Eric Holder's Newest Witch Hunt

Townhall.com ^ | July 311, 2011 | Bob Beauprez

[Kaslin]

The Department of Justice is executing a "Witch Hunt" against banks. Through the DOJ's Civil Rights Division, Attorney General Eric Holder is forcing banks to "relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination," according to a published report by Investor's Business Daily after reviewing court documents.

The DOJ has already extorted $20 million for weak and poor credit loans from banks that "settled out of court rather than battle the federal government and risk being branded racist." The DOJ admits another 60 banks are already under "investigation." Holder's demanding the banks sign "non-disclosure" settlement agreements barring them from talking while allowing the DOJ to operate behind a curtain of secrecy.

The settlements already extracted from banks force them to make "prime-rate mortgages to low income blacks and Hispanics" with credit problems, even if they are living on welfare. According to IBD, the DOJ has ordered banks to advertise that minorities cannot be turned down for a loan "because they receive public aid, such as unemployment benefits, welfare payments or food stamps." No job; no problem!

In other words, the DOJ is forcing banks to make loans to people that they know don't qualify for them and likely won't be able to afford to repay them, which is precisely the kind of failed public policy that precipitated the financial collapse and recession in 2008. 

The DOJ ordered Midwest BankCentre to provide "special financing" in the predominantly black areas of St. Louis for fixed prime rate conventional home loan financing for borrowers "who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment."

Eric Holder and the head of his Civil Rights Division, Tom Perez were both protégés of Janet Reno who launched a similar attack on banks in the early years of the Clinton Administration. That led to an expansion of the Community Reinvestment Act, CRA, and an explosion of forced lending to low-income, poor credit risk borrowers and the sub-prime mortgage industry that collapsed in 2008. Under the weight of massive guarantees of poor quality and defaulted mortgages, the federal government was forced to seize Fannie Mae and Freddie Mac. To date about $150 billion has been required to bailout the two agencies to keep them solvent. 

Like Reno, Holder and Perez are pushing their own social agenda, and ramifications to the financial sector and total economy are meaningless to them. They willingly pervert the law and leverage the full weight of the Justice Department to intimidate banks to accomplish their objectives. 

Credit analysis and repayment ability of the borrower matter none to Holder and Perez. To them, if a minority is turned down for a loan, it must surely be evidence of racial discrimination. Perez has gone so far as to compare bankers to the Ku Klux Klan. The only difference between bankers and the KKK, he says, is that bankers discriminate "with a smile" and "fine print," but they are "every bit as destructive as the cross burned in a neighborhood." 

Holder and Perez appointed another Janet Reno alumnus, Eric Halperin, as Special Counsel for Fair Lending. Previously, Halperin was a lobbyist for the leftist Center for Responsible Lending (CRL) where he pressed congress and the various agencies for continued relaxing of lending standards. Just how objective do you suppose this "special lending cop" is in applying the law? 

CRL's website reveals their leftist perspective and agenda; "lenders have strong incentives to engage in unfair, deceptive practices and to aggressively market loans designed to fail." That's pure hooey, of course. Banks make a profit if loans are paid back. They sustain losses when loans fail. But, this phony theory of "disparate impact" or "red-lining" has been used by the left for decades to convince politicians and bureaucrats to force unsound, unsafe lending practices, the consequences of which have been manifested in the current economic mess. 

The forced settlements have gone well beyond lending. The concessions that DOJ has imposed have even required banks to fund inner-city "community organizers." According to IBD, "lenders are being forced to bankroll Acorn clones that often exist just to shake them down for risky loans." 

As DOJ strong arms banks to relax lending standards to satisfy the Obama Administration's racialist social agenda, other federal agencies are telling banks to do just the opposite. "Banks are damned if they do, damned if they don't," according to Ernest Istook, a Heritage Foundation fellow and former Member of Congress who is critical of DOJ for forcing "affirmative action lending." 

The current economic crisis has stressed even the strongest of banks. Bank safety and soundness examiners from the Federal Reserve, the OCC, FDIC, OTS, and NCUA have put the fear of God into banks all across the nation demanding tightened credit standards. They have forced banks to increase capital, add to reserves for losses, mark down asset value of existing credit assets, and questioned virtually every loan the banks make. The CEO of one historically successful community bank told me a regulator demanded, "You will not make another commercial real estate loan." How that bank was supposed to meet the needs of the small businesses in the community while not making loans on commercial real estate was of no concern to the regulator. 

The newspapers are full of reports that the government has seized and closed banks, removed management and boards of directors, placed banks on written agreements so tightly drafted that the government has essentially assumed management of the bank while the shareholders, directors and management are still stuck with full risk and liability. 

Banks are selling, consolidating, and closing all across America, and going with them is the access to capital and importantly the personal relationship that historically has been vitally important to the success of our entrepreneurial free-market economy. Over 1400 bank offices have closed in the last two years, and many more are expected in 2011. In the wake are exasperated small businessmen wondering what to do next. 

If you're confused by the mixed signals and heavy-handedness of government, how would you like to be a banker? Little wonder that banks are afraid to lend and many are almost in lock down. Politicians can talk all they want about getting capital and the economy moving again, but the uncertainty and mixed signals coming from Washington are big reasons why both lenders and borrowers are hiding out in their bunkers. 

Thomas Lifson, writing in American Thinker about the DOJ's witch hunt, notes that bankers tend to be "a cowardly lot when confronted by the power of the State." Who can blame them when the government has the power to lock their doors and seize their assets? 

Lipson goes on, "Nobody in a highly regulated business wants the government publicly charging racism. A comparatively small group within the Civil Rights Division at the Justice Department has assumed the role of national bank regulators with the intent of favoring groups they support. It's a corruption of the legitimate role of government." Corruption may be an overly polite description. 

Added to the bi-polar treatment from the DOJ and other regulators is the fact the very government that controls their every move is now a larger source of consumer credit that all of the private sector banks combined. Recently released Federal Reserve Bank data documents a remarkably rapid and substantial shift to the government as the new credit goliath. 

As recently as 2006, the private banking sector provided $2 in outstanding home mortgages and consumer credit for every $1 of government financed loans. The data from the Fed, however indicates that government loans and guarantees now total $6.32 trillion, up from just $4.40 trillion at the end of 2006. For the same period, the private sector market share shrunk to $6.58 trillion from $8.48 trillion. 

Curiously, the Fed doesn't count the half-trillion dollars worth of guaranteed student loans as part of the government's total. Historically, local banks originated and financed the Federal Family Education Loan program and the government insured the loans against any loss. But, in 2009 as part of the ObamaCare legislation, the private sector was completely eliminated and beginning in 2010 the government took total control of the entire program. When student loans are added, the government surpasses the entire private sector totals. Even without student loans, with the current trend the government is poised to eclipse the private lenders likely within the current quarter. 

The almost overnight collapse of the market for mortgage backed securities as a result of the sub-prime lending debacle – largely precipitated by misguided federal policy forced on lenders – evaporated the private mortgage market, and left Fannie Mae and Freddie Mac – that had been seized by the government – as the only game in town for home mortgages. 

In the blink of an eye, the federal government went from the small player facilitator to the dominant force in the financial industry dwarfing the combined efforts of the entire private sector competitors. Additionally, the Top Dog in the credit market place is also the all-powerful regulator over the little dogs in the private sector wielding absolute and largely unaccountable authority over their every move. Through the Federal Reserve, that same government controls the price, the access, the circulation, and amount of the currency on which the rest of the market must be dependent. With a national debt of $14.5 trillion and growing, the largest supplier of loans in the world also has the world's greatest demand for credit sucking up massive amounts of available investment capital to finance the growing national debt before the rest of the market gets a chance. 

In reality, the federal government during the last two years has essentially seized the banking industry. What the government doesn't do directly, it controls by regulation, intimidation, and by sheer force and power. Obama got in the car business, the health care business, the energy business, and he's got the government holding most of the cards in banking, too. That's the change; the hope is that he gets fired by the voters in 2012. 

True-believing progressives like to flaunt their "transformed" definition of a Free-Market Economy: "The freedom of the government to compete with the private sector." They find a little humor in it, but it's far from funny. What has happened in barely two years has seriously altered the rules of the road, the natural order of things, even what it means to be American. Time will tell if these are permanent changes or just a significant deviation in our long-term course. The outcome rests with us: "We the people."

[Liz]

One of the first crooked show trials was the SEC filing charges against Goldman Sachs, just before the thoroughly corrupt Dodd-Frank "Financial and Banking Reform and Takeover" bill was going through the Congress. The crooks "settled" for a cool U$D half-billion that was negated the day after the bill passed. Dodd (now a Hollywood bigwig) and Frank not only were allowed to cover up wrongdoing - they were tasked with "fixing" the "problem" and writing major laws, rules and regulations covering and governing entire U.S. financial system (The Dodd/Frank bill is commonly called the "Protect Goldman Sachs Bill").

Goldman Sachs Prospers at Taxpayers' Expense
The American Thinker ^ | December 31, 2010 | Fred N. Sauer
FR Posted on Friday, December 31, 2010 by Scanian

If prudent investors can only make .5% on short term assets, how does Goldman Sachs prosper?

Robert Rubin was a very powerful man. After 26 years and rising to the level of Co-Senior Partner, he left Goldman Sachs in 1994 to become Treasury Secretary in the Clinton Administration. His first major undertaking was during the Mexican bailout of 1995. ...

Rubin drew criticism in Congress for using a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key holder. For 1998, the first year which we have public financial information on Goldman Sachs, their total revenue was $22 billion and their net profit was $1.256 billion.

It is highly probable that the $20 billion was extremely helpful to Goldman Sachs -- if not essential to its continuing existence. And Robert Rubin had some very powerful friends. "In April 1998 Travelers Group announced an agreement to undertake the $76 billion merger between Travelers and Citicorp, and the merger was completed on October 8, 1998.

The possibility remained that the merger would run into problems connected with federal law. Ever since the Glass-Steagall Act, banking and insurance businesses had been kept separate. Weill and Reed bet that Congress would soon pass legislation overturning those regulations... .

To speed up the process, they recruited...to the Board of Directors...Robert Rubin (Secretary of Treasury during Democratic Clinton Administration) whom Weill was close to...." (a short history of Sandy Weill's march to riches) Read more at americanthinker.com ...

YBR more below

[Liz]

Goldman Sachs Will Be Sitting Pretty With Emanuel in the Obama White House
By: Timothy P. Carney, Examiner Columnist, Nov 21, 2008
FR posted by seehunt, 01/29/11

Goldman Sachs always has clout in Washington, as evidenced by the firm’s alumni serving as Treasury secretaries under both Presidents Bush and Clinton. Today, in these tumultuous times of bailouts and meltdowns when the investment banking leviathan needs Washington more than ever before, Goldman can leverage its most valuable asset yet—incoming White House chief of staff Rahm Emanuel. Goldman Sachs is the giant of Wall Street, and more than any other investment bank, Goldman is surviving the current financial storm.

Traditionally a Democratic booster, and one of Barack Obama’s top sources of funds in this past election, Goldman has always had some particularly strong allies within government. Emanuel is one such ally. An interesting early chapter in the Goldman-Emanuel relationship took place in the setting of Bill Clinton’s campaign for the White House in 1992. Clinton hired Emanuel as his chief fundraiser.

At the same time, however, Emanuel was on the payroll of Goldman Sachs, receiving $3,000 per month from the firm to “introduce us to people,” in the words of one Goldman partner at the time. This is certainly a noteworthy relationship, but it’s one that has almost entirely escaped scrutiny. (snip)

In his four terms in Congress, Emanuel has raised $74,750 from Goldman, making the firm his number four source of funds. Goldman has helped Emanuel. How has Emanuel helped Goldman? The most obvious answer, as mentioned in this column two weeks ago, is in Emanuel’s lead role in shepherding the “$700 billion” bailout—first proposed by former a Goldman CEO, Bush Treasury Secretary Henry Paulson—through the skeptical House.

Of course, back in the Clinton days, Goldman benefited from NAFTA and the bailout of the Mexican currency, with Emanuel pushing NAFTA through Congress, and Rubin hammering out the peso bailout. Did Goldman improperly funnel money to the Clinton campaign by subsidizing Emanuel’s salary in 1992? Did Goldman’s help to Clinton spur the Democratic president to push NAFTA and the Mexican bailout?

The answers to these questions are opaque, and with Emanuel burrowed deep within the Obama White House, the continued relationship between Goldman Sachs and Obama’s right hand man won’t be easy to follow.

Watch which regulations of Wall Street Obama fights for. Watch where the bailout money goes. And don’t be surprised Goldman soon sitting pretty once again.

WEB SITE http://www.washingtonexaminer.com/opinion/columns/TimothyCarney/ Goldman_Sach_Will_Be_Sitting_Pretty_With_Emanuel_in_the_Obama_White_

[Vermont Lt]

Community Reinvestment Act. It will be studied in economics classes 100 years from now. It produced the environment where banks sold out, or were publicly decried as racist.

[stephenjohnbanker]

Small wonder Goldman Sachs refers to the White House as their “ D.C. office”

[Liz]

5/19/2011
You Won't Read This Story About Goldman
WSJ.com ^ | | David Weidner
FR Posted on Thursday, May 19, 2011 by dirtboy

Goldman Sachs Group Inc. is in trouble again. Still reading? If you are, you must be a Goldman employee, regulator, class-action lawyer, financial journalist or trolling the Internet for news about Steve Jobs. (See how I dropped the name to make this column more Google-friendly?)

No one seems to care much about Goldman's latest troubles, and many Americans seem numb to more allegations of wrongdoing related to the financial crisis. Yet they keep coming, especially at Goldman.

One of the biggest was last week's disclosure that the Commodity Futures Trading Commission's staff has "orally advised" the company that it "intends to recommend ... aiding and abetting, civil fraud and supervision-related charges" against the trade-clearing unit at Goldman.

In addition, Goldman said the Justice Dept is reviewing data related to credit-default swaps and fee arrangements for clearing of credit-default swaps, including potential anticompetitive practices. European regulators are also investigating.

And remember Abacus? That's the collateralized debt obligation created by Goldman that morphed into a $550M fraud settlement. There are more subpoenas on that gem, Goldman said last week. Goldman declined to comment beyond the disclosures it made in its quarterly report and didn't offer any additional comment Wednesday. (Excerpt) Read more at online.wsj.com ...

[stephenjohnbanker]

Thanks, Liz.