Mortgage Fraud: A Glimmer of Hope

Here is an interview of Matt Taibbi:

Occupy Protesters FIght to Help the Police

Here is a new initiative by the Occupy movement that is a positive change. It is a fight to help those losing their houses and in this case they are out to help a police man hang on to his house...



More details here.

This reminds me of the people during the Great Depression who came to auctions to stop the government from selling off a person's house or farm when the creditors foreclosed.

Rule of Law Will Now be Attempted in the US

One of the foundation stones of civilization, going back thousands of years, is that a state is sound and mature only when it is under the rule of law, i.e. the code of conduct is in fact codified and enforced.

It appears that the US is about to try to stop being a rogue state, a criminal haven, and attempt to live under the 'rule of law'. Here is a video clip of a Dylan Rattigan show talking about the current attempt to bring fraudulent banks under control and impose the rule of law on them:



It is going to be awfully hard for the top 0.1% in the US to accept that the glory days of buying and selling politicians may be coming to an end, that the running of a two-tier legal system where billionaries get a 'get out of jail free card' while the bottom 99.9% feel the heavy hand of a country with the highest incarceration rate in the world might go under.

The rampant criminality where banks commit massive fraud, create a bubble, then let the world's economy go down the drain while the bankers continue to collect billion dollar bonuses may finally be coming to an end. No thanks to Obama. His administration, like the Bush and preceding administrations, has been a total tool of the criminal elite in the US. This push for the 'rule of law' is coming from the state attorney generals. Finally!

The US may finally be stepping back from the brink, from its banana republic, rogue state, criminal enterprise collapse, back into the family of nations where law is above greed. Maybe. We will have to watch this closely.

Media Manipulation

You can't believe what you read. Even the "newspaper of record" in the US, the NY Times, manipulates "the news" to present something other than the facts.

Here is a post by Yves Smith in her Naked Capitalism blog:

Curious Omissions from a New York Times Story on a Foreclosure Auction Protest

As readers may know, we’ve reported from time to time on efforts by community members to block specific foreclosure auctions, since this is a sign of how citizens place much less stock in the credibility of banks and legal procedures than they once did.

So we took interest in a report in the New York Times on an effort to block a foreclosure auction in Brooklyn that resulted in 9 arrests. The article made much of the fact that the protestors sang to disrupt the auction. Key extracts:

It was just after 3 p.m. Thursday in a second-floor courtroom in Brooklyn when an auctioneer announced to a crowd of about 60 people that she would begin selling foreclosed properties…..

The interruption in business as usual at the State Supreme Court building on Adams Street was staged by Organizing for Occupation, a coalition of housing advocacy groups that recently helped halt the eviction of an 82-year-old woman in Bedford-Stuyvesant in a foreclosure proceeding that the woman and her supporters said resulted unjustly from a subprime loan…

Just before 3:30, court officers announced that anyone who did not clear the courtroom would be arrested. Most of the crowd got up and departed, but about 10 singers remained. A moment later, they emerged from the courtroom into a corridor, cuffed, escorted by court officers and still singing…

Inside, spectators and would-be bidders sat on wooden benches in a hallway as they waited for the auction to resume. Among them was Michael Nicholas, 50, from Ridgewood, Queens, who said that he had been attending foreclosure auctions in Brooklyn for a decade but had never before witnessed a choir take over the courtroom.

“I was expecting the auction to begin,” he said. “Then instead I got the chorus line.”

So the protest is made to seem entertaining, harmless (if annoying to people who wanted to conduct business), and quixotic. After all, the protestors were arrested and nothing got done, right?

If you read the more colorfully written account of the same incident at the Village Voice, you’ll see the Times made some crucial omissions. The first is that the foreclosure was under dispute and may have been proceeding improperly:

Morales said that, though negotiations are reportedly on-going between Ward, the man who bought her house, the bank who sold it to him, and the state Attorney General’s office, Ms. Ward is still facing eviction. Last Tuesday, the day before a planned meeting of these parties, the current “alleged” landlord served Ms. Ward with another eviction notice, breaking the lock on her front door to get in and post it. Morales called for a renewed effort towards Ms. Ward’s “eviction patrol.”

The Voice also reports that the protest did succeed in preventing the foreclosure on Thursday. It ins’t clear whether it will be rescheduled to tomorrow, delayed further, or whether the court will decide to seek another resolution. But the effort in the courtroom did achieve a measure of success, while the Times account would lead you to believe otherwise. It’s sort of sad to see that the need to watch out for the interests of the Masters of the Universe has reached the New York Times metro desk.

When the news media is more loyal to corporate interests than they are to the truth, then they are useless and it is time for newspapers to disappear. I find it funny that newspapers all across America complain that they are losing readership. They need to look at how they have sold their readership to their advertisers and then went one step further, they sold truth down the river. They have shown themselves willing to report propaganda and pretend that it is "the news". They deserve to go belly up.

A Simple, Cheap, No-Republicans-Involved Technique to Kick Start the US Economy

I've admired Robert X. Cringely for years. He's a smart dude with this fingers in many pies. My favourite is technology. He has been a top-rate technology reporter for InfoWorld then PBS and lately as a blogger. I read him all the time.

Now he has dazzled me again with a truly simple idea that won't cost the taxpayers any money (at least not initially and probably never much, certainly tens of times less that the TARP bailout for the banks) and will do an end run around the obstructionist Republicans. Read this post from his blog and weep. This is a great solution and should be done immediately:

Dear Barry,

As a nation, we’re out of time, money, and jobs. Despite hundreds of billions of economic stimulus the economy is still in the toilet facing a possible double-dip recession. The new mood of austerity in Washington suggests that more hundreds of billions won’t be available for further stimulus, nor should they be. It’s time to find better solutions that cost little or nothing to implement — solutions that can be directly imposed without having to seek permission from anyone. The foreclosure crisis needs to be addressed, as does the housing market. If solving those problems can also stimulate the economy, well that would be a win-win. If it could be done for no cost at all, that would be a frigging miracle. I think such a miracle is possible.

There are several goals here: 1) slow the pace of foreclosures which would not only keep people in their homes but also help the housing market in general to recover; 2) find a way for underwater homeowners stuck with mortgages at high interest rates to refinance at present very low rates, saving money in the process and creating origination fees for the mortgage industry; 3) give people lower house payments so they can spend the savings, boosting the economy, and; 4) do the whole thing elegantly and at no cost, as if by magic.

The way to do this is for Fannie Mae and Freddie Mac and the Federal Housing Administration and the Veterans Administration and any other government-sponsored mortgage programs you can name to waive the appraisal requirement on non cash-out refinance applications for owner-occupied homes under these programs.

The main problem with refinancing mortgages for underwater houses is the underwater part. And the extent to which homes are determined to be underwater is based on comparing the appraised value of the home to the amount being refinanced. If the mortgage is underwater, refinancing is a no-can-do, so we go through the monkey-motion of mortgage modification — programs that have generally been undermined by the mortgage servicers.

Efforts to help the housing market to this point have been expensive and not very effective. Frankly they’ve benefited mortgage investors and done little or nothing for homeowners.

The trick here is to stop moralizing and pointing fingers and just find a loophole that will allow 30 million mortgage holders to refinance their loans at lower rates. This isn’t a write-down or a bail-out. People will still owe more than their homes are probably worth, but they’ll owe it at current interest rates, not past rates. Their mortgage payments will be lower and they’ll be less likely to walk away from their homes or otherwise go into foreclosure. Their homes will come off the market more or less permanently, reducing the inventory of unsold homes which will inevitably lead to a firming of prices and possibly stimulating new home construction.

Just temporarily eliminate the appraisal requirement for federally insured mortgages. That’s it.

There is no legal requirement that there be an appraisal and, in fact, there is a long tradition in the mortgage business of appraisals not being required for homes that were recently bought or sold. The key is that the homeowner is not trying to take cash out of his house, just lower his interest rate and therefore his monthly payment.

So the Federal Housing Finance Agency would order that for the next 12 months all refinances of existing mortgages for owner-occupied homes under its constituent agencies and not involving cash out will not require an appraisal. The transaction comes down to exchanging a mortgage at a higher rate with one of a lower rate, that’s all. Millions of homeowners will go from 6-7 percent down to 3-4 percent, saving an average $300 per month in the process — the equivalent of a $100 billion economic stimulus for no real cost at all.

Understand that people will still effectively owe more than their homes are worth, so they won’t be able to sell them. But since their payments will be lower they also won’t want to sell them, at least not as much. Foreclosures will ease dramatically and everyone will feel happier. The banking industry will love it because they’ll still have their federal insurance on mortgages while enjoying an explosion of mortgage demand which will create new banking jobs.

Understand these aren’t modifications, they are re-fi’s. Nobody is losing anything.

Yeah, but aren’t we engaging in a ruse? How can this work? Won’t it end up costing the government a bundle?

Nope. Payments will be lower so people can afford their homes, but they’ll still be essentially trapped in those homes, though that’s okay. Eventually the market will recover (sooner because we’re doing this) and those homes will come out from underwater and can slowly go back on the market for resale.

It is simple, it would work, it requires no act of Congress or even a Presidential order. It can be implemented on Tuesday with an impact measurable on Wednesday. It won’t cost the government anything and everyone involved will be happy.

Run with it, Barry. Be a hero.

Americans should be flooding the White House with demands that this solution be instigated immediately. Obama needs to grow some balls and act like a real leader and lead.

I remember my history. When Teddy Roosevelt was refused funds to send the US Navy on a flag waving trip around the world, Roosevelt simply ordered the fleet to sea and sent them off (see this and this). He knew that when the fleet ran low on coal and needed refueling to get home, Congress would have to act. Why can't Obama show leadership like this to get around the idiotic obstructionist Republicans?

Criminality Still Rampant in US Banks

It is hard to believe, but US banks continue to create forged documents in order to foreclose on properties. This was exposed well over a year ago, and it is still going on. Worse, the Obama administration is presuring New York to join 49 other states in doing a deal to collect a few billion dollars as a "fine" and then declare that what was done was done and no criminal prosecutions will be launched. That is insane given the news that these crimes continue even as the negotiations with Obama's Justice Department and the Attorney Generals of all 50 states are in progress.

Here is a post by Barry Ritholtz in his The Big Picture blog:

As hard as it may seem to believe, the largest mortgage servicers are still fabricating documents for use in foreclosures.

That’s according to an article in American Banker, titled Robo-Signing Redux: Servicers Still Fabricating Foreclosure Documents.

Key points:

• The practice continues a year after the companies were caught in the robo-signing scandal, even as the industry has been negotiating a settlement with state attorneys general re: loan-servicing abuses.

• Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

• Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

• North Carolina consumer bankruptcy lawyer O. Max Gardner III says servicers and trustees often submit promissory notes in court without proper endorsements, which show the chain of title from one lender to another. Then, after the fact, there will be “a magically appearing note with a stamped endorsement,” Gardner said.

• When plaintiff’s lawyers then try to depose the person whose name is stamped on the endorsement, “we’re being told the person is no longer employed by the servicer or by the party for whom they signed,” Gardner says.

• Linda Tirelli, a New York bankruptcy lawyer, calls such mortgage documents “Ta-Da!” assignments because they seem to appear out of nowhere.

This is why a full investigation must be absolutely mandatory prior to any settlements with the lenders or servicers.

It is absolutely disgusting that Obama has refused to go after the banks that caused the $11 trillion collapse in the US economy. Not one single prosecution. And here, in the dust of the financial meltdown, the same banks are now out creating more crimes as they try to collect on mortgages for which they have lost the paperwork. They are simply creating forgeries to seize properties for which they do not have the proper legal paperwork. In polite society that is call "theft" and Obama is not only turning a blind eye, he is putting pressure on NY to going 49 other states to take a payoff to close the books on these crimes and let the banks off the hook. That would be bad enough by itself, but to put this pressure on the "close the books" while the banks continue to commit the same crimes again and again and again is simply unconscionable. I have lost all respect for Obama. He is pushing to hide crimes while the crimes continue!

Republican Mismanagement of the US Economy

What I find ludicrous is how the Republicans want to lecture the Democrats and Obama about "economics" and "budgets" and "deficits and debts".

Here is a bit from an article by Nobel prize-winning economist Joseph Stiglitz in Project Syndicate:

Even if Bush could be forgiven for taking America, and much of the rest of the world, to war on false pretenses, and for misrepresenting the cost of the venture, there is no excuse for how he chose to finance it. His was the first war in history paid for entirely on credit. As America went into battle, with deficits already soaring from his 2001 tax cut, Bush decided to plunge ahead with yet another round of tax “relief” for the wealthy.

Today, America is focused on unemployment and the deficit. Both threats to America’s future can, in no small measure, be traced to the wars in Afghanistan and Iraq. Increased defense spending, together with the Bush tax cuts, is a key reason why America went from a fiscal surplus of 2% of GDP when Bush was elected to its parlous deficit and debt position today. Direct government spending on those wars so far amounts to roughly $2 trillion – $17,000 for every US household – with bills yet to be received increasing this amount by more than 50%.

So how big is "the tab" that Bush and the Republicans have run up for their "war of choice"?

Indeed, when Linda Bilmes and I calculated America’s war costs three years ago, the conservative tally was $3-5 trillion. Since then, the costs have mounted further. With almost 50% of returning troops eligible to receive some level of disability payment, and more than 600,000 treated so far in veterans’ medical facilities, we now estimate that future disability payments and health-care costs will total $600-900 billion. But the social costs, reflected in veteran suicides (which have topped 18 per day in recent years) and family breakups, are incalculable.

Right now you've got the Republicans saying that won't add $1 billion to FEMA to help the latest victims of a natural disaster "because America is broke". Funny... nobody noticed this "broke" problem in 2001, 2002, 2003, 2004, 2005, 2006, 2007, or 2008 when Bush and the Republians were spending taxpayers money like a drunken sailor.

What I can't believe is that voters in the US continue to believe the incredible nonsense spewed by the Republicans, especially by their outrageous presidential "candidates" who show abysmal knowledge of economics, of foreign affairs, of the Constitution, of American history, of the legislative process, and the pain & hurt among the unemployed, foreclosed, the retired and soon-to-retire who have lost their life savings, and the young who face a job market that will be closed to them for a decade. These bozos claim they can "run" America. Yeah... just like Bush ran America... right into the ground.

Cringely Finds the Housing Bubble Still Frothing

I find this amazing.

Robert X. Cringely has a post on his blog I, Cringely that knocks my socks off. The banking industry corruption hasn't died with the 2001-2007 bubble bursting. The sleazeballs in the financial industry have found another way to milk the system and get housing to pay and pay:

A year ago I wrote a sad little column about my friend Ralph and his difficulty getting his mortgage adjusted. Ralph had lost his tech job, there was this federal program to help people in his position lower their mortgage payments, but for some reason it just wasn’t working. His lender kept losing the paperwork, forcing Ralph to reapply three times. Twelve months later Ralph is now working hard at a tech startup that can’t yet afford to pay him, he’s thankful his wife has a good business reselling children’s clothes, but their mortgage still hasn’t been modified, though Ralph keeps trying.

Here are the numbers so far, according to Ralph:

He has dealt with 11 different bank negotiators
He has applied for either 8 or 10 modifications (depends who you ask)
He has made 50 phone calls
He has sent 35 FedEx shipments
He has faxed the bank 300 pages
He scanned 70 pages to PDF and sent by e-mail
He initiated one Congressional inquiry

Understand here that Ralph isn’t an outlier. He is not in foreclosure. He’s precisely in the intended sweet spot for this federal loan modification program — just the sort of customer who ought to easily qualify — and has qualified several times only to have the deal fall apart every time.

...

Instead of concentrating on who is being hurt by it, let’s look at who is profiting. And a lot of people are profiting. Financial bubbles eventually pop, that’s the rule. But this historic housing bubble from 2001-2007 we’re still recovering from hasn’t popped for everyone, at least not yet.

The first thing to notice is that most homeowners aren’t in Ralph’s position. For all the mortgage distress out there only about 14 percent of U.S. homeowners are behind in their payments or in foreclosure. While this is a huge number (something in the range of nine million mortgages) it still leaves 86 percent of U.S. mortgages intact and being repaid. With interest rates at historic lows you’d guess that most of that 86 percent have recently refinanced to take advantage of lower payments. No, they haven’t.

A quarter of those homeowners in good standing have no equity left in their homes at all and the rest have significantly less than they once did — often not enough to qualify for a new mortgage. So they just keep paying on the old one, which is at a significantly higher interest rate. That’s why we saw a refinance flurry in 2008 that has since, for the most part, vanished.

Rates are down, sure, but qualifying rules are stricter and there are at least 30 million U.S. homeowners who are literally trapped in their old mortgages. A few walk away, but most don’t because they worry about ruining their credit. And this means that while new 30 year mortgage rates are in the 3-4 percent range, the average rate paid by these trapped homeowners on their old mortgages is twice that. And since their loan initiation overhead was amortized years ago, their actual yield is even higher.

Are you making seven percent on your money?

What we have here is an astounding corruption of the mortgage market. This game is rigged, yet everyone in government from President Obama down pretends that it isn’t. And don’t blame just Obama: the Republicans might be even worse.

Over the last 30 years the average American home was refinanced every three to four years. That was the life expectancy of your 30-year loan in the mind of the guy at the bank who approved it, when, six years ago? But these underwater and zero-equity ghost mortgages have become essentially perpetual, since they can’t be refinanced and nobody will buy the houses.

This is all you need to know to understand the stalled U.S. housing market: it is stalled because a class of investors has found a way for their investments to not only live on after the housing bubble popped, they are actually making more — in some cases a lot more — than they were on that money when the loans were originated. They are doing so well, in fact, that they can’t imagine a circumstance under which they would ever allow the ghost mortgages to go away, no matter the cost to the economy or the nation.

So the ghost loans aren’t going away. And the longer this unnatural situation lasts the more all the rest of us are being hurt.

Understand that we are talking about at least $2 trillion in ghost loans that really ought to have been refinanced but weren’t because of these structural issues and because the banks — who clearly know what’s happening — don’t have the guts to stand against their investors. But that’s nothing new. And it’s not going to change until someone at the very top does something about it.

I've found it very odd that over the last couple of years that the HAMP program wasn't working. At first I thought it was just a teething problem with a new program, but it has been too long for that. With the above article by Cringely, I now understand why it hasn't worked and never will work. There is money to be made by keeping people in the never-ending torture of being in over their heads with a mortgage.

If Obama actually cared about the economy or cared about the people, he and his "team" would have noticed this by now. The fact that they haven't noticed says me me that the real "team" he is playing on is the banks and the financial industry. He is turning a blind eye so that his buddies on Wall Street and the banks can keep stuffing their pockets with money from people caught in a never-ending nightmare.

With a Little Help from Your Friends

It is amazing how open-handed the US government has been with fraudulent and greedy bankers who drove the US (and world) economy into the greatest depression since the Great Depression. But that same government just can't see any need to help individuals. They aren't "worthy" of a bailout.

Here's a bit from an article on Bloomberg News:

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

Think about that. The government had a choice. It could save America from a depression by either (a) giving $1.7 trillion to a handful of powerful bankers who created the problem or (b) giving $1.7 trillion to 6.5 million people who were losing their houses because of the economic crisis. So of course Bush, and then Obama, decided that the money was best spent by giving it to people who committed fraud rather than work for a living.

Here we are just over two years later, and did that $1.7 trillion solve the problem?

The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.

Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed. Citigroup’s shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.

Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.

Nope.

So... the US is headed back into another banking crisis. What will Obama do this time. I'm guessing an even bigger free handout to the corrupt bankers. I can stake my life on the fact that he will do nothing to help homeowners struggling with foreclosure and he is only giving lip-service to a "jobs plan". Nope. It will be more freebies for the billion dollar bankers.

And the Republicans? They are upset because Obama is slow to whip out the national purse and hand it over to "the job creators". They not only want to leave the unemployed and people with underwater mortgages hanging and twisting slowly in the wind. They want to raise taxes on the bottom 90% so that yet more free money can be handed out as tax cuts and incentives and special programs for the billionaire "job creators".

The Complexity of Making a Very Simple Calculation

I've been told you should never make an argument by analogy because people will fail to understand the analogy. Here's Dean Baker trying to explain why Allan Sloan doesn't really understand the cost of the TARP bailout. Baker explains how the banks were subsidized by using a hypothetical analogy where he assumes that the government subsidizes mortgages. It is an excellent argument and a fine analogy, but I'm afraid most people won't understand it. I constantly get blank stares when I try to argue by analogy.

From Dean Baker's Beat the Press blog:

The Cost of the Bailout As Calculated by Allan Sloan

Allan Sloan had a lengthy piece in the Post business section last week examining the cost of the bailout. He showed that the vast majority of the money was repaid with interest, with Fannie and Freddie being the big exceptions. He followed this up with an explanatory piece today. This analysis is worth a bit of additional explanation.

Sloan did exactly what he said, he did a straight cash out, cash in analysis. How much money did the government lend to financial institutions and how much did it get back. By this measure he is absolutely right, the government made money on the vast majority of its loans.

However, this is a very incomplete analysis. Suppose the government announced a new mortgage program in which it would give every homeowner who meets a minimal standard a mortgage at 1.0 percent interest. Presumably the vast majority of homeowners would repay the loan. In the methodology used by Sloan, the government would make money on this deal.

If the government can make money by making low cost mortgages available, why shouldn't it do this? Well, this move would actually carry an enormous cost to the government and the economy. The government typically borrows at interest rates well above 1.0 percent. The gap between the interest rate that the government pays on its borrowing and the 1.0 percent it gets back on the mortgage loans is a direct cost to the Treasury.

Even more important are the costs to the economy. By making a vast amount of capital available to homeowners at very low cost the government is diverting capital from other uses. (This is less of an issue in a period in which we have 9.2 percent unemployment and vast amounts of excess capacity.) This means that money that might have been used developing new software, better medical technology, or cleaner forms of energy production will instead go into home construction because the government is allowing people to borrow money so cheaply.

In fact, the government can cause this diversion of money without even lending at a below market rate. Suppose it just guaranteed all mortgages at 100 percent value. This would have the same effect on the economy as lending to homeowners at below market rates since it would divert capital from other uses into housing.

This is what happened with the bailouts. The government lent money at interest rates that were far below market levels and also provided guarantees so that private lenders would make loans at much lower rates than would otherwise have been the case. We don't know the exact financial situation of the banks in the immediate aftermath of the crisis, but there can be little doubt that Bank of America and Citigroup would have quickly gone under if left to the mercies of the market. The same is true of Goldman Sachs and Morgan Stanley who were the victims of a classic bank-run that was only stopped when the Fed let them become commercial banks, granting them its protection as well as that of the FDIC.

Left to the market, the shareholders of these companies would have been wiped out, their executives put out on the street and their creditors forced to take substantial haircuts. Instead, the bailouts kept them in business and allowed them to return to their pre-crash profitability.

While this was arguably a desirable policy for the economy as a whole, there is no reason that the Fed and Treasury could not have extracted a much larger price for rescuing these institutions. It could have put an end permanently to the multi-million dollar Wall Street compensation packages. It could have required that the too big to fail banks commit themselves to breaking up once the markets stabilized. It could have wiped out shareholders.

Instead, the bailouts made a vast amount of capital available to Wall Street at a time when capital was scare and therefore valuable. In this sense the bailouts were a enormous gift from average people to some of the richest people in the country, even if the money did not flow directly through the Treasury.

The simple fact is that the real cost wasn't the money lent and paid back. The real cost was the foregone use of the money, the taxpayer's money. The taxpayer's subsidized the banks in two ways:

1. Dean Baker points out that the interest rate the government charged the banks was below market rate, so the foregone interest that the government could have gotten was taken out of the taxpayer's pocket since those are government funds that the taxpayer had to make up.


2. Baker doesn't point out that when the Federal Reserve lowered rates to zero, this meant that savers all through society saw their income plummet. This was an involuntary and secret tax on the saver portion of the taxpayer base. If you were living off interest on your bank account (investments) then you lost money because the Federal Reserve moved the cost of money down in order to save the banks. This social policy favoured borrowers (the banks) at the expense of creditors (the savers).

The Wall Street bankers made out like bandits. Instead of losing their money and their jobs, they were saved by the taxpayers. Then these Wall Street bankers spit in the eye of the public by awarding themselves record "performance" bonuses! They were bankrupt ninnies, but they were saved by the taxpayer and that had the ill grace to thumb their nose at the public by taking the public's money and using it to award themselves big bonuses!

One of the big drags on the US economy is the over-sized financial industry. It is a dead weight. It is supposed to earn its keep by doing the job of moving money from savers to entrepreneurs building businesses and creating jobs. But instead Wall Street has been extracting an outrageous "premium" for its services and on top of that it has crashed the economy. They caused the greatest crash since the Great Depression and they have gone on to pay themselves historically high "bonuses" for a job well done!

I can understand Bush and the Republicans sheltering the Wall Street bankers. What I can't understand is Obama and the Democrats allowing this charade of socialized losses (use taxpayer money to bailout the rich) while giving the crudest, meanest social Darwinist capitalism for the bottom 90% (letting them lose jobs and houses through no fault of their own but as innocent victims of the crash created by fraud and greed on Wall Street).

I will never cease to be amazed at the hideous immorality of the world. I can only laugh hysterically when religious types tell me that God looks after this world and ensures justice. Yeah, sure!

Dean Baker Takes David Brooks to the Wood Shed

Dean Baker's blog Beat the Press is his watchdog post from which he daily gives thrashings to wayward reporters, columnists, and media companies for their short comings. Here are a fit bits from a post taking David Brooks to task:

"Night is day," "slavery is freedom," okay David Brooks edited those lines out of his column on Fannie Mae today, but this is pretty much how the rest of it reads. He tells us that the economic crisis was the result of Fannie Mae pushing bad mortgages and buying off everyone who tried to stand in their way.

There's a small problem in this story. The worst junk mortgages that inflated the housing bubble to extraordinary levels were not bought and securitized by Fannie and Freddie, they were securitized by Citigroup, Merrill Lynch, Goldman Sachs, Lehman and the other private investment banks. These investment banks gobbled up the worst subprime and Alt-A garbage that sleaze operations like Ameriquest and Countrywide pushed on homebuyers.

The trillions of dollars that the geniuses at the private investment banks funneled into the housing market were the force that inflated the bubble to its 2006 peaks. Fannie and Freddie were followers in this story, jumping into the subprime and Alt-A market in 2005 to try to maintain market share. They were not the leaders.

...

It is incredible, that even after the collapse of the housing bubble has wrecked the economy and wiped out the life's savings of tens of millions of middle class and moderate income families (these is why people are not spending, it has little to do with "pessimism"), there is still so little effort to re-examine the fixation on homeownership in this country.

Why on earth is President Obama looking to push a renewed Fannie and Freddie type system? Does the public really need to subsidize mortgage interest rates through a government guarantee system, in addition to the mortgage interest deduction?

Brooks might devote some of his fire to these loonie schemes. He might also shoot at the whiners who think no one will issue a mortgage if they have to maintain a 5 percent stake in it. And, he might also call for some criminal investigations of the banks that pushed and securitized fraudulent mortgages. But none of this seems to fit Brooks' agenda.

In my opinion, Baker should have taken the whip to Obama and given him more of a thrashing. Obama has failed miserably to take this Great Recession seriously. He apparently wants to outdo Hoover in posing as "the Great Engineer" with a heart of gold but surrounded by Hoovervilles stuffed with the shattered people who by no fault of their own have had their lives ruined by Obama's buddies, the "financial engineers" of Wall Street.

And what makes this scenario particularly galling? In 1933 the American voter had a party to the left of Hoover, a party with a campaign slogan to get the country moving again. In 2012 the American electorate will have a choice of a party to the right of Obama whose only electoral goal will be to cut taxes on the rich so that the 30 year charade of stealing from the poor to give to the rich can continue! In short, voters in 1932 had a choice, but in 2012 voters can choose between "Hoovervilles for millions versus Hoovervilles for tens of millions"...

Or should I be calling the homeless centres and the people sleeping in boxes in urban centres "Obamavilles"?

A Ticking Time Bomb

Obama made a modest effort to fix the debt crisis with his HAMP program. But as this bit from Wikipedia makes clear:

Neil Barofsky, then the inspector general of TARP program, testified before Congress that HAMP was “clearly a failure.”

Obama has not faced up to his failure.

From the Calculated Risk blog, here are the stats about homes at risk:

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And this graph makes clear that the more a house is "underwater" with its mortgage, the higher the likelihood that the owners will default:

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And this is the consequence on the wealth of American families. Here is the portion of their homes owned by Americans. As you can see, with mortgages high and values down, most of the home is owned by the banks:

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The American public is facing a poor job market and watching their house values continue to sink. Obama needs to work on both these fronts.

• Create some kind of WPA program to let the young and unemployed get a foothold in the job market by creating "make work" jobs that actually would do some good: filling potholes, painting, cleaning up streets and parks, etc.


• Create a lifeline to underwater home owners who are struggling to make payments. Let them sell future equity in their homes for cash now or to lower their mortgage payments.

Both of these programs would lift the spirits of the people.

The True Story of Obama Fiddling While Rome Burns

Here are some facts pulled from a very interesting post on a blog named The Economic Collapse. I don't buy the hysteria or apocalyptic doomsday nonsense, but I do find these facts very telling. They show that Obama is completely handcuffed by his Wall Street team (Bernanke, Geithner, Summers, etc,) and hasn't done a whit to solve the housing crisis:
The following are 20 really wacky statistics about the U.S. real estate crisis....

#1 According to Zillow, 28.4 percent of all single-family homes with a mortgage in the United States are now underwater.

#2 Zillow has also announced that the average price of a home in the U.S. is about 8 percent lower than it was a year ago and that it continues to fall about 1 percent a month.

#3 U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

#4 During the first quarter of 2011, home values declined at the fastest rate since late 2008.

#5 According to Zillow, more than 55 percent of all single-family homes with a mortgage in Atlanta have negative equity and more than 68 percent of all single-family homes with a mortgage in Phoenix have negative equity.

#6 U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

#7 In February, U.S. housing starts experienced their largest decline in 27 years.

#8 New home sales in the United States are now down 80% from the peak in July 2005.

#9 Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

#10 According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

Go read the whole post to get the other 10 plus some embedded links and commentary.

It is tragic that 2008 was poised to be a hinge point in history like 1932 when a new leader of stature and independent mind like FDR stepped forward to save a nation from itself. But instead, Barack Obama, who seemed to promise "hope" and "change you can believe in" delivered modest embellishments and a few minor alterations. Obama saw himself as a figure like Lincoln stepping into a tear in the fabric of history with the chance to lead a nation to a much needed change with a new vision of federalism and human rights. Instead, Obama delivered more secret tortures in Guantanamo, targeted assassinations, and gave Wall Street a free hand.

It is as if Lincoln ran in 1860 but the public discovered Andrew Johnson taking the oath of presidency in 1861.

The US cried out for change, but got "adjustments" around the fringes. Sure, Obama is a huge improvement over Bush. Sure, Obama is a moral giant and a great leader compared to the midgets that the Republican party puts forward as "leaders". But in reality, Obama looks big only because he is surrounded by fools and incompetents. Obama is living through a Norma Desmond moment: "I am big, it's the pictures that got small!"

Déjà Vu All Over Again

Here's a post by Dean Baker on the US housing bubble:

It seems not given the almost complete lack of coverage of the release of data from the Census Bureau showing that the homeownership rate had fallen to its lowest level since the 4th quarter of 1998. I date the bubble as beginning in 1996. It remains to be seen whether all the growth in homeownership associated with the bubble will be reversed.

On a more positive note, the release did show a substantial decline in vacancy rates, although they are still at historically high levels. With most of the air now gone from the housing bubble, we may finally be getting back to a more normal market.

What goes up, must come down. What goes around, comes around. Seems to me this is just Nietzsche's "eternal recurrence" theme.

Oh... and one more cliché... a picture is worth a thousand words:

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When my parents died in late 2008 I had to sell their home. They had a 2000 sq. ft. wonderful house in the foothills in Arizona looking out at the mountains. Their house was alway big, fancy, and more expensive than mine. But they died part way into the bubble crash. So I struggled to sell it and finally got $244,000 for it. Three times what they paid to have it built 30 years before (which is slightly less than inflation if you use the BLS calculator). Meanwhile I sold my dumpy old house in the Vancouver area here in Canada. We didn't have a housing crash. I got $800,000 for it. That's over nine times what I paid for it 25 years earlier (and five times inflation if you use the Bank of Canada calculator). And my house was 50 years old, crappy, in a bad neighborhood, only 1000 sq. ft., and had no view.

That's the difference you get if you let your government hand over the keys to the kingdom to Wall Street banks that then run your economy into the ground with bubble after bubble. Luckily in Canada we believe in government and we believe in regulation, so our banks didn't collapse and our housing market didn't collapse. So much for all that chest beating in the US about "free markets" and "shrink government down to the size where it can be drowned in a bathtub" in libertarian and neoclassical economic philosophy. I prefer my government to be robust, effective, and deliver me social services that I find valuable. I enjoy my government supplied universal health care.

I can hardly wait for Wall Street to come up with the next bubble to explode on the long suffering Americans. I've got my popcorn and coke ready. Entertain me!

Bad News for American Home Owners

House prices in Canada have continued to rise, construction is still strong, and problems with mortgage payments are minimal. So it is odd to look south of the border and see the mess there. From Zillow:

- Negative equity reached a new high with 28.4 percent of all single-family homes with mortgages underwater, up from 27 percent in Q4 2010, due to accelerating home value declines.

- New data reveals bottom in home values unlikely to appear in 2011. Zillow has revised its forecast and now predicts a bottom in 2012 at the earliest.

What is especially astounding is that first Bush and now Obama have "solemnly pledged" to help American homeowners in this crisis. But as far as I can tell they have done nothing constructive. What they helped were the Wall Street banks and the big bonuses for fat cats on Wall Street.

Selling the American Dream... Down the River

Here is a bit from a post on the BoingBoing blog about an economist who worked really, really hard to pump up the real estate balloon which popped and has spread misery, unemployment, and foreclosures across the land...

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David Lereah served as economist for the National Association of Realtors and published a series of books advising readers that there was no real estate bubble and that buying highly leveraged property would make them rich. The Amazon reviews sections for these books have become a kind of performance space for highly sarcastic commentary on the conmen who sold America on the idea of going into hock to buy real estate.

The sad fact is that knowingly pumping up a financial bubble that costs 14 million jobs and causes several million Americans to lose their homes is not a crime. To my mind David Lereah created more unjustified suffering than all the American criminals of the 20th century, but unlike the, he gets to walk the street and live off the "earnings" of the people he lied to and misled. He will never spend a day in jail. But he left more pain, suffering, and misery that all the Al Capones, mafiosi, and drug gangs combined. There is no justice here.

Big Trouble in Little China

All is not rosy in China...



This bubble is going to burst. But unlike the US housing bubble which was built on liar loans and corrupt financial transactions, I do believe this bubble will leave a positive legacy: it has built real stuff that can be used by real people. The problem is the stuff is priced too high. But once the bubble bursts, prices fall, then people can afford to move into all these wonderful new buildings.

Capitalism is infested with bubbles. That's because humans are driven by fear, greed, and panic. China is just waiting for the fear and panic to set in.

The distortions of China are not contained to China. They affect places around the world. They certainly keep the Vancouver housing market way over-priced. I sold my crummy old house for a fortune because the rich Chinese are snapping up properties in Vancouver. I sold a 50 years old rundown house for nine times what I paid for it in 1983 and took that money and spent a third of it to buy a very nice newish (10 year old) home 100 miles away from Vancouver. I was happy enough to move away since I enjoy nature and now live in a farming area with gorgeous views. In Vancouver I had no view. I was in an urban area that was going more and more upscale while people's salaries were fairly stagnant. It is an insane formula for putting people on a treadmill for life trying to "afford" modest housing.

CBS Uncovers Massive US Mortgage Fraud

Nobody has gone to jail, but billions have been stolen. This is not an "accident". This theft was coldly calculated by Wall Street banks and big banks across the US. And nobody has gone to jail for these massive crimes!

You will be thrown in the slammer if your steal $20 from the corner store, but steal a billion or two and the legal system has no interest in you. Instead you get legislators fawning over you, asking you just which new "legislation" you want passed to facilitate their "entrepreneurial impulses". You get to shake the President's hand and appointed to his blue ribbon commissions.

It is incredible...

This is the wet dream of Reagan with his "trickle down" economics. It has all come true. And you can watch the fruits of lobbying and money buying politicians over the last 30 years in this CBS Sixty Minutes report:




I love the careful language. Sheila Bair, Chairman of the FDIC, the guys who are supposed to make sure that the money the bank claims to have they really have. But when she talks about this massive mortgage fraud her language becomes "this became pervasive and it got sloppy" and "cutting corners" and "not having any quality controls". Funny language for a crime. That is like talking about a corner store bandit as "the fellow had a bad haircut and appears strangely nervous". I don't think that is the commentary most people have when they are talking about a thief. They use worlds like "crime", "theft", "stealing". But when you steal billions, the language becomes oh so much more "genteel"!

I think it is funny that Sheila Bair is talking about the fix being the setting up of a "cleanup fund". Why I bet Al Capone would have been delighted to hear Elliot Ness decide to stop busting still and arresting crooks and instead focus on "setting up a cleanup fund" to handle the problem of illegal and deadly home brewed alcohol. In fact, I'm pretty sure the entire prison population of the US would love to be treated by Wall Street execs and big bank execs and be treated to "cleanup funds" instead of hard time in the slammer.

I'm waiting for "perp walks" for the top layer of management for all of the Wall Street banks and all the big banks in America (plus a lot of the big international banks). Until that happens, this isn't justice. This is giving a "get out of jail free" to thiefs who specialize in stealing billions while throwing the book at the thief who steals $20. This isn't "justice". This is a system where the criminals run the "justice system" for their own benefit and have bought and paid for the "government" to get the laws they want.

Click here to read the full CBS Sixty Minutes report on this massive mortgage fraud. Lynn Szymoniak should be given some "citizen's award" for exposing this massive corruption. Why is Szymoniak mostly unknown while the big criminals are still CEOs on Wall Street and in the big banks? Where is the justice?

Update 2011apr06: From The BIg Picture blog, here is a bit about the size of the mortgage problem in the US:

From LPS’ First Look/Mortgage Monitor:

• Total U.S. loan delinquency rate: 8.8%
• Total U.S. foreclosure inventory rate: 4.15%
• Total U.S. non-current inventory: 6,856,000
• States with most non-current loans: Florida, Nevada, Mississippi, New Jersey, Georgia
• States with fewest non-current loans: Montana, Wyoming, Alaska, South Dakota, North Dakota

The LPS report also noted that “February’s data also showed a 23 percent increase in Option ARM foreclosures over the last six months, far more than any other product type. In terms of absolute numbers, Option ARM foreclosures stand at 18.8 percent, a higher level than Subprime foreclosures ever reached.”

Read that again. There are nearly 6.9 million houses that will be foreclosed in the near future.

US Mortgage Fraud

Here is Barry Ritholtz in his The Big Picture blog making it very clear that the banks have shown contempt for the law in their handling of mortgages and the rules for foreclosure:

Even 60 Minutes seems to be sugarcoating the motivation for fraudclosure:

“Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators worried that the torrent of litigation will delay the real estate market’s recovery.”

Understand this precisely: This was not a case of slipshod handling, of sloppy paperwork, or bad management. This was a willful decision to break the law in order to save expenses and be more profitable.

Follow the money: MERS to subprime lending to automated underwriting to securitization to robosigning to fraudclosure — its ALWAYS been about saving a few bucks regardless of the consequences.

The good thing about this Sunday’s 60 Minutes piece (which I have not seen yet) is that it will apply more popular pressure to the State AGs for some legal action on Fraudclosure.

But they are missing the bigger picture here: Reckless disregard for property rights and the rule of law. And exactly where are all of my Libertarian friends on this . . . ?

There are so many stories of "foreclosure" on people who don't hav a mortgage or who have already paid off their house or are completely current on their payments. All because of sloppy paperwork. But what Ritholtz is pointing out is something worse: when the banks "securitized" the loans into the half billion dollar of MBSs and CDOs, they simply failed to do the proper legal paperwork. Why? To cut costs! They were busy packaging up risk and selling it to "suckers" they figured these suckers were ripe for being stuck with the legal mess of a process that ignored the requirements of the law. These are the same banks that got a trillion dollar bailout by the US taxpayer so they could continue to pay their exorbitant "bonuses" and quickly become profitable again so they could once again suck blood out of the US economy. Success!

Housing Market Devastation in the US

The following picture from the Calculated Risk blog makes clear how badly house prices have fallen since early 2006:

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The posting points out:

The index is down 5.7% over the last year, and off 32.8% from the peak.

This is the sixth straight month of year-over-year declines, and the seventh straight month of month-to-month declines. The index is now 1.6% below the previous post-bubble low set in March 2009, and I expect to see further new post-bubble lows for this index over the next few months.

• CoreLogic: 11.1 Million U.S. Properties with Negative Equity in Q4

The wealth of most Americans is in their homes. As house prices fall they lose wealth. Worse, those with mortgages get into greater and greater trouble with an increased likelihood of foreclosure. But even without foreclosure, if you are "underwater" on your mortgage, you are making payments on an asset that doesn't have the value that those mortgage payments supposedly represent. You are really behind the 8 ball.

Going back to 2007, Bush promised assistance for those with problems with their mortgage. Obama had is mortgage assistance program. But none of these has dented the problem. Neither president was serious about this problem. They were willing to throw a trillion dollars to the Wall Street banks, but they only pitched pennies to ordinary folk with their mortgage problems!