Note: Please excuse the bit of vulgarity in my title as I could not find no better way to express what Senator Schumer has done.
Subtitle: Schumer Causes one of the Biggest Bank Failures in History”
In a written statement, the Office of Thrift Supervision, which regulated IndyMac, said “the immediate cause” of the failure was statements made by Sen. Charles Schumer, a New York Democrat. Mr. Schumer in late June publicly raised concerns about the bank’s solvency.
“Although this institution was already in distress, I am troubled by any interference in the regulatory process,” said OTS Director John Reich.
John D. Hawke, the U.S. comptroller of the currency (regulator of national banks) from 1998 to 2004, had more pointed words for Schumer in a story in the American Banker newspaper today.
“If Schumer continues to go public with letters raising questions about the condition of individual institutions, he will cause havoc in the banking system,” Hawke said.
“Leaking his IndyMac letter to the press was reckless and grossly irresponsible. I don’t see how he can be trusted with confidential information in the future. What this incredibly stupid conduct does is put at risk the willingness of regulators to share any information with the [congressional] oversight committees. After this, you’d be crazy to share information with Schumer.”
SideBear: I have spent the last 24 hours researching the failure of the financial institution known as IndyMac Bancorp which was seized Friday by federal regulators, in the third-largest bank failure in U.S. history. (And by no means does 24 hours worth of research makes me an expert on this crises). But here is what I do know…
IndyMac was set up by Countrywide in 1985, but the two companies severed ties in 1997 and became direct competitors. The company’s name stands for Independent National Mortgage. It was created to specialize in jumbo mortgages — those that are too big to be sold to government-backed Fannie Mae and Freddie Mac. In 1997, under the direction of Chief Executive Michael Perry, a protege of Countrywide chief Angelo Mozilo, IndyMac set off on its own.
Countrywide Financial Corp., at one time the nation’s largest mortgage lender, saw its stock price plunge this year and was forced to sell itself to Bank of America Corp. at a firesale price.
Indymac was founded as a passive mortgage real estate investment trust REIT in 1985. It is a holding company for IndyMac Bank, F.S.B., a thrift/mortgage bank. Indymac Bank, operating as a hybrid thrift/mortgage banker, provides cost-efficient financing for the acquisition, development, and improvement of single-family homes. Indymac also provides financing secured by single-family homes and other banking products to facilitate consumer’s personal financial goals.
Translation: IndyMac holds some 32 billion dollars worth of subprime loans and their underwriting policies can best be describe as loose.
What I found is not only disturbing, it is a mindboggling contrived manipulation of financial markets created and mandated by Congress. IndyMac is only the tip of the iceberg.
Several decades ago or more Congress created two Monster Size federal agencies known as Fannie Mae and Freddie Mac. These agencies where created to buy mortgages from mortgage lenders with the intent to infuse cash into the system whereby mortgage lenders could write more loans. This is known as the secondary mortgage market.
Today Fannie and Freddie are one on largest holding companies in the world as their mortgage portfolio is about FIVE TRILLION DOLLARS. (That’s with a “T”) And to put this into prospective, the total mortgage debt for residential units in the United States is $12 trillion dollars. So what you have is big government controlling almost half of mortgage lending industry in this country.
Pardon a dumb question on my part, just when did Uncle Sam NATIONALIZE the mortgage lending business?
Here is where it gets convoluted - Fannie and Freddie are owned by independent shareholders and their shares are backed by Mortgage Backed Securities but there is also an implied Federal Government backing of the credit.
And here is where it gets contrived and downright deceitful – In an effort to hide its financial shenanigans Congress exempted Freddie and Fannie from “oversight” by Federal Banking Regulators and the normal filings that private financial institution must provide to regulators.
And if you are wondering why Freddie and Fannie get special treatment from Congress? Congress gets massive campaign donations from them.
And then there is this Evil Web of Corruption – Besides the many Countrywide’s “Friends of Angelo” who got bargain basement rates on loans which includes James Johnson, a longtime Democratic Party power and an adviser to Sen. Barack Obama’s campaign, Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee, former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke.
And we also have Former Fannie Mae CEO Franklin Raines and onetime Clinton administration budget director appeared before a House subcommittee in 2004 to address allegations that he and his finance team had “cooked the mortgage giant’s books.”
The subcommittee collared Raines after Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight (or OFHEO), published a 211-page diatribe citing a litany of sins: “pervasive and willful” earnings manipulation, lax controls, perverse incentives, unjust bonuses.
Fannie is now, by one measure, the fourth-largest company in the country. It is also a “government-sponsored enterprise,” and, as such, enjoys special privileges that most companies don’t have. Fannie doesn’t help matters by paying its executives fat bonuses and hiding behind the universal appeal of its mission.
And another dumb question on my part, didn’t we just send the CEO’s of Enron to jail for “cooking the books at Enron?”
The Bottom Line – Undoubtedly, Uncle Sam can not let these gigantic institutions fail and I can assure another multi billion dollar bailout by the Fed is just around the corner backed by the full faith and credit of the United States government.
And just what does that phrase mean? The American Taxpayers will pick up the tab for this latest fiasco.
And if you wonder what the Congressional Wrecking Ball has done for us lately…
– Destroyed the automobile industry
– Wrecked the smoke stack industry
– Driven up food prices dramatically
– And as energy prices soar, they fail to act
And now they are doing their best to destroy our financial markets!
And what better way to finish than with this quote…
“We hang the petty thieves and appoint the great ones to public office.” Aesop
Crisis Deepens as Big Bank Fails By DAMIAN PALETTA and DAVID ENRICH
IndyMac Seized In Largest Bust In Two Decades
IndyMac Bank, a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators, in the third-largest bank failure in U.S. history.
IndyMac is the biggest mortgage lender to go under since a fall in housing prices and surge in defaults began rippling through the economy last year — and it likely won’t be the last. Banking regulators are bracing for a slew of failures over the next year as analysts say housing prices have yet to bottom out.
The collapse is expected to cost the Federal Deposit Insurance Corp. between $4 billion and $8 billion, potentially wiping out more than 10% of the FDIC’s $53 billion deposit-insurance fund.
Fannie, Freddie, and the Housing Bill by Stephen Spruiell
This week, Fannie Mae and Freddie Mac both lost about half of their value as their stock prices plummeted over investor concerns that the mortgage giants are “technically insolvent.” So how does the U.S. Senate react? By passing a housing-market bailout funded by a special tax on Fannie and Freddie. I wish I was making this up:
Washington, D.C. – The housing bill expected to be passed by the Senate Friday evening [it passed] is designed to provide better regulatory oversight for embattled mortgage buyers Fannie Mae and Freddie Mac. But it also leans on them heavily to help fund the mortgage bailout, precisely at a time when they’re experiencing financial turmoil.
With share prices of Fannie and Freddie plummeting daily, are the government-sponsored entities really in a position to help rescue people whose homes are headed for foreclosure? [...]
The Senate’s bill would establish a new regulator for Fannie and Freddie, which are now regulated by the Office of Federal Housing Enterprise Oversight. The new authority would presumably be stronger than the current structure; it would establish capital standards for the government-sponsored companies and would embolden their management standards.
But there’s a catch. The centerpiece of the bill allows the Federal Housing Administration to insure up to $300 billion in new loans for troubled mortgages, with much of the funding coming from Fannie’s and Freddie’s profits. According to the Congressional Budget Office’s most recent analysis of the bill—in June—the legislation would cost Fannie and Freddie $710 million in 2009 and about $9 billion from 2009 to 2018. Although those figures have likely changed as the bill has been modified, the message is the same: The government-sponsored mortgage buyers would be on the hook for a hefty sum of money.
Admittedly, Fannie and Freddie have much bigger problems right now than a few hundred million dollars in new taxes. But that’s kind of the point. If, as many suspect, the government [i.e. the taxpayer] eventually has to bail out Fannie and Freddie, how are Fannie and Freddie supposed to bail out the rest of the housing market?
I love Chris Dodd’s answer to this question:
“They’ll be fine,” Senate Banking Committee Chairman Chris Dodd, D-Conn., told reporters Friday. Dodd, who helped shepherd the bill through the Senate, says the companies are “fundamentally sound and strong,” noting that they hold excess capital and that their portfolios are primarily made up of healthy, 30-year fixed-rate loans.
“There’s no reason for the kind of reaction we’re getting,” Dodd added, referring to what he described as “panic” on Wall Street. Fannie and Freddie shares have experienced multiple sell-offs after an analyst report Monday indicated that they needed to raise a combined $75 billion.
“Tis but a scratch,” says Dodd. I honestly hope he’s right.
Failure Is Not an Option For Fannie and Freddie
FANNIE’S BEEN IN ARREARS By TERRY KEENAN
ONCE again Ronald Reagan had it right.
Back in the mid-80’s the Reagan administration pushed hard to privatize Fannie Mae and Freddie Mac at a time when doing so in a gentle manner would have been well digested by the financial and housing markets.
Twenty years later, the current president has few palatable options.
Indeed, the look in President Bush’s eyes in taped remarks on the subject Friday afternoon had to be worth a good 1000 Dow points to the down side.
Yet, like many other disasters, man-made and not, that have confronted Bush over the past eight years this one was not of his own making. For two decades now Fannie and Freddie have been allowed to operate as private fiefdoms – enjoying the perks of a public company with the protections of a government-backed entity.
For this we can largely thank Congress which has allowed both Fannie and Freddie to behave like spoiled teenagers hell-bent on expanding their power and privileges.
Time was, not long ago when Fannie and Freddie were equal-opportunity political donors – doling out the bucks with little regard to party affiliation. But that equation began to change earlier this decade as the White House began to take on Fannie and Freddie in the post-Enron era as the advantage tipped to the Dems.
Now the American taxpayer is saddled with two institutions that really are “too big to fail.” A hugely expensive government takeover appears on the horizon, not to mention the pall that will be cast on the housing market for years to come.
Still, the executives who pocketed tens of millions over the years and the politicians who happily took their donations are no worse for the wear. If we had only listened to the Gipper.