$2.63 Trillion in Money Market Funds at Risk


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“This is an opportunity to get rid of institutions that shouldn’t exist,” he told me. “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.”

Money market funds held $2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.”

EDITOR’S COMMENT: While Wall Street sits on trillions of dollars that would stimulate the economies of the world, governments are still just wringing their hands and blaming the consumers, borrowers, and citizens for their avarice. Greed is the principal motivation on Wall STreet. Millions of people did not wake up one morning with the thought of doing transactions that would ruing the world economy and drive down employment, pension funds and real economic growth. Only Wall Street could have done that. The narrative to the contrary is pure myth generated by the Wall Street spin machine.

Volcker, at 81, is staying in the game instead of going into retirement and taking a well-deserved rest. He is doing that because the stakes are so high and he knows there are few people who want to listen to his message and so, like, I do here on these pages, he pounds away at the lies we live, and the truth we should be told. It’s obvious to him what needs to be done for the future, but we are just not doing it. The Banks must be brought under control one way or another, or they will continue to run and ruin our lives and prospects.

How Mr. Volcker Would Fix It


AMID all the minutiae of the Dodd-Frank financial overhaul, it’s easy to lose sight of the big question: will consumers, investors and the economy be safer?

That’s why a recent speech by Paul A. Volcker, the former chairman of the Federal Reserve and a voice of reason on matters financial, is so timely and important. Presented last month to the Group of 30, an organization devoted to international economic issues, the speech outlined crucial work that still must be done to safeguard our financial future. “Three Years Later: Unfinished Business in Financial Reform” was the title.

“By now it is pretty clear that it was faith in the techniques of modern finance, stoked in part by the apparent huge financial rewards, that enabled the extremes of leverage, the economic imbalances and the pretenses of the credit rating agencies to persist so long,” Mr. Volcker said in this remarkably candid talk.

The real treasures were found in his to-do list for further reforms. That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives (make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).

He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”

He also saw other economic fault lines, which are worth highlighting because few in Washington or on Wall Street seem willing to discuss them. I asked him last week to elaborate on these hazards.

One is the potential for problems in the huge industry of money market mutual funds, which operates “in the shadows of the banking system,” he said. Although these funds are typically managed conservatively, he said, they are vulnerable to runs, as occurred when Lehman Brothers collapsed.

“Because they are not subject to reserve requirements and capital requirements, they are a point of vulnerability in the system,” he said. “It is really interesting that they did so much lending to European banks. They had to pull back a lot, aggravating the pressures on the European banks.”

Money market funds held $2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.

The sellers of money funds, of course, do not want to face these kinds of regulations or requirements. In a recent letter to the Financial Stability Board, an international organization charged with developing strong regulatory and supervisory policies for financial institutions, the Investment Company Institute said: “We do not believe banklike regulation is appropriate, necessary or workable for funds registered under the Investment Company Act of 1940.”

An alternative, Mr. Volcker said, would be to require money market funds to value their assets every day to reflect market fluctuations. This would put an end to the idea that if you put $1 into a money market fund you will always get $1 out, no matter what.

“It seems to me if you are a mutual fund, you should act like a mutual fund instead of a pseudobank,” he said.

THE other area that cries out for change, Mr. Volcker said, is the nation’s mortgage market, now controlled by Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants.

“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”

While he acknowledges that we cannot eliminate Fannie and Freddie anytime soon, “it is important that planning proceed now on the assumption that government-sponsored enterprises will no longer be a part of the structure of the market,” he said.

Welcome to the kind of straight talk that few in Washington want to hear. “This is an opportunity to get rid of institutions that shouldn’t exist,” he told me. “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.”

Mr. Volcker knows more than a little about Fannie and Freddie; in the late 1960s and early ’70s, when he was an under secretary of the Treasury, he was among the presidential appointees to Fannie Mae’s board, he said.

The government erred, he said, by not putting the operations of Fannie Mae and Freddie Mac on the balance sheet and income statement of the United States. “They didn’t want the mortgage to be a government expenditure,” he said. “It was a volatile thing to put on the budget. They made the wrong choice.”

This is precisely the discussion we should be having on the government’s approach to housing policy. That is, unless you are a fan of the status quo, as many in Washington are, and are comfortable leaving the risk of mortgage losses on taxpayers’ shoulders.

“If the government wants to guarantee mortgages for certain low-income people, O.K., but I wouldn’t do much of it,” Mr. Volcker said. “A public agency intervening in the mortgage market in a limited way doesn’t bother me. But if you want to subsidize the mortgage market, do it more directly than hiding it in a quasi-private institution.”

When a man with the credibility and stature of Mr. Volcker talks, people in positions of power ought to listen. We’ll see if they do.

13 Responses


  2. I only have just enough money in my credit union to pay bills. My actual money is not with anybody but me. Screw inflation. One gets no return on keeping it safe in some bank or credit union. So i keep it. I haven’t see a robber is 50 years.

  3. http://www.housingpredictor.com/2011/foreclosures-crisis-forecast.html

    15 million foreclosures forecast by 2016. I think it’s on the low side…
    5 million modifications completed (80% of which not through any government program). Definitely on the high side… plus, those are the banks’ numbers and we know math isn’t their forte.

    “Congress has become so overly concerned about destroying the other party that the entire nation is suffering as members of the House and Senate pick-up record pay-days from special interests, including bankers and Wall Street to run their campaigns. Things have to change before the housing mess can possibly be straightened out.”

    Damnit! How come everyone seems to be picking up record pay-days… but us? Things have to change? Really? Kevin Chiu is a deep thinker…

  4. From Courthouse News Service 10/21/11

    BNY Mellon Needs Court Oversight, Judge Rules
    MANHATTAN (CN) – The Bank of New York Mellon cannot be left to its own devices to tie up tens of billions of dollars in toxic mortgage claims “through an arcane summary procedure in state court,” a federal judge ruled Wednesday.
    “The Bank of New York Mellon, as trustee for hundreds of trusts, seeks to dispose of billions of dollars in toxic mortgage claims through an arcane summary procedure in state court,” U.S. District Judge William H. Pauley III wrote. “The question presented is whether this mass settlement, which implicates core national interests in the integrity of the financial markets, is immune from review in federal court.”
    Countrywide Home Loans, which is now owned by Bank of America, raised money with various affiliates by entering into hundreds of securitization transactions between 2004 and 2008. “In these transactions, Countrywide conveyed portfolios of securitized residential mortgages through a third party to BNYM, as trustee, to hold in trust,” the court explained. “In turn, investors purchased certificates or notes evidencing various categories of ownership interests in the trusts.”
    In June 2010, at least one institutional investor operating under the entity Walnut Place LLP sent a letter to BNY Mellon, accusing Countrywide of selling a large number of mortgages into the trusts that breached signed warranties.
    As evidence, the letter cited early default and foreclosure rates for the mortgages, Countrywide’s settlements with various state attorneys general, and publicly disclosed emails from Countrywide officials.
    Walnut Place demanded that Countrywide and Bank of America repurchase the defaulting mortgage loans.
    “BNYM veils the identity of the pioneering investor(s),” the 21-page order states. “And the June 2010 letter – which is the first investor communication with BNYM mentioned in the petition – is not part of the record before this court. But one thing is certain: no more than eight institutional investors had banded together by October 18, 2010, when they asserted a notice of nonperformance in a letter that is part of the record.”
    A footnote explains that the number of institutional investors “has swollen to more than twenty,” including BlackRock Financial Management, Goldman Sachs Asset Management, PIMCO Investment Management Company, and several “Maiden Lane” entities controlled by the Federal Reserve Bank of New York.
    Weeks after the second letter, Countrywide and Bank of America shut the original Walnut Place investors out of backroom settlement negotiations.
    “In November 2010, fearing that the trusts’ claims against Countrywide and Bank of America would lapse as a result of BNYM’s torpor, several institutional investors-acting without Walnut Place – commenced settlement discussions with Countrywide and Bank of America,” the order states.
    According to the order, these negotiations may have breached securities law.
    “In their negotiations, the investors considered material non-public information from Bank of America that was unavailable to other certificate-holders, including Walnut Place,” the order states. “And no certificate-holders other than this clique of institutional investors participated in these discussions.”
    Earlier this year, Walnut Place sued Countrywide for breach of the representations and warranties, and two other investor lawsuits were later filed against BNY Mellon, Countrywide and Bank of America.
    On June 28, BNY Mellon entered into an agreement with Countrywide and Bank of America to settle all potential claims belonging to 530 of their trusts.
    “Although the trusts’ claims may exceed $150 billion … the settlement agreement requires a payment of $8.5 billion to trust beneficiaries and mandates certain improvements to Countrywide’s mortgage servicing process,” the order states. “The Settlement Agreement does not encompass sixty-three other trusts for which BNYM is trustee with a combined unpaid balance of approximately $15.3 billion as of September 26, 2011.”
    A day later, BNY Mellon filed a petition initiating a proceeding under Article 77 of the New York Civil Practice Law and Rules in New York Supreme Court.
    The text of the allegedly “arcane” statute begins:
    “A special proceeding may be brought to determine a matter relating to any express trust except a voting trust, a mortgage, a trust for the benefit of creditors, a trust to carry out any plan of reorganization of real property acquired on foreclosure or otherwise of a mortgage or mortgages against which participation certificates have been issued and guaranteed by a corporation and for which the superintendent of insurance or the superintendent of banks has been or may hereafter be appointed rehabilitator or liquidator or conservator, a trust to carry out any plan of reorganization pursuant to sections one hundred nineteen through one hundred twenty-three of the real property law or pursuant to section seventy-seven B of the national bankruptcy act, and trusts for cemetery purposes, as provided for by sections 8-1.5 and 8-1.6 of the estates, powers and trusts law.”
    That text is followed by six other subsections.
    The Walnut Place investors intervened in the BNY Mellon proceeding and removed it to federal court.
    BNY Mellon moved to remand it back to state court.
    A federal judge refused on Wednesday.
    Judge Pauley scheduled a status conference, in federal court, on Nov. 3, to proceed.

  5. http://www.huffingtonpost.com/2011/10/21/foreclosures-drive-down-property-values_n_1023790.html

    Former Massachusetts Governor Mitt Romney, a Republican candidate for president earlier this week told a newspaper in Nevada — the state with the highest foreclosure rate — that officials shouldn’t “try to stop the foreclosure process.”

    In a speech on Thursday Fed Governor Daniel Tarullo had a particularly dramatic way of describing the housing market:

    “Housing continues to hang like an albatross around the necks of homeowners and the economy as a whole,” he said, according to Reuters.


  6. Martha—they will all rot in hell…

  7. FIX IT? what an apt term

    I am sick of this all. THE LIES. The hopelessness of all of US!
    I used to post on here, but am so worn down.
    Me, a housewife, nothing more, Pro Per, is now in my 17th month of LITIGATION !

    Yet, not one single true scrap of paper has been provided, it’s all been fighting demurrer after demurrer.
    I could get no one to hear me- To believe me!
    I presented the Judge (now changed) PROOF that four loans were made to my husband, and it did NOT MATTER.

    I told her the Deeds of Trust were FORGED. No, does not matter.

    The only thing that mattered was that I was not a lawyer!

    DONNA K. DEMELLO, an evil person (a Witch?) has pled guilty to over eighty fraudulent straw-man loans, all in just a 12 month period!

    OH, of course before this she was as innocent as a new-lamb!

    She worked for First American from 2006 at least until 2008, how many frauds did she do, before she went to Stewart Title?(where she was arrested)

    On July 12th, 2007 I meet my husband at FATCO. He is buying a new home on “Lot 107” and he alone signed the purchase contract, and loan docs, I was only to sign the DOTS, as an “equitable owner”- Califraudya is a community property state.

    DONNA K. DEMELLO tells me the “lot number 107” has been changed to LOT 256.
    “Builders do it all the time, she says”

    DONNA K. DEMELLO tells me that “Since my husband is buying the home in his name only, they need to make him loans as Sole and Separate property FIRST” and I had to sign a spousal release on LOT 256, and then once I released my interest in LOT 256, he would sign two Deeds of Trust, as Sole and Separate property, and then she could “Instantly refinance” the loans with NEW deeds of trust.

    Oh, and she hands me a GRANT DEED that said they had long ago conveyed LOT 256 to him as “Richard Lawrence Nali as Sole and Separate property,” for $10.00.

    The first two temporary Deeds of Trust, said “Richard Lawrence Nali” and the second set of “permanent ones” said “Richard L. Nali” ( four MERS numbers in all)


    FOUR days later I have to go back to sign some “documents”

    She asks me to make and OATH that I signed Deeds of Trust on the 12th.
    Why of Course!

    Two years later, I had forgotten all this, and when I discover FOUR ACTIVE LOANS on MERS, I had forgotten the DEMELLO four loan deal. I forgot!
    Then I see the Deeds of Trust, not only are they forged, but they now say LOT 107, the lot it was supposed to be originally.

    and the Notary shows, not Donna K. Demello, but Donna K. Escamillo!

    I hunt down Donna K. Escamillo. She says… “There is no other Donna, You are CRAZY!”

    Then I see her Notary Journal, its full of DOUBLE SIGNINGS, all days apart, yet the documents are all dated the same date!

    Donna K. Demello and Donna K. Escamillo were a TEAM. No need to waste Journals!

    And yet, here I am… 17 months fighting the beast. They switched the MIN numbers, on the Deeds of Trust, they forged my name…They secretly sold my husband LOT 256, that is a house down the street I now found out….and then they have someone who WORKS FOR THE GOVERNMENT LIVING IN THAT HOUSE! I know when I smell a rat!

    If this can happen to me, in the face of obvious fraud, well…you others out there with simple fraud…. no chance in Hell!

  8. Luckily, Obama is the only one who isn’t claiming that SEX and the “time of conception” are the roots of our economic problems. Only problem though he that he still doen’s have a clue what is…

    Should we all give the repugnicans a shot and… simply stop having SEX, just to see if it fixes the economy and stops foreclosures at once?

    Ya never know…

  9. Why is it not surprising to hear that the mega banks still have even more crooked, fraudulent goings-on like money market funds that are not “safe.” Nobody has done enough to pull the big banks back into some semblance of “normal.” How long do we have to wait? Maybe until Obama sees that he might not get reelected, but we have so little to choose from. They are all bad on both sides.

  10. […] Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND Livinglies’s Weblog […]

  11. Not “mortgages”, Mr. Volcker…sigh…

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