Adventures in Ass Covering

It looks like any number of financial institutions are realizing that Congress is going to do them like a College Republican does a drunk sorority girl if they don't get their act together, so they are now taking actions that they should have taken years ago. (See Barn door, cows missing)

First, the Federal Reserve has finally concluded that it should regulate some more of the non-bank lenders out there:

Tuesday that it will extend its regulatory umbrella to cover a group of lenders that includes several major originators of subprime loans, policing whether they follow federal laws that protect consumers of mortgages, credit cards and other financial products.

Federal banking regulators already oversee companies that own banks, known as holding companies, along with the banks themselves. Under the new policy, the Fed will extend the same oversight to other businesses owned by those holding companies, such as units that make home-equity loans.

The policy places subprime lenders such as CitiFinancial, an arm of Citigroup, and Wells Fargo Financial, an arm of Wells Fargo, under Fed oversight for the first time. The same laws protect all borrowers, but until now, no federal agency watched to make sure non-bank subsidiaries followed the law.

And we also have the FED suddenly requiring the financial institutions submit their pay policies to them for review.

What is going on here is that there is significant push-back in Congress against the Obama proposal that the Federal Reserve be the primary systemic risk regulator, and the desire of the Fed to be the "financial consumer protection agency", as Bernanke is aggressive lobbying for this role shows.

When this is juxtaposed with increasing support in Congress for the Paul/Grayson proposal to audit the central bank, and we are having a gallows conversion, where they attempt to show that they are really concerned about regulation and protecting ordinary people.

Hopefully, this won't work, and we will see a Federal Reserve with a smaller, and not a larger, role than it has today.

I think that the only two people who want the Fed's role to expand are current chairman Ben Bernanke, and White House Economic Advisor Lawrence Summers, who is hoping to be Fed chair one day.

We are also seeing the same things with banks and overdraft fees, where proposals in Congress to regulate fees, as well as "automatic overdraft protection" and check clearing orders, are creating an orgy of heretofore non-existent concern for consumer among the big banks, with Bank of America, Wells Fargo, and J.P. Morgan Chase announcing that they will be rolling back their fees.

There is no big surprise here, the banks know that if they can always raise fees again.

The argument is the same: "We'll be good, there is no need for legislative restrictions."

What goes unspoken is the idea that once people are looking the other way, the rates will go back up again.

It's the same thing with the Conference Board, an organization created for, and funded by, business executives, who are now saying that they will be issuing a report suggesting fixes in how executive compensation is determined:

The report to be released today urges companies to avoid paying for personal travel, hefty severance packages or above-market returns on deferred compensation. The recommendations were endorsed by the California State Teachers' Retirement System, AT&T Inc. and others.

"In order to restore trust in the ability of boards of directors to oversee executive compensation, immediate and credible action must be taken," the report from the New York research group said.

This is not about fixing things, this is simply an effort to create the appearance that things might fix themselves, in order to forestall any potential laws or regulations that would prevent excessive compensation from returning in the future.

I suppose that there is a silver lining to all this, which is that the people involved are clearly worried, which perhaps real changes can be initiated.

Little Timothy Geithner has Been a Bad, Bad, Boy

Bloomberg is reporting that the New York Bank of the Federal Reserve instructed AIG not to make disclosures that SEC regulators were demanding regarding their payouts on swap contracts (The New York Times has more, including copies of the emails in questions, which I've posted below.):

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

Now, I take anything from Darrell Issa with a grain of salt, he's a liar, and one of the rather more corrupt Republican members of Congress, but seeing as how House Banking Committee Chairman Barney Frank is saying that this is "Troubling," and he wants hearings, and both Edolphus Towns, Chairman, and Elijah Cummings, member, of the House Oversight and Government Reform Committee, have been screaming about getting a hearing about this, it seems that Frank may get his wish.

The big deal here is that the NY Fed took over negotiations, and paid off AIG's swaps at 100¢ on the dollar, which is pretty much unheard of, and at the time that this information was being suppressed, Geithner was already the nominee to be Secretary of the Treasury:

This episode suggests that the NY Fed – and Geithner, then a nominee for Secretary of the Treasury – were worried about any political fallout from the swap payments. When the details were released months later (and after Geithner was confirmed as Treasury Secretary), critics alleged that Geithner had failed to negotiate a better deal for the swap payments with the Wall Street firms.

They perpetuated a fraud upon the American public and on Congress, because little Timmy wanted to be SecTreas.

The New York Fed is now saying that Geithner was uninvolved in the decision to suppress this information, but it's a no-win situation.

Geithner was front and center in making sure that the swaps were paid off at face value, so the attempt to suppress the date was either because he was covering his own ass., or because he was incompetent and uninvolved, and the Fed bureaucracy bailed him out because they saw him as being the Fed's Bitch^*.

FWIW, I think that this was all part of the campaign by the bureaucracy of the Fed to make Geithner Secretary of the Treasury, though Felix Salmon has a point when he says that the completely over the top culture of secrecy at the central bank was has always been a flaw in the culture of the institution: Independence does not equal secrecy, though the Fed always has seen it that way.

David Dayen at FDL makes the cogent point that even if the payouts were legal, it appears that the cover-up was not legal.

The real problem, as Barry Ritholtz so ably notes, is as follows:

Between Summers and Geithner, it appears that President Obama has made the exact same mistake that one George W. Bush did: Instead of filling his administration’s most important posts with his own people, he reached back to prior admins (Cheney, Rumsfeld, etc) and loaded up on incompetent retreads.

(emphasis mine)

One thing is certain though, that the case for auditing the Federal Reserve has been made much stronger by the most recent scandal.

^*A good bet, since the history shows that Timothy Geithner has been the bitch of anything remotely close to a bank or a brokerage his entire career.

Emails reproduced after break:

Yet More Fed Ass Covering

Gee, I guess that they aren't done with trying to pretend that they care about the ordinary folks, because the Federal Reserve has now issued pay guidelines for banks, allegedly in an attempt to reduce risk.

I've had multipule posts about the Fed doing this so that they can keep or expand their regulatory purview, including that essay that I sent to the WaPo, and they just keep doing it.

Well, at least it makes my essay that much more timely.

More Ass Covering by the Fed

After decades saying that, "It wasn't their job," and that it, "Couldn't be done," the Federal Reserve is now casting itself as the nation's premier bubble fighter:

Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.

Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they've followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms "perhaps the most difficult problem for monetary policy this decade."

The money quote, which follows, is that, "Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power."

Ben Bernanke does not want to stamp out bubbles, he is just trying to give members of Congress an excuse not to clip his wings.

More Ass Covering by the Fed

We are now getting whispers that the Federal Reserve is planning to get tough with the banks:

If the Fed chairman’s speech didn’t worry investors, his timing is interesting. Ben Bernanake now flies to Switzerland for a meeting with the world’s other central bankers.

Saturday’s invitation from the Bank of International Settlements specifically questions whether banks—using cheap money—are returning to the aggressive behavior that prevailed during the pre-crisis period.

What we will see is a lot of fake toughness, because Bernanke is trying to do everything that he can to kill the Fed audit bill.

More Ass Covering by the Fed

Once again, the Fed discovers consumers in order to forestall an audit, and the Consumer Financial Protection Agency taking over their purview.

This time, the Fed is going after fees on gift cards.

Seriously, is there anyone with two brain cells to rub together who does not understand that the Federal Reserve was hostile to the idea of actually enforcing consumer protections until Congress started about auditing it and taking away some of its enforcement power.

More Ass Covering by the Fed

It's clear that Bernanke does not want the rock turned over to see what slimy things live underneath, and so we have some more measures taken by the Federal Reserve to try to mute calls for an audit, and perhaps a re-evaluation of the role and powers of the institution.

They have implemented more consumer friendly credit card rules (also here and here), and now Bernanke is saying that the central bank would welcome an audit of their dealings with AIG by the GAO.

In the latter quote, the pertinent quote is this:

The invitation does not represent any procedural changes, as GAO could have reviewed the issue without such an invitation. But the does letter highlight the Fed's sensitivity to mounting criticism to the events leading up to the bailout.

So, if the Federal Reserve has no choice, then they will write a nice letter saying, "Okily dokily, neighbor."

I expect that if the GAO conducts an audit, it will take crowbars and explosives to actually extract any meaningful information though.

More Ass Covering by the Fed

So, under political pressure from the Ron Paul audit bill and the Chris Dodd bill, which strips regulatory authority from the Federal Reserve, the Federal Reserve Board has announced final rules prohibiting the charging of "overdraft protection" for ATM and debit cards unless the consumer specifically opts in.

There is a reason that I emphasize political pressure: It is because it is clear that the Fed is under pressure, and it is clear that the only reason that it is finally taking consumer friendly steps is because they they feel this pressure.

The effect of insulating a bank regulator from public pressure is to have them favor the banks.

Full press release after break:

More Ass Covering by the Fed

As I have noted before, now that Congress is looking at having an agency dedicated to protecting consumers from the worst excesses of the banking industry, and the Federal Reserve Feels believes that this role belongs to it.

Of course, the history of the Fed over the past 40+ years is that they believe in dismantling consumer protections, so their record is less than stellar.

In response to numerous proposals which would make consumer protection more formal in financial markets, which they see as a reduction in their bailiwick, they have continued to make "a day lat and a dollar short" regulations in an an attempt to convince Congress that they do not need to assign this task to some other agency.

Case in point, is how, after decades of skyrocketing fees and increasingly punitive "overdraft protection" schemes, Bernanke and his merry band have decided to clamp down on overdraft fees:

The Federal Reserve is likely to soon pass new rules making it harder for banks to hit customers with fees for overdrawing their accounts, a top official told a Senate subcommittee Wednesday.

Note that it appears that these rules will require that banks have customers positively affirm their desire to opt in to overdraft protection.

It's amazing what the prospect of some regulatory competition will do to a bureaucracy.

Earlier posts on the subject here.

L'Affaire Harman: In Which a Journalist Accuses the Bush Administration of Law Abiding

I've been following this for some time, and now we have a credible explanation from Laura Rosen as to why a further investigation might have been quashed by Alberto Gonzales, that you did not break the law until Dick Cheney and His Evil Minions^™ told you to break the law:

3. Did Goss no longer have authority to certify the FISA Warrant when the call in question happened? The Time 2006 magazine piece on Harman coming on the radar in the Aipac case says that the tapped conversaation in question in which the possible alleged-by-some quid pro quo occurred was in "mid 2005." A former intelligence official familiar with the matter told me that Goss had certified a FISA warrant to target Harman based on that intercepted communication, but didn't know exactly what time it had occurred.

But a former intelligence community source tells me that DCI Goss no longer legally had the authority to certify FISA warrants at all beginning January 1, 2005 when the law creating the Office of the Director of National Intelligence went into effect. So if Goss did try to certify a FISA warrant to target Harman in 2005, sources tell me that would be unkosher at best, and legally suspect. That authority was no longer in the Director of Central Intelligence's hands and had gone to the Director of National Intelligence.

(Emphasis original)

The idea that the Bush White House was paranoid about various players pursuing their own agendas is not hard to believe, since both paranoia and ignoring the law was SOP for them, and they would naturally assume that everyone else would do the same.

On a note regarding the coverage of the coverage, it gets more interesting.

BTD at Talk Left notices that Jeff Stein who broke the Harman wiretap story for CQ, threw a hissy fit over suggestions that he was spoon fed self-serving leaks from Porter Goss's staffers when he was in Congress and the CIA, aka the "Gosslings".

Of note is that he complains about Ron Kampeas at JTA, and Laura Rosen at Foreign Policy magazine, but studiously ignores Zachary Roth at TPMMuckraker, who actually lists the most prominent "Gosslings":

• Patrick Murray
  
• Jay Jakub
  
• Michael Kostiw
  
• Merrell Moorhead

Who are a veritable rogues gallery of weirdness, as Roth makes clear when he notes that, "It says something about this crew that perhaps the best-regarded of them [Michael Kostiw] had his career derailed for shoplifting pork products."

Stein does not deny that they are his sources in his rant, and given his studious avoidance of the article that names the "Gosslings" even while not outing them, it certainly reasonable to conclude that one of his major sources, and more likely most of his major sources for his initial story, are these "Gosslings".

That being said, the problem with what appears to be ass covering and political vendettas is that there appears to be no way that they can all lose.

As Atrios notes when he rightly excoriates Harman for her new found discovery of the potential for abuse of surveillance, there are no good guys here:

The absurdity is obvious. Dirty f@#$ing hippies like me were horrified at the illegal warrantless wiretapping program and general expansion of the surveillance state in part because of the potential for political abuse (frankly, given the rubber stamp FISA court and rubber stamp Congress what other point would there be?). Jane Harman and her pal Joe Klein heaped scorn on dirty f@#$ing hippies for such crazy views. Harman gets caught up in what appears to be a perfectly legal wiretap not aimed directly at her, though the release of the details of it might be evidence of the kind of political abuse possible in any surveillance program. Suddenly Harman is a staunch defender the right of People Like Jane Harman to not be wiretapped.

(@#$ mine)

It's Away!!!!!

Click for full size

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I really look way too much like this Starwars dude


Yes, I know it was Red 9 who said that, but I look more like the fat pilot

Did you know that the Washington Post is having a, "America's Next Great Pundit," contest?

Well, I've heard of it, basically, after submitting an article, and going through a series of "run-offs" with other winners, you get a 13 article gig for the Post online at $200 an article.

You are supposed to start with an essay of less than 400 words and a bio/sales pitch of less than 100 words.

After one abortive attempt (it was too much about me, and I do not write well about me), I ended up revisiting some of my posts on recent Federal Reserve ass covering on consumer protection, where the Fed discovers that, in order to avoid getting boned in the battle between regulators in the new banking system, they need to pretend that they care about consumer protection.

You know, it's tough to imagine the Washington Post OP/ED hiring me, but they could do worse, by picking....Hmmmm.....I'll get back to you on that.

In any case, I can't publish this essay here, at least not until I get the news about whether it has been rejected or not, because the contest requires that, "I certify that I have perpetrated no fraud or deception in connection with my entry, that my Opinion Essay and my Paragraph above are my original work (created solely by me solely for participating in the Contest), and that neither my Opinion Essay nor my Paragraph have been published previously."

This is subject matter that I have written about before, but it is a completely new essay, and until the folks at WaPo tell me, "Sorry Charlie," I can't publish it here.

Then again, my regular reader(s) have already read most of the statements and the thesis, only spread around about a dozen short posts, with hyperlinks.

Which is true, I haven't