Posted on 11/21/2010 8:48:50 AM PST by Chunga85
One of the more amusing moments of yesterday’s House Financial Services Committee hearings on foreclosure fraud was when the representatives for the loan servicers were asked why they were subsidiaries of the large financial institutions. The link between the servicers and the big banks, mainly caused by a series of mergers, leads to all kinds of conflicts of interest, because it inevitably pairs them up with the originator or trustee of the loan. The servicers had no real answer to this question. Finally, the Wells Fargo representative claimed that it was for “customer convenience,” because some customers had their mortgage and their checking accounts at the same bank.
Everyone’s jaw dropped in the hearing room.
Now Miller is out with a letter (I’ve placed it below), signed by all the top leaders of the House Financial Services Committee, that seriously ratchets up the demands on the Financial Stability Oversight Council. Among other things, it asks the FSOC to use its authority under Dodd-Frank to force the large financial institutions to divest from the loan servicers.
(Excerpt) Read more at news.firedoglake.com ...
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There is no apparent advantage in having financial companies that securitized mortgages also act as trustees or servicers, and there is an obvious conflict of interest. The uncertainty about the extent of the risk to our nation’s financial stability posed by the mortgage irregularities is largely the result of the control of critical information by financial companies at risk of insolvency from potential legal liability to mortgage investors and others. The control of critical information by financial companies with a possible motive to conceal systemic risks is incompatible with the intent of the Dodd-Frank Act, and is a grave threat to our nation’s financial stability.
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Click through to read the rest...
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A: There was that extraordinary moment in the hearing when you were questioning Adam Levitin, and he said that the regulators don’t want to fix the foreclosure crisis because it would show that the banks are insolvent. Can they ignore this forever?I don't agree with how Miller wants to "solve" this, but he's right insomuch that the regulators are papering over a HUGE problem. The fannie/freddie caused mortgage meltdown is FAR from over. Many of our banks are probably either insolvent or very close to it, and no manner of accounting creative can hide it, at least not forever.Rep. Miller: The letter, and the contents of the letter, would certainly make that difficult. I do not place a high priority on protecting the solvency of the banks if they are insolvent. Protecting bank solvency has been a goal for Treasury that I do not share. It has prevented them from doing anything about foreclosure crisis which is killing the economy. Millions of people are losing their homes. Millions more, pretty much everyone, are seeing the value in their home decline, which for most Americans is the bulk of their net worth. This is a huge burden on families.
You can't fix the current "crisis" until you solve its root cause. It's time to put Fannie/Freddie out of its (our) misery. After that, the balance sheet problems of these insolvent banks can be addressed. JMHO.
This is not a realistic position. The S&P 500 companies all keep their money in the money center banks, in uninsured accounts. The bankruptcy of the banking system would mean the bankruptcy and shutdown of all large American corporations.
The government is not going to allow this, no matter what the cost.
Well said.
While we are un-gerrymandering can we get rid of Butterfield too?
Pinged for further research. It is disturbing that the folks receiving this letter, the ones in control, the “important people” — Andre Carson (IN), Stephen Lynch (MA),
Joe Baca (CA), Jackie Speier (CA), Danny K. Davis (IL), Laura Richardson (CA), Barney Frank (MA), John Conyers (MI), Luis Gutierrez (IL), and Maxine Waters (CA) — are major Progressives, and have been associated with the core problems rather than the solutions.
This looks like a Dem grab at damage control, and they are going to blame Republicans and the financial industry and probably everyone else as they slide into an obdurate minority status.
500 companies do NOT keep their cash in US banks. They keep them overseas, and when they need extra they petition and get a quick OK to ‘repatriate” their funds and earnings. To the extent that US corp funds ARE in US Banks they are in a very select few and they use the federal reserve as their piggy bank. That is how it has been since before WWII.
All that has happened is that TARP assisted larger banks in taking over small banks, who had taken the legislatively supported chance in loaning to unqualifieds. The reason for the entire surge in market was the “dot-com millionaires” who desperately were looking for somewhere to stash their cash before THAT bubble burst and they lost it all- like many did.
This ‘crisis’ is a direct result of legislative coercion to make loans to people who should never have gotten them, politicians proudly buying their votes with this, and the major banks coming up with a way to “hedge” expected losses from unqualified buyers- the credit default swap exchange market. The bubble in this market burst when it was obvious to anyone that the “swap” of credits was worth nothing.
Goldman Sachs would have the same thing done with a carbon credits market. Mercifully, this exchange closed a few weeks ago. But the concept is not gone.
You can cover it up only so long, And the longer you cover up, the more damaging the eventual result.
Great analysis. BTW, do you have any insight as to what the most reasonable way out of the current morass might be?
Well, if the federal reserve will quit printing money and propping up their buddies (the principal behind printing money is so that banks will loan money out and get things moving— problem is, no one can pay for a loan without a job)then what should happen is that the congress get in the act and allow banks to write down their losses.
Really write down and write off their books their losses. This is what the big banks fear and would possibly collapse the real estate market. But markets should come up and down- they always have until now. This is just my opinion- it may be too big to write down... like they say too big to fail.
My friends are all self sufficiency types and have planned to live without much cash. I think we are headed for massive inflation no matter what is done. In fact the banks really want inflation. What is terrifying to most is this “jobless” recovery that wall street likes but really isn’t a recovery.
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