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Showing posts with the label Bear Stearns (BSC)

What happened. What now.

Commercial and investment banks used their size and money to make campaign contributions that allowed them to evade any meaningful effort to impose common sense and transparent risk controls in the public interest, known as regulation. One of the first regulations attacked dated from the Great Depression. This was the Glass-Steagall Banking Act, a law designed to separate commercial and industrial banking. Banks, commercial and industrial (the latter known as investment banks) could now combine operations to create products in fundamentally unstable ways.

Markets are ruled by two emotions: fear and greed, and these institutions got greedy, very greedy. They created financial products that served no real purpose, other than to generate profit for the bank. To keep customers (their only regulator) from understanding the bank’s true intent, they made these products horribly complicated. These products were, in part, simple bets. These bets were layered on top of each other until only th…

Black-owned bank has few urban loans

We note today's article in the Boston Globe: "Black-owned bank has few urban loans: OneUnited sought aid as community 'beacon'." OneUnited Bank got $12 million from the US bank bailout fund.

We take issue with several items in the story. Below, we reproduce sections of the story we have difficulty with and note our reply.

"OneUnited's chief executive, Kevin Cohee, said the bank is helping the community in other ways - by focusing on loans to churches and developers of apartment buildings. He said the bank pulled back on home mortgages because he saw the housing market overheating. He said he didn't want to compete with the many mortgage brokers peddling subprime loans with unrealistic rates and terms, loans that borrowers ultimately would not be able to repay. 'We knew this bubble was developing in residential housing' as early as 2004, Cohee said in an interview. 'If we had participated in inner-city housing lending, . . . we would have …

The Bear Rescue and the Senate Banking Committee

I have been following the Bear rescue and the Financial Market reform plan. I attended today's SBC hearing. A few things to note:

a. Treasury sounded a little defensive when asked by Senator Jack Reed about the lack of foresight, claiming that no one could have foreseen this crisis.

Actually, we did, in August, 2007:

"Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed."

See: http://twisri.blogspot.com/2007/08/morgage-gses-predatory-lending-and.html and http://www.sec.gov/comments/s7-16-07/s71607-495.pdf

b. In addition, even the claim that perfect foresight was needed is wrong. With the development of toxic (derivative and subprime lending) financial products, the relationship between in…