Paul Merrion of Crain’s Chicago Business reports on hostility the business community has toward the Obama administration, particularly Obama senior adviser Valerie Jarrett (who has seemingly held every single prominent governmental and business position in Chicago). The piece contains expected accusations against the White House: the president, Jarrett, and federal agency leaders pushed (more…)
ShoreBank, a community lender on Chicago’s South Side, is in bigger trouble than first thought – and the Obama administration may now let the bank fail. The Chicago Tribune’s Becky Yerak reports that ShoreBank must raise at least $190 million in order to qualify for a $75 million Treasury Dept. TARP loan. Banking regulators arrived at the $190 million number after an awful 2nd quarter for the lender. Previously, the Treasury Dept. estimated that ShoreBank needed to come up with (more…)
Three years after California housing prices peaked and began a long murderous slide, the U.S. Treasury Department announced that it had approved $1.5 billion worth of mortgage relief plans for California and four other foreclosure racked states. The plan is likely to be praised for propping up a moribund housing market and helping real people and pilloried for rewarding speculation and creating a moral hazard. (more…)
Joshua Green’s massive article about Treasury secretary Timothy Geithner in the latest Atlantic tells us more than we want to know — even more than the latest Vanity Fair, which covers the big bankers and investors who run our economy in alarming detail. (more…)
Another in Understanding Government’s series “Public Service Announcement” profiling the careers and challenges of notable government employees
By Norman Kelley
At the epicenter of last year’s economic meltdown, along with the disappearance of major financial firms, was the collapse of IndyMac Federal Bank, a California-based institution that found itself overwhelmed with distressed mortgages. A result of the nation’s toxic housing bubble (and an at-sleep-at-the-wheel regulatory infrastructure), IndyMac was emblematic of the country’s national mortgage foreclosure crisis. FDIC economist Clare Rowley was in the eye of Indy Mac’s particular hurricane, trying to rectify that bank’s troubled assets and find ways to save homeowners with IndyMac mortgages from foreclosure.
Clare Rowley
In July 2008, along with other FDIC colleagues, Rowley was dispatched to Pasadena, California, site of IndyMac’s home office. There she helped implement a mortgage modification program that allowed qualified but struggling mortgage holders to stay in their homes. The FDIC’s modification program, which some called a “Model in a Box,” consisted of three basic parts: lowering interest rates, extending loan terms, and principal forbearance. The model worked: by the spring of 2009, 88 % of modified loans were still in force.
When the new Obama administration began tackling the mortgage crisis in mid-2009, (more…)
“It was decisions made by government officials in the years before the crisis that allowed things to get so bad.” Those words, from Justin Fox in TIME, are worth remembering — maybe for a few more months. But so are these: “Almost nothing has been done to right these wrongs.”
– Treasury Sec. Timothy “I’m Still Standing” Geithner and his boss are now fighting on several fronts:
Wall Street, which simply doesn’t think there’s much to worry about and is ready to crank up the crazy machine again;
– the Democratic Party, which is seeing major donations drop as some donors realize reform is a threat to their very lively livelihoods;
– the U.S. government . . . or at least several of its financial regulatory agencies that are not interested in being consolidated out of existence.
As “too big to fail” transmutes into “too big to do anything,” it may be necessary for the Obama administration to shoot for the moon in order to land somewhere on earth. For example, what about proposing an AT&T style breakup of the largest banks by dividing up their divisions and making them separate companies with less capital? Breaking up AT&T helped lead to a telecom revolution in the U.S. So what about “deconsolidating” some of the biggest banks? If that idea doesn’t scare the bankers into accepting other reforms, it’s hard to say what short of mobs with torches and pitchforks will. -NH
The Wall Street Journal‘s Damian Paletta reports that the Obama administration will not, as some had conjectured, consolidate the government’s many different financial regulatory agencies into one, larger superagency that would ride herd over the financial institutions and products that helped create the global financial crisis. Paletta writes that
the decision is partly practical and partly political. Key administration officials believe they can achieve many of their overarching goals by overhauling rules . . . [and] officials worry that trying to start from scratch could ignite messy turf battles that might slow or even derail the entire process.
Stopping the move toward a super-regulator has been recommended by observers like Richard Neiman, a bank regulator for New York State and a member of the TARP oversight panel set up by Congress. Neiman makes the convincing point that state-level regulation would be hobbled or ignored by a massive national agency, and that state regulators are usually quicker to spot local violations.
Max Stier, director of the Partnership for Public Service, points out in the Washington Post the unfavorable examples of corporate mergers (which usually don’t work) and the Department of Homeland Security, which has had a very rocky evolution since its creation after the 9/11 terrorist attacks.
If you want to consolidate agencies, Stier notes, you also have to consolidate congressional oversight (and that means some legislators losing their oversight responsibilities, committee and subcommittee chairmanships, etc.). DHS, for example, "falls under the jurisdiction of 86 committees and subcommittees [which] illustrates how agencies are set up for failure if a reasonable oversight structure is not built in."
But perhaps his most important recommendation is that the Obama administration should focus less on restructuring and more on
preparing its political appointees to effectively lead federal agencies. Energized, well-trained leaders have much more potential to turn around a failing agency than a major reshuffling does.
This kind of step is hard to sell, because it doesn’t look like "action." It’s also hard to measure whether it’s working, and so is not likely to be encouraged by legislators who want to boast about their involvement in concrete solutions.
But it recognizes that people are at the heart of government. So will the decision not to create a super-regulator be presented in a constructive light, and used by President Obama — or others in his administration — to explain his approach to governing? I’m still waiting for Cabinet secretaries and other government officials to get out of the wings and onto the stage for this administration. -NH
Neil Irwin and Binyamin Appelbaum of the Washington Post had a great piece over the weekend that takes us back to 1991 — when Connecticut Sen. Chris Dodd inserted a provision into legislation mostly pertaining to the Federal Deposit Insurance Corporation that gave the Federal Reserve emergency power to be a lender of last resort to investment banks. Previously the Fed only had powers to lend to commercial banks, and until last year the power had never been invoked. But since March 2008 — when the Bush administration engineered J.P. Morgan’s takeover of Bear Stearns — the Federal Reserve has invoked lender of last resort powers 19 times, to the tune of one trillion dollars. While we know that some of this money has gone to high-profile flameouts like AIG and Citigroup, the Fed doesn’t have to disclose how it’s spending the money.
How obscure was the 1991 provision? Even Barney Frank, chairman of the House Financial Services Committee and one of Congress’s most active Wall Street watchdogs, hadn’t heard of it until September 2008. But it’s been the entire legal underpinning of a Federal Reserve loan program even bigger — and certainly less transparent — than the Treasury Dept’s $700 billion Troubled Asset Relief Program.-MB
