Is the FHFA going to cause a new Banking crisis?

Discussion in 'Politics' started by Drifterwood, Sep 4, 2011.

  1. Drifterwood

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    FHFA suit: Which banks are involved? - Political Economy - The Washington Post

    If the FHFA was supposed to be regulating the US mortgage market, isn't this action in a sense a reflection upon their systemic failure to do their own job for many years running up to 2007?

    WTF were they doing when people were allowed to borrow eight times their earnings, and in the UK at least, self report earnings? D'uh, people can't live and repay those amounts, the only hope for repayment is continuing bubble inflation of the asset, which of course is caused by them allowing more and more people to get deeper and deeper into debt. I am sure the graphs would have shown that the debt bundles were indeed AAA rated, but even so, it remains caveat emptor.

    It takes two to tango, and our governments had the banks' cocks deep in their throats. Still do.
     
  2. MarkLondon

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    Damn right they still do. The two of them have impoverished entire peoples and been allowed to get away with it. Now they're coming back for more.
     
  3. dandelion

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    That a regulator does not specifically forbid you to do something does not absolve you from prosecution for general fraud.From what was said at the time, at least some of these people knew they were selling on junk bonds claiming they were safe.
     
  4. Jason

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    The regulatory framework is a form of legal contract between banks and a government. Like all contracts in law what is written on the bit of paper is what matters. If it wasn't absolutely forbidden the banks would certainly do it. If they didn't their competitors would.

    Of course fraud is prohibited. But the banks (probably) didn't comit fraud. They valued assets according to accountancy standards that were part of the regulatory framework under which they operated. They did exactly what the system asked them to do.

    The problem is the regulatory framework, so ultimately the governments.

    Both the UK and USA had their problems (and are paying now). Regulatory frameworks need very frequent modification as new financial products are developed. In the UK under Labour very few modifications were made - the regulations were substantially those left by the outgoing Conservative government. Over time the banks developed new products for which the regulations didn't apply. The banks appeared to get rich, and so did the country, and this scam suited Labour and helped them with re-election. Something comparable seems to have happened in the USA under Bush.

    The idea that somehow the banks are culpable and not the governments is not really tenable. But there is political capital to be made from it. Additionally it is likely that banks will ultimately make some sort of good will payment to draw a line under the issue, so there is some sort of financial benefit.

    Short-term the idea marks down the value of bank shares and creates yet more financial uncertainty. I wish the USA had started this. It has the potential to do the whole world real damage. It seems akin to the USA going after BP. Obama didn't actually bring down BP so he got his political capital without disaster. This is comparable.
     
  5. dandelion

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    This from the man who says it is not possible to impose rules on banks because they will just pick up their toys and play elsewhere. If they are answerable to no one, who other than themselves is responsible for their behaviour?


    I dont think bank shares are falling because they might have to pay for the last crash but because of fears of another one. They are still nearly bust, you know.

    Well, I agree that no one should be surprised that if governments fail to make proper rules, then industry will behave destructively without any care for the damage it causes society so long as it makes money for itself. This does not mean that, following the BP example, the banks should escape paying the full cleanup cost. Nor do I hear anyone suggesting that BP should be allowed to operate in the same careless way it was before the spill. Yet banks are demanding the right to do so?

    An interesting parallel that the US desperate for oil ends up with a disaster, and the UK desperate for money changers ends up with an analogous mess. But it wasnt started by the Uk and it affected pretty much every financial regulator throughout the world. Given their natural inclinations, one can only presume matters would have been worse had a conservative administration been in charge over the last 10 years, but frankly no one saw this coming. Very analougous to a certain terrorist incident in the US. Sure, we have seen films of planes flown into buildings, but no one quite believed it could happen for real.

    So what is the bill for the banks spill?? what is the next multiplier up after trillions?
     
  6. Redwyvre

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    Actually, at least one person saw it coming. I remember my dad announcing things will become very crazy when Clinton signed into law in 1999 the Gramm-Leach-Bliley Act which repealed the Glass Steagall act of 1933. He was right.
     
  7. Drifterwood

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    Personally I couldn't believe it when nothing was done after the halifax were exposed for their self cert fraud. You have to conclude that the government was complicit in a debt free for all.

    Politicians are as bad, probably worse than the businesses. They take the revenue whilst turning a blind eye and then get all sanctimonious and try to make political capital when things invariably go wrong.

    Sure BP fucked up, but what benefit was the Hooha several months later? The fine just reduces their N. American tax bill and the politicians can glow in their white knight status. But will it be the same to make a name for yourself because we all pretty much hate the banks? This time you run the risk of killing the goose, reducing their ability to help us through the recession which absolutely they have to do, they are a key mechanism. Billions paid in fines will equate to tens of billions not lent into the economy.
     
  8. Jason

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    The USA going after RBS, now owned by UK taxpayers, makes everyone in the UK poorer - and everyone in the USA for that matter, but it is the UK that really gets the kick in the teeth. It will take years to sort out during which a re-floatation of RBS is not possible. It is BP all over again. A bit of a political boost for Obama at the price of kicking the Brits he seems to hate as part of a personal vendetta.

    The consequence of the USA's debt crisis is that the USA must co-operate more with other governments on international financial matters. It seems that as well as putting off a meaningful debt reduction strategy Obama is putting off developing needed financial co-operation. Unless USA wants rule from Beijing it has to be UK, Canada, Australia, NZ, Nordic, maybe India and Japan. And the USA has to be seriously nice to all these, especially in financial matters.

    The national interests of Britain following BP and now this mess are to see Obama out. I'm just horrified by the low quality of Republican candidates. But I think the UK will be supporting the anyone-but-Obama candidate.
     
  9. Drifterwood

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    It is time for economic expediency above short term political expediency.

    Expediency, the type that allows our governments to work hand in glove with the Libyan terror regime to illegally attack mutual enemies. Well, enemies in that short space of time.

    I wonder if Obama believes that the old style American Dream is history and he can win a second term from those who no longer have those aspirations?
     
  10. dandelion

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    Perhaps I should say no on who could do anything about it, or wanted to do anything about. Most of the banking world ought to have understood the risks, but given that banks cannot go bust and there is little or no personal exposure for bankers themselves even if the company does go bust, risky behaviour is just win win win from an industry perspective. The banks legal liability would be because they understood perfectly well the possible results.

    This seems increasingly like a plea not to arrest drug dealers because they provide an essential need. They do help a party, but if addiction gets out of control....


    The more leveraged debt the banks take on, the greater the risk should a crisis occur. That is what just happened. That is what is still looming over us with the risk of a property market collapse. To their credit the conservatives seem to be trying to free up the planning system to allow more houses to be built, which is the only possible long term solution unless you are willing to reduce the population, but the big guns are starting to shoot at them. Still, it is axiomatic that only socialists can attack organised labour safely and only the right can get away with defying the county set.

    Whatever happens about that it will remain a looming disaster for a decade at least. Meanwhile personal debt is huge, institutional debt is huge, government debt is humongous. There are hidden pending costs for pensions and the miracle of PFI government purchasing on tick. However much banks may have created money out of air, the supply is drying up. Yes, your point, but a few billion or tens of billion are neither here nor there. The reason banks cannot go bust is exacty the same reason you cannot fine them seriously. You might sieze them in their entirety, but they are not cash, merely paper assets.

    Ha! when it is just one government involved there is no choice but to foot the bill to keep the bank running, but now we are getting into governments squabbling over which one will pay up? You are right, this might risk precipitating a collapse if governments do not stand together.

    What? go for the boost government debt candidate?(That IS the policy republicans have followed consistently for some time)
     
    #10 dandelion, Sep 6, 2011
    Last edited: Sep 6, 2011
  11. dandelion

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    The UK construction sector is running into the sand with house building collapsing. At the same time the government is changing planning rules to make granting building permission easier. Surely they arent about to arrange planning permission on a massive amount of land and start a programme of building council houses to try to head off the double dip recession heading straight for us? That would be a beautiful turn around.
     
  12. atlclgurl

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    That assumption is entirely incorrect.

    If you learn anything about this massive shithole we are in, its the banks who DID commit multiple frauds, not the least of which is the complete rape of our land records by a BANK CREATED entity called MERS (which stands for Mortgage Electronic Registrations Systems).

    The BANKERS all got together and figured out a way to fuck over the world by using this "system" to defraud the entire world.

    If you really want to understand this hellhole we are in, then I suggest you do some reading. A LOT of it. You can begin with MERS.

    L. Randall Wray: Anatomy of Mortgage Fraud, Part I: MERS's Smoking Gun

    L. Randall Wray: Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds

    L. Randall Wray: Anatomy of Mortgage Fraud, Part III: MERS'S Role in Facilitating the Mother of All Frauds

    Then you can read about the guy who started the "Credit Default Swap" (read as "insurance on a massive scale) of mortgages and mortgage pools.
    Betting on the Blind Side | Business | Vanity Fair

    And then for some analysis of how Bank of America "did not" commit fraud (yes, that's heavy on the sarcasm) At Bank of America, more incomplete mortgage docs raise more questions - The Term Sheet: Fortune's deals blog Term Sheet

    If you don't want to read all the individual items posted above, Matt Taibbi, of Rolling Stone, has an article that sums it up nicely.

    http://www.rollingstone.com/politic...a-goes-all-out-for-dirty-banker-deal-20110824
     
    #12 atlclgurl, Sep 6, 2011
    Last edited: Sep 6, 2011
  13. Drifterwood

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    If it were a $20B fine (seems to be the administration's favourite number) then I would agree Atlcl, but the number I have seen is $200B and within that is enough to put some of the banks under. Notably one, RBS which is already owned by the British people in lieu of their previous fuck ups. Why doesn't Obama take stakes in your great banks in lieu of the cost they have caused the American people?

    As an aside, the performance of the UK nationalised Banks shows the Markets for what they are. Cunts.
     
  14. Thedrewbert

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    Fraud in the banks was widespread and in some cases continues today.
     
  15. Jason

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    The crime of fraud is determined by the courts, not by the media, public outrage or politicians. Additionally there is a distinction between fraud by individuals who work for a bank and fraud by that bank. Where there is fraud by a bank there is usually also a failure of regulation, and therefore a failure by politicians.

    The RBS issue looks set to run for years, though already there seems a firm view that the settlement will be a compromise, ie RBS will pay an agreed sum. The problem is the time it will all take. RBS is now almost entirely owned by the UK. The sum that will be paid is a transfer from UK tax payers to the USA, as a compensation for possible fraud by a Scottish bank operating in the USA under US law and regulation (and the regulation was clearly rubbish). Additionally this move has set back by perhaps three years the re-floatation of RBS which was a clear part of the recovery plan for the UK.

    The UK sees this process as pointless, vindictive and economically stupid. It will do economic damage to the USA, but more to the point it has the potential to cause a recession in the UK.

    Obama appears to be going for some short-term political gain at the price of damaging the US economy, causing massive damage to the UK economy, and compromising the emerging global financial relationship which is needed most of all by debt laden USA. While I look with absolute horror at many of the clowns the Republicans are suggesting as president there is also horror that in Obama the USA has a president who so hates the UK. As far as the economic and political interests of the UK go we need him out.
     
  16. atlclgurl

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    The articles I posted were speaking only of the 50 state attorney general's investigation into bank and servicer fraud (hence the 20B). I was addressing only Jason's assumption that then banks had not committed fraud.

    In re the FHFA suit, it has responded to the various concerns voiced here. Some salient points:
    “At the heart of the suits is FHFA’s conclusion that the actual mortgages backing many of the securities had characteristics that differed in a material way from what had been represented in securities filings. Under the securities laws at issue here, it does not matter how “big” or “sophisticated” a security purchaser is, the seller has a legal responsibility to accurately represent the characteristics of the loans backing the securities being sold.”
    …
    “Some have claimed that these suits will disrupt economic recovery, or endanger the targeted banks, or increase their cost of capital. While everyone is concerned with these important issues, the long-term stability and resilience of the nation’s financial system depends on investors being able to trust that the securities sold in this country adhere to applicable laws. We cannot overlook compliance with such requirements during periods of economic difficulty as they form the foundation for our nation’s financial system. Therefore, through these lawsuits, FHFA turns to the courts to adjudicate the violations that it has alleged in its complaints.”
    …
    At this time, it would be premature and potentially misleading to estimate the size of any potential recoveries. However, press reports that FHFA is seeking nearly $200 billion in damages or recoveries are excessive; such numbers reflect the original amount of such securities purchased, not the losses incurred or the potential recoveries at the end of this process. In particular, use of original unpaid principal balance as a measure of potential recoveries is incorrect as it does not equate with the losses incurred and it does not reflect the repayments of principal that have already occurred or the remaining value of the securities.

    You can read the entire statement here: http://www.fhfa.gov/webfiles/22606/LawsuitStatement9611.pdf

     
    #16 atlclgurl, Sep 7, 2011
    Last edited: Sep 7, 2011
  17. Thedrewbert

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    The UK will go into recession all on their own with the policies being enacted, you need no help from us sir.
     
  18. dandelion

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    Is RBS actually solvent? Perhaps the UK government as principle shareholder should declare it bankrupt now and create a new bank from the remains. Presumably free from liabilities of its predecessor.

    You still prefer a close relationship to the US rather than the EU? Obama is the good guy!
     
  19. Thedrewbert

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    1. Do the crime, do the time.
    2. Their cost of capital is ZERO. Let me check the fed rate... yep still ZERO.
     
  20. Thedrewbert

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    LOL

    Wow. You are aware of the banks not disclosing the true nature of the loans that were backed by the securities... or the paying of ratings agencies for AAA ratings.... or that the banks have been Robo-signing foreclosure documents with the signature of people who have been dead for 10 years.

    Way to try and transfer the blame for all of that back on to the politicians.

    Politicians may come up with new ways to regulate banks, but Bankers will come up with new ways to screw their customers even more.
     
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