McCain Credit Crisis Proposals Are "Dubious"

Senator McCain's approach to the credit crisis was today described by the LA Times as "dubious". He was speaking In Santa Ana, Orange County - home county of both Countrywide Financial and New Century Financial, the failed leaders of the subprime mortgage fiasco. McCain called for minimal federal interference in financial markets and instead for (1) voluntary measures by banks to assist borrowers having trouble keeping up with payments and (2) a summit to discuss discouraging banks from writing down the value of distressed housing. The first proposal is already happening; the second is a shocker. Is McCain really serious about interfering with the markdown of bank real estate assets? The Japanese prolonged their recession by many years trying that trick.

Meanwhile, in Philadelphia and New York, Senators Clinton and Obama have advocated providing federal assistance to troubled mortgage holders and their communities, with Sen. Clinton's proposal the more aggressive. The two Democratic candidates question why federal aid has been used to preserve assets of wealthy investors in Bear Stearns while denying homeowners in foreclosure equivalent relief. Of the three main presidential candidates, Sen. Clinton is the most interventionist, both with regard to the Fed bailout of Bear Stearns (Sen. Obama has questions about it) and the desirability of further help to homeowners in default.

Congress is not waiting for movement in or to the White House. It is going forward on two fronts:

1. Assembling Data on What Exactly Happened in the Bear Stearns Crisis and Bailout. As reported by Bloomberg yesterday, Senate Banking Committee Chairman Christopher Dodd has asked Fed Chairman Ben Bernanke, Bear Stearns CEO Alan Schwartz, JPMorgan CEO Jamie Dimon, SEC Chairman Christopher Cox and Treasury Secretary Hank Paulson to testify on the Bears Stearns bailout at hearings on April 3. In a separate action, the Senate Finance Committee has requested information about the Bear Stearns acquisition to JP Morgan Chase. Finance Committee Chairman Max Baucus (D-Mont.), and ranking minority member Charles E. Grassley (R-Iowa) sent letters asking about federal assets involved and names of the negotiators, lawyers and accountants.

2. Preparing to Overhaul the Financial Regulatory System. Sen Chuck Schumer (D-NY) has outlined this imperative in an op-ed in today's Wall Street Journal. Sen. Schumer is darn right - the overhaul is long overdue. The non-bank financial institutions have become a de facto part of the financial system that is being protected by the Federal Government. The scope of the orderly markets objective that led to the creation of the Federal Reserve in 1913 must be correspondingly expanded to include investment banks. We can't have a "heads we win, tails you lose" financial system.

A unified federal oversight body with broad institutional coverage is needed to monitor market-wide leverage and risk. A market-oriented approach could charge players premiums for the extra risk they bring to the marketplace via higher leverage. A regulatory approach could control leverage via Basle II-type capital-adequacy requirements as are being planned for banks.

Comments

[OrangeSam]

Alas, poor Orange County, another blemish on the visage!
After the bankruptcy, The OC and the Real Housewives of Orange County, you are now seen as the source of the subprime scourge.

[Henry]

Point 2) by McCain is beyond belief. I know from experience that (as time goes back) cpa's (bean counters) were quantitative, while bank examiners were qualitative. So that the cpa could tell you your inventory was 100 apples while the bank examiner would tell you that of the 100 apples you have in inventory, 5 are rotten and need to be "charged off" of the books.
The great savings and loans crisis made fools of the quantitative cpa group, the high priced ethical independents, due to their failures to recognize the rotten apples for benefit of investing public etc.

So... it now turns out that by cpa rules in place "impaired loans" must be valued at "fair value". To put that into english: A loan that is struggling with performance or may appear to be getting rotten, must be valued on the books of the bank at what the likely net market value of collateral liquidation.

It is shameful that one of the Keating Five would recommend putting the Japanese constipation into the financial system that will do nothing but put us into recession. It must really be true that he does not learn from experience.

[joebhed]

The Shumers and the Dodds are the tools of the nation's and global moneyed interests, preparing us for another round of the regulatory business cycle.
Another huge grab of wealth in the financial contraction.
WHATEVER wealth has been created by the huge, unsustainable money(debt) expansion has produced some real goods, and some of just paper. As the financial contraction proceeds, we will see the masses lose more and more of those real goods to the super rich.
Ahhhh, the business cycle!
And, this is the point at which the supposed champions of the common man, known as the Democratic party, grab the spotlight to call for more reporting, higher capital requirements to lending ratios, and even more government borrowing as the tonic against corporate excess with the nation's money supply.
Guess what, Dems?
That is the continuation of the "heads I win, tails you lose" debt-driven monetary system taught in all of the world's financial schools.
It's the "tails, you lose" part.
We need to restore the rational money policies used by the colonies until the Brits figured it out and tried to tax our forefathers into financial submission.
Revolution.
Public creation of money tied to the rational growth of the economy, without DEBT to the private bankers.
Abolish the private FED through the creation of the sovereign Central Bank of the US.
When the people control the money through their government, the money will cease to control the government.
Its our money.
Take it back from the Rothschilds.

[LeftRight]

Why do we need an overhaul of the banking regulation. Simply restore it to what we had before President Clinton and president bush gutted the regulatory structure, and we won't have these problems until the NEXT time that the banks convince congress and some new President that they have "too many regulations, stifling innovation!" Then we'll go through this again!

Therefore, I would ask BOTH Senator Clinton AND Senator Obama to, rather than overhaul the banking regulatory institutions, to remove "Personhood" from corporations!