FedUpUSA

Archive for December 30th, 2009

Barney Frank introduced H. R. 4173 purportedly “To provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes.”

The bill is 1,279 pages long. I did not read it in entirety but Bloomberg columnist David Reilly did. It is amazing the things Barney Frank buried in a bill that is supposed to protect consumers. The bill does nothing for consumers, but does allocate $4 trillion to fighting the next financial crisis.

Please consider Bankers Get $4 Trillion Gift From Barney Frank: David Reilly.

To close out 2009, I decided to do something I bet no member of Congress has done — actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.

Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog.

Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:

For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system.

Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.

The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play.

The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke.

Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad.

There’s much more in Reilly’s article. I was hoping this was a spoof, but sadly it is not. Here is the section of H. R. 4173 allocating up to $4 trillion.

FINANCIAL CRISIS MANAGEMENT
(1) IN GENERAL.

In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, upon the written determination, pursuant to section 1109 of the Financial Stability Improvement Act of 2009, of the Financial Stability Oversight Council, that a liquidity event exists that could destabilize the financial system …. and with the written consent of the Secretary of the Treasury (after certification by the President that an emergency exists), may authorize any Federal reserve bank, ….

Upon making any determination under this paragraph, with the consent of the Secretary of the Treasury, the Financial Stability Oversight Council shall promptly submit a notice of such determination to the Congress. The amounts made available under this subsection shall not exceed $4,000,000,000,000.

Don’t worry there is a 99% chance the money will come back as low quality collateral is excluded.

CLARIFICATION OF ‘SECURED TO THE SATISFACTION OF THE FEDERAL RESERVE BANK’.

No member of the Board of Governors of the Federal Reserve System shall vote to authorize any action permitted under paragraph (1) and the Secretary of the Treasury shall not provide the written consent required by paragraph (1) unless that member believes and the Secretary of the Treasury believes:

‘‘(A) that there is at least a 99 percent likelihood that all funds disbursed or put at risk by such action will be repaid to the Federal Reserve System; and ‘‘(B) that there is at least a 99 percent likelihood that all interest due on any funds disbursed will also be paid to the Federal Reserve System.

‘‘(3) LOW QUALITY ASSETS EXCLUDED.

The notes, drafts, and bills of exchange available for discount for purposes of paragraph (1), and the security for those notes, drafts and bills of exchange may only include any of the following assets if such asset is used to further enhance the security for those notes, drafts and bills of exchange which shall be fully secured with assets that are not any of the following assets: ….

Gee, I sure hope that makes you feel better.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.htm l to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bankers Get $4 Trillion Gift From Barney Frank: David Reilly

Commentary by David Reilly

Dec. 30 (Bloomberg) — To close out 2009, I decided to do something I bet no member of Congress has done — actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.

Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. The Senate has yet to pass its own reform plan. The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders.

I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog. And yes, I plowed through all those pages. (Memo to Chairman Frank: “ystem” at line 14, page 258 is missing the first “s”.)

The reading was especially painful since this reform sausage is stuffed with more gristle than meat. At least, that is, if you are a taxpayer hoping the bailout train is coming to a halt.

If you’re a banker, the bill is tastier. While banks opposed the legislation, they should cheer for its passage by the full Congress in the New Year: There are huge giveaways insuring the government will again rescue banks and Wall Street if the need arises.

Nuggets Gleaned

Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:

– For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Admitting you have a problem, as any 12- stepper knows, is the crucial first step toward recovery.

– Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

– Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.

More Bailouts

– The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy — there are more bailouts to come.

– The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.

– Don’t worry, this time regulators will have better tools. Six months after being created, the council will report to Congress on “whether setting up an electronic database” would be a help. Maybe they’ll even get to use that Internet thingy.

– This group, among its many powers, can restrict the ability of a financial firm to trade for its own account. Perhaps this section should be entitled, “Yes, Goldman Sachs Group Inc., we’re looking at you.”

Managing Bonuses

– The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play. Maybe Bank of America Corp. and Citigroup Inc. shouldn’t have rushed to pay back Troubled Asset Relief Program funds.

– The bill kills the Office of Thrift Supervision, a toothless watchdog. Well, kill may be too strong a word. That agency and its employees will be folded into the Office of the Comptroller of the Currency. Further proof that government never really disappears.

– Since Congress isn’t cutting jobs, why not add a few more. The bill calls for more than a dozen agencies to create a position called “Director of Minority and Women Inclusion.” People in these new posts will be presidential appointees. I thought too-big-to-fail banks were the pressing issue. Turns out it’s diversity, and patronage.

– Not that the House is entirely sure of what the issues are, at least judging by the two dozen or so studies the bill authorizes. About a quarter of them relate to credit-rating companies, an area in which the legislation falls short of meaningful change. Sadly, these studies don’t tackle tough questions like whether we should just do away with ratings altogether. Here’s a tip: Do the studies, then write the legislation.

Consumer Protection

– The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke.

– Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad.

Even better would be if legislators actually tackle the real issues stemming from the financial crisis, end bailouts and, for the sake of my eyes, write far, far shorter bills.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

Last Updated: December 29, 2009 21:00 EST

Barney Frank did some last minute shopping and picked up the following gifts for the banking industry. These are the visions of sugarplums dancing in the bank’s heads from HR 4173, the 1,279-page “Wall Street Reform and Consumer Protection Act”:

It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

They have to be 99% confident they’ll get the $4 trillion back, but do we really need to talk more about risk models, black swans and fail? But don’t worry, even if you can’t get emergency funding, you can probably get financial backing:

The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy — there are more bailouts to come.

The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.

Don’t worry, this time regulators will have better tools. Six months after being created, the council will report to Congress on “whether setting up an electronic database” would be a help. Maybe they’ll even get to use that Internet thingy.

An electronic database of what? I like to think LOLFed is kind of an electronic database of bankfail, maybe I can give them access to our archives. They appear to have authorized no less than a billion studies, so expect Washington to be hiring more wonks in the near term.

On the downside for the bankers, it looks like HR 4173 can restrict the ability of certain vampire squids to make profitable trades for themselves, and also to pay out incentives, whether you’re still down with TARP or not.  They’ve also authorized a shiny logo for the newly-created Consumer Financial Protection Agency, and we can only hope they ask us to make an entry. This article’s author suggested Elizabeth Warren flinging lightning bolts at Ben Bernanke, but I was thinking something more along the lines of a rainbow, a yellow brick road, and smiling consumers with pockets stuffed with cash on their way to a shiny new mall.

Oh, and maybe some unicorns ‘cuz we all know that real reform is mythical.

It is obvious that many republicans oppose the proposed health care bill. But many liberals and progressives oppose it as well.

For example, economist L. Randall Wray writes:

Here’s the opportunity, Wall Street’s newest and bestest gamble: there is a huge untapped market of some 50 million people who are not paying insurance premiums—and the number grows every year because employers drop coverage and people can’t afford premiums. Solution? Health insurance “reform” that requires everyone to turn over their pay to Wall Street. Can’t afford the premiums? That is OK—Uncle Sam will kick in a few hundred billion to help out the insurers. Of course, do not expect more health care or better health outcomes because that has nothing to do with “reform” … Wall Street’s insurers… see a missed opportunity. They’ll collect the extra premiums and deny the claims. This is just another bailout of the financial system, because the tens of trillions of dollars already committed are not nearly enough.

Wray points out that — with the repeal of Glass Steagall — the financial sector and the insurance businesses (the “f” and “i” in the “fire” sector) are somewhat merged.

Wray is no conservative. He is Ph.D. is Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute — which focuses on inequality in the distribution of earnings, income, and wealth.

Dr. Andrew Coates describes the bill as “a guarantee of insurance industry dominance and the continued privatization of health care in every arena.”

Dr. Coates is no conservative. He is a medical doctor, a member of the Public Employees Federation, AFL-CIO, secretary of the Capital District chapter of Physicians for a National Health Program, and teaches at Albany Medical College.

And — as I have previously pointed out — progressives such as law school professor Sheldon Laskin, anti-war activist David Swanson, and Miles Mogulescu are calling the bill authoritarian and unconstitutional because the government cannot legally force people to buy private health insurance.

Indeed, given Wray’s point that this is just another bailout in disguise, the bill should more properly be called a “wealth reform” bill than health reform legislation.

The biggest scam of the century is making a full conclusion with this deep recession.  What made America the envy of the entire world, a strong and vibrant middle class, is being quickly dismantled so the new order of corporate raiders can siphon off life support from the productive economy.  Nothing highlights this grand robbery more so than the current situation of our country.  For eight straight months foreclosure filings have hit 300,000 or more yet banks on Wall Street are gearing up for record yearend bonuses for a job well done.  The average American is seeing the culmination of 40 years of systematic leeching by the corporatocracy that culminated in the largest transfer of wealth in modern history.  A bloodless coup that cemented the true nature of our current economic system.

People wonder why I focus so much on the middle class of America.  This is what has been the fundamental difference between our country and other economic systems.  A vibrant middle class that provided adequate housing, a decent education, and a road to sustainable wealth.  This was built on the backs of a productive economy.  But over the last 40 years we have seen much of the true wealth shift to Wall Street and the financial sector and that has largely eroded the value of what it means to be middle class.  The new system is designed for the few and by the few.  The new financial regulation being touted as the most sweeping since the Great Depression is woefully weak.  Yet this is merely a reflection of the power of the corporatocracy.  We really have the best government money can buy.

Critics always point to the rising household wages since the 1970s.  Yet there is a big problem with this argument since this has occurred with the growth of the two income household:

*Source:  Elizabeth Warren

If we factor out men from the data, the average American male is now making $800 less in inflation adjusted terms than his counterpart in 1970.  So even though income for households has gone up the data is misleading.  Americans now have a harder time keeping the pillars of middle class life intact.  If we had to sum it up it would probably be:

-A good home to raise a family

-Access to a good education

-Quality healthcare

-A decent retirement

The above is still accessible but it has become harder to maintain.  A solid pension and healthcare used to be provided to workers by companies.  That is now gone.  Income is only one side of the equation of course.  Where do people now spend their money?  If we look at the data closely Americans now spend less in clothing, food, and appliances than their 1970s comparison group.  This has much to do with cheap goods from abroad and more competition globally.  So this is good right?  It is but these are more of the smaller line item purchases that Americans make.  The biggest purchases include housing and this is a cost that has gone up exponentially:

Housing has gone up 100% in terms of cost for the typical family.  Health insurance is now up 103%.  Childcare, a more daily need for two income households, has gone up as well since Americans many times need two incomes merely to break into the more elusive middle class.  The items that have fallen are largely adjustable and elastic substitutes.  For example, you can have macaroni and cheese instead of a steak.  Everyone needs shelter whether they buy or rent.

The gigantic housing bubble has only pushed the tide out further to reveal the disappearing middle class.  If we break down the data further from a study examining the middle class we find that fixed costs are now through the roof.  What is more troubling is that even with two incomes, the ability to sustain a middle class lifestyle has actually gone backwards:

Source:  Rortybomb

There is also more volatility on income security.  Wall Street and the corporatocracy are running the biggest hypocrisy show in the world.  Middle class families are having to adjust to the new economic reality by filing for bankruptcies, losing homes in foreclosure, and getting gouged with credit cards.  Yet banks and Wall Street have not cut back and have gone the opposite direction by giving out record bonuses to their small circle of cronies.  The bailouts were a large protection of the entrenched corporatocracy.

The biggest scam of the century revolves around the massive growth in debt.  Let us chart this back to the 1970s:

The U.S. Treasury and Federal Reserve disconnected the U.S. dollar from any semblance of reality back in the 1970s.  Since that time, Americans have been put into a sleepwalking state where they were drunk on debt induced spending while slowly and surely our manufacturing base was removed from the country.  The above chart hit a climax when household debt actually surpassed annual GDP in this decade.  In other words, we spent way more than we earned and nothing that operates under that system can survive for any length of time.

This has infuriated many since they thought they were part of the new economy but in reality, they were merely treading water until Wall Street and the banks had to hunker down and protect their small inner circle.  Why else is the stock market up 60 percent since the March lows?  Let us look at some data since March and see how well Americans have been doing:

March 2009 unemployment rate:             8.5%

December 2009 unemployment rate:     10%

The unemployment rate shot up from 8.5% to 10% in this time and consumer credit has been contracting at a record pace.  At the same time, banking profits are going sky high.  Take a look at some of the big banking names:

The corporatocracy seems to be doing well in this climate even though the middle class American lifestyle is being dismantled piece by painful piece.  Not only is this happening but Americans now have a new line item and that is to fund the bail outs.  This is happening through more clandestine channels like destroying the value of the U.S. dollar by printing inordinate amounts of money so banks can keep on giving record bonuses.  The financial sector is a blood sucking vampire that is draining the real economy of its life.  Why do we even need it at the current size?  All mortgages are now backed by the U.S. government through the GSEs or FHA insured loans.  Credit card debt and access is shrinking.  Banks have curtailed lending to small business.  What is the financial sector doing to justify their current profits?  Pure and simple speculation on the taxpayer dime.  This isn’t capitalism as Adam Smith envisioned.  This is a system called a corporatocracy where the main goal is protecting the too big to fail and allowing everyone else to fail.

The average American has every right to be furious at what is occurring.  The next generation might have it worse than the last.  Not since the Great Depression has this occurred.  Some might say that this was destined to happen.  That is the storyline the corporatocracy would want you to believe so popular anger can be quelled.  Yet this was a deliberate stealing from the American people.  Many of these Wall Street elites have no allegiance to the country.  They put money in secured tax havens in other countries and hide their money in multiple places avoiding taxes from a country that allows them to run their scam.  They have allegiance to only one and that is money.  They don’t care about the productive economy of the U.S.  Lobbying with their fleet of lawyers is simply another business expense.  And here we are, 40 years later with a disappearing middle class, booming financial stocks, millions of foreclosures, and weak financial regulation.  Nothing can be clearer than where the power has shifted.

So now Mr. Kucinich comes out with this regarding the Christmas Eve “announcement” from Treasury:

“This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door [Troubled Asset Relief Program],” Mr. Kucinich said in a statement released by his office.

Mr. Garrett and Bachus echoed these sentiments.

So sirs, what do you intend to do about it, given that as things stand right now this certain CAN be and WILL BE used to purchase toxic assets at inflated prices and WILL result in the transfer of the losses to the US Taxpayer, acting as, indeed, a back-door “TARP”!

As I said when the “deal” was announced (in the dark of the trading night):

Cost the taxpayer an unlimited amount due to shoddy underwriting and lax (or absent) risk controls and not only do you get bailed out, you also get paid $6 million a year.

Kucinich went on to say:

“I want to determine whether Fannie and Freddie have a cohesive plan to buy up underperforming mortgages that remain on the books of the big banks, at appropriate prices, and undertake a massive reworking of the terms of the mortgages,” he said in the statement.

The banks will not sell at an “appropriate price”, just as The Fed did not buy at an “appropriate price” with its “support.”

The reason is clear: If one actually goes through those MBS and adjusts their value for the so-called “prime” loans that really were not, yet were stuffed into those securitizations, one would be forced to price them at their actual intrinsic value.

THIS WAS EXACTLY WHAT THE BANKSTERS LOBBIED TO STOP LAST SPRING.  PREVENTING RECOGNITION OF THE MARKET PRICE – THAT IS, LEGALIZING OUTRIGHT ACCOUNTING FRAUD – WAS THE PRECISE INTENT OF THE SO-CALLED “MARK TO MODEL” DOG AND PONY SHOW LAST YEAR.

I will be impressed when:

• “Mark to myth” is reversed and everyone has to carry their paper at its actual market value – including recognition of the detonations that have occurred in so-called “prime” loans that were in fact not prime at all, thereby damaging or even destroying the value in these so-called “MBS”.

   

• A special prosecutor is appointed with full subpoena and grand jury power to investigate each and every party involved in stuffing ALT-A and Subprime paper into allegedly “prime” buckets of loans and then foisting them off on investors worldwide, and we start to see indictments of the perpetrators involved in this massive and pernicious fraud.

So far there is ZERO indication that either of these things is going to happen.  Indeed, last spring Congress was not only complicit in but actually demanded that FASB permit the accounting fraud to occur in the first instance!

Until I see that - or articles of impeachment aimed at either Timmy or President Obama - this is nothing more than smoke, mirrors and noise.