tagged w/ Foreclosure Crisis
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Is Your State Guilty of Diverting Funds for Homeowners? -- So far, only 27 states have ponied up all of allotted money and made it available to qualified homeowners. For weeks, the online community has been abuzz with the news that some states are now diverting these funds away from homeowners to plug budget shortfalls. Take a look...
http://veracitystew.com/?p=35819Is Your State Guilty of Diverting Funds for Homeowners? -- So far, only 27 states have... more
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We were amazed how simple and effective this new method of protest really is: use the prepaid business reply envelopes in your bank, credit card and mortgage mailers to send a loud message and cause the fat-cats a little profit in the process. We thought it was such a good idea that we decided to make it even easier to protest using this method.
http://veracitystew.com/2011/11/01/occupy-bank-junkmail-the-easy-and-free-way-to-protest-video/We were amazed how simple and effective this new method of protest really is: use the... more
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Everyone knew that the foreclosure fraud crisis was going to spawn a festival of lawsuits, and now it looks like it is already beginning. The New York Federal Reserve Bank is part of a consortium of eight large institutional investment firms that has launched an effort to force Bank of America to repurchase $47 billion worth of mortgages packaged into bonds by its Countrywide Financial unit.Everyone knew that the foreclosure fraud crisis was going to spawn a festival of... more
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by Lindsay Beyerstein, Media Consortium blogger
Earlier this month, Bank of America (BOA), the country’s largest bank, announced a moratorium on foreclosures in all 50 states.
The bank promised not to sell any foreclosed homes or take any more delinquent borrowers to court until it had reviewed its potentially defective foreclosure process. Other major lenders soon announced that they too were suspending foreclosures in dozens of states. Why are the biggest banks in the country voluntarily calling for a time-out? It’s a hint that we’re facing a huge problem: The banks aren’t sure if they have the legal right to foreclose on millions of homes.
Here’s what’s new in foreclosuregate since the Audit took up the story last week. The Bank of America announced that it would resume some foreclosures on Oct. 25, having deemed its own methods sound. The stock market begged to differ. BOA’s stock fell over 5% on Thursday and other bank stocks also took a beating, as did mortgage bonds. This pattern indicates that investors are very worried about the effect of the foreclosure crisis on the health of the banks.
Rep. Alan Grayson (D-FL) is calling for a foreclosure moratorium under the new Financial Stability Oversight Council (FSOC), as Ellen Brown reports for Truthout. The FSOC has the power to preemptively break up any large financial institution that threatens U.S. economic security. Grayson wants a moratorium on all mortgages securitized between 2005 and 2008 until the FSOC can determine which foreclosures are valid and which are bogus.
The missing link
So, what kind of “defects” in the foreclosure process are we talking about? Fraud, basically.
Zach Carter of the Campaign for America’s Future explains to Chris Hayes of the Nation why Bank of America and other major lenders are in so much trouble: They are just administering loans for other lenders. You make your check out to the Bank of America, but the bank is just babysitting after the loan for the bondholders.
The real creditors are the investors who own bonds made up of pieces of many different mortgages, including yours. The bond gives the bondholder a share of the money that you and other borrowers pay each month. If you don’t pay, BOA initiates foreclosure. If you’re late, BOA charges you fees.
However, the bank can’t just hire a foreclosure company to take your home away on a whim. The bank must first show proof that it is entitled to foreclose because you’ve defaulted on your mortgage in the form of a mortgage note. If you hold one of those toxic asset mortgages, there’s a good chance the bank doesn’t have the note.
As Dean Baker explains in Truthout, in many, if not most, cases, “liar loans” (mortgages issued with no proof of income or assets) have become given way to “liar liens” (foreclosures with no proof of default).
According to Carter, all the big banks have been hiring foreclosure mills to rubber-stamp their claims without checking. Unscrupulous foreclosure companies are admitting to “robo-signing,” i.e., foreclosing without even checking whether the bank’s claims were legit.
Foreclosuregate
According to Andy Kroll of Mother Jones, the Bank of America stands to lose up to $70 billion over what’s come to be known as “foreclosuregate.” A mortgage starts out with an originator, typically a bank or a mortgage broker. In the heyday of mortgage-backed securities, investment banks were buying up hundreds of thousands of mortgages, making them into mortgage-backed bonds, and selling them to investors.
Unfortunately, if the bank doesn’t have the note, who does? The mortgage originator may have gone bankrupt, many were fly-by-night operators that folded when the housing bubble burst. Many mortgages were bought and resold more than once before they found their way into a mortgage-backed bond.
So, the question is whether the bank really owned the mortgages it made into mortgage backed-securities and sold to individuals, pension funds, and other institutions. If not, the banks stand could be on the hook for selling assets they didn’t actually own to investors.
Moratorium now
The scandal affects so many mortgages that some lawmakers are calling for a nationwide moratorium on foreclosures until investigators can sort out who owns what once and for all. Rep. Edolphus Towns (D-NY) told Amy Goodman of Democracy Now! that Congress needs to stop banks from putting people out on the street until there is some way to differentiate between fraudulent foreclosures and justified ones:
And so, I just think that people who are saying that this is going to hurt—I think that it’s going to help, because once people gain confidence in the fact that they’re being treated fairly and that there’s no discrepancies in the records, then people will feel very comfortable in terms of trying to move forward. But until that happens, you’re always going to have these comments about the fact that that was not done right, it was done unfairly. And, of course, I think there’s enough here for us to stop and to pause and to say, let’s take a look here before we move forward. So a moratorium is definitely in order.
The Obama administration opposes the moratorium on the grounds that it would hurt the housing market and thereby slow the economy. Towns counters that what would really be bad for the economy is letting banks take people’s homes away without any semblance of due process. If the government doesn’t act to protect the innocent, foreclosuregate could shatter the confidence of potential home buyers. Would you want to invest in a house if you were afraid the bank could just take it away from you?
In AlterNet, Mike Lux argues that fraudulent foreclosures are one more assault on poor and middle class Americans. He argues that the banks are so used to being coddled by Washington that they’re counting on legislators to retroactively change the rules to protect them from the consequences of their own devious behavior.
At this point we don’t know what percentage of foreclosed-upon homes have simply been stolen by banks to pay bondholders, but we do know the problem is vast and systemic. The Obama administration is content to let the banks seize private property first and ask questions later. We need a moratorium to take stock and restore the rule of law.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.by Lindsay Beyerstein, Media Consortium blogger
Earlier this month, Bank of America... more
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by Zach Carter, Media Consortium blogger
A massive foreclosure fraud scandal is rocking the U.S. mortgage market. Wall Street banks and their lawyers are fabricating documents, forging signatures and lying to judges—all to exploit troubled borrowers with enormous, illegal fees, and in some cases, improperly foreclose on borrowers who haven’t missed any payments.
The fraud is so widespread that it could put some big banks out of business and even spark another financial collapse. Fortunately, things haven’t fallen apart just yet. With strong leadership from President Barack Obama and Congress, the government can help keep troubled borrowers in their homes and prevent another meltdown.
One fraud begets another
As Danny Schecter emphasizes in an interview with GRITtv’s Laura Flanders, this mess is just one element of a broader, criminal fraud at the heart of the foreclosure fiasco and resulting financial crisis. Banks pushed fraudulent loans onto borrowers during the housing bubble because the loans could be packaged into mortgage-backed securitizations and pawned off on hedge funds and other banks. Banks made a lot of money from this process, until the mortgages went bad and the fraud-packed securities plummeted in value.
Document drama
At the heart of any mortgage is a document called “The Note”, which lays out the terms of the mortgage and the kinds of fees that banks can levy against borrowers if they fall behind on their payments. Owning the note also gives banks the right to foreclose when a borrower stops paying.
The trouble is, in an effort to cut costs and boost bonuses, banks haven’t kept actually kept track of the note—in fact, they’ve actively destroyed the document so they don’t have to deal with filing it. Now that mortgages are going bad, banks are taking advantage of the documentation vacuum they created to levy massive, illegal fees on borrowers both before and during the foreclosure process. They do this by manufacturing fake documents, forging signatures, and getting bogus signatures from notaries to approve sham documents.
This is all terribly unfair to borrowers. In some cases, illegal fees push borrowers over the edge into foreclosure, while in others, borrowers get saddled with tens of thousands of dollars in illegal fees after getting kicked out of their home. The situation is a national disgrace.
Failure to produce
But the situation also creates legal liabilities that can push banks into failure. If banks can’t pony up the note, they don’t have the right to foreclose—not without some serious, expensive legal maneuvering. And what’s more, if the banks who created these shoddy securities can’t supply notes, investors who bought the securities can force losses back on the banks that created them. Given that there are $2.6 trillion in mortgage-backed securities out there, banks are very worried that losses and lawsuits stemming from shoddy documentation could spark another round of major financial turmoil.
The sheer lack of documentation makes it very difficult for investors to decipher which banks are exposed to loads of red ink, and which banks are not. That’s a recipe for financial panic.
Silencing employees
The banks know they’re in serious trouble. That’s why, as Andy Kroll notes for Mother Jones, mortgage servicers like GMAC are trying to silence employees who can testify about the extent of these frauds. GMAC employee Jeffrey Stephan confessed to robo-signing 10,000 foreclosure documents every month without actually examining them. His acknowledgment sparked the current public scrutiny of foreclosure fraud, which has expanded to banks including JPMorgan Chase and Bank of America.
Kroll was one of the first to report on these fraudulent foreclosure mills and their illegal fees, and his coverage of the issue is essential reading for anybody following the unfolding crisis. Kroll also highlights the wave of new investigations and inquiries being launched by attorneys general in eight states, a phenomenon that is likely to expand as the crisis widens.
As Annie Lowrey details for The Washington Independent, one of those states is Ohio, where Attorney General Richard Cordray is suing GMAC, seeking $25,000 in damages for every fraudulent document the company has filed. In Ohio alone, there have been 190,000 foreclosures over the past two years. Cordray hasn’t won his suit, and not every foreclosure will include fraud, but that’s a potential loss of over $7 billion to GMAC from foreclosures in Ohio alone over the past two years. And that doesn’t include what would be much higher losses to banks who packaged the mortgage securities, who are forced to repurchase them by burned investors.
Banks are doing their best to minimize the appearance of scandal, but the scope of potential losses from outright fraud is quite clearly a threat to the viability of the financial system. It’s easy to imagine a disaster scenario in which the government has no choice but to take major action to prevent the economy from imploding (yes, it can actually get worse).
Obama needs to pick up the slack
So far, President Obama is sending mixed signals about his intentions. As Steve Benen notes for The Washington Monthly, Obama vetoed a bill that would have made it harder for borrowers to show that banks were engaging in fraud during the foreclosure process. That was on Friday—but by Sunday, top Obama adviser David Axelrod was telling the press that the administration was not ready to support a foreclosure moratorium, dismissing the fraud crisis as a set of “mistakes” with lender “paperwork.”
As I note for AlterNet, Axelrod’s comments are a complete mischaracterization of what’s going on in the foreclosure process, and of what can be done. The housing market is a mess because banks have been systematically committing fraud. We cannot rely on such fraudsters to fix the mess– some kind of government action is going to be necessary. Whatever the solution, the administration cannot stand with big Wall Street banks against the borrowers and investors that are being defrauded. Any solution must take the interest of troubled borrowers as paramount. We’ve already tried saving the banks without saving homeowners, and as the unfolding foreclosure fraud crisis illustrates, it didn’t work.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.by Zach Carter, Media Consortium blogger
A massive foreclosure fraud scandal is... more
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NeighborWorks America announced that more than one million homeowners have been counseled for foreclosure.
Even more homeowners are expected to seek foreclosure counseling as 4 million more homeowners are expected to enter into foreclosure this year.
NeighborWorks America offers free foreclosure counseling to homeowners facing foreclosure, and a new survey says foreclosure counseling is affective--those that did receive foreclosure counseling were more likely to avoid home foreclosure.NeighborWorks America announced that more than one million homeowners have been... more
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by Annie Shields, Media Consortium blogger
The June labor market report announced that the unemployment rate is down from 9.7 to 9.5 percent and 83,000 private-sector jobs were created in June. Unfortunately, the situation isn’t quite so rosy. As Annie Lowrey reports for The Washington Independent, the real cause of the drop in unemployment was not more jobs, but fewer workers. Hundreds of thousands of unemployed Americans have now been reclassified as “discouraged” workers who have not actively searched for work for four weeks. As such, they are no longer part of the system.
Unemployed and disenfranchised
What’s worse, the unemployment crisis is hurting some more than others. Among the discouraged workers that have simply dropped out of the labor market, 65% are women. People of color have also been hit especially hard, as have young people that are just entering the labor market. As Katherine S. Newman and David Pedulla of The Nation write:
“The Great Recession is reminding us of how unequal the distribution of damage can be. While virtually everyone other than the top 1 percent is suffering in some fashion, the depth of the fallout varies a great deal by race, education and gender.”
The economic disparities are stark. The unemployment rate for African Americans is nearly twice the rate for whites, while the rate among people 16 to 24 years old is nearly double the rate for all workers. And the disadvantages for these particular groups are expected to persist. According to The Nation:
“Young black men are the most disadvantaged of all in the job tournament, but young workers across the board are in terrible shape in this labor market. If previous recessions are an indication of what’s to come, we can expect these stumbling entries into the world of work to translate into long-term disadvantages, relative to those who come of age in a climate of opportunity.”
Foreclosed and forgotten
The recession is also continuing to devastate homeowners, as Seth Freed Wessler explains for Colorlines. Wessler documents “the country’s long failure to address systemic racial inequity through public policy eventually threw the whole economy into free fall.”
According to a recent report from the Center for Responsible Lending, nearly 6 million homes are at imminent risk of foreclosure right now. It’s estimated that by 2014, 13 million homes will be gone. The report shows that Black, Latino, Asian, Native American and Alaskan Native/Pacific Islander borrowers are all at greater risk for immediate foreclosure than White borrowers.
One of the most startling findings is that between 2009 and 2012, “Black and Latino communities will be drained of $194 and $177 billion, respectively, because of the plummeting home values in the high foreclosure neighborhoods,” Wessler writes.
Unfortunately, there’s little relief in sight for these communities. Wessler explains that the Obama administration’s attempt to help prevent foreclosures, the Home Affordable Modification Program, or HAMP, has done more to help mortgage servicers than struggling homeowners. The recent defeat of an unemployment benefits extension only makes matters worse. Some advocacy groups are calling for a moratorium on foreclosures as a temporary remedy. Obama supported such a measure during his 2008 Presidential campaign.
Silver lining, but no silver bullet
If there is a silver lining to this ominous economic raincloud, it might be found in recent changes to to the Home Mortgage Disclosure Act (HMDA), an anti-redlining measure from 1975. As Kat Aaron and Mary Kane report for The American Prospect, these changes are one result of a long fight against discriminatory lending practices, and could prove to be invaluable for “consumer activists, regulators, and researchers trying to identify egregious lenders and their loans.” The American Prospect has more about the revisions to HMDA and what they might mean for the ongoing fair-lending debate.
Many Americans are also turning to timebanks as an alternative to the down economy. Timebanks provide a cooperative, egalitarian system for sharing skills and trading services with others, free of charge. As Mira Luna reports for Yes! Magazine, the trend might be a result of tough times, but it has an upside.
“Instead of paying professionals who we may never see again to provide services, we can use time exchanges to find neighbors who might provide service in exchange for hour credits, thereby saving scarce U.S. dollars for things like rent and medicine.
In the process, people get to know and trust their neighbors, establishing caring relationships that can help reweave the fabric of our communities, and replace our culture’s over-reliance on individual financial security.”by Annie Shields, Media Consortium blogger
The June labor market report announced... more
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by Zach Carter, Media Consortium blogger
Image courtesy of Flickr user Mark Sardella, via Creative Commons LicenseMore than two years after the collapse of Bear Stearns, the House and Senate finally ironed out their differences on Wall Street reform in the wee, small hours of Friday morning. The bill now goes back to both the House and Senate for final approval, but it’s fate in the Senate is uncertain following the defection of Tea Party Sen. Scott Brown (R-MA).
The resulting bill has several things going for it, but largely misses the critical structural lessons of the Great Financial Crash of 2008. As Wall Street continues to score epic profits and grotesque bonuses over the coming months, progressives must be committed to continuing the fight for a fair economy.
Megabanks intact
As Andy Kroll explains for Mother Jones, the bill essentially lets too-big-to-fail banks off the hook. Megabanks like J.P. Morgan Chase and Citigroup will not be broken up into smaller institutions that could fail safely, nor will they be required to exit many of their most reckless business ventures. One of the most promising reforms still on the table as Congress moved on the bill was a plan to ban banks from gambling with taxpayer money—and Congressional leaders sabotaged it at the last minute.
As Tim Ferhnolz notes for The American Prospect, instead of strengthening the bill by negotiating with committed reformists like Sens. Maria Cantwell (D-WA), and Russ Feingold (D-WI), Senate leadership chose to cut a deal with Tea Party favorite Scott Brown (R-MA). Brown’s price? Allowing banks to gamble by running their own proprietary hedge funds. After Senate negotiators gave Brown what he wanted, he suddenly reversed his support for the bill on Saturday morning.
Derailed by in-fighting
Essentially, petty interpersonal spats overwhelmed the push for real reform. Cantwell and Feingold’s objections to the legislation were correct so far as policy substance were concerned, and Cantwell always made clear that her vote could be won by simply closing a huge loophole in the bill. But after the two Democrats voted against the bill for being unnecessarily weak on the Senate floor, Sen. Chris Dodd (D-CT) simply shut them both out of the negotiation process. This would be funny, if it weren’t true.
Brown had already proved his ability to go back on his word with Senate negotiators just a few weeks prior. He was a committed “yes” vote when the bill went to the Senate floor, but unexpectedly reversed his position at the last minute, causing the legislation to fail the first time it came up for a vote. But instead of trying to cut a deal with progressives, Dodd decided to roll the dice again with Brown, and the legislation now finds itself in limbo, with Senate approval uncertain.
A slight improvement
But despite its unnecessary shortcomings, the Wall Street reform bill is still an improvement over the status quo, as I emphasize for AlterNet. We get a stronger set of consumer protections, along with a thorough audit of the Federal Reserve. The Fed served as the government’s principal bailout engine throughout the crisis, pumping $4 trillion into the nation’s financial system with almost no accountability or oversight. Bringing these massive bailout operations into the light should build momentum for broader reforms, but it’s up to engaged citizens to make that a reality.
There are plenty of major policy battles brewing that directly involve the financial industry. As Dean Baker notes for Truthout, the current economic policy agenda is a Wall Street executive’s dream. Lawmakers are seriously considering slashing Social Security while ignoring an unemployment catastrophe and leaving troubled homeowners out in the lurch. These are all catastrophic economic errors in the making.
Foreclosed again
As Annie Lowrey reports for The Washington Independent, Fannie Mae unveiled a new policy last week to punish borrowers who owe more on their mortgages than their home is worth. As home prices have plunged in value over the past three years, huge swaths of borrowers owe their bank hundreds of thousands more than their home is worth. Now many borrowers, realizing that they are pissing away huge amounts of their monthly income to a ruthless bank, are making the perfectly rational decision to walk away from their mortgage.
In cases where borrowers can, in fact, afford to continue making payments, but simply do not want to waste their money, walking away is called a “strategic default,” and there is nothing wrong with it. Both parties knew the terms of the mortgage agreement when it was signed, and a well-paid, professional banker signed off on it. Borrowers are not violating a contract by failing to pay—in a mortgage, the borrower keeps paying the bank, or the bank gets the house. Walking away just means that the bank gets the house.
But, of course, bankers are upset that they didn’t predict the downturn in home prices, even though this is part of their job description, and the reason they get paid big bucks. When borrowers walk away, bankers lose money. So banks putting pressure on the government, Fannie Mae and Freddie Mac to punish borrowers who walk away, and Fannie Mae has acquiesced by agreeing to shut borrowers out of the mortgage market for seven years, and harassing them in court for unpaid mortgage balances.
Your right to rent
As Greg Kaufmann emphasizes for The Nation, there are much better policy alternatives. Instead of slamming borrowers, the government could encourage bankers to write down their total debt burden to whatever their house is currently worth. Bankers don’t want to do that, because it means taking a loss, and when agencies like Fannie Mae are willing to intimidate borrowers to line bankers’ pockets, why should bankers agree to play ball?
According to Kaufmann, one of the best ways to get banks to negotiate seriously with borrowers is to establish a right-to-rent policy. Borrowers who receive a foreclosure notice would get the right to rent their current home at a fair market rate, determined by a court, for up to five years. Bankers don’t want to be landlords, so the provision would force them to negotiate with borrowers in trouble by imposing an unpleasant new duty on the bank. If bankers still didn’t want to negotiate, borrowers would have five years to find a new place to stay. It’s great policy, and legislation to implement it has already been introduced in the House.
The final version of the Wall Street reform bill is worth supporting, but it won’t fix the foreclosure crisis or prevent bankers from taking outrageous risks that put the entire economy in jeopardy. Many key reforms are still necessary, and it’s up to progressives to keep the pressure on lawmakers to make sure they are enacted in the coming months.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.by Zach Carter, Media Consortium blogger
Image courtesy of Flickr user Mark... more
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by Zach Carter, Media Consortium blogger
Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing—not even outright theft—to boost its profits. What’s worse, Goldman’s scam could have been completely prevented by better regulations and law enforcement.
Goldman’s heist
Let’s be clear. “Financial fraud” means “theft.” Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.
Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn’t tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC’s alleges Goldman did, we’d call it stealing.
As Nick Baumann emphasizes for Mother Jones, the SEC’s suit against Goldman is just the tip of the iceberg. During the savings and loan crisis of the late 1980s, literally thousands of bankers were jailed for financial fraud. Today’s crisis was much larger in scope, yet the Goldman allegations are among the first serious charges of legal wrongdoing to emerge (other complaints have been filed against Regions Bank and former Countrywide CEO Angelo Mozilo). If the SEC or the FBI are doing their jobs, we should see many more of these cases.
Bust ‘em up.
How do banks get away with these kinds of shenanigans and still secure epic taxpayer bailouts? It’s all about their political clout, as Robert Reich notes for The American Prospect. So long as banks are so enormous that they can ruin the economy with their collapse, the institutions will always carry tremendous political clout.
Even in the case of Goldman Sachs, which is too-big-to-fail by any reasonable standard, the SEC’s fraud case is being filed three years after the company’s alleged offense. That’s well after the company rode to safety on the Troubled Asset Relief Program, the AIG bailout and billions more in other indirect assistance—and only after multiple journalists made Goldman’s offensive transactions general public knowledge.
If we don’t break up the big banks, politically connected Wall Street titans will make sure they get bailed out when the next crisis hits, regardless of whatever laws we have on the books.
Fix the derivatives casino
If Congress doesn’t soon pass a bill to break up behemoth banks, it will be neglecting the gravest problem in our financial system today. But several other reforms are needed if Wall Street is ever going to serve a useful economic function again.
As Nomi Prins emphasizes for AlterNet, much of the Wall Street profit machine has been divorced from the economy that the rest of us live in. These days, banks make most of their money from securities trades and derivatives deals. Their actual lending business is taking a beating. That means big banks have very little incentive to promote economic well-being for every day citizens. We need to create these incentives by banning economically essential banks from engaging in securities trades, and make sure all derivatives transactions are conducted on open, transparent exchanges, just like ordinary stocks and bonds.
Better derivatives regulations could help protect against fraud. If Goldman Sachs’ sketchy subprime deal had been subject to market scrutiny on an exchange, it’s very unlikely that any investor would have bought into it. Goldman Sachs almost got away with it because the deal was secretive and beyond the scope of most regulatory oversight.
Protect whistleblowers
The Goldman case also raises significant questions about the government’s enforcement of existing financial fraud laws. Bradley Birkenfeld, a banker for Swiss financial giant UBS, helped the Department of Justice bring the largest tax fraud case in history against his company, which was helping rich Americans hide money from the IRS in offshore bank accounts.
For his cooperation, Birkenfeld was rewarded with a four-year prison sentence, even though nobody else at UBS—nobody—has been sentenced to prison over the scam. As Juan Gonzalez and Amy Goodman emphasize for Democracy Now!, Birkenfeld’s imprisonment could have something to with who exactly is hiding money with UBS.
Gonzalez discusses an interview with Birkenfeld, in which the former banker notes that the bank had a special office to handle the accounts of “politically exposed persons”— American politicians. Moreover, the top brass at UBS includes key advisors to top politicians in both parties. This is exactly the kind of influence smuggling that breaking up the banks would help fix. UBS is a multi-trillion-dollar institution with no less than 27 U.S. subsidiaries.
But protecting Birkenfeld would accomplish still more—by jailing him, the Justice Department is actively discouraging others from coming forward, and making it more difficult for regulators to enforce the law.
Greenspan’s failure
It’s abundantly clear that almost every major regulatory agency charged with curtailing financial excess failed to prevent the Crash of 2008. But that failure doesn’t mean that effective regulation is impossible—it only shows that the regulators in power failed. The top bank regulator in the U.S., John Dugan, was a former bank lobbyist.
As Christopher Hayes demonstrates for The Nation, former Federal Reserve Chairman Alan Greenspan has never had any interest in regulation whatsoever. After the crash, Greenspan insisted that nobody could have seen it coming. But as Hayes notes, many people did—Greenspan simply didn’t listen to them. These days, Greenspan is revising his story, claiming that he did in fact see the crisis coming, but that nobody could have prevented it. That is simply not credible.
Hayes draws a useful parallel Hurricane Katrina, a problem sparked by a natural event that became a catastrophe when regulators failed to take the necessary precautions. The lesson from both Katrina and the financial crash is not that government always screws up—we have plenty of examples of government preventing floods and economic calamity. The lesson we should learn is that people who don’t believe in government will never do a good job governing. As Hayes notes:
If Greenspan couldn’t figure things out, that doesn’t mean others can’t. In fact, developing systems for doing just that is called—quite simply—progress, and Alan Greenspan continues to be one of its enemies.
That is exactly the task that now presents itself before Congress: Developing a system to prevent and constrain economic destruction wielded by Wall Street. The U.S. had a system that did exactly this for more than fifty years. For the last thrity years, it has been systematically dismantled. How well Congress lives up to that challenge will define much of our economic future for decades to come.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.by Zach Carter, Media Consortium blogger
Last week, the Securities and Exchange... more
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As many Americans sank deeper into financial trouble last year, a
record number reported that they fell victim to schemes seeking to
profit from their misfortune, according to a federal report just released.As many Americans sank deeper into financial trouble last year, a
record number... more
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By Zach Carter, Media Consortium Blogger
One year after President Barack Obama secured passage of his critical economic stimulus package, the U.S. Senate is finally taking anther look at how to create jobs and repair the economy. These issues are more important than ever, but absurd Republican obstructionism and timid Democratic negotiation are once again threatening good public policy.
Not really bipartisan, is it?
As Steve Benen notes for The Washington Monthly, the Senate Finance Committee reached a “bipartisan” agreement to supposedly spur job creation last week. Republicans demanded billions in tax cuts for wealthy people, but kept on caterwauling about the federal budget deficit. In exchange for $80 billion to dedicate to jobs—an extremely modest figure given the state of the labor market—Republicans asked for hundreds of billions in giveaways for the rich. And that’s just to get the bill through the Finance Committee, much less the full Senate.
In a piece for Working In These Times, Michelle Chen notes that Senate Majority Leader Harry Reid pulled the plug on the Finance Committee “compromise,” but stripped out a critical extension of unemployment benefits for laid-off workers in the process.
The Republican uproar over such modest job figures is an economically preposterous political ploy, and Democratic cave-ins to their demands are both bad politics and bad economics. Chen notes that 70% of Americans support a $100 billion jobs bill. And we know what kinds of programs help spur employment—many of them were passed in the stimulus bill last year and have saved millions of jobs.
Stopping the Bleeding
In an interview with Christopher Hayes of The Nation, Economic Policy Institute Fellow Josh Bivens explains that Obama’s economic stimulus package has worked well, effectively stopping the job hemorrhaging that the economy was experiencing immediately before Obama took office. Here’s Bivens:
“We haven’t returned to growth on employment … but the rate of contraction has slowed radically. Immediately before the Recovery Act is passed, we’re losing on the order of 700,000 jobs per month … In the past three months, we’re now down to something like between 50 and 75,000 jobs lost per month, on average … it really is a stark before and after.”
Racial inequality and the recession
The trouble is, the stimulus was only big enough to prevent the economy from getting much worse. It was not large enough to return the economy to serious job growth. And the brutal effects of the recession are not being shouldered equally. As LinkTV’s collaboration with ColorLines illustrates (video below), the Great Recession is hitting people of color much harder, but the story of racial inequality is being lost in stories about statistical economic recovery in the financial sector. The special profiles several families of color struggling to make ends meet in the worst recession since the Great Depression, which features Depression-era unemployment rates for African Americans.
“What we don’t see on TV are the [people] who never had a home or a good job to lose in the first place. These are the millions of poor people whose chance to cross the line into middle class has always been cut short by another kind of line, the color line,” says host Chris Rabb, founder of Afro-Netizen.
Rabb, ColorLines and LinkTV describe a social safety net that has been shredded by opportunistic politicians. Instead of focusing on ways to guarantee good jobs, politicians since the Reagan era have demonized black single mothers by exploiting racist stereotypes in an effort to justify slashing federal supports for the poor and unemployed. The result is a fundamentally unstable economy. Our society has weak demand for goods and services in good times, and that demand completely falls apart when economic conditions deteriorate. And while these socially destructive initiatives have been described as “pro-business,” the truth is, businesses don’t like societies where millions of people are impoverished. They don’t have any customers.
Predatory lending strikes again
The recession hasn’t exactly been a picnic for the middle class, either. In an article for Mother Jones, Andy Kroll profiles the mortgage mess that Ocwen Loan Servicing created for borrower Deanna Walters. Unlike millions of other borrowers dealing with mortgage headaches, Walters wasn’t actually behind on her payments. She was making payments regularly, but Ocwen was misplacing them, and charging her thousands of dollars in improper fees. Walters even paid the fees, but Ocwen eventually foreclosed on her home and sold it in an auction without even informing Walters.
As Kroll emphasizes, Ocwen’s antics aren’t unique. There is an entire class of companies known as mortgage servicers that specialize in deceiving and bullying borrowers out of their money. They often use illegal tactics, and as I note for AlterNet, have been systematically exploiting a badly designed foreclosure relief program from the U.S. Treasury Department.
Funding projects that will put people to work
As prominent economist Dean Baker argues for The American Prospect, there are dozens of productive programs that would put millions of people back to work—if they could just get the funding. The government could quickly and easily provide money to improve public transportation, develop open-source software, fund objective clinical drug trials and (my favorite) support writers and artists, whose work would subsequently be available for the public to enjoy for free.
Taxing financial speculation
The federal government can afford these programs right now, especially without any additional tax revenue. But if we’re really worried about the budget deficit, we can always turn to reasonable new sources for taxes. As Sarah Anderson details for Yes!, an obvious place to look is financial speculation. Since excessive and risky trading helped bring down the economy in 2008, a tax discouraging this behavior could make the economy stronger and reap as much as $175 billion a year for the public.
Our economy wouldn’t face troubles of the same order as those it must overcome today if so-called conservatives had not spend decades pursuing a radical agenda to shred the social safety net. The stimulus package has not spurred job growth to date because of cuts demanded by Congressional Republicans, nearly all of whom refused to vote for the bill anyway. Our economy needs a jobs bill now. It’d be nice if Republicans would show some interest in governing, but if they continue to refuse, Democrats must act on their own.
This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.By Zach Carter, Media Consortium Blogger
One year after President Barack Obama... more
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NewObservations.net projects residential real estate prices will fall 12 percent nationwide in 2010.
Our average of four major indexes predicts a total fall in prices of 34% from peak to stable trend. The total fall of 34% is based upon a current loss across four number sets of 19%.
The timing and the total fall vary widely among the data. The most conservative picture of our total fall is a 20% loss. The most radical prediction is that values will fall 51% from peak to stable trend (Please see the summary of results immediately below.).
One data set predicts that we will attain a trend value this year and then push beyond it (See below the First American Core Logic Chart.). The projections provided here artificially limit the loss to a return-to-trend value.NewObservations.net projects residential real estate prices will fall 12 percent... more
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