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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."

Come again?

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

By Frank Ahrens  |  October 21, 2008; 3:01 PM ET
Categories:  The Ticker  
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Comments

Its like baseball's "Manny being Manny", except of course in this case it's Barney being Barney. don't worry, he'll be traded for a more transparent and trustworthy person, maybe like his dear Alcee Hastings.

Posted by: Newark | October 21, 2008 3:14 PM | Report abuse

The root cause of this crisis is Fannie Mae and Freddie Mac and their policy to give mortgages to those who could not afford them. This while the CEO's of these two bogus companies were enriching themselves with bogus accounting. All the while Barney Frank was having an affair with a Fannie Mae exec and testifying in Congress that there was nothing wrong with these two GSEs.

Posted by: RTGreenwood | October 21, 2008 3:32 PM | Report abuse

"The Argentine government is expected to announce plans to nationalise the country's 10 private pension funds.

The move will put the government in control of almost $30bn (£18bn) of investments, and is aimed at protecting them from the global market turmoil.

But expectations of the announcement has sent Argentine shares 12% lower, as investors fear what impact the decision will have on the stock market." BBC

It sounds like our bailout. Government is going to take over and give more money away. Government produces more government to make people serve the government. The mess gets bigger as government gets bigger and debt grows. The city pension funds that the government runs where I live is a huge mess. The city is in the hole for over a billion dollars. They want more funds, so expect more nationalization talk here for pensions. For now, they are busy with a new stimulus or giving away more money to get things moving. The more they keep giving, the less it seems to help. Socialism has failed and capitalism is getting the blame. They wanted low yields and now they have them. Maybe you will get lucky and the Post shares will drop to $250.00 and your yields can go down. Isn't the idea to get higher yields better and easier? Payroll is payroll at the end of the day. People need paid and most people like paid more rather than less. With socialism, less is the ideal and more is the pits.

Posted by: Night Mayor | October 21, 2008 3:53 PM | Report abuse

Wasn't it Frank who led the Senate Banking Committee while all of these problems were developing? How does he have the right to finger-point?

Fannie and Freddie were known problems for years, yet nothing was done. Did no one in congress notice the housing bubble? Some heads should roll from both parties. Until Americans vote for change, they'll get more of the same. (I don't mean vote for one party over the other, I mean vote out the incumbants in congress.) Term limits would eliminate a lot of rotten wood, while allowing people to vote along party lines if they wanted.

Posted by: John B. | October 21, 2008 4:24 PM | Report abuse

Rep. Barney Frank's comment was, "It's like they were selling life insurance only to vampires, then all the vampires died". (end quote)

Translation:
Financial firms protected themselves with a form of insurance against defaults known as credit default swaps, assuming that all of those investments would never default at the same time, as they effectively did.

Therefore, "It's like they were selling life insurance only to vampires, then all the vampires died".

.


Posted by: John Charles Webb | October 21, 2008 4:38 PM | Report abuse

RTGreenwood,

Your statement is completely incorrect. Fannie Mae and Freddie Mac explicity DO NOT make home loans. Fannie and Freddie ENSURE LIQUIDITY in the mortgage market by buying up mortgages and selling them as securities. As government-sponsored organizations, they were encouraged, perhaps even forced, by their charters to buy up bad mortgages that others would not take because they had the backing of the government. Yes, most of the executives of these corporations were grossly overpaid, corrupt, and incompetent; but to point to these companies, who were enormously philanthropic, and say they are the sole cause of this crisis is ignorant. If you're so apt to blame someone, blame the mortgage lenders that would give a jumbo loan to a fast-food restaurant employee or the administration that thought everyone should own a home.

Posted by: DinaR | October 21, 2008 5:05 PM | Report abuse

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