COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary GET COMBO TITLE AND SECURITIZATION ANALYSIS – CLICK HERE

EDITOR’S NOTE: When you have nothing else throw mud. Some of it is bound to stick no matter how stupid it is. That’s straight out of the Republican playbook. The Banks are losing ground and they are pounding and threatening the Republicans withdrawing their support and otherwise trying anything they can to undermine the credibility of one of the ONLY people in the current administration that “gets it” and wants to do something about it, and has the power to do so. It is sleaze politics at its worst, and this is something that lies squarely at the feet of the Republicans. When will the sellout to the banks end? It will end when YOU make it end. Write your congressman and senators — both in the Congress and your state legislature.

Elizabeth Warren Fans Attack Patrick McHenry On Facebook Over Liar Charge

Patrick Mchenry

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WASHINGTON — Rep. Patrick McHenry’s pants may not be on fire, but his Facebook page is getting thoroughly flamed after he called Elizabeth Warren a liar Tuesday in a subcommittee hearing.

Fans of Warren think the North Carolina Republican took some unacceptable liberties with the boss of the nascent Consumer Financial Protection Bureau (CFPB), and they’re demanding that he get some McEtiquette and apologize.

Hundreds — and probably thousands — have flocked to McHenry’s fan page to singe him.

“I ‘like’ the fact that thousands, if not hundreds of thousands of Americans are appalled by your behavior,” wrote Jill Budzynski. “You are an insult to the title of chairman of any committee. It is out of order to abuse a loyal public servant who is trying her best to accommodate your flip-flopping of schedules. How reprehensible to accuse her of lying. Apologize now.”

The dust-up Tuesday came near the end of a hearing on the CFPB when the Oversight Committee’s top Democrat, Maryland’s Elijah Cummings, noted that Warren had stayed beyond the time he had seen agreed to in internal committee communications.

But McHenry denied there was any agreement, even though the hearing time had been changed as recently as that morning to accommodate the subcommittee. “You’re making this up,” McHenry told her, to her shock and gasps from the hearing audience.

Warren and her staff had the same understanding as Cummings, and sources confirmed the previously agreed upon timing for The Huffington Post.

Proposal to Place AIG Into Receivership Would Lead to Disclosure of Inner Workings

Editor’s Note: This proposal would reveal what really happened during the lead-up to the mortgage meltdown. The receiver would first take an objective inventory of what AIG (with taxpayer dollars) paid and track the actual transactions instead of REPORTS of the transactions.

It would reveal the theme for this week, which is that the loans were never securitized, which means that the “losses” attributed to failing mortgage bonds were fabricated losses, entitling the receiver to claw back the money given to the investment houses.

It would also result in clarification of title: who owns the property that has already been “sold” at auction pursuant to foreclosure and who is the legal owner of the loan. It should become apparent that only the originating lender really owns those loans as they are the only entity entity on record. By dismantling the illusion of securitization, it would also reveal that the investment banks did NOT sell the loans but only pretended to do so by clever manipulation of the wording in the prospectus.

And it would head off the worst title disaster in the nation’s history which so far has not been addressed — the inability of anyone to sell property (i.e.,m deliver clear title) that has been the subject property in what was an illegal table-funded loan that was later claimed to be part of fictitious pools whose “assets” were used to sell worthless bonds to investors in the form of mortgage “bonds” that were never actually issued.

A.I.G.: The First Test of Financial Reform?

July 21, 2010, 2:00 pm

<!– — Updated: 1:20 am –>

[The Deal Professor by Steven M. Davidoff]

Do the sweeping financial regulations that just became law give the government another tool to deal with the American International Group? If so, what if anything should the Treasury Department do with its new power?

More specifically, now that the government has obtained the authority to place systemically important financial companies into receivership, should the government use this procedure with A.I.G.? After all, former Treasury Secretary Henry M. Paulson Jr. has said that if he had been able to use that process in fall 2008, he would have used it. If not then, why shouldn’t the government act now?

About The Deal Professor

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate lawyer at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. He is the author of “Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion,” which explores modern-day deals and deal-making.

The government appears to have this power with respect to A.I.G., although it would require some procedural hurdles and a determination that A.I.G. is technically insolvent.

First, A.I.G. would have to be put under the supervision of the Federal Reserve as a systemically important nonbank financial company. This can be done by a declaration of two-thirds of the members of the newly created Financial Stability Oversight Council upon their determination that A.I.G. could pose a threat the financial stability of the United States. Check. We have already found that to be true, to our regret.

A.I.G. would next have to be put into the resolution process. Because the largest subsidiary of A.I.G. is almost certainly an insurance company, the new financial regulations would require that two-thirds of the members of the Federal Reserve Board and the newly appointed director of the newly created Federal Insurance Office, in consultation with the Federal Deposit Insurance Corporation, agree to recommend this action to the Treasury secretary.

The Treasury secretary would then decide whether to put A.I.G. into receivership based on a seven-factor test that requires him to determine whether A.I.G. “is in default or in danger of default” on its obligations and “no viable private sector alternative is available.” Importantly, the definition of default here is quite wide and includes a situation in which “the assets of the financial company are, or are likely to be, less than its obligations to creditors and others” or A.I.G. has depleted all or substantially all of its capital.

Recent reports by the Government Accountability Office and the Congressional Oversight Panel have stressed that it is very unclear what exactly A.I.G. is worth, and it may be the case that A.I.G.’s assets are less than what the company owes the United States government for billions of dollars in bailouts. But this is a moving figure and the stock market currently assigns A.I.G.’s equity billions of dollars in value, mitigating against these assessments.

If A.I.G. were to be put into receivership, it would be unwound according to the process set forth in the bill. There is an expedited claims process and the government has the power to terminate all of A.I.G.’s derivatives contracts. (The holders would then be entitled to cash damages as creditors of the company.)

The assets of A.I.G. would first go to pay the United States government, then to wages up to $11,725 per employee and thereafter to pay senior and unsecured creditors, the senior executives and directors and finally A.I.G. shareholders.

If there is a shortfall of funds, the bill appears to provide authority for the government to recover any such shortfall through an assessment on the financial sector, although it is not entirely clear that this provision would apply to the government’s prior financial assistance since it was provided before A.I.G.’s entry into receivership.

The advantages of the resolution process is that it sets a clear path for ending A.I.G.’s plight. The company would be liquidated in an orderly manner and the United States government repaid from A.I.G.’s assets or, if the bill is interpreted that way, the financial sector.

In addition, this type of resolution would penalize those creditors of A.I.G. that remain from the time before the bailout. In particular, it would ensure that the government is paid ahead of the $43.9 billion in A.I.G. private debt that was estimated to be outstanding by the Congressional Oversight Panel in its recent report on A.I.G. It would also stop the bleeding at A.I.G.

Only last week, three Ohio state pension funds reached a $725 million settlement with A.I.G. related to prior allegations of securities fraud. Only $175 million was actually paid in cash by A.I.G. (the rest will depend on an unlikely-to-occur stock offering), but this is money that comes out of the ability of A.I.G. to repay the government for its bailout.

The disadvantages of this resolution process are at least threefold.

First, there is a problem that Prof. Jeff Gordon at Columbia Law School has highlighted with the entire resolution process. Placing a company into the resolution process may itself scare the entire market and throw the financial system into panic. This may be addressed in part by only putting the main part of A.I.G. and its subsidiary AIG Financial Products (the division that wrote the derivatives that destroyed A.I.G.) into receivership, leaving the main insurance companies out of the process. But still, this would be an undeniable blow to market confidence.

Second, a resolution process may not provide the greatest return to the United States without a financial assessment. In other words, putting A.I.G. into the receivership process may diminish its value and require yet further government support. In particular, if A.I.G. is put into the resolution process, it may render worthless the billions of dollars in equity currently attributable to A.I.G.’s common stock (although that may be in part attributable to market expectations that the government would willingly take a haircut on its debt) and cut off A.I.G.’s healthier subsidiaries from any access to private-sector capital markets.

The third disadvantage lies in the political ramifications. Does the Obama administration really want the headache of taking full control of A.I.G. and the charges of socialism that would come with it?

In the end, I admit that this is a bit of a thought experiment and that the government is unlikely to (or should) take these steps, because the process of dealing with the company appears to be working on an acceptable, if not optimal, level. But plotting an A.I.G. receivership also reflects some of the problems and advantages of the new resolution process.

At a minimum, the government should likely acknowledge reality and designate A.I.G. as a systemically significant nonbank financial company under the new financial regulations. But even here, I acknowledge that such a designation may make the market increasingly leery of A.I.G. and foreclose its ability to effectively recover.

Still, as the process with A.I.G. unfolds, this designation and resolution option is one that government regulators should keep in mind if the company’s financial situation significantly deteriorates. At least, it is an option that should be debated as to its merits and deficits. The government owes it to the taxpayers to keep all of its options open.

– Steven M. Davidoff


As the following article demonstrates, the model currently used in this country and dozens of other countries  is “pay to play” — and if there is a crash it is the fees the banks paid over the years that bails them out instead of the taxpayers.
For reasons that I don’t think are very good, the economic team is marginalizing Volcker and headed down the same brainless path we were on when Bush was in office, which was only an expansion of what happened when Clinton was in office, which was a “me too” based upon Bush #1 and Reagan. The end result is no longer subject to conjecture — endless crashes, each worse than the one before.
The intransigence of Wall Street and the economic team toward any meaningful financial reform adds salt to the wound we created in the first palce. We were fortunate that the rest of the world did not view the economic meltdown as an act of war by the United States. They are inviting us to be part of the solution and we insist on being part of the problem.
Sooner or later, the world’s patience is going to wear thin. Has anyone actually digested the fact that there is buyer’s run on gold now? Does anyone care that the value of the dollar is going down which means that those countries, companies and individuals who keep their wealth in dollars are dumping those dollars in favor of diversifying into other units of storage?
The short-term “advantage” will be more than offset by the continuing joblessness and homelessness unless we take these things seriously. Culturally, we are looking increasingly barbaric to dozens of countries that take their role of protecting the common welfare seriously.

Bottom Line on these pages is that it shouldn’t be so hard to get a judge to realize that just because the would-be forecloser has a big expensive brand name doesn’t mean they are anything better than common thieves. But like all theft in this country, the bigger you are the more wiggle room you get when you rob the homeless or a bank or the government or the taxpayers. Marcy Kaptur is right. She calls for a change of “generals”  (likening Obama’s situation to Lincoln),  since their skills were perhaps valuable when Obama first tackled the economic crisis — but now are counterproductive. We need new generals on the economic team that will steer us clear from the NEXT crisis not the LAST crisis.

November 8, 2009

Britain and U.S. Clash at G-20 on Tax to Insure Against Crises

ST. ANDREWS, Scotland — The United States and Britain voiced disagreement Saturday over a proposal that would impose a new tax on financial transactions to support future bank rescues.

Prime Minister Gordon Brown of Britain, leading a meeting here of finance ministers from the Group of 20 rich and developing countries, said such a tax on banks should be considered as a way to take the burden off taxpayers during periods of financial crisis. His comments pre-empted the International Monetary Fund, which is set to present a range of options next spring to ensure financial stability.

But the proposal was met with little enthusiasm by the United States Treasury secretary, Timothy F. Geithner, who told Sky News in an interview that he would not support a tax on everyday financial transactions. Later he seemed to soften his position, saying it would be up to the I.M.F. to present a range of possible measures.

“We want to make sure that we don’t put the taxpayer in a position of having to absorb the costs of a crisis in the future,” Mr. Geithner said after the Sky News interview. “I’m sure the I.M.F. will come up with some proposals.”

The Russian finance minister, Alexei Kudrin, also said he was skeptical of such a tax. Similar fees had been proposed by Germany and France but rejected by Mr. Brown’s government in the past as too difficult to manage. But Mr. Brown is now suggesting “an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transaction levy.”

Supporters of a tax had argued that it would reduce the volatility of markets; opponents said it would be too complex to enact across borders and could create huge imbalances. Mr. Brown said any such tax would have to be applied universally.

“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Mr. Brown said at the summit. “There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards.”

At the meeting at the Scottish golf resort, the last to be hosted by Britain during its turn leading the group, the ministers agreed on a detailed timetable to achieve balanced economic growth and reiterated a pledge not to withdraw any economic stimulus until a recovery was certain.

They also committed to enact limits on bonuses and force banks to hold more cash reserves. But they failed to reach an agreement on how to finance a new climate change deal ahead of a crucial meeting in Copenhagen next month.

The finance ministers agreed that economic and financial conditions had improved but that the recovery was “uneven and remains dependent on policy support,” according to a statement released by the group. The weak condition of the economy was illustrated Friday by new data showing the unemployment rate in the United States rising to 10.2 percent in October, the highest level in 26 years.

The finance ministers also acknowledged that withdrawing stimulus packages required a balancing act to avoid stifling the economic recovery that has just begun.

“If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Mr. Geithner said. “It is too early to start to lean against recovery.”

As part of the group’s global recovery plan, the United States would aim to increase its savings rate and reduce its trade deficit while countries like China and Germany would reduce their dependence on exports. Economic imbalances were widely faulted as helping to bring about the global economic downturn.

Mr. Geithner acknowledged on Saturday that the changes would take time but that “what we are seeing so far has been encouraging.”

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