Hat tip to Yves Smith!
Posted: 13 Feb 2012 10:13 PM PST
Yves here. No one should be surprised that Bloomberg is reporting today that Goldman is aggressively lobbying for a Volcker Rule waiver for its role as a sponsor of and investors in “credit funds.” Update: Andrew Ross Sorkin predictably parrots industry talking points.
By George Bailey, who has worked in senior compliance roles at a Big Firm You’ve Heard Of and is also a member of Occupy the SEC
Today is “Volcker Day” and Paul Volcker was on a tear.
Mr Volcker added in a formal submission to regulators Monday that “proprietary trading is not an essential commercial bank service that justifies taxpayer support,” and that banks should stop “stonewalling.”
He went on to say,
“There should not be a presumption that evermore market liquidity brings a public benefit,” Volcker, 84, wrote in a letter submitted yesterday to regulators in defense of the rule curtailing banks’ bets on asset prices with their own money. “At some point, great liquidity, or the perception of it, may itself encourage more speculative trading
(See here and here for the full story.)
But then Jamie Dimon came along and bitch slapped Tall Paul. Ouch.
“Paul Volcker by his own admission has said he doesn’t understand capital markets,” Dimon told Francis in the Fox Business interview. “He has proven that to me.”
SIFMA, on behalf of the industry, took over to explain in detail just what it is that Mr. Volcker doesn’t understand in their comment letter. They reiterate their dire warning about the devastating effects on ‘corporate liquidity‘ from the Volcker Rule. Yet surprisingly, no non-financial corporate bond issuers filed any comments to acknowledge or object to this danger. In fact, there are no comment letters from any non-financial companies. They did haul out the widely lampooned Oliver Wyman study to bolster their comment that ‘corporate’ America would suffer horribly if Volcker is enacted. But that just serves to remind us again that the corporate bond liquidity that will be affected is the liquidity in dodgy financial company ‘corporate’ bonds, like CDOs and other drek. They conclude the only solution is a rewrite. They request the rule makers go back and start all over again.
The SIFMA comment letter runs to 175 pages. I haven’t read all the other financial company letters, but the ones I’ve skimmed conform to SIFMA’s position.
The Occupy the SEC comment letter logs in at 325 pages and oddly enough draws the exact opposite conclusions to each of SIFMA’s objections. It’s an interesting contrast. For some reason (some familiarity with the subject matter and public interest primarily) the group seems to have understood and articulated Volcker’s (and the electorate’s) intent pretty effectively (because this is a large document, we suggest you download it if you’d like to peruse it).
Occupy the SEC Comment Letter on the Volcker Rule
Of the comment letters received about 90% are from financial institutions, and another 5% are from foreign governments objecting to the priority the US regulators have gifted to US traders in US Government Bonds. The remaining 5% are from ordinary folks, like Mr. Volcker, Occupy the SEC and other public interest groups.
It’s interesting that 95% of the comments reflect the views of the 1%, and the views of the 99% are embodied in the comments of the remaining 5% of commenters.
I’m confident the regulators will recognize that, for all its complexity, the rules are comprehensible and can be refined to serve the public’s demand for control over a runaway financial system.
Posted: 13 Feb 2012 09:42 PM PST
Former banking regulator and white collar criminologist Bill Black gives an unvarnished view of the behavior of Apple and other technology companies in dealing with suppliers in China. He does not buy the idea that the US is powerless to do anything about work condition in China and provides some concrete suggestions.
Posted: 13 Feb 2012 02:38 PM PST
North Carolina has posted an executive summary of the foreclosure settlement (hat tip Abigail Field), and it is a a troubling document. The first aspect is the very fact that an executive summary, rather than actual text of an agreement, is what is being released. And it’s not being released for the worst of reasons: the deal has not been finalized. We explained in an earlier post why this is completely outside the pale, and we’ll turn the mike over to Frederick Leatherman for a recap:
David Dayen mentioned that the settlement agreement has not been reduced to writing.
That is astonishing.
Let me repeat. That. Is. Astonishing.
The biggest problem with settlement agreements in particular, and all agreements in general, is reaching a so-called ‘meeting of the minds’ regarding the details and ‘chiseling them into stone’ by reducing them to writing. As I used to warn my clients when I was practicing law, we do not have an agreement until it has been reduced to writing, thoroughly reviewed, and signed by each of the parties. That has obviously not happened in this case.
Experience has taught us that humans dealing in good faith make mistakes, no matter how careful they are, and the potential for mistakes, misunderstandings and subsequent disagreements about the terms of an agreement cannot be overestimated. That potential becomes a certainty when one or more parties to an agreement is dealing in bad faith.
That, my friends, is why we have a law called the Statute of Frauds, which requires that certain types of agreements be in writing or they are invalid and unenforceable.
Needless to say, the odds of misunderstanding rise when you have many parties participating, and when some are very likely to be acting in bad faith (the banks and the Administration).
Second, and even worse, the description of the release in this summary is at odds with what various attorneys general have said about it. See Section VII:
Mortgage Settlement Executive Summary
This is the critical part:
The proposed Release contains a broad release of the banks’ conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services. Claims based on these areas of past conduct by the banks cannot be brought by state attorneys general or banking regulators.
The Release applies only to the named bank parties. It does not extend to third parties who may have provided default or foreclosure services for the banks. Notably, claims against MERSCORP, Inc. or Mortgage Electronic Registration Systems, Inc. (MERS) are not released.
This is sufficiently general so that it is hard to be certain, but It certainly reads as if it waives chain of title issues and liability related to the use of MERS. That seems to be confirmed by the fact that made by local recorders for fees are explicitly preserved (one would not think they would need to be preserved unless they might otherwise be assumed to be waived). This is exactly the sort of release we feared would be given in a worst case scenario. The banks have gotten a huge “get out of jail free” card of bupkis.
Now it is possible that AGs can pursue claims against the banks via MERS, since executives of MERS have claimed that MERS members have given MERS an indemnification. But tell me how the liability nets out:
MERS shall indemnify and hold harmless the Member, and any employee, director, officer, agent or affiliate of the Member (“Member Party”), from and against any and all third-party claims, losses, penalties, fines, forfeitures, reasonable attorney fees and related costs, judgments, and any other costs, fees and expenses (“indemnified Payments”) that the Member Party may sustain directly from the negligence, errors and omissions, breach of confidentiality, breach of the Terms and Conditions, breach of the Rules and Procedures, or willful misconduct of MERS, or any employee, director, officer, agent or affiliate of MERS (“MERS Indemnified Claim”). Notwithstanding the foregoing, MERS shall not be liable or responsible under the terms of this Paragraph for any losses or claims VC10052000VA resulting from the actions or omissions of any person other than an employee, director, officer (who is also an employee of MERS), agent or affiliate of MERS.
The Member shall indemnify and hold harmless MERS, and any employee, director, officer, agent or affiliate of MERS (“MERS Party”), for any Indemnified Payments which do not result from a MERS Indemnified Claim and which such MERS Party incurs (i) from the negligence, errors and omissions, breach of confidentiality, breach of the Terms and Conditions, Rules and Procedures, or willful misconduct of a Member Party, (ii) with respect to a transaction on the MERS® System initiated by such Member, or (iii) as a result of compliance by MERS with instructions given by the Member, or its designee, as beneficial owner, servicer or secured party shown on the MERS® System (“Member Indemnified Claim”).
The issue here (at a minimum) is that MERS is arguably responsible for running a terrible database (from what we have been able to infer, it is lacking in normal protocols to assure the accuracy and integrity of information, such as audit trails) and in failing to devise procedures that were permissible in all the states in which it operated. That presumably constitutes negligence. In turn, the MERS members were arguably liable for taking impermissible actions, such as assigning mortgages when they did not own the note, or making assignments after foreclosures had been started. So they were also negligent. How do you net out who was responsible for what, and to what degree, since both parties are likely to argue that their indemnification isn’t operative due to the negligence (and also possibly bad faith) of the other party. Put more simply: even with the indemnification of MERS by MERS members, don’t expect it to be easy to pin liability on banks.
While the full terms have not been agreed upon, this seems to call into question the claim that Schneiderman got a carve-out for his MERS suit (and Biden had separately insisted that he had wanted to be able to add banks to his case against MERS).
But even with all these caveats, it’s hard to read the executive summary, which no doubt was vetted by the bank, Administration and AG sides, as meaning other than what it intends to mean: that the banks have been released of the meteor-wiping-out-the-dinosaurs-and-the-MBS-market liability they were most afraid of, that of the monstrous mess they made in their failure to convey notes as stipulated in their own contracts, and with their failure to use MERS as a mere registry, rather than a substitute for local recording offices. That in turns means that various cheerleaders for this deal, such as Mike “Settlement Release Looks Tight” Lux and Bob Kuttner have badly misled readers in their assertions that the release was narrow and the deal is good for homeowners.
And to add insult to injury, they’ve given thumbs up to a deal that, as Pimco’s Scott Simon put it:
“….treats people’s 401(k)s and pensions,” which hold mortgage securities, “like perpetrators as opposed to victims,…
“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that.”
As we said before, this deal has put a price on fraud and document forgeries, and it’s $2000 per loan. And Democratic party operatives want you to believe that’s just dandy, that we should be happy as long as the masses gets some crumbs.
Posted: 13 Feb 2012 02:33 PM PST
Dave Dayen pointed out how peculiar that the mortgage settlement propaganda website, www.nationalmortgagesettlement.com, is a .com and not a .gov. And it turns out the Department of Justice disavows its content (hat tip April Charney):
Posted: 13 Feb 2012 05:28 AM PST
UPDATE 10:30PM Alexis writes in:
If others want to comment, there is still time, the deadline is midnight. Occupy the Comments!
Here’s the rule itself: https://www.federalregister.gov/articles/2011/11/07/2011-27184/prohibitions-and-restrictions-on-proprietary-trading-and-certain-interests-in-and-relationships-with
4-430pm: Assemble at Liberty Plaza
5pm: March to the Fed (33 Liberty Street )
5:30pm: March to the SEC’s NY Office (3 World Financial Center, Suite 400)
February 13th marks the deadline for Public Comment on the draft version of the Volcker Rule. The Volcker Rule is a new regulation that aims to curb risky behavior at banks that have enjoyed bailouts and cheap funding from the Fed. It does so by prohibiting big banks from doing two things:
1. Proprietary Trading
2. Owning Hedge Funds or Private Equity Funds
Between now and the summer, the SEC, The Fed, the FDIC and the OCC will be deciding on what the final rule will look like. The banking lobby would love for the rule to be watered down. We want to march on the Fed and the SEC to let them know that we are watching, and we are asking them not to bow to the banks, but to draft a strict, loophole-free version of the Volcker Rule.
Monday, February 13th is the deadline for the public to submit comment on the draft of the Volcker Rule. To learn more about how to comment, visit Occupy the SEC.