Dodd Talks With Local Leaders About Rescue Bill
by Christine Stuart | October 6, 2008 1:11 PM
Posted to General News
After a closed-door meeting with more than a dozen local bankers, businessmen, and labor leaders Monday morning at Bradley International Airport, U.S. Senator Chris Dodd emerged to express a sense of hope that the $700 billion financial rescue package would begin to get capital moving again.
“I’m hopeful this week we’ll get a better response than we did at the end of last week,” Dodd, Chairman of the Senate Banking Committee, said before the markets opened Monday.
When the markets did open, nearly a quarter of the stocks on the New York Stock Exchange hit new lows within an hour and every stock in the Dow Jones index was down on the day.
“My hope would be that as we see people step forward and they buy this material, buy this distressed paper, the capital that’s out there will begin to move,” Dodd said. “It’s the frozen credit, the failure of capital to move that’s causing us much trouble.”
Dodd said it will take up to a week or 10 days to set up with auction process for the “so-called distressed paper.” The rescue bill allows government to spend billions of dollars to buy bad mortgage-related securities and other assets from distressed-financial institutions.
Dodd said the recently signed rescue bill also requires the Treasury secretary to report every 48 hours to the Banking Committee, creates a permanent inspector general position, and a General Accounting Office audit of the auction process.
Throughout the months of October, November and December, Dodd said the Banking Committee will remain active.
Some of the questions Dodd said the committee will begin to tackle include, “Where do we go from here? …What sort of financial regulation is missing? Is there over-regulation? Is there under regulation?”
William McGurk, president and chief executive of Rockville Bank, who attended the morning meeting with Dodd said, community banks in Connecticut are healthy because they don’t hold any of these no documentation or “liar” loans.
Still, McGurk said Congress needs to be careful when discussing regulation. “They should use a scalpel, not a sledgehammer,” he said.
Comments (3)
Posted by: Walt![[TypeKey Profile Page]](http://www.ctnewsjunkie.com/nav-commenters.gif)
| October 6, 2008 2:42 PM
Does this mean that Dodd will pay off his extra- special Senatorial low= interest mortgage from the firm which ripped off the most millions from folks in the mortgage scams, or do we have to subsidize him too?
What a phony!!
Posted by: Fedupwithliberals | October 6, 2008 2:58 PM
His next step out to be a long stay in prison with Barney Frank as a cellmate! Why have we not had any hearings on his involvement with Countrywide and possible fraudulent mortgage application?
Posted by: creid | October 7, 2008 3:25 AM
Hmm, I'm not so sure buying this Dodd lobbying effort that the toxic paper (aka TP) is a good idea to buy. Bucky Fuller once said that when you're tossed in the ocean in a storm, a piano top makes a fortuitous life raft, but that is not to say that life rafts should be designed in the shape of piano tops. I think it's a good saying to repeat to Dodd.
How do you figure out what to pay for the distressed assets, or how to assess the risk of loaning to banks secretively holding loads of them in a downturning economy? A lot of people are saying that the reason banks don't want to lend is the sheer opacity of the individual investments AND the portfolios of other banks. The instruments were created by banks in concert with ratings companies, and I hear that the banks often "shopped" for the best rating on the paper - that means that the rating agencies were competing with each other for the prize of who could say the nicest things about the investment. And that is AFTER they worked in partnership with the IB's to actually CREATE these stews of mortgages, junk debt, and other investments.
And ...who paid the rating companies for rating these products? Well, um... the BANKS. So it just doesn't feel like an arms' length or "honest broker" dealing from the start. (this is before we go into the conflicts of interest in the whole home selling/mortgage business at the consumer level -- the interests of the home inspector and attorney who closes, the way in which the securities firms assessed the property value (using computer modeling and specialists who parachuted into an area and plugged the info into their formulas, with little knowledge of the actual community). The fact that the originator of the mortgage did not have any skin in the game as to whether or not the customer was a good credit risk.
As to the investment firm-purchased ratings, The rating might have been AAA, but the return on a AAA rated derivative product was much higher than a AAA rated bond because the risk was much higher. Customers were told not to use the AAA as a guide to investment decisions -- guess what, they did.
Derivative products were beyond the realm of regulation, and apparently there are no standards for disclosure. In some cases, the underlying paperwork on these financial products is not in order. Who is checking to make sure that the paper the banks say they are holding actually has proper documents backing it up? Who's to say it's not part vapor?
So the "credit crisis" is not irrational panic by banks, but perhaps a snapshot we can best address by understanding it --banks which have a reason to either hold onto liquidity (because they know they are at risk themselves from being overleveraged in a downturn), or have NO reason (factual basis) to trust anyone wanting a loan from them. The banks are sitting there trying to decide whether to hold em or fold em, and trying to guess what's in the other banks' hands.
You can throw as much money as you want at that -- how does an investor buying this paper evaluate the default risk of slices of mortgages, and how does a lender get any idea what their borrower is holding in the way of amount and type of troubled paper?
Economists including Paul Krugman say that this plan never made any logical sense if you truly bought the purpose of the bailout. Chris Dodd sounds like he's earnestly pushing it as though it is only a matter of political lobbying.
I wish Paulson had consulted more experts (if he didn't have an ulterior motive of shoring up his favorite banks as the winners in this meltdown), and I wish Congress had done the same.
Instead of cajoling, how about Dodd et al coming up with a plan that addresses the solvency issue and the lack of disclosure? And somehow we need to get rid of these byzantine formulations and little understood instruments. They are no longer merely sold to highly sophisticated investors, and their potential to concentrate (instead of mitigate) risk makes them dangerous to the larger financial system.
Finally, if there are investment vehicles created that do not have the paperwork in place behind them, that is plain and simple fraud. And jail, not bail, is what should happen on those cases.