I have strongly supported proposals to increase mortgage lending standards, on the theory that higher standards are necessary to restore borrower and investor confidence, and will contribute to long term stability in the mortgage market (see my post here). But buried in the enormously complex administration, Frank and Dodd regulatory reform bills are terribly drafted provisions which will strike a death blow to "Main Street" lenders and hand over a multi-trillion dollar mortgage market to a few large financial institutions. Ironically, for legislation designed to reduce systemic risk, the proposals will concentrate the mortgage finance system beyond anything that has occurred in the market during the past 50 years. Indeed, federal policy during the past year's intervention has already favored the "biggest of the big" -- today 60% of mortgage lending is controlled by just 4 mega-banks. The pending legislation will drive that total towards 100% in a very short time, as the non-bank community lending industry would collapse overnight.
The provisions -- blandly referred to as "risk retention" -- are driven by a laudable desire to ensure there is "skin in the game" in the finance system -- to ratchet back the indiscriminate shifting of risk which undeniably contributed to the mortgage meltdown. A fine enough goal. But bearing the brunt of this particular bullet are those community based lenders who never did toxic mortgages, wrote liar loans, or steered borrowers into unaffordable subprime products. While Wall Street turned the mortgage market into the Wild West, "Main Street" mortgage lenders stuck with traditional, conventional loan products with familiar terms. And they suffered for it, as market share flowed to the highest risk products peddled by investment banks through captive originators, and sold to investors with little disclosure of the real risks. In the wake of the meltdown, as one toxic lender after another closed its doors, the Main Street lenders kept the doors to the mortgage market open, and have helped the housing market regain its footing -- even as TARP funded mega-banks pulled back.
Main Street mortgage lenders didn't expect to be rewarded for sticking with plain vanilla lending. And they never stuck their hands out, even while the Wall Street funds and mega-banks that created the mess pocketed TARP funds to fatten their balance sheets. But still, in talking to local lenders around the country I can tell you they are shell shocked to now find themselves offered up as the sacrificial lamb for the sake of a talking point on "risk retention."
To fight for their collective lives, Main Street lenders have formed their own advocacy group and for the first time are trying to have a voice in Washington. While they can't match the $250 million that large financial institutions have spent to lobby Washington this year, local lenders hope that a grassroots effort might convince enough members of Congress not to shoot the Main Street lender for the sins of Wall Street.
My Disclosure: I am serving as a pro-bono advisor to the community mortgage lenders, many of whom are friends I saw struggle to maintain responsible lending standards even while the market went certifiably insane -- and who now face the loss of 20 and 30 year old community businesses.
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lets punish the smaller community and regional banks that lended responsibi
talk about your moral hazard
bankruptcy leave with no punishment and Millions ?
As a kid you want to borrow money to buy a car. You want to. The car dealership wants you to. So both look to the banker. You say, "I promise to pay!" The banker is not so sure. He says, "Will your Granny cosign your promise to pay?" You ask her. She says, "Yeah, but you have to mow my lawn for free for the next year."
Deal sealed. Maybe even jobs created. Commerce happens.
Why, because a cosign for a fee - free lawn mowing - is a essentiall
It's insurance without reserves,
CDS is fraud.
Outlaw all derivative
See my profile for details and links.
CDS has destroyed the market.
There is a profound misunderst
Systemic risk has little to do with the size or number of system components
So if a systemic threat is about to take out 40% of a system, it matters not a twit whether that 40% is 1,000 components or 1 component. All 40% is going down.
It is true that it also depends on many other things, but ceteris paribus, it depends on good old market concentrat
What matters is the sophistica
'risk retention' is not a talking point at all. Hell no, it isn't. It is the core and the definition and the heart and the brain of the free enterprise system. Not a talking point.
If you cannot provide mortgages in a way that allow you to retain risk on your books, then that means one out of two things:
(1) you don't know who you're lending to
(2) the market environmen
Now, as long as (2) is the case, I am all with you and my heart is bleeding. The point of the amendments
In short: if the risk retention is your problem, then the solution is to understand your risk and hope for functionin
Anyway, that's how I see it.
my disclosure
Live by the sword ... die by the sword.
Why are we allowing ANYONE to loan money that they don't have? The myths created by "fractiona
Community bankers love the system when the crumbs make them bigger than all the local business competitio
End it all. End all the fraudulent money schemes ... end the Federal Reserve System. STOP paying interest on the national currency ... there is NO reason to. Why doesn't the government print it's own currency? Why MUST it borrow money from the private sector?
Can you think of a better investment
No more interest paid to private banks.
$300 billion a year in interest on $13.5 trillion of debt. End it!
Uhh ... the US Mint and the Bureau of Engraving are proud, honorable, and true. So I have to either think you got some facts wrong, or you're trying to delude someone.
Please clarify.
Search google and you will find a copy of "Modern Money Mechanics" and you will have a much better idea of who "creates" the money in the US.
Introducti
The purpose of this booklet is to describe the basic process of money creation in a "fractiona
MODERN MONEY MECHANICS
A Workbook on Bank Reserves and Deposit Expansion
Federal Reserve Bank of Chicago
This complete booklet is available in printed form free of charge from:
Public Informatio
Federal Reserve Bank of Chicago
P. O. Box 834
Chicago, IL 60690-0834
telephone: 312 322 5111
that went belly up, We had to bail them out.
Where did the money go?