican campaigns in the fall and killing any tough financial reform
Of course, this differs slightly from what Sheila Bair says,
http://www.americanbanker.com/issues/175_71/bair-reform-bill-1017657-1.html
Bair Says Reform Bill Will Make Bailouts ‘Impossible’
Would this bill perpetuate bailouts?
SHEILA BAIR: The status quo is bailouts. That’s what we have now. If you don’t do anything, you are going to keep having bailouts.
:
April 20, 2010 @ 1:23 PM
Latest news on financial
Latest news on financial reform:
April 20, 2010 @ 6:20 PM
jpinpb wrote:sdduuuude
[quote=jpinpb][quote=sdduuuude]I’d be OK with “appropriate” regulation rather than “more” regulation. And – as mentioned by others – the ability to enforce it.
One set of appropriate regulation might be to put in jail the employees of ratings agencies who clearly overrate debt in order to make a sale. But, of course something that sensible likely isn’t on the table.
Do that and we may not need any other regulation at all.[/quote]
Thank you. Exactly.[/quote]
What jp and sduuude said. Better regulators and regulations, not more or less regulation, is what we most need.
April 20, 2010 @ 8:46 PM
I believe a good first step
I believe a good first step would be to prosecute those that broke the existing laws. More laws will do little if they are not enforced.
Yes, derivatives need to be regulated, and underwriter needs to become a real profession. I think an underwriter should require a CPA and passing an eight hour test. Then all loan defaults should be tracked by underwriter. But then again, CPAs audited AIG’s and Enron’s financials.
Right now, loan officers tell “underwriters” what do? Underwriters need to have the authority to say no, not get a bonus if the the mortgage company meets its monthly sales goals.
April 23, 2010 @ 9:24 AM
If you look at it more
If you look at it more carefully, financial products and innovation basically allow us to:
1) Front-load consumption and spending.
2) Spread and shift the risk around.
For that, the banks make a commission/interest.
I don’t see how fiscal conservatives would support:
a) making it easier to borrow and spend money we don’t have. (if anything borrowing should become harder).
b) spreading the risk around from financial investors to society at large. (if anything investors should go into their investments fully aware of the risks and not be able to spread their own risks around).
April 23, 2010 @ 9:40 AM
You’re in good hands with
You’re in good hands with SEC:
SEC and Pornography: Workers Spent Hours on Porn Sites Instead of Stopping Fraud
Gov’t Report Finds Securities and Exchange Commission Employees Surfing Pornographic Websites at Work
Eight Hours a Day Spent on Porn Sites
One senior attorney at SEC headquarters in Washington spent up to eight hours a day accessing Internet porn. When he filled all the space on his government computer with pornographic images, he downloaded more to CDs and DVDs that accumulated in boxes in his offices.
An SEC accountant attempted to access porn websites 1,800 times in a two-week period and had 600 pornographic images on her computer hard drive.
Another SEC accountant attempted to access porn sites 16,000 times in a single month.
In one case, the report said, an employee tried hundreds of times to access pornographic sites and was denied access. When he used a flash drive, he successfully bypassed the filter to visit a “significant number” of porn sites.
http://abcnews.go.com/WN/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10451508
April 23, 2010 @ 1:40 PM
Aecetia wrote:an employee
[quote=Aecetia]an employee tried hundreds of times to access pornographic sites and was denied access. [/quote]
That’s very stupid. Bring your own laptop with 3G service. 😉 LTE is on the way. 😉
April 23, 2010 @ 3:04 PM
Yes, derivatives need to be
Actually, you need a background in statistics. Having a CPA cert does not help you, it would be better to have a background as an actuary.
The problem was that most of the models for probability of default were ‘momentum’ based and not ‘fundamental’ based. “Since real-estate has always gone up in the near past, it will continue to do so”. The models didn’t look at individual debt load at a global scale. The banks liked a nice little magic number that they felt would tell them everything.. called the FICO score. This way they could decide with little effort whether they should loan money or not. The problem with the FICO score is that it shows the use and availability of credit. It does not tell whether a person has the ability to repay a loan. Is some ways, it is a contra-indicator of the ability to repay a loan. If a person has the easy resources to pay without using credit, it is likely that they are more likely and able to clear any debt that they undertake.
No they don’t.. where did you get that from? The underwriters mis-judged the risk of default. The only people that the loan officers were able to badger were the appraisers, who effectively work for the loan originator. If the loan originators don’t get the appraisal to approve the loan, they go elsewhere. If the loan originators or CDO writers can’t get someone to underwrite the CDS.. they could shop around; BUT from the aspect of the CDS, they will not underwrite a CDO in the form of CDSs if they feel that the amount of money they will receive in premiums will not exceed the risk of loss. The underwriters take a pure ‘investment’ point of view. What the underwriter is likely to do is ask for a higher premium. For a while, some of the CDOs were requiring a 10% yearly premium on their CDSs (once things started going south)