Tougher Bank Rules Coming But No Time Soon

Congress Eyes Stiffer Regulation Though Changes Unlikely Until Next Term

(CBS/ AP)  A Congress criticized for being asleep at the switch while financial problems festered is eyeing tough new regulations for investment banks and a new government role in the mortgage market as Wall Street reels from another round of collapses.

Just weeks after approving a housing-rescue package designed to help homeowners avoid foreclosure and prevent further spread of the credit crisis, lawmakers are considering more far-reaching actions to bring order to the freewheeling array of financial products and practices that have led some Wall Street institutions to the brink of failure.

They're also weighing what role, if any, the government-sponsored mortgage giants Fannie Mae and Freddie Mac should play in the future after a federal regulator took over the troubled firms last weekend. Lawmakers have dusted off a wide range of plans for the companies, which together own or back $5 trillion in mortgages - almost half the nation's total.

Options include taking the companies private altogether, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

The bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch to Bank of America and new worries about the stability of insurer American International Group Inc. on Monday injected new energy into the emerging Capitol Hill debate about stiffer financial regulation. The discussion began in March after the near-collapse of Bear Stearns, when the Federal Reserve stepped in to guarantee $30 billion of the investment bank's assets, including risky mortgage-backed securities.

At the time, Treasury Secretary Henry Paulson said "the world has changed," and stepped-up regulation would follow the government help for the investment bank.

There's no chance that Congress will act on any of the ideas this year, with just seven weeks until Election Day and lawmakers scheduled to scatter in a couple of weeks to campaign. But they are likely to preoccupy the new Congress and the next president.

In the shorter term, lawmakers in both parties want to help key groups weather the financial storms. Republicans and Democrats support giving up to $50 billion in loans to the struggling auto industry before Congress adjourns. Democrats are pushing for a second economic aid package worth that much to fund public works projects, provide jobless benefits and send heating and food aid to the poor.

Paulson backed out of a Tuesday appearance before the Senate Banking Committee on the Fannie and Freddie takeover, telling lawmakers he was too engaged in the latest crisis to testify, the panel's staff said. Later, after learning Paulson would be speaking to a Washington think tank the same day, an aide to Sen. Chris Dodd, D-Conn., the committee chairman, called the Treasury chief's no-show "regrettable" and said Dodd would swiftly reschedule and "aggressively exercise the committee's oversight function."

Rep. Barney Frank, R-Mass., the Financial Services Committee chairman, is planning a session next week to explore the mortgage giant takeover.

Frank has long advocated a financial overhaul that would impose new controls on entities like investment banks and hedge funds that are outside the regulation of the Federal Reserve and other bank regulators.

Those institutions "have incentives to take a lot of risk, and leverage that risk, and too few constraints," Frank said earlier this year.

The practice of securitization - packaging a variety of assets, like mortgages, and reselling them as a new investment - "has dissolved the lender-borrower relationship in financial affairs," he said in April. "We need to find some regulatory replacements for that."

A push for tighter controls on financial institutions could find substantial support among Democrats, who blame the Bush administration for pursuing an ideological mission to deregulate at all costs.

"We should have learned this lesson. We did learn it for several decades. We need to relearn it," said Sen. Sherrod Brown, D-Ohio. Breaking down regulatory barriers has allowed "Wall Street greed to run amok," he said.

Appearing Tuesday on the three network morning shows, Republican presidential nominee Sen. John McCain told CBS News' The Early Show, "The economy is in crisis."

McCain offered no specific remedies during his appearances, though he said he agreed with Treasury Secretary Henry Paulson that the government should not bail out American International Group Inc., the world's largest insurer.

Democratic vice presidential candidate Sen. Joe Biden countered that the economic policies of McCain and the Bush administration had led to any betrayal of American workers. He argued that the Republican campaign's message was at odds with itself with McCain saying the economy's fundamentals were sound but that urgent repairs were needed.

"It seems like John's had an epiphany. Nine o'clock yesterday morning, John thought the economy was going great guns and the Bush administration was doing well, and today he thinks it's in crisis," Biden told The Early Show.

In truth, however, both parties have been loath to subject banks and other financial institutions - including Fannie Mae and Freddie Mac - to stiffer rules.

"You had a Congress that refused to apply regulations to them, and then the leveraging of Fannie and Freddie produced new Wall Street instruments that came to be sliced and diced to the advantage of short-term profit-taking, but long-term liabilities," said former Iowa Republican Rep. Jim Leach. Leach headed the Banking Committee when Congress overhauled financial laws to tear down Depression-era barriers between banks, insurance companies and investment firms.

"Then you have an unwillingness of Congress to impose a credible regulatory regime on investment banks," Leach added. "Basically, the lure of leveraging proved too great."

Leach said it will be up to Congress and a new administration not only to overhaul financial regulations, but ultimately to figure out how to restore global confidence in the financial health of the government.

He noted that Paulson's first bid to prop up Fannie and Freddie - by getting Congress to include an unlimited federal lifeline for them in the housing legislation - did little to allay fears in global markets about their financial health. That's why he had to step in last weekend and take them over.

"What that means," Leach said, "is that the sheen has gone off the good name of Uncle Sam."

[payasyougo]

"Many people believe that minorities also face discrimination when they try to obtain a mortgage%u2014a necessity for most Americans wanting to buy a home. There is no question that minorities are less likely than whites to obtain mortgage financing and that, if successful, they receive less generous loan amounts and terms. But whether these differences are the result of discrimination%u2014rather than the inevitable result of objectively lower creditworthiness%u2014is the subject of a raging debate. The problem is not that analysts or practitioners have ignored the question of discrimination."
From the Urban Institute, June 01, 1999
----
You see, we used to have high lending standards. But a segment of society cried discrimination. Rather than fight, standards were dropped so that people with low incomes and no down payment could be given a house. As always, it''s cheaper to give money away than to fight the media and the contrived discrimination class lawsuits.

This is how it started. It is was forced the lower standards.

Then greed walked in and took advantage of the lower standards.

The false cry of discrimination continues to cost this country billions.

[mjvw2]

clever how CBS identifies Barney Frank as a Republican from Mass. He''s as dumorat as it gets.

[mjvw2]

Phil Gramm - remember the name. He''''s the architect behind bank deregulation and he could well be McCain''''s Treasury Secretary, if America is dumb enough to vote GOPig again.

Posted by usclimey

and please don''t forget that osama and biden voted for the deregulation. while we''re remembering...ask osama why he was the second highest recipient of fredie may and mac corruption dollars

[babooph]

Dergulation ,tax cuts for the rich & lobbyists arranging the ok to steal have been wonderful-how much of the rip off "trickled down " to you??

[tryhonesty]

There will not be any changes while the RepubliCONs are stealing our tax dollars and borrowing even more...No Third Term. Vote Democratic for a CHANGE!
McSAME knows nothing about economic issues, he said so himself. McSAME and his red party has run America into the ground. Vote this morons out of office along with their BIG OIL lobbyists. Working Americans own America!

[twocanpete]

http://twocanpete.blogspot.com/
There will time for rules later. Right now we just need to divvy up the loot among the Wall Street pirates.

[itgranny]

Those still wanting to blame clinton for this I need to ask has there been anything in your life that you started 8 years ago that has never needed to be looked at again? What if Microsoft had stopped with windows 95 and we were still working with that? what would your house look like if it didn''t get a new coat of paint in the kitchen or bathroom within 8 years? The thing is bush has been asleep at the wheel. We''ve been telling him how bad it''s been but he wasn''t listening and now we''re in a world of hurt.

i think it''s about time the media comes clean and delivers a TRUE aspect of the polls. Knowing it''s not as close as they are making it and threatening us with another 4 years of McCain and Phil Grahmm as treasurer will go a long ways in settling nerves.

[mydiatribe]

After listening to newcasters who seem to be blaming everybody for this debacle, I have been convinced that some of these ''bundlings'' were done as one would disguise a rotten piece of fruit by surrounding it with better looking fruit, a technique used by grocery peddlers for eons.

The consequence of these deceptions however have had much greater consequences. Isn''t it the role of government to protect the consumer from UNFAIR TRADE PRACTICES?

But in this case it appears these bundlers were *** their fellow investment entities who should have foreseen the dangers here.

Everybody was in a BIG hurry to get rich. Slowing down, investigating things thoroughly, ethically and honestly would make this FRAUD IMPOSSIBLE!

Who is keeping watch? These slick wiz kid investrors will naturally come up with another SLICKLY conceived greedy deals before any laws to protect the consumer are in place.

The BOTTOM LINE!, if the industry WILL NOT regulate itself, there is NO HOPE that this will not happen again.

[dan9111]

It is the `comfort` of regulation that caused these companies and their investors to take risks they otherwise would not

The failing companies paid their campaign contributions, got elevated market exclusivity as a privilege. Raising the regulations (which are forcible barriers to entering the market) tends to keep out competitors. Who can doubt that? In the end, our limited choices means we are left only with unstable banks that are skilled mainly at turning and greasing the regulatory wheels. To `comply` and not perform well under stress. That is not good for anybody except the politicians who suggest we need more and more of their magic oversight...

I argue that regulation is proven bad, proven ineffective and prone to backfire by these incidents. Yet our media elite just assume another gun aimed at the marketplace will help somehow. How easy they forget so many banking regulations were instituted before the depression and not after. It is cause and effect. The baby boomers are in denial that this is a mess of their own creation.

[ubrew12]

What a surprise.

Leave the door unlocked (lax gov''t oversight) and someone robs the bank.

Who woulda thunk it...

[usclimey]

Phil Gramm - remember the name. He''s the architect behind bank deregulation and he could well be McCain''s Treasury Secretary, if America is dumb enough to vote GOPig again. What do you think will happen to "Tougher bank rules" under him?

[usclimey]

Could it be that the Democrats would look bad at the poles?

Posted by consciousnes

What do Polish people have to do with it?

[workingchump]

Glass Steagall needs a comeback asap.

[oleander8]

''not right now, we are on Vacation - signed, YOUR Democrat lead Congress'' [Posted by TheVicar1]

Until Democrats have a two-thirds majority they can''t override Bush''s veto''s....

[oleander8]

It''s PAST TIME for TERM LIMITS. Maybe then we would actually have elected officials working for all Americans instead of just working to extend their careers. Most politicians probably start out with noble intentions - but become jaded, out-of-touch, and self-serving the longer they stay.

[sebastian27-2009]

Clinton added his touch to this mess when he pushed for a bill to give the commercial banks the right to acquire investment banks, or vice-versa. No, the rules won''t be changed to protect the consumer quickly because the politicians have to wait and see what the banking lobby wants them to do.

[consciousnes]

TheVicar1 is right, The speaker shut down congress when a group of congressmen tried to get a vote on the energy bill.
Could it be that the Democrats would look bad at the poles?

[consciousnes]

Ok, so where is the $50 billion coming from? The United States is already in debt for many TRILLIONS of dollars. Where is the money coming from, our Social Security fund that isn''t there any more?

[mays24663]

Too little, too late. This is what Regan, Bush 1 and Bush 2 give you. No regulations, no oversite and they expect the tax payer to pick up the tab. We have privatized Profit and Socialized Losses. What ever happened to let the Market sort it out?

[random_radar]

Tough new banking rules? Don''t make me laugh, it ain''t gunna happen.

Why?

Because tough rules would expose the fact that almost every bank in America is insolvent.

We have to continue with business as usual to maintain the facade that everything is okay.