Posts Tagged ‘Timothy Geithner’
Thursday, November 10th, 2011
Is a 20 percent downpayment on a house or condominium on the horizon? If some federal regulators get their way, buyers may have to put down $60,000 on a $300,000 house to get the best possible mortgage interest rate. Although this sets the bar high, regulators believe it will prevent the risky lending practices that ended in a rash of foreclosures.
Numerous groups immediately announced their opposition to the proposal, contending that a 20 percent downpayment is too burdensome for many working class would-be homebuyers. If the proposal goes into effect in summer, it is not likely to have a major impact on the housing market for a while because the majority of mortgages are insured by federal agencies and are exempt from the rule. John Taylor, chief executive of the National Community Reinvestment Coalition, said “If we require 20 percent downpayments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan.” According to Tom Deutsch, executive director of the American Securitization Forum, believes the 20 percent requirement will do little to encourage banks to make loans without federal backing. “The extremely rigid proposals…will further prolong the U.S. government’s 95 percent market share of the credit risk of newly originated mortgages,” he said.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, disagrees. “Properly aligned economic incentives are the best check against lax underwriting,” she said. The Federal Reserve and Treasury Department also support the move, and other federal regulators are expected to get behind the new requirement. The move comes as the Obama administration is working to end Fannie Mae and Freddie Mac, the government-backed mortgage companies, by reducing the competitive advantage they have over banks. One proposal is to require the agencies to charge higher fees to draw private firms back into the mortgage market.
Mortgage Bankers Association CEO John Courson warns that the 20 percent downpayment requirement would further damage already sluggish housing demand. “We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans,” Courson said. Ron Phipps, president of the National Association of Realtors, said the new rules will further restrict mortgage credit and housing recovery overall. “Adding unnecessarily high minimum downpayment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home,” Phipps said.
Treasury Secretary Timothy Geithner, who is leading the regulatory effort, said “Risk retention will help promote better standards for underwriting and securitizing mortgages, which is good for the long-term health of the housing market and for our nation’s economy.” An element of the Dodd-Frank Act that impacts the residential market, known as “risk retention”, is a rule that requires that mortgage lenders and securitizers to invest a minimum of five percent of the risk on qualified residential mortgages. The rule will play a crucial role in determining how much risk banks have to retain from mortgages they originate or package into bonds known as mortgage backed securities (MBS) and then subsequently sell into the market. “If this proposal goes through, the way it’s written, I think the housing market will not recover for years to come,” says Joe Murin, chairman of consulting firm The Collingwood Group.
Tags: 20 percent downpayments, American Securitization Forum, Dodd-Frank Act, Fannie Mae, Federal Deposit Insurance Corporation, federal regulators, Federal Reserve, foreclosures, Freddie Mac, Mortgage Bankers Association, Mortgage interest rate, mortgage-backed securities, National Association of Realtors, National Community Reinvestment Coalition, Obama administration, Qualified residential mortgages, residential market, Risk retention, Risky lending practices, Timothy Geithner, Treasury Department
Posted in Financing, General, Residential | No Comments »
Thursday, June 2nd, 2011
The initial steps to dismantle Fannie Mae and Freddie Mac are underway with the introduction of a bipartisan bill in the House of Representatives that would replace the mortgage giants with a minimum of five companies that would issue mortgage-backed securities with significant federal regulation. The compromise legislation proposed by Representative John Campbell (R-CA) and Representative Gary Peters (D-MI) is likely to be the only plan that will attract sufficient support from both parties on a politically volatile subject, especially at a time when gridlock looms over issues such as how to curb federal spending. The bailout of the two companies has cost taxpayers upwards of $100 billion.
According to Representative Campbell, “Rather than putting out a political marker, we can move a piece of legislation that is significant…and can actually become law. The only other approach that’s out there in a bill is one that replaces Fannie and Freddie with nothing.” Other policymakers, such as Treasury Secretary Timothy Geithner, have discussed the merits of a limited but unambiguous government guarantee of securities backed by certain types of mortgages. The new entities – similar to Fannie and Freddie — would be limited to purchasing loans that meet certain standards, including size caps. The difference would be that the firms would be required to hold much more capital than Fannie and Freddie. Only the mortgage-backed securities that they issue –not the companies themselves — would enjoy federal guarantees. The companies would operate similarly to public utilities and likely will not have exchange-listed shares.
Critics say the proposal risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that harmed taxpayers. “In reality, this is almost surely going to be terrible,” said Dwight Jaffee, finance professor at the University of California, Berkeley. Government insurance programs, he says, inevitably lead to “a catastrophe.” Advocates argue that taxpayers will be less exposed to losses because borrowers will have to make significant downpayments. Additionally, the new firms will have to hold more capital. Additionally, the firms will be required pay a fee for government backing to finance a catastrophic insurance fund, much as the Federal Deposit Insurance Corporation levies fees and handles bank failures.
The mortgage and housing industry support a continued government role in supporting mortgage lending, including the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders.
The agencies are still hemorrhaging money. For example, Fannie Mae reported a loss of $8.7 billion for the 1st quarter of 2011, which included a $2.2 billion dividend payment to the Treasury Department. The loss was significantly less than the $13 billion reported one year ago. “We need to manage our credit book — our old legacy book very vigorously,” said Fannie Mae President and CEO Michael Williams. But that is not in conflict with helping distressed homeowners. “Helping people to avoid foreclosure is a good thing,” Williams said.
Action must be taken to keep the mortgage market afloat and provide securitization for investments. According to a Washington Post editorial, “The housing market is still in deep trouble. Prices nationwide have fallen by about a third since the peak in 2006 — and they appear to be trending down again. The resulting hit to household wealth may hinder the recovery, which is already sluggish. Small wonder that various advocates for housing are once again asking Washington for help. But in at least one area, the prescription would be worse than the disease. We refer to calls for extending the current elevated limit on the size of loans eligible for securitization by Fannie Mae and Freddie Mac, the mortgage-finance giants operating under government control. Congress ‘temporarily’ raised the limit to a maximum of $729,759 in certain markets in response to the sudden evaporation of private liquidity during the 2008 crisis, but that measure is set to lapse at the end of September. At that point, the limit will not revert to the pre-crisis maximum of $417,000 in most of the country but to a level set in relation to local medians — and capped at $625,000. But the Obama administration has supported a reversion to lower loan limits as the first step in gradually reforming the mortgage security market and reducing taxpayer exposure to Fannie and Freddie. The administration’s goal is to lure cash-rich would-be mortgage securitizers back into the market, starting with the high end. Treasury Secretary Timothy F. Geithner has described this as “crowding in” private capital, and it is the rare housing policy proposal that has enjoyed a measure of bipartisan support.”
Tags: Bipartisanship, Department of the Treasury, Fannie Mae, Federal Deposit Insurance Company, Freddie Mac, house of representatives, mortgages, National Association of Home Builders, National Association of Realtors, Obama administration, Representative Gary Peters, Representative John Campbell, Timothy Geithner
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Monday, April 18th, 2011
The Treasury Department is planning to sell $142 billion worth of toxic assets that it acquired during the financial crisis. According to Treasury, it wants to sell approximately $10 million worth of assets every month, depending on market conditions and hopes to end the program next year. Treasury acquired the securities — primarily 30-year, fixed-rate mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac –between October, 2008 and December, 2009 to stabilize the home loan market.
The Treasury has decided to sell the securities now because the market has “notably improved.” According to Treasury officials, the sale could net $15 billion to $20 billion in profits for taxpayers. The sale will have a negligible impact on the U.S. debt limit but could delay the ceiling’s arrival by a few days. In early March, Treasury estimated the U.S. would hit the $14.294 trillion ceiling between April 15 and May 31. The Treasury in 2008 retained State Street Global Advisors, a leading institutional asset manager, to acquire, manage and dispose of the mortgage-backed securities portfolio.
“We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market,“ Mary Miller, assistant secretary for financial markets, said. “We’re continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort.”
Congress gave Treasury the authority to buy securities guaranteed by Fannie Mae and Freddie Mac. The value of these mortgage-backed securities declined significantly after the housing bubble burst, prompting fears that write-downs could drag down individual banks and further plunge the financial system into panic. The Treasury said that three years after the worst point of the crisis, the market for asset-backed derivatives is now much more robust.
The government bought $221 billion of these bonds, as part of the Housing and Economic Recovery Act of 2008. Treasury announced that it would buy the bonds on the day the government took over Fannie and Freddie. “The primary objectives of this portfolio will be to promote market stability, ensure mortgage availability, and protect the taxpayer,” Treasury said at the time. The portfolio is now just $142 billion. The Congressional Oversight Panel, which supervised the Troubled Asset Relief Program, said that as of February of 2011, Treasury had received $84 billion in principal repayments and $16.7 billion in interest on the securities it holds.
“It was a bit of a surprise, though will likely be easy to digest,” said Tom Tucci, head of government bond trading at Capital Markets in New York. “We spent a year and a half at levels that were unsustainable because they weren’t based on economic fundamentals, they were based on fear. “Now some of the fundamentals are starting to come back into place.”
Republicans are asking for deeper cuts in government spending before they will agree to raise the debt limit. Treasury Secretary Timothy Geithner has cautioned that failure to raise the borrowing limit would cause an unparalleled default by the government on the national debt. Without question, this would drive up the government’s cost of borrowing money.
Tags: 30-year fixed-rate mortgage securities, congress, Congressional Oversight Panel, Debt ceiling, default, Fannie Mae, financial crisis, Freddie Mac, Housing and Economic Recovery Act of 2008, Housing bubble, mortgage market, national debt, Republicans, State Street Global Advisors, Timothy Geithner, Toxic assets, Treasury Department, Troubled Asset Relief Program
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Wednesday, February 23rd, 2011
The Obama administration and the Treasury Department have decided that Fannie Mae and Freddie Mac — the public-private housing finance model in place for the past four decades – will come to an end, although they pledged to continue backing the agencies’ existing obligations. “The GSE (government-sponsored enterprise) model is dead,” an Obama administration official said. The Treasury Department is currently working on three broad options for overhauling the mortgage lending system, but will let Congress make the final decision. The government bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion.
Obama administration officials have emphasized areas of agreement with Republicans, stressing that they favor a system that is less dependent on government support. Approximately 90 percent of new mortgages are currently backed by Fannie, Freddie or other federal agencies. The move pleased Republicans, who have long criticized the mortgage companies. “I’m encouraged to see the administration included a number of reform ideas that track closely with my own,” Representative Scott Garrett (R — NJ) said. Garrett heads the House Financial Services subcommittee, which oversees Fannie and Freddie. Representative Randy Neugebauer (R – TX), said he was pleasantly surprised by the focus on restoring the mortgage-backed securities market issued without the government’s guarantee. Debate over the future of the mortgage giants is often contentious on Capitol Hill. Republicans consistently criticized last year’s Dodd-Frank financial-overhaul bill for not addressing the fate of Fannie and Freddie. Treasury Secretary Timothy Geithner said that winding down Fannie and Freddie and creating an alternative won’t happen overnight. “Realistically, this is going to take five to seven years,” he said. “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”
The Treasury Department report suggests that Fannie and Freddie purchase loans with smaller outstanding balances, reducing their risk. The report also recommends phasing in a requirement that Fannie and Freddie borrowers make larger downpayments — at least 10 percent. Lastly, the government wants Fannie and Freddie to wind down their own mortgage investment portfolios. In their heyday, Fannie and Freddie were public companies that encouraged home ownership thanks to a Congressional mandate. The companies buy home loans from lenders, which use the money to offer new loans to consumers.
The bad news is that mortgage costs could increase a bit once Fannie and Freddie are phased out. “Over the long run, the cost of a mortgage will rise modestly for the average American homeowner,” Geithner said. “We think it’s very important for the government to continue to play a role, a targeted role” to make certain that “Americans who need help to find a home, to rent a home, or own a home get that help.”
Nor will the process of replacing Fannie and Freddie be easy. Writing in the Wall Street Journal, David Reilly points out that “A return of private capital requires the revival of securitization markets for mortgages not backed by the government since bank balance sheets aren’t big enough to fill the gap”. But 30-year loans in their current form aren’t attractive to investors without a government guarantee. The Treasury implicitly acknowledges the conflict, noting that the less government backing there is for housing finance, the less feasible the 30-year mortgage becomes. It also admits the reward for losing that benefit, and largely removing government from mortgage markets, would be a reduced incentive to invest in housing so that ‘more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets.’ That should be the clear goal of any housing-finance revamp.”
Tags: bailouts, congress, Dodd-Frank financial overhaul bill, Fannie Mae, Freddie Mac, GSE model, House Financial Services subcommittee, mortgage-backed securities, mortgages, Obama administration, President Barack Obama, Public-private housing finance model, Representative Randy Neugebauer, Representative Scott Garrett, Republicans, Timothy Geithner, Treasury Department
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Tuesday, February 22nd, 2011
President Barack Obama is proposing an option to create an insurance fund for mortgage-backed securities, similar to the Federal Deposit Insurance Corporation that protects Americans savings accounts. The proposal consists of three legislative options for making long-term changes to the housing finance system, while taking short-term moves to gradually reduce the government’s role in the mortgage market now dominated by Fannie Mae and Freddie Mac. The Obama administration is asking the private sector to play the leading role in the residential mortgage market and is expected to unveil several scenarios detailing how that might come about.
More than 85 percent of residential mortgages are now backed by the federal government. Republicans want to slash that to zero, though they acknowledge that a transition so extreme cannot be achieved overnight. At its core, the debate over what to do about Fannie and Freddie is an ideological one: How much should the government pay to sustain the housing market? House Republicans, who want to abolish the government backing altogether, contend that the private market can more accurately price the risk of home mortgages. By contrast, Democrats believe that government backing is necessary to assure that mortgages are accessible to middle-class Americans. Mark Zandi, chief economist at Moody’s Analytics, said the impact would be approximately one percent. “Regardless of what policymakers say, global investors will almost surely continue to believe the U.S. government would backstop a badly foundering mortgage finance system,” said Zandi, who has proposed a hybrid system that charges for the guarantee.
Meanwhile, Treasury Secretary Timothy Geithner has warned against acting too quickly or making rash changes. “Given Fannie Mae and Freddie Mac’s current role in the mortgage market, we must proceed carefully with reform to ensure government support is withdrawn at a pace that does not undermine economic recovery,” he said. “We believe there is sufficient funding to ensure the orderly and deliberate wind down of Fannie Mae and Freddie Mac, as described in our plan.
Geithner has proposed three options, all of which favor seeing the government eventually wind down Fannie and Freddie, whose survival has required more than $150 billion from the Treasury Department since the government seized them in September of 2008. The first option would privatize mortgage finance and limit the government’s role to narrowly targeted subsidies, like Federal Housing Authority (FHA), USDA and Department of Veterans’ Affairs financing. The second option adds a layer of government support that could be implemented to ensure access to credit during a housing crisis. The third option, the one that bears the closest resemblance to the current system, would allow the government to guarantee mortgages but under stringent capital and oversight requirements, termed “catastrophic reinsurance behind significant private capital.”
The probable winners from replacing Fannie and Freddie are mortgage lenders and insurers, analysts at Goldman Sachs said. “While higher rates could decrease origination volumes, growth should still outpace balance-sheet availability,” the Goldman analysts said. In addition to lenders, mortgage insurers are also potential beneficiaries. “The stated goal of returning the (Federal Housing Authority) to its traditional role as a targeted lender of affordable mortgages supports the view for better-than-expected private market top-line growth.”
Despite the uncertainty about what entity will ultimately replace Fannie and Freddie, the Obama administration remains upbeat about the cost of winding down the embattled agencies. The administration expects its losses from Fannie and Freddie to ultimately be cut nearly in half. However, the Treasury Department estimates that after receiving dividends from the GSEs (government-sponsored enterprises) for that assistance, the total losses could shrink to $73 billion by 2021 — 45 percent less than current levels.
An outspoken critic of the Obama plan is Mike Colpitts, who writes for The Housing Predictor. According to Colpitts, “Like a solider standing alone in the battlefield, the Obama administration’s housing finance reform proposal offers the U.S. a way of ridding itself of the most troubled mortgage giants, Freddie Mac and Fannie Mae in the real estate collapse. But it stops short of offering any concrete long term solutions with a housing plan for the nation like a lone soldier Missing In Action. Realtors, mortgage professionals, new homebuilders and the lending industry compose many of the most fractured industries in the current U.S. economy as a result of the real estate collapse. They deserve a plan on which they can rest their futures with the rest of America to benefit the entire nation, and for once provide concrete change towards a real economic recovery.”
Tags: CMBS, CMBS insurance, democrats, Department of the Treasury, Department of Veterans’ Affairs, Fannie Mae, Federal Deposit Insurance Corporation, FHA, Freddie Mac, Goldman Sachs, government-sponsored enterprises, homebuilders, Mark Zandi, Mike Colpitts, Moody’s Analytics, Mortgage companies, President Barack Obama, Realtors, Republicans, Savings accounts, The Housing Predictor, Timothy Geithner, USDA
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Monday, February 21st, 2011
Federal Reserve Chairman Ben Bernanke is knocking heads with Representative Paul Ryan (R-WI), the new chairman of the House Budget Committee, about how to best control inflation while buying billions of dollars worth of Treasury bonds to build up the economy in a process called quantitative easing 2 (QE2). As the nation’s debt climbs to an unprecedented high level, President Obama is in the difficult position of having to forge an agreement with Congress on how high the legal cap on how much money the government can borrow will be. The Republicans who now control Congress say they will consent to an increase in the cap only if President Obama agrees to make significant budget cuts. Ryan has been an outspoken opponent of the Fed’s stimulus policy, which is pumping $600 billion into the economy through purchases of long-term Treasuries. He is concerned that the policy will accelerate inflation, create asset bubbles and reduce the dollar’s value. “My concern is that the cost of the Fed’s current monetary policy…will come to outweigh the perceived benefits,” Ryan said. “We are already witnessing a sharp rise in a variety of key global commodities and basic material prices.”
Bernanke disagreed, saying “The inflation is taking place in emerging markets because that’s where the growth is.” In the United States, he said, “overall inflation is still quite low and longer-term inflation expectations have remained stable.” Bernanke pointed to growth in economies like China, India and Brazil as the real cause of rising prices.
Speaking in a different venue, Treasury Secretary Timothy Geithner expressed confidence that Congress ultimately will raise the debt limit. “I can say this with complete confidence – that the U.S. will meet its obligations, that Congress will act as it always has to make sure we meet those obligations,” Geithner said. “There’s always a little political theater around this.”
Democrats and Republicans remain sharply divided on the issue. “It would be reckless from an economic and financial perspective…to essentially default on our debts and question the creditworthiness and full faith and credit of the United States, correct?” asked Representative Chris Van Hollen (D-MD) “Wouldn’t significant reductions or addressing the short-term spending aspect be good for the market and economy?” asked Representative Scott Garrett (R-NJ).
Representative Ron Paul (R-TX) and a Libertarian characterized Bernanke’s testimony as “cocky”. Paul, a 2008 presidential candidate who is a long-term critic of the Federal Reserve, now has a platform to air his views, thanks to the Republicans winning control of the House. As chairman of the House Domestic Monetary Policy and Technology Subcommittee, Paul called the hearing to examine the impact of the Fed’s policies on job creation and the unemployment rate. Paul has advocated for measures that would review the Federal Reserve or even eliminate it. Additionally, Paul slammed the Fed’s latest $600 billion bond-buying program, saying it and near-zero interest rates haven’t led to job creation in the United States.
Tags: Ben Bernanke, Capitol Hill, congress, Corporate tax rates, economic recovery, Federal Reserve, House Budget Committee, House Domestic Monetary Policy and Technology Subcommittee, inflation, Libertarian, Long-term Treasuries, monetary policy, President Barack Obama, Quantitative easing, Representative Chris Van Hollen, Representative Chris Van Hollen (D-MD), Representative Paul Ryan, Representative Ron Paul, Representative Scott Garrett, Republican-led House, Timothy Geithner, Treasury Department, unemployment rate
Posted in Economics, Financing, General, Green, Office, Residential | No Comments »
Thursday, January 13th, 2011
Although the Washington, D.C., residential market has held up surprisingly well over the past few years in an environment hammered by unemployment and foreclosures, there is a question of whether the nation’s capital will spur recovery or if the rest of the country will drag down the local market. Washington’s relatively low unemployment rate and availability of well-paying jobs has helped cushion the city’s housing market. During the 3rd quarter, the District of Columbia’s average home price rose 3.1 percent over the 2nd quarter to $410,839, according to Delta Associates, a real estate research firm. That is 6.2 percent higher than average home prices during the 3rd quarter of 2009. The region’s foreclosure rate as of September was 2.1 percent, according to CoreLogic. Nationally, the foreclosure rate was 3.3 percent.
According to Mark Zandi, chief economist at Moody’s Analytics, more than 4 million homes were in or near foreclosure nationally in 2010. That’s over and above the 6.2 million homes that were foreclosed between 2007 and 2010. Those 10.2 million foreclosures equal the combined populations of Vermont and North Carolina. Approximately 57 percent of economists and real estate experts surveyed by Macro Markets don’t think that home prices will recover until 2012; another 35 percent believe that real recovery won’t happen until 2013.
In recent testimony before the Congressional Oversight Panel, Treasury Secretary Timothy Geithner said that 24 percent of homes in the United States are under water – which puts their owners in the unenviable position of being unable to refinance or sell. “The most important thing that’s going to affect the trajectory of home prices, the overall number of foreclosures, the ability of people to stay in their homes, is what the government is able to do to get the unemployment rate down,” Geithner said.
Tags: Congressional Oversight Panel, CoreLogic, Delta Associates, District of Columbia, foreclosures, housing market, Macro Markets, Moody’s Analytics, Timothy Geithner, Under water, unemployment, Washington DC
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Thursday, December 16th, 2010
The estimated cost of the Troubled Asset Relief Program (TARP) keeps falling, according to the nonpartisan Congressional Budget Office (CBO). The latest estimate is that TARP will cost the taxpayers just $25 billion – significantly less than the $700 billion allocated for the financial bailout in the fall of 2008. The CBO’s last estimate – made in August – was that TARP would add up to a $66 billion loss, so the newest numbers represent a significant improvement.
This optimistic prediction is thanks to funds returned to the Treasury Department as banks repaid their loans and bought back stock warrants. Another factor in the revised numbers is that less money than anticipated went to bailing out AIG and General Motors, the latter of which recently had an extremely successful initial public offering. “Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low,” according to the CBO. “At the time, the U.S. financial system was in a precarious position, and the transactions envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government.”
TARP was originally created so the government could buy toxic mortgage-backed securities from big banks. Former Treasury Secretary Henry M. Paulson ultimately altered the program to infuse cash into banks and other companies that were likely to fail. The majority of banks have repaid their loans; in fact, the federal government has made approximately $12 billion from those transactions. Because the financial system was stabilized more quickly than originally anticipated, only $433 billion of the TARP fund was spent, which reduced the potential for losses, according to the CBO. President Barack Obama and Treasury Secretary Timothy Geithner have hailed the revised projection as a sign that the extremely unpopular program was effective and not the corporate giveaway as some opponents have accused.
Tags: AIG, Congressional Budget Office, financial meltdown, Financial risk, General Motors, Henry M. Paulson, Initial public offering, Nonpartisan, President Barack Obama, Stock warrants, Taxpayers, Timothy Geithner, Toxic mortgage-backed securities, Treasury Department, Troubled Asset Relief Program
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Wednesday, October 20th, 2010
Two years after the global financial meltdown and collapse of Lehman Brothers, world leaders seem to have reached an impasse over crucial proposals designed to prevent the same devastating scenario from occurring in the future. The stalemate is so serious that there may be little chance that needed changes will be made. Executives at the World Bank and the International Monetary Fund (IMF) are disappointed with the slow movement and analysts warn that national interests could undercut badly needed real reforms. Tension over currency rates is growing, and there is an increasing sense that major financial centers will create significantly different rules impacting their nation’s financial firms. United States Treasury Secretary Timothy Geithner prefers a more unified approach to financial reform.
“Urgent action is needed to arrest the disturbing trend toward unilateral moves,” wrote Institute of International Finance managing director Charles H. Dallara in a letter to IMF officials. The IMF fears that the global overhaul does not fulfill its promise to insulate the world from a repeat of the financial crisis. “The more we continue with the present system, the more likely we are to have a relapse,” said Jos Vials, the IMF’s financial counselor and head of its capital markets department. “Unless we deal with these problems, we will not have a safer system.”
The major points of contention relate to identifying and regulating firms considered to be too big to fail and how to create a system for some companies to collapse without requiring government bailouts. The IMF’s financial experts believe that companies must be allowed to fail so they do not pursue risky strategies in the confidence that the government will rescue them if they get into trouble. The only way to create effective regulations is to retain the idea of a moral hazard.
Tags: congress, currency rates, financial meltdown, financial reform, International Monetary Fund, investment banking, Lehman Brothers, Timothy Geithner, World Bank
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Monday, September 27th, 2010
President Barack Obama’s decision to name Wall Street’s archenemy Elizabeth Warren as his special advisor to direct the creation of the Consumer Financial Protection Bureau bypasses the often confrontational Senate confirmation process. The Harvard law professor is now tasked with building a new government agency that will crack down on abusive financial practices such as mortgages and credit cards from the ground up. President Obama – who has known Warren since his law school days – has named her “assistant to the president” — a desirable title in inner White House circles. Warren will report directly to both the president and to Treasury Secretary Timothy Geithner. Importantly, Warren will have direct access to the president, making her, in effect, the Secretary of the Treasury overseeing all consumer lending.
By naming Warren an adviser rather than as the agency head, President Obama avoided the congressional confirmation process, which Republicans likely would have used to derail the nomination. http://news.yahoo.com/s/nm/us_financial_regulation_warren “Clearly putting her in this role cements her imprint on the agency, whether she ultimately leads it or not. It also implies there’s going to be a transfer of power from the other regulators sooner rather than later. I think it would be better, though, for the agency to have a Senate-confirmed agency head, if that’s even possible,” said Ed Mills, an analyst with FBR Capital Markets.
Wall Street’s reaction was predictable, given Warren’s unpopularity there. “It’s a thumb in the eye to people trying to address real issues,” said Matt McCormick, a portfolio manager and banking analyst with Bahl & Gaynor. “It is obviously more political than focused on correcting ills of what happened in the financial industry. I really doubt she will have the ability to bring people together considering the political nature of her appointment. It is troubling.”
“The Consumer Financial Protection Bureau will empower all Americans with the clear and concise information they all need,” President Obama said at the Rose Garden announcement. “Never again will folks be confused or misled by the pages of barely understandable fine print that you find in agreements for credit cards or mortgages or student loans.”
Tags: Beltway, Department of the Treasury, Elizabeth Warren, Harvard, President Barack Obama, Senate, Timothy Geithner, Wall Street
Posted in Economics | No Comments »