Washington Is Putting The Recovery At Risk

It appears that the government is out to do its best to damage the capital markets and the ability of the economy to recover rapidly. First we learn that TARP was possibly the most successful program ever run by the government in that the portion that related to the banks has been highly profitable, but Obama and several Congressmen have so mislead the nation, that there will never be able to be another similar program no matter how serious the crisis.

Then we have Dick Durbin and Elizabeth Warren, neither of whom has ever been in banking or the capital markets,  insisting that price fixing for debit card fees is a wonderful idea. Luckily, saner heads seem to have prevailed and that onerous burden on banks will be killed. Then we have Ron Paul demanding and getting full disclosure of who used the Fed discount window. Its use is critical to the soundness of the banking system, but now it will likely almost never be used again. Once Ron Paul has his comedy theater of a hearing, and then the media misreport, the public will think the Fed did awful things and the entire financial system will be put at further risk.

Now we have the risk retention rule proposals under Dodd Frank. While the industry has had some success molding portions of this set of rules, the one related to Premium Capture reserve Account is a potential killer. As I understand it now, it says that what was normally the profit in CMBS pools in the from of the IO strip, will now have to be retained in a capture account as an added reserve above and beyond the 5% retention. If that stands as it has been initially explained, it will kill CMBS. Hopefully this will be rewritten to allow issuers to actually make a profit- heaven forbid.

One could go on from here with other similar issues, but suffice to say Washington still seems to think piling on all of us involved in the capital markets and real estate is wonderful politics. They are fighting over rounding errors to the budget and have not even begun to try to tackle the deficit which will destroy us if not dealt with. Harry Reid says Social Security is perfectly in fine shape. What planet is he on. The unions are staging mass attacks on every effort to reign in pensions and government spending and even to the point of spending huge sums to win a judgeship election in Wisconsin on Tuesday. The Obama administration is doing all it can to help the unions. Luckily we seem to have a group of very brave governors who get the message that the current union contracts are destroying states along with Medicaid. There is no possible way all of the current liabilities for municipal pension obligations can ever be met and the unions and Obama want to continue the same programs with no real changes.

Then we have the attack on residential lenders to give all of the deadbeats a big break on the mortgages they never should have taken out. Elizabeth Warren thinks writing off $20 billion is just wonderful and it is the not going to have any adverse impact on the economy. She is the one who engineered this threat to the banks. It makes nice populist politics and CNN and others love to play that up, but it makes terrible policy for the financial system and creates huge moral hazard going forward for the mortgage markets. As opposed to solving the problem, it will further enlarge and aggravate it, as many homeowners will say- why am I struggling to pay when the government is going to make my bank reduce my loan balance.  Between this and debit card fees, Elizabeth Warren could single handedly do immense damage to the banking system health.

The bottom line to all of this is that it will continue to be a long road to full recovery and Washington is not helping get us there.