Thursday, March 19, 2009

Misdirection on AIG Bonus Issue

People are angry about the 165 million dollars in bonus money that heavily bailed-out insurer AIG gave out. And they ought to be. But while the media misdirects your anger to this one group of corporate looters, the big fish slip away unscathed. Let's look at who is more directly responsible.....

Congressman Barney Frank and Senator Chris Dodd are the "point men" to fix this mess. Its ridiculous. They were the ones running the congressional oversight committees when we got into this mess. There policies are what got us here. Now they want to shift all the anger and blame into one narrow group. If people feel like the guys running these messed up banks should resign, then Doodd and Frank should resign.

What is particularly galling is the massive hypocrisy of those two. Frank was sleeping with a male board member of Fannie Mae when he was supposed to be overseeing them. He pushed for the community re-investment act and still will not admit its major role in the housing crises. He should have zero credibility. He blew it bigger than any of these execs who lost billions. Still, he gets on their and acts like he is the big reformer who is going to go after all of these crooks. His fingerprints are all over this fiasco. The execs are like petty crooks who take the fall for the crime lord really responsible.

Dodd was on TV radiating indignation at the AIG execs who took the bonuses. Then it was revealed that HE was the one who changed the conditions of the bailout so that the bonuses could be paid. The DOA excuse was that they were afraid of lawsuits, but they write the law and could exempt the clause from judicial review.

The real scandal is where the bulk of the AIG bailout billions went. It was to Goldman Sachs, JP Morgan, and foreign banks. The people who got this bailout were the same ones who got the last bailout, it just went to AIG so AIG could pay off its losing bets with Goldman Sachs. Our government has become a kleptocracy. That is rule by, and for, a small group of very rich thieves. The Goldman Sachs and company guys control policy no matter which party is in power, and they are using the government to engorge themselves with taxpayer monies.

Taxing the bonuses at 90% is an example of two wrongs not making a right. The bailout should never have been handed out in the first place. Of course there will be corruption when the government hands out two trillion dollars in the space of a few months. How could they not know that, are they insane? Now that it has been handed out, a retroactive changing of the law is an unconstitutional bill of attainder. It does not address who got almost all of the money and it won't apply to all of the overseas AIG employees anyway.

9 Comments:

Anonymous Rick said...

So, let me see if I understand this. The current admin just gave tax payer money to AIG who in turn handed out a chunk of the bailout money in the form of a bonus. This has been planned by AIG for months and made possible by special provisions put into the bailout bill by Dems in congress as well as the current Admin.
Citizens are outraged, and rightfully so, so the Obama Admin say they didn't know the bonus handout was coming. Are you kidding me?
The Obama Admin is either stupid, ignorant or just don't have a clue what they are doing, or all the above.
We are in deep trouble in this country.

6:14 AM, March 20, 2009  
Anonymous Chuck said...

"Of course there will be corruption when the government hands out two trillion dollars in the space of a few months. How could they not know that, are they insane?"

You cannot be serious in asking this question. Of course there will be corruption (as there has been in practically every government program for the last 50+ years) and of course they are insane. And we the people are insane for electing these clowns. Rick is right: we are in deep trouble. The sky is not falling; the empire known as the USA is.

7:22 AM, March 20, 2009  
Blogger Arkansas Hillbilly said...

While I agree that there are many to blame in this, I don't agree that the CRA was responsible for this mess. In fact, Greenspan, Snow (Bush’s former Tres. Sec.), and SEC chair Cox all testified before congress last year saying CRA had nothing to do with the sub-prime mess. Likewise the FDIC just released a study saying the same thing: CRA and sub-prime loans had little to do with the melt down. Rather it was mortgage failures in general caused by the overall bad economy coupled with overly aggressive lending (greed), loan origination fraud by mortgage companies, and the pressure to rate CBOs, and CDSs high AAA by Moody’s and Standard and Poor’s that caused it. To blame it on a program that was meant to help people with lower incomes own homes is like blaming the Surf because the Barron burned his house down during a feast. An article in December's US News and World Report and Business Week contend that the CRA had nothing to do with the financial meltdown.

The CRA was an attempt by the Government to do the "right thing" and help people become homeowners who otherwise wouldn't be given a chance. Were there mistakes made? Yes. But the truth of the matter is that when any financial institution is leveraged 30+:1 there is something wrong. That's where the fault of this mess is. The greed of instituitons that thought they could make a fast buck on a "sure thing".

And as far as AIG paying these other institutions, what did you think the bailout money was for? In order to shore up AIG, they have to pay the money they owe to these other banks that bet against them (see 30:1 odds). If AIG were to fail, these other banks would not get the billions of dollars owed them, and would risk collapse as well.

And furthermore, why do we need to know that the person Sen. Frank was sleeping with is male? Does that somehow increase culpability or make him more guilty? I don't think so. In fact, Sen. Frank's relationship with Herb Moses predated the Senator's support for Fannie and Freddie and continued after they parted ways (http://www.businessandmedia.org/articles/2008/20080924145932.aspx).

There obviously have been mistakes made here. But blaming the poor schmuck that is just trying to make a living is disingenuous at best and outright disgusting at worst. Lay the blame where it belongs, with the greedy fat cats in Washington and on Wall St. that collectively bent the US taxpayer over a barrel and continue to stick it to us.

1:34 PM, March 20, 2009  
Blogger Mark Moore (Moderator) said...

CRA was behind the pressure to over-rate those instruments. There is just no way the banks could stay in the banking business and still avoid making risky loans while fulfilling the requirements of CRA.

The regulation does not tell banks "30% of your loans have to be bad or high-risk loans". Rather, it specifies that 30% of a financial institution's mortgage loans have to be in "underserved areas".

The REASON those areas are "underserved" is that there in an under SUPPLY of credit-worthy people in those areas to make loans to. Most of these areas are populated by minorities, and in many cases filled with illegal aliens. Because of that, it is not politically correct to be rational and point out the financial mayhem that the loan-quota has caused.

The act does not specify the loans have to be bad loans, but by specifying the loans must come from a bad area the effect is the same. All of the credit-worthy people in those areas got loans long ago. The only ones left to give money to were the riskier customers.

This caused a domino effect. The government forced banks to create all of these hot potato loans, so naturally there was pressure to get rid of them.

And illegal immigration figures into this mess too. When an illegal alien strawberry picker who made 14K a year can get every penny needed to move into a 270K home, there is a lot of pressure to make loans to "underserved communities". A red zone map of the default rates will show that the hot spots are Cali, the SW, Florida, and Michigan. All but the last have seen a large influx of illegal aliens.

I agree that Glass-Steagal should not have been repealed. I agree that the government should not have allowed 30-1 leveraging. I was a spokesman for Ron Paul. The 30-1 leveraging makes it impossible to avoid a disaster when a wave of failures happen, and CRA insured a wave of failures would happen.

The government allowed 30-1 leveraging in order to keep the banks creating credit to keep the illusion of prosperity going. There is a total absence of integrity in Washington regarding our financial system. Barney Frank was the guy in charge of the key committee overseeing it in the house, Dodd in the Senate. I say gay or straight, they both need to go. Do you agree?

4:56 AM, March 21, 2009  
Anonymous Anonymous said...

Illegal immigrants cause no problem without the aid of the US government or that legal immigrants do not.

The US government and the banks cause no problem without the aid of the US citizens.

Blame whoever you want, The banks, the Feds, or the Mexicans.
The problem is whoever calls themselves American.

2:13 AM, March 22, 2009  
Blogger Arkansas Hillbilly said...

Both of your arguments again do not ring 100% accurate. In one instance you state, " All of the credit-worthy people in those areas got loans long ago. The only ones left to give money to were the riskier customers." But according to Janet Yellen, President of the Federal Reserve Bank in San Francisco, the opposite was true. An article I read about it states, "independent mortgage companies made risky 'high-priced loans' at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis. A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans. Emre Ergungor of the Federal Reserve Bank of Cleveland found that there was no statistical difference in foreclosure rates between regulated and less-regulated banks, although a local bank presence resulted in fewer foreclosures." This contradicts your first statement.

Next you state that, "The government forced banks to create all of these hot potato loans, so naturally there was pressure to get rid of them." Another quote "San Francisco Federal Reserve Bank Governor Randall Kroszner has stated that the claim that 'the law pushed banking institutions to undertake high-risk mortgage lending' was contrary to their experience, and that no empirical evidence had been presented to support the claim."

As I stated in my earlier post, the fault of our current crisis does not rest on the Community Re-investment Act. It rests on the financial giants like AIG creating these Credit Default Swaps which were unregulated. The pressure came from companies like AIG and the former Leiman Brothers who pressured the smaller banks to make as many loans as possible so they could be converted into multi-million dollar bonds which the companies sold at huge profits.

I agree, the pressure was to make "risky loans", but that pressure did not come from the CRA. It instead came from Wall St., companies like the now defunct Countrywide, and those of us who thought property investment was a "sure thing" and bought up houses to resell as soon as we could flip them. Greed is what did us in, not Charity. Again, blaming the crisis on the guy who is just trying to eke out a living is like blaming the surfs because the Lords burned the field. Statistics are bearing out that these "red line loans" were in fact better bets than the over-inflated loans made to the "investment buyers". The history shows that they were in fact as likely, and in some cases less likely to wind up in default.

9:45 AM, March 23, 2009  
Blogger Mark Moore (Moderator) said...

Well I can respond to those points, be glad to. First though, I don't want to rush past the direct question that I put to you.

"There is a total absence of integrity in Washington regarding our financial system. Barney Frank was the guy in charge of the key committee overseeing it in the house, Dodd in the Senate. I say gay or straight, they both need to go. Do you agree?"

4:17 AM, March 24, 2009  
Blogger Arkansas Hillbilly said...

Dodd, probably. He does have some pretty shady dealings from what I can see. Frank... the jury is still out on him, but I'm inclined to say probably so too. But then again I am against "career congressmen" in general, so my opinion is biased.

12:58 PM, March 24, 2009  
Blogger Mark Moore (Moderator) said...

AH,

You are using the word of Federal Reserve Bank Presidents as evidence to a Ron Paul supporter? We see them as the biggest scam artists in world. The Fed is a rip-off machine operated by banksters and should be abolished.

Your other cites are not giving facts, just making a series of "appeals to authority" arguments at a time when I, and likely the vast majority of the population, have ZERO, and I mean ZERO trust in those authorities. They are robbing us blind in broad daylight. Why would I take their word on anything?

Now you do cite a few actual stats, and so I am obliged to give an answer to those.

independent mortgage companies made risky 'high-priced loans' at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis

That stat is the result of skewing definitions. What makes a loan risky is not its price, but the creditworthiness of the individual getting the loan.

Prior to the expansion of CRA, black and white default rates on loans were about equal (I have not been able to find historical data on hispanic loan repayment rates). This indicates that banks were doing a good job of assessing risk in both communities, but the result was that on average fewer blacks got loans. After CRA was expanded, default rates for blacks shot up. For more blacks to get loans, banks had to lower lending standards. Of course, at the end there the standards got low for everyone.

Now banks under CRA may not have ORIGINATED the risky loans, but they BOUGHT those loans because CRA said they had to have a loan portfolio that "looked like America" or at least their area of it. The banks then had all of these quota loans to underqualified borrowers on their books. The figured a way around it by doing something much like selling the debt to a collection agency- the "securitized" the sub-prime loans. That is, they sold the rights to the income stream of repayments in exchange for money up front. The sucker investors failed to realize that there wasn't going to BE a revenue stream for many of those loans as they would not be repayed. And it was not even clear that the suckers that the banks sold these securities to could even repossess the house! The bank still got to repo the house! These "securities" are the troubled "assets" that our rulers want us to buy.

A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans

What a deceptive study! CRA banks WERE less likely to MAKE subprime loans. They BOUGHT those loans from the fly-by-nighters to make their portfolios conform to what the CRA said they should look like. THAT is why the study showed the CRA banks were less likely to resell the loans. They were BUYING subprime loans, not selling them. And their demand for such loans came from the pressure to meet the requirements under the CRA. They did not sell the LOANS, they securitized the "income stream" from the loan repayments and sold the income stream from the loans while technically keeping the loans.

I agree with you as regards some of the other factors that contributed to the crises, such as unregulated credit-default swaps. It is just good government 101 to require insurers to have sufficient capital to back their claims. I also agree that a lot of people got greedy and wanted to look the other way. CRA is still part of the problem, it is still crazy, and it is still law.

Greed is what did us in, not Charity.

I cannot agree that forcing other people to loan money to people that they would not otherwise be inclined to loan money to is "charity". Rather it is coercion,or even extortion.

Taking money from your own pocket in order to give it to a minority so that they will have a big enough down payment that the bank will choose of its own free will to give them the loan is true Charity. There is no such thing as charity under compulsion.

6:20 PM, March 25, 2009  

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