Wednesday, April 14, 2010

Disowning the Ownership Society

What is the Ownership Society, you might ask? It was the ownerous vision of the Republican leadership under King George XLIII.

2002: Bush's speech to the White House Conference on Increasing Minority Homeownership
Here's George W. Bush's speech to the White House Conference on Increasing Minority Homeownership. The precise programs he was advocating aren't terribly important, they're fairly minor, but the tone of his speech is important. It puts the Presidential Seal of Approval on the orgy of dubious mortgage lending (Down payments? We don't need no steenking down payments!) in the name of increasing minority homeownership.
THE PRESIDENT: …. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want. This is -- an ownership society is a compassionate society.

We've got to work to knock down the barriers that have created a homeownership gap.

I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families.

We've got the Horton family from Little Rock, Arkansas, here today. … They were helped by HUD, they were helped by Freddie Mac. …

The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it's good for the pocketbook of the country, as well.

To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments.

If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.

I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. …

Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.

Freddie Mae -- Fannie Mae and Freddie Mac -- I see the heads who are here; I want to thank you all for coming -- (laughter) -- have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.

Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin [Raines], I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It's the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this off, he said, I promise you we will help, and he has, like many others in this room have done.

Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. …

If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else.

Again, I want to tell you, this is an initiative -- as Mel will tell you, it's an initiative that we take very seriously.

We Are What We Own
When running for re-election in 2004, and again last year as he campaigned for Social Security reform, President Bush repeatedly advocated an "ownership society."

For Mr. Bush, the ownership society initiative is temporarily gone--but hardly forgotten. He has a taste for ambitious proposals like transforming the Middle East into a hotbed of democracy. He dismisses smaller programs as "miniball." And an ownership society is his domestic big idea.

Where the phrase "ownership society" came from, nobody knows, not even Mr. Bush or political adviser Karl Rove. Nor did the program emerge in full form. Rather, it was patched together

The notion behind the ownership society is that growth of government can never be halted by attacking supply. Only reducing the demand for government holds a promise of working.

In any case, he now believes an ownership society would foster a wave of self-sufficiency. "I think part of government's responsibility is to encourage certain cultures," he told me. "And a primary cultural change that I have been trying to instill ever since I got into public office" is a fresh "period of personal responsibility." Ownership "does a lot of things." One of them, Mr. Bush continued, is to increase "independence from government. Government sometimes, because you're dependent on it, undermines the sense of personal responsibility."

Of course, selectively bailing out banks who brought ruin on themselves under the Big Lie of Too Big To Fail is the ultimate undermining of personal responsibility.

Anyway, that's the background on the Ownership Society: let the government give you a hand in financing your way to the American Dream, and tear down government obstacles to that dream.

So how, after patting Fannie and Freddie and the Horton family from Arkansas on the back, is the Republican leadership now disowning the Ownership Society?

The blue print for this was put to paper over a year ago when the Republican Caucus put its particular revisionist spin on the "Roots of the Financial Crisis".

According to the GOP line, it wasn't Countrywide Financial, which, it seems, the government brokered to Bank of America, and it wasn't Washington Mutual.

It wasn't Lehman Bros or the individual Wall Street bankers and the derivatives they traded.

It wasn't even the big investment bankers who whoreded hoarded subprime loans to pimp slice, dice and package for sale to the "investing" securitization buyers.

Of course it wasn't Goldman Sachs, albeit they did offer a mea culpa just in case.

And most certainly, they say, it was not Washington's Glass-Steagall breaking deregulatory laissez-faire, either:
Although failures among private-sector actors and institutions were significant, the roots of the financial crisis can be traced to flawed government policies. For that matter, the housing sector – where most of he difficulties started – is hardly the kind of unbridled market the term laissez-faire suggests: it has substantial government components, including the financial and regulatory roles of large government agencies. In short, the current crisis reflects not a failure of the capitalist system, but the ways in which government distorted the functioning of private markets.

Of particular concern to the GOP is the government involvement in these two arenas:
>> Actions of two government-sponsored enterprises, Fannie Mae and Freddie Mac, that put taxpayer dollars at risk to chase profits.

>> The government’s push to lend money to those who could not afford it to buy homes.
Both of which Bush XLIII lauded in his 2002 Ownership Society speech.

Rather than deal with the particularly pernicious factors in the New Millennium Meltdown, mainly off-exchange trading in unregulated derivatives worth TRILLIONS (due to the opaque nature, no one knows how big the market is) and moral hazards created by TBTF mentality, blind adherence to ratings agencies and lax mark to fantasy accounting, the GOP is sticking to its guns.

And not, unfortunately, without a little too much help from some Democrap names who have also played too cozy with the Wall Street funny money guys.

Key Republican Faults Senate Financial Bill On Bad Underwriting
Sen. Bob Corker (R., Tenn.) said that he doesn't believe bad underwriting will be prevented by requiring companies that securitizes loans to hold a portion of the risk on their own balance sheets. Imposing such a risk-retention requirement on securitizers would instead likely "shut the market down," Corker told the Mortgage Bankers Association.

Corker's criticism of the risk-retention language in the Senate financial-overhaul bill drew applause from the audience of mortgage bankers.

"The very core issue that created the problem across this country was the fact that at the end of the day this country wrote a lot of really bad loans. And this bill doesn't deal with that," Corker told reporters after his speech.

Mitch McConnell: Regulatory bill won't solve problems
In a floor speech that detailed the Republican case against the bill, McConnell said the version that passed through the Banking Committee last month on a party-line vote would continue to prop up financial institutions deemed “too big to fail” and provides the government with new authorities that could be abused.

A spokeswoman for Senate Banking Committee Chairman Chris Dodd said his bill would end bailouts, and that McConnell’s speech simply parrots a January messaging memo by Republican strategist Frank Luntz, who urged the GOP to call everything a “bailout” because of the negative connotations of that term.

McConnell’s complaints are identical to those detailed in letter sent last week from Sen. Richard Shelby (R-Ala.), the ranking Republican on the Banking Committee, to Treasury Secretary Tim Geithner.

McConnell raised the specter of a filibuster on the Senate floor unless the bill is changed.

Read more:

Top GOP senator, White House clash on financial reform
A bare-knuckles fight is coming in days ahead as the Obama administration and congressional Democrats push for a crackdown on banks and capital markets against Republican opposition.

A White House official said momentum for regulatory reform seemed to be building.

But that upbeat assessment clashed with a defiant message delivered by Senator Mitch McConnell, the chamber's top Republican.

The House of Representatives approved a sweeping reform bill in December. It embraced most of the many proposals Obama issued in mid-2009. But the slow-moving Senate has yet to act on a 1,336-page bill offered by Senator Christopher Dodd.

The Senate banking committee that Dodd chairs approved his bill last month, but did so without any Republican support. Dodd will need some Republican backing to get his measure through the full Senate.

"It's going to be a fight," Senator Richard Durbin, the No. 2 Democrat in the chamber, said in floor remarks.

He said the financial firms that are working to block reforms are the same ones that piled up excessive risks and leverage in their "excitement and greed" during the real estate bubble that broke in 2007-2008, precipitating the crisis.

Dodd Swaps Bill May Give Trading Edge to CME, ICE (Update1)
Senate legislation to regulate the $605 trillion private derivatives market may cut into Wall Street profits more than a House bill passed in December by moving most trades to exchanges or similar systems.

At stake is trading revenue in unregulated markets that last year generated an estimated $28 billion for five U.S. dealers including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, according to company reports collected by the Federal Reserve and people familiar with banks’ income sources.

Forcing privately negotiated swaps to trade on exchanges would reduce bank profit because dealers would no longer control the prices offered on the contracts. JPMorgan alone could lose up to $3 billion a year in revenue if it doesn’t combat the move to exchange trading, Morgan Stanley analysts said in a March 15 report.

Companies, hedge funds and other money managers that use bilaterally negotiated swaps need to be able to execute trades off exchanges, often on customized terms, in order to effectively hedge against potential losses on everything from rising interest rates to dropping commodity prices, according to Christopher Giancarlo, chairman of the Wholesale Markets Brokers’ Association Americas.

The bill “jeopardizes the ability for these robust markets to remain a source of liquidity for American businesses by imposing a monopolistic market structure on the trade execution of cleared transactions,” Giancarlo, executive vice president at inter-dealer derivatives broker GFI Group Inc., wrote in a March 30 letter to members of the Senate Banking Committee.

Lawmakers have focused on requiring that most swaps trades move through clearinghouses to improve the OTC derivatives market structure to allow regulators to monitor positions and prices. Trades that aren’t sent to clearinghouses would face higher capital charges and be required to be reported to trade repositories.

The derivatives ding-dong waiting in the Dodd bill
Tuesday brought an odd bit of shadow-boxing over where to park derivatives trading in the post-Lehman age. Something to watch, as Senator Chris Dodd’s bill gets ready for actual legislative debate late this month, according to the Washington Post.

In the blue corner, Treasury Sec Tim Geithner makes the case for putting over-the-counter products through centralised clearing.

But — in the red corner, Republican Senator Judd Gregg alleges there’s a liquidity risk.

Why, the jargon couldn’t have been more pitch-perfect if derivatives traders had written Senator Gregg’s piece themselves. Surprise, surprise — private derivatives trading brings home quite a bit of bacon for JP Morgan et al. at the moment, as BusinessWeek reports.

But, er, hang on — Geithner’s central clearing-houses aren’t the same as exchanges, surely. And while Senator Gregg would prefer ‘industry migration’ to transparency rather than a specific mandate — that didn’t happen before, so why would it now?

At any rate, sure, market liquidity is a problem — but solvency in the shadow of mispriced derivatives is a slightly more pressing matter. Ask AIG’s CDS writers.

Indeed, Senator Gregg, ask the US taxpayers who rescued America’s largest insurer.

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