WASHINGTON, D.C. — U.S. Rep. Paul Kanjorski said he used to be considered the "gloom and doom guy" on the House Financial Services Committee for opining about worst-case economic scenarios.
Now, given the dramatic turn of events that has led to what the Pennsylvania Democrat describes as "the most important storm that’s come our way in three quarters of a century," he quipped, "I’m no longer thought of as a gloom-and-doom man but as a prophet."
Speaking to an audience of real estate journalists visiting the Capitol on Friday, he said has changed his tune from doomsayer to optimist, hopeful that Republicans and Democrats will hop across the aisle and put aside political differences in order to "soothe the population and to stabilize the market."
He added, "Until we get the real estate market adequately stabilized, I don’t think we’re able to say we’re at recovery."
U.S. Rep. Barney Frank, D-Mass., and U.S. Sen. Christopher "Kit" Bond, R-Mo., also addressed the press group.
As the administration pushes a new plan for rescuing the shipwrecked economy from the quicksand, Kanjorski said the next six months will be "critical to put it together."
In addition to serving as a senior member of the Financial Services Committee, he also serves as chairman of the Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
He looks to psychology and the nature of capitalism in explaining the latest financial catastrophe.
Commenting on a plan for the Federal Reserve to take on a role as a regulator of "systemic risk" — a role that is intended to heed the warning signs for financial crises — Kanjorski said the role of systemic risk regulator "is almost a misnomer when you think about it," as nobody realizes what the systemic risk was until it’s too late.
"The exact thing that’s happening now won’t happen again — but something else will happen again."
Capitalism has a way of testing its boundaries, Kanjorski also explained, and the latest meltdown came after 75 years of "extremely effective containment of radical capitalism." But there are more minor economic disasters every 20 or 25 years, he noted. "It’s the nature of capitalism: Capitalism tries to escape containment, which is regulation."
While the federal government launched many initiatives that have sought to prevent a death spiral in financial markets, Kanjorski said the reforms may not be far-reaching enough.
"Maybe we’ve waited too long. I think it’s more we lack the political fortitude to put the fight up. We’re plugging holes. That’s better than nothing, (but the) reality is when we get done with this we will not have created a system that is more significantly improved" than the reforms that followed the market crash leading into the Great Depression, he said.
He said he knows of state legislators who bought a handful of properties in Florida on speculation, and he suspects the script is not so different from stock investments that soured in the great stock crash. "It’s the same psychology that’s there," he said, with greed and desire leading to bad decisions. …CONTINUED
"No one wants to be told that the merry-go-round is ever going to stop." But it has, he said, and the recovery "has got to be done through real estate," which is the major asset through which consumers judge their wealth.
Despite the expansive bridge of political differences over proposed reforms, Kanjorski said he does believe there is an opportunity for unity. "I do believe in fairy tails," he concluded.
In a separate press briefing, U.S. Rep. Barney Frank, chairman for the House Financial Services Committee, said the Obama administration’s plan will provide disincentives for financial institutions to get too big. "We want to make it less likely that you fail and less damaging if you do," he said.
As an example, those financial companies that reorganize could stand to lose 100 percent of shareholders’ equity and the dismissal of the CEO.
The Massachusetts Democrat blamed the housing bubble on the ability to securitize 100 percent of loans and rating agencies’ excessive leniency in rating mortgage-backed securities.
Difficulties in loan servicers negotiating with pools of securities investors is a problem that needs to be addressed, Frank said, likening it to a dispute among siblings that leads a family estate to sit vacant and neglected.
Elizabeth Warren, a Harvard Law Professor who reportedly inspired a consumer financial protection agency proposed by the Obama adminstration, is scheduled to speak before the House Financial Services Committee this week.
The Wall Street Journal reported that Warren met with White House economic adviser Lawrence Summers in April, though Summers wouldn’t comment on whether Warren would be a candidate to lead the agency if it becomes a reality and said the agency could be months away.
Steve Adamske, communications director for Frank, said legislation designed around the administration’s plan could be marked up in committee as soon as next month, and could reach a House vote by the end of September.
He said that while there will not be any prohibitions against consumers choosing adjustable-rate mortgages in the new plan, the intent of the administration’s proposal is to prevent loan originators from steering consumers toward loan products that are not a good fit.
"We were very disturbed at the number of people and actually the racial disparity of people who got the higher-priced (subprime) loans who would have qualified for prime loans," Adamske said.
U.S. Sen. Kit Bond, a member of the Senate Appropriations Committee and a ranking member on its Transportation, Housing and Urban Development Subcommittee, flagged his worries about the financial state of the Federal Housing Administration during his visit with members of the real estate press.
The Missouri Republican said that while many support the FHA playing a "much more robust role" in the housing market, "we cannot ignore the agency’s limitations. I think we need to be careful about placing any more burdens" on the FHA. He referred to FHA as a "powder keg."
Rising unemployment and continuing troubles with mortgage fraud are worrisome, he said, and the staffing level at the agency has remained relatively flat despite the increased role FHA has taken in insuring mortgages. "The health and solvency of the FHA is at high risk," he said, and foreclosures of properties with FHA-backed loans "are the most visible and troubling sign that the government is not a good landlord."
In congressional testimony delivered in April, Kenneth M. Donohue, inspector general for the U.S. Department of Housing and Urban Development, stated that FHA approval of new lenders increased 525 percent in a two-year period, from the 2006 fiscal year to the 2008 fiscal year.
"The integrity and reliability of this crop of program loan originators is, in our view, unproven, and, in light of the aggressive recent history of this industry, may pose a risk to the program." His testimony stated that about 7.3 percent of FHA loans were in default by more than 90 days at that time.
He said he will push to get FHA staffed up to meet the demand, and to improve the technology, which in some cases harkens back to the 1970s and 1980s, he added.
"FHA really needs to get a handle on what they’re doing," he said.
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