Daily Archives: December 29, 2014

Russian Roulette: Taxpayers Could Be on the Hook for Trillions in Oil Derivatives

Another  shenanigans by Wall Street — aided and abetted by politicians owned by Wall Street. Never bothered to understand the definition of derivatives in which derivatives are not just a financial product…

The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.

Senator Elizabeth Warren charged Citigroup last week with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.

Warren and Representative Maxine Waters came close to killing the spending bill because of this provision. But the tide turned, according to Waters, when not only Jamie Dimon, CEO of JPMorgan Chase, but President Obama himself lobbied lawmakers to vote for the bill.

It was not only a notable about-face for the president but represented an apparent shift in position for the banks. Before Jamie Dimon intervened, it had been reported that the bailout provision was not a big deal for the banks and that they were not lobbying heavily for it, because it covered only five percent of their derivatives. Why the sudden push to salvage a mere five percent of their bets?

A Closer Look at the Lincoln AmendmentThe preamble to the Dodd-Frank Act claims “to protect the American taxpayer by ending bailouts.” But it does this through “bail-in”: authorizing “systemically important” too-big-to-fail banks to expropriate the assets of their creditors, including depositors. Under the Lincoln Amendment, however, FDIC-insured banks were not allowed to put depositor funds at risk for their bets on derivatives, with certain broad exceptions.

In an article posted on Breitbart.com on December 10th titled “Banks Get To Use Taxpayer Money For Derivative Speculation,” Chriss W. Street explained the amendment like this:

Starting in 2013, federally insured banks would be prohibited from directly engaging in derivative transactions not specifically hedging (1) lending risks, (2) interest rate volatility, and (3) cushion against credit defaults. The “push-out rule” sought to force banks to move their speculative trading into non-federally insured subsidiaries.

The Federal Reserve and Office of the Comptroller of the Currency in 2013 allowed a two-year delay on the condition that banks take steps to move swaps to subsidiaries that don’t benefit from federal deposit insurance or borrowing directly from the Fed.

The rule would have impacted the $280 trillion in derivatives primarily held by the “too-big-to-fail (TBTF) banks that include JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo. Although 95 percent of TBTF derivative holdings are exempt as legitimate lending hedges, leveraging cheap money from the U.S. Federal Reserve into $10 trillion of derivative speculation is one of the TBTF banks’ most profitable business activities.

What was and was not included in the exemption was explained by Steve Shaefer in aJune 2012 article in Forbes. According to Fitch Ratings, interest rate, currency, gold/silver, credit derivatives referencing investment-grade securities, and hedges were permissible activities within an insured depositary institution. Those not permitted included “equity, some credit and most commodity derivatives.” Schaefer wrote:

For Goldman Sachs and Morgan Stanley, the rule is almost a non-event, as they already conduct derivatives activity outside of their bank subsidiaries. (Which makes sense, since neither actually had commercial banking operations of any significant substance until converting into bank holding companies during the 2008 crisis).

The impact on Bank of America, Citigroup, JPMorgan Chase, and to a lesser extent, Wells Fargo, would be greater, but still rather middling, as the size and scope of the restricted activities is but a fraction of these firms’ overall derivative operations.

Read on.

Piggish bankers went whole hog to abuse consumers in 2014

The end of the year occasions awards season in all industries, and the world of personal finance is no exception, which brings us to the 2014 edition of the Piggy Bank Awards for Dubious Achievements in Consumer Finance or, for short, “The Piggies.”

And what a year of very dubious achievements it was. Loan servicers continued to stick it to mortgage clients, except when the servicers turned out to be sticking it to student loan borrowers. The big mortgage banks that caused the Great Recession continued to buy their way out of trouble. Top law enforcement officials continued to collect hundreds of thousands of (mostly tax-deductible) dollars in fines for criminal activity by banks, while remaining unable to find even one actual banker who committed all those criminal acts.

Naturally, bank customers will end up paying those fines in the end, thanks to ever-higher bank fees on customer accounts.

So, to quote Dickens, “It was the best of times. It was the worst of times” — except for that whole “best of times” part.

And the winners are…

The Still Feeding At The Trough Award: According to Bankrate.com, bank customers paid 6.5 percent more for ATM surcharges this year, 1.7 percent more for a bounced check, and had to keep more money than ever in low- or no-interest checking accounts to avoid even higher service fees.

The Under My Hoof — Forever Award: The very talented Jessica Silver-Greenberg of The New York Times said it all in November: “Some of the nation’s biggest banks ignore bankruptcy court discharges… (and) keep the debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe.”

………………………………………………………….

Piggy Friends With Benefits Award: The odds that I’ll be coming up dry when it comes around to dredging through the swine trough for the 2015 Piggies seems small to non-existent, thanks to the spineless Democrats and craven Republicans who just shoved through the so-called “cromnibus” legislation before recessing for Christmas. The bill watered down provisions aimed at reining in big banks and preventing another banking meltdown.

But the bankers won’t get off for free. Instead of paying fines, the cromnibus allows them to up their contributions to political party committees by a factor of 10. And here I thought the way to call pigs was just by shouting, “Sooie!”

Read on.

High-Level Fed Committee Overruled Carmen Segarra’s Finding on Goldman

This is certainly not a shock to me…

A committee that includes senior Federal Reserve officials reviewed and overturned a bank examiner’s finding that Goldman Sachs lacked a firm-wide policy to prevent conflicts of interest, according to a top Fed official.

Bill Dudley, the head of the Federal Reserve Bank of New York, disclosed the action by the “Operating Committee” in a little-noticed aspect of his testimony last month before the U.S. Senate. Dudley said the panel was part of a new effort by the Fed to raise standards across the board by comparing  the practices and health of the nation’s banks against each other.

In his testimony, Dudley provided the Fed’s most detailed account to date of how it reversed the conclusions of Carmen Segarra, a New York Fed bank examiner who asserted that Goldman lacked the Fed’s recommended firm-wide policy to prevent conflicts of interest. Dudley told the senators that the Operating Committee had “fully vetted” Segarra’s finding but said “there was this lack of willingness to agree.” He said that while he encourages examiners to speak up, their views must be “fact based.”

New documents and secret recordings shed more light on the facts Segarra marshaled to support her position. The examiner, for example, compared Goldman’s approach to conflicts with that of Barclays and Morgan Stanley. She found that, unlike with Goldman, the policies of both banks were detailed, specific and clearly addressed to the entire firm.

ProPublica also found that:

  • Goldman executives acknowledged to Segarra that they had no single firm-wide policy on conflicts of interest, according to official meeting minutes she kept.
  • Segarra formally presented her findings in a session with specialized Fed examiners stationed at nine of the too-big-to-fail banks. They agreed that Goldman did not have the sort of policy recommended in Fed guidelines, according to Segarra and another examiner who was present.
  • In disputing her finding just before she was fired, the senior Fed official overseeing Goldman Sachs pointed to the code of conduct for employees displayed on Goldman’s website, saying it amounted to a firm-wide policy. Goldman’s code of conduct at the time did not contain characteristics that were found in the conflicts policies of other banks that experts consider best practices. The Goldman code addressed conflicts involving employees’ personal holdings but not those that could arise from the firm’s deals.

Segarra was not called to testify at the Senate hearing. And in his appearance, Dudley did not detail specifically what evidence the Operating Committee considered in overruling Segarra, on what basis the decision was made, or whether it considered any of Segarra’s documentation or examination findings.

“I think the position of the senior supervisors was that there was a conflict-of-interest policy, and that is what the debate was about,” Dudley said.

As ProPublica and This American Life previously reported, Segarra secretly recorded 46 hours of internal meetings while at the Fed after encountering resistance to her examination into Goldman.

At the hearing, David Beim, a Columbia University professor, testified that the recordings “illustrated in Technicolor” the problems he found in the 2009 study of the New York Fed’s culture that Dudley had commissioned. Among other things, the study said examiners were afraid to speak up and that findings were being watered down by higher-ups and an over-reliance on consensus.

Read on.

Statute of Limitations Dooms Deutsche Bank in Foreclosure

Deutsche Bank snoozed and lost on a foreclosure suit that took about seven years to play out in Miami-Dade.

While the bank’s case wound its way through the court system, Aqua Master Association Inc. started its own foreclosure claim to enforce liens and collect unpaid dues for a penthouse at 201 Aqua Ave. in Miami Beach.

The condo association gained ownership of the penthouse in 2011, and successfully argued in court that Deutsche Bank waited too long to pursue the case.

The Third District Court of Appeal agreed, siding with the condominium association and barring the bank from continuing the foreclosure.

The case shows the “negative consequences that lenders can face if they go too far with their delay tactics in foreclosure cases,” condo association attorneys Nicholas and Steven Siegfried said in a statement.

The case was Deutsche Bank Trust Co. Americas v. Harry Beauvais, a borrower who defaulted on his mortgage within months of securing it in early 2006.

Loan servicer American Home Mortgage Servicing Inc. filed suit in January 2007, demanding accelerated payments for the full $1.44 million.

Ironically it was this move for upfront payments that would unravel the lender’s case and cost the bank the million-dollar property, because the condo association successfully argued the demand started a five-year clock for resolving the foreclosure.

Read more: http://www.dailybusinessreview.com/id=1202713539844/Statute-of-Limitations-Dooms-Deutsche-Bank-in-Foreclosure#ixzz3NK56x7zy

Metlife: Too big to be left alone

How screwy is Washington these days? Here’s a sign: One of New York’s most important and well-run companies met with the feds — to make clear it had no intention of asking for a bailout.

The company is MetLife, which didn’t ask for a bailout in the 2008 financial crisis and isn’t planning on doing so in the future. But instead of applauding, the feds have just slapped a “Too Big To Fail” label on the company, which puts it under more regs and puts taxpayers instead of shareholders on the hook should the company go belly up.

The feds say they’re worried about the impact of a MetLife failure on the economy. But figures from the most recent five-year period show MetLife paid out $479 million in insurance claims against $1.5 billion in reserves.

MetLife argues, correctly, that the new designation “will harm competition, lead to higher prices and less choice for consumers and ultimately could result in less financial protection for middle-class families.” It does this by subjecting the insurer to dubious regs originally meant for banks.

Read on.

Texas Is Throwing People In Jail For Failing To Pay Back Predatory Loans

At least six people have been jailed in Texas over the past two years for owing money on payday loans, according to a damning new analysis of public court records.

The economic advocacy group Texas Appleseed found that more than 1,500 debtorshave been hit with criminal charges in the state — even though Texas enacted a law in 2012 explicitly prohibiting lenders from using criminal charges to collect debts.

According to Appleseed’s review, 1,576 criminal complaints were issued against debtors in eight Texas counties between 2012 and 2014. These complaints were often filed by courts with minimal review and based solely on the payday lender’s word and frequently flimsy evidence. As a result, borrowers have been forced to repay at least $166,000, the group found.

Appleseed included this analysis in a Dec. 17 letter sent to the Consumer Financial Protection Bureau, the Texas attorney general’s office and several other government entities.

It wasn’t supposed to be this way. Using criminal courts as debt collection agencies is against federal law, the Texas constitution and the state’s penal code. To clarify the state law, in 2012 the Texas legislature passed legislation that explicitly describes the circumstances under which lenders are prohibited from pursuing criminal charges against borrowers.

It’s quite simple: In Texas, failure to repay a loan is a civil, not a criminal, matter. Payday lenders cannot pursue criminal charges against borrowers unless fraud or another crime is clearly established.

In 2013, a devastating Texas Observer investigation documented widespread use of criminal charges against borrowers before the clarification to state law was passed.

Nevertheless, Texas Appleseed’s new analysis shows that payday lenders continue to routinely press dubious criminal charges against borrowers.

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Ms. Jones, a 71-year-old who asked that her first name not be published in order to protect her privacy, was one of those 1,576 cases. (The Huffington Post reviewed and confirmed the court records associated with her case.) On March 3, 2012, Jones borrowed $250 from an Austin franchise of Cash Plus, a payday lender, after losing her job as a receptionist.

Four months later, she owed almost $1,000 and faced the possibility of jail time if she didn’t pay up.

Read on.

Foreclosure News: Who Gets to Decide Whether a State is a Judicial Foreclosure State or a Non-Judicial Foreclosure State, Legislatures or the Mortgage Industry?

Apparently some mortgage lenders feel they can make this change unilaterally. Big changes are afoot in the process of granting a home mortgage, which could have a significant impact on a homeowner’s ability to fight foreclosure. In many states in the Unites States (including but not limited to Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin), a lender must go to court and give the borrower a certain amount of notice before foreclosing on his or her home. Now the mortgage industry is quickly and quietly trying to change this, hoping no one will notice. The goal seems to be to avoid those annoying court processes and go right for the home without foreclosure procedures. This change is being attempted by some lenders simply by asking borrowers to sign deeds of trust rather than mortgages from now on.

Not long ago, Karen Myers, the head of the Consumer Protection Division of the New Mexico Attorney General’s Office, started noticing that some consumers were being given deeds of trust to sign rather than mortgages when obtaining a home loan. She wondered why this was being done and also how this change would affect consumers’ rights in foreclosure. When she asked lenders how this change in the instrument being signed would affect a consumer’s legal rights, she was told that the practice of having consumers sign deeds of trust rather than mortgages would not affect consumers’ rights in foreclosure at all. Being skeptical, she and others in her division dug further into this newfound practice to see if it was widespread or just a rare occurrence in the world of mortgage lending. Sure enough, mortgages had all but disappeared, being replaced with a deed of trust.

Read on.