oversight-panel

Regulators Reassure Lawmakers That Banks’ CRE Distress Has Not Hit a Tipping Point

by on March 3, 2011

Costar…

With numbers like $185.5 billion of distressed CRE bank assets on the books at the end of 2010 and another $62 billion in delinquent CMBS loans, the Congressional Oversight Panel in Washington, DC, recently called banking officials to testify on The Current State of Commercial Real Estate Finance and Its Relationship to the Overall Stability of the Financial System. And officials were circumspect in their outlooks. Yes, the rate of deterioration…

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Regulators Reassure Lawmakers That Banks’ CRE Distress Has Not Hit a Tipping Point

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Lisa Madigan: Horrible Lessons of the Great Recession Remind Us How Much More Needs to Be Done

by on January 28, 2011

The Great Recession is far from over. Millions of Americans are without jobs or much hope of finding adequate employment anytime soon. Millions more have lost their homes and a new wave of foreclosures is set to sweep the country. The sad truth – this epic disaster didn’t have to happen. This was a devastating financial hurricane fueled by carelessness, incompetence and greed. The release of the Financial Crisis Inquiry Commission’s final report confirms what some of us have been shouting for the past several years: It did not have to happen, and it must not happen again. This financial crisis – described by Fed chairman Ben Bernanke as “the worst financial crisis in global history, including the Great Depression”- could have been avoided had Wall Street and federal regulators acted responsibly. “The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public,” reads the report. If we choose to ignore the lessons that should be learned from this crisis, then we choose future peril. Two years after this crisis began, millions of Americans are still suffering. People are wondering if today’s high unemployment and lower expectations are a new normal. Yes, we have the Dodd-Frank financial regulations and a foundling Consumer Financial Protection Bureau. But we also remain in crisis. Some of us anyway. I am incensed by the reaction of some to the FCIC’s report. Already those who created this unprecedented global crisis are eager to move on – and to do so brazenly without learning any lessons. Wall Street is smiling again as the stock market steadily climbs. It is easy for financial titans to whistle a happy tune as they collect their obscene bonuses once again, but those on Main Street remain mired in the aftermath of the storm. The narrative, according to those who caused this mess, is that despite the report’s conclusion, no one could really have foreseen or prevented the financial calamity. And anyway, this report is too late to make a difference. Time to move on. Dodd-Frank is already law. Happy days are here again. But they aren’t. The abuse continues. Just ask anyone trying to negotiate a loan modification to save their home from foreclosure. Much of the blame for the Great Recession lies with abuses in the housing market – namely the creation of risky and unsustainable home loans that were packaged and sold as quality investments around the globe. And then the same people who created and sold these loans, bet against them to make even more money because they knew what they really were – financial toxic waste. The Treasury’s Home Affordable Modification Program (HAMP) was created to mitigate some of the financial abuse and give homeowners a chance to renegotiate terms of their loans and save their homes – and our economy. That was a good goal for all of us – even if you can steel your heart against the human tragedy involved in people losing their homes, large tracts of vacant, foreclosed homes are a cancer on our economy that creates problems far beyond the front yard of the foreclosed house. But HAMP hasn’t worked for most people. The Congressional Oversight Panel says HAMP may prevent 700,000 foreclosures – not the 3 to 4 million promised and certainly a small fraction of the 8 to 13 million foreclosures predicted to occur by 2012. The banks and lenders who put people into risky and unsustainable mortgages in the first place have gotten caught filing fraudulent, fly-by-night foreclosures as carelessly as they originated the loans. The banks are in such a hurry to foreclose rather than to save homes that in many cases they could not even be bothered to follow basic rules of reviewing documents – instead thousands are fraudulently robo-signed out of their homes. So how can anyone say with a straight face that the status quo is A-OK, and that it’s time we move on? Because these foreclosures – while devastating to individual families and horrible for our overall economy – make money for a few at the top of the rotten process. On a daily basis, my office receives correspondence from homeowners desperately trying to renegotiate their loans and save their homes. The hoops these people are forced to jump through are maddening – especially when so many are shunted into foreclosure regardless of their best attempts to please the banks. From one homeowner who knows from firsthand experience: “Don’t let ANYONE tell you the banks ‘don’t want your house’ YES they do,” wrote one frustrated homeowner. “I can’t tell you how hard it is to see this happen and be helpless. To be told to ‘take my emotion out of it’ by attorneys. I’ve tried my hardest and the truth just didn’t work. This country will never rebound when people with good credit can’t get a loan and people with good experience can’t get jobs.” And, “We’re in an abyss,” wrote another consumer who contacted my office. “We just want to resume our mortgage payments!” The pain remains for far too many. The lessons from the financial meltdown certainly should not include: “It’s too late now to do anything” or “It’s time to move on.” Taxpayers invested over a trillion dollars in bailing out those who created this disaster. We should expect more from our investment than a cavalier attitude and a quick return to giant corporate bonuses. It is never too late to correct our mistakes. And if we do not, we risk repeating them. The FCIC report should serve as a wake up call. It details much of what caused this crisis, but reading the report doesn’t fix the problem. The fact is that despite a near total collapse of our economy, far too little has changed to prevent a future implosion. We are far from finished protecting our country’s or our individual financial futures.

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Lisa Madigan: Horrible Lessons of the Great Recession Remind Us How Much More Needs to Be Done

Lloyd Chapman: FDIC Forum Ignores #1 Challenge for Small Businesses

January 13, 2011

On Thursday, January 13, the Federal Deposit Insurance Corporation (FDIC) will host an Obama Administration forum on “Overcoming Obstacles to Small Business Lending.” The American Small Business League (ASBL) believes the event will fail to address the #1 job killing issue facing small businesses: the diversion of small business contracts to corporate giants. For the last five consecutive years, the Small Business Administration (SBA) Office of Inspector General has named the issue as the agency’s #1 challenge . The ASBL has estimated that every year more than $100 billion in federal small business contracts are diverted to some of the largest corporations on earth. In February of 2008, President Barack Obama promised to end the abuse . Despite, thousands of business closures and countless lost jobs, the Obama Administration has failed to honor its promise, and end the diversion of federal small business contracts to corporate giants. The most recent information released by the Obama Administration shows large recipients of small business contracts such as Boeing, Lockheed Martin, Northrop Grumman, Raytheon, Dell Computer, Xerox, SAIC, General Dynamics, Bechtel and John Deere. In addition to the concerns about billions of dollars in federal contracting abuse, the ASBL does not believe the Obama Administration’s forum on lending is likely to create new jobs or stimulate the economy. The National Federation of Independent Businesses (NFIB) and the Congressional Oversight Panel have separately concluded that small businesses are in desperate need of demand, not loans. ( http://www.nfib.com/Portals/0/PDF/sbet/SBET201006.pdf ; http://www.huffingtonpost.com/2010/05/13/federal-oversight-panel-s_n_574781.html ) In December of 2009, the Obama Administration held its first forum on obstacles to small business lending. At the time, U-6 unemployment was 17.1 percent, according to the U.S. Bureau of Labor Statistics . More than a year later, U-6 unemployment has remained near 17 percent. We’ve spent trillions of dollars and focused small business assistance on lending, yet unemployment remains unreasonably high. Let’s just try something crazy like not giving federal small business contracts to some of the biggest companies in the world, and instead direct those dollars to the nation’s 27 million small businesses. Ending the diversion of small business contracts to corporate giants would put more money into the middle class economy, and create more jobs, than anything the Obama Administration has proposed to date.

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Ray Brescia: Robo-Sign Scandal Gives State Attorneys General Opportunity to Move Towards a Resolution of the Foreclosure Crisis.

December 17, 2010

In the fall of 2010, in one of the largest scandals to ever hit the American court system, information gathered from lawsuits across the country revealed that tens of thousands of foreclosure filings were likely fraudulent — if not outright criminal. These revelations sparked a nation-wide investigation by all 50 state attorneys general to assess not only the extent of the scandal and its potential impacts but also potential legal and policy responses to such behavior. That investigation is nearing its close. The state attorneys general will have to consider what steps to take in light of this scandal. Some of the weapons in the law enforcement arsenal are consumer protection laws. Once we know all that there is to know about the scandal, the state attorneys general should wield consumer protection laws to not only rein in that scandal, but also make progress on resolving the entire foreclosure crisis. This can be accomplished by using consumer protection lawsuits to apply pressure on banks to engage in mortgage principal reductions. The robo-sign scandal gives them an opening, and the leverage, to do so. One of the important consumer protection statutes at the disposal of the state attorneys general includes each state’s Unfair and Deceptive Acts and Practices (UDAP) laws. All fifty states and the District of Columbia have some statutory ban on unfair and/or deceptive practices in trade or commerce. Many of these UDAP laws were adopted in the 1970s and early 1980s as states sought new tools to protect consumers from abusive business practices. These laws are modeled on the Federal Trade Commission Act (FTCA), which Congress passed in 1914 and makes unlawful “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” One of the limitations of the FTCA is that it is typically only enforced by the U.S. Federal Trade Commission. Unlike the FTCA, however, many state UDAP statutes grant both consumers and state attorneys general the standing to bring actions alleging UDAP violations. UDAP laws serve a critical consumer protection function by filling in gaps in the law where other, more targeted statutes might not cover all practices that have a harmful impact on consumers. Since their inception, UDAP laws have been used to stop abusive practices in such areas as used car sales, telemarketing and even the sale of tobacco products. They have also been used to combat abusive foreclosure practices, as more fully described in this briefing paper on the subject. Once a violation of a UDAP law is found, state law enforcement officials can seek civil penalties, actual and punitive damages, and injunctions against offending parties. In its November 2010 report , the TARP Congressional Oversight Panel described the range of practices revealed in the so-called “robo-sign scandal.” The false affidavits, reckless claims and improper notarizations all violate the essence of most state UDAP laws; accordingly, the remedies available under such laws may be wielded by state attorneys general to halt abusive foreclosure practices throughout the nation. In addition, the actual damages to borrowers wrongfully foreclosed upon would seem quite substantial, especially if they lost equity in their home or were rendered homeless as a result of a faulty foreclosure. Given the high stakes at risk when deceptive practices are utilized in the foreclosure process, the prospect of substantial civil penalties and punitive damages, as well as injunctions preventing foreclosures from going ahead when tainted by robo-sign practices, is considerable. At the end of the day, however, the prospect of a resolution to such claims that minimizes the threat of stiff penalties or sweeping injunctions barring foreclosures from taking place should be enough to get lenders and servicers to the negotiating table to bring about solutions to the robo-sign scandal that are more acceptable to borrowers, lenders, servicers and investors alike. The best solution to the foreclosure crisis is mortgage principal reduction: i.e., bringing outstanding debt in line with home values. This both reduces the monthly payments borrowers must make and strengthens incentives to continue to make those payments by restoring the prospect of borrower equity in the home. The threat of significant penalties and injunctions through state UDAP laws for the abuses evident in the robo-sign scandal may be just the type of leverage needed to convince interested parties that such principal reductions are a more palatable resolution to UDAP enforcement actions than allowing such cases to drag out in the courts, where litigants may obtain more costly awards and more burdensome injunctions. Such principal write-downs would not be unprecedented in the UDAP enforcement context. In litigation filed by Massachusetts Attorney General Martha Coakley against Fremont Bank, and in the lawsuit Bank of America settled by paying $8.4 billion to resolve claims of predatory lending by its subsidiary, Countrywide, those banks faced UDAP and other claims, and ultimately resolved those cases in ways that promoted sustainable mortgage relief, including principal reductions. Getting banks to the settlement table through the pursuit of UDAP actions for robo-sign abuses could be a primary goal of UDAP actions in the wake of the robo-sign scandal. Should lenders and servicers wish to defend those actions on the merits, and risk judicial intervention that might translate into tens of thousands of dollars in penalties and punitive damages in each case, such would be their right. At the same time, a sensible response to such actions by the institutions caught up in the robo-sign scandal would be to consider more robust foreclosure mitigation strategies, including meaningful principal write-downs. State attorneys general should not hesitate to pursue UDAP remedies for robo-sign abuses. At the same time, they should be willing to discuss resolution of UDAP cases in ways that can promote mortgage principal reductions for those borrowers who might benefit from such relief.

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Gretchen Morgenson: Banks Bad Mortgage Paperwork Isn’t Blowing Away

November 21, 2010

KUDOS to the Congressional Oversight Panel for publishing a thoughtful and thorough report last week on the mortgage documentation mess. It argued that, yes, in fact, these paperwork problems may have significant implications for banks, investors and the stability of the financial system.

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Video: Kaufman Says Foreclosure Document Crisis Threatens Banks

November 16, 2010

Nov. 16 (Bloomberg) — Edward Kaufman, former Democratic Senator from Delaware who chairs the Congressional Oversight Panel for the Troubled Asset Relief Program, discusses the panel’s examination of the foreclosure document crisis, which the panel concludes could have serious consequences for housing and the economy. Kaufman speaks with Carol Massar on Bloomberg Television’s “In the Loop With Betty Liu.” (Source: Bloomberg)

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Bank Of America Edges Closer To Tipping Point: Jonathan Weil

November 6, 2010

It was only last April that Bank of America Corp. was making fools out of the doomsayers who had called for its nationalization a year earlier. Taxpayers had gotten their bailout cash back. Investors who bought its shares at the bottom were making a killing. Government leaders lauded the company’s rescues, both of them, as a great success. Now the bank may be on the verge of trouble again. Its stock has fallen 41 percent since April 15. Mortgage-bond investors are demanding untold billions of dollars in refunds. The foreclosure fiasco is metastasizing. A member of the Troubled Asset Relief Program’s oversight panel, AFL-CIO attorney Damon Silvers, openly worried at a hearing last week about the risk that Bank of America might need another bailout. A few more months like the last one, and we may be wishing Bank of America had never returned its $45 billion of TARP money.

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Ted Kaufman To Replace Warren On Bailout Oversight Panel

September 30, 2010

Sen. Ted Kaufman, the outgoing Delaware senator who battled to break up major banks the past year, will replace Elizabeth Warren as chair of the Congressional Oversight Panel, an aide to Senate Majority Leader Harry Reid (D-Nev.) told HuffPost. Reid initially appointed Warren to run the panel, launching her as a national champion of the middle class. The committee oversees the federal government’s bailout of Wall Street. Kaufman, a Democrat, was appointed to fill Joe Biden’s remaining two years and will serve until a new senator is sworn in in November, after which he’ll take over duties on the panel. In a recent interview with HuffPost, Kaufman reflected on his time in the Senate.

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Simon Johnson: Republican Nightmare: Putting Elizabeth Warren to Work Now

September 9, 2010

President Obama is finally looking for bold, creative and clever ways to change the way the US economy operates — preferably with measures that will take effect by the November midterms and change the tone of the broader political debate. His tax proposals this week have some symbolic value, but in the broader sense all of these fiscal suggestions are tinkering at the margins. What could he possibly do that would grab people’s attention, mobilize his political base and put his opponents on the defensive? There is an easy answer: Appoint Elizabeth Warren to start running the Consumer Financial Protection Bureau (CFPB) immediately. And the brilliant part of this idea — as explained by Shahien Nasiripour at the Huffington Post (see also David Dayen’s Thursday coverage ) — is that the Dodd-Frank financial reform legislation allows the person charged with setting up this new agency to be an outright appointment, rather than a nomination subject to Senate confirmation. Warren’s credentials are impeccable — she came up with the original idea for the CFPB, she pushed effectively for it to become legislation and she has proved most effective in her oversight role as chair of the Congressional Oversight Panel (COP) for the Troubled Asset Relief Program. And her manifesto for the CFPB is sensible and actually pro-business — although she naturally opposes the specific ways in which big banks mistreat people . No doubt Republicans in the Senate would try to derail her nomination to head the CFPB as they have done with numerous other nominations over the past year and a half. Their motivation would not be her views or expertise — she has earned serious Republican respect as a result of her COP role — but just part of their electoral strategy to block the president’s agenda and to undermine an agency they have consistently opposed. The Treasury Secretary is explicitly authorized by an Act of Congress to pick an interim head for the new agency — with a view to getting it up and running immediately (in fact, what has he been waiting for?). Presumably the Senate (and the House) passed this specific measure expressly to expedite the CFPB’s work. Professor Warren has strong political support and would get the new agency off to a great start. She would represent the Obama administration’s serious attempt to rein in financial misbehavior, at the same time as keeping the economic recovery on track. Anyone who thinks she would be bad for American families has not been paying close attention. And best of all, she is very good at explaining what she is doing and why that makes sense. The president needs clearer messages and stronger substance — and he needs them fast. He should move at once to appoint Elizabeth Warren.

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Elizabeth Warren Won’t Be Returning To Harvard, Sparking Speculation About Her Future

September 2, 2010

In case you missed it, today’s bit of hot and sexy Beltway speculation concerns Congressional Oversight Panel Chair Elizabeth Warren. The Washington Post ‘s Brady Dennis reports today that Martha Minow, the dean of Harvard Law School, sent around an email to students today informing them that Warren, who was scheduled to teach contracts class in the fall, will not be returning. “Professor Warren regrets that she will not be able to teach you this fall and we regret the last minute change,” Minow wrote. So, time for everyone to start straight-up speculating as to whether this means Warren is soon to be named the head of the Bureau of Consumer Financial Protection! Warren is beloved by progressives because of her unwavering support for consumer protection, Wall Street oversight, and her larger opinions on the American middle class (specifically, that there should be one, and that it should not get murdered constantly, in financial crises.) Of course, these are the very same opinions that make her all but unconfirmable in the eyes of people like Senator Chris Dodd (D-Conn.) . But the White House, having spent the year deriding the

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Elizabeth Warren Hailed As ‘The New Sheriff’ In Music Video (VIDEO)

August 13, 2010

Elizabeth Warren, chair of the Congressional Oversight Panel and professor of law at Harvard University, is getting some eye-catching support in a progressive push for the bailout watchdog to lead a new consumer financial protection agency. In a new western-themed music video from Main Street Brigade, Warren is hailed as “the new sheriff.” The spot highlights her deep credentials and makes the case for why she should be the Obama administration’s pick to head the recently-established CFPA. A Time Magazine cover story published in May lauded Warren as one of “the new sheriffs of Wall Street.” Warren was the first to envision creating a bureau specifically aimed at protecting consumers from predatory lending practices. Her candidacy to lead the new body has been endorsed by Americans for Financial Reform, a coalition of 250 organizations long campaigning for legislation aimed at bringing new rules for the financial system. According to AFR, she “has shown a steadfast and tireless commitment to protecting consumers throughout her distinguished career and is without question the best candidate.” WATCH:

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David Coates: The Foreclosure Crisis That Will Not Go Away

August 2, 2010

When the financial crisis broke in September 2008, it was widely understood — both in policy-making circles and in popular conversation — that problems in the U.S. housing market were central to the unfolding events. But thereafter, the events themselves took center stage: and the problems of the housing sector, though not forgotten, slipped down the political agenda and off the popular radar. That was a mistake. Problems in the U.S. housing market remain central to our continuing difficulties — problems experienced by people wanting to buy houses, and problems experienced by people who already own one. Economically and politically, a resolution of the U.S. housing crisis remains a key requirement for long term prosperity and, more immediately, for the continuation of a Democratic White House. Economically the current recovery is slow in part because the housing sector remains sluggish. The housing sector remains sluggish because the inventory of unsold houses remains high; and the inventory of unsold houses remains high because the foreclosure crisis refuses to go away. Politically , Obama and the Democrats are losing popular support because unemployment and job insecurity are rife. Unemployment and job insecurity are rife because the economy remains sluggish; and the economy remains sluggish in part because there are still so many foreclosed homes on the market. People are losing their homes in record numbers in contemporary America, and they are doing so now on Obama’s watch, not on Bush’s. It is true that part of the current foreclosure crisis was inherited by the Obama administration. It is also true that part of it was not. The Obama administration inherited a foreclosure crisis rooted in the large-scale growth of what were ultimately voluntarily adopted sub-prime mortgages. It now presides over a foreclosure crisis rooted in the large-scale growth of in voluntary unemployment in which sub-prime lending plays an ever diminishing part. Indeed the housing sector remains sluggish these days precisely because sub-prime lending has been broadly eradicated – it is now significantly more difficult than it was in 2005 and 2006 to obtain a mortgage – while the general recession that sub-prime lending helped to trigger still eats away at the ability of existing home owners to pay their mortgages, sub-prime or not. The first foreclosure crisis may well have triggered the second, but even so the two crises are not the same, and they do not deserve the same policy response. Policy designed by the incoming administration to deal with a foreclosure crisis triggered by sub-prime mortgages is not equal to the task of dealing with a foreclosure crisis triggered by large-scale involuntary unemployment. Moral hazard issues kept the original Obama housing policy (HAMP) policy modest. It kept it modest because the incoming administration had no desire to reward fecklessness and (by implication) penalize responsibility. But people are losing their homes now, not because of their fecklessness but because of the economy’s weakness. Many of those losing their houses in 2010 are innocent victims of a recession which they did not cause. There is no moral hazard issue in their case. They have done nothing wrong; and because they have not, it is time for a housing policy that is addressed to their needs and to their needs primarily. It is time for housing policy to move on. Twice now, the Congressional Oversight Panel chaired by Elizabeth Warren has made clear the inadequacy of policy to date. In October 2009, it was Warren’s view that “even when Treasury programs are running at full speed, foreclosures are estimated to outpace modifications by about two to one.” Seven months later, the view was the same: “Treasury’s response continues to lag well behind the pace of the crisis…its programs still are not keeping pace with the foreclosure crisis.” Just 168,708 people helped in the first 12 months of the program, as Elizabeth Warren put it, when the rate of monthly foreclosures was nearer to 200,000! Why? For Elizabeth Warren at least, because the administration’s plans seem ‘targeted at the housing crisis as it existed six months ago, rather than as it exists now.” It is not that the Obama administration has been totally inactive or totally ineffective in its housing policy. On the contrary: on the demand side for housing — on the plight of people wanting to acquire a mortgage — the administration’s record is clear and broadly positive. As the Congressional Oversight Panel have it: It is likely that government intervention in the housing market, such as the homebuyers tax credits, support for Fannie Mae and Freddie Mac, a large increase in FHA insurance underwriting, and Treasury and Federal Reserve purchases of mortgage-backed securities, as well as Federal Reserve policy aimed at keeping interest rates low, have fostered increased demand for home purchases by making them more affordable and by reducing the cost of mortgage finance. But what is also clear is that “some of those government interventions in the housing market are being scaled back or eliminated” at the very time when the assistance afforded under HAMP to people who already have a mortgage but can no longer afford to maintain it is proving to be fundamentally inadequate to the task faced. Under the existing HAMP, what you get is temporary help with your payments. What you don’t get is help with reducing the amount you have borrowed. The help you get is also only temporary – even the “permanent” modification lasts only 5 years — and still leaves you servicing large quantities of debt: “the typical post-modification borrower still pays about 59 percent of his total income on debt service” according to the Congressional Oversight Panel — even more, as we just saw, according to the Treasury. Moreover, if you were underwater when you applied for the temporary help — if the current value of your house had fallen to less than the size of your mortgage — then any help you get under HAMP will still leave you underwater. Currently one American household in four is underwater. In Nevada, it is almost three houses in four! The intention behind HAMP was laudable. Its design and implementation has been less so: as Elizabeth Warren put it to Judy Woodruff, “it’s as if we had a boat that’s taking on gallons of water, and they’re trying to bail it with a teaspoon.” The present housing situation is intolerable. It is morally intolerable. It is economically intolerable, and it is electorally intolerable. Innocent people are getting hurt. Economic recovery is being retarded. Support for progressive politics is being lost. Which raises the question: why is this being allowed to happen? Is anyone in the White House awake on this issue? Tim Geithner and Larry Summers may not get it, but somebody needs to. If only to ensure that the Democrats hold on to that particular house for more than one presidential term, somebody working in the White House needs to design a program that will actually help, and needs to design that program in a hurry. The Democratic Party likes to present itself as the champion of the dispossessed. There cannot be a much more serious form of dispossession in modern American than the dispossession of your house. Can someone please tell the administration that it is time to keep all Americans in their homes, including Barack and Michele Obama in their temporary one. Because if policy does not change quickly and in the right direction, the first family may be back in the private housing market far sooner than either they or their supporters think desirable — and that would be an appalling waste!

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Lloyd Chapman: Contracting Reform Bill Will Trump Obama Jobs Bill

July 27, 2010

This week the United States Senate is slated to vote on another round of lending focused “jobs legislation,” which may do little to stimulate the nation’s economy or create jobs. H.R. 5297, the Small Business Jobs and Credit Act of 2010 would direct $30 billion in federal assistance to community banks as a means of bolstering lending. ( http://www.opencongress.org/bill/111-h5297/show ) The American Small Business League (ASBL) is concerned that Congress and the Obama Administration are focusing attention on tired solutions that have not worked, while ignoring solutions that would directly funnel billions of dollars a year in federal spending to America’s 27 million small business owners. Small businesses are the backbone of the American economy. According to the U.S. Census Bureau small businesses are responsible for more than 50 percent of the nation’s non-farm private sector workforce, 90 percent of innovations, 90 percent of exports and nearly 100 percent of net new jobs. A recent study from the Kauffman Foundation found that companies less than 5 years old create nearly all-net new jobs. ( http://www.inc.com/news/articles/200708/data.html ) The ASBL strongly believes the best way to stimulate the nation’s economy is to direct federal infrastructure spending to the middle class. Since 2003, more than a dozen federal investigations have uncovered the diversion of more than $100 billion a year in federal small business contracts to some of the largest corporations in the United States and Europe. H.R. 2568, the Fairness and Transparency in Contracting Act would stop the diversion of government small business contracts to corporate giants, and redirect those funds to small businesses in the middle class. The ASBL believes that if passed, H.R. 2568 would do more to stimulate the nation’s economy than anything proposed by the Obama Administration or Congress to date. ( http://www.opencongress.org/bill/111-h2568/show ) Recently, the Congressional Oversight Panel, and the National Federation of Independent Businesses (NFIB) released highly critical reports regarding the Obama Administration’s efforts to further bolster community bank lending to small businesses. Both reports indicated that small businesses across the country are in need of business opportunities and increased demand for their products and services as opposed to increased access to capital. ( http://www.nfib.com/Portals/0/PDF/sbet/SBET201006.pdf ; http://www.huffingtonpost.com/2010/05/13/federal-oversight-panel-s_n_574781.html ) It does not make sense to continue giving billions of dollars a year in federal small business contracts to corporate giants, and then turn around and try lending billions of dollars to small businesses who are floundering in a dire economic environment.

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Gibbs: Elizabeth Warren Is A ‘Terrific Candidate’

July 26, 2010

Elizabeth Warren is a “terrific candidate” to lead the newly created Consumer Financial Protection Bureau and is “very confirmable” for the job, White House spokesman Robert Gibbs told reporters Monday. Progressive advocates, labor unions, House members and more than 100,000 petition-signers have been pressing the White House to name Warren to lead the bureau. Banking Committee Chairman Chris Dodd (D-Conn.) recently speculated that she may not be able to get the 60 votes needed to overcome a filibuster of her nomination; Gibbs’ statement appears to be a direct rebuke of that skepticism. “I would say Elizabeth Warren is a terrific candidate. I don’t think any criticism in any way by anybody would disqualify her. I think she’s very confirmable for this job,” Gibbs said, echoing a deputy spokesperson who also expressed the White House belief that she could win confirmation. Establishing that Warren is confirmable is a crucial step toward her nomination. Support continues to build for Warren, the intellectual godmother of the bureau, in the Senate. On Saturday, Sens. Al Franken (D-Minn.) and Jeff Merkley (D-Ore.) expressed support for her. Add Tom Udall to that list. On Friday, the Democratic senator from New Mexico sent a letter to the White House backing Warren, a copy of which was provided to HuffPost on Monday. Republicans have objected that Warren has an “agenda” — in the words of Sen. Richard Shelby (R-Ala.) — and Wall Street lobbyists strongly oppose her. Udall urged the president not to back down in the face of such opposition. “While some may argue that her passion will lead to overzealous regulation, Dr. Warren’s work on the Congressional Oversight Panel has been evenhanded,” Udall said in his letter. “Should you decide to nominate her to lead the Bureau, it will be a clear sign that the Bureau will be a champion for the American consumer, will stand up to unscrupulous actors and will not shrink from… fulfilling its mission under pressure.”

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AIG to Be Final Insurer With U.S. Aid as Lincoln National Set to Exit TARP

June 14, 2010

By Andrew Frye June 14 (Bloomberg) — American International Group Inc. , recipient of the first and the biggest of U.S. insurer bailouts, will become the last carrier with public funds now that Lincoln National Corp. plans to repay its rescue. AIG Chief Executive Officer Robert Benmosche , who promised taxpayers full redemption and a profit, is selling units and counting on a revival at the businesses that remain. His stewardship got a vote of confidence from Federal Reserve Chairman Ben S. Bernanke on June 9, while the following day Congressional Oversight Panel Chairman Elizabeth Warren said taxpayers were still saddled with “a lot of risk.” “They’re going to owe their ability to repay the taxpayer to capital-market conditions that are not in the hands of Robert Benmosche or Ben Bernanke,” said Bill Bergman , an analyst at Morningstar Inc. in Chicago. Lincoln plans to sell shares and notes to fund repayment of its $950 million in aid, the Philadelphia-based insurer said today. AIG owes about $26.6 billion on a Fed credit line and $49 billion to the Treasury. Its bailout, which dates from September 2008, swelled to as much as $182.3 billion. “AIG remains committed to repaying the taxpayer,” Mark Herr , a company spokesman, said today in an e-mailed statement. Herr cited Benmosche’s testimony on repayment before Warren’s committee last month, when the CEO said “AIG will do so with interest.” Emergency Aid Lincoln and Hartford Financial Services Group Inc. , the Connecticut-based carrier that repaid $3.4 billion in U.S. aid in March, won relief funds in 2009 after appealing to Treasury for the same support offered to banks during the 2008 financial crisis. Emergency funds for New York-based AIG were provided a day after the Lehman Brothers Holdings Inc. bankruptcy to protect the insurer’s trading partners. “Except for AIG, every other major institution has repaid, with interest and dividends,” Bernanke told the House Budget Committee. “And AIG, I believe, will repay.” Lincoln Chief Executive Officer Dennis Glass is focusing on U.S. insurance operations after striking deals to sell a U.K. business and an asset manager. Last year, Lincoln reduced the workforce by 15 percent to 8,208 employees. “We ended the year in a strong capital position, and our first-quarter results reflected the strength of our business model,” Glass said in the statement. “We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets.” Lincoln Gains Lincoln advanced $1.55, or 5.9 percent, to $27.91 at 1:04 p.m. in New York Stock Exchange composite trading. The insurer has climbed about 57 percent in the past 12 months, compared with a gain of 16 percent by AIG. JPMorgan Chase & Co. will lead the offerings. Credit Suisse Group AG, Morgan Stanley and Wells Fargo & Co. will help manage the equity sale, while Bank of America Corp., Deutsche Bank AG and U.S. Bancorp will assist on the debt offering. Life insurers were cut off from traditional sources of funding after stock and bond markets fell in late 2008, and at least 12 carriers applied to Treasury for bailouts. As markets began to improve in April 2009, MetLife Inc. , the biggest U.S. life insurer, announced that it wouldn’t take U.S. funds. No. 2 Prudential Financial Inc. and Principal Financial Group Inc. turned down bailouts in June of last year. Lincoln took the bailout last year after agreeing in late 2008 to buy a Goodland, Indiana-based savings and loan with $7.3 million in assets to qualify for aid under the Troubled Asset Relief Program. The insurer reported three straight quarterly losses in the nine months ended June 30 as bond holdings slipped and the cost of guaranteeing minimum returns on retirement products called variable annuities increased. Lincoln sold $600 million in stock to private investors a year ago for $15 each. That offering was part of an effort to raise capital that included the U.S. bailout and the sale of $500 million in debt. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .

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Treasury Signals Commitment to $35.5 Billion AIA Deal

May 29, 2010

By Hugh Son May 29 (Bloomberg) — The U.S. Treasury Department and American International Group Inc. , asked by  Prudential Plc to lower the $35.5 billion price for the bailed-out insurer’s main Asia unit, signaled they are committed to the original terms. “Treasury has not considered any alternative other than the existing contract,” said  Andrew Williams , spokesman for the department, in an e-mailed statement late yesterday. The insurer won’t be hurried into accepting less than what company executives think AIA Group Ltd. is worth, according to a person briefed on the stance of New York-based AIG’s management. The person declined to be identified because the negotiations are private. The insurers are discussing the terms of the deal in the last weeks before a Prudential shareholder vote on the transaction set for June 7. Prudential said yesterday it had asked AIG to change the terms. Investors in the London-based insurer including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said this week. Edward Brewster , a spokesman for Prudential, declined to comment today. ‘Playing Hardball’ “The deal’s not dead until it’s dead,” said Eamonn Flanagan , a Liverpool, England-based analyst at Shore Capital Group Plc. “The Treasury could just be playing hardball here. There will be a lot of posturing from both sides.” He recommends buying Prudential shares. In March, AIG announced that Prudential agreed to pay $35.5 billion, about 70 percent in cash, for AIA, which operates in 13 markets from China to Australia. The deal would be AIG’s biggest step to repay U.S. taxpayers for its $182.3 billion government bailout. AIG could hold a public offering for AIA should the sale to Prudential fail, Jim Millstein , the Treasury’s chief restructuring officer, said this week. AIG had been planning such an offering for the unit before striking the Prudential deal. Robert Benmosche , chief executive officer of AIG, told the Congressional Oversight Panel in Washington this week that he had negotiated “a very aggressive price” for AIA. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done by Angelo Graci , managing director at Chapdelaine Credit Partners in New York, before the March deal announcement. AIG executives believe $30 billion would be too low a price for AIA, said the person familiar with the managers’ thinking. AIG, once the world’s largest insurer, is divesting assets after soured housing bets pushed the firm to the brink of collapse in September 2008. A week after announcing the sale of AIA, the company said that MetLife Inc. agreed to pay about $15.5 billion for another non-U.S. unit, American Life Insurance Co. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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U.S. Treasury, AIG Signal Their Commitment to $35.5 Billion Price for AIA

May 28, 2010

By Hugh Son May 29 (Bloomberg) — The U.S. Treasury Department and American International Group Inc. , asked by  Prudential Plc to lower the $35.5 billion price for the bailed-out insurer’s main Asia unit, signaled they are committed to the original terms. “Treasury has not considered any alternative other than the existing contract,” said  Andrew Williams , spokesman for the department, in an e-mailed statement late yesterday. The insurer won’t be hurried into accepting less than what company executives think AIA Group Ltd. is worth, according to a person briefed on the stance of New York-based AIG’s management. The person declined to be identified because the negotiations are private. The insurers are discussing the terms of the deal in the last weeks before a Prudential shareholder vote on the transaction set for June 7. Prudential said yesterday it had asked AIG to change the terms. Investors in the London-based insurer including BlackRock Inc. and Fidelity Investments said the takeover was too expensive, a person with knowledge of the matter said this week. Prudential spokesmen Edward Brewster and Robin Tozer didn’t return messages left on their cellphones after business hours. ‘Aggressive Price’ In March, AIG announced that Prudential agreed to pay $35.5 billion, about 70 percent in cash, for AIA, which operates in 13 markets from China to Australia. The deal would be AIG’s biggest step to repay U.S. taxpayers for its $182.3 billion government bailout. AIG could hold a public offering for AIA should the sale to Prudential fail, Jim Millstein , the Treasury’s chief restructuring officer, said this week. AIG had been planning such an offering for the unit before striking the Prudential deal. Robert Benmosche , chief executive officer of AIG, told the Congressional Oversight Panel in Washington this week that he had negotiated “a very aggressive price” for AIA. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done by Angelo Graci , managing director at Chapdelaine Credit Partners in New York, before the March deal announcement. AIG executives believe $30 billion would be too low a price for AIA, said the person familiar with the managers’ thinking. AIG, once the world’s largest insurer, is divesting assets after soured housing bets pushed the firm to the brink of collapse in September 2008. A week after announcing the sale of AIA, the company said that MetLife Inc. agreed to pay about $15.5 billion for another non-U.S. unit, American Life Insurance Co. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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AIG Ex-Chief Willumstad Says Geithner Discouraged Aid Weeks Before Bailout

May 26, 2010

By Andrew Frye May 26 (Bloomberg) — Treasury Secretary Timothy F. Geithner discouraged American International Group Inc. ’s appeal for Federal Reserve aid seven weeks before the insurer’s 2008 bailout, the company’s former head Robert Willumstad said. Willumstad told the Congressional Oversight Panel today that he met with Geithner, then president of the Federal Reserve Bank of New York, on July 29, 2008, and asked the bank to make its discount window available to AIG in the event of a cash shortage. New York-based AIG was struggling with writedowns tied to the housing market at the time and had posted net losses of $13 billion in the six months ended March 31. “He indicated to me that if he thought there were a formal allowance by the Fed to allow AIG to go to the Fed window it would in fact exacerbate what I was trying to avoid,” said Willumstad, who served as AIG chief executive officer from June 2008 until the government takeover in September of that year. Geithner was wary of triggering a crisis of confidence in AIG that would cause counterparties to withdraw funds, Willumstad said. Andrew Williams , a spokesman for Geithner, declined to comment. To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net .

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GMAC Bailout Could Cost Taxpayers $6.3 Billion, Says Watchdog

March 11, 2010

WASHINGTON — The Treasury Department sank billions into auto finance giant GMAC Inc. without an exit strategy or proof the company was viable – a decision that could cost taxpayers $6.3 billion, a new watchdog report says. The government said the $17.2 billion bailout was a necessary step to save troubled automakers General Motors and Chrysler. GMAC provides critical financing to auto dealers, who borrow to finance their fleets until the cars can be sold to consumers. Yet GMAC faced far fewer conditions than the bailed-out automakers, the report says. When the automakers were rescued, they were forced into bankruptcy. Shareholders lost their investments, creditors took a hit and executives were forced to detail plans for making the companies viable. GMAC was treated more like banks that received bailouts without having to explain what they were doing with the money, the report says. The report was released Thursday by the Congressional Oversight Panel overseeing the $700 billion financial bailout that Congress passed in October 2008. “Treasury missed many opportunities to improve accountability and protect taxpayer money,” panel chair Elizabeth Warren said in a conference call with reporters. She said Treasury didn’t make GMAC show how it would return the taxpayer money, or how the investment would increase credit to consumers. “These decisions mean that Treasury is now struggling to deal with a GMAC that is not financially rehabilitated, Treasury has no exit strategy and taxpayers are not fully protected,” Warren said. The Treasury Department responded by reiterating that backing GMAC was necessary to preserve dealer financing for GM. It disputed the report’s core finding, that alternative approaches might have saved taxpayer money and provided better transparency. “Treasury viewed the course taken as the least costly and least disruptive of all the options available,” Treasury spokeswoman Meg Reilly said in a statement. The watchdog report, however, calls GMAC’s three-part bailout “one of the more baffling decisions made” to stabilize the financial sector. It says there was no evidence that GMAC’s failure would upend the financial system, or that it was “too big to fail.” GMAC started as the finance arm of General Motors, providing crucial funding for consumers buying cars and dealers financing wholesale purchases. In recent years, it became a key player in subprime mortgage lending and other risky finance that fueled the financial crisis. The company began to see major losses in 2007 as the housing market turned south and subprime mortgage investments lost much of their value. GMAC CEO Michael Carpenter referred to the company’s money-losing mortgage unit as the “millstone around the company’s neck.” The new report says the bailout effectively saved GMAC’s mortgage arm and other unprofitable businesses. It questions whether the government should have wound down GMAC’s operations that are not related to auto financing, perhaps by orchestrating the same sort of bankruptcy it arranged for GM and Chrysler. The auto finance arm might have been merged back into GM, said Warren, who also is a bankruptcy expert and a professor at Harvard Law School. She said Treasury did not fully consider that course. That left Treasury owning 56.3 percent of a company that continues to lose money. Treasury spokeswoman Reilly described the government as a “reluctant shareholder” in GMAC and said it is managing its investment in the company in “a hands-off commercial manner consistent with the administration’s established principles that guide Treasury’s management of financial interests in private firms.” The estimate that taxpayers could lose $6.3 billion was released earlier by the White House’s Office of Management and Budget, but it was not publicized before Thursday’s report. The Congressional Oversight Panel is one of three mechanisms Congress built into the $700 billion bailout bill. The fund also is subject to audits by the Government Accountability Office and investigation by a special inspector general. Besides Warren, the panel includes New York state banking superintendent Richard Neiman, former Securities and Exchange Commissioner Paul Atkins and attorney J. Mark McWatters. Damon Silvers, a senior official with the labor federation AFL-CIO, is on the panel but recused himself from all consideration of the auto bailouts.

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Citigroup’s Pandit Said to Plan to Thank Taxpayers for $45 Billion Bailout

March 3, 2010

By Bradley Keoun March 4 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit plans to tell U.S. taxpayers he’s grateful for the $45 billion bailout that helped stave off a deposit run at the bank in 2008, a person close to the company said. Pandit, scheduled to appear in Washington today before a panel overseeing the bank-bailout program, will acknowledge that the infusion stabilized Citigroup, said the person, who requested anonymity because the planned testimony isn’t public. Pandit will thank the government for providing the money, the person said. Pandit, 53, is scheduled to answer questions about the impact of government assistance on the New York-based bank. The five-person Congressional Oversight Panel, led by Harvard Law School Professor Elizabeth Warren, is charged with reviewing the Treasury’s expenditures under the $700 billion Troubled Asset Relief Program. Citigroup, the third-biggest U.S. bank by assets, repaid $20 billion of bailout funds in December. The Treasury holds a 27 percent stake after converting $25 billion of funds into common stock. The government currently has a $1.15 billion paper profit on the stake, based on its 7.7 billion shares and yesterday’s stock price of $3.40. The Treasury said in December it plans to liquidate its common stake this year. Molly Meiners , a Citigroup spokeswoman in Washington, declined to comment. Pandit testified in Washington in February 2009 alongside fellow CEOs Jamie Dimon of JPMorgan Chase & Co., Lloyd Blankfein of Goldman Sachs Group Inc., John Mack of Morgan Stanley and the since-retired Kenneth Lewis of Bank of America Corp. At the February 2009 hearing, Pandit pledged to cut his own salary to $1 a year until the bank returned to profitability . Citigroup lost $1.6 billion in 2009, compared with the record $27.7 billion net loss in the previous year. “I get the new reality and I will make sure Citi gets it as well,” Pandit said then. Pandit ended up getting $125,001 last year because he collected paychecks in early 2009 before he made the pledge. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Citigroup’s Pandit Said to Plan to Thank Taxpayers for $45 Billion Bailout

March 3, 2010

By Bradley Keoun March 4 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit plans to tell U.S. taxpayers he’s grateful for the $45 billion bailout that helped stave off a deposit run at the bank in 2008, a person close to the company said. Pandit, scheduled to appear in Washington today before a panel overseeing the bank-bailout program, will acknowledge that the infusion stabilized Citigroup, said the person, who requested anonymity because the planned testimony isn’t public. Pandit will thank the government for providing the money, the person said. Pandit, 53, is scheduled to answer questions about the impact of government assistance on the New York-based bank. The five-person Congressional Oversight Panel, led by Harvard Law School Professor Elizabeth Warren, is charged with reviewing the Treasury’s expenditures under the $700 billion Troubled Asset Relief Program. Citigroup, the third-biggest U.S. bank by assets, repaid $20 billion of bailout funds in December. The Treasury holds a 27 percent stake after converting $25 billion of funds into common stock. The government currently has a $1.15 billion paper profit on the stake, based on its 7.7 billion shares and yesterday’s stock price of $3.40. The Treasury said in December it plans to liquidate its common stake this year. Molly Meiners , a Citigroup spokeswoman in Washington, declined to comment. Pandit testified in Washington in February 2009 alongside fellow CEOs Jamie Dimon of JPMorgan Chase & Co., Lloyd Blankfein of Goldman Sachs Group Inc., John Mack of Morgan Stanley and the since-retired Kenneth Lewis of Bank of America Corp. At the February 2009 hearing, Pandit pledged to cut his own salary to $1 a year until the bank returned to profitability . Citigroup lost $1.6 billion in 2009, compared with the record $27.7 billion net loss in the previous year. “I get the new reality and I will make sure Citi gets it as well,” Pandit said then. Pandit ended up getting $125,001 last year because he collected paychecks in early 2009 before he made the pledge. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Elizabeth Warren: It’s Bank Lobbyists vs. American Families In Fight For Financial Reform

February 19, 2010

Elizabeth Warren appeared on “Real Time With Bill Maher” Friday evening to discuss financial reform. Warren, the chair of the Congressional Oversight Panel for TARP, explained that banks and their lobbyists are hammering Congress and fighting against the interests of American families by blocking financial reform. The problems are obvious and the solutions are too, but for some reason, we can’t seem to get the two together, Warren said. She admitted that during her first appearance on Maher’s show six months ago, she believed that the country was on “the brink” of financial reform. Maher promptly asked her what she smoked before that show. WATCH:

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Well-Known Properties in Washington D.C. at Foreclosure Risk

February 19, 2010

A new report from the Congressional Oversight Panel cites another cause for concern in the real estate market – commercial real estate. The report, which concerns the government’s Troubled Asset Relief Program (TARP) has caused quite the flap over the

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In D.C., more evidence that commercial real estate headed for foreclosure crisis

February 19, 2010

anticipated but hoped to avoid, now seems all but certain. “There’s been an enormous bubble in commercial real estate, and it has to come down,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to

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Relief For Businesses? Property Rents To Continue To Decline

February 18, 2010

Property rents for businesses will continue their downward fall this year, a bright spot for retailers facing a difficult economic environment, according to a recent report by Fitch Ratings. Most retail properties have only seen 30 percent of their potential rent declines, according to the country’s third-biggest credit rating agency. Steep discounts loom ahead. With consumers spending less, retailers’ sales are down. “The inevitable outcome for these tenants is either store closings, or renegotiation of lower rental rates,” Fitch said in its most recent U.S. CMBS Market Trends report. CMBS refers to commercial mortgage-backed securities. Investors have been hit with losses as the economy has soured. Those losses will continue to rise as the bottom has yet to come, according to analysts and the Congressional Oversight Panel, one of the federal government’s bailout watchdogs. Now property owners and investors face a dilemma: keep rents steady, risking a loss of tenants that move or close up; or lowering rents, which may curtail present income but will keep retailers in business, ensuring a steady stream of income. “In order to keep retail occupancies up, property owners will likely be forced to accept lower rental rates from tenants with leases rolling over,” the report noted in reference to those businesses with expiring lease agreements. “Because retail sales have been on the decline for two years and rolling tenants will typically renegotiate lower rental rates as their leases expire, most retail properties have only seen 30 percent of their potential…rent declines,” according to the Fitch report. The rating agency expects retailers to post a “modest increase” in sales this year.

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Another wave of real estate distress

February 18, 2010

anticipated but hoped to avoid, now seems all but certain. ‘There’s been an enormous bubble in commercial real estate, and it has to come down,’ said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to

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Congressional Oversight Panel Sees CRE Disaster Ahead

February 12, 2010

The Congressional Oversight Panel said in its February report that an impending wave of commercial real estate loan defaults over the next four years. … The Distressed Debt Report. DealFlow Media Home …

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Eliot Spitzer: Tip of the Iceberg

January 7, 2010

In a December New York Times op-ed , we called for the full public release of AIG email messages, internal accounting documents and financial models generated in the last decade. Today, a Bloomberg story revealed that under Timothy Geithner’s leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee. The emails requested by Issa span five months beginning in November 2008. If five months of emails reveal information key to our understanding of the aftermath of the crisis, imagine what 10 years of emails could contribute to our understanding of its causes. We believe the AIG emails and other internal company documents are the ‘black box’ of the financial crisis. If we understand the failure of AIG, we will more fully understand the crisis — what caused it and more importantly how to prevent it from happening again. The emails today detail the efforts of the Fed to suppress the disclosure of payments made to banks such as Goldman, Sachs Group for reimbursement of their credit-default swap exposure. When the Treasury Department stepped in, AIG had at least $440 billion in credit-default swaps outstanding. The Fed, led by Tim Geithner, paid Goldman, Sachs Group and other banks 100 cents on the dollar for these instruments rather than negotiating a lower rate closer to the actual value, (estimated by some to have been as little as 20 cents). In testimony to the Congressional Oversight Panel, Tim Geithner insisted it was necessary to make these payments in full, arguing that even a small downward negotiation would prove catastrophic to the financial sector. Elizabeth Warren, head of the oversight panel, has repeatedly challenged this assertion. Regardless the size of the payments, the Fed’s request to suppress both their amount and the parties to whole these payments were made would not have come to light without the release of these emails. Without the rest of the emails, we will be unlikely to fully understand what led to the collapse of AIG and the financial markets. If we can’t understand it, we will be unable to prevent it from happening again. As such, today we are renewing our request for the full public disclosure of all AIG documents. We believe the government should put these documents on-line, thereby establishing an open-source investigation that would allow journalists and citizens the opportunity to piece together the story of what happened at AIG and in so doing more fully understand what happened in the broader financial collapse. AIG — and more specifically its credit-default swaps exposure — was an important contributing factor to the crash of the financial markets. What sets this company apart from others that played a role in the crisis is that we, the taxpayers, own it. As we noted in our original piece, US taxpayers bought 80% of AIG when they bailed the company out with $180 billion last year. As owners of the company, taxpayers are also owners of AIG. As owners of the company we can demand the release of these documents. The taxpayer’s stake in AIG is held by the A.I.G. Credit Facility Trust, whose three trustees are Jill M. Considine, a former chairman of the Depository Trust Company and a former director of the Federal Reserve Bank of New York; Chester B. Feldberg, a former New York Fed official who was chairman of Barclays Americas from 2000 to 2008; and Douglas L. Foshee, chief executive of the El Paso Corporation and chairman of the Houston branch of the Federal Reserve Bank of Dallas. We call on these three officials (interestingly all former Fed officials) to immediately release the documents we request. The value of these documents, if it were ever in doubt, was certainly proved by today’s revelations. Release the emails. This post originally appeared on New Deal 2.0 .

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Joe Costello: Feminomics: Top Five Heroes of Financial Reform

December 30, 2009

From an economic standpoint, will 2010 be the year of the woman? As part of the Roosevelt Institute’s ongoing ‘Feminomics’ series, running on the New Deal 2.0 blog , I was asked to reflect on women’s changing roles in the economy. Here’s my take on how the New Deal advanced the cause of women’s equality. In case you haven’t heard, women are leading the charge on financial reform. In the spirit of celebrating their contributions, I’ve put together a list of the top five heroes of 2009, in the hopes that their work will inspire us in the coming year. So, channeling my best Wayne Newton (and I could pull this off if I shaved my goatee and took off the top 3/4 of my mustache), “This one’s for the ladies: ” 1) First, I’ll start with Yves Smith, who I came across end of last summer. She has 25 years in financial services, worked for, amongst others, Goldman, McKinsey, and Sumitomo, and is also a graduate of Harvard and Harvard Business School. Her must-read blog is Naked Capitalism . She has shown great knowledge and greater courage — and from my experience, these two traits are too rare together. Her writing is exceptional, and if you want a good overview of the financial mess and what’s gone on over the past year and half, I highly recommend paging through her blog’s archive. The president should replace Geithner with her. Time we had our first woman Treasury Secretary. 2) Next, Elizabeth Warren. Either mistakenly, which I believe is the case, or purposefully, in which case I’d have to reevaluate my opinion of Harry Reid, Warren was appointed by Reid to head the Congressional Oversight Panel for all the money being handed to the banks. Warren is Professor of Law at Harvard and wrote the excellent book The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke . So, she documented the great underbelly of Wall Street’s debt bubble — particularly its destruction of a big chunk of working America. I don’t know if Reid thought he was getting some doddering academic when he appointed her, but instead he got a strong and energetic public advocate. There’s been a pretty hard effort to discredit Ms. Warren, and Yves Smith takes a look at the hatchet job done by NPR here . I’ve been nothing but impressed when I’ve heard her talk, and strongly second the motion by William Greider to give her subpoena powers. 3) In October 2007, working for Oppenheimer, Meredith Whitney wrote a report calling Citi the pile junk it is. Amazingly, she was pretty much the only one in the whole industry to do so. Since then, Whitney has been straight at the big banks, holding nothing back on what bad shape they’re in. She’s the Anti-Geithner. In the middle of latest pop in the stock market, which has gotten the banks $50 billion in new capital over the past couple months, Whitney appeared on CNBC and called the banks’ profits “manufactured” by the government, and stated things would begin heading south again. She’s an eagle above the weasels scurrying below on Wall Street. 4) Gretchen Morgenson writes for the NYT business section. In the last year and half, she has written far and away some of the best coverage of the financial crisis in the mainstream media. Most importantly, she put Mr. Blankfein at the meeting with Mr. Paulson and Mr. Bernanke when the bailout of AIG was decided to the advantage of Goldman for at least 14 billion. Again, if you want to read some good things on the last year and half, scroll through her articles in the Times’ archive ( The Nation did an ok piece on her, but unfortunately, it suffers from the author’s “objective journalism” disease). 5) Finally, I’d throw in Sheila Bair, who was appointed head of the FDIC by none other than George W. Bush. Ms. Bair has frequently tangled with the boys in the government, taking on Paulson, Bernanke, Geithner, and Summers. She’s stated repeatedly the banking crisis is not over , tried to slow the foreclosure tsunami, and most recently stated again Citi is a pile of crap and needs to be placed into receivership. These women are inspiring! Citizens all, helping to breathe life into this old republic. This post originally appeared on New Deal 2.0 .

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White House Plans To Step Up Pressure On Lenders To Help Homeowners

November 28, 2009

WASHINGTON — The Obama administration, battling a foreclosure crisis that shows no signs of relenting, will step up pressure on mortgage companies to do more to help people remain in their homes, officials said Saturday. The administration will announce its expanded program on Monday, Treasury spokeswoman Meg Reilly said. “We are taking additional steps to enhance servicer transparency and accountability,” Reilly said. She said the goal was to increase the rate that troubled home loans were converted into new loans with lower monthly payments. Industry officials said the new effort would include increased pressure on mortgage companies to accelerate loan modifications by highlighting firms that are lagging in that area. The Treasury is also expected to announce that it will wait until the loan modifications are permanent before paying cash incentives to mortgage companies that lower loan payments. Under the $75 billion Treasury program, companies that agree to lower payments for troubled borrowers collect $1,000 initially from the government for each loan, followed by $1,000 annually for up to three years. The government support, which is provided from the $700 billion financial bailout program, is aimed at providing cash incentives for mortgage providers to accept smaller mortgage payments rather than foreclosing on homes. The program has come under heavy criticism for failing to do enough to attack a tidal wave of foreclosures. Analysts said the foreclosure crisis is likely to persist well into next year as high unemployment pushes more people out of their homes. Rising foreclosures depress home prices and threaten the sustainability of the fledgling economic recovery. A report last week from the Mortgage Bankers Association found that 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter. The Congressional Oversight Panel, a committee that monitors spending under Treasury’s bailout program, concluded in a report last month that foreclosures are now threatening families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market. Treasury’s program, known as the Home Affordable Modification Program, “is targeted at the housing crisis as it existed six months ago, rather than as it exists right now,” the report said. Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, said the industry supported many of the changes Treasury was proposing. But he said the foreclosure problem, which began with heavy defaults on subprime mortgages, was expanding to more traditional types of mortgages because of unemployment which has now hit a 26-year high of 10.2 percent. “The subprime problem has regrettably morphed into an unemployment problem,” Talbott said. He said there was no government program to help the unemployed who are in danger of losing their homes but “many private lenders are modifying loans for the unemployed on their own.” Treasury’s Reilly said the expanded program would, among other steps, make more aid available to struggling borrowers and expand the number of organizations providing help. ___ Associated Press writer Jim Kuhnhenn contributed to this report.

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Elizabeth Warren: Financial Rules ‘Literally Don’t Work Anymore,’ Regulations Should Be ‘Clear And Painful’

November 17, 2009

Elizabeth Warren, a professor at Harvard Law School who has more recently assumed the role of chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), sat down with The New Yorker ‘s James Surowiecki recently. The topic was Warren’s brainchild, the Consumer Financial Protection Agency Act, which is currently being debated in Congress. The agency would demand transparency in consumer financing, which Warren detailed in her essay, “Unsafe at Any Rate,” published in Democracy in the summer of 2007. She lays out how the agency would essentially apply the same logic that is applied to buying a toaster to financing a home or car: Consumers can enter the market to buy physical products confident that they won’t be tricked into buying exploding toasters and other unreasonably dangerous products … we need … a new regulatory regime, and even a new regulatory body, to protect consumers who use credit cards, home mortgages, car loans, and a host of other products. The time has come to put scaremongering to rest and to recognize that regulation can often support and advance efficient and more dynamic markets. Surowiecki pointed out that crotocs charge that consumer financial protection would restrict consumer credit too much, making it difficult for people to borrow money. Warren’s response: “the point is not to say, ‘Thou shalt not charge somebody more than X,’ which would have restrictive consequences. It’s to say, you’ve got to be really clear about it.” Warren added that last year’s historic bailout of the financial sector necessitated a different set of rules regulatory principles: “…The old rules of regulation just literally don’t work anymore. Because now we’re under this giant shadow of implicit and explicit government guarantees … we said in effect … we will throw as many taxpayers as we need to throw under the bus to keep your business functionally operational in the way that it was functionally operational before without a cost to you personally, and to your shareholders personally. That’s a whole new world.” According to Warren, financial institutions need a regulator regime that is both “clear and painful.” WATCH The New Yorker ‘s full interview with Warren: Get HuffPost Business On Facebook and Twitter !

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Video: Elizabeth Warren Says TARP Will Probably Make a Profit: Video

November 6, 2009

Nov. 6 (Bloomberg) — Elizabeth Warren, chairman of the Congressional Oversight Panel for the Troubled Asset Relief Program, talks with Bloomberg’s Carol Massar, Adam Johnson and Jon Erlichman about the outlook for TARP. Warren, speaking from Washington, also discusses the transparency of assets backed by government funds and systemic risk created by banks that are perceived as too big to fail. (Source: Bloomberg)

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Elizabeth Warren: Bank Bonuses Leave Me "Speechless" (VIDEO)

October 16, 2009

In an interview with Yahoo Tech Ticker’s Aaron Task, Elizabeth Warren, chair of the Congressional Oversight Panel, said she was “speechless” over record-high banking bonuses. “I do not understand how it is that financial institutions could think that they could take taxpayer money and then turn around and act like it’s business as usual,” she said. “I don’t understand how they can’t see that the world has changed in a fundamental way, that it is not business as usual when you take taxpayer dollars.” But the banks, she said, “seem to be winning this argument.” Warren roasted former Treasury Secretary Hank Paulson for his handling of TARP, saying that he claimed the money would be funneled “into the banks to increase lending, specifically to increase small business lending, because that is the engine of our economy.” But “that’s not what happened with that money,” and she said there is “no chance” there will ever be a full accounting of TARP funds because “we never asked on the front end.” She saw little improvement over a year ago: “All the things we were talking about that were serious, serious problems for the financial institutions seem to me are still serious, serious problems,” she said. Watch the rest:

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TARP Oversight Panel Says Smaller U.S. Banks May Need to Replenish Capital

August 11, 2009

By Rebecca Christie Aug. 11 (Bloomberg) — Smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said today in a monthly report. The panel, which reports to lawmakers and was created to monitor the $700 billion Troubled Asset Relief Program, said the biggest U.S. banks appear prepared to handle more loan losses, particularly the 19 banks that regulators put through stress tests earlier this year. Banks with assets of $600 million to $1 billion may face bigger challenges, the panel said. Banks of that size “will need to raise significantly more capital, as the estimated losses will outstrip the projected revenue and reserves,” the report said, citing its own loan analysis. The panel is led by Elizabeth Warren , a law professor at Harvard University. The report said the Treasury and other regulators should do more to help smaller banks deal with whole loans on their books. The Treasury and the Federal Deposit Insurance Corp. program have shelved the Legacy Loans Program, intended to use a combination of public and private funds to buy loans from banks. “Failure to start the Legacy Loan Program raises concerns about Treasury’s strategy,” the panel’s report said. Representative Jeb Hensarling , a Texas Republican who also is a member of the panel, dissented from the report’s findings. He said the loss estimates may not be accurate and shouldn’t be used to justify another round of government assistance. Toxic Assets “It is possible that the toxic-asset market is already beginning to heal itself and the intervention proposed by the panel could be inappropriate — if not counterproductive,” Hensarling said. “I am not necessarily discouraged by the results for the smaller banks since it is entirely possible that the input assumptions used by the panel were excessively pessimistic.” Treasury Secretary Timothy Geithner pledged that the department remains a “hands-off” investor in banks and auto companies, according to a letter released as part of today’s report. “With respect to Treasury’s relationship with financial institutions in which it holds a financial interest, Treasury is a reluctant shareholder,” Geithner said in a July 21 letter. “The government will not interfere with or exert control over day-to-day company operations and, in the event the government obtains ownership interests, it will only vote on core government issues.” The Treasury also told the panel it had no plans to extend a guarantee program for money market mutual funds that is scheduled to expire on Sept. 18. “The guarantee agreements do not provide for further extension of the guarantees,” the Treasury said in its comments. To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net ;

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Where Is The Bank Bailout Money Going? (VIDEO)

August 10, 2009

Where exactly is all of the bailout money going? Today, McClatchy addresses growing concerns over the lack of true oversight in government’s enormous bailout of the banking industry. Here’s how McClatchy put it : “Although hundreds of well-trained eyes are watching over the $700 billion that Congress last year decided to spend bailing out the nation’s financial sector, it’s still difficult to answer some of the most basic questions about where the money went.” McClatchy also relays some damaging assessments from members of Congress: “Ten months into the Troubled Asset Relief Program, some members of Congress say that some oversight of bailout dollars has been so lacking that it’s essentially worthless.” Read the entire story at McClatchy. To coincide with McClatchy’s piece, the Huffington Post Investigative Fund also tagged along with Elizabeth Warren, the chair of the Congressional Oversight Panel charged with monitoring the bailout. Warren’s nothing if not busy — the video features a behind-the-scenes look at her hectic Washington schedule and her wrangling with members of Congress. WATCH “Elizabeth Warren Goes To Washington”: Get HuffPost Business On Facebook and Twitter !

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