Idea minimizes risky loan damage
Loan-originating companies should be required to keep a certain percentage of any loan they make, and take the first loss on any contract that goes bad, U.S. Rep. Walt Minnick said Thursday.
Minnick, an Idaho Democrat who serves on the House Financial Services Committee, said he introduced last week a bill with those requirements as a way to avoid some of the worst problems with under-capitalized, risky loans that have crippled the financial system.
The company making the loan “has to keep some skin in the game, and take the first loss,” he told The Spokesman-Review editorial board in an interview. “It’s important to put into the underwriting process an incentive that keeps somebody who makes a loan and does the underwriting from being able to shed all responsibility.”
He currently is suggesting the originator would be required by law to retain at least 15 percent of any loan made, but the final percentage is going to be subject to study and debate.
Minnick also believes all investments need a “systemic regulator” to meet minimum regulations for transparency and adequate reserves. Now there’s a wide range of regulations for different financial operations and investments, from stringent FDIC rules for banks to unregulated hedge funds.
Everyone issuing a security should be regulated by someone, and every security should be subject to minimum standards of disclosure, truthfulness and adequate financial reserves, he said.
“The hedge funds, the investment banks and the AIGs had nobody supervising them, nobody setting reserves … or anybody assessing the risk to the economy,” he said.
Although a freshman, Minnick’s spot on the financial services committee gives him a “front row seat” to debates over the economy.
He disagrees with proposals to loan money to American automakers, and to bail out American International Group, saying both should have gone through bankruptcy to be restructured, shed certain assets and cut costs.
“Bankruptcy court would’ve changed those (AIG) bonus contracts, too,” he said.
In the first three months of Congress, Minnick has earned a reputation as the Democrat who votes least with his party’s leadership. He voted against the stimulus package and the omnibus appropriations bills, which were both pushed by Democratic leadership.
But as the Democrat elected by a small margin from an overwhelmingly Republican district, leadership is allowing him to “vote my district,” he said.