Hedge Funds Threaten to Block Mortgage Modifications 15 comments
Michael Steinberg
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After 9/11, President Bush told world leaders that either you’re with us or against us in fighting terrorism. There was no middle ground. In fighting the financial crisis, that determination seems to be lost in the free market and sanctity of contracts ideology. While it is clear that Treasury Secretary Paulson is choosing winners and losers in the TARP program, none of the winners are being forced to be with us on mortgage modifications. And few financial institutions are patriotic enough to voluntarily modify mortgages for the national interest.
The New York Times “Mortgage Threat From Hedge Funds Irks Democrats” reports that multiple hedge funds threatened legal action against banks that renegotiated mortgages in a manner not in their financial interest. Greenwich Financial Services and Braddock Financial are failing to realize that the current Administration is reaching its end, and the new Administration is likely to change the focus from top down to bottom up in the rehabilitation of our financial system.
House Financial Services Committee Chairman Barney Frank sent a letter to these funds stating: “For the hedge fund industry, which has flourished from much of the past decade, to take steps so actively in opposition to what is currently in the national interest is deeply troubling.” Up to this point, Congress has been ineffective in forcing Paulson’s hand on mandatory mortgage modifications. In fact, the Administration is now willing to pay for cooperation by absorbing losses. Interesting, they are willing to force National City (NCC) into PNC’s (PNC) hands and give PNC a $7.7B TARP bonus for cooperating, without demanding any mortgage modifications.
Fortunately, I wrote in "Countrywide Settlement Benefits Bank of America and the Country" that the courts are paying little credence to the President’s ideology when deception and predatory lending are involved. The Democrats want bankruptcy judges to be able to modify mortgages on primary residences in the same manner they now can on second, vacation and investment homes. Congressman Frank and Senator Dodd are smart enough to know that the legal blockades must be broken down before any meaningful headway can be gained in modifications.
Getting back to the national interest, General Electric (GE) appears to be much more politically astute than the hedge funds. GE has already announced its participation in the Federal Reserve’s commercial paper program and that it is willing to accept greater regulation of its financial businesses. GE is continuing to lend at the same time it is reducing leverage, and promoting environmentalism to boot. GE also said its triple-A credit rating is sacred.
It is disturbing that most financial institutions are doing little to promote the national interest, and Paulson is doing nothing to require them to do so. Paulson’s theme song is Dire Straits’ “Money for nothing, your kicks for free. (I want my MTV).”
Disclosures: Author is long (and out) NCC and GE.
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This article has 15 comments:
The reality is that those who escaped scrutiny and regulation have feasted at the expense of legitimate investors: and now that the system is on the verge of collapse, they resolutely resist any effort to make them part of the solution.
The result is predictable - the financial industry is going to be regulated far more closely than in the past. My hope is that the focus of regulation will be on openness, transparency, enforced honesty and fairness - a level playing field for legitimate investors, sadly lacking in today's secretive, predatory and manipulative environment. I believe this can be done without undermining the laws of supply and demand, which are key to the capitalist system.
If people make bad bets they must live with them. Ask anyone who has had a bad marriage. You cut your losses and live for another day.
What seems to have been lost here, but it isn't to trial lawyers, is civil liability. If one is defrauded he either goes to criminal or civil court for redress. We don't need new laws and bigger bureaucracy. If the government, Administration and Congress, would have made it clear that no one would be bailed out this situation would have corrected itself. No one, to my knowledge, was at mortal risk. President Bush, in 2007, implored individuals who were having difficult with their mortgage contracts to contact their lenders. I helped a neighbor do just that and she got her debt worked out quickly. Congress was silent until just recently and voice their opinions that everyone should have seen the problem but themselves. Does any in Congress and their expensive staff read the paper?
It appears to me that Congress, who has made terrible legislation the past fifteen years by allowing Wall Street to peddle junk to pension funds and other investors, wants the Administration and the taxpayers to bail them out for their mistakes and Sen. Dodd and Rep. Frank refuse to do what Greenspan has done, admit they screwed but of course their campaigns profited dearly from their malfeasance. As Rep. John Mica (R. FL) said last week at the a House meeting, and I paraphrase: We must clean up Congress and affix liability to those politicians who profited from the mess our financial systems are in. A good start for a demand for Congressional Term Limits as we have seen what petty politicians can do to destroy Free Enterprise as well as personal responsibility.
Barney Frank and Chris Dodd (like his father) should be removed from office and if it is found they profited illegally from the powers of their offices should be prosecuted to furthest extent of the law. Congress is where the mess began and they should be held accountable as we mortal souls are.
Whether you think this is good or bad is irrelevant as you are outnumbered by a wide margin. If our popular culture worships materialism and excessive consumption, only a small percentage of people will look for wealth creation, wealth accumulation and wealth retention in the form of living below your means, investing, creating capital through goods or services and contributing to the community through payment of taxes and charitable donations of time and money.
On the other side of the coin, to varying degrees, are people who want the state to subsidize their excesses (either consumer, lender, business entity, or investor) and redistribute wealth, and will probably tolerate a small amount of corruption, graft, tax evasion or privilege that accompanies administration of such subsidies.
In New York, our chief adviser to our governor was forced to resign after it was revealed that he had failed to pay taxes for five years. He may have been an acceptable administrator, but thumbing your nose at the system whose interests you pretend to advocate is an unacceptable level of hypocrisy. Every day the line is set and reset, to the joy of the New York Post and the daytime anchors at CNBC.
He has been an enormous failure, and a national embarrassment, as Treasury Sec. He should resign ASAP - I don't think we will be able to endure another three months of this guy at the helm.
I would say ditto for Bernanke, but he never had a clue to begin with. I think that Paulson may be able to do better, but refuses to do the correct thing because of narrow and selfish interests.
I believe we will soon get radical reform of our extremely crooked and conflicted "financial system" that has raped the American middle class, impoverished millions, disgraced our country in the world's view, and made a bunch of financial gangsters obscenely wealthy, at others' expense. Paulson is one of those creeps, if you ask me.
The hedge fund industry will start to look a lot more like the Financial Terrorism problem that it truly is, once Congress peels back the veneer and exposes what has truly gone on over the past five years on Wall Street. And it couldn't happen to a nicer bunch of guys!
The Democrats, many of them, deserve some of the blame for this mess, but,
Bush and the Republicans deserve a lot of the blame: for encouraging the lassez faire/reckless capitalism of the past thirty years:
Phil Gramm, Larry Kudlow, Jack Abramov. the poster boys of the debacle.
Is it any wonder that Warren Buffet and George Soros are supporting
Barack Obama?
> jack
My house is just as useful as it was when I bought it. That has not changed and I'm not particulary interested in what it is worth. The appraisal has nothing to do with whenter it provides the same shelter and comfort as it did when I purchased it. Let the people who purchased these homes continue to pay what they agreed and continue to enjoy their purchase.