NEW YORK – A mortgage fraud crackdown announced Thursday resulted in the arrests of dozens of people, including six lawyers, seven loan officers and three mortgage brokers in four states.

Thirty-one people were arrested in New York, Pennsylvania, Ohio and North Carolina. They were among 41 people charged with engaging in mortgage fraud scams that defrauded lenders out of more than $64 million in home mortgage loans.

Under Obama's plan, the Federal Reserve would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation's financial system. But even as it gained new powers, the Fed would lose some banking authority to the new Consumer Financial Protection Agency.

Obama's proposal would require the Federal Reserve, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury Department approval before extending credit to institutions in "unusual and exigent circumstances."

WASHINGTON (Reuters) – The financial sector will make up a smaller part of the U.S. economy in the future as new regulations clamp down on "massive risk-taking," President Barack Obama said in an interview published on Saturday.

Obama, whose young administration has spearheaded a raft of reforms in the banking sector as part of efforts to tackle the financial crisis, said the industry's role in the United States would look different at the end of the current recession.

This result is consistent with the moral hazard argument that non-risk-rated deposit insurance induces banks toward excessive risk taking and therefore results in more bank failures. The moral hazard hypothesis is also supported by the empirical results of Richard Grossman (1992). [20] The fact that Canada had no bank failures and runs at all during the period under study seems to suggest that regulations are necessary and desirable to stabilize a banking system. This policy recommendation, however, should be made with qualifications. First, in the statistical sense, our empirical results show that free banking is not more prone to bank failures than regulated banking. Moreover, the finding that the American banking system had a higher bank failure rate than the Canadian system, though both were regulated, is consistent with Benston's allegation that the U.S. regulatory authorities were not adequate in preventing bank failures. That the mere existence of regulations does not necessarily stabilize the banking industry is also supported by the Hong Kong experience.

If a free banking system is not more prone to bank failures than other banking systems, it can be an effective alternative to banking reform. Regulatory authorities, threfore, should not assume that more regulations naturally translate into fewer bank failures.

March 19th, 2009, Fairfax, VA—Americans for Limited Government President Bill Wilson today in a letter urged President Barack Obama and members of Congress to "return the $4.37 million they received in campaign contributions from AIG since 1989, including the $644,218 they received in 2008."

"If the American people are to believe all the angry words and threats coming from the White House, President Obama must return the $104,332 he received from AIG during the 2008 campaign cycle," declared Wilson in a statement.

According to OpenSecrets.org, AIG gave some $644,218 to candidates for federal office in 2008. According to Wilson's letter, "[I]n return, it received from the Federal Reserve some $173 billion in taxpayer-guaranteed loans. That represents nearly a 27 million percent return on their 2008 'investment' into politicians' loyalty."

SEATTLE – Washington Mutual's holding company is suing federal regulators for billions of dollars, saying the firesale of the bank's assets to JPMorgan Chase violated its rights.

The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.

Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.

• Money Mischief
  
• Capitalism and Freedom
  
• Free to Choose
  
• The Road to Serfdom
  

The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.

When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.

Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.

First, it will be hard to justify that Democratic "members supported virtually any program that provided credit to low-income purchasers and inner cities, regardless of whether this lending was prudent," when in fact we have been trying to pass a national anti-predatory lending legislation for years. But we were thwarted by a deregulation-loving Republican Congress that wanted to allow the "free" market to work its magic.

Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday…

The former executive, Edward J. Pinto, who was chief credit officer at Fannie Mae, [said] that the mortgage giants now guarantee or hold 10.5 million nonprime loans worth $1.6 trillion — one in three of all subprime loans, and nearly two in three of all so-called Alt-A loans, often called “liar loans.”…

Such loans now make up 34 percent of the total single-family mortgage portfolios at Fannie Mae and Freddie Mac, a level that will link them to eight million foreclosures, or one in six, in coming years.

Andrukonis and others expressed concern about another type of mortgage Freddie was buying, where neither income nor assets were stated on the loan application. Andrukonis said these were popular with Hispanic borrowers, but the delinquency rates of 8 to 13 percent were much higher than on conventional loans. People familiar with the matter said Freddie was being pushed by advocacy groups to come up with new loan products to offer to low-income and minority borrowers.

Despite these concerns, Fannie continued to push into this new market. A business presentation in 2005 expressed concern that unless it didn't, Fannie could be relegated to a "niche" player in the industry. Mudd later reported in a presentation that Fannie moved into this market "to maintain relevance" with big customers who wanted to do more business with Fannie, including Countrywide, Lehman Brothers, IndyMac and Washington Mutual.

The documents suggest than Fannie and Freddie knew they were playing a role in shaping the market for some types of risky mortgages. An e-mail to Mudd in September 2007 from a top deputy reported that banks were modeling their subprime mortgages to what Fannie was buying.

WASHINGTON – When the Washington Nationals played their first-ever baseball game in the nation's capital in April 2005, two congressmen who oversaw mortgage giant Freddie Mac had choice seats — courtesy of the very company they were supposed to be keeping an eye on.

Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back. The baseball tickets for home opener were means of influence.

According to confidential company documents obtained by The Associated Press, Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., spent the evening in hard-to-obtain seats near the Nationals dugout with Freddie Mac executive Hollis McLoughlin and four of Freddie Mac's in-house lobbyists.

The reality is that the housing market collapsed in large part because a coalition of race-baiting bullies brought very heavy pressure to bear on the banks to make more subprime loans on properties in low-income communities. Those who didn't approve the risky subprime loans were accused of "redlining"--i.e., refusing to make loans on properties in those neighborhoods.

Who were these bullies?

STOCKHOLM, Sweden - Germany joined Ireland and Greece on Sunday in guaranteeing all private bank accounts, putting Europe's biggest economy at odds with calls for a unified European response to the global financial meltdown.

The decision came as governments across Europe scrambled to save failing banks, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and a coordinated response.