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What about the OCC ruling?

by divorced one like Bush

The OCC is: Office of the Comptroller of the Currency

The OCC was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller , who is appointed by the President, with the advice and consent of the Senate, for a five-year term. The Comptroller also serves as a director of the Federal Deposit Insurance Corporation (FDIC) and a director of the Neighborhood Reinvestment Corporation.

The OCC’s activities are predicated on four objectives that support the OCC’s mission to ensure a stable and competitive national banking system. The four objectives are:

To ensure the safety and soundness of the national banking system.
To foster competition by allowing banks to offer new products and services.
To improve the efficiency and effectiveness of OCC supervision, including reducing regulatory burden.
To ensure fair and equal access to financial services for all Americans.

Out of the 4 statements and I count 9 items, I think they only have achieved two items:
…allowing banks to offer new products and services
…including reducing regulatory burden.


The OCC does not receive any appropriations from Congress. Instead, its operations are funded primarily by assessments on national banks. National banks pay for their examinations, and they pay for the OCC’s processing of their corporate applications. The OCC also receives revenue from its investment income, primarily from U.S. Treasury securities.

Ring a bell?
If yes, you are probably thinking about the one that got Elliot Spitzer and the other 48 AG’s pissed off. That one certainly needs to be reversed. Infact, the AG is going before the Supremes on the 25th. There is a push to get Obama et al to change this ruling.

For the past four years, the OCC has been championing deregulatory and minimal standards against states that have been trying to enact higher standards for banks and their operating subsidiaries. When states tried to monitor mortgage lending and protect consumers, the OCC invited national banks to contact the agency, which then wrote letters to banks and state banking agencies asserting that states had no authority to do so. The OCC also sided with national banks in the courts, writing amicus briefs arguing that state monitoring and enforcement in a variety of areas did not apply, and that only the OCC could investigate and enforce laws against nationally chartered banks.
After the Second Circuit Court sided with the OCC, the Attorneys General of all 50 states urged the Supreme Court to take up the case and reverse the appeals court decision. The Supreme Court agreed and, on March 25, the U.S. must file its brief in the case on behalf of the OCC, an agency under the Treasury Department.

With all the talk about re-regulating why have we not heard boo from Obama et al about changing this. I mean, he changed with a simple pen other bad positions from the last administration that are not related at all to the #1 issue of world wide economic collapse. What could be more simple and basic to steps to be taken to resolving this crisis than undoing the OCC ruling? Why is Obama leaving this OCC issue to chance when the Supremes already ruled in favor of Wachovia against Michigan?

This included the case decided by the U.S. Supreme Court last year against Michigan, in which the OCC sided with Wachovia Bank and argued that state mortgage lending laws and oversight could not apply to a national bank’s operating subsidiary.

Just read this article from 2005 about the issue to see what the pro-OCC crowd was thinking.

Ok, it wasn’t that ruling you were thinking of. Maybe you were thinking about the OCC ruling letting banks be realtors and real estate developers? I would understand, it was a 2006 ruling making it a little more fresh in the mind. Needless to say, the National Association of Realtors was not happy.

The OCC decisions permit U.S. national banks to engage in the business of real estate development by developing and operating a luxury hotel; financing, developing, operating and leasing space in a mixed use building (including developing residential condominiums for sale). They need only argue that a small portion of the project is needed for bank premises or that a part of the project is needed to make the rest economically feasible. They may also hold a 70 percent equity stake in a windmill business, qualifying for special tax credits. Three national banks were given the green light to engage in these business activities.

Well there goes the green powered economy Obama wants.

But there was another ruling from the OCC that I’m thinking of. A ruling that requires Obama to undo a Clinton era position from 1996. And, funny thing it had an entire industry all bent out of shape that today would not be recognized as completely and entirely distinct from the banks; the insurance industry.

Office of the Comptroller of the Currency; bank subsidiaries may sell insurance
WASHINGTON — Insurance groups are vowing to do everything possible to block a new ruling by the Office of the Comptroller of the Currency that could allow national banks to form operating subsidiaries that sell and underwrite insurance.

Gary Hughes, vice president and chief counsel with the Washington-based American Council of Life Insurance, said his preliminary analysis suggests two possible levels of attack.

First, Mr. Hughes said, insurers could charge that Comptroller Eugene Ludwig does not have the power to adopt the ruling. Second, he said, insurers could say that even if the ruling is lawful, insurance underwriting is not incidental to banking and thus …

Are you seeing a pattern here? No? How about this 2002 ruling:

A recent ruling by the Office of the Comptroller of the Currency eased fears of marketers in the credit card industry about any possible new rules that could have hampered telemarketing of debt suspension and cancellation agreements.
In addition, the OCC declined to consider the agreements a type of insurance product. Doing so would have taken the agreements out of the hands of federal regulators and into the jurisdiction of the states, opening the possibility that they would be subject to 50 different state laws.

The OCC also ruled that marketers could provide consumers with short-form disclosures at the time of closing an agreement provided that they mail a long-form disclosure brochure afterward. The new rules take effect in June 2003.

How did the OCC get to do this? Guess!

Congress granted the OCC the authority to regulate credit card marketers when it passed the Gramm-Leach-Bliley Act in 1999. In 2000, the office published a notice of proposed rulemaking stating that it was considering changes regarding debt suspension and cancellation agreements.

I know we are all thinking the bad guys have been the prior Treasury, Fed and AG. But I gotta tell you, looking at these OCC actions, the OCC seems to be the real Ace under the table and NO ONE IS TALKING ABOUT THEM! Hell, they get their money from fees charged to the industry they regulate. And recently we heard that a part of their directorship duties, the FDIC, hasn’t been collecting the insurance premiums. Though that was do to congress I guess. I mean, no influence from the industry here (cough, cough, choking, choking).

I just can’t resist closing with this statement about why the fees were not collected. They (as in congress, bankers, financiers) really believed in the free lunch money from money theories.

But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because “the fund became so large that interest income on the fund was covering the premiums for almost a decade.”

Yeah, just like your 401K huh?

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Can We Stop Pretending Nationalisation is a Bad Idea? The WSJ has.

I’ve spent most of the past two weeks alternating between dizziness and sleep. Maybe the dizziness explains why I find myself in agreement with a WSJ editorial:

In a better world, Citi would have long ago been put into bankruptcy. The FDIC could have taken over and disposed of the bank’s assets, while protecting insured deposits as it always does. The profitable parts of Citigroup could then have been sold off to people who could better manage them.

Let’s do some elementary math in support of the WSJ position:

Taxpayers have already put more than $50 billion in capital into the bank, while guaranteeing $301 billion of its bad assets, and the bank still can’t stop its slide.

All right, I’ll work with the low number, which is the most optimistic estimate anyone has published recently: $50 Billion. The Big C’s market capitalisation (the Present Value of the Expected Unencumbered Future Cash Flows as expressed as the stock price times the number of shares) as of last night is $8.18 Billion.

Can we stop talking about the evils of “wiping out the existing shareholders”? They were wiped out more than $40 Billion ago.

The WSJ does make one mistake:

But in this vale of taxpayer tears, Citi is “too big to fail” and thus must be propped up lest it (allegedly) spread contagion through the financial system. While that may have been true last fall amid the worst of the financial panic, we don’t think the contagion would be the same now that the federal government has guaranteed anything in the financial system that moves.

Well, not exactly. By my count from the FDIC Failed Banks list, 28 banks have been closed since October of 2008, including two yesterday. And there’s no sign that that trend is ending. But this is spot on:

That isn’t the view at Treasury, which yesterday agreed to a stock swap that will buy Citi more time to, well, who knows? The feds will trade the preferred taxpayer shares for Citigroup common, which means giving up their 5% dividend and taking on more future risk in return for a 36% ownership stake.

Let’s review below the fold:

  1. The Fed has put at least $50 billion into The Big C.*
  2. The Big C is worth, according to its best-informed shareholders, slightly over $8 billion.**
  3. The Fed’s $50 billion will get it a 36% share in The Big C.
  4. Basic Math Interlude: $50B=0.36x => x = $50B/0.36 = $138.89B implied value
  5. Pause to repeat: The market thinks The Big C is worth just over $8 Billion. The current “book value” of the institution—a mythical number only an accountant could love, and her only because she is paid to love it—is just over $80 Billion. The Best Case Scenario for the Fed commitment is that The Big C is worth nearly $140 Billion.
  6. Interlude: [search Internet for a picture of The Nile to insert here. Settle for trying to get the Sadly, No! guys to photoshop Tim Geithner’s head onto Pam Tillis’s body.]
  7. Remind the blogsphere of Simon Johnson’s answer to Question 8:

    8. How many of the largest 5 banks will likely end up with government as majority owner?

    – Any honest market-based valuation of bank assets will show a majority of large banks are presently insolvent but can be righted with substantial new capital.

    – If the answer isn’t “at least two,” then either the Treasury does not plan to properly value assets, or someone is not yet prepared to tell the full truth.

  8. Point out that, if you believe the market, there are two banks that are currently Serious Outliers in Book-to-Market Value, The Big C and BofA.

  9. Decide not to discuss stress testing, which indicates that Wells Fargo is also seriously endangered, in this post, in large part because of its acquisition of WalkAllOverYa, which had previously acquired World Savings Bank. Leave for later; tell audience not to hold breath.

Now, let’s pretend that past is prologue and that Timmeh! is just making the best deal he can. (Pause for laughter to subside.) Let’s just Focus on the Future.

The Obama Administration is commonly described as planning to ask for $750 Billion in additional “bailout funds.” They are claiming that this should be shown on the budget as $250 Billion, since they expect to get about 2/3s of the funds back over time. [link added, h/t Frank Rich in the NYT]

Given the above details re: The Big C, and the abundant reports with multinational historic examples that shows nowhere near that size of return, why should we be expected to believe them?

With regard to The Big C, I’ll give the penultimate word, once again, to the WSJ editorialists:

Meanwhile, Treasury is forcing the bank to get some new, and presumably more competent, directors. Many of the current directors were going to leave later this spring anyway, but at least this imposes some discipline in return for the federal largesse. Citi’s management will stay in place, at least for now.

Again in a better world, the new board and Treasury would find better managers. But yesterday’s announcement included no roadmap for how the bank plans to restructure, if it even plans to do so. The hope is that it can earn itself back to profitability. More realistically, a bank that has failed as often as Citigroup needs to shrink until it is no longer too big succeed.

As followers of the Iraq War know, Hope is not a Plan. When the WSJ endorses nationalisation, it’s clearly an idea whose time has come.

*We can pretend the asset guarantees—a Really Stupid Idea from people Robert assures me are smart—are independent of the firm; that is, if Goldman or BofA owned them, they would have gotten the same deal.

**I maintain that the current stock price is approximately the price of a two- or three-year call option at a price marginally above the current level—say, $3 or $5—and as such we should rightly view the current stock value as $0.00. But that’s for another post.

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Assume They Know What an Acronym Is

I am reliably informed (though I cannot find it on the web) that Forbes yesterday and MSNBC today are both referring to the next kleptocratic maneuverbank bailout bill as the Bank Asset Recovery Fund.

Anyone got the links?

UPDATE: Forbes link added.

UPDATE II: The consensus in comments appears to be that a Meredith Whitney report on the 29th may be the original source of the BARF acronym. Via Paul Kedrosky, FT Alphaville has an excerpt from her spot-on report of the issue with the BARF plan. The acronym is sadly missing from it, though commenter leftback chez Ritholtz claims to have been “ripped off.” (Think of it as having been mainstreamed, mate.)

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Simple Answer to a Simple Question

Dr. Black graciously asks:

Am I the only to whom it’s occurred that monetary policy through the banking channel (as opposed to, say, actually dropping money from helicopters) is only likely to be effective if banks are pretty good at allocating capital efficiently, and recent history tells us that the existing set of clowns in charge completely suck ass at this?

No. In fact, this is one of the better reasons for advocating spending (fiscal) solutions over monetary ones. The monetary ones haven’t worked, because the skillset to make them so does not currently exist sufficiently in the financial community.

Or, as someone once observed, we have thirty major banks. What we don’t have are thirty bankers to run them.

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English translation, or Kleptocracy Defined

Via CR, the Fed announcement this morning:

The Federal Reserve Board on Tuesday announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).

Let’s go through this. The government is now insuring securities based on

  1. student loans,
  2. auto loans, and
  3. credit card loans*

Note that this is not support for schooling, the automobile industry, or credit card borrowers—just the people who buy (or bought) the paper.

In short, f**k the people who actually produced the underlying value of that financial asset. Save Wall Street with Main Street’s tax monies.

I give up. Yves Smith’s old description of Paulson’s “Mussolini-Style Corporatism in Action” seems so quaint by comparison to this abomination.

*SBA loans are omitted from discussion, since there is a reasonable argument that the government insuring SBA loans is has no net cash flow implications. (The argument will prove false when it is discovered that SBA loans are being made profligately to Bush Administration contributors, but that’s a side issue.)

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Class War; Appropriateness of the Wealthy’s strategy

A research review by: Divorced one like Bush

Introduction: This review was initiated after reading the report linked at the 25 indicators post. A review of the data regarding accepted economic performance indicators for business cycle peaks of year 2000 and 2008 is presented along with a discussion of the relevance to the strategy of the Wealthy in winning the War of Class. In short, the Wealthy are irrational in their strategy in fighting the War of Class and are in fact losing the war for everyone.

The data:

The growth rate in median family income, however, was slower between the business-cycle peaks of 2000 and 2007 (0.1 percent per year) than it had been between the two earlier peaks in 1989 and 2000 (0.9 percent per year).
Labor productivity, meanwhile, grew more rapidly in the 2000s business cycle (2.5 percent) than it did in the preceding cycle (2.0 percent).
Economic growth was faster over the 1990s business-cycle (3.1 percent per year) than it was over the 2000s cycle (2.3 percent).
…but the 1990s cycle still produced a higher personal savings rate (5.6 percent of disposable personal income) than the 2000s cycle (1.8 percent of disposable personal income).

Another way to view the data is to align each point with the year of origin.
Early years: 2% productivity growth with 0.9% income growth, 5.6 savings, 3.5%economic growth
Versus Bush years: 2.5% productivity growth, .01% income growth, 1.8% savings, 2.3% economic growth.

Analysis: Going forward I will refer to two groups fighting in the Class War. The subject of this study will be called the Wealthy. The Wealthy survive by making money from money. That is the accepted opinion. Though this report suggests that even the top 1% were earning more from wages each year until it reverses in 2000. Quote:

The lower end of this group is not seeing an increase of income from wages. But look at the change in the top 1% and the top 0.1%. They have the greatest increase of their income coming from wages. The entire top 5% sees this, but it is the very top that is seeing a doubling (32 to 63% for the top 1%) and tripling (18.1 to 58.2 for the top 0.1%) of the percentage from wages. (see chart)

The group the Wealthy are fighting will be called the Enemy. The Enemy survive by making money from selling their labor which is tied to productivity.

For all the people who are fighting a class war, looking at the means by which both sides make money and thinking that both want to win it for the long haul, it appears that each side has been losing under the Wealthy’s strategy and tactics used for winning the war. For the Wealthy who make money from money, I assume a higher annual average economic growth would be more beneficial as it means more wealth being created over time, but they have produced lower growth. They appear to have won when the Enemy was able to sell their labor for a higher share of productivity. In fact, it appears that the important factor to the Wealthy winning the war is how much of the productivity gains go to the Enemy instead of how much more work the Wealthy can get out of the Enemy. There appears to be an inverse relationship of income and productivity to the success of the Wealthy in the war. As the share of productivity going to income of the Enemy goes down, economic activity declines. That is, as the Wealthy take more of the productivity gains as a means to win the war, they are in actuality hurting their war efforts. A decline of the economic activity is a war losing results for the Wealthy.

Conclusion: The Wealthy are closer to winning what they want when they let the Enemy win. That they have continued the same strategy during declining indicators and have seen similar battle results in the past (the battle known as the Roaring 20’s comes to mind) suggests that they are not being rational. For the Enemy of the Wealthy, well I guess there is some solace in the thought that the Wealthy are ultimately beating themselves in that they are driving down economic growth. I am reminded of the great wisdom of the infamous class warrior Billy Ray Valentine:

“You know, it occurs to me that the best way you hurt rich people is by turning them into poor people.”

Of course unexpected events can change the momentum and ultimately the strength of either side. For example, a banking crisis. (An event for which I can find no research that supports one has ever been caused by the tactics of the armies of the Immigrant or Indigent. ) Such an event changes the emphasis of the theater of the war from the broader, larger operation of the market place which requires an understanding of the rules of economic theory and historical economic data to the limited and smaller theater of the halls of government with the need to understand the rules of political theory and historical political data. For either side, the most successful campaign would take into consideration the results of the market place war front when fighting in the halls of government war front.

There is a paradox to the Wealthy winning any battle in the halls of government theater. That they do not heed the historical record of battles within both theaters leads to poor tactics. The Wealthy institute tactics based on non-rational analysis moving them further from their desired goal. Thus, a possible strategy for the Wealthy’s Enemy could be to focus on the Wealthy’s lack of rational analysis. It might be possible for the Enemy to make the Wealthy aware of their self defeating results. Showing the Wealthy that they were more successful when the Enemy received approximately 50% of the productivity gains could be a basis for a treaty. There is data available to the Enemy that suggests when they received gains equal to the rise of productivity, the growth of economic activity was even greater than the period of this study.

To summarize: The Wealthy are poor Class War strategists. They are self defeating in such a way that they remove all ability for either side to win the Class War. The Wealthy must let the Enemy win the war in order for the Wealthy to win. I would caution that any approach toward a treaty by the Enemy to the Wealthy must be taken with care. It is not certain as to whether the Wealthy have the strength of character to accept that they are failures. By evidence of their tactics in the face of the data, forming a treaty with the Wealthy who act irrationally will be met with great frustration by the Enemy.

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