Thursday, September 25, 2008

CRASH TALK

Forbes - Some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy. "It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

John Atlas, Peter Dreier, Gregory Squires, New Labor Forum
- Washington needs to put a short-term tourniquet on the banking industry to stem the damage, and to get back into the business of protecting consumers, employees, and investors from corporate greed.

First, the federal government should help homeowners who have already lost their homes or are at risk of foreclosure. It should create an agency comparable to the Depression-era's Home Owners' Loan Corporation, buy the mortgages, and remake the loans at reasonable rates, backed by federal insurance. Created in 1933, the HOLC helped distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. A modern version of the HOLC would focus on owner-occupied homes, not homes purchased by absentee speculators.

Second, Washington should not bail out any investors or banks, including Bear Stearns and its suitor, JP Morgan, that do not agree to these new ground rules. The Fed brokered the deal between Bear Stearns and JP Morgan without any conditions for the consumers who were ripped off. There will be more Bear Stearns-like failures in the foreseeable future-institutions that the Fed considers "too big to fail." But if the federal government is about to provide hundreds of billions from the Federal Reserve, as well as from Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, to prop up Wall Street institutions, it should require the industry to be held accountable for its misdeeds. Specifically, such lenders should agree to underwrite all loans for the full terms of the loan, not just for the initial teaser rate (this should apply to originators and purchasers), eliminate all pre-payment penalties, and recommend loan products that are suitable and in the financial interests of borrowers.

Third, Washington should consolidate the crazy-quilt of federal agencies that oversee banks and financial institutions into one agency. Federal oversight has not kept pace with the dramatic transformation of the financial services industry. Four federal agencies-the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation-have some jurisdiction over mortgage lending. States have jurisdiction over the growing number of non-bank mortgage lenders (which accounted for about 40 percent of new subprime loans) and have no agreed-upon standards for regulating them. States are responsible for regulating the insurance industry (including homeowner insurance), and do so with widely different levels of effectiveness. It is absurd to have so many competing and overlapping agencies involved in regulating these financial services institutions, often at cross purposes.

Fourth, the federal government should be a financial services industry watchdog, not a lapdog. Part of that effort involves supporting (financially and otherwise) initiatives currently being implemented or proposed by several advocacy groups.

The Community Reinvestment Act , a federal ban on redlining, should be strengthened to sanction institutions that engage in predatory practices and to reward those that engage in responsible lending. The CRA now applies only to federally-chartered depositories (e.g. banks and thrifts). This statute should be expanded to cover credit unions, independent mortgage bankers, insurers, and other entities that now account for well over half of all mortgage loans.

A strong national anti-predatory lending law should also be enacted. Currently 36 states and Washington, D.C., along with 17 other local jurisdictions have such laws, leaving most consumers in other states less protected. Again, this statute should apply to those who originate loans and those who purchase loans and mortgage-backed securities for investment purposes.

Times, UK
- Leaders of the Church of England launched fierce attacks on the world's stock market traders last night, condemning them as bank robbers and asset strippers and calling for a judicial review into Britain's financial services. The Archbishops of Canterbury and York demanded stronger regulation and an end to speculation and living on debt. Dr Rowan Williams spoke out in defence of Karl Marx, defending key aspects of his critique of capitalism and gave a warning that society was running the risk of idolatry in its relationship with wealth. And in a hard-hitting speech to bankers in London, Dr John Sentamu condemned traders who had profited from the crisis as "bank robbers" and said that the market had taken its rules from Alice in Wonderland. Dr Sentamu said no one was guiltless in the present crisis and that everyone had joined in worshipping the false god of money. . . Dr Sentamu quoted the Bible text: "The love of money is the root of all evil." He said: "We have all gone to this temple called money. We have all worshipped at it. No one is guiltless . . . we have all become enslaved."

NY Sun - Manhattan is getting an unwanted taste of South Florida. Developers of new condominiums are finding that apartments they thought had sold are unexpectedly coming back into their hands as buyers - not just layoff victims, but some who are wealthy and employed - default on contracts. In some cases, these supposed buyers are having to walk away from five- and six-figure deposits. This phenomenon, common in Florida and other real estate markets decimated by the housing slump, was virtually unheard of in New York City until recently. . . The senior vice president at Preferred Empire Mortgage Company, Jeffrey Appel, estimated that the number of buyers struggling or failing to close on signed contracts leapt to 10% from virtually nil in the past year. "From zero to 10% is a big difference," he said. "It's a growing problem."

Christina Binkley, Wall Street Journal -
The consciousness of frugal times is palpable at the fashion shows in Milan this week. How do you sell expensive spring clothes and handbags during a financial panic?. . . "Everyone's freaking out. Everyone," said shoe designer Brian Atwood at his presentation for the Swiss luxury brand Bally. . . "It's not cool anymore to spend $6,000 on a Chanel jacket," asserts Enrico Morra, CEO of Piazza Sempione, an Italian maker of tailored clothes. He suggests that Piazza's jackets are much more reasonably priced at less than $2,000. . . Tyler Thoreson, executive editor of the fashion Web site Men.Style.com, said a "new conservatism" is showing up in menswear as well. He noted that some trendy looks could be risky for workers in an economic downturn. "The most casual guy in the room may just be the first one to get laid off," said Mr. Thoreson

Chuck Collins & Dedrick Muhammad, Alternet - A fair plan to pay for the bailout should include a modest financial transaction tax on the buying and selling of stock and other financial products. A penny on every $4 invested would generate $100 billion a year. Other European countries already tax stock transactions, and these transaction taxes effectively discourage speculation.

Congress should institute a modest wealth tax surcharge on households with a net worth of more than $10 million. These households currently own and control more than 20 percent of the nation's private wealth. They have realized huge gains from the manipulation of capital markets and the asset bubbles that created the current crisis. A modest surcharge -- no more than 3 percent -- could generate more than $300 billion.

In August, the Government Accountability Office reported that two-thirds of U.S. corporations paid no income taxes between 1998 and 2005. These corporations paid nothing toward our shared expenses of defense, environmental protection, public health and education. Ordinary taxpayers should not be left holding this bag. A minimum corporate income tax should contribute toward the bailout.

Senator Barbara Boxer has received nearly 17,000 e-mails on the bailout, with nearly all opposed to it. She got 2,000 phone calls at her California office on one day as well. Only 40 of the calls backed the bailout.

Ralph Nader, Counterpunch - Congress should hold a series of hearings and invite broad public comment on any proposed bailout. Congress is supposed to be a co-equal branch of our federal government. It needs to stop the stampede to give Bush a $700 billion check. Public hearings should be held to determine what alternatives might exist to the four-page proposal advanced by Treasury Secretary Henry M. Paulson.

Whatever is ultimately done, the bailout plan should not be insulated from judicial review. Remember there is a third co-equal branch of government – the judiciary. The judiciary does not need to review each buy-and-sell decision by the Treasury Department, but there should be some boundaries established to the Treasury Department's discretion, and judicial review is needed to ensure that unbridled discretion is not abused.

Sunlight is a good disinfectant. The bailout that is ultimately approved must provide for full and timely disclosure of all bailout details. This will discourage conflicts of interest and limit the potential of sweetheart deals.

Firms that accept government bailout monies must agree to disclose their transactions and be more honest in their accounting. They should agree to end off-the-books accounting maneuvers, for example.

Taxpayers must be protected by having a stake in any recovery. The bailout plan should provide opportunities for taxpayers to recoup funds that are made available to problem financial institutions or to benefit from the financial institutions' rising stock price and increased profitability after being bailed out.

The current so-called "regulators" cannot be trusted. The U.S. Government Accountability Office, "the investigative arm of Congress" and "the congressional watchdog," must regularly review the bailout. We cannot trust the financial "regulators," who allowed the slide into financial disaster, to manage the bailout without outside monitoring.

It is time to put the federal cop back on the financial services beat. Strong financial regulations and independent regulators are necessary to rebuild trust in our financial institutions and to prevent further squandering of our tax dollars. The Justice Department and the SEC also need to scrutinize the expanding mess with an eye to uncovering corporate crime and misdeeds. Major news outlets are reporting that the FBI is investigating American International Group, Fannie Mae, Freddie Mac, and Lehman Brothers.

Cap executive compensation and stop giving the Wall Street gamblers golden parachutes. The CEOs who have created the financial disaster should not be allowed to leave with millions in hand when so many pensioners and small shareholders are seeing their investments evaporate. The taxpayers are bailing out Wall Street so that the financial system continues to function, not to further enrich the CEOs and executives who created this mess.

Congress should pass the Financial Consumers' Information and Representation Act, to permit citizens to form a federally-chartered nonprofit membership organization to strengthen consumer representation in government proceedings that concern the financial services industry. As the savings and loan disasters of the 1980s and the Wall Street debacles of the last few years have demonstrated, there is an overriding need for consumers and taxpayers to have the organized means to enhance their influence on financial issues.

The repeal of the Glass-Steagall Act, separating traditional banks from investment banks, helped pave the way for the current disaster. It is time to re-regulate the financial sector. The current crisis is also leading to even further conglomeration and concentration in the financial sector. We must revive and apply antitrust principles, so that banking consumers can benefit from competition and taxpayers are less vulnerable to too-big-to-fail institutions, merging with each other to further concentration.

Congress should impose a securities and derivatives speculation tax. A tax on financial trading would slow down the churning of stocks and financial instruments, and could raise substantial monies to pay for the bailout.

Regulators should impose greater margin requirements, making speculators use more of their own money and diminishing reckless casino capitalism.

James K Galbraith, Washington Post -
The second great crisis is in state and local government. Just Tuesday, New York Mayor Michael Bloomberg announced $1.5 billion in public spending cuts. The scenario is playing out everywhere: Schools, fire departments, police stations, parks, libraries and water projects are getting the ax, while essential maintenance gets deferred and important capital projects don't get built. This is pernicious when unemployment is rising and when we have all the real resources we need to preserve services and expand public investment. It's also unnecessary.

What to do? Reenact Richard Nixon's great idea: federal revenue sharing. States and localities should get the funds to plug their revenue gaps and maintain real public spending, per capita, for the next three to five years. Also, enact the National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements. There is work to do. There are people to do it. Bring them together. What could be easier or more sensible?

Here's another problem: the wealth loss to near-retirees and the elderly from a declining stock market as things shake out. How about taking care of this, with rough justice, through a supplement to Social Security? If you need a revenue source, impose a turnover tax on stocks.

"The point is this is one of the most important irrevokable economic decisions we will ever make. Let's make it in a state of panic." - Stephen Colbert

"We [journalists] are, as a group, behaving just as we did the last two times the administration sought to rush through a hastily thought out, ill-conceived plan. Why in the world are we being so gullible and naive?" - - Former New York Times reporter David Cay Johnston

"If you think the Bailout of All Bailouts. . . won't saddle American taxpayers with billions, if not trillions, of risky obligations, you don't know politics. . . Never before in the history of American capitalism has so much been asked of so many for. . . so few." - Robert Reich, former Secretary of Labor

0 Comments:

Post a Comment

<< Home