Category: regulation

Neil Barofsky Opening Up a Jar of Whup Ass on Timmy “Eddie Haskell” Geithner

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Yes, it’s from a week ago, but it’s a must read:

TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

Just go read the it.

Your Government Reigning In Meaningless Speculative Arbitrage

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And surprise, surprise, it’s Sheila Bair’s FDIC that has put a stop to this bit of cheating.

All things considered, I think that as a rule of thumb, if Timothy “Eddie Haskell” hates a policy, like protecting consumers, or hates a person, like Sheila Bair or Elizabeth Warren,* you can be pretty sure that it’s a good policy or person, or at least that the policies/people are better than Geithner and his policies.

Case in point,the FDIC levying a fee on a form of bank arbitrage that had banks profiting at taxpayer expense:

The introduction of a new insurance charge on overnight borrowing by banks in the US has led to the collapse of a profitable arbitrage opportunity that financial groups have used to rebuild their balance sheets after the financial crisis, traders say.

The Federal Deposit Insurance Corporation, which guarantees deposits at US banks, on Friday began levying the charge on funds borrowed by banks in the overnight money markets.

The move is part of a plan to rebuild the FDIC’s deposit insurance fund after the failure of more than 350 banks since 2007. The charge is based on the risk rating of the borrower, but is believed to be about 15 basis points for larger banks.

In response, banks are abandoning trades in which they borrowed in the overnight Fed funds market – often from government-controlled mortgage finance companies Fannie Mae and Freddie Mac – at about 10bp-15bp, then deposited the money at the Federal Reserve at an overnight rate of 25bp.

Some dealers estimated these trades could have allowed banks to lock in profits of about $200m since late 2008, when the Fed began paying overnight interest of 25bp on so-called excess reserves.

“What some banks now face is that the FDIC has just ‘taxed’ the arbitrage that they have been playing,” said William O’Donnell, strategist at RBS Securities.

Understand this: the taxpayers own Fannie and Freddie, and the Federal Reserve, so this was basically free money for the banks to be the banks.

I’m sure that Geithner is mad as hell about this, because it’s shut down another way for banks to extract money from taxpayer money to firm up their balance sheets, but our esteemed Treasury Secretary can talk to Bender.

It’s nice to know that someone in the Obama White House, even if it is someone that they would rather not have there, is actually doing things that prevent this sort of looting by the financial industry.

*Have you ever wondered why all of Timmy’s sworn enemies always seem to be women? I wonder some times.

It’s Bank Failure Friday!!!!

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Well, it appears that  the pace of bank failures is slowing, and maybe this year won’t be as bad as last year

And here they are, ordered, and numbered for the year so far.

  1. The Bank of Commerce, Wood Dale, IL

Only one this week, and none last week.

Full FDIC list

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

I’ve dropped the second pic, the line is far enough along to be clear without a zoomed in view.

Put a Fork in it, MERs is Done

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Mortgage Electronic Registration Systems (MERS) has been under increasing pressures for its legal basis (it appears that they never registered loan transfers), it’s corporate structure (a few dozen employees, and tens of thousands of “Vice Presidents” who were actually employed its clients, so it functioned as principal and agent), and its shoddy record keeping.

Well, MERS is now done.

First, it instructed it clients not to foreclose in its name, then Essex County, MA and Guilford County NC both filed multimillion dollar lawsuits against the entity for illegally evading county recording fees, and now Freddie Mac has said that servicers of its loan portfolio will no longer be allowed to foreclose in MERS’s name.

So, the PTB have come to the conclusion that MERS is complete sh%$, both from a legal as well as a factual perspective.

Of course, they knew this 15 years ago, when MERS was founded, but now they realize that he courts are recognizing it as well.

One question though:  Why is no one going to jail?

So Give Bloombert Your Papers, Mr. Bernanke

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The Supreme Court has declined to hear the Federal Reserve’s appeal of the court order directing them to turn over data on its discount window lending program:

The Federal Reserve will disclose details of emergency loans it made to banks in 2008, after the U.S. Supreme Court rejected an industry appeal that aimed to shield the records from public view.

The justices today left intact a court order that gives the Fed five days to release the records, sought by Bloomberg News’s parent company, Bloomberg LP. The Clearing House Association LLC, a group of the nation’s largest commercial banks, had asked the Supreme Court to intervene.

“The board will fully comply with the court’s decision and is preparing to make the information available,” said David Skidmore, a spokesman for the Fed.

The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic.

“I can’t recall that the Fed was ever sued and forced to release information” in its 98-year history, said Allan H. Meltzer, the author of three books on the U.S central bank and a professor at Carnegie Mellon University in Pittsburgh.

Well, it’s about f%$#ing time for the Fed to be sued and forced to release information, Professor Meltzer.

I’m not sure that there will be much in the way of revelations in the documents, this has been proceeding for a well over a year, so by this point, the recipients are pretty well known, but this is an important precedent (or non-precedent, since the Supreme Court declined to rule).

My guess is that there is real law-breaking buried somewhere in these documents, both by the big banks and the Fed, but, we won’t see any prosecutions, because in Barack Obama’s Justice Department, prosecutions are just for whistle blowers.

This Is Not Criminalizing Failure

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The FDIC is suing 3 former WAMU executives for $900 million, which I call a good start.

Felix Salmon, who I generally find to be pretty good on such things, calls it criminalizing failure:

If the risks they took paid off, they would have been hailed as heroes, and the FDIC would have no problem with their behavior. There certainly wouldn’t have been a lawsuit like this one, since the FDIC has to show that it suffered damages before it can bring it.

I don’t like the idea of criminalizing failure. Banks by their nature are leveraged institutions which are vulnerable to runs and to declines in their asset values. There’s always a natural tension between managers, who are looking to maximize profits, and regulators, who are looking to minimize risks. But in this case there’s no indication that WaMu’s regulators, including the FDIC, expressed any concern about Killinger’s strategy. If they were OK with it, at the time, it’s easy to see how the executives considered that a green light to go ahead and implement it with gusto.

But at the same time, it’s unconscionable that these guys should be able to get away with what they did just because they did it out in the open, in front of supine regulators. They knew that they were too big to fail; they knew that ultimately WaMu’s liabilities (or at least its deposits) were being backstopped by the US government; and they knew that if they wanted to get their total compensation up into the $100 million range they were just going to have to take enormous risks and gamble with the money they had essentially unlimited access to at the Fed’s discount window.

(emphasis mine)

Two points here, the first general, and second specific to this case.

The first is that a doctor who is sued for leaving a surgical instrument inside you, is not a victim of criminalizing failure. In fact, there is nothing criminal at all about the lawsuit. It’s not a criminal case, it is a civil tort as the result of negligence, and it is completely reasonable and justified.

The second point here, is that what these guys did, relying on a complacent regulator, the thoroughly captured Office of the Comptroller of the Currency (OCC), a federal backstop of depositors, a complacent board, and an “I don’t give a sh%$ about anything but this year’s bonus” attitude to knowingly engage in reckless practices in pursuit of short term gain, should be a criminal matter.

If someone is speeding and driving recklessly, and runs down a crossing guard, they do get charged with a crime, negligent homicide, and these guys were speeding and driving WaMu recklessly, so perhaps, they should be charged with negligent bankicide, because, after all, in Citizens United, the Supreme Court said that that corporations were people.

Economics Update

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The Federal Open Market Committee has released its statement, and its policies of low (basically zero) interest rates and quantitative easing (printing money) remain in effect.

Meanwhile, home builder confidence rose in March, but remains really really low, while the New York Feds Empire State Index Rose.

Full FOMC statement after the break:

Release Date: March 15, 2011
For immediate release

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
2011 Monetary Policy Releases

Last update: March 15, 2011

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. First National Bank of Davis, Davis, OK
  2. Legacy Bank, Milwaukee, WI

Full FDIC list

And here are the credit union closings:

  1. Land of Enchantment Federal Credit Union, Santa Fe, NM

Full NCUA list

I don’t have much to add, except that it looks a lot like 2010, and the “Land of Enchantement Federal Credit Union” is a really trippy name. 

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

Shoot Me. I’m Thinking that Ron Paul is Right

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The Federal Reserve’s Consumer Advisory Council just released a report saying that there have been no wrongful foreclosures by banks:

A months-long investigation into abusive mortgage practices by the Federal Reserve found no wrongful foreclosures, members of the Fed’s Consumer Advisory Council said Thursday.

During a public meeting attended by Fed chairman Ben Bernanke and other regulators, consumer advocates on the panel criticized federal bank regulators for narrowly defining what constitutes a “wrongful foreclosure.” At least one member of the panel voiced concerns that the public would not take the Fed’s findings of improper practices seriously, since the wide-ranging review did not find a single homeowner who was wrongfully foreclosed upon.

The Fed’s findings seem to support claims from the banking industry, which has admitted to sloppy practices but has maintained that the homeowners whose homes have been repossessed were substantially behind on their payments. The Fed’s report has not been released to the public.

This is crap.  Even if you argue that fraudulent statements to the court are not “wrongful foreclosure”, you have to note that banks have foreclosed on people who had mortgages with other people, and foreclosed on people who paid cash for their homes.

Well, with regard to the Federal Reserve, I used to take the middle ground, Alan Grayson’s position for audits and more transparency, while eschewing Ron Paul’s suggestion that we close down the Federal Reserve.

I thought that Paul was loony, and that it was a loony suggestion.

Now I’m beginning to think that the Federal Reserve is so thoroughly captured by the banks, and so thoroughly corrupt, that closing it down might be the only sane option.

It’s Bank Failure Friday!!!! (on Saturday)

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Click for full size


Here’s what I saw on the way to the lab

It’s a fairly slow week, no banks, and one credit union failed, so banks remain at 24 failures, see the Full FDIC list

And here is the credit union closing:

  1. Wisconsin Heights Credit Union, Ogema, WI

Full NCUA list

I also have a special bonus pictorial. I snapped some pix of K-Bank, which was closed in November. I noticed when I was walking to the lab to get some bloods drawn.

I have been aware for some time that Maryland banks have been closed, but this is the first time that I’ve seen one with an FDIC notice on its door.

                                                       
In any case, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

AT&T Has No Right to Privacy

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In a unanimous decision, the Supreme Court decided that corporations do not have a right to personal privacy under the Freedom of Information Act statute.

It was not even close.  It was unanimous, and there wasn’t even a separate concurring opinion.

The facts are clear:  AT&T cheated the government when it was wiring up schools and libraries, got caught, and paid a fine.

What happened next was that its competitors made FOIA requests to find out exactly what they did, and AT&T claimed that this would constitute an unwarranted intrusion of the corporation’s personal privacy which might “embarrass” it, which some some federal appellate judge who did too much LDS in the 60s actually bought that crap.

In reviewing the opinion, written by John Roberts (see here)what is exceedinbly clear is that John Roberts thought that this was an opportunity to sound “arch” or “witty”:

We disagree. Adjectives typically reflect the meaning of corresponding nouns, but not always. Sometimes they acquire distinct meanings of their own. The noun “crab” refers variously to a crustacean and a type of apple, while the related adjective “crabbed” can refer to handwriting that is “difficult to read,” Webster’s Third New International Dictionary 527 (2002); “corny” can mean “using familiar and stereotyped formulas believed to appeal to the unsophisticated,” id., at 509, which has little to do with “corn,” id., at 507 (“the seeds of any of the cereal grasses used for food”); and while “crank” is “a part of an axis bent at right angles,” “cranky” can mean “given to fretful fussiness,” id., at 530.

Maybe it’s just me, but he sounds neither “arch” nor “witty”, but rather like an 8th grade student who thinks that he is far more clever than he actually is.

It was a good decision, but Roberts’ opinion is just plain lame.

Normally, I Don’t Follow the Oscars

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Good question


And the trailer

But Charles Ferguson, the director of the documentary The Inside Job, upon accepting his award for best documentary, raised an obvious point:

Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that’s wrong.

It’s a good question, and, considering the timing of the crisis, it really started in September 2008, and there was no way that anything but damage control could be done over the next few months, the answer has to be, “Because Barack Obama does not want a single financial executive to go to jail.”

There are some issues that were mismanaged by the Bush administration, they had no intention to reign in excessive bonuses, for example, but the only way that major figures, such as the recent decision to no-bill Angelo Mozillo, is if there was a conscious decision not to apply to the rule of law at the highest level.

This is very similar to, and as least as damaging in the long term as, his conscious to allow the worst excesses of torture, perjury, and civil rights violations for Bush and His Evil Minions.™

This is corrosive to society.

It’s Bank Failure Friday!!!! (on Saturday)

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It’s a fairly slow week, with only one bank, and one credit union

And here they are, ordered, and numbered for the year so far.

  1. Valley Community Bank, St. Charles, IL

Full FDIC list

And here are the credit union closings:

  1. NYC OTB Federal Credit Union, New York, NY

Full NCUA list

I suppose that the OTB credit union closing was inevitable, as New York’s OTB, state run Off Track Betting, was shut down recently because they could not make a profit. 

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

Now We Know What Gives Timothy Geithner an Erection

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Noam Scheiber interviewed Geithner, and gave us this gem:

I asked Geithner if he had a grand vision for the postcrisis landscape—for, say, a less bloated financial sector with a smaller role in the economy—and a map for how to get there. Could he be a figure like George Marshall, who helped win the World War and then remade Europe so that it couldn’t happen again?

Geithner hunched his shoulders, pressed his knees together, and lifted his heels up off the ground—an almost childlike expression of glee. “We’re going, like, existential,” he said. He told me he subscribes to the view that the world is on the cusp of a major “financial deepening”: As developing economies in the most populous countries mature, they will demand more and increasingly sophisticated financial services, the same way they demand cars for their growing middle classes and information technology for their corporations. If that’s true, then we should want U.S. banks positioned to compete abroad.

“I don’t have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world,” he said. “It’s the same thing for Microsoft or anything else. We want U.S. firms to benefit from that.” He continued: “Now financial firms are different because of the risk, but you can contain that through regulation.” This was the purpose of the recent financial reform, he said. In effect, Geithner was arguing that we should be as comfortable linking the fate of our economy to Wall Street as to automakers or Silicon Valley.

And then he smoked a cigarette, and asked if was good for me.

H/t David Dayen.

Sorry for that image.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. Habersham Bank, Clarkesville, GA
  2. Citizens Bank of Effingham, Springfield, GA
  3. Charter Oak Bank, Napa, CA
  4. San Luis Trust Bank, FSB, San Luis Obispo, CA ⇐ I missed this one last night.

Full FDIC list

And here are the credit union closings:

  1. Family First Federal Credit Union, Orem, UT

Full NCUA list

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

This year is shaping up a LOT like last year so far.  It’s a bit early to be definitive, but it does look like bank failures are tracking ahead of what we saw at this point last year.

Props to Obama on Generic Drugs

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Obama’s budget achieves a fair amount of costs savings by shortening the exclusivity period for drugs and ending payments from big pharma to generic drug manufacturers not to manufacture their drugs:

Big pharmaceutical companies could face increased competition from generic drugmakers under two proposals put forth by the Obama administration on Monday despite earlier savings extracted from drugmakers as part of last year’s healthcare law.

President Barack Obama, as part of his 2012 budget proposal, called for cutting the number of years drugmakers could exclusively market brand-name biologic drugs to 7 years from 12.

He also set his sights on ending controversial “pay-for-delay” deals that affect traditional, chemical drugs by giving the U.S. Federal Trade Commission power to block them. Under such pacts, brand-name and generic drugmakers settle patent challenges with payoffs that delay lower-cost rivals from reaching the market.

I’d feel a little bit better about this if he also wasn’t cutting home heating aid to the poor in the same budget though.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

I would note that this trend seems to be hewing fairly close to last year’s pattern so far,

  1. Sunshine State Community Bank, Port Orange, FL
  2. Peoples State Bank, Hamtramck, MI
  3. Badger State Bank, Cassville, WI
  4. Canyon National Bank, Palm Springs, CA

Full FDIC list

And we have the first credit union closing of the year:

  1. Oakland Municipal Credit Union, Oakland, CA

Full NCUA list

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks: