Pointing Fingers
Six people are to blame for the financial crisis, according to former Federal Deposit Insurance Corp. Chairman L. William Seidman.Speaking on a panel last week at the International Association of Deposit Insurers conference, the CNBC commentator was initially willing to name only one: former Securities and Exchange Commission Chairman William H. Donaldson, who bowed to industry pressure in 2004 to ease capital restrictions on investment banks, which in turn allowed them to increase their leverage ratios, Mr. Seidman said.
"The commission bought it, and the old standards went out, and the new standards came in," Mr. Seidman said. "Within four years, the leverage ratio in investment banking went from 12% to 30%. A large part of that leverage was used to buy the kind of assets that we all know are at the bottom of the bad lending that took place."
At first he said he would not "name any more people, because it would take me longer and get me in even more trouble," but his audience clearly was not satisfied.
The panel moderator, eyeing a question on a note card from an audience member, turned to Mr. Seidman and asked: "Please name the other five persons responsible."
So Mr. Seidman offered one more: Dan Mudd, Fannie Mae's recently ousted chief executive, who Mr. Seidman said overruled his own advisers in 2004, and decided Fannie would start securitizing subprime loans.
"Without that, I doubt the subprime boom would have gotten off the ground," Mr. Seidman said.
Later, as Mr. Seidman was answering another question, he let a third name slip: former Federal Reserve Board Chairman Alan Greenspan, for "the errors that he actually now admits to."
As Mr. Seidman sees it, those errors included leaving interest rates low for too long and not exercising the Fed's power to crack down on high-cost mortgage lending.
As for the remaining three, we had to call Mr. Seidman.
Former Treasury Secretary Bob Rubin made the list for failing to regulate over-the-counter derivatives and Frank Raiter, head of residential mortgage-backed securities ratings at Standard and Poor's, for agreeing to rate assets the firm had no way of valuing accurately.
And the sixth culprit? Why, Mr. Seidman himself.
Securitization took off during his time as the chairman of the Resolution Trust Corp. in the early 1990s.
Changing Coasts
Beth Climo, the longtime head of the ABA Securities Association, an affiliate of the American Bankers Association, is retiring at yearend and moving to Santa Barbara, Calif., in early 2009.Ms. Climo spent 12 years at the ABA and was the executive director of the ABASA and director of its insurance affiliate. But she has been moving levers in Washington since the 1970s. She began at the ABA and later moved to the Senate Banking Committee and then to private law practice. She may be best known for her time as the head of legislative affairs at the FDIC when Mr. Seidman was chairman and the banking industry was last in turmoil.
Sally Miller, the ABASA's general counsel, will succeed Ms. Climo while continuing her duties as senior vice president for the ABA's Center for Securities, Trust and Investments.
Pressing His Case
Sen. Charles Schumer is keeping the heat on the Internal Revenue Service and the Treasury Department for slipping through a change in the tax code that helped Wells Fargo & Co. reach its deal to buy Wachovia Corp. The tax change lets financial institutions write off built-in losses stemming from takeovers of other banks to offset future income.In a letter Thursday to the heads of the IRS and Treasury, the New York Democrat demanded to know why the change was made, saying it could unfairly hurt taxpayers and spur consolidation.
"I am concerned that the notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars," he wrote. "I also fear that the notice could have the unintended consequence … of leading to more consolidation in the financial industry than would be necessary to restore stability in the financial sector."
Pink Slips at SIFMA
The financial crisis is catching up with industy trade groups.The Securities Industry and Financial Markets Association cut 40 from its work force of roughly 220 last week, including five lobbyists. The cuts affected both the New York and D.C. offices and beyond lobbyists included lawyers, Web designers, and administrative staff.
SIFMA was created in 2006 by the merger of the Securities Industry Association and the Bond Marketing Association, and mergers and failures have reportedly slashed the combined group's budget. Some sources put the cut at 20%, but SIFMA would not provide any details. Instead it released a statement Wednesday saying: "Our member firms are facing challenges, and those challenges are reflected across the industry. Tough economic times require hard choices and today, SIFMA was required to restructure. We are sorry to see the departure of so many of our hardworking and dedicated employees under these unfortunate circumstances."
Staff who were let go weren't given much notice. Tim Ryan, the trade's chief executive officer, sent an e-mail on Friday, Oct. 24, telling staff to be in the office Wednesday for a meeting about a "reduction in force." Pink slips were given out that day, and staff had until Friday to pack up.
Who's Next?
Ever since Senate Banking Committee Chairman Chris Dodd dropped out of the presidential race in January there has been running speculation about whether he intends to continue chairing the committee in the next Congress. He could take over Foreign Affairs if its current leader, Sen. Joe Biden, D-Del., is elected vice president tomorrow; or the Education Committee should Sen. Edward Kennedy, D-Mass., who is sick with cancer, step down.Sen. Tim Johnson would be next in line, but because the South Dakota Democrat suffered stroke-like symptoms due to a rare, inherited brain condition almost two years ago, some have questioned whether he is up to the chairman's task.
After months of playing nice, avoiding any comments that could fuel speculation that Sen. Dodd, D-Conn., plans to hand off the gavel, Sen. Johnson's campaign issued a not-so-subtle statement Friday: "Johnson in Line for Banking Committee Chairmanship."
With Sen. Johnson up for re-election this year, observers have said it is crucial that voters have confidence he would not be skipped over. The press release included a quote from Jim Manley, a spokesman for Senate Majority Leader Harry Reid, saying, "If Sen. Dodd were to leave, Sen. Johnson would be chairman of the committee."
