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.
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.
Editor's Note: Zach Carter is out this week, but we've compiled a rundown of the biggest economy-related stories, including the rise of foreclosure mills and why social security isn't in jeopardy. Zach will be back next Tuesday, so stay tuned!
Who needs ethics when you've got foreclosure mills?
Want to make money quickly, but don't want ethics to get in the way? Big banks are outsourcing their foreclosure duties to fraudulent law firms, known as foreclosure mills, and getting away with it. Zach Carter explains the latest get rich quick scheme for AlterNet. Foreclosure mills are ethically questionable law firms that process legal documents for foreclosures. They tend to have an emphasis on quantity, not quality. Carter writes:
Big banks are not outsourcing their foreclosure processing to shady law firms with a history of breaking the law for a quick buck. These foreclosure scammers forge documents, backdate signatures, slap families with thousands of dollars in illegal fees and even foreclosure on borrowers who haven't missed a payment.
Andy Kroll chronicles the evolution of foreclosure mills for Mother Jones. Kroll also exposes a notorious Floridian law firm founded by David J. Stern that is using every trick in the book-including backdating documents and illegally charging clients massive fees-to profit from the foreclosure crisis:
While rushing foreclosures isn't illegal, Stern's fledgling firm was promptly accused of something that is: gouging people who are trying to get out of default. In October 1998, Tallahassee attorney Claude Walker filed a class-action lawsuit involving tens of thousands of claimants, alleging that Stern had piled excessive fees on families fighting to keep their homes. (Walker, who visited Stern's offices in 1999 to collect depositions, described the place as "a big warehouse" where hordes of attorneys holed up in tiny, crowded offices "like hamsters in a cage.")
As you have heard, the Wall Street reform conference committee re-opened yesterday. In an attempt to win the 60 votes needed for cloture in the Senate, conferees voted to strike a $19 billion tax assessment on banks to pay for a liquidation fund of failing financial institutions, and replaced it with higher FDIC premiums on large banks, as well as an early end to TARP:
By stopping additional payments from the Troubled Asset Relief Program a little more than three months before it formally ends, the proposal would save $11 billion. That would cover most of the projected $19-billion cost of the reforms over 10 years. (...)
To cover the remaining cost of the reform package, Dodd's plan also would increase the premiums that banks with more than $10 billion in assets pay for federal deposit insurance, administered by the Federal Deposit Insurance Corp.
A $19 billion tax on banks would have been better policy, both because it provided a long-term funding source and because it would have reduced the concentration of power and wealth of the big banks. Still, on the bright side, getting almost every Republican to vote against ending the bailout, in the form of TARP, should have significant political benefits. Every Republican conferees voted against ending TARP yesterday, for starters.
Even with this change to the bill, the 60 votes needed for passage this week have not been secured. It is believed that Collins and Snowe will support the bill now. However, Scott Brown and Maria Cantwell are still maybes. Unless both of them come out in support, then the bill cannot pass this week. Unless one of them comes out in support, then the bill cannot even pass in two weeks, when Robert Byrd's replacement will be sworn into the Senate. Republican Chuck Grassley of Iowa is another potential vote.
Speaking of Robert Byrd, his funeral is on Friday. It will be attended by numerous Senators, meaning that there will not be any chance of getting 60 Senators to vote for cloture that day. Thus, cloture would have to be achieved by late tomorrow in order for the bill to pass this week.
So, how soon the House passes the bill (it is expected to do so today, but every hour matters now), and what public statements we hear from Cantwell, Scott Brown, and Grassley mean a great deal. If the conference report on the bill is not passed through both chambers before Friday morning, it will require a vote when the Senate returns from 4th of July recess. Bank lobbyists and the tea party will use this time to aggressively attack the bill at townhalls around the country, thus potentially shaking loose a couple of votes and putting it in danger once again.
It ain't over 'till its over. That is just as true on Wall Street reform as it was on health insurance reform.
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.
While the poor judgment of top-level officials at Treasury and the Office of Management and Budget frequently makes the news, there is another, unrecognized economic crew doing terrific work: Officials at the Department of Labor are restoring workers' rights after nearly a decade of neglect.
To top it all off, President Barack Obama appears ready to make another set of strong, though less high-profile, economic appointments that will help rein in Wall Street excess.
DoL All-Stars
As Esther Kaplan documents in a masterful piece for The Nation, the Department of Labor (DoL) has been transformed from an agency that enabled corporate excess to one that holds companies accountable. In less than a year, Labor Secretary Hilda Solis and her team of deputies significantly leveled the playing field between ordinary workers and high-flying executives.
For decades, when conservatives have attempted to confront social problems, they've relied on the mantra of enforcement. If we had more cops, we'd fix everything. But as Kaplan documents, under President George W. Bush and his Labor Secretary Elaine Chao, the DoL simply stopped enforcing worker protection laws. From wage theft to mine safety, the Department essentially allowed corrupt employers to do anything they wanted.
That neglect has already ended. Armed with a budget of just $1.5 billion-that's roughly 0.2% of the Troubled Asset Relief Program-Solis and company have cultivated a list of economic accomplishments that seemed impossible when they took office. As Kaplan details:
"Facing badly depleted enforcement ranks, Solis hired 710 additional enforcement staff, including 130 at OSHA and 250 for the crucial wage-and-hour division, upping inspectors by more than a third. Another hundred will come on next year to staff a crackdown on the misclassification of millions of employees as "independent contractors"--a dodge to avoid paying taxes and benefits--a move that has set off enormous buzz on business blogs. Her team took a plunger to the stagnant regulatory pipeline, moving forward new rules on coal mine dust, silica, and cranes and derricks. She restored prevailing wages for agricultural guest workers and is poised to restore reporting rules on ergonomic injuries."
Fixing the Fed
Obama also appears ready to make another slate of strong economic appointments at the Federal Reserve, an agency stuffed with free-marketers who helped engineer both an economic catastrophe and resulting bailouts. Obama's rumored picks-economists Janet Yellen and Peter Diamond and bank regulator Sarah Bloom Raskin-are aggressive about making the economy work for everyday citizens, as I emphasize for AlterNet.
If Congress passes financial reforms similar to what Senate Banking Committee Chairman Chris Dodd (D-CT) has proposed, the Fed's regulatory responsibilities will actually expand, despite its failures over the past decade. The Fed has never effectively regulated anything and it's not very concerned with unemployment as an economic problem.
That makes Obama's pending slate of officials who prioritize bank regulation and broader employment very important. Raskin, in particular, stands out with her strong record as a state banking regulator. If Obama ultimately nominates her, she'll be the first pure regulator ever appointed to the Fed. The potential picks don't make up for Obama's reappointment of bailouteer Ben Bernanke as Federal Reserve Chairman, but they do show that the President is capable of sound judgment.
Strengthening the Dodd bill
But the strength of Obama's potential Fed nominees doesn't justify the weakness of Dodd's financial regulation bill. As Amy Goodman and Juan Gonzalez of Democracy Now! reveal in interviews with economist Robert Johnson and ColorLines Editorial Director Kai Wright , the bill leaves plenty to be desired. Dodd is currently making the rounds and declaring that his bill will end the abuses giant banks deployed against the broader economy, but the truth is, the bill has largely been gutted by bank lobbyists. Here's Johnson:
"We're engaged in a Kabuki theater right now, hoping the material is too complex for the American people to understand, declaring victory, and yet basically encoding into law current practices of the banks. Every one of your listeners should ask the question, given this legislation, if the President, House and Senate pass it, will we be in a place where AIG couldn't have happened, Lehman Brothers couldn't have happened, Bear Stearns couldn't have happened, and, more importantly, nine, ten percent unemployment caused by the banking crisis couldn't have happened? I argue this bill does very little."
The importance of trust-busting
So Dodd's bill needs to be substantially strengthened as it moves through the Senate. But there's plenty of other economic work to be done outside of Wall Street. As Barry C. Lynn and Phillip Longman explain for The Washington Monthly, the steady expansion of corporate monopolies has resulted in a fundamentally unstable economy.
The U.S. simply does not create jobs at the rate it once did, and companies aren't held accountable to market forces like competition. Many of our monopolies are hidden, as Lynn and Longman note. Macy's and Bloomingdale's seem like competitors, but they're owned by the same holding company. The same dynamic holds true in auto manufacturing, banking, pet food, health care and IT. Consumers think they're choosing between competing goods and services, when in fact they're shopping in different divisions of the same corporate Goliath.
All hope is not lost. As Laura Flanders emphasizes for GRITtv, the passage of health care reform proves that the Obama administration and Congress can make substantive progressive changes when they put their minds to it. The question is whether Obama is willing to limit his economic accomplishments to lower-level issues, or go big and take on the deep-pocketed corporate campaign contributors.
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.
So, yesterday Republicans took the lead in my national House ballot, giving them a better than 50% chance to retake the House. Today, they are once again forecasted to pick up five seats in the Senate, with even more pickups quite possible. So, things suck electorally for Democrats. No news there.
Let's try a different question today--who is to blame for the sucky electoral situation Democrats face? In the extended entry, I list my top four candidates.
If I were President Obama, I would spend the next year showing how government can serve a humble, helpful and supportive role to the central institutions of American life.
David Brooks' insipidly abstract advice gives me the perfect opening to repost this diary, my first, which itself touches on institutionalism.
Specifically, I argue that we’re at a point in history where our institutions are preventing the complete collapse of our standards of living while steadily skimming an increasing percentage off the top and concentrating it in the hands of the people who control them.
The White House has taken an important, positive step of picking a fight with Republicans, bankers and the financial media over a new tax to recoup the losses of the Wall Street bailout. From The Hill:
President Barack Obama intends to raise $90 billion over the next decade through a special fee on the largest financial firms.
The administration is proposing the fee on the largest firms, not all of which received direct emergency money, to make up the losses on the government's bailout efforts during the financial crisis.(...)
The fee would apply to roughly 50 financial firms each with at least $50 billion in assets, the official said.
The proposed tax will be included in the fiscal year 2011 budget This decision is still significant because:
The White house could have waited. . As part of the TARP deal in 2008, the White House was required by law to impose this--or a similar--tax by 2013. In making this move, the White House has decided to move up the timetable, showing that it isn't completely tone deaf on the political implications of the bailout.
It will recover the losses. Although it is not entirely clear how much money the tax will recoup, or how much the federal government will lose as a part of TARP, the White House says the tax will run as long as is necessary to recoup all of the losses.
It will pick a fight. Republicans hate the idea. Banks hate the idea. On a media call with the White House this afternoon, it was clear that some financial reporters, such as Joseph DiStefano of the Philadelphia Inquirer, hated the idea (DiStefano called it "crazy" as a part of his question on the call). This is all very good.
It isn't just necessary for the White House to make this move in 2010, or to recover all of the losses. It is necessary to do so in a way that will anger bankers, Republicans and the financial media, thus publicly picking a political fight that will put Republicans on the side of large financial institutions.
As the governing party during a difficult economic time, Democrats must credibly portray someone else as the cause of the economic crisis or suffer massive electoral losses. Large financial institutions--"the banks"--are the most obvious culprit. Picking public fights with these institutions--fights where Republicans will side with banks--is the way to do this. A TARP related tax like this is a first step in pulling this all off. Even the White House's language, "we want our money back," is just right. Good job, White House.
Unfortunately, it is one step forward, one step back for the White House's willingness to take on the plutocrats. Even as the White House is announcing a new tax on banks, it is also getting ready to announce the creation of a new commission that will propose cuts in Medicare benefits:
White House officials have also told news organizations that the president supports the Senate plan to create a commission to recommend Medicare spending cuts, a proposal that House Speaker Nancy Pelosi (D-Calif.) has opposed.
It is highly unlikely that this commission will actually result in any changes to Medicare. It will be a weaker version of a commission Judd Gregg and Kent Conrad proposed--and the Gregg-Conrad commission itself required 14 of 18 commissioners, and 60% of both branches of Congress, to agree before any changes are enacted. That simply wasn't going to happen, and that was the stronger version of the commission.
However, the politics of this commission are still terrible. When people are not prompted with answers, only 3% of the country identifies the budget deficit as the top problem facing the nation. When given a choice, 74% of the country would want more jobs even if it meant adding to the budget deficit. And, only 6% of the country wants to see Medicare benefits cut (PDF, page 16).
A deficit-cutting commission focused on Medicare appeals to no one, except for some plutocrats and the Senators they have purchased. It is frustrating to see the White House bowing to this unpopular, plutocrat proposal at the same time that it takes steps toward a more populist approach to large financial institutions. A case of good White House, bad White House, indeed.
Reid also declares that Olympia Snowe was negotiating in bad faith, that she was never going to support a health care bill, and that talking to her was a waste of time.
Given that both Lieberman and Snowe were negotiating in bad faith, we should have been pushing for reconciliation as hard as we were pushing for the public option.
Then again, Kissell only leads a potential primary challenger 49-15, and only 28% of Democrats know he voted against the bill. For an incumbent, those are pretty weak primary numbers-someone could actually knock him off. However, the North Carolina primary is on May 4th, so it is unlikely that a strong primary campaign would be able to gear up in such a short time.
Ned Lamont's main opponent in the Democratic primary for Governor in Connecticut has dropped out. Current polling on the campaign indicates that Ned is now the strong favorite in both the primary and the general election. Get ready for Governor Lamont!
It turns out that if I delete content from a website that I--quite literally--own, then I am engaging in censorship. I don't remember the part of the first amendment that declares everyone is allowed to use everyone else's printing press.
This is the last day to submit your comments to the FCC in support of Net Neutrality. Go do it, now.
The FDIC is trying to limit risky bank behavior by linking it to limits on executive pay. The good news not just the ruling, but that the ruling is causing blowback from the conservative members of the FDIC. This is a perfect example of the type of fights Democrats have to pick with financial institutions in 2010. As I wrote yesterday, banks must be portrayed as the culprit, and Democrats have to come across as fighting the banks father than colluding with them.
Keep picking fights like these, and pick them as publicly as possible.
The Harry Reid scandal probably is not going to hurt overall Democratic electoral and legislative positioning that much, if at all. However, new reports of bank profits will. If banks are perceived as fully recovered while the rest of America struggles, it will only further the sense of collusion between Wall Street and Washington, D.C.
whether you defend the Obama administrtion's actions in the financial sector or not, this is a principle that te Obama administration itself seems to realize. I mean, at least sort of recognizes. This is why, bracing for new reports on bank profits, the Obama administration is considering moving up the timetable to impose a tax on the financial sector that will recoup federal losses from the bailout:
The White House is considering a tax on financial institutions to ensure that taxpayers who bailed out banks get paid back, a senior administration official said Monday.
The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.
TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.
This tax would affect the entire financial sector, not just those firms that received bailout money. The Obama administration is considering putting the tax into the fiscal year 2011 next year's budget. Any announcement will likely come at the State of the Union speech.
It is a necessary first step, and worth applauding. However, they have to go much further in picking public fights with the financial sector. The Obama administration has to take the lead for the entire Democratic Party is creating a culprit for the current problems the nation faces. That culprit needs to be "the banks," or some other populist term for large financial institutions.
Without a convincing culprit, the people in charge--aka, Democrats--will bear the brunt of the blame for our economic problems. Even though the Bush administration is still less than one year behind us, Republicans do not work as a culprit. People want results quickly. Arguments about how much worse it would have been under Republicans, or about how recoveries take time, are entirely abstract when compared to the real economic conditions people face.
In lieu of a quick recovery, Democrats need to play up the banks and large financial institutions as the roadblock. While that should not be a hard sell--it is, after all, true-- they need to set themselves up as the people who are fighting the banks and the large financial institutions. That is more difficult for an administration that seems entirely averse to picking public fights, and for large segments of a party that actively collude with them. Still, creating jobs (the jobs bill is up next in the Senate after health care) and picking a fight with banks it is the only path to a less than disastrous midterm election for the Democratic Party. This tax is a first step down that path.
The Treasury Department claimed earlier today that the latest scandal surrounding Tim Geithner's sweetheart deals to AIG doesn't matter, because AIG is on track to pay back the loan. Even if it were true, that response is still highly offensive, because it assumes that a few billion dollars of Fed money--rather than, say, a crashed economy and government collusion to protect the people who crashed the economy--is all that made people upset about the bailouts.
But what's more, the Treasury Department's claim that AIG will pay back the full loan is completely false. The New York Fed forgave $25 billion of the loan to take an ownership stake in AIG that meant no actual control. From a letter Representative Alan Grayson sent to Ben Bernanke:
The New York Fed's entire loan was $25 billion. On top of low interest payments, no limits on executive pay, and other sweetheart deals, the New York Fed allowed AIG to be forgiven for 30% of the entire loan for utterly meaningless concessions in return. So, even though the Treasury Department's response to the latest scandal would have been offensive even if it were true, it isn't true at all.
Oh, and here are some more results of Geithner's decision to allow AIG to regulate itself. Most of the bonuses AIG execs promised to give back in order to avoid legislative action were not actually given back (hat-tip reader JD):
When word spread earlier this year that American International Group had paid more than $165 million in retention bonuses at the division that had precipitated the company's downfall, outrage erupted, with employees getting death threats and President Obama urging that every legal avenue be pursued to block the payments.
New York Attorney General Andrew M. Cuomo threatened to publicize the recipients' names, prompting executives at AIG Financial Products to hastily agree to return about $45 million in bonuses by the end of the year.
But as the final days of 2009 tick away, a majority of that money remains unpaid. Only about $19 million has been given back, according to a report by the special inspector general for the government's bailout program.
I am angry about this not just as someone who finds the policies involved abhorrent, and not just as someone who has taken a really big hit because of the Great Recession. I am pissed about all of this as a Democrat. Watching the Obama administration and center-right Democrats in Congress continue to collude with the financial services industry is sickening (even apart from the bailout, check out the outcomes of the mortgage reform, student loan reform, and financial regulation fights). They are pissing away our generational opportunity to really help people, and seriously imperiling the Democratic Party at the ballot box in the process.
As Natasha reminded me earlier today, we worked as hard as we could to put these people in charge, and these are the results we are getting. It turns my stomach. What a waste.
The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer's payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.
AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008.
That is bad enough. The Treasury Department's offensive response to these revelations shows just how clueless and pro-Wall Street they actually are (emphasis mine):
The Treasury's response this morning is, essentially, no harm no foul. Meg Reilly, a Treasury spokeswoman, released a statement: "In the transaction at the heart of this dispute... the FRBNY made a loan of $25 billion which is on track to be paid back in full with interest so that taxpayers will be made whole. Somehow that fact that the government's loan is 'above water' gets lost in all the consternation despite its mention on page 2 of the SIG-TARP report (and weekly updates on the FRBNY's web site."
Here is my response to this response, which is hardly the first of its kind around the nation: fuck you. Made whole? Seriously, fuck you. And then fuck you again.
Geithner and the Treasury Department seem to think that the only thing Americans care about in this deal is that AIG pays back their loans. What they care about is that the economy was crashed by people like AIG. What they care about is that these fuckers are not only not being punished for fucking millions of people, but that they are getting deals from the federal government that preserve their bonuses and offer them interest rates no individual American could ever receive.
Tens of millions of Americans are facing crushing debt payments because interest rates on the loans they received are so high. They are losing their jobs. They are losing their homes. They would love to get the kind of help that people like AIG got. Loans with little or no interest would be fantastic. Loans like that could actually be repaid by Americans facing crippling mortgage, college, credit card and other debts.
However, the only people getting deals with loans large enough, and at low enough interest rates, and with direct-possibly illegal--assistance from the government, are the same fuckers who crashed the economy. Those people are being helped by the government. Everyone else is still suffering. It reeks of an unholy alliance between big business and big government designed to frock over everyone else.
Made whole? Fuck you. You just don't fucking get it at all.
What if the economic collapse - and bank bailout - had occurred in the fall of 2005 instead of the fall of 2008? This question occurred to me again when I read Ed Kilgore's superbly thought out analysis of substantive intra-left ideological and strategic differences.
I was particularly struck by his take on hidden majorities:
Some good things are happening today on the policy and activism front. Check it out:
The PCCC has already delivered over 8,000 thank you notes to Senator Bernie Sanders for putting a hold on Ben Bernanke's renomination. Now, Open Left is joining in the effort, and we are looking to help deliver 20,000 thank you notes to Bernie Sanders by the end of the week. Send a thank you note by clicking here, and get Bernie's back. When Senators take courageous stands, the grassroots need to get their backs.
To put this in perspective, almost all of the second $350 billion in TARP money will be used on stimulus and job creation relation legislation. With $200 billion for a jobs bill, $75 billion for the homeowners bill, and $23.4 billion in the auto bailout, more than 80% of the second portion of the Wall Street bailout
In terms of politics for 2010, it is hard to think of a better move politically than to redirect Wall Street bailout money toward a job creation bill. Great stuff.
Some will argue that legislation would be preferable to EPA regulation because that regulation would just stop the next time a Republican administration is in the White House. I would counter that pretending we are going to pass legislation that only kicks in 20+ years from now is equally foolish. Just as different White Houses can change regulatory policies, different Congresses can change the law.
And whatever arguments I have had about the public option lately, I have no qualms about killing any bill that strips EPA authority to regulate carbon. Reducing our options to handle global climate change in exchange for a super-weak bill really is worse than nothing. If we do that, then the Senate, with its 60-vote culture, average age of 62, and small-state corporate capture, will have total control over our climate change policy. Giving that kind of power exclusively to the Senate is the surest way to kill the planet that I can think of. Even if we suffer four, eight, or twelve year disruptions in the regulatory scheme, we would be signing our own death warrant if we took carbon regulatory power away from the EPA, and left the Senate in control.
As first reported by Ezra Klein, Senate Democrats are now floating the idea of lowering the age of Medicare to 55 as an alternative to a new public option program. This is an intriguing idea. It is certainly better than a triggered co-op, and might even be better than the opt-out public option currently in the bill. Also, as commenter Cachy notes, it actually nudges us down the path toward universality in much the same way that a public option would.
We shouldn't get too excited about this last one, though. We don't know how much support it has (Conrad has begun questioning it, for example), and they might not go all the way down to 55. The rug could easily be pulled out from under us.
No Stupak language in Senate bill. The chances of defeating the Stupak amendment went up today. Even Orin Hatch, the co-sponsor of Ben Nelson's Stupak amendment for the Senate, says there is no way it will pass that chamber. As such, the final battle over Stupak will happen on the House side, during conference committee (if there is a conference committee).
Reasons to be hopeful! Just wake up everyday, and keep fighting.
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