Last month, the U.S. unemployment rate surged to 9.8% as 260,000 people lost their jobs. Although the stock market and corporate profits appear to be recovering from last year's financial catastrophe, work is harder to find. President Barack Obama and Congress need to act now to get people working again and help soften epic unemployment in years to come.
In a New York magazine article, "My Manhattan Project: How I helped build the bomb that blew up Wall Street", former programmer Michael Osinski tells of his part in the making of the financial meltdown. But along the way he also tells us something of the trader culture he helped to enable, where the really big bucks were. For example:
Now that I was spending more time on the floor, I wondered why the men's room always stank. Then one afternoon at three, when I was in there taking a leak, I discovered the hideous truth. Traders had a contest. Coming in at eight, they never left their desks all day, eating and drinking while working. Then, at three o'clock, they marched into the men's room and stood at the wall opposite the urinals. Dropping their pants, they bet $100 on who could train his stream the longest on the urinals across the lavatory. As their hydraulic pressure waned, the three traders waddled, pants at their ankles, across the floor, desperately trying to keep their pee on target. This is what $2 million of bonus can do to grown men.
These are the guys we have to keep happy?
I'm not just after a cheap shot here. Last month, the Compulsive Theorist posted a couple of posts on "business and cultural norms in the financial sector". The little vignette above is simply a vivid reminder of just how warped those norms have become. And you know what? The conservatives are right: the issue of moral values goes right to the core of our politics, and the fate of our nation. Only it's their values that are the problem.
(3) Former chief economist of the International Monetary Fund, Simon Johnson, has an article at The Atlantic, "The Quiet Coup", about which the editors say, "If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time." The following chart from Johnson's article shows the growing dominance of the financial industry. Josh at TPM notes, "As you can see, the pivot in each case is around 1980." Gee, I wonder what happened then?
On October 17, ACORN responded to attacks by Senator John McCain by issuing a report, "ACORN and John McCain: The Real Story of the Financial Crisis 1999-2008". The gist of the report is quite simple: ACORN has been fighting predatory lending practices for 10 years, and John McCain has not. Hence, the idea that ACORN is responsible for such practices, and the negative conseequences they've had for our financial system is ludicrous. This is not a hard claim for journalists to double-check for themselves, particularly since the difference is so stark, and I do so myself on the flip, along with reporting on ACORN's report itself.
But before getting to that, I want to say a word about the failure of the traditional media. This is an open-and-shut case. John McCain is lying about ACORN. But the media cannot say that, because of their dangerous, dysfunctional and delusional framework of "ethics" and established practices--their mythos of objectivity and fairness, if you will, which has nothing at all to do with actual objectivity and fairness. The best way to understand this failure, the best single book on the subject remains Jeremy Iggers slim 1998 classic, Good News, Bad News: Journalism Ethics And The Public Interest. This book takes a unique approach to media analysis/criticism: it examines the media through the lens of moral philosophy, pointing out how the very framework of journalism ethics is actually the central cause of much that is wrong.
Of course, Iggers doesn't imagine or pretend that this faulty ethics came out of nowhere. It had very clear historical roots, and political/economic causes. But withing the framework of journalism itself, the code of ethics has been crucial in defining certain things as protypically problematic--such as the fictionalization and.or sensasitonalization of stories that are only trivially false from a socio-political perspective--while saying nothing at all about the collective promotion of mass deceptions, such as the Iraq War. The attempt to blame ACORN for the financial meltdown--like the preceeding decades-long pufferry of "trickle-down" "free-market" voodoo economics that was the real cause--is simple a matter of "normal" journalistic practice under the ethical guidelines in place, while the stright-forward factual reporting that John McCain is a bald-faced demogogic liar is a terrible no-no, an "editorial opinion" that has to be strictly segregated onto the editorial pages. The bottom line is simple: the truth cannot be told. It can only be presented as an opinion to be "balanced" with lies.
I am happy to see the consensus of no blank check emerging, because as someone who has watched the destruction that Wall Street has wrought for 12-15 years, the idea that we are writing a check to the financial services industry is stunning. Why? Let's take a trip down memory lane, and look at the story of Philadelphia, and its battle with subprime lenders over the past 15 years.
In the early 1990s Wall Street starts really getting into the securitization of subprime debt, creating a huge pool of money for subprime lenders, that was, at best, little supervised. At worst, it was money given to loan sharks on the street, who aggressively marketed shockingly bad loans to people who had no need for them, and made them go promptly in foreclosure. In 1993, Wall Street had about 20 billion dollars in securitized subprime loans. They were only getting started.
Matt Stoller and The Sunlight Foundation have organized a live blog tomorrow at TPMCafe about the foreclosure epidemic from 11:00 to 12:00. We'll talk about the legislation that Linda Sanchez (D-California) and I introduced to allow bankruptcy courts to modify predatory mortgages.
Usually, Laughing Liberally posts feature original content from our network of comedians and writers. But recently a topic crossed our radar so funny that it deserved special attention: Predatory Lending.
...dedicated to extracting maximum profit from the working poor by increasing payday loan fees and debt traps. The working poor are an exciting, fast growing demographic that includes: military personnel, minorities, and most of the middle class.
The clean and friendly site, complete with Google map tools and little sidebar calculators looks so earnest that it takes a minute to realize who they are representing...or, rather, satirizing. For example, their slick-looking map application actually features a "poor finder"...a presumably essential resource for any predator.
This site is a great example of the role of humor in political discourse. It's actually informative: their "Industry Threats" page talks more about real efforts to curb predatory lending practices that I generally hear about. And it's entertaining -- I want to keep reading to see what I'll find beyond their "Military Loan Crisis" link, and just how far these guys will go with their discussion of the "Myth vs. Reality" of their industry.
It's a site that will leave people informed and outraged...and will make them laugh along the way...which as Stewart and Colbert keep proving is a great way to get your message across.
Sometimes, as a blogger, you find ideas for several small posts, instead of one or two large posts. This is one of those times. So, here comes several hours worth of blogging in one post, designed as an alternative to First Read. Let me know if you like these posts, as opposed to my usual, longer fare, and maybe I'll try to put them together more often.
UAW Region 4 Delegates Throw Support to Obama's Campaign for PresidentDUBUQUE - Delegates of United Auto Workers Region 4, which includes 30,000 members and retirees in Iowa, voted today to support Senator Barack Obama's presidential campaign. The group announced its overwhelming support at the close of a weeklong conference where seven of the major Democratic presidential candidates addressed the group earlier this week.
A big score for Obama, but keep in mind that Gephardt wont this endorsement in 2004.
Plants for Hillary: The Edwards campaign has produced a satirical attack website, Plants for Hillary. If nothing else, it is a sign that Edwards plans to stay on the attack against Clinton. Personally, I think that this planting story might even be more damaging to Clinton than attacks on her hawkishness. I've grown convinced that most voters don't choose candidates based on issues, but instead on identity connections and personality traits. Even if it is an isolated incident, and even if other campaigns do it (a charge about which I remain skeptical), this is a new attack on Clinton's character that neatly slots itself into an old narrative about her (cold and robotic). This could be the equivalent of when Dean yelled at a Republican heckler back in January 2004. Unlike attacks on Clinton's electability and bizarre masculine outrage over her "playing the gender card," both of which I think are whining, bullshit, loser attacks that are proven to backfire, the two pronged issue / character attack on Clinton's hawkish-ness / robotic-ness might just work. (Incidentally, I also don't buy the insider / outsider thing against her, since every Democrat running is a federally elected official using DC consultants and pretty much the same group of wonkish policy professionals.)
"We'll either do it the easy way or the hard way. It's up to the Republicans," Reid said at a press conference today, according to Roll Call. "We will have a Sunday vote scheduled ... If they want to give us consent to have a vote earlier, we'll do that. But if they don't, we're not only going to be here, we're going to be here working."
These are the tactics Reid and all Congressional Dems need to employ if they expect Republicans to face serious political blowback for engaging in record-breaking filibusters. If Republicans want to filibuster, fine. However, despite objections from "Oh, No!" Democrats, when they do so Democrats need to make them actually filibuster.
All but the top four districts are currently held by Republicans, showing that Democrats still have a wide array of pickup opportunities in the House, too. The line breaks are designed to crudely group the seats into four categories: likely Dem, lean Dem, lean Republican, and likely Republican. It isn't all as simple as Partisan Voting Index rankings, of course, but they do serve as a useful overview of the situation.
Brad Miller Takes Center Stage: Representative Brad Miller (D, NC-13), who I worked for in 2006 during his re-election campaign against the despicable Vernon Robinson, finds himself at the center of two major fights right now. First, he is on the committee that will review Barney Frank's bad predatory lending bill, that Irv Ackelsberg and Dan U-A provided updates on here at Open Left. Second, his subprime mortgage bill is slowly moving forward, and the DCCC plans to make it a centerpiece of their 2008 campaign. Here is Rep. Miller speaking about the bill today:
What committee seats would you want? Working for Representative Miller last year gave me a new perspective on how Congress works. Specifically, it gave me more insight on the committee system that is so important to the day to day operation of Congress. It made me wonder, even though I never intend to be in Congress, if I were in Congress, what House committees would I want have a seat on? It is a tough choice, but I would probably go for Education and Labor as my main committee, and Space and Aeronautics as my subcommittee. If I was allowed one more, which I don't think members get to do, it would be hard to choose between House Administration and the Select Committee on Energy Independence and Global Warming. It will never happen, and truthfully I don't even want it to happen, but it is fun to think about, none the less. What committees would you choose?
This is an open thread on these and other subjects.
Kagro X wrote today at DKos about the Barney Frank Predatory Lending Bill. In his post, like Matt and Duncan earlier, he mainly focused on Yield Spread Premiums, the gross practice where a mortgage broker and a bank split the profit of selling you a higher-cost loan than the one you should have been given.
YSP's are terrible, and recipes for abuse, and Mortgage brokers have played a big role in the foreclosure crisis. That said, a focus only on brokers, and YSP's is not wise. It is not a battle that, even if won, will stop the foreclosure crisis.
Below, I try to explain why Barney Frank's bill is so bad and why a focus solely on brokers is misguided. If you really want to stop the foreclosure crisis in our Country, you are going to have to look behind the curtain and find out who benefits from this bill.
I am writing regarding Matt Stoller's post about predatory lending and the Barney Frank bill that is to come to a vote this week in the House. In fact, this weekend Barney Frank and I had a heated exchange at the National Consumer Law Center's annual conference in Washington. I think you should know why I was so angry at Congressman Frank, and why it is important that his bill is stopped or strengthened.
First, a little background on myself and the issue. I spent 30 years at Community Legal Services (CLS) in Philadelphia, largely with a focus on consumer law. CLS has more lawyers working on saving homes from predatory mortgages than any other law firm in the country. I have personally represented or advised hundreds of victims of the subprime scandal, and I have testified before the Senate Banking Committee and the Federal Reserve Board. For years, we have been warning about the dangers-both to our neighbors and to the larger economy-of the out-of-control subprime mortgage market. While it is good to see the Congress finally taking up the issue, I have strong reservations about the work product that is making its way to the floor for a vote. An already weak bill is getting weakened even further, and it is undercutting the hard work that activists have made on a state level for the past ten years.
Here are my principal worries about this bill, and why I am so upset at the role Rep. Frank is playing:
1) It is America's homeowners, not the investment machinery that has caused the current crisis, that need protection.
The Frank bill does define new and important standards in mortgage lending. However, two of the most important restrictions--on lending without regard to repayment ability or "net tangible benefit" to the borrower--Chairman Frank has apparently decided to immunize holders of the loan from any of the remedies that would apply to these two restrictions. In other words, as long as you didn't actually make the loan, you are not responsible if it later turns out that these new standards were violated, that, for example, the borrower is a senior citizen on Social Security and that the loan was unaffordable or purposeless from the beginning.
This makes no sense. It is my experience that the original lender is NEVER the entity that is foreclosing, and is often out of business at the time the abusive quality of the loan is discovered. To be meaningful, any lending standards applied to the front end of a loan must be enforceable against subsequent holders of the loan, particularly when the homeowner is being threatened with a foreclosure. Given that it is precisely the secondary market that has driven the demand for the abusive loans now going bad, it is unconscionable that this very market would be protected from irresponsible and destructive lending practices.
2) The mortgage industry itself is using this bill a vehicle to provide Wall Street and investors pre-emption against the state laws that have, in the absence of Congressional action during all these years, provided the only legal protection against predatory lending.
Currently, the Frank bill not only insulates the secondary market from the new ability-to-pay and net-tangible-benefit standards, but also, amazingly, pre-empts any state law that currently provides such protections as against secondary holders. Many states, such as North Carolina and New Jersey, have passed laws providing protections in those areas. The industry is now trying to crush those laws. Here in Pennsylvania, the Banking Department has announced a new regulation that would prohibit mortgage lending that occurs without verified evidence of the borrower's ability to repay the loan. This is the first state effort to address the problem since the legislature pre-empted a strong, Philadelphia anti-predatory city ordinance in June 2001. This important first step will hopefully remove from Pennsylvania the scourge of the so-called "no-doc" loans where income is fabricated on a loan application the broker or lender gets the borrower to sign at the closing table. My hope has been that this new regulation would create a foreclosure defense in those circumstances where that occurs. If the Frank bill passes, however, that defense may be pre-empted-at least that's what the foreclosure firms will argue.
Insulating the secondary market is the wrong thing to do. And at the very least, more expansive protections at the state level should be encouraged, not destroyed. While the GOP Congress spent years ignoring the issue, advocates and activists worked hard all over the Country to tackle predatory lending. The irony of a Democratic Congress now pre-empting our efforts is a bitter bill to swallow. Please help us insist that there is no federal preemption of our laws. If this kind of preemption is the quid pro quo for a federal bill, then I say, to hell with a federal bill.
I will check in periodically to see if I can answer any questions that you might have.
I've blogged a bit on mortgage reform, noting that Bush Dogs are trying to block changes to the Bankruptcy Bill out of fealty to their corporate donors. The housing crisis is hitting swing areas like Florida's central corridor viciously, so getting on this topic as the economy becomes one of the two top issues in 2008 is extremely important for Democrats going into 2008.
One of the reasons the situation is so messed up is that mortgage brokers have an incentive to lie and steal from their clients. This is couched in a complicated term called the 'yield spread premium'. What this basically means is that if you are a mortgage broker and you get a client to take a loan that costs more than it should, with higher penalties and interest rates, you get a kickback from the bank.
Ergo, lots of people got crappy loans they can't afford. It hurts minorities disproportionately, and it's bad for everyone. There's more detail here and here. The Democrats are trying to do something about it and ban the practice, but mortgage brokers have organized and are phoning Congress off the hook because apparently stealing is profitable. And now, Barney Frank is considering axing the change because the groups pushing for the change - NAACP, the Urban League, La Raza AARP, the AFL-CIO and SEIU - probably didn't expect this to be a major point of contention.
If you have a moment, write your representative and ask him/her to support HR 3915, the "Mortgage Reform and Anti-Predatory Lending Act of 2007."
It's fucking ridiculous that Congress doesn't stand up to the mortgage industry after they have ripped off millions of borrowers and are in the midst of destroying communities all over the country. Write your rep.
