12:00pm | Following Vice Mayor Lowenthal’s call for the Council to support the federal re-enactment of the Glass-Steagall act, Gerrie Schipske has called upon her colleagues to support an agenda item she is submitting titled, ‘”Developing a Responsible Investment Policy In Connection with City Investments in Bank America, Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association).” The item takes aim at the fact that the City of Long Beach is investing millions in the same financial entities that are foreclosing on the homes of Long Beach residents, essentially creating a pseudo-mimic of Glass-Steagall on a more local level.
Glass-Steagall, also known as the Banking Act of 1933, prohibited commercial banks from engaging in the investment business which, in essence, created a firewall between the two sides of banking services. The prohibitions set forth by the act were eventually repealed on November 12, 1999, by the Gramm–Leach–Bliley Act, effectively removing the the separation of investment banks and commercial banks while also allowing investment bankers to serve as officers of commercial banks. Banks, particularly Bank of America, have strongly opposed the re-enactment or other proposals that are similar, such as Representative Marcy Kaptur’s “Return to Prudent Banking Act of 2011.”
“The City invests an enormous amount of funds with… [the] same entities [that] are facing federal and state investigations and litigation because of their risky dealings – just as what occurred with Lehman Brothers. We don’t need to lose another $22 million.”
Schipske’s proposal would direct the City Manager and City Treasurer to provide a report to the City Council within 30 days that addresses the soundness of the investments and provides a status report on the numerous legal actions being taken against Bank America, Freddie Mac and Fannie Mae, as well as alternative investments available to the City.
Lowenthal recently told the Long Beach Post, “I certainly support any effort to keep residents in their homes and small businesses getting the financial support they need. The request for information about legal actions, mortgages and bank loans will be revealing. As I mentioned during Council’s consideration of my Glass-Steagall Act item [on December 6], if enough cities share the same message about the need for federal legislation, then perhaps members of Congress will act responsibly by passing legislation.”
The Federal Housing Finance Agency in September 2011 filed suits against Bank America and 16 other banks for selling FHLM and FNMA mortgage backed securities that soured and for which the federal conservator of FHLM and FNMA is seeking repayment. On December 6, the California Attorney General Kamala Harris announced a joint effort with the Attorney General of Nevada in the investigations of wrongdoing in mortgage loan origination, servicing, and securitization. Attorney General Harris is also investigating Bank America and FNMA and FHLM.
One in 243 homes in California are facing foreclosure. Freddie Mac and Fannie Mae hold almost 50 percent of all mortgages in the U.S.