Eliot Spitzer, the Governor of New York, yesterday weighed in on the ongoing financial crisis, with the unique perspective of one who was attempting to halt predatory lending practices before they were allowed to become the problems that we are seeing unfold today. The obscure bureaucracy, the Office of the Comptroller of the Currency (wiki), appears to have played a key administrative role in allowing this crisis to involve much more capital than would have otherwise been possible. As black has become white and white black, the Bush Administration has seemingly turned a bureaucracy dedicated to providing a degree of confidence in our banking system and protecting consumers, has become a tool for financial profiteering. Comptroller Dugan has this to say in response to the Governor's allegations, essentially pointing the finger of blame back at the states and arguing that the worst abuses came from institutions that do not fall under the purview of the OCC. Is this, perhaps, the next scandal to emerge from the Bush Administration?
In other news, Freddie Mac has announced plans to ease the financial liability of of its private mortgate partners. At issue is the liabilities said partners are burdened with incidental to the protection afforded by the mortgage agency. In tandem with this, the stimulus proudly signed by Bush into law the day before yesterday, increases the maximum value of a mortgage that the twins Freddie Mac and Fannie Mae may take onto their books, up to a maximum of $729,750. These two actions, in different ways, accomplish the same financial objective: to shield the private investors from the risk that they themselves took on by means of regulated governmental entities, which will inevitably mean that the taxpayer or, more likely, the purchasers of U.S. Treasuries will be stuck with the consequences of the ballooning crisis. Of particular note to the Presidential Election, some of the markets that would fall into the category to receive the largest margin of protection are in New York and California.
MBIA, Inc. executive said in Congressional testimony that they are in a position to withstand the financial crisis and no new regulation is required. The other contender for who rejected Warren Buffet's offer, FGIC Corp. announced intentions to be split up into two separate corporations, one for municipal bond insurance and another for the subprime mortgage liabilities, to cope with a new rating from Moody's at below investment grade.
On the legal front, the SEC is looking at revising financial transparency in response to more than three dozen investigations underway by the agency. The FBI is investigating a total of 16 corporations for fraud in relation to the financial crisis. I'm sure that this type of indeterminate liability will weigh heavily on the minds of investors who are desperately needed to provide all-important capital. The latest figure, produced by an analyst at UBS, forecasts the potential loss resulting from the ongoing financial crisis at $203 billion, which is likely to go up as other sectors of the credit market and municipalities become less safe investment choices.
This news, of course, makes Ben Bernanke's assurances of adequate insurance from risk sound like a flight of fancy. In light of Bernanke's precarious position, one must look to figures that measure confidence in U.S. monetary policy, like foreign exchange rates (Updated Dollar-Euro Exchange Rates). Considering the fall in the dollar in response to the Fed Chairman's comments, it would appear that the investment community does not share his opinions on the long-term outlook for the greenback. Considering his acknowledged position as the foremost authority in central banking, one might ask if Ben Bernanke is second guessing the Fed's dovish rate policy with the European Central Bank taking a more hawkish policy, keeping interest rates above 4%.
Below, is Bernanke's testimony yesterday, a song inspired by the Fed Chairman, and hot video from Reuters. Enjoy!
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