Today I comment on Financial Reform, Fannie and Freddie, and track the Bear Market for stocks.
The ill-defined outline for financial reform presented by Treasury Secretary Geithner
In his pitch to sell president Obama’s Financial Reforms, Treasury Secretary Geithner said: “ordinary Americans have suffered too much; trust in our financial system has been too shaken; our economy has been brought too close to the brink for us to let this moment pass." This perception is totally true because both the Bush and Obama Administrations bailed out Wall Street, while ignoring Main Street.
The plan includes a dedicated agency to protect consumer interests and regulate mortgages and credit cards. You can protect consumer interests by banning Credit Scores. You can regulate mortgages through the issuance of US backed mortgage securities through Ginnie Mae. The Federal Reserve can return to their guideline of thirty years ago setting 12% as a maximum credit card rate.
The plan calls for consolidation of some regulatory agencies and giving the Federal Reserve greater oversight powers. Consolidation is good, but the Fed has plenty of powers. They even decided not to use the Primary Dealer credit facility, a power that could have saved Lehman Brothers.
The plan would create a new oversight council uniting the heads of existing agencies to improve regulation. That would be like establishing a committee called “The Blind Leading the Blind.”
The plan would call for greater financial cooperation internationally. If the Obama Administration can solve The Great Credit Crunch the World will follow.
I blame the US Treasury, Federal Reserve and the FDIC for causing The Great Credit Crunch
Treasury Secretary Paulson cried wolf in the second half of 2008 demanding powers to spend $700 billion taxpayer dollars at will. He bailed out Wall Street, protected overseas investors who were clients of Goldman Sachs, and told us the problems were contained and would not spread to the “real economy.”
Under Treasury Secretary Geithner, the number of TARP recipients nearly doubled since president Obama’s inauguration and now total more than 600 financial institutions without helping Main Street.
The Federal Reserve under Greenspan and Bernanke cut rates too low between 2001 and 2003 providing the fuel for real estate speculation, fraud and abuse. Bernanke raised rates too far into 2006 causing The Great Credit Crunch. In addition, Bernanke did not forecast Recession when we were already in one.
The US Treasury, Federal Reserve and FDIC approved regulatory guidelines in December 2006 with regard to risk exposures to Construction and Development Loans and other real estate loans then ignored them. At the end of 2008, exposures exceeded guidelines for 40% of all community and regional banks.
Treasury Secretary Geithner does not get it!
Geithner told the Senate Banking Committee that the government doesn’t have time to focus on the future of Fannie Mae (FNM) and Freddie Mac (FRE) at this time. The housing market is the cornerstone to our economic demise, and our banking regulators are relying on the two failed GSEs to help the mortgage market.
No time to focus on a $2 trillion dollar problem and worsening! The portfolios of Fannie and Freddie are supposed to shrink by 10% a year beginning in 2010 from a maximum of $900 billion each to $250 billion in ten years. What can be more important than stopping the troubling rise in mortgage delinquencies?
The weekly chart for the S&P 500 to show the status of the Bear Market
The weekly chart for SPY shows the failed test of the longer term down trend. My annual pivot is 910.8 with weekly and annual resistances at 951.4 and 967.1. A close yesterday below the five-week modified moving average at 905 would also be a bearish warning.