Good progressives like MoveOn, New Bottom Line, the Alliance of Californians for Community Empowerment, AFR, Elizabeth Warren, and Richard Trumka, head of the AFL-CIO have all fallen in line with Obama’s nomination of Mel Watt, Representative from
Bank of America North Carolina.
It might help if they looked harder at Watt. If they were honest about it, there’s not much to like.
As we wrote earlier, Watt is a protypical bank-friendly Democrat.
More proof came last week when Watt voted in favor of two measures to water down the already-underwhelming Dodd Frank. These were two of the worst of a pack of bills designed to gut Dodd Frank’s derivatives regulations. Bear in mind that these votes put Watt at odds with the Administration. Treasury Secretary Jack Lew wrote to the House Financial Services Committee urging it to reject the bills.
Occupy the SEC provided a detailed and persuasive analysis of what was wrong with these measures.
Watt voted in favor of the worst of all of the measures, HR 992, which was the reversal of what was described as the “push out” provisions of Dodd Franks. Those rules prohibited federal assistance to “swap entities” which in practice mean the could not take place in FDIC insured banks. The original push out rule included:
Commodity and agricultural swaps
Metal swaps (excluding gold and silver)
Non-cleared, non-investment-grade CDS and CDS on asset- backed securities (ABS)
HR 992, which Watt voted for, excluded everything on the list above from the push-out rule except for the last item, Non-cleared, non-investment-grade CDS and CDS on asset- backed securities.
Watt also cast a vote for HR 677, which would exempt inter-affiliate swaps, which are derivative exposures between units under the same parent company, from Dodd Frank rules. Those Dodd Frank prohibitions were important because they allow various units to operate and potentially be wound down separately. In other words, they reduce the potential of a blow-up in one unit to pull down other entities in the same financial firm. Mind you, the CFTC had already weakened these provisions by exempting many of the swaps itemized in Dodd Frank from this rule,
Watt did oppose HR 1256, which was amusingly named the Swaps Jurisdiction Certainty Act. The “certainty” was to permit US banks to move risky operations into foreign operations to avoid US supervision. So to give the devil his due, Watt was only largely, not entirely, on the wrong side of these measures.
The case for Watt is untenable. The Administration keeps harping on DeMarco at the FHFA as a bad guy over his failure to båck giving stressed homeowners principal mods. DeMarco has interpreted his conservatorship mandate narrowly in terms of prioritizing saving taxpayer monies and has also argued that the interest mods that the FFHA does permit lower the borrower’s payment obligations by as much as 20%.
But the Big Lie here is that DeMarco was an obstacle. In fact, Obama could have offered principal mods if he wanted to. He didn’t. As we wrote:
If the Administration wanted serious principal reductions, they could have used the hundreds of billions of dollars available to them under TARP to do so. That was under its power and required no Congressional action. Instead of owning up to disasters like HAMP and FHA-Short Refi, they whine about DeMarco, Republicans in Congress, reckless homeowners, and once in a while, for show, they’ll say a few bad words about the banks that they continue to coddle. Just look at the conflicting messages: the banks are in such bad shape that they can’t be asked to write off second liens in full in the Administration’s mortgage settlement, yet they are deemed to be healthy by the Fed and are allowed to pay dividends rather than rebuild their balance sheet.
Similarly, Obama could have nominated a new regulator for the GSEs when the Democrats had a majority in the both chambers. But saving the middle class has never been on the Administration’s list of priorities.
Most important, Obama finally has nominated someone who says he’ll push for principal mods way too late. As reader MBS Guy said via e-mail:
It’s been almost 5 years since the GSE’s were put into receivership. Virtually nothing has been done to reform them or the housing market. They are paying the Treasury big fat dividends, and everyone in DC has dollar signs in their eyes when they talk about Fannie and Freddie now.
It seems almost quaint that the issue of principal write downs could be a factor in the discussion of FHFA policies: housing prices are appreciating rapidly and potential home buyers (investors and would be occupants) are loudly complaining about a lack of available supply. The moment for write downs has passed, as was clearly the intention all along, and changing the head of the FHFA has nothing to do with such policies.
So what is the reason for Watt now? It’s almost certain that the real reason is for him to settle the 17 FHFA lawsuits that could cost banks as much as $200 billion quietly and on the cheap. And since the company who has the most to lose, Bank of America, is far and away the most powerful player in Watt’s neighborhood, you can be sure he’d take this mission.
Now the interesting question is whether any of the Good Progressives who endorsed Watt will recant based on these votes. I rather doubt it, since tribal loyalty and/or not admitting error are more important than doing the right thing. But with this proof of Watt’s fealty to banks, no one can say they didn’t know what he really stands for.