“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.”
Bloomberg-
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.
Eric T. Schneiderman, the attorney general of New York, has come under increasing pressure from the Obama administration to drop his opposition to a wide-ranging state settlement with banks over dubious foreclosure practices, according to people briefed on discussions about the deal.
In recent weeks, Shaun Donovan, the secretary of Housing and Urban Development, and high-level Justice Department officials have been waging an intensifying campaign to try to persuade the attorney general to support the settlement, said the people briefed on the talks.
Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.
Bank of America Corp. (BAC) may settle a state and federal probe of foreclosure practices in a deal that lets New York proceed with an inquiry into securitizations, according to two people with direct knowledge of the talks.
The firm may pursue an accord with most of the 50 state attorneys general, even if it omits New York’s Eric Schneiderman and at least two other states who are opposed because a deal would impede related inquiries, said one of the people. Negotiations on a broad settlement stalled after Schneiderman indicated he wouldn’t let it block his probe into the bundling and sale of mortgages, said the people, who declined to be identified because talks are private.
Federal regulators have ordered Midvale-based Ally Bank to fix significant deficiencies in its foreclosure practices covering a two-year period in which among other things it submitted bogus legal documents for bankruptcies and other court actions.
The order from the Federal Reserve and the Federal Deposit Insurance Corp. alleges employees of Ally, two sister companies and their parent company, Allied Financial, signed foreclosure documents without reading them — a possibly illegal practice known as “robo-signing.”
That Aug. 20, Commerzbank of Germany borrowed $350 million at the Fed’s discount window. Two days later, Citigroup, JPMorgan Chase, Bank of Americaand the Wachovia Corporation each received $500 million. As collateral for all these loans, the banks put up a total of $213 billion in asset-backed securities, commercial loans and residential mortgages, including second liens.
Thus began the bank run that set off the financial crisis of 2008. But unlike other bank runs, this one was invisible to most Americans.
JPMorgan Chase & Co. (JPM), the second- largestU.S. bankby assets, borrowed at least $5.9 billion from the Federal Reserve’s discount window over six months during the height of the financial crisis.
JPMorgan had previously disclosed it borrowed $500 million on Aug. 22, 2007, as similar loans were made toBank of America Corp. (BAC)and Wachovia Corp. “to display the effectiveness of the facility,” according to a joint statement at the time. JPMorgan accessed the program at least four more times through April 2008, according to documents released today under a Freedom of Information Act request by Bloomberg News and Fox News.
Goldman Sachs Group Inc. (GS) tapped the Federal Reserve’s discount window at least five times since September 2008, according to central bank data that contradict an executive’s testimony last year.
Goldman Sachs Bank USA, a unit of the company, took overnight loans from the Federal Reserve on Sept. 23, Oct. 1, and Oct. 23 in 2008 as well as on Sept. 9, 2009, and Jan. 11, 2010, according to the data released today. The largest loan was $50 million on Sept. 23 and the smallest was $1 million on the most recent two occasions.
The New York Fed will instead sell the assets individually and in blocks, the regulator said yesterday in astatementposted on its website.BlackRock Inc. (BLK), the New York Fed’s investment manager, will issue the first bid list next week, according to the statement.
“We had anticipated we would have the opportunity to buy these assets at a fair price by January 2011 and earn a return on them for the benefit of the U.S. taxpayer,” Mark Herr, a spokesman for New York-based AIG, said in an e-mailed statement. “Now, we must make up for lost time and lost earnings.”
Barclays Plc (BARC) is among investors considering making a counter offer, the Financial Times reported, citing unidentified people familiar with the matter. Seth Martin, a Barclays spokesman in New York, declined to comment.
Pursuant to that certain Asset Purchase Agreement, dated as of December 12, 2008 (as amended to date, the “Asset Purchase Agreement”), by and among the sellers party thereto (such entities, the “Original Sellers”), Maiden Lane II LLC (“ML II”), as buyer, the Federal Reserve Bank of New York (the “FRBNY”), as controlling party, American International Group, Inc. (“AIG Inc.”) and AIG Securities Lending Corp., as AIG agent, ML II purchased from the Original Sellers tranches of residential mortgage-backed securities. Pursuant to that certain Credit Agreement, dated as of December 12, 2008 (as amended to date, the “Credit Agreement”) among ML II, as Borrower, the FRBNY, as Controlling Party and as Senior Lender, and The Bank of New York Mellon, as Collateral Agent, the FRBNY made a loan to ML II to finance the purchase of the assets (the “Senior Loan”). Capitalized terms used but not defined herein, shall have the meanings ascribed thereto in the Credit Agreement and if not defined therein, the meaning ascribed thereto in the Asset Purchase Agreement.
Set forth below is a summary of proposed terms under which AIG Inc. would propose to enter into a Purchase Agreement (the “AIG Inc. PA”) with ML II and FRBNY, as Senior Lender and Controlling Party, pursuant to which one or more Buyers (as defined below) would purchase from ML II all of the assets (other than cash) owned by ML II as of the Cut-Off Date set forth below (each such asset, individually, an “Asset”, and collectively, the “Assets”).
“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.
By Greg Stohr and Bob Ivry – Mar 21, 2011 12:22 PM ET
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.
Gretchen Morgenson’s column in the New York Times yesterday points out a connection we should all be making: the high-speed, no time to think or do things right mindset of the mortgage industry is to blame for a lot of the problems we’re facing today, and that same mindset seems to be controlling the actions of the Attorneys General right now. Tom Miller, the Iowa Attorney General leading the talks, told us just last week, “We’re going to move as fast as we can.”
WASHINGTON, D.C. — 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.
10. The Mortgage Electronic Registration Service (MERS) is unregulated. MERS, at best, was a system designed to evade county recorder fees. No one – and that includes MERS’ controlling officials – knows the true condition of the mortgage instruments that MERS is supposed to be registering. At best, it is a scandal that threatens the stability of homeowners and holders of instruments that are supposed to be secured by mortgages. MERS is an “obvious gap” in regulatory protections that demonstrates once more the wealth and job destroying consequences of the “completely failed” anti-regulatory philosophy that Obama promised to root out.
11. The foreclosure scandal revealed an “obvious gap” in regulatory protections – no one regulates the foreclosure process. (The underlying epidemic of accounting control fraud by the nonprime mortgage lenders generated the “echo” epidemic of foreclosure fraud.) Bank of America, the second largest financial institution in America, acquired Countrywide in order to secure its personnel and its mortgage servicing portfolio. Countrywide was notorious for its fraudulent and predatory mortgage lending practices. Placing its employees in charge of servicing – the banking operation that controls the foreclosure process – guaranteed epic abuses. (Bank of America also managed to generate pervasive foreclosure abuses out of the staff it had prior to acquiring Countrywide.) Bank of America personnel, and personnel of other major servicers, eventually confessed that their foreclosure actions relied on massive, universal perjury (a felony). These “robo signing” crimes occurred at a frequency of roughly 10,000 monthly at more than one large servicer. Our most elite banks have confessed to committing hundreds of thousands of felonies.
Fed wants to strip a key protection for homeowners
Posted on Wednesday, December 1, 2010
By Tony Pugh | McClatchy Newspapers
WASHINGTON — As Americans continue to lose their homes in record numbers, the Federal Reserve is considering making it much harder for homeowners to stop foreclosures and escape predatory home loans with onerous terms.
The Fed’s proposal to amend a 42-year-old provision of the federal Truth in Lending Act has angered labor, civil rights and consumer advocacy groups along with a slew of foreclosure defense attorneys.
They’re not only asking the Fed to withdraw the proposal, they also want any future changes to the law to be handled by the new Consumer Financial Protection Bureau, which begins its work next year.
In a letter to the Fed’s Board of Governors, dozens of groups that oppose the measure, including the National Consumer Law Center, the NAACP and the Service Employees International Union, say the proposal is bad medicine at the wrong time.
“At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Fed has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosure: the extended right of rescission.”
Because the public comment period on the Fed’s proposal is still open until Dec. 23, a spokesman declined comment on the matter.
But in a September passage in the Federal Register, the Fed said the proposal was designed to “ensure a clearer and more equitable process for resolving rescission claims raised in court proceedings” and reflects what most courts already require.
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.
How to report? One of the things we strongly recommend is that you look at the MISMO standards, the Mortgage Industry Standards Maintenance Organization, for definitions, for format, and I think this might address issues, for example, with HUD reported credit score. That if you like at the MISMO, we don’t simply look at one field for credit score. There’s a field for a number. There’s also then a field of whether it’s a vantage score, whether it comes from FICO, what vendor reported the score. So that there are a number of variables then that are really behind it, and if you simply then pick up all of these variables associated with the credit score the way we do, you can then use the information internal to then generate whatever percentile or whatever calculation you would like to do, but that that would not be put back on the lender to reenter data, to rekey it, but instead use what’s already out there in the industry. Also it would provide for easier changes later on, if any additions are needed.
What about a universal mortgage identifier? That has been brought up. We would strongly recommend that you look at the mortgage identification number that’s been put out by the Mortgage Electronic Registration System, MERS. It allows us to track mortgages throughout the system from application all the way to sale of servicing, sales of the secondary market and I think for these purposes it would allow us to really sort of track some of the under coverage that we do see in the HMDA data. We did some analysis and found that by throwing out all the correspondent loans, we are eliminating a number of loans that had no counterpart in the retail broker data.
What to make public? Well, we really think that’s your decision. In a sense that there are a number of data elements here that we would very much not want to make public as companies because of the limitations we face, but that certainly that’s an issue that the bureau and the Fed will have to face going forward is the tradeoff between risks of identity theft associated with some of these elements and that, but that’s really your decision to make rather than the industry, and to some degree, we would benefit, I think, in terms of what would explain what’s going on in the industry with a greater data release.
Finally on multifamily, we did an analysis and we think that HMDA already covers about 95 percent of the multifamily loans that are made. In contrast, though, it covers only about 60 percent or so of the dollar amount of the loans. So that if you look then at the average loan amount that’s in HMDA, it’s about $1.7 million for a multifamily loan. If you look at the average loan size of what’s missing, it’s about $19 million. So we don’t know how much effort really should be put into trying to capture this remaining 5 percent of really high dollar loans that are done for just an entirely different set of investors out there. So I think you really ought to look at what do you really want to do with the multifamily data? Do you really want to expand it or is there a questionable usefulness of what’s already there? Thank you.
All these problems came about the same time MERS came to existence…now tell me something? Isn’t this a tad of a coincidence these issues became at the same time sub-prime loans hit peak?
The financial crisis has spawned hundreds of criminal prosecutions for alleged fraud. Yet so far, defendants have been mostly minor players such as real-estate agents, mortgage brokers, borrowers and a few low-level bank employees. No senior executives at large financial institutions face criminal charges.
Thats in stark contrast to prosecutions during the savings and loan scandal two decades ago, when the government’s strategy targeted and snagged some of banking’s most powerful players. The approach back then succeeded in sending scores of S&L executives to prison, as well as junk-bond king Michael Milken and business tycoon Charles Keating Jr.
One explanation for the difference may be that key bank regulators — who did the detective work during the S&L crisis and sent more than 1,000 criminal referrals to prosecutors — have this time left reporting fraud up to the banks themselves.
Spokesmen for two chief regulators, the Comptroller of the Currency and the Office of Thrift Supervision, say that they have not sent prosecutors a single case for criminal prosecution.
An OTS spokesman said the agency, much like the banks themselves, does not see much evidence of criminal fraud inside the financial institutions. The spokesman, Bill Ruberry, citing the agency’s enforcement director, said, “There may be some isolated cases, but certainly there’s no widespread patterns.”
That surprises William K. Black, a former OTS official who helped coordinate criminal investigations during the S&L crisis.
“Dear God,” Black said when told bank regulators haven’t made any criminal referrals. “Not a single one?”
Black sees many signs the the government is less aggressive than during the S&L era — and could result in more bad behavior.
“This crisis was not bad luck,” he said. “It was done to us. When you bring those convictions, you hope that at least for a while to deter.”
Banks have reported massive amounts of fraud to the Treasury Department but have not held themselves — or their top executives — responsible, instead pinning blame on borrowers, independent mortgage brokers, and others.
That may account for the dearth of prosections against big fry. For instance, in California, among states where the mortgage meltdown hit hardest, the Huffington Post Investigative Fund identified 170 mortgage fraud prosecutions in federal courts. Only two are against employees of a regulated lender.
An Investigative Fund analysis shows that two-thirds of the 170 prosecutions are against mortgage brokers, real-estate professionals or borrowers — the same groups blamed by the banks when they report suspicious activities to regulators.
Besides the absence of criminal referrals, other plausible factors for the lack of major prosecutions may include a skittishness among prosecutors about filing cases they could have trouble winning, and a severe decline in investigative resources. The FBI dramatically shifted resources away from white-collar crime after the 2001 terrorist attacks.
To be sure, there are also notable differences between the S&L and current financial crisis, in the behavior of lenders during both periods, and between civil allegations of fraud and proving that someone committed a crime — all of which could account for the lack of big prosecutions.
But interviews with several law enforcement authorities suggest another explanation: A lack of active assistance to prosecutors by bank regulators who played key roles during the S&L crackdown. Those regulators sent detailed reports to prosecutors of known and suspicious criminal activity.
“Only the regulators can make a lot of these cases,” Black said. “The FBI can make a few, but the regulators are the ones that understand the industry.”
Under intense political pressure in the late 1980s, the Justice Department and thrift regulators developed a strategy to thoroughly investigate failed S&Ls for evidence of fraud and to focus their resources on the highest ranking executives.
In the early years, between 1987 and 1989, there were more than 300 prosecutions. Some bank executives were already behind bars. In 1989, Woody Lemons, chairman of Vernon Savings and Loan in Texas, was sentenced to 30 years.
In June 1990, then-OTS director Timothy Ryan told Congress that his agency had established criminal-referral units in each of 12 district offices. In addition, more than 30 OTS employees were assigned as full-time agents of grand juries or assistant US attorneys to help prosecutions. And the agency prioritized prosecutions to a Top 100 list, targeting senior S&L executives and directors.
While data on criminal referrals during the S&L crisis is spotty, the Government Accountability Office reported that in the first ten months of 1992 alone — a random snapshot — financial regulators sent the Justice Department more than 1,000 cases for criminal prosecution.
One study showed that 35 percent of criminal referrals in Texas — ground zero for the S&L problems — were against officers and directors.
This time, prosecutors are relying more heavily on banks to report suspicious activity to the Treasury Department. Banks are required to report known or suspected criminal violations, including fraud, on Suspicious Activity Reports designed for the purpose. In effect, the reports, which can be many pages in length, provide substantive leads for criminal investigations.
Black scoffs at the strategy of leaving it to banks to ferret out all the fraud. “Institutions will not make criminal referrals against the people who control the institutions,” said Black.
A white-collar criminologist and law professor at the University of Missouri-Kansas City, he argues that there’s ample evidence of fraud. Insiders working for lenders openly referred to loans they made without proof of income as “liar loans.” Many banks actively sought inflated appraisals in their rush to make as many loans as possible. As previously reported by the Investigative Fund, such lending practices contributed to the demise of Washington Mutual.
Not everyone agrees that such a case can be successful. Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors.
“It doesn’t make any sense to me that they would be deliberately defrauding themselves,” Wagner said.
So far, only sporadic news reports suggest that the Justice Department has ongoing criminal investigations against major banks such as Washington Mutual and Countrywide, as well as investment bank Goldman Sachs.
Fewer Cops on the Beat
The Justice Department, in response to written questions from the Investigative Fund, acknowledged the absence of criminal referrals from financial regulators. Months into the financial crisis, a new Financial Fraud Enforcement Task Force, formed by President Obama last fall, was trying to work out communication problems between Justice and the regulatory agencies, according to the head of the task force, Robb Adkins. Adkins has said that criminal referrals from regulators have been “too often the exception to the rule.”
At a Congressional hearing in December, Assistant Attorney General Lanny Breuer was asked why there have been no criminal cases brought yet against CEOs. “Don’t for a moment think [these cases] aren’t being investigated,” Breuer replied. “They are complicated cases. It took a long time in hatching them and developing them. But they will be brought.”
The system that tracks Suspicious Activity Reports, or SARs, detected a dramatic increase in mortgage fraud starting in 2003, when reports of mortgage fraud nearly doubled within a year from 5,400 to 9,500. By 2007, the number had exploded to 53,000. During those same years, many mortgage lenders dramatically lowered their lending standards. Banks often required no proof of income. Borrowers could even get loans without be able to repay them.
Yet in their reports, banks overwhelmingly have blamed others for fraud. Whenever a borrower’s income was wrong on a loan application, the banks fingered borrowers 87 percent of the time and independent mortgage brokers 64 percent of the time, according to a 2006 Treasury analysis of the SARs. But the bank’s own employees were almost never blamed — only about four times in every 1,000 reports.
That might explain why so few prosecutions have targeted bank insiders.
Another reason for fewer prosecutions against bank employees is that the Federal Bureau of Investigation has far fewer agents working on the current crisis. Deputy Director John Pistole testified before Congress last year that the bureau had 1,000 people working on the S&L crisis at its height. That compares to about 240 agents working on mortgage fraud cases last year.
The FBI dramatically shifted its resources away from white-collar crime and to terrorism after the Sept. 11 attacks.
“We just didn’t have the cops on the beat” during the recent crisis, said Sen. Ted Kaufman, the Delaware Democrat who conducted a hearing on the lack of criminal prosecutions. “I was around during the savings and loan crisis [as a Congressional aide] and we had a lot more folks working it when it went down.”
Even with additional funding from Congress, which Kaufman helped push through, the FBI is budgeted to have 377 people working mortgage fraud cases this year, about a third as many as during the S&L investigations.
Charges Harder to Prove?
Charges in the recent banking crisis may be harder to prove, said Robert H. Tillman, who teaches at St. John’s University and who analyzed data about S&L prosecutions. Savings and loan executives who were convicted often personally approved large commercial loans for projects doomed to fail. Some would use federally insured deposits to pay themselves excessive salaries or to lend money to their own real estate projects. A few even took kickbacks.
This time, lending executives may have encouraged the making of bad loans, but they generally did not personally approve the loans, Tillman said. They didn’t send emails telling the troops to make fraudulent loans but paid big commissions to loan offers who made risky loans. Then the executives were able to reap huge bonuses for making the company look so profitable.
So far, the biggest cases have been civil lawsuits brought by the Securities and Exchange Commission, including most recently a highly publicized securities fraud case against Goldman Sachs and one of its vice presidents, Fabrice P. Tourre. News reports suggest that a referral from the SEC’s enforcement division to the Justice Department has led to a criminal inquiry.
Typically, federal authorities deal with massive financial scandals by picking a few cases they are confident they can win, said Henry Pontell, an expert on fraud at the University of California — Irvine.
This time, the administration may have been more focused on saving failing banks — and an entire financial system — than in prosecuting bank executives, Pontell said. Giving billions in bailout dollars to executives who encouraged fraudulent practices not only could complicate a case, it could prove embarrasing, he added.
Comprehensive Bailout Tally: $4.6 Trillion Spent on the Bailout to Date
Submitted by Mary Bottari on April 1, 2010 – 7:05am. PRWATCH.org
Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an assessment of the total cost to taxpayers of the Wall Street bailout. CMD concludes that multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008. Of that, $2 trillion is still outstanding. Our tally shows that the Federal Reserve is the real source of the bailout funds.
CMD’s assessment demonstrates that while the press has focused its attention on the $700 billion TARP bill passed by Congress, the Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans amounting to $3.8 trillion. Little information has been disclosed about what collateral taxpayers have received in return for these loans, sparking the Bloomberg News lawsuit covered earlier. CMD also concludes that the bailout is far from over as the government has active programs authorized to cost up to $2.9 trillion and still has $2 trillion in outstanding investments and loans.
Learn more about the 35 programs included in the CMD tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program.
Treasury Department Self-Congratulations Premature
While the Treasury Department has been patting itself on the back for recouping some of the Troubled Asset Relief Program (TARP) funds and allegedly making money off of its aid to Citigroup, the CMD accounting shows that TARP is only a small fraction of the federal funds that have gone out the door in support of the financial sector. Far more has been done to aid Wall Street through the back door of the Federal Reserve than through the front door of Congressional appropriations.
The tally shows that more scrutiny needs to be given by policymakers and the media to the role of the Federal Reserve especially as the Fed has accounted for the vast majority of the bailout funds, yet provides far less disclosure and is far less directly accountable than the Treasury.
Download the Financial Crisis Tracker
In addition to a comprehensive here Wall Street Bailout Table which will be updated monthly as a resource for press and the public, CMD is also making available a Financial Crisis Tracker, a widget that links to the table that can be downloaded to websites and provides up–to-date numbers on the financial crisis and the bailout. The Financial Crisis Tracker shows unemployment rates, housing foreclosure rates and the bailout total on a monthly basis. It is a more accurate measure of how we are doing as a nation than any Wall Street ticker.
1) $4.6 Trillion in Taxpayer Funds Have Been Disbursed
All together, $4.6 trillion of taxpayer funds have been disbursed in the form of direct loans to Wall Street companies and banks, purchases of toxic assets, and support for the mortgage and mortgage-backed securities markets through federal housing agencies. This is an astonishing 32% of our GDP (2008) 130% of the federal budget (FY 2009).
2) TARP vs. Non-TARP Funding
Most accountings of the financial bailout focus on the Troubled Asset Relief Program (TARP), enacted by Congress with the Emergency Economic Stabilization Act of 2008. However, a complete analysis of the activities of all the agencies involved in the bailout including the FDIC, Federal Reserve and the Treasury reveals that TARP, which ended up disbursing about $410 billion was less than a tenth of the total U.S. government effort to contain the financial crisis. TARP funds only account for about 20% of the maximum commitments made through the bailout and less than 10% of the actual funds disbursed.
3) The Federal Reserve has Played the Primary Role in the Bailout
The Federal Reserve has provided by far the bulk of the funding for the bailout in the form of loans — $3.8 trillion in total. Little information has been disclosed about what collateral taxpayers have received in return for many of these loans. Bloomberg News is suing the Federal Reserve to make this information public. On March 19, 2010 Bloomberg won its suit in the Second Circuit Court of Appeals, but it is not clear if this case will continue to be litigated to the Supreme Court.
4) Federal Support for the Housing Market is on the Rise
A key component of the bailout has been the federal support for mortgages and mortgage-backed securities, primarily through the Federal Reserve. All together, the government has disbursed more than $1.5 trillion in non-TARP funds to directly support the mortgage and housing market since 2007.
Fed Reveals Bear Stearns Assets It Swallowed in Firm’s Rescue (Bloomberg)
By Craig Torres, Bob Ivry and Scott Lanman
April 1 (Bloomberg) — After months of litigation and political scrutiny, the Federal Reserve yesterday ended a policy of secrecy over its Bear Stearns Cos. bailout.
In a 4:30 p.m. announcement in a week of congressional recess and religious holidays, the central bank released details of securities bought to aid Bear Stearns’s takeover by JPMorgan Chase & Co. Bloomberg News sued the Fed for that information.
The Fed’s vehicle known as Maiden Lane LLC has securities backed by mortgages from lenders including Washington Mutual Inc. and Countrywide Financial Corp., loans that were made with limited borrower documentation. More than $1 billion of them are backed by “jumbo” mortgages written by Thornburg Mortgage Inc., which now carry the lowest investment-grade rating. Jumbo loans were larger than government-sponsored mortgage buyers such as Fannie Mae could finance — $417,000 at the time.
“The Fed absorbed that risk on its balance sheet and is now seen to be holding problematic, legacy assets,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was the central bank’s monetary- affairs director from 2001 to 2007. “There is both an impairment to its balance sheet and its reputation.”
The Bear Stearns deal marked a turning point in the financial crisis for the Fed. By putting taxpayers at risk in financing the rescue, the central bank was engaging in fiscal policy, normally the domain of Congress and the U.S. Treasury, said Marvin Goodfriend, a former Richmond Fed policy adviser who is now an economist at Carnegie Mellon University in Pittsburgh.
‘Panic’ Cause
“Lack of clarity on the boundary between responsibilities of the Fed and of the Congress as much as anything else created panic in the fall of 2008,” Goodfriend said. “That created a situation in which what had been a serious recession became something near a Great Depression.”
Central bankers also created moral hazard, or a perception for investors that any financial firm bigger than Bear Stearns wouldn’t be allowed to fail, said David Kotok, chief investment officer at Cumberland Advisors Inc. in Vineland, New Jersey.
Policy makers’ resolve was tested months later by runs against the largest financial companies. Lehman Brothers Holdings Inc. collapsed into bankruptcy in September 2008. The ensuing panic caused the Fed to take even more emergency measures to push liquidity into markets and institutions. It rescued American International Group Inc. from collapse and allowed Goldman Sachs Group Inc. and Morgan Stanley to convert into bank holding companies, putting them under greater oversight by the central bank.
Early Failure
“Letting somebody fail early would have been a better choice,” Kotok said. “You would have ratcheted moral hazard lower and Lehman wouldn’t have been so severe.”
The Bear Stearns assets include bets against the credit of bond insurers such as MBIA Inc., Financial Security Assurance Holdings Ltd. and a unit of Ambac Financial Group, putting the Fed in the position of wagering companies will stop paying their debts.
The Fed disclosed that some of Maiden Lane’s assets were portions of commercial loans for hotels, including Short Hills Hilton LLC in New Jersey, Hilton Hawaiian Village LLC in Hawaii, and Hilton of Malaysia LLC, in addition to securities backed by residential mortgages.
More than a year after Washington Mutual, the largest U.S. savings and loan, was purchased by JPMorgan Chase in a distressed sale arranged by the Federal Deposit Insurance Corp., the home loans that helped bring down the Seattle-based thrift live on in the Maiden Lane portfolio.
Lending Standards
For example, 94 percent of the mortgages in one security, called WAMU 06-A13 2XPPP, required limited documentation from borrowers, meaning the lender often didn’t ask customers for proof of their incomes. Almost 10 percent of the borrowers whose mortgages make up the security have been foreclosed on, and almost a quarter are more than two months late with payments, according to data compiled by Bloomberg.
The portfolio also includes $618.9 million of securities backed by Countrywide, mortgages now rated CCC, eight levels below investment grade. All the underlying loans are adjustable- rate mortgages, with about 88 percent requiring only limited borrower documentation, according to Bloomberg data. About 33.6 percent of the borrowers are at least 60 days late. Countrywide is now part of Charlotte, North Carolina-based Bank of America Corp.
CDO Holdings
Maiden Lane has $19.5 million of securities from a series of collateralized debt obligations called Tropic CDO that are backed by trust preferred securities of community banks and thrifts. CDOs are investment pools made up of a variety of assets that provide a flow of cash.
Trust preferred securities, or TruPS, have characteristics of debt and equity and their interest payments are tax- deductible.
The securities created by Bear Stearns are rated C, one level above default, by Moody’s Investors Service and Fitch Ratings.
CDO securities have tumbled in value as banks are failing at the fastest rate in 17 years, according to data compiled by Bloomberg. The average price of TruPS CDO debt of this rating is pennies on the dollar, according to Citigroup Inc.
“The trust of the taxpayer was abused,” said Janet Tavakoli, president of Chicago-based financial consulting firm Tavakoli Structured Finance Inc. CDOs rated CCC and lower “have a high likelihood of default,” she said.
Bernanke Defense
Chairman Ben S. Bernanke defended the Bear Stearns deal as a rescue of the financial system. He said in a speech at the Kansas City Fed’s annual Jackson Hole, Wyoming conference in August 2008 that a sudden Bear Stearns failure would have caused a “vicious circle of forced selling” and increased volatility.
“The broader economy could hardly have remained immune from such severe financial disruptions,” Bernanke said in the speech. The Fed chief, who took office in 2006 and began his second term as chairman this year, also has repeatedly called for an overhaul of financial regulations that would allow authorities to take over a failing financial institution and oversee an orderly unwinding of its positions.
Bernanke said last year that nothing made him “more angry” than the AIG case, blaming the insurer for making “irresponsible bets” and a lack of regulatory oversight for the debacle. Officials “had no choice but to try and stabilize the system” by aiding the firm in September 2008, he said.
Yesterday’s release by the Fed, through its New York regional bank, also identified securities acquired in the bailout of AIG held in vehicles known as Maiden Lane II and III.
Market Value
Assets in Maiden Lane II totaled $34.8 billion, according to the Fed, which set their current market value in its weekly balance sheet at $15.3 billion. That means Maiden Lane II assets are worth 44 cents on the dollar, or 44 percent of their face value, according to the Fed.
Maiden Lane III, which has $56 billion of assets at face value, is worth $22.1 billion, or 39 cents on the dollar, according to the Fed’s weekly balance sheet. A similar calculation for the Bear Stearns portfolio couldn’t be made because of outstanding derivatives trades.
“The Federal Reserve recognizes the importance of transparency to its financial stability efforts and will continue to review disclosure practices with the goal of making additional information publicly available when possible,” the New York Fed said in yesterday’s statement.
Deal With Chase
The central bank said it reached agreement on “issues of confidentiality” for the assets with JPMorgan Chase, which bought Bear Stearns in 2008, and AIG. New York-based JPMorgan and AIG would incur the first losses on the portfolios.
Joe Evangelisti, a spokesman for JPMorgan, and Mark Herr, a spokesman for AIG, declined to comment.
In April 2008, Bloomberg News requested records under the federal Freedom of Information Act from the Fed’s Board of Governors related to JPMorgan’s acquisition of Bear Stearns. The central bank responded that records retained by the New York Fed “were proprietary records of the Reserve Bank, and not Board records subject” to the request, court records show.
Bloomberg filed suit in November 2008 in U.S. District Court in New York, challenging the Fed’s denial, as well as the denial of a separate request made in May 2008, seeking records of four other emergency lending programs.
The district court held that the Fed should release documents related to those four programs, and should search documents held by the New York regional bank to determine whether any of them should be considered records of the board of governors.
The U.S. Court of Appeals on March 19 upheld the district court’s ruling on the lending programs.
Representative Darrell Issa of California said in a statement that yesterday’s disclosure may “signal a new willingness to cooperate with Congress as we investigate how these bailout deals were structured and what the decision making process entailed.”
The TRILLION dollar question – if the Fed bought those *securities*, who is the Real Party in Interest/Holder in Due Course of the right to *foreclose*?
And were the assignments legally enforceable and *recorded*?? (Obviously not!!!!!!)
By: Carrie Bay (DSNEWS)
The Federal Reserve’s role as buttress, crutch, and benefactor of the nation’s mortgage debt market came to an end Wednesday. Since November 2008, the central bank has been the market’s No. 1 patron, buying up $1.25 trillion in mortgage-backed securities (MBS) from Fannie Mae, Freddie Mac, and Ginnie Mae.
There’s been chatter that the Fed’s exit could leave a gaping hole in the secondary market for mortgage bonds, causing interest rates for home loans to spike and buyer demand to dwindle. But the central bank has been prepping the market for its absence for some time now in the hopes of diminishing such effects, and has indicated that it will be keeping a close eye on market reactions, hinting that it could step back in if conditions begin to falter.
Most market observers, though, are predicting that won’t be necessary. It appears that private investors’ appetites for agencies’ mortgage bonds are piquing. Analysts are
saying private equity will step in to pick up the slack and mortgage interest rates will rise less than a quarter of a percentage point over the next quarter.
It’s expected that there may be some price volatility in the mortgage securities space after the Fed’s withdrawal, but analysts don’t expect prices to plunge or issuers’ yields to start heading upwards. One reason for this assumption is that traditional MBS buyers now have money to burn.
Christian Cooper, an interest rate strategist at Royal Bank of Canada’s RBC Capital Markets, explained to American Banker, “As the [U.S.] government has become the world’s largest buyer of mortgage securities in the last year, they’ve effectively squeezed all other buyers out of the market. The natural mortgage-backed securities buyer has been accumulating cash, effectively waiting for the program to end.”
Economists also say that Fannie Mae and Freddie Mac’s decision to pull seriously delinquent loans from securitized pools, which they announced in February, is making the prospect of purchasing such bonds more appealing to investors. Over the next few months, the GSEs plan to buy back loans in MBS that are 120 days or more overdue – some $127 billion in loans for Fannie, and $70 billion for Freddie.
The New York Times noted that while the mortgage market appears to be taking the end of the Federal Reserve’s MBS buying in stride, any talk from the central bank about actually selling its recently-acquired holdings should be a cause for greater concern than the Fed simply ending further purchases, since the Fed now owns about 25 percent of the outstanding stock of mortgage bonds.
I wonder if wifey Andrea Mitchell will report? NBC?
March 31, 2010, 9:29 PM EDT
By Jesse Westbrook
March 31 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan, ex-U.S. Treasury Secretary Robert Rubin and Charles Prince, who stepped down as Citigroup Inc. chief executive officer in 2007, will testify next week before the panel probing the financial crisis.
The Financial Crisis Inquiry Commission will hear from Greenspan on April 7, the panel said in a statement today. Rubin and Prince will testify the following day.
The FCIC, charged with determining what caused the worst U.S. economic slump since the Great Depression, is investigating the roles banks and regulators played in spurring or failing to prevent a crisis that led to more than $1.7 trillion in writedowns and credit losses at financial companies worldwide.
Testimony from Greenspan, Rubin and Prince shows the panel is shifting its focus to the Fed, where Greenspan served until 2006, and Citigroup, where Rubin became a senior adviser after serving in the Treasury post under President Bill Clinton. Citigroup got $45 billion in U.S. government bailout funds in 2008 after the collapse of the mortgage market froze credit.
U.S. Comptroller of the Currency John Dugan, whose agency oversees national banks, will also testify on April 8. Former Fannie Mae Chief Executive officer Daniel Mudd will appear April 9 along with former directors of the Office of the Federal Housing Enterprise Oversight.
The U.S. government rescued Fannie Mae in August 2008 after the housing slump threatened the survival of the government- sponsored company.
The FCIC, whose members were appointed by Congress, has been investigating the financial crisis since last year. It is supposed to deliver its findings to lawmakers in December.
–Editors: Gregory Mott, William Ahearn
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
To contact the editor responsible for this story: Alec McCabe at amccabe@bloomberg.net.
![BLOOMBERG | Goldman Sachs Borrowed From Fed Window Five Times [ZIP DOCS]](https://stopforeclosurefraud.com/wp-content/themes/gazette/thumb.php?src=wp-content/uploads/2011/03/goldman_sachs_641693a1.jpg&w=100&h=57&zc=1&q=90)
Thats in stark contrast to prosecutions during the savings and loan scandal two decades ago, when the government’s strategy targeted and snagged some of banking’s most powerful players. The approach back then succeeded in sending scores of S&L executives to prison, as well as junk-bond king Michael Milken and business tycoon Charles Keating Jr.
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