Now that financial reform has been signed into law, Treasury Secretary Tim Geithner is on the road taking his message to the banks, and to Wall Street yesterday, and to regular folks like us in the Op Ed piece that he wrote for the New York Times. The title of today's post is taken from Geithner's Op Ed piece published yesterday in the New York Times entitled, "Welcome to the Recovery." I have decided to personalize Geithner's title with a question mark, although frankly, I think a better title for both Geithner's Op Ed piece and this post could come from heavy metal artist Alice Cooper's 1975 album, "Welcome to my Nightmare."
Geithner's article in the New York Times stresses that while millions of Americans are still out of work and suffering, there are tangible signs that the economy is improving, which include booming exports, the return of private job growth, and "businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow." "The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes...The uncertainity is understandable, but a review of recent data on the American economy shows that we are on a path back to growth."
In his speech at NYU, however, Geithner was a little less sunny and upbeat, although he encouraged the financial industry to fall in line behind the new financial reform bill and start implementing reforms themselves, rather than just waiting around for the regulations to be written. According to the Washington Post, "At NYU Geithner said other tough reforms lie in the months ahead, namely an overhaul of government backed mortgage giants Fannie Mae and Freddie Mac..."
And the overhaul of Fannie and Freddie is going to have a huge impact on housing and real estate. Remember that the Dodd Frank bill left Fannie and Freddie intact, and no plan to sunset either of these entities was included in the final bill. However, the bill does call for a study of Fannie and Freddie to be completed by January, 2011. This study is supposed to be presented by Tim Geithner to Congress, and now, with just 5 months remaining before the study is due, the government is reportedly trying to come up with some ideas of how to handle the Fannie/Freddie situation.
Toward that end, the Obama Administration is hosting a Conference on the future of Housing Finance at the Treasury Department on August 17. The conference was announced and posted on the Treasury Department's website on July 27, 2010. According to the Treasury Department's website, "This event will bring together leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders for an open discussion about housing finance reform." The website goes on to quote HUD Secretary Shaun Donovan, "The Obama Administration is committed to engaging stakeholders and the public as we consider proposals for reforming the housing finance system. The need for reform is clear and we want to listen to a wide range of views as we chart a course to a more robust and stable housing market that works for the benefit of the American people."
Certainly, everyone agrees that something has to be done about Fannie Mae and Freddie Mac. In a great irony, Fannie Mae, which actually was chartered during the 1930's as a response to first Great Depression, is now about to fall victim to the Great Recession. Taxpayers could and probably will spend an estimated $400 billion bailing out Fannie and Freddie--together they will probably comprise the biggest of all bailouts. But the question is, what sort of system will be put into place to replace them. Barney Frank has said candidly that a public/private hybrid model (which Fannie and Freddie were before they were taken over by government in the fall of 2008) does not work. Conservatives have stated openly that they agree and that the government should be out and private enterprise should take care of the flow of money necessary to back mortgages. But since the financial reform bill did not address this issue at all, and the all-private concept has been around for a while, we can be fairly certain that the government has something else in mind entirely.
My own personal opinion is that the conference on August 17 is nothing more than a dog and pony show to make members of the housing industry and consumer advocates perceive that they have been involved and engaged in the reform process. It is inconceivable to me that the authors of a 2300 page comprehensive financial reform bill which creates multiple new agencies and enormous new bureaucracy seriously don't have any idea how they want to deal with the issue of Fannie and Freddie. And if they are rejecting the concept of a completely privatized model, then that only leaves the option of a totally public one--a new government agency which will provide mortgage capital. And that, I believe, is exactly where this is headed. Sometime next year, I believe that we will see a new blueprint rolled out for a new government agency, and a plan to sunset Fannie and Freddie.
However, we are also getting some clues to the fact that this new entity, whatever it may be, will be less generous with its money than the ones it is replacing. Consider a Newsweek article published July 23, 2010, entitled, "Wall Street Whispers: Will Obama Slay the Fannie and Freddie Beast?" Look at this paragraph from the article, "The Obama administration appears to be suggesting--very subtly--that homeownership isn't a God given right. That the American dream has morphed into an American entitlement. That millions of people who should not have been homeowners in the first pace ended up paralyzed by unsustainable debt as a result...'This crisis reaffirmed the need to achieve a better balance between ownership and rental housing,' Hud secretary Shaun Donovan told lawmakers this spring.'" The Newsweek article goes on to quote Raphael Bostic, a senior HUD official and a "leading scholar on home finance and key policy adviser", whom the Washington Post quotes as recently stating, "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go. You're not going to hear us say that." And Newsweek goes on to say, "The most sensible and politically palpable option may be something in between--explicit guarantees with more strings attached, fewer incentives for Americans to buy homes, and more incentives for them to rent if they can't pay down hundreds of thousands of dollars over a 30 year time frame."
I agree that homeownership is not an entitlement. During the Bush years, we saw an initiative to put 5 million new Americans into homes in the hopes that Americans who purchased homes would become more responsible members of the community. That did not work because it was based on the government determining that Americans needed to buy houses. But now we see apparently a new initiative--much less well publicized--that Americans need to not buy houses.
What I want to know is why the decision to buy or to rent is a decision that the government should be involved in at all. Newsweek talks about incentives to purchase versus incentives to rent as if adult Americans are not capable of looking at their own situations and determining that they need a roof over their heads and then taking appropriate steps to secure one.
Over the course of 12 years in housing finance I have met a lot of people who dreamed of buying a home. But the people who were serious about buying one made it happen. If they had to wait while they paid off debt, they did so. If they had to save money for a down payment, they did that. The most effective incentive to purchase that the most motivated buyers had was their basic belief that owning was preferable to renting. And I have worked with other borrowers who had really good income and very good credit, but they never purchased a home. Some of these borrowers would open a contract every year on a property which they dreamed about owning but when the time came to purchase, they walked away. It was not that they could not afford the property--it was just that for them as individuals, renting seemed safer than buying. That is a decision that no one else can make for a person--the individual must make it for themselves.
And this is what I find troubling about this whole idea that the government should decide whether we as Americans rent or buy. That is like deciding for another person whether they should marry or remain single--it is a highly personal choice which really should be made by the person affected and no one else. We don't all get to marry the person we want to marry, and we don't all get to buy the house of our dreams. But that does not mean that we may not choose to marry someone else, or buy a different house that meets our needs just fine. And it should be our choice--not that of some bureaucrat doling out mortgage money as they see fit.
The Declaration of Independence says that we have right to life, liberty and the pursuit of happiness, which really just means an opportunity to pursue those things that we hope will bring happiness. Happiness is not a guarantee; neither is the attainment of anything else we pursue. But we should have the opportunity to try. Homeownership is the American Dream because in this country, through hard work and diligence, people have always been able to purchase their own homes. No administration should be able to say whether or not any given person deserves to have a chance at attaining that dream for themselves.
The Freedom From Information Act
It is amazing to think that it has been only about 2 weeks since the Dodd Frank bill became the law of the land, and already its provisions are immersed in controversy. The first problem caused by the new bill started last week, when Fox Business Channel reported on July 28 that the SEC was citing section 9291 of the Dodd-Frank bill as a reason not to provide subpoened documents to the Fox Business Channel.
The battle between Fox Business Channel and the SEC apparently began in March of 2009 when FBC sued the SEC for failing to produce documents relating to the Bernie Madoff scandal and the specific involvement of the SEC with Madoff and R. Allen Stanford. The SEC had investigated both men prior to their arrests but had not discovered the Ponzi scheme. FOX Business Channel made a request in February of 2009 under the Freedom of Information Act regarding information covering the agency's investigations into Stanford's behavior.
Apparently, on Tuesday, attorneys for the SEC notifed attorneys for Fox Business Channel that with the passage of the Dodd Frank bill, the suit is moot because under the provisions of Section 9291, the SEC no longer has to release documents under FOIA.
For the last week, there has been increasing attention on Section 9291, which states that the SEC cannot be compelled to respond to most requests for information. Under the old rules, the SEC did not have to release documents under the Freedom of Information Act for ongoing investigations, but under the new rules, the SEC does not have to turn over documents collected during "risk assessments or surveillance...or other regulatory or oversight activities," even for cases that are closed. This language could be interpreted to mean that the SEC is no longer subject to FOIA since they are a regulatory agency.
On July 30, the Washington Post published two letters written by SEC chairman Mary L. Shapiro, one addressed to Barney Frank and the other addressed to Chris Dodd, defending the language that now protects the SEC and arguing that the new provisions do not exempt the SEC from FOIA. In her letter to Dodd and Frank as published in the Post, Shapiro writes, "Section 9291 addresses a significant and longstanding impediment to the agency's ability to quickly obtain important information from entities registered with the SEC when performing examinations. In our examination and surveillance efforts, we often seek to gather highly sensitive and proprietary information and records from regulated firms including, for example, customer information, trading algorithms, internal audit reports, trading strategy information, portfolio manager trading records, and exchanges' electronic trading and surveillance specifications and parameters....Prior to the Dodd Frank Act, regulated entities not infrequently refused to provide Commission examiners with sensitive information due to their fears that it ultimately would be disclosed publicly. Existing FOIA exemptions were insufficient to allay concerns due in part to limitations in FOIA, (including that certain existing exemptions may not apply to all registrants) and the fact that FOIA exemptions are not applicable when the SEC must respond to a subpoena...The Commission's resulting inability to obtain this information hindered our capacity to enforce the securities laws and protect investors." Shapiro's letter goes on to say that it is more difficult to detect insider trading when complying with FOIA because management at trading firms often requires that SEC investigators review the documents on the trading companies' premises rather than providing sets of documents which could later be subject to FOIA.
In an interview with Fox News on Thursday morning, July 29, California Congressman Darrell Issa (R.CA) promised to introduce legislation to remove section 9291 from the Dodd Frank bill, although obviously such an effort would be met with a lot of resistance from the SEC. Shapiro argues that the new provisions do not skirt FOIA because Congress and other regulatory agencies can still demand to see the information, even though the public cannot. But as Issa pointed out in his interview, in real world terms, an investor hurt by Bernie Madoff's Ponzi scheme would not be able to request the SEC investigation through FOIA to use in his civil law suit, which might mean that he ultimately he would not win his suit.
The irony about this whole thing is that the Dodd Frank act was supposed to bring increased transparency and accountability to Wall Street. One of the Senate bills which ultimately became the Dodd Frank Bill can be found on line under the name "The Wall Street Transparency and Accountability Act of 2010." The opening text of this bill summary states, "This is landmark reform legislation that will bring 100% transparency to an unregulated $600 trillion market." Making the SEC virtually exempt from the Freedom of Information Act does not look much like 100% transparency to me. How can we hope for transparency or accountability in either Wall Street or our government if everybody is allowed to operate in secrecy with only Congress and other regulatory bodies allowed to see what is happening?
But, to me, there is a bigger issue here than the Madoff case, or the Fox Business Channel's suit, or even the SEC itself. The justification for the new exemptions from FOIA is that the SEC has been given broad new regulatory authority and responsibility. What about the newly created Orderly Liquidation Authority, which has been created and given broad new regulatory authority to take private companies before a panel of bankruptcy judges and dissolve them? Should their activities be exempt from FOIA? We also have the brand new Consumer Financial Protection Bureau, which will have regulatory authority over banks and mortgage companies and consumer credit companies. This agency certainly has broad regulatory authority. Should they be exempt from FOIA? Who decides when one agency is powerful enough that they should not have to release any documents to the public or to the press? Where do we as a society draw the line?
It is too early to say, but we may just have seen the death of the Freedom of Information Act as a meaningful tool for obtaining information about our government and the companies that it investigates. And that will produce neither greater transparency nor accountability.
The battle between Fox Business Channel and the SEC apparently began in March of 2009 when FBC sued the SEC for failing to produce documents relating to the Bernie Madoff scandal and the specific involvement of the SEC with Madoff and R. Allen Stanford. The SEC had investigated both men prior to their arrests but had not discovered the Ponzi scheme. FOX Business Channel made a request in February of 2009 under the Freedom of Information Act regarding information covering the agency's investigations into Stanford's behavior.
Apparently, on Tuesday, attorneys for the SEC notifed attorneys for Fox Business Channel that with the passage of the Dodd Frank bill, the suit is moot because under the provisions of Section 9291, the SEC no longer has to release documents under FOIA.
For the last week, there has been increasing attention on Section 9291, which states that the SEC cannot be compelled to respond to most requests for information. Under the old rules, the SEC did not have to release documents under the Freedom of Information Act for ongoing investigations, but under the new rules, the SEC does not have to turn over documents collected during "risk assessments or surveillance...or other regulatory or oversight activities," even for cases that are closed. This language could be interpreted to mean that the SEC is no longer subject to FOIA since they are a regulatory agency.
On July 30, the Washington Post published two letters written by SEC chairman Mary L. Shapiro, one addressed to Barney Frank and the other addressed to Chris Dodd, defending the language that now protects the SEC and arguing that the new provisions do not exempt the SEC from FOIA. In her letter to Dodd and Frank as published in the Post, Shapiro writes, "Section 9291 addresses a significant and longstanding impediment to the agency's ability to quickly obtain important information from entities registered with the SEC when performing examinations. In our examination and surveillance efforts, we often seek to gather highly sensitive and proprietary information and records from regulated firms including, for example, customer information, trading algorithms, internal audit reports, trading strategy information, portfolio manager trading records, and exchanges' electronic trading and surveillance specifications and parameters....Prior to the Dodd Frank Act, regulated entities not infrequently refused to provide Commission examiners with sensitive information due to their fears that it ultimately would be disclosed publicly. Existing FOIA exemptions were insufficient to allay concerns due in part to limitations in FOIA, (including that certain existing exemptions may not apply to all registrants) and the fact that FOIA exemptions are not applicable when the SEC must respond to a subpoena...The Commission's resulting inability to obtain this information hindered our capacity to enforce the securities laws and protect investors." Shapiro's letter goes on to say that it is more difficult to detect insider trading when complying with FOIA because management at trading firms often requires that SEC investigators review the documents on the trading companies' premises rather than providing sets of documents which could later be subject to FOIA.
In an interview with Fox News on Thursday morning, July 29, California Congressman Darrell Issa (R.CA) promised to introduce legislation to remove section 9291 from the Dodd Frank bill, although obviously such an effort would be met with a lot of resistance from the SEC. Shapiro argues that the new provisions do not skirt FOIA because Congress and other regulatory agencies can still demand to see the information, even though the public cannot. But as Issa pointed out in his interview, in real world terms, an investor hurt by Bernie Madoff's Ponzi scheme would not be able to request the SEC investigation through FOIA to use in his civil law suit, which might mean that he ultimately he would not win his suit.
The irony about this whole thing is that the Dodd Frank act was supposed to bring increased transparency and accountability to Wall Street. One of the Senate bills which ultimately became the Dodd Frank Bill can be found on line under the name "The Wall Street Transparency and Accountability Act of 2010." The opening text of this bill summary states, "This is landmark reform legislation that will bring 100% transparency to an unregulated $600 trillion market." Making the SEC virtually exempt from the Freedom of Information Act does not look much like 100% transparency to me. How can we hope for transparency or accountability in either Wall Street or our government if everybody is allowed to operate in secrecy with only Congress and other regulatory bodies allowed to see what is happening?
But, to me, there is a bigger issue here than the Madoff case, or the Fox Business Channel's suit, or even the SEC itself. The justification for the new exemptions from FOIA is that the SEC has been given broad new regulatory authority and responsibility. What about the newly created Orderly Liquidation Authority, which has been created and given broad new regulatory authority to take private companies before a panel of bankruptcy judges and dissolve them? Should their activities be exempt from FOIA? We also have the brand new Consumer Financial Protection Bureau, which will have regulatory authority over banks and mortgage companies and consumer credit companies. This agency certainly has broad regulatory authority. Should they be exempt from FOIA? Who decides when one agency is powerful enough that they should not have to release any documents to the public or to the press? Where do we as a society draw the line?
It is too early to say, but we may just have seen the death of the Freedom of Information Act as a meaningful tool for obtaining information about our government and the companies that it investigates. And that will produce neither greater transparency nor accountability.
GLC welcomes £2m rescue plan for Govanhill
Campaigners, supported by Govanhill Law Centre, have been pleading for years for help to address the area’s complicated problems. Now, backed by local councillors, MSPs and Govanhill Housing Association (GHHA), locals have been given £1.8m to start tidying the area.
Part of that plan includes the creation of an enforcement squad – made up of council staff, police and fire officers – with an "armoury" of powers to crack down on slum landlords. The team will have an annual budget of £300,000 with funding guaranteed for two years. And lawyers from Govanhill Law Centre, led by Lorraine Barrie, will also be closely involved. Operating from a base in Coplaw Street, it will be the first time all the agencies have been brought together.
Lorraine said: "This new strategy is fantastic. What will really help is if we get the public involved and work on information they give us so we can target problem areas." The new hit squad will track down unregistered landlords and enforce environmental health laws. Currently, any landlord running a house of multiple occupation without a licence can be fined up to £5,000. As part of the new measures, the maximum fine will next year rise to £20,000.
The Housing Bill currently going through Parliament is intended to strengthen powers for councils to ensure owners look after their property. The Government will review the current landlord registration system later this year, with the aim of helping councils ensure all private landlords sign up. Lorraine added: "The new measures will give us a powerful armoury and help us take the power back from people who are breaking the law."
The full story from the Evening Times (which is running a series of reports from Govanhill all of this week) is available online here.
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