US Treasury Secretary Henry Paulson said US regulators plan to alter rules for packaging loans into bonds in the aftermath of the subprime-credit collapse.
Paulson and Federal Reserve Chairman Ben Bernanke, who were to testify before Congress yesterday, first want markets to stabilize, reducing borrowing costs for companies and consumers. Policymakers are trying to revive an economy that expanded at the slowest pace since 2002 last year.
Paulson, Bernanke and their counterparts at the Securities & Exchange Commission and Commodity Futures Trading Commission (CFTC) are "carefully" reviewing loan securitizations, the treasury chief said on Wednesday.
The process magnified losses on subprime mortgage-linked securities because it reduced the incentive for lenders to ensure that borrowers could repay their debts.
"You can't have gone through the process we've gone through without knowing there need to be some changes," Paulson, 61, said in an interview with Bloomberg Television on Wednesday in Washington. "First, we need to get through this period with as little impact as possible on our economy. And then secondly, we need a strong policy response."
Paulson, Bernanke and SEC Chairman Christopher Cox were to testify before the Senate Banking Committee on the economy and financial markets.
Democratic Senator Christopher Dodd, who chairs the banking committee, introduced legislation in December to curb predatory-mortgage lending. His bill includes a provision to hold mortgage-bond investors responsible for loans that violate the law.
Similar legislation passed by the House in November would hold companies that sell mortgage-backed securities responsible for bad loans. Dodd said last year that regulators had "flexibility" to make investors accountable.
Paulson predicted it would be "a number of months" before the four-member President's Working Group on Financial Markets announces its recommendations on securitized loans. The group, which advises the White House, consists of Paulson, Bernanke, Cox and CFTC Chairman Walter Lukken.
"The problem is so large it's going to be difficult to force any large-scale changes," said Joe Mason, an associate professor of finance at Drexel University in Philadelphia. "You need to think about how financial innovation takes place in this economy."
Banks and securities firms have amassed more than US$146 billion in losses after a surge in subprime mortgage defaults rippled through markets.
Most subprime mortgages were packaged into bonds. Those securities were then often repackaged into investments known as collateralized debt obligations.
Many of the securities were given top credit ratings by Moody's Investors Service, Standard & Poor's and Fitch Ratings, reducing the incentive for investors to research the asset quality of the underlying loans.
"We're looking at off-balance-sheet contingent liabilities ... We're looking at accounting and valuation issues. We're looking at the rating agencies," Paulson said.
The SEC last week said it may propose rules requiring credit-rating companies to tell investors how successful their past assessments of debt quality have been.
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
RULES BROKEN: The MAC warned Chinese not to say anything that would be harmful to the autonomous status of Taiwan or undermine its sovereignty A Chinese couple accused of disrupting a pro-democracy event in Taipei organized by Hong Kong residents has been deported, the National Immigration Agency said in a statement yesterday afternoon. A Chinese man, surnamed Yao (姚), and his wife were escorted by immigration officials to Taiwan Taoyuan International Airport, where they boarded a flight to China before noon yesterday, the agency said. The agency said that it had annulled the couple’s entry permits, citing alleged contraventions of the Regulations Governing the Approval of Entry of People of the Mainland Area into the Taiwan Area (大陸地區人民進入台灣地區許可辦法). The couple applied to visit a family member in
CELEBRATION: The PRC turned 75 on Oct. 1, but the Republic of China is older. The PRC could never be the homeland of the people of the ROC, Lai said The People’s Republic of China (PRC) could not be the “motherland” of the people of the Republic of China (ROC), President William Lai (賴清德) said yesterday. Lai made the remarks in a speech at a Double Ten National Day gala in Taipei, which is part of National Day celebrations that are to culminate in a fireworks display in Yunlin County on Thursday night next week. Lai wished the country a happy birthday and called on attendees to enjoy the performances and activities while keeping in mind that the ROC is a sovereign and independent nation. He appealed for everyone to always love their
‘EXTREME PRESSURE’: Beijing’s goal is to ‘force Taiwan to make mistakes,’ Admiral Tang Hua said, adding that mishaps could serve as ‘excuses’ for launching a blockade China’s authoritarian expansionism threatens not only Taiwan, but the rules-based international order, the navy said yesterday, after its top commander said in an interview that the Chinese People’s Liberation Army (PLA) could blockade the nation at will. The object of Beijing’s expansionist activities is not limited to Taiwan and its use of pressure is not confined to specific political groups or people, the navy said in a statement. China utilizes a mixture of cognitive warfare and “gray zone” military activities to pressure Taiwan, the navy said, adding that PLA sea and air forces are compressing the nation’s defensive depth. The navy continues to
RSS