Category Archives: Wall Street Regulation

Obama to Propose New Limits on Banks – WSJ.com

WASHINGTON—President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.

via Obama to Propose New Limits on Banks – WSJ.com.

via Obama to Propose New Limits on Banks – WSJ.com.

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Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

via Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com.

via Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com.

Bank Bailouts – Salon.com

In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: “This sucker could go down.” Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that “if we do not do this, the trauma, the chaos and the disruption to everyday Americans lives will be overwhelming, and thats a price we cant afford to risk paying.”In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other peoples money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Streets exuberance.But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.It is commonplace among policymakers to fervently and sincerely believe that Wall Streets financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.Its easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.

via Bank Bailouts – Salon.com.

via Bank Bailouts – Salon.com.

Keep Wall Street risks away from Main Street | islandpacket.com

The four biggest banks — JPMorgan Chase, Citigroup, Bank of America and Wells Fargo –now control more than two-fifths of all bank deposits, more than 66 percent of all credit card accounts and more than half of all mortgages in the U.S.Unfortunately, they also run trillions of dollars in risky trading ventures that could blow up in our faces again.We need to keep risk where it belongs — on Wall Street — and security where it matters — on Main Street. That way, if the derivatives cowboys want to take obscene risks, they can but without driving the rest of us to the brink of financial oblivion.

via Keep Wall Street risks away from Main Street | islandpacket.com.

via Keep Wall Street risks away from Main Street | islandpacket.com.

McCain and Cantwell Want a New Glass-Steagall Law | Newsweek Voices – Michael Hirsh | Newsweek.com

The blinding complexity and interconnections created by modern capital markets—especially because of the way nearly half a trillion dollars in derivatives trades linked the firms to each other—demanded that there be strong firewalls and capital buffers between Wall Street institutions and their affiliates, and between banks and nonbanks and insurance companies. Otherwise there would be no islands of safety—no healthy institutions left to come and rescue the day, as commercial banks traditionally had done since the days of J. P. Morgans famous bailout in 1907. The repeal of Glass-Steagall took things in precisely the opposite direction, eliminating most of the firewalls and inviting staid commercial banks into the buccaneering world of Wall Street trading. Representative Hinchey says it “was a recipe for disaster because these banks were empowered to make large bets with depositors money, and money they didnt really have. When many of those bets, particularly in the housing sector, didnt pan out, the whole deck of cards came crumbling down and U.S. taxpayers had to come to the rescue.”Today the walls between firms still seem low indeed, and trading in derivatives that are “over the counter” that is, out of public sight continues at an astonishing pace, having risen back up to nearly $600 trillion worth. One big danger sign ahead is that the biggest banks have gotten even bigger in the aftermath of the catastrophe, and under the new rules requiring swap dealers to post capital for margin requirements, the big banks are likely to monopolize even more of this derivatives market and become that much richer and more powerful.

via McCain and Cantwell Want a New Glass-Steagall Law | Newsweek Voices – Michael Hirsh | Newsweek.com.

via McCain and Cantwell Want a New Glass-Steagall Law | Newsweek Voices – Michael Hirsh | Newsweek.com.

Bank CEOs Pledge to Push for Re-Regulation – WSJ.com

Chief executives of the largest U.S. banks acknowledged Monday the “disconnect” between their expressed support for re-regulating financial markets and the work of their lobbyists to weaken any new rules.

The executives pledged during a White House meeting with President Barack Obama that they would personally intervene on behalf of the legislation.

On CBS’s “60 Minutes,” President Obama decries “fat cat bankers” ahead of Monday evening’s meeting between White House officials and banking representatives. Video courtesy of Fox News.

Some of the CEOs said their lobbyists had taken stronger stands than they would have wanted, an assertion met with raised eyebrows on Capitol Hill. House Financial Services Committee Chairman Barney Frank (D, Mass.), chief architect of financial-overhaul legislation in that chamber, said in an interview he was “highly skeptical.”

via Bank CEOs Pledge to Push for Re-Regulation – WSJ.com.

via Bank CEOs Pledge to Push for Re-Regulation – WSJ.com.

Rhetoric Picks Up as Vote Nears on Regulatory Overhaul – NYTimes.com

More Regulation is not the answer … but it is the solution du jour … so probably will happen.

WASHINGTON — House Democrats defended their Wall Street regulatory overhaul on Thursday against Republican criticism that the plan would perpetuate a bailout mentality.

In turn, Democrats accused Republicans of aligning themselves with the very financial institutions that caused the financial crisis.

As the House worked through dozens of proposals to change the measure, Democrats said the sweeping legislation would better protect consumers in their dealings with banks, credit card companies and other firms selling financial products while holding executives, rather than taxpayers, accountable for bad business decisions.

“The legislation,” said the House Speaker Nancy Pelosi, “says very clearly to Wall Street: the party is over.”

via Rhetoric Picks Up as Vote Nears on Regulatory Overhaul – NYTimes.com.

via Rhetoric Picks Up as Vote Nears on Regulatory Overhaul – NYTimes.com.