Tag Archives: New York Federal Reserve

Foreclosuregate, Cont’d

20 Wednesday Oct 2010

Posted by in economy, Foreclosures, Justice Department, Obama administration, too big to fail, Wall Street

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Bank of America has completed its “internal review” of alleged improprieties in its foreclosure proceedings–a review of 102,000 foreclosures that took all of 17 days–and found, surprise surprise, zero mistakes:

“Bank of America  announced on Monday that it would resume home foreclosures in nearly two dozen states, despite the running controversy over how banks handled tens of thousands of cases of homeowners facing eviction.

Bank of America, the nation’s largest bank and the servicer of roughly one in five American mortgages, insisted that it had not found a single example where a foreclosure proceeding was brought in error.”

Not so fast, says one state’s assistant attorney general involved in their own investigation:

“A day after the bank said it would once again pursue defaulting borrowers in the 23 states where foreclosures were overseen by the courts, judges in Florida said they were expecting even more challenges from defaulting homeowners.

…“There has been an attempt by some of the major servicers to indicate there are no problems,” said Patrick Madigan, an assistant attorney general in Iowa. “We’re not at the end of this process. We’re at the beginning.”

But BofA has much bigger problems than a few lawsuits from a few homeowners, the big boys are coming after them to buy back the mortgage bonds packed with toxic garbage that BofA was peddling:

“The fears behind mortgage bond-gate might be real after all. Reports indicate that Bank of America is has been asked to repurchase some of its mortgage bonds by some very prominent investors due to procedural failures. Who are those investors? BlackRock Inc. — the largest money manager in the world, PIMCO — the largest Bond fund investor, and the New York Federal Reserve are said to be among them…Metlife, the biggest U.S. life insurer, is expected to join this group of investors demanding repurchase.

Bank of America is the target thanks to its acquisition of Countrywide in 2008. These investors say that Countrywide failed to properly service mortgages which were repacked into bonds. How many bonds? According to Bloomberg, these investors want Bank of America to repurchase $47 billion worth.”

Here’s why this entire fiasco, from origination to securitization to foreclosure, is going to be difficult if not impossible to unwind. From a BofA June court filing:

“It appears as though many loans and other mortgage-related assets have been double and even triple-pledged to various constituencies”…[T]hat is the reason that two different banks sometimes try to simultaneously foreclose on the same home.”

Finally, the feds are getting in on the act, too:

“Members of President Obama’s Financial Fraud Enforcement Task Force [Justice, Treasury, HUD, and the SEC] and other administration officials are scheduled to meet Wednesday to discuss the foreclosure crisis.”

Frankly, I have no confidence that anything substantive will come from this group. I see one of two outcomes. Either they open an investigation, bury it, and we never hear a word of it again, or they go after a few low-level flunkies and the MOTU skate. As usual.

To be continued…

The Geithner Solution to Regulatory Failure: More Authority for Regulators

08 Saturday May 2010

Posted by in bailout, economy, Financial Crisis, Politics, too big to fail, Uncategorized, Wall Street

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Sure, federal regulators (like the former head of the New York Federal Reserve pictured at left) were inept, incompetent, and inadequate when it came to their ability to first foresee and then to take proper pre-emptive action based on all the red flags that were waving leading up to the financial crisis.

Sure, they may have overlooked the dangers of subprime mortgages, of major financial institutions being leveraged 30 to 1, and of those financial institutions becoming so interconnected through the packaging, re-packaging, and re-re-packaging of toxic securities and selling them back and forth that the failure of one could lead to the failure of all.

Hey, just minor oversights. No need to think they don’t deserve to keep their jobs, or better yet, be given more authority. Treasury Secretary Geithner seems to think so:

“During an appearance on Capitol Hill, Geithner acknowledged failures in the Federal Reserve Bank of New York’s supervision of Citigroup and other large banks, said regulators were “not conservative enough” when it came to overseeing banks’ leverage ratios and criticized capital requirements as not having done a “good enough job” as a buffer against risk.

He also said that regulators like himself could have done more to prevent the worst financial crisis since the Great Depression…To ensure these kinds of failures are avoided in the future…Geithner wants to leave it up to federal regulators — the same ones that presided over the housing bubble, oversaw extreme risk-taking by banks and other financial firms, and tried (yet failed) to contain a subprime crisis from mushrooming into a financial meltdown.

[…]

In short, Geithner said he wants to give regulators more authority, leaving it up to them to exercise their best judgment.”

No thanks, Tim. We’ve seen what leaving crucial decisions up to the “best judgment” of federal regulators leads to, from Wall Street to the Gulf of Mexico.

Geithner and Dodd Oppose Fed Audit Which Could Reveal Billions in Toxic Assets

23 Tuesday Mar 2010

Posted by in bailout, economy, Financial Crisis, financial reform, financial regulation, Politics, Wall Street

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How much more of these “junk loans” are bring “warehoused” on the books at the Fed? A question to which we may never know the answer if Treasury Secretary Geithner and Senator Chris Dodd have anything to say about it:

“As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn’t sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.”

The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a “warehouse” for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.

I suspect this has a lot to do with Secretary Geithner’s strong opposition:

“The Valukas report found clear evidence that the New York Fed  knew that Lehman was sending it garbage that it had no intention to market. In other words, the baskets of assets were created for the specific purpose of selling to the Fed for far more than they were worth.

Lehman knew it too: “No intention to market” was scrawled on one of the internal presentations about the assets…Geithner himself was aware that there was a gap between what Lehman claimed the assets were worth and what they were really worth.”

What else don’t we know? The stonewall is on:

“The Fed won’t say how much more toxic “garbage” is in the Fed’s “warehouse”…The Treasury didn’t immediately respond to a request for comment.”

Sounds an awful lot like fraud and obstruction of justice to me.

Geithner and the Lehman “Stress Tests”

13 Saturday Mar 2010

Posted by in bailout, Financial Crisis, Politics, Wall Street

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Timmy’s got more trouble. In a newly-released examiner’s report about the bankruptcy at Lehman Brothers, the New York Federal Reserve Bank (NYFRB), which was headed at the time by Treasury Secretary Geithner, is implicated as being in collusion with Lehman management’s efforts to keep their true financial condition hidden.

Here’s just one area of, shall we say, questionable behavior. The so-called “stress tests”:

“After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress-testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank. The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.” Lehman failed both tests. The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed. However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed. It does not appear that any agency required any action of Lehman in response to the results of the stress testing.”

Karl Denninger at Market Ticker:

“So let’s see what we got here.  They ran two sets of stress tests and the firm failed both.  Not satisfied with the results they then designed a third set, which the firm also failed (we can reasonably presume the third had less stringent requirements than the other two!)

Instead of applying any of these three, FRBNY, which was run by one Mr. Timothy Geithner… instead took Lehman’s word that all was ok and did nothing.

Wait a minute. In the spring of 2009 we were told that all the big banks ran “Stress Tests” of Geithner’s design.  But Treasury didn’t actually run them and didn’t actually get and process the data – they told the banks to do so.

Uh, that’s exactly what Lehman did, right?  And Lehman passed its own “internally computed” stress test but failed all three of the externally-computed ones.

Do you still accept that all these other banks are solvent?”

Yves Smith at naked capitalism has the solution:

“It is time for Geithner to go. He is not fit to serve as Treasury secretary.”

Geithner, Paulson, and Bernanke at the Oversight Committee Hearings

29 Friday Jan 2010

Posted by in Congress, economy

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Putting different pieces of testimony from yesterday’s hearings before the House Committee on Oversight and Government Reform, it’s easy to see how the New York Federal Reserve’s “backdoor bailout” of Goldman Sachs and other large banks, via insurance giant AIG, became such a convoluted mess–nobody knew anything about it. Least of all the people who were allegedly in charge– Larry, Moe, and Curly former Treasury Secretary Hank Paulson, Fed chairman Ben Bernanke, and then head of the New York Fed and present Treasury Secretary Timothy Geithner.

“Henry Paulson, who was Treasury secretary at the time, told the House of Representatives Oversight and Governmental Affairs Committee that he had no role in the negotiations that settled the banks’ insurance-like contracts, called credit default swaps, with AIG for 100 cents on the dollar..”

Geithner: “I had no role in making decisions regarding what to disclose about the specific financial terms.. and payments to AIG’s counterparties.” To which Rep. Dan Burton replied:

“U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday he was not directly involved in negotiations with the counterparties of insurance giant AIG, having delegated the duties to the New York Fed.”

“It stretches credulity for us to believe that you had no role in this and didn’t know anything about it when your attorneys and people that worked for you were sending emails all around the place and you were the head of the Fed and you didn’t know anything about it. It just doesn’t make any sense to me and I think a lot of my colleagues feel the same way.”

One thing is clear, though. Despite the Three Stooges being completely in the dark, Government Goldman Sachs made out like bandits in the entire sordid affair. I’m sure it’s strictly coincidental that:

“Paulson is an ex-Goldman chief executive, Geithner’s chief of staff previously worked for Goldman, and Dan Jester, a Treasury point man in the AIG bailout, is a Goldman alum.”

That surely had nothing to do with this:

“An unredacted document obtained by the Huffington Post list the damage in detail. Goldman Sachs alone, for instance, got $14 billion in government money for assets worth $6 billion at the time — a de facto $8 billion subsidy, courtesy of taxpayers.”

But yet Geithner testified yesterday that, “In the end, the prices paid for the securities were their fair market value.” Fair to who, Tim?

Geithner also testified that time was of the essence in bailing out AIG, that there was no time to negotiate terms which might be more favorable to the Fed. But yet:

“Neil Barofsky, the special inspector general tracking the use of taxpayer bailout funds…disclosed this week that he’s opened investigations into the Fed’s candor about the matter, recalled that Paulson, Bernanke and Geithner leaned weeks earlier on failing investment bank Bear Stearns to accept $2 a share to turn over its assets to banking goliath J.P. Morgan Chase.”

I guess there aren’t enough Bear Stearns friends in high places.