Yes I'm going to write about TARP again, but not to defend the Banks, but rather to voice my outrage and concern at the fall out that has, and will continue to, hit members of Congress who had the good sense and courage to vote for this extremely effective program.
As a result of demagoguery ( some of it coming from members of the very administration who had promoted the program) and misguided populism, including the demonization of the Banks, members of Congress have lost, and will continue to lose, their jobs by getting voted out of office because they committed the sin of voting for TARP.
My real fear is that next time members of Congress are called upon to do something sensible and courageous like this to save our economy, they will be scared off ,and we all will suffer as the result.
No matter what anyone tells you, TARP has been probably one of the most successful program the government has ever instituted. It was like a smart investor who bought in a down market and made a killing.
Not only did the government support its citizens, by supporting our financial system in a time of panic and need (which is what governments are supposed to do), but it's making a profit doing it to boot. As if saving the financial system that you and I depend on wasn't enough; no we saved it and made money doing it . Where are the kudos to the government?
And what is the reward for our good members of Congress for doing this prudent and ultimately profitable thing -- they're getting their asses voted out of office. What a country.
I'm sure most of you missed it, but there was a piece in Wall St Journal last Friday, and a teeny tiny blurb in the New York Times the same day, announcing that more TARP money had been repaid than had been paid out.
I've written before about how the Banks have paid back all of their TARP loans, plus interest and warrants worth billions of dollars. The only ones who haven't paid the money back, with interest, aren't Banks, but rather are the auto companies and AIG. Recall when I am referring to Banks , I'm talking about just the Big Banks everyone loves to hate. You know the guys they hauled before Congress. Some of those Banks where told by the government that if they didn't agree to take TARP loans they weren't going to be let out of the room they had been summoned to by the government. There were some smaller banks (you know how we all love small banks) who haven't repaid the TARP, but the Big Banks have paid back so much money that the taxpayers got that money back as well. Even AIG and the auto companies appears to be on track to pay back their TARP funds. What will people say if that happens?
Not only didn't the TARP money loaned to the Banks cost the taxpayer a single penny , but we made an handsome profit as well. As I stated in an earlier post,if we had more programs like TARP we could pay off the Deficit!
But no matter; anyone who voted for that $700 Billion given away to the Banks must be voted out of office by those same citizens they saved. Of course it wasn't given to the Bank , it was a loan that has been paid back; and it never exceeded even half the $700 Billion figure that everyone still refers to. The pundits and the protesters refuse to acknowledge the facts and great benefit of TARP. Sadly its detractors, including people in the administration like Elizabeth Warren, perpetuate the myths and refuse to acknowledge the success of this program.
Why, I don't understand. Unless the record is set straight, we will suffer in the long run when another crisis is upon us. I have no illusions that that will ever happen, or that if it does, it will change very many people's minds-- like all Big Lies, this has become too ingrained into the nation's psyche.
How many government programs can you name where the government puts out taxpayer money to help the economy or some others valuable societal purpose and actually gets the money back with interest and other profits? Yes much government spending is needed and beneficial, but how often, if ever, do we actually get the money spent back, with interest? Think Defense, Social Services, Foreign Aid,Health Care, Roads, Education, Environment, Farmers and the many other subsidized Private Industries --- all valuable,and money perhaps well spent; but has the Pentagon or the Farmers paid us back in cash lately?
I know this is starting to sound a little silly, but I'm trying to make a point here that no one wants to hear. Its' bad enough that we are beating up on our financial institutions over this to our continuing detriment (to be discussed in a later post), but if courageous members of Congress are losing their jobs for doing the right thing for our country, next time they won't be so courageous and we all will suffer the consequences.
By the way, what ever happened to that $700 Billion that we aren't out?
Eric
Friday, June 18, 2010
Thursday, June 10, 2010
A Modest Proposal
I have avoided commenting on my blog on Israeli Palestinian matters for several reasons; not the least of which is that I'm not much of an expert (not that that stops most people) on the subject.
I'm quite discouraged about Israel, but my views won't add much except to emphasize the double standard to which Israel is held. However, I would recommend Tony Judt's Op Ed in the NY Times today , which was pretty good for someone who is constantly critical of Israel.
http://www.nytimes.com/2010/06/10/opinion/10judt.html?ref=opinion
Having recently visited the area, what really hit me was that it's tough when you live in a country where your neighbors want to kill you and most of the rest of the world ( including the Left in the US) hates you. I chose my words carefully and I don't feel they are an exaggeration. I don't think there is a solution on any reasonable time horizon and that is why I am discouraged.
Clearly Israel needs to make a change. Here's a modest proposal--- I think Israel should call Hamas' bluff. Agree to lift the blockade on Gaza in exchange for a simple statement that Israel has the right to exist. Nothing more simple than that. It would be a good start.
Who could object to the right to exist?
If Hamas rejects that , what will the so called "peace activists" say? Of course they won't bat an eye, but at least the rest of the world might see that Hamas doesn't want peace and a two state solution. It's hard to clap with one hand.
Eric
I'm quite discouraged about Israel, but my views won't add much except to emphasize the double standard to which Israel is held. However, I would recommend Tony Judt's Op Ed in the NY Times today , which was pretty good for someone who is constantly critical of Israel.
http://www.nytimes.com/2010/06/10/opinion/10judt.html?ref=opinion
Having recently visited the area, what really hit me was that it's tough when you live in a country where your neighbors want to kill you and most of the rest of the world ( including the Left in the US) hates you. I chose my words carefully and I don't feel they are an exaggeration. I don't think there is a solution on any reasonable time horizon and that is why I am discouraged.
Clearly Israel needs to make a change. Here's a modest proposal--- I think Israel should call Hamas' bluff. Agree to lift the blockade on Gaza in exchange for a simple statement that Israel has the right to exist. Nothing more simple than that. It would be a good start.
Who could object to the right to exist?
If Hamas rejects that , what will the so called "peace activists" say? Of course they won't bat an eye, but at least the rest of the world might see that Hamas doesn't want peace and a two state solution. It's hard to clap with one hand.
Eric
Wednesday, May 12, 2010
More Bad Loans
Amazingly the Senate voted down a measure today to the Financial Reform Bill which would have required home buyers to put down at least 5% when taking out a home loan. That's right just 5% down, not 20% that used to be the norm and is what is required in Canada. Again, the Democrats voted down 5%.
The Senator who tried to get this passed was told by the party in power and community and housing advocacy groups that the 5% requirement was too draconian. Wow , as Ronald Reagan once said in another context, "There they go again". I know he may not be the best guy to quote, but this travesty just cries out for a great quote from someone.
So it looks like when things get better, lenders will start making bad loans again. I believe they already are; I saw a recent ad for home loans with only 3 1/2% down.
Will we never learn?
As I wrote in my last post, if bad loans weren't allowed to be made all of this other financial reform stuff won't really matter all that much. However,the Democrats have chosen to go the other way. Allow bad loans and just try to "cushion " the fall out to the economy when they fail. I think there is joke there somewhere about "turning the ladder, instead of unscrewing the light bulb".
Eric
The Senator who tried to get this passed was told by the party in power and community and housing advocacy groups that the 5% requirement was too draconian. Wow , as Ronald Reagan once said in another context, "There they go again". I know he may not be the best guy to quote, but this travesty just cries out for a great quote from someone.
So it looks like when things get better, lenders will start making bad loans again. I believe they already are; I saw a recent ad for home loans with only 3 1/2% down.
Will we never learn?
As I wrote in my last post, if bad loans weren't allowed to be made all of this other financial reform stuff won't really matter all that much. However,the Democrats have chosen to go the other way. Allow bad loans and just try to "cushion " the fall out to the economy when they fail. I think there is joke there somewhere about "turning the ladder, instead of unscrewing the light bulb".
Eric
Thursday, April 29, 2010
BAD LOANS
I have been following the financial reform bill and the debate via the media as best I can. The shape of the bill appears to be quite comprehensive, with one very fundamentally large exception. The bill appears to focus on absorbing the losses resulting from another financial panic or meltdown so the whole economy is not imperiled to the same degree. Things like "too big to fail", enhanced capital requirements, lower leverage limits, regulation of derivatives, executive compensation, and even the bank tax, are all well and good (perhaps), but they don't address the issue of actually preventing a future crisis.
In fact the one thing that's not covered is the prevention of making bad loans, or least an attempt to so. If the loans were good loans, no amount of leverage, securitization, derivatives, out sized compensation, or other opaque complexities or side bets, would have been a problem.
Why hasn't the emphasis been, as far as reasonably possible, to prevent lenders from making bad loans.
There is a lot of talk about a Consumer Protection Agency when what we really need is a Lender's Protection Agency. I know the optics don't look very good, but that's what's really needed. We need to protect lenders from making bad loans.
You say that sounds silly, well it's not so silly and here is why. I'll start with a story about a piece I saw on 60 Minutes. They interviewed a subprime lender in California (he seemed like a pretty smart guy) and asked how could he make loans to people who not only put no money down, but didn't even go through a credit check (income , job, assets etc-NINJA loans.) These were also known as liars loans. He said that he knew that he should have required all of the basic underwriting stuff , but that if he did so, his customers would just go down the street to another lender who won't require it, and in a few months he would be out of business. He was caught in a trap, even if one of his own doing, and he couldn't stop unless his competitors did as well. The only way to have put a stop to this insanity would be for the government to stop everyone from making these bad loans. That's what they do in Canada; no home loans without putting 20% down and customary credit underwriting.
Not so long ago our banks were "required" under banking regulations to use "safe and sound lending practices" to properly underwrite loans. Clearly the so called NINJA loans won't qualify. Implementing such a rule again would protect the banks from themselves and as a result protect all of us. I don't know when that all went away , but at the very least we should bring it back and apply it to all lenders of any kind. These shaky, some say shady, loans not only hurt the borrowers but in the end hurt the lenders as well; as we have so painfully seen.
So let's add a Lender's Protection Provision to the financial reform bill to protect lenders against making bad loans. Of course, you can't eliminate all bad loans, but we could go a long way in that direction and then we wouldn't have to worry so much about all that other stuff everybody talks about, but was not the root cause of the financial crisis. The root cause was BAD LOANS.
I'll discuss why lenders were allowed to make these bad loans in a subsequent post.
Eric
In fact the one thing that's not covered is the prevention of making bad loans, or least an attempt to so. If the loans were good loans, no amount of leverage, securitization, derivatives, out sized compensation, or other opaque complexities or side bets, would have been a problem.
Why hasn't the emphasis been, as far as reasonably possible, to prevent lenders from making bad loans.
There is a lot of talk about a Consumer Protection Agency when what we really need is a Lender's Protection Agency. I know the optics don't look very good, but that's what's really needed. We need to protect lenders from making bad loans.
You say that sounds silly, well it's not so silly and here is why. I'll start with a story about a piece I saw on 60 Minutes. They interviewed a subprime lender in California (he seemed like a pretty smart guy) and asked how could he make loans to people who not only put no money down, but didn't even go through a credit check (income , job, assets etc-NINJA loans.) These were also known as liars loans. He said that he knew that he should have required all of the basic underwriting stuff , but that if he did so, his customers would just go down the street to another lender who won't require it, and in a few months he would be out of business. He was caught in a trap, even if one of his own doing, and he couldn't stop unless his competitors did as well. The only way to have put a stop to this insanity would be for the government to stop everyone from making these bad loans. That's what they do in Canada; no home loans without putting 20% down and customary credit underwriting.
Not so long ago our banks were "required" under banking regulations to use "safe and sound lending practices" to properly underwrite loans. Clearly the so called NINJA loans won't qualify. Implementing such a rule again would protect the banks from themselves and as a result protect all of us. I don't know when that all went away , but at the very least we should bring it back and apply it to all lenders of any kind. These shaky, some say shady, loans not only hurt the borrowers but in the end hurt the lenders as well; as we have so painfully seen.
So let's add a Lender's Protection Provision to the financial reform bill to protect lenders against making bad loans. Of course, you can't eliminate all bad loans, but we could go a long way in that direction and then we wouldn't have to worry so much about all that other stuff everybody talks about, but was not the root cause of the financial crisis. The root cause was BAD LOANS.
I'll discuss why lenders were allowed to make these bad loans in a subsequent post.
Eric
Tuesday, April 27, 2010
The Wall St. Full Employment Act
It seems to me that one of the consequences of the financial reform efforts (unintended, I assume) is the benefits which may redound to Wall St. As I see what could happen, these efforts could be called The Wall St. Full Employment Act.
Let's start with getting our definitions straight. Wall St. refers to investment banks; firms like Goldman Sachs, Morgan Stanley, Merrill Lynch( now owned by Bank of America), Lehman Bros. (gone) and Bear Stearns (now owned by JP Morgan Chase). They all are (or were) headquartered in the Wall St area of New York City; ergo the name.
Big Banks are large commercial financial institutions that used to just basically take deposits and makes loans. They don't even primarily reside in Wall St, but rather are headquartered in Charlotte, San Francisco, Minneapolis, Pittsburgh and Mid-Town Manhattan.
As a result of the financial crisis, investment banks also became commercial banks because it entitled them to many of the government benefits employed to fight the financial panic. It was the smart thing to do, and it was allowed since the repeal of Glass Steagall.
Commercial banks, also as a result of that repeal, have been allowed, for some time, to act as investment banks.
If Glass Steagall is repealed, they will have to choose sides. The true investment banks will just drop their bank charters. They really don't care much about taking deposits and making loans. Have you ever seen a Morgan Stanley branch bank or a Goldman ATM? Me neither.
For the commercial banks, it's not so easy. If they are forced to leave investment banking, the field will be wide open for Wall St. to capture all of that business (very profitable albeit risky) the commercial banks will be required to abandon.
Talk about unintended consequences. In one fell swoop, Wall St. will have eliminated it's strongest competition. They will have to scramble to handle all of the new business.
By the way, I'm not sure allowing the Banks to do just non-proprietary investment banking will solve this problem in the long run.
All in all, getting rid of Glass Steagall may be bad for Banks, but great for Wall St.
Eric
Let's start with getting our definitions straight. Wall St. refers to investment banks; firms like Goldman Sachs, Morgan Stanley, Merrill Lynch( now owned by Bank of America), Lehman Bros. (gone) and Bear Stearns (now owned by JP Morgan Chase). They all are (or were) headquartered in the Wall St area of New York City; ergo the name.
Big Banks are large commercial financial institutions that used to just basically take deposits and makes loans. They don't even primarily reside in Wall St, but rather are headquartered in Charlotte, San Francisco, Minneapolis, Pittsburgh and Mid-Town Manhattan.
As a result of the financial crisis, investment banks also became commercial banks because it entitled them to many of the government benefits employed to fight the financial panic. It was the smart thing to do, and it was allowed since the repeal of Glass Steagall.
Commercial banks, also as a result of that repeal, have been allowed, for some time, to act as investment banks.
If Glass Steagall is repealed, they will have to choose sides. The true investment banks will just drop their bank charters. They really don't care much about taking deposits and making loans. Have you ever seen a Morgan Stanley branch bank or a Goldman ATM? Me neither.
For the commercial banks, it's not so easy. If they are forced to leave investment banking, the field will be wide open for Wall St. to capture all of that business (very profitable albeit risky) the commercial banks will be required to abandon.
Talk about unintended consequences. In one fell swoop, Wall St. will have eliminated it's strongest competition. They will have to scramble to handle all of the new business.
By the way, I'm not sure allowing the Banks to do just non-proprietary investment banking will solve this problem in the long run.
All in all, getting rid of Glass Steagall may be bad for Banks, but great for Wall St.
Eric
Tuesday, April 13, 2010
Time Out --Part II
In David Brook's op-ed "Relax, We'll Be Fine" in the Tuesday, April 6,2010 New York Times, he picks up on the optimism for America's future of my post "Time Out" . Here are a few choice quotes:
"despite all the problems, America's future is bright."
"Over the next 40 years... the US population will surge by an additional 100 million people...The population will be enterprising and relatively young. In 2060, only a quarter will be over 60, compared with China at 31 percent and 41 percent in Japan."
"The demographic growth is driven partly by fertility. The American fertility rate is 50 percent higher than Russia, Germany or Japan, and much higher than China."
"In addition , the US remains a magnet for immigrants. Global attitudes about immigration are diverging , and the US is among the best at assimilating them (while China is exceptionally poor). As a result, half of the word's skilled immigrants come to the U.S."
" between 1990 and 2005, immigrants started a quarter of the new venture- backed public companies"
"the US leads the world in scientific and technological development. The US now accounts for a third of the world's research and development spending ... The average American worker is nearly 10 times more productive than the average Chinese worker, a gap that will close but not go away in our lifetimes."
There is a lot more to his column and I urge you to find it. I particularly liked his conclusion that " In sum , the US is on the verge of a demographic, economic and social revival, built on its historical strengths".
It's also very interesting to note, in light of some of the anti-immigration hysteria, how critical immigration is to our future economic success.
Eric
"despite all the problems, America's future is bright."
"Over the next 40 years... the US population will surge by an additional 100 million people...The population will be enterprising and relatively young. In 2060, only a quarter will be over 60, compared with China at 31 percent and 41 percent in Japan."
"The demographic growth is driven partly by fertility. The American fertility rate is 50 percent higher than Russia, Germany or Japan, and much higher than China."
"In addition , the US remains a magnet for immigrants. Global attitudes about immigration are diverging , and the US is among the best at assimilating them (while China is exceptionally poor). As a result, half of the word's skilled immigrants come to the U.S."
" between 1990 and 2005, immigrants started a quarter of the new venture- backed public companies"
"the US leads the world in scientific and technological development. The US now accounts for a third of the world's research and development spending ... The average American worker is nearly 10 times more productive than the average Chinese worker, a gap that will close but not go away in our lifetimes."
There is a lot more to his column and I urge you to find it. I particularly liked his conclusion that " In sum , the US is on the verge of a demographic, economic and social revival, built on its historical strengths".
It's also very interesting to note, in light of some of the anti-immigration hysteria, how critical immigration is to our future economic success.
Eric
Tuesday, April 6, 2010
O Canada-Why Not?
I have been following the efforts in the Congress to enact financial reform. I agree with strengthening regulations regarding increased capital requirements and less leverage.
I definitely agree that the so called "shadow banking" sector must be included in the regulatory scheme.
Frankly, I think credit default swaps should be banned, unless you also hold the underlying asset(the so called naked swaps) or treated as insurance, with reserves set aside like any other insurance. But I'm sure there are decent arguments on the other side of that one.
I'm not sure why we need a separate Consumer Protection Agency other than to make sure bankers do what they should always do which is to make loans based on "safe and sound" underwriting principles.
Of course it's just silly to levy a tax on banks which can only cost consumers and create additional moral hazard ( whatever that really is). I really don't get why you tax banks for TARP losses arising from making loans to car companies and an insurance holding company. They better pass that tax quick before GM,Chrysler and AIG pay back the money they got, maybe even with a profit to the taxpayer.
However, what we really need is a ban, as exists in Canada, on subprime lending of the kind that got us into this mess in the first place.
Why is it that no one talks about eradicating the root cause of the financial meltdown-- abusive subprime loans. How in the world did the government allow subprime lending, especially the kind made with no money down and no proof of income, assets or even a job. The so called "no docs" loans that were made to anyone with a pulse.
As Paul Krugman pointed out it is against the law in Canada to make home loans with less than 20% down. Even with low interest rates and too big to fail banks, Canada didn't have much of a housing bubble problem. The reason was no subprime lending. The same was true of NYC where co-op boards certainly didn't allow subprime financing.
Why can't we just do that in the US? I really don't understand why no one talks about that. Everything else deals with how best to absorb the consequences of future problems. I think we also should do something to actually help prevent future problems. Securitization didn't cause the loans to go bad. Even credit default swaps didn't create those scandalously poorly underwritten loans. What's the old computer cliche "Garbage In , Garbage Out". The subprime loans were mostly garbage and no Volker Rule or other regulatory reform would change that.
All the other catastrophic problems followed from having made crappy loans in the first place. What am I missing here? All the other reforms do not address eliminating this root cause of the meltdown. Who is against eliminating subprime lending and why?
Eric
I definitely agree that the so called "shadow banking" sector must be included in the regulatory scheme.
Frankly, I think credit default swaps should be banned, unless you also hold the underlying asset(the so called naked swaps) or treated as insurance, with reserves set aside like any other insurance. But I'm sure there are decent arguments on the other side of that one.
I'm not sure why we need a separate Consumer Protection Agency other than to make sure bankers do what they should always do which is to make loans based on "safe and sound" underwriting principles.
Of course it's just silly to levy a tax on banks which can only cost consumers and create additional moral hazard ( whatever that really is). I really don't get why you tax banks for TARP losses arising from making loans to car companies and an insurance holding company. They better pass that tax quick before GM,Chrysler and AIG pay back the money they got, maybe even with a profit to the taxpayer.
However, what we really need is a ban, as exists in Canada, on subprime lending of the kind that got us into this mess in the first place.
Why is it that no one talks about eradicating the root cause of the financial meltdown-- abusive subprime loans. How in the world did the government allow subprime lending, especially the kind made with no money down and no proof of income, assets or even a job. The so called "no docs" loans that were made to anyone with a pulse.
As Paul Krugman pointed out it is against the law in Canada to make home loans with less than 20% down. Even with low interest rates and too big to fail banks, Canada didn't have much of a housing bubble problem. The reason was no subprime lending. The same was true of NYC where co-op boards certainly didn't allow subprime financing.
Why can't we just do that in the US? I really don't understand why no one talks about that. Everything else deals with how best to absorb the consequences of future problems. I think we also should do something to actually help prevent future problems. Securitization didn't cause the loans to go bad. Even credit default swaps didn't create those scandalously poorly underwritten loans. What's the old computer cliche "Garbage In , Garbage Out". The subprime loans were mostly garbage and no Volker Rule or other regulatory reform would change that.
All the other catastrophic problems followed from having made crappy loans in the first place. What am I missing here? All the other reforms do not address eliminating this root cause of the meltdown. Who is against eliminating subprime lending and why?
Eric
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