Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans by bidding on pools of foreclosed properties being sold by Fannie Mae…
While the current approach of selling homes one-by-one has its own high costs and is sometimes inefficient, selling properties in bulk to large investors could require Fannie Mae to sell at a big discount, leading to larger initial costs.
In con artistry parlance, they call this the “reload.” That’s when you hit the same mark twice – typically with a second scam designed to “fix” the damage caused by the first scam. Someone robs your house, then comes by the next day and sells you a fancy alarm system, that’s the reload.
In this case, banks pumped up the real estate market by creating huge volumes of subprime loans, then dumped a lot of them on, among others, Fannie and Freddie, the ever-ready enthusiastic state customer. Now the loans have crashed in value, yet the GSEs (Government Sponsored Enterprises) are still out there feeding the banks money through two continuous bailouts.
Washington, DC—Ranking Member Elijah E. Cummings issued the following statement on a new GAO report issued regarding AIG. The report found inconsistent accounts of attempts by the Federal Reserve Bank of New York to negotiate with AIG’s counterparties to lower U.S. taxpayer exposure.
“GAO’s report cries out for the full and immediate implementation of the Dodd-Frank Act. As distasteful as the AIG bailout was, the systemic risk posed by AIG to the domestic and international economies was real, and cannot be overstated. This report reinforces the need to implement provisions in Dodd-Frank that will prohibit the use of tax-payer dollars to artificially prop up or benefit one firm, and ensure that massive, nonbank companies cannot engage in financial transactions that put our nation’s economy at risk again.”
Cummings was one of the Members of Congress who asked GAO to examine the decision to provide AIG with taxpayer funds. The report echoes the findings of investigations conducted, at Cummings’s request, by the House Oversight and Government Reform Committee and the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) which found clear shortfalls in the Federal Reserve Bank of New York’s negotiations with AIG counterparties regarding the payments they would receive for credit default swap contracts they held.
Highlights of the GAO report include the following:
“The possibility of AIG’s failure drove Federal Reserve aid after private financing failed.”
“[Federal Reserve Bank of New York’s] Maiden Lane III design likely required greater borrowing, and accounts of attempts to gain concessions from AIG counterparties are inconsistent.”
“The Federal Reserve’s actions were generally consistent with existing laws and policies, but they raised a number of questions.”
“Initial Federal Reserve lending terms were designed to be more onerous than private sector financing.”
“The AIG crisis offers lessons that could improve ongoing regulation and responses to future crises.”
In September 2008, the Board of Governors of the Federal Reserve System (Federal Reserve Board) approved emergency lending to American International Group, Inc. (AIG)–the first in a series of actions that, together with the Department of the Treasury, authorized $182.3 billion in federal aid to assist the company. Federal Reserve System officials said that their goal was to avert a disorderly failure of AIG, which they believed would have posed systemic risk to the financial system. But these actions were controversial, raising questions about government intervention in the private marketplace. This report discusses (1) key decisions to provide aid to AIG; (2) decisions involving the Maiden Lane III (ML III) special purpose vehicle (SPV), which was a central part of providing assistance to the company; (3) the extent to which actions were consistent with relevant law or policy; and (4) lessons learned from the AIG assistance. To address these issues, GAO focused on the initial assistance to AIG and subsequent creation of ML III. GAO examined a large volume of AIG-related documents, primarily from the Federal Reserve System–the Federal Reserve Board and the Federal Reserve Bank of New York (FRBNY)–and conducted a wide range of interviews, including with Federal Reserve System staff, FRBNY advisors, former and current AIG executives, AIG business counterparties, credit rating agencies, potential private financiers, academics, finance experts, state insurance officials, and Securities and Exchange Commission (SEC) officials. Although GAO makes no new recommendations in this report, it reiterates previous recommendations aimed at improving the Federal Reserve System’s documentation standards and conflict-of-interest policies.
While warning signs of the company’s difficulties had begun to appear a year before the Federal Reserve System provided assistance, Federal Reserve System officials said they became acutely aware of AIG’s deteriorating condition in September 2008. The Federal Reserve System received information through its financial markets monitoring and ultimately intervened as the possibility of bankruptcy became imminent. Efforts by AIG and the Federal Reserve System to secure private financing failed after the extent of AIG’s liquidity needs became clearer. Both the Federal Reserve System and AIG considered bankruptcy issues, although no bankruptcy filing was made. Due to AIG’s deteriorating condition in September 2008, the Federal Reserve System said it had little opportunity to consider alternatives before its initial assistance. As AIG’s troubles persisted, the company and the Federal Reserve System considered a range of options, including guarantees, accelerated asset sales, and nationalization. According to Federal Reserve System officials, AIG’s credit ratings were a critical consideration in the assistance, as downgrades would have further strained AIG’s liquidity position. After the initial federal assistance, ML III became a key part of the Federal Reserve System’s continuing efforts to stabilize AIG. With ML III, FRBNY loaned funds to an SPV established to buy collateralized debt obligations (CDO) from AIG counterparties that had purchased credit default swaps from AIG to protect the value of those assets. In exchange, the counterparties agreed to terminate the credit default swaps, which were a significant source of AIG’s liquidity problems. As the value of the CDO assets, or the condition of AIG itself, declined, AIG was required to provide additional collateral to its counterparties. In designing ML III, FRBNY said that it chose the only option available given constraints at the time, deciding against plans that could have reduced the size of its lending or increased the loan’s security. Although the Federal Reserve Board approved ML III with an expectation that concessions would be negotiated with AIG’s counterparties, FRBNY made varying attempts to obtain these discounts. FRBNY officials said that they had little bargaining power in seeking concessions and would have faced difficulty in getting all counterparties to agree to a discount. While FRBNY took actions to treat the counterparties alike, the perceived value of ML III participation likely varied by the size of a counterparty’s exposure to AIG or its method of managing risk. While the Federal Reserve Board exercised broad emergency lending authority to assist AIG, it was not required to, nor did it, fully document its interpretation of its authority or the basis of its decisions. For federal securities filings AIG was required to make, FRBNY influenced the company’s filings about federal aid but did not direct AIG on what information to disclose. In providing aid to AIG, FRBNY implemented conflict-of-interest procedures, and granted a number of waivers, many of which were conditioned on the separation of employees and information. A series of complex relationships grew out of the government’s intervention, involving FRBNY advisors, AIG counterparties, and others, which could expose FRBNY to greater risk that it would not fully identify and appropriately manage conflict issues and relationships.
I’ve been down to “Occupy Wall Street” twice now, and I love it. The protests building at Liberty Square and spreading over Lower Manhattan are a great thing, the logical answer to the Tea Party and a long-overdue middle finger to the financial elite. The protesters picked the right target and, through their refusal to disband after just one day, the right tactic, showing the public at large that the movement against Wall Street has stamina, resolve and growing popular appeal.
In the wake of the financial crisis, a number of the nation’s largest banks were excused from the government’s rescue program before they had returned to a position of complete financial security — in part because they wanted to avoid restrictions on how much their executives would get paid, according to a new report from the program’s government overseer.
Citigroup, Wells Fargo, PNC and Bank of America successfully lobbied to leave the federal bailout program early in 2009, even though the Federal Reserve Board and the Federal Deposit Insurance Corporation had recommended they take additional steps to shore up their assets, according to a new report from the Special Inspector General for the Troubled Relief Asset Program, a government watchdog office.
TOO Big to FAIL, doesn’t have to mean they’re TOO Big not to JAIL.
Three years ago this week, the financial system came unhinged. In rapid-fire succession, one major financial institution after another crumpled as years of recklessness on Wall Street and regulatory neglect in Washington took their toll. Before it was over, the federal government had committed trillions of dollars to bail out the nation’s largest banks and the economy was in tatters, with gnawing questions remaining about what went wrong and who was responsible.
The unraveling had dire consequences. Twenty-four million Americans are unemployed or unable to find full-time work, with wages as a share of gross domestic product at the lowest level since the 1930s. Meanwhile, the banks barely skipped a beat, with compensation at publicly traded Wall Street firms reaching a record $135 billion in 2010.
#WikiLeaks- PAULSON DISCUSSES FINANCIAL MARKETS, IRAN WITH SARKOZY, LAGARDE
In 2007 top US and France officials knew rampant fraud being committed by regulators, rating agencies and Wall Street Banks would soon cause a global financial collapse.
While investors and nations around the world were happily giving trillions of dollars away to crooked Wall Street bankers top officials in the United States and France knew the market would soon collapse and people would be robbed of millions.
While raising the issue that the role of government regulators and rating agencies needed to be reviewed in the wake of the upcoming crisis, US officials ignored calls from the French government to enact necessary regulation to stop the rampant fraud that would soon result in investors losing tens of trillions of dollars they had invested into the markets.
The cable reveals that while discussing the ability of the French banks to survive the crisis, French President Sarkozy was pushing the US to enact regulations to forestall the crisis. Instead, Henry Paulson responded by telling Sarkozy not to overreacted because the” it would take months, not weeks, for credit to be re-priced” telling France this is “not a major crisis.”
Paulson went on to warn that the major problem was with the German banks and which would require a bailout from the taxpayer while warning that the assets held by banks but covered up from investors by being held off-balance sheet presented systematic risk to banks and to sovereign wealth.
The cable clearly reveals that taxpayer bailouts would be needed. Paulson further up sticks up for the Wall Street hedge fund saying they were not to blame for the crisis while acknowledging there were major Wall Street transparency issues.
To summarize, the cable reveals that top government officials in France and the US knew Wall street banks were committing fraud in the origination and packaging of sub-prime mortgage and lying to investors about the resulting securities they were creating and selling. Officials knew banks were also lying about their own liabilities and hiding them from investors by keeping the assets off their balance sheets. The government also knew that both regulators and ratings agencies were participating in the scheme.
Remember as you read this cable, these conversations all took place over a year before the 2008 financial collapse when taxpayers around the world were forced into giving up trillions of dollars for banker bailouts. Also keep in mind that while the cable discusses “systemic risk”, “bailouts” and “market turbulence”, none of these had happened yet. They were discussing what would soon happen in the future.
The discussion of “systemic risk”, “market turbulence” and “taxpayer bailouts” over a year before the markets actually collapsed and those events actually occurred, show they knew a global financial collapse. Not only did they know it would occur but knew what the consequences would be for the investors and the governments who were fleeced by Wall Street. As the cable reveals, Paulson chose to deal with the crisis by letting it continue and urging France to keep the issue underwaps by urging Sarkozy not to “over react”, hence allowing the scandal to the continue which just postponed the inevitable.
Also remember when we were forced into these bailouts, it was under the guise that our governments had no idea the banks were doing this and this was a sudden and unforeseeable crisis. Finally, remember that – while there have been plenty of accusations from “conspiracy theorists”, “fringe economists” and “wing nut” politicians such as Ron Paul – there still has been no admission from our government that financial regulators or the ratings agencies played a role in the crisis.
This wasn’t the way the “ownership society” was supposed to work.
IT’S dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.
This wasn’t the way the “ownership society” was supposed to work. Investors weren’t supposed to watch their financial stocks plummet more than 70 percent in less than a year. And taxpayers weren’t supposed to be left holding defaulted mortgages and abandoned homes while executives who presided over balance sheet implosions walked away with millions.
“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
The Fed told us explicitly – many times – that it was taking “good collateral” to back up these loans and that it was quite confident it would not lose any money.
That, it turns out, was true.
What we were not told is that the “collateral” they took was so bad that it was in some cases valued at TEN CENTS on the dollar or less, and in each of these cases it leaves open the question as to where is that collateral now, having been returned to the bank, what is it actually worth, and how is it being carried on the books – because what we do know from the bank’s financial reporting is that it most-certainly was NOT written off.
There’s more than enough here in these tables to call for a massive forensic investigation into the accounting practices of each and every one of these institutions as the fact that FRBNY valued this “collateral” at such a tiny fraction of it’s claimed value by the submitting institution leads to an immediate question as to how one squares that valuation with the values reported by the banks in their quarterly and annual reports, and whether they were at the time, or are today, in point of fact, at anything approaching actual valuations, insolvent.
We the people deserve both answers AND HONEST ACCOUNTING.
The Federal Reserve‘s net income surged 53% to $81.74 billion last year from 2009 mainly due to higher earnings from securities the central bank bought to counter the financial crisis, according to final audited results released Tuesday.
Almost all of that income — $79.27 billion — will be sent back to the U.S. Treasury. The record transfer marks a 68% increase from the $47.43 billion the Fed sent back to Treasury in 2009. The figures were slightly higher than preliminary results published in January.
To fight the financial crisis, the Fed bought securities whose value had collapsed due to fear and uncertainty in markets and set up emergency lending programs for banks and firms, thus boosting its balance sheet. The central bank came under attack for taking too many risk with taxpayers money and putting itself in a position to suffer losses.
How’s this for contrasting interpretations: the AGs’ proposed mortgage servicing settlement is being termed both a “shakedown” (WSJ editorial page) and a “bailout.” (Jesse Eisinger at ProPublica–ok, he uses the word “gift”, but still).
Wow. That’s some divergence in characterization of an incomplete term sheet.
I think both of these interpretations miss the mark, as neither really gets what a settlement is. A settlement is a voluntary contract and represents compromises by both sides in order to avoid uncertain litigation outcome. The WSJ’s interpretation is just nuts–the cheerleaders for freedom of contract are complaining about the price of a contract offer. Addressing Eisinger’s bailout charge is more complex. Details below the break.
FDIC officials expect to make an additional $21.5 billion in payments from 2011 to 2014. More than half of that total is predicted for this year, followed by an estimated $6 billion in loss-share reimbursements in 2012, according to the agency. Some of the loss-share deals will be in place for 10 years.
The payments to date are smaller than FDIC officials anticipated, and they say it would cost much more to liquidate the mountain of bad loans at fair-market value. The FDIC said Wednesday that it couldn’t be more specific about its previous estimates for future payouts because the agency continually revises those estimates based on new loss-share deals and claims submitted under existing arrangements.
i brought these with me. anybody that works on wall street, anybody that works for one of the banks, take a look at this, okay? because this is what’s coming. this is what’s coming for you, because the people aren’t going to take it any more. the people are going to demand justice. they are going to demand that your ass is in jail. you have taken the money, we want the money back. you have taken our jobs overseas, we want those jobs back. those are a national resource. those are not yours to do with as you please. they affect all of us as society. we have a right to those jobs, we have a right to that money that used to belong to the people of this country. a million people evicted from homes, foreclosured this year. another million expected this year. i just wonder again, if i can, address the wall streeters and bank. how long is this going to go on?
Our country faces its most serious economic crisis since the great depression. Working families, who saw their incomes decline by $2,000 in the economic “expansion” from 2000 to 2007, now face even deeper income losses. Retirement savings accounts have lost $2 trillion. Markets have fallen 40% in less than a year. Millions of homeowners who played by the rules can’t meet their mortgage payments and face foreclosure as the value of their homes have plummeted. With credit markets nearly frozen, businesses large and small cannot access the credit they need to meet payroll and create jobs.
Barack Obama and Joe Biden have a plan to revitalize the economy.
Immediate Action to Create Good Jobs in America
Immediate Relief for Struggling Families
Direct, Immediate Assistance for Homeowners, Not a Bailout for Irresponsible Mortgage Lenders
A Rapid, Aggressive Response to Our Financial Crisis, Using All the Tools We Have
1. IMMEDIATE ACTION TO CREATE GOOD JOBS IN AMERICA
The economy has lost 760,000 jobs this year — and some forecasters expect the unemployment rate to exceed 8 percent by the end of next year. Addressing the financial crisis will help prevent the most severe loss of jobs from the crisis. But taking direct steps to create jobs will also strengthen the economy and help with the financial crisis. Barack Obama and Joe Biden’s overall economic agenda is pro-jobs, including their plans to eliminate America’s dependence on foreign oil and bring down healthcare costs. But Obama and Biden believe we must take additional aggressive steps to jump-start job creation right now:
A New American Jobs Tax Credit: Obama and Biden will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired. For example, if a company that currently has 10 U.S. employees increases its domestic full time employment to 20 employees, this company would get a $30,000 tax credit — enough to offset the entire added payroll tax costs to the company for the first $50,000 of income for the new employees. The tax credit will benefit all companies creating net new jobs, even those struggling to make a profit.
Raise the small business investment expensing limit to $250,000 through the end of 2009:Obama and Biden will give small businesses an additional incentive to make investments and start creating jobs again by providing temporary business tax incentives through 2009. The February 2008 stimulus bill increased maximum Section 179 expenses to $250,000 but this expires in December 2008. This provision will encourage all firms to pursue investment in the coming months, but will particularly benefit small firms which generally have smaller amounts of annual property purchases and so choose to expense the cost of their acquired property.
Zero capital gains rate for investment in small businesses: Barack Obama and Joe Biden believe that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why they will eliminate all capital gains taxes on investments made in small and start-up businesses. They also want to cut taxes for the small businesses that create jobs but are struggling with restricted access to credit on top of skyrocketing health care and energy costs.
Save one million jobs through immediate investments to rebuild America’s roads and bridges and repair our schools: The Obama-Biden emergency plan would make $25 billion immediately available in a Jobs and Growth Fund to help ensure that in-progress and fast-tracked infrastructure projects are not sidelined, and to ensure that schools can meet their energy costs and undertake key repairs starting this fall. This increased investment is necessary to stem growing budget pressures on infrastructure projects. In addition, in an environment where we may face elevated unemployment levels well into 2009, making an aggressive investment in urgent, high-priority infrastructure will serve as a triple win: generating capital deployment and job creation to boost our economy in the near-term, enhancing U.S. competitiveness in the longer term, and improving the environment by adopting energy efficient school and infrastructure repairs. In total, Obama and Biden’s $25 billion investment will result in 1 million jobs created or saved, while helping to turn our economy around.
Partner with America’s automakers to help save jobs and ensure that the next generation of clean vehicles is built in the United States: Senator Obama pushed for $50 billion in loan guarantees to help the auto industry retool, develop new battery technologies and produce the next generation of fuel efficient cars here in America. Congress passed only half of this amount — it is critical that the administration speeds up the implementation of the first half and that Congress move quickly to enact the second half. In addition, Obama and Biden believe that with the tremendous uncertainty facing the auto industry, and the small and medium business suppliers who depend on them, it is critical that we keep all options on the table for helping them weather the financial crisis.
2. IMMEDIATE RELIEF FOR STRUGGLING FAMILIES
Even when the overall economy was growing, most American families were not sharing in this growth. The typical non-elderly household saw its income decline by more than $2,000 from 2000 to 2007 as expenses skyrocketed. Weekly wages, adjusted for inflation, are now lower than they were a decade ago. Barack Obama and Joe Biden’s overall economic plan will relieve the squeeze on families and foster bottom-up growth. But they are proposing that we implement several measures immediately:
A tax cut for 95 percent of workers and their families — plus seniors: Barack Obama and Joe Biden propose a permanent tax cut of $500 for workers and $1,000 for families. A first round of these tax credits could be mailed out quickly by the IRS based on tax returns already filed for tax year 2007. In addition, Obama and Biden would extend these expedited tax credits to senior citizens who are retired as a down payment on his plan to eliminate taxes for all seniors making up to $50,000.
Extend unemployment insurance benefits and temporarily suspend taxes on these benefits:Millions of Americans are looking for work but unable to find it in the weak economy. Today, more than one in five unemployed workers has been out of work for more than half a year — the highest level since early 2005. Obama supported extending unemployment insurance this summer, but already 800,000 jobless workers have exhausted those benefits and are being left without any unemployment compensation. Obama and Biden believe Congress should immediately extend unemployment insurance for an additional 13 weeks to help families that are being hit hardest by this downturn. In addition, they believe we should temporarily suspend taxes on unemployment insurance benefits as a way of giving more relief to families.
Penalty-free hardship withdrawals from IRAs and 401(k)s in 2008 and 2009: Many families are going to be facing unique economic hardship over the coming year. To help these families pay their bills and their mortgages and make it through these tough times, Obama and Biden are calling for legislation that would allow withdrawals of 15% up to $10,000 from retirement accounts without penalty (although subject to the normal taxes). This would apply to withdrawals in 2008 (including retroactively) and 2009.
Instruct the Treasury to allow seniors to delay required withdrawals from 401(k)s and IRAs:Currently seniors are required to start withdrawing from their 401(k)s and IRAs at age 70 1/2 and every year thereafter over their lifetime. But the explicit requirement that withdrawals continue on an annual basis — and the related requirement that the amount withdrawn be based on currently much higher year-end 2007 asset values — is based on Treasury regulations, not the statute, which has a less specific mandate. That means the Secretary of the Treasury has authority to change its regulations to protect seniors from being forced, at this critical time, to sell their investments and “lock in” their losses just after market values have plummeted in an almost unprecedented fashion. Obama and Biden are calling on Treasury to temporarily suspend the required withdrawals for retirees over age 70 1/2. Because retirees often make these required withdrawals late in the year, there is still time to help millions of affected seniors — but only if done promptly. In addition, because lower-income seniors may have no choice but to take withdrawals this year and in 2008, Obama and Biden will exempt any withdrawals made up to the required minimum amount from taxation. This will give seniors the flexibility they deserve — to forgo withdrawals if they choose or to take those withdrawals tax free if they need those resources to pay their bills.
Funds to counteract high heating costs this winter: Obama and Biden are calling for supplementing the recently passed LIHEAP funding to ensure that cold-weather states can cushion the impact of high energy prices for their residents this winter. The Energy Information Administration said that consumers will pay a projected $1,137 to heat their homes from Oct. 1 to March 31 — 15 percent more than last year’s heating outlay during this time. Homeowners that use heating oil rather than natural gas could see increases of 23 percent compared to last year. As part of his $25 billion state fiscal relief package, Obama’s plan will supplement existing LIHEAP funding to help state programs expand to cover more residents while continuing to provide a meaningful benefit.
3. DIRECT, IMMEDIATE ASSISTANCE FOR HOMEOWNERS, NOT A BAILOUT FOR IRRESPONSIBLE MORTGAGE LENDERS
Over the past two years, Americans have lost 20 percent of the value of their homes. In some parts of the country home values have fallen by twice that amount. In combination with a rapidly deteriorating economy, that means more and more families are having a hard time meeting their monthly mortgage payments. At the same time, many states are considering property tax hikes that will burden homeowners still further. And millions of families who have seen the value of their homes fall below the cost of their mortgages need assistance in restructuring their mortgages to stay in their homes.
Barack Obama and Joe Biden’s plan provides direct relief to help America’s homeowners pay their mortgages, stay in their homes, and avoid painful tax increases while protecting taxpayers and not rewarding the bad behavior and bad actors who got us into this mess:
Instruct the Secretaries of the Treasury and Housing and Urban Development (HUD) to use their existing authority to more aggressively modify the terms of mortgages: Barack Obama was an early champion of the HOPE for Homeowners Act that passed over the summer. In addition, Obama insisted that the financial rescue plan Congress recently passed include authority for the Secretary to work with servicers to modify the terms of mortgages for homeowners who played by the rules. Obama and Biden believe that both of these plans should be implemented aggressively and comprehensively. In addition, Obama and Biden are calling on Treasury and HUD to develop a plan to work with state housing agencies to coordinate broad mortgage restructurings. The Dodd-Frank legislation gives states broader authority to help struggling homeowners, and coordination is essential to ensure that state and national efforts are working in concert to help as many homeowners as possible at the minimum cost to taxpayers.
Reform the bankruptcy code to assist homeowners and remove legal impediments to encouraging broader mortgage restructuring: Obama and Biden are also calling for legislation to close the loophole in our bankruptcy code that allows bankruptcy judges to modify the terms of mortgages on investment properties and vacation homes but not on primary residences. He also believes we should clarify the legal liability of mortgage servicers so that servicers who work with struggling homeowners to modify their mortgages will receive legal protections. And we should remove any tax- or legal-related impediments to encouraging shared-equity mortgages within the HOPE for Homeownership process.
Enact a 90-day foreclosure moratorium for homeowners who are acting in good faith: Financial institutions that participate in the financial rescue plan should be required to adhere to a homeowner’s code of conduct, including a 90-day foreclosure moratorium for any homeowners living in their homes who are making good faith efforts to pay their mortgages. This will help create stability until the more far-reaching solutions are implemented and give both sides a chance to work out an agreement.
Provide $25 Billion in state fiscal relief to help avoid painful property tax increases: Budget crunches across the nation are putting our local governments in the untenable position of having to choose between raising property taxes and cutting vital services. Obama has proposed $25 billion in state fiscal relief that, coupled with the new emergency facility to address the state credit crunch, will help states and localities continue to provide essential services like health care, police, fire and education without raising taxes or fees.
Create a universal mortgage tax credit for homeowners: Barack Obama believes we should immediately enact a 10 percent refundable tax credit on the mortgage interest paid by hardworking American families who do not itemize their taxes. This credit will help offset the cost of mortgage payments for at least 10 million middle-class homeowners.
4. A RAPID, AGGRESSIVE RESPONSE TO THE FINANCIAL CRISIS — USING ALL THE TOOLS WE HAVE
Barack Obama and Joe Biden believe that our deep systemic financial market crisis requires a systemic response. They fought to ensure that the recently-passed financial rescue package gave the Treasury the tools to stabilize the financial system, while protecting taxpayers and ensuring CEOs would not get rich in the process. However, this stabilization will only occur if the Treasury, Federal Reserve, FDIC, and other government entities use their authority and move quickly and aggressively to address the financial crisis.
It is now clear that our financial markets will not restart until financial institutions are lending again. Because of the extensive losses many of these institutions have suffered, they need more capital so that they will have the money to lend to families and businesses. Obama and Biden recognized this early, and were heartened by the Treasury’s stated intention to use its recently granted authority to inject capital into our financial institutions. However, Secretary Paulson must turn this intention into action quickly and aggressively, in a manner that strengthens confidence in our banks, protects taxpayers, does not reward CEOs, and is strictly temporary.
In addition, our financial authorities must stand ready to take additional, complementary actions — consistent with the systemic nature of this crisis — to ensure this Treasury initiative is successful:
Be prepared, if necessary, for broader assurances for credit to banks: First, we must be prepared to provide additional, temporary assurances to achieve the effective functioning of financial markets. Depending on developing circumstances, these steps could include additional measures by the Federal Reserve, extending insurance to all deposits, or guaranteeing a broader range of liabilities of the banking system including overnight loans. Any such steps should be coordinated internationally where appropriate and feasible. They should be accompanied by additional oversight to ensure appropriate use of guaranteed funds and by the expectation that financial institutions taking advantage of these guarantees will raise more capital.
Extend asset purchases to unfreeze other critical sectors: Second, the Treasury should not limit itself to purchasing mortgage-backed securities under the financial rescue plan recently passed by Congress. The Treasury should use the authority it has under the new law to help unfreeze markets for individual mortgages, student loans, car loans, loans for multi-family dwellings, and credit card loans.
Make credit available to small businesses and state or local governments: Third, we should take immediate steps to support non-financial institutions including small businesses and states and municipalities. The Federal Reserve and Treasury have acted to preserve the availability of liquidity for financial institutions and, more recently, have created a program to purchase commercial paper directly from the large corporate issuers. Small businesses and state and local governments, however, are having serious difficulty obtaining necessary financing from debt markets.
Address the credit crisis facing our states and localities: Barack Obama and Joe Biden propose that the Federal Reserve and the Treasury work together to design a facility to provide a funding backstop to the state and municipal government debt market similar to the recently announced program for the commercial paper market. The Federal Reserve should determine whether it has sufficient legal authority to establish such a facility on its own — if not, it should work with Treasury and the Congress to achieve this goal. This new facility should be designed to protect taxpayer resources while ensuring that state and local governments can continue to provide vital services to their residents.
Address the credit crisis facing our small businesses: To address the massive credit crunch that is threatening America’s small businesses, Barack Obama and Joe Biden are proposing two immediate steps: (1) a nationwide emergency lending facility for small businesses that could be run through the SBA’s Disaster Loan Program, which helped thousands of businesses in the wake of 9/11; and (2) temporarily eliminating fees on the SBA’s 7(a) and 504 loan guarantee programs for small businesses, to help increase private lending for small businesses.
Barack Obama and Joe Biden believe that trade with foreign nations should strengthen the American economy and create more American jobs. They will stand firm against agreements that undermine our economic security.
Fight for Fair Trade: Obama and Biden will fight for a trade policy that opens up foreign markets to support good American jobs. They will use trade agreements to spread good labor and environmental standards around the world and stand firm against agreements like the Central American Free Trade Agreement that fail to live up to those important benchmarks. Obama and Biden will also pressure the World Trade Organization to enforce trade agreements and stop countries from continuing unfair government subsidies to foreign exporters and nontariff barriers on U.S. exports.
Amend the North American Free Trade Agreement: Obama and Biden believe that NAFTA and its potential were oversold to the American people. They will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.
Improve transition assistance: To help all workers adapt to a rapidly changing economy, Obama and Biden will update the existing system of Trade Adjustment Assistance by extending it to service industries, creating flexible education accounts to help workers retrain, and providing retraining assistance for workers in sectors of the economy vulnerable to dislocation before they lose their jobs.
End tax breaks for companies that send jobs overseas: Barack Obama and Joe Biden believe that companies should not get billions of dollars in tax deductions for moving their operations overseas. They will fight to ensure that public contracts are awarded to companies that are committed to American workers.
Reward companies that support American workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-Ill) and Sherrod Brown (D-Oh) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the U.S.; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military.
Manufacturing and Green Jobs
Invest in our next generation innovators and job creators: Obama and Biden will create an Advanced Manufacturing Fund to identify and invest in the most compelling advanced manufacturing strategies. The Fund will have a peer-review selection and award process based on the Michigan 21st Century Jobs Fund, a state-level initiative that has awarded over $125 million to Michigan businesses with the most innovative proposals to create new products and new jobs in the state.
Double funding for the manufacturing extension partnership: The Manufacturing Extension Partnership (MEP) works with manufacturers across the country to improve efficiency, implement new technology and strengthen company growth. This highly-successful program has engaged in more than 350,000 projects across the country and in 2006 alone, helped create and protect over 50,000 jobs. But despite this success, funding for MEP has been slashed by the Bush administration. Barack Obama and Joe Biden will double funding for the MEP so its training centers can continue to bolster the competitiveness of U.S. manufacturers.
Invest in a clean energy economy and create 5 million new green jobs: Obama and Biden will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, invest in low emissions coal plants, and begin transition to a new digital electricity grid. The plan will also invest in America’s highly-skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the first wave of green technologies that will be in high demand throughout the world.
Create new job training programs for clean technologies: The Obama-Biden plan will increase funding for federal workforce training programs and direct these programs to incorporate green technologies training, such as advanced manufacturing and weatherization training, into their efforts to help Americans find and retain stable, high-paying jobs. Obama and Biden will also create an energy-focused youth jobs program to invest in disconnected and disadvantaged youth.
Boost the renewable energy sector and create new jobs: The Obama-Biden plan will create new federal policies, and expand existing ones, that have been proven to create new American jobs. Obama and Biden will create a federal Renewable Portfolio Standard (RPS) that will require 25 percent of American electricity be derived from renewable sources by 2025, which has the potential to create hundreds of thousands of new jobs. They will also extend the Production Tax Credit, a credit used successfully by American farmers and investors to increase renewable energy production and create new local jobs.
National Infrastructure Investment
Barack Obama and Joe Biden believe that it is critically important for the United States to rebuild its national transportation infrastructure — its highways, bridges, roads, ports, air, and train systems — to strengthen user safety, bolster our long-term competitiveness and ensure our economy continues to grow.
Create a National Infrastructure Reinvestment Bank: Barack Obama and Joe Biden will address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments. This independent entity will be directed to invest in our nation’s most challenging transportation infrastructure needs. The Bank will receive an infusion of federal money, $60 billion over 10 years, to provide financing to transportation infrastructure projects across the nation. These projects will directly and indirectly create up to two million new jobs and stimulate approximately $35 billion per year in new economic activity.
Technology, Innovation and Creating Jobs
Barack Obama and Joe Biden will increase federal support for research, technology and innovation for companies and universities so that American families can lead the world in creating new advanced jobs and products.
Invest in the sciences: Obama and Biden support doubling federal funding for basic research and changing the posture of our federal government from being one of the most anti-science administrations in American history to one that embraces science and technology. This will foster home-grown innovation, help ensure the competitiveness of U.S. technology-based businesses, and ensure that 21st century jobs can and will grow in America.
Make the Research and Development Tax Credit permanent: Barack Obama and Joe Biden want investments in a skilled research and development workforce and technology infrastructure to be supported here in America so that American workers and communities will benefit. Obama and Biden want to make the Research and Development tax credit permanent so that firms can rely on it when making decisions to invest in domestic R&D over multi-year timeframes.
Deploy next-generation broadband: Barack Obama and Joe Biden believe we can get broadband to every community in America through a combination of reform of the Universal Service Fund, better use of the nation’s wireless spectrum, promotion of next-generation facilities, technologies and applications, and new tax and loan incentives.
Provide tax relief for small businesses and start-up companies: Obama and Biden will eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation. Obama and Biden will also support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation.
Create a national network of public-private business incubators: Obama and Biden will support entrepreneurship and spur job growth by creating a national network of public-private business incubators. Business incubators facilitate the critical work of entrepreneurs in creating start-up companies. Obama and Biden will invest $250 million per year to increase the number and size of incubators in disadvantaged communities throughout the country.
Obama and Biden will strengthen the ability of workers to organize unions. He will fight for passage of the Employee Free Choice Act. Obama and Biden will ensure that his labor appointees support workers’ rights and will work to ban the permanent replacement of striking workers. Obama and Biden will also increase the minimum wage and index it to inflation to ensure it rises every year.
Ensure freedom to unionize: Obama and Biden believe that workers should have the freedom to choose whether to join a union without harassment or intimidation from their employers. Obama cosponsored and is a strong advocate for the Employee Free Choice Act (EFCA), a bipartisan effort that makes sure workers can exercise their right to organize. They will continue to fight for EFCA’s passage and Obama will sign it into law.
Fight attacks on workers’ right to organize: Obama has fought the Bush National Labor Relations Board (NLRB) efforts to strip workers of their right to organize. He is a cosponsor of legislation to overturn the NLRB’s “Kentucky River” decisions classifying hundreds of thousands of nurses, construction workers, and professional workers as “supervisors” who are not protected by federal labor laws.
Protect striking workers: Obama and Biden support the right of workers to bargain collectively and strike if necessary. They will work to ban the permanent replacement of striking workers, so workers can stand up for themselves without worrying about losing their livelihoods.
Raise the minimum wage: Barack Obama and Joe Biden will raise the minimum wage, index it to inflation and increase the Earned Income Tax Credit to make sure that full-time workers earn a living wage that allows them to raise their families and pay for basic needs.
Mortgages, Homeownership, and Bankruptcy
Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, they’ll give a tax credit to all middle-class homeowners, and they’ll reform our bankruptcy laws to protect working people.
Create a universal mortgage credit: Obama and Biden will create a 10 percent universal mortgage credit to provide tax relief to homeowners who do not itemize. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
Ensure more accountability in the subprime mortgage industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
Mandate accurate loan disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
Close bankruptcy loophole for mortgage companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.
Credit Cards and Lending
Obama and Biden will establish a five-star rating system so that every consumer knows the risk involved in every credit card. They also will establish a Credit Card Bill of Rights to stop credit card companies from exploiting consumers with unfair practices.
Create a credit card rating system to improve disclosure: Obama and Biden will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card’s features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
Establish a Credit Card Bill of Rights to protect consumers: Obama and Biden will create a Credit Card Bill of Rights to protect consumers. The Obama-Biden plan will:
Ban Unilateral Changes
Apply Interest Rate Increases Only to Future Debt
Prohibit Interest on Fees
Prohibit “Universal Defaults”
Require Prompt and Fair Crediting of Cardholder Payments
Cap outlandish interest rates on payday loans and improve disclosure: Obama and Biden will extend a 36 percent interest cap to all Americans. They will require lenders to provide clear and simplified information about loan fees, payments and penalties, which is why they’ll require lenders to provide this information during the application process.
Encourage responsible lending institutions to make small consumer loans: Obama and Biden will encourage banks, credit unions and Community Development Financial Institutions to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business.
Reform bankruptcy laws to protect families facing a medical crisis: Obama and Biden will create an exemption in bankruptcy law for individuals who can prove they filed for bankruptcy because of medical expenses. This exemption will create a process that forgives the debt and lets the individuals get back on their feet.
Obama and Biden will double funding for after-school programs, expand the Family Medical Leave Act, provide low-income families with a refundable tax credit to help with their child-care expenses, and encourage flexible work schedules.
Expand the Family and Medical Leave Act: The FMLA covers only certain employees of employers with 50 or more employees. Obama and Biden will expand it to cover businesses with 25 or more employees. They will expand the FMLA to cover more purposes as well, including allowing workers to take leave for elder care needs; allowing parents up to 24 hours of leave each year to participate in their children’s academic activities; and expanding FMLA to cover leave for employees to address domestic violence.
Encourage states to adopt paid leave: As president, Obama will initiate a strategy to encourage all 50 states to adopt paid-leave systems. Obama and Biden will provide a $1.5 billion fund to assist states with start-up costs and to help states offset the costs for employees and employers.
Expand high-quality afterschool opportunities: Obama and Biden will double funding for the main federal support for afterschool programs, the 21st Century Learning Centers program, to serve a million more children. Obama and Biden will include measures to maximize performance and effectiveness across grantees nationwide.
Expand the child and dependent care tax credit: The Child and Dependent Care Tax Credit provides too little relief to families that struggle to afford child care expenses. Obama and Biden will reform the Child and Dependent Care Tax Credit by making it refundable and allowing low-income families to receive up to a 50 percent credit for their child care expenses.
Protect against caregiver discrimination: Workers with family obligations often are discriminated against in the workplace. Obama and Biden will enforce the recently-enacted Equal Employment Opportunity Commission guidelines on caregiver discrimination.
Expand flexible work arrangements: Obama and Biden will create a program to inform businesses about the benefits of flexible work schedules; help businesses create flexible work opportunities; and increase federal incentives for telecommuting. Obama and Biden will also make the federal government a model employer in terms of adopting flexible work schedules and permitting employees to request flexible arrangements.
“We cannot allow homeowners and small towns to suffer because of the mess made by Wall Street and by Washington and for those Americans in danger of losing their homes today I’m also proposing a three month moratorium on foreclosures. If your a bank…if your a bank or a lender who’s getting money from the rescue plan that passed congress and your customers are making a good faith effort to make their mortgage payments and renegotiate their mortgage you will not be able to foreclose on their home for three months. We need to get to give the people the breathing room to get back on their feet”
William K. Black
Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
Posted: December 28, 2010 05:29 PM
The role of the criminal justice system with regard to financial fraud by elite bankers in 2011 is likely to reprise its role last decade — de facto decriminalization. The Galleon investigation of insider trading at hedge funds will take much of the FBI’s and the Department of Justice’s (DOJ) focus.
The state attorneys general investigations of foreclosure fraud do focus on the major players such as the Bank of America (BoA), but they are unlikely to lead to criminal liability for any senior bank officials. It is most likely that they will lead to financial settlements that include new funding for loan modifications.
The FBI and the DOJ remain unlikely to prosecute the elite bank officers that ran the enormous “accounting control frauds” that drove the financial crisis. While over 1000 elites were convicted of felonies arising from the savings and loan (S&L) debacle, there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.
What has gone so catastrophically wrong with DOJ, and why has it continued so long? The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals.
This section of the website provides detailed information about the liquidity and credit programs and other monetary policy tools that the Federal Reserve used to respond to the financial crisis that emerged in the summer of 2007. These programs fall into three broad categories–those aimed at addressing severe liquidity strains in key financial markets, those aimed at providing credit to troubled systemically important institutions, and those aimed at fostering economic recovery by lowering longer-term interest rates.
The emergency liquidity programs that the Federal Reserve set up provided secured and mostly short-term loans. Over time, these programs helped to alleviate the strains and to restore normal functioning in a number of key financial markets, supporting the flow of credit to businesses and households. As financial markets stabilized, the Federal Reserve closed most of these programs. Indeed, many of the programs were intentionally priced to be unattractive to borrowers when markets are functioning normally and, as a result, wound down as market conditions improved. The programs achieved their intended purposes with no loss to taxpayers.
The Federal Reserve also provided credit to several systemically important financial institutions. These actions were taken to avoid the disorderly failure of these institutions and the potential catastrophic consequences for the U.S. financial system and economy. All extensions of credit were fully secured and are in the process of being fully repaid.
Finally, the Federal Reserve provided economic stimulus by lowering interest rates. Over the course of the crisis, the Federal Open Market Committee (FOMC) reduced its target for the federal funds rate to a range of 0 to 1/4 percent. With the federal funds rate at its effective lower bound, the FOMC provided further monetary policy stimulus through large-scale purchases of longer-term Treasury debt, federal agency debt, and agency mortgage-backed securities (agency MBS). These asset purchases helped to lower longer-term interest rates and generally improved conditions in private credit markets.
The links to the right provide detailed information about the programs that were established in response to the crisis. Details for each loan include: the borrower, the date that credit was extended, the interest rate, information about the collateral, and other relevant terms. Similar information is supplied for swap line draws and repayments. Details for each agency MBS purchase include: the counterparty to the transaction, the date of the transaction, the amount of the transaction, and the price at which each transaction was conducted. The transaction data are provided in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Federal Reserve will revise the data to ensure that they are accurate and complete.
No rules about executive compensation or dividend payments were applied to borrowers using Federal Reserve facilities. Executive compensation restrictions were imposed by statute on firms receiving assistance through the U.S. Treasury’s Troubled Asset Relief Program (TARP). Dividend restrictions were the province of the appropriate supervisors and were imposed by the Federal Reserve on bank holding companies in that role, but not because of borrowing through the facilities discussed here.
Washington Post Staff Writer
Thursday, October 21, 2010; 10:09 AM
The federal bailout for Fannie Mae and Freddie Mac could more than double in size during the next three years, according to projections from the companies’ federal regulator.
Fannie and Freddie, the federally-controlled mortgage finance giants, will likely need at least another $73 billion and perhaps as much $215 billion from taxpayers in the next three years to meet their financial obligations, the Federal Housing Finance Agency said.
The growing taxpayer infusions will cover losses Fannie and Freddie suffer on home loans, as well as payments the companies must make to the U.S. Treasury in exchange for a federal guarantee to provide cash to keep the companies solvent.
In fact, over time, the majority of funds flowing to Fannie and Freddie from taxpayers will go to pay that dividend.
To date, the Treasury has already injected $148 billion into Fannie and Freddie. Under the worst-case scenario, in which the country enters a second recession, the total infusion would equal $363 billion in three years.