Three Democratic Senators - Jack Reed of Rhode Island, Carl Levin of Michigan and Jeff Merkley of Oregon - have called for the White House to replace Acting Comptroller of the Currency John Walsh. This is the guy who is responsible for the banks.
http://blogs.wsj.com/...
They're complaining about a speech he gave in London, which has been described elsewhere as "giving the banks a blow job."
That description doesn't go far enough.
The Senators argue that the Dodd-Frank Wall Street Reform and Consumer Protection Act requirements on creators of asset-backed securities to maintain a cash reserve equal to 5% of the value of those assets is insufficient.
It's so much worse than that. That cash reserve thing is a red herring. Dodd-Frank Wall Street Reform and Consumer Protection Act, rather than curbing those excesses that created the financial meltdown, actually enshrines into law the process by which someone with a little cash and a lot of chutzpah can legally fleece the system.
Let's follow the money, shall we? How did we get into this mess?
The bank issues the mortgage, the insurance company secures the mortgage, the bank sells the mortgage in a bundle with lots of other mortgages to the investment house, who slices and dices and securitizes and sells it to the other brokerages in the guise of the pension-replacing 401k. Workers buy the security, and the brokerages take a percentage off the top and a fee for every share they sell. The Industrial Giants who sit on the boards of the banks and brokerages and insurance companies eliminate jobs as cost-cutting. The unemployed workers can't pay their mortgages and default. The bank who collects the mortgage forecloses and cashes in that mortgage insurance. They can resell the house - and a new mortgage - if anyone will buy it. The industrial giants complain that the mortgage industry is collapsing, tries to blame the banks for making bad mortgages in the first place. (And some of this is justified when mortgages are intentionally made to people who can't pay them, but unjustified when the IGs are killing the jobs that people need to pay their mortgages in the first place.) In the meantime those asset backed securities keep changing hands, and the brokers keep cashing in.
These new Robber Barons are fighting to maintain the legal right to keep this money wheel in motion, under the lie of regulating it. The title is Credit Risk Retention, and the discussion process is described here.
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The stated intention of the Dodd-Frank Wall Street Reform and Consumer Protection Act is:
To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.
But let's look at the section that's being discussed in the Credit Risk Reduction discussions. Subtitle D—Improvements to the Asset-Backed Securitization Process (If you're following along in the pdf linked above, it starts on page 515.)
An Asset-Backed Security is a financial instrument (stock, bond, etc) that is collateralized by assets that provide cash flow. Ie, mortgages, loans, bonds, etc. HOWEVER, right in the definition:
‘‘(B) does not include a security issued by a finance subsidiary held by the parent company or a company controlled by the parent company, if none of the securities issued by the finance subsidiary are held by an entity that is not controlled by the parent company.’’.
So if a parent company owns a mortgage issuer, mortgage insurer, and securities broker, then the asset they create is not regulated by these rules. If you own the entire process, you're exempt.
I'm going to repeat that. If you own the entire process, the law does not apply to you.
Continuing through the Act, there's lots of complicated language that describes lots of things, but is continually hedged with the limitation
the Federal banking agencies and the Commission shall jointly prescribe regulations to require any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party.
But if you don't sell, transver, or convey to a third party, you're unregulated. You can do whatever you want.
And how is it that one company can own the entire process?
Thank the Gramm-Leach-Bliley Act, which rolled back Glass-Steagall, the post-Depression era prohibitions against a single entity acting as any combination of investment bank, commercial bank, and insurance bank.
Now, thanks to Gramm-Leach-Bliley, the organization that issues the mortgage, that services the mortgage, that insures the mortgage, that securitizes the mortgage, and that sells the security, can now be held under a single parent company, and thanks to Dodd-Frank, they can slice and dice your mortgage and sell crap to themselves on the stock market, crashing the entire financial system in the process.
Because as long as the entities passing those asset-backed securities are owned by ONE ENTITY, they can charge themselves and you exhorbitant fees and take a cut off the top with every transaction. Breathe in, pay a fee. Breathe out, pay a fee. Just keep breathing. And if you die, we cash in on the insurance.
And as an example from history:
Countrywide Mortgage
Bank of America
Merrill Lynch
Senators, Please Keep Fighting. Get John Walsh out of office. But forget talking about the 5% as if it is the loan origination that is the primary problem. That is a red herring. It's the securitization, hedging, and replacing traditional pension programs with for-profit investments, such as 401Ks backed by such securitization, that's the problem. It's the middle men, the securitizers and brokers, who are profitting - skimming off the top and charging fees for the privilege - every time one of those securities changes hands. As long as they can keep the money in motion, they win. And if they can con the government into bailing them out when the money wheel stops spinning, they win again.
And repeal Gramm-Leach-Bliley. Restore the firewall that keep these Robber Barons from owning the whole process.