FDIC Joins in Bail-Out, Shields Its Conference Calls and
Wachovia Deal
Byline: Matthew R. Lee of Inner
City Press on Wall Street: News Analysis
SOUTH
BRONX, October 14 -- If the
way the FDIC dealt with the Press on Tuesday is any indication of how
they will
offer guarantees as part of the bank bail-out process, the corner may
not yet
be turned. The FDIC emailed the press corps at 9:57 Tuesday morning,
announcing
a briefing at 10:45 a.m. to "provide
details of the FDIC’s plan, what it includes, how it will be funded and
who will
be eligible to participate." A phone number was provided, but when
called
the message was that the conference call was full.
Then at
11:22, the same notice of 10:45 press conference was sent out, this
time with a
new phone number and pass code. But even if one called immediately, the
call
was ending, with some anonymous participant griping that only JPMorgan
Chase,
Wells Fargo, Citigroup and Bank of America will benefit.
This was
followed at 1:48 on Tuesday afternoon with a notice of a new conference
call,
at 3:15. Once on, an FDIC official said it would all be not for
attribution. Inner City Press asked two
questions. First, why are some savings and loan holding companies being
excluded from the guarantee program? Because some were grandfathered in
and
engage in commercial activity was the answer. No list of excluded
S&L
holding companies was provided.
FDIC chief Shiela Bair, shielding of Wachovia deal
from public comment not shown
Inner City
Press then asked if the FDIC believes that the proposal
to acquire Wachovia by
Wells Fargo is an emergency transaction, or that requirements of
public notice
and comment should be adhered to. The official said the FDIC is "not
prepared to comment on particular institutions." Inner City Press
asked,
Why will you be? But the phone line had been cut off. The masters of
the
universe moved on, corporate welfare in their wake.
Footnotes: also unanswered were
how the bailout and guarantee will flow to foreign banks and
Eurodollars, even to Fed Funds. The Eurodollar question, the FDIC said
it would "take offline" -- thus, even less public. This is becoming a
trend.
Backstory
First on the fringes
and now on Fox News, the Community Reinvestment Act is being blamed by
some for
today's financial crisis. The argument is that by encouraging
FDIC-insured
banks to lend in lower income neighborhoods, the government -- read,
Democrats,
from Jimmy Carter to Bill Clinton -- created the explosion in high
interest
rate subprime loans.
There's a major factual problem, though: with a single
exception, no bank sought CRA credit for its subprime loans. And the
investment
banks which were purchasing, bundling and securitizing the loans were
not
covered by CRA. Bear
Stearns was not covered by CRA, but was bailed
out by the
Federal Reserve Board for $30 billion dollars. AIG, an
insurance company, was
not covered by CRA, but its subprime activities have led to a $75
billion loan
from the Federal Reserve, whose chairman Ben Bernanke
nevertheless claimed to Inner City Press that the Fed does
not control AIG, despite owning warrants for 79% of its stock, click here for
that story.
In fact,
community advocates had been telling the Federal Reserve about the
dangers of
subprime lending since the 1990s. For
example, Bronx-based Fair Finance Watch commented to the Federal
Reserve about
the practices of now-defunct non-bank subprime lender New Century, when
U.S.
Bancorp bought warrants for 24% of New Century's stock. The Fed, rather
than
take any action on New Century, merely waited until U.S. Bancorp sold
off some
of the warrants, and then said the issue was moot.
Likewise,
when community groups from all over the country complained
to the Office of Thrift Supervision about the subprime practices of
Washington
Mutual's affiliate Long Beach Mortgage, the OTS responded that is was
only
concerned with WaMu's savings bank, not its finance company. WaMu never
got CRA
credit for Long Beach's loans, but now WaMu has failed and been bought
at fire
sale prices by bottom-feeder JPMorgan Chase.
Prince of Citi, growth in subprime had nothing to do with CRA
The list
goes on and on. Non-U.S. institutions that now stand to benefit from
the
bailout bill being quickly considered in Congress are not covered by
the CRA:
UBS of Switzerland, Nomura of Japan, even some sovereign wealth funds
that bought
subprime securities.
Deregulation
and a lack of business ethics are major causes of the subprime
meltdown; these
have been bipartisan. Republicans are more closely identified with
deregulation,
but it was Clinton who oversaw the breakdown of the wall between
investment and
commercial banking, for example. Several Clinton administration
officials went
to work or advocate for subprime lenders, defending their cashing-in as
in
support of the democratization (literally) of credit. While
Republican Phil Gramm went to work for
UBS as it got more and more into subprime, Democrat Robert Rubin went
to work
for subprime-heavy Citigroup and did nothing to reform its practices.
It is
notably that Citigroup has not yet showed up for bailout funds.
Citigroup's grown in
subprime had nothing
to do with the CRA. Rather, insurer Travelers Group, controlled by
Sandy Weill and Chuck Prince (and Robert Willumstad who would later
drive AIG into the ground), which already owned subprime lender
Commercial Credit, bought Citicorp and then subprime lender Associates.
They renamed the operation CitiFinancial, but never sought CRA credit
for Citibank for its operations. And when Inner City Press asked Chuck
Prince of Ciitgroup's securitization of loans by Ameriquest, Prince
said that had nothing to do with the CRA.
There is
more than enough blame to discredit both political parties. But it's
not the
Community Reinvestment Act statute that's to blame. If anything, the
CRA
provided a venue by which many of the problems were raised, and some
were even
solved. When Atlanta-based SunTrust, for example, applied to the
Federal
Reserve for approval of a merger in Memphis, Fair Finance Watch showed
the Fed
that SunTrust was lending to a slew of predatory lenders. SunTrust
ultimately
committed to get out of some of these fields, and had its application
approved.
That was CRA at work, in a way conveniently not mentioned in the sloppy
arguments being advanced.
Click here
for
Inner
City Press in Wash Post and Miami on
CRA, here
in Charlotte on the mergers, and here
even praising the FDIC (on other
grounds)
Watch this site, and this Sept. 18 (UN) debate.
* * *
These
reports are
usually also available through Google
News and on Lexis-Nexis.
Click
here
for a Reuters
AlertNet piece by this correspondent
about Uganda's Lord's Resistance Army. Click
here
for an earlier Reuters AlertNet piece about the Somali
National
Reconciliation Congress, and the UN's $200,000 contribution from an
undefined trust fund. Video
Analysis here
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