Time To Break Apart The Mega-Banks?

Discussion in 'Economy' started by Madeline, Oct 19, 2010.

  1. Madeline
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    Madeline BANNED

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    Rep Grayson (D-FL) has called upon the Financial Stability Oversight Council to break apart the mega-banks due to the danger of systemic failure by banks. The provision which authorizes this, known as the Kranjorski Amendment, provides federal regulators with new powers to pre-emptively break up large financial institutions that - for any reason - pose a threat to US financial or economic stability.

    t r u t h o u t | ForeclosureGate: Time to Break Up the Too-Big-to-Fail Banks?

    Apart from the banks' configuration, others could be affected by the foreclosure/fraud issue. The title insurance companies of subsequent buyers would be liable if the earlier homeowner could reclaim the title to the property -- or even just cloud it to the point it was no longer freely transferrable.

    The IRS might be able to collect taxes on 100% of the value of these mortgages. The banks created Real Estate Investment Conduits, a term of art for tax purposes. They named themselves as trustees, and it was shares in these REMICs that were sold as mortgage-backed securities. To qualify as a REIMC and shelter the mortgages within from tax, the trustee could own any property of the REMIC. If it is found that the banks failed to make the necessary legal transfers of title to the REMIC, the whole REMIC fails as a tax avoidance device.

    If the banks/brokers sold shares in REMICs as non-taxable and in fact, the IRS taxes them, the buyers of these securities could sue for misrepresentaion, fraud, breach of a duty of care, etc.

    This issue could turn out to be quite interesting. I think I will brush up on my real estate law.
     
    Last edited: Oct 19, 2010
  2. william the wie
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    william the wie Gold Member

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    This a big one but the front side of the foreclosure crisis is relatively small $100 B or so in unexpected additional losses for the entire industry with mostly restructuring losses. Jim Jubak on MSN did some back of the envelope calculations on the costs of mortgage buybacks and estimates are already in the $100 or so in identifiable losses and counting. The REMIC problem is also hitting the news but so far no hard loss estimates.
     
  3. Madeline
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    Do you agree with me about title insurance companies, william? These sleepy little companies prolly dun pay one claim a year; if hit with several, I wonder how many could pay. I wouldn't even describe them as insolvent or undercapitalized, as doubtless they reasonably relied on past claims experience to establish their funding levels. And there is no state or federal backing for a title insurance company.

    This is gonna shake things up, methinks.

     
  4. loosecannon
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    loosecannon Senior Member

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    "This is gonna shake things up, methinks."

    Too big to shake up. This should be apparent by the fact that the whole emphasis for addressing the credit crisis was focused on the biggest firms, the bond market and the money supply.

    I suspect that the financial powers that be would allow another world wide depression before they allowed the biggest firms to suffer for their screw ups.

    And I think the FDIC already had the power to reorganize/breakup the banks, certainly antitrust law provided that authority to the courts.
     
  5. william the wie
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    william the wie Gold Member

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    That's a gross understatement. A mortgage without title insurance is usually unattainable without 20% down. Going from 5% down to 20% down means the price of houses will be divided by at least 4 times in real terms before a bottom is reached. So, for a nationwide average home that means a decline to $36,500 or less, probably a lot less, in 2010 dollars or a drop of 75% or more in total real asset values before a bottom is reached. Title insurance in the future (it's a cheap business to get into) will probably exclude all houses that have changed hands in the last 20 years without a 200 Basis Point cut of the mortgage and custody of both title and note as a lien against the mortgage. That kind of provisio will probably only last 2-5 years but it will cause a massive drop in housing prices.
     
  6. Sallow
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    Sallow The Big Bad Wolf. Supporting Member

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    It's probably about time to reinstate Glass-Stegall or some variation of it. Banks have far to much collusion with other financial institutions.
     
  7. Madeline
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    Madeline BANNED

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    Wanna start a title insurance company, william?

    ♫...money for nothin' and the chicks for free.......♪
     
  8. Madeline
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    Madeline BANNED

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    *Shocked look*

    Throw bankers out of investment and insurance sales? But, but, but...that would be regulation. Ain't that anti-American these days?
     
  9. william the wie
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    william the wie Gold Member

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    At this point title insurance ranks right up there with making a living as a rock star playing my kazoo but many people with more money than brains will venture into this swamp.
     
  10. loosecannon
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    loosecannon Senior Member

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    that's an understatement.

    I loved the way in which all of the big investment banks rushed to become commercial banks so they could qualify for TARP assistance (including GMAC/ALLY) but doing so put them under the authority of whatever was left of Glass Steagal. But as soon as things improved those exact same banks refocused their entire business on investing instead of lending with the very free money that came their way because of the TARP funding.
     

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