Time To Break Apart The Mega-Banks?

[Madeline]

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.

 

[william the wie]

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.

 

[Madeline]

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.

 

[loosecannon]

"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.

 

[william the wie]

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.

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.

 

[Sallow]

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

 

[Madeline]

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.

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.

Wanna start a title insurance company, william?

♫...money for nothin' and the chicks for free.......♪

 

[Madeline]

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

*Shocked look*

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

 

[william the wie]

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.

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.

Wanna start a title insurance company, william?

♫...money for nothin' and the chicks for free.......♪

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.

 

[loosecannon]

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

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.

 

[loosecannon]

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.

Fools rush in

 

[Sallow]

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

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.

I think it would be an adequate solution. Nothing else seems to popular. The Republicans went apeshit when it was suggested that banks provide liquidity to a fund which was to be used in any subsequent "bailouts". Hey..you guys don't want to pay? Then no play..

Sounds good to me.

 

[LibocalypseNow]

Too late for that. The "Mega-Banks" have only been made stronger with the endless Government Bailouts. Hundreds and hundreds of small banks were allowed to fail while only the massive Corporate Banks were bailed out. They're actually more powerful now than ever before. They now have less competition. The small banks are mostly dead & buried at this point. It's just too late to change anything. They have even more power than they did before the massive Government Bailouts.

 

[Madeline]

Too late for that. The "Mega-Banks" have only been made stronger with the endless Government Bailouts. Hundreds and hundreds of small banks were allowed to fail while only the massive Corporate Banks were bailed out. They're actually more powerful now than ever before. They now have less competition. The small banks are mostly dead & buried at this point. It's just too late to change anything. They have even more power than they did before the massive Government Bailouts.

I dun see why, LibocalypseNow. Why can't they be broken apart? Or do you mean, they will be able to strong-arm Congress into preserving them?

 

[Revere]

It's not the banks, it's their regulator.

 

[iamwhatiseem]

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

I agree.
You throw a pack of wolves together and what is the outcome?
...more prey ends up dead.

It was incredibly naive to do so in the first place. In all companies of any size there is a separation of duties in numerous accounting/financial functions...this is done for a reason. The same principle applies to businesses as a whole - you cannot allow single companies to control all aspects of an industry..that is un-American.

 

[william the wie]

Banks are middlemen and the internet is eliminating middlemen. I don't know what will replace the current banking system but the megabanks are dead men walking so breaking them up isn't going to accomplish much.

 

[loosecannon]

Banks are middlemen and the internet is eliminating middlemen. I don't know what will replace the current banking system but the megabanks are dead men walking so breaking them up isn't going to accomplish much.

well they still have a monopoly on the divine right of bankers ( discount window borrowing enhanced with fractional reserve money multiplication) as a virtual cash cow if lending dollars ever becomes profitable again.

I can't see how their monopoly could be replaced unless it is something like the world shifting toward a yuan based world economy.

But I agree that we have far, far more banking capacity than we need. If 30% of US banks closed tomorrow it would probably solve more problems than it causes.

 

[william the wie]

The level of capital available to banks is the reason for securitization. There is nowhere near enough owner's equity in current banks to finance existing mortgages particularly with the level of buybacks needed to settle fraudulent tranche sales. This particular problem is just now sinking in with billions each quarter being set aside to pay off what looks like out of court settlements and that is on a per bank rate. Suddenly there are dozens of stories about this all over the internet when 24-72 hours ago I found only one story on the subject. This story not only has legs but seven league boots as well.

Don't know about you but I'm unable to connect all of the dots anymore. I am beginning to suspect that unwinding this mess will drop real estate prices by more than 97% in real terms.

 

[The Rabbi]

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.

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.

Are people really this ignorant?
Let's start with: Title insurance is required in every transaction with a mortgage, and usually insisted on anyway. I've never heard of a property passing without title insurance. What you are talking about is PMI, private mortgage insurance. Completely different animal.
Second, Title insurers are huge companies with lots of assets. They do not pay out much because their history of losses is minimal. Nor has that changed.
Third, Alan Grayson's ass is toast. He will lose this election and be out in January.
Fourth, government regulators ENCOURAGED banks to merge because fewer banks meant fewer entities to regulate. We will see more bailouts because gov't has taken the risk out of banking by creating a moral hazard. All the new regulation that just passed will do nothing, just as previous regulations did nothing.
Fifth, repeal of Glass Steagal happened what 15 years ago? How did a regulatory change from 15 years ago result in a crisis today? Answer: It didnt. Nor did Glass Steagal prevent previous crises, like the S&L crisis or the Latin Debt crisis.