REPUBLICANS ATTACK ELIZ WARREN: SLEAZE BATH SHOULD BACKFIRE

Posted on May 26, 2011 by Neil Garfield

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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.

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Deceptive Lobbying on Derivatives

Posted on February 16, 2011 by Neil Garfield

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EDITOR’S COMMENT: Once again Simon JOhnson hits the nail on the head. Those of you who want a more sophisticated picture of this mortgage mess along with the macro-economic view would do well to visit http://www.baselinescenario.com.

With the latest move in New York allowing legal aid to homeowners in foreclosure, the number of contested cases is going to go through the roof. If other states follow, the battle will be on, not in pieces but across the country. The entire securitization infrastructure is an illusion. It is written, but next to the facts, it is a piece of fiction. At least a quarter of the $600 trillion in notional value of derivatives is based on home mortgages that are fatally defective, where liability is in doubt and the amount demanded is far off the actual amount due after set-offs due to the borrower under law.

The only thing left for the mega banks to do is to try to push a legislative reset button, even if it is illegal, immoral, and unconstitutional. They want to scare the hell out of us telling us that if we even touch their system, another 130,000 jobs will be lost. It is is now well-established that this was a planted article with absolutely nothing to back it up. Johnson hits them where it hurts in his comment (see below).

By SIMON JOHNSON
Today's Economist

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

On Capitol Hill this week, a serious debate is under way about whether to carry out an important part of the new Dodd-Frank rules for derivatives – with hearings in the House on Tuesday and in the Senate on Thursday.

Much of the discussion has focused on the report produced by Keybridge Research for a group called the Coalition for Derivatives End Users that purports to show the dangers of extending the rules to nonfinancial companies (the so-called end users in this context).

In testimony on Tuesday before the House Financial Services Committee, Gary Gensler, the chairman of the Commodity Futures Trading Commission, pleased the Republican majority by saying the rules should not apply to nonfinancial companies that buy derivatives but “only on transactions between financial entities.”

Representative Spencer Bachus, Republican of Alabama and the committee’s chairman, responded: “I want to applaud Chairman Gensler. Members on the majority think it’s critically important that we don’t impose margin or clearing requirements on end users.”

Yet the Keybridge Research report – as exposed by Andrew Ross Sorkin in The New York Times on Tuesday – engaged in an extraordinary, shocking misrepresentation, asserting its credibility by claiming affiliations with respected academics who have now asked that their names be removed from the consulting firm’s Web site. Some of those listed as advisers said they had had no relationship with the firm.

The report is, in fact, pure lobbying disguised as research. For their own self-interest, the big banks want customers who can undertake derivatives transactions without reasonable constraints – and these banks want to disguise this self-interest in a veneer of social interest.

Republican committee members cited the report in arguing against the rules.

This coalition for end users does not represent the best interests of such actual end users; rather, it is a front for the big banks that dominate the market in over-the-counter derivatives.

The coalition has no good arguments to back up its assertions that properly implementing Dodd-Frank will result in significant job losses. In fact, as Mr. Sorkin reports, Keybridge has serious credibility problems.

As Joseph E. Stiglitz, a Nobel laureate in economic science, points out to Mr. Sorkin, at the heart of the report is a preposterous argument – that if we subsidize insurance, jobs will be created.

If someone made this point in regard to fire insurance or property and casualty insurance (particularly for American companies, which these days have around $2 trillion in cash), they would be dismissed out of hand. But the mystique – and confusion – surrounding derivatives is such that the material in this report will be taken seriously by many on Capitol Hill.

The only people who can really gain from this subsidy are the bankers who buy and sell derivatives. The actual end users are being duped by the banks. Perhaps you don’t feel bad about that – but such duping is very dangerous for financial-system stability. (See this post by my colleague John Parsons, who cuts nicely to the analytical heart of the matter – and who also dismisses the Keybridge report.)

The acknowledgment by so many firms that they have weak risk models is revealing and extremely worrisome (see Section 4.3 on page 4 of the report).

These firms are apparently relying on the banks to advise them on risk, but the banks have a strong vested interest in a more highly leveraged financial system. That leaves the nonfinancial firms gambling recklessly with their investors’ money. I hope tough questions will be asked about this at annual general meetings and in boardrooms.

The high level of profit in over-the-counter derivatives gives it all away. The real end users should bring in truly independent economic consultants, who can tell them that this level of profit is a clear indication that the market for O.T.C. derivatives is nowhere near competitive.

The end users are being ripped off – and then providing political support to the banks responsible for it. A serious management failure – and the issue of fiduciary responsibility – is clear at the nonfinancial firms surveyed in the Keybridge report.

We are looking at market power masquerading as lobbying on behalf of customers. This would be a laughable combination – were it not for the fact that this coalition did immeasurable damage to financial regulation last year, and is dead set on further undermining Mr. Gensler and his colleagues at the C.F.T.C. in the coming weeks.

We need responsible restraint in the over-the-counter derivatives market, in the face of the banks’ fierce determination to prevent this.

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Obama Gets a Set — Accepts Volcker’s View

Posted on January 21, 2010 by Neil Garfield

Editor’s Comment: Finally! The president has now played out the Geithner-Summers scenario and seen the results — a large middle finger raised in the air from an arrogant bunch of people who are tone deaf to the needs of the nation and the world. This decision brings us into line with the rest of the world, whose central bankers have been waiting for ANY signal from Washington that we were ready to get real about financial services and currency weakness.

This is a massive break from the Bush era of “free-market” self regulation and a recognition of the truth — that the markets are anything but free. As of now, the financial markets and our economy are in the death grip of a very small coterie of people more bent on power and privilege than commerce, profit, accountability to shareholders, fairness to the consumer and respect for the taxpayers whom they bilked for trillions of dollars after stealing trillions from homeowners and investors through destruction of the lives and prospects of most middle class Americans.

The lone voice in the inner circle has been the chairman of economic advisers, Paul Volcker who until now has been marginalized, discounted and generally avoided. Joined by the former Fed Chairman Greenspan who now admits the mistakes of “free-market” thinking and the consequences of taking the referees off the playing field, Volcker proposes a whole new paradigm. By breaking up the large “too big to fail” institutions we break up the oligopoly that is running our government.

We have a very long road ahead. Deflating the bubble that still exists in trading proprietary currency-equivalents (derivatives, mostly) will take a long time and will no doubt have both negative and positive, intended and unintended consequences. Nothing is perfect. But what is perfect is a nation that can go through peaceful revolution and come out the other end with a healthier, safer, free society where the goal is opportunity for everyone and protection from those who would economically enslave people and systematically dumb them down through starving educational initiatives.

Following through on this initiative means we can really address the jobs problem and the corporate welfare drain on the American taxpayer. Those must end as quickly as possible. Changing the context to consumer protection and transparency in the financial markets means that the reality of the foreclosure crisis can be stated openly: neither the obligations nor the property were ever worth what they were sold for and they never will rise to those levels again in any meaningful amount of time.The ONLY honest answer is principal reduction. The only open questions are how to share the losses amongst all the affected losers.

Recent realistic projections show that the largest wave of foreclosures is yet to come in 2012 and 2013. Unwinding the increasingly damaged titles of property encumbered by fabricated documents asserting false terms could take generations. If the President follows through on this announcement, our ordeal, now projected to be 20-30 years and beyond, could be shortened considerably with a real brass ring at the end instead of a simple sigh of relief and resignation that the b–tards are always in charge.

The President promised change. Now he is aiming for it. Let’s hope he makes it. Write your congressman, senators, governors and legislators supporting this initiative. Give the President as much support as you can — he’s going to need it in the battle ahead. Believe in yourself and not in the messages blasted at us through institutionalized advertisements and a lazy media. And keep fighting the battle against foreclosure. You are warriors on behalf of yourself and what will be a grateful nation.

By JACKIE CALMES and LOUIS UCHITELLE

Published: January 20, 2010

WASHINGTON — President Obama on Thursday will publicly propose giving bank regulators the power to limit the size of the nation’s largest banks and the scope of their risk-taking activities, an administration official said late Wednesday.

The president, for the first time, will throw his weight behind an approach long championed by Paul A. Volcker, former chairman of the Federal Reserve and an adviser to the Obama administration. The proposal will put limits on bank size and prohibit commercial banks from trading for their own accounts — known as proprietary trading.

The White House intends to work closely with the House and Senate to include these proposals in whatever bill dealing with financial regulation finally emerges from Congress.

Mr. Volcker flew to Washington for the announcement on Thursday. His chief goal has been to prohibit proprietary trading of financial securities, including mortgage-backed securities, by commercial banks using deposits in their commercial banking sectors. Big losses in the trading of those securities precipitated the credit crisis in 2008 and the federal bailout.

The president will speak at an appearance on Thursday at the White House with Treasury Secretary Timothy F. Geithner, an administration official said, speaking on the condition of anonymity because the talks were private. It will come after a meeting with Mr. Volcker.

A similar discussion is percolating in Europe, led by Mervyn King, head of the Bank of England.

The president’s announcement comes as his popularity in public opinion polls is falling because of stubborn unemployment and the stagnant economy, and just days after he suffered a stinging loss when the Republicans won the Senate seat from Massachusetts.

It will be the third time in just a week that he has waded into the battle heating up in Congress over tightening regulation of financial institutions to avoid the sort of abuses that contributed to the near collapse on Wall Street. Last week he proposed a new tax on some 50 of the largest banks to raise enough money to recover the losses from the financial bailout, which ultimately could cost up to $117 billion, the Treasury estimates.

And this week, he served notice to senior lawmakers that he wants an independent agency to protect consumers as part of any financial overhaul legislation.

Only a handful of large banks would be the targets of the proposal, among them Citigroup, Bank of America, JPMorgan Chase and Wells Fargo. Goldman Sachs, the Wall Street trading house, became a commercial bank during this latest crisis, and it would presumably have to give up that status.

“The heart of my argument,” Mr. Volcker said, “is who we are going to save and who we are not going to save. And I don’t want to save what is not at the heart of commercial banking.”

Mr. Volcker has been trying for weeks to drum up support — on Wall Street and in Washington — for restrictions similar to those passed in the Glass-Steagall Act in 1933. That law separated commercial banking and investment banking, so that the investment arm could no longer use a depositor’s money to purchase stocks, sometimes drawing money from a savings account, for example, without the depositor’s knowledge.

The 1929 stock market crash and subsequent Depression made a shambles of that practice. But Glass-Steagall was watered down over the years and revoked in 1999.

Now the concern is a new type of activity in which financial giants like Citigroup, Bank of America and JPMorgan Chase engage. They now operate on two fronts. On the one hand, they are commercial banks, taking deposits, making standard loans and managing the nation’s payment system. On the other hand, they trade securities for their own accounts, a hugely profitable endeavor. This proprietary trading, mainly in risky mortgage-backed securities, precipitated the credit crisis in 2008 and the federal bailout.

Mr. Volcker, chairman of the president’s Economic Recovery Advisory Board, a panel of outside advisers set up at the start of the Obama administration, has gradually lined up big-name support for restrictions on such trading.

But the Obama administration until now focused on regulating the activities of the existing financial institutions, not breaking them up or limiting their activities. Under the new approach, commercial banks would no longer be allowed to engage in proprietary trading, using customers’ deposits and borrowed money to carry out these trades.

“Major institutions with a deposit facility should not be allowed to invest in subprime obligations under any conditions,” said Henry Kaufman, an economist and money manager, and one of a dozen prominent Wall Street figures who have told Mr. Volcker that they support his proposal, in principle if not in detail.

Others include William H. Donaldson, former chairman of the Securities and Exchange Commission; Roger C. Altman, chairman of Evercore and a Treasury official in the Clinton administration, and John S. Reed, a former chairman of Citigroup.

“When I was running Citi,” Mr. Reed said of his tenure in the 1980s and 1990s, “we simply did not trade for our own account.”

Jackie Calmes reported from Washington, and Louis Uchitelle from New York.

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