Frank Talks Vampires
Rep. Barney Frank (D-Mass.) is having quite the day chairing a hearing of his House Financial Services committee, taking a look at what future regulations on the financial sector should look like.
Earlier, he slapped around Rep. Scott Garrett (R-N.J.).
Moments ago, he equated credit-default swaps to "selling life insurance on vampires."
The misuse of the unregulated credit-default swaps are one of the root causes of the current financial crisis. They provide insurance for losses on securities in case of a default. When there's actual capital behind them, they're fine.
When they are swapped among holders in an unregulated, non-transparent way, as they have been for years, they cause lots of problems. When something actually defaults, it turns out there's not enough capital behind the insurance to pay out the policy.
So, that leads us to Frank's early-Halloween reference to vampires. He said: "It's like issuing life insurance on vampires because vampires don't die. But when the vampires died, they didn’t have any money."
Our explanation may be clearer, but it's a lot less colorful -- and scary -- than Frank's.
Meanwhile, for a little more substance from the hearing, here's the testimony of Michael Washburn, president of Red Mountain Bank in Hoover, Ala., speaking on behalf of the Independent Community Bankers of America.
Washburn said that community banks are strong, thank you very much, because they didn't engage in the risky practices of Wall Street and because they "take the prudent approach of providing loans that customers can repay."
Or, in the words of fellow witness T. Timothy Ryan Jr., president of the Securities Industry and Financial Markets Association, they didn't engage in "financial engineering that was taken to a level of complexity that was unsustainable."
-- Frank Ahrens
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