Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Stop Greedy Banks from Killing Capitalism and Stealing From Tax Payers

Politics / Market Regulation Apr 06, 2010 - 06:27 AM GMT

By: Money_Morning

Politics

Best Financial Markets Analysis ArticleShah Gilani writes: Taking No Prisoners
What the big banks want is the socialization of their risk exposure and the privatization of their unbridled profitability.

And they are willing to hold the economy hostage to get it.


To achieve that goal, banks are concentrating their too-big-to-fail power so that the federal government has no choice but to backstop them - permanently lowering the cost of capital for these large lenders. And that's not all. To counteract the credit squeeze the concentration of lending power in too few banks fosters, the federal government will be forced to once-again back loan-level guarantees from privately owned, government-chartered guarantors - in other words, more government-sponsored entities (GSEs) such as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

On March 23 - during a House Financial Services Committee hearing labeled as "Housing Finance: What Should the New System Be Able to Do?" - U.S. Treasury Secretary Timothy F. Geithner was questioned about the future of the biggest insolvent GSEs, Fannie and Freddie. Those two - explicitly bestowed with unlimited backing by former Treasury Secretary Henry M. "Hank" Hank Paulson Jr., have by themselves so far siphoned $165 billion from taxpayers' pockets.

Geithner told a flabbergasted panel that there were no immediate plans to unwind the entities, stating that "realistically [speaking], it's going to take several months to do a careful exploration of the problems, solutions, alternative models, and to try to shape legislation that could command consensus."

Several House members were even more disturbed when Geithner told them that "my own view is there's probably going to be a good economic case [and a] good public-policy case ... for some continued provision of a carefully designed guarantee by the public sector going forward."

In short, not only are Fannie and Freddie destined to stay with us, their gross failures have elicited a very-banker-friendly fix to their troubled existence - create more of them.

Repeating Earlier Mistakes?
At the same hearing, Mortgage Bankers Association Chairman-elect Michael D. Berman proposed that a new breed of mortgage-backed securities should be structured with a federally guaranteed wrap. The association wants the government to provide an explicit credit guarantee financed by risk-based fees paid into a federal insurance fund.

The hybrid proposal - a cross between the existing government guarantee that already backs Ginnie Mae securities and the Federal Deposit Insurance Corp. (FDIC) insurance fund that covers bank deposits - came with a fresh recommendation "that regulators charter enough entities to establish a truly competitive secondary market and to overcome issues associated with too-big-to-fail."

It doesn't matter to the Mortgage Bankers Association that the Federal Housing Administration (FHA), which backs its loan-level mortgages with a government guarantee and then collects and packages those mortgages into the Ginnie Mae securities, is itself insolvent. It also doesn't matter that Ginnie Mae securities are the only mortgage-backed securities whose principal-and-interest payments to investors are 100% government-guaranteed. Nor does it matter that Ginnie Mae is stumbling down the same blind path as Fannie and Freddie.

What matters to the bankers is that they don't have to assume any risk on the mortgages they originate as long as the government guarantees them. As long as bankers can generate fees from originating loans - and then offload those loans to investors as "guaranteed" - these institutions can go back and borrow additional cheap money from the U.S. Federal Reserve and leverage their balance sheets with the very same risk-free securities. Once that's done, the banks are positioned to reap gigantic profits, pay their top executives huge bonuses - and have plenty left over to spread across Washington in order to institutionalize their latest scheme.

Outraged critics contend that regardless of whether institutions are too big to fail, or that if enough smaller institutions are afforded the same socialized model, eventual contagion resulting from systemic risk concentration and integration will kill democratic capitalism. The point is that the market is no longer allocating capital, the government is.

A Real Blueprint For Change
There is a way to break the stranglehold banks have on the economy, and at the same time arrest moral hazard and unshackle free markets.

It's simple. Congress needs to immediately enact all 10 of the recommendations called for in the Association of Mortgage Investors white paper: "Reforming the Asset-Backed Securities Market." Those 10 recommendations are:

1.Provide loan-level information that investors, ratings agencies and regulators can use to evaluate collateral and its expected economic performance over the life of the securitization.
2.Require a "cooling-off" period when securities are offered so that investors have time to analyze them before making investment decisions.
3.Make deal documents for all asset-backed and structured securities publicly available to market participants and regulators.
4.Develop standard-pooling and servicing agreements with model representations and warranties as a non-waivable industry-minimum legal standard.
5.Develop clear standard definitions for securitization markets.
6.Directly address conflicts of interest of servicers that have economic interests averse to those of investors.
7.Require the appointment of a suitably independent and qualified trustee to act for the benefit of holders of the securities.
8.Make asset-backed securities subject to private right-of-action provisions of anti-fraud statutes in securities law.
9.Encourage secondary trading on venues such as exchanges where trading prices are visible to investors and regulators.
10.Make ratings agencies use loan-level data in their initial ratings and to update ratings as market conditions evolve and collateral performance is reported.
Of course, banks will oppose all these recommendations for various reasons, but mostly under the guise that they are too onerous and expensive to implement and would raise the cost of capital and impede market functionality.

Self-Protection Strategies
The truth, of course, is that every one of the recommendations cuts through the opaqueness, issuer protections and marked-up fees that banks enjoy when pooling, issuing and trading their purposely complex and asymmetrically divined instruments.

We are at a critical crossroads in the evolution of capitalism. We have manufactured enough rope to hang ourselves on the gallows of socialism. With the partisan and bitter battle over healthcare momentarily behind us, and after admitting that regulatory reform should have been U.S. President Barack Obama's No. 1 agenda item when he first took office, now is the time to act decisively.

The arguments against the protective and prudent regulations that safeguard investors and the economy are always made by those with a stake in circumventing those protections for personal gain. America has an unparalleled history of creating wealth, while adapting to unforeseen and unintended consequences of both good and bad legislation, as well as the unmitigated greed of usurpers and shysters. For the sake of the republic, democratic capitalism and our economic future, it is time to empower Americans to return the country to the top of the economic world order.

Investors can help themselves on an individual level. First and foremost, I recommend you follow and actively participate in the looming regulatory battles. Write to your elected representatives, letting them know where you stand. Place stop-loss orders on all your investments: If the bankers win the regulatory-reform battle, you will get "stopped out" when the market eventually crashes. At that point, take all your capital to China, because at least there they are honest about their government-directed, socialist-economic model.

Source: http://moneymorning.com/2010/04/06/bank-reform/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules