by Karl Denninger
Not just Bernanke and Geither but they along with the rest of the clown-car brigade at the NY Fed and Treasury. The Fed must be stripped of its authority to "supervise" institutions as it has repeatedly refused to perform its legally-mandated duties when it comes to regulating these firms.
Here we again have proof of outrageous dereliction of duty.
The Federal Reserve Bank of New York has informed MF Global Inc. that it has been suspended from conducting new business with the New York Fed. This suspension will continue until MF Global establishes, to the satisfaction of the New York Fed, that MF Global is fully capable of discharging the responsibilities set out in the New York Fed’s policy, “Administration of Relationships with Primary Dealers,” or until the New York Fed decides to terminate MF Global’s status as a primary dealer.
For those who are unaware the status of "Primary Dealer" is a firm that has a responsibility to maintain an orderly market in the sale of US Treasury securities. That is, they're required to bid. As compensation for this they're the market makers and of course get their cut from that intermediation activity.
Here's the problem: MF Global got in trouble by taking on too much European debt, gearing itself too highly, and they had inadequate capitalization to withstand the problems present in Greece and elsewhere in Europe. The NY Fed and The FOMC, for their part, again failed to do their job exactly as they failed to do their job in 2008 and did nothing about this right up until the firm effectively failed.
Why do I charge that this is the second time around for them? Because it was and this is a statement of fact.
In 2008 roughly a month before Lehman failed the firm attempted a routine repo transaction with Citibank. Citibank rejected their collateral and Lehman had nothing else to pledge. The NY Fed had to know this had occurred because tri-party repos inherently involve the NY Fed as the third party. Yet the NY Fed did nothing in the context of suspending Lehman, they did not inform the public of this material adverse event, they did not demand that the market be informed despite the fact that this is a requirement of a public listing and certainly merited a Form 8-K filing. That Citibank knew and thus The NY Fed had to know Lehman was bust well in front of the markets and the public being told was one of the things we learned from the Jenner and Block report into the Bankruptcy of Lehman that was part of the bankruptcy proceedings and is now part of the public record of the events surrounding Lehman's failure.
In general I have no duty to inform someone else if I find out about some sort of problem with a public company. If I discover that problem without resorting to non-public information (e.g. by reading their balance sheet) I am entitled to use it to trade on and attempt to make a profit.
But I'm not a regulator -- The NY Fed and Federal Reserve are. The Fed has an overriding duty to the markets and to the public as the primary regulator for these institutions, and post 2008 there is simply no excuse for what amounts to willful blindness.
These people need to be removed from power -- at minimum -- as they have repeatedly demonstrated an unwillingness to perform their duties with regard to regulating financial institutions.
Monday, October 31, 2011
The Multistate Settlement Lottery: Bupkis
by Adam Levitin
The NY Times had some details today about the multi-state attorney general mortgage servicing settlement in the works. It looks every bit as awful as one might have feared. Here's the criticial take-away: this is bupkis. It gives meaningless relief to a meaningless number of randomly or adversely selected homeowners. It doesn't do justice, even by halves.
First, though, there's a detail reported in Gretchen Morgenson's otherwise insightful piece that I have on good source is incorrect. The piece states that the banks would be doing principal write-downs on loans they own or service. That's gotta be incorrect. The banks can do principal write-downs only on loans that they own. They have no legal authority to pledge write-downs on loans that they service on behalf of investors. (Remember the Greenwich Financial suit against Countrywide for doing just that?)
There's a critical implication here, then about the scope of the multi-state settlement: at best 20% of the population of underwater mortgagees will be helped by this settlement, say 2.2 million homeowners. The other 8.8 million (and probably 10 million by my reckoning) are SOL. How do you think they're going to feel about their AGs? About their President? Too many times have American homeowners been promised help without receiving any. It's getting old.
That 20% isn't the 20% who are deserving in any particular way. They are just the 20% who were lucky enough that their loans weren't securitized for whatever reason. And it's a 20% that likely includes lots of jumbo loans--people who borrowed more--while those who borrowed less won't get help. Countrywide kept lots of payment-option ARMs on its books. Are those the homeowners who are the most deserving?
It's doubtful, however, that it's even 20% because that 20% figure includes lots of loans on the books of small banks that aren't part of the settlement. It also includes a large number of 2d liens. My best estimate is that less than 10% of mortgagees are actually eligible to be helped by the settlement. Congratulations on winning the lottery! There's justice for you.
Let's pretend, for a moment, that all $25 billion in the settlement would go to principal reductions. How much does this buy? Very little. Remember that there's $700B in negative equity in the US spread out over 11 million homeowners. So at best this comes out to $2,272 in principal reduction relief per homeowner. Compare that with the average $65,000 in negative equity per homeowner and this is just bupkis. And that's not even considering the states with deeper negative equity on average: California, Nevada, Florida, Arizona, etc. In California negative equity averages $93,000. $2,722 eats away less than 3% of that.
OK, you say, maybe this help is concentrated on 10% of the mortgagees, as you say. In that case it's $27,222 a head. That's something, isn't it? Well, consider a homeowner with a $135,000 home with a $200,000 mortgage on it. Even if that homeowner gets $27,222 in principal reduction, she still owes $172,778 on the home. That means LTV has gone from 148% to 128%. An improvement, no doubt, but not at all a meaningful one. The homeowner remains deeply underwater. Unless the principal reduction puts the homeowner in positive or near positive equity (say 105% LTV max), it ain't gonna matter. It's just an accounting gimmick. So even in the best case scenario, the relief contemplated by the multi-state settlement is meaningless help to a meaningless number of random or even adversely selected people. Is this really the best that the AGs in the multi-state deal could do?
There's something really important to note here: the banks have shown that they are willing to settle on a way that includes principal reductions. That shouldn't be a surprise--they've done that before, such as the mini-settlements that Massachusetts has done with Goldman and Morgan Stanley or that New York's Banking Superintendent did with Goldman. So if this is a matter of dollars, not principles, why on earth are the AGs in the multi-state settlement going to cut a deal for $25B? This is pocket change for the defendants and doesn't come anywhere close to rectifying the harm they wreaked on the economy, preventing future foreclosures, or pushing a measure of accountability for the financial crisis.
Final point about this travesty: it has implications about the 2012 Presidential election. Remember that it's not just a bunch of AGs at the table here. It's also the Obama Administration. And therein lies the problem. Up to this point the Romney and Geithner foreclosure plans have been identical. Romney's plan is to clear the market by foreclosing on everyone fast as possible, while the Geithner plan is to get out of the way (or look the other way) while the banks do their thing. On housing policy, I really can't distinguish Romney and Geithner in any meaningful way on substance. This plan doesn't do anything to change that.
The NY Times had some details today about the multi-state attorney general mortgage servicing settlement in the works. It looks every bit as awful as one might have feared. Here's the criticial take-away: this is bupkis. It gives meaningless relief to a meaningless number of randomly or adversely selected homeowners. It doesn't do justice, even by halves.
First, though, there's a detail reported in Gretchen Morgenson's otherwise insightful piece that I have on good source is incorrect. The piece states that the banks would be doing principal write-downs on loans they own or service. That's gotta be incorrect. The banks can do principal write-downs only on loans that they own. They have no legal authority to pledge write-downs on loans that they service on behalf of investors. (Remember the Greenwich Financial suit against Countrywide for doing just that?)
There's a critical implication here, then about the scope of the multi-state settlement: at best 20% of the population of underwater mortgagees will be helped by this settlement, say 2.2 million homeowners. The other 8.8 million (and probably 10 million by my reckoning) are SOL. How do you think they're going to feel about their AGs? About their President? Too many times have American homeowners been promised help without receiving any. It's getting old.
That 20% isn't the 20% who are deserving in any particular way. They are just the 20% who were lucky enough that their loans weren't securitized for whatever reason. And it's a 20% that likely includes lots of jumbo loans--people who borrowed more--while those who borrowed less won't get help. Countrywide kept lots of payment-option ARMs on its books. Are those the homeowners who are the most deserving?
It's doubtful, however, that it's even 20% because that 20% figure includes lots of loans on the books of small banks that aren't part of the settlement. It also includes a large number of 2d liens. My best estimate is that less than 10% of mortgagees are actually eligible to be helped by the settlement. Congratulations on winning the lottery! There's justice for you.
Let's pretend, for a moment, that all $25 billion in the settlement would go to principal reductions. How much does this buy? Very little. Remember that there's $700B in negative equity in the US spread out over 11 million homeowners. So at best this comes out to $2,272 in principal reduction relief per homeowner. Compare that with the average $65,000 in negative equity per homeowner and this is just bupkis. And that's not even considering the states with deeper negative equity on average: California, Nevada, Florida, Arizona, etc. In California negative equity averages $93,000. $2,722 eats away less than 3% of that.
OK, you say, maybe this help is concentrated on 10% of the mortgagees, as you say. In that case it's $27,222 a head. That's something, isn't it? Well, consider a homeowner with a $135,000 home with a $200,000 mortgage on it. Even if that homeowner gets $27,222 in principal reduction, she still owes $172,778 on the home. That means LTV has gone from 148% to 128%. An improvement, no doubt, but not at all a meaningful one. The homeowner remains deeply underwater. Unless the principal reduction puts the homeowner in positive or near positive equity (say 105% LTV max), it ain't gonna matter. It's just an accounting gimmick. So even in the best case scenario, the relief contemplated by the multi-state settlement is meaningless help to a meaningless number of random or even adversely selected people. Is this really the best that the AGs in the multi-state deal could do?
There's something really important to note here: the banks have shown that they are willing to settle on a way that includes principal reductions. That shouldn't be a surprise--they've done that before, such as the mini-settlements that Massachusetts has done with Goldman and Morgan Stanley or that New York's Banking Superintendent did with Goldman. So if this is a matter of dollars, not principles, why on earth are the AGs in the multi-state settlement going to cut a deal for $25B? This is pocket change for the defendants and doesn't come anywhere close to rectifying the harm they wreaked on the economy, preventing future foreclosures, or pushing a measure of accountability for the financial crisis.
Final point about this travesty: it has implications about the 2012 Presidential election. Remember that it's not just a bunch of AGs at the table here. It's also the Obama Administration. And therein lies the problem. Up to this point the Romney and Geithner foreclosure plans have been identical. Romney's plan is to clear the market by foreclosing on everyone fast as possible, while the Geithner plan is to get out of the way (or look the other way) while the banks do their thing. On housing policy, I really can't distinguish Romney and Geithner in any meaningful way on substance. This plan doesn't do anything to change that.
Sunday, October 30, 2011
42 USC 1983: Learn It, Live It OWS
by Karl Denninger
market-ticker.org
It's time for the protesters to bone up on the law. Specifically, due to this:
Tennessee state troopers for the second straight night arrested Wall Street protesters for defying a new nighttime curfew imposed by Republican Gov. Bill Haslam in an effort to disband an encampment near the state Capitol.
And for a second time, a Nashville night judge dismissed arrest warrants of the arrested protesters.
The Tennessean newspaper reports that Magistrate Tom Nelson told troopers delivering the protesters to jail that he could "find no authority anywhere for anyone to authorize a curfew anywhere on Legislative Plaza."
Now these cops are cooked -- and not just the city either -- the cops are PERSONALLY liable.
Here 'ya go folks... here's your ticket to own some cop homes, cars, boats (if they have them) and other possessions.
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable. For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia
Go get 'em Nashville protesters. It's time to take these cops willful and knowing violation of your civil rights, as you have a judge who has declared your arrest unlawful and in violation of those rights, right back to court and tattoo each and every one of them with a nice fat civil judgment.
In short, you've been screwed out of your house. Now go get some redress and evict a few of these jackbooted thugs from theirs, legally, and render them homeless.
The best way to stop this crap is to render the so-called "law enforcement officers" doing it penniless.
market-ticker.org
It's time for the protesters to bone up on the law. Specifically, due to this:
Tennessee state troopers for the second straight night arrested Wall Street protesters for defying a new nighttime curfew imposed by Republican Gov. Bill Haslam in an effort to disband an encampment near the state Capitol.
And for a second time, a Nashville night judge dismissed arrest warrants of the arrested protesters.
The Tennessean newspaper reports that Magistrate Tom Nelson told troopers delivering the protesters to jail that he could "find no authority anywhere for anyone to authorize a curfew anywhere on Legislative Plaza."
Now these cops are cooked -- and not just the city either -- the cops are PERSONALLY liable.
Here 'ya go folks... here's your ticket to own some cop homes, cars, boats (if they have them) and other possessions.
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable. For the purposes of this section, any Act of Congress applicable exclusively to the District of Columbia shall be considered to be a statute of the District of Columbia
Go get 'em Nashville protesters. It's time to take these cops willful and knowing violation of your civil rights, as you have a judge who has declared your arrest unlawful and in violation of those rights, right back to court and tattoo each and every one of them with a nice fat civil judgment.
In short, you've been screwed out of your house. Now go get some redress and evict a few of these jackbooted thugs from theirs, legally, and render them homeless.
The best way to stop this crap is to render the so-called "law enforcement officers" doing it penniless.
MOVE YOUR MONEY - Bank Of America Branch Manager Begs Customer Not To Close Accounts
By Tripnman
Over the past two weeks, I have been closing down and moving money out of my Bank of America accounts. I have done my personal and business (I own a consulting business) banking there for over ten years but have decided to vote with my wallet and express my displeasure with the system by removing my money from their clutches. One by one, I have zeroed out the balances on various accounts by transferring and consolidating via their website. After each transfer I then called to close the accounts over the phone without issue.
Yesterday was different. I visited a branch to make a business deposit and when I arrived, there were signs on the ATMs indicating that the system was down and that customers should come into the branch. Before I got to the business customers' line, I was stopped by a banking associate and asked the purpose of my visit. I told him I was there to make a deposit and he waved me to a desk. When I sat down the banker first asked for my account number. I don't know it, so I handed him my ATM card. That's when he explained that all of their computers were down, and although they would accept the deposit, without the account number they would have to give me a generic receipt. Say what huh? When I told him that my newly opened accounts at a local (small, community) credit union would like the deposit he insisted that their computers were down too. Fifteen minutes after leaving BoA I found that to not be true and the money was happily deposited into a new account at the CU without issue.
Yesterday was different. I visited a branch to make a business deposit and when I arrived, there were signs on the ATMs indicating that the system was down and that customers should come into the branch. Before I got to the business customers' line, I was stopped by a banking associate and asked the purpose of my visit. I told him I was there to make a deposit and he waved me to a desk. When I sat down the banker first asked for my account number. I don't know it, so I handed him my ATM card. That's when he explained that all of their computers were down, and although they would accept the deposit, without the account number they would have to give me a generic receipt. Say what huh? When I told him that my newly opened accounts at a local (small, community) credit union would like the deposit he insisted that their computers were down too. Fifteen minutes after leaving BoA I found that to not be true and the money was happily deposited into a new account at the CU without issue.
Later in the afternoon I hit up a different branch of BoA and found their computers working just fine. I went in, asked to speak with a banker and was seated in an office. When the young associate came in and asked the purpose of my visit, I handed her my ATM card and requested that she tell me the balance. When she did, I then asked for a cashiers check in that amount. That's when things got wonky. She froze, stumbled over her words and asked why I needed that amount (It was not a small sum). This gave me an opportunity to explain that although I personally would not be affected by their new fees I know plenty of friends and family that would feel the pain. In solidarity with them, I wished to close the account and move on. She unwittingly suggested that if I just use my debit card once a month then there would be no fee. That was good for a belly laugh from me, then I again requested the balance to be issued to me in the form of a cashier's check. She then told me that there would be a $10 fee for this service. Another laugh. I guess it didn't sink in when I told her that I was fee adverse. There was an easy work-around anyway - I requested the cash. That finished my time with this associate banker as the amount I was requesting was "well past" her daily limit for withdrawals. I asked if there would be an issue with securing the cash and she said "I honestly don't know if we have that here" and walked out to get the branch manager.
The manager was pleasant enough and very direct. After introducing herself she flat out asked "What can we do to change your mind?" "We don't want to see you go" she emphasized. This opened a door for me to further explain my decision to leave the bank and why I was doing it. Amazingly, it did not fall on deaf ears. She indicated that understood where I was coming from and actually showed genuine surprise at some of the facts I provided her about the less than consumer friendly policies and machinations of her employer. She did make some feeble counter-arguments and repeatedly asked me if I would change my mind (with a hint of desperation!). I stood firm and by the end of our conversation she asked if I would be willing to put it all in writing so she could send it up the chain.
She shared that management is nervous, they are seeing money leaking out of the bank and realize that they have made mistakes. She even hinted that there has been high-level discussion on reversing the new fess since there has been so much consumer push-back. They are also aware of the growing momentum behind the November 5th move your money movement.
Why do I share all of this with you? For one, I wanted to let people know that it IS still possible to withdraw large sums of cash from BoA and close your accounts - just be ready for them to beg. Two, that management is aware that people are angry (how could they not be!) and have put an ear to the ground.
Latest Leak on State Attorney General Mortgage Settlement: A Shameless Sellout to the Banks
By Yves Smith
nakedcapitalism.com
There have been so many rumors about the so-called 50 state attorney general settlement (which now is more like a 43 state settlement) being on the verge of having a deal that we’ve discounted them. We’ve said from the beginning that this was a cash for release deal. Basically, because the Federal regulators and state AGs, by design, had done no meaningful investigations, they didn’t have any threats to bring the banks to heel. So they’d have to offer a bribe, and the bribe has always been a “get out of jail free” card.
Put it more simply: The banks got bailed out, and the rest of us got left out. Yet all levels of government are actively trying to find a way to release from wrong doing for the banks, when everyone knows that they violated a host of laws every step of the way in the mortgage business.
We said the only way a deal would get done is if the state AGs capitulated completely. There have been enough leaks about state AGs being uncomfortable with a broad release, plus the banks greatly overplaying their hand, that it looked like no deal would happen. Tom Miller, the Iowa AG who is the lead negotiator for the states, has been saying a deal is imminent since last January, so his credibility is pretty thin. But the Obama administration is moving heaven and earth to get a deal done, since they seem to think the public can be snookered into thinking motion is progress.
Nevertheless, the negotiations appear to be grinding forward. And it isn’t the banks that are giving ground. Gretchen Morgenson tells us at the New York Times what an utter joke the settlement has become.
The $25 billion being bandied about is about as solid as AIG’s credit default swaps. Of that total, only $3.5 to $5 billion would be paid in cash. That’s spread across 12 or more companies, with Bank of America presumably paying the most. So how do you get to $25 billion? Smoke and mirrors, natch. Per Morgenson:
The rest — an estimated $20 billion — would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.
I hope you can see how insulting this is. How many mortgage modification programs have we had so far? And what has the result been? In every case, the number of mods done has fallen well short of the target and the banks have gamed the programs massively. And the Treasury Department has seemed remarkably unembarrassed by their glaring failures. Even if everyone involved knew that these programs were merely to placate the public, the banks were not supposed to make it so bloody obvious. But the Treasury hasn’t bothered to pretend either. For instance, one of the few things it could do under its limp wristed voluntary HAMP program is claw back incentive payments. Has it bothered? No.
Morgenson highlights another feature of the plan:
One of the oddest terms is that the banks would give $1,500 to any borrower who lost his or her home to foreclosure since September 2008. For people whose foreclosures were done properly, this would be a windfall. For those wrongfully evicted, it would be pathetic. Roughly $1.5 billion in cash is expected to go into this pot.
“Pathetic” isn’t strong enough. Let’s look at the damages sought by Nevada attorney general Catherine Masto in her second amended complaint against Bank of America: civil penalties of $5000 per violation, or $12,000 for elderly or disabled borrowers. An individual loan can, and likely does, have multiple violations. The suit also seeks restitution, costs for wrongful foreclosures, plus the cost of damage to municipalities and homeowners from unnecessary vacancies. Note that an AG victory on the issue of wrongful foreclosure would pave the way for private lawsuits, and here the damages would be massive, particularly if state law or precedent allows for penalties (as we’ve noted, Alabama has statutory tripe damages for wrongful foreclosure, and recent rulings have had applied penalties in excess of nine times).
And what did Masto get from a different servicer, Morgan Stanley’s Saxon? The settlement is estimated to average somewhere between $30,000 and $57,000 per borrower. And the basis of action wasn’t erroneous or fraudulent foreclosures, but deceptive practices in mortgage lending and securitization.
Look at the MERS compplaint filed by Delaware AG Beau Biden. He’s suing MERS over deceptive practices, at $10,000 per violation. It’s quite possible that he may find more than one violation per mortgage. And I would imagine that success against MERS would pave the way for actions against servicers who relied on MERS in the face of knowledge of its deficiencies.
In other words, the suits filed by two AGs alone make a mockery of these negotiations. We discussed that the $25 to $30 billion settlement figure which the AGs have become fixated upon was derived from a bogus analysis performed by the CFPB for Tom Miller in February:
The critical part comes on the third page, “Calibrating the Size of Potential Penalties”. You’ll note it assumes that the cost of special servicing of delinquent loans would have cost 75 basis points a year more than actual costs incurred. That drives the entire analysis…
Now….is this “75 basis points a year” a knowable figure, ex doing a lot of real nitty gritty work, which certainly has not taken place? We can debate whether this is the right figure, and whether the CFPB has also captured the actual costs correctly…Our Tom Adams has estimated that servicing now costs 125 basis points versus the banks’ typical fees of 50 basis points, plus another 30 to 50 basis points in late and junk fees.
If you take this analysis at face value, the biggest question is what standard of servicing is implied by “effective special servicing of delinquent loans”? If they mean loan modification, that’s the same as a new underwriting of a mortgage. That cannot be done through the current platform and would require new staff with different skill sets and software/systems support. So any estimates are at best finger in the air exercises. And given that some servicers are far more abusive with junk fees than others, Tom Adam’s comment above suggests that a one-size-fits-all estimate is misleading too.
But arguing over a pretty much made-up figure misses the critical point: the money the servicers saved is not even remotely the right basis for thinking about the appropriate settlement level. Settlements are based on potential liability. For instance, in 1998 the tobacco settlement, the tobacco companies agreed to pay a minimum of $206 billion over 25 years to be released from liability on Medicare lawsuits on health care costs plus private tort liability.
The saved costs bear no relationship to the banks’ legal liability for servicer-driven foreclosures, nor to the damage they have done to homeowners or broader society through their actions. It’s like basing the penalties in a robbery on the unpaid parking fees and rental costs of the car used to make the heist.
But all is not lost. First, Morgenson tells us a lot of mortgages are excluded from this deal, in particular, Fannie and Freddie mortgages. Second, her story says nothing about the terms of the release. The objective of the negotiations now seems to be to get the true economic value of the deal to be so small that the banks will agree to a relatively narrow release. I would not bet on that.
It’s important to keep the pressure up, particularly on state AGs who might walk from a too bank friendly deal. States whose AGs might decamp include Oregon, Washington, Arizona, and Colorado. It’s also key to let the AGs in states who have left the talks and are under pressure to return that voters are watching and will be unhappy if they reverse themselves. Those states are New York, Delaware, Massachusetts, Kentucky, Nevada, Minnesota, and of course, California. You can find their phone numbers here.
nakedcapitalism.com
There have been so many rumors about the so-called 50 state attorney general settlement (which now is more like a 43 state settlement) being on the verge of having a deal that we’ve discounted them. We’ve said from the beginning that this was a cash for release deal. Basically, because the Federal regulators and state AGs, by design, had done no meaningful investigations, they didn’t have any threats to bring the banks to heel. So they’d have to offer a bribe, and the bribe has always been a “get out of jail free” card.
Put it more simply: The banks got bailed out, and the rest of us got left out. Yet all levels of government are actively trying to find a way to release from wrong doing for the banks, when everyone knows that they violated a host of laws every step of the way in the mortgage business.
We said the only way a deal would get done is if the state AGs capitulated completely. There have been enough leaks about state AGs being uncomfortable with a broad release, plus the banks greatly overplaying their hand, that it looked like no deal would happen. Tom Miller, the Iowa AG who is the lead negotiator for the states, has been saying a deal is imminent since last January, so his credibility is pretty thin. But the Obama administration is moving heaven and earth to get a deal done, since they seem to think the public can be snookered into thinking motion is progress.
Nevertheless, the negotiations appear to be grinding forward. And it isn’t the banks that are giving ground. Gretchen Morgenson tells us at the New York Times what an utter joke the settlement has become.
The $25 billion being bandied about is about as solid as AIG’s credit default swaps. Of that total, only $3.5 to $5 billion would be paid in cash. That’s spread across 12 or more companies, with Bank of America presumably paying the most. So how do you get to $25 billion? Smoke and mirrors, natch. Per Morgenson:
The rest — an estimated $20 billion — would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.
I hope you can see how insulting this is. How many mortgage modification programs have we had so far? And what has the result been? In every case, the number of mods done has fallen well short of the target and the banks have gamed the programs massively. And the Treasury Department has seemed remarkably unembarrassed by their glaring failures. Even if everyone involved knew that these programs were merely to placate the public, the banks were not supposed to make it so bloody obvious. But the Treasury hasn’t bothered to pretend either. For instance, one of the few things it could do under its limp wristed voluntary HAMP program is claw back incentive payments. Has it bothered? No.
Morgenson highlights another feature of the plan:
One of the oddest terms is that the banks would give $1,500 to any borrower who lost his or her home to foreclosure since September 2008. For people whose foreclosures were done properly, this would be a windfall. For those wrongfully evicted, it would be pathetic. Roughly $1.5 billion in cash is expected to go into this pot.
“Pathetic” isn’t strong enough. Let’s look at the damages sought by Nevada attorney general Catherine Masto in her second amended complaint against Bank of America: civil penalties of $5000 per violation, or $12,000 for elderly or disabled borrowers. An individual loan can, and likely does, have multiple violations. The suit also seeks restitution, costs for wrongful foreclosures, plus the cost of damage to municipalities and homeowners from unnecessary vacancies. Note that an AG victory on the issue of wrongful foreclosure would pave the way for private lawsuits, and here the damages would be massive, particularly if state law or precedent allows for penalties (as we’ve noted, Alabama has statutory tripe damages for wrongful foreclosure, and recent rulings have had applied penalties in excess of nine times).
And what did Masto get from a different servicer, Morgan Stanley’s Saxon? The settlement is estimated to average somewhere between $30,000 and $57,000 per borrower. And the basis of action wasn’t erroneous or fraudulent foreclosures, but deceptive practices in mortgage lending and securitization.
Look at the MERS compplaint filed by Delaware AG Beau Biden. He’s suing MERS over deceptive practices, at $10,000 per violation. It’s quite possible that he may find more than one violation per mortgage. And I would imagine that success against MERS would pave the way for actions against servicers who relied on MERS in the face of knowledge of its deficiencies.
In other words, the suits filed by two AGs alone make a mockery of these negotiations. We discussed that the $25 to $30 billion settlement figure which the AGs have become fixated upon was derived from a bogus analysis performed by the CFPB for Tom Miller in February:
The critical part comes on the third page, “Calibrating the Size of Potential Penalties”. You’ll note it assumes that the cost of special servicing of delinquent loans would have cost 75 basis points a year more than actual costs incurred. That drives the entire analysis…
Now….is this “75 basis points a year” a knowable figure, ex doing a lot of real nitty gritty work, which certainly has not taken place? We can debate whether this is the right figure, and whether the CFPB has also captured the actual costs correctly…Our Tom Adams has estimated that servicing now costs 125 basis points versus the banks’ typical fees of 50 basis points, plus another 30 to 50 basis points in late and junk fees.
If you take this analysis at face value, the biggest question is what standard of servicing is implied by “effective special servicing of delinquent loans”? If they mean loan modification, that’s the same as a new underwriting of a mortgage. That cannot be done through the current platform and would require new staff with different skill sets and software/systems support. So any estimates are at best finger in the air exercises. And given that some servicers are far more abusive with junk fees than others, Tom Adam’s comment above suggests that a one-size-fits-all estimate is misleading too.
But arguing over a pretty much made-up figure misses the critical point: the money the servicers saved is not even remotely the right basis for thinking about the appropriate settlement level. Settlements are based on potential liability. For instance, in 1998 the tobacco settlement, the tobacco companies agreed to pay a minimum of $206 billion over 25 years to be released from liability on Medicare lawsuits on health care costs plus private tort liability.
The saved costs bear no relationship to the banks’ legal liability for servicer-driven foreclosures, nor to the damage they have done to homeowners or broader society through their actions. It’s like basing the penalties in a robbery on the unpaid parking fees and rental costs of the car used to make the heist.
But all is not lost. First, Morgenson tells us a lot of mortgages are excluded from this deal, in particular, Fannie and Freddie mortgages. Second, her story says nothing about the terms of the release. The objective of the negotiations now seems to be to get the true economic value of the deal to be so small that the banks will agree to a relatively narrow release. I would not bet on that.
It’s important to keep the pressure up, particularly on state AGs who might walk from a too bank friendly deal. States whose AGs might decamp include Oregon, Washington, Arizona, and Colorado. It’s also key to let the AGs in states who have left the talks and are under pressure to return that voters are watching and will be unhappy if they reverse themselves. Those states are New York, Delaware, Massachusetts, Kentucky, Nevada, Minnesota, and of course, California. You can find their phone numbers here.
Saturday, October 29, 2011
Occupy Movement Scores Huge Victory in Cleveland After Seeking a Federal Injunction Eliminating Curfew
By Julie Kent.
clevelandleader.com
Last Friday night, members of the group Occupy Cleveland, which have been demonstrating on Public Square in downtown Cleveland since early October, were told that they must vacate the premises as the permit they had been granted by the city expired at 10pm. Without a permit, city law prohibits camping out between the hours of 10pm and 5am. Several arrests were made, all while the demonstrators peacefully explained that they were expressing their 1st amendment rights to free speech and peaceful assembly. On Wednesday, the group scored huge victory when a federal judge issued an injunction that would allow them to occupy the Tom Johnson quadrant of Public Square at all hours of the day for an indefinite period of time.
The success of the Occupy Cleveland participants in establishing their right to freely assemble and speak may serve as an example for groups facing similar situations in cities across the United States that are also participating in the global Occupy Wall Street movement. Oakland, Cincinnati, and Atlanta, to name a few, may be especially interested in this lawsuit and the subsequent agreement as their "occupations" of public areas were also raided and broken up by police, essentially halting their freedom of speech and assembly.
Six individuals - James Turturice III, Timothy D. Smith, Kathy Smith, Ben Shapiro, Ajoy Hill, and Steven Larson - filed a "Complaint for Declaratory Judgement, Temporary Restraining Order, Preliminary Injunction and Permanent Injunction, Damages and Attorneys' Fees" against the City of Cleveland on Tuesday, October 25, 2011 in the U.S. District Court for the North District of Ohio, Eastern Division.
Attorneys representing the plaintiffs include J. Michael Murray, Lorraine R. Baumgardner, Steven D. Shafron, and Raymond V. Vasvari, Jr. from the law firm Berkman, Gordon, Murray & DeVan, whose offices are located on Public Square.
The plaintiffs sought a Temporary Restraining Order which prohibits the enforcement of Ordinance 559.541, a city law that makes it illegal to occupy Public Square after 10pm and before 5am, unless a special permit is granted. This was the ordinance used by law enforcement on October 21 when the Occupy Cleveland demonstration was raided and participants were asked to vacate the premises.
In the filing, the plaintiffs attorneys argue that the ordinance violates the First Amendment, writing:
"...the Ordinance violates the First Amendment - both on its face and as applied to them - in at least three ways: (1) by prohibiting their mere presence, and by extension, all expressive activity in a traditional public forum overnight; (2) because it allows discretionary exceptions to that prohibition, but provides no criteria whatever to cabin the discretion of the licensing official, and no opportunity for judicial review of an adverse decision, and; (3) because it requires the licensing official to consider audience reaction to a putative speaker’s message."
The plaintiffs met with officials from the City of Cleveland and Judge Dan Aaron Polster on Wednesday, and were able to reach an agreement. The group will be issued a permit to protest on Public Square twenty-four hours a day through November 9. Because an agreement was reached, the court does not have to rule on the request for injunction.
It is not yet known how or if today's agreement between the two parties will affect the 11 curfew violation cases that are still pending, as a result of the Friday arrests.
clevelandleader.com
Last Friday night, members of the group Occupy Cleveland, which have been demonstrating on Public Square in downtown Cleveland since early October, were told that they must vacate the premises as the permit they had been granted by the city expired at 10pm. Without a permit, city law prohibits camping out between the hours of 10pm and 5am. Several arrests were made, all while the demonstrators peacefully explained that they were expressing their 1st amendment rights to free speech and peaceful assembly. On Wednesday, the group scored huge victory when a federal judge issued an injunction that would allow them to occupy the Tom Johnson quadrant of Public Square at all hours of the day for an indefinite period of time.
The success of the Occupy Cleveland participants in establishing their right to freely assemble and speak may serve as an example for groups facing similar situations in cities across the United States that are also participating in the global Occupy Wall Street movement. Oakland, Cincinnati, and Atlanta, to name a few, may be especially interested in this lawsuit and the subsequent agreement as their "occupations" of public areas were also raided and broken up by police, essentially halting their freedom of speech and assembly.
Six individuals - James Turturice III, Timothy D. Smith, Kathy Smith, Ben Shapiro, Ajoy Hill, and Steven Larson - filed a "Complaint for Declaratory Judgement, Temporary Restraining Order, Preliminary Injunction and Permanent Injunction, Damages and Attorneys' Fees" against the City of Cleveland on Tuesday, October 25, 2011 in the U.S. District Court for the North District of Ohio, Eastern Division.
Attorneys representing the plaintiffs include J. Michael Murray, Lorraine R. Baumgardner, Steven D. Shafron, and Raymond V. Vasvari, Jr. from the law firm Berkman, Gordon, Murray & DeVan, whose offices are located on Public Square.
The plaintiffs sought a Temporary Restraining Order which prohibits the enforcement of Ordinance 559.541, a city law that makes it illegal to occupy Public Square after 10pm and before 5am, unless a special permit is granted. This was the ordinance used by law enforcement on October 21 when the Occupy Cleveland demonstration was raided and participants were asked to vacate the premises.
In the filing, the plaintiffs attorneys argue that the ordinance violates the First Amendment, writing:
"...the Ordinance violates the First Amendment - both on its face and as applied to them - in at least three ways: (1) by prohibiting their mere presence, and by extension, all expressive activity in a traditional public forum overnight; (2) because it allows discretionary exceptions to that prohibition, but provides no criteria whatever to cabin the discretion of the licensing official, and no opportunity for judicial review of an adverse decision, and; (3) because it requires the licensing official to consider audience reaction to a putative speaker’s message."
The plaintiffs met with officials from the City of Cleveland and Judge Dan Aaron Polster on Wednesday, and were able to reach an agreement. The group will be issued a permit to protest on Public Square twenty-four hours a day through November 9. Because an agreement was reached, the court does not have to rule on the request for injunction.
It is not yet known how or if today's agreement between the two parties will affect the 11 curfew violation cases that are still pending, as a result of the Friday arrests.
Another Weapon for OWS: Pull Your Money Out of BofA
FOLLOW Facebook Twitter RSS Share Matt Taibbi is a contributing editor for Rolling Stone
My good friend Nomi Prins has a great new piece out that I just caught on Zero Hedge, chronicling 10 reasons why depositors should pull out of Bank of America.
Obviously Goldman, Sachs has become the great symbol of investment banking corruption, and other companies like AIG and Countrywide have become poster children for problems with businesses like insurance and mortgage-lending. But when it comes to commercial banking, Bank of America is as bad as it gets.
The markets, of course, have lately come to agree, as B of A has lately been downgraded again to just above junk status. The only reason the bank is not rated even lower than that is that it is Too Big To Fail. The whole world knows that if Bank of America implodes – whether because of the vast number of fraud suits it faces for mortgage securitization practices, or because of the time bomb of toxic assets on its balance sheets – the U.S. government will probably step in to one degree or another and save it.
The government’s patronage of the bank was never clearer than in recent weeks, when B of A quietly decided to move trillions of dollars (trillions, not billions) in risky Merrill Lynch derivatives contracts off Merrill’s books and onto the books of the parent/retail arm, Bank of America.
This decision was done at the behest of counterparties to those transactions, who wanted those contracts placed under the aegis of Bank of America, whose deposits are insured by the FDIC. The move was made, according to reports, so that Bank of America could avoid posting $3.3 billion in collateral to satisfy the company’s creditors. In other words, Bank of America just got You the Taxpayer to co-sign as much as $53 trillion worth of dicey derivative contracts.
The FDIC wasn’t pleased by the move, but the Fed apparently encouraged it. Bloomberg, citing people with “direct knowledge” of the deals, reported that,
The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.
So the primary regulator of the banking industry is encouraging a functionally insolvent megabank to respond to a credit downgrade by pushing its most explosively risky holdings onto the laps of the taxpayer. This is lunacy…. Remember that story about the Chinese man who had a world-record 33-pound tumor removed from his face? This would be like treating that patient by removing the tumor and surgically attaching it to the face of a new patient, in this case the U.S. taxpayer.
A series of lawmakers on the Hill, including most notably Sherrod Brown, Carl Levin, and Bernie Sanders, are trying to figure out if there’s any way to stop this transaction, but of course there is not. Upstate NY congressman Maurice Hinchey put it best. "What Bank of America is doing is perfectly legal – and that's the problem,” he said.
This is exactly why the Glass-Steagall Act needs to be reinstated: without a separation of Investment Banks and Commercial Banks, what we end up getting is taxpayer-guaranteed gambling. Instead of encouraging prudence and savings by insuring deposits in commercial banks, the FDIC is now being turned into a vehicle for socializing speculative losses.
So our government is not only no longer encouraging fiscal conservatism, it is doing exactly the opposite, i.e. encouraging speculation and risk-taking. That this is happening in the fever of the OWS movement, and at a time when top politicians from Barack Obama on down are paying lip service to public complaints against Wall Street, should tell you everything you need to know about whether or not we can expect this government to voluntarily enact real changes, and stop making the taxpayer eat Wall Street’s pain.
Anyway, Nomi’s list goes a long way toward explaining why Bank of America is the last company on earth whose $53 trillion derivatives portfolio we should be insuring. A sample of her top ten:
7. Bank of America got the most AIG money of the big depositor banks. By virtue of having acquired Merrill Lynch's AIG-related portfolio, B of A got to keep approximately $12 billion worth of federal AIG backing, too. It also received more government subsidies than any other mega-bank except Citigroup ...
In terms of overall federal subsidies (including TARP), Bank of America was second only to Citigroup ($230 billion compared to $415 billion). None of that got in the way of former B of A CEO Ken Lewis' personal take, a $63 million retirement plan, in addition to the $63 million he scored during the three years before his departure.
If you’re a Bank of America customer, Nomi is right: find another bank. Try a local credit union. Keeping your money in this TBTF behemoth is very unsafe sex.
Incidentally, this kind of suggestion might prove a real help to OWS. One definite tactic that Occupy Wall Street can adopt, going forward, is educating people about the perfidy of certain financial institutions and convincing people to do what they did back in the days of apartheid, which is disinvest. If everyone were to start pulling their money out of the worst-offending banks, that would have a profound effect on the markets and may function as a great short-cut to political change.
Bank of America is a great place to start. All the TBTF banks suck equally, but as George Orwell would say, some banks are more equal than others. Withdrawals would be a great way for people to answer the Fed's decision to put depositors on the hook for Merrill Lynch's bad bets.
My good friend Nomi Prins has a great new piece out that I just caught on Zero Hedge, chronicling 10 reasons why depositors should pull out of Bank of America.
Obviously Goldman, Sachs has become the great symbol of investment banking corruption, and other companies like AIG and Countrywide have become poster children for problems with businesses like insurance and mortgage-lending. But when it comes to commercial banking, Bank of America is as bad as it gets.
The markets, of course, have lately come to agree, as B of A has lately been downgraded again to just above junk status. The only reason the bank is not rated even lower than that is that it is Too Big To Fail. The whole world knows that if Bank of America implodes – whether because of the vast number of fraud suits it faces for mortgage securitization practices, or because of the time bomb of toxic assets on its balance sheets – the U.S. government will probably step in to one degree or another and save it.
The government’s patronage of the bank was never clearer than in recent weeks, when B of A quietly decided to move trillions of dollars (trillions, not billions) in risky Merrill Lynch derivatives contracts off Merrill’s books and onto the books of the parent/retail arm, Bank of America.
This decision was done at the behest of counterparties to those transactions, who wanted those contracts placed under the aegis of Bank of America, whose deposits are insured by the FDIC. The move was made, according to reports, so that Bank of America could avoid posting $3.3 billion in collateral to satisfy the company’s creditors. In other words, Bank of America just got You the Taxpayer to co-sign as much as $53 trillion worth of dicey derivative contracts.
The FDIC wasn’t pleased by the move, but the Fed apparently encouraged it. Bloomberg, citing people with “direct knowledge” of the deals, reported that,
The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.
So the primary regulator of the banking industry is encouraging a functionally insolvent megabank to respond to a credit downgrade by pushing its most explosively risky holdings onto the laps of the taxpayer. This is lunacy…. Remember that story about the Chinese man who had a world-record 33-pound tumor removed from his face? This would be like treating that patient by removing the tumor and surgically attaching it to the face of a new patient, in this case the U.S. taxpayer.
A series of lawmakers on the Hill, including most notably Sherrod Brown, Carl Levin, and Bernie Sanders, are trying to figure out if there’s any way to stop this transaction, but of course there is not. Upstate NY congressman Maurice Hinchey put it best. "What Bank of America is doing is perfectly legal – and that's the problem,” he said.
This is exactly why the Glass-Steagall Act needs to be reinstated: without a separation of Investment Banks and Commercial Banks, what we end up getting is taxpayer-guaranteed gambling. Instead of encouraging prudence and savings by insuring deposits in commercial banks, the FDIC is now being turned into a vehicle for socializing speculative losses.
So our government is not only no longer encouraging fiscal conservatism, it is doing exactly the opposite, i.e. encouraging speculation and risk-taking. That this is happening in the fever of the OWS movement, and at a time when top politicians from Barack Obama on down are paying lip service to public complaints against Wall Street, should tell you everything you need to know about whether or not we can expect this government to voluntarily enact real changes, and stop making the taxpayer eat Wall Street’s pain.
Anyway, Nomi’s list goes a long way toward explaining why Bank of America is the last company on earth whose $53 trillion derivatives portfolio we should be insuring. A sample of her top ten:
7. Bank of America got the most AIG money of the big depositor banks. By virtue of having acquired Merrill Lynch's AIG-related portfolio, B of A got to keep approximately $12 billion worth of federal AIG backing, too. It also received more government subsidies than any other mega-bank except Citigroup ...
In terms of overall federal subsidies (including TARP), Bank of America was second only to Citigroup ($230 billion compared to $415 billion). None of that got in the way of former B of A CEO Ken Lewis' personal take, a $63 million retirement plan, in addition to the $63 million he scored during the three years before his departure.
If you’re a Bank of America customer, Nomi is right: find another bank. Try a local credit union. Keeping your money in this TBTF behemoth is very unsafe sex.
Incidentally, this kind of suggestion might prove a real help to OWS. One definite tactic that Occupy Wall Street can adopt, going forward, is educating people about the perfidy of certain financial institutions and convincing people to do what they did back in the days of apartheid, which is disinvest. If everyone were to start pulling their money out of the worst-offending banks, that would have a profound effect on the markets and may function as a great short-cut to political change.
Bank of America is a great place to start. All the TBTF banks suck equally, but as George Orwell would say, some banks are more equal than others. Withdrawals would be a great way for people to answer the Fed's decision to put depositors on the hook for Merrill Lynch's bad bets.
Five ways income inequality happened, and will continue
By John Wasik
Reuters
As if on cue for an Occupy Wall Street commercial, the latest Congressional Budget Office report highlighted the large crevasse between the upper 1 percent of U.S. households and the rest of us.
When it comes to income inequality, this is what U.S. politicians should be digesting now. While it's hardly a major revelation that for the top 1 percent of earners real after-tax income rose 275 percent between 1979 and 2007, the top 20 percent made more in after-tax income than the remaining 80 percent. That's quite a difference since the lowest-income group's median income only rose 18 percent.
Income inequality couldn't be more of a mainstream issue as some 70 percent of Americans surveyed want wealth shared more equally.
The reasons for the growing disparity, which the CBO, without irony, measured by an increasing "Gini coefficient," were buried deep in the report. It's how income was taxed that allowed the ultra-wealthy to keep more of what they earned compared to middle- or lower-class Americans.
INVESTMENT INCOME EARNERS ARE TAXED LESS
Most lower- and middle-class earners make their money from wages, which are subject to Social Security, Medicare, federal and state taxes. But income from businesses, capital gains and dividends may be taxed at lower rates. In the CBO study period, the share from capital gains and business income increased, meaning upper-income families reaped greater after-tax benefits just from the kinds of non-wage income they reported.
When you're on salary, you get taxed regularly through your paycheck. If you hold stocks, bonds, business equity and property, your capital gains -- if any -- can be delayed for years. Holding securities in tax-deferred retirement accounts can put off taxes for decades.
EXECUTIVES AND FINANCIAL PROFESSIONALS DID BEST
Again, no surprise here. But when you can structure your compensation so that it's tax-deferred, paid in stock options or paid as capital gains, dividends or carried interest, you can pay much less to Uncle Sam and keep more of your income. Long-term capital gains, dividends and carried interest are taxed at a maximum 15 percent rate.
When the bulk of your income comes in those forms, you avoid taxes at the maximum 35-percent marginal federal rate. So those at the top of the compensation pyramid not only made more in gross income,
their overall tax rates were lower because of how their pay was received. Billionaire Warren Buffett is a good example. His average rate was 17.4 percent.
LOWER-INCOME HOUSEHOLDS PAY MORE IN PAYROLL TAXES
Since the highest earners were paying less in overall taxes because they were paid in non-wage income, their payroll tax rate was also lower. The CBO found that the lowest fifth of families paid an average 8 percent in payroll taxes while the highest-income group paid under 2 percent.
Why are the poor paying quadruple the amount of payroll taxes than the rich?
They are unlikely to report investment or business income at the lowest rates. Attention tax reformers: You could make a case that the wealthiest Americans are not paying their fair share for Social Security, Medicare, state and federal programs. But since the tax code allows them to avoid paying any more, it's perfectly legal now.
CONVERSION TO S CORPS ALSO HELPED WEALTHY
Those who ran their income through corporations (even small ones) reaped even more breaks by converting from a standard "C" to an "S" corporation. The S corporation essentially taxes business earnings at your personal rate in the year that you make the money. That opens up a number of ways to legally pare tax liability and gave many high-income households yet another loophole. I know, because I had an S Corp for years. "The observed growth in the conversion of C corporation income into S corporation income has contributed to the rapid growth in income for the highest-income households," the CBO reported.
THOSE WHO HAVE MOST LOOPHOLES BENEFITS MOST
It's a cumulative giveaway: The more deductions you can take at the most-favorable rates, the lower your after-tax income. Who did the best? No surprises here. "Employees in the financial and legal professions made up a larger share of the highest earners than any other group." Hello Wall Street and K Street.
In addition to these plums, if you were in the elite class that benefited from low rates and a bevy of write-offs, you had more money to spare to hire lobbyists to keep your after-tax income higher than wage earners. You and your affiliated special-interest groups were also able to donate copious amounts of money to Congressional candidates who want to keep the tax code working in favor of the well-heeled.
Unless you can find a way of living off of an investment portfolio, create an S corporation and avoid payroll taxes, you're going to pay more than your fair share of taxes. Has the Congressional debt reduction supercommittee considered this low-hanging fruit? There's no way to tell since their proceedings or minutes have not been made public. Lobbyists have had better access than other citizens.
Only one thing is certain. If the status quo prevails, the tax code will continue to serve as a wealth enhancer for the ultra-wealthy and corporations. Without meaningful tax reform, the gap between the 99
percent and the top 1 percent will widen from a chasm -- to a canyon.
Reuters
As if on cue for an Occupy Wall Street commercial, the latest Congressional Budget Office report highlighted the large crevasse between the upper 1 percent of U.S. households and the rest of us.
When it comes to income inequality, this is what U.S. politicians should be digesting now. While it's hardly a major revelation that for the top 1 percent of earners real after-tax income rose 275 percent between 1979 and 2007, the top 20 percent made more in after-tax income than the remaining 80 percent. That's quite a difference since the lowest-income group's median income only rose 18 percent.
Income inequality couldn't be more of a mainstream issue as some 70 percent of Americans surveyed want wealth shared more equally.
The reasons for the growing disparity, which the CBO, without irony, measured by an increasing "Gini coefficient," were buried deep in the report. It's how income was taxed that allowed the ultra-wealthy to keep more of what they earned compared to middle- or lower-class Americans.
INVESTMENT INCOME EARNERS ARE TAXED LESS
Most lower- and middle-class earners make their money from wages, which are subject to Social Security, Medicare, federal and state taxes. But income from businesses, capital gains and dividends may be taxed at lower rates. In the CBO study period, the share from capital gains and business income increased, meaning upper-income families reaped greater after-tax benefits just from the kinds of non-wage income they reported.
When you're on salary, you get taxed regularly through your paycheck. If you hold stocks, bonds, business equity and property, your capital gains -- if any -- can be delayed for years. Holding securities in tax-deferred retirement accounts can put off taxes for decades.
EXECUTIVES AND FINANCIAL PROFESSIONALS DID BEST
Again, no surprise here. But when you can structure your compensation so that it's tax-deferred, paid in stock options or paid as capital gains, dividends or carried interest, you can pay much less to Uncle Sam and keep more of your income. Long-term capital gains, dividends and carried interest are taxed at a maximum 15 percent rate.
When the bulk of your income comes in those forms, you avoid taxes at the maximum 35-percent marginal federal rate. So those at the top of the compensation pyramid not only made more in gross income,
their overall tax rates were lower because of how their pay was received. Billionaire Warren Buffett is a good example. His average rate was 17.4 percent.
LOWER-INCOME HOUSEHOLDS PAY MORE IN PAYROLL TAXES
Since the highest earners were paying less in overall taxes because they were paid in non-wage income, their payroll tax rate was also lower. The CBO found that the lowest fifth of families paid an average 8 percent in payroll taxes while the highest-income group paid under 2 percent.
Why are the poor paying quadruple the amount of payroll taxes than the rich?
They are unlikely to report investment or business income at the lowest rates. Attention tax reformers: You could make a case that the wealthiest Americans are not paying their fair share for Social Security, Medicare, state and federal programs. But since the tax code allows them to avoid paying any more, it's perfectly legal now.
CONVERSION TO S CORPS ALSO HELPED WEALTHY
Those who ran their income through corporations (even small ones) reaped even more breaks by converting from a standard "C" to an "S" corporation. The S corporation essentially taxes business earnings at your personal rate in the year that you make the money. That opens up a number of ways to legally pare tax liability and gave many high-income households yet another loophole. I know, because I had an S Corp for years. "The observed growth in the conversion of C corporation income into S corporation income has contributed to the rapid growth in income for the highest-income households," the CBO reported.
THOSE WHO HAVE MOST LOOPHOLES BENEFITS MOST
It's a cumulative giveaway: The more deductions you can take at the most-favorable rates, the lower your after-tax income. Who did the best? No surprises here. "Employees in the financial and legal professions made up a larger share of the highest earners than any other group." Hello Wall Street and K Street.
In addition to these plums, if you were in the elite class that benefited from low rates and a bevy of write-offs, you had more money to spare to hire lobbyists to keep your after-tax income higher than wage earners. You and your affiliated special-interest groups were also able to donate copious amounts of money to Congressional candidates who want to keep the tax code working in favor of the well-heeled.
Unless you can find a way of living off of an investment portfolio, create an S corporation and avoid payroll taxes, you're going to pay more than your fair share of taxes. Has the Congressional debt reduction supercommittee considered this low-hanging fruit? There's no way to tell since their proceedings or minutes have not been made public. Lobbyists have had better access than other citizens.
Only one thing is certain. If the status quo prevails, the tax code will continue to serve as a wealth enhancer for the ultra-wealthy and corporations. Without meaningful tax reform, the gap between the 99
percent and the top 1 percent will widen from a chasm -- to a canyon.
Friday, October 28, 2011
Debunking the “Paid Back the TARP” Myth: Banks Should be Paying Over $300 Billion a Year in Systemic Risk Insurance
By Yves Smith
Naked Capitalism
This Institute for New Economic Thinking interview with economist Ed Kane discusses how systemic risk should be measured. Kane argues that taxpayer are essentially disadvantaged bank shareholders, getting the downside and none of the bennies, like dividends or capital gains. He argues that banks should be paying taxpayers for the privilege of having them and their counterparties rescued, and that is over $300 billion a year.’
And that isn’t the only freebie banks are getting. For instance, the near zero interest rates are tantamount to a tax on savers (when per above, the banks should be making payments). Some have estimated the cost to savers is over $350 billion a year.
Naked Capitalism
This Institute for New Economic Thinking interview with economist Ed Kane discusses how systemic risk should be measured. Kane argues that taxpayer are essentially disadvantaged bank shareholders, getting the downside and none of the bennies, like dividends or capital gains. He argues that banks should be paying taxpayers for the privilege of having them and their counterparties rescued, and that is over $300 billion a year.’
And that isn’t the only freebie banks are getting. For instance, the near zero interest rates are tantamount to a tax on savers (when per above, the banks should be making payments). Some have estimated the cost to savers is over $350 billion a year.
Thursday, October 27, 2011
Ten Reasons Not To Bank On (Or With) Bank Of America
by Nomi Prins
Charging customers for a debit card is just one reason not to bank at BoA. Recent Occupy Santa Cruz Bank of America incident illustrates how sensitive B of A is to protest. This "too big to fail" bank may collapse like a house made of junk bonds and become a taxpayer burden. Here are a few other reasons why you shouldn't bank with them.
There is no shortage of hatred for the biggest banks. Indeed, the Occupy Wall Street movement is leading a national revolution against these byzantine, powerful Goliaths for the economic devastation they have caused. This makes it difficult to choose the worst of the bunch. That said, a strong case can be made that Bank of America deserves the title of the nation's most despised bank.
Here are ten reasons to take your money out of Bank of America - and park it at a credit union or community bank near you. (And yes, that may be near impossible if you have a mortgage with them, as refinancing away from any big bank nowadays is a nightmare.)
1. B of A rejects the right of customers to protest. When two Occupy Santa Cruz protesters in California marched into a local Bank of America to close their accounts, the response was, "You cannot be a protester and a customer at the same time," followed by a threat to call the police if the women didn't leave. (The attending officer later reiterated the bank manager's message.) Meanwhile, the fact that Bank of America charges a fee for closing an account prompted Rep. Brad Miller (D-North Carolina), who resides in Bank of America's headquarters state, to introduce a bill to protect customers from such fees.
2. To recoup ongoing losses from its stupendously dumb acquisitions of Countrywide Financial and Merrill Lynch, B of A pillages its customers. Thus, despite massive public outrage, the $5 debit usage fee for customers with less than a $5,000 balance and no mortgage with the bank will begin in 2012. B of A was the first large bank to confirm it would charge this fee, which is the highest in current discourse among the banks.
On October 18, Consumers Union wrote a letter to B of A chief Brian Moynihan asking him to reconsider this fee, which impacts poorer clients disproportionately. The letter summed it up nicely: "Consumers should not be required to pay a costly fee that appears to be arbitrary and designed to generate income to make up for Bank of America's bad business decisions rather than covering the costs of providing debit card services." Banks collect 24 cents from retailers for each customer swipe, much more than the median 8 cents it costs a bank to process the purchase. Senator Dick Durbin's (D-Illinois) response was to urge customers: "Vote with your feet. Get the heck out of that bank."
3. B of A's other fees are just as bad. According to its last annual report, the bank has 29.3 million active online subscribers who paid over $300 billion worth of bills in 2010. In May, B of A raised its checking account fees, which included e-banking, to $12, in line with JP Morgan Chase's decision to do the same, up from $8.95 per month. In June, it started a $35 overdraft fee, even on overdrafts of one cent. Next year, it will incorporate basic checking with a new "essentials'' account structure that makes monthly fees unavoidable, that will not include free bill pay, and that has a mandatory $6 minimum fee.
Last Monday, Bank of America was charged (along with JP Morgan Chase and Wells Fargo) with colluding with the two major credit card companies, Visa and MasterCard, to keep ATM fees high; in other words, they were charged with "price-fixing," in direct opposition to antitrust laws. This is the third of three such suits filed recently, each seeking class action status.
4. Bank of America takes gross advantage of the military.
It is the official bank of the US military and has branches by or on many bases, which provides the firm with another locus of extortion. B of A can entice military personnel to take out loans at usurious rates. Personal loans made to soldiers for a few thousand dollars can actually keep them indebted for the rest of their lives.
Last May, Bank of America paid $22 million to settle charges of improperly foreclosing on active-duty troops. The firm spun these foreclosures as being Countrywide's fault for having started them before becoming part of B of A.
5. Bank of America is officially rated the biggest, scariest bank. Its stock price also fared the worst of the group of banks (which also included Citigroup and Wells Fargo) when Moody's Investors Service downgraded it on September 21.
B of A's long-term holding company (parent bank) rating was chopped two notches to Baa1 from A2, and its retail bank rating was cut two notches from A2 to Aa3, placing B of A four notches below rival JP Morgan Chase and one below Citigroup, the third-largest US bank. Its bank holding company has the lowest rating among the top five banks with the largest derivatives positions.
This caused great fear for investors involved in derivatives trades with the Merrill Lynch division, prompting them to request trades be moved to the part of the bank with the better rating - the retail part with the insured (peoples') deposits. That way, B of A doesn't have to pony up as much collateral to back the trades, as it would in a subsidiary with a lower rating. The Fed was recklessly happy to approve, despite the Federal Deposit Insurance Corporation's (FDIC) misgiving about having to insure more risk, even if it can borrow from the US Treasury to do so. Meanwhile, Bank of America's stock price got so crushed that Warren Buffett scooped up a $5 billion preferred stock deal, effectively betting that the government won't let this big bank go bust.
6. B of A's derivatives position keeps rising. The total amount of derivatives in the FDIC-insured portion of B of A as of mid-year was $53.7 trillion, up 10 percent from $48.9 trillion the prior year, and up nearly 35 percent from its pre-fall crisis level of $40 trillion (the Merrill Lynch securities division holds $22 trillion in addition.) The bank has $5 trillion of credit derivatives, nearly double its $2.7 trillion pre-Merrill amount. In addition, because of its inherent zombie status and rating downgrades, the cost of insuring B of A against a possible default continues to rise in the credit derivatives market - a pattern that American International group (AIG) once followed.
7. Bank of America got the most AIG money of the big depositor banks. By virtue of having acquired Merrill Lynch's AIG-related portfolio, B of A got to keep approximately $12 billion worth of federal AIG backing, too. It also received more government subsidies than any other mega-bank except Citigroup. Its stimulus package included an initial Troubled Asset Relief Program (TARP) helping of $15 billion for the bank and $10 billion for Merrill, plus a second helping of $20 billion in January 2009 after it became clear that Merrill's losses had spiked to $15 billion - in order to ensure the takeover from hell went through and Fed chairman Ben Bernanke, then-Treasury Secretary Hank Paulson, and then-Merrill Lynch executive John Thain could pat themselves on the back for saving the world. The government guaranteed $118 billion in assets, mostly Merrill's, in the new merged firm. With the benefit of the Fed's nearly 0 percent money policy, and a depositor base to plunder, B of A repaid that aid.
In terms of overall federal subsidies (including TARP), Bank of America was second only to Citigroup ($230 billion compared to $415 billion). None of that got in the way of former B of A CEO Ken Lewis' personal take, a $63 million retirement plan, in addition to the $63 million he scored during the three years before his departure.
8. Bank of America leads the big bank fraud lawsuit settlement tally. So far, it has racked up the largest settlement, $8.5 billion in June, to settle claims related to $100 billion worth of Countrywide-spun mortgage securities backed by faulty loans, with bigwig investors like Pimco, BlackRock, and the Federal Reserve Bank of New York.
B of A is also being sued by state and federal regulators for questionable foreclosure practices and a union benefits plan for hiding foreclosure problems that impacted its share price. It is one of 17 major US financial institutions being sued by the Federal Housing Finance Agency for billions of dollars of mortgage-securities-related losses that may require B of A to potentially repurchase $50 billion worth of allegedly fraudulent securities. Earlier this year, B of A settled for $3 billion regarding bad loans that they had repackaged by Fannie Mae and Freddie Mac, as well as agreed to a $624 million settlement in a securities fraud class-action suit filed by New York Sate and City pension fund regarding Countrywide stock losses. Then there's AIG's August lawsuit, in which AIG wants $10 billion in damages for mortgage-related securities it bought and against which it claims B of A committed securities fraud.
That's a lot of pain for a Federal Reserve-approved $4.1 billion acquisition. Meanwhile, since the settlement didn't lead to a financial restatement, under the supremely elastic (read: useless) Dodd-Frank Act, executives get to keep their related bonuses.
9. Even after lawsuits, B of A would still rather please investors than customers. Investors that won money in the $8.5 billion settlement were upset that B of A was continuing to service loans, instead of foreclosing on them more quickly. Now, B of A had a nasty incentive to kick people out of homes faster, rather than work with them to refinance or restructure mortgages. Two months later, their foreclosure process has, in fact, sped up.
Bank of America foreclosure notices are surging again following a slight robo-signing- related slowdown, meaning they are now sending out a greater increase in default notices (90-day overdue loans) than other banks. The bank has $30 billion in residential mortgage loans in default, which will become foreclosures for thousands of families.
10. Bank of America, despite having been buoyed up by the government, did not pay taxes, and, given its glorious ineptness, will be laying off 30,000 workers. Not only did the bank pay no federal taxes for 2010 (or 2009) by making use of its posted pre-tax loss of $5.4 billion, it actually cited a tax benefit of $1 billion. Meanwhile, it has announced plans to cut up to 30,000 jobs over the next few years as part of its plan to save $5 billion, ostensibly due to the settlements it's paying for engaging in upper-management-approved fraud.
Finally, consider the two reasons that any of this list is possible. One is the Glass-Steagall Act repeal, which enables banks to comingle straight costumer business with reckless securities creation and trading. The second reason is coddling by a Fed that finances and approves every bad move. B of A is the poster child for a Glass-Steagall repeal gone wrong. Lewis pulled in a slew of other banks under the B of A umbrella, making it - at one time - the country's largest bank, including the infamous Countrywide Financial and Merrill Lynch. Now it has $2.26 trillion in total assets and $1.8 trillion assets in insured subsidiaries, $1.2 trillion of customer deposits ($1.066 trillion in the United States) and about $804 billion in FDIC-insured deposits - all part of the giant, risk-laden mess that is B of A.
Without being broken up via a new, strong Glass-Steagall Act, when banks need to find ways to make money, they resort to extorting it from their sitting ducks, er - customers. Meanwhile, that's where credit unions, which are not-for-profits owned by their members and not by outside shareholders, come in. They generally don't engage in crazy derivatives trades, or charge unnecessary fees for holding your money or for letting you pay bills with it, or for online banking. In terms of personal attention, among other economic reasons, the credit and smaller community banks are a much better bet.
Charging customers for a debit card is just one reason not to bank at BoA. Recent Occupy Santa Cruz Bank of America incident illustrates how sensitive B of A is to protest. This "too big to fail" bank may collapse like a house made of junk bonds and become a taxpayer burden. Here are a few other reasons why you shouldn't bank with them.
There is no shortage of hatred for the biggest banks. Indeed, the Occupy Wall Street movement is leading a national revolution against these byzantine, powerful Goliaths for the economic devastation they have caused. This makes it difficult to choose the worst of the bunch. That said, a strong case can be made that Bank of America deserves the title of the nation's most despised bank.
Here are ten reasons to take your money out of Bank of America - and park it at a credit union or community bank near you. (And yes, that may be near impossible if you have a mortgage with them, as refinancing away from any big bank nowadays is a nightmare.)
1. B of A rejects the right of customers to protest. When two Occupy Santa Cruz protesters in California marched into a local Bank of America to close their accounts, the response was, "You cannot be a protester and a customer at the same time," followed by a threat to call the police if the women didn't leave. (The attending officer later reiterated the bank manager's message.) Meanwhile, the fact that Bank of America charges a fee for closing an account prompted Rep. Brad Miller (D-North Carolina), who resides in Bank of America's headquarters state, to introduce a bill to protect customers from such fees.
2. To recoup ongoing losses from its stupendously dumb acquisitions of Countrywide Financial and Merrill Lynch, B of A pillages its customers. Thus, despite massive public outrage, the $5 debit usage fee for customers with less than a $5,000 balance and no mortgage with the bank will begin in 2012. B of A was the first large bank to confirm it would charge this fee, which is the highest in current discourse among the banks.
On October 18, Consumers Union wrote a letter to B of A chief Brian Moynihan asking him to reconsider this fee, which impacts poorer clients disproportionately. The letter summed it up nicely: "Consumers should not be required to pay a costly fee that appears to be arbitrary and designed to generate income to make up for Bank of America's bad business decisions rather than covering the costs of providing debit card services." Banks collect 24 cents from retailers for each customer swipe, much more than the median 8 cents it costs a bank to process the purchase. Senator Dick Durbin's (D-Illinois) response was to urge customers: "Vote with your feet. Get the heck out of that bank."
3. B of A's other fees are just as bad. According to its last annual report, the bank has 29.3 million active online subscribers who paid over $300 billion worth of bills in 2010. In May, B of A raised its checking account fees, which included e-banking, to $12, in line with JP Morgan Chase's decision to do the same, up from $8.95 per month. In June, it started a $35 overdraft fee, even on overdrafts of one cent. Next year, it will incorporate basic checking with a new "essentials'' account structure that makes monthly fees unavoidable, that will not include free bill pay, and that has a mandatory $6 minimum fee.
Last Monday, Bank of America was charged (along with JP Morgan Chase and Wells Fargo) with colluding with the two major credit card companies, Visa and MasterCard, to keep ATM fees high; in other words, they were charged with "price-fixing," in direct opposition to antitrust laws. This is the third of three such suits filed recently, each seeking class action status.
4. Bank of America takes gross advantage of the military.
It is the official bank of the US military and has branches by or on many bases, which provides the firm with another locus of extortion. B of A can entice military personnel to take out loans at usurious rates. Personal loans made to soldiers for a few thousand dollars can actually keep them indebted for the rest of their lives.
Last May, Bank of America paid $22 million to settle charges of improperly foreclosing on active-duty troops. The firm spun these foreclosures as being Countrywide's fault for having started them before becoming part of B of A.
5. Bank of America is officially rated the biggest, scariest bank. Its stock price also fared the worst of the group of banks (which also included Citigroup and Wells Fargo) when Moody's Investors Service downgraded it on September 21.
B of A's long-term holding company (parent bank) rating was chopped two notches to Baa1 from A2, and its retail bank rating was cut two notches from A2 to Aa3, placing B of A four notches below rival JP Morgan Chase and one below Citigroup, the third-largest US bank. Its bank holding company has the lowest rating among the top five banks with the largest derivatives positions.
This caused great fear for investors involved in derivatives trades with the Merrill Lynch division, prompting them to request trades be moved to the part of the bank with the better rating - the retail part with the insured (peoples') deposits. That way, B of A doesn't have to pony up as much collateral to back the trades, as it would in a subsidiary with a lower rating. The Fed was recklessly happy to approve, despite the Federal Deposit Insurance Corporation's (FDIC) misgiving about having to insure more risk, even if it can borrow from the US Treasury to do so. Meanwhile, Bank of America's stock price got so crushed that Warren Buffett scooped up a $5 billion preferred stock deal, effectively betting that the government won't let this big bank go bust.
6. B of A's derivatives position keeps rising. The total amount of derivatives in the FDIC-insured portion of B of A as of mid-year was $53.7 trillion, up 10 percent from $48.9 trillion the prior year, and up nearly 35 percent from its pre-fall crisis level of $40 trillion (the Merrill Lynch securities division holds $22 trillion in addition.) The bank has $5 trillion of credit derivatives, nearly double its $2.7 trillion pre-Merrill amount. In addition, because of its inherent zombie status and rating downgrades, the cost of insuring B of A against a possible default continues to rise in the credit derivatives market - a pattern that American International group (AIG) once followed.
7. Bank of America got the most AIG money of the big depositor banks. By virtue of having acquired Merrill Lynch's AIG-related portfolio, B of A got to keep approximately $12 billion worth of federal AIG backing, too. It also received more government subsidies than any other mega-bank except Citigroup. Its stimulus package included an initial Troubled Asset Relief Program (TARP) helping of $15 billion for the bank and $10 billion for Merrill, plus a second helping of $20 billion in January 2009 after it became clear that Merrill's losses had spiked to $15 billion - in order to ensure the takeover from hell went through and Fed chairman Ben Bernanke, then-Treasury Secretary Hank Paulson, and then-Merrill Lynch executive John Thain could pat themselves on the back for saving the world. The government guaranteed $118 billion in assets, mostly Merrill's, in the new merged firm. With the benefit of the Fed's nearly 0 percent money policy, and a depositor base to plunder, B of A repaid that aid.
In terms of overall federal subsidies (including TARP), Bank of America was second only to Citigroup ($230 billion compared to $415 billion). None of that got in the way of former B of A CEO Ken Lewis' personal take, a $63 million retirement plan, in addition to the $63 million he scored during the three years before his departure.
8. Bank of America leads the big bank fraud lawsuit settlement tally. So far, it has racked up the largest settlement, $8.5 billion in June, to settle claims related to $100 billion worth of Countrywide-spun mortgage securities backed by faulty loans, with bigwig investors like Pimco, BlackRock, and the Federal Reserve Bank of New York.
B of A is also being sued by state and federal regulators for questionable foreclosure practices and a union benefits plan for hiding foreclosure problems that impacted its share price. It is one of 17 major US financial institutions being sued by the Federal Housing Finance Agency for billions of dollars of mortgage-securities-related losses that may require B of A to potentially repurchase $50 billion worth of allegedly fraudulent securities. Earlier this year, B of A settled for $3 billion regarding bad loans that they had repackaged by Fannie Mae and Freddie Mac, as well as agreed to a $624 million settlement in a securities fraud class-action suit filed by New York Sate and City pension fund regarding Countrywide stock losses. Then there's AIG's August lawsuit, in which AIG wants $10 billion in damages for mortgage-related securities it bought and against which it claims B of A committed securities fraud.
That's a lot of pain for a Federal Reserve-approved $4.1 billion acquisition. Meanwhile, since the settlement didn't lead to a financial restatement, under the supremely elastic (read: useless) Dodd-Frank Act, executives get to keep their related bonuses.
9. Even after lawsuits, B of A would still rather please investors than customers. Investors that won money in the $8.5 billion settlement were upset that B of A was continuing to service loans, instead of foreclosing on them more quickly. Now, B of A had a nasty incentive to kick people out of homes faster, rather than work with them to refinance or restructure mortgages. Two months later, their foreclosure process has, in fact, sped up.
Bank of America foreclosure notices are surging again following a slight robo-signing- related slowdown, meaning they are now sending out a greater increase in default notices (90-day overdue loans) than other banks. The bank has $30 billion in residential mortgage loans in default, which will become foreclosures for thousands of families.
10. Bank of America, despite having been buoyed up by the government, did not pay taxes, and, given its glorious ineptness, will be laying off 30,000 workers. Not only did the bank pay no federal taxes for 2010 (or 2009) by making use of its posted pre-tax loss of $5.4 billion, it actually cited a tax benefit of $1 billion. Meanwhile, it has announced plans to cut up to 30,000 jobs over the next few years as part of its plan to save $5 billion, ostensibly due to the settlements it's paying for engaging in upper-management-approved fraud.
Finally, consider the two reasons that any of this list is possible. One is the Glass-Steagall Act repeal, which enables banks to comingle straight costumer business with reckless securities creation and trading. The second reason is coddling by a Fed that finances and approves every bad move. B of A is the poster child for a Glass-Steagall repeal gone wrong. Lewis pulled in a slew of other banks under the B of A umbrella, making it - at one time - the country's largest bank, including the infamous Countrywide Financial and Merrill Lynch. Now it has $2.26 trillion in total assets and $1.8 trillion assets in insured subsidiaries, $1.2 trillion of customer deposits ($1.066 trillion in the United States) and about $804 billion in FDIC-insured deposits - all part of the giant, risk-laden mess that is B of A.
Without being broken up via a new, strong Glass-Steagall Act, when banks need to find ways to make money, they resort to extorting it from their sitting ducks, er - customers. Meanwhile, that's where credit unions, which are not-for-profits owned by their members and not by outside shareholders, come in. They generally don't engage in crazy derivatives trades, or charge unnecessary fees for holding your money or for letting you pay bills with it, or for online banking. In terms of personal attention, among other economic reasons, the credit and smaller community banks are a much better bet.
Dateline Oakland: FELONIOUS ASSAULT By Police?
by Karl Denninger
Arrest the alleged felon who is clearly a police officer behind the barricade throwing a flash-bang at a disabled man:
This video is looped and then slowed down and it clearly identifies a police officer tossing the flash-bang directly at the disabled vet on the ground when the protesters attempt to come to his aid. It detonates literally right next to him. None of the protesters are committing any act of violence - they are assisting a men who has just been shot with a rubber round in the head.
THERE IS NO EXCUSE FOR THIS ACT. EACH ACT OF EACH PARTY STANDS ALONE - NO PROTESTER CHARGED THE FENCES OR OTHERWISE ASSAULTED AN OFFICER. THIS WAS A PREMEDITATED ASSAULT BY THE POLICE UPON A PRONE AND INJURED MAN AND THOSE ATTEMPTING TO ASSIST HIM.
THE MAN IN QUESTION, A VETERAN, IS CURRENTLY REPORTED TO BE IN CRITICAL CONDITION.
The Police issued the following in response to a question:
Q. Did the Police deploy rubber bullets, flash-bag grenades?
A. No, the loud noises that were heard originated from M-80 explosives thrown at Police by protesters. In addition, Police fired approximately four bean bag rounds at protesters to stop them from throwing dangerous objects at the officer.
It appears that OPD is LYING. This video, originally shot by KTVU and still available on their web page, clearly shows a police officer throwing the device; it visibly originates from an officer behind the barricade. If you watch the original you can see the officer tossing the device in the last few seconds of the clip; the Youtube version does not appear to be doctored. There was no assault upon or any "dangerous object" being thrown at these officers at the time the officer commits his assault.
Honest people, irrespective of whether they agree with the OWS protests or not, must not sit silently and allow this sort of outrageous and unlawful behavior and the resulting blatant lie -- not by protesters, but by the police -- to stand.
The responsible officer(s) must be personally identified, indicted and prosecuted right here and now. Those who lied in the department about the use of these devices must be removed from their positions for cause without compensation, retirement or severance.
This department's clear lie means that the remaining assertions -- that the police officers acted only after the protesters first threw rocks and/or bottles -- cannot be accepted as true and this infirmity must stand until a formal retraction is issued.
There are no free lies, especially in matters like this. Once an agency or person documents through their own actions the willingness to make intentionally false factual statements as proved by conclusive photographic evidence nothing they say can be taken at face value.
This means the Mayor must go, the police chief must go, and the officer who did this must stand trial, all right here, right now.
Should the people lose what little faith is left in the government and come to an inescapable conclusion that felonious assaults are going to be overlooked "so long as they are committed by police" there is a severe risk of the complete loss of civil order. Down the road of tolerance of this behavior by the police and city lies chaos.
Nobody with an ounce of common sense wants to see such an event or should be willing to sit idly by while it occurs without vehement protest and every possible attempt to obtain redress by lawful and peaceful means.
Arrest the alleged felon who is clearly a police officer behind the barricade throwing a flash-bang at a disabled man:
This video is looped and then slowed down and it clearly identifies a police officer tossing the flash-bang directly at the disabled vet on the ground when the protesters attempt to come to his aid. It detonates literally right next to him. None of the protesters are committing any act of violence - they are assisting a men who has just been shot with a rubber round in the head.
THERE IS NO EXCUSE FOR THIS ACT. EACH ACT OF EACH PARTY STANDS ALONE - NO PROTESTER CHARGED THE FENCES OR OTHERWISE ASSAULTED AN OFFICER. THIS WAS A PREMEDITATED ASSAULT BY THE POLICE UPON A PRONE AND INJURED MAN AND THOSE ATTEMPTING TO ASSIST HIM.
THE MAN IN QUESTION, A VETERAN, IS CURRENTLY REPORTED TO BE IN CRITICAL CONDITION.
The Police issued the following in response to a question:
Q. Did the Police deploy rubber bullets, flash-bag grenades?
A. No, the loud noises that were heard originated from M-80 explosives thrown at Police by protesters. In addition, Police fired approximately four bean bag rounds at protesters to stop them from throwing dangerous objects at the officer.
It appears that OPD is LYING. This video, originally shot by KTVU and still available on their web page, clearly shows a police officer throwing the device; it visibly originates from an officer behind the barricade. If you watch the original you can see the officer tossing the device in the last few seconds of the clip; the Youtube version does not appear to be doctored. There was no assault upon or any "dangerous object" being thrown at these officers at the time the officer commits his assault.
Honest people, irrespective of whether they agree with the OWS protests or not, must not sit silently and allow this sort of outrageous and unlawful behavior and the resulting blatant lie -- not by protesters, but by the police -- to stand.
The responsible officer(s) must be personally identified, indicted and prosecuted right here and now. Those who lied in the department about the use of these devices must be removed from their positions for cause without compensation, retirement or severance.
This department's clear lie means that the remaining assertions -- that the police officers acted only after the protesters first threw rocks and/or bottles -- cannot be accepted as true and this infirmity must stand until a formal retraction is issued.
There are no free lies, especially in matters like this. Once an agency or person documents through their own actions the willingness to make intentionally false factual statements as proved by conclusive photographic evidence nothing they say can be taken at face value.
This means the Mayor must go, the police chief must go, and the officer who did this must stand trial, all right here, right now.
Should the people lose what little faith is left in the government and come to an inescapable conclusion that felonious assaults are going to be overlooked "so long as they are committed by police" there is a severe risk of the complete loss of civil order. Down the road of tolerance of this behavior by the police and city lies chaos.
Nobody with an ounce of common sense wants to see such an event or should be willing to sit idly by while it occurs without vehement protest and every possible attempt to obtain redress by lawful and peaceful means.
GENERAL STRIKE NOVEMBER 2nd
by Karl Denninger
Now we're talking.
I'm getting word (via Twitter) that the Oakland branch of "Occupy Wall Street" has finally done what I recommended as the only course of peaceful action that will matter:
They have called for a GENERAL STRIKE November 2nd.
Why will a General Strike work?
Simple: It attacks the government in a lawful, peaceful manner in the one way they cannot counteract: It cuts off their funding!
You can't tax what doesn't happen, basically. This is the people's way to peacefully withdraw consent to being governed.
You buy nothing, you perform no work, you do nothing that is taxable.
The implicit threat is that you cut the legs out from under the government's ability to fund itself. This is an entirely lawful action and I said in 2008 that this was the appropriate thing to be doing.
Well, here you have it. One ex-Marine -- a combat veteran -- took a rubber round in the head. He is in critical condition and may die. That was not a mistake; that was aimed fire and an intentional assassination. Sorry folks, that's facts - from 50' you don't "miss" and hit someone in the head with these things if you're shooting for the legs or other non-vital parts. He was shot in the head by someone who aimed for the head. Those projectiles are not "non-lethal" and the bomb thrown by a cop at the people trying to come to his assistance after he fell wasn't tossed accidentally either.
So here's the deal folks: Do you have a pair of clankers or are you still sporting mouse-sized nerfs?
Yeah, I know, participating in a General Strike means personal sacrifice. Heh, that's how it is when you make choices. There are costs. Nothing's free, including doing nothing. Four years of constructive consent has not brought you continued prosperity. It has not brought the economy out of the slump and employment has not returned. It has done nothing for you, and everything for the scammers and fraudusters on Wall Street and in DC.
Four years into this and there's been no end to the fraud. No admission of what happened and who was responsible. No change. No honesty. No truth. And no prosecutions of any materiality. Yeah, I know, they are going after one former board member now. That's nice.
But Obama just announced that he intends to "refinance" a bunch of home mortgages (again) and the primary beneficiary of doing so will be not you but the banks as that program includes a waiver of any fraud claims against the original mortgage so it cannot be "put back" on the originator.
Yeah, the "benefits" here will be small for the banks, since the number of people who will qualify will be small and the damages on a fraudulent loan that is paying (which you must be in order to qualify) are zero. But fraud is still a crime, and this will make ignoring the criminal side t ivial as well.
I've said that it's time to choose for the four years. Well, now you have a group that has thrown down the gauntlet for you and provided a date: November 2nd.
Elephant-size or mouse-size -- clankers or nerfs?
That's the question, and you will answer that question on November 2nd.
And incidentally, if there is no constructive response out of DC?
DECLARE NOVEMBER 25th-27th AS THE NEXT ONE. AND YEAH - I'LL DO IT. NO SPENDING OR WORK OF ANY SORT. NOT ONE DAMN NICKEL.
Now we're talking.
I'm getting word (via Twitter) that the Oakland branch of "Occupy Wall Street" has finally done what I recommended as the only course of peaceful action that will matter:
They have called for a GENERAL STRIKE November 2nd.
Why will a General Strike work?
Simple: It attacks the government in a lawful, peaceful manner in the one way they cannot counteract: It cuts off their funding!
You can't tax what doesn't happen, basically. This is the people's way to peacefully withdraw consent to being governed.
You buy nothing, you perform no work, you do nothing that is taxable.
The implicit threat is that you cut the legs out from under the government's ability to fund itself. This is an entirely lawful action and I said in 2008 that this was the appropriate thing to be doing.
Well, here you have it. One ex-Marine -- a combat veteran -- took a rubber round in the head. He is in critical condition and may die. That was not a mistake; that was aimed fire and an intentional assassination. Sorry folks, that's facts - from 50' you don't "miss" and hit someone in the head with these things if you're shooting for the legs or other non-vital parts. He was shot in the head by someone who aimed for the head. Those projectiles are not "non-lethal" and the bomb thrown by a cop at the people trying to come to his assistance after he fell wasn't tossed accidentally either.
So here's the deal folks: Do you have a pair of clankers or are you still sporting mouse-sized nerfs?
Yeah, I know, participating in a General Strike means personal sacrifice. Heh, that's how it is when you make choices. There are costs. Nothing's free, including doing nothing. Four years of constructive consent has not brought you continued prosperity. It has not brought the economy out of the slump and employment has not returned. It has done nothing for you, and everything for the scammers and fraudusters on Wall Street and in DC.
Four years into this and there's been no end to the fraud. No admission of what happened and who was responsible. No change. No honesty. No truth. And no prosecutions of any materiality. Yeah, I know, they are going after one former board member now. That's nice.
But Obama just announced that he intends to "refinance" a bunch of home mortgages (again) and the primary beneficiary of doing so will be not you but the banks as that program includes a waiver of any fraud claims against the original mortgage so it cannot be "put back" on the originator.
Yeah, the "benefits" here will be small for the banks, since the number of people who will qualify will be small and the damages on a fraudulent loan that is paying (which you must be in order to qualify) are zero. But fraud is still a crime, and this will make ignoring the criminal side t ivial as well.
I've said that it's time to choose for the four years. Well, now you have a group that has thrown down the gauntlet for you and provided a date: November 2nd.
Elephant-size or mouse-size -- clankers or nerfs?
That's the question, and you will answer that question on November 2nd.
And incidentally, if there is no constructive response out of DC?
DECLARE NOVEMBER 25th-27th AS THE NEXT ONE. AND YEAH - I'LL DO IT. NO SPENDING OR WORK OF ANY SORT. NOT ONE DAMN NICKEL.
Wednesday, October 26, 2011
Bill Black: What I'd Demand of the Fed
Bill Black: If I marched with Occupy Wall St. to the New York Fed, this is what I would demand.
Tuesday, October 25, 2011
For every country struggling with debt there is a solution : The Argentinean way
There is a country that found a solution against the Banksters back in 2002: ARGENTINA.
The only way for any country buried in debt is to default.
see this:
http://www.nakedcapitalism.com/2011/10/the-verboten-story-of-argentinas-economic-success.html
and
this:
http://www.cepr.net/documents/publications/argentina-success-2011-10.pdf
The Argentinian example disproves one of the Big Lie about default, that foreign capital will take a hike and the consequences will be dire.
Argentina’s experience calls into question the popular myth, as noted above, that recessions caused by financial crises must involve a slow and painful recovery.
No wonder the IMF and the banksters don’t want Argentina to get good press. The Eurozone countries they are wringing dry might get ideas.
The only way for any country buried in debt is to default.
see this:
http://www.nakedcapitalism.com/2011/10/the-verboten-story-of-argentinas-economic-success.html
and
this:
http://www.cepr.net/documents/publications/argentina-success-2011-10.pdf
The Argentinian example disproves one of the Big Lie about default, that foreign capital will take a hike and the consequences will be dire.
Argentina’s experience calls into question the popular myth, as noted above, that recessions caused by financial crises must involve a slow and painful recovery.
No wonder the IMF and the banksters don’t want Argentina to get good press. The Eurozone countries they are wringing dry might get ideas.
Does Obama's housing plan miss the mark ??
Visit msnbc.com for breaking news, world news, and news about the economy
The Fed Bails Out Gaddafi’s Libyan Bank, Arab Banking Corp. of Bahrain, Banks of Bavaria, Korea and Mexico … But Shafts America
by WashingtonsBlog
The Federal Reserve Bails Out Fatcat Bankers and Financiers Worldwide … But Shafts the Average American
Fox Business noted in December:
The conflicts of interest and policy controversies in the Federal Reserve’s bailout of the financial system now include helping out millionaires, billionaires, foreign automakers, and companies whose executives sit on the board of directors of the U.S. central bank.
The Federal Reserve also bought more than $2.2 billion in commercial paper from the state-owned central bank of Bavaria, and it gave more than $23 billion in loans to the Arab Banking Corp. based in Bahrain, with an interest rate as low as a quarter of a percentage point. The Federal Reserve also lent more than $9.6 billion to the Central Bank of Mexico.
***
Banks worldwide tapped into the Federal Reserve’s emergency lending programs more than 4,200 times for a total of $3.8 trillion, estimates show.
Senator Sanders’ staff found that “several billionaires and tens of multi-millionaires received cheap loans from the Fed to invest in securities backed by auto, mortgage, credit card, student and mortgage loans,” Sanders’ letter says. That Fed program is called the Term Asset-backed Securities Loan Facility.
The rich include Christy Mack, the wife of Morgan Stanley’s John Mack, billionaire businessman H. Wayne Huizenga; and Michael Dell, co-founder of Dell Computer, hedge fund manager John Paulson and private equity honcho J. Christopher Flowers.
***
[Senator Sanders] also says that it appears the Fed provided loans to over 100 separate hedge funds, offshore funds, and other investment funds located in the Cayman Islands and other tax havens via the TALF program alone.
***
Sanders also wants to know why the Federal Reserve bailed out the Korea Development Bank, the state-owned bank of South Korea, by purchasing more than $2.2 billion of its commercial paper, and why it also extended more than $40 billion to the central bank in South Korea.
I’ve previously noted that the Fed bailed out the Central Bank of Libya under Gaddafi.
read the rest:
http://www.washingtonsblog.com/2011/10/the-fed-bails-out-gaddafis-libyan-bank-arab-banking-corp-of-bahrain-banks-of-bavaria-korea-and-mexico-but-shafts-america.html
The Federal Reserve Bails Out Fatcat Bankers and Financiers Worldwide … But Shafts the Average American
Fox Business noted in December:
The conflicts of interest and policy controversies in the Federal Reserve’s bailout of the financial system now include helping out millionaires, billionaires, foreign automakers, and companies whose executives sit on the board of directors of the U.S. central bank.
The Federal Reserve also bought more than $2.2 billion in commercial paper from the state-owned central bank of Bavaria, and it gave more than $23 billion in loans to the Arab Banking Corp. based in Bahrain, with an interest rate as low as a quarter of a percentage point. The Federal Reserve also lent more than $9.6 billion to the Central Bank of Mexico.
***
Banks worldwide tapped into the Federal Reserve’s emergency lending programs more than 4,200 times for a total of $3.8 trillion, estimates show.
Senator Sanders’ staff found that “several billionaires and tens of multi-millionaires received cheap loans from the Fed to invest in securities backed by auto, mortgage, credit card, student and mortgage loans,” Sanders’ letter says. That Fed program is called the Term Asset-backed Securities Loan Facility.
The rich include Christy Mack, the wife of Morgan Stanley’s John Mack, billionaire businessman H. Wayne Huizenga; and Michael Dell, co-founder of Dell Computer, hedge fund manager John Paulson and private equity honcho J. Christopher Flowers.
***
[Senator Sanders] also says that it appears the Fed provided loans to over 100 separate hedge funds, offshore funds, and other investment funds located in the Cayman Islands and other tax havens via the TALF program alone.
***
Sanders also wants to know why the Federal Reserve bailed out the Korea Development Bank, the state-owned bank of South Korea, by purchasing more than $2.2 billion of its commercial paper, and why it also extended more than $40 billion to the central bank in South Korea.
I’ve previously noted that the Fed bailed out the Central Bank of Libya under Gaddafi.
read the rest:
http://www.washingtonsblog.com/2011/10/the-fed-bails-out-gaddafis-libyan-bank-arab-banking-corp-of-bahrain-banks-of-bavaria-korea-and-mexico-but-shafts-america.html
Violence In Greece Escalates Over Austerity
This is a pretty intense clip. Protesters in Athens riot during a demonstration by about 100-thousand people on the first of a two-day general strike. Violence spread across the centre of the city earlier in the day, following the massive anti-government rally against new austerity measures. Authorities said about 3,000 police were deployed in Athens.
Occupy Oakland Raided by Police, Reports of Tear Gas, Rubber Bullets
By Sarah Seltzer
AlterNet
Today, Oakland occupiers were swept out of two encampents amid claims of excessive force. The livestream, which is going in and out, is embedded at the bottom of this post.
occupyoakland : #occupyoakland attacked by 500 cops in suprise assault. tear gas, rubber bullets, shotguns, flash bang grenades. Many injured.
The Oakland occupation's website goes into some more detail:
This morning at 5am over 500 police in riot gear from cities all over central California brutally attacked the Occupy Oakland encampment at 14th & Broadway. The police attacked the peaceful protest with flash grenades, tear gas, and rubber bullets after moving in with armored vehicles. Apparently the media was not allowed in to document this repression, and the police established barricades as far apart as 11th and 17th. Over 70 people were arrested and the camp gear was destroyed and/or stolen by the riot police.
And here's the latest report from the San Jose Mercury News on how the surprise raid went down:
OAKLAND -- Before dawn Tuesday, at least 200 police, many in riot gear, tore down the Occupy Oakland encampment in front of City Hall and arrested dozens of people. Early reports from police say the raid went smoothly, with all protesters cleared out of the plaza in less than 30 minutes.
Police said the protest was relatively peaceful with many of the campers leaving on their own. Many were also handcuffed and led away by police from the camp at 14th Street and Broadway.
About three hours later, police descended on a second Occupy camp at Snow Park near Lake Merritt, with the intent of removing that as well.
At the downtown camp, police, armed with billy clubs and some with shotguns, overturned tents, and the campers' wooden stalls quickly, leaving what looked like a hurricane-struck refugee camp in their wake. They ripped up dozens of cardboard signs, overturned a couch and when it was over there were scraps of carpet, personal belongings and trash all over the plaza.
From SFGate.com, here's how massive the operation was--"hundreds" of officers swept in:
The police action there began at 4:45 a.m. and involved hundreds of officers from at least 10 law-enforcement agencies, including the California Highway Patrol, the Alameda County sheriff's office and various East Bay police departments. Squads of officers had assembled at the Oakland Coliseum before traveling in convoys downtown.
Officers in riot helmets began arriving in force and formed a line in the street adjacent to the plaza while motorcycle officers shut down the street. Some protesters began shouting, "Cops, go home!"
Calls to regroup after the raid have already gone out over Twitter, as well as a call to email the office of the mayor with complaints: officeofthemayor@oaklandnet.com. The website says: "Reconvene today at 4pm at the Oakland Library on 14th & Madison. Occupy Oakland is not finished, it has only begun."
Before the raid, the Oakland occupiers made a video explaining their reponse to the city's demands and threats of eviction.
Watch it below.
Video streaming by Ustream
AlterNet
Today, Oakland occupiers were swept out of two encampents amid claims of excessive force. The livestream, which is going in and out, is embedded at the bottom of this post.
occupyoakland : #occupyoakland attacked by 500 cops in suprise assault. tear gas, rubber bullets, shotguns, flash bang grenades. Many injured.
The Oakland occupation's website goes into some more detail:
This morning at 5am over 500 police in riot gear from cities all over central California brutally attacked the Occupy Oakland encampment at 14th & Broadway. The police attacked the peaceful protest with flash grenades, tear gas, and rubber bullets after moving in with armored vehicles. Apparently the media was not allowed in to document this repression, and the police established barricades as far apart as 11th and 17th. Over 70 people were arrested and the camp gear was destroyed and/or stolen by the riot police.
And here's the latest report from the San Jose Mercury News on how the surprise raid went down:
OAKLAND -- Before dawn Tuesday, at least 200 police, many in riot gear, tore down the Occupy Oakland encampment in front of City Hall and arrested dozens of people. Early reports from police say the raid went smoothly, with all protesters cleared out of the plaza in less than 30 minutes.
Police said the protest was relatively peaceful with many of the campers leaving on their own. Many were also handcuffed and led away by police from the camp at 14th Street and Broadway.
About three hours later, police descended on a second Occupy camp at Snow Park near Lake Merritt, with the intent of removing that as well.
At the downtown camp, police, armed with billy clubs and some with shotguns, overturned tents, and the campers' wooden stalls quickly, leaving what looked like a hurricane-struck refugee camp in their wake. They ripped up dozens of cardboard signs, overturned a couch and when it was over there were scraps of carpet, personal belongings and trash all over the plaza.
From SFGate.com, here's how massive the operation was--"hundreds" of officers swept in:
The police action there began at 4:45 a.m. and involved hundreds of officers from at least 10 law-enforcement agencies, including the California Highway Patrol, the Alameda County sheriff's office and various East Bay police departments. Squads of officers had assembled at the Oakland Coliseum before traveling in convoys downtown.
Officers in riot helmets began arriving in force and formed a line in the street adjacent to the plaza while motorcycle officers shut down the street. Some protesters began shouting, "Cops, go home!"
Calls to regroup after the raid have already gone out over Twitter, as well as a call to email the office of the mayor with complaints: officeofthemayor@oaklandnet.com. The website says: "Reconvene today at 4pm at the Oakland Library on 14th & Madison. Occupy Oakland is not finished, it has only begun."
Before the raid, the Oakland occupiers made a video explaining their reponse to the city's demands and threats of eviction.
Watch it below.
Video streaming by Ustream
Outrageous | Good Deeds Punished: State-Run Mortgage Lender Forecloses on Californians Current on Their Loans
by 4closureFraud
A report prepared for the California Senate Rules Committee
October 24, 2011
California Senate Office of Oversight and Outcomes
Executive Summary
Despite the housing slump, the California Housing Finance Agency is taking an unusually strict line with borrowers who are trying to avoid severe losses by renting out their residences, in some cases foreclosing even though the borrowers are willing and able to continue paying. The practice not only puts borrowers in a bind – it costs the agency money.
Battered by the real estate downturn, the California Housing Finance Agency, known as the state’s affordable housing bank, recently shifted its focus from making low-interest home loans to reducing foreclosures in
the overall market.
“Preventing foreclosures will not only benefit the families directly impacted, it will help stabilize neighborhoods, communities and the entire California economy,” according to the state agency’s latest annual report. Yet CalHFA is forcing some of its own borrowers into foreclosure – even though they stay current on their mortgage payments. The agency is trapping others in homes that they have outgrown.
These borrowers want to rent out their CalHFA-financed homes because of a change in life circumstances, such as getting married or having children. In a normal real estate market, they would have sold their houses or condos and paid off their mortgages. Selling now means severe losses. Instead, they hope to lease out their residences until the housing market begins to recover.
But unlike state housing finance agencies in most other states, CalHFA is hewing to a strict policy of allowing rentals only if the borrower is facing an unforeseen economic hardship such as the loss of a job.
It has foreclosed on at least 21 borrowers who were violating its requirement that a borrower occupy the home for the life of the mortgage.
That number may just be the start. Another 49 borrowers who rented out their residences are delinquent, likely headed for foreclosure. Still more, 186, are renting out their CalHFA-financed homes without permission.
CalHFA is telling these borrowers they must return to their homes, pay off their loans in full, seek a waiver or face foreclosure.
Much of this activity has occurred within the past year. So far in 2011, the agency has sent out 218 “acceleration” letters, notifying borrowers that they are in technical default and must take action or face foreclosure.
As the housing crisis continues, these numbers will keep growing.
The agency says it doesn’t know how many borrowers were denied permission to rent and as a result remained in homes they no longer consider suitable or moved back in to avoid foreclosure.
Nor does it seem to have a firm grasp on the size of the problem. Between May and October 2011, the agency provided the Senate Office of Oversight and Outcomes three widely varying sets of statistics of borrowers who were denied permission to rent or renting without its approval.
The state of affairs at CalHFA should not be confused with the larger foreclosure crisis among private lenders, in terms of the number of people affected or the causes. But the relatively small number of borrowers squeezed by CalHFA’s policy find themselves in a unusual situation not seen in the private sector: They are willing and able to live up to their commitments, only to be told that their mortgage payments will no longer be accepted.
Among those who have run afoul of CalHFA’s policy is Marcia Wold. The Mountain View school teacher bought a condo in Sunnyvale with a CalHFA loan. She loved living in a quiet place with a pool a few steps
from her door, so happy to have her own washer and dryer that she actually looked forward to doing laundry. But after marrying a man with a young son from a previous marriage, she concluded they could not live in her 724-square-feet place. She moved into the house that her husband co-owns with his parents.
Even after she rented out her condo, she was losing $1,000 each month.
Still, she was determined to meet her obligation to keep paying her note until she could sell or refinance. Somehow, CalHFA found out she was renting and foreclosed.
Wold cried the weekend before the foreclosure sale.
“They took away a part of me, because I worked so hard for it,” she said.
“This represented that I had made it. And they took that away from me.”
CalHFA also denied Wold’s request to forego reporting the technical default to credit reporting agencies. Her credit rating has dropped from a stellar 802 to 679, complicating the couple’s hopes to refinance the Los Gatos house where they now live.
Other borrowers told our office that they are remaining in or returning to properties they have outgrown to avoid foreclosure.
“I think it’s a horrible program,” Dan, an active duty member of the Navy, said in an interview. Dan is headed for foreclosure because he rented out his 820-square-foot condo at a loss after getting married and having a child. “It’s almost like predatory lending. You expect something like that from Countrywide, but not from (an entity) with the name California in the title.”
Not only does the policy disrupt the lives of the borrowers – it costs CalHFA money. Each foreclosure, on average, translates into $38,000 in uninsured losses for the agency. Now that two CalHFA insurance funds
have been wiped out by foreclosures, each new default costs more than $50,000 in uninsured losses.
CalHFA officials say they must adhere to the policy because of an opinion from the bond counsel for many of its issuances. The bond counsel interpreted a section of the Internal Revenue Code as prohibiting renting.
It advised CalHFA that federal law requires a borrower whose loans come from tax-exempt bonds to remain in the residence for the life of the mortgage. Most other states surveyed by our office, facing the same wave of rental requests from distressed homeowners, interpret the IRS code differently.
They say that it’s enough for borrowers to live in the property for a reasonable time. Only two states – Nevada and Georgia – maintain policies of foreclosing on borrowers who rent but are current on their payments. A Georgia official said his agency has not had to resort to that type of foreclosure for several years.
The IRS limits the number of loans that don’t comply with the owneroccupancy requirement to 5 percent. CalHFA officials believe that exceeding the cap could threaten the tax-exempt status of the bonds that have traditionally funded their single-family loan program.
Yet, even if the agency granted a waiver to every property now being leased without permission, the total would add up to only 1.68 percent of its loans – well below the IRS limit.
Officials for other state housing agencies say that another reason they don’t foreclose is to avoid financial losses. They also point out that foreclosing on borrowers who are in a bind because of the upside down market runs counter to their mission.
“We’re not going to be foreclosing on homes if they’re making their mortgage payments in this market,” said Lisa DeBrock, homeownership program manager for the Washington state Housing Finance
Commission.
Minnesota is one of the states that take a more forgiving approach. Years ago, the state decided not to foreclose on borrowers who moved out and rented because of a change in life circumstances.
As a Minnesota Housing official told our office, “Life happens down the road.”
Full report below…
Good Deeds.calhFA Report
A report prepared for the California Senate Rules Committee
October 24, 2011
California Senate Office of Oversight and Outcomes
Executive Summary
Despite the housing slump, the California Housing Finance Agency is taking an unusually strict line with borrowers who are trying to avoid severe losses by renting out their residences, in some cases foreclosing even though the borrowers are willing and able to continue paying. The practice not only puts borrowers in a bind – it costs the agency money.
Battered by the real estate downturn, the California Housing Finance Agency, known as the state’s affordable housing bank, recently shifted its focus from making low-interest home loans to reducing foreclosures in
the overall market.
“Preventing foreclosures will not only benefit the families directly impacted, it will help stabilize neighborhoods, communities and the entire California economy,” according to the state agency’s latest annual report. Yet CalHFA is forcing some of its own borrowers into foreclosure – even though they stay current on their mortgage payments. The agency is trapping others in homes that they have outgrown.
These borrowers want to rent out their CalHFA-financed homes because of a change in life circumstances, such as getting married or having children. In a normal real estate market, they would have sold their houses or condos and paid off their mortgages. Selling now means severe losses. Instead, they hope to lease out their residences until the housing market begins to recover.
But unlike state housing finance agencies in most other states, CalHFA is hewing to a strict policy of allowing rentals only if the borrower is facing an unforeseen economic hardship such as the loss of a job.
It has foreclosed on at least 21 borrowers who were violating its requirement that a borrower occupy the home for the life of the mortgage.
That number may just be the start. Another 49 borrowers who rented out their residences are delinquent, likely headed for foreclosure. Still more, 186, are renting out their CalHFA-financed homes without permission.
CalHFA is telling these borrowers they must return to their homes, pay off their loans in full, seek a waiver or face foreclosure.
Much of this activity has occurred within the past year. So far in 2011, the agency has sent out 218 “acceleration” letters, notifying borrowers that they are in technical default and must take action or face foreclosure.
As the housing crisis continues, these numbers will keep growing.
The agency says it doesn’t know how many borrowers were denied permission to rent and as a result remained in homes they no longer consider suitable or moved back in to avoid foreclosure.
Nor does it seem to have a firm grasp on the size of the problem. Between May and October 2011, the agency provided the Senate Office of Oversight and Outcomes three widely varying sets of statistics of borrowers who were denied permission to rent or renting without its approval.
The state of affairs at CalHFA should not be confused with the larger foreclosure crisis among private lenders, in terms of the number of people affected or the causes. But the relatively small number of borrowers squeezed by CalHFA’s policy find themselves in a unusual situation not seen in the private sector: They are willing and able to live up to their commitments, only to be told that their mortgage payments will no longer be accepted.
Among those who have run afoul of CalHFA’s policy is Marcia Wold. The Mountain View school teacher bought a condo in Sunnyvale with a CalHFA loan. She loved living in a quiet place with a pool a few steps
from her door, so happy to have her own washer and dryer that she actually looked forward to doing laundry. But after marrying a man with a young son from a previous marriage, she concluded they could not live in her 724-square-feet place. She moved into the house that her husband co-owns with his parents.
Even after she rented out her condo, she was losing $1,000 each month.
Still, she was determined to meet her obligation to keep paying her note until she could sell or refinance. Somehow, CalHFA found out she was renting and foreclosed.
Wold cried the weekend before the foreclosure sale.
“They took away a part of me, because I worked so hard for it,” she said.
“This represented that I had made it. And they took that away from me.”
CalHFA also denied Wold’s request to forego reporting the technical default to credit reporting agencies. Her credit rating has dropped from a stellar 802 to 679, complicating the couple’s hopes to refinance the Los Gatos house where they now live.
Other borrowers told our office that they are remaining in or returning to properties they have outgrown to avoid foreclosure.
“I think it’s a horrible program,” Dan, an active duty member of the Navy, said in an interview. Dan is headed for foreclosure because he rented out his 820-square-foot condo at a loss after getting married and having a child. “It’s almost like predatory lending. You expect something like that from Countrywide, but not from (an entity) with the name California in the title.”
Not only does the policy disrupt the lives of the borrowers – it costs CalHFA money. Each foreclosure, on average, translates into $38,000 in uninsured losses for the agency. Now that two CalHFA insurance funds
have been wiped out by foreclosures, each new default costs more than $50,000 in uninsured losses.
CalHFA officials say they must adhere to the policy because of an opinion from the bond counsel for many of its issuances. The bond counsel interpreted a section of the Internal Revenue Code as prohibiting renting.
It advised CalHFA that federal law requires a borrower whose loans come from tax-exempt bonds to remain in the residence for the life of the mortgage. Most other states surveyed by our office, facing the same wave of rental requests from distressed homeowners, interpret the IRS code differently.
They say that it’s enough for borrowers to live in the property for a reasonable time. Only two states – Nevada and Georgia – maintain policies of foreclosing on borrowers who rent but are current on their payments. A Georgia official said his agency has not had to resort to that type of foreclosure for several years.
The IRS limits the number of loans that don’t comply with the owneroccupancy requirement to 5 percent. CalHFA officials believe that exceeding the cap could threaten the tax-exempt status of the bonds that have traditionally funded their single-family loan program.
Yet, even if the agency granted a waiver to every property now being leased without permission, the total would add up to only 1.68 percent of its loans – well below the IRS limit.
Officials for other state housing agencies say that another reason they don’t foreclose is to avoid financial losses. They also point out that foreclosing on borrowers who are in a bind because of the upside down market runs counter to their mission.
“We’re not going to be foreclosing on homes if they’re making their mortgage payments in this market,” said Lisa DeBrock, homeownership program manager for the Washington state Housing Finance
Commission.
Minnesota is one of the states that take a more forgiving approach. Years ago, the state decided not to foreclose on borrowers who moved out and rented because of a change in life circumstances.
As a Minnesota Housing official told our office, “Life happens down the road.”
Full report below…
Good Deeds.calhFA Report
False Statements | Patricia Arango, Denise Bailey, Docx, Lender Processing Services, Liquenda Allotey, Litton Loan Servicing, Cheryl Samons, Shapiro and Fishman, David Stern, Marshall Watson
by 4closureFraud
False Statements
Patricia Arango
Denise Bailey
Docx, LLC
Lender Processing Services
Liquenda Allotey
Litton Loan Servicing
Cheryl Samons
Shapiro and Fishman, LLP
David Stern
Marshall Watson
Action Date: October 25, 2011
Location: West Palm Beach, FL
JUST IN TIME FOR HALLOWEEN…
Some attorneys general might want to investigate the strange phenomenon of signatures missing from filed mortgage documents.
The problem of disappearing signatures first appeared on mortgage documents prepared by Docx, LLC.
The signatures of “MERS officers” Linda Green, Tywanna Thomas and Linda Thoresen were missing from documents filed in official county records, but the blank lines/missing signatures were nonetheless witnessed and notarized.
Next, the witnessed and notarized blank line was found on mortgage documents that were supposed to have been signed by Cheryl Samons, the office manager of the Law Offices of David Stern.
Then, from the Law Offices of Marshall Watson, came the notarized and witnessed blank line where the signature of staff attorney Patricia Arango was supposed to have appeared.
Now, from the Minnesota office of Lender Processing Services, there is the blank line where the signature of Liquenda Allotey was supposed to have been written, with the blank line “signature”
witnessed by LPS employees Laura Miller and James C. Morris and notarized by James A. Chua (Palm Beach County official records Book 23062 Page 0179). This document was prepared by the Law Offices of Marshall Watson.
Finally, from Litton Loan Servicing in Harris County, Texas, comes the blank line where the signature of Denise Bailey was supposed to have been written, with the blank line notarized by Texas notary Brenda McKinzy (Palm Beach County official records Book 23063, Page 0142). This document was prepared by the Florida law firm, Shapiro & Fishman, LLP.
Law officers investigating these fraudulent documents have also mysteriously disappeared.
Lynn
False Statements
Patricia Arango
Denise Bailey
Docx, LLC
Lender Processing Services
Liquenda Allotey
Litton Loan Servicing
Cheryl Samons
Shapiro and Fishman, LLP
David Stern
Marshall Watson
Action Date: October 25, 2011
Location: West Palm Beach, FL
JUST IN TIME FOR HALLOWEEN…
Some attorneys general might want to investigate the strange phenomenon of signatures missing from filed mortgage documents.
The problem of disappearing signatures first appeared on mortgage documents prepared by Docx, LLC.
The signatures of “MERS officers” Linda Green, Tywanna Thomas and Linda Thoresen were missing from documents filed in official county records, but the blank lines/missing signatures were nonetheless witnessed and notarized.
Next, the witnessed and notarized blank line was found on mortgage documents that were supposed to have been signed by Cheryl Samons, the office manager of the Law Offices of David Stern.
Then, from the Law Offices of Marshall Watson, came the notarized and witnessed blank line where the signature of staff attorney Patricia Arango was supposed to have appeared.
Now, from the Minnesota office of Lender Processing Services, there is the blank line where the signature of Liquenda Allotey was supposed to have been written, with the blank line “signature”
witnessed by LPS employees Laura Miller and James C. Morris and notarized by James A. Chua (Palm Beach County official records Book 23062 Page 0179). This document was prepared by the Law Offices of Marshall Watson.
Finally, from Litton Loan Servicing in Harris County, Texas, comes the blank line where the signature of Denise Bailey was supposed to have been written, with the blank line notarized by Texas notary Brenda McKinzy (Palm Beach County official records Book 23063, Page 0142). This document was prepared by the Florida law firm, Shapiro & Fishman, LLP.
Law officers investigating these fraudulent documents have also mysteriously disappeared.
Lynn
William Black will be in Zucotti Park Today Oct 25th Talking with Members of #OWS Movement
William Black will be in Zucotti Park tomorrow talking with members of OWS movement. He will lead an open forum / teach-in @ 5 pm, but will be around throughout the day doing interviews and having conversations. If you are in the area come and say hello!
Wall Street Protesters Seeking Bank Curbs Focus on City Halls Across U.S.
By Christopher Palmeri, Freeman Klopott and Alison Vekshin
Bloomberg
Advocates for the poor are using the Occupy Wall Street protests in city halls to push municipalities to divest from banks blamed by demonstrators for the global financial crisis and persistent unemployment in its wake.
San Francisco’s Board of Supervisors weighed such a move yesterday during a hearing in which activists, including supporters of the local Occupy SF encampment, urged the adoption of policies that would prompt big banks into modifying mortgages for struggling homeowners.
Communities from California to New York are considering demands to halt doing business with some of the biggest U.S. banks, or at least to focus attention on their local investment activity. The Los Angeles City Council on Oct. 12 accelerated plans to issue report cards on lenders that may lead the nation’s second-most populous city to withdraw funds from those that score poorly on criteria such as home-loan modifications. New York City may make a similar change in bank-selection rules.
“There is a lot of suspicion or frustration with the current financial institutions not doing enough at the local level,” said San Francisco Supervisor John Avalos, who called yesterday’s hearing. “I see that dramatically in my district, where a lot of small businesses are suffering.”
The New Bottom Line, a coalition of more than two dozen small-business, community and faith-based groups, will introduce so-called divestiture resolutions in more than 50 U.S. cities in coming months, according to Ilana Berger, executive director of the New York-based organization.
Picking Up Steam
While community groups have been pushing such measures for at least two years, the campaign has gained momentum since the Occupy protests began in New York Sept. 17, calling for an overhaul of financial-services laws, Berger said. The campaign’s goal is to cut banks and brokers out of municipal financial- services contracts if they can’t prove they are modifying loans for homeowners in distress.
“People from all walks of life are saying we’re not going to do business with you,” Berger said by telephone. “We’re not going to let you steal any taxpayer dollars until you fix the foreclosure crisis.”
The New Bottom Line campaign, whose members include nonprofit groups such as Seattle’s Alliance for a Just Society and Oakland, California’s PICO National Network, has been giving divestiture tool kits to activists. The kits provide a glossary of municipal-finance terms, such as electronic benefit transfers, purchasing cards and securities trading.
Divestiture Tool Kit
The kits contain sample divestiture measures that say: “This ordinance is intended to cover any and all contractual relations between the city and ‘bank/investment bank x.’”
San Francisco Treasurer Jose Cisneros last week began requesting proposals for banking services. Bank of America Corp. has most of the city’s 133 accounts, Cisneros told the Board of Supervisors yesterday. He said banks collect about $2.7 million a year in fees from the municipality.
Bidders for the city’s business will be judged partly on a set of “social responsibility” criteria being developed by the Greenlining Institute, Cisneros said. The Berkeley-based nonprofit institute advocates for “racial and economic justice,” according to its website.
“We are interested in seeing what we can do to bring social responsibility into our banking RFP and make sure the work we’re doing and the contracts that we are considering entering into can be done in a way that best support our community,” Cisneros told the board.
Local Lending
Bank of America, based in Charlotte, North Carolina, provided more than $3.1 billion “in lending and investing to San Francisco’s low- and moderate-income communities and customers for local small business, affordable housing, and community development needs,” Colleen Haggerty, a spokeswoman, said by e-mail.
The bank supports the city’s efforts to evaluate such activities in selecting vendors for financial services, Haggerty said. The lender is the second-largest U.S. bank by assets.
The supervisors may want to consider setting up a public bank run by the city, according to Fred Brousseau, a principal in the board’s Budget and Legislative Analyst’s Office.
“Obviously, the big advantage is profits that the bank makes stay with the city,” Brousseau said at the hearing.
“The bank will be able to access lower-cost credit and make that available to lenders,” he said. “The city would have complete control of the policy goals to the extent to which the money is used to serve underserved communities.”
Supporting Occupy Protest
In Los Angeles, the City Council voted to support the Occupy LA protest and to accelerate bank evaluations using “report cards” to score foreclosure, charitable and other local activity by those lenders that have city accounts.
Cutting off some banks and brokers may cost tens of millions of dollars in termination fees and additional borrowing costs, according to Miguel Santana, the city manager. The firms provide letters of credit to a Los Angeles infrastructure program where expenses could rise if new lenders had to be found, he said in a memo to the council last week. In an interview, he named JPMorgan Chase & Co., the biggest U.S. bank by assets, and Wells Fargo & Co. (WFC), the largest by market value, as among the firms involved.
Richard Alarcon, the Los Angeles councilman who co- sponsored the resolution on ratings, said that even if one or more of the firms were dropped, the city would find other institutions to do the work.
‘Extreme Position’
“The CAO is taking an extreme position but it indicates the Occupy movement is working,” Alarcon said by telephone, referring to Santana, the city administrative officer.
Dana Obrist, a Wells Fargo spokeswoman, declined to comment on the issue last week. The bank didn’t respond to further requests for comment yesterday.
Even before the Los Angeles vote, activists had success pressing city officials to consider banks’ local business when deciding whether to hire them. In March, suburban Hempstead Village, New York, with about 54,000 residents on Long Island, passed a resolution to close a $12 million JPMorgan account for its general fund, Mayor Wayne Hall said.
“They were not modifying mortgages for residents here,” Hall said. “The banks were bailed out by the federal government with taxpayer money. The least Chase could do was consider modifying mortgages so people wouldn’t lose their homes.”
Switched to TD Bank
After Hempstead’s five-member board of trustees passed the resolution to close the account unanimously, the village asked banks for bids to hold the funds, Hall said. Hempstead has since begun working with Toronto-Dominion Bank (TD), he said.
Cornell University’s hometown of Ithaca, with about 20,000 residents in upstate New York, passed a resolution in August saying it won’t hire JPMorgan when issuing bonds, according to Herb Engman, the town supervisor. The New York-based bank wasn’t doing enough to modify mortgages for residents who were underwater, he said.
“It was symbolic more than anything else,” Engman said, as the town already was going through another bank to sell debt.
Earlier this year, Tompkins Trust Co., a local bank, underwrote $2 million of bonds for the town. The borrowed cash will be used to rebuild a water main, and fix a roof, among other projects, Engman said. The town is paying an interest rate of 2.89 percent on the bonds, “the lowest ever,” he said.
Justin Perras, a spokesman for JPMorgan, declined to comment.
New York Measure
Banks that hold funds on behalf of New York City may be put under greater scrutiny for the investments they make in local communities if the City Council passes the Responsible Banking Act. The measure would require lenders report on loans and investments they make in poorer neighborhoods.
“Banks can play a critical role in supporting and improving communities,” Council Speaker Christine Quinn said in a statement. “We want to ensure that New Yorkers' deposits are reinvested into local communities to the maximum extent possible.”
In San Francisco, Cisneros requested bids on Oct. 21 for firms to help manage the city’s finances from property taxes to public transit fares. In a statement, he said the city was seeking “to improve pricing and services, as well as influence our banking vendors to better serve San Franciscans.”
At the City Hall hearing on the issue of banks yesterday, public comments revolved around pushing lenders to modify loans for people at risk of foreclosure.
William Ortiz-Cartagena, a 32-year-old parking-lot operator and supporter of the Occupy SF movement, told the board of supervisors that he was in “loan modification purgatory” with Bank of America on a three-bedroom San Francisco home he bought for $890,000 in 2005.
“Bank of America won’t give me access to credit to expand my business,” Ortiz-Cartagena told the board. “I’m still working with them to modify my house loan.”
“How are they helping us?” he said. “Let’s hold them accountable.”
Bloomberg
Advocates for the poor are using the Occupy Wall Street protests in city halls to push municipalities to divest from banks blamed by demonstrators for the global financial crisis and persistent unemployment in its wake.
San Francisco’s Board of Supervisors weighed such a move yesterday during a hearing in which activists, including supporters of the local Occupy SF encampment, urged the adoption of policies that would prompt big banks into modifying mortgages for struggling homeowners.
Communities from California to New York are considering demands to halt doing business with some of the biggest U.S. banks, or at least to focus attention on their local investment activity. The Los Angeles City Council on Oct. 12 accelerated plans to issue report cards on lenders that may lead the nation’s second-most populous city to withdraw funds from those that score poorly on criteria such as home-loan modifications. New York City may make a similar change in bank-selection rules.
“There is a lot of suspicion or frustration with the current financial institutions not doing enough at the local level,” said San Francisco Supervisor John Avalos, who called yesterday’s hearing. “I see that dramatically in my district, where a lot of small businesses are suffering.”
The New Bottom Line, a coalition of more than two dozen small-business, community and faith-based groups, will introduce so-called divestiture resolutions in more than 50 U.S. cities in coming months, according to Ilana Berger, executive director of the New York-based organization.
Picking Up Steam
While community groups have been pushing such measures for at least two years, the campaign has gained momentum since the Occupy protests began in New York Sept. 17, calling for an overhaul of financial-services laws, Berger said. The campaign’s goal is to cut banks and brokers out of municipal financial- services contracts if they can’t prove they are modifying loans for homeowners in distress.
“People from all walks of life are saying we’re not going to do business with you,” Berger said by telephone. “We’re not going to let you steal any taxpayer dollars until you fix the foreclosure crisis.”
The New Bottom Line campaign, whose members include nonprofit groups such as Seattle’s Alliance for a Just Society and Oakland, California’s PICO National Network, has been giving divestiture tool kits to activists. The kits provide a glossary of municipal-finance terms, such as electronic benefit transfers, purchasing cards and securities trading.
Divestiture Tool Kit
The kits contain sample divestiture measures that say: “This ordinance is intended to cover any and all contractual relations between the city and ‘bank/investment bank x.’”
San Francisco Treasurer Jose Cisneros last week began requesting proposals for banking services. Bank of America Corp. has most of the city’s 133 accounts, Cisneros told the Board of Supervisors yesterday. He said banks collect about $2.7 million a year in fees from the municipality.
Bidders for the city’s business will be judged partly on a set of “social responsibility” criteria being developed by the Greenlining Institute, Cisneros said. The Berkeley-based nonprofit institute advocates for “racial and economic justice,” according to its website.
“We are interested in seeing what we can do to bring social responsibility into our banking RFP and make sure the work we’re doing and the contracts that we are considering entering into can be done in a way that best support our community,” Cisneros told the board.
Local Lending
Bank of America, based in Charlotte, North Carolina, provided more than $3.1 billion “in lending and investing to San Francisco’s low- and moderate-income communities and customers for local small business, affordable housing, and community development needs,” Colleen Haggerty, a spokeswoman, said by e-mail.
The bank supports the city’s efforts to evaluate such activities in selecting vendors for financial services, Haggerty said. The lender is the second-largest U.S. bank by assets.
The supervisors may want to consider setting up a public bank run by the city, according to Fred Brousseau, a principal in the board’s Budget and Legislative Analyst’s Office.
“Obviously, the big advantage is profits that the bank makes stay with the city,” Brousseau said at the hearing.
“The bank will be able to access lower-cost credit and make that available to lenders,” he said. “The city would have complete control of the policy goals to the extent to which the money is used to serve underserved communities.”
Supporting Occupy Protest
In Los Angeles, the City Council voted to support the Occupy LA protest and to accelerate bank evaluations using “report cards” to score foreclosure, charitable and other local activity by those lenders that have city accounts.
Cutting off some banks and brokers may cost tens of millions of dollars in termination fees and additional borrowing costs, according to Miguel Santana, the city manager. The firms provide letters of credit to a Los Angeles infrastructure program where expenses could rise if new lenders had to be found, he said in a memo to the council last week. In an interview, he named JPMorgan Chase & Co., the biggest U.S. bank by assets, and Wells Fargo & Co. (WFC), the largest by market value, as among the firms involved.
Richard Alarcon, the Los Angeles councilman who co- sponsored the resolution on ratings, said that even if one or more of the firms were dropped, the city would find other institutions to do the work.
‘Extreme Position’
“The CAO is taking an extreme position but it indicates the Occupy movement is working,” Alarcon said by telephone, referring to Santana, the city administrative officer.
Dana Obrist, a Wells Fargo spokeswoman, declined to comment on the issue last week. The bank didn’t respond to further requests for comment yesterday.
Even before the Los Angeles vote, activists had success pressing city officials to consider banks’ local business when deciding whether to hire them. In March, suburban Hempstead Village, New York, with about 54,000 residents on Long Island, passed a resolution to close a $12 million JPMorgan account for its general fund, Mayor Wayne Hall said.
“They were not modifying mortgages for residents here,” Hall said. “The banks were bailed out by the federal government with taxpayer money. The least Chase could do was consider modifying mortgages so people wouldn’t lose their homes.”
Switched to TD Bank
After Hempstead’s five-member board of trustees passed the resolution to close the account unanimously, the village asked banks for bids to hold the funds, Hall said. Hempstead has since begun working with Toronto-Dominion Bank (TD), he said.
Cornell University’s hometown of Ithaca, with about 20,000 residents in upstate New York, passed a resolution in August saying it won’t hire JPMorgan when issuing bonds, according to Herb Engman, the town supervisor. The New York-based bank wasn’t doing enough to modify mortgages for residents who were underwater, he said.
“It was symbolic more than anything else,” Engman said, as the town already was going through another bank to sell debt.
Earlier this year, Tompkins Trust Co., a local bank, underwrote $2 million of bonds for the town. The borrowed cash will be used to rebuild a water main, and fix a roof, among other projects, Engman said. The town is paying an interest rate of 2.89 percent on the bonds, “the lowest ever,” he said.
Justin Perras, a spokesman for JPMorgan, declined to comment.
New York Measure
Banks that hold funds on behalf of New York City may be put under greater scrutiny for the investments they make in local communities if the City Council passes the Responsible Banking Act. The measure would require lenders report on loans and investments they make in poorer neighborhoods.
“Banks can play a critical role in supporting and improving communities,” Council Speaker Christine Quinn said in a statement. “We want to ensure that New Yorkers' deposits are reinvested into local communities to the maximum extent possible.”
In San Francisco, Cisneros requested bids on Oct. 21 for firms to help manage the city’s finances from property taxes to public transit fares. In a statement, he said the city was seeking “to improve pricing and services, as well as influence our banking vendors to better serve San Franciscans.”
At the City Hall hearing on the issue of banks yesterday, public comments revolved around pushing lenders to modify loans for people at risk of foreclosure.
William Ortiz-Cartagena, a 32-year-old parking-lot operator and supporter of the Occupy SF movement, told the board of supervisors that he was in “loan modification purgatory” with Bank of America on a three-bedroom San Francisco home he bought for $890,000 in 2005.
“Bank of America won’t give me access to credit to expand my business,” Ortiz-Cartagena told the board. “I’m still working with them to modify my house loan.”
“How are they helping us?” he said. “Let’s hold them accountable.”
On the Administration’s Latest Potemkin Help Struggling Homeowners Plan
By Yves Smith
nakedcapitalism.com
I’d heard about a week ago that the Administration was readying the Mother of All Homeowner Rescues, to be administered via Fannie and Freddie. Given that Team Obama has never done shock and awe on the financial front, and the Bush Administration engaged in it only on behalf of banks, I was plenty skeptical.
The program revealed on Monday is true to form: greatly underpowered and more likely to benefit banks than homeowners.
The simple outline is: the government is extending and modifying its disappointing HAMP program, which allowed borrowers underwater up to 125% loan to value to refinance through Fannie and Freddie at lower rates. HARP was expected to help 3 to 4 million borrowers but only 900,000 participated. The LTV cap is now being eliminated and no appraisal will be required. Only borrowers who have never missed a payment will be eligible. Certain fees will be waived for borrowers to refi into short-term mortgages.
Even the Administration conceded this wasn’t much of a program. From The Hill:
Edward DeMarco, FHFA’s acting director, was quick to note that the changes won’t expand eligibility to all the nation’s homeowners, but focus instead on enticing participation from those already eligible for HARP.
“This is not a mass refinance program,” he said. “It was really designed to enhance the program’s access for those borrowers who have always been the eligible population.”
Democrats jumped on the plan as being inadequate, and as some have read it, it won’t even provide much if any payment relief. Again from The Hill:
[Representative Dennis] Cardoza was quick to praise certain elements of the FHFA’s new strategy, particularly the elimination of new property appraisals in cases where Freddie or Fannie have a “reliable” automated valuation model.
Still, the Blue Dog Democrat is also leery that the devil is in the details. He criticized the FHFA reforms for “doing nothing to get the banks to cooperate.”
Encouraging homeowners to refinance into shorter-term mortgages, for instance, will do nothing to lower their monthly bills even at lower interest rates, he noted. Cardoza is pushing legislation to help homeowners refinance while lengthening their payback period up to 40 years.
“The problem is they can’t pay, not that they want to pay it off quicker,” he said. “They should have more time to weather this crisis.”
This plan will at best provide only modest help to homeowners. And in some cases, it will worsen their position. In some states, a purchase money mortgage is non-recourse. In all state, my understanding is a refi is recourse with only narrow exceptions.
It will have virtually no impact on the housing market because it will keep loan balances at the same inflated levels. Similarly, it will not contribute in any way to new construction.
So why is the Administration bothering to do this?
First, Obama is addicted to the appearance of Doing Something, regardless of whether it is productive. A clear sign is the apparent failure to investigate why HARP was a dud. As a management consultant, I’ve often been brought in to help clients dig their way out of failed initiatives. Almost without exception, their idea of what went wrong misses critical issues from the customer perspective. Cardoza suggests the banks dragged their feet. Another possibility is borrowers who are seriously underwater don’t want a refi; they might want a short sale or a principal mod. Remember, default is highly correlated with how deeply a home is underwater. And that makes sense: why should any one struggle to stay in a home if it’s a losing investment? Some parents may stay so as not to disrupt their children, or because they find the stress, legal hassle, and credit rating damage of a default to be too daunting. So even if a refi makes economic sense, borrowers may feel it commits them more to a home that they need to exit.
Second, this is a sop to the banks, because a refi ends any liability associated with the origination of the mortgage, including putback liability. Now that would seem to be a big “get out of jail free” card for banks engaged in putback litigation. But the reason this is not as nefarious as it might seem is that current mortgages aren’t the big bone of contention in putbacks (even if the originator lied, the borrower is paying, so there are no damages). But it would also end any chain of title issue on that mortgage. I’ve had lawyers calling me about the “empty trust” question, that mortgages might never have been conveyed properly to securitization trusts. Kemp v. Countrywide, in which a senior Bank of America servicing officer said Countrywide retained the notes (the borrower IOU) as standard practice raises the possibility that many of its securitizations were in fact empty trusts. The more mortgages that it can get refinanced, the lower its liability would be.
This plan is yet more proof that this Administration is not about to inconvenience banks to help homeowners and communities. It has tools in its power than would change the incentives for banks and make them far more willing to do what the overwhelming majority of mortgage investors would prefer, which is provide deep principal mods for viable borrowers. Forcing banks to write down seconds, and taking an aggressive stance on foreclosure fraud would restructuring debt more attractive than it is now. But just as the banks and their captured governments in Europe seem intent on grinding down entire economies to extract their pound of flesh, so are banks in the US continuing to operate a doomsday machine that grind up housing with no regard for the economic and social costs.
nakedcapitalism.com
I’d heard about a week ago that the Administration was readying the Mother of All Homeowner Rescues, to be administered via Fannie and Freddie. Given that Team Obama has never done shock and awe on the financial front, and the Bush Administration engaged in it only on behalf of banks, I was plenty skeptical.
The program revealed on Monday is true to form: greatly underpowered and more likely to benefit banks than homeowners.
The simple outline is: the government is extending and modifying its disappointing HAMP program, which allowed borrowers underwater up to 125% loan to value to refinance through Fannie and Freddie at lower rates. HARP was expected to help 3 to 4 million borrowers but only 900,000 participated. The LTV cap is now being eliminated and no appraisal will be required. Only borrowers who have never missed a payment will be eligible. Certain fees will be waived for borrowers to refi into short-term mortgages.
Even the Administration conceded this wasn’t much of a program. From The Hill:
Edward DeMarco, FHFA’s acting director, was quick to note that the changes won’t expand eligibility to all the nation’s homeowners, but focus instead on enticing participation from those already eligible for HARP.
“This is not a mass refinance program,” he said. “It was really designed to enhance the program’s access for those borrowers who have always been the eligible population.”
Democrats jumped on the plan as being inadequate, and as some have read it, it won’t even provide much if any payment relief. Again from The Hill:
[Representative Dennis] Cardoza was quick to praise certain elements of the FHFA’s new strategy, particularly the elimination of new property appraisals in cases where Freddie or Fannie have a “reliable” automated valuation model.
Still, the Blue Dog Democrat is also leery that the devil is in the details. He criticized the FHFA reforms for “doing nothing to get the banks to cooperate.”
Encouraging homeowners to refinance into shorter-term mortgages, for instance, will do nothing to lower their monthly bills even at lower interest rates, he noted. Cardoza is pushing legislation to help homeowners refinance while lengthening their payback period up to 40 years.
“The problem is they can’t pay, not that they want to pay it off quicker,” he said. “They should have more time to weather this crisis.”
This plan will at best provide only modest help to homeowners. And in some cases, it will worsen their position. In some states, a purchase money mortgage is non-recourse. In all state, my understanding is a refi is recourse with only narrow exceptions.
It will have virtually no impact on the housing market because it will keep loan balances at the same inflated levels. Similarly, it will not contribute in any way to new construction.
So why is the Administration bothering to do this?
First, Obama is addicted to the appearance of Doing Something, regardless of whether it is productive. A clear sign is the apparent failure to investigate why HARP was a dud. As a management consultant, I’ve often been brought in to help clients dig their way out of failed initiatives. Almost without exception, their idea of what went wrong misses critical issues from the customer perspective. Cardoza suggests the banks dragged their feet. Another possibility is borrowers who are seriously underwater don’t want a refi; they might want a short sale or a principal mod. Remember, default is highly correlated with how deeply a home is underwater. And that makes sense: why should any one struggle to stay in a home if it’s a losing investment? Some parents may stay so as not to disrupt their children, or because they find the stress, legal hassle, and credit rating damage of a default to be too daunting. So even if a refi makes economic sense, borrowers may feel it commits them more to a home that they need to exit.
Second, this is a sop to the banks, because a refi ends any liability associated with the origination of the mortgage, including putback liability. Now that would seem to be a big “get out of jail free” card for banks engaged in putback litigation. But the reason this is not as nefarious as it might seem is that current mortgages aren’t the big bone of contention in putbacks (even if the originator lied, the borrower is paying, so there are no damages). But it would also end any chain of title issue on that mortgage. I’ve had lawyers calling me about the “empty trust” question, that mortgages might never have been conveyed properly to securitization trusts. Kemp v. Countrywide, in which a senior Bank of America servicing officer said Countrywide retained the notes (the borrower IOU) as standard practice raises the possibility that many of its securitizations were in fact empty trusts. The more mortgages that it can get refinanced, the lower its liability would be.
This plan is yet more proof that this Administration is not about to inconvenience banks to help homeowners and communities. It has tools in its power than would change the incentives for banks and make them far more willing to do what the overwhelming majority of mortgage investors would prefer, which is provide deep principal mods for viable borrowers. Forcing banks to write down seconds, and taking an aggressive stance on foreclosure fraud would restructuring debt more attractive than it is now. But just as the banks and their captured governments in Europe seem intent on grinding down entire economies to extract their pound of flesh, so are banks in the US continuing to operate a doomsday machine that grind up housing with no regard for the economic and social costs.
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