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Sunday Afternoon News Roundup

  • It seems that everybody on the planet is following the Casey Anthony trial. I actually had to do a Google search in order to figure out who Casey Anthony was. I think it’s far more interesting to follow the Dominique Strauss-Kahn case. Dominique Strauss-Kahn was the former head of the IMF. He’s been accused of the rape of a hotel maid. I thought the case was locked tight when his DNA was found on the maid’s clothing. But no! The prosecution’s case has begun to crumble. The maid was taped during a call with her boyfriend saying, “Don’t worry, this guy has a lot of money. I know what I’m doing.” That doesn’t sound so good for the prosecution. She lied about being gang raped in Guinea. She told prosecutors that she had a single source of income, her maid job, but she has four different bank accounts with over $1000 each in four different states. All of a sudden the former IMF chairman seems to be looking less and less guilty.
  • Another week goes by and another Republican announces that he/she is running for president. This time it is Thaddeus McCotter, a congressman from Michigan.
  • A huge protest at the Georgia state capitol over their extremely restrictive immigration law. We need to get a handle on immigration. This is not something that the states need to undertake or should undertake, in my opinion. Instead, Congress needs to fix this.
  • According to a new poll, only 58% of Americans knew the answer to this question: “In which year did the United States declare its independence?” Seriously? Republicans are cutting education budgets throughout the country. When you see results like this, it is obvious that we need to increase education funding, not cut it. In case you’re wondering, the answer is 1776.
  • If you’re looking for a good reason why the American middle class struggling, just look at this article on a BMW plant which is closing. This is exactly what happened throughout the Midwest. Once good manufacturing jobs leave, members of the middle class, as a rule, are forced to take lower paying service sector jobs. I think I would feel differently if companies who are outsourcing jobs were losing market share or losing money, but neither is the case. Instead, companies want to make more money than they’re already making. I would feel better if this outsourcing and increased corporate profits would lead to increased salaries for workers, but it doesn’t. The only ones who win from this outsourcing are the corporate executives. When America begins to care about the middle class again, stuff like this will not happen.
  • A Pennsylvania congressman confronts his constituents over cuts to the middle class and protecting big business and the rich.
  • Michele Bachmann ended her gaffe-prone week by stating, “a dollar in 2011 should be the same as a dollar in 1911.” I’m not sure what Michele Bachmann meant by the statement. I think that she was implying that the Obama administration’s trying to stimulate the economy and injecting money into the system has caused the devaluation of our dollar. I guess she was suggesting that we should’ve done nothing and sat by as millions more Americans would’ve lost their jobs, pushing unemployment rates up to the 15-20% range. Is that what she is suggesting?
  • Leave it to Chuck Schumer, Senator from New York, to say what everyone else is thinking. The GOP is sabotaging the economy for their own political gain. I don’t know if this is true or not. I do know that a stimulus of some sort will help the economy and help drive down the unemployment rate. The GOP is resisting this with all of its might.

By |2011-07-03T12:49:01-04:00July 3rd, 2011|Domestic Issues, Elections, Sports|Comments Off on Sunday Afternoon News Roundup

Did Senator Chuck Schumer cause IndyMac to fail?

You remember what happened, don’t you? Everything started to unravel late in 2007. The first one who was found without a chair when the music stopped was Countrywide. Bank of America was able to buy Countrywide for $4 billion (a stock swap) in early 2008. Just a year earlier Countrywide was worth over $50 billion. Countrywide’s founder and CEO Angelo Mozilo (Time wrote that he was one of the top 25 people to blame for the financial crisis) was once the darling of Wall Street. He ended up being charged by the SEC for taking more than $139 million in profits. It was Countrywide who first introduced us, the American people, to credit default swaps and CDOs. In a wonderful bit of irony, IndyMac was founded in 1985 by David Loeb and Angelo Mozilo as a means to collateralize Countrywide Financial loans that were too big to be sold to Freddie Mac or Fannie Mae. In 1997, IndyMac (Independent National Mortgage Corporation) was spun off as a separate company. I mention all this about Countrywide because we’re going to see this exact same cycle again with IndyMac. IndyMac, Washington Mutual and Countrywide were birds of a feather. Each company pushed subprime mortgages. Each company pushed adjustable-rate mortgages. Each company packaged the mortgages into securities which could be sold to Wall Street.

Case: 80-year-old retiree in Savannah, Georgia, loan in 2005 to build a modular house. The mortgage was approved by IndyMac. They approve the application based on the applicant’s Social Security income, which was written down as $3825 per month. The only problem is the maximum social security benefit is less than half this amount.

In late June of 2008, Senator Chuck Schumer released a letter which was volatile to say the least. Unfortunately, I’ve been unable to find the original letter on the Internet. I have been able to find portions of the letter quoted in several articles. (If someone is able to find the letter please send me the link.) In a statement the senator mentioned that he was “concerned that IndyMac’s financial deterioration poses a significant risk to both taxpayers and borrowers.” He went on to say that IndyMac “could face a failure if prescriptive measures are not taken quickly.”

Let’s back up and look at what the Los Angeles Times wrote in January of 2008. (This was six months before Schumer opened his yap.) This particular article looked at adjustable-rate mortgages. The author noted that adjustable-rate mortgages were usually given to small business owners, self-employed professionals and salespeople with consultative finances and fluctuating earnings. The article notes that adjustable-rate mortgages were given out by Countywide and IndyMac to people who previously would not qualify. Adjustable-rate mortgages usually have a “teaser rate” for around two or three years. So loans written in 2005 and 2006 were now resetting at their higher interest rate in 2008. The article noted delinquency rates in some parts of California of 13-15%. (One particularly egregious variation of adjustable-rate mortgages for something called an option adjustable-rate mortgage. This mortgage gave the homeowner three choices at the end of every month — pay principal plus interest, pay interest only or pay less than interest-only and allow the principle to increase.) So, in January, the Los Angeles Times called out Countrywide, which had just been bought by Bank of America, and IndyMac by name.

IndyMac Stock Price

A report that was published by the Department of Treasury after IndyMac’s implosion shows us the magnitude of the problem. According to this report, by May 2005, officials at IndyMac were aware of problems with their adjustable-rate mortgages. This market completely collapsed in 2007. The bank could no longer sell its mortgage securities because there were no buyers. By May 2008, over 12% of these loans were greater than 90 days in delinquency. Another reason for IndyMac’s failure lies in its lack of deposits. The bank did not have many retail branches. Therefore there were many customers opening up savings accounts and checking accounts. IndyMac had to rely on Federal Home Loan Banks and brokered deposits for funds. Basically, as I understand it, this is simply another way to borrow money. At one point in 2006, IndyMac had over $9 billion in these loans. Finally, every bank is supposed to have a certain amount of cash on hand to balance out possible loan losses. In early 2008, IndyMac hired an outside accounting firm and the firm showed that IndyMac did not have enough cash on hand. As if this wasn’t bad enough, Standard & Poor’s and Moody’s decided in April 2008 to re-rate the number of mortgage-backed securities (before this time they simply rubberstamped many of the securities that were brought to them by J.P. Morgan and Goldman Sachs). This included over $160 million in mortgage-backed securities that Indy Mac was holding, thus lowering IndyMac’s capital ratio (when it rains it pours). Around the same time, IndyMac announced its third consecutive quarterly loss (see graph).

I think it’s been pretty much established that the Office of Thrift Supervision ignored warning signs. Had they acted in a timely manner, the implosion could have been prevented. There is one little side note that I thought was interesting. The Office of Thrift Supervision allowed Indy Mac to accept an $18 million deposit from its holding corp. and backdate that deposit in order to help balance its books. This transaction happened on May 9, 2008. On May 6, 2008 the FDIC told the Office of Thrift Supervision that Indy Mac was “close to failing and needed new money quickly.” (Some at OTS were forced to resign because of IndyMac.)

So, I think that after further investigation it is clear that IndyMac was going to fail with or without Chuck Schumer’s help. Did Senator Chuck Schumer drive the final stake through the heart of a dying Rasputin who already been shot, poisoned and burned? Yes, I think that’s a fairly accurate metaphor. On the other hand, I have clearly shown that IndyMac was dying. Federal regulators were going to have to step in soon. In hindsight, they should’ve stepped in sooner. IndyMac was going to die with a without Chuck Schumer’s help. Their business model simply could not stand the catastrophic failure of the subprime mortgage market.

By |2010-04-20T22:03:47-04:00April 20th, 2010|Business, Economy, Senate|9 Comments

Sotomayor Hearings

David Waldman of the Daily Kos and Congress Matters has the best summary of everything Sotomayor.  Live blogging at a couple of places – Scotusblog and Congress Matters.

From DK:

All Congress-watching eyes are expected to turn today to the Senate Judiciary Committee, as they begin their consideration of the nomination of Judge Sonia Sotomayor to be next Associate Justice of the Supreme Court. And the Committee, aware of the intense interest, will be live streaming video of the hearing, which they’re wisely making available in blog-embeddable format. So that’s exciting in itself. They know where the interest lies.

Thinking of popping some popcorn and watching the proceedings? If it’s Sotomayor you want to hear from, make sure you get lunch first. And maybe a nap. Because although the hearings are expected to be gaveled into session at 10 a.m., the first order of business is opening statements. From the Senators. Nineteen of them. For up to ten minutes apiece. Plus statements of introduction from home state Senators Chuck Schumer and Kirstin Gillibrand.

That’s Washington for you. Three to four hours of opening statements — plus a lunch break — before the person you’re supposed to be talking about even gets to say anything. And then, once she makes her own opening statement, they’ll adjourn for the day. It will take an entire day to “open” things with statements. You want to see someone ask a question? Come back tomorrow.

Meanwhile, some resources:

Interested in embedding the video in your blog? Judiciary Committee Dems have made it easy. Just follow this link, choose your format, and (theoretically) you’re good to go. Video clips, highlights, etc. to be made available throughout the day here.

Plenty of good previews circulating online, too. (And if you find any more good ones, throw us a link in the comments.)

Why not start here, with Adam Serwer of TAP?

And perhaps something from Daniel Schuman of the Sunlight Foundation?

Myths vs. Facts, from Ian Millhiser at the Center for American Progress? (more…)

By |2009-07-13T13:42:27-04:00July 13th, 2009|Legal, Supreme court|Comments Off on Sotomayor Hearings
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