Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (43256)	5/17/2010 9:36:59 PM
From: Peter Dierks	Respond to of 71588

Democrats own the Fannie/Freddie mess lock, stock and barrel. I doubt we will get out from under it any time soon.

To: TimF who wrote (43256)	5/26/2010 8:21:20 AM
From: Peter Dierks	1 Recommendation Read Replies (1) \| Respond to of 71588

The Politicizing Of Bankruptcy Sam Zamarripa, 05.17.10, 02:21 PM EDT Sen. Dodd's financial reform bill could change the whole process. Is America moving away from being a nation ruled by law to one ruled by men? That's the question senators should consider this week as they move to vote on Sen. Chris Dodd's financial reform legislation. How the legislation is finalized could have long-term adverse consequences on America's bankruptcy process. Little thought has been given to that question in the rush to financial reform. But Senate and House legislation would discard 200 years of bankruptcy case law, replacing it with a special, one-of-a-kind resolution authority, managed by the Federal Deposit Insurance Corp. The agency will soon have absolute authority over failing big banks, empowered to borrow up to 90% of the assets of the companies it seizes and provide unlimited guarantees to "solvent" institutions. While providing the big banks with a permanent, codified source of bailout funds, the expanded powers of the FDIC will include its mediating with creditors. It will make decisions that bankruptcy judges, legal counsel and courts historically have made. An organization that was founded to provide insurance for depositors will now provide insurance for companies that are too big to fail. Bankruptcy judges are appointed by the federal court of appeals for the circuit in which they serve. They are thus several steps removed from the Congress which makes the laws. By contrast, the "independent" FDIC has its members appointed by the president with the consent of Congress. So, the legislation replaces the orderly legal remedy of bankruptcy--the rule of law--with the arbitrary authority of political appointees at the FDIC--the rule of men and women. This change is sure to create nightmares for creditors, shareholders and the markets. Rather than hiring a bankruptcy lawyer, creditors of large failing institutions under the new framework would be better served to hire lobbyists, as members of Congress will be but a phone call away from the staff of the FDIC resolution authority. And former FDIC employees will become the new hot commodities for financial houses seeking to influence the repayment of debt or securitized obligations. The game of politics will trump the rule of law, as happened to the creditors of General Motors. When the federal government took it over, it subjugated their rights to those of the unions, major supporters of the current administration. Future administrations, regardless of party, will have the same motivations. Such political gamesmanship will wreak havoc in financial markets for those who invest in long-term securities or bonds. The risk of bank failure in normal market cycles is priced into bonds based on the knowledge that creditors are protected through an orderly bankruptcy process. Higher interest goes to those whose debt is subjugated to that of others whose claims come first. Under the new FDIC rule, you cannot price the risk because you don't know the ideology of the FDIC commissioner, his staff, the board or the administration in Washington. Politics adds a new layer of uncertainty that will force a re-pricing of bonds, securities and underwriting, while exposing small investors to a new level of risk. Thus, rather than an orderly resolution process, the legislation creates disorder and new risks for investors instead. The proponents say that this is a price that must be paid by investors because when Lehman Brothers went into bankruptcy a banking panic ensued, which then created the financial chaos requiring the huge $700 billion federal bailout of other big financial institutions. But the problem with Lehman wasn't its bankruptcy, per se. The problem was that administrations and Congresses, going back to the 1980s, had removed derivatives contracts from being dealt with through the orderly bankruptcy process. This meant that, unlike other creditors, those with derivatives contracts could break them and demand immediate payment. This prevented them being unwound in an orderly manner, and thus helped put downward pressure on asset prices. The answer is to have the rules of bankruptcy apply to derivatives, thus making those contracts priced accordingly, not create new uncertainties that can't be fairly priced for all other creditors and the economy. Of course, the central problem Congress still must deal with is having institutions that are too big to allow to fail and also too expensive now even for the government to bail out. They should be reduced in size before they threaten to bankrupt the economy again. Our policymakers in creating a new privileged class of big business that will benefit from rules written uniquely for them are substituting the orderly rule of law called bankruptcy with the arbitrary authority of political administrators. They are killing both competition and innovation while creating a permanent taxpayer subsidy for the big banks. They are politicizing the process of bankruptcy when they should use their power to reduce the power and size of big banks and restore the rule of law to our financial markets. Sam Zamarripa, a former Georgia state senator and chairman and cofounder of Stop Too Big to Fail, serves as president and founder of private equity firm Zamarripa Capital and as founding director of United Americas Bank of Atlanta. forbes.com

To: TimF who wrote (43256)	6/12/2010 11:52:45 PM
From: Peter Dierks	Respond to of 71588

Dems Vote Down Fannie-Freddie Reforms by Connie Hair 06/10/2010 The Democrats’ overhaul of the banking system goes to conference this afternoon to hammer out a compromise between the two bills passed by each chamber. Neither bill addresses an overhaul of Fannie Mae and Freddie Mac -- the two entities at the very heart of the financial meltdown -- rendering any claim that the Democrats’ bill fixes what ails the banking system laughable. In their third attempt to offer spending cuts on the House floor through procedural maneuvers voted on by members of the public, Republicans offered a YouCut proposal yesterday to reform Fannie and Freddie. Democrats voted it down (names at the link). “By rejecting [yesterday's] YouCut proposal to reform Fannie Mae and Freddie Mac, House Democrats make a mockery of their claims to be serious about financial reform and stopping taxpayer bailouts,” said House Republican Leader John Boehner (R-Ohio). “The American people want reform, not more permanent bailouts for Washington Democrats’ Wall Street allies.” “This conference is an opportunity to listen to the American people and work together on common-sense solutions to end the bailouts, reform Fannie Mae and Freddie Mac, and hold Wall Street accountable for its actions,” Boehner added. “I am confident that the Republican conferees will ask the tough questions and serve as strong voices for taxpayers.” Boehner and Speaker Pelosi (D-Ca.) have named their conferees including a long list of relevant committee chairmen and ranking Republicans. Seven Democrats and five Republicans from the Senate will participate in the conference. -------------------------------------------------------------------------------- Connie Hair writes daily as HUMAN EVENTS' Congressional correspondent. She is a former speechwriter for Rep. Trent Franks (R-AZ) and a former media and coalitions advisor to the Senate Republican Conference. humanevents.com