Wall Street Bailout

Financial Oligarchy "Lobbies" Up

Now, it is not like the financial oligarchy's lobbyists have not done their job so far but they are gearing up for the biggest battle.

Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.

Notice who they are enlisting for help - two former aides to Paulson. The battle is for "the hearts of minds" of Congress because Congress holds the key to real regulatory reform (not that bambi crap that Obama Administration proposed).

What is the Fed Worried About?

I could not resist saying something about this Bloomberg article: Fed Said to Raise Standards for Banks' TARP Repayment. In May, the Fed released the results of the not too stressful 'stress tests'. The 'stress tests' concluded that JP Morgan Chase and American Express Co. didn't have to raise any additional capital. Apparently, the Fed has changed its mind.

JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told only yesterday, people with direct knowledge said.

Fed Has Short Term Memory Loss

This is priceless. The Fed announced today that it was potentially expanding its balance sheet and the Term-Asset Backed Securities Loan Facility (TALF) to include toxic ("legacy") CMBS. The Fed hopes to jump start the CMBS market with this move.

On March 23, 2009, the Federal Reserve announced that it would evaluate extending the list of eligible collateral for TALF loans to include certain legacy securities. The objective of the expansion is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions. Tuesday’s announcement marks the first addition of a legacy asset class to the list of eligible TALF collateral.

FASB Give It and FASB Take It Away.

In April, FASB (Financial Account Standards Board) caved to incredible pressure from financial conglomerates and politicians when it agreed to severely limit "mark to market" rules (FAS 157). But, did FASB get a little revenge with the decision to eliminate the exemption of Qualified Special Purpose Entities from balance sheet treatment.

This is how financial conglomerates used Qualified Special Purpose Entities:

Lenders recorded profits before the U.S. subprime mortgage market collapsed in 2007 by selling pooled loans to off-balance- sheet trusts, which repackaged the pools into mortgage-backed securities. Banks then sold those securities to other off- balance-sheet vehicles they sponsored, concealing from investors that the securities were backed by deteriorating mortgages.

S&P: The Bank Crisis May Last Until 2013

Standard & Poor's (S&P), the credit rating agency that played a big negative role in this crisis, released a report yesterday that concluded that the U.S. banking crisis may last until 2013. Only time will tell if they are right - who knows if they are trying to make up for the mistakes they made with mortgage crisis. If they are right it maybe more evidence that the financial conglomerates may be a drag on our economy. It is well past time to break-up the "too big to fail" conglomerates.

The less than glowing report by S&P is like cold water in the face and a deep contrast to the euphoria after the release of the not too stressful 'stress tests'.

Are Financial Conglomerates Prolonging the Foreclosure Crisis?

One way people try to avoid the damaging effects of foreclosure is through 'short sale' - a person who can successfully do a 'short sale' can avoid the embarrassment of foreclosure and potentially avoid damage to credit history. A short sale is where the proceeds (net profit) from the sale of real estate would not be enough to pay-off an existing mortgage in which case the lender/mortgage holder has to agree to accept less than full pay-off by approving the sale. Seller/borrower would negotiate with lender to either forgive the remaining balance on the mortgage loan or make some other payment arrangements.

Fed Under Pressure to Change More Banking Rules

Let me say upfront that I have no problem with private equity companies buying an interest in banks. I do have a problem with them buying up a bunch of banks and controlling them. Good private equity funds are great at identifying deals when they see them and see them with many failing banks. What they see is all upside and downside protected by taxpayers.

Private equity firms are putting the Washington money to use by pressuring the Fed, Congress and the White House to change another old banking rule that applied to bank ownership - mainly the Bank Holding Company Act. Current law prohibits mixing banks and commerce

based on a fear that if industrialists own banks, they will dominate — and try to manipulate — the economy, as they did during the early-20th-century heyday of John Pierpont Morgan.

Just another old obsolete rule - kind of like Glass-Steagall.

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