** From the department of No Surprises: Flippers Played A Big Role In The Collapse of the Las Vegas (Nevada) Housing Market. [LVSun] The study from the New York FED, released on December 5, 2011, ends with a remarkable note: “Effective regulation of speculative borrowing, like what is being attempted in China today, may be needed to prevent this kind of crisis from recurring.” Also consider for a moment that a person with a 20% down, 30 year, fixed rate mortgage (who hasn’t “refi’ed” the property) realistically isn’t as affected by declines in home value assessments — so those “creative” adjustable rate “pick a payment” or whatever home mortgage originators thought were such a wonderful “consumer product” turned out to be the little ticking time bombs several Cassandras said they were.
** Meanwhile back in Senator Heller’s (R-NV) office there’s a rationale for refusing to bring the confirmation of Richard Cordray to head the Consumer Financial Protection Bureau up for a vote in the Senate:
“I support strong and effective consumer protection. As the only member of the Nevada delegation to vote against the Wall Street bailout, I believe that the banking industry must be held accountable for their actions. However, this agency, which was created by Dodd-Frank, does not have the measure of accountability or transparency necessary to make it responsive to Congress or the American people. Instead, it empowers a new Washington czar and bureaucrats with unprecedented power and control over our nation’s entrepreneurs and small businesses, the same people we need to hire more workers. [...]
In November, Senator Heller joined forty-four other Senators in a letter to President Obama outlining improvements that should be made in the structure of the Consumer Financial Protection Bureau.
The Senators cited concerns that the CFPB in its current form could affect what financial products Americans buy and how much they will pay for them, including securing financing for a car, a mortgage or household goods.”
Where to begin? First, the Dodd Frank Act deals with banks and investment houses — not start up entrepreneurs and small businesses — unless, of course the small business happens to be a boutique hedge fund, dealers in credit default swaps, or specialty investment firms.
Secondly, Senator Heller says he would like for banks to be accountable — but he apparently doesn’t want anyone or any independent agency to actually be in charge of holding them accountable. Nice touch, by the way, tossing the infamous “czar” word into the mix.
Third, about those so-called small businesses — no one should be fooled any longer about who creates jobs. The people who create jobs are predominantly people who own small businesses, a category which generally doesn’t include Wells Fargo, Bank of America, JPMorganChase, USBank, RegionsBank, and Goldman Sachs.
Fourth, the “structural change” the Republicans want is to have a committee of bankers overseeing — (you guessed it) — the banks. It’s the old self-regulation argument from the heady days of deregulation and the demise of Glass-Steagall dusted off and presented as a legitimate suggestion for holding the banks accountable. We should probably remind ourselves that we’ve tried bank deregulation and the result was the collapse of Bear Sterns, the end of Lehman Brothers, the bankruptcy of IndyMac, the collapse of money market behemoth Reserve Primary, and the disaster that was Washington Mutual.
Fifth, Yes Senator Heller, the new CFPB will have an impact on home mortgages (oversight of those fancy-dancy-dodgy products that originators churned out to be sucked into the Wall Street securitization machines), and on automobile loans (also sucked into the securitization money machinery), and consumer credit, as in predatory lending practices, will now get more scrutiny.
Unfortunately, for all the throw-away phrases like, “I support strong and effective consumer protection,” and “I believe that the banking industry must be held accountable for their actions,” coming from Senator Heller, the bottom line is that he seems to very much want to pretend the collapse of our financial sector in 2007 and 2008 didn’t really happen — it’s all good now — we can go back to “business as usual.”
Finally, Senator Heller often reminds us that he was the only member of the Nevada delegation to vote against the TARP program, as if this were something of which he’s proud.
With this vote, Senator Heller joined the “Let’em Go Bankrupt” crowd of financial naive, politically oriented, and radical deregulation-ists, who believed that it would be better for the U.S. banking system to collapse in a heap rather than guarantee the solvency of American investment institutions.
In case Senator Heller has forgotten what was going on in the Fall of 2008, (1) credit started freezing up as mortgage holders began to default at a rate unforeseen by the equities modeling, (2) the default rates threatened to increase such that the “Supers” or upper portions of CDOs were jeopardized, (3) no one could determine the value of the asset based securities, (4) because no one could tell how much the securities were worth investors began to unload them (more politely termed ‘reducing their exposure,’), (5) rating agencies (which had slathered AAA ratings on CDOs like jam on toast) reduced their ratings, (6) with the reduction in ratings came other sell offs from institutional investors, and the ratings reductions triggered increases in collateral demands on AIG. But, wait…we aren’t finished yet.
(7) Bankers began demanding more collateral to lend to one another. (8) As collateral went out the door banks found they didn’t have enough assets to cover “their positions,” (or other portions of their corporate anatomies). (9) Overnight funds, on which investment banks depend, dried up. (10) AIG, which had insured various and sundry deals, faced collateral demands it could not meet, and at one point had to get the New York Insurance Commissioner to agree to allow the insurance giant to tap customer policies as collateral. And, we’re still not finished…
(11) The run that began with hedge funds at Bear Sterns, started infecting other institutions — Fannie and Freddie were all but ‘nationalized’ in the Fall of 2008, Lehman Brothers was the next domino to fall, to avoid Lehman’s fate Merrill Lynch went into full tilt Marriage Mode and found itself wedded to Bank of America. (12) Eventually, investment giants, such as Goldman Sachs, needed more “liquidity,” (read: cash) and transformed into bank holding companies. It, and others, needed to get to the Fed’s Discount window. (13) People really got nervous when Reserve Primary “Broke The Buck,” meaning its share price dropped below a dollar. This last item on this slightly jumbled list is important.
Reserve Primary’s problems on September 17, 2008, [USAT] meant that The Problem wasn’t just on Wall Street, the tsunami was headed straight down Main Street. People were beginning to talk about investing solely in Treasury based funds. What began as a run on two hedge funds at Bear Sterns, became an investment bank run, threatened to wipe out one of the largest insurance companies in the process, and had now turned into a run on the money market funds. What’s next after money markets?
Little wonder Secretary of the Treasury Henry Paulson was on one knee before then House Speaker Nancy Pelosi (D-CA) begging her to convince her otherwise skeptical fellow Democrats to PLEASE enact the TARP bill after the first attempt failed on September 29, 2008. On October 3, 2008 H.R. 1424 passed the House on a 263-171 vote. Then Representative Dean Heller (R-NV2) voted against the Bush Administration’s TARP program. We might ask those 171 now — What was next after the money market funds collapsed?
Troubled as the Troubled Assets Relief Plan was, it was far better than learning the hard way what the obvious answer to Who’s Next? would be. [DB March 22, 2011]
In short, Senator Heller appears to be proudly touting his Vote In Favor Of Allowing Commercial And Retail Banking To Collapse; had we experienced a repetition of 1929, because that was what the Bush Administration, the Federal Reserve, the FSLIC, the FDIC, and the bankers thought we were looking at, would Senator Heller be announcing, “I was proud to vote in favor of a full bore 100% Great Depression Style collapse of the United States’ financial sector?”
Is he really telling us now that “It’s All Good Now,” we can revert to those Good Old Days in which the banks were perfectly free from “onerous regulations” to provide funds for mortgages, mortgages that only needed a flipper with a pen to qualify, mortgages sold by originators who were more interested in selling the mortgages into the secondary markets than they were in securing a stable real estate environment, and mortgages which Creative people on Wall Street could convert into chips in the Wall Street Casino? After all — deregulation worked so well …