Real Financial Reform or Regulatory Bullying Real Financial Reform or Regulatory Bullying

“FDIC warns of legal action against officers of failed banks” was the heading of a November 10th article published by the LA Times. The article accurately describes the actions the FDIC is taking against some officers and directors of failed financial institutions.

At first blush, the headline appears to put all directors and officers of banks on notice to begin writing big checks. The outcry from the article was immediate and profound (and is some cases profane). The impropriety of such an unrelenting policy towards bankers affected by factors outside their control seemed dishonest at best.

Specifically, the FDIC publishes its guidance as the “Statement Concerning the Responsibilities of Bank Directors and Officers” (Policy 5000-3300) which states in part:

“The FDIC will not bring civil suits against directors and officers who fulfill their responsibilities, including the duties of loyalty and care, and who make reasonable business judgments on a fully informed basis and after proper deliberation. …

Lawsuits brought by the FDIC against former directors and officers of failed banks are instituted on the basis of detailed investigations conducted by the FDIC. Suits are not brought lightly or in haste.

All lawsuits against former directors and officers require final approval by the FDIC Board of Directors or designee.”

As our economy attempts to heal and the remaining severe economic issues begin to be dealt with, I am concerned that any attempt to blame one group, in this case banks, versus another is counterproductive.

In talking of blame for this economic disaster, perhaps it would be more appropriate to question our own Congress’s actions such as:

• In creating Fannie Mae and Freddie Mac who helped facilitate no document loans appropriately called “Liar Loans” so that homes are affordable to all until the “homeowner” must start making payments.

• Passing legislation such as the Dodd-Frank Bill leaving over 250 regulations yet to be enacted such that financial institutions under $1 Billion will not be able to comply and larger banks have no idea of what to do.

• Increasing capital requirements in the middle of a recession thereby prolonging the recession.

• Requiring appraisals which use “comparables” to show values of real estate as more valuable when markets are exploding which exacerbates the boom and then collapsing when the homes get foreclosed on which prolongs the bust.

• Congressional capping the insurance reserve for the FDIC such that the FDIC must “repay” the premiums it receives to the banks it charges in good times and then double the insurances assessment when the funds are depleted in a recession making raising capital more difficult.

In reality, the problems that the FDIC and bank directors and officers face is having laws written by people who have no concept of what it takes to run an economy.

My experience is that bank officers and directors are extremely responsible. Most would support legal action against grossly irresponsible officers and directors of failed institutions.

My experience as well with the FDIC is that they too are very dedicated and responsible people who take their duties very seriously. I know many personally and our Nation owes them a debt of gratitude.

As a result and to effectively stabilize our financial institutions, the following policies should be adopted by Congress:

1. Government should only provide broad policy guidance to the FDIC about auditing, inspecting and insuring banks and financial institutions.

2. Insurance reserves should be viewed a very long term investments and should be allowed to build in good economic times and potentially deplete in bad economic periods.

3. Social engineering of the banking system is socially irresponsible. Providing funds to someone who does not have the experience to manage it is cruel and will extend economic hardships to the poor.

4. A council of large, regional and community banks, consumers, businesses, and regulators should be established to review all proposed regulations.

5. Fraud must continue to be prosecuted against all directors, officers, and borrowers who commit such crimes.

Perhaps is it Congress that is too inexperienced and politically motivated to create meaningful regulatory oversight.

Bullying one group versus another merely because it is politically palatable is absolutely no different than was done by fascists before World War II.

Solve the problem, fix the system, and get our government out of the bullying business.

Frank Ryan, CPA specializes in corporate restructuring and lectures on ethics for the state CPA societies. Frank is a retired Colonel in the Marine Corps Reserve and served in Iraq and briefly in Afghanistan. He is on numerous boards of publicly traded and non-profit organizations to include a bank.

Wow our congress forced them to give Liars Loans in Ireland too?

“But Ireland has one huge problem that may soon make it a supplicant to its European brethren: A failed banking sector that Ireland’s government can no longer rescue on its own. Ireland is in the midst of a real estate bust that could trump even the ruinous downturns that turned parts of southern California and Nevada into suburban ghost towns, with home-grown banks stoking it all. Now, those banks are trying to manage catastrophic losses. The Irish government has effectively nationalized the nation’s biggest banks by guaranteeing their debt, which would be akin to the U.S. government taking over Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo.

That means the Irish government is also on the hook for the losses those banks endure—which have risen far beyond initial estimates, and may have a lot farther to go. So far, the Irish government is obligated to cover losses amounting to 175 percent of Irish GDP, which is becoming an unsustainable burden. “If the Irish banks go down, the Irish government also goes down,” says economist Jacob Kirkegaard of the Peterson Institute for International Economics.

As estimates of Irish bank losses have gone up, pressure has mounted on Ireland to do something decisive—and panicky markets may now force a solution. Ireland wants the European Central Bank to continue lending money to Irish banks at low interest rates, but the ECB has different ideas. Inflation has been creeping up in Europe, and the central bank said recently that it wants to end its program of pumping liquidity into banks, not continue or expand it. Cutting off those loans to Irish banks could force defaults, which the Irish government would have to cover or essentially be in default itself. Germany, meanwhile, wants to hurry a bailout of Ireland, to prevent worries about sovereign bonds from spreading to Portugual or Spain, which would be a much bigger problem.”

http://finance.yahoo.com/news/Why-the-Irish-Crisis-is-Going-usnews-4028366968.html?x=0

Or maybe they just know who to pay off?

Barack’s Wall Street Problem is Now America’s

http://www.noquarterusa.net/blog/2008/09/21/baracks-wall-street-problem-is-now-americas/

JPMorgan CEO Jamie Dimon Donates Serious Cash to Democrats

http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html

JPMorgan Chase Asked to Stop Funding ACORN

http://nlpc.org/stories/2009/09/15/jpmorgan-chase-asked-stop-funding-acorn

Editorial: Bailed-out banks should stop funding ACORN

http://washingtonexaminer.com/opinion/2009/04/editorial-bailed-out-banks-should-stop-funding-acorn

Looks to me like the big global banks that donated to obama are allowed to thrive while our smaller American banks mainly owned by Conservatives are allowed to fail.

Fed throws euro banks a lifeline

http://finance.fortune.cnn.com/2010/12/21/fed-throws-euro-banks-a-lifeline/

FDIC’s Third Quarter Report - Number of Problem Banks Increased to 860

http://www.depositaccounts.com/blog/2010/11/fdics-third-quarter-report-number-of-problem-banks-increased-to-860.html

Smaller Bailed Out Banks in Trouble

“Smaller TARP recipients are in worse shape than larger banks because the larger ones got help in addition to TARP, Mr. Cole said. Bank of America Corp. and Citigroup Inc. tapped the Federal Reserve’s emergency-liquidity programs frequently during the crisis.”

http://www.frumforum.com/smaller-bailed-out-banks-still-in-trouble

http://topics.wsj.com/article/SB20001424052970203568004576044014219791114.html

The Global Bankers sold these all over the world and I don’t think Congress can reach that far. They were looking for a bailout six months before we found out they crashed the world’s economy with the loans they created out of nothing but GREED! Now we are stuck picking up the losses I wouldn’t be too worried about those big global piggy bankers.

WikiLeaks cables: Mervyn King plotted banks bailout by four cash-rich nations

“King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.”

http://www.guardian.co.uk/business/2010/dec/13/wikileaks-mervyn-king-bank-bailout

Pro Publica has been maintaining a list of bailout recipients, updating the amount lent versus what was repaid.

So far, 938 Recipients have had $607,822,512,238 dollars committed to them, with $553,918,968,267 disbursed. Of that $554b disbursed, less than half — $220,782,546,084 — has been returned.

Whenever you hear pronunciations of how much money the TARP is making, check back and look at this list. It shows the TARP is deeply underwater.

http://bailout.propublica.org/list/index

http://www.zerohedge.com/article/no-big-banks-have-not-paid-back-government-bailouts-and-subsidies

Unlimited credit for GSEs seen as backdoor bailout

http://www.reuters.com/article/idUSTRE6044YU20100105

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.