A lot of important stuff is cooking here at the end of the year. The headline battles about the tax cut deal and the deficit commission are very big deals, with short and long term implications both policy-wise and politically. You have probably seen enough writing about these headline grabbers (including from me) to keep you awake- or put you to sleep- well through the holiday season. But what is going on behind the curtain, away from the headlines, in the fight over banking policy and foreclosure fraud is just as important, and in some ways even more so. The budget deal expires in two years, some of the provisions (including the best one, unemployment extension) even sooner. The deficit commission report was a big moment in an important debate, but between partisan warfare, unpopular policy proposals, and short attention spans, most of what's in there isn't likely to be acted any time soon. But what happens in terms of the foreclosure fraud issue and the fight over banking regulations over the next year will determine whether we have a chance at escaping a Japanese style lost decade. I believe it will have more to do with whether the economy starts to revive than whatever mostly inefficient stimulus this tax cut provides, and I think it will have a bigger impact on whether Obama is re-elected than the tax cut deal or any other big issue coming up any time soon.
What crashed our economy was the speculative, out of control concentration of market power on Wall Street. That is what caused the housing bubble and subsequent housing price collapse, and until the massive underlying damage to our entire economy caused by that collapse begin to get healed, this economy will not get a whole lot better. With 25% of mortgages underwater, and more mortgages and household financial situations than that threatened by a weakened and unstable housing market, working and middle class consumers are not going to be going on any spending sprees any time soon.
The stimulus in the Obama-McConnell-Boehner tax cut deal, in spite of being bigger than the last stimulus, won't stimulate much except the excitement of inside the beltway pundits. The millionaires getting an extra $80,000 plus will buy a few more expensive meals and bottles of wine in expensive restaurants and maybe splurge on some new luxury items, but mostly they will save that money, investing it in safe bond deals while they wait for the economy to recover- because as corporations have shown the last two years, you can be awash in cash but still not invest it in making new products if you don't think there is anyone out there buying. Middle class folks will tend to spend any extra dollars they have more on lowering their debt and adding to their savings, because with their biggest financial asset- their home- not worth nearly as much as they thought it would be a few years, they know they have to shore up their financial position. The only folks actually spending more as a result of this deal are the unemployed and poor, simply because they have no choice- they will be using the money to buy groceries and pay utilities and rent.
There is one other problem with this stimulus, and this is one the macroeconomists aren't getting: the vast majority of this money is going to preserve the status quo. It is stimulus in the sense that it is a lot of government money, unpaid for by any other budget cuts or long term tax hikes, but in terms of how real people will feel it, it is the status quo. People currently getting unemployment comp and various tax credits- EITC, etc- will still be getting them. People's tax rates will stay the same, because this is simply an extension of the tax cuts that have been in existence now for 10 years. To the vast majority of Americans- still hard pressed, still squeezed by higher costs in necessities, still with a lower value home, still worried about their or their family members' jobs- there will be no boost in their take home pay or earnings potential, no new jobs actually being directly created like in the last stimulus bill. I am sure that many folks are happy to hear their taxes won't be going up, but they will have no extra money to buy no new things and no extra confidence that the economy will suddenly get better.
Which brings me back to banking and housing policy. This kind of ineffective weak tea stimulus is the only kind Republicans will be giving Obama in the next two years. But there are ways to significantly boost the economy right now that, between the Obama administration and the state Attorneys General negotiations with the big banks, can actually be done: write tight regulations around the financial reform bill, especially when it comes to issues like the swipe fees that directly pit the Wall St. bankers against main street business; have the DOJ prosecute bankers for using their market power to distort and harm the economy; and especially right now, force the bankers to write down mortgages. If the banks wrote down the mortgages of 5,000,000 underwater homeowners to the level the house was now worth in the market, so that they could stay in their homes and stabilize their financial condition, two very important things would happen economically. The first is that the housing market would finally begin to stabilize and recover- neighborhoods would no longer be riddled with abandoned homes and unkempt properties. The second is that all those homeowners, their debt reduced and their long term finances stabilized, might actually start spending money again: the multiplier effect would be big. Wall St will go into high pitched whining mode, but according to numbers one economist showed me, the profits that doing this would cost the banks would only amount to half the bonus money they paid out the last couple of years. The banks will scream bloody murder, but they will be just fine if we force them to write down these mortgages.
This is also actually the right thing, the moral thing, to do. The big banks on Wall Street destroyed this economy, and made out like bandits in the process. It should now be up to them to have to sacrifice to make things right again. But- with all other possibilities of big boosts to the economy walled off by Congress- this is also the only policy option the administration and the state AGs have to help get us through the bad times from this damaged economy.
Here's the other thing this does: it changes the political dynamics completely. It would show more clearly than any other thing the President could do that the Obama administration is on the side of hard-pressed middle class homeowners. And because the bankers will be squealing to high heaven, and their Republican friends on the hill taking up their cause, it will be obvious who is on what side. Pushing the banks hard to write down these mortgages is the best thing the administration could possibly do economically, morally, and politically.
The administration as a whole, which includes a lot of different components, does not yet see this. I think Elizabeth Warren gets this, and from what I am told some of the lawyers at DOJ get it and are chomping at the bit to exert legal pressure on the banks. Some of the political staffers I talk with are starting to see this dynamic as well. However, Treasury certainly doesn't seem inclined in this direction, and certain agencies especially the Office of the Comptroller of the Currency are completely in the tank for the bankers. One state AG told me that the "OCC has the attitude that the banks are perfect", and are resisting the AG's investigations and negotiations in every way they can.
I don't know what will happen with the administration. I am hopeful that it will sink in soon that the economy isn't going to get better very quickly, and that the political team will realize that taking on the big banks on behalf of hard pressed homeowners is a political winner. But no matter what the administration does, I do hold some hope for the state AGs as they negotiate with the banks. They are led by Tom Miller, an old friend of mine from Iowa and one of the most honest and pro-consumer politicians I know. Tom is meeting today with community activists from around the country, and I know that his heart is with them. Whatever the Obama administration is doing, I have hopes the AGs can put enough pressure on the banks to move this in the right direction.
If we can finally start getting to the heart of the problem- the bankers and irresponsible system they created- we can finally start rebuilding this economy. That will be a fight, a big one because no politician likes taking on these banks. But that kind of fight might actually start moving our politics in a better direction as well.
The broad outlines of economic policy are not really that complicated or hard to understand. Don't believe me? Well, just listen to Nobel Prize-winner Joseph Stiglitz as interviewed on Democracy Now! Wednesday, as he sheds light on a series of big topics that have been the subjects of far more heat than light. First, on the newly-hot-again topic of foreclosures:
AMY GOODMAN: Our guest is Joseph Stiglitz, Nobel Prize-winning economist, professor at Columbia University. His book is out in paperback, Freefall: America, Free Markets, and the Sinking of the World Economy.
So, just to summarize, you are for a national moratorium on foreclosures.
JOSEPH STIGLITZ: I think--inevitably, I think we have to be moving towards that. And the reason is very simple. There were such--the bad practices were so rife, the inequities were so rife, the fraudulent behavior was so common, that at this point we don't know what is a valid mortgage and not. And the consequences of throwing somebody out of their home, when they shouldn't be, are hard to reverse. I mean, just imagine what it does to the family--education of the kids are interrupted--what it does to the community. So, when we have to balance the injustices--and life is unfortunately always balancing one side versus the other--and where will their mistakes be easily reversed and where not? My view is, if we keep them in the homes for a little longer, they owe the money--they still owe the money, that doesn't let them off the hook--but what we're saying is we're not going to speed up this process of-where there's the serious risk of an inequity that will not be easily compensated for.
Who can argue with that when it's put so simply and directly? Answer: No one. Which is why there's so much invested in making sure that it's never put so simply and directly. That's sort of the pattern that's established throughout this interview.
Regarding the need for further stimulus, and why the deficit is a red herring just now, he's equally lucid and to-the-point:
AMY GOODMAN: Joe Stiglitz, the deficit, the battle cry of the Tea Party movement, of the Republicans, as well. Robert Rubin has weighed in, says any new stimulus plan is highly likely to be counterproductive. What do you think has to happen? Does the deficit matter? And how do you think it should be dealt with?
JOSEPH STIGLITZ:My view is we cannot afford not to stimulate the economy. So, you know, anybody that says we should go back to austerity or we should not have a second-round stimulus just doesn't understand economics. And let me be very clear about this. If we don't stimulate the economy, the economy is going to get weaker. When the economy gets weaker, tax revenues go down and expenditures go up. Already, more than 40 million Americans are on food stamps. Number of people on Medicaid is reaching record levels. So, revenues go down, expenditures go up, deficits get worse. If you stimulate the economy, then people get jobs, they spend money, tax revenues go up. Now, if we spend the money on investments-investments in education, technology, infrastructure-you grow the economy in the short run from the stimulus, you grow the economy in the long term because of the returns that you get on these investments.
I mean, just think about this from the point of view of a firm. If you are a firm and you could borrow at zero to two-and-a-half percent, which is what the government can borrow, and you have investment opportunities that you owe ten, 15, 20 percent, you would be irresponsible, you would be foolish, not to undertake those investments. So, anybody that says, "I'm going to only look at one side of the balance sheet, the liabilities; I'm not going to look at the other side, the assets," is really not understanding economics. It's that kind of reasoning that got our country in the trouble in the first place, the people who didn't-you know, shortsighted behavior of the banks that got our country in trouble in the first place. And to me, I just view those kinds of statements as totally irresponsible.
Get that? Look what he does in place of the standard, brain-dead, totally misleading analogy with household budget-balancing (which, taken literally, would mean that no one should ever hold a mortgage, right? Or a car loan?) He makes a genuinely appropriate and valid analogy with a business and its investment opportunities vs. costs. Another example that so lucid and on-point that the only way to counter it is to suppress it.
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 whistleblowers
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 whistleblowers who can explain 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.
President Barack Obama's decision to appoint Elizabeth Warren to set up the new Consumer Financial Protection Bureau (CFPB) couldn't have come at a more critical time.
More 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).
Last night, Senate Republicans proved beyond any doubt that when it comes to the economy, they stand with Wall Street and against everybody else. Joined by lone Democrat Sen. Ben Nelson (D-NE), Republicans successfully filibustered the procedural technicality of opening debate on Wall Street reform. It's an unmistakable ploy to kill the bill and collect campaign cash from bigwig bankers. The coming weeks won't be pretty.
Republicans are going to be battered by this filibuster. Financial reform is popular, and nobody on Capitol Hill wants to be seen as the agents of Wall Street in Washington come November. Republicans are hoping to rhetorically counter Obama's proposals, negotiate a fatally weakened reform package, and then vote with Democrats for reform-in-name-only before the elections. But the U.S. financial system is broken and voters know it needs strong medicine.
In a speech last week before Cooper Union Hall in New York City, Obama laid out what's at stake in the reform fight. Our biggest banks don't fear failure because they know the government will bail them out in a crisis. As a result, they take massive risks that endanger the economy. Our current regulators ignored predatory lending in order to protect Wall Street profits. To top it off, the risky, multi-trillion-dollar market for derivatives-the financial weapons of mass destruction that brought down AIG-remains beyond the scope of regulatory authority altogether.
Without major changes, the U.S. economy is doomed to repeat the destruction of the past two years. Epic bailouts, consumer predation and heavy job losses will become the new national norm, not just the conditions of a single, terrible crisis. Last night's Republican-plus-Nelson filibuster was an effort to preserve an unacceptable status quo.
Phony populism
As Matthew Rothschild emphasizes in a podcast for The Progressive, Wall Street Republicans have been spreading all kinds of crazy lies about Obama's reform legislation. While the legislation that cleared the Senate Banking Committee in March isn't perfect, it isn't a massive bailout for Wall Street, either. But Senate Minority Leader Mitch McConnell (R-KY) has been making the rounds calling it just that, in a dishonest effort to kill the bill. This is phony populism. McConnell says he's against bailouts, but his goal is to prevent reform from overturning the current system, which, as we saw in 2008, has bailouts baked in.
While Obama did a good job identifying what's wrong on Wall Street, the solutions he proposed are either too weak to end abuses, or simply not included in the Wall Street reform bill in its current form. Obama's initial proposal for a new Consumer Financial Protection Agency was great, but Sen. Chris Dodd (D-CT) watered down in the Senate Banking Committee to appease Republicans. The same thing happened to Obama's proposal to fix the wild market for derivatives, the financial weapons of mass destruction that brought down AIG.
How to make reform a reality
As Sarah Ludwig of the Neighborhood Economic Development Advocacy Program (NEDAP) emphasizes in an interview with GRITtv's Laura Flanders, most of the reforms currently under consideration are a "good first step." That is to say they are useful and productive-but not enough to fundamentally change the way Wall Street does business.
Fortunately, there are several amendments that can fix these shortcomings, most notably the SAFE Banking Act, introduced by Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE). As Peter Rothberg emphasizes for The Nation, the amendment would force our largest banks to split up into institutions that could fail without jeopardizing the broader economy. It would also place a hard cap on the total amount that banks could bet in the financial markets.
Those amendments, of course, can only be added to the bill if Republicans allow debate on financial reform to begin. Progressives should be fighting hard to make sure that the break-up-the-banks measure is included in the bill that the Senate eventually votes on. And as Rothberg notes, there will be plenty of opportunities to do so this week. Protests calling for Major Wall Street reform have been organized all over the country. On Tuesday, protesters will speak out against predatory banking behemoth Wells Fargo in San Francisco. On Wednesday, they will target too-big-to-fail titan Bank of America in Charlotte, N.C. On Thursday, reformers will march straight into the lion's den on Wall Street itself to demand change. It's called the Showdown in America, and you can find out more here.
It's only just begun-but how did we get here in the first place?
But whatever happens with this bill, the fight to rein in Wall Street is just beginning. As Robert Kuttner emphasizes for AlterNet, President Franklin Delano Roosevelt had no shortage of verve for Wall Street reform, but it still took him seven years to enact all of the New Deal banking laws. And as Simon Johnson and James Kwak detail for The American Prospect, reining in Wall Street means overturning the ideology that has dominated the halls of power in Washington, D.C. for three decades.
Since the Reagan era, politicians from both political parties have sincerely believed that what is good for Wall Street is good for America. The subprime mortgage monstrosity and Great Crash of 2008 put cracks in the foundation of that ideology. But the process of demolishing it may very well take longer than the legislative cycle that will end with the November elections.
Even if we do get a strong bill-one that breaks up the biggest banks, bans them from placing risky bets in the derivatives and securities markets and establishes a new Consumer Financial Protection Agency-other important aspects of the financial sector will need to be addressed in other legislation. Hedge funds, whose pivotal role in the crisis is only now being identified, will need to be reined in. Rating agencies, who actively fueled the subprime bubble, and whose business models are founded on conflicts of interest, must be restructured. The future of Fannie Mae and Freddie Mac must be decided. Families across the country still need foreclosure relief.
We need a strong Wall Street reform bill. There is no excuse for any politician from either party to be standing with bigwig bankers against the rest of the country. And with two-thirds of the nation supporting reform, any political party that throws in its lot with Wall Street will pay a major price come November. No amount of Wall Street campaign cash can counter the voter outrage over bank bailouts and bonuses. There's no way to know when Republicans will come to their senses, but whatever happens this week, there will still be much work to do this year and the next.
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.
Last night, Senate Republicans proved beyond any doubt that when it comes to the economy, they stand with Wall Street and against everybody else. Joined by lone Democrat Sen. Ben Nelson (D-NE), Republicans successfully filibustered the procedural technicality of opening debate on Wall Street reform. It's an unmistakable ploy to kill the bill and collect campaign cash from bigwig bankers. The coming weeks won't be pretty.
Republicans are going to be battered by this filibuster. Financial reform is popular, and nobody on Capitol Hill wants to be seen as the agents of Wall Street in Washington come November. Republicans are hoping to rhetorically counter Obama's proposals, negotiate a fatally weakened reform package, and then vote with Democrats for reform-in-name-only before the elections. But the U.S. financial system is broken and voters know it needs strong medicine.
In a speech last week before Cooper Union Hall in New York City, Obama laid out what's at stake in the reform fight. Our biggest banks don't fear failure because they know the government will bail them out in a crisis. As a result, they take massive risks that endanger the economy. Our current regulators ignored predatory lending in order to protect Wall Street profits. To top it off, the risky, multi-trillion-dollar market for derivatives-the financial weapons of mass destruction that brought down AIG-remains beyond the scope of regulatory authority altogether.
Without major changes, the U.S. economy is doomed to repeat the destruction of the past two years. Epic bailouts, consumer predation and heavy job losses will become the new national norm, not just the conditions of a single, terrible crisis. Last night's Republican-plus-Nelson filibuster was an effort to preserve an unacceptable status quo.
Phony populism
As Matthew Rothschild emphasizes in a podcast for The Progressive, Wall Street Republicans have been spreading all kinds of crazy lies about Obama's reform legislation. While the legislation that cleared the Senate Banking Committee in March isn't perfect, it isn't a massive bailout for Wall Street, either. But Senate Minority Leader Mitch McConnell (R-KY) has been making the rounds calling it just that, in a dishonest effort to kill the bill. This is phony populism. McConnell says he's against bailouts, but his goal is to prevent reform from overturning the current system, which, as we saw in 2008, has bailouts baked in.
While Obama did a good job identifying what's wrong on Wall Street, the solutions he proposed are either too weak to end abuses, or simply not included in the Wall Street reform bill in its current form. Obama's initial proposal for a new Consumer Financial Protection Agency was great, but Sen. Chris Dodd (D-CT) watered down in the Senate Banking Committee to appease Republicans. The same thing happened to Obama's proposal to fix the wild market for derivatives, the financial weapons of mass destruction that brought down AIG.
How to make reform a reality
As Sarah Ludwig of the Neighborhood Economic Development Advocacy Program (NEDAP) emphasizes in an interview with GRITtv's Laura Flanders, most of the reforms currently under consideration are a "good first step." That is to say they are useful and productive-but not enough to fundamentally change the way Wall Street does business.
Fortunately, there are several amendments that can fix these shortcomings, most notably the SAFE Banking Act, introduced by Sens. Sherrod Brown (D-OH) and Ted Kaufman (D-DE). As Peter Rothberg emphasizes for The Nation, the amendment would force our largest banks to split up into institutions that could fail without jeopardizing the broader economy. It would also place a hard cap on the total amount that banks could bet in the financial markets.
Those amendments, of course, can only be added to the bill if Republicans allow debate on financial reform to begin. Progressives should be fighting hard to make sure that the break-up-the-banks measure is included in the bill that the Senate eventually votes on. And as Rothberg notes, there will be plenty of opportunities to do so this week. Protests calling for Major Wall Street reform have been organized all over the country. On Tuesday, protesters will speak out against predatory banking behemoth Wells Fargo in San Francisco. On Wednesday, they will target too-big-to-fail titan Bank of America in Charlotte, N.C. On Thursday, reformers will march straight into the lion's den on Wall Street itself to demand change. It's called the Showdown in America, and you can find out more here.
It's only just begun-but how did we get here in the first place?
But whatever happens with this bill, the fight to rein in Wall Street is just beginning. As Robert Kuttner emphasizes for AlterNet, President Franklin Delano Roosevelt had no shortage of verve for Wall Street reform, but it still took him seven years to enact all of the New Deal banking laws. And as Simon Johnson and James Kwak detail for The American Prospect, reining in Wall Street means overturning the ideology that has dominated the halls of power in Washington, D.C. for three decades.
Since the Reagan era, politicians from both political parties have sincerely believed that what is good for Wall Street is good for America. The subprime mortgage monstrosity and Great Crash of 2008 put cracks in the foundation of that ideology. But the process of demolishing it may very well take longer than the legislative cycle that will end with the November elections.
Even if we do get a strong bill-one that breaks up the biggest banks, bans them from placing risky bets in the derivatives and securities markets and establishes a new Consumer Financial Protection Agency-other important aspects of the financial sector will need to be addressed in other legislation. Hedge funds, whose pivotal role in the crisis is only now being identified, will need to be reined in. Rating agencies, who actively fueled the subprime bubble, and whose business models are founded on conflicts of interest, must be restructured. The future of Fannie Mae and Freddie Mac must be decided. Families across the country still need foreclosure relief.
We need a strong Wall Street reform bill. There is no excuse for any politician from either party to be standing with bigwig bankers against the rest of the country. And with two-thirds of the nation supporting reform, any political party that throws in its lot with Wall Street will pay a major price come November. No amount of Wall Street campaign cash can counter the voter outrage over bank bailouts and bonuses. There's no way to know when Republicans will come to their senses, but whatever happens this week, there will still be much work to do this year and the next.
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.
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.
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.
Bailout pay czar Ken Feinberg raised a ruckus last week when he announced plans to slash cash payouts to executives at seven companies that have received massive levels of taxpayer support. While better oversight of the bailout barons is helpful, the best way to change Wall Street pay practices is to adopt a set of tough, comprehensive regulations that cover everything from the executive suite to the loan department. As is, many of the executives Feinberg cracked down on will still make millions this year from stocks and other perks, while the very banks that depend the most on bailout money are spending like mad to lobby against reform.
Feinberg's new salary limits only apply to executives at Citigroup, Bank of America, AIG, GM, Chrysler, GMAC and Chrysler Financial. But while these new rules are an effort to reduce the incentive for executives to take big risks for short-term gains, the rules of the game for non-bailout barons haven't changed at all. Risky securities trading and unenforced consumer protection regulations still allow financiers to make a killing by gambling on mortgages and credit cards.
As Greg Kaufmann explains for The Nation, Feinberg has been barred from altering some of the most egregious bonus arrangements at even the biggest fund recipients, as the employment contracts were signed prior to the government's bailout. AIG plans to pay out $198 million in bonuses in March 2010, and none of Feinberg's recent rulings will change that. As Kaufmann also notes, back in March, AIG agreed to pay pack $45 million of the bonuses it shelled out early this year. After over seven months, just $19 million has been repaid.
The government's hands-off approach to AIG employment contracts is a rather flagrant display of deference to executives. Nothing stopped the government from renegotiating contracts for union laborers when it bailed out Chrysler and GM, as Dean Baker notes for The American Prospect.
Lest we forget, the government literally owns AIG, and would own both Citigroup and Bank of America had it demanded a market rate of return for its investment. Taxpayers injected several times the stock market values of both Citi and BofA into the troubled banks, but settled for a 36% stake in Citi and preferred stock in BofA. As Mike Madden emphasizes for Salon, Feinberg is still letting executives make several times the median household income in cash alone-nevermind stock-and it's unlikely that his move will spark changes among bankers outside the handful of companies ordered to make changes.
"Executives are still taking home paychecks that dwarf what the average American earns. And it's not clear whether any other companies will get on board with the Treasury plan unless they're forced to," Madden writes.
Congress hasn't taken any significant steps to curb Wall Street paydays since the crisis broke, but lawmakers did take two other important steps toward banking reform this week. Two different House committees passed bills to rein in the wild world of derivatives trading and establish a new Consumer Financial Protection Agency (CFPA). In a video piece for the Huffington Post Investigative Fund, Amanda Zamora and Lagan Sebert detail the legislative battle to create a CFPA, which has faced an enormous lobbying push from both banks and the top lobby group for the corporate executive class, the U.S. Chamber of Commerce.
Zamora and Sebert note that top bank lobbyist Ed Yingling is arguing that if regulators simply enforced the existing consumer protection laws, all of the major abuses in mortgage lending and credit cards would have been prevented. Even for a corporate lobbyist, Yingling's disingenuousness is absolutely breathtaking. He acknowledges that existing regulators are not enforcing consumer protection laws, says he wants the laws enforced, and then says it would be a bad idea to create a new agency to enforce those laws.
The CFPA won't have any mysterious new powers. It will have the same authorities on credit cards and mortgages that existing federal regulators have. But the current regulators are focused primarily on bank profits, which often run directly contrary to fair play with consumers. Yingling and Wall Street are really afraid of a serious regulator who will stand up for consumers. They're terrified that the CFPA will actually enforce consumer protection rules against powerful banks-but are talking as if all they want is effective enforcement. It's a lie, pure and simple.
On Monday and Tuesday, thousands took to the streets in Chicago to protest a meeting of Yingling's lobby group, the American Bankers Association (ABA). Esther Kaplan details the protests in a piece for The Nation, complete with video footage. The ABA retaliated against Kaplan's reporting by revoking her press credentials, but it appears to have been worth it, as her piece describes everything from citizen outrage to police intimidation and awkward banker solidarity. As Democracy Now! explains, the ABA has spent decades lobbying against rules to strengthen the economy and prevent banker abuses, and is now at the heart of an effort to use taxpayer bailout money to lobby Congress against financial reforms.
So far, their efforts seem to be paying off. Last week, one of the CFPA's chief advocates, Rep. Brad Miller (D-NC), co-authored an amendment significantly restricting the agency's enforcement powers. As Sebert and Zamora note, Miller agreed to exempt banks with $10 billion or less in assets from regulatory examinations by the CFPA-roughly 98% of all banks. The existing, corrupted regulators who didn't lift a finger to prevent the subprime mortgage crisis will be the people actually going to the banks and reviewing their books. While the CFPA could send along one of its own regulators to participate in the exam, the new agency can't tax the bank to pay for it, which would make it very difficult for the CFPA to keep an eye on smaller banks.
Even worse, there is nothing to prevent a giant bank like Bank of America from moving all of its most egregiously predatory activities into a series of small corporate subsidiaries. By exploiting this loophole, 100% of U.S. banks could be exempt from CFPA enforcement, including the giant banks most heavily involved in subprime mortgage abuses.
The other big piece of Obama-backed financial legislation to make its way through Committee last week had to do with derivatives, also known as the wild Wall Street securities that brought down AIG. The best way to fix the derivatives mess is to require that derivatives be traded on an exchange the same way stocks are, so that companies can't make crazy bets without regulatory and market scrutiny. But Obama only wants "standardized" derivatives to be processed through a central clearinghouse-like an exchange, except without any public pricing information. And so long as a derivative contract can be deemed "customized," it would be totally exempt from even this limited reform.
But as Art Levine notes for AlterNet, the derivatives bill actually got worse in committee. Plenty of non-financial businesses use derivatives to legitimately hedge real risks: Airlines try to insure themselves against swings in oil prices, for instance. Lawmakers agreed to exempt any contract with these companies, termed "end-users" in the financial jargon, from central clearing requirements. The trouble is, big Wall Street hedge funds and private equity firms can be classified as "end-users," opening a fatal loophole in the legislation. The five banks who control 95% of the derivatives market will just conduct all of their most reckless trades with hedge funds and avoid oversight entirely.
A modest reform on paychecks for bailout recipients is nowhere near sufficient to protect our economy from banker excess. If Wall Street is going to serve any productive economic function, it has to be subject to serious consumer protection rules, and its derivatives casino has to be dismantled.
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.
The U.S. economy has diverged: Wall Street is living high on the hog, while everyone else is struggling. The Dow Jones Industrial Average eclipsed 10,000 for the first time since last October this week, even as unemployment continues to spiral out of control. And while President Barack Obama has taken some very real steps to help ordinary people, his administration's efforts to save Wall Street have far outstripped their support of workers.
Matthew Rothschild details these disparities for The Progressive. Regulatory reforms are moving through Congress at a snail's pace and the wreckage from the mortgage bubble is increasing. Wage cuts are more widespread today than in any era since the Great Depression, even as bankers capitalize on taxpayer bailouts to score epic profits and outsized bonuses.
"One economy is for the rich and the upper middle class," Rothschild writes. "The other economy is for everybody else."
So how can a few big banks make so much money while the rest of the economy suffers? As Kevin Drum explains for Mother Jones, the kind of banking that helps the economy is a pretty simple business of taking deposits and making loans. But a lot of what we now call "banking" really just consists of making bets on just about anything you can dream up.
"Banks aren't using all this cheap money to increase lending. They're using it to fund bigger and bigger bets in the fixed-income sector - the same sector that brought us junk bonds, credit default swaps, subprime loan securitization, interest rate carries, collateralized debt obligations, and all the rest of Warren Buffett's 'financial weapons of mass destruction.'"
The banks, in other words, are gambling with taxpayer money. A host of big finance companies have reported earnings in the past week, and the numbers are ugly: JPMorgan Chase reaped $3.59 billion in third-quarter profits and Goldman Sachs is planning to payout $23 billion in bonuses from speculative trading, while Bank of America and Citigroup are hemorraging money on mortgages and credit cards. The Wall Street casino is alive and well, but anything that is actually tied to the real economy is a disaster.
According to a new report from the U.S. Treasury, lending among the largest recipients of the Troubled Asset Relief Program fell by 17% from July to August. Small businesses can't cope with the cutoff in financing. A lot of businesses stay profitable over the long-term by borrowing money to meet short-term expenses. A baker can borrow money to buy flour and pay the bank back when she sells her bread. With bank lending on ice and consumers cutting back on spending, many small businesses are failing. Thousands more will be at risk in the next couple of years while unemployment remains elevated.
Writing for Salon, former Clinton Secretary of Labor Robert Reich notes that these economic struggles are not reflected in major stock indices. Stock are soaring as big corporations who don't need bank loans score short-term profits from cost-cutting, i.e., mass layoffs. Obviously, this strategy can't work for very long. When millions of Americans are out of work, they can't afford to buy the things companies make.
There's an important lesson in our current economic state-of-affairs, as Katrina vanden Heuvel emphasizes for The Nation. The bailout has not done what Henry Paulson told us it would do. To be sure, it saved the banks-- even the strongest banks would have failed last fall without extraordinary government support. But it has not increased lending and kept the economy from disaster. The Obama administration, which has extended the Bush administration's support for bank balance sheets and bonus checks, is facing a political nightmare if it doesn't show produce some stronger economic results for ordinary citizens.
"Heading into 2010, the Obama administration must put itself back on the side of working people," vanden Heuvel writes.
The administration must address two critical problems in order to restore the nation's economic credibility. Putting the unemployed back to work is at the top of the list. Anything that saves jobs will help, including aid to states to keep teachers and cops on government payrolls and tax credits for companies that hire new full-time workers.
Something must also be done about the foreclosure epidemic. Nothing underscores our economic disparity like continuing housing mess, which has been in full-blown crisis mode since 2006. Despite a multi-trillion-dollar bank bailout, foreclosures are surging to all-time highs. Writing for The American Prospect, Tim Fernholz details the prolonged problems with the Obama administration's current foreclosure relief program.
While millions of troubled borrowers are eligible for the plan, which reduces monthly mortgage payments to affordable levels, foreclosures are still outpacing loan relief efforts by more than two-to-one.
Banks are dragging their feet and the administration has imposed no penalties on lenders who don't live up to the program's standards. Instead, the Treasury Department is offering banks cash incentives to keep people in their homes. Bank of America, which has received $45 billion in direct government bailout funds, plus hundreds of billions in government guarantees and other perks, has modified merely 11% of the mortgages it controls that are eligible for the plan.
Fernholz offers several potential improvements to Obama's foreclosure relief plan, including more aggressive government policing of the current plan and allowing foreclosed homeowners to continue to live in their homes as renters. With up to 12 million foreclosures projected by the end of 2012, just about anything the administration does will help.
The economy is a measure of social well-being, not a stock market index or a corporate earnings statement. Policymakers need to prove they can respond to the very real needs of all their citizens, not just those with financial clout.
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.
As we all know, the Senate screwed us over in the spring when they took the enforcement mechanism, cramdown, out of Obama's carrot-and-stick plan for stopping foreclosures. Not surprisingly, the plans signed into law without cramdown isn't working. The big bailed-out banks are still taking homes away from people who would have been able to afford them if the bankers had wrecked the economy, and record numbers of families are going homeless.
I have an idea for helping out some of these people and cramming down their mortgage principals that doesn't require legislation. I'm interested to hear your thoughts, see if you all think this is workable and worth pursuing...
The idea, which I'm thinking of as "community cramdowns," is to organize big crowds of citizens and activists, backed by support from local credit unions and alternative banking institutions, to go to foreclosure auctions, buy peoples homes and then give them back to them. The key here is that people would have to keep out other potential bidders. This would require forming an intimidating crowd at the scene of the auction to prevent other interested investors from placing their bids. Hundreds of people, lots of signs and a message of compassion for the struggling homeowners would likely prevent most interested buyers from participating in the auction.
After the home is purchased, it's given back to the original homeowner with a new mortgage from the community credit union at the new, lower principal with fair rates that they will be able to pay back. Just like any other transaction like this, the homeowners would have to show proof of income and display under penalty of perjury that they can afford the new mortgage. This kind of arrangement should work for the same crowd of homeowners that judicial cramdowns would have worked for.
The Farmers' Holiday Association did something like this successfully during the Great Depression with farms that were being foreclosed on. Obviously, there is a lot to be worked out in how to make this work with homes in 2009. But it seems, to me, possible and like the kind of thing we need to be taking on by ourselves given the way our government is completely bought out by the big banks.
Please add your thoughts in the comments. Tell me why this is a stupid idea (or a good one, if it is)...
It's becoming pretty clear to me that Obama is a fraud, maybe the greatest fraud ever foisted upon the American electorate in history, or in modern American history for sure...
I was an Edwards supporter early on, and until he withdrew from the race and also of course Dennis Kucinich but in the end had to vote for Barack Obama so as to save America from John McCain..
Now I'll make this short and just don't have the time to list all of the disappointments and outright betrayals we've seen from President Obama and in only just 120 days..
On Thursday, lawmakers bowed to pressure from the bank lobby and killed a crucial piece of anti-foreclosure legislation, poisoning the economy in an effort to keep money flowing to Wall Street. Meanwhile, jobs continue to disappear, retirement accounts are evaporating and families are struggling to cope with economic hardship.
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