Reidblog [The Reid Report blog]

Labels: bailouts, bank failures, banks, mortgage crisis, Obama administration, Tim Geithner, Wall Street vs Main Street

It had been a brutal week inside AIG Financial Products. News that the firm had doled out more than $165 million in retention payments over the past week had angered the country and sent lawmakers into fits of rage. American International Group's president, Edward M. Liddy, had asked that the unit's employees consider returning some, if not all, of the money. New York Attorney General Andrew M. Cuomo had subpoenaed AIG for a list of Financial Products employees and how much money each had received.

Now, the firm's chief operating officer, Gerry Pasciucco, had set a 5 p.m. Monday deadline for staffers to indicate whether they planned to return their retention payments, and if so, what percentage. His e-mail included what appeared to be a tacit ultimatum from Cuomo.

"We have received assurances from Attorney General Cuomo that no names will be released by his office before he completes a security review which is expected to take at least a week," Pasciucco wrote."To the extent that we meet certain participation targets, it is not expected that the names would be released at all."

Yesterday afternoon, 18 of the 25 most senior Financial Products executives had agreed to return their retention payments, amounting to more than $50 million thus far. Company officials expect more employees to follow suit.

"They are doing the right thing," Cuomo said on a conference call with reporters, adding that he now saw no need to reveal the names.

4:13 PM ET: Sen. Jon Kyl (R-Ariz.), the Republican whip, wants the Senate to delay -- at least for a week -- a vote on the House's bill to tax recipients of AIG bonuses, Reuters is reporting.

Analysts are attributing this afternoon's late Wall Street surge to Kyl's statement.

Labels: AIG, bailouts, banks, bonusgate, Jim Cramer, Wall Street vs Main Street

Sen. Richard Shelby, R-Ala., the top Republican on the Senate Banking Committee, said today on "This Week" that the government should let trouble banks fail.

"I don't want to nationalize them, I think we need to close them," Shelby told me this morning. "Close them down, get them out of business. If they're dead, they ought to be buried," he said. "We bury the small banks; we've got to bury some big ones and send a strong message to the market. And I believe that people will start investing [again] in banks."

I asked Sen. Shelby if he was referring specifically to Citigroup, the struggling bank that has received about $45 billion in taxpayer money.

"Well whatever. Citi's always been a problem child," said Shelby, who has long opposed giving federal TARP money to struggling banks.

But Thomas Donohue, head of the U.S. Chamber of Commerce, disagreed.
"It's not practical to talk about closing a bank that is integrated throughout the whole global economy," he said. "It is practical to talk about buying some of those assets away from those banks and holding them in an institution that would have both public and private money."

Labels: bank failures, banking crisis, banks, Citigroup, economic crisis, Republicans, Richard Shelby, Senators, the Bush bailout, the Bush recession, the economy, The South, U.S. automakers, unions

Labels: banks, Big Oil, corporatocracy, George Stephanopoulos, Karl Rove, This Week

Labels: banks, Claire McCaskill, the Bush bailout, Wall Street

The economy shrank at a 3.8 percent pace at the end of 2008, the worst showing in a quarter-century, as the deepening recession forced consumers and businesses to throttle back spending.

Although the initial result was better than economists expected, the figure is likely to be revised even lower in the months ahead and some believe the economy is contracting in the current quarter at an even faster pace.

The new figure, released Friday by the Commerce Department, showed the economy sinking at a much faster clip in the October-December period than the 0.5 percent decline logged in prior quarter.

Although economists expected an even worse fourth-quarter performance — a staggering 5.4 percent rate of decline — the results were still grim.

Labels: banks, Exxon Mobile, gas prices, oil prices, President Barack Obama, Rudy Giuliani, the Bush bailout, the economy, u.s. economy, Wall Street

A standoff between workers at Republic Windows & Doors and its owners and bank over the plant's closing stretched into a fifth day after talks produced no agreement despite considerable political pressure and threats of investigations.

The 240 union workers staging a sit-in at the plant on Goose Island in Chicago decided to stay put at least until negotiations between their representatives and company owners and Bank of America continue Tuesday afternoon.

On Monday, workers were visited by a parade of politicians, including Gov. Rod Blagojevich and U.S. Sen. Dick Durbin (D-Ill.), who voiced their support for the workers while threatening Republic and Bank of America with lost business, legal action and federal inquiry. At City Hall, Chicago aldermen called for hearings on Republic, which had received about $10.4 million in city redevelopment funds as of the end of 2007, according to city documents.

Workers have been occupying the building since its abrupt closing Friday. They are protesting the loss of what they said is vacation and severance pay they've earned and the lack of notice about the closing. The federal WARN Act requires 60-day notice of a plant's closing.

Many said Monday that they appreciated the encouragement and national attention, recognizing that their effort had tapped into concerns about job security in a declining economy.

"I'm not scared because I'm not alone on this," said Raul Flores, 25, who had worked at Republic for eight years. "We're strong and we're going to stay. This gives us the strength to keep going. This is going to be for everyone."

Durbin said he would raise questions in Washington about whether billions of dollars of federal bailout money given to struggling banks is being properly used. Gutierrez urged a federal investigation into the company's failure to make required severance payments.

"The taxpayer dollars going into these big banks are not for dividends, they're not for executive salaries, they're for loans and credit to businesses just like Republic so they can stay in business and so these workers won't be out on the street unemployed," Durbin said.

Bank of America cut its line of credit to Republic, which the company said forced the plant's closing last week. Blagojevich threatened that the state would suspend all business with the bank until the Republic matter was resolved. Aldermen and Cook County officials also proposed suspending business with the bank and withdrawing hundreds of millions of dollars. ...

"We agree with the statements of public officials that Republic Windows and Doors should do all it can to honor its obligations to its employees and minimize the impact of failure on those employees.

We are reaching out to the management and ownership of the company to see what they can do to help resolve this issue.

As a creditor of the company, we continue to honor all of our agreements with the company and have provided the maximum amount of funding we can under the terms of our agreement.

By any objective measure, Republic Windows and Doors is unable to operate profitably given the challenges of the current economic climate and its industry. Public statements by management of the company have made this clear.

When a company faces such a dire situation, its lender is not empowered to direct the company's management how to manage its affairs and what obligations should be paid. Such decisions belong to the management and owners of the company.

Bank of America has worked with the company and shared our concerns about the company's situation and its operations for the past several months. It is unfortunate that the company has been unable to reverse its declining circumstances."

10/16/08 a- Republic presents plan for "orderly" wind down including ceasing
manufacturing in January 2009. INFORMS BANK OF AMERICA OF POSSIBLE
WARN ACT NOTICE ISSUES AND VACATION PAY.
10/15/08 a- Informed Bank of America that Republic had a 10/24/08R buyer for
the existing Note for ±$3.0M, discount of $1.5M.
10/15/08 a- Offer rejected by Bank of America stating they believed they were
"over" collateralized.
10/15/08 a- Bank of America demands plans for "orderly" wind down Republic.
10/18/08 a- Bank of America rejects plan and demands a shorter wind down
period.
10/27/08 a- Republic responds with a new plan to cease operations January 2009.
10/29/08 a- Bank of America rejects plan.
11/25/08 a- Republic requests permission from Bank of America to issue
vacation pay to all employees.
11/26/08 a- Bank rejects Company request to make vacation pay.

“They want the poor person to stay down,” said Silvia Mazon, 47, a mother of two who worked as an assembler here for 13 years and said she had never before been the sort to march in protests or make a fuss. “We’re here, and we’re not going anywhere until we get what’s fair and what’s ours. They thought they would get rid of us easily, but if we have to be here for Christmas, it doesn’t matter.”

The workers, members of Local 1110 of the United Electrical, Radio and Machine Workers of America, said they were owed vacation and severance pay and were not given the 60 days of notice generally required by federal law when companies make layoffs. Lisa Madigan, the attorney general of Illinois, said her office was investigating, and representatives from her office interviewed workers at the plant on Sunday.

At a news conference Sunday, President-elect Barack Obama said the company should follow through on its commitments to its workers.

“The workers who are asking for the benefits and payments that they have earned,” Mr. Obama said, “I think they’re absolutely right and understand that what’s happening to them is reflective of what’s happening across this economy.”

Labels: banks, economic crisis, the Bush bailout, the economy, Wall Street vs Main Street

Bush meets with his economic team on March 17, 2008. To Bush's
right are Treasury Secretary Henry Paulsen (center) and National
Economic Council Director Keith Hennessey. Photo: Getty Images

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

_Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Labels: banks, Bush administration, financial crisis, Henry Paulson, mortgage crisis, the Bush bailout, worst president ever

Labels: bank failures, banks, Citigroup, economic crisis, the Bush recession

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

• More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

Furthermore, though they have become the whipping banks of the right:

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

And...

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.

Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.

About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.

But what about the infamous Community Reinvestment Act (the CRA)? Isn't THAT Carter-era abomination to blame for the subprime crisis? Why, no...

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.

Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

As much as I love the folks at McClatchy, I said the exact same thing a month ago, in this fantabulous video:

Labels: banks, mortgage crisis, right wingers, subprime mortgages, the Bush recession, the economy, the McCain-Bush economy, u.s. economy

Labels: banks, Federal Reserve, mortgage crisis

Labels: banks, dollar, financial markets, mortgage crisis