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Post by jeffolie on Nov 26, 2007 17:09:41 GMT -6
FLASH: US banking system on verge of collapse: Senator Schumer calls for federal investigation of $51 billion in loans to Countrywide Toxic Mortgage Folks, the United States banking system is about to collapse. If you have money in US banks (especially Countrywide) beyond the FDIC limits, get it out tomorrow. Get it out fast. If you have money in money markets, which are NOT FDIC insured, get it out tomorrow. Get it out fast. If you still own bank and financial stocks, sell them tomorrow. Get out fast, while you still can. The British government and Bank of England are in a whole heap of trouble for the reckless and stupid decision to bail out failed bank Northern Rock, and now they're coming to the realization they're not gonna get paid back. But we all knew about the stupid actions in the UK. That's NOT the case in America today, where Countrywide Soon to Go Bankrupt Toxic Mortgage has secretly been fronted $51 BILLION by the FHLB member banks in order to keep them afloat, backed up by toxic loan paper that is becoming worthless real quick. I can't believe this is happening. We (and our banks) are run by monkeys. And now even our friend Senator Schumer is freaking out, asking for a federal investigation today. When banker-owned Schumer is scared, you should be scared too. U.S. Sen. Charles Schumer on Monday called for federal regulators to probe more than $50 billion in advances made by the Federal Home Loan Bank of Atlanta to troubled mortgage giant Countrywide Financial In a letter dated Nov. 26 to Chairman Ronald Rosenfeld of the Federal Housing Finance Board, Schumer (D., New York) expressed "serious concern" that loans Countrywide Bank was pledging as collateral for those advances "may pose a risk to the safety and soundness of the FHLB system as a whole." FHLB Atlanta has made $51.4 billion in advances to Countrywide Bank as of Sept. 30, Schumer wrote, citing the most recent Securities and Exchange Commission filings. The amount represents 37% of the bank's total outstanding advances and the $62.4 billion in loans Countrywide has put up as collateral represents 78% of its total mortgage holdings, Schumber said. "I find these numbers alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis," Schumer wrote in calling for the probe. housingpanic.blogspot.com/ www.thestreet.com/s/schumer-probe-countrywide-advances/newsanalysis/banking/10391679.html?puc=googlefi
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Post by jeffolie on Nov 26, 2007 18:43:52 GMT -6
In a letter dated Nov. 26 to Chairman Ronald Rosenfeld of the Federal Housing Finance Board, Schumer (D., New York) expressed "serious concern" that loans Countrywide Bank was pledging as collateral for those advances "may pose a risk to the safety and soundness of the FHLB system as a whole."
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Post by jeffolie on Nov 27, 2007 12:16:22 GMT -6
Nouriel Roubini's Global EconoMonitor The Stealth Public Bailout of Reckless “Countrywide”: Privatizing Profits and Socializing Losses Nouriel Roubini | Nov 27, 2007 The letter by Senator Schumer questioning the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret - that was known only to a few insiders and was noticed on this blog a month ago – that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers’ money. Here is Countrywide - the premier poster child financial institution of the reckless and predatory lending practices of the last few years – getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages – and whose CEO Mozilo is under SEC investigation for potentially illegal activities – now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending. Mozilo is under investigation for his accelerated sales of Countrywide stock under a 10b5-1 plan. Mozilo has made more than $100 million on stock sales this year, while Countrywide shares collapsed more than 50%. As the Schumer letter correctly points out the collateral against this $51 billion loan is mostly toxic waste subprime garbage whose market value is now much lower than the face value of such mortgages; so $51 billion dollar of taxpayers’ money has been put at risk with garbage as collateral for it. At least Northern Rock – that also received a massive official bailout in the UK – did so under the public scrutiny and serious criticism of such bailout by media, public, politicians and investors. Instead Countrywide – a huge mortgage lender that is most likely insolvent rather than illiquid – received a stealth bailout that only now is emerging to the public eye. In the case of Northern Rock – another institution that is most likely insolvent rather than illiquid – the botched bailout led to public embarrassment for the Bank of England, the FSA and the UK Treasury. As authoritative analysts - such as Martin Wolf of the FT - have correctly argued, in cases where massive amounts of public money are at stake to bailout a nearly insolvent institution the fair punishment to the shareholders of such bank it to wipe out their equity and a public takeover – yes a nationalization – of the bank; that nationalization should be a temporary action to clean up the mess, get the incompetent and reckless shareholders and managers out, restructure the bank and then sell back to the private sector. Capitalism without punishment for reckless lending breeds moral hazard and pestilence. As Wolf rightly put it: If Northern Rock had been taken under public control at the same time, the Bank lending would have been unnecessary. Shareholders would have been wiped out, as was appropriate for an institution needing such a public rescue. The business would then have been sold off, in whole or in part, with any losses imposed on unsecured creditors (including the government). …What is now needed is better and more effective deposit insurance and bankruptcy provisions. If these had existed, Northern Rock would now be in some form of public administration and that is exactly where it should be today. A fortiori the same public takeover should have been done in the case of Countrywide, the poster child of reckless mortgage lending and of the current mortgage disaster. Instead, rather than kicking out a reckless CEO - whose actions are now under SEC investigation – and putting the lender under public control, Countrywide has been rewarded with $51 billion of public money that was provided in a stealth bailout operation while the current shareholders and incompetent managers are still firmly in charge of the bank. The right approach would have been - as Martin Wolf suggested for Northern Rock – to take over the bank and put it formally under public control. Instead the US Treasury, the FHFB, the Fed and the banking regulators have been tacit and/or explicit accomplices of the stealth public bailout of most egregious example of reckless and predatory lending, the core institution at the center of a subprime and mortgage disaster that is now taking the entire US economy into a recession. The lesson of this sad and sleazy episode is that when profits are privatized and losses are socialized we get sleaze capitalism and corporate welfare that becomes public bailout of reckless lenders. All this from a US administration that hypocritically praises every other day the virtues of private markets capitalism. For all of us who do truly believe in free market economies where a variety of public goods are provided by governments and the financial sector is properly supervised and regulate this is not a capitalist system but rather socialism for the rich. www.rgemonitor.com/blog/roubini/
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Post by unlawflcombatnt on Nov 27, 2007 13:26:17 GMT -6
Amazing. If there's a silver lining to the cloud, it's that government backing is only "implicit," to "explicit." Given how stupid FHLB's decision has been regarding Countrywide, which has lost nearly 3/4 of its share price value this year, the "implicit" backing needs to be reverted to simply "not backed." Below is an excerpt from Wikipedia on the Federal Home Loan Bank" The Federal Home Loan Banks provide stable, on-demand, low-cost funding to American financial institutions for home mortgage loans, small business, rural, agricultural, and economic development lending. With their members, the FHLBank System represents the largest collective source of home mortgage and community credit in the country.
Ownership
The 12 banks of the FHLBank System are owned by over 8,100 financial institutions from all 50 states, U.S. possessions, and territories. Equity in the FHLBanks is held by these owner/members and is not publicly traded. Institutions must purchase stock in order to become a member. In return, members obtain access to low-cost funding, and also receive dividends based on their stock ownership. FHLBanks are exempt from state and local income taxes, but are subject to property taxes. The mission of the FHLBanks reflects a public purpose (increase access to housing and aid communities by extending credit to member financial institutions), but all 12 are privately capitalized and do not receive taxpayer assistance.
On February 26, 2007, the FHLBanks Office of Finance published preliminary combined operating highlights for 2006. As of year-end, the combined assets of the 12 Federal Home Loan Banks were approximately $1.02 trillion. Of this total, secured loans (known within the Bank System as advances) equaled $641 billion, or about 63% of assets. Investments were the second largest component at $271 billion, or 26.6% of assets. Member mortgage assets were $98 billion, or 9.6% of assets. Combined net income in 2006 was $2.6 billion, and capital equaled $45 billion. The FHLBanks made affordable housing contributions of $295 million in 2006 Compared to year-end 2005, secured loans, investments, net income, capital and affordable housing contributions increased, while member mortgage assets decreased.
The principal investments of the FHLBanks are in advances to members secured by mortgage loans, Federal funds sold, commercial paper, mortgage-backed securities, and GSE securities. The FHLBanks finance these investments primarily by issuing callable and noncallable bonds. The liabilities of each FHLBank are guaranteed by all of the other FHLBanks. All 12 Banks were registered with the United States Securities and Exchange Commission and all financial statements and other filings are available to the public at the SEC web site.
History
Congress passed the Federal Home Loan Bank Act, which established the FHLBank System, in 1932, during the Great Depression. This was in order to provide funds to savings and loan (thrift) institutions to make mortgages more affordable. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) abolished the Federal Home Loan Bank Board and transferred responsibility for oversight of the Federal Home Loan Banks to the Federal Housing Finance Board. At that time the Bank Board’s previous supervisory and regulatory responsibilities with respect to thrift institutions and their holding companies were transferred to the newly created Office of Thrift Supervision, under the U.S. Department of the Treasury. FIRREA also allowed all federally insured depository institutions to join the FHLBank System, including commercial banks and credit unions.
Retrieved from "http://en.wikipedia.org/wiki/Federal_Home_Loan_Banks"
Category: United States government sponsored enterprise"
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