New Orleans A conundrum becomes a contradiction when we look at regulators concerns about the size and operations of huge, non-bank financial institutions that were such a sizeable factor in triggering the Great Recession and find that they are moving to protect the financial system and ignoring citizen and consumer interests.
The Treasury Department has announced that it is closer to designating some financial giants as “systemically important,” which is a euphemism for “too big to fail.” These non-bank entities like AIG, the American International Group, Prudential, and General Electric Credit would at the minimum undergo regular financial review by the government, have higher capital requirements, and be nudged out of riskier investments like some kinds of speculative annuities.
Nothing is being said about housing, and this is where speculation was rampant and devastating on Main Street, regardless of Wall Street. GE Capital for example was a significant housing broker. I certainly met with their representatives several times persuading them to modify some of their subprime requirements. They have shed much of their mortgage brokerage business, but being classified in this way would not prevent them or the others from re-entering the housing markets or, more importantly, curb their behavior.
There has been recent news that Blackstone, a huge Wall Street investment company, has bought 26,000 houses in 9 states to take advantage of price fluctuations in many markets hammered by foreclosures and the housing recession. Another Wall Street outfit has budgeted $250 million per month to try to follow Blackstone’s lead. The beat goes on.
One of the many problems several years ago as nonbanks flooded the housing markets was their exemption from the requirements of the Community Reinvestment Act (CRA, 1978), allowing citizens no protection against discrimination and lending abuses. Some of the culprits turned themselves into banks in order to benefit from federal bailout funds, forcing them under CRA requirements. There is no mention in the current Treasury department discussions of nonbank financial institution regulations of requiring CRA protections if these outfits are involved in housing, and there should be.
Blackstone is neither fish nor fowl, but it’s huge in real estate. They describe themselves as a, “…a multinational private equity, investment banking, alternative asset management and financial services corporation based in New York City. As the largest alternative investment firm in the world….” There are no flower children at any gatherings of this “alternative…financial services corporation,” I’ll guarantee you. But, when you control 26,000 homes in 9 states and growing, you need to measure up to the protections allowed by the Community Reinvestment Act. Treasury needs to make sure these protections are in place for the AIG’s and GE Capitals of the world, but all of us need to make sure that any and all of these financial whizbangers that brought down the entire economy, ruined countless lives, and forced millions of families out on the street, are fully regulated and following the requirements of the Community Reinvestment Act.