TheAgitator.com
Banking Committee Democrats Threaten Private Businessman
Wednesday, May 20th, 2009This story is several months old, but it was just recently brought to my attention.
In October of last year, The New York Times ran a story about how some hedge funds that hold mortgage-backed securities were opposing efforts by Congress and several state attorneys general to modify the terms of mortgages in risk of foreclosure. The article mentioned that some firms may challenge new laws or politically brokered renegotations that would modify the terms of endangered mortgages.
That shouldn’t be surprising. Those funds risk losing money if the terms for large numbers of mortgages are arbitrarily reset, and hedge fund companies certainly have every right to pursue legal recourse and political activism to protect their investments.
The head of one such firm, William Frey told the Times exactly that:
William Frey, the president of one of the funds, Greenwich Financial Services of Greenwich, Conn., said that he was acting to protect the firm’s investments. “Any investor in mortgage-backed securities has the right to insist that their contract be enforced,” he said.
In letters sent to banks and others, Greenwich Financial said that it was particularly concerned about the impact of a relatively new government program, Hope for Homeowners. That plan, which Congress approved over the summer, allows some borrowers to refinance their mortgages into fixed-rate loans with terms up to 30 years.
Whatever you may think of hedge funds or mortgage-backed securities, Frey’s doing nothing illegal here, and is merely trying to protect his firm and its interests.
The day after the Times article ran, Frey received a threatening letter signed by six Democrats on the House Financial Services Committee. The letter reads:
Dear Mr. Frey:
We were outraged to read in today’s New york Times that you are actively opposing our efforts to achieve a diminution in foreclosures by voluntary efforts. Your decision is a serious threat to our efforts to respond to the current economic crisis, and we strongly urge you to reverse it. Given the importance of this to the economy and to what it means for future regulatory efforts, we have set a hearing for November 12, and we invite you to now testify. We believe it is essential for our policymaking function for you to appear at such a hearing, and if this can not be arranged on a vountary basis, then we will purse further steps.
For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling and will clearly have serious implications for the rules by which we operate in the future if this posture of obstruction of our efforts is maintained.
We very much hope you will be able to tell us very soon that you have reversed your position of trying to obstruct the operation of the bill that was overwhelmingly passed by Congress and signed by the President this summer, and we hope you will also affirm your presence at the hearing on November 12.
The letter is signed by Rep. Barney Frank (D-Mass.), Rep. Paul Kanjorski (D-Penn.), Rep. Maxine Waters (D-Calif.), Rep. Luis Gutierrez (D-Ill.), Rep. Carolyn Maloney (D-N.Y.), and Rep. Melvin Watt (D-N.C.).
Am I missing something here, or is this blatant intimidation by these members of Congress? Are they not threatening new laws, regulations, and embarrassment at a public hearing in retaliation for and specifically directed at a private citizen exercising his right to oppose and legally challenge a policy he believes violates his rights?
It looks like Frey went through with his legal challenge. Still looking into what actually happened at the hearing.
After trashing the Bill of Rights for years,now their trashing contract law.The auto industry,banks,energy and health care will be run by the government.Rent seekers like G.E will tow the line for profits.And this isn’t socialism?
It seems to me that the representatives have a point: this says nothing about Congress passing laws impairing the obligations of contracts …
[of course at the founding Congress was not thought to have authority to legislate regarding private contracts, but I doubt this will stop your representatives from acting]
Mr. Frey owes a fiduciary duty to the investors in his fund, not to mortgage-holders in foreclosure. No one wants to see a mortgage-holder foreclosed on, but then again no one wants to see someone who is not in foreclosure lose all his invested money. Oh wait — yes, there are people who want to see an investor lose all his money — it’s those six people signing the letter. You’re not missing anything — this is an attempt to forcibly redistribute the wealth in this country.
To forestall protests: I know the Contracts Clause means something altogether different from its literal text. Ever since the New-Deal Court ruled in Home_Building & Loan Association v. Blaisdell that a State may interfere with existing contracts (in that case with foreclosures due to mortgage default), the real meaning of the clause must have been that a State shall pass laws impairing the obligations of contracts. Living in the US must be an amusing experience.
The fact that the letter was written implies that Congress know just how shaky their legal position is here. I don’t see them resorting to intimidation unless they know just how strong a legal challenge would be in reversing their plans.
No doubt if the case does/did go ahead the residing judge will be leaned on in a similar way to ignore process or precedent and find in their favour because the end of the world is nigh and so something must be done (always the favourite position of any politician to be in).
Ooh, I know the answer. He answers via letter in a much more reasonable and mature manor than Frank and the other jack booted thugs deserve.
http://www.scribd.com/doc/8667729/Frey-Letter-to-Congress
“Early this week I was told that my testimony was no longer needed but that a written statement could be submitted for the record. My written statement consists of two parts. The first part seeks to clarify the record regarding what I believe are inaccurate characterizations of my work. The second part seeks to offer specific recommendations on how to improve the American mortgage-backed securitization process in an effort to prevent similar crises in the future.”
Public HEARING?
Hearing implies someone is LISTENING.
The six aforesaid Congresspersons are not in the LISTENING mode.
They are in an ACCUSATORY mode.
Hearing also implies that there is an impartial listener judging the proceeding.
Impartial.
Barney “$60 Bill” Frank?
Maxine “Bad Hair” Waters?
Mel “Dimbulb” Watts?
Carolyn “Baloney” Maloney?
BWAHAHAHAHAHAHAHAHA!
Home_Building & Loan Association
is that where Jimmy Stewart worked? i think i remember that case. That old Mr. Potter was a jerk.
What is really disgusting about this is that investors pay a premium, either in reduced interest compensation or a higher initial cost, to be at the front of the payout line if the borrower defaults. Like Michael says, this is a long-established principle in bankruptcy & contract law.
The government has essentially turned that concept on its head and given itself the authority to change that priority as it sees fit. Under this scheme, there’s no way for firms to evaluate the risk of an investment so the smart thing to do is to keep their money away.
I would be interested to know the outcome of their suit.
The only thing you might be missing is that the Constitution is now only a relic in a museum. All government, all the time, for everything.
How much more of an assault can we expect on capitalism, free markets, wealth (by even modest definitions), and limited government? Probable answer is “total”.
On a very closely related note, the hedge fund managers who were invested in Chrysler are now saying that they’re not going to lend money to any more unionized companies because they don’t want to get blindsided by Obama again.
Bloomberg story
“Lenders will have to figure out how to price this risk,” Schultze, 39, said in a telephone interview from his office in Purchase, New York. “The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.”
It sounds like a letter Dick Cheney would write.
#11: Megan McArdle was prediciting the very same a few weeks ago.
Remember this when you look at Barney Frank’s effort to legalize online gambling. He has another angle in there, and it is proboably just for his own convenience, not for liberty.
They have more than a right to do this, they have a legal obligation to their investors to do so.
The current administration seems to think, to borrow a line from Nixon, “if the President does it, it’s not securities fraud”.
#14: Similar to my thoughts. When I saw Bawny Fwank was the one trying to roll back some of the nefarious laws regarding online gambling, my only thought was “Dear God, *anybody* but him”. He’s got too much baggage, and it looks like he’s interested in picking up even more….
[...] those ideas to life), but ultimately unworthy of real adulation. But man…you read things like this, and you start to understand how caricatures like Rand’s come to be taken [...]
Hedge funds managers are some of the most
politically connected people in the world. Congress
is much more likely to do their bidding than not.
[...] those ideas to life), but ultimately unworthy of real adulation. But man…you read things like this, and you start to understand how caricatures like Rand’s come to be taken [...]
#6 drobviousso, I had also found Mr. Frey’s response (on Cafe Hayek) and strongly encourage anyone who is a bit fuzzy in their understanding of the issues related to the current lending problems to read his letter, all of it. Along with his analysis of the causes, he has some very sensible recommendations.