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McCain-Palin Economic Plan Lacks Transparency in Wall Street Journal Op-Ed

Paul Kiesel — Wed, 10 Sep 2008 19:03:12 GMT

John McCain and Sarah Palin gave their opinions on the federal government's takeover of Fannie Mae and Freddie Mac, yesterday, in the Wall Street Journal. Here are a few of the pair's stances: "The bailout of Fannie Mae and Freddie Mac is another outrageous, but sadly necessary, step for these two institutions [. . .] Treasury has broadly followed the McCain plan, outlined months ago, and gets at the short-term heart of the problem [. . .] [The federal bailout] terminates future lobbying, which was one of the primary contributors to this great debacle [. . .] Reforms are necessary now to make mortgage lending and banking organizations more transparent," (online.wsj.com, 9/9/08).

First, the bailout was necessary and it is unfortunate that it had to occur. Could it have been prevented? Maybe years ago, before deregulation bills laxed lending industry rules, like the Commodity Futures Modernization Act of 2000, thus, allowing the lending industry to act like a teenager whose parents were out of town for the weekend... Or several years. Economists, conservative or liberal, will agree on that.

However, when McCain and Palin suggest that the Treasury has "broadly followed the McCain plan, outlined months ago," is that the same McCain plan that the senator discussed with reporters back in March: "Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates [. . .] Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million homeowners are doing what is necessary — working a second job, skipping a vacation and managing their budgets to make their payments on time [. . .] it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," (New York Times, 3/25/08).

I guess March would qualify as months ago. And it does seem like McCain is expressing his economic policies (or laying out "McCain's plan") and how he'd react to the mortgage/housing crisis as Commander-in-chief: that a bailout is a non-option, which is made clear when McCain said, "[. . .] what is not necessary is a multibillion dollar bailout for big banks and speculators, as Sens. Clinton and Obama have proposed. There is a tendency for liberals to seek big government programs that sock it to American taxpayers while failing to solve the very real problems we face." But, it doesn't appear that the Treasury department is using "the McCain plan," as Palin and he suggest. The plan the Treasury is following, not to a tee, but more closely than McCain's, is the plan that both senators Hillary Clinton and Barack Obama called for the same week that McCain was criticizing homeowners, many of who were suffering from mortgages littered with TILA violations.

As to the lobbyists that McCain attributes as being "one of the primary contributors to this great debacle," why is it that one of those lobbysists, former Texas senator Phil Gramm (a former lobbyist for UBS), was McCain's former economic adviser and co-chair, until he was forced to leave McCain's campaign in July after making some careless remarks? Why would McCain surround himself with Gramm, a long time political ally and personal friend, along with seven other lobbyists, and at least 20 other major McCain fundraisers who have lobbied on behalf of Fannie and Freddie in recent years?

Those seven lobbyists working on the McCain-Palin campaign, courtesy of CNN.com:

• One: Campaign manager Rick Davis is a major telecommunications lobbyist.

• Two: Senior foreign policy adviser Randy Scheunemann recently faced scrutiny over his foreign lobbying on behalf of the Republic of Georgia, which has been embroiled in a military conflict with Russia.

• Three: Senior adviser Charlie Black was a foreign lobbyist for dictators in Zaire and Angola in the 1980s, fodder for the liberal group MoveOn.org.

One of the group's recent ads charged, "Charlie Black said he didn't do anything wrong. John McCain should tell Black he did. Call John McCain and tell him to fire Charlie Black."

• Four: Frank Donatelli, the Republican National Committee's liaison to the McCain campaign, has had clients including Exxon Mobil.

• Five: Economic adviser Nancy Pfotenhauer has lobbied for corporate giants like Koch Industries.

"Both John McCain and Sarah Palin have challenged special interests, challenged their own party. That's the test of courage," Pfotenhauer has said.

• The final two lobbyists are McCain's congressional liaison, John Green, and national finance Co-chairman Wayne Berman. They both lobbied for Fannie Mae, the troubled mortgage giant.

So it's more than likely that the "lobbyists" McCain refers to as enablers in this mortgage crisis aren't leaving the political landscape anytime soon, especially if McCain becomes president.

Finally, in regards to McCain's and Palin's call for reforming the two mortgage giants and providing better oversight to the lending industry as a whole, why is it that Phil Gramm's name continues to be mentioned as a possible Treasury Secretary in a McCain-Palin administration? Gramm is the author of the Commodity Futures Modernization Act passed in 2000. There is no coincidence that his energy and lending deregulation bill, among several other deregulation bills like Newt Gingrich's Home Ownership and Equity Protection Act of 1994 (which was written to protect consumers against predatory loans, but it instead helped spark the subprime boom), opened the door for a lot of the problems seen throughout the subprime crisis (i.e. see what happened or is happening at Bear Stearns, Countrywide, IndyMac, WaMu, etc.).

It was through Gramm’s deregulation (as a senator) that helped set the stage for an explosion of banks slicing up subprime mortgages, bundling them with other mortgage slices, to hide the credit risks (and not being transparent about how the mortgages were written as millions of option ARM mortgages violated the Truth in Lending Act), and selling mortgage stew to other investment firms. And as a lobbyist, just as recently as December 31, 2007, Gramm was lobbying for Swiss bankers to help kill the Helping Families Save Their Home and Bankruptcy Act, a bill that would have let bankruptcy judges adjust mortgage terms so American families facing foreclosure could repay their loans and keep their homes.

Is this the reform that McCain potentially plans to bring with him to the White House, if he's elected? Is this the "promise [to] the American people that our administration will be different?"

People change their minds all the time. Both Democrats and Republicans do this constantly in Congress (McCain was initially against the Bush tax cuts and then favored them; Palin was for the "Bridge to Nowhere" and then, after becoming Governor of Alaska, she wasn't for it). President Bush has done this, too, as he signed a housing bill in late-July that he adamantly stated a week earlier he would veto. But on the issues brought up in the Wall Street Journal Op-Ed by the two self-proclaimed mavericks, with McCain and Palin calling for reform to the lending industry, more transparency amongst lenders and less future risk of a taxpayer bailout (issues that McCain has said he's not too sharp on and relies on his economic advisers opinions to make up for his lack of experience, "The issue of economics is not something I’ve understood as well as I should [. . .] I would rely on the circle that I have developed over many years of people like Jack Kemp, Phil Gramm [. . .]”), it seems like there's just too much old "Washington" and lobbyist baggage to fit on the "Straight Talk Express" plane.

People change all the time, however, as the old adage goes: You can't teach an old dog new tricks. An old maverick is likely the same.

Originally posted at InjuryBoard by Paul Kiesel

Prime Borrowers Foreclosing at a Higher Rate than Subprime Borrowers

Paul Kiesel — Thu, 28 Aug 2008 20:25:53 GMT

The Hope Now coalition released information yesterday that finds prime foreclosure starts have finally moved ahead of subprime foreclosure starts for the first time since the industry coalition began (Hope Now originated last July). And, likely, for the first time in a much longer timeframe, according to HousingWire.com.

Since the media's attention has recently been focused squarely on the Democratic Convention, Republicans' reactions to it, and the upcoming Republican Convention, most housing news (good or bad; and most of it's been bad) has gone unnoticed.

Prime borrowers do have the potential of being helped by the housing rescue bill that was passed last month, but the problem is that some of these borrowers were put into "creative mortgages" like option ARM loans with teaser interest rate payment options, and those loans have been more difficult to reform under new lending rules. (Plus, lenders don't want to modify the loans quite yet; they're still hoping they won't have to absorb such large losses that they technically brought on themselves when they decided to recklessly flood the marketplace with so many porous loans.) It's also unfortunate that prime borrowers who were sold "creative mortgages," were largely unaware that throughout the promissory notes, especially in states like Arizona, California, and Florida, were several TILA violations.

Bank executives have already been beating the drum that evidence of prime borrowers going into foreclosure shows that fiscally smart borrowers tried to manipulate the system, but if one is to believe that logic 1. It's a swipe at subprime borrowers (It assumes they're not intelligent) 2. Excuses lenders of taking advantage of any and all borrowers and 3. Assumes that TILA violations did not occur or, if they did, it was in such minuscule numbers.

The point is that option ARM loans were so cunningly crafted, and were promoted vigorously through print, television and mail advertising, that borrowers with good credit and bad credit, found themselves facing lenders whose best interests were in their own short-term profit and had such a myopic view of what economic hardships could precipitate throughout the country via irresponsible lending, that it was an unfair fight for any potential homeowner from the moment Phil Gramm was able to slide his Future Commodity Modernization Act of 2000 into law.

Bear Stearns, Countrywide, IndyMac and dozens of other banks are proof that the lending industry not only loaned money irreverently and had no concern for a borrowers ability to repay the loan, but that almost all of the lenders and Wall Street enablers were also willing to eat their own.

Originally posted at InjuryBoard by Paul Kiesel

Former Fed Chief Greenspan Changes Economic Outlook: Housing Nowhere Near the Bottom

Paul Kiesel — Thu, 31 Jul 2008 19:36:38 GMT

According to CNBC.com, former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.

These remarks greatly contrast what Mr. Greenspan said, in 2006, as the housing bubble peaked and prices were on a slight declivity, "I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out [. . .] There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don’t know, but I think the worst of this may well be over," (MSNBC.com, 10/9/06).

Maybe Mr. Greenspan really didn't know how the following 18 months would play out, but it's hard to believe someone as astute and erudite as he is in economics would not have been able to foresee the foreclosure crisis we're currently in. Many other economists feared our current economic state before it even commenced (Robert Schiller being one of them).

Mr. Greenspan also stated that a recession is almost inevitable and that, "I think we’re right on the brink [. . .] I’d be more surprised if we didn't than if we did, given the financial state.”

Mr. Greenspan agreed with the government's intervention of Bear Stearns and Fannie Mae & Freddie Mac, stating that they had "no choice" but to bail the three companies out. However, he was also quick to point out that Fannie and Freddie are a major accident waiting to happen.

The solution to Fannie's and Freddie's difficulties: Mr Greenspan said, "I think the ultimate solution is a nationalization of both Fannie and Freddie and I hope a restructuring in that nationalization [. . .] And then split them up into five or ten separate entities and sell them back into the market." (An interesting note: After Greenspan said this both stocks were pushed lower.)

Mr. Greenspan has been blamed, along with other Bush Administration officials, for allowing lax lending/credit standards, which allowed for the subprime boom to penetrate the housing and credit markets, setting up the current financial crisis. The economic predictions he discussed today might turn out to be true, but it's unfortunate that when he was the Fed Chairman and even shortly after he retired, he chose to ignore the writing that was on the wall (Center for Responsible Lending issued a warning in 2006) and enabled the whole mortgage meltdown to spin out of control. Where was this advice/foresight 18 months ago?

Originally posted at InjuryBoard by Paul Kiesel

Fed Misses Major Lending Abuse Issue: Mortgage Brokers Steering Borrowers into Bad Loans for Fat Fees

Paul Kiesel — Thu, 24 Jul 2008 21:00:27 GMT

In 2007, mortgage brokers and loan officers received huge payouts by lenders like Countrywide, Bear Stearns and IndyMac to put unsuspecting borrowers into expensive loans (supbrime, ALT-A., etc.), according to the Department of Housing and Urban Development (HUD).

Howell Jackson, a professor at Harvard Law School, testified before Congress recently and said that he thinks the Fed has overlooked the problem and that it remains a "serious problem." Ultimately, Mr. Jackson believes that that cost of borrowing for everybody goes up, because of the losses that stem from subprime loans that were issued and continue to be issued due to incentive-laced compensation for the mortgage broker and the high default rate of the loans.

The HUB estimates that this type of lending practice cost borrowers $16 billion in 2007 alone.

The Yield Spread Premium (YSP)

The YSP is the difference between the lowest interest rate that a borrower qualifies and the actual rate that a lender charges. The greater the YSP, the more a loan originator, like Countrywide, earns and that pushes the mortgage broker, based on avarice and compensation, to steer the borrower into a bad loan.

CNNMoney.com provides an excellent example of this YSP problem:

Say a couple buys a new house and qualifies for a 6.5% rate on a 30-year fixed mortgage. A greedy broker or loan officer might put the couple in a 7% loan so that he earns a bigger payday, or even a 7.25% loan. Loan originators usually earn about 1% of the loan value for every extra quarter point of interest they charge borrowers. So if they put naive home buyers into high-cost loans, such as hybrid adjustable rate mortgages or option arms, they could make 5% or more on a loan.

Due to the clever packaging of junk loans, like option-ARM loans and other teaser rate payment loans, and selling them off to investors (CDOs), the above situation occurred more often than it should have over the last few years, as mortgage brokers and loan originators were able to deceive borrowers into negative amortization loans via a mutlifarious of TILA violations.

The Fed says it plans to address this problem. However, a spokesman for the Fed has only said that it will focus its efforts on improving fee disclosures, which is a start, but still leaves the borrower at a disadvantage in determining the YSP.

A spokesman for the HUD, Brian Sullivan, said that "mortgage rules are 30 years old and don't reflect the way people refinance their homes today." This is true. Teaser rate payment options weren't an option that long ago.

Even though the Fed announced new rules last week to help curb mortgage fraud, if further legislation isn't introduced TILA violations and other mortgage fraud, through deceptively written loans, could emerge again.

Originally posted at InjuryBoard by Paul Kiesel

Bush Makes Fun of Housing Crisis: 'Wall Street Got Drunk'

Paul Kiesel — Wed, 23 Jul 2008 04:30:13 GMT

Last week, at a Houston fundraiser for Republican congressional candidate Pete Olson, President Bush asked for the TV cameras in the room to be shut off. Unaware that iPhones exist, and that someone could be recording him with such a device, he then proceeded to do a two-minute standup act that one might find David Letterman or Jay Leno doing during their opening monologues. Unfortunately, and in bad taste, Bush chose to make fun of the housing crisis, which can be viewed on YouTube, Facebook and ABC News.

Bush started his ill-timed comedy routine with, "There's no question about it. Wall Street got drunk. That's one of the reasons I asked you to turn of the TV cameras. He got drunk and now it's got a hangover." And, yes, he said "he" and then "it" in reference to the same noun within the same sentence. Bush continued, "The question is: How long will it sober up and not try to do all these fancy financial instruments?"

Bush must be talking about the same financial instruments that were permitted to exist up until recently, thanks to a Republican-led Congress that passed several deregulation bills almost a decade ago, including Former Republican Texas Senator Phil Gramm's Commodity Futures Modernization Act of 2000; thus, allowing for the Enron debacle and the subprime disaster that this country is currently facing.

Bush went on to say, "And then we've got a housing issue -- not in Houston, evidently not in Dallas, because Laura was over there trying to buy a house today." At this point the president was smiling from ear to ear and laughing at his own jokes.

Bush continued joking and, to a room full of laughter, said that, "I like Crawford -- Unfortunately, after eight years of asking her [Laura] to sacrifice, I'm now no longer the decision maker."

The president's tone and remarks drastically depart from his tone and statements made last week in regards to struggling American families, the foreclosure crisis, the housing bill, and Fannie Mae and Freddie Mac. Last Tuesday, Bush said, "It's been a difficult time for American families [. . .] We must ensure we can continue providing credit during this time of stress [. . .] When will the economy turn around? I'm not an economist. But I do believe we're growing. I'm an optimist and there are a lot of positive things about our economy," (CNNMoney.com, 7/15/08).

Bush must have been so optimistic that during that same week he felt it was appropriate to make fun of a struggling economy and families/homeowners that were battered by fraudulent and insidious lending practices by companies like Bear Stearns, IndyMac and other former reputable banks/lenders that no longer exist, due in large part to their own myopic avarice during the subprime boom (issuing loans that were illegal according to the Truth in Lending Act). This was all allowed to be executed under a Bush Administration that heavily promoted homeownership, even though they were fully aware of how deregulated and dangerous (for consumers) mortgage lending had become.

And what are these "positive things" the President is talking about? Why isn't he specific enough to name one or two of the "positive things?" Home prices are down 15% nationwide from last year (according to the Case/Schiller home price index), California's foreclosure rate for the second quarter of 2008 is up 261% from the previous year, the economy has lost jobs for the last six months in a row, and Wall Street has moved into a bear market, with stocks trading 20% below recent highs. Plus, inflation is crushing American families like an iron heel, as gas and grocery prices continue to rise. Are these the "positive things" the president is talking about? And is it really appropriate for Bush to make fun of struggling American families, in front of room full of, most likely, affluent Bush donors that are largely impervious to the pangs of the mortgage mess, thus, kicking the former while their down?

Bush has shown the country how he really feels about the mortgage/housing crisis (with at least one camera capturing the president's candid self) and the economic challenges average Americans face: Bush is ambivalent towards the situation at best, but most likely he's indifferent about it all, as he finds the housing crisis insignificant enough to make fun of it and the victims of it, during the same week he tells media outlets how concerned he is about the challenges Americans are facing.

Barney Frank, whose housing bill will be voted on today in the House, said last week that, "The top financial officials of George Bush's administration have come before the public and said, 'We're from the government, and we're here to help you.'" However, the president is also here to laugh at you.

Originally posted at InjuryBoard by Paul Kiesel

Fed is Convinced Mortgage Crisis will Spill into Next Year

Paul Kiesel — Tue, 08 Jul 2008 15:18:47 GMT

Ben Bernanke, Chairman of the Federal Reserve, said Tuesday morning that new lending rules would be put into effect next week to restrict exotic mortgages and to help curb other dubious lending practices in an effort to protect future homebuyers.

In regards to the current state of financial markets, Mr Bernanke said, "The financial turmoil is ongoing, and our efforts today are concentrated on helping the financial system return to more normal functioning [. . .] It is not too soon, however, to begin to think about the steps we might take to reduce the incidence and severity of future crises," (The New York Times, 7/8/08).

Bernanke is correct in his latter statement; the Fed needs to take the proper steps in order to reduce the incidence of what took place during the subprime boom from happening again, however, in regards to his acknowledgement of the ongoing mortgage crisis, something needs to be down now, in order to help stave off even further market damage/losses. Congress has been unable to pass a housing bill or relief plan for troubled homeowners and the Fed has done little to aid the mortgage crisis, with the exception of endorsing programs like Hope Now, which has provided minute help to people in troubled or fraudulent loans.

However, and fortunately, the Fed is beginning to see that the end is nowhere in sight per the mortgage crisis. In fact, the Fed, and Bernanke through his comments today, seem to suggest that the crisis that has plagued financial markets for the last year will likely spill into next year and grow worse as we finish the year.

This becomes even more apparent through the Fed's announcement today that it will extend a lending program (government loans to Wall Street) that was set up for investment banks and was originally set to last for only six months. The extension of this program will go well into next year or at least for another six months. (This lending program is the same one that helped facilitate JP Morgan Chase's acquisition of Bear Stearns in March.) Now the Fed needs to come up with a better plan to help homeowners, too. Hope Now, as Treasury Secretary Paulson suggested back in May, is "proving insufficient."

New Mortgage Rules

Next Monday, we'll find out what new mortgage rules will go into effect before the end of the month. Based on what Bernanke alluded to today, the new rules will apply to all lenders and not just banks and will only apply to new mortgages not existing ones. Ultimately, the new rules next week could bring about some optimism for consumers as the proposals that have been discussed since December, and that were reiterated today, would do away with most of Newt Gingrich's Home Ownership Equity Protection Act of 1994, which covered less than 1 percent of all mortgages since HOEPA became law (in fact HOEPA helped usher in deregulation of the lending industry amid other industries, along with kickstarting the subprime boom).

Industry lobbyists are complaining loudly about Bernanke's comments today, and that's good news for mostly everybody else.

Originally posted at InjuryBoard by Paul Kiesel

IndyMac and Fed Working Together

Paul Kiesel — Wed, 02 Jul 2008 20:44:19 GMT

IndyMac, in a securities filing late Monday, said that it is working with U.S. regulators on a plan to shore up the company's safety and soundness. However, other than their statements on raising capital, little information was divulged by the struggling bank.

The U.S. Office of Thrift Supervision, which regulates IndyMac, didn't release any statements per IndyMac's filing.

What remains to be seen is whether IndyMac gets a bailout. There are two scenarios:

1. The Fed decides that IndyMac's failure, along with other struggling financial stocks, could precipitate a panic on Wall Street, therefore, they save the bank. Just today, rumors were thrown around that GM might seek bankruptcy protection, resulting in higher oil prices and the Dow reporting at the end of trading that it is down more than 20% from its peak in October, 2007. Adding IndyMac to the list of victims from what is now being considered a "bear market" could be detrimental to a quicker turnaround for the stock market and the economy. If the Fed decides to jump in and save what is now the #11 producer of U.S. home mortgages (since Countrywide was swallowed by Bank of America and Bear Stearns by JP Morgan Chase), they will facilitate a deal between a more stable, sound bank in acquiring IndyMac's assets and risk (losses), however, with a large cushion of government money insuring the deal; lowering the risk for the acquiring bank.

2. The Fed feels like it's necessary to let IndyMac remain accountable for its terrible financial situation, thus, the bank fails and is made an example of as the poster child of irresponsible lending; and that IndyMac's lending practices and overall avarice during the subprime boom will not and should not be rewarded with government assistance.

As each day melts into the other this summer, so does each scenario. Until IndyMac elucidates on what is really going on in its ability to raise capital and reveals what its predicted future losses are estimated at, then it is difficult to gauge an end result for the Pasadena-based bank.

Originally posted at InjuryBoard by Paul Kiesel

Will IndyMac Get a Bailout, Too?

Paul Kiesel — Tue, 01 Jul 2008 20:31:02 GMT

The Center for Responsible Lending released evidence yesterday, June 30, that IndyMac put itself in a hole by, "engaging in unsound and abusive lending during the nation's mortgage boom," (Center For Responsible Lending, 6/30/08).

The report is titled, "IndyMac: What Went Wrong?" And it finds substantial evidence that IndyMac routinely offered and made loans with little concern as to whether their customers could repay the loan.

Three main issues are brought up in the CRL's report:

-IndyMac pushed through loans based on inflated appraisals and income data that exaggerated borrowers' finances;

-IndyMac worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees (TILA violations);

-IndyMac treated many elderly and minority consumers unfairly.

Obviously, over the last six months, much of the criticism concerning the mortgage crisis has revolved around subprime mortgages, but IndyMac, rather, was a bigger player in regards to "Alt-A" loans, and if it were to go bankrupt, it would likely have a greater impact on the economy as it has billions of dollars of Alt-A loans floating around mortgage market.

Alt-A borrowers have a higher interest rate than prime borrowers, but they also have lower rates than subprime borrowers; they tend to take out larger loans than a subprime borrower. In 2006, IndyMac was the leading Alt-A lender, and their avarice in writing billions of dollars in loans, with little evidence that the borrower could repay it, has come back to haunt them along with many other Alt-A lenders (not to mention the stock market and confidence amidst all lending institutions). And as we'll see in the coming months, prime borrowers will be swallowed by the mortgage crisis as their rates reset as well, adding even more fuel to the fire.

The question that remains as IndyMac's shares traded at an all-time low today, 52 cents a share, is: Will a bank like Bank of America come in and save the hemorrhaging IndyMac (with, maybe, the assistance of the U.S. government) or will IndyMac be made an example of for their insidious lending practices and their irresponsible lending?

Originally posted at InjuryBoard by Paul Kiesel

Fed Backed Bear Stearns Deal to Prevent a "Contagion"

Paul Kiesel — Fri, 27 Jun 2008 15:49:18 GMT

On Friday, the Federal Reserve released documents showing why, in March, it chose to save Bear Stearns from bankruptcy. Ultimately, the Fed felt compelled to do something because of fear that immediate failure within Bear Stearns would cause a contagion from infecting other parts of the nation's financial system.

At first, the Fed solicited many investors to step up and take on Bear Stearns' assets, however, they determined that JP Morgan was going to be the most capable investor to acquire the flailing bank. Once that decision was made, the Fed brought the $28.82 billion required to make the $30 billion transaction go through (JP Morgan only risked a little over $1 billion in comparison).

"The Fed's decision to take this action was 'based on recent, rapidly changing developments,' the documents said. 'These development demonstrated that there had been impairment of a broad range of financial markets' that Wall Street firms rely on for financing," (Los Angeles Times, 6/27/08).

Basically, the Fed applied the domino theory to Bear Stearns and felt that if it collapsed then several other banks in similar financial conditions (or with pessimistic future financial conditions) could fail to, causing a type of implosion on Wall Street. Most critics of this assessment suggest that the Fed's actions are more or less akin to a government bailout; contrary to the White House which has been opposed to any sort of bailout to "lenders and speculators," particularly President Bush, over the last six months.

Nonetheless, the documents released by the Fed add very little to the aftermath of the Bear Stearns bailout and why it took place, instead of first trying to help subprime borrowers who were preyed upon by companies like Bear Stearns. We're still left with the feeling that if an IndyMac needs the capital (which it apparently does need), or a bailout, the government will come to their rescue and broker a deal, once again, before facilitating any aid to troubled homeowners.

Originally posted at InjuryBoard by Paul Kiesel

IndyMac may be the Next Mortgage Lender on the Brink of Failure

Paul Kiesel — Thu, 26 Jun 2008 20:28:41 GMT

U.S. Senator Charles Schumer asked U.S. regulators to analyze the financial health of Indymac, as Schumer believes the company may be on the brink of failure. The FDIC, the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco all received letters from Sen. Schumer that express his views that IndyMac is having "serious problems."

According to the Los Angeles Times, Sen. Schumer wrote in the letter that he is, "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers [. . .] the bank could face a failure if prescriptive measures are not taken quickly."

Indymac was the largest Alt-A lender in the nation, as the company signed up many borrowers who were just short of qualifying for prime mortgages. Indymac's value has decreased 97% over the past year, and is currently trading at just over $1 a share.

It appears IndyMac will have to raise capital and have to raise it fast, as the company has reported that it's lost over $900 million in the past three quarters, and has likely omitted some dividends and said that it won't make money this year. I'd look out for another government bailout package, as long as another bank comes to the table and is willing to acquire IndyMac in the same fashion JP Morgan Chase did with Bear Stearns.

Originally posted at InjuryBoard by Paul Kiesel