Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 1.

Savings, Leverage, Equity. Folly’s Eternal Recurrence.

Bozo: “Listen Barney, let’s start at the beginning. Borrowers and lenders define themselves first by their savings account. Requiring the right ratio of savings to lending and borrowing — the ratio of leverage — is the key to managing banking, insurance, derivatives, hedge funds — the entire world of finance.

“The right leverage tops the commandments for the regulation of lending. It may represent as much as 90% of the job of regulating banks. Our next credit bubble will begin when the limits are widely circumvented. What we are experiencing today is insane and perfectly normal. It happens every 30 or 50 or 100 years.

“Financial bubbles are as common as earthquakes. You don’t really believe they happen, but they do. Enough about me Barney. What is the best wise gay thinking on leverage and bank regulation?”

Barney: “You know what Bozo, that red-hair dye is hitting your brain, and the results are not good for your thinking. The truth is we can never allow this insanity to happen again, and new regulation regulation regulation must pave the way.

“Do you want me to spell it out for you? This is a Republican crisis. It is even criminal in many respects. They will and they must be stopped so this can never ever happen again.

“By the way, do you think there has ever been such a thing as a wise clown? Good luck on that one. Talk it over with your friends in the big-red-hair club.”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 2.

Income. Real & Imagined.

Bozo: “Call me a clown Barney, but, in my opinion, a borrower has income which makes repayment likely. The amount of income and the amount of the loan walk hand-in-hand together. Think of it like you and Liberace at the beach.”

Barney: “Wow Mr. Clown, you have discovered your inner Bozo. It’s red-hair-dye in-Bozo’s-brain all over again. Better yet, loosen up those shoes because you are thinking with your dogs.

“I am confident non-traditional sources of income should always be considered — even when they cannot be verified by pieces of paper. The only thing that paper is is paper.

“Do you really want the world to live and die for paper? Are you telling me there is no such thing as a cash economy? My mandate and mission is to end the racist underwriting practices, and a little “stated” income goes a long way.”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 3.

Asset-based lending. Appraisals. Liquidation.

Bozo: “It’s weird Barney, but true. A borrower who does not have income may, in some circumstances, reasonably borrow based upon the value of an asset. It’s especially true for the self-employed.

“If you don’t get my drift on that, study the C.P.A. handbook at Geithner & Daschle. Then ask the practitioners there to explain the propensity of self-employed persons to pay income taxes.

“If we are going to take part in asset-based lending, the value of the asset must be appraised  — by the lender; not the borrower or the borrower’s broker. A conservative banker will use a low-ball appraiser. And he will lend less than the liquidation value of the asset. And he will charge a higher rate for lending on an asset without income to back up repayment.

“Hold off on the “stated” income thing Barney. Just keep that income line blank on the loan application.

“Cookie will tell you about the dangers of encouraging misrepresentation. Once the fraud begins, you will find it is easy for people to adapt the practice to new uses. Check the bible on this.”

Barney: “Remember this clown face: Our mortgage market is the 7th wonder of the world. Look at all the beautiful things we have done. Globally, everybody knows I am the driving force and leading provider of affordable housing.

“Just look at the supply we have today. It’s unbelievable. That’s me and what I did. Am I right? Look at the vacancies. Look at the fire-sale prices. Look at the subsidized interest rates. Everything is working out perfectly.

“Nobody can say I’m not a major collateral generator. And remember, all this new collateral coming on to the market, that’s new opportunity for the banks. We have a great new opportunity for credit expansion to get the banks healthy again.”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 4.

Bozo: “It’s true Barney that the safest loan is to a borrower who has income to repay the loan, and, should the income disappear, an asset to repay the loan. Remain vigilant. This is a false statement when liberal leverage has created an Alice in Wonderland world.

“When Alice rules, the conservative loan becomes the worst loan because the income and asset value are lies. Bankers throw money all around. A lot of it will be lost. Wake up and look around you Barney. You live in this place.

“It is neither Republican nor Democrat. It is human. Or go ask Alice if that helps. She is one trippy babe and does not follow guidelines — unless she is under the influence of Lysergic Acid Diethylamide. She’s a very colorful girl.”

Barney: “Here’s what I know Bozo. Fannie and Freddie are doing a great job. There are so many things I love about them. And none of this can be denied.

“I support their affordable-housing mission, their towering subprime mortgage portfolio, their derivatives holdings of unknown risk and dimension (so mysterious and sexy), their unique accounting principles, their world-record-breaking leverage, far greater than infinity ever was, their unrivaled political contributions, their job factory for my friends, my family, and my party.

“It’s so crazy over there I think I could even get a total clown like you a job. Just check that box on the race question as “other”. It’s very good for admissions into the club. Most of all Bozo, what I love is the beautiful power of a $5 trillion mortgage machine which will buy anything I say it will.

“What a marvelous massive money empire I have built. Did you know that this has never been seen before in the history of the world? And look at this: Fannie and Freddie are not bankrupt and never will be. I can say, without equivocation, that their capital enhancements will never exceed $1 to $2 trillion dollars. Or at most $3 trillion if the waters get a little choppy.

“We all agree that capital and leverage are necessary components of lending. We all agree that capital should be increased. Am I right Bozo? Let me be the first to say we do not need a repeat of excess lending.”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 5.

Law & Punishment

Bozo: “Enforcing the law enforces the law. Enforce the law you Kumquat.”

Barney: “To be honest, I have never eaten a Kumquat, or even experimented with one during sex.

“I tell you what I did do. I called up Chris Dodd the other day. I am just dying to be a friend of Angelo, and I had to get his phone number. Mixing politics and business is so exciting Bozo. And wowee, isn’t Angelo a sexy beast?

“I wonder if he will charge me points on my mortgage? If he does, I have a very fun proposal for Mr. CEO, my pretty Angelo: “I know just the thing Angelo to make those closing costs go away.” Tell me the truth Bozo: Am I sexy?”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 6.

Transparency. Simplicity. Busy Bodies.

Bozo: “Transparency simplifies understanding. Simplicity encourages compliance. Frauds and enterprise destruction depend upon confusion and rule-making and irrational checks and balances.

“Mark my words Barney. Transparency and simplicity are the golden rules of wise regulation. We need to radically simplify regulation to aid compliance and enforcement.

“The wildest and craziest lie, now accepted and promoted as gospel by the clowns on your side, is that we lack regulation. We have a thousand times more regulation now than is needed.

“What we lack is regulation which is simple and intelligent and tough and strictly enforced. Once again Barney, the world wants to know the wise gay position on this? I’m not referring to backwards or upside down.”

Barney: “I can’t think about that now. I just got a call Bozo, and the caller said I was demented. Why do they keep on saying that about me? Do I look demented to you?

“I think you know I am chairman of the House Financial Services Committee. I understand economics. I understand business. I even support accounting at the government-sponsored enterprises. That’s transparency.

“Look at the progress we are making Bozo. Look at the foreclosures. Look at all the houses we have for sale. Housing is affordable again. Everyone knows that.

“The GSE’s will soon own more homes than anybody ever has ever in the history of the world. And because of my determined oversight, I know each and every one of those homes will be carried on the books. Everything’s up front and out in the open. Capisce?”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 7.

Monopoly. Anti-Trust. Printing All The News That’s Fit to Barney.

Bozo: “You know Barney, economic theory looks down on monopolies. This is one theory which we should not ignore.

“I say limit any financial company to a 15% market share in any business line. For now what we need is to slice and dice the money-center banks. Divide. Sell. Cut them up. Break them down until their failure is irrelevant.

“And Fannie and Freddie? I’m sorry to say this Boy Wonder, but they should get crushed into a million little pieces. We have to burn the pieces too.

“You can reasonably grant monopolies in limited areas — as in granting the federal government the capacity to conduct war and field a standing army. Is a mortgage lender the same as a standing army?

“Let me give you Lending 101, Mr. Chairman. A mortgage loan is the easiest loan to make in the world. What is so scary, what should frighten you more than anything, is that mortgage lenders never needed any monopolistic powers. Did you know that? Does it matter to you? Why is it this central issue will score no air time? The public option for medical coverage is a repeat of Fannie & Freddie in the mortgage world, but how many voters know?

“Why have I never heard or seen one news report on monopolies, GSE’s, and mortgage loans? Where’s the conspirator hiding this news? Do you argue that a $5 trillion mega-force Hoover suction device in a $12 trillion market had no influence? Are you Kookoo for Cocoa Puffs?

“Better wake yourself from that Stalinist dream fat boy. Take off the Mao jacket. Break up your little GSE’s Barney and go home. You can play dress up there if you want too.”

Barney: “Interesting points Red. I agree. The MSM boys are so whorish that it makes me scream with joy. God is great.

“I don’t even have to explain anything to them. I’m so very glad all of us are close friends after work too. Look at the way they handle Fannie and Freddie.

“This is what we say back in my office on the Hill. ‘Whatever the big monsters lose, they can’t make the news, because it’s just a big goddamn GSE snooze.’

“And my cute little MSM’s are falling all over each other to get something dirty on AIG!!!! Derivatives: Bad. Bad. Bad. GSE’s: Good. Isn’t it fun?

“The way I see it, I am the author of every newspaper in the world. Even Mom never said I could do that. Can I tell you what’s next?

“I’m going to bring them back in on Greenspan again. They didn’t hit him hard enough the first time out, and I’m going to lead them back in to the Coliseum.

“That super freak midget wanted to cut off Fannie and Freddie. I will not stop until that phony is in jail.”

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 8.

Accounting – Gay & Straight

Bozo: “Assets are carried on a balance sheet. Liabilities are carried on a balance sheet. That’s the whole game Barney. Just prohibit assets and liabilities carried off of a balance sheet.

“You gotta play this one straight your highness. Sorry. Some times it just doesn’t work out the way you hope it will.”

Barney:

Who Regulates Banks Best?

Bozo the Clown or Barney Frank. Day 9.

Loss Recognition. Marking to Market. Going Both Ways.

Bozo: “When should losses be recognized on long-term assets? Good question Barney. I say marking to market prior to a sale event or a write off is ridiculous. Yet it’s best too if market prices are always disclosed.

“If you disclose both numbers, then the investor makes their own judgment. There is a difference between 3 months (a quarter) and 10 years. Marking-to-market makes them the same. They aren’t the same.

“Mark-to-market gives a 10-year asset 40 reporting periods and 10 tax events. It should only have one tax event.

“Mark-to-market is as dumb as an ox; as is failing to disclose the market value of all assets in every reporting period.

“I think that’s about it Barney. We are at the end of our allotted time.

“In special recognition of your contributions, I am announcing today that you, Representative Barney Frank, are the first winner of the Bernard Madoff Award for Excellence in Banking Regulation & Solvency.

“The award recognizes your outstanding contributions to the mortgage and housing crisis. You are, with little question, the most influential individual in creating the financial catastrophe. While it is true you have a cast of millions who assisted you, the most obvious and unnecessary failure is Fannie Mae and Freddie Mac. Since they are giants in our Depression, and because you are their most important proponent, the guilt which adheres to you is substantial.

“You have destroyed a lifetime of work and savings for millions. You have destroyed millions of jobs. You have ruined millions of lives. How can one guess at the divorce, homelessness, and suicide which the crisis has encouraged?

“The global economy is moving backward. Of millions who were starving before, their numbers have now multipied. Fifty million people are expected to lose their job from the fallout of the crisis.

“You are an instrument of death and destruction. You rival in violent malicious influence great criminals of world history. I suggest you pray to God for forgiveness. It would be best if you exit the stage.You have left the world a world of work to do.”

Barney: “I don’t like that language for a minute Mr. Bozo the Clown.

“I have always been held accountable for my actions. I conduct myself by the highest standards.

“I have always believed in public service. I have a long history of sacrificing for the good of my country.

“Just look around you. There’s affordable housing everywhere for one thing. And every day it gets cheaper and cheaper. And not just here, but all over the world. In Ireland. In Spain. Affordability has gone totally global. And I created it.

“And I would also tell you this: Recognition for the enormous gains I have brought to the world of housing and banking has only just begun. My recognition has only just begun to be known all over the world.

“And believe me, when I say that, that’s not some kind of clown talking. I’m no clown Bozo.”

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Michael David White is a mortgage broker in Chicago.

“Who Regulates Banks Best? Bozo the Clown or Barney Frank?” By Michael David White.

Published by New Observations Copyright 2009. All rights reserved.

Collage by cutnpaced.com & Amy Wasserman.

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