house-financial

Elizabeth Warren’s Opponents Don’t Like Her Because She’s A Woman, Congressman Says

by AP on June 2, 2011

Huffington Post…

WASHINGTON — A leading House Democrat said Thursday that some opposition to making Elizabeth Warren head of the new Consumer Financial Protection Bureau is because she is a woman. Massachusetts Rep. Barney Frank, top Democrat on the House Financial Services Committee, said some of the resistance to Warren, a Harvard law professor, is because of a feeling that a woman should not tell bankers what to do. “Some people almost unconsciously think that for a woman to be in an important position regarding the titans of the financial industry is not appropriate,” Frank said at a news conference. He said while that attitude hasn’t affected the substance of the debate over Warren, “The tone has been exacerbated.” Asked about his remarks later, he did not name any people or cite any specific instances in which Warren’s gender has played a role in her treatment. At the same news conference, Rep. Lynn Woolsey, D-Calif., also said that when “the other side can’t win arguments on their merits – and I would add, especially when they’re threatened by an accomplished and articulate woman – that’s when they make it personal.” Woolsey provided no specific examples. The consumer bureau was created by last year’s financial overhaul law, which President Barack Obama signed after it passed Congress despite strong Republican opposition. Obama appointed Warren to oversee the organization of the agency, which officially goes into business on July 21, but he has yet to nominate anyone to be its director. Many Democrats and liberal groups want Obama to nominate Warren to head the bureau. Warren, credited with originating the idea for the agency, has had a hostile reception from many congressional Republicans who say she lacks a sufficient financial industry background. Republicans would be all but certain to defeat her nomination should it come to a Senate vote. Asked Thursday about Frank’s remarks, House Financial Services Committee Chairman Spencer Bachus, R-Ala., said most GOP objections are not to Warren herself but to creation of a single director for the agency. He praised her intelligence and commitment to consumer protection and called her a “straight-shooter.” Last month, Senate Republicans led by Sen. Richard Shelby, R-Ala., wrote a letter to Obama promising to block any nominee to head the bureau unless some of its powers were watered down, including giving Congress more control over the agency’s budget and replacing the director’s job with a five-member commission. Shelby is top Republican on the Senate Banking Committee. Asked about Frank’s remarks, Shelby spokesman Jonathan Graffeo said, “That’s beyond baseless. It’s just outright silly.” Frank and Woolsey, along with Rep. Carolyn Maloney, D-N.Y., were among 89 House Democrats who sent Obama a letter Thursday urging him to use his power to appoint Warren temporarily to the job the next time the Senate takes a recess. So-called recess appointments are permitted under the Constitution but last only until the end of next session of the Senate.

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Elizabeth Warren’s Opponents Don’t Like Her Because She’s A Woman, Congressman Says

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Former S.E.C. Official Subject Of Criminal Probe

by on May 14, 2011

Huffington Post…

WASHINGTON (Reuters) – Federal criminal authorities are investigating whether a former U.S. securities regulator inappropriately represented alleged fraudster Allen Stanford after he left the agency in 2005. Spencer Barasch, former head of enforcement for the U.S. Securities and Exchange Commission in Fort Worth, Texas, is being probed by the U.S. Attorney’s Office and Federal Bureau of Investigation, SEC enforcement director Robert Khuzami and SEC Inspector General David Kotz told lawmakers on Friday. The criminal probe follows SEC internal findings that Barasch made numerous requests after he left the SEC to represent Stanford and was turned down each time. Barasch persisted in his requests even though he directly dealt with Stanford matters while at the SEC and was partly responsible for ignoring repeated red flags SEC examiners raised about Stanford as early as 1997, Kotz found in a 2010 report. He later eventually did provide some legal counsel to Stanford in 2006, the report found. “The rules clearly prohibited from … in my view, representing Mr. Stanford,” Khuzami told a House Financial Services oversight subcommittee on Friday. “We made a referral to criminal authorities.” In addition, Kotz and Khuzami said they had also referred the matter for investigation to the Texas and Washington, D.C. bars. Republican lawmakers called the hearing to investigate why it took the SEC so long to probe Stanford, a Texas financier, despite repeated attempts by SEC examiners to bring the matter to the enforcement division’s attention. The agency finally filed civil charges against Stanford in February 2009. Stanford was arrested in June 2009 and criminally charged with fraud in connection with a $7 billion scheme linked to certificates of deposit issued by his Antigua-based banking company. Stanford has denied any wrongdoing. REVOLVING DOOR After leaving the SEC, Barasch became a partner at law firm Andrews Kurth. In response to an inquiry from Reuters earlier this week, Andrews Kurth Managing Partner Bob Jewell said Barasch had not done anything wrong. “We disagree with the characterization of Mr. Barasch’s involvement put forth by the Inspector General in his report last year,” he said. “We believe he acted properly during his contacts with the Stanford Financial Group and the Securities and Exchange Commission. He did not violate conflicts of interest.” The testimony about Barasch came on the same day the Project on Government Oversight, a government watchdog group, issued a report about the “revolving door” at the SEC. It found that 219 former officials at the SEC have left since 2006 to help clients with business before the agency. Federal laws place certain restrictions on many SEC and other government employees once they return to the private sector. In addition to a one-year cooling off period, they are generally prohibited from representing a client before a government agency on any matter in which they were personally and substantially involved. Some lawmakers say stricter policies are needed. Republican Randy Neugebauer, the chairman of the panel, claimed Barasch represented a client before the SEC in a legal matter as recently as last Friday. “One of the things that hopefully comes out of this is there are some tighter rules,” he said. “It is obviously very alarming.”

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Former S.E.C. Official Subject Of Criminal Probe

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Ted Kaufman: Greenspan Is Back to Lead the Charge Against Responsible Regulation

April 21, 2011

Wall Street bankers, with help from key Republicans in the House and Senate, have begun a major campaign across the country to kill the regulations currently being developed to enforce Dodd-Frank Wall Street Reform. A recent speech by the leader of Wall Street bankers, JP Morgan’s CEO Jamie Dimon, took direct aim at financial regulation and new, more rigorous capital standards. The same week, Alan Greenspan — just a year removed from his mea culpa on “self-regulation” — said the Dodd-Frank legislation would create the “largest regulatory-induced market distortion” in the US since wage and price controls. Very shortly afterwards Senator DeMint introduced a bill to repeal Dodd-Frank. And House Financial Services Committee Chairman Spencer Bachus led 34 of the committee’s Republicans in sening a letter to the six agency heads charged with implementing the Dodd-Frank Act stating that the members are “troubled by the volume and pace of rulemakings.” It is very hard to believe that anyone would propose going back to the policy of “self-regulation” on Wall Street and elsewhere. We tried that during the last 20 years, and it catastrophically resulted in the worst financial meltdown in 80 years, almost destroying the US and world financial systems. It caused more than 3 million homes to be repossessed, drove the unemployment rate over 10 percent, and left millions in economic, and emotional, shock. Where was the regulatory backstop that should have been the last line of defense? Completely dismantled by Washington policymakers who bought the view that self-regulation would work and markets could police themselves — the same ideology that they are boldly pressing now, so soon after its complete failure. The question of whether regulation is necessary has been asked and answered, painfully so for many Americans. We are not living in the abstract, debating hypotheticals about what would happen without regulations. Before the meltdown, market fundamentalists and Wall Street bankers argued that our financial actors could police themselves, that their self-interest in remaining financially viable would create sufficient incentive to avoid failure — far exceeding the ability of regulators to limit excessive risk by rulemaking. Systematically, these fundamentalists worked to dismantle many of the prudential New Deal era banking reforms. Their crowning achievement: the repeal of Glass-Steagall (which, passed in the aftermath of the Great Depression, kept our financial system stable and growing for 60 years) in 1999. Wall Street and Washington were possessed by this laissez faire ethos over the past 20 years. It was this philosophy, and the decisions that sprang from it, that led us blindly down the path to the financial crisis. Before his recent (re-)conversion, Alan Greenspan admitted that this dominant concept of self-regulation was ill-conceived. In a speech on February 17, 2009 before the Economic Club of New York, the former Fed Chairman conceded that the “enlightened self-interest” he had once assumed would ensure that Wall Street firms maintain a “buffer against insolvency” had failed. Mr. Greenspan, perhaps more than anyone else, should have known better. But instead of playing the role of the markets’ fire chief, he played that of head cheerleader. For example, Mr. Greenspan applauded the trend of financial disintermediation, proclaiming that new innovations would allow risks to be dispersed throughout the system. Of course, this was just the tip of the iceberg. Despite having the power to write and enforce consumer protection standards, the Federal Reserve did nothing to combat deteriorating origination standards in mortgage and consumer loans. He could have implemented common-sense rules like minimal capital requirements for systemically important financial institutions. That would have been a critical emergency-brake when the Bear Stearns/AIG tailspin began. Instead, Mr. Greenspan signed off on regulations that gave banks the ability to set their own capital standards. He allowed banking institutions to leverage excessively by gorging on short-term liabilities and, in some cases, creating off-balance-sheet entities to warehouse their risky assets. This makes it hard to believe that Greenspan would return to his old talking points, joining the offensive coordinated by Wall Street banks and others saying that the Wall Street Reform Act will never work, and its implementing regulations should be delayed or watered down. Trust alone will not work in business, just like it does not work in sports. Many of us, as fans, are frustrated at the referees and umpires for constantly interfering with the free flow of the game. But they enforce the rules and regulations developed to keep the game orderly and protect the participants. Perhaps a football game would go smoothly for a bit without referees, but I would not want to be at the bottom of the second or third pileup. Rebuilding effective regulatory policies and agencies will take time, but that work is absolutely essential. Not every business will follow the call to build trustworthy practices. Only the hammer of fair and consistent regulatory penalties and fraud laws will deter wrongdoers.

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Congressional Republicans Set Sights On Homeowners, Elizabeth Warren As Split Emerges with State GOP Leaders

March 11, 2011

WASHINGTON — As state and federal officials near an agreement with the nation’s largest financial firms to settle allegations of abusive foreclosure practices, top Republicans in Congress are aggressively disputing their authority, decrying the possibility of expensive penalties against banks and questioning the need to help distressed homeowners. But the calls from Capitol Hill run counter to those made by Republican state attorneys general, who are involved in the 50-state investigation seeking restitution for improper foreclosures. The debate over how best to heal the nation’s troubled housing market exposes a rift between Washington legislators and local law enforcement, who are investigating potential violations of state laws. It also undercuts lawmakers’ prior demands last autumn for a full investigation into widespread allegations of wrongful foreclosures. On Wednesday, leading Republicans on the House Financial Services Committee sent a letter to Treasury Secretary Timothy Geithner expressing their concerns with any proposed settlement that would further regulate the mortgage industry or lead to large fines being levied against financial institutions. Also Wednesday, Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, blasted the negotiations between banks and government officials, likening them to a “shakedown.” At least rhetorically, such attacks undermine government efforts to seek restitution for wronged borrowers. They also bode ill for attempts to reform what’s widely acknowledged to be a broken mortgage finance system. It’s a reprise of last year’s debate to reform the broader financial system, during which many Republicans sought to kill a proposed agency dedicated to protecting consumers from abusive lenders. The temporary head of that nascent agency, Elizabeth Warren, now finds herself cross-wise with the congressional GOP. So do state attorneys general, many of them Republicans, who serve as their states’ top law enforcement officials and view improper foreclosure practices as violations of state law. “We want to remedy losses that have occurred as a result of those problems,” John Suthers, Colorado’s attorney general, said of bank errors during the foreclosure process. Suthers is a Republican and one of four attorneys general leading the states’ settlement talks with the nation’s five largest mortgage firms. “Let’s go now and negotiate with the banks,” said Mark Shurtleff, the Republican attorney general of Utah. Shurtleff added that the Republican attorneys general are waiting for a proposed final settlement agreement before deciding whether they will support it. The current spate of criticism from GOP leaders contrasts with their calls for a wide-ranging investigation into foreclosure practices last fall. The current negotiations are a direct result of state and federal inquiries into the matter. In October, Shelby demanded that federal banking regulators “immediately review the mortgage servicing and foreclosure activities” at major banks to “determine exactly what occurred at these institutions.” He asked for the findings to be presented to the banking committee “without delay.” That same month, a spokesman for House Speaker John Boehner (R-Ohio), then the lower chamber’s minority leader, told The Huffington Post that “at a time when economic uncertainty and unemployment are putting great pressure on homeowners and the housing market, it is imperative that we get all of the facts about this situation, and quickly.” A spokesman for Boehner was not immediately available for comment Friday. But Rep. Randy Neugebauer, a Texas Republican who serves on the financial services committee, said Thursday that the current settlement discussions are a “terrible” move that “verges on extortion.” Still, Neugebauer emphasized that he wants a full investigation into bank practices, and for those findings to be made public. “There should be more transparency to these processes,” he said. Neugebauer declined to support the kinds of penalties regulators are now discussing. All 50 state attorneys general joined together last fall to probe bank foreclosure practices after several companies halted home repossessions when improper paperwork practices — like the so-called “robo-signing” scandal — came to light. The law enforcement officers have said they’ve found that banks violated numerous state laws. State and federal officials are considering a large-scale settlement with the largest banks that could include penalties totaling up to $30 billion and requirements to modify distressed mortgages, people involved in the discussions said. A settlement agreement and requirements to modify troubled mortgages could help calm the roiling housing market, officials said. In January, Sheila Bair, the Republican chair of the Federal Deposit Insurance Corporation, said that “chaos in mortgage servicing and foreclosure has created a dangerous new uncertainty in this fragile market.” Bair is among the officials looking for at least a $20 billion settlement, according to people familiar with the discussions. Reforming the industry is one of the primary goals of the settlement talks, according to senior Treasury Department officials. Meeting with reporters Thursday, one top Treasury official said that bank foreclosure practices remain terrible, four years after the subprime crisis erupted. Some Republican attorneys general are also looking for broader industry reforms. Suthers said that he and other law enforcement officials are looking forward to hearing mortgage firms’ ideas on “how to structure a system that isn’t the mess the system has been the past couple years.” Meanwhile, however, congressional Republicans have scored some political points by latching onto Warren’s involvement in the discussions, part of a broader GOP effort to hamstring the emerging Consumer Financial Protection Bureau before it gets off the ground. Last month, House Republicans voted to slash the bureau’s budget for this year by about half. Now, in letters to the administration and in speeches, they’re singling out Warren in questioning the bureau’s authority to even participate in efforts to protect consumers and reform the broken process by which troubled mortgages are modified and homes are repossessed. “They’re trying to scapegoat her,” said a person involved in the settlement discussions who wasn’t authorized to speak publicly. That person added that some of the Republicans who opposed the creation of the agency during last year’s debate to reform the financial system, like Shelby and Alabama Rep. Spencer Bachus, now appear to be trying to undermine Warren’s participation in the settlement discussions as a way to disrupt the government’s enforcement effort and also isolate and marginalize the still-developing consumer unit. Bachus, the Republican chairman of the House Financial Services Committee, was one of the signatories to Wednesday’s letter to Geithner. Spokespersons for Shelby and Bachus didn’t respond to calls seeking comment. Neugebauer didn’t hold back, however. “We question whether Ms. Warren has any authority to be playing a role, because she is not the head of the bureau,” he said. “I was in the homebuilding business. There’s a difference between the homebuilder and the homeowner,” Neugebauer continued. “As I look at Ms. Warren’s task, she’s supposed to be the homebuilder, not the homeowner. That agency, they have no head. The emperor has no clothes.” The settlement discussions have only just begun, people familiar with the matter said. But unlike their Republican colleagues in Washington, state attorneys general are open to significant fines. The 50-state probe is led by an executive committee of 13 attorneys general, six of whom are Republicans. During their association’s annual spring meeting in Washington this week, many Republican attorneys general said they strongly supported the settlement talks. When asked if a $20 or $30 billion penalty was too high, Shurtleff of Utah said no, pointing to numerous settlements state officials have entered into over the years with individual subprime lenders that totaled in the hundreds of millions — in the case of Countrywide Financial, more than $8 billion. “The servicers themselves acknowledge there are very serious problems in the foreclosure process,” Suthers said. “That’s a good starting point.” ************************* Zach Carter is a staff reporter in The Huffington Post’s Washington bureau. He can be reached at zach.carter@huffingtonpost.com. Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Bernanke: GOP Budget Cuts Could Cost 200K Jobs

March 2, 2011

WASHINGTON (By Mark Felsenthal) – Federal Reserve Chairman Ben Bernanke said on Wednesday a Republican spending cut plan would not cause a big dent to U.S. economic growth, but could cost around 200,000 jobs. Bernanke said that a $60 billion cut along the lines being pursued by Republican in the House of Representatives would likely trim growth by around two-tenths of a percentage point in the first year and one-tenth in the next year. “That would translate into a couple of hundred thousand jobs. So it’s not trivial,” he said in response to questions from members of the House Financial Services Committee. The Republican-run House has passed a budget bill for the current fiscal year that includes $61 billion in spending cuts, but majority Democrats in the Senate say the reductions would endanger the economic recovery. Any spending legislation must be approved by both chambers of Congress before it can become law. Members of Congress are locked in a bitter fight over the budget, with Republicans, spurred on by Tea Party fiscal conservatives, having made deep spending cuts and immediate deficit reduction a top priority. The Senate on Tuesday approved a House-passed bill to extend government funding for two more weeks, a move that averts an imminent shutdown of the federal government, but that does nothing to resolve the ongoing budget tussle. The bill, which now goes to President Barack Obama for his signature, contains $4 billion in relatively noncontroversial cuts, a sum House Republicans see as just a downpayment on their larger goal. Goldman Sachs economist Jan Hatzius estimated that the larger spending cut bill would trim 1.5 to 2 percentage points off of the annualized economic growth rate in the second and third quarters of this year. Some of that pullback was already built into Goldman’s GDP forecast for 4 percent annualized growth in the second quarter. “Federal government spending enters directly into the Commerce Department’s GDP estimates, so unless there is a full offset from other components of GDP a reduction in federal government spending must reduce GDP on impact,” Hatzius wrote in a note to clients. (Additional reporting by Pedro Nicolaci da Costa, David Lawder, Lucia Mutikani and Emily Kaiser; Editing by Gary Crosse) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Top Republican: ‘Senate May Approve’ Elizabeth Warren For CFPB

March 1, 2011

WASHINGTON — A top Republican broke with what he called “conventional wisdom” Tuesday morning, saying that consumer watchdog Elizabeth Warren is “very persuasive” and may be confirmed by the Senate to head the new Consumer Financial Protection Bureau. In an interview with CNBC, House Financial Services Committee Chairman Spencer Bachus (R-Ala.) expressed skepticism about the new CFPB and consumer protection regulation in general. Early in the segment, he said he didn’t think Warren, currently in charge of setting up the nascent CFPB, could win Senate confirmation as its director. Asked again, however, Bachus seemed to change his mind. “The odds-on conventional wisdom is she would not, but that’s up for the Senate. And they would have hearings, and she would be in — she’s a very persuasive individual and she — she may — the Senate may approve her nomination,” Bachus said. That wouldn’t have mattered as much, however, if the House GOP had convinced the Senate to adopt its proposed short-term budget for the federal government, which would slash the agency’s funding nearly in half. That controversial budget bill is likely to die in favor of a separate, shorter-term plan that could pass the Senate and avoid a government shutdown. But the intensity of the GOP’s attack on the agency caught many by surprise, after cautiously positive statements about Warren from Republicans including Rep. Randy Neugebauer of Texas and major bank lobbyists like Financial Services Roundtable CEO Steve Bartlett. In an interview with The Wall Street Journal , Neugeubauer said he was open to having Warren placed in the permanent director position, calling her “intelligent” and “a good listener.” “She wouldn’t be my last choice” for the CFPB post, Neugebauer told the Journal . “I don’t know whether she’s my first choice, but she certainly wouldn’t be my last choice.” But Neugebauer has also helped lead the charge in cutting the CFPB’s budget, an effort to hamstring its ability to enforce rules on credit cards, mortgages and payday loans. Of course, neither Bachus nor Neugebauer will have a vote on the permanent director position, but some Senate Republicans also appear to be warming to Warren. Last month, Sen. Olympia Snowe (R-Maine) hosted Warren at an event for small businesses, calling the consumer advocate “a key ally” in the debate over financial reform. Last fall, Obama appointed Warren to a special advisory post charged with setting up the new agency, but did not formally nominate her as director of the CFPB, a post which requires Senate confirmation. If a permanent director is not confirmed by July, the agency will lose jurisdiction over payday lenders and some mortgage companies. Bank lobbyists are pressing for a permanent director to be nominated. In a Tuesday conference call with reporters, Jess Sharp, executive director of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, the nation’s preeminent business lobby, said he hoped that a permanent head would get through the Senate before July. If that was not possible, Sharp said, the CFPB should not enforce consumer protection laws until a permanent director is installed. Tuesday’s conference call was organized to promote a letter the Chamber sent to Congress, warning of what the lobby deemed “huge and ambiguous authority granted to the CFPB which can lead to overreach.” While it will likely be several months until the CFPB writes its own rules for credit cards, mortgages and other consumer loans, the new agency will inherit the authority to enforce existing consumer protection regulations from the Federal Reserve and the Office of the Comptroller of the Currency in July. Bachus previously expressed kind words for Warren in an interview with American Banker , saying, “She has tremendous charisma. She is a person you admire, you like. She has ability,” but cautioning that he didn’t know her “philosophy,” or that of the people she has hired at the CFPB.

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WATCH: Fannie CEO Explains Why He Deserves To Be Paid More Than Barack Obama

February 16, 2011

WASHINGTON (By Corbett B. Daly) – A key congressional panel charged with overseeing financial matters plans to question Fannie Mae and Freddie Mac executives over their multimillion-dollar compensation packages paid for by U.S. taxpayers. Texas Representative Randy Neugebauer on Tuesday said he would bring Fannie Mae chief executive Michael Williams and Freddie Mac chief executive Ed Haldeman before his House Financial Services Subcommittee on Oversight and Investigations. “I think we will be on a first name basis … because I think we will have them” testify, Neugebauer, a Republican, told reporters after a feisty hearing on the use of millions of taxpayer dollars to pay legal bills for former Fannie Mae executives accused of accounting fraud. Fannie Mae and Freddie Mac were seized by the Bush administration in late 2008 amid mounting losses from mortgages gone sour and are controlled by a government conservator, the Federal Housing Finance Agency (FHFA). Edward DeMarco, the acting director of FHFA, in 2009 approved compensation packages allowing the top executives at each firm to receive as much as $6 million each in annual compensation. “What is going on over at Freddie and Fannie and what is the conservator doing to make sure the taxpayers are represented?” Neugebauer asked. The comments come just days after the Obama administration outlined plans to wind-down Fannie and Freddie gradually and to take steps to make the $10.6 trillion U.S. mortgage market less dependent on the government, which now backs more than 85 percent of new home loans in some fashion. The Texas Republican said business as usual is not acceptable for the so-called government sponsored enterprises because “their business got taxpayers on the hook for a lot of money.” The pair have received more than $130 billion in direct taxpayer aid since being taken over by then Treasury Secretary Henry Paulson. The Obama administration on Monday said that tally could climb to $169 billion next year before slowing shrinking as losses are paid back to Treasury coffers. “So what we want to make sure is that they understand, and hopefully we will fire a shot here, of whose interests that they need to be most concerned about. It’s not the employees or the executives over at Freddie Mac and Fannie Mae, it’s the American taxpayers,” Neugebauer said. Asked after the hearing why he deserved to paid more than U.S. President Barack Obama, who earns about $400,000 annually, Williams told Reuters his salary is determined by the government. “My compensation is determined by the board of directors of FHFA and they determine what the appropriate compensation is for the executives of the company,” Williams said. Lawmakers debated with Williams and DeMarco over whether it was “reasonable” for taxpayers to foot more than $24 million in legal bills for former chief executive Franklin Raines and two other former Fannie executives accused of accounting misdeeds. Asked by Reuters if his own compensation was “reasonable,” Williams replied: “I leave it to them (FHFA) to determine what is appropriate compensation.” DeMarco has consistently said his agency aims to protect taxpayers by making sure the firms have executives with the technical expertise to oversee more than $5 trillion in assets traded in global financial markets. “We need, in the conservatorship, there to be talented, capable professionals that continue to operate the day-to-day operations of these companies,” DeMarco told the panel. A Freddie Mac spokesman declined comment. WATCH (Reporting by Corbett B. Daly; Editing by Gary Hill) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Regulator Defends Millions In Fannie, Freddie Legal Fees

February 15, 2011

WASHINGTON — The federal regulator overseeing Fannie Mae and Freddie Mac stood by his approval of millions of taxpayer dollars for legal fees defending the housing giants and their executives after accounting scandals, telling angry House committee members on Tuesday that his agency was obligated to do so. Figures from the House Financial Services Committee’s oversight subcommittee show that since the government took over the two corporations in September 2008, taxpayers have provided $162 million defending them in civil lawsuits alleging fraud. That includes $24 million defending former Fannie Mae CEO Franklin Raines and two other Fannie executives, who left the company after accounting irregularities were revealed and were targets of civil suits. “I share the frustration” of lawmakers, said Edward J. DeMarco, head of the Federal Housing Finance Agency. But, he said, his agency was legally required to cover the payments. The hearing focused on a tiny portion of the $151 billion that Washington has used to prop up the two mortgage finance companies since taking them over as the housing market collapsed. Members of both parties are talking about scaling back or eliminating the two corporations, which have become symbols of squandered tax dollars at a time of mounting budget deficits. DeMarco did not rule out taxpayers eventually recovering the lawyers’ fees, should ongoing legal action result in a finding that the officials who were sued took actions that violated their duties to their company. But he said that at least for now, Fannie is required to cover the executives’ legal fees as long as their actions are considered reasonable. It is commonplace for companies to cover their executives’ legal expenses except in cases of wrongdoing. DeMarco said such coverage was necessary for Fannie to attract talented officials. Raines and the two others – former chief financial officer Timothy Howard and former controller Leanne Spencer – left Fannie and agreed to pay a $31.4 million settlement, but did not admit to wrongdoing. Fannie Mae paid a record $400 million settlement with federal regulators. “We’ve got a problem here,” Rep. Randy Neugebauer, R-Texas, chairman of the subcommittee, said of the federal expenditures. “We’re broke.” DeMarco and Fannie CEO Michael Williams, who also testified, said had Fannie withheld legal payments from the officials, they likely would have sued – which would have cost taxpayers additional legal expenses. “You guys don’t seem to get it,” said Massachusetts Rep. Michael Capuano, the subcommittee’s top Democrat, who told DeMarco his agency should have withheld the legal payments and risked a lawsuit. “The difference between this and everything else that’s ever happened is this is taxpayers’ money.” Ohio Attorney General Mike DeWine, leading the biggest of several lawsuits still pending against Fannie, said the company often brings 40 attorneys and paralegals to court sessions in a case that has dragged on for six years, with some lawyers earning over $600 per hour. Raines also uses numerous lawyers and 25 experts, he said. “What these defendants are doing is lawyering us to death” using taxpayers’ dollars, DeWine said.

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Democrats Push New Foreclosure Rules

December 22, 2010

Several key House Democrats are circulating a letter urging support for new regulations that would crack down on what critics say are rampant foreclosure abuses in the nation’s banking system. The letter, authored by Rep. Brad Miller (D-N.C.) encourages federal banking regulators to rein in practices at bank divisions called “mortgage servicers.” Servicers are responsible for collecting and processing payments, charging late fees, negotiating with troubled borrowers and implementing the foreclosure process. Servicers have been criticized for committing widespread fraud in recent months, charging improper fees and incorrectly evicting borrowers. The three House Democrats have already signed the letter, including House Financial Services Committee Chairman Barney Frank (D-Mass.), House Judiciary Committee Chairman John Conyers (D-Mich.), Rep. Maxine Waters (D-Calif.), Rep. Keith Ellison (D-Minn.) and Rep. Laura Richardson (D-Calif.). The letter from lawmakers comes one day after more than fifty economists, consumer advocates and banking experts urged regulators to take action on mortgage servicers. Federal Regulators are currently divided over whether or not to use new powers to regulate mortgage securities granted by this year’s Wall Street reform bill to crack down on servicing abuses. The FDIC wants to take the opportunity to rein in servicers, but the Federal Reserve and the Office of the Comptroller of the Currency are resisting the new rules, although spokespeople for both agency say they support stronger standards for mortgage servicing. Miller’s letter explicitly references Tuesday’s letter from experts and activists, and urges any new rules require servicers to undergo foreclosure prevention efforts where they are economically feasible. “The . . . letter makes sensible recommendations regarding the treatment of payments by homeowners, ‘perverse incentives’ in servicer compensation, mortgage documentation, and foreclosure forbearance during mortgage modification efforts,” Miller’s letter reads. “We especially urge that any exception require that servicers modify mortgages pursuant to established criteria to avoid foreclosure where possible.” About half of all mortgages serviced in the United States are handled by just four companies: Bank of America, JPMorgan Chase, Wells Fargo and Citigroup. Some of the anti-foreclosure activists who sent the letter to regulators on Tuesday have also started a new website, www.stopservicerscams.com where individuals can sign a petition supporting new foreclosure regulations. The full text of the Miller letter is available here (.pdf). The letter from economists and activists is available here (.pdf).

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Video: Goodfriend Favors `Strong, Effective’ Oversight of Fed: Video

December 10, 2010

Dec. 10 (Bloomberg) — Marvin Goodfriend, an economics professor at Carnegie Mellon University, talks about U.S. Representative Ron Paul’s appointment as the head of the House subcommittee that oversees the Federal Reserve. Paul, a Texas Republican and author of “End the Fed,” will lead the House Financial Services Committee’s domestic monetary policy subcommittee when his party takes the House majority next month. Goodfriend speaks with Betty Liu and Michael McKee on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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GOP Lawmakers: Elizabeth Warren’s Job ‘Undermines’ Constitution

November 23, 2010

In the letters Reps. Spencer Bachus and Judy Biggert sent to the Treasury and the Federal Reserve, the GOP lawmakers challenge the legality of Elizabeth Warren’s authority to set up the new Consumer Financial Protection Bureau. Bachus and Biggert have urged the inspectors general at the Treasury and the Fed to investigate how Elizabeth Warren, whom President Obama made special White House adviser in September, has been setting up the Consumer Financial Protection Bureau, a new agency created under the summer’s financial reform legislation. As she leads the search for the agency’s first director, Warren effectively serves as its interim head . By appointing Warren as special adviser in September, the president “undermined” the Constitution, Bachus and Biggert contend, in two nearly identical letters dated Nov. 22. From the letters: “First, the President’s decision to appoint Professor Elizabeth Warren as a special advisor to the Secretary of the Treasury and as a senior advisor in the White House with lead responsibility for establishing the Bureau, hiring its staff, and setting its agenda — as opposed to nominating the director of the Bureau, as contemplated by the Act — circumvented the advice-and-consent process and undermined one of the key checks and balances in our Constitution. While the Act confers upon the Secretary of the Treasury limited interim authority ‘to perform the functions of the Bureau’ (Section 1066(a)), Professor Warren is now exercising that authority.” The GOP lawmakers say Warren is overstepping her authority. But Warren has responded to this criticism in the past. As she explained on PBS in early October , her current job was specifically created by law. “There are two jobs on the table. And they were always there by statute. One certainly is the director of the agency,” Warren said. “There is a second job that was available. And it’s clear in the statute. Somebody is supposed to get out there and get that agency going. And the truth is, one has a cool title, but the other one gets to work right now.” A spokesperson for the House Financial Services committee, who speaks for Bachus on financial services issues, didn’t immediately respond to requests for comment. Zachary Cikanek, press secretary for Biggert, said the agency’s eventual leader should face a full confirmation process. “What we would like to see is for the person with lead responsibility of the Bureau to be somebody nominated by the president and confirmed by the Senate,” Cikanek said. Bachus is a leading contender to replace Rep. Barney Frank (D-Mass.) as chairman of the House Financial Services Committee. During the 2009-2010 election cycle, his campaign received $132,200 from the securities and investment industry, and $80,800 from commercial banks, according to Open Secrets . His top contributors included Capital One, Credit Suisse, Wells Fargo and Bank of America, which each donated $10,000 to his campaign, Open Secrets says. READ the letter to Treasury below: Thorson BCFP Letter Biggert-Bachus 11-22-10

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Video: Barney Frank Says Basel Rules `Important Step Forward’: Video

September 22, 2010

Sept. 22 (Bloomberg) — U.S. House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, talks about new Basel III rules on capital requirements for banks and possible sanctions against China over that nation’s currency policy. Frank, speaking with Peter Cook on Bloomberg Television’s “Street Smart,” also discusses Elizabeth Warren’s job setting up the new Consumer Financial Protection Bureau and the planned departure of Lawrence Summers from the National Economic Council. (Source: Bloomberg)

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Executive Compensation: Barney Frank To Hold Hearing On Wall Street Pay

August 25, 2010

Rep. Barney Frank, chairman of the House Financial Services Committee, said Tuesday that he will hold a hearing this fall to examine whether regulators are being tough enough in curbing pay practices at Wall Street firms that can lead to excessively risky practices.

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Barney Frank: Fannie, Freddie ‘Should Be Abolished’

August 17, 2010

Fannie Mae and Freddie Mac should be abolished, Rep. Barney Frank, chairman of the House Financial Services Committee, said Tuesday when asked whether the mortgage giants should play a role in housing market reforms. “I think they should be abolished,” Frank told Fox Business Network’s Neil Cavuto in an evening interview. “The only question is what do you put in their place. This is a situation where given the importance they had come to play in housing, you can’t tear down the old jail until you build a new one.” It’s not the first time he’s made the argument. On Friday he told HuffPost Hill: “A year from now, there won’t be a Fannie and Freddie. There won’t be those hybrids. But you will have the home loan banks. You’ll have the [Federal Housing Administration], you’ll have Ginnie Mae, you’ll have some other types.” Frank’s most recent denunciation of Fannie and Freddie comes on the heels of Treasury Secretary Timothy Geithner’s assertion Tuesday that the government should continue to offer structured support for mortgage loans “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” Geithner told his audience that sunk costs are irrelevant — Fannie and Freddie cost taxpayers roughly $150 billion in the two years since they were nationalized — and that what’s important is to focus on fixing the imbalances that led to financial meltdown. “There is nothing we can do to decrease the significant losses Fannie and Freddie incurred ahead of this crisis,” Geithner told conference attendees. “All we can do is to minimize the risk that they get worse.” Frank thinks the mortgage giants just need to go, adding “the question is what replaces them.” He also emphasized that part of the solution is recognizing that not everybody should be a homeowner. “There are people in this society who for economic and frankly social reasons can’t and shouldn’t be homeowners,” he said. “I do want some government help to build affordable rental housing. Working in a bipartisan way the house and the senate just passed legislation to strengthen the FHA’s ability to say no to people who shouldn’t be getting mortgages and to say yes to people who should.”

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Rep. Mary Jo Kilroy: I’m Just Absolutely Astonished

July 22, 2010

Right now, I am absolutely astonished how the special interests work in this town. Incredible. Ever since I took office, I have been meeting with people who have been hurt by the economic crisis by big Wall Street players. People who lost jobs and homes, or saw their savings decline. I came here to work hard for them, and for the last 18 months, that’s what I have been doing. One of my proudest achievements in Congress came yesterday morning when President Obama signed the Wall Street Reform bill. I worked hard on the House Financial Services Committee to help draft those reforms, and I was honored to serve as a negotiator for the final bill with the Senate as a Conferee. After countless hours of work — even an all nighter — I was there when the bill became law. Do you know how my opponent, former banking lobbyist Steve Stivers commemorated yesterday’s passage of Wall Street reform? He attended a high dollar fundraiser hosted by high priced banking and financial services lobbyists who want to repeal Wall Street reform, and will succeed in those efforts if Stivers goes to Congress. Steve’s brazenness is appalling. Millions of families across the country have been rocked by the irresponsible policies and reckless gambling fought for by the financial industry power players who were raising money for him last night. The passage of Wall Street reform is just a start, a small victory on behalf of each one of these families. I know we have so much more to do, but this bill is one of those rare cases when regular, hard working Americans triumphed over the powerful special interests that tried everything to keep the bill from ever seeing the light of day. Steve wasn’t thinking about those families yesterday, though, as he courted the special interests that got us into this mess in the first place and collected their campaign cash. I guess we shouldn’t be surprised. Wall Street knows it has an ally in Steve Stivers. He is one of them, after all–a career banking lobbyist who worked to allow banks to engage in the risky practices that just about destroyed our economy. He was a key player in deregulating Ohio banks and allowing them to merge over and over again until some became “too big to fail.” And as a state senator he was one of only four legislators to vote against cracking down on predatory lending. Steve has chosen his constituency. He was with them yesterday afternoon, laughing, slapping their backs and collecting checks. He was making them promises that a still-hurting America must ensure he’ll never get the chance to keep. Last night I was thinking about the families of Ohio’s 15th district, my hard working friends and neighbors who, in spite of hardship, still believe in the promise and hope of a better tomorrow. And when the sun rose this morning, they greeted a day that, while far from perfect, is a little bit easier, a little bit more fair, and is, indeed, a little bit better than the one before.

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Baruch Shemtov: An Interview With Rep. Barney Frank

July 21, 2010

In this interview series, Baruch Shemtov sits down with leaders in business, fashion, politics, and media to discuss their paths to success. The conversations offer inspiration and valuable insights, as some of the most influential and creative people share life experience and advice. As Chairman of the House Financial Services Committee, Congressman Barney Frank recently spearheaded the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this conversation, Congressman Frank discusses this historic legislation and the fascinating story behind his successful career in politics. Barney Frank from Andrew Muscato on Vimeo .

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Mary Schapiro, SEC Chief, Appearing Before Congress In Wake Of Financial Reform, Goldman Deal

July 19, 2010

WASHINGTON — The head of the Securities and Exchange Commission is appearing before Congress days after the passage of sweeping financial regulation that gives the agency new powers and a landmark settlement of civil fraud charges with Goldman Sachs & Co. SEC Chairman Mary Schapiro is telling House lawmakers at a hearing Tuesday that the agency has been revamping itself, strengthening enforcement efforts and taking measures to protect investors in the wake of the financial crisis and past agency failures. “We have taken significant steps to make the SEC more vigilant, sharp and responsive, and to focus the agency squarely on its core mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation,” Schapiro says in testimony prepared for the hearing by a House Financial Services subcommittee. “We brought in new leaders across the agency. We streamlined our procedures. We worked to reform the ways we operate. We began modernizing our systems.” It is Schapiro’s first public appearance since the $550 million settlement announced Thursday with finance powerhouse Goldman Sachs, the largest against a Wall Street firm in SEC history, over allegations that the firm misled buyers of mortgage-related investments. Lawmakers may question whether the settlement is a serious show of enforcement muscle by the SEC in the trail of the mortgage meltdown or just a blip for a firm that earned that much in about two weeks last year. The $550 million Goldman is paying also represents nearly half the White House’s budget request of $1.2 billion for the SEC for the fiscal year starting Oct. 1. And the overhaul package approved by Congress last week, which slaps the stiffest new curbs on U.S. banks and financial institutions since the Great Depression, adds new powers and responsibilities to the SEC’s plate. Among other things, the agency gains oversight of hedge funds and bolstered technological capacity. Schapiro says in her written testimony that the coming months for the SEC will be dominated by rule-writing for the new legislation. The SEC chief also is discussing the agency’s response to the May 6 “flash crash,” a panicked disruption that saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour. Under a new system of “circuit breakers” for individual stocks put in last month by the SEC, U.S. stock exchanges must briefly halt trading of major stocks that mark big swings. Trading of any Standard & Poor’s 500 index stock that rises or falls 10 percent or more in a five-minute span must be halted for an additional five minutes. In addition, the SEC put forward proposed new rules spelling out when and at what prices stock trades deemed erroneous would be canceled.

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Mary Schapiro, SEC Chief, Appearing Before Congress In Wake Of Financial Reform, Goldman Deal

July 19, 2010

WASHINGTON — The head of the Securities and Exchange Commission is appearing before Congress days after the passage of sweeping financial regulation that gives the agency new powers and a landmark settlement of civil fraud charges with Goldman Sachs & Co. SEC Chairman Mary Schapiro is telling House lawmakers at a hearing Tuesday that the agency has been revamping itself, strengthening enforcement efforts and taking measures to protect investors in the wake of the financial crisis and past agency failures. “We have taken significant steps to make the SEC more vigilant, sharp and responsive, and to focus the agency squarely on its core mission of protecting investors, maintaining fair and orderly markets, and facilitating capital formation,” Schapiro says in testimony prepared for the hearing by a House Financial Services subcommittee. “We brought in new leaders across the agency. We streamlined our procedures. We worked to reform the ways we operate. We began modernizing our systems.” It is Schapiro’s first public appearance since the $550 million settlement announced Thursday with finance powerhouse Goldman Sachs, the largest against a Wall Street firm in SEC history, over allegations that the firm misled buyers of mortgage-related investments. Lawmakers may question whether the settlement is a serious show of enforcement muscle by the SEC in the trail of the mortgage meltdown or just a blip for a firm that earned that much in about two weeks last year. The $550 million Goldman is paying also represents nearly half the White House’s budget request of $1.2 billion for the SEC for the fiscal year starting Oct. 1. And the overhaul package approved by Congress last week, which slaps the stiffest new curbs on U.S. banks and financial institutions since the Great Depression, adds new powers and responsibilities to the SEC’s plate. Among other things, the agency gains oversight of hedge funds and bolstered technological capacity. Schapiro says in her written testimony that the coming months for the SEC will be dominated by rule-writing for the new legislation. The SEC chief also is discussing the agency’s response to the May 6 “flash crash,” a panicked disruption that saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour. Under a new system of “circuit breakers” for individual stocks put in last month by the SEC, U.S. stock exchanges must briefly halt trading of major stocks that mark big swings. Trading of any Standard & Poor’s 500 index stock that rises or falls 10 percent or more in a five-minute span must be halted for an additional five minutes. In addition, the SEC put forward proposed new rules spelling out when and at what prices stock trades deemed erroneous would be canceled.

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Scott Brown’s Opposition To Bank Fee Throws Wrench In Wall Street Reform

June 29, 2010

WASHINGTON (AP) — Top Democratic House and Senate negotiators who worked out a deal on a sweeping overhaul of financial regulations regrouped Tuesday to eliminate a $19 billion fee on banks that had threatened to derail the legislation. Eager to salvage one of President Barack Obama’s legislative priorities, lawmakers replaced the bank fee with budget adjustments involving the $700 billion bank bailout and increased premiums on bank deposit insurance. The bill’s fate was thrown into doubt this week following the death of Sen. Robert Byrd, D-W.Va., and after Republican Sen. Scott Brown of Massachusetts vowed to abandon his support for the bill if it retained the assessment on large banks and hedge funds. The money would be used to pay for the costs of the legislation. Uncertainty surrounding the bill raised doubts about Congress’ ability to complete the bill this week – a target both the White House and Democratic leaders. The House was still expected to vote on the bill Wednesday, but the Senate likely would take up the bill in two weeks following a recess. The legislation would rewrite financial regulations by putting new limits on bank activities, creating an independent consumer protection bureau and adding new rules for largely unregulated financial instruments. Besides Brown, Republican Sens. Olympia Snowe and Susan Collins of Maine, both of whom also voted for the Senate bill last month, said they, too, had qualms about the bank assessment that negotiators inserted into the bill last week. Without Byrd’s vote, the support of the three Republicans would be crucial to overcome 60-vote procedural hurdles that could defeat the legislation. Seeing nearly a year of work crumbling, Senate Banking Committee Chairman Chris Dodd, D-Conn., proposed Tuesday to replace the bank fee and pay for the bill with $11 billion that would be freed by ending the government’s authority to use the $700 billion bank bailout fund. Under that plan, the balance of the cost could be covered by increasing premium rates paid by commercial banks to the Federal Deposit Insurance Corp. to insure bank deposits. The additional FDIC premium would be paid by banks with assets greater than $10 billion. The bailout fund, known as the Troubled Asset Relief Program or TARP, was scheduled to expire in October. The new proposal would end TARP when the bill is enacted, essentially cutting Congress’ spending authority from $700 billion to $475 billion. That creates an accounting adjustment that would help cover the bill’s costs. Senate Republicans on the House-Senate conference committee angrily denounced Dodd’s proposal as “smoke and mirrors” that violated Congress’ intent to devote TARP repayments to reducing the deficit. “The American taxpayer should be affronted by this little bit of sleight of hand and gamesmanship,” said Sen. Judd Gregg, R-N.H. “What a piece of misleading, misdirected financial management this is.” The House Financial Services Committee chairman, Rep. Barney Frank, D-Mass., who said the new proposal was worked out with Brown, Collins and Snowe, said he preferred the bank fee, which would be assessed on banks with assets greater than $50 billion and hedge funds of more than $10 billion. “I’m getting caught in the middle of an intra-Republican debate here,” he said. “The criticism by the Republican senators was aimed at a provision aimed at satisfying Sens. Snowe, Collins and Brown.” He added: “Why anyone would think that the large financial institutions should not pay the administrative costs, I don’t know, but apparently you couldn’t get 60 senators.”

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Franken Battling Frank On Wall Street Reform

June 15, 2010

Al Franken is battling Barney Frank to save the life of a credit rating agency amendment that the freshman Minnesota Democrat was able to include in the Senate’s Wall Street reform bill. Franken would bar banks from choosing which rating agency can rate which product — the current system creates conflicts of interest leading to artificially rosy ratings. Under Franken’s proposed system, raters would be assigned randomly to a financial institution, leaving them with the freedom to issue a poor rating without fear of losing business — raters who are more accurate will get more business. The House bill does not contain a similar measure and Frank, chairman of the House Financial Services Committee, says the amendment is untested and is offering Franken a study of the issue instead. Franken thinks a study isn’t needed. Debate on Franken’s measure begins at 11:00 a.m. Tuesday, when the conference committee convenes. “The House language is very concerning. We don’t believe a study is necessary,” said Franken spokeswoman Jess McIntosh. “We know what went wrong with Wall Street’s credit rating system — conflicts of interest eroded it by rewarding cozy relationships instead of accuracy. And we know how to fix it — the Franken amendment that passed the Senate with broad bipartisan support. The upside of a study is that they usually end with findings. And you can be sure that if such a study came back, it would confirm the conflicts of interest. It just makes more sense to end the delay and instate the reform now.” Steve Adamske, spokesman for Frank’s committee, reacted sharply to McIntosh’s defense. “The time for debate will be tomorrow at 11:00 am, not through the press by spokespeople protecting the people who sign their paycheck. Mr. Franken needs to talk to his Senate colleagues,” Adamske told HuffPost Hill Monday evening. Franken, notes McIntosh, did send a letter, also signed by Sen. Carl Levin (D-Mich.) and Roger Wicker (D-Miss.), addressed to conference committee leaders, including Frank (D-Mass.) and Sen. Chris Dodd (D-Conn.). “As the Permanent Subcommittee on Investigations clearly revealed in its April 23, 2010, hearing, the credit rating industry is plagued by conflicts of interest, in which the issuing banks pay credit rating agencies to rate their financial products. In order to retain clients, credit rating agencies have an incentive to provide inflated rating to even the riskiest products,” reads the letter. Levin is chairman of the investigations committee. Heather Booth, head of Americans for Financial Reform, said that her group is urging the conference to adopt Franken’s measure, which has bipartisan support.

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Frank: ‘Conceptual Agreement’ Reached On Tougher Volcker Rule

June 10, 2010

The House and Senate have reached “conceptual agreement” on strengthening what’s known as the Volcker Rule in the Wall Street reform bill, House Financial Services Chairman Barney Frank (D-Mass.) said after a conference committee hearing Thursday. The Volcker Rule restricts major banks from trading taxpayer money for their own profit. The Senate version would leave the decision of whether to bar such trading up to regulators. The House bill would empower regulators to do so, but would give no direction. Advocates of a strong Volcker Rule fear that without direction, regulators won’t act. Sens. Jeff Merkley (D-Ore.) and Carl Levin (D-Mich.) were amassing support for a tough Volcker Rule in the Senate when Wall Street lobbyists succeeded in blocking it from being considered. Frank said that conference negotiators were moving in the direction of Merkley and Levin’s amendment. “I think there’s conceptual agreement. You have several things: You have tough regulation of derivatives, which I prefer much of what the Senate did. You’re going to have a tougher version of the Volcker Rule.” A reporter asked what the tougher rule would look like. “I would say the general direction that Senators Merkley and Levin were moving in is a direction a lot of people are supportive of, but the final version, we’ll see. It will be tougher than the House. The House simply empowers the regulators. There will be some direction” given to regulators, he said. Conceptual agreements, of course, are much different than final agreements on financial regulatory reform. The conferees meet again on Tuesday to debate titles three, four, five and nine, dealing with the merging of regulators, insurance regulation, private funds and credit rating agencies.

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Frank to Lead Talks on Wall Street Overhaul, Sees Flaw in Senate on Swaps

May 25, 2010

By Alison Vekshin May 25 (Bloomberg) — U.S. Representative Barney Frank , who will lead congressional talks to produce a financial-regulation bill, said Senate language that would require commercial banks to wall off their swaps-trading operations “goes too far.” Frank’s comments today at a conference in Washington are the latest indication that the contentious swaps-desk provision may not survive final negotiations over the legislation. A separate measure in the Senate bill that would restrict banks’ proprietary trading — the so-called Volcker rule named for former Federal Reserve Chairman Paul Volcker — may address concerns targeted by Senator Blanche Lincoln’s swaps-desk plan, Frank said. “I don’t see the need for a separate rule regarding derivatives, because the restriction on banks engaging in proprietary activity would apply to derivatives,” said Frank, who leads the House Financial Services Committee. Banks should be able to use derivatives to hedge risks for themselves and their customers, Frank said. The Massachusetts Democrat will lead a bipartisan panel of lawmakers assigned to merge the House and Senate versions of legislation that will overhaul rules governing Wall Street. The House approved its version of the bill in December and the Senate approved its measure last week. Legislators must resolve the plans’ different approaches to regulating derivatives, financial instruments based on the value of another security or benchmarks such as stock options. The rule requiring banks to push out their swaps desks, which Lincoln said was necessary to rein in banks’ risk-taking, has drawn opposition from the banking industry and government officials including Volcker, who now serves as an adviser to President Barack Obama . Bernanke Opposed Fed Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair also oppose the Lincoln swaps-desk language. A group of U.S. House Democrats is considering ways to strip the swaps-desk measure from the bill. Representative Gary Ackerman , a New York Democrat on the House Financial Services Committee, had his staff circulate a draft letter yesterday to House members seeking their opposition. The Senate today named 12 negotiators, including Lincoln, the Arkansas Democrat who leads the Senate Agriculture Committee, to work with Frank and other House counterparts to narrow differences between the two bills. Staff for Frank and Senate Banking Committee Chairman Christopher Dodd , another negotiator who wrote the Senate bill, will meet this week and next to look for areas of compromise. Negotiators plan to begin official meetings in two weeks. Frank and Dodd have said they want to get a merged bill to Obama by July 4. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Reid, Pelosi Want Wall Street Reform Talks On C-SPAN

May 25, 2010

The Democratic leaders of the Senate and House said on Monday evening that Wall Street reform conference committee negotiations between the two chambers should be webcast and televised on C-SPAN. The two leaders — House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) — relayed the comments to HuffPost Hill. Pelosi said that she “definitely” wanted the committee deliberations televised, following a suggestion made earlier by House Financial Services Committee Chairman Barney Frank (D-Mass.). Reid seconded the motion. “This is something that he would support,” said Jim Manley, senior communications adviser to Reid. The move is significant because the Senate bill is, broadly speaking, stronger than the House version. However, the more progressive Democratic House conferees will often be happy to accede to the tougher Senate language. The C-SPAN cameras will complicate attempts to weaken the bill behind closed doors, though some talks will continue to go on out of the public view due to the nature of such negotiations. As the debate has gone on, the more the public gets involved, the tougher it gets. Sen. Chris Dodd (D-Conn.), who confirmed on the Senate floor Monday evening that he’d be a conferee, has said he doesn’t oppose televising the deliberations. The two chambers’ bills differ in marked ways: The Senate more tightly regulates the trading of derivatives; the House has a stronger consumer financial product watchdog, but one with a smaller purview; neither addresses the problem of banks that are too big to fail, though Democratic Senate leaders have pledged to Sen. Jeff Merkley (D-Ore.) that they will fight for a change to tighten restrictions on trading with taxpayer-backed money and Rep. Paul Kanjorski (D-Pa.), who is likely to be a conferee, has also promised to address the issue.

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Reid: Wall Street Debate To End In Senate This Week

May 17, 2010

Senate Majority Leader Harry Reid (D-Nev.) is “likely” to file cloture on the Wall Street reform bill Monday evening, setting up a final vote on the legislation for Wednesday, said Reid spokesman Jim Manley. Reid said from the well of the Senate earlier Monday that “as soon as tonight, we could file cloture on this and hold a final vote this week.” Dozens of amendments have yet to be voted on, with senators jockeying for precious floor time. Reid’s determination to finish the bill by the middle of the week makes it all the harder to get an individual amendment to the floor. “I do remind all my colleagues that the amendment process can continue after cloture is filed and after it is invoked,” Reid said. Cloture is required to overcome objections to move forward on a bill. With 60 votes, cloture is invoked and a final vote can be held after an intervening day. Several amendments to strengthen the bill are in line for a vote, including one from Sens. Carl Levin (D-Mich.) and Jeff Merkley (D-Ore.) that would implement the Volcker Rule, which bars commercial banks from trading with taxpayer-backed funds. Another, from Sen. Sheldon Whitehouse (D-R.I.), would require credit cards to follow the laws of the state where a customer resides, rather than the non-existent laws of the state where the credit card company builds its headquarters — typically South Dakota or Delaware. As the public debate has carried on, the bill has been made stronger. Reform advocates are hoping for similar transparency during conference committee negotiations, which are typically held behind closed doors, where killing key provisions is easier. House Financial Services Committee Chairman Barney Frank (D-Mass.) is pushing to hold such negotiations in front of C-SPAN cameras. First, though, the Senate must wrap up its work. “The Senate has voted for amendments to strengthen the bill and has voted against efforts to weaken it. Democrats and Republicans have voted for each other’s amendments. This is the way it should be. But the end must come. The time has come to begin work sending this to conference so we can have a bill go to the president. I hope the two managers of this bill, Chairman Dodd and ranking member Shelby, can continue to work on this bill. Another reason to finish sooner rather than later is that we have such important work to do this month,” said Reid. “At the top of that list is a new jobs bill.”

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Frank Bars ICE Lobbyist Roberson From Contacting House Committee Members

April 1, 2010

By Matthew Leising April 1 (Bloomberg) — Representative Barney Frank, chairman of the House Financial Services Committee, said former senior adviser Peter Roberson is barred from lobbying his staff for as long as he leads the panel. Roberson, hired by Atlanta-based Intercontinental Exchange Inc. in February as vice president of government relations, would normally be prevented from contacting commmittee staff for one year under House ethics rules. “Several people have expressed criticism of the move by Peter Roberson from the staff of the Financial Services Committee to ICE, after he worked on the legislation relevant to derivatives,” Frank said today in a statement. “I completely agree with that criticism.” Bloomberg News first reported on Roberson’s move on March 29. To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net

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Payrolls Probably Grew by Most in Three Years as U.S. Expansion Takes Hold

March 28, 2010

By Timothy R. Homan March 28 (Bloomberg) — Employers in the U.S. probably added jobs in March for the second time in more than two years, setting the stage for a broadening of the expansion, economists said before a report this week. Payrolls probably rose by 190,000, the most in three years, after declining 36,000 in February, according to the median forecast of 62 economists surveyed by Bloomberg News before the Labor Department’s April 2 report. Other reports may show consumer spending and confidence increased, while factories expanded and home prices declined. Caterpillar Inc. is among companies expanding and hiring as manufacturers benefit most from a recovery fueled by business investment, exports and efforts stabilize inventories. Sustained job growth is required to propel consumer spending, which accounts for about 70 percent of the economy. More jobs “will remove some of the doubts that are out there about the sustainability of the recovery,” said Dean Maki , chief U.S. economist at Barclay’s Capital Inc. in New York. The March payroll figures may receive a boost from the hiring of temporary government workers to conduct the 2010 Census and from better weather. Blizzards along the East Coast last month and record snowfall totals in some cities depressed payrolls. The economy has lost 8.4 million jobs since the recession began in December 2007, the most of any downturn in the postwar era. The Labor Department report will probably show the unemployment rate held at 9.7 percent for a third straight month, according to the survey median. The jobless rate has not increased since October, when it reached a 26-year high of 10.1 percent. Bernanke on Jobs Federal Reserve Chairman Ben S. Bernanke told Congress last week that the labor market justifies a long period of low interest rates. The “unemployment situation is very weak,” with 40 percent of those without jobs being out of work for a long time, Bernanke said in response to questions during a House Financial Services Committee hearing March 25. Optimism that the economy will keep growing has helped lift stocks. The Standard & Poor’s 500 Index last week reached an 18- month high and has advanced 4.6 percent this year. Consumer sentiment is projected to rebound this month, according to the survey median. The Conference Board’s confidence index , due March 30, probably increased to 50 from 46 in February. Gains in Spending Americans probably increased spending in February for a fifth straight month, a report tomorrow from the Commerce Department may show. Purchases climbed 0.3 percent and incomes likely rose 0.1 percent for a second consecutive month, the survey showed. The Labor Department’s employment report may also show a 15,000 gain in factory jobs , according to the median estimate. More workers are being hired as companies ratchet up orders. Manufacturing probably expanded in March for an eighth straight month, economists said before an April 1 report from the Institute for Supply Management. The Tempe, Arizona-based group’s factory index rose to 57 from a February reading of 56.5, the survey showed. Index readings greater than 50 signal expansion. Caterpillar, the world’s largest maker of construction equipment, said last week that it plans to hire 500 workers this year to expand a generator plant in Newberry, South Carolina. “The expansion is likely to take three to four years and could vary based on demand and other factors,” Jim Dugan, a Caterpillar spokesman, said March 17 in an e-mail. Fourth Quarter The U.S. economy grew in the fourth quarter at a 5.6 percent annual rate, led by business spending on equipment and software and a smaller reduction in inventories, figures from the Commerce Department last week showed. Consumer spending climbed at a 1.6 percent pace compared with a 2.8 percent increase the previous three months. Corporate profits capped the biggest year-over-year gain in 25 years. The housing market remains a weak spot for the economy. Mounting foreclosures are driving down home prices, and the S&P/Case-Shiller home-price index of 20 U.S. cities probably declined in January for the first time in eight months. The Obama administration last week announced programs to help U.S. homeowners avoid foreclosure, including subsidies for borrowers who owe more than their home is worth. The plan expands Treasury Department and Federal Housing Administration efforts and uses funds from the $700 billion Troubled Asset Relief Program. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Bullard Says Federal Reserve Must Start Planning For Future Asset Sales

March 25, 2010

By Craig Torres March 25 (Bloomberg) — The Federal Reserve must start making plans now for asset sales to meet its goal of returning a record $2.32 trillion balance sheet to its pre-crisis size and makeup, St. Louis Fed President James Bullard said. “We want to someday get back to a pre-crisis balance sheet — both the size of it and the fact that it would be an all- Treasuries balance sheet,” Bullard said today in a telephone interview. “There does seem to be agreement that you want to get back to a normal-looking balance sheet at some point in the future.” The Fed responded to the financial crisis both through temporary liquidity backstops, most of which have closed or run off, and direct purchases of up to $1.43 trillion in housing- related debt. While the central bank could neutralize the monetary effects of those purchases, without asset sales the balance sheet would remain large for years and keep the Fed as a stakeholder in U.S. housing markets. “You have to think about what kind of time horizon you want to get back to that normal balance sheet, and probably that has to involve some asset sales at some point,” said Bullard, who is a voting member of the rate-setting Federal Open Market Committee this year. Bullard, 49, said there’s no agreement among policy makers on when to start the sales, and the economic recovery remains too fragile to start now. “I don’t think you could do any kind of tightening policy right now,” Bullard said. More Prominent Role Fed Chairman Ben S. Bernanke signaled today that sales of the central bank’s holdings of mortgage-backed securities may play a more prominent role in the withdrawal of monetary stimulus than he indicated last month. “I anticipate that at some point we will in fact have a gradual sales process,” Bernanke said today in testimony to the House Financial Services Committee. In prepared remarks, he avoided repeating a February statement that the Fed won’t sell any securities “at least until after policy tightening has gotten under way.” Instead, he said today the tool is one way of “applying monetary restraint.” The Fed’s large-scale asset purchases were a signature of Bernanke’s “credit easing” policy. The Fed chairman told lawmakers that “a range of evidence” shows the purchases helped improve conditions in mortgage markets and other private credit markets. The approach is a break from principles spelled out in a 2002 Fed study that warned against credit allocation. The purchases have also been criticized for jeopardizing Fed independence by some monetary scholars, such as Stanford University economist John Taylor , who also testified before the House committee today. “The programs are not monetary policy as conventionally defined, but rather fiscal policy or credit-allocation policy,” Taylor said, “because they try to help some firms or sectors and not others.” To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net

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House’s Frank Says He Won’t Push to Regulate Credit-Card Swipe Fees in ’10

February 25, 2010

By Peter Eichenbaum and Alison Vekshin Feb. 25 (Bloomberg) — U.S. Representative Barney Frank , chairman of the House Financial Services Committee, said he won’t seek to regulate in 2010 the interchange fees that are charged to merchants with each swipe of a credit card. “It is not on our agenda this year,” Frank, a Massachusetts Democrat, said yesterday at the Credit Union National Association’s Governmental Affairs Conference in Washington. Merchants including Wal-Mart Stores Inc. and Target Corp. have asked Congress to reduce the fees, which generated an estimated $48 billion in 2008, according to the National Retail Federation. Payment networks Visa Inc. and MasterCard Inc. , which set the rates, and banks that collect the fees have said the system helps merchants by guaranteeing payment and simplifying record-keeping. U.S. consumers may not save money and might pay higher credit-card costs if lawmakers forced the networks to cut interchange fees, the Government Accountability Office said in a Nov. 19 report ordered by Congress. Frank’s panel has jurisdiction for legislation on banking, securities and consumer issues. “Merchants would benefit from lower interchange fees,” the report said. “Consumers would also benefit if merchants reduced prices for goods and services, but identifying such savings would be difficult. Consumers also might face higher card-use costs if issuers raised other fees or interest rates to compensate.” Banks use the interchange revenue to pay for rewards programs and to cover the cost of cardholder defaults. The fees average about 2 percent in the U.S. — the highest in the world, according to Representative Peter Welch , a Vermont Democrat who’s sponsoring a bill that would prohibit the payment networks from setting higher interchange for premium cards. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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Bernanke Says `Nascent’ Recovery in U.S. Still Requires Low Interest Rates

February 24, 2010

By Craig Torres Feb. 24 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the U.S. economy is in a “nascent” recovery that still requires low interest rates to encourage demand by consumers and businesses once federal stimulus expires. “A sustained recovery will depend on continued growth in private-sector final demand for goods and services,” Bernanke told the House Financial Services Committee today in Washington at the start of his two days of semi-annual testimony before Congress. “Private final demand does seem to be growing at a moderate pace.” The 56-year-old Fed chairman, who began his second four- year term this month, said slack labor markets and low inflation will allow the Federal Open Market Committee to keep the benchmark lending rate, which has been in a range of zero to 0.25 percent for more than a year, low “for an extended period.” He said the Fed will need to start tightening policy “at some point.” “The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” he said. Bernanke’s testimony follows the Federal Reserve Board’s decision last week to raise the cost of direct loans to banks by a quarter-point to 0.75 percent. The Fed portrayed the move as a “normalization” of bank lending and said it didn’t change the outlook for the economy or monetary policy, a message the Fed chairman reiterated today. Labor Markets Bernanke cited “tentative” signs of stabilization in labor markets, such as lower job losses, a rise in manufacturing employment, and stronger demand for temporary help. “Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” Bernanke said. He said the 40 percent of the unemployed who have been without work for six months or more are a “particular concern.” Policy makers are trying to ensure a durable expansion that will start generating enough jobs to bring down an unemployment rate they forecast to end the year at 9.7 percent, above their estimate of full employment of around 5 percent. At the same time, they want to convince investors that they can start withdrawing $1.1 trillion in excess cash from the banking system in time to keep inflation at bay. “As the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures,” the Fed chairman said. “Notwithstanding the substantial increase in the size of its balance sheet associated with its purchases of Treasury and agency securities, we are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time,” he said. Manufacturing Rebound Manufacturing is leading the rebound from the worst recession since the 1930s as companies prevent inventories from being further depleted and invest in new machinery and equipment to take advantage of a rebound in global demand. The economy grew at a 5.7 percent annual pace in the fourth quarter of last year, the fastest in six years. Fed officials last month forecast growth in 2010 of 2.8 percent to 3.5 percent, and minutes of their January meeting showed they are seeking more evidence the recovery is sustainable. Bernanke said that conditions in financial markets have improved, making equity and debt financing available for larger firms. “In contrast, bank lending continues to contract, reflecting both tightened lending standards and weak demand for credit amid uncertain economic prospects,” he said. Balance Sheet The Fed has expanded its balance sheet to $2.28 trillion in an attempt to supplement credit to the economy. U.S. central bankers are finishing up a $1.43 trillion in mortgage-backed securities and housing agency debt purchase program next month. “The FOMC will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets,” Bernanke said. The actions by the central bank haven’t stimulated private bank credit. Total loans and leases by banks in the U.S. have fallen 7 percent for the 12 months ending January. Consumer loans have fallen 6.5 percent over the same period. “They want to see sustained job growth and credit growth to small businesses,” Michael Darda , chief economist at MKM Partners LP in Greenwich, Connecticut, said before the testimony was released. “The Fed is going to keep rates low and the balance sheet big until you see those two things start recovering.” To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net ;

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Bernanke Can Tell Congress He Stiffed the Banks: Caroline Baum

February 22, 2010

Commentary by Caroline Baum Feb. 22 (Bloomberg) — When Ben Bernanke makes his pilgrimage to Capitol Hill Wednesday to present the Federal Reserve’s semi-annual monetary policy report to Congress, he will have one new strike against him: the increase in the discount rate . If he plays his cards right, he can turn a liability into an asset — especially if he follows a few basic pointers, which I’ll get to in a minute. Last week, the Fed raised the discount rate by 0.25 point to 0.75 percent and said the term of these direct loans to banks will revert to overnight next month from 28 days now. It left the benchmark overnight rate at 0 percent to 0.25 percent and invoked the “extended period” clause to assure markets that rate isn’t going up anytime soon. Before the crisis, the discount rate stood 100 basis points more than the federal funds rate, a reminder that borrowing at the Fed window is a privilege, albeit at a price. During the crisis, the Fed adopted a “come one, come all” policy, knowing access to Fed credit was essential to banks’ provision of private credit . The Fed portrayed the discount rate increase as a technical adjustment, a step in the gradual process that has already entailed the shuttering of various emergency lending facilities . Policy makers further downplayed the significance of the move by including the announcement in its regular Thursday data dump, sandwiched between the headlines “Fed Balance-Sheet Assets Rose $21 billion” and “U.S. Primary Dealer Settlement Fails.” Target Practice If Fed officials were contemplating an imminent increase in the fed funds rate or reduction in the bank’s $2.3 trillion balance sheet , they wouldn’t have reiterated their intention to complete the purchase of $1.25 trillion of agency mortgage- backed securities by the end of March, which they did at the Jan. 27 meeting . You don’t load the boat in March to unload it in April and May. That said, the increase in the discount rate signals the era of uber-liquidity is coming to an end. Congress, never one to split hairs over which rate is being manipulated, will view the discount-rate adjustment through its binary operating filter: down, good; up, bad. Here’s where Bernanke can play his trump card. Who gets to borrow at the Fed’s discount window? The banks. Who is Congress’ favorite whipping boy? The banks. From whom does Congress seek retribution? The banks. See, it’s not that hard, Ben. Just tell them you are doing God’s work. Pointers for Ben When it comes to monetary matters, you could say nothing and still come out ahead. Congress has a unique ability to make even the smarmiest witness seem sympathetic. So Ben, here are a few pointers in dealing with the House Financial Services and Senate Banking Committees this week: 1. Transparency is highly overrated. Look how far dispensing empty platitudes got your predecessor. Alan Greenspan was treated like a celebrity, and no one had any idea what the Master of Garblements was saying. Lawmakers don’t know a discount rate from a discount store. It all feels like a perk to them. 2. Think and talk like a politician. Politicians are skilled at non-answer answers. When a prominent Republican lawmaker is asked if he thinks Sarah Palin is fit to be president, he says something like, “I haven’t decided who I’m going to support in 2012.” Answers don’t have to fit the questions. Besides, these folks love to hear themselves talk. They rarely get to the question in the five minutes allotted. And if they do, they aren’t really interested in your answer. 3. Table the talk about low interest rates not fueling the housing bubble. That may have been an appropriate academic exercise for your address at the annual meeting of the American Economic Association on Jan. 3. It won’t fly with House Financial Services Chairman Barney “ roll-the-dice ” Frank. Pretty soon, you will have to explain to him why the benchmark rate can’t stay at zero for an extended period; how easy money eventually leads to higher prices for goods and services or for assets. If low interest rates didn’t inflate the housing bubble in 2004 and 2005 when unemployment was hovering near 5 percent, why should they be harmful when the jobless rate is twice that? 4. Downplay the Fed’s regulatory failures. If the Fed wants to stay in the game of bank regulation, it’s best not to advertise one’s own shortcomings, as you did at the AEA meeting. No one buys the idea that a new and improved systemic risk regulator will be able to spot the next financial crisis. Senate Banking Committee Chairman Chris Dodd is about to introduce a bill to overhaul financial regulation, and guess who stands to lose some regulatory authority? Right. It’s best not to advertise your failures if you want to be a player. ( Caroline Baum , author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .

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Paul Volcker Says Mortgage Market Will ‘Have To Be Reconstructed’ (VIDEO)

February 19, 2010

Former Federal Reserve Chairman Paul Volcker said the nation’s home mortgage market is in trouble and will have to be “reconstructed.” “It’s totally dependent, heavily dependent on government participation,” Volcker said Friday in an interview with Bloomberg Television. “It shouldn’t be that way. That’s going to have to be reconstructed.” The federal government was responsible for up to 95 percent of all new home mortgages in the fourth quarter of 2009, said Guy Cecala, publisher of Inside Mortgage Finance , a leading industry publication. “Anyone who looks at the numbers says, ‘My God, look what it’s come to,’” Cecala said in an interview Friday. While Volcker hopes the nation’s home mortgage finance system lessens its dependence on taxpayers, Cecala said it’s going to be nearly impossible for a significant change to take place over the next year. “We can’t,” Cecala said. “It certainly can’t change in 2010. It’s like saying we’re going to make some improvements in the Titanic after it’s hit the iceberg.” There were $390 billion in new mortgage originations, including home equity lines, in the last quarter of 2009, according to Cecala’s firm. Excluding the home equity lines, Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration stood behind up to 95 percent of those mortgages. Just a few years ago the government was responsible for about 40 percent of all new home mortgages, Cecala said. By buying up mortgages from lenders, Fannie and Freddie control about $5.5 trillion in home mortgages, according to their federal regulator. That’s nearly half of all outstanding mortgage debt in this country. Their share of the mortgage market is nearly double what it was 20 years ago. They were effectively nationalized in September 2008. Cecala noted that in 2005, the amount of private mortgage-backed securities exceeded the total output of Fannie, Freddie, FHA and the VA combined. That year there was about $613 billion in private bonds that contained creditworthy mortgages (excluding subprime). In 2009, there was just $5.5 billion. Attracting lenders and investors back into mortgage finance, without the promise of a government guarantee, will be key to lessening the federal government’s involvement. That means getting Fannie Mae and Freddie Mac to dial back their taxpayer-subsidized purchases and guarantees of mortgages. “Fannie Mae and Freddie Mac were not a good idea in the first place,” Volcker said. “This hybrid public, private thing sooner or later was going to get you in trouble — and it sure got us in trouble big time,” he said. “I hope we don’t go back to that model.” Cecala said that unless the private securitization market returns, it’ll be hard for the federal government to dial back its involvement. While analysts expect an uptick in private mortgage securitizations this year, Cecala said it won’t be enough. The government “needs to provide a way to support the…market, and I don’t know how they’re going to do it without some sort of government guarantee,” Cecala said. One approach could be for the government to guarantee mortgages held and securitized by banks, and then slowly decrease the level of that guarantee until confidence fully returns. Last month , House Financial Services Committee Chairman Barney Frank (D-Mass.) vowed to get rid of mortgage giants Fannie Mae and Freddie Mac as part of an overhaul of the country’s taxpayer-supported system for financing home loans. “The remedy here is to, in fact, as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank said. “That’s the approach, rather than a piecemeal one.” The Obama administration expects to outline its future plans for Fannie and Freddie later this year. WATCH the Volcker interview:

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Davos Dispute Escalates as Policy Makers, Bankers Square Off on Regulation

January 29, 2010

By Simon Kennedy and Christine Harper Jan. 29 (Bloomberg) — Policy makers pushed back at bankers who have warned of excessive and uncoordinated attempts to toughen financial regulation as they jostled for control of an industry that required an unprecedented government bailout. Bank chief executive officers, led by Josef Ackermann of Deutsche Bank AG , are scheduled to meet privately tomorrow with finance ministers and central bankers to keep talks on track and assert their influence on the penultimate day of the World Economic Forum annual meeting in Davos, Switzerland. “Government had to become substantially involved and in that context there is an obligation for those who benefited to carefully consider their obligations,” Lawrence Summers , director of the White House National Economic Council, said today in Davos. “There have been productive discussions, but in some areas, there has been a reluctance to do all that can be done.” Financiers, surprised by President Barack Obama’s embrace last week of a plan to restrict proprietary trading and investing at banks, have argued in Davos that such efforts undermine global cooperation and could jeopardize economic recovery. Officials, including U.K. Chancellor of the Exchequer Alistair Darling and U.S. Congressman Barney Frank , countered that banks shouldn’t argue against reforms. “The big banks, if they think they’re in a position to stop the regulation, they’re deluding themselves,” said Frank, a Massachusetts Democrat who chairs the House Financial Services Committee. “They have no political support.” Bonus Tax Darling, who last month imposed a 50 percent tax on bonuses paid to bankers for 2009, suggested that banks should stay out of the public eye and focus on lending. “It’s in their interest to get off the front pages and do what they’re supposed to do — provide credit to the economy,” Darling said. Obama’s unilateral endorsement of the proposal to limit banks’ size and risk-taking has added impetus to international regulatory efforts, say officials including Swiss National Bank President Philipp Hildebrand , Bank of International Settlements General Manager Jaime Caruana and Hector Sants , chief executive officer of the U.K.’s Financial Services Authority. “If you’re looking specifically at the Volcker-Obama proposal around trading, I actually think that’s helpful,” Sants said. “We’re beginning to see convergence on how we address the too-big-to-fail problem in terms of diminishing the probability of failure.” Saving the System Hildebrand, addressing Credit Suisse AG clients as they ate a lunch of “Zurich style” sliced veal in mushroom sauce today, warned that the free-market system could come under threat unless both sides show the public soon that they’re serious about reform. “We’re jointly in a fight to preserve a market-based financial system,” he said. Bank chief executive officers, including Ackermann and Bank of America Corp.’s Brian T. Moynihan , met in Davos to discuss how to play a bigger role in the regulatory discussion. Ackermann disputed the notion that there was tension between bankers and regulators. “We are having more and more constructive dialogue with regulators,” he said. “We have been advancing reforms. We have changed compensation structures. It’s time to stop the blame.” Moynihan said in an interview that much of the discussion among bankers at a meeting yesterday was about tactics, such as who the executives should approach and when. He said the bankers were concerned that too much regulation could hamper economic growth and that conflicting national approaches need to be avoided. “Both the banks and the regulators think they hold all the cards,” said Harvard Economics Professor Kenneth Rogoff. “The bankers think that when the storm passes nothing will have changed and they can go back to business as usual. Regulators think banks have completely lost the political capital and are ignoring public opinion.” To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net ; Christine Harper in Davos at charper@bloomberg.net

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Video: Frank Says Banks `Deluded’ if They Resist Regulation: Video

January 29, 2010

Jan. 29 (Bloomberg) — U.S. Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, talks with Bloomberg’s Erik Schatzker about bank regulation. Frank, speaking at the World Economic Forum in Davos, Switzerland, also discusses the outlook for Federal Reserve Chairman Ben S. Bernanke’s second term. The Senate voted 70-30 to confirm the 56-year-old Bernanke. The opposing votes were the most since the chamber started confirming Fed chiefs in 1978. (Source: Bloomberg)

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Barney Frank: Abolish Fannie and Freddie

January 22, 2010

House Democrat Barney Frank vowed on Friday to get rid of mortgage giants Fannie Mae and Freddie Mac as part of an overhaul of the country’s taxpayer-supported system for financing home loans. “The remedy here is to, in fact, as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” said Frank, chairman of the House Financial Services Committee. “That’s the approach, rather than a piecemeal one.” Frank’s comments about the government-controlled entities, which help expand home ownership by buying up loans from lenders, come amid the Obama administration’s renewed push to re-regulate Wall Street . Last week, the administration announced a proposed levy on the nation’s biggest financial institutions. This week, Obama pushed for further measures to reduce risk-taking by megabanks. Fannie and Freddie, though, have thus far escaped the chopping block. While Congressional Democrats and the administration push forward on measures to rein in Wall Street and protect consumers, there’s been little public focus on what to do about the bailed-out mortgage giants, which were seized by federal regulators in 2008 due to their risk of failure. Frank made his comments during a Congressional hearing on executive compensation after Republicans questioned why salaries for Fannie and Freddie executives weren’t being slashed. Effectively nationalized in September 2008, taxpayers have pumped about $111 billion into the mortgage-finance firms. Last month, the Obama administration, in a highly-debated move, promised an unlimited credit line to back up the firms, regardless of how high their losses eventually reach. “Yeah, I think they got too much money over the Christmas Eve period,” Frank said Friday of the Obama administration’s backstop. By buying up mortgages from lenders, the firms control about $5.5 trillion in home mortgages, according to their federal regulator. That’s 46 percent of all outstanding mortgage debt in this country, as of Dec. 10. Their share of the mortgage market is nearly double what it was 20 years ago. As foreclosures increase, Fannie and Freddie’s losses will continue to rise. “Because of their federal backing, Fannie Mae and Freddie Mac provide capital and guarantees to the mortgage market at lower prices than private financial institutions can offer, which ultimately transfers risk from the two entities to taxpayers,” the Congressional Budget Office said in a report this month . To keep the housing market from imploding, the Treasury Department and the Federal Reserve under the last administration began buying up Fannie, Freddie, and Ginnie Mae mortgage-backed securities and their debt. It also began buying up debt issued by the Federal Home Loan Banks, another source of taxpayer-funded credit for banks. All told, since September 2008 the federal government has purchased $1.52 trillion worth of their mortgage-backed securities and debt. The Congressional Budget Office pegged the government’s losses this year on Fannie and Freddie at $291 billion. They’re expected to cost taxpayers an additional $99 billion in the coming decade, for a grand total loss of $390 billion . The Obama administration expects to outline its future plans for Fannie and Freddie later this year.

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Daniel Mica: Consumers Are Moving Their Money to Credit Unions, Rising Membership Shows

January 6, 2010

Make a New Year’s resolution to move your money out of big banks? To that I say: Right on! Without question, financial consumers are angry at — and have lost their loyalty to — big banks. Late-night comics routinely make fun of the banks; there’s even a new iPhone app in which players try to stop “cash-hungry” bankers from wheedling more bailout money from the U.S. Treasury, according to a recent report in American Banker newspaper. But if consumers do indeed move their money out of big banks, they would be well advised to look not only at community banks, but at the nation’s credit unions. In fact, consumers are already voting with their wallets in favor of credit unions. The data collected by my organization, (the Credit Union National Association — the industry’s trade group) shows that credit unions are on pace to post 2% membership growth in 2009. This is the fastest rate we have seen since 2001 and double the rate of U.S. population growth, bringing total credit union membership to nearly 93 million Americans. We think disenchantment with banks explains at least part — and probably a large part — of that growth in new members. For consumers, the move makes perfect sense. Credit unions are not-for-profit cooperatives, and they’re owned by their members. They offer the same products and services banks do, but unlike banks, credit unions exist only to serve their members — not to generate profits for outside investors. Members typically experience that difference in the form of better rates and lower fees. In 2008 (the latest data we have available), consumers saved $9.2 billion by using credit unions rather than banks, or the equivalent of $104 per member and $198 per family. And that’s just on average. Loyal members — those who use credit unions extensively — often receive total financial benefits that are much greater than the average. But the issue goes beyond dollars and cents. In this turbulent economy, credit unions’ cooperative business model has renewed relevance for American consumers. Chairman Barney Frank (D-MA) of the House Financial Services Committee has said if other financial institutions behaved liked credit unions and small community banks, the mortgage meltdown would never have happened. You can’t join just any credit union. Each credit union has its own specific field of membership centered primarily on where people work or live. But we’re quite confident everyone can find one or more credit unions he or she is eligible to join; the locator tool on CUNA’s consumer web site may help. The time is right for consumers to resolve to move their money. We happen to think the best destination is a credit union — as millions who have already gone there will attest.

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Barney Frank: Fannie, Freddie Are Basically ‘Public Policy Instruments Of The Government’ (VIDEO)

January 5, 2010

In an appearance on CNBC this morning, House Financial Services Committee Chairman Barney Frank (D-Mass.) made an unusual claim about the mortgage giants Fannie Mae and Freddie Mac. The two mortgage lenders are essentially a “public policy instrument of the government,” Frank said. On Christmas Eve, the Treasury Department lifted a $400 billion cap on the lifeline for the two companies. The move was viewed by many — including investors — as a indicator that the two firms will continue to receive billions in direct government support. Here’s Frank: “Remember now that Fannie and Freddie have been converted…Part of the losses of Fannie and Freddie are that since the housing collapse, Fannie Mae and Freddie Mac…have become a kind of public utility.” Backing Fed Chairman Ben Bernanke’s recent comments , Frank argued that regulations — or lack thereof — not interest rates were responsible for the financial crisis and housing bubble. Frank also brushed aside suggestions that Congress could soon pass legislation that would reduce mortgage principal for struggling homeowners. Such a program would violate contractual agreements between lenders and borrowers, Frank argued, and could only work if homeowners went into bankruptcy. WATCH: Get HuffPost Business On Facebook and Twitter !

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U.S. Lawmakers Probably Will Avoid Matching U.K.’s 50% Tax on Bank Bonuses

December 9, 2009

By Ian Katz Dec. 9 (Bloomberg) — U.S. lawmakers already wary of expanding the government’s role in running financial companies probably will avoid matching the U.K.’s tax on banker bonuses. “We don’t think it is at all likely that Treasury-IRS would impose a 50 percent tax on banker bonuses,” said David Schmidt , a senior consultant for New York-based compensation firm James F. Reda & Associates. “This pay cut would likely cause an exodus of talent.” U.K. Chancellor of the Exchequer Alistair Darling imposed the one-time tax today and said he will raise income taxes after elections next year. The levy applies to discretionary payments of more than 25,000 pounds ($40,522) and will be paid by the institution, not the employee. The U.S. Congress this year unsuccessfully considered a 90 percent tax on bonuses at companies that received more than $5 billion in aid after retention pay for employees of American International Group Inc. sparked a public furor. The House passed the measure, while the Senate retreated when President Barack Obama said the U.S. shouldn’t “govern out of anger” and AIG employees promised to repay their bonuses. Goldman Sachs Group Inc. , Morgan Stanley and JPMorgan Chase & Co. ’s investment bank combined will hand out $29.7 billion in 2009 bonuses, up 60 percent from last year, according to analysts’ estimates. The three banks repaid aid received last year and aren’t under the review of U.S. paymaster Kenneth Feinberg, who is overseeing compensation at seven companies. House Financial Services Committee Chairman Barney Frank today said he favors “increasing the tax level in general for upper-income people,” and said his committee lacks jurisdiction on tax matters. ‘Won’t Fly Here’ The U.K. measures “probably just won’t fly here,” said Charles Geisst , finance professor at Manhattan College in Riverdale, New York. In the U.K., “it’s as much a political excise tax as it is an income tax.” U.K. bankers already pay a tax on their bonuses at their marginal rate that is due to rise to 50 percent from 40 percent on wages over 150,000 pounds starting in April. “This policy makes U.K. banks less competitive internationally,” said Scott Talbott , chief lobbyist at the Financial Services Roundtable that represents large banks. “The new 50 percent bonus tax and the 50 percent income tax amount to a 100 percent confiscatory clawback of bonuses.” A U.S. bonus tax is a “great idea” that is justified by the taxpayer-funded bailouts, said Clyde Prestowitz , president of the Washington-based Economic Strategy Institute and a former Commerce Department international trade official. “Goldman Sachs and the others may be making tons of money but they wouldn’t be making anything without the bailout, which saved them,” Prestowitz said. “There’s a lot of pain and agony out there because of their malfeasance.” Avoiding Tax Compensation consultants and tax experts probably are “poring over the fine print in an effort to figure out legitimate ways to avoid this new tax,” said Robert Profusek , a partner at Jones Day in New York specializing in mergers and acquisitions and executive pay. Donald Susswein, a former PricewaterhouseCoopers LLP tax lawyer, compared the U.K. tax to a 1993 U.S. rule barring companies from writing off most pay exceeding $1 million, except for performance-based compensation such as stock options. The rule triggered a surge in pay linked to stock options pay, Susswein said. “That was one of the most disastrous policies the U.S. Congress ever undertook,” said Susswein, who runs a Washington- based consulting firm bearing his name. To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net ;

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Obama’s Loan Modification Plan ‘Destined To Fail’: Amherst Securities (TRANSCRIPT)

December 8, 2009

In Congressional testimony today, a mortgage market expert offered scathing criticism of the Obama administration’s plan to help distressed homeowners, arguing that the plan is “destined to fail.” Speaking before the House Financial Services Committee, Laurie Goodman, senior managing director at Amherst Securities Group, blasted Obama’s mortgage modification plan for failing to help struggling borrowers who owe more than their homes are worth. According to a report issued last month by First American CoreLogic, nearly one in four American homeowners have what are referred to as “underwater mortgages.” And about 40 percent of borrowers who took out home loans in 2006 are currently contending with negative equity, the report noted. Goodman was adamant about the prevalence of the negative equity trap: “The evidence is irrefutable. Negative equity is the most important predictor of default. When the borrower has negative equity, unemployment acts as one of the many possible catalysts, increasing the probability of default.” Amherst estimates that, unless the widely-criticized $75 billion Home Affordable Modification Program (HAMP) is reconfigured, approximately 7 million to 7.9 million homeowners who are late on their mortgages will eventually be forced out of their homes. Here’s more from Goodman: “We are concerned that if policies continue to kick the can down the road — working with a modification problem that does not address negative equity — delinquencies will continue to spiral down with no end in sight” READ Goodman’s full testimony: goodman – Get HuffPost Business On Facebook and Twitter !

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Bullard Says Fed Should Retain Authority to Extend Asset-Purchase Program

November 23, 2009

By Michael McKee and Steve Matthews Nov. 23 (Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds. “I would just like to keep them active at a very low level instead of saying we’re shutting down, shutting down permanently,” Bullard told reporters after a speech yesterday in New York. “Initially it would do nothing for the economy, but it would give the Fed the option to react to future news as it comes in.” Policy makers reiterated Nov. 4 that they will complete the Fed’s planned $1.25 trillion in purchases of mortgage securities by March and said they will buy $175 billion of agency debt, down from a previous maximum of $200 billion. They kept the benchmark interest rate in a range of zero to 0.25 percent and repeated that rates will stay low for an “extended period.” The Fed has also purchased $300 billion of Treasury securities. “If the economy came in very weak, let’s say, in 2010, weaker than expected, we would have the option of doing further quantitative easing” through additional asset purchases, Bullard said. “If the economy came in stronger than expected and inflation expectations started to ratchet up a little bit we could maybe sell off some of these assets and remove some of the accommodation from our quantitative easing program.” Dollar Falls The dollar fell the most in two weeks against the euro on speculation the Fed will keep its stimulus measures in place and ensure interest rates remain at virtually zero. The dollar weakened 0.9 percent to $1.4992 per euro at 9:10 a.m. in New York, from $1.4862 last week. The dollar appreciated during the financial crisis because investors view the currency as comparatively safe in times of turmoil, Bullard said during a panel discussion. “Right now, the dollar is still viewed as the reserve currency and it is still viewed as the place to go in a crisis,” he said. During his speech in New York, Bullard said the Fed must retain its independence in setting monetary policy to contain the threat of inflation and avoid impeding the economic recovery. Independence ‘Vital’ “Fed independence is vital in maintaining the credibility of monetary policy,” Bullard said. “Non-independent central banks, historically, have been forced to finance large government budget deficits through money creation. This can be extremely inflationary.” The House Financial Services Committee advanced a proposal last week requiring audits of monetary policy that was introduced by Representative Ron Paul , a Republican from Texas. Fed Chairman Ben S. Bernanke has opposed the Paul proposal, saying it may open the door to interference in monetary policy. Senate Banking Committee Chairman Christopher Dodd has proposed stripping bank-supervision authority from the Fed and its regional banks. He called the Fed’s regulation an “abysmal failure.” Large Deficits “The U.S., in fact, has large government budget deficits right now,” Bullard said. “So I worry about this issue. I worry about erosion of Fed independence. Even talk of eroding Fed independence can be counterproductive for the economic recovery.” Bullard said there must be a “substantial Fed role” in regulation of banking and financial institutions. The Fed president repeated his view that economic recovery has started in the U.S. while predicting sustained growth in 2010. “I think we’ll grow at or above the long run rate of growth for the U.S. economy in the postwar era, which is about 3 percent,” he told reporters. “If you could get growth up at 4 percent then you could get the unemployment rate down.” A 4 percent growth rate is “a clear possibility” as the global recovery is “going quite a bit better than I anticipated six or nine months ago,” he said. Concerns among U.S. households about the economy and their own financial situations “have settled down some, and consumption spending is growing,” he said. At the same time, stress in the financial markets has “settled down a lot.” To contact the reporters on this story: Michael McKee in New York at mmckee@bloomberg.net ; Steve Matthews in Atlanta at smatthews@bloomberg.net ;

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Kanjorski Plan to Dismantle Banks With Systemic Risk Passed by House Panel

November 18, 2009

By Alison Vekshin Nov. 18 (Bloomberg) — A House committee approved giving the U.S. authority to break up healthy, well-capitalized firms whose size threatens the economy, a step Republicans said would create a “huge accumulation” of power. The House Financial Services Committee voted 38-29 today on an amendment that would let regulators dismantle a firm, limit mergers and acquisitions and force an end to activities deemed systemically risky. The financial industry opposed the measure, which is part of legislation to overhaul Wall Street rules. “I recognize this is extraordinary power,” Representative Paul Kanjorski , a Pennsylvania Democrat who proposed the amendment, said during debate. “Hopefully it will never have to be used because it is displayed and because it does exist.” The House Financial Services Committee is considering legislation that would create a council of regulators, including the Federal Reserve, to monitor large, interconnected firms for risks they pose. It’s part of the effort in Congress to overhaul financial rules to prevent a repeat of the worst financial crisis since the Great Depression. Republicans opposed Kanjorski’s plan as giving too much authority to regulators. “That’s a huge accumulation of power that we’re going to give to five or six people that are on this council,” said Representative Randy Neugebauer , a Texas Republican. “We’re already imposing the federal government substantially on these entities.” Industry Opposition Representative Spencer Bachus of Alabama, the committee’s top Republican, said the plan entrusts regulators to decide “what the financial industry should look like” and those agencies failed to anticipate the crisis, “let alone do anything to prevent it,” Bachus said. The Financial Services Roundtable, representing the biggest financial firms, and the Financial Services Forum also opposed the legislation. Kanjorski’s measure would empower the council to break apart firms considered well-capitalized if they are “so large, interconnected or risky that their collapse would put at risk the entire American economic system,” according to a bill summary released by Kanjorski’s office. The measure requires the council to consult with the president before taking “extraordinary” actions. The amendment doesn’t cap the size of financial firms, the summary said. The council would give Congress an annual report showing the size, concentration and links with other firms for the 50 largest U.S. financial institutions based on assets. Kanjorski has met some of the heads of firms that would be covered by the council and said he are is aware of the controversy the proposal has stirred. ‘Contentious Amendment’ “I don’t want to kid anybody,” Kanjorski said. “This is a contentious amendment.” Kanjorski’s proposal will discourage financial firms from expanding, said Scott Talbott , senior vice president of government affairs at the Financial Services Roundtable, representing many large U.S. financial firms in Washington. While a policy of having government prop up systemically important firms must be eliminated, targeting an institution’s size isn’t the solution, said Rob Nichols , president of the Financial Services Forum. “More effective supervision, coupled with the authority to seize and wind down large firms, is the appropriate remedy,” Nichols said. Lawmakers are seeking to prevent further taxpayer bailouts after last year’s rescues of American International Group Inc. , Citigroup Inc. and Bank of America Corp. under the $700 billion Troubled Asset Relief Program. The committee plans to vote on Kanjorski’s amendment later today. The legislation must be passed by the House and Senate and signed by the president to become law. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Fed Audits by Congress Watchdog to Be Weighed by House Panel, Frank Says

November 18, 2009

By Scott Lanman and Alison Vekshin Nov. 18 (Bloomberg) — The House Financial Services Committee will consider measures tomorrow on the powers of congressional investigators to audit the Federal Reserve, the panel’s chairman said today. Representative Barney Frank , the chairman and a Massachusetts Democrat, said the committee would take up Fed audit proposals during this week’s debate on legislation to create a council of regulators to monitor for systemic risk. A Democratic proposal would permit audits that are narrower in scope than a Republican proposal and retain the ban on audits of Fed interest-rate decisions. That may set up a clash with Representative Ron Paul , the Texas Republican who signed up more than 300 co-sponsors on a bill to require Fed audits, including the interest-rate decisions, a step the central bank opposes. The amendment to be offered by Representative Mel Watt , the North Carolina Democrat who chairs a subcommittee on U.S. monetary policy, would limit Government Accountability Office audits of Fed emergency-loan programs to their operations, excluding decisions and internal talks about the facilities. Identities of borrowers would be released a year after the programs end. Watt’s plan has more limits than a proposal released last week by Senate Banking Committee Chairman Christopher Dodd . Congress is considering broader legislation stripping the Fed of some powers, including removing its consumer protection authority and giving it to a Consumer Financial Protection Agency. Bill ‘Gutted’ Paul, who wrote a best-selling book this year called “End the Fed,” said last month that his bill had been “gutted” by Watt while moving toward a vote in the Democratic-controlled House. Watt responded that “we don’t want to have politicians second-guessing the Fed on monetary policy” and said Paul was “exaggerating.” Watt’s draft measure, provided to Bloomberg News yesterday, allows for audits of Fed operations including supervision of banks, bailouts of individual companies and check-clearing functions. For Fed emergency programs accessible to a group of companies, such as the commercial-paper facility, the GAO’s audits would be limited to ensuring that the programs are operating according to Fed procedures and avoid risk and fraud. The GAO would be barred from auditing, reviewing or making recommendations on the Fed’s decisions to create or terminate a facility, its terms and conditions and any “deliberations, discussions or communications among or between” Fed officials and employees, Watt’s proposal says. It also doesn’t permit GAO audits of monetary policy. Frank said yesterday the full House will consider his regulatory overhaul legislation in December. Dodd, a Connecticut Democrat, plans to hold a committee meeting tomorrow to discuss financial-overhaul legislation. To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net . Alison Vekshin in Washington at avekshin@bloomberg.net .

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Bernanke Says Regulators Need Power to Shrink Banks That Pose Market Risk

November 16, 2009

By Alison Vekshin Nov. 16 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said regulators should have the power to shrink banks that pose risks to markets, signaling support for proposals in Congress that let the U.S. cut the size of financial companies. “The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said today in response to a question after a speech to the Economic Club of New York. Congress is considering legislation giving government the power to force the breakup of a firm that has become so large that its failure in bankruptcy could threaten the economy. Lawmakers are seeking to avoid ad hoc actions such as last year’s $700 billion bailout of large firms, including New York- based insurer American International Group Inc. Bernanke said imposing the Glass-Steagall Act, which split investment-banking from lending and deposit-taking, on a case- by-case basis “would not be constructive.” The law was repealed in 1999. Many firms stumbled by making commercial loans while other lenders were tripped up by engaging in “market-making activities,” Bernanke said. “So the separation of those two things per se would not necessarily lead to stability,” he said. Representative Ed Perlmutter , a Colorado Democrat, has suggested letting the Fed impose the law as needed. House Financial Services Committee Chairman Barney Frank has proposed giving the Fed power to reduce a company’s size by forcing the sale and transfer of assets and off-balance-sheet items. Senate Banking Committee Chairman Christopher Dodd’s plan would give that power to a new systemic-risk regulator that includes the Fed. Dismantling Proposals Representative Paul Kanjorski , a Pennsylvania Democrat, is planning to amend Frank’s legislation to let regulators dismantle large systemically risky firms. Senator Bernard Sanders , a Vermont independent, unveiled legislation Nov. 6 requiring the Treasury Department to name banks whose collapse could shake the economy and break them up in a year. Frank, a Massachusetts Democrat, plans to resume committee debate on his systemic-risk legislation this week and has said the House may vote on his overhaul package next month. Dodd, a Connecticut Democrat, said his committee plans to meet the first week of December to begin weighing changes to his proposal before a vote that would send the bill to the full Senate. The regulatory-overhaul legislation must be passed by the House and Senate and signed by the president to become law. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Derivatives Just "A Sophisticated Form Of Gambling," U.S. Senators Say; Propose Bill Allowing State Gambling Laws To Apply

November 10, 2009

Three U.S. Senators described the complex and little-understood world of derivatives trading as “a sophisticated form of gambling,” proposing legislation that would enable state gambling regulators and attorneys general to examine the practice. Senators Maria Cantwell (D-WA), Ron Wyden (D-Ore.) and Bernie Sanders (I-VT) sent out a press release on Tuesday, describing the need for more oversight of the market in derivatives, which are contracts that can act as insurance against a future event, or as just a simple bet. “The derivatives market has done so much damage to our economy and is nothing more than a very high-stakes casino – except that casinos have to abide by regulations,” wrote Cantwell. “Even in Las Vegas at the Blackjack tables, both the House and the player have to have capital behind their bets. But we allow Wall Street to continue to operate in the dark…” Their bill specifically removes a nine-year-old directive that specifically preempted state law from applying to derivatives contracts. It was part of the Commodity Futures Modernization Act — the law that essentially allowed for the tremendous growth in the unregulated derivatives market. The now-$600 trillion market is, for the most part, largely without strong federal regulation. In the wake of last year’s near-breakdown of the entire financial system — brought about in part by derivatives contracts that didn’t have sufficient collateral backing them up — Congress has promised reform. Cantwell, though, has been among the most vocal advocates. The proposed bill would essentially add another cop to the beat. For those derivatives contracts without federal oversight, rather than derivatives dealers being subject to federal regulations, state regulators would also be empowered to go after those contracts and trades that are unregulated. One such example can be found in derivatives contracts dealing with foreign exchange. The four major proposals tackling derivatives — offered by the White House, House Financial Services Committee Chairman Barney Frank (D-Mass.), House Agriculture Committee Chairman Collin Peterson (D-Minn.), and Senate Banking Committee Chairman Chris Dodd (D-Conn.), respectively — specifically provide an exemption for these types of derivatives contracts whereby two parties exchange agreed-upon amounts of two currencies, either doing this over time or at a later date. Gary Gensler, the head of the federal agency responsible for regulating derivatives — the Commodity Futures Trading Commission — specifically asked Congress to not add in this loophole to the various proposals. “The concern is that these broad exclusions could enable swap dealers and participants to structure swap transactions to come within these foreign exchange exclusions and thereby avoid regulation,” Gensler warned in an August letter to members of Congress. Those who drafted the bills didn’t listen. While the Cantwell-Wyden-Sanders bill doesn’t address the lack of federal regulation, it does enable state regulators to provide oversight. “[Cantwell's] preferred position is a strong federal regulatory environment without loopholes,” said her spokesman John Diamond. “This bill establishes a regulatory minimum.”

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JPMorgan Raises Stakes in Card Wars With 100,000-Mile Offer for Customers

November 5, 2009

By Peter Eichenbaum Nov. 5 (Bloomberg) — JPMorgan Chase & Co. , the biggest credit-card lender, and British Airways Plc will offer new customers 100,000 airline miles as the battle for affluent spenders intensifies. The miles, worth a round-trip transatlantic flight, will go to people who spend $2,000 on the co-branded British Airways Signature Visa cards within the first three months, according to a statement. Credit-card issuers including American Express Co. have sweetened their rewards programs, even after lenders said that federal regulations enacted in May could squeeze profit, increase costs and prompt them to scale back incentives. “That’s probably the best introductory offer that I’m aware of,” Bill Hardekopf , chief executive officer of LowCards.com , said about the Chase promotion. Hardekopf’s Birmingham, Alabama-based firm evaluates about 1,000 credit cards . He hasn’t seen complete terms from JPMorgan, which may dilute the value of the offer, Hardekopf said. Customers who spend at least $30,000 in the first year will receive a matching travel voucher for a companion and card holders will earn 1.25 miles for each dollar spent, a 25 percent increase, according to the statement. There’s a $75 annual fee. The promotion is scheduled to start tomorrow for U.S. British Airways Executive Club members and Nov. 16 for nonmembers. “Our customers told us they want more value from their credit cards and we believe this offer provides tremendous rewards for the dollars our card members already spend,” Tony Glover , general manager at Chase Card Services, said in the statement. “The timing of these enhancements is optimal for holiday spending .” Rewards War The rewards war heated up in August when JPMorgan targeted households with incomes exceeding $120,000 by rolling out Chase Sapphire, which has no pre-set spending limit and offers one point for every dollar spent. AmEx, which dominates the market for affluent customers, introduced on Oct. 8 the Premier Rewards Gold Card with triple points on airfare purchases, double points on gasoline and groceries and one point for all other spending. The card also has 15,000 bonus points for purchases topping $30,000 in a calendar year. The $175 annual fee is waived for the first year. American Express is removing the 60,000-mile cap on its Delta SkyMiles Card, effective in February, and offers up to 4 points for every dollar spent at 200 online retailers, said spokeswoman Desiree Fish . A credit-card mile or point typically is worth about 1 cent, Hardekopf said. Perks Survive The added benefits differ from some industry predictions that new federal curbs on credit-card practices would mean fewer perks for customers. Five days after President Barack Obama signed the Credit Card Accountability Responsibility and Disclosure Act in May, Discover Financial Services Chief Executive Officer David Nelms said he expected “that some of these new changes will cause competitors to continue to pull back even more in rewards.” Nelms, whose firm pioneered cash rebates on card purchases, said Riverwoods, Illinois-based Discover will continue to emphasize rewards because it’s part of the card’s brand identity and spurs customer usage and loyalty. The card law , which takes effect in stages, includes limits on interest-rate increases and a requirement that banks apply payments to higher-rate balances first. The U.S. House voted yesterday to impose the remaining provisions immediately instead of next year. Lawmakers including Representative Barney Frank , chairman of the House Financial Services Committee, said lenders have taken advantage of the delay by raising rates and fees. To contact the reporter on this story: Peter Eichenbaum in New York at peichenbaum@bloomberg.net

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Google’s Quarterly Lobbying Expenditures Top $1 Million For First Time

November 4, 2009

Google ‘s third-quarter lobbying expenditures totaled $1 million for the first time — a 50 percent jump from the July-September period last year, the Associated Press reports. According to lobbying disclosure reports, Google’s spent $2.9 million influencing lawmakers so far this year. The tech giant has lobbied on Internet privacy, online advertising and intellectual privacy issues . Online advertising revenues brought the Mountain View, Calif. company $17 billion so far this year. Google also lobbied the Federal Trade Commission, Department of Energy, Federal Energy Regulatory Commission and the Federal Communications Commission. The increased lobbying expenditures come on the heels of news that the company has begun beefing up its Washington DC lobbying office . In response to Congress’ increased attention to net neutrality and online privacy issues, Google has hired a slew of Washington insiders, including a former senior Republican aide to the House Financial Services Committee and a former senior staffer to Sen. Byron Dorgan (D-N.D.). “There is a growing number of issues being debated in Washington affecting the Internet and our users and we feel it is important to be involved in those debates,” said Adam Kovacevich, a Google spokesman.

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Derivatives Bill Would Cost Government $872 Million to Implement, CBO Says

November 4, 2009

By Dawn Kopecki Nov. 4 (Bloomberg) — New laws for the derivatives industry would cost the U.S. government $872 million to implement as regulators increase oversight as part of expanded powers to police the market, the Congressional Budget Office said. Legislation to create stricter rules for derivatives that is making its way through Congress would cost the Securities and Exchange Commission $581 million for fiscal 2010-2014, and the Commodity Futures Trading Commission $291 million, the CBO said in an estimate dated yesterday. The CFTC would have to boost staffing 40 percent, or by 235 workers, while the SEC would need to expand by about 13 percent, or 450 employees, the CBO said. The legislation, which passed the House Financial Services Committee on Oct. 15, would also impose unfunded mandates on private companies. The cost to the industry can’t yet be determined because so much depends on how regulators interpret the new laws, the CBO said in a budget analysis dated yesterday. The nonpartisan CBO provides Congress with independent assessments on U.S. economic and budgetary decisions; it does not set budget policy. To contact the reporters on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com .

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Dylan Ratigan Outlines The 4 Steps To Fix The Banks (VIDEO)

November 4, 2009

On Wednesday morning on MSNBC’s Morning Meeting, Dylan Ratigan railed against the current debate in the House Financial Services Committee about systemic risk. “Congress is simply fighting over how best to clean up the mess instead of keeping us from ever being robbed like this again,” Ratigan said. Ratigan singled out a proposal to provide insurance to dangerously big companies, using taxpayer funds, as a prime example of lawmakers’ reluctance to address the underlying issues that put the financial system at such risk. He proposed a four-pronged approach to reform, starting with the injection of transparency in the financial lending processes. Additionally, politicians in Washington must require all bets to be backed by capital, and the tax code should be rewritten to discourage the pursuit of short-term profits, according to Ratigan. Finally, he emphatically called for the end of the “too big to fail” doctrine. “It is a total betrayal of the most basic principles of fairness and competition, and deprives our country of incredible resources simply to sponsor and government-subsidized gambling parlor,” he said. Watch the entire video below. Visit msnbc.com for Breaking News , World News , and News about the Economy

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Frank Says Charging for Overdraft Protection Without Asking Isn’t a Favor

October 30, 2009

By Jeff Plungis Oct. 30 (Bloomberg) — Bank overdraft fees as high as $39 on debit-card transactions aren’t “favors” for consumers if they haven’t asked for them, House Financial Services Committee Chairman Barney Frank said. “We wouldn’t be in a situation where we’re considering legislation if you would have had an opt-in regime from the beginning,” Frank, a Massachusetts Democrat, said at a hearing in Washington today. “Don’t do people favors without asking them.” Overdraft programs allow consumers to make purchases even if there’s not enough money in their accounts. Lawmakers have criticized banks for enrolling customers in the programs, and charging fees, without their consent. Legislation under consideration in the House would prohibit financial companies from levying more than one overdraft fee a month or six per a year, according to Representative Carolyn Maloney , a New York Democrat who sponsored the bill. The programs “maximize fees while jeopardizing the financial stability” of customers, said Jean Ann Fox , director of financial services at the Consumer Federation of America . Consumers don’t apply for them, and they’re not warned at the point of sale when they’re about to incur a fee, Fox said. The median overdraft fee at the largest U.S. banks is $35, Fox said. “Rather than competing by offering lower costs and truly beneficial overdraft products and services, many financial institutions are hiding behind a smokescreen of misleading terms and opaque practices that promote costly overdrafts,” Fox said. Senate Banking Committee Chairman Christopher Dodd , a Connecticut Democrat, introduced similar overdraft-fee legislation Oct. 19, saying “banks should not be trying to bolster their profits at the expense of their customers.” Opt-In The House and Senate bills have an “opt-in” requirement prohibiting banks from punishing customers who don’t enroll. Customers would have to be warned at an ATM or by a bank teller if they’re about to overdraw their accounts and be given the chance to cancel the transaction. Fees related to overdrawn U.S. accounts may rise to $38.5 billion this year from $36.7 billion in 2008, according to research firm Moebs Services Inc . in Lake Bluff, Illinois. The legislation would require retooling that would raise the cost of checking accounts, said Nessa Feddis, vice president and senior counsel at the American Bankers Association in Washington. Consumers have come to expect payments to go through to “avoid embarrassment and inconvenience,” Feddis told the committee. Most consumers can easily avoid the fees by keeping track of their balances, she said. Debit Cards Customers are shifting to debit transactions from credit cards as credit lines have been lowered and banks have closed inactive accounts. Debit cards will be used in 60.2 percent of purchases in 2010, or about $40 billion, up from 58.2 percent in 2008, according to the Nilson Report , an industry newsletter in Carpinteria, California. Banks are relying more than ever on the overdraft-fee revenue, said Eric Halperin , Washington director for the Center for Responsible Lending . The average overdraft fee was $29 in 2007, up from $16.50 in 1997, Halperin said. In 2004, about 80 percent of banks denied debit-card transactions for insufficient funds. Now, 80 percent approve the transactions and charge a fee, he said. To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net .

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An Object Lesson In Governmental Failure: Derivatives Reform

October 29, 2009

If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it. On that day, the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country’s economic meltdown.

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An Object Lesson In Governmental Failure: Derivatives Reform

October 29, 2009

If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it. On that day, the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country’s economic meltdown.

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