Financial Sector Proposals

Treasury Secretary Henry Paulson finally got engaged in the economic crisis yesterday proposing new federal regulations designed to streamline the financial sector.  First of all I never trust a Republican to regulate Wall Street and be very apprehensive of their plans.   This one actually gives more power to the Federal Reserve after their actions under Alan Greenspan greatly contributed to the current crisis.    If that makes sense raise your hand.

Not seeing any but tyler's let's review a bit.  We're in this mess now because we refused to allow any oversight of the large financial markets.  They ran amok with greed.  These people want to privatize their profits but socialize their losses, as I heard one wise person put it recently.  This means when things are good they stand on claims of "personal responsibility" and decry any increased taxes or regulation.  When their unbridled greed inevitably leads to a collapse they suddenly abandon "personal responsibility" and run to Uncle Sam for bailouts.

This, again, is what we've witnessed recently.  We have no alternative however.  A complete economic collapse on the scale of the Great Depression isn't something anyone can allow to occur.  Basically the arguments here are between macro and micro approaches.  Macro means looking at the big picture, being involved in the markets as a whole.  Micro means targeting in on every detail, every mortgage loan, for example, or every bank.

We don't have time for a micro approach.  John McCain's laissez faire approach leaves those hurt on the micro level, individual homeowners, on the hook for their bad decisions while rescuing those bankers who did the same.  McCain's solution is only to bail out the institutions who engaged in the predatory lending, the bad practices and eave you, the voter, hanging for yours.  Classic Republican economic dogma:  screw the working people and save Wall Street.

Unfortunately the crisis is already spreading to other sectors of finance.  Student loans  are drying up and with them, millions of middle class dreams for our youth.   Bill Clinton laments on the campaign trail how he and Hillary borrowed money for college at 2% rates.  Back then normal loan rates were considerably higher, very considerably higher, than now.  We subsidized these loans instead of creating an entire new industry for Wall Street. 

Action is needed now to save student loans.  Congressman Paul Kanjorski is trying to get the attention of Secretaries Paulson and Spellings to no avail:

WASHINGTON – Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, expressed concerns about a letter he received today from Secretary of the Treasury Henry M. Paulson, Jr. and Secretary of Education Margaret Spellings.  The letter responds to an inquiry from Chairman Kanjorski and 20 other Members of Congress urging the Administration to take action to address capital access problems in the student loan marketplace in order to ensure the continued availability of affordable, federally guaranteed student loans.

“While I appreciate Secretary Paulson and Secretary Spellings’ response that they understand the scope of the problems affecting the student loan industry and that they are closely monitoring the situation,” said Chairman Kanjorski, “I find it unfortunate that the Administration is not taking greater action at this time to fix the problem.  How many more lenders must drop out of the Federal Family Education Loan Program before the Administration will take action?  Students and their families preparing to go to college this fall need to know that they will have access to affordable higher education loans.”

In their reply, Secretary Paulson and Secretary Spellings note that because there are more than 2,000 lenders who originate loans in the Federal Family Education Loan Program (FFELP), the student financial aid market should be able to “quickly address instances where some…lenders choose to limit their participation” in the FFELP.

“While they may be technically correct about the current statistics, we are seeing an ever increasing number of student loan originators deciding to exit or suspend their participation in the FFELP,” observed Chairman Kanjorski.  “Within the last 9 days alone, this list has grown by 16 more providers.  I am, therefore, concerned that the problems in our capital markets may soon result in a significant decrease in the student loan distribution system for which the Administration will not be able to provide an adequate, timely and effective solution.”

On March 19 the FinAid.org website, an award-winning source of information on student financial aid, noted that 21 originators had exited or suspended their participation in all or part of the FFELP since last August.  As of March 28, there are now 37 student loan lenders classified as such.  These 37 providers account for nearly 10 percent of the Stafford and PLUS loan origination volume under the FFELP.  They also account for more than 30 percent of the consolidation volume under the FFELP.

“Moreover, I am very concerned that the Administration’s response fails to recognize the views of the professionals on the front lines of our nation’s financial aid system who want action now to ensure the continued availability of federally guaranteed student loans this fall,” added Chairman Kanjorski.

Earlier this week, the National Association of Student Financial Aid Administrators called for an infusion of liquidity in the student loan marketplace.  The non-profit association represents financial aid professionals at 3,000 universities and colleges.

“We need proactive, swift action now to provide stability in the student loan marketplace.  The Administration is in the best position to provide such leadership,” concluded Chairman Kanjorski.  “In the weeks ahead, I will continue to push for action on this critical issue.”

Chairman Kanjorski has worked for several months to raise awareness about the problems in the student loan marketplace and urge swift action by the Administration.  On February 15, for example, Chairman Kanjorski spearheaded the effort to send the group letter to Treasury Secretary Paulson and Secretary Spellings.

On March 17, Chairman Kanjorski joined by 31 other bipartisan Members of Congress also sent a letter to Federal Reserve Chairman Ben S. Bernanke urging him to take action to inject liquidity into the student loan marketplace to help all types of originators.  They are still awaiting a response to their inquiry.

Update:  Kanjorski today released this statement on the Treasury Secretary's proposals:

Overview

“Treasury’s efforts to address the deficits in our current regulatory system are a step in the right direction. Their recommendations include some short-term proposals to address the problems created by the current credit crunch, as well as a long-term conceptual model with several intermediate steps to reform the regulatory system. Given the current uncertainty in our financial markets, we need to move in a way that does not add further stress. We should work in the short term on implementing surgical regulatory reforms before pursuing broader change. I commend Treasury for coming to such a realization.

“After addressing these short-term needs, I am—as I indicated in hearings last fall—very interested in examining how well the regulators created in the last century are responding to the realities of the new century. Our capital markets have significantly evolved. After all, no one had conceived of mortgage-backed securities at the time we created the Federal Reserve and the Securities and Exchange Commission.

Credit Unions

“I am very apprehensive about Treasury’s recommendation to consolidate regulation of credit unions with other depositories. There is a need to put credit unions on a level playing field with other financial institutions in areas like capital standards and business lending, but it should not come at the expense of eliminating the current regulatory system, which has worked well and serves the financial needs of more than 90 million Americans. We must preserve and protect the unique cooperative nature of the American credit union system.

Insurance

“Treasury calls for the creation of a federal insurance regulator and an optional federal charter for insurers. An optional federal charter would respond to the global competitive pressures of the insurance marketplace.

“I have worked toward this goal for some time. Under my leadership, the Capital Markets Subcommittee has already held several hearings in the 110^th Congress on insurance regulatory reform, all of which addressed creating an optional federal charter, and I expect to convene another hearing in April to further examine this issue. The Treasury Department should have a seat at the table at this hearing.

“As an intermediate step toward the establishment of a federal insurance charter and regulator, Treasury suggests creating an Office of Insurance Oversight to collect information about the industry and advise the Administration about insurance policy. I have also previously called for the establishment of such an entity. In today’s markets, the federal government needs in-house expertise on insurance policy.

Mortgage Lending

“Finally, in light of the current problems in the mortgage markets, Treasury calls in the short term for creating a commission to establish uniform minimum licensing qualification standards for mortgage originators. I proposed in legislation such standards for mortgage brokers more than three years ago, and last year the House passed H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act, to put in place such a system. It is my hope that we can finally move toward enacting these reforms into law.

“We must also move forward in the short term with other surgical reforms for our mortgage markets. As such, I recently worked with Congressman Michael N. Castle (R-DE) to introduce H.R. 5579, the Emergency Mortgage Loan Modification Act. To promote private sector loan modifications, our bill would provide mortgage servicers with a safe harbor from investor lawsuits. I am hopeful that the Administration will support this narrow reform.”

Comments

[tyler]

Uh Professor Morgan...I wasnt raising my hand about the Fed...I was raising to ask if I can go to the bathroom now....

[Dave M.]

""John McCain's laissez faire approach leaves those hurt on the micro level, individual homeowners, on the hook for their bad decisions while rescuing those bankers who did the same. McCain's solution is only to bail out the institutions who engaged in the predatory lending, the bad practices and eave you, the voter, hanging for yours. ""

If they made bad decisions, why shouldn't we leave them "on the hook"? Bear Stearns bailout is hardly that. Stockholders got killed when the stock dropped 90% and there will be massive layoffs. As for student loans, well, it's called a credit crunch, an event just as common as a recession. When politicians get involved and try to prevent recessions and crunchs is when they make things worse and interfere with the normal cycle of expansion and contraction of the capitalistic system. Meanwhile, you still got 2,000 lenders still in the student loan system, and was admitted to by Kanjkorski. He's just grandstanding.

Over 246 mortgage lenders have gone under since 2006. I'n not seeing the bailout you mention..

http://ml-implode.com/

[John Morgan]

Of course you CAN tyler. The question is, MAY you?

[John Morgan]

We can't destroy the economy just to teach them a lesson. We must avoid a catastrophic economic collapse at all costs. That's the macro approach.

[Peter Bonny, Jr.]

I am absolutely speechless about this. So many regular hard-working Americans, including myself, depend on student loans to obtain high education when they cannot afford to otherwise...and for the Administration's reckless handling of our economic sector and draining of our economic resources on the Invasions of Iraq, Afghanistan and attempted attack on Iran I'm so F*****G glad House Representative John Conyers is putting IMPEACHMENT back on the table.

[Dave M.]

""We can't destroy the economy just to teach them a lesson. We must avoid a catastrophic economic collapse at all costs. That's the macro approach.""

For every predatory lender you show me, I'll show you many more "liar loans", aka Alt-A loans, where the applicant flat out lied about their income. These liars should be taught a lesson. Your second sentence is exactly what McCain is saying.

""..and for the Administration's reckless handling of our economic sector and draining of our economic resources.""

Actually, the economy was doing quite well until the Democrats took over in Congress. They hold the purse strings and they are accountable. As the old saying goes.."The President proposes and Congress disposes".

""on the Invasions of Iraq, Afghanistan and attempted attack on Iran I'm so F*****G glad House Representative John Conyers is putting IMPEACHMENT back on the table"".

Impeachment would guarantee a GOP victory in the fall. It's time to move on, dontcha know. And you are one of the few people I've seen who also disapprove of the war in Afghanistan. Frankly, the facts are that both wars are quite necessary. Oh BTW, when did we attempt to attack Iran? Havn't heard of that one before.

[John Morgan]

The economy wasn't doing well. What little growth we had was due to homeowners tapping their equity for consumer goods and the military-industrial complex's huge war profiteering. The corporatists did very well while working people suffered. Real wages decreased for many people, inflation ate away their savings and job creation didn't even keep pace with population growth. It's been dismal.

[Dave M.]

Not true. The most important figure is household total net worth and that has done quite well during the Bush years. From 2002 to 2007, household net worth rose 47%, 27% after inflation. Total increase of 20 trillion dollars. If you didn't know, household net worth is a measure of total assets, such as houses and pensions, minus total liabilities, such as mortgages and credit card debt.

There have been numerous debates as to which Presidency has had the better economy, Clinton or GW Bush. It's a close contest. Clinton economy relied on gains in stock market, Bush on gains in housing market, plus a rebound in the stock market from the Clinton recession in 2000-2002.

[John Morgan]

How conveniently you omit the 22 million jobs Clinton created. Household value, if you insist on using that as the measurement, is now declining and credit card debt has increased markedly. People are living on credit because they can't make ends meet. Loan defaults across the board are going up as people are squeezed economically. You need to get out and speak with real people in the real world and see what they're dealing with.