Tuesday, March 31, 2009

Submission to the FDIC on the Legacy Loan Program

The FDIC has called requested submissions as to how the Legacy Loan Program should be run.

You can find the request here.

Given that we are publicly minded people with some expertise you can find our submission here.  

It should later be posted to the FDIC website.  At least it will if the FDIC keeps its promises.

The concerns I detail are the same as outlined on this blog - particularly conflict of interest, the appropriate degree of leverage and the continuance of Sheila Bair in her current position.

Read only if you are into boring government documnents.

I do however have lots of opinionated readers.  Give them good submissions.  It can't hurt.



market folly said...

hey john love reading your stuff, keep up the great work. Wondered if you could possibly add an option for an RSS feed subscription in addition to the email subscription? They both go through feedburner and this would give your readers another option to read your pieces.

If you need help setting this up, would be glad to walk you through it. Just thought it would be another resource for your blog to entice readers to subscribe.

By the way, never posted here before and wanted to introduce myself. I'm Jay, and I write marketfolly.com where I track hedge fund portfolios and provide some financial market commentary etc. Just wanted to say hello and say keep up the good work!


Anonymous said...

Great thoughts, and I hope the FDIC folks will seriously consider and act on the input from knowledgable folks (especially those who are outside of the NYC-DC axis). Good on you.

Anonymous said...

Why is nobody paying attention to FDIC and Senator Dodd? Im so disappointed.


If Geithner wants tax money for his toxic assets, tell him to go before Congress and ask directly instead of using FDIC. FDIC is out of control and shows complete contempt on the safety of our deposit. "Sheila Bair said she expects her agency will finance as much as $500 billion in purchases of residential and commercial real estate loans."

PLEASE spread the word and stop the Senate from passing this bill without any stipulation on the use of FDIC’s increased borrowing power up to $500 billion from $100 billion, only needing approval from FDIC itself, the Fed, and the Secretary of Treasury (if Im reading this correctly that means pretty much Bair, Bernanke, and Geithner get to decide what to do with the extra $400 BILLION and they only need to REPORT a reason to Congress)-

“During the period beginning on the date of enactment of this paragraph and ending on December 31, 2010, if, upon the written recommendation of the Board of Directors (upon a vote of not less than two-thirds of the members of the Board of Directors) and the Board of Governors of the Federal Reserve System (upon a vote of not less than two-thirds of the members of such Board), the Secretary of the Treasury (in consultation with the President)…”

This money needs to be used ONLY for deposit guarantee and bank failures, not for bonds to help banks raise capital, not for Geithner’s “legacy” assets. DO NOT LET FDIC become AIG; AIG was selling CDS contracts without adequate reserve and this is EXACTLY what is happening with FDIC, when it digressed from its main role of protecting deposits and started backing bonds and now potentially toxic assets.

This is not the ORIGINAL reason for which Bair wanted to raise bank fees and the increase in credit line. She tried to increase bank fees because in a letter to banks she wrote FDIC may be insolvent this year as more failures are expected; from the higher fees she planned to collect about $27 billion, not $100 billion House gave her, not $500 billion Senate plans to give her. In fact, within just a few days Bair made several contradictory statements regarding FDIC’s potential insolvency and her concern for using taxpayers money as a solution to that problem. Bair never mentioned backing “legacy” assets in her request to charge higher fees and for more borrowing power.

March 4, 2009
“No Taxpayer Funds Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.” ”

March 6. 2009
“The Federal Deposit Insurance Corp. may reduce an emergency fee on banks to bolster reserves if Congress expands the agency’s borrowing authority with the Treasury Department to $100 billion, Chairman Sheila Bair said”

March 9, 2009
“Bair said the FDIC had enough money in its industry-funded reserves and was fully backed by the U.S. government. “The money will always be there,” she said. “We can’t run out of money.”"

A responsible regulator does not declare potential insolvency that could cause a huge bank run because "FDIC has enough money but wants cushion."

An intelligent regulator does not force Wachovia to sell itself to another insolvent bank Citigroup and cause Wachovia share price to plummet 90% in value within a few hours of trading, in addition to throwing over $200 billion of guarantee on taxpayers.

A well-prepared regulator does not support poor regulation of derivatives:

“[W]hen Bair was the head of the CFTC, and there was an intense debate over whether more regulation of derivatives was needed, here’s what Bair had to say (from an October 1993 Bloomberg article): THE Commodity Futures Trading Commission (CFTC) has given the US$ 4.8 trillion derivatives market a clean bill of health, saying that fundamental changes in the way the market is regulated are not needed…. “We have a strong affinity for derivatives at this agency,” said acting CFTC chairman Sheila Bair. “We like them.”"

Who is regulating OTS/FDIC/SEC?

No more illegal backdating, No more guarantee except for deposits, and No more Madoff scam


Jonathan said...

In my opinion, readers of this blog should consider refraining from casual submissions to the FDIC as this may "muddy the water". It would be extremely powerful if this was one of only a -few- submissions.

John et al, thank you for engaging in this process, especially since you are no doubt aware that these submissions may not receive the consideration they are due.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.