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At the end of April, 2009, U.S. Senator Richard Durbin blamed the powerful banking lobby for the defeat of legislation that would have allowed bankruptcy judges to modify some troubled mortgages.  Even as mortgage servers were claiming to be overwhelmed with requests from distressed borrowers for readjustments to the adjustable-rate mortgages (ARM), the banks and mortgage companies felt the need to stop the US Senate from enabling judges to relieve the backlog. Durban later said in an interview, “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place,” he said on WJJG 1530 AM radio's  “Mornings with Ray Hanania.” On October 30, 2009,  James K. Galbraith spoke on the Bill Moyers Journal on the bank lobby changing the financial system regulation reforms now being discussed in Congress.  That that lobby feels itself to be in a position to advise the Congress on a matter in which the banks were part of the problem is something that blows Galbraith away.   They should realize among themselves, or at the very least BE TOLD that their involvement is not helpful or appropriate.   Galbraith pointed out that we have a pretty good idea of what needs to be done governmentally to stave off another financial crisis—such as separating the commerical banking and investment trading (on the bank’s equity even!) functions and reducing the scale of the banks too big to fail.  However, there are a hundred reasons why the governing class will not follow through. 

For one, we can look back to Durbin’s comment that the banking lobby owns Congress.   The conflict of interest in the owner of Congress keeping Congress from legislating on the industry is a suffiicent basis for worry; that the lobby presumes itself to be in a position to advise or pressure on banking regulatory reform and that the lobby still has the muscle to see that it is still invited to the table strikes me as emetic.  It shows the arrogance of the corporate world and the corruption of the governing class.   The housing bubble and sub-prime mortgages were in the interest of both, and yet reform strangely is not.   I would add that any voter who goes on, business as usual, in voting for an incombant is contributing to the perpetuation of the  squalid system that we are now enjoying.

Imagine, just for a moment, that a friend or neighbor insults you.  You invite some other friends over to figure out how to deal with that friend or neighbor.  You are shocked when he or she walks in your front doorway (no need to hide) and sits down in your living room with the others.  Not only that, he or she presumes to advise the group, adding pressure or outright threats that the group had better come up with something that is good for him or her. Here’s what I’m getting at: focus for a moment on the attitude of the friend or neighbor.  In our normal interpersonal relations, we would rationally conclude that the person is delusional and excessively self-absorbed.  We tend to let positions or organizations keep us from viewing their people as other (flawed) human beings.   Arrogance built on presumption concerning a matter on which the person has screwed up and others are hurt  is or ought to be a huge red flag for the rest of us (and our representatives!).   I find this attitude to be far more difficult to understand and accept than the fact that industry lobbies have an inordinate amount of power in Washington. 

I find myself thinking about the nature of presumption that can manifest as an illness where it is beyond the pale. That the person involved probably doesn’t even see this suggests to me that a rather dysfunctional lot has congregated in the upper rafters of American banking.   What kind of a person pushes for his or her advantage in the efforts by others to clean up one’s mess?   That they are allowed in the room is alone a sad testament; that our representatives are actually succumbing to them is sordid indeed.   Of course, it is in the interest of big business that the political power be concentrated among the governing class in Washington.   We are mere bystanders as the dance unfolds. 

Sources:

http://www.politico.com/news/stories/0409/21962.html
http://www.huffingtonpost.com/2009/04/29/dick-durbin-banks-frankly_n_193010.html
http://www.huffingtonpost.com/2009/04/29/dick-durbin-banks-frankly_n_193010.html  (“own the place” quote)
http://www.pbs.org/moyers/journal/10302009/profile.html

Reacting to the debt troubles of Dubai World (which was carrying $59 billion in debt in 2009), the director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said  “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”  This sentence strikes me as odd.  Al-Saleh was suggesting that in deciding to make a loan to a company, a banker takes a risk, which entails the possibility of working with the company if it comes up short in cash.  Is such flexibility in the vocabulary of the typical loan officer, much less in the culture of major banks?  I doubt it.

On the same week that Dubai World’s problems were being made public, the Obama administration announced plans to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence was mounting that a $75 billion government-financed effort to stem foreclosures was foundering.  "The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview. “Some of the firms ought to be embarrassed, and they will be.”  Even as lenders had accelerated the pace at which they were reducing mortgage payments for borrowers, a vast majority of loans modified through the program remained in a trial stage lasting up to five months, and only a tiny fraction had been made permanent. Mr. Barr said that the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments.  However, shaming is not the only weapon in the government’s arsenal. 

The Treasury Department waited until reductions were permanent before paying cash incentives that it had promised to mortgage companies that lowered loan payments. “They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.  A week after Barr’s statement, the Treasury Department said it would withhold payments from mortgage companies that weren't doing enough to make the changes permanent. ”We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones,” Phyllis Caldwell, who was named to lead the Treasury Department’s homeownership preservation office, said in a statement.  So here we find that dreaded word—responsibility—as if it applied to the mortgage issuers as well as the homeowners.  Considering Senator Dick Durbin’s statement that the banking industry owns Congress (which he said after the industry’s lobby effectively scuttled a bill to allow judges to adjust mortgage terms for homeowners in trouble—even as the banks played a role in the bad mortgages), it is not surprising that even two years later, little benefit had come to mortgage borrowers from the U.S. Government, even as the banks had been rescued by TARP funds.

The banking industry has been more powerful, even though it was at least partially complicit in the crisis. Of course, Wall Street bankers have instinctively resisted claims that they were part of the problem that led to the financial crisis in September of 2008. Al-Saleh’s admonition to lenders that the bankers in his country step up to the plate was ignored in favor of the mantra, “it's the other guy’s fault so why should I pay?  I'm not budging.”  This is the mentality of a spoiled child.  The rest of us don’t see it as such when it applies to people in expensive suits because we are too impressed with the trappings of money and power.  As long as bankers get away with making their own rules in the halls of governments, the power ties will remain as though undisciplined children.

Sources: http://www.nytimes.com/2009/11/30/business/global/30dubai.html?ref=world ; http://www.nytimes.com/2009/11/29/business/economy/29modify.html?scp=1&sq=pressure%20mortgage%20companies&st=Search ; http://www.msnbc.msn.com/id/34204856/ns/business-real_estate/

TARP, the “bank bailout,” was the first big issue facing the Obama administration before its roughly $800 billion stimulus plan and its health insurance overhaul that stoked the rise of the Tea Party movement. After supporting TARP, several Republicans lost elections largely because of their votes. For many Americans, TARP is more than a vote; it is a symbol of big government at its worst, intervening in private markets with taxpayers’ billions to save Wall Street plutocrats while average Americans struggle to make mortgage payments.  “This is the best federal program of any real size to be despised by the public like this,” said Douglas J. Elliott, a former investment banker now associated with the Brookings Institution. “It was probably the only effective method available to us to keep from having a financial meltdown much worse than we actually had. Had that happened, unemployment would be substantially higher than it is now, the deficit would have gone up even more than it has,” Mr. Elliott added. “But it really cuts against the grain for a public that is so angry at banks to think that something that so plainly helped the banks could also be good for the public.”  Furthermore, the TARP could conceivably earn taxpayers a profit. Whatever the final losses from housing, auto companies, A.I.G. or smaller banks, those will be offset by taxpayers’ profits from the big banks that have been the focus of their ire since 2008. Treasury reckons that taxpayers will lose less than $50 billion at worst, but at best could break even or even make money. Its best-case assumptions, however, assume that A.I.G. and the auto companies will remain profitable and that Treasury will get a good price as it sells its corporate shares in coming years.

Anger at fat cats getting bailed out even as they were complicit in the financial crisis has blinded the public to the priorities in the TARP—saving the banks rather than troubled home-owners.Treasury has been ready to use up to $50 billion to help modify mortgages for people facing foreclosure, but its initiatives have been such a failure that little has been spent. Yet little of the protest against the TARP going to the banks has been directed in favor of the home-owners. It has hardly been even considered that a law might be passed to make foreclosures illegal.  The right to life, liberty and the pursuit of happiness surely includes the right to shelter. A person’s house should not be treated as a mere commodity of a market, to be transferred at will.  In other words, in our blind devotion to the sanctity of contract, we are settling for less security on things that could be considered rights because they are necessary to being able to live.  The same problem exists in basic health-care.  Do we really want to hang life in the balance?  The priorities in TARP are telling for what was relegated.  Rather than pointing in jealousy to those who were privileged in TARP, we might have been more concerned about who was left out. So I am not so inclined to celebrate breaking even on TARP—but primarily because the complicit bankers got a windfall that they did not deserve.

Source: http://www.nytimes.com/2010/10/01/business/01tarp.html?_r=1&hp