If It Ain't Broke, Don't Fix It

As loyal readers of this column may have noticed by now, I've been pretty supportive of the Trump Administration. However, I do part ways with it when it comes to financial regulation and the dismantling of the Consumer Financial Protection Bureau.

Some of the reforms enacted by the Obama Administration after the global financial crisis, namely the Dodd-Frank Act, may have overdone it a bit in terms of increased bank regulation. And certainly, the CFPB under its former director, Richard Cordray, grossly overreached in how it regulates and punishes lenders, often unfairly. Still, that doesn't mean we need to go back to the days before the financial crisis and plant the seeds for another one in the future.

Senator Elizabeth Warren, despite her recklessly pandering and unworkable ideas like wealth taxes and Medicare for All has been right on reining in the banks. While Dodd-Frank did impose some needed restrictions on what banks do, it clearly hasn't done enough in some areas – like curbing criminal behavior – and the rollbacks enacted by the Trump Administration go in the wrong direction. Besides, the banks have managed to make plenty of money under these restrictions.

Right now, two banks, JP Morgan Chase and Bank of America have well over $2 trillion in assets, while two others, Wells Fargo and Citigroup, are just below that mark. Wells Fargo would have gone over that level except for the fact that it is restrained from growing its assets by an unprecedented Federal Reserve order due to its many scandals over the past several years. Those are pretty dangerous levels if you ask me – certainly Too Big to Fail dangerous.

But one of the worst ideas the Trump Administration is pushing now is returning Fannie Mae and Freddie Mac to the private sector. Essentially, it would re-establish the status quo ante the 2008 financial crisis. Continue reading "If It Ain't Broke, Don't Fix It"

Ladies and Gentlemen: Gridlock Is Good

George Yacik - INO.com Contributor - Fed & Interest Rates

One of the marvels of the continued bull market in stocks this year – and to a much lesser extent in bonds, too – is that it’s taking place in spite of what appears to be a tremendous amount of dysfunction and conflict within the federal government. But it’s perhaps more accurate to say that the bull market continues to motor on because of, rather than in spite of, the gridlock.

Leave it to the Republican Party to create government gridlock single-handedly – without any assistance from the opposition party. Here is a party that controls both houses of Congress and the presidency and yet still manages to screw things up.

Then again, maybe it’s wrong to think of Donald Trump as a Republican president. Rather, perhaps the correct way to think of Trump is as America’s first Third Party President, who just happened to use the machinery of the Republican Party to get elected, but is no more a Republican than Ross Perot was.

Quite clearly there are three active parties, or factions, in Washington, and all of them are aligned against each other – the Republicans, the Democrats, and the White House. Continue reading "Ladies and Gentlemen: Gridlock Is Good"

Coming Soon: Uncle Sam's Credit Cards

George Yacik - INO.com Contributor - Fed & Interest Rates

If you were in the market for a new credit card or needed a loan to buy a car, would you think to go to some federal agency to get one?

Not right now, maybe, but we seem to be headed in that direction—and very quickly, too.

And the idea isn’t all that far-fetched when you come to think of it. The federal government is already heavily involved in consumer lending, either directly or indirectly. It’s the biggest player by far in the two biggest consumer loan businesses. Getting into new areas like credit cards and auto loans isn’t a terribly big leap.

It’s fairly safe to say that the residential mortgage market would barely exist were it not for the government-sponsored enterprises like Fannie Mae and Freddie Mac, plus other government agencies like the FHA, VA, and USDA. While these agencies don’t make loans themselves, they buy them from private lenders, stamping a federal guarantee on them in the process. Before the global financial crisis, there was a thriving market for private mortgages through a private secondary market, but since then that market has largely ceased to exist, except for a smattering of securities backed by jumbo loans, those too large for the federal agencies to buy. That leaves the government with about a 90% or more market share. Prior to the financial crisis, the government still commanded a market share of about 50%. Continue reading "Coming Soon: Uncle Sam's Credit Cards"