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Inside Washington (10/23/2008)
* WASHINGTON (10/24/08)—Alan Greenspan, who headed the Federal Reserve Board for more than 18 years, acknowledged under questioning at a House Oversight Committee hearing Thursday that he had made a “mistake” in his belief that banks operating in their self-interest would be enough to protect their shareholders and the equity in their institutions (The New York Times Oct. 23). Greenspan said he and others who believed that lending institutions would do a good job of protecting their shareholders are in a “state of shocked disbelief.” Current problems were caused by a heavy demand for securities backed by subprime mortgages from investors who were unconcerned that a boom in home prices could crash to a halt, Greenspan testified. The House panel sought to discover if failed regulatory approaches contributed to the current national crisis. Also testifying were former Treasury Secretary John Snow and Securities and Exchange Commission Chairman, Christopher Cox … * WASHINGTON (10/24/08)-- The Treasury should use its authority granted under the recently enacted rescue bill to encourage lenders and servicers to participate in the Hope for Homeowners program offered through the Federal Housing Administration, according to Richard Neiman, the superintendent of the New York State Banking Department (American Banker Oct. 23). The ratio of delinquent borrowers without a modification plan increased to eight out of 10 by May, according to a regulatory report Neiman cited. He also encouraged the Treasury to offer credit enhancements and loan guarantees to lenders who participate in loan modification programs. Hope for Homeowners, effective Oct. 1, helps borrowers whose homes are worth less than their mortgages ... * WASHINGTON (10/24/08)--Observers say that the Treasury Department’s changing goals are undermining the agency’s efforts to restore confidence in the financial markets (American Banker Oct. 23). The Treasury’s capital injection plan originally aimed to encourage lending and the extra money should be used by banks to offer more credit, Treasury Secretary Henry Paulson said Oct. 14. The next day, Comptroller of the Currency John Dugan said the capital could be used to prevent banks’ losses. A few days later, Paulson said the money could allow stronger institutions to acquire weaker ones. The shifts in the plan’s purposes are creating confusion and undermining its mission, according to Don Mullineaux, University of Kentucky banking professor. However, one observer, Laurence Platt, K&L Gates LLP partner, said the Treasury has to change its focus because new problems are surfacing ... * WASHINGTON (10/24/08)--Federal Insurance Deposit Corp. (FDIC) Chairman Sheila Bair said her agency and the Treasury are proposing to encourage servicers to modify loans nearing foreclosure. If the loans meet established modification standards, the government could guarantee them so that they are sustainable, she added (The New York Times Oct. 24) ...


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