TRILLION
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““This is an opportunity to get rid of institutions that shouldn’t exist,” he told me. “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.”
“Money market funds held $ 2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.”
EDITOR’S COMMENT: While Wall Street sits on trillions of dollars that would stimulate the economies of the world, governments are still just wringing their hands and blaming the consumers, borrowers, and citizens for their avarice. Greed is the principal motivation on Wall STreet. Millions of people did not wake up one morning with the thought of doing transactions that would ruing the world economy and drive down employment, pension funds and real economic growth. Only Wall Street could have done that. The narrative to the contrary is pure myth generated by the Wall Street spin machine.
Volcker, at 81, is staying in the game instead of going into retirement and taking a well-deserved rest. He is doing that because the stakes are so high and he knows there are few people who want to listen to his message and so, like, I do here on these pages, he pounds away at the lies we live, and the truth we should be told. It’s obvious to him what needs to be done for the future, but we are just not doing it. The Banks must be brought under control one way or another, or they will continue to run and ruin our lives and prospects.
How Mr. Volcker Would Fix It
AMID all the minutiae of the Dodd-Frank financial overhaul, it’s easy to lose sight of the big question: will consumers, investors and the economy be safer?
That’s why a recent speech by Paul A. Volcker, the former chairman of the Federal Reserve and a voice of reason on matters financial, is so timely and important. Presented last month to the Group of 30, an organization devoted to international economic issues, the speech outlined crucial work that still must be done to safeguard our financial future. “Three Years Later: Unfinished Business in Financial Reform” was the title.
“By now it is pretty clear that it was faith in the techniques of modern finance, stoked in part by the apparent huge financial rewards, that enabled the extremes of leverage, the economic imbalances and the pretenses of the credit rating agencies to persist so long,” Mr. Volcker said in this remarkably candid talk.
The real treasures were found in his to-do list for further reforms. That heavy lifting includes addressing capital requirements (make them tough and enforceable), derivatives (make them more standardized and transparent) and auditors (ensure that they are truly independent by rotating them periodically).
He also spoke of the perils of institutions that are too large or interconnected to be allowed to fail. Calling this the greatest structural challenge facing the financial system, he said we must shrink the risks these companies pose, “whether by reducing their size, curtailing their interconnections or limiting their activities.”
He also saw other economic fault lines, which are worth highlighting because few in Washington or on Wall Street seem willing to discuss them. I asked him last week to elaborate on these hazards.
One is the potential for problems in the huge industry of money market mutual funds, which operates “in the shadows of the banking system,” he said. Although these funds are typically managed conservatively, he said, they are vulnerable to runs, as occurred when Lehman Brothers collapsed.
“Because they are not subject to reserve requirements and capital requirements, they are a point of vulnerability in the system,” he said. “It is really interesting that they did so much lending to European banks. They had to pull back a lot, aggravating the pressures on the European banks.”
Money market funds held $ 2.63 trillion as of last Wednesday, and, Mr. Volcker said, many people mistakenly think that these funds are as safe as bank accounts. But the safeguards on bank deposits — strong bank capital requirements and federal deposit insurance, for example — do not exist for most money market funds. There is also little official surveillance of the funds’ investment practices.
The sellers of money funds, of course, do not want to face these kinds of regulations or requirements. In a recent letter to the Financial Stability Board, an international organization charged with developing strong regulatory and supervisory policies for financial institutions, the Investment Company Institute said: “We do not believe banklike regulation is appropriate, necessary or workable for funds registered under the Investment Company Act of 1940.”
An alternative, Mr. Volcker said, would be to require money market funds to value their assets every day to reflect market fluctuations. This would put an end to the idea that if you put $ 1 into a money market fund you will always get $ 1 out, no matter what.
“It seems to me if you are a mutual fund, you should act like a mutual fund instead of a pseudobank,” he said.
THE other area that cries out for change, Mr. Volcker said, is the nation’s mortgage market, now controlled by Fannie Mae and Freddie Mac, the taxpayer-owned mortgage giants.
“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”
While he acknowledges that we cannot eliminate Fannie and Freddie anytime soon, “it is important that planning proceed now on the assumption that government-sponsored enterprises will no longer be a part of the structure of the market,” he said.
Welcome to the kind of straight talk that few in Washington want to hear. “This is an opportunity to get rid of institutions that shouldn’t exist,” he told me. “You ought to be either public or private; don’t mix up private profit-making opportunities with an institution that is going to be protected by the government but not controlled by it.”
Mr. Volcker knows more than a little about Fannie and Freddie; in the late 1960s and early ’70s, when he was an under secretary of the Treasury, he was among the presidential appointees to Fannie Mae’s board, he said.
The government erred, he said, by not putting the operations of Fannie Mae and Freddie Mac on the balance sheet and income statement of the United States. “They didn’t want the mortgage to be a government expenditure,” he said. “It was a volatile thing to put on the budget. They made the wrong choice.”
This is precisely the discussion we should be having on the government’s approach to housing policy. That is, unless you are a fan of the status quo, as many in Washington are, and are comfortable leaving the risk of mortgage losses on taxpayers’ shoulders.
“If the government wants to guarantee mortgages for certain low-income people, O.K., but I wouldn’t do much of it,” Mr. Volcker said. “A public agency intervening in the mortgage market in a limited way doesn’t bother me. But if you want to subsidize the mortgage market, do it more directly than hiding it in a quasi-private institution.”
When a man with the credibility and stature of Mr. Volcker talks, people in positions of power ought to listen. We’ll see if they do.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND 
Livinglies’s Weblog
Tags : $2.63
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First my compliments to those who anticipated what I am writing about. They asked the same question of themselves that I did — where is all that money and what kind of transactions created that size of bailout? The answer, as I am sure many of you realize already is that the Federal Reserve accepted paper — funny money — from the banks in exchange for US dollars without strings or guarantees or even warranties.
Thus, the story goes, the Federal Reserve is the actual holder and owner of most of the mortgages in America. Maybe, maybe not. What the Federal Reserve really accepted was strictly derivative securities and exotic hedge products that were the equivalent of owning the derivatives (bogus mortgage bonds). SO the Federal Reserve has moved into the place of Banks who owned those securities, except that they didn’t own them for the most part. Once the Banks realized the Fed window was that far open they figured they could slip in almost anything, and they did.
The Mortgage Bonds were supposedly “backed” by obligations of millions of homeowners and a lien on their property. But we all know how that is turning out — the liens were unperfected and the obligations seem to have multiplied once the Fed became a buyer. So did the FED move into the position of investors? Apparently not, since the investors are screaming that they lost trillions. So the money for the bailout did not go to investors who had purchased those bonds and those investors apparently never signed anything selling the bonds to the Federal Reserve.
OK wait a minute. The FED was accepting mortgage bonds that were being printed as fast as possible while the window stayed open while the investors were left stiffed — hung out to dry. The Banks screwed the investors, then screwed the FED for even more money than the investors. Now they are screwing the homeowners claiming they are still owed money on a loss they never had, because they used investor money to fund the loans. The homeowners being taxpayers and citizens of this fine country are thus paying for the screwing.
I was down in the pits once upon a time on Wall Street and the language gets pretty salty. But this really puts a new meaning on the words “Go Screw Yourself!”
In summary, the Banks were at all times mere conduits but have pretended to be investors, pretended to be insurers, and pretended to be lenders. And now they are pretending to be landowners evicting hapless homeowners who have no conception how evil and convoluted the system became. They were none of those things and that fact is so hard to imagine as true that most people still can’t wrap their brains around it. That left the investors with no mortgage bonds that ever had any value — bonds that were sold by the investment banks without owning them (which the Federal reserve gladly accepted) and THAT leaves the Federal Reserve holding a hologram of an empty paper bag.
But wait there’s more! This is like an infomercial. Since you the public bought these crazy worthless bonds twice (once by letting your pension funds buy them and once by letting your Federal reserve buy them) you get to give us a whole new round of worthless paper which we stick back to you when the time comes for you to sell your homes. We’ll call them mortgages even though the lender was nowhere in sight and the real deal was the issuance of the bogus mortgage bonds in the first place. We’ll foreclose on property saying we are the holder of the note and that should get us rounding home plate unless a Judge is really wide awake. THEN after we have taken all the property we’ll sell it back to you and force you into financing that you can’t pay for and the property isn’t worth, just so we can start the whole process all over again. THERE! Don’t you feel better now?
That’s right. In the final analysis the money all went to the Banks. The Federal reserve has nothing but embarrassment. And the reason why the economy is starving for commerce is that the Banks are holding us all hostage claiming that if we do anything to them they will destroy everything. Here is the bulletin: Everything is already destroyed. Bring it on.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND 
Livinglies’s Weblog
