Billions Used For Buyout Deals, Not To Increase Loans

[Frit0 Bandit0]

While the U.S. government’s plan to invest $250 billion into U.S. financial institutions has been billed as a strategy that will bolster the health of the banking system and also jump-start lending, the recapitalization plan is likely to have a secondary effect - one that whipsawed U.S. taxpayers likely won’t be very happy to learn about.

Those billions are a virtual lock to set off a merger tsunami in which the biggest banks use taxpayer money to get bigger - admittedly removing the smaller, weaker banks from the market, but ultimately also reducing the competition that benefited consumers and kept the explosion in banking fees from being far worse than it already is.

 

One last point: Experts say that takeovers financed by the government infusions are likely to have less of a beneficial impact on the economy than an actual increase in lending levels would have. And because so much of this money will be used for buyouts, the reduction in the benchmark Federal Funds target rate announced yesterday (Wednesday) by central bank policymakers will likely do very little to actually spur lending, experts say.

 

Money Morning/The Money Map Report

 

Note:

California National Bank fails, is seized by FDIC

The Los Angeles-based, 68-branch bank is immediately acquired by the U.S. Bank unit of U.S. Bancorp.

 

U.S. Bancorp has been a major acquirer in the West, buying the remains of Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those struggling thrifts failed last fall. It also has acquired branches in Arizona, and just this month, it bought 20 Nevada branches from BB&T Corp., which had acquired them as part of a deal to buy Colonial BancGroup Inc. At about $25 billion in assets, Montgomery, Ala.-based Colonial was the largest bank to fail so far this year.

 

The collapse of FBOP's banks, attributed to losses on securities issued by the giant mortgage companies Fannie Mae and Freddie Mac

 

 

Speaking of Fannie Mae and Freddie Mac

As ProPublica and others have reported, homeowners have frequently been rejected for loan mods even though they appear to qualify.

[Magox]

Good find Frito, although that first article is an older one it ties into the second one with the acquisition from U.S Bancorp.

 

I've been a big critic of the TARP bailout and how it was used. The only thing that the TARP bailout achieved was it helped restore confidence in the capital markets, which of course does have a value. But it didn't achieve one of the other mandates which was to use that capital infusion to lend to the public. Every day that passes it is more and more evident that more of the funds should of been used to support small businesses and responsible regional banks.

 

In regards to Fannie and Freddie, what a disaster that has been, created by FDR, made worse by Jimmy Carter (CRA) and then only to be obliterated by Bill Clinton.

 

http://en.wikipedia.org/wiki/Fannie_Mae

 

In 1977, the Carter Administration and the United States Congress passed and signed the Community Reinvestment Act of 1977, or CRA , designed to boost lending in inner cities with areas of extreme blight by forcing area banks to open new branches in these areas and to have a certain percentage of their lending portfolio of small business loans and home mortgages located in these areas. Failure to maintain this ratio would result in the banks being prevented from opening branches in other areas that were not distressed.

 

In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.[10] Due to the increased ratio requirements, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans. Shareholders also pressured Fannie Mae to maintain its record profits.[10]

 

The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's responsible underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.

 

"Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "[12]

 

In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s

 

On September 11, 2003, the Bush Administration recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis. Under the plan, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae. The new agency would have the authority, which now rests with Congress, to set capital-reserve requirements for the company and to determine whether the company is adequately managing the risks of its portfolios. The New York Times reported that the plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac is broken. The Times also reported Democratic opposition to Bush's plan: "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." [16]

 

And the Liberals say they weren't a big part if any of the Financial crisis that we are still going through today, as evidenced with the last bank seizure.

 

Hypocrites

[Frit0 Bandit0]

And the Liberals say they weren't a big part if any of the Financial crisis that we are still going through today, as evidenced with the last bank seizure.

 

Hypocrites

 

 

You see the cycle?

 

Banks are collapsing because of the losses credited to Fan and Fred yet they continue to collapse because of Fan and Fred