RJ and Makay

A recent inquiry by Senators Carl Levin and Tom Coburn has yielded 19 recommendations to deal with high-risk lending, regulatory failures, inflated credit ratings, and investment bank abuses. The recommendations, published on April 13, are as follows.

High risk lending:

1. Ensure "Qualified Mortgages" Are Low Risk - Federal regulators should use their regulatory authority to ensure that all mortgages deemed to be "qualified residential mortgages" have a low risk of delinquency or default.
2. Require Meaningful Risk Retention - Federal regulators should issue a strong risk retention requirement under Section 941 by requiring the retention of not less than a 5% credit risk in each, or a representative sample of, an asset backed securitization's tranches, and by barring a hedging offset for a reasonable but limited period of time.

3. Safeguard Against High Risk Products - Federal banking regulators should safeguard taxpayer dollars by requiring banks with high risk structured finance products, including complex products with little or no reliable performance data, to meet conservative loss reserve, liquidity, and capital requirements.

As part of their opposition to the Dodd-Frank financial reform law enacted last July in response to the financial crisis, Congressional Republicans plan to introduce four bills Wednesday that would repeal or amend parts of the new law.

"It's the first direct assault,'' a congressional aide says. ''Up until now it's been about trying to deprive the agencies of what they need to implement Dodd-Frank.''

The federal government's Financial Crisis Inquiry Commission (FCIC) drew nine main conclusions in its recent "Financial Crisis Inquiry Report." Perhaps the most compelling one: the financial crisis was avoidable.

The FCIC pulls no punches on this point. "The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public," its report says. "[A] crisis of this magnitude need not have occurred."