Why are so many banks failing? Govt trying to protect the shareholders..

It’s a legitimate question. I think the reasons are similar. Over at ProPublica, a great site btw, they have a good piece up entitled: Anatomy of a Bank Failure. In the writeup, they examine the failure of California’s IndyMac, aka Independent National Mortgage Corporation. IndyMac was the first big bank to fail in this nightmare on wall street. They hit the skids in July.

The article is interesting in that it points a finger at the federal government office known as the Office of Thrift Supervision or OTS. John Reich, the head cheese at OTS has faced questioning before, and usually blames someone else it seems, namely a Senate banking committee member.

On June 26th of this year, Chuckie Schumer wrote a letter to the OTS and the SEC asking wtf was going on with IndyMac. The letter was published in the media and immediately customers started pulling out their money. The ProPublica article paints a different picture of what was going down:

While Schumer’s famously ill-timed letter clearly hastened IndyMac’s end, a detailed review of filings with the Securities and Exchange Commission and the Office of Thrift Supervision for December 2007 and March 2008 suggest that prospects for keeping the S&L afloat were all but nonexistent: The lender’s demise was a matter of when, not if.

The filings raise the question of whether federal regulators felt it was more important to protect the bank’s shareholders and executives than to safeguard the Federal Deposit Insurance Fund that would ultimately pay for the losses. The current cost of the IndyMac failure, according to the FDIC, is $8.9 billion — a number that would undoubtedly have been smaller had the OTS called in the FDIC six months earlier.

As was the case with WaMu IndyMac, also a Savings and Loan, was neck-deep in the subprime mortgage debacle. When it was known that IndyMac was struggling, the OTS didn’t do what they could of to keep the taxpayers ass covered, in other words, they covered the banks ass. Again from the ProPublica writeup:

A conservative strategy by the OTS would have been to downgrade the S&L, and thereby limit the risk to the FDIC fund that protects insured deposits. Instead, to buy time in the hope that a new business plan would improve IndyMac’s earnings, regulators let the firm take modest write-downs of 5 percent or so in some of its troubled mortgage assets. This helped IndyMac keep its risk-based capital ratio barely above the 10 percent floor and allowed it to qualify as “well-capitalized,” thus avoiding being added to the FDIC’s list of problem institutions.

As a result, IndyMac was able to keep borrowing from the Federal Home Loan Bank and pulling in insured deposits. The insured deposits rose to $16 billion as of March 31, compared with $8.8 billion on June 30, 2007. The result: much greater exposure for the FDIC when IndyMac finally collapsed.

That was wrong on every level. This is a nation of people, not corporations. Or its supposed to be. It’s disgusting that time and time again, the OTS refused to turn IndyMac over to the control of the FDIC, buying their bullshit lines that things were getting better, when in reality they were lying their collective asses off.

In other words, they protected the CEO’s and shareholders as long as they could…to the detriment of the American Taxpayer which was left holding the bag of toxic mortgages and covering all the checking and savings accounts insured by the FDIC. IndyMac was sucking wind in 2007 and the OTS knew it. As this article from the Boston Herald notes about the loans IndyMac was holding at the time they collapsed:

IndyMac had 742,000 mortgages in its portfolio at the time - 60,000 of which were 60 days delinquent or at some stage of foreclosure.

That is a lot of payments that were not being made. But remember, these loans were primarily crap loans known as “Alt-A loans, dubbed “stated income” or “liar” loans, because people who received them often couldn’t demonstrate they could pay the interest on the loan, particularly if, after a period of time, the loan reset at a higher rate.“~ProPublica.

The first thing the FDIC did when they took over IndyMac was to halt all foreclosure proceedings and reexamine the loans and the individuals that got them. Of the 60,000 non-paying mortgages, 40,000 will most likely qualify for the governments mortgage loan rewrite program. This was not only a good thing for the homeowners it is also a good thing for the folks holding those ‘mortgage-backed securities’. As this Reuters article explains:

Restoring troubled loans into performing ones has yielded 87 cents on the dollar for a mortgage later sold, compared with 32 cents for nonperforming mortgages, Bair said, citing data over the past few years.

Of course Ms. Bair, the FDIC chairwoman could be full of shit too. The government is…cough..banking on older financial models for their optimistic data, plus they are praying to God that once the loans are rewritten, the individuals will continue to make the mortgage payments.

The truth is…no one friggin knows how this crap is going to turnout. No one..and its gonna take years to figure it the hell out because so many people got home loans they never would of gotten if rules, regulations and just common-fucking-sense had not been ignored.

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Who benefits and who won’t in the Freddie and Frannie debacle

I don’t know how full of bat guano the WSJ is, but their take on the take-over(pun intended) is this:

Homeowners,Short-sellers and  Republicans all win. The losers are Lobbyists, Stockholders, Congress, investors and the two idiots that ran Fannie and Freddie. From the writeup by Heidi Moore:

Stockholders: Common and preferred shares will remain listed but those juicy dividends are gone. Still, it isn’t the total wipeout many expected. Many banks and financial institutions, including J.P. Morgan Chase, had poured money into Fannie’s and Freddie’s preferred shares. The threat of the banks’ holdings becoming worthless raised the threat of a broad banking crisis. But Treasury will buy some of the preferred shares, and banishing the dividends will save Fannie and Freddie $2 billion a year.

Lobbyists: The mortgage giants wove a mantle of invincibility with their $170 million lobbying bills in the past decade. They spent $3.5 million on lobbying just in this year’s first quarter, spreading their largesse among 42 outside lobbying firms. Treasury has turned off the Fannie-Freddie lobbying spigot. Sen. Barack Obama pointedly said in a statement about Fannie and Freddie today, “any action we take must be focused not on the whims of lobbyists and special interests worried about their bonuses and hourly fees.”

Congress comes out of this looking like shit for various reasons. A column this weekend states that if this happened in the real world at a normal corporation all the congress critters would be packing up their desks and looking for work.

But it remains to be seen if the Homeowners will get any relief and if the investors and stockholders really take it in the shorts.

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Senate passes housing bill on a Saturday

From The Hill:

Senators found a rare chance for consensus Saturday on a broad housing bill aimed to benefit borrowers, mortgage firms Fannie Mae and Freddie Mac and communities hurt by the housing crisis.

The 72-13 final vote sends the bill to President Bush, who this week dropped a longstanding veto threat against the measure over $4 billion on community block grants. The legislation already passed the House on a 272-152 vote on Wednesday. All 13 ‘no’ votes were Republicans.

All no votes were Rethuglican..figures..they are the folks that wanted to take all the controls off banks and financial institutions..yet when the shit hits the proverbial fan..they don’t want to fix their fuckup. And, to add to this..the Rethugs are blocking any other bills until the Democrats lift the drilling ban. From The Hill again:

The GOP wants a more open amendment process that could allow a vote on lifting a congressional moratorium on offshore oil drilling.

“We want to address the issue of gas prices now,” said Minority Leader Mitch McConnell (R-Ky.). “The important thing to do is stay on the subject.”

Drilling will NOT do a fucking thing for the price of gas NOW you fucktard. Jesus Christ on a cracker..they still keep those talking points going long after they have been shown to be utter bullshit.

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Iraq War Effects Missing from Coverage of Fannie Mae and Freddie Mac Troubles

Libhomo blogs at Godless Liberal Homo. His article today is spot-on in my humble estimation. ~Dusty

This New York Times article ( “U.S. Weighs Takeover of Two Mortgage Giants” - 7/10/08) is typical of how the corporate media omit underlying causes in reporting on current economic difficulties.

You can see how the Iraqtastrophe is impacting events, but you have to think very carefully while you read. Here’s one example, a sentence starting the second paragraph:

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis.

Let’s review three of the ways that the war on Iraq has contributed to this foreclosure crisis.

- The resulting increase in oil prices has pushed some people who were near default on their mortgages over the edge.

- The rising oil prices and increased budget deficits have slowed the overall US economy down. Newly unemployed people are much more likely to lose their homes to foreclosure.

- Higher oil prices have increased trade deficits. Those deficits, along with growing budget deficits, have resulted in a falling dollar. A weak dollar is unattractive to foreign investors, including risk tolerant ones that otherwise might be interested in buying heavily discounted US mortgage paper.

Now, let’s review a paragraph later in the article (bolding mine).

The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market. Even healthy banks are reluctant to tie up scarce capital by offering mortgages to low-risk home buyers without Fannie and Freddie taking the loans off their books.

One of the reasons capital is so scare is that the Bush regime is borrowing so much money to pay for their colonial occupation of Iraq. Hundreds of billions of dollars have been borrowed to feed this fiscally voracious war, money which is unavailable for home and commercial credit.

Obviously, Iraq isn’t the only cause of our economic difficulties. Financial market deregulation, tax cuts for the rich, and other policies which shift wealth from the middle class and the poor to the super rich all are important as well. Yet, how can we have an informed political debate if so much of what is ailing us is kept off of the metaphorical table?

Some opponents of the war say that the vast majority of Americans are not sacrificing anything to the war in Iraq. It certainly is true that military members and their families make much larger sacrifices than everyone else. However, all of us are sacrificing for this unpopular war. We are just being lied to about it.

Iraq is a proverbial “elephant in the living room” of American economic discussion. Our nation better start talking about it.

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Snipets and Snipes

This weeks post is a bit disjointed, as that is how I am feeling and how the world appears to be right now. Yet there is always sinew, some type of connectivity… the trick is to puzzle it out.

The chorus harmonizes the economy is “fine”,but is offset by the falling stock market, a barrel of oil costing$100.00+, new home sales fell to the slowest pace in 13 years, with the median price of that home dropping to a 3 year low. “Stagflation”, that deadly mix of high prices rising at the fastest pace in a quarter century as the economy loses steam is at the door, if not already knowing at your leg. Nervous shoppers gave retailers the worst January in almost 3 decades, high food prices, the credit crunch all contributed to low sales and drove employers to cut jobs~ the first nationwide job loss in 4 years. However, the economy is nothing if not unpredictable and that $600 check will soon be in our collective hands. With that and the *sarcasm note* leadership of President Bush, who recently remarked, “Gas is almost $4.00 a gallon? That’s interesting, I didn’t know that”, we will pull through. That and as my friend, as economically savvy as the next person ,says the 79 cent menu at Taco Bell apparently worries no one but herself and me. Clues or bread crumbs anyone?

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