Everything I am reading these days on financial issues points to some serious reckoning soon to come, especially because of - as the folks at Third Way are calling it - foreclosure-gate. The Massachusetts Supreme Court ruling in the Ibanez case, along with a growing body of cases where the banks and/or their servicers have been ruled against in foreclosure cases, and even the banks' lawyers are being castigated in court by judges for bringing in made-up paperwork, is causing a growing sense of panic among the biggest banks that hold the most mortgages. Spokespeople for the banks are talking bravely, trying to dismiss the situation as some minor paperwork errors, but everyone who has been paying attention to the situation fears that there are really big consequences afoot. The plain fact is that over the last decade, in their overwhelming rush to make bigger and bigger profits from trading in the bubble-driven real estate securities market, the banks ran roughshod over the home mortgage and title system that had served this country (and England and many others) quite well for hundreds of years - and they made a serious mess of it. Because of the way these mortgages have been sliced and diced and sold into complicated securities, homeowners, judges, and the banks themselves are having quite a bit of trouble figuring out who actually owns the note in more cases than is easy to believe. The "paperwork" - figuring out who owns the note - is not just a little messed up, it is a disaster area.
This wouldn't be as big a deal except that the combination of the housing bubble itself plus the worst recession since the Great Depression (caused in great part by that bubble) has created a foreclosure crisis of gargantuan proportions. Millions of homeowners are in foreclosure proceedings, millions more underwater because of the collapse of housing prices. And because the banks have cooked their books, not wanting all these toxic assets to wreak havoc with their official valuation and their stock prices, they have no interest in helping homeowners stay in their homes by writing down these mortgages to current market levels. So banks are moving to foreclose these millions of homes, but they can't prove to judges that they even own the notes that would allow them to foreclose. Thus you have robo-signers, falsified affidavits, and all kinds of strange things being presented to judges in courts. The judges who are not bought and paid for by the banks are raising big red flags about all this, and thus you have cases like Ibanez going against the banks.
One of the most discouraging things about the last two years was seeing swing voters in focus groups, when asked what President Obama's economic strategy was, repeat different versions of "Well, I know he said we needed to save the banks. Beyond that, I'm not sure." When Obama in his first State of the Union gave a vigorous defense of bailing out the banks, saying he knew it about as popular as a root canal, and saying "I get it", it was very memorable to voters. But when his predictions about what would happen when the banks were stabilized- they would start making loans to businesses, and businesses would start hiring- didn't happen, and instead the banks gave themselves record breaking bonuses, voters turned on Obama fast. In exit polls on Nov. 2nd, when asked who was most to blame for the bad economy, voters by a wide margin said Wall St was most to blame, and the voters who said that went Republican by a 14 point margin.
Obviously, saving the banks hasn't been the President's only economic strategy. The stimulus bill, while too small, was an important job creator/saver. Saving the American auto industry was an incredibly important thing to do. Health care reform was in part a long term economic strategy. The infrastructure bank idea is a great potential job creator. Extending unemployment insurance helps keep money in the economy. And all the tax cutting going on is clearly meant to have some stimulative effect, although how much is highly debatable.
However, there have certainly been times where Secretary Geithner, who has been the main driver of the economic strategy, seems to think and act as if helping the big banks and helping the economy amount to the same thing. The tepid reaction to the foreclosure crisis has sure felt that way- apparently we can't freeze foreclosures or do much to help homeowners because it might "endanger" the banks. In fact, I would argue the exact opposite: that our number one economic strategy right now should be to shift money from the big banks to the real economy, to Main Street businesses and workers and consumers. The big banks are hoarding extraordinary amounts of money, and they are clearly not investing it in job creating businesses. They are speculating with it, they are trading with it, they are investing in complicated financial instruments that do nothing to create jobs- in fact, they are sucking capital out of the real economy that might actually create jobs. These massive financial conglomerates have way too much concentrated wealth and market power, and that is weakening the rest of the economy.
This is one reason why, as I wrote a couple of times last week, it is so important to write down the mortgages of homeowners who are underwater. Taking that money out of the bankers' hands and putting it in the hands of the hard pressed middle class would do more to stimulate the economy than any other thing the President could do right now. This is also why the Federal Reserve's new proposed rule, out last week, on swipe fees is so good. It would generally limit swipe fees to 12 cents per transaction. Right now the average is 44 cents, and with most small businesses it's quite a bit higher. If this rule is upheld, this is money that will go straight from the big banks' profit margins into the main street economy- all told probably a $15 billion boost going back to retailers, restaurant owners, taxi cab drivers, and hopefully consumers. $15 billion going from Wall Street, speculative economy into the real economy is a nice lift right now. This is why I have been working with retail business leaders and consumer groups to support this new regulation.
Unfortunately, not all Democrats see it this way. Tom Carper and Mark Warner tried to head off the amendment that made this regulation happen in the Senate, and have been lobbying the Federal Reserve against a strong regulation on the subject ever since they lost the legislative fight. And Barney Frank, who is a great liberal on social issues but spends way too much time with bank lobbyists, was whining on Friday how unfair the proposed rule was to the poor bankers.
Barney, you got this one wrong. Democrats should not be looking out for the bankers, we should be looking for every single opportunity we can to drain the Wall St swamp. The big banks are hoarding money. They have way too much market power, and when their profits expand, they put that money into the speculative economy rather than the real economy that manufactures goods, sells products and services, and creates jobs. When we take a dollar away from them, and put it into the real economy, there is actually a multiplier effect as people on Main Street spend or invest the money in real products. When mortgages get written down, it helps the real economy. When swipe fees on credit or debit card transactions get lessened, it helps the real economy. If we instituted a transactions tax on every trade made on Wall St, and put that money into a jobs program, that would help the real economy.
The big banks are hoarding our money. Our best economic program right now is to shift money from the banks, and put it into the hands of consumers who might actually buy products and businesses who might actually hire more workers.
It is pretty audacious for me to claim that any given report is the most important one to be issued in the next two years given that I obviously have no idea what else is going to be published. I am feeling fairly confident about this one, though. It's not because the facts assembled are so groundbreaking, or the research goes deep to find things no one else could have found. It is because this report is a clear roadmap to the economic and political path the Obama White House should be taking. The report, Big Banks Bonus Bonanza, was issued by SEIU, National People's Action, the PICO National Network, the Northwest Federation of Community Organizations, and the Alliance of Californians for Community Empowerment. It makes the case strongly for an economic play that would give the country a far bigger economic boost than anything Obama is going to be able to get out of Congress the next two years, and a political master stroke that would completely shift the political dynamics in the country.
I wrote about the broad economic strategy of forcing the banks to write down mortgages on Tuesday, but this report does a great job of laying out the numbers in stark detail. Bank robber Wee Willie Sutton famously said that the reason he robbed banks was because that was where the money was, and if we are looking to get our economy moving again, we should be looking to get the money to do it where the money is. Right now, more than ever, the big banks are where the money is concentrated. The most important fact by far in Big Banks Bonus Bonanza is this one: right now, 11 million American homeowners owe $766 billion more on their mortgages than their homes are worth, but if the banks were to write down those mortgage principals to market value and refinance them into 30 year fixed rate loans, you would get $73 billion pumped directly back into the economy- every year for the next 30 years.
Now unlike extending tax cuts for the rich or reducing the estate tax, which tends to be saved and invested in long term bonds, this money would go directly into stimulating the economy and creating jobs. Think about who those 11,000,000 underwater homeowners are: they are almost entirely middle and working class families who have spent the last couple of years sweating bullets to save their main life investment after its value plummeted by 20%, 30%, or more. They haven't been spending money on new products, they haven't been taking any vacation trips with their families, if they own a little mom and pop business they sure haven't been taking any risks to expand it: they have just been desperately scrimping and saving and trying to hang on by the skin of their teeth. But if their mortgage is reduced to what their house is actually worth in today's market, that means their overall financial situation is far more stabilized, and it means their monthly mortgage payment will go down as well.
With a stabilized debt and lower monthly mortgage payments, with the psychological weight of probable foreclosure off their shoulders, these middle class homeowners (at least the ones with jobs, which is most of the folks who still have homes) are exactly the kind of people who will be likely to start spending a little money in this economy. Maybe they will finally buy the car they have been holding off on now for years. Maybe they will do a little home improvement now that they know they will be able to stay in their home. Maybe they will feel able to finally make the investment in their small business they have been wanting to make, and hire a few extra folks as a result. The economic multiplier effect of this $73 billion would be as good as any money injected into the economy right now.
You want to know what the second most important fact in this report is? The 73 billion dollars it would cost to write down those mortgages would be only half what the top 6 banks alone are getting ready to write in bonuses and compensation for 2010. If forced to write down these mortgages, the banks will scream bloody murder, even claiming it would endanger them and the entire economy. But all they have to do is cut their bonus and compensation packages, the vast majority of which go to top executives and traders, by 50%. Given all the cash these banks are sitting on, all the profits made and bonuses distributed in recent years, I have no doubt they can afford the hit. The ironic thing is that if they wrote down these mortgages, they would be getting monthly mortgage checks from all these homeowners, plus avoid the costs of all those foreclosure proceedings, but they don't want to write down the property because of their own phony accounting that claims the properties are worth far more than they actually are.
So here's the other little nugget the report alludes to: if you injected 73 billion dollars into the economy through these write downs, the multiplier effects I was referencing earlier- homeowners being able to free up cash to buy things and invest in small businesses and do home improvements- would mean 1.8 million new jobs. That is a lot of jobs, folks: enough to drop the unemployment rate from the almost 10% it has been sitting at for a very long time down to the mid 8s. And it would finally begin to stabilize the housing market, which would do a lot for the economy all by itself.
All of these good economic tidings would be great for the President politically of course, but what would matter more than anything is that him taking strong action to take on the banks on behalf of economically pressed homeowners would do immeasurable good to his political standing in general. He wouldn't be going to Congressional Republicans hat in hand, begging them to do the right thing on some piece of legislation that would never get passed. He wouldn't be having to choose what compromise to make. He could show both the Democratic base and middle class swing voters that he was taking a strong stand on their behalf against a very powerful interest. Working alongside the state Attorneys General and tens of thousands of community activists working on this issue, he could order every agency in government- Treasury, DOJ, Fannie, Freddie, HUD, FHA, etc- to exert maximum pressure on the big banks to write down these loans. That kind of strong decisive leadership would do wonders on his behalf.
Obama showing strength and leadership on this issue could help turn both the nation's economy and the President's political fortunes around. For his sake, and the country's, my biggest Christmas wish this year is that he takes this fight on.
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.
I wrote a few days back about Wall Street's newest favorite Democrat, Tom Carper, circulating a letter to colleagues on behalf of the big bank and credit card companies. This letter, which every big bank and credit card lobbyist in DC was actively pushing, ended up scoring only 17 signers. Given the lobbying muscle and money working this one, getting only 17 Senators was a truly pathetic showing. What that shows me is that Carper, his fellow banker buddy Mark Warner, and the bank lobby couldn't generate more support because Senators are realizing that main street businesses back home- the retailers, the restaurant owners, the gas station owners, the hair dressers, the taxi cab drivers- don't like how the bankers are ripping them off with swipe fee charges, and are letting their members of Congress know that.
A lot of times on Capitol Hill when lobbyists and their congressional allies circulate a letter, and they can't come up with a respectable amount of signatures, they quietly drop the effort or at least delay it so they can build momentum over time. The timing of this issue, though, made that impossible, forcing them to show their very weak hand. The likelihood is that the Federal Reserve, which the new financial reform bill gave the power to regulate swipe fees, will file their regulatory proposal next Thursday, so Carper felt like he had to act fast.
Banks and their credit card companies have had no oversight, no accountability, no check on their power on this issue. Small businesses especially have no leverage in negotiations with the bank behemoths, and for there to be no regulation on this windfall for the financial industry is outrageous. It is now clear from Carper's and the industry's pathetic effort on this letter that politicians are hearing from their constituents and know that helping the Wall St guys instead of the main street guys is political poison. If the Federal Reserve bows to bank pressure on swipe fees, we should raise hell.
For several years now, Melissa Bean has been widely thought of around DC as Wall Street's favorite Democrat, but with her being defeated, there will be a stiff competition for the role and the financial contributions it bestows. Right now, the top contender is looking to be Senator Tom Carper from Delaware.
There is a ton of irony here, given that for a brief shining moment Delaware's other Senator was a guy by the name of Ted Kaufman. Ted, who was appointed to fill in the rest of Biden's term and immediately vowed not to run again, quickly distinguished himself as Wall Street's least favorite Democrat, leading the charge to break up the Too Big To Fail banks which have wreaked such destruction on our economy. We don't yet know how Ted's replacement, Chris Coons (otherwise known as Christine O'Donnell's opponent) will come down on the financial reform issue, but let's hope it is better than Sen. Carper.
In his five year Senatorial career so far, Sen. Carper has already taken in more than $158,000 from Citigroup, JPMorgan Chase, and Bank of America alone. The Securities and Investments, banking, and credit card industries all told have dumped over $789,000 into his campaign/PAC coffers. That is a lot of moolah, but they seem to be getting their money's worth, as he has been a loyal ally for the most part. His latest favor? Carper is circulating a letter to the folks who voted in favor of the banks and credit card industry's position on swipe fees during the debate on financial reform (their position, for those of you who didn't follow the debate, was that they should be allowed to continue screwing main street businesses with impunity as they had been for years) to Ben Bernanke on the issue. The letter essentially says that even though we got slaughtered in the floor vote, you should still give the banking/credit card lobbyists everything they are asking as you write the regulations on the issue.
There will be other contenders for this prestigious award of Wall Street's favorite Democrat, but Carper is making a hell of a case for himself. Hopefully, though, the Fed will listen to main street business and consumers on this issue rather than the banking industry.
After the Berlin Wall came down, my anti-nuke activist friends got excited about all the things America could do with the "peace dividend." As if America would turn from spending deficit dollars on war machinery to spending them on something useful like infrastructure or schools.
There would be no peace dividend, of course. We don't spend such massive sums of deficit dollars on ordinary people unless they are foreigners we expect to kill. We don't lose any sleep over expending a $70,000 Hellfire missile to kill suspected terrorists and accidentally hitting civilians, but our blood boils at the thought that any of our own less well-off might collect any of the tax crumbs that fall from the table. Because -- oh, the moral hazard -- someone less deserving than me, my family, my friends, my neighbors or my congregation might get a nickel of my tax money. Because in America God helps those who help themselves to whatever they can get without being caught. Because anyone unwilling to play Monopoly on a global game board and bankrupt any of his neighbors who lands on Boardwalk or Park Place deserves to get stiffed. Those capable of that we lionize and pay handsomely.
There is a theory that justifies the insane money some people at the top of the American business pyramid collect. Lots of people have business degrees from Harvard or Yale. Executives who can make cutthroat decisions on behalf of corporate shareholders, decisions that slash and burn the lives of millions, and then can go home and sleep at night are a rarer commodity. Their salaries are a simple matter of supply and demand. Which brings us to our present economic travails.
Matt Taibbi again brings his fierce intensity to the story of Wall Street's financial meltdown. If you read "The Great American Bubble Machine" last year in Rolling Stone, or if you listened to the This American Life broadcast of "Giant Pool of Money" you already know much of the story behind Taibbi's just-released Griftopia.
Those stories rested as much upon the process as upon the excess. Griftopia cuts right to the greed.
Two Tea Party leaders, Mark Meckler and Jenny Beth Martin, have been jet-setting all over the country ginning up support for conservative politicians. Literally.
They've been flying around in a private jet like Wall Street CEOs, except they're heading to "grassroots" rallies instead of merger talks. Meckler and Martin don't say how outraged, ordinary citizens can find the money to support such extravagance, and they don't have to. Thanks to the Supreme Court's ruling in this year's Citizens United v. the Federal Election Commission, they can now accept unlimited funding without disclosing the identities of their donors.
No one would even know about the jets themselves, but Meckler and Martin never counted on Mother Jones, or a reporter named Stephanie Mencimer. Using public flight-tracking information, the Tea Party Patriots' flight schedule, and some serious attention to details in the group's own videos, Mencimer was able to figure out which jet the not-so-populist duo were using. She then traced the plane to Raymond F. Thomson, founder and CEO of a semiconductor company called Semitool, which he sold last year for a cool $364 million.
It's both sad and hilarious to see the secret financial arrangements of the super-rich masquerading as grassroots activism. But it also shows the lengths to which reporters must go to actually report on political spending in the wake of Citizens United. There is no documentation to follow, just the contrails of private jets.
Social groups target state races
And while secret political spending has been dominated by big corporations this cycle, the legal maneuvering that liberated corporate coffers was actually performed by fringe right-wing groups targeting social issues. As Jesse Zwick emphasizes for The Washington Independent:
Groups advocating against abortion and gay marriage have waged a low-grade war on laws restricting their ability to spend money freely in elections since the early 1980s, and their victory in the recent Citizens United ruling has hardly caused them to rest on their laurels.
Our democracy is now more beholden to corporate greed than ever, but at least gays won't be allowed to visit each other in the hospital.
This is just the beginning of corporate rights
But the implications of Citizens United extend far beyond the (critically important) realm of campaign finance itself, as Jeff Clements and John Bonifaz of the organization Free Speech for People emphasize in an interview with Amy Goodman and Juan Gonzales of Democracy Now! As Bonifaz notes:
Citizens United was not just a campaign finance case, it was a corporate rights case. In fact, it was an extreme extension of a corporate rights doctrine that has eroded the First Amendment for thirty years.
At its core, Citizens United grants First Amendment rights to corporations on the grounds that corporations are people, just like ordinary citizens. Sound crazy? It is.
The bill of rights for corporations?
As AlterNet's Joshua Holland emphasizes in an interview with historian Thom Hartmann, the implications of the view that corporations are people are simply absurd. Now corporations have been granted First Amendment rights, but what happens when they start arguing for Second Amendment rights? And what would it even mean for a corporation to have Second Amendment rights?
A visual map of Campaign Cash
What are the most common themes and issues surrounding the untold amounts of cash flowing into this election cycle? To create that visual, the Media Consortium piped 10 articles by our members through Wordle. While all the articles were generally focused on this topic, they were picked at random and published between October 25-29.
For clarity's sake, we made "Tea Party" "TeaParty," "Supreme Court" became "SupremeCourt," and we also merged the first and last names of key players such as Karl Rove and Jim DeMint. Finally, we removed any extraneous words such as "the," "and," and "even." We did not combine the words corporate/corporation/corporations or Republican/Republicans (but examine the frequency as much as the size). To get the latest reporting on the funds feeding into the mid-term elections, go to www.themediaconsortium.org or follow the search term #campaigncash on Twitter. Wordle research by Amanda Anderson.
And no matter who wins on Tuesday, it seems one thing is clear: Democracy will pay the price, says Henry A. Giroux at Truthout.
Lobbyists are already buttering up the incoming committee chairs, reports Siddhartha Mahanta in Mother Jones. Time to get to know Rep. Dave Camp (R-MI), who could be the incoming chair of the House Ways & Means Committee.
This post features links to the best independent, progressive reporting about the mid-term elections and campaign financing by members of The Media Consortium. It is free to reprint. Visit The Media Consortium for more articles on these issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Audit, The Mulch, The Pulse, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.
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.
A more general take-away from de Wall is just how important it is for those who wish to perpetuate inequality that they figure out some scam or system of scams that makes things seem like they're equal, even though they're not.
Appropos of that, here's a chart from this week's edition of Too Much, an online weekly publication of the Institute for Policy Studies. It turns out that over 90% of Americans would prefer to live in Sweden, rather than the US, so far as wealth distribution is concerned:
Picking a new head for the National Economic Council is an important moment for the President's rapidly realigning White House staff. It is an opportunity to do two very critical things at once going into the President's crucial final full year before the re-election campaign gets into full swing. The first of these is the most urgent project of this next year: finding some way in this badly damaged economy to start seriously generating some new jobs. The second mission is possibly even more important to the President's re-election and long term political health and legacy: restoring the balance in the Democratic coalition.
Ever since William Jennings Bryan's Cross of Gold speech at the 1896 Democratic convention, after which the populists merged their movement and their party with the Democrats, the political party I am proud to call mine has on economic issues been an uncomfortable coalition of those working-class populists and urban business leaders. Woodrow Wilson was the first Democratic President to govern with this uncomfortable coalition, and he chose fairly evenly between the two. FDR and Truman were more clearly on the populist side, JFK was more in the middle between the two, and LBJ went more with the populists, but all of those Presidents had significant business figures as part of their advisers and political coalition. Carter and Clinton both leaned much more heavily toward the business (increasingly Wall Street) wing of the party but both had more populist progressive advisers as well. Having smart guys like Joe Stiglitz and Bob Reich on the same side as me during those White House policy fights didn't mean we won half the time, but us progressives inside won a few rounds at least.
Flip to the transition period in late 2008. As the economy was on the verge of crashing around us, the President-elect decided to make his bet overwhelmingly with the Wall Street-oriented side of the party, the folks who were proteges and aligned ideologically with Bob Rubin. There were a couple of exceptions (Volcker and Jared Bernstein) but they were relegated to relatively minor positions. I had the sense at the time that Obama felt that he needed to have people who understood the financial sector and industry players really well, and that in a time of crisis he was looking for a team that wouldn't be too torn apart ideologically to make clear quick recommendations. But whatever the reasons, what had become the wing of economic thinkers with a sizable edge in the Clinton years became virtually the only view Obama has heard since he became President. With Tim Geithner's mentor and ideological twin Larry Summers leaving the NEC, now is the time to restore a measure of balance to the President's economic.
The biggest reason that is so important is because of the jobs issue. The macroeconomic Wall Street-oriented guys like Geithner and Summers have never been focused on the specifics of how you produce jobs in the short term- it is just not how they think. Macroeconomists think in terms whether the GDP is going up or down, whether finance is flowing and the banks are healthy. They tend to think, as administration officials used to say ad nauseum until someone in the political team finally got them to stop, that jobs are a lagging indicator that will come back around someday, after the banks get more financially comfortable and start lending again. The problem is that the shock to this economy from the damage done by the financial crisis has made classical macroeconomics a dead-end street. Banks are more comfortable but they are still not lending money because (a) there are a lot of toxic assets still on the books, (b) no one thinks main street businesses will be making money anytime soon, and (c) the Wall Street banks think they can still make more money in speculative trading than in boring investment.
The old economic models are broken, and a little entrepreneurial populism is exactly what is needed right now: someone with fresh ideas re how to spur manufacturing, how to jump-start new industries and companies. You need someone to provide a balance to Geithner's classical macroeconomic thinking, someone who wants to invest in middle class jobs not somewhere in the future when the economy has healed itself a lot more, but now. Right now. The President needs to face the fact that there aren't a lot of creative new ideas coming from the financial macroeconomists and Rubin proteges.
Here's what is also true on the political side: whatever happens, there are few economic thinkers anywhere that believe prosperity and big job gains are right around the corner. We are very likely to still have an economy in the doldrums in the fall of 2012. If Obama stays with the an economic team all drawn from the same crowd as he has now, and they all keep advising him to do the same things he has been trying all along, no one is going to give him any political credit two years from now. He has to be seen as FDR was in 1936: things were still bad, but he was willing to keep trying and trying and trying some more on new ideas to spur the economy, and at least some working class folks- Social Security recipients, WPA workers, etc- had a little bit of money to spend. If Obama brings in a new economic team with some new middle-class jobs-oriented ideas, it will help him immeasurably in terms of keeping voters' patience. The other politically crucial thing it will do is that it will unite his party. The populists in the Democratic coalition- labor, poor people, working class women, immigrant laborers- want to feel like their President is on their side, that he is taking chances and trying new things that will help them economically.
There are a lot of good candidates from the progressive populist wing of the party. A former Senator like Byron Dorgan or Don Riegle or Jon Corzine (in spite of being a former Goldman Sachs guy, Corzine is a serious economist populist). A former labor guy like the brilliant Ron Bloom, who is already in the administration. Lots of good economic writers and thinkers as well. But I know the administration wants to check either the former CEO box or the woman box in terms of their symbolic hirings, so let me throw one choice into the ring that fits one of those two boxes: Leo Hindery. I'll admit some bias, as he is a friend of mine. But the economist I respect as much as any other, Rob Johnson (who would also be a great candidate but doesn't want it), said to me the other day that he thought Leo was the best candidate he could possibly think of, and I have to agree with him. One of the most successful CEOs in the country over the last couple of decades, a great manager, a longtime writer on issues of manufacturing and trade, he would be hard for business leaders to say he wasn't qualified. But Leo is a tried and true populist, a close friend of the labor movement in spite of being a retired CEO. He has great political relationships on Capitol Hill, and a good working relationship with new White House COS Pete Rouse. The only political downside, if you can call it that, is that he has been a critic of White House economic policy, but I think hiring him would show that Obama was open to new ideas.
Leo is not the only good candidate, but hiring him or someone like him, someone who will restore balance to the President's economic team and political coalition, and someone who will walk in the door with a raft of fresh ideas that Geithner and Summers haven't been thinking about, would go a long way in getting the President ready to take on the economic challenges of the next two years. The bottom line for me isn't a particular candidate, it is that the President understands that he, his party and governing coalition, and our country need an NEC head who is not tied to traditional Wall Street-oriented ideas about the economy, or someone from corporate America that isn't bothered by the outsourcing of jobs and the trade deficit. We need an NEC chair who has a track record of caring passionately about manufacturing jobs, our crumbling infrastructure, our trade deficit, and new approaches to creating good paying jobs for middle and working class Americans. Having someone like that to run the NEC to balance Geithner's macroeconomic financial sector orientation at Treasury is crucial to rebuilding our economy, and to rebuilding confidence in this administration that they care about the middle class who has lost so much in the last ten years.
Update: This post was written yesterday before I had the chance to look at the stunning NYTimes story in this morning's paper. Entitled "Cheap Debt for Corporations Fails to Spur Economy", it summarizes better than anything I could write why the classical macro-economic model embraced by the Bob Rubin wing of the Democratic Party is not working in the deeply damaged economy of 2010. The article describes how one major corporation after another is borrowing "vast sums of money for next to nothing- simply because they can", but instead of using that borrowing to invest and create jobs, they are using it to (a) stockpile cash against worries of future weakness in the economy; (b) invest in new technology that allows them to "be more efficient and cut jobs"; (c) lower their next year's tax bill; (d) buy long term bonds (in one case mentioned, a 100 year bond); and (e) finance new mergers and acquisitions.
In case you are keeping track at home, none of those 5 things creates jobs or benefits workers.
The old economic model is fundamentally broken, torn apart by the incredibly deep damage done to this economy by the last decade of erosion of middle class buying power, and the Bush recession and financial market collapse of 2008. We need an NEC head who will bring fresh ideas and a different economic model to the administration.
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.
Robert Scheer's new book "The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street," is not yet another account of how we got robbed or "why the economy imploded for dummies." If you're like me, you just didn't need another lesson in how swapped collateralized debt obligation derivative tranches didn't really make the pie higher. Scheer's book is something else: a straightforward broad-view account of the past thirty years focused on who did the robbing.
Here's the short answer that Scheer provides: Reagan announced the robbery but couldn't pull it off. Clinton robbed us blind. Bush Jr. and Obama drove the get-away car, with Obama disguised as a security guard.
Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren't really about economics or the deficit. They're all about waging war on social services.
We're seeing lots of media stories cropping up these days about how very, very angry Wall Street tycoons are at certain nasty Democrats who have had the temerity, the sheer gall, to stand up to them on certain issues. They are giving a lot less money to Democrats, and a lot more to Republicans- which sounds to me like the best single argument for voting Democratic that I have heard in a while.
My heart bleeds for these poor persecuted bankers and traders. People are speaking poorly of them for trashing the economy and then having to be bailed out when they are used to being worshiped by politicians and journalists, and most hurtful of all, they are not getting every single thing they want out of Congress, regulators, and the White House as they are used to. It's a shock to them.
They are regrouping, though, making sure reporters know that they just won't give as much money to Democrats as they used. And they have seen all the fun the tea partiers and progressives have had running primaries against people, so they are starting to get into the act. Earlier this year, they almost convinced Harold Ford to challenge Kirsten Gillibrand in the Senate race on the incredibly compelling "Let's stop beating up on Wall Street" platform. That didn't work out so well, but they did at least get a woman named Reshma Saujani to challenge Carolyn Maloney in a primary for her House seat. Sanjani has raised at least 800 K from Wall Street traders, using quotes like "We need to extend a hand [to Wall Street] rather than a fist" to proclaim her love for the big bankers.
Maloney has been irritating the hell out of Wall Street types for a while now. Her credit card consumer bill of rights has cost Visa, Mastercard, and the big banks billions of dollars; she played an incredibly important role negotiating a good compromise on the swipe fee issue that will move billions more from bank profits into merchants and small businesspeople's pockets; her overall role on the financial reform bill was incredibly constructive and important.
Us progressives are justifiably angered at how much power Wall Street and other big corporate interests have over our government, but we also sometimes forget the wealth and power of the industries we oppose. It takes real courage for leaders like Carolyn Maloney to take on the titans of Wall St, because they can quickly find a candidate who is happy to be in their pocket and can quickly raise them a boatload of money to take potshots at them. Here's a shout-out Carolyn Maloney: thanks for having the guts to be on the side of us regular folks.
STATE BLOGS
