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Wonkbook: Foreclosure mess tests Dodd-Frank; WH wants global currency accord; Fannie and Freddie to require hundreds of billions more


No one thought the Dodd-Frank financial-regulation bill would get a test run so quickly. But as the potential problems in the foreclosure market grow, they're intersecting with the few portions of the bill that are already up-and-running -- and making it clear where we wish we'd had the bill long ago.

The frontline protections weren't there in time. The Consumer Financial Protection Bureau has the mandate and the power to stop systemic problems with the handling of individual mortgage products, but they're only just setting up. As Neil Irwin reports, the real player now is the Financial Stability Oversight Council -- the multi-agency watchdog that's supposed to monitor systemic risks. But it's not clear how ready they are for the challenge: The Office of Financial Research, which is supposed to be obtaining, collating, and assessing the data necessary to make these judgment, doesn't really exist yet.

And even if they fail, there's still one part of the bill left: Resolution authority.

It's Friday. Welcome to Wonkbook.

Top Stories

The foreclosure crisis is testing the new regulatory structure set up by FinReg, reports Neil Irwin: "The Federal Reserve, the Office of the Comptroller of the Currency, and other bank regulators have examiners on the ground inside major banks - and the power to force them to improve their procedures. Fed economists are constantly monitoring risks to the economy as a whole. The Federal Housing Finance Agency oversees Fannie Mae and Freddie Mac, which in turn can lean on mortgage-servicing companies that may not be complying with their obligations in how they deal with borrowers. The Securities and Exchange Commission has responsibilities over disclosure matters in mortgage-backed securities."

Obama wants a currency accord, reports Howard Schneider: "On Wednesday, a senior U.S. official said the administration had set aggressive goals, including agreement on a new "framework" that would measure whether an individual country's trade flows or exchange rates were out of balance with underlying economic forces and would judge whether national policies were helping or hurting...The official said the United States wants the G-20 nations to commit to flexible exchange rates and agree on how to measure a country's progress on reducing oversized deficits or surpluses in its current account. The current account is a measure of a nation's trading relationships with the rest of the world; a persistent, high current account surplus is a sign of an undervalued currency."

Got tips, additions, or comments? E-mail me.

Fannie and Freddie will likely receive billions more from the federal government, reports Zachary Goldfarb: "In the most likely, as defined by the agency, which regulates the two companies, housing prices would decline slightly amid a modest economic recovery, and then inch upward. In this scenario, the total bailout of Fannie and Freddie would cost $19 billion more, or $154 billion. A more optimistic projection has the housing market springing back to life sooner. In this case, the companies would need just $6 billion more, or $141 billion. Finally, in a darker scenario, in which housing goes into another tailspin amid a second recession, they would cost $124 billion more, or $259 billion."

Reunited OutKast interlude: Big Boi featuring Andre 3000's "Looking 4 Ya".

Still to come: The Obama administration is emphasizing economic improvement for women; business is split on climate change action in California; regulators have settled on a medical loss ratio requirement for health care reform; and a dog does parkour.


The White House is promoting its programs' benefits for women, reports Sewell Chan: "A 32-page report released Thursday by the National Economic Council, a policy coordination arm of the White House, described scores of policies that it said had promoted women’s economic security. For example, it cited the expansion of the earned-income tax credit, which disproportionately benefits working mothers; work-study money for community college students, 56 percent of whom are female; state aid supporting the jobs of teachers and nurses, who are mostly women; and Democratic opposition to privatizing Social Security, of which women make up 57 percent of beneficiaries."

Jobless claims fell but remain high:

Foreclosure processing is jamming the court system, report Robin Sidel and Dawn Wotapka: "Even if the outcome of most cases is unlikely to change after bank reviews, the added scrutiny is already causing huge delays. That is evident in places like New York, where the chief judge of the state's courts is requiring lawyers handling nearly 78,000 foreclosure actions in the state's courts to verify that their clients followed proper procedures...There were more than 476,000 loans in foreclosure in Florida at the end of the second quarter of 2010, or about 14% of all the state's home loans. Last year, the state legislature gave the courts $9.6 million to bring back retired judges to handle foreclosure cases in a process some call the "rocket docket."

Some self-professed "deficit hawks" oppose any defense cuts:

China is losing its single-minded focus on growth:

Britons are victims of an austerity fad, writes Paul Krugman: "Over-reliance on the financial industry largely explains why Britain, which came into the crisis with relatively low public debt, has seen its budget deficit soar to 11 percent of G.D.P. -- slightly worse than the U.S. deficit. And there’s no question that Britain will eventually need to balance its books with spending cuts and tax increases. The operative word here should, however, be 'eventually.'...Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation’s fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax."

The Chamber of Commerce's lawsuit to block shareholder control of corporate boards is baseless, writes Steven Pearlstein: "Outside of China and North Korea, the American corporation is perhaps the last institution that still relies on Soviet-style elections in which members of the ruling faction are the only ones listed on the ballot. To have contested elections, the Roundtable and the Chamber argue in their brief, would not only trample the companies' First and Fifth Amendment rights but also be a 'waste of corporate assets.' Moreover, the mere prospect of having to accept 'dissident' directors - let alone ones chosen by union pension funds - could disrupt boardroom harmony and distract directors from their vital work."

Nonprofit pitch of the day: Alec Baldwin channels Glengarry Glen Ross in urging pledges to WNYC.


Business is split on a California proposition that blocks action on climate change, reports Steven Mufson: "By early October, Valero Energy, the nation's biggest refiner, had poured $4 million into an ad campaign, public records show. Tesoro, the other refiner, has matched that, a company official said. The Koch brothers, who have supported the tea party movement and other conservative causes, added more than $1 million. Other donors brought the total to $16 million. But Big Oil isn't the only big money in California. Lined up against the refiners are a group of wealthy fund managers, clean technology investors, environmental groups and onetime Reagan secretary of state George Shultz, who believes that 'climate issues are very real' and that Proposition 23 is 'a very bad thing.'"

The US is set for an abnormally warm winter:

The EPA's first truck and bus regulations are due next week, reports Robin Bravender: "The proposal will call for a 20 percent reduction in heat-trapping emissions from trucks’ tailpipes, according to Dan Becker, director of the Safe Climate Campaign. The joint rule from the Environmental Protection Agency and the Transportation Department is the latest in a series aimed at boosting fuel economy and slashing greenhouse gas emissions from cars and trucks. At the direction of the White House, the agencies will expand the program to include heavy-duty trucks for model years 2014 through 2018 next week, an EPA official said. The agencies have already set standards for cars and light-duty trucks."

Bill Gates gave $700,000 to opponents of the proposition blocking climate action in California:

Obama will have to protect EPA funding next year, writes John Judis: "The Obama administration has appointed good people to these agencies and increased their funding, and they are beginning to revive after being crippled during George W. Bush’s presidency. A Republican Congress wouldn’t be able to close them down, but it could make life very difficult for them to function by cutting their funding. That’s exactly what happened after the Republicans captured the Congress in November 1994 when Bill Clinton was president...In the budget that year, the Republicans--not constrained by a filibuster--were able to get their way. They cut the EPA’s overall budget by 25 percent and cut its critical enforcement budget by 40 percent and put 17 riders on the budget bill limiting the EPA’s ability to police industries."

Adorable animals getting extreme interlude: Dog parkour.

Domestic Policy

Insurers will have to spend 80 or 85 percent of premiums on medical care, report Sarah Kliff and Jennifer Haberkorn: "Under the final regulation, insurers can categorize a number of health-spending activities as 'quality improvements.' Spending to reduce hospital re-admissions, improve patient safety, reduce medical errors and certain health information technology investments all made the final cut. But regulators counted other costs, such as programs to prevent fraud, as administrative costs despite some protest from the insurance industry...'The current MLR proposal will reduce competition, disrupt coverage, and threaten patients’ access to health plans’ quality improvement services,' said Karen Ignagni, president and CEO of America’s Health Insurance Plans."

Conflicts of interest are hurting food inspections:

New York is delaying the release of data on teachers, reports Nick Anderson: "On Wednesday, New York City education officials announced plans to provide news organizations ratings on teachers that are derived from calculations on how much year-to-year progress their students make on standardized tests. But on Thursday, a city education spokeswoman said, officials put that plan on hold for several weeks while a state court considers a teachers union petition to block the release. At issue is disclosure of records that include the names of thousands of teachers...The United Federation of Teachers, which is the New York affiliate of the American Federation of Teachers, filed a lawsuit Thursday in state court seeking to block the release."

Toyota is recalling 1.5 million vehicles:

Federal workers deserve support, not cuts, writes Max Stier:

Conservatives should welcome earmarks, writes Bob Livingston: "A president's entire budget is one big earmark. It reflects his priorities and those of an incumbent bureaucracy. If members of Congress, especially members of the opposition party, unilaterally eschew earmarks, it means they intend to rubber stamp the executive branch's priorities and insert none of their own...In constraining the overall federal budget, don't resort to platitudes and simple formulas. Don't pass 'across the board cuts' that penalize the good programs and reward the wasteful, redundant and fraudulent ones. Hold your hearings. Find out where the waste really lies. Seek out and apply cuts or even 'zeros' to programs we do not need."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: Win Mcnamee-Getty Images

By Ezra Klein  | October 22, 2010; 6:38 AM ET
Categories:  Wonkbook  
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Next: The management of Juan Williams


It is fantastic time to refinance home mortgage. As Clark Howard says it is very tough to find these low rates for long time. Search online for "123 Mortgage Refinance" they found me THE lowest possible rate.

Posted by: alexischarles22 | October 22, 2010 7:22 AM | Report abuse

The credits should read,"This article compiled by a good journolist with the help of-".

Posted by: gfafblifr | October 22, 2010 8:43 AM | Report abuse

the line that was drawn in the same with regards to the MLR ratio to not include fraud prevention is an absolutely horrible mistake. So now insurers will be financially incentivized to allow fraud to happen. Why would they spend money to prevent fraud when it decreases the denominator and thus makes it harder for them to make their targets. So fraudulent providers, scam artists rejoice. The NAIC has done you a huge favor.

Posted by: visionbrkr | October 22, 2010 8:56 AM | Report abuse

and i also take offense to Jonathan Cohn's assertions that brokers are unnecessary as per the attached link to his blog.

maybe since he lives it every day he understands all the ins and outs of healthcare but there's a whole huge segment of the population that hasn't a clue as to what they're doing. Its like accountants. If you have no taxes or an easy return then go ahead and file yourself on a 1040EZ but if you've got more complicated issues then you absolutely need someone that helps and guides you through it. Are some brokers overpaid, ABSOLUTELY, just like every other profession but for him to all but say that brokers are useless and with reform they won't be needed shows how little he truly knows about the subject. Sure maybe he's good with policy in general but on specifics like this he needs a ton of work on. either way I don't think brokers commissions belong in the MLR so they did the right thing by that but what he forgets (and he falls into the typical Dem thinking on the subject blasting insurers profts) is that even this MLR talk is nibbling at the edges although nibbling a bit more than with some other options. What he and every other Democrat forgets is that provider cost is what drives healthcare costs. He of all people should know better but again when liberals beat their drum on that as loudly as they do I guess its hard to hear anything else.

Posted by: visionbrkr | October 22, 2010 9:36 AM | Report abuse

Why is anyone surprised the Banks are going to test the new law right away? Last time they blew up the economy it worked out great for them. Now it's being revealed that not only are they incompetent, they're also running a blatant criminal racket, currently focused on tricking people into defaulting on their mortgages. If you're on the verge of being in financial trouble, go talk to your bank and they will happily tell you lies that will cause you to default on your mortgage and lose everything! For instance, they'll say they'd be happy to modify your mortgage, you just have to miss a payment first. Guess what? That's a double lie, a) they have no interest in modifying your mortgage, they don't even own it, they're just servicing it and b) the only reason you have to voluntarily skip a payment is so they can foreclose on your home!

The financial industry is dishonest, and if the government weren't actively protecting them, there would be hundreds of charges laid by now for the last mess, much less for the new one. So, again, NO KIDDING the banks want to test the law, it's what they're counting on to protect their highly profitable racket.

Posted by: Bullsmith1 | October 22, 2010 9:39 AM | Report abuse

Bureaus and Councils and Offices, hahahahaha. More on resolution authority, please.

Posted by: bgmma50 | October 22, 2010 9:45 AM | Report abuse

"the line that was drawn in the same with regards to the MLR ratio to not include fraud prevention is an absolutely horrible mistake. So now insurers will be financially incentivized to allow fraud to happen. Why would they spend money to prevent fraud when it decreases the denominator and thus makes it harder for them to make their targets. So fraudulent providers, scam artists rejoice. The NAIC has done you a huge favor."


Sadly, this was way too predictable (believe we discussed this issue a while ago).

Unfortunately, the powers that be tend not to see overhead expenses as having any value. It's all waste that can be wrung out of the system at no cost.

Posted by: justin84 | October 22, 2010 9:49 AM | Report abuse

How about that Rachel Maddow, eh?

Of course, you knew she was a credible journalist by the number of times propagandist Klein was invited on the show.

Posted by: msoja | October 22, 2010 9:52 AM | Report abuse


yes we have. they should find ways to incentize fraud detection not the other way around. Its like charging people extra to go for preventative care. STUPID.

do you know how I know that the MLR rules were too far to the left? FDL had not a peep to say about it all day yesterday and today so far.

Posted by: visionbrkr | October 22, 2010 9:54 AM | Report abuse

visionbrkr and justin84,

I suspect that this was not a horrible mistake, but by design. What better way to redistribute wealth than by removing all impediments, including fraud, to unfettered access to health care?

Posted by: bgmma50 | October 22, 2010 10:30 AM | Report abuse

"Some self-professed "deficit hawks" oppose any defense cuts:"

Well then they certainly aren't deficit hawks.

"Federal workers deserve support, not cuts, writes Max Stier:"

"Teri Glass and colleagues at Fort Detrick in Maryland worked tirelessly to develop a state-of-the-art medical evacuation system that has since helped medics quickly and safely transport wounded soldiers to battlefield hospitals.

The effort by Glass and her team, credited with saving countless lives, is just one of many examples of the work done every day by federal civil servants -- successful but often unheralded accomplishments that serve the public good."

More appropriately put, they help offset the public bad that comes from our foreign misadventures.

"a daily basis find solutions to serious problems, assist Americans in need, keep us safe and advance our national interests."

What about the serious problem of blowing hundreds of billions of dollars in foreign wars in a vain attempt to remake socieites that are nothing like ours, ruining the lives of hundreds of thousands and increasing the pool of would-be terrorists while we're at it? Don't worry, federal workers are on the case, making sure someone who would otherwise be a KIA is only horribly wounded - not nothing, to be sure, but clearly our wounded soldier would have been better off not having gone to Afghanistan at all.

"when missteps such as the lax regulation of Wall Street or the inadequate regulation of offshore oil drilling occur, the headlines are negative and the government's already fragile standing takes another hit."

Yes, just missteps. Can BP just call its mistake a 'misstep' too? What of Katrina? Just another 'misstep'?

"When the devastating earthquake struck Haiti in January, Bannis, a U.S. immigration officer, stepped up to help hundreds of orphans -- babies, toddlers and teens -- escape the tragedy and find safety with anxious families in the United States."

Impressive story to be sure, but offset by a legion of other federal workers who prevent most Haitians from moving to the United States in order to improve their lives, or are busy ruining Mexico via drug prohibition.

"Our aim should be to encourage talented, innovative and dedicated people to enter and stay in the government -- people like Wilhelm, Bannis, Kelley, Ristow, Konstas and Glass -- not to undermine federal employees and their important service to America."

These people would be impressive no matter where they worked.

Posted by: justin84 | October 22, 2010 10:33 AM | Report abuse

"I suspect that this was not a horrible mistake, but by design. What better way to redistribute wealth than by removing all impediments, including fraud, to unfettered access to health care?"


The plan to redistribute wealth includes insurance fraudsters? You know, I wouldn't be all that shocked but I really, really hope this wasn't a conscious design of the plan.

How awful would it be for politicians to consider fraudsters as part of their constituency?

Posted by: justin84 | October 22, 2010 10:45 AM | Report abuse

Think about it in the context of our illegal immigrant population, justin84.

Posted by: bgmma50 | October 22, 2010 10:56 AM | Report abuse


it wasn't conscious. Just another unintended consequence and proof that many times when the government gets its hands on things they screw up more than they help. Its a consequence of not being smart enough to think more than one step ahead of yourself.

Posted by: visionbrkr | October 22, 2010 10:56 AM | Report abuse

Perhaps instead of giving unsolicited and hysterical advice to the UK, Krugman ought to read today's WSJ and see how things are working out for Germany after they rejected Keynesian stimulus:

Posted by: bgmma50 | October 22, 2010 11:12 AM | Report abuse

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