Where Much of the Real Financial Blame Might Lie

As of Monday, March 26, 2012

Like many of us, I would like to jail those persons who are responsible for the Great Recession.

Most of us know someone who lost his home over the past few years. Many of us are familiar with a family who slipped from middle-class comfort to government dependence. This is intolerable and cries out for justice.

I do not know the names of all those who should be jailed. But I would like to start with North Carolina insurance commissioners present and past - Wayne Goodwin and, if he were still alive, Jim Long - and others like them nationwide.

Most people understand that our recession began when worthless mortgage-backed securities were sold as "Triple A Paper" to banks like Charlotte-based Bank of America, initiated by its subsidiary, Countrywide Mortgage. Those sales were made possible only by something called a "credit default swap." And that is where Goodwin and Long needed to pay attention. They did not. The result was that many Americans lost their future.

So what is a "credit default swap"? Simply put, it is a policy of insurance. The banks or holders of notes purchase the policies to make sure they do not lose money on defaulted mortgages to dirt-poor homeowners. If a homeowner does not pay for his home, the insurance company pays the bank instead. The bank cannot lose unless the insurance company goes broke. And it did.

The problem is that these insurance policies were called "credit default swaps" because they were sold by investment companies, not insurance companies. And selling insurance without a license is a crime.

Insurance companies are regulated. The sale of insurance is restricted to licensed agents and regulated companies because government is supposed to make sure that in case of disaster, insurance companies remain solvent and policy holder claims are paid.

But our Insurance commissioners, as did others everywhere, failed Bank of America, Countrywide and the people. Banks were purchasing and arranging for purchase an insurance policy from companies that were never subjected to the scrutiny that the insurance commissioner should require.

Blatantly selling insurance without a license simply because the policy is called a "swap" is like a barber stating he does not need a license because he is not "cutting hair," he is "trimming" it. Such a barber would either go to jail or be ordered to read Shakespeare. But jailing a Wall Street securities salesman selling worthless paper in Charlotte is not as easy when both salesman and customer contribute to campaigns and employ lobbyists.

Yet that is not the entirety of the problem. As we read here today, credit default swaps are being bought and sold just as if nothing has happened. Goodwin remains oblivious to the problem. And they have expanded. These swaps now insure everything from leases to Greek debt.

Putting aside the Democrat/Republican argument as to whether the underlying cause of the recession was the lack of regulation by George W. Bush or the pressure to lend by Barney Frank, we can all agree that the immediate cause of the recession was a simple Depression Era "run on the bank."

When the homeowners could not pay and banks made insurance claims, the money was not available. Had the swaps been properly regulated as insurance, then the commissioner would have made sure sufficient reserves were available or would have, more likely, shut down the business in North Carolina. This would have led to fewer mortgages, fewer defaults, and, possibly, an easing or, locally, an avoidance of recession.

Of course, some would say this is a federal problem. But where there is federal inaction, state regulators from among the states frequently unite in national lawsuits such as the suit that destroyed tobacco. And the Marlboro Man never caused financial disaster.

It is also interesting that the continued interstate sales of "mortgage insurance swaps" remains an unregulated federal matter; but, the federal government insists that selling interstate health insurance must be outlawed. Blue Cross never caused recession.

As Republicans, we cannot abrogate our responsibility to regulate where regulation is necessary. Where the federal government refuses to act, state officials must act. Or, at the very least, they must join with other states to properly regulate insurance, no matter what a charlatan might call it.

Robert M. Levy is chairman of the Moore County Republican party. Contact him at Law52@prodigy.net.

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dustyrhoades 1 year, 1 month ago

Mr. Levy, I believe you're an attorney. Can you provide any legal authority for jailing Commissioners of Insurance or heads of other regulatory bodies for failing to regulate? Can you provide a citation from Chapter 58 that brings these particular instruments under the jurisdiction of the Department of Insurance?

I look forward to your answers, kthxbai.

JimHeim 1 year, 1 month ago

Anyone who writes on this topic who does not mention Brooksley Born (then head of the CFTC) and her efforts bring derivatives under regulatory control only to be crushed by the Bush Administrations treasury people (with the aid of the Fed) is missing the most important part of the story.

This mess could have been avoided but the people charged with keeping our financial system stable were either asleep at the switch or bought and paid for by Wall Street. You need look no further.

Our state insurance people were out gunned by an industry that was able to buy federal protection against which state regulations are useless.

MichaelFlorence 1 year, 1 month ago

To Jim Heim

I agree with you. These swaps are nothing but a shell game to push money around. BUT quit bashing the last adminstration. President Obama has been there for almost 4 years. Two years with the Democrats in charge of the House and Senate. And nothing has changed. Nothing. I cannot remember a single speech where the President has even mentioned these swaps. All we have gotten out of Congress is the fisaco of the Dodd-Frank Bill. Seems ironic that by the time major portions of that bill get active, both of those gentleman will be out of office. Lets see how you react when the small business credit market drys up due to new lending standards.

JimHeim 1 year, 1 month ago

Michael, you are absolutely correct. This adminstartion has done little more than the last to rectify these problems. From here it looks like Goldman, JP Morgan and the other Wall Street players have their tentacles so deep into the Treasury Department and the Fed that they should be listed as wholly-owned subsidiaries. And the SEC is definitely the most corrupt federal agency in history.

The question is, since neither party is able to do anything about it (and I don't see an entity with the clout), where do we go for help? It's all about money and Wall Street has enough to corrupt any administration.

Still, it was during the Bush years that the most egregious violations occurred. It adds to a long list of failures in my mind.

And the best Mr. Levy can do is bash state regulators. Small fish, I say.

JimHeim 1 year, 1 month ago

It should be noted that our state regulators were prohibited from dealing with CDS's. Via Barry Ridholtz:

The Commodity Futures Modernization Act of 2000 radically deregulated derivatives. The law changed the Commodity Exchange Act of 1936 (CEA) to exempt derivatives transactions from regulations as either “futures” (under the CEA) or “securities” under federal securities laws. Further, the CFMA specifically exempted Credit Defaults Swaps and other derivative products from regulation by any State Insurance Board or Regulators.

You remember Republican Senator Phil Gramm, don't you? He sponsored this bill that pulled the teeth from every agency that might have reined in these dangerous products. I would be delighted to hear from Bob exactly how Wayne Goodwin could have overruled the federal government on this. Really.

MikeNC 1 year, 1 month ago

JimHeim 1 hour, 14 minutes ago ...it was during the Bush years that the most egregious violations occurred. It adds to a long list of failures in my mind.

I'm sure many of those Bush failures (True or otherwise) you speak of will be spoken about by you for many decades to come. It might be a good idea to try an "Etch a Sketch" on your mind. President Bush tried to bring this to the forefront, but was fought back by several key democratic leaders. BTW Jim...I would still love to come hear you present a public speech somewhere. I have asked before if you have any open schedule events that I could attend. I guess you never saw any of my comments as I have not noticed your reply....Mike

Timeline shows Bush, McCain warning Dems of financial and housing crisis; meltdown by ProudToBeCanadian

Toyboy52 1 year, 1 month ago

You're wrong Jim. Just because the securities dealers call CDS a derrivative does not make it so. It is insurance . The the CFMA did not deregulate insurance. Nor did it exempt state insurance criminal law.

JimHeim 1 year, 1 month ago

MikeNC, You'd be surprised at how seldom a Democratic chair in Moore County gets an opportunity to do any public speaking outside of party functions. Except for my occasional appearances on WEEB's Centerpoint, I am rarely in the public eye.

JimHeim 1 year, 1 month ago

toyboy, you have no idea what you're talking about. But I tell you what. There are fifty state insurance commissioners. I'll bet you can find some fine Republican regulator at one of them who took on Wall Street and the federal government to regulate these transactions. Give it you best shot.

deidretg 1 year, 1 month ago

@Robert Levy; "Like many of us, I would like to jail those persons who are responsible......". Very typical of the local "Party in Power". This tea sipping, social society is all about finding the "financial blame" way out there somewhere. But, let a mention be made of the financial nightmare hatched by some of "their" political underlings in the last few years right here in Carthage on the County level, and they get as quiet as a street walker in a tent revival meeting on a Saturday night. They say that all politics is local. Maybe so, except when the "party in power" has a two to one majority of voters. Then, what we see is all this "national this", "UN that", "State law the other thing". Unfortunately, this crowd is absolutely without restraint on the local financial level when it comes to self serving, pocket lining, future personal planning for all the "people in power" while leaving unfunded worthy "people helping projects" and "schools in need of saving" for future generations. That crowd that created the "national" monster that Mr. Levy is talking about got their money out of it long ago and left that runaway train while the getting was good. Same here, locally. This crowd will have their take from all these boondoggles and be long gone before the poor, unrepresented citizens of this county ever finish paying for their "Vision". When "financial responsibility" should be the watchword on every level top to bottom, this tea sipping, flag waving crowd is just content with rearranging the lounge chairs on the "Titanic" so they can have a better view.

fugitiveguy 1 year, 1 month ago

"President Bush tried to bring this to the forefront, but was fought back by several key democratic leaders."

Jim and the gang are well aware of the facts contained in the video. It clearly refutes their bold faced lies. There are legitimate areas in which to criticize Bush, this ain't one of them. This video usually has a "kryptonite" effect on the libs.

fugitiveguy 1 year, 1 month ago

I am not sure if Frank and those other assorted Dems in the video are corrupt or stupid or some combination of the two. But you will never hear Jim H or frankly any of the other Pilot libs criticize one of their own. Its just one big spin-o-rama.

fugitiveguy 1 year, 1 month ago

Why will no MC libs address the failures of the Democrats in this video?

Phoenix 1 year, 1 month ago

Why don't we try something new? I would submit that we are all to blame - everyone I know sat back and watched their properties rise in value - no matter if it made sense or not. For example, I had a friend that owned a townhouse in D.C., when he moved (military) he decided not to sell because even though he was losing $2500 per month in rent vs. mortgage, his town house was appreciating over $4500 per month. He decided to keep the town house vs selling - I would submit that his greed cost him in the end.

We all know someone who decided to take the chance - it is ultimately our fault! It's time for us all to take responsibility for our actions - bite the bullet, pay off our debt and get on with it....

deidretg 1 year, 1 month ago

@fugitiveguy; (Quote) ".........Why will no MC libs address the failures of the Democrats in this video? ......." Same reason 99% of "Republicans" in this county will give a pass to their own crowd as they spend us into overwhelming debt because it suits their "Vision" for our future.

@Phoenix; (Quote) "..... It's time for us all to take responsibility for our actions - bite the bullet, pay off our debt and get on with it....". Well said, Phoenix! Too bad that kind of thinking can't get "anybody" elected in this County. Oh, I quess I should qualify that statement, somewhat. One candidate (Mr. Picerno) does campaign that way, but then he ends up being personally responsible for generating more "county debt" than anybody in recent memory. Basically, this is a playground for the "Want to Be" rich set who have control of the purse strings here in Moore County or, at the very least, have charge over those who control the purse strings in this County and know how to pick up the phone in sticky situations and cut loose $55,200,000 when the "Vision for My People" calls for that kind of "bold" action " in order to make sure the money makes it into the till. Snatch and Grab is more like it.

MikeNC 1 year, 1 month ago

deidretg 6 hours, 32 minutes ago ....Same reason 99% of "Republicans" in this county will give a pass to their own crowd as they spend us into overwhelming debt because it suits their "Vision" for our future.

President Bush did spend too much. The spending was also prior to our so called economic "Melt Down". During the post melt down one would think we would get fiscally responsible...but just the opposite. Obama and crew have allready out spent Bush's 8 years in his three. I would hope that the next president takes this spending issue seriously....Mike

http://www.theblaze.com/blog/2011/08/25/obama-to-outspend-8-years-of-bush-by-march/

deidretg 1 year, 1 month ago

@MikeNC; "......Bush did spend too much.....". Look, dude, repeat after me "All politics is local". Until you guys are willing to address the "out of control" spending that is happening locally in Moore County (Republicans grab $55,200,000 by force without a vote), then all this blathering about the "out of control" spending going on at the national level is just wasted energy. This is also the major flaw in the "tea time" crowd. They are all about driving 350 miles to Washington, DC to protest what is going on up there but can't be bothered to drive 14 miles to Carthage to protest what is going on there. I suspect that their "tea socials" would not be so pleasant if someone (anyone) among that group were to open up that can of worms. So, sail on brother. The weather is fine. That monstrous object looming off in the distance is no problem. It's just our "Titanic" sized county "jail" that just happens to be outfitted for "federal" prisoners"($95,000 per cell). We didn't need a "Governmental Building" or a "New Courthouse" or that old school (#1 Academy Heights) anyway. Sail on, indeed. The ironi part of all of this is that the monster may actually be settling (i.e sinking) into the partial wetland that it is being built on.

JimHeim 1 year, 1 month ago

MikeNC, that's a bold-faced lie. Obama has come nowhere near Bush's record in adding to the national debt. That's just another zombie lie that Republicans think they can pass off as fact.

Anyone who takes Glen Beck's word on anything is certifiable.

JimHeim 1 year, 1 month ago

For those who would like us to attack Democrats for these financial shenanigans, I offer this: Both parties are beholden to Wall Street and its corruption. But I believe that only Democrats offer the hope of someday breaking free of their pervasive and malevolent influence. They managed it in the 30's and stabilized our economy for fifty years.

It was Republican legislation (some signed by Democratic presidents) that killed off the regulations that kept us safe. It will be a long, slow fight to wrest control of the economy form the casino operators and grifters who have hijacked it. I expect no help from Republicans.

JimHeim 1 year, 1 month ago

Fox's timeline needs work. Republican's controlled congress from 1994 to 2006. Bush was president from 2001 to 2009. Why did they do nothing in all that time to correct the problems caused by those nefarious Democrats? Are they that inept?

moonchild7 1 year, 1 month ago

This "Liberal" does not look at "Party Lines" what-so-ever when it comes to GREED. And the GUILTY encompass all Politcal Parties. The GUILTY are everywhere, so at this point we shouldn't be looking at the guilty criminals, other than to JAIL them, but we need to look at who the ones are who are finally going to do something about it. If they are Republicans (although I doubt it, but not sure) then they should be commended. Matt Taibbi has been covering this story for Rolling Stone since 2008 and has just written this, in his 3/29/12, "TOO CROOKED TO FAIL" article: 'Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners, and tax payers....In the end, it all comes back to mortgages. Though Bank of America would ultimately be charged with committing a dizzingly diverse variety of corporate misdeeds, the bulk of the trouble the bank is in today arises from the Great Mortgage Scam of the mid-2000's, which caused the biggest finacial bubble in history." So, Mr. Levy while the Insurance Companies did have their "sticky hands" in the batter also, the banks with lots of de-regulation laws are the MAJOR culprits. That's why I have my money in a Credit Union.

JimHeim 1 year, 1 month ago

harleyman, I knew you wouldn't disappoint me!

I had to laugh at that video because it's a case study in misdirection. Fannie and Freddie had little to do with the housing bubble. It was strip-mall mortgage lenders (along with crooked companies like Countrywide) who made fraudulent loans and then worked with Wall Street con men to package those piles of ... um ... trash to investors and pension funds. At the time Fannie and Freddie were prohibited from buying sub-prime loans.

The fact is both parties benefited from the housing bubble; it concealed the fact that wages were dropping and delayed the recession brought on by Clinton's budget surplus into Bush's first term, making his policies look somewhat better than they were.

Wall Street has infiltrated our treasury department and the Fed to such an extent that presidents can come and go, but the corrupt operators pulling the levers have free reign. And anyone who doubts that the SEC is thoroughly corrupt (to the point that it cannot be saved) is living in a fantasy world.

But at the end of the day, I see a glimmer of hope that Democrats might one day turn this around, while Republicans remain hopelessly lost in a quest to eliminate family planning.

MikeNC 1 year, 1 month ago

I see your Back to name calling as a resort Jim Heim. How about we use some figures from NPR....Here's a short excerpt from the article provided below...Mike

To put that into perspective, when President George W. Bush took office, our national debt was $5.768 trillion. By the time Bush left office, it had nearly doubled, to $10.626 trillion. So Bush's record on deficit spending was not good at all: During his presidency, the national debt rose by an average of $607 billion a year. How does that compare to Obama? During Obama's presidency to date, the national debt has risen by an average of $1.723 trillion a year — or by a jaw-dropping $1.116 trillion more, per year, than it rose even under Bush

http://www.npr.org/2011/01/25/133211508/the-weekly-standard-obama-vs-bush-on-debt

And here's our current national debt clock in motion....you do the math Jim.

http://www.usdebtclock.org/

dustyrhoades 1 year, 1 month ago

MikeNC, that's a bold-faced lie

Are you surprised? Remember, Mike & Diane (or as I call them, "Miane") have been caught lying here multiple times. Anything either of them posts should by default be regarded as untrue until independently verified. Click on the username and read the examples I've posted on Miane's wall to see this.

The only thing more predictable than Miane lying is the whining about 'name calling' they do whenever anyone catches them at it.

dustyrhoades 1 year, 1 month ago

Still waiting for the answer to this question:

Can you provide any legal authority for jailing Commissioners of Insurance or heads of other regulatory bodies for failing to regulate? Can you provide a citation from Chapter 58 that brings these particular instruments under the jurisdiction of the Department of Insurance?

Seems to me, if Mr. Levy can't provide these, then his call for the jailing of Mr. Long and Mr. Goodwin is completely irresponsible.

dustyrhoades 1 year, 1 month ago

President Bush did spend too much.

Did you vote for him anyway? Did you vote for Dubbya again after he signed the budget busting Medicare Part D into law without providing for a way to pay for it? If so, then how can you claim that it's really spending you care about, if you stayed silent for eight years of what you yourself call "spending too much"?

This has been another in a long line of questions that you'll never, ever get a Republican to answer.

Toda 1 year, 1 month ago

From George's own mouth, the start of default swaps and toxic paper that wasn't insured by Full Faith and Credit of the US Government.

Home Ownership and President Bush by PicturePusher

JimHeim 1 year, 1 month ago

Conservatives like to pin Bush's last budget on Obama to make him look bad. Only works with them.

As the the deficit in general, Obama inherited Bush's tax cuts, his pointless wars and the deregulation that cratered the economy. It won't be easy to fix, but those of us who like this country hope he succeeds. Republicans have a different agenda.

The column this thread is attached to contains numerous fatal errors and should never have been printed. Can any republican supporters here find any law that would allow our insurance commissioner to regulate credit default swaps? Why would we want to put him in jail, except that he's a Democrat?

Toda 1 year, 1 month ago

After his speech, the markets went haywire and all the corporate crooks jumped into the fray:

Subprime mortgage crisis correlation with Bush administration? by AntonNL

Toda 1 year, 1 month ago

Who was really behind the economic crisis? From his own mouth...or perhaps Mr. Levy will claim the state of the nation was Photoshop. http://www.youtube.com/watch?v=YsDmPE...

Toda 1 year, 1 month ago

http://www.youtube.com/watch?v=YsDmPE...

Toyboy52 1 year, 1 month ago

@ Dusty: There is as much authority to jail an insurance commissioner a's there is to jail a President who commits perjury or a President who ignores the Constitution by appointing federal officers who require Senate approval without such approval and while Congress is I'n session. The Democrat Council of State acts like any Democrat DA from Durham, If given the choice of a jail cell or public office, the public chooses jail.

Toyboy52 1 year, 1 month ago

@Dusty. After a great amount of research. I could not find authority to jail an insurance commissioner, but I have found authority to jail a liberal columnist, It will have to wait for the completion of the revolution, but it will occur. I have spoken with Newt. He promises that when he is President the Justice Department will investigate and prosecute felonious boredom. It is a Capial Offense especially when it pertains to government. Defenses do include proof of a lack of or defect In the HB23 gene which involves defective humor.

Nonetheless, be aware that the use of medical marijuana is a possible cure, but that is still illegal I'n NC. Hence, I suggest use of peyote on a reservation of the Navajo Nation in Window Rock, Arizona

dustyrhoades 1 year, 1 month ago

Which is to say, none. Thanks. Your non-response really shows the emptiness of this whole line of argument.

Toyboy52 1 year, 1 month ago

@dusty: I would have responded sooner but the tears from the emptiness I feel inside rusted my I Phone. Such is the metaphor of my life as a lonely conservative seeking justice in a Democrat world.

Where Much of the Real Financial Blame Might Lie

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