Atypical

Preview from Europe: Fresh Fears of Bank Nationalization

Voice

The government "forcing banks to loan to subprime population" - not true.

ECONOMY -- FORMER HOUSING CEOS: POOR PEOPLE DID NOT CAUSE CURRENT FINANCIAL CRISIS: Yesterday, four former CEOs of Fannie Mae and Freddie Mac testified on how their companies' actions may have "contributed to the ongoing crisis." Blaming Fannie, Freddie, the Community Reinvestment Act (CRA), and low-income people is one of conservatives' favorite talking points, as The Progress Report has documented. But at the beginning of the hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a myth. Furthermore, later in the hearing, Rep. Edolphus Towns (D-NY) asked the CEOs whether poor people caused the current financial crisis. All said "no." Congress passed the Community Reinvestment Act in 1977, requiring banks "to lend throughout the communities they serve." In the 1990s, greater mortgage lending to lower-income households by CRA-covered banks increased the homeownership rate for lower-income and minority families. As the Center for American Progress's Tim Westrich has written, "The real culprits in the mortgage mess are non-bank mortgage companies -- not covered by CRA -- that originated the lion's share of bad mortgages at the heart of the crisis. They made an estimated 50 percent of subprime loans in 2005."

Banking industry one of the most regulated. What? Does the name Phil Gramm resonate with you? Have you heard knowledgeable people say the ratings agencies had a huge part in this debacle. What about salesmen that misrepresented deals to borrowers. That was just on television recently.

Your ideological points are absurd.


On Feb 18 08:16 AM [e-mail] wrote:

> Do not nationalize the banks stupid!
>
> After having already spent 350bn via Tarp funds the idea of nationalizing
> banks should not even be a consideration for the government. Have
> we not seen the nationalization effects from other countries that
> chose to go down this path, how is Japan doing? France?India? The
> US banking industry today is one of the most regulated in the country,
> the housing bubble was caused largely by the government forcing banks
> to increase lending to the sub prime population. Once a bank is nationalized
> all decisions on investments must be approved by the government,
> there is no way that anyone in office can decide which investment
> is good and which is not. These decisions will most likely be made
> based on political influence, whoever lobbies most will get the prize.
> That is probably not a good idea for the future entrepreneurs of
> America nor any small business.
>
> During the 1990s banks were encouraged to loosen lending by the strengthening
> of the CRA act, this enabled individuals with insufficient funds
> to attain mortgages. Fast forward to today and we have the end result
> of reckless lending for nearly a decade.
>
> Still this could have all been prevented if not for the issuance
> of FAS157 effective November 15,2007 by the SEC and FASB . For those
> unaware fair value was redefined. This rule requires banks to mark
> to market instead of mark to model as previously calculated since
> the inception of FASB. Pre FAS 157 when an investment vehicle trades
> thinly (such as mortgage backed securities) the underlying holder
> of the investment is allowed to use its own assumptions on fair value,
> today it must be valued based on what it can be sold at in the open
> market. If I'm a bank and expecting to receive future cash flow of
> $1000 a month over the next 30 years on an loan of 200K for a total
> payment of 360k, based on todays fair market value and panic in the
> market the underlying issue has been written down to 40 cents on
> the dollar or approximately 80k and this is a conservative figure.
> This past October the FASB began tracking the effects of this rule
> to determine if any amendments are needed, a little too late in my
> opinion.
>
> Back to our banks, in the current market it would not be wise to
> sell any of the troubled assets based on fair market valuation as
> there are not enough buyers which drastically reduces the price of
> the asset.These assets should be removed from balance sheets, by
> creating a bad bank and transferring assets for 90 cents on the dollar
> although these assets may very well be valued at 50 or 40 cents on
> the dollar. By allowing banks to transfer these assets it will improve
> transparency and most importantly make them investable again. No
> more capital injections! This move only deters private investors
> from investing in equity. The higher the purchase price of these
> assets the higher the relief on the balance sheet of the banks. This
> would without a doubt improve overall economic conditions at a faster
> rate than any other solution and also affords the government the
> opportunity of this plan to cost taxpayers very little or possibly
> nothing. First, all loans should be returned back to the government
> which so far has amounted to 350bn. Next step would be for the "bad
> bank" formation and transferring all troubled assets here. An extra
> step here could be the banks that transfer assets are also forced
> to invest in the bad bank and in essence recoup a percentage of the
> losses but not to profit. A step further would be the government
> selling a portion of the bad banks to private investors sometime
> down the road.
>
> If it was my decision I would choose to do nothing and let the game
> play out the way it should. Many banks would fail, lending would
> only get tighter and a global recession would still last shorter
> than nationalizing. Once all the failing players are held accountable
> and become extinct only healthy banks are left with real balance
> sheets and the recovery may begin, lending will loosen and so forth
> begins the next expansion cycle.
>
> While this is not a quick fix lets not forget we are already in this
> mess and the best solution to minimize the effect of these troubled
> assets to the economy would be to have them removed from the balance
> sheet. I don't believe a full recovery is likely in the event of
> this transfer to the "bad bank," but unless there can be another
> accounting method to accrue troubled assets only when they mature
> it's a start to the end of this mess and lets not forget the person
> asking for the loan is just as responsible as the one providing it.
>
> [e-mail]/...