by Carl Herman
Leading author Ellen Brown explains in the video under ten minutes with Jeff Rense, and writes how public banks (and here) can expose the big banks as having destroyed legal title to mortgaged homes when they gambled with so-called “mortgage backed securities,” then take possession under eminent domain when nobody can provide legal evidence of holding title.
The homes can then be rented or resold within their communities rather than be left empty, destroyed by vandals, or profit the banks that destroyed title.
Another advantage of public banks is at-cost credit. Three examples of its benefits:
1.They can lend to itself for infrastructure investment rather than sell bonds. This eliminates the typical 50% nominal cost increase by having to fund infrastructure through private debt.
2.At-cost credit can provide 1-2% mortgages, reducing current nominal mortgage costs by nearly half.
3.Public mortgages could supply all needed local tax revenue.
The 99% have to hear about this from independent writers because corporate media cover the big banks assets.
Wednesday, February 29, 2012
Nobody Committed Any Crimes (Except Geithner?!)
by Karl Denninger
market-ticker.org
Is this real? (It is relatively old, from last year, but the allegations if true, are explosive -- and gee, there's been no follow-up either... I wonder why?)
If this is true then Gary Johnson, along with every other politician who made statements that "Nobody committed any crimes", including but not limited to President Obama, need to be resign and/or withdraw from all political activity right here and now.
This allegation is one of literal fraud in the application for more than $150 billion in bailout funds. You cannot claim that now, more than a year down the road, you "didn't know."
We must demand the truth in this matter -- right here, right now.
market-ticker.org
Is this real? (It is relatively old, from last year, but the allegations if true, are explosive -- and gee, there's been no follow-up either... I wonder why?)
If this is true then Gary Johnson, along with every other politician who made statements that "Nobody committed any crimes", including but not limited to President Obama, need to be resign and/or withdraw from all political activity right here and now.
This allegation is one of literal fraud in the application for more than $150 billion in bailout funds. You cannot claim that now, more than a year down the road, you "didn't know."
We must demand the truth in this matter -- right here, right now.
Yet Another Mortgage Scam: Homeowners Not Getting Cancelled Notes After Foreclosures, Hit by Later Claims
By Yves Smith
nakedcapitalism.com
As we’ve discussed the “where’s the note?” problem of mortgage securitizations, some readers who are old enough to have sold a home more than once have said that while they’d gotten a cancelled mortgage note back on their first sale, on a more recent one, they hadn’t. They were concerned, and as this post will show, they are right to be.
By way of background, the popular press has done the public a disservice by talking about “mortgages”. A “mortgage” consists of two instruments: a promissory note, which is a IOU, and a lien against the property, which is referred to as a mortgage (in non-judicial foreclosure states, they are typically called a deed of trust and confer somewhat different rights, but we’ll put that aside for purposes of this discussion).
What appears to be happening on all too often in Florida is that when borrowers signed warranty deeds in lieu of foreclosure when they can no longer keep these homes, they often get only a satisfaction of mortgage, not a cancelled note. This is not what is supposed to happen. When a borrower deeds his property to the bank, the objective of the exercise is to cancel the debt. If the note has not been extinguished, it is referred to as a “zombie note”. As the Fort Myers News-Press reported last year:
Carol Kaplan, a spokeswoman for the Washington-based American Bankers Association, said leaving the note off the satisfaction of mortgage is “not a practice we’ve ever heard of.”
Turns out that’s a bit disingenuous. The article quoted Jack Williams, resident scholar at the American Bankruptcy Institute and a bankruptcy professor at Georgia State University:
“We saw something very similar to this in the debacle in the ’80s, people buying notes from the government and suing,” Williams said. “I won’t rule out that could happen again. They sold the note to collection agencies and law firms and places like that.”
In the real estate meltdown of the ’80s, he said, it was the Resolution Trust Corp., set up by the federal government to liquidate mortgage loans and other real estate assets held by failed savings and loan associations.
“Let me tell you, people made millions of dollars suing homeowners back in the day,” Williams said.
Some of the debt was in the form of deficiency notes: court judgments saying a certain amount was owed even after the property was sold at public auction.
But in other cases, Williams said, it was the note, straight up.
Even though the lawyers who’ve taken note of this practice are in Florida, the ground zero fo the foreclosure crisis, it is important to stress that anything that is happening in one state on a meaningful basis in securitized mortgages is very likely to be happening elsewhere. The securitizations were set up to be widely dispersed geographically and the servicers have set up their procedures to be as standardized as possible even with the differences in real estate law across states. If borrowers aren’t getting notes back in Florida, it’s quite probable that that is occurring in other states.
Xiomara Cruz, a Coral Springs attorney who has taken an interest in this topic, sent a warning to fellow lawyers:
I have seen in dozens if not hundreds of foreclosure suits allegedly “settled” for properties in Florida, MOST only include language satisfying the mortgage BUT DO NOT INCLUDE SPECIFIC CANCELLATION/SATISFACTION of the promissory Note. So that in essence your client just got a Release of Mortgage and nothing else.
I hate these tactics being used against consumers, the recording system and the judiciary. It is wrong. Regular people are being conned. Judges are being conned. Even many lawyers are being conned. The words “mortgage loan” and “mortgage” are being used by Fannie, Freddie, all Servicers, Banks as if they were interchangeable with ‘debt’ and ‘NOTE’ when the foreclosure mills walk into court or settle for their ‘clients’. Yet, when you ask the mills or the banks, servicers, Fannie, Freddie to put their money where their mouth is, all of a sudden its “we only made an agreement to settle the foreclosure suit, we dismissed with prejudice, we filed a satisfaction of mortgage, we can’t back to sue you” That is serious BOLOGNA and I don’t mean the capital city of Emilia-Romagna!
The very inherent INTENT of every borrower entering into a settlement is to cancel the debt, otherwise what good is to settle to give back the collateral willingly? Filing the satisfaction of mortgage only helps the banks, servicers, and Fannie/Freddie obtain clear title so they can sell it and make more money after already getting fat with interest for years, servicing fees, selling ‘beneficial rights’ to receive monthly payments, but not selling the actual underlying note. This situation gets horribly worse because if the note is left outstanding, it can be used upon by anyone else who obtains that note in the flow of commerce. A suit on the note is left open.
And she reports in a later message to me that servicers and even judges don’t take well to being pushed on this issue:
When this happened to my client, he immediately raised the flag requesting specific performance in the underlying foreclosure suit. However, the bank voluntarily dismissed the foreclosure action with prejudice while the motion for specific performance was pending hearing (which had already been set) and the judge ceded to the bank’s voluntary dismissal. He then hired me specifically after a year of calling everyone from members of congress to the OCC to the AG to obtain the cancelled note back because no one would give it him back to him marked cancelled. The bank and Fannie stated through their attorneys, over and over in every instance before our suit, that they never promised him anything else but a dismissal of the foreclosure suit and a satisfaction of mortgage, and he got a dismissal with prejudice. Long story short, its still there, the circuit judge dismissed all counts of the unfair consumer practices, unfair debt collection practices, with prejudice and although he really wanted to couldn’t dismiss with prejudice the breach of contract, specific performance counts but dismissed them without prejudice and with leave to amend “because he didn’t like some of the WHEREFORE clauses”.
This story borders of Kafkaesque. Yet Cruz is not being unreasonable. 25 years ago, an attorney who did not demand the cancelled note in satisfaction of a mortgage would have been considered grossly negligent. And the risk is not theoretical. Professor Williams described how people were defrauded in the wake of the S&L crisis when notes that should have been cancelled got into the wrong hands. April Charney had just seen a case on a 2008 foreclosure where the ex parte order returned the original note to the plaintiff/servicer. The hapless borrower is now being sued by the private mortgage insurer. PMI was typically used to insure the LTV over 80% on high LTV loans. In in the subprime market, lenders bought mortgage insurance on loans and paid the premiums themselves (via the trust) rather than have the premiums paid by the borrower, as is the more traditional structure.
Tom Adams suggested that this issue probably arose when the insurer would have had no direct relationship with the borrower but would have been at risk to the loan defaulting. But regardless, this is an ugly business, and serves as a reminder to homeowners: if your friendly servicer asks you to deviate from a long-established practice, your assumption should be that it is for a very good reason, and that reason is for their benefit, not yours.
nakedcapitalism.com
As we’ve discussed the “where’s the note?” problem of mortgage securitizations, some readers who are old enough to have sold a home more than once have said that while they’d gotten a cancelled mortgage note back on their first sale, on a more recent one, they hadn’t. They were concerned, and as this post will show, they are right to be.
By way of background, the popular press has done the public a disservice by talking about “mortgages”. A “mortgage” consists of two instruments: a promissory note, which is a IOU, and a lien against the property, which is referred to as a mortgage (in non-judicial foreclosure states, they are typically called a deed of trust and confer somewhat different rights, but we’ll put that aside for purposes of this discussion).
What appears to be happening on all too often in Florida is that when borrowers signed warranty deeds in lieu of foreclosure when they can no longer keep these homes, they often get only a satisfaction of mortgage, not a cancelled note. This is not what is supposed to happen. When a borrower deeds his property to the bank, the objective of the exercise is to cancel the debt. If the note has not been extinguished, it is referred to as a “zombie note”. As the Fort Myers News-Press reported last year:
Carol Kaplan, a spokeswoman for the Washington-based American Bankers Association, said leaving the note off the satisfaction of mortgage is “not a practice we’ve ever heard of.”
Turns out that’s a bit disingenuous. The article quoted Jack Williams, resident scholar at the American Bankruptcy Institute and a bankruptcy professor at Georgia State University:
“We saw something very similar to this in the debacle in the ’80s, people buying notes from the government and suing,” Williams said. “I won’t rule out that could happen again. They sold the note to collection agencies and law firms and places like that.”
In the real estate meltdown of the ’80s, he said, it was the Resolution Trust Corp., set up by the federal government to liquidate mortgage loans and other real estate assets held by failed savings and loan associations.
“Let me tell you, people made millions of dollars suing homeowners back in the day,” Williams said.
Some of the debt was in the form of deficiency notes: court judgments saying a certain amount was owed even after the property was sold at public auction.
But in other cases, Williams said, it was the note, straight up.
Even though the lawyers who’ve taken note of this practice are in Florida, the ground zero fo the foreclosure crisis, it is important to stress that anything that is happening in one state on a meaningful basis in securitized mortgages is very likely to be happening elsewhere. The securitizations were set up to be widely dispersed geographically and the servicers have set up their procedures to be as standardized as possible even with the differences in real estate law across states. If borrowers aren’t getting notes back in Florida, it’s quite probable that that is occurring in other states.
Xiomara Cruz, a Coral Springs attorney who has taken an interest in this topic, sent a warning to fellow lawyers:
I have seen in dozens if not hundreds of foreclosure suits allegedly “settled” for properties in Florida, MOST only include language satisfying the mortgage BUT DO NOT INCLUDE SPECIFIC CANCELLATION/SATISFACTION of the promissory Note. So that in essence your client just got a Release of Mortgage and nothing else.
I hate these tactics being used against consumers, the recording system and the judiciary. It is wrong. Regular people are being conned. Judges are being conned. Even many lawyers are being conned. The words “mortgage loan” and “mortgage” are being used by Fannie, Freddie, all Servicers, Banks as if they were interchangeable with ‘debt’ and ‘NOTE’ when the foreclosure mills walk into court or settle for their ‘clients’. Yet, when you ask the mills or the banks, servicers, Fannie, Freddie to put their money where their mouth is, all of a sudden its “we only made an agreement to settle the foreclosure suit, we dismissed with prejudice, we filed a satisfaction of mortgage, we can’t back to sue you” That is serious BOLOGNA and I don’t mean the capital city of Emilia-Romagna!
The very inherent INTENT of every borrower entering into a settlement is to cancel the debt, otherwise what good is to settle to give back the collateral willingly? Filing the satisfaction of mortgage only helps the banks, servicers, and Fannie/Freddie obtain clear title so they can sell it and make more money after already getting fat with interest for years, servicing fees, selling ‘beneficial rights’ to receive monthly payments, but not selling the actual underlying note. This situation gets horribly worse because if the note is left outstanding, it can be used upon by anyone else who obtains that note in the flow of commerce. A suit on the note is left open.
And she reports in a later message to me that servicers and even judges don’t take well to being pushed on this issue:
When this happened to my client, he immediately raised the flag requesting specific performance in the underlying foreclosure suit. However, the bank voluntarily dismissed the foreclosure action with prejudice while the motion for specific performance was pending hearing (which had already been set) and the judge ceded to the bank’s voluntary dismissal. He then hired me specifically after a year of calling everyone from members of congress to the OCC to the AG to obtain the cancelled note back because no one would give it him back to him marked cancelled. The bank and Fannie stated through their attorneys, over and over in every instance before our suit, that they never promised him anything else but a dismissal of the foreclosure suit and a satisfaction of mortgage, and he got a dismissal with prejudice. Long story short, its still there, the circuit judge dismissed all counts of the unfair consumer practices, unfair debt collection practices, with prejudice and although he really wanted to couldn’t dismiss with prejudice the breach of contract, specific performance counts but dismissed them without prejudice and with leave to amend “because he didn’t like some of the WHEREFORE clauses”.
This story borders of Kafkaesque. Yet Cruz is not being unreasonable. 25 years ago, an attorney who did not demand the cancelled note in satisfaction of a mortgage would have been considered grossly negligent. And the risk is not theoretical. Professor Williams described how people were defrauded in the wake of the S&L crisis when notes that should have been cancelled got into the wrong hands. April Charney had just seen a case on a 2008 foreclosure where the ex parte order returned the original note to the plaintiff/servicer. The hapless borrower is now being sued by the private mortgage insurer. PMI was typically used to insure the LTV over 80% on high LTV loans. In in the subprime market, lenders bought mortgage insurance on loans and paid the premiums themselves (via the trust) rather than have the premiums paid by the borrower, as is the more traditional structure.
Tom Adams suggested that this issue probably arose when the insurer would have had no direct relationship with the borrower but would have been at risk to the loan defaulting. But regardless, this is an ugly business, and serves as a reminder to homeowners: if your friendly servicer asks you to deviate from a long-established practice, your assumption should be that it is for a very good reason, and that reason is for their benefit, not yours.
Tuesday, February 28, 2012
Goodbye, First Amendment: ‘Trespass Bill’ will make protest illegal
rt.com
Just when you thought the government couldn’t ruin the First Amendment any further: The House of Representatives approved a bill on Monday that outlaws protests in instances where some government officials are nearby, whether or not you even know it.
The US House of Representatives voted 388-to-3 in favor of H.R. 347 late Monday, a bill which is being dubbed the Federal Restricted Buildings and Grounds Improvement Act of 2011. In the bill, Congress officially makes it illegal to trespass on the grounds of the White House, which, on the surface, seems not just harmless and necessary, but somewhat shocking that such a rule isn’t already on the books. The wording in the bill, however, extends to allow the government to go after much more than tourists that transverse the wrought iron White House fence.
Under the act, the government is also given the power to bring charges against Americans engaged in political protest anywhere in the country.
Under current law, White House trespassers are prosecuted under a local ordinance, a Washington, DC legislation that can bring misdemeanor charges for anyone trying to get close to the president without authorization. Under H.R. 347, a federal law will formally be applied to such instances, but will also allow the government to bring charges to protesters, demonstrators and activists at political events and other outings across America.
The new legislation allows prosecutors to charge anyone who enters a building without permission or with the intent to disrupt a government function with a federal offense if Secret Service is on the scene, but the law stretches to include not just the president’s palatial Pennsylvania Avenue home. Under the law, any building or grounds where the president is visiting — even temporarily — is covered, as is any building or grounds “restricted in conjunction with an event designated as a special event of national significance."
It’s not just the president who would be spared from protesters, either.
Covered under the bill is any person protected by the Secret Service. Although such protection isn’t extended to just everybody, making it a federal offense to even accidently disrupt an event attended by a person with such status essentially crushes whatever currently remains of the right to assemble and peacefully protest.
Hours after the act passed, presidential candidate Rick Santorum was granted Secret Service protection. For the American protester, this indeed means that glitter-bombing the former Pennsylvania senator is officially a very big no-no, but it doesn’t stop with just him. Santorum’s coverage under the Secret Service began on Tuesday, but fellow GOP hopeful Mitt Romney has already been receiving such security. A campaign aide who asked not to be identified confirmed last week to CBS News that former House Speaker Newt Gingrich has sought Secret Service protection as well. Even former contender Herman Cain received the armed protection treatment when he was still in the running for the Republican Party nod.
In the text of the act, the law is allowed to be used against anyone who knowingly enters or remains in a restricted building or grounds without lawful authority to do so, but those grounds are considered any area where someone — rather it’s President Obama, Senator Santorum or Governor Romney — will be temporarily visiting, whether or not the public is even made aware. Entering such a facility is thus outlawed, as is disrupting the orderly conduct of “official functions,” engaging in disorderly conduct “within such proximity to” the event or acting violent to anyone, anywhere near the premises. Under that verbiage, that means a peaceful protest outside a candidate’s concession speech would be a federal offense, but those occurrences covered as special event of national significance don’t just stop there, either. And neither does the list of covered persons that receive protection.
Outside of the current presidential race, the Secret Service is responsible for guarding an array of politicians, even those from outside America. George W Bush is granted protection until ten years after his administration ended, or 2019, and every living president before him is eligible for life-time, federally funded coverage. Visiting heads of state are extended an offer too, and the events sanctioned as those of national significance — a decision that is left up to the US Department of Homeland Security — extends to more than the obvious. While presidential inaugurations and meeting of foreign dignitaries are awarded the title, nearly three dozen events in all have been considered a National Special Security Event (NSSE) since the term was created under President Clinton. Among past events on the DHS-sanctioned NSSE list are Super Bowl XXXVI, the funerals of Ronald Reagan and Gerald Ford, most State of the Union addresses and the 2008 Democratic and Republican National Conventions.
With Secret Service protection awarded to visiting dignitaries, this also means, for instance, that the federal government could consider a demonstration against any foreign president on American soil as a violation of federal law, as long as it could be considered disruptive to whatever function is occurring.
When thousands of protesters are expected to descend on Chicago this spring for the 2012 G8 and NATO summits, they will also be approaching the grounds of a National Special Security Event. That means disruptive activity, to whichever court has to consider it, will be a federal offense under the act.
And don’t forget if you intend on fighting such charges, you might not be able to rely on evidence of your own. In the state of Illinois, videotaping the police, under current law, brings criminals charges. Don’t fret. It’s not like the country will really try to enforce it — right?
On the bright side, does this mean that the law could apply to law enforcement officers reprimanded for using excessive force on protesters at political events? Probably. Of course, some fear that the act is being created just to keep those demonstrations from ever occuring, and given the vague language on par with the loose definition of a “terrorist” under the NDAA, if passed this act is expected to do a lot more harm to the First Amendment than good.
United States Representative Justin Amash (MI-03) was one of only three lawmakers to vote against the act when it appeared in the House late Monday. Explaining his take on the act through his official Facebook account on Tuesday, Rep. Amash writes, “The bill expands current law to make it a crime to enter or remain in an area where an official is visiting even if the person does not know it's illegal to be in that area and has no reason to suspect it's illegal.”
“Some government officials may need extraordinary protection to ensure their safety. But criminalizing legitimate First Amendment activity — even if that activity is annoying to those government officials — violates our rights,” adds the representative.
Now that the act has overwhelmingly made it through the House, the next set of hands to sift through its pages could very well be President Barack Obama; the US Senate had already passed the bill back on February 6. Less than two months ago, the president approved the National Defense Authorization Act for Fiscal Year 2012, essentially suspending habeas corpus from American citizens. Could the next order out of the Executive Branch be revoking some of the Bill of Rights? Only if you consider the part about being able to assemble a staple of the First Amendment, really. Don’t worry, though. Obama was, after all, a constitutional law professor. When he signed the NDAA on December 31, he accompanied his signature with a signing statement that let Americans know that, just because he authorized the indefinite detention of Americans didn’t mean he thought it was right.
Should President Obama suspend the right to assemble, Americans might expect another apology to accompany it in which the commander-in-chief condemns the very act he authorizes. If you disagree with such a decision, however, don’t take it to the White House. Sixteen-hundred Pennsylvania Avenue and the vicinity is, of course, covered under this act.
Just when you thought the government couldn’t ruin the First Amendment any further: The House of Representatives approved a bill on Monday that outlaws protests in instances where some government officials are nearby, whether or not you even know it.
The US House of Representatives voted 388-to-3 in favor of H.R. 347 late Monday, a bill which is being dubbed the Federal Restricted Buildings and Grounds Improvement Act of 2011. In the bill, Congress officially makes it illegal to trespass on the grounds of the White House, which, on the surface, seems not just harmless and necessary, but somewhat shocking that such a rule isn’t already on the books. The wording in the bill, however, extends to allow the government to go after much more than tourists that transverse the wrought iron White House fence.
Under the act, the government is also given the power to bring charges against Americans engaged in political protest anywhere in the country.
Under current law, White House trespassers are prosecuted under a local ordinance, a Washington, DC legislation that can bring misdemeanor charges for anyone trying to get close to the president without authorization. Under H.R. 347, a federal law will formally be applied to such instances, but will also allow the government to bring charges to protesters, demonstrators and activists at political events and other outings across America.
The new legislation allows prosecutors to charge anyone who enters a building without permission or with the intent to disrupt a government function with a federal offense if Secret Service is on the scene, but the law stretches to include not just the president’s palatial Pennsylvania Avenue home. Under the law, any building or grounds where the president is visiting — even temporarily — is covered, as is any building or grounds “restricted in conjunction with an event designated as a special event of national significance."
It’s not just the president who would be spared from protesters, either.
Covered under the bill is any person protected by the Secret Service. Although such protection isn’t extended to just everybody, making it a federal offense to even accidently disrupt an event attended by a person with such status essentially crushes whatever currently remains of the right to assemble and peacefully protest.
Hours after the act passed, presidential candidate Rick Santorum was granted Secret Service protection. For the American protester, this indeed means that glitter-bombing the former Pennsylvania senator is officially a very big no-no, but it doesn’t stop with just him. Santorum’s coverage under the Secret Service began on Tuesday, but fellow GOP hopeful Mitt Romney has already been receiving such security. A campaign aide who asked not to be identified confirmed last week to CBS News that former House Speaker Newt Gingrich has sought Secret Service protection as well. Even former contender Herman Cain received the armed protection treatment when he was still in the running for the Republican Party nod.
In the text of the act, the law is allowed to be used against anyone who knowingly enters or remains in a restricted building or grounds without lawful authority to do so, but those grounds are considered any area where someone — rather it’s President Obama, Senator Santorum or Governor Romney — will be temporarily visiting, whether or not the public is even made aware. Entering such a facility is thus outlawed, as is disrupting the orderly conduct of “official functions,” engaging in disorderly conduct “within such proximity to” the event or acting violent to anyone, anywhere near the premises. Under that verbiage, that means a peaceful protest outside a candidate’s concession speech would be a federal offense, but those occurrences covered as special event of national significance don’t just stop there, either. And neither does the list of covered persons that receive protection.
Outside of the current presidential race, the Secret Service is responsible for guarding an array of politicians, even those from outside America. George W Bush is granted protection until ten years after his administration ended, or 2019, and every living president before him is eligible for life-time, federally funded coverage. Visiting heads of state are extended an offer too, and the events sanctioned as those of national significance — a decision that is left up to the US Department of Homeland Security — extends to more than the obvious. While presidential inaugurations and meeting of foreign dignitaries are awarded the title, nearly three dozen events in all have been considered a National Special Security Event (NSSE) since the term was created under President Clinton. Among past events on the DHS-sanctioned NSSE list are Super Bowl XXXVI, the funerals of Ronald Reagan and Gerald Ford, most State of the Union addresses and the 2008 Democratic and Republican National Conventions.
With Secret Service protection awarded to visiting dignitaries, this also means, for instance, that the federal government could consider a demonstration against any foreign president on American soil as a violation of federal law, as long as it could be considered disruptive to whatever function is occurring.
When thousands of protesters are expected to descend on Chicago this spring for the 2012 G8 and NATO summits, they will also be approaching the grounds of a National Special Security Event. That means disruptive activity, to whichever court has to consider it, will be a federal offense under the act.
And don’t forget if you intend on fighting such charges, you might not be able to rely on evidence of your own. In the state of Illinois, videotaping the police, under current law, brings criminals charges. Don’t fret. It’s not like the country will really try to enforce it — right?
On the bright side, does this mean that the law could apply to law enforcement officers reprimanded for using excessive force on protesters at political events? Probably. Of course, some fear that the act is being created just to keep those demonstrations from ever occuring, and given the vague language on par with the loose definition of a “terrorist” under the NDAA, if passed this act is expected to do a lot more harm to the First Amendment than good.
United States Representative Justin Amash (MI-03) was one of only three lawmakers to vote against the act when it appeared in the House late Monday. Explaining his take on the act through his official Facebook account on Tuesday, Rep. Amash writes, “The bill expands current law to make it a crime to enter or remain in an area where an official is visiting even if the person does not know it's illegal to be in that area and has no reason to suspect it's illegal.”
“Some government officials may need extraordinary protection to ensure their safety. But criminalizing legitimate First Amendment activity — even if that activity is annoying to those government officials — violates our rights,” adds the representative.
Now that the act has overwhelmingly made it through the House, the next set of hands to sift through its pages could very well be President Barack Obama; the US Senate had already passed the bill back on February 6. Less than two months ago, the president approved the National Defense Authorization Act for Fiscal Year 2012, essentially suspending habeas corpus from American citizens. Could the next order out of the Executive Branch be revoking some of the Bill of Rights? Only if you consider the part about being able to assemble a staple of the First Amendment, really. Don’t worry, though. Obama was, after all, a constitutional law professor. When he signed the NDAA on December 31, he accompanied his signature with a signing statement that let Americans know that, just because he authorized the indefinite detention of Americans didn’t mean he thought it was right.
Should President Obama suspend the right to assemble, Americans might expect another apology to accompany it in which the commander-in-chief condemns the very act he authorizes. If you disagree with such a decision, however, don’t take it to the White House. Sixteen-hundred Pennsylvania Avenue and the vicinity is, of course, covered under this act.
Banks Steal Homes, and I have PROOF
by Mark Stopa
www.stayinmyhome.com
The name “Danielle Sterling” may not mean much to you. Frankly, it shouldn’t. Danielle Sterling was a receptionist for American Home Mortgage until 2005, when she was promoted to a “Collateral Reviewer,” a position she held until 2007, when American Home Mortgage went out of business. I don’t want to call her a “nobody,” but Danielle Sterling was just one step up from a receptionist at a mortgage company that’s been out of business for five years … clearly she was a bit player in the mortgage industry. So why am I talking about her?
Well, I defend foreclosure cases. In that role, I look closely at every promissory note and every indorsement on those notes that come across my desk. I’ve encountered the name “Danielle Sterling” a fair number of times as an indorser on Notes. Frankly, I didn’t think much of it at the time – it was just a scribbled signature on a Note. However, when I came to learn she was just one step up from a receptionist, and she hasn’t been in the industry since 2007, it made me wonder … “why is Danielle Sterling signing so many indorsements on promissory notes, transferring millions of dollars?” If you ran a business, can you imagine giving low-level staff members the authority to transfer millions of dollars in commercial paper with a swipe of the pen? What in the name of Wells Fargo is going on here?
With the help of my friend Matt Weidner, it seems I have an answer. According to this Affidavit, Danielle Sterling did not endorse a promissory note entered by Daniel and Christine Hunk. Ms. Sterling is very unequivocal about this – she never endorsed the Note. Yet the Note has an endorsement bearing her signature.
Let’s say that again …
Danielle Sterling did not endorse the Note, but the Note has an endorsement with her signature.
I may not be a rocket scientist, but it doesn’t take Sherlock Holmes to figure out what happened here. A bank (apparently Citimortgage, since it was the plaintiff) wanted to foreclose on the Note and Mortgage entered by Daniel and Christine Hunk, but needed an endorsement from American Home Mortgage. But American Home Mortgage was out of business. So Citimortgage took the endorsement stamp that had been used by Danielle Sterling (from when she worked at American Home Mortgage), stamped it on the Note, and forged her signature.
What’s the result? If you look at the endorsement, everything looks normal. It looks like the endorsements we all see on tens of thousands of notes in foreclosure cases throughout Florida. But there’s the rub …
the endorsement looks normal, but it’s a forgery.
For anyone who thinks this is “no big deal” or merely “sloppy paperwork, bear this in mind. Foreclosure cases turn on endorsements like this. Having a Note, endorsed in blank (or specially indorsed to the plaintiff) is almost always what a foreclosure plaintiff asserts as its standing to foreclose. In other words, endorsements like this are what gives the bank the right to foreclose on a homeowner. With an endorsement, the bank is probably going to win (and foreclose). Without it, they’re probably going to lose. Hence, if these endorsements are forged, as this one clearly seems to be, then banks are, quite literally, stealing homes that don’t belong to them.
Everyone needs to take a moment and reflect on the magnitude of this situation. As you do, bear in mind – most judges I know accept an original Note with an endorsement as gospel. If homeowners and foreclosure defense attorneys have a legitimate reason to question the authenticity of the endorsements that appear on Notes in foreclosure cases – as we clearly do in light of this affidavit – then where does that leave us? In my view, courts cannot take an endorsement at face value. They just can’t. There’s a legitimate reason to question the veracity of every endorsement, not just by Danielle Sterling, but every endorsement. After all, if we’ve proven Danielle Sterline endorsements are forged, do you really think that’s the only one? I sure don’t.
And what about the legislature? How on earth can anyone – ANYONE – justify new legislation to “push through” foreclosure cases quicker in light of evidence like this? Ahhh, I forgot. Florida is full of deadbeat homeowners, and even though we’re experiencing the biggest fraud in the history of mankind, we all need to sweep it under the rug to improve the economy. Because throwing homeowners on the streets for the benefit of banks that committed widespread fraud will help. Right.
If this isn’t a wake-up call for all of America, then nothing is. Foreclosures are littered with fraud … billions of dollars in wealth are changing hands in fraudulent ways … does anyone care?
Can you imagine if I posted on this blog some sort of proof that I had endorsed a check payable to Bank of America over to myself, then cashed it? I’d be in jail tomorrow and news stories would run about how a foreclosure defense attorney was arrested for theft. But when a bank does it, nobody cares.
By the way, compare Danielle Sterling’s signature on the affidavit to the signature on the endorsement. The two signatures aren’t even close. Frankly, that’s offensive. I mean, if you’re going to forge something, at least forge it well. Here, the banks were so callous about their fraud they didn’t even try to make it a good forgery – they just scribbled something on an endorsement and use that forged endorsement as a basis for standing. And like I said in the beginning of this post, I have many cases with endorsements by Danielle Sterling.
But the issue here isn’t Danielle Sterling. The issue here is that it’s time for everyone to stop treating an original note with an endorsement as gospel. Clearly, endorsement fraud is pervasive in the foreclosure industry, and it’s about time we all put a stop to it.
Affidavit of Danielle Sterling
www.stayinmyhome.com
The name “Danielle Sterling” may not mean much to you. Frankly, it shouldn’t. Danielle Sterling was a receptionist for American Home Mortgage until 2005, when she was promoted to a “Collateral Reviewer,” a position she held until 2007, when American Home Mortgage went out of business. I don’t want to call her a “nobody,” but Danielle Sterling was just one step up from a receptionist at a mortgage company that’s been out of business for five years … clearly she was a bit player in the mortgage industry. So why am I talking about her?
Well, I defend foreclosure cases. In that role, I look closely at every promissory note and every indorsement on those notes that come across my desk. I’ve encountered the name “Danielle Sterling” a fair number of times as an indorser on Notes. Frankly, I didn’t think much of it at the time – it was just a scribbled signature on a Note. However, when I came to learn she was just one step up from a receptionist, and she hasn’t been in the industry since 2007, it made me wonder … “why is Danielle Sterling signing so many indorsements on promissory notes, transferring millions of dollars?” If you ran a business, can you imagine giving low-level staff members the authority to transfer millions of dollars in commercial paper with a swipe of the pen? What in the name of Wells Fargo is going on here?
With the help of my friend Matt Weidner, it seems I have an answer. According to this Affidavit, Danielle Sterling did not endorse a promissory note entered by Daniel and Christine Hunk. Ms. Sterling is very unequivocal about this – she never endorsed the Note. Yet the Note has an endorsement bearing her signature.
Let’s say that again …
Danielle Sterling did not endorse the Note, but the Note has an endorsement with her signature.
I may not be a rocket scientist, but it doesn’t take Sherlock Holmes to figure out what happened here. A bank (apparently Citimortgage, since it was the plaintiff) wanted to foreclose on the Note and Mortgage entered by Daniel and Christine Hunk, but needed an endorsement from American Home Mortgage. But American Home Mortgage was out of business. So Citimortgage took the endorsement stamp that had been used by Danielle Sterling (from when she worked at American Home Mortgage), stamped it on the Note, and forged her signature.
What’s the result? If you look at the endorsement, everything looks normal. It looks like the endorsements we all see on tens of thousands of notes in foreclosure cases throughout Florida. But there’s the rub …
the endorsement looks normal, but it’s a forgery.
For anyone who thinks this is “no big deal” or merely “sloppy paperwork, bear this in mind. Foreclosure cases turn on endorsements like this. Having a Note, endorsed in blank (or specially indorsed to the plaintiff) is almost always what a foreclosure plaintiff asserts as its standing to foreclose. In other words, endorsements like this are what gives the bank the right to foreclose on a homeowner. With an endorsement, the bank is probably going to win (and foreclose). Without it, they’re probably going to lose. Hence, if these endorsements are forged, as this one clearly seems to be, then banks are, quite literally, stealing homes that don’t belong to them.
Everyone needs to take a moment and reflect on the magnitude of this situation. As you do, bear in mind – most judges I know accept an original Note with an endorsement as gospel. If homeowners and foreclosure defense attorneys have a legitimate reason to question the authenticity of the endorsements that appear on Notes in foreclosure cases – as we clearly do in light of this affidavit – then where does that leave us? In my view, courts cannot take an endorsement at face value. They just can’t. There’s a legitimate reason to question the veracity of every endorsement, not just by Danielle Sterling, but every endorsement. After all, if we’ve proven Danielle Sterline endorsements are forged, do you really think that’s the only one? I sure don’t.
And what about the legislature? How on earth can anyone – ANYONE – justify new legislation to “push through” foreclosure cases quicker in light of evidence like this? Ahhh, I forgot. Florida is full of deadbeat homeowners, and even though we’re experiencing the biggest fraud in the history of mankind, we all need to sweep it under the rug to improve the economy. Because throwing homeowners on the streets for the benefit of banks that committed widespread fraud will help. Right.
If this isn’t a wake-up call for all of America, then nothing is. Foreclosures are littered with fraud … billions of dollars in wealth are changing hands in fraudulent ways … does anyone care?
Can you imagine if I posted on this blog some sort of proof that I had endorsed a check payable to Bank of America over to myself, then cashed it? I’d be in jail tomorrow and news stories would run about how a foreclosure defense attorney was arrested for theft. But when a bank does it, nobody cares.
By the way, compare Danielle Sterling’s signature on the affidavit to the signature on the endorsement. The two signatures aren’t even close. Frankly, that’s offensive. I mean, if you’re going to forge something, at least forge it well. Here, the banks were so callous about their fraud they didn’t even try to make it a good forgery – they just scribbled something on an endorsement and use that forged endorsement as a basis for standing. And like I said in the beginning of this post, I have many cases with endorsements by Danielle Sterling.
But the issue here isn’t Danielle Sterling. The issue here is that it’s time for everyone to stop treating an original note with an endorsement as gospel. Clearly, endorsement fraud is pervasive in the foreclosure industry, and it’s about time we all put a stop to it.
Affidavit of Danielle Sterling
Bending the Tax Code, and Lifting A.I.G.’s Profit
By ANDREW ROSS SORKIN
nytimes.com
Last week, the American International Group reported a whopping $19.8 billion profit for its fourth quarter. It was a quite a feat for a company that was on its death bed just a little over three years ago, so sick that it needed a huge taxpayer bailout.
But if you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy — a tax benefit, er, gift, from the United States government. The company made only $1.6 billion during the quarter from actual operations. Yet A.I.G. not only received a tax benefit, it is unlikely to pay a cent of taxes this year, nor by some estimates, for at least a decade.
The tax benefit is notable for more than simply its size. It is the result of a rule that the Treasury unilaterally bent for A.I.G. and several other hobbled companies in 2008 that has largely been overlooked.
This rule-twisting could deprive the government of tens of billions of dollars, assuming the firm remains profitable. The tax dodge — and let’s be honest, that’s what it is — also will most likely help goose the bonuses of A.I.G.’s employees, some of whom helped create many of the problems that led to its role in the financial crisis.
“We suggest that Congress give its members standing to challenge such manipulation in court,” J. Mark Ramseyer, a Harvard professor, and Eric B. Rasmusen, a professor at Indiana University, wrote in a paper last year. The paper provocatively asked: “Can the Treasury Exempt Its Own Companies From Tax?” (While the paper addressed A.I.G, it focused on the tax treatment bestowed on another bailout recipient, General Motors. Citigroup, Fannie Mae and Freddie Mac also received similar treatment.)
Here’s the back story: A.I.G.’s tax benefit comes in large part from its immense “net operating losses” during its depths of despair in 2008 before its rescue. The government had to dump $182 billion into the company after it was crippled by bad bets it had made insuring mortgage-backed securities.
The tax benefit comes in the form of something called net operating losses — NOLs in Wall Street parlance — that could be worth more than $25 billion, possibly more. Those losses can be very valuable, in part because companies can spread them over many years to lower or wipe out their income tax bills.
However, according to longstanding tax laws, if a company files for bankruptcy or is taken over, it loses the ability to use its net operating losses. A.I.G. would fit that profile perfectly: on the verge of bankruptcy, the federal government took control of A.I.G., exchanging its bailout billions for shares in the company. The government — taxpayers — still own 77 percent of the company, down from 92 percent three years ago.
Still, the Treasury issued “notices” exempting A.I.G. from losing its right to make use of its net operating losses. In total, the insurer estimated that those losses were worth $26.2 billion as of 2009, and it claimed almost $9 billion in other “unrealized loss on investments.”
Analysts at Bank of America and JPMorgan Chase last year estimated that the tax benefits from the losses propped up A.I.G. stock by $5 to $6 a share. Its shares closed at $28.66 on Monday, just shy of the $29 mark that the government says it needs to sell its shares to break even.
A.I.G. believes that these losses are so valuable that it has a poison pill to bar a corporate takeover.
All of this brings us to the inevitable questions: How did this happen? Why would Treasury exempt A.I.G. from the law? And if taxpayers own a majority of A.I.G., aren’t we the beneficiaries of the rule-bending?
A Treasury spokeswoman declined to comment, as did a spokesman for A.I.G.
However, senior Treasury officials said privately that they had exempted A.I.G. because they did not consider the rescue to be a traditional takeover. The original law preventing companies from using the losses after a takeover were intended to prevent corporations from buying failing companies with lots of losses simply for the tax benefits.
Moreover, the officials said A.I.G.’s tax benefit would help taxpayers because it would raise the insurer’s share price. That may be true, but that assumes that the government is able to sell its shares and exit its investment. That’s still a big “if.” (Though I do bet it will eventually happen.)
The tax break for A.I.G. also perversely benefits employees who are paid based on the company’s performance and usually in stock, which is being lifted by this backdoor handout. The biggest beneficiary is Robert H. Benmosche, A.I.G.’s chief executive since 2009, who has been granted tens of thousands of shares.
In the meantime, the government — desperate to increase revenues — is missing an easy stream of guaranteed taxes from a company that taxpayers bailed out. Sure, the tax bill might hurt the price of A.I.G.’s stock price in the short term, but if Mr. Benmosche does his job right, the company won’t have to post fantasy profits.
nytimes.com
Last week, the American International Group reported a whopping $19.8 billion profit for its fourth quarter. It was a quite a feat for a company that was on its death bed just a little over three years ago, so sick that it needed a huge taxpayer bailout.
But if you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy — a tax benefit, er, gift, from the United States government. The company made only $1.6 billion during the quarter from actual operations. Yet A.I.G. not only received a tax benefit, it is unlikely to pay a cent of taxes this year, nor by some estimates, for at least a decade.
The tax benefit is notable for more than simply its size. It is the result of a rule that the Treasury unilaterally bent for A.I.G. and several other hobbled companies in 2008 that has largely been overlooked.
This rule-twisting could deprive the government of tens of billions of dollars, assuming the firm remains profitable. The tax dodge — and let’s be honest, that’s what it is — also will most likely help goose the bonuses of A.I.G.’s employees, some of whom helped create many of the problems that led to its role in the financial crisis.
“We suggest that Congress give its members standing to challenge such manipulation in court,” J. Mark Ramseyer, a Harvard professor, and Eric B. Rasmusen, a professor at Indiana University, wrote in a paper last year. The paper provocatively asked: “Can the Treasury Exempt Its Own Companies From Tax?” (While the paper addressed A.I.G, it focused on the tax treatment bestowed on another bailout recipient, General Motors. Citigroup, Fannie Mae and Freddie Mac also received similar treatment.)
Here’s the back story: A.I.G.’s tax benefit comes in large part from its immense “net operating losses” during its depths of despair in 2008 before its rescue. The government had to dump $182 billion into the company after it was crippled by bad bets it had made insuring mortgage-backed securities.
The tax benefit comes in the form of something called net operating losses — NOLs in Wall Street parlance — that could be worth more than $25 billion, possibly more. Those losses can be very valuable, in part because companies can spread them over many years to lower or wipe out their income tax bills.
However, according to longstanding tax laws, if a company files for bankruptcy or is taken over, it loses the ability to use its net operating losses. A.I.G. would fit that profile perfectly: on the verge of bankruptcy, the federal government took control of A.I.G., exchanging its bailout billions for shares in the company. The government — taxpayers — still own 77 percent of the company, down from 92 percent three years ago.
Still, the Treasury issued “notices” exempting A.I.G. from losing its right to make use of its net operating losses. In total, the insurer estimated that those losses were worth $26.2 billion as of 2009, and it claimed almost $9 billion in other “unrealized loss on investments.”
Analysts at Bank of America and JPMorgan Chase last year estimated that the tax benefits from the losses propped up A.I.G. stock by $5 to $6 a share. Its shares closed at $28.66 on Monday, just shy of the $29 mark that the government says it needs to sell its shares to break even.
A.I.G. believes that these losses are so valuable that it has a poison pill to bar a corporate takeover.
All of this brings us to the inevitable questions: How did this happen? Why would Treasury exempt A.I.G. from the law? And if taxpayers own a majority of A.I.G., aren’t we the beneficiaries of the rule-bending?
A Treasury spokeswoman declined to comment, as did a spokesman for A.I.G.
However, senior Treasury officials said privately that they had exempted A.I.G. because they did not consider the rescue to be a traditional takeover. The original law preventing companies from using the losses after a takeover were intended to prevent corporations from buying failing companies with lots of losses simply for the tax benefits.
Moreover, the officials said A.I.G.’s tax benefit would help taxpayers because it would raise the insurer’s share price. That may be true, but that assumes that the government is able to sell its shares and exit its investment. That’s still a big “if.” (Though I do bet it will eventually happen.)
The tax break for A.I.G. also perversely benefits employees who are paid based on the company’s performance and usually in stock, which is being lifted by this backdoor handout. The biggest beneficiary is Robert H. Benmosche, A.I.G.’s chief executive since 2009, who has been granted tens of thousands of shares.
In the meantime, the government — desperate to increase revenues — is missing an easy stream of guaranteed taxes from a company that taxpayers bailed out. Sure, the tax bill might hurt the price of A.I.G.’s stock price in the short term, but if Mr. Benmosche does his job right, the company won’t have to post fantasy profits.
Pity the Poor Judges
By: Cynthia Kouril
FDL
Now that the 49 State AG settlement has immunized manufacturing evidence, forgery and perjury, it’s going to be a lot tougher to be a judge. After all, how can you ever rule on a motion based upon affidavits and documentary evidence if it’s now OK to lie and to manufacture phony documents?
Will judges need to take courses in document forensics in order to rule on simple motions? Or will courts become even more clogged, because each affiant must be made to appear and confirm their own knowledge of the evidence in their affidavits or even that their own signature appears on the document? Will every motion now necessitate a mini trial?
This settlement corrupts the court system completely. That or it bogs it down to a point where the cost of litigation, no bargain to begin with, will become out of reach of all but the billionaires.
Think about it, if every bit of testimony on every matter, including pre-trial motions, must be had live and in court to avoid perjured and forged documents; the costs of litigation increases by orders of magnitude.
In that case, this settlement screws the banks themselves. Honest judges will no longer be able to accept their motions for Summary Judgment in foreclosure cases and will be forced to make the banks produce the affiants in court to testify from their own knowledge. Since these affiants are usually nowhere near the states where their affidavits are used, the travel costs alone will make the cost of foreclosing on an average house prohibitive.
No, I don’t think the formerly hold out AGs are playing eleventy dimensional chess. They sold out, got played, whatever. Yet most judges didn’t become judges because they wanted to deliberately mete out injustice. Most judges don’t want to give a verdict to a party that lacks standing. Most judges don’t want to see the judicial branch held in the same dismal light as Congress and many of the state legislatures.
Time and time again, when things have gone crazy in the legislative and/or executive branches, it has fallen to the judicial branch to set things back on course. We see that with judicial rejections of regulatory settlements that render the settling agency a joke and expose its corruption by regulatory capture. We see that with judges who force the affiants to come to court to testify from their own knowledge [those are the foreclosure cases that tend to get dismissed].
The alternative is for the judges to acquiesce to allowing forged and perjured documents in their courts. This creates its own momentum. If it’s OK to use forged and perjured documents in mortgage contract cases, then why not in other contract cases? Docx and LPS can expand their business model. If it’s OK in contract cases, what about other kinds of cases? How about opening up a new robo-signing operation to manufacture false business records to give criminal defendants alibis?
Instead of a lost promissory note affidavit as we currently have, how about a lost surveillance tape affidavit? It could say something along the lines of “at the time defendant is alleged to have committed the murder, our surveillance tapes show him to have been working the fry-o-lator at Y burger franchise in X city. That tape has been lost or taped over, but before that happened, the undersigned viewed that tape and can confirm the defendant’s alibi.”
There you go. Alibi affidavits on demand, courtesy of your lucrative robo-signing document mill. The possibilities are endless: forged wills, forged bills of sale, forged identity documents (ending the problem of undocumented immigrants). You name it, if it can be proven in court by affidavit or assignment or allonge, you can do it with phony documents.
Which makes me wonder, what was Shepard Farey THINKING? Why in the world would he plead guilty to manufacturing evidence, for Preet Bahara, no less, who goes around bellyaching about how hard it would be to prosecute these kinds of cases, when all he had to do was cite the DOJ lead role in immunizing manufactured evidence? Maybe he didn’t want to establish himself as a bank?
BTW, that last link takes you to a panel discussion at NYU Law School with Lanny Breuer, Neil Barofsky, Elliot Spitzer and Mary Jo White. It’s over an hour, but soooooo worth your time.
WAIT A MINUTE! I just thought of something, if it is now acceptable to use forged and perjurious documents in foreclosure cases, DOCX, LPS and the other document mills have a huge new market available to them with homeowners. If forged and backdated allonges and assignments are OK, so too should be forged Satisfactions of Mortgage. Once the homeowner obtains a forged SAT from a document mill and files it with the county clerk, in theory, shouldn’t their foreclosure case be dismissed?
I take it all back, those state AGs really did provide meaningful relief for homeowners, at least for homeowners willing to commit fraud on the court. Now to pry my tongue out of my cheek.
FDL
Now that the 49 State AG settlement has immunized manufacturing evidence, forgery and perjury, it’s going to be a lot tougher to be a judge. After all, how can you ever rule on a motion based upon affidavits and documentary evidence if it’s now OK to lie and to manufacture phony documents?
Will judges need to take courses in document forensics in order to rule on simple motions? Or will courts become even more clogged, because each affiant must be made to appear and confirm their own knowledge of the evidence in their affidavits or even that their own signature appears on the document? Will every motion now necessitate a mini trial?
This settlement corrupts the court system completely. That or it bogs it down to a point where the cost of litigation, no bargain to begin with, will become out of reach of all but the billionaires.
Think about it, if every bit of testimony on every matter, including pre-trial motions, must be had live and in court to avoid perjured and forged documents; the costs of litigation increases by orders of magnitude.
In that case, this settlement screws the banks themselves. Honest judges will no longer be able to accept their motions for Summary Judgment in foreclosure cases and will be forced to make the banks produce the affiants in court to testify from their own knowledge. Since these affiants are usually nowhere near the states where their affidavits are used, the travel costs alone will make the cost of foreclosing on an average house prohibitive.
No, I don’t think the formerly hold out AGs are playing eleventy dimensional chess. They sold out, got played, whatever. Yet most judges didn’t become judges because they wanted to deliberately mete out injustice. Most judges don’t want to give a verdict to a party that lacks standing. Most judges don’t want to see the judicial branch held in the same dismal light as Congress and many of the state legislatures.
Time and time again, when things have gone crazy in the legislative and/or executive branches, it has fallen to the judicial branch to set things back on course. We see that with judicial rejections of regulatory settlements that render the settling agency a joke and expose its corruption by regulatory capture. We see that with judges who force the affiants to come to court to testify from their own knowledge [those are the foreclosure cases that tend to get dismissed].
The alternative is for the judges to acquiesce to allowing forged and perjured documents in their courts. This creates its own momentum. If it’s OK to use forged and perjured documents in mortgage contract cases, then why not in other contract cases? Docx and LPS can expand their business model. If it’s OK in contract cases, what about other kinds of cases? How about opening up a new robo-signing operation to manufacture false business records to give criminal defendants alibis?
Instead of a lost promissory note affidavit as we currently have, how about a lost surveillance tape affidavit? It could say something along the lines of “at the time defendant is alleged to have committed the murder, our surveillance tapes show him to have been working the fry-o-lator at Y burger franchise in X city. That tape has been lost or taped over, but before that happened, the undersigned viewed that tape and can confirm the defendant’s alibi.”
There you go. Alibi affidavits on demand, courtesy of your lucrative robo-signing document mill. The possibilities are endless: forged wills, forged bills of sale, forged identity documents (ending the problem of undocumented immigrants). You name it, if it can be proven in court by affidavit or assignment or allonge, you can do it with phony documents.
Which makes me wonder, what was Shepard Farey THINKING? Why in the world would he plead guilty to manufacturing evidence, for Preet Bahara, no less, who goes around bellyaching about how hard it would be to prosecute these kinds of cases, when all he had to do was cite the DOJ lead role in immunizing manufactured evidence? Maybe he didn’t want to establish himself as a bank?
BTW, that last link takes you to a panel discussion at NYU Law School with Lanny Breuer, Neil Barofsky, Elliot Spitzer and Mary Jo White. It’s over an hour, but soooooo worth your time.
WAIT A MINUTE! I just thought of something, if it is now acceptable to use forged and perjurious documents in foreclosure cases, DOCX, LPS and the other document mills have a huge new market available to them with homeowners. If forged and backdated allonges and assignments are OK, so too should be forged Satisfactions of Mortgage. Once the homeowner obtains a forged SAT from a document mill and files it with the county clerk, in theory, shouldn’t their foreclosure case be dismissed?
I take it all back, those state AGs really did provide meaningful relief for homeowners, at least for homeowners willing to commit fraud on the court. Now to pry my tongue out of my cheek.
Towards a Creditor State – One in Seven Americans Pursued by Debt Collectors
By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute.
I went through the Federal Reserve’s Quarterly Release on Household Debt and Credit released today, and there were two notable trends. One is that the amount of consumer debt is declining, but that delinquency rates are stabilizing above what they were before the crisis. And the second is in this graph, which is that the number of people subject to third party collections has doubled since 2000, from a little less than 7% to a little over 14% of consumers. Ten years ago, one in fourteen American consumers were pursued by debt collectors. Today it’s one in seven.
The experience of debt collection can be chilling, as this 2007 ABC News report suggests.
Consumers around the country have taped threatening phone calls from collectors who have called in the middle of the night, used abusive language and have threatened to have people fired from work or thrown in jail. All of these tactics are illegal under federal law.
One of the characteristics of the new social contract ushered in by both George W. Bush and Barack Obama is the increasing power of creditors to govern outright, from tax farming by banks to the use of credit checks to access employment opportunities.
There are now thousands of people legally jailed because they aren’t paying their bills, ie. debtor’s prisons have returned. Occasionally elites let it slip that this is not an accident, but is their goal – former Comptroller General David Walker has wistfully pined for debtor’s prisons overtly (on CNBC, no less).
This may be somewhat mediated by government action, as the CFPB is beginning to make noise around debt collection and credit ratings, and Illinois Attorney General Lisa Madigan is working to stop debt-related arrest warrants. But only somewhat, only where the government can protect you and only when there is the political will to do so. Increasingly, creditors are coming to set up the institutional structures for financial surveillance, state-sponsored enforcement of their claims through tightened bankruptcy laws and the selective use of jail, and the denial of economic opportunity based on one’s interaction with the financial system.
This is part of the new social contract. The sheer percentage of consumers with third party collections in pursuit is striking. Additionally, the uptrend through both Bush boom and Obama bust years of the percentage of people being tracked down by third party collection agencies suggests we live in a different country than we did just ten years ago.
Again, ten years ago, one in fourteen Americans were pursued by debt collectors. Today it’s one in seven. I suspect this number will keep going up. And though debt collection is a highly competitive field, it’s also a growth industry.
I went through the Federal Reserve’s Quarterly Release on Household Debt and Credit released today, and there were two notable trends. One is that the amount of consumer debt is declining, but that delinquency rates are stabilizing above what they were before the crisis. And the second is in this graph, which is that the number of people subject to third party collections has doubled since 2000, from a little less than 7% to a little over 14% of consumers. Ten years ago, one in fourteen American consumers were pursued by debt collectors. Today it’s one in seven.
The experience of debt collection can be chilling, as this 2007 ABC News report suggests.
Consumers around the country have taped threatening phone calls from collectors who have called in the middle of the night, used abusive language and have threatened to have people fired from work or thrown in jail. All of these tactics are illegal under federal law.
One of the characteristics of the new social contract ushered in by both George W. Bush and Barack Obama is the increasing power of creditors to govern outright, from tax farming by banks to the use of credit checks to access employment opportunities.
There are now thousands of people legally jailed because they aren’t paying their bills, ie. debtor’s prisons have returned. Occasionally elites let it slip that this is not an accident, but is their goal – former Comptroller General David Walker has wistfully pined for debtor’s prisons overtly (on CNBC, no less).
This may be somewhat mediated by government action, as the CFPB is beginning to make noise around debt collection and credit ratings, and Illinois Attorney General Lisa Madigan is working to stop debt-related arrest warrants. But only somewhat, only where the government can protect you and only when there is the political will to do so. Increasingly, creditors are coming to set up the institutional structures for financial surveillance, state-sponsored enforcement of their claims through tightened bankruptcy laws and the selective use of jail, and the denial of economic opportunity based on one’s interaction with the financial system.
This is part of the new social contract. The sheer percentage of consumers with third party collections in pursuit is striking. Additionally, the uptrend through both Bush boom and Obama bust years of the percentage of people being tracked down by third party collection agencies suggests we live in a different country than we did just ten years ago.
Again, ten years ago, one in fourteen Americans were pursued by debt collectors. Today it’s one in seven. I suspect this number will keep going up. And though debt collection is a highly competitive field, it’s also a growth industry.
Propaganda Wars : Our Version – Risk Weighted Lies. 1
By Golem XIV
The core claim of the Big banks and those who support them is that the financial system, as it is presently constituted, is not only fair and fit for purpose, but essential for our continued welfare. People should therefore stop complaining and knuckle down to suffer whatever deprivation is necessary. All must serve the greater good. Or as it should really be known – the Good of the Greater.
The banks are not frightened by a bank failure or two. As long as governments are prepared to force their people to bleed for the banks’ welfare it can actually be an opportunity. A bank failure is just a chance for the better connected ones to predate. Neither are they worried by a case of fraud here or an indictment there. They will settle for a sum which is of no significance to them, in return for a “no admission of guilt” clause. If necessary they are even prepared to throw one of their own to the baying crowd. No one in banking shed a tear for Fred the Shred. And why should they? Call him greedy if you want. See if he cares. He’d already sucked his millions from the wreak he left behind.
What scares the banks is any criticism that goes beyond claims of greed or fraud or even incompetence, and instead questions the system itself. The sanctity and perfection of the system and its right to ‘regulate’ itself, is what they are totally committed to protect. The system is what gives them their status and wealth. Question that and you threaten them where they are vulnerable.
It seems to me therefore that it is high time we questioned not just the probity, or even the solvency of the big global banks but their very intellectual foundation. It is time for us to wrench back the initiative from the banks. The financial elite have spent all this last year rewriting history so that blame for the banking crisis has been turned away from them and laid instead at the door of ‘people’ and then entire nations who ‘took’ on debts they coudn’t afford . It is time to counter-attack and make the case, that it was and is the way that banks and banking go about their normal business that caused this crisis and are still causing it. We have to show that it was not a break down in an otherwise fine system which caused this crisis but that it was a result and consequence of a system which is an utter failure at doing what it prides itself most on being able to do – managing risk. Not just a onetime failure but a systemic failure which presents an on-going danger to the rest of us.
So let’s be clear. There is no systemic risk at all in welfare spending, no matter how large it becomes, for the simple reason that there is no surprise in welfare spending. It does not jump out at you unexpectedly. Welfare and social spending are a slow moving behemoths that can be seen coming for decades ahead. The only danger is they will trample you to death if you are stupid enough to stand there for decades listening, slack jawed, to the competing teams of witless cretins whose flatulent play-acting is all that remains of our political process .
There is, I suggest, a very clear, present and on-going systemic risk and danger from global banking. It was, after all, banking not welfare which gave us the phrase ‘systemic risk’. Bankers deal in risk. The welfare state deals in…welfare. Like it or loath it, there is no ‘risk’ in welfare or in social spending. They are linear and entirely predictable problems. Banking on the other hand not only deals in risk, it manufactures it. Risk is what bankers bank on.
Don’t take my word for it. Andrew Haldane is the Executive Director for Financial Stability at the Bank of England. In his speech at the London ‘Future of Banking’ conference held in July 2010 he said rather clearly (Page 14),
…banks are in the risk business…’
His entire paper was analysing the ways in which banks create risk and then systematically mislead us and even each other about what they have created. He goes on to say (Page 14),
…it should be no surprise that the run-up to crisis was hallmarked by imaginative ways of manufacturing this commodity, with a view to boosting returns to labour and capital. Risk illusion is no accident; it is there by design. It is in bank managers’ interest to make mirages seem like miracles.
The mirage he refers to is the contribution banks claim to make to our over all economic well-being and security. [I would like to thank Peter Mountford-Smith for bringing this and other recent speeches by Mr Haldane to my attention].
So let’s go straight to where the banks think they are strongest and where I think they are actually terrifyingly vulnerable – their assessment of risk, in both their assets and their liabilities. I have written about risk before, but this time I want to use the bank’s own figures against them. Stay with me. You won’t regret it. We’re going to reach inside the bank’s world, take a firm grip and then yank the whole thing inside out.
We’re going to use a series of graphs from a paper given at an the annual IMF research conference in 2011 by Princeton economist Hyun Song Shin. The stats he uses come in turn from Bankscope which compiles and sells very reliable statistics on banks. The first two both refer to Barclays Bank from ’92 to ’07; the years in which the credit and debt crisis was incubated. The first is a graph showing how Barclay’s Liabilities have grown. The second charts the growth of Barclays’ assets over the same period. Together they are the two sides of the bank’s financial health. Assets and Liabilities. Money in, money out.
The above is what too Big To Fail looks like. It’s also how it got to be that way. That curve, ascending in a steepening upward trajectory, is what is loosely called parabolic. It is what disaster looks like. Some time between ’92 and ’07 Barclays and all the global banks became not only Too Big To Fail but also So Fundamentally Unstable that it was Inevitable They Would Fail.
Before we go on we need to be clear about what is an asset for a bank, and what is a liability. This requires making a sketch of how a bank works but it is not difficult and will allow us to understand clearly what bankers love to keep mysterious.
In essence if you want to understand a modern bank think back to those dark days you spent in school mathematics class looking, with a heavy heart, at problems which said, ‘There is a tank with water pouring in the top while a hole in the bottom is letting water out…etc” Remember those? Hideous. But a modern bank, in once sense, is nothing more than that tank of water. It is all about flows in and out.
An asset for a bank is money that other people owe to the bank. Which means the loans and mortgages the bank has extended to others that they will pay back. Those are its assets. The more loans the bank has made, the greater the flow of payments in to the bank, the greater its assets. So ‘assets’ are agreements that direct a flow of money IN to the bank. The bank’s liabilities are agreements that direct the flow OUT of the bank. Money it borrowed from, and thus owes to, others. Assets and liabilities. Flow in, flow out. Money owed to the bank. Money the bank owes. It’s quite simple. It all works so long as the in-flow matches the out-flow.
Which brings us to the first of the bankers articles of faith that I want to question.
Netting Out.
We are all now familiar with the fact that all the banks have vast debts which they often owe to each other. We also know how they are dependant upon each other for funding. And we know how, thanks to the multi trillion dollars trade in various kinds of derivatives, the banks are also exposed to huge bets on everything from currency values, to insuring each others debts. BUT, whenever the banks are questioned as to the stability of such huge debts and bets they will say, ‘Don’t you fret, it might look out of control, but our various debts, bets and assets all net out and what’s left is perfectly balanced.’ Which leaves most of us none the wiser. What they mean is that within any bank, the liabilities side (the left hand graph above) balances out with the assets side (the right hand graph), so that however huge the bank’s debts, they are balanced by what it is owed. When you cancel the assets and liabilities out against each other you find what the bank is owed is just a tiny bit more than what it owes. Look at the two graphs above are almost always identical with the assets fractionally larger than the liabilities.
What is more, the banks will also say that when you take the vast trade in derivatives, where the banks insure each other’s debts and make huge bets with each other, and compare who has bet what with whom, these trades also ‘net out’ across the system as a whole. That is, one bet cancells another so that the actual potential losses are small. This is often what is meant by ‘hedging’, where a bet one way is balanced or offset by a bet the other.
However, have you ever been in a rowing boat when two passengers sitting side by side have tried to change places? Taken as an idealized mathematical problem there is in fact no net change occurring, the total weight in the boat does not change. On paper at least equal masses simply swap over and at all times they cancel each other out. In reality however as soon as people start to move the whole boat is in danger of capsizing. On paper this never happens because it is just numbers moving and cancelling. But in the real world large weights are almost impossible to balance. There will always be a moment when one person’s weight is not balanced by the other’s. And so it is in finance. Assets and liabilities in a bank, let alone in a vast system of banks, do NOT net out in perfect unison. And that is why, no matter what hedging they claim to have in place, no matter what netting out ‘should’ occur, banks fail. As one bank fails or simply starts to lurch, tip and rock from side to side, that instability propagates through the system. This is real-world non-linearity at work. Netting out is a fiction maintained because on paper, in the idealized word of mathematics (linear mathematics that is), perfect netting-out works. However in the real world, even electronic debts of zeros and ones, move at different speeds, which in a crisis makes a mockery of the entire notion of netting out.
Netting out means the banks are tied in to a web of obligations to each other. They would like you to understand this as an arrangement which makes them stable. They talk of spreading the risk. In fact it does exactly the opposite. It propagates and amplifies the risk. One boat on its own, rocking violently is a problem, but probably manageable. Now tie lots of boats together. As one rocks, it sets off others. Those other set off yet others. And they all create waves of instibility that buffet each other, in a more and more unpredicatble manor. Now we have systemic risk and ‘contagion’.
It is the failure of netting out across the financial sysytem that causes the otherwise mysterious ‘contagion’ we hear about. Bankers warn about the dangers of ‘contagion’ whenever someone appears reluctant to bail them out, but they are coy about what causes this ‘Contagion’. Contagion is the failure of netting out.
Of course I used the analogy of a rowing boat with people moving about. The question is was that a cheat? Are banks that unstable? To answer that we have to look again at the graphs.
Because I have been working so painfully slowly at the moment I will break again just so that I can get something posted and not extend this long silence. I will continue in other posts. At the moment I think there will be at least two more parts to this series. I will try to get more done. I promise. There are just other things pressing upon my time just at the moment.
The core claim of the Big banks and those who support them is that the financial system, as it is presently constituted, is not only fair and fit for purpose, but essential for our continued welfare. People should therefore stop complaining and knuckle down to suffer whatever deprivation is necessary. All must serve the greater good. Or as it should really be known – the Good of the Greater.
The banks are not frightened by a bank failure or two. As long as governments are prepared to force their people to bleed for the banks’ welfare it can actually be an opportunity. A bank failure is just a chance for the better connected ones to predate. Neither are they worried by a case of fraud here or an indictment there. They will settle for a sum which is of no significance to them, in return for a “no admission of guilt” clause. If necessary they are even prepared to throw one of their own to the baying crowd. No one in banking shed a tear for Fred the Shred. And why should they? Call him greedy if you want. See if he cares. He’d already sucked his millions from the wreak he left behind.
What scares the banks is any criticism that goes beyond claims of greed or fraud or even incompetence, and instead questions the system itself. The sanctity and perfection of the system and its right to ‘regulate’ itself, is what they are totally committed to protect. The system is what gives them their status and wealth. Question that and you threaten them where they are vulnerable.
It seems to me therefore that it is high time we questioned not just the probity, or even the solvency of the big global banks but their very intellectual foundation. It is time for us to wrench back the initiative from the banks. The financial elite have spent all this last year rewriting history so that blame for the banking crisis has been turned away from them and laid instead at the door of ‘people’ and then entire nations who ‘took’ on debts they coudn’t afford . It is time to counter-attack and make the case, that it was and is the way that banks and banking go about their normal business that caused this crisis and are still causing it. We have to show that it was not a break down in an otherwise fine system which caused this crisis but that it was a result and consequence of a system which is an utter failure at doing what it prides itself most on being able to do – managing risk. Not just a onetime failure but a systemic failure which presents an on-going danger to the rest of us.
So let’s be clear. There is no systemic risk at all in welfare spending, no matter how large it becomes, for the simple reason that there is no surprise in welfare spending. It does not jump out at you unexpectedly. Welfare and social spending are a slow moving behemoths that can be seen coming for decades ahead. The only danger is they will trample you to death if you are stupid enough to stand there for decades listening, slack jawed, to the competing teams of witless cretins whose flatulent play-acting is all that remains of our political process .
There is, I suggest, a very clear, present and on-going systemic risk and danger from global banking. It was, after all, banking not welfare which gave us the phrase ‘systemic risk’. Bankers deal in risk. The welfare state deals in…welfare. Like it or loath it, there is no ‘risk’ in welfare or in social spending. They are linear and entirely predictable problems. Banking on the other hand not only deals in risk, it manufactures it. Risk is what bankers bank on.
Don’t take my word for it. Andrew Haldane is the Executive Director for Financial Stability at the Bank of England. In his speech at the London ‘Future of Banking’ conference held in July 2010 he said rather clearly (Page 14),
…banks are in the risk business…’
His entire paper was analysing the ways in which banks create risk and then systematically mislead us and even each other about what they have created. He goes on to say (Page 14),
…it should be no surprise that the run-up to crisis was hallmarked by imaginative ways of manufacturing this commodity, with a view to boosting returns to labour and capital. Risk illusion is no accident; it is there by design. It is in bank managers’ interest to make mirages seem like miracles.
The mirage he refers to is the contribution banks claim to make to our over all economic well-being and security. [I would like to thank Peter Mountford-Smith for bringing this and other recent speeches by Mr Haldane to my attention].
So let’s go straight to where the banks think they are strongest and where I think they are actually terrifyingly vulnerable – their assessment of risk, in both their assets and their liabilities. I have written about risk before, but this time I want to use the bank’s own figures against them. Stay with me. You won’t regret it. We’re going to reach inside the bank’s world, take a firm grip and then yank the whole thing inside out.
We’re going to use a series of graphs from a paper given at an the annual IMF research conference in 2011 by Princeton economist Hyun Song Shin. The stats he uses come in turn from Bankscope which compiles and sells very reliable statistics on banks. The first two both refer to Barclays Bank from ’92 to ’07; the years in which the credit and debt crisis was incubated. The first is a graph showing how Barclay’s Liabilities have grown. The second charts the growth of Barclays’ assets over the same period. Together they are the two sides of the bank’s financial health. Assets and Liabilities. Money in, money out.
The above is what too Big To Fail looks like. It’s also how it got to be that way. That curve, ascending in a steepening upward trajectory, is what is loosely called parabolic. It is what disaster looks like. Some time between ’92 and ’07 Barclays and all the global banks became not only Too Big To Fail but also So Fundamentally Unstable that it was Inevitable They Would Fail.
Before we go on we need to be clear about what is an asset for a bank, and what is a liability. This requires making a sketch of how a bank works but it is not difficult and will allow us to understand clearly what bankers love to keep mysterious.
In essence if you want to understand a modern bank think back to those dark days you spent in school mathematics class looking, with a heavy heart, at problems which said, ‘There is a tank with water pouring in the top while a hole in the bottom is letting water out…etc” Remember those? Hideous. But a modern bank, in once sense, is nothing more than that tank of water. It is all about flows in and out.
An asset for a bank is money that other people owe to the bank. Which means the loans and mortgages the bank has extended to others that they will pay back. Those are its assets. The more loans the bank has made, the greater the flow of payments in to the bank, the greater its assets. So ‘assets’ are agreements that direct a flow of money IN to the bank. The bank’s liabilities are agreements that direct the flow OUT of the bank. Money it borrowed from, and thus owes to, others. Assets and liabilities. Flow in, flow out. Money owed to the bank. Money the bank owes. It’s quite simple. It all works so long as the in-flow matches the out-flow.
Which brings us to the first of the bankers articles of faith that I want to question.
Netting Out.
We are all now familiar with the fact that all the banks have vast debts which they often owe to each other. We also know how they are dependant upon each other for funding. And we know how, thanks to the multi trillion dollars trade in various kinds of derivatives, the banks are also exposed to huge bets on everything from currency values, to insuring each others debts. BUT, whenever the banks are questioned as to the stability of such huge debts and bets they will say, ‘Don’t you fret, it might look out of control, but our various debts, bets and assets all net out and what’s left is perfectly balanced.’ Which leaves most of us none the wiser. What they mean is that within any bank, the liabilities side (the left hand graph above) balances out with the assets side (the right hand graph), so that however huge the bank’s debts, they are balanced by what it is owed. When you cancel the assets and liabilities out against each other you find what the bank is owed is just a tiny bit more than what it owes. Look at the two graphs above are almost always identical with the assets fractionally larger than the liabilities.
What is more, the banks will also say that when you take the vast trade in derivatives, where the banks insure each other’s debts and make huge bets with each other, and compare who has bet what with whom, these trades also ‘net out’ across the system as a whole. That is, one bet cancells another so that the actual potential losses are small. This is often what is meant by ‘hedging’, where a bet one way is balanced or offset by a bet the other.
However, have you ever been in a rowing boat when two passengers sitting side by side have tried to change places? Taken as an idealized mathematical problem there is in fact no net change occurring, the total weight in the boat does not change. On paper at least equal masses simply swap over and at all times they cancel each other out. In reality however as soon as people start to move the whole boat is in danger of capsizing. On paper this never happens because it is just numbers moving and cancelling. But in the real world large weights are almost impossible to balance. There will always be a moment when one person’s weight is not balanced by the other’s. And so it is in finance. Assets and liabilities in a bank, let alone in a vast system of banks, do NOT net out in perfect unison. And that is why, no matter what hedging they claim to have in place, no matter what netting out ‘should’ occur, banks fail. As one bank fails or simply starts to lurch, tip and rock from side to side, that instability propagates through the system. This is real-world non-linearity at work. Netting out is a fiction maintained because on paper, in the idealized word of mathematics (linear mathematics that is), perfect netting-out works. However in the real world, even electronic debts of zeros and ones, move at different speeds, which in a crisis makes a mockery of the entire notion of netting out.
Netting out means the banks are tied in to a web of obligations to each other. They would like you to understand this as an arrangement which makes them stable. They talk of spreading the risk. In fact it does exactly the opposite. It propagates and amplifies the risk. One boat on its own, rocking violently is a problem, but probably manageable. Now tie lots of boats together. As one rocks, it sets off others. Those other set off yet others. And they all create waves of instibility that buffet each other, in a more and more unpredicatble manor. Now we have systemic risk and ‘contagion’.
It is the failure of netting out across the financial sysytem that causes the otherwise mysterious ‘contagion’ we hear about. Bankers warn about the dangers of ‘contagion’ whenever someone appears reluctant to bail them out, but they are coy about what causes this ‘Contagion’. Contagion is the failure of netting out.
Of course I used the analogy of a rowing boat with people moving about. The question is was that a cheat? Are banks that unstable? To answer that we have to look again at the graphs.
Because I have been working so painfully slowly at the moment I will break again just so that I can get something posted and not extend this long silence. I will continue in other posts. At the moment I think there will be at least two more parts to this series. I will try to get more done. I promise. There are just other things pressing upon my time just at the moment.
Monday, February 27, 2012
Oligarchy in the U.S.A.
BY Jeffrey A. Winters
inthesetimes.com
In 2005, Citigroup offered its high net-worth clients in the United States a concise statement of the threats they and their money faced.
The report told them they were the leaders of a “plutonomy,” an economy driven by the spending of its ultra-rich citizens. “At the heart of plutonomy is income inequality,” which is made possible by “capitalist-friendly governments and tax regimes.”
The danger, according to Citigroup’s analysts, is that “personal taxation rates could rise – dividends, capital gains, and inheritance taxes would hurt the plutonomy.”
But the ultra-rich already knew that. In fact, even as America’s income distribution has skewed to favor the upper classes, the very richest have successfully managed to reduce their overall tax burden. Look no further than Republican presidential contender Mitt Romney, who in 2010 paid 13.9 percent of his $21.6 million income in taxes that year, the same tax rate as an individual who earned a mere $8,500 to $34,500.
How is that possible? How can a country make so much progress toward equality on other fronts – race, gender, sexual orientation and disability – but run the opposite way in its policy on taxing the rich?
In 2004, the American Political Science Association (APSA) tried to answer that very question. The explanation they came up with viewed the problem as a classic case of democratic participation: While the poor have overwhelming numbers, the wealthy have higher rates of political participation, more advanced skills and greater access to resources and information. In short, APSA said, the wealthy use their social capital to offset their minority status at the ballot box.
But this explanation has one major flaw. Regardless of the Occupy movement’s rhetoric, most of the growth in the wealth gap has actually gone to a tiny sliver of the 1% – one-tenth of it, or even one-one-hundredth.
Even more shockingly, that 1 percent of the 1% has shifted its tax burden not to the middle class or poor, but to rich households in the 85th to 99th percentile range. In 2007, the effective income tax rate for the richest 400 Americans was below 17 percent, while the “mass affluent” 1% paid nearly 24 percent. Disparities in Social Security taxes were even greater, with the merely rich paying 12.4 percent of their income, while the super-rich paid only one-one-thousandth of a percent.
It’s one thing for the poor to lose the democratic participation game, but APSA has no explanation for why the majority of the upper class – which has no shortage of government-influencing social capital – should fall so far behind the very top earners. (Of course, relative to middle- and lower-class earners, they’ve done just fine.)
For a better explanation, we need to look more closely at the relationship between wealth and political power. I propose an updated theory of “oligarchy,” the same lens developed by Plato and Aristotle when they studied the same problem in their own times.
A quick review
First, let’s review what we think we know about power in America.
We begin with a theory of “democratic pluralism,” which posits that democracy is basically a tug-of-war with different interest groups trying to pull government policy toward an outcome. In this framework, the rich are just one group among many competing “special interests.”
Of course, it’s hard not to notice that some groups can tug better than others. So in the 1950s, social scientists, like C. Wright Mills, author of The Power Elite, developed another theory of “elites” – those who wield more pull thanks to factors like education, social networks and ethnicity. In this view, wealth is just one of many factors that might help someone become the leader of a major business or gain a government position, thereby joining the elite.
But neither theory explains how the super-rich are turning public policy to their benefit even at the expense of the moderately rich. The mass affluent vastly outnumber the super-rich, and the super-rich aren’t necessarily better-educated, more skilled or more able to participate in politics; nor do the super-rich dominate the top posts of American government – our representatives tend to be among the slightly lower rungs of the upper class who are losing the tax battle.
Also, neither theory takes into account the unique power that comes with enormous wealth – the kind found in that one-tenth of the 1%. Whether or not the super-rich hold any official position in business or government, they remain powerful.
Only when we separate wealth from all other kinds of power can we begin to understand why our tax system looks the way it does – and, by extension, how the top one-tenth of 1% of the income distribution has distorted American democracy.
Enormous wealth is the heart of oligarchy.
So what’s an oligarchy?
Across all political spectrums, oligarchs are people (never corporations or other organizations) who command massive concentrations of material resources (that is, wealth) that can be deployed to defend or enhance their own property and interests, even if they don’t own those resources personally. Without this massive concentration of wealth, there are no oligarchs.
In any society, of course, an extremely unequal wealth distribution provokes conflict. Oligarchy is the politics of the defense of this wealth, propagated by the richest members of society.
Wealth defense can take many forms. In ancient Greece and Rome, the wealthiest citizens cooperated to run institutionalized states that defended their property rights. In Suharto’s Indonesia, a single oligarch led a despotic regime that mostly used state power to support other oligarchs. In medieval Europe, the rich built castles and raised private armies to defend themselves against each other and deter peasants tempted by their masters’ vaults. In all of these cases oligarchs are directly engaged in rule. They literally embody the law and play an active role in coercion as part of their wealth defense strategy.
Contemporary America (along with other capitalist states) instead houses a kind of “civil oligarchy.” The big difference is that property rights are now guaranteed by the impersonal laws of an armed state. Even oligarchs, who can be disarmed for the first time in history and no longer need to rule directly, must submit to the rule of law for this modern “civil” arrangement to work. When oligarchs do enter government, it is more for vanity than to rule as or for oligarchs. Good examples are New York City Mayor Michael Bloomberg, former presidential candidate Ross Perot and former Massachusetts Governor Mitt Romney.
Another feature of American oligarchy is that it allows oligarchs to hire skilled professionals, middle- and upper-class worker bees, to labor year-round as salaried, full-time political advocates and defenders of the oligarchy. Unlike those backing ordinary politicians, the oligarchs’ professional forces require no ideological invigoration to keep going. In other words, they function as a very well-paid mercenary army.
Whatever views and interests may divide the very rich, they are united in being materially focused and materially empowered. The social and political tensions associated with extreme wealth bond oligarchs together even if they never meet, and sets in motion the complex dynamics of wealth defense. Oligarchs do overlap with each other in certain social circles that theorists of the elite worked hard to map. But such networks are not vital to their power and effectiveness. Oligarchic theory requires no conspiracies or backroom deals. It is the minions oligarchs hire who provide structure and continuity to America’s civil oligarchy.
The U.S. Wealth Defense Industry
The threats to wealth that oligarchs face, and want to overcome, create the enormous profit-making opportunities that motivate the wealth defense industry, or WDI. In American oligarchy, it consists of two components.
The first is the mercenary army of professionals – lawyers, accountants, wealth management agencies – who use highly specialized knowledge to navigate 72,000 pages of tax code and generate a range of tax “products” and advice, enabling oligarchs to collectively save scores of billions of dollars, every year, that would otherwise have to be surrendered to the state. While most of us are what I call “TurboTaxpayers,” buying cheap tax software to navigate our returns and make routine deductions, oligarchs purchase complex “tax opinion letters” from professional firms. These letters are drafted to justify enormous nonpayments of taxes if the IRS ever questions how certain transactions produce losses, or how other accounting gymnastics make it appear that no gains or compensation occurred. The letters can cost up to $3 million each, but can save an oligarch tens or hundreds of millions of dollars in a given year.
Written by some of the most high-powered attorneys and firms in the industry, tax letters serve to intimidate the legal department of the IRS even before a prosecution is contemplated.
The Senate is aware of these letters – noting in a 2003 report on the “tax shelter industry” that “respected professional firms are spending substantial resources … to design, market, and implement hundreds of complex tax shelters, some of which are illegal and improperly deny the U.S. Treasury of billions of dollars in tax revenues” – but getting specific information about them is extremely difficult, since the IRS rarely prosecutes oligarchs. When it does, most cases are sealed, and oligarchs who work with tax attorneys can invoke attorney-client privilege. But in 2003, there was a breach of this fortress of secrecy when the Senate published detailed reports about illegal tax shelters created by the accounting firm KPMG.
According to the Senate, the KPMG tax shelters created “phony paper losses for taxpayers, using a series of complex, orchestrated transactions involving shell corporations, structured finance, purported multi-million dollar loans, and deliberately obscure investments” for 350 clients between 1997 and 2001. The fake losses totaled about $8.4 billion, or $24 million per client; applied against their incomes, these losses reduced the taxes of each oligarch by an average of $8.3 million, or $2.9 billion for the group.
One of the reasons this case was exposed is that it was all rather down-market, using cheap cookie-cutter tax opinion letters priced at a mere $350,000 each.
Not only did all the firms and banks conspiring on behalf of these 350 oligarchs – and the oligarchs themselves – know that the investments “had no reasonable potential for profit,” but KPMG calculated that even if it was fined for failing to disclose the shelters, it would still earn far more in fees than it would pay in fines. The firm was fined $456 million. Even more incredibly, more than a dozen KPMG clients sued the firm for the taxes and penalties incurred after being discovered – the suits claim that KPMG bungled its job of creating shelters for tax evasion with zero legal risks for oligarchs. It’s tantamount to suing your hit man for a sloppy murder.
The second component of the WDI is the nitty-gritty legwork that keeps the tax system sufficiently porous, complex and uncertain enough to be manipulated. Some oligarchs do this work themselves, speed dialing public officials to directly complain about laws and regulations, but most do not. Instead, WDI professionals, motivated to earn a share of annual oligarchic gains, constitute a highly coherent and aggressive network for political pressure. These lobbyists fight to insert favorable material into the tax code, cut sections that cause problems, and block threats on the horizon.
Apologists for havens
Discussions about money in politics often begin with campaign finance reform. Advocates argue that a small fraction of wealthy Americans constitute a powerful donor class that provides the vast majority of candidates’ funds. Long before ordinary citizens get to vote, they say, their choices are reduced to politicians deemed acceptable by the richest Americans via a “wealth primary,” in which candidates straying from a narrow economic agenda are shut out of campaign funding.
“For all their influence at the polls, guys like Joe the Plumber aren’t typically campaign contributors,” explains Sheila Krumholz, executive director of the Center for Responsive Politics. “You’re more likely to see John the Bond Trader bankrolling these campaigns.” And she’s right: Of the roughly 1.4 million individual contributions of $200 or more during the 2008 elections, three-fourths of the money came from a mere one-fifth of the donors, who in turn comprised one-tenth of 1 percent of American adults.
But while this fraction does coincide with our approximation of the size of the American oligarchy, campaign donations are not oligarchs’ primary or even most effective strategy for political influence. Academics Michael Graetz and Ian Shapiro explain this in their 2005 book, Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth.
“Campaign contributions, soft money, spending limits for political candidates and the like have become controversial issues,” they admit, “but they mattered little in the estate tax fight.” The battle was between smaller oligarchs and the biggest players at the top. Believing it unlikely that the elimination of the estate tax could be extended indefinitely, a significant number of wealthy Americans with a net worth between $5 and $15 million wanted the threshold moved up to exempt their estate tax. In exchange, they supported a higher estate tax rate on everyone above the threshold. Big oligarchs took the opposite position. They wanted no estate tax at all. But if Congress was going to bring it back, the ultra-rich supported a lower exemption in exchange for a lower overall rate.
The big oligarchs won again – but not because of campaign finance. “Money mattered more fundamentally in shifting the tectonic plates underlying American tax debates,” Graetz and Shapiro suggest. And this is precisely where oligarchs deploy their resources in the WDI.
Oligarchs’ “three decades of investments in activist, conservative think tanks” has blazed an ideological path that drones in the WDI follow. Activists at institutions like the Heritage Foundation supply “ideological ammunition to the lobbyists and interest groups … who work relentlessly … to keep up the tax-cutting pressure on the Hill.”
This pressure was hard at work in President Obama’s feeble attempt to curtail offshore tax havens in 2009. In the middle of massive public bailouts to the financial system and large bonuses on Wall Street, the president proposed stronger measures to fight against who he called “tax cheats,” the individuals using offshore tax havens to deny the government nearly $70 billion a year – a level equal to about seven cents on every dollar of taxes paid honestly.
But Obama’s proposals were less aggressive than his rhetoric. The president urged Congress to support efforts to sanction nations that maintained secrecy on bank accounts and corporate entities, and sought to hire 800 additional IRS agents “to detect and pursue American tax evaders abroad”; these measures were projected to save a mere $8.7 billion over 10 years – about one percent of the losses from offshore accounts. Despite the timidity, the proposals received only a lukewarm response from Democrats and outright hostility from Republicans, who argued that they would cripple American corporations’ ability to compete globally.
Dan Mitchell, a senior fellow (i.e. mercenary) at the Cato Institute (a think tank financed by American oligarchs), defended tax havens as “outposts of freedom.” If Americans are concerned that “individuals are moving their money to countries with better tax law, that should be a lesson to us that we should fix our tax law.”
In other words: Let’s decrease taxes on the super-rich.
The WDI, arising naturally from the opportunities and risks created by enormous wealth, has spawned its own pile of these opinion-makers, free to spread their ideas through a compliant corporate media while oligarchs themselves are free to look on.
Oligarchy, or Democracy?
To argue that the United States is a thriving oligarchy does not imply that our democracy is a sham: There are many policies about which oligarchs have no shared interests. Their influence in these areas is either small or mutually canceling.
Though it may strike at the heart of elitism, greater democratic participation is not an antidote to oligarchic power. It is merely a potential threat. Only when participation challenges material inequality – when extreme wealth is redistributed – do oligarchy and democracy finally clash.
The answer to the question of inequality, then, is troubling. Wars and revolutions have destroyed oligarchies by forcibly dispersing their wealth, but a democracy never has.
Democracy and the rule of law can, however, tame oligarchs.
A campaign to tame oligarchs is a struggle unlikely to fire the spirits of those outraged by the profound injustices between rich and poor. However, to those enduring the economic and political burdens of living among wild oligarchs, it is an achievement that can improve the absolute welfare of average citizens, even if the relative gap between them and oligarchs widens rather than narrows.
A graduate student in one of my seminars – resisting my terminology – once declared that the “U.S. has rich people, not oligarchs.” More than anything else, that statement claims that somehow American democracy has managed to do something no other political system in history ever has: strip the holders of extreme wealth of their inherent power resources and the political interests linked to protecting those fortunes.
Of course, this hasn’t happened.
But it is endlessly fascinating that we’re now in a moment when Americans are once again asking fundamental questions about how the oligarchic power of wealth distorts and outflanks the democratic power of participation.
inthesetimes.com
In 2005, Citigroup offered its high net-worth clients in the United States a concise statement of the threats they and their money faced.
The report told them they were the leaders of a “plutonomy,” an economy driven by the spending of its ultra-rich citizens. “At the heart of plutonomy is income inequality,” which is made possible by “capitalist-friendly governments and tax regimes.”
The danger, according to Citigroup’s analysts, is that “personal taxation rates could rise – dividends, capital gains, and inheritance taxes would hurt the plutonomy.”
But the ultra-rich already knew that. In fact, even as America’s income distribution has skewed to favor the upper classes, the very richest have successfully managed to reduce their overall tax burden. Look no further than Republican presidential contender Mitt Romney, who in 2010 paid 13.9 percent of his $21.6 million income in taxes that year, the same tax rate as an individual who earned a mere $8,500 to $34,500.
How is that possible? How can a country make so much progress toward equality on other fronts – race, gender, sexual orientation and disability – but run the opposite way in its policy on taxing the rich?
In 2004, the American Political Science Association (APSA) tried to answer that very question. The explanation they came up with viewed the problem as a classic case of democratic participation: While the poor have overwhelming numbers, the wealthy have higher rates of political participation, more advanced skills and greater access to resources and information. In short, APSA said, the wealthy use their social capital to offset their minority status at the ballot box.
But this explanation has one major flaw. Regardless of the Occupy movement’s rhetoric, most of the growth in the wealth gap has actually gone to a tiny sliver of the 1% – one-tenth of it, or even one-one-hundredth.
Even more shockingly, that 1 percent of the 1% has shifted its tax burden not to the middle class or poor, but to rich households in the 85th to 99th percentile range. In 2007, the effective income tax rate for the richest 400 Americans was below 17 percent, while the “mass affluent” 1% paid nearly 24 percent. Disparities in Social Security taxes were even greater, with the merely rich paying 12.4 percent of their income, while the super-rich paid only one-one-thousandth of a percent.
It’s one thing for the poor to lose the democratic participation game, but APSA has no explanation for why the majority of the upper class – which has no shortage of government-influencing social capital – should fall so far behind the very top earners. (Of course, relative to middle- and lower-class earners, they’ve done just fine.)
For a better explanation, we need to look more closely at the relationship between wealth and political power. I propose an updated theory of “oligarchy,” the same lens developed by Plato and Aristotle when they studied the same problem in their own times.
A quick review
First, let’s review what we think we know about power in America.
We begin with a theory of “democratic pluralism,” which posits that democracy is basically a tug-of-war with different interest groups trying to pull government policy toward an outcome. In this framework, the rich are just one group among many competing “special interests.”
Of course, it’s hard not to notice that some groups can tug better than others. So in the 1950s, social scientists, like C. Wright Mills, author of The Power Elite, developed another theory of “elites” – those who wield more pull thanks to factors like education, social networks and ethnicity. In this view, wealth is just one of many factors that might help someone become the leader of a major business or gain a government position, thereby joining the elite.
But neither theory explains how the super-rich are turning public policy to their benefit even at the expense of the moderately rich. The mass affluent vastly outnumber the super-rich, and the super-rich aren’t necessarily better-educated, more skilled or more able to participate in politics; nor do the super-rich dominate the top posts of American government – our representatives tend to be among the slightly lower rungs of the upper class who are losing the tax battle.
Also, neither theory takes into account the unique power that comes with enormous wealth – the kind found in that one-tenth of the 1%. Whether or not the super-rich hold any official position in business or government, they remain powerful.
Only when we separate wealth from all other kinds of power can we begin to understand why our tax system looks the way it does – and, by extension, how the top one-tenth of 1% of the income distribution has distorted American democracy.
Enormous wealth is the heart of oligarchy.
So what’s an oligarchy?
Across all political spectrums, oligarchs are people (never corporations or other organizations) who command massive concentrations of material resources (that is, wealth) that can be deployed to defend or enhance their own property and interests, even if they don’t own those resources personally. Without this massive concentration of wealth, there are no oligarchs.
In any society, of course, an extremely unequal wealth distribution provokes conflict. Oligarchy is the politics of the defense of this wealth, propagated by the richest members of society.
Wealth defense can take many forms. In ancient Greece and Rome, the wealthiest citizens cooperated to run institutionalized states that defended their property rights. In Suharto’s Indonesia, a single oligarch led a despotic regime that mostly used state power to support other oligarchs. In medieval Europe, the rich built castles and raised private armies to defend themselves against each other and deter peasants tempted by their masters’ vaults. In all of these cases oligarchs are directly engaged in rule. They literally embody the law and play an active role in coercion as part of their wealth defense strategy.
Contemporary America (along with other capitalist states) instead houses a kind of “civil oligarchy.” The big difference is that property rights are now guaranteed by the impersonal laws of an armed state. Even oligarchs, who can be disarmed for the first time in history and no longer need to rule directly, must submit to the rule of law for this modern “civil” arrangement to work. When oligarchs do enter government, it is more for vanity than to rule as or for oligarchs. Good examples are New York City Mayor Michael Bloomberg, former presidential candidate Ross Perot and former Massachusetts Governor Mitt Romney.
Another feature of American oligarchy is that it allows oligarchs to hire skilled professionals, middle- and upper-class worker bees, to labor year-round as salaried, full-time political advocates and defenders of the oligarchy. Unlike those backing ordinary politicians, the oligarchs’ professional forces require no ideological invigoration to keep going. In other words, they function as a very well-paid mercenary army.
Whatever views and interests may divide the very rich, they are united in being materially focused and materially empowered. The social and political tensions associated with extreme wealth bond oligarchs together even if they never meet, and sets in motion the complex dynamics of wealth defense. Oligarchs do overlap with each other in certain social circles that theorists of the elite worked hard to map. But such networks are not vital to their power and effectiveness. Oligarchic theory requires no conspiracies or backroom deals. It is the minions oligarchs hire who provide structure and continuity to America’s civil oligarchy.
The U.S. Wealth Defense Industry
The threats to wealth that oligarchs face, and want to overcome, create the enormous profit-making opportunities that motivate the wealth defense industry, or WDI. In American oligarchy, it consists of two components.
The first is the mercenary army of professionals – lawyers, accountants, wealth management agencies – who use highly specialized knowledge to navigate 72,000 pages of tax code and generate a range of tax “products” and advice, enabling oligarchs to collectively save scores of billions of dollars, every year, that would otherwise have to be surrendered to the state. While most of us are what I call “TurboTaxpayers,” buying cheap tax software to navigate our returns and make routine deductions, oligarchs purchase complex “tax opinion letters” from professional firms. These letters are drafted to justify enormous nonpayments of taxes if the IRS ever questions how certain transactions produce losses, or how other accounting gymnastics make it appear that no gains or compensation occurred. The letters can cost up to $3 million each, but can save an oligarch tens or hundreds of millions of dollars in a given year.
Written by some of the most high-powered attorneys and firms in the industry, tax letters serve to intimidate the legal department of the IRS even before a prosecution is contemplated.
The Senate is aware of these letters – noting in a 2003 report on the “tax shelter industry” that “respected professional firms are spending substantial resources … to design, market, and implement hundreds of complex tax shelters, some of which are illegal and improperly deny the U.S. Treasury of billions of dollars in tax revenues” – but getting specific information about them is extremely difficult, since the IRS rarely prosecutes oligarchs. When it does, most cases are sealed, and oligarchs who work with tax attorneys can invoke attorney-client privilege. But in 2003, there was a breach of this fortress of secrecy when the Senate published detailed reports about illegal tax shelters created by the accounting firm KPMG.
According to the Senate, the KPMG tax shelters created “phony paper losses for taxpayers, using a series of complex, orchestrated transactions involving shell corporations, structured finance, purported multi-million dollar loans, and deliberately obscure investments” for 350 clients between 1997 and 2001. The fake losses totaled about $8.4 billion, or $24 million per client; applied against their incomes, these losses reduced the taxes of each oligarch by an average of $8.3 million, or $2.9 billion for the group.
One of the reasons this case was exposed is that it was all rather down-market, using cheap cookie-cutter tax opinion letters priced at a mere $350,000 each.
Not only did all the firms and banks conspiring on behalf of these 350 oligarchs – and the oligarchs themselves – know that the investments “had no reasonable potential for profit,” but KPMG calculated that even if it was fined for failing to disclose the shelters, it would still earn far more in fees than it would pay in fines. The firm was fined $456 million. Even more incredibly, more than a dozen KPMG clients sued the firm for the taxes and penalties incurred after being discovered – the suits claim that KPMG bungled its job of creating shelters for tax evasion with zero legal risks for oligarchs. It’s tantamount to suing your hit man for a sloppy murder.
The second component of the WDI is the nitty-gritty legwork that keeps the tax system sufficiently porous, complex and uncertain enough to be manipulated. Some oligarchs do this work themselves, speed dialing public officials to directly complain about laws and regulations, but most do not. Instead, WDI professionals, motivated to earn a share of annual oligarchic gains, constitute a highly coherent and aggressive network for political pressure. These lobbyists fight to insert favorable material into the tax code, cut sections that cause problems, and block threats on the horizon.
Apologists for havens
Discussions about money in politics often begin with campaign finance reform. Advocates argue that a small fraction of wealthy Americans constitute a powerful donor class that provides the vast majority of candidates’ funds. Long before ordinary citizens get to vote, they say, their choices are reduced to politicians deemed acceptable by the richest Americans via a “wealth primary,” in which candidates straying from a narrow economic agenda are shut out of campaign funding.
“For all their influence at the polls, guys like Joe the Plumber aren’t typically campaign contributors,” explains Sheila Krumholz, executive director of the Center for Responsive Politics. “You’re more likely to see John the Bond Trader bankrolling these campaigns.” And she’s right: Of the roughly 1.4 million individual contributions of $200 or more during the 2008 elections, three-fourths of the money came from a mere one-fifth of the donors, who in turn comprised one-tenth of 1 percent of American adults.
But while this fraction does coincide with our approximation of the size of the American oligarchy, campaign donations are not oligarchs’ primary or even most effective strategy for political influence. Academics Michael Graetz and Ian Shapiro explain this in their 2005 book, Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth.
“Campaign contributions, soft money, spending limits for political candidates and the like have become controversial issues,” they admit, “but they mattered little in the estate tax fight.” The battle was between smaller oligarchs and the biggest players at the top. Believing it unlikely that the elimination of the estate tax could be extended indefinitely, a significant number of wealthy Americans with a net worth between $5 and $15 million wanted the threshold moved up to exempt their estate tax. In exchange, they supported a higher estate tax rate on everyone above the threshold. Big oligarchs took the opposite position. They wanted no estate tax at all. But if Congress was going to bring it back, the ultra-rich supported a lower exemption in exchange for a lower overall rate.
The big oligarchs won again – but not because of campaign finance. “Money mattered more fundamentally in shifting the tectonic plates underlying American tax debates,” Graetz and Shapiro suggest. And this is precisely where oligarchs deploy their resources in the WDI.
Oligarchs’ “three decades of investments in activist, conservative think tanks” has blazed an ideological path that drones in the WDI follow. Activists at institutions like the Heritage Foundation supply “ideological ammunition to the lobbyists and interest groups … who work relentlessly … to keep up the tax-cutting pressure on the Hill.”
This pressure was hard at work in President Obama’s feeble attempt to curtail offshore tax havens in 2009. In the middle of massive public bailouts to the financial system and large bonuses on Wall Street, the president proposed stronger measures to fight against who he called “tax cheats,” the individuals using offshore tax havens to deny the government nearly $70 billion a year – a level equal to about seven cents on every dollar of taxes paid honestly.
But Obama’s proposals were less aggressive than his rhetoric. The president urged Congress to support efforts to sanction nations that maintained secrecy on bank accounts and corporate entities, and sought to hire 800 additional IRS agents “to detect and pursue American tax evaders abroad”; these measures were projected to save a mere $8.7 billion over 10 years – about one percent of the losses from offshore accounts. Despite the timidity, the proposals received only a lukewarm response from Democrats and outright hostility from Republicans, who argued that they would cripple American corporations’ ability to compete globally.
Dan Mitchell, a senior fellow (i.e. mercenary) at the Cato Institute (a think tank financed by American oligarchs), defended tax havens as “outposts of freedom.” If Americans are concerned that “individuals are moving their money to countries with better tax law, that should be a lesson to us that we should fix our tax law.”
In other words: Let’s decrease taxes on the super-rich.
The WDI, arising naturally from the opportunities and risks created by enormous wealth, has spawned its own pile of these opinion-makers, free to spread their ideas through a compliant corporate media while oligarchs themselves are free to look on.
Oligarchy, or Democracy?
To argue that the United States is a thriving oligarchy does not imply that our democracy is a sham: There are many policies about which oligarchs have no shared interests. Their influence in these areas is either small or mutually canceling.
Though it may strike at the heart of elitism, greater democratic participation is not an antidote to oligarchic power. It is merely a potential threat. Only when participation challenges material inequality – when extreme wealth is redistributed – do oligarchy and democracy finally clash.
The answer to the question of inequality, then, is troubling. Wars and revolutions have destroyed oligarchies by forcibly dispersing their wealth, but a democracy never has.
Democracy and the rule of law can, however, tame oligarchs.
A campaign to tame oligarchs is a struggle unlikely to fire the spirits of those outraged by the profound injustices between rich and poor. However, to those enduring the economic and political burdens of living among wild oligarchs, it is an achievement that can improve the absolute welfare of average citizens, even if the relative gap between them and oligarchs widens rather than narrows.
A graduate student in one of my seminars – resisting my terminology – once declared that the “U.S. has rich people, not oligarchs.” More than anything else, that statement claims that somehow American democracy has managed to do something no other political system in history ever has: strip the holders of extreme wealth of their inherent power resources and the political interests linked to protecting those fortunes.
Of course, this hasn’t happened.
But it is endlessly fascinating that we’re now in a moment when Americans are once again asking fundamental questions about how the oligarchic power of wealth distorts and outflanks the democratic power of participation.
Economy Recovering? No, it’s not. Housing? NO. Unemployment? NO. Stock Market? NO.
mandelman.ml-implode.com
A couple of quick clarifications related to stories now in the news:
A. NO, housing has NOT hit bottom. If anyone tells you they think it has, just reply by saying: “Shut up, shut up, shut up, shut up.” Until they go away.
The way things stand today, housing won’t “bottom” this year, it won’t bottom next year, and it won’t bottom the year after that, and should you come across someone who has money and disagrees vehemently, please give them my email so I can make some extra cash on the side.
How do I know this? Well, I’ve been right since 2007 and that would be pretty remarkable if there was anything else that could possibly have happened… but there couldn’t have been, so the more interesting question is how can all these people running our show be so consistently wrong? That’s the question, and I’ve asked it before… are they stupid or lying?
Housing can’t bottom because there’s essentially no demand for housing, okay… very little demand for housing… and you don’t need a calculator to figure this one out. Follow me here…
1.At least half the homeowners in this country are under water or effectively underwater, so they can’t move. And they used to be about 66 percent of home sales, those who would sell a home in order to buy another one.
2.Getting a loan today requires 20 percent down at least and a fairly high credit score, and we’re short a few million people with either of those things going for them, right? (Average FICO at Fannie Mae still over 760.)\
3.The only people selling now are those who have to, because this isn’t exactly the best time to cash in your equity position. And the only people buying are trying to steal something.
4.The burden of student loan debt continues to cause people to delay family formation, and that means fewer first time buyers than in the past. (Allan Carlson PhD, president of The Howard Center for Family, Religion & Society has an excellent research paper here.)
5.There’s a shadow inventory, made up of homes that have gone back to the bank but are not being put on the market. Why? Because there’s no one to buy them, silly. In Maricopa County, which is Phoenix et al, has about 16,000 properties listed in the MLS and roughly 112,000 REOs. Beverly Hills has a dozen homes on the market at the moment, and 186 REOs. Just for future reference, that’s not what a “bottom” looks like, millions of distressed and deteriorating homes being kept off the market.
6.Foreclosures haven’t slowed down. No they haven’t. No… they haven’t. Banks slowed down on foreclosing this past year because they were waiting for the AG settlement to provide them with immunity from the whole fraudulent paperwork thing. They’re about to kick foreclosures back into high gear again, so NO THEY HAVEN’T. And there’s no reason for them to.
7.Is that enough, or do you want to hear about aging baby boomers, changing attitudes about homeownership, or consumer debt ratios? ‘Nuf said, right? If you want more, it looks like Michael Olenick has a great piece on this subject this morning on Naked Capitalism here. (I haven’t read it all yet though, so let me know if I missed something important. I’m pretty sure that he and I agree on most everything related to this subject.)
Just try to remember what I’ve said countless times… NOTHING goes down in a straight line.
Warren Buffett admitted yesterday that he was “dead wrong” about housing when he predicted it would recover by now. That’s cute, isn’t it? The billionaire made a boo-boo. Ooopsie! But, he’s still a billionaire and the people that listened to him in 2009 and 2010 are the current wave of foreclosures at FHA, which by the way, is the new sub-prime and the next bailout for sure.
Buffett has no idea what he’s talking about. He’s been living in the same house in Omaha, Nebraska since 1958. Have you been to Omaha, Nebraska? Well, I have. And the fact that some multi-billionaire is still living in the same house he bought in 1958 in Omaha is not quaint… it’s not “old school.” It’s f#@king nuts. Insane. Weird. Like, as in… needs some sort of clinician to diagnose it, sort of weird.
I don’t know what his deal is… but I’ll bet it’s difficult to pronounce.
B. NO, unemployment is NOT “down.” The only thing that changed to any significant degree is the participation rate, which dropped to its LOWEST point in 29 years.
That means that more people stopped looking for work, not that more people found it.
The participation rate sunk to 63.7 percent last month, which is the lowest since May of 1983! Do you remember 1983? I do, and it was God awful. It means that roughly 88 million people in this country over 16 years old not only didn’t have a job, but weren’t even trying to find one. Not even trying.
I’ll bet they’re a cheery, upbeat bunch. Probably all out looking for houses to buy now that we’re hitting the bottom and all. Maybe Buffett will put them to work so they can all buy homes in Omaha…. and then kill themselves.
The employment-to-population ratio, which is the percentage of Americans that have jobs… HAS NOT CHANGED AT ALL. It’s 58.5… the SAME as it was in January 2010. Oooh baby… what our dust, we’re recovering now.
Oh, wait. That’s right… I totally forgot… everything’s fine… it’s a “jobless recovery,” remember? So, why is Bernanke so worried about the whole unemployment thing anyway? It’s “jobless” so we’re right on track, we’re in line with the forecasts… hitting the numbers perfectly.
The “headline” unemployment rate in which we like to bathe in this country only counts people who answer the phone and tell the survey taker that they’re actively looking for work. And if more people were looking, then the unemployment rate would be a lot higher. So, what Obama really needs is for more people to STOP LOOKING. And if that doesn’t make you want to chew on glass all by itself, then I don’t really know what to say to you.
Seems like most folks are cooperating though, because at the beginning of this month, based on the latest census data, the Labor Department increased the number of working age people by 1.5 million, and of those 1.25 million were not even looking for work, so you gotta’ figure they’re all Obama supporters, right? Just doing their part.
Bloomberg’s got the data here, in case you feel a need to check my numbers.
C. NO, the stock market at 13,000 doesn’t mean anything good. Think of it as Bernanke pushing string.
The Fed chief continues to do the only thing he can do, I suppose… come right out and promise low interest rates until at least 2014 and pump money into the system like a mad man. The problem is that money isn’t exactly going places.
Since the recession in 2008, M1 money supply has increased by an absolutely jaw-dropping 60 percent, coming in over $2.2 trillion in January of this year, and with no end in sight… it’s going higher for sure. And tons of cash makes the stock market happy, but today’s cash flood isn’t doing much for the economy.
Money supply is one part of the equation, but the other component to the deal is called “velocity,” and the velocity of money in this country has fallen off a cliff, going from 10.37 in late 2007 to 7.09 as of late 2011. Ouch.
Velocity of money is about how fast money is changing hands, buying goods and services… you know, making for economic activity. And the scads of money Bernanke continues to pump into the system with reckless abandon isn’t moving… it’s not changing hands… he’s just pushing string, get it?
As a result of all this, what they call the M1 “multiplier” has stayed below the 1.0 level for the last three years. The multiplier effect is an economics term that refers to the amount of commercial bank money that’s created by central bank money. So, it’s like the Fed increases it’s loans to banks and its purchases of government securities (called bonds) and by doing so pushes money into the commercial banks who are in turn supposedly “encouraged” to loan it out and earn interest, and thereby turn the Fed’s one dollar into more than one dollar.
Except it’s not happening, right? In fact, between August 2008 and November 2009, bank reserves grew by 500 fold, from $2 billion to one trillion. The banks didn’t lend it out. They didn’t find the excess money very encouraging. Do you know why? Because they knew that we were getting screwed, that’s why.
They knew we were in debt big time, because they’re the ones that put us there, and they knew that we’d be getting no help from the government, so there weren’t a whole lot of people to lend it to without taking on too much risk. So, they just kept it. And that’s why I keep saying, it’s not a liquidity crisis, it’s a credit crisis.
So, you know you have a credit crisis if the money multiplier is 1, right? Because if banks were lending the money out, the multiplier would have to be greater than one, right?
And when you have a credit crisis, then many people can’t buy houses, and that means that the prices of houses will go DOWN. And that means that we won’t spend like we used to when our houses were worth a lot more and there was credit available, and that means companies will make less money and lay people off. And that leads to more foreclosures, which puts additional downward pressure on house prices, which leads to more foreclosures still.
So… super low interest rates for an extended period of time… literally trillions in cash sitting in bank reserves with more being pumped into the system every day, but with the velocity of that money falling and a multiplier that stays at 1… add it all up and what do you get?
Well, on one hand you get a stock market that’s artificially pumped up by the Fed’s assurance of continued low rates, and a free flowing money supply. But on the other hand you have anemic velocity, a multiplier stuck on 1, and unemployment that’s only getting worse, which means company’s won’t be growing they’ll be shrinking… so you has is an economy that’s deflating.
Bernanke would rather deal with just about anything than deflation, so he just keep a-printing and a-pumping hoping against hope that one day the banks will be so bloated with cash that they loan it to anyone that asks. It’s really quite sad, if you think about it. Poor little man… only knows one trick and when it isn’t working all he knows to do is just try it over and over again. Makes me get all teary eyed, poor guy. Someone should really teach him a new trick.
Last thing… take the artificially pumped up stock market and hold it up next to the dog-doo economy and what do you see? You see some seriously over valued stocks, which is another way of saying that you see stocks priced to deliver some exceptionally poor returns to investors.
Because one day, the Fed won’t be able to pump, because the pump she will run dry, as all pumps do. And then what will be holding up the market at these levels… uh oh… no clothes… run away!
Then you’ll hear, “Come Mr. Tally man, tally me banana,” and daylight will come and you’ll want to go home.
So… housing is not, not, not at bottom, – check. Unemployment not improving – check. And does the stock market at 13,000 mean something to the economy? Nothing good – check.
Oh yeah… and then there’s always Greece, et al. Can’t forget them. Opah!
You might want to bookmark this page, so as the election gets closer and thing get even better than they are today, you’ll be able to contain yourself.
A couple of quick clarifications related to stories now in the news:
A. NO, housing has NOT hit bottom. If anyone tells you they think it has, just reply by saying: “Shut up, shut up, shut up, shut up.” Until they go away.
The way things stand today, housing won’t “bottom” this year, it won’t bottom next year, and it won’t bottom the year after that, and should you come across someone who has money and disagrees vehemently, please give them my email so I can make some extra cash on the side.
How do I know this? Well, I’ve been right since 2007 and that would be pretty remarkable if there was anything else that could possibly have happened… but there couldn’t have been, so the more interesting question is how can all these people running our show be so consistently wrong? That’s the question, and I’ve asked it before… are they stupid or lying?
Housing can’t bottom because there’s essentially no demand for housing, okay… very little demand for housing… and you don’t need a calculator to figure this one out. Follow me here…
1.At least half the homeowners in this country are under water or effectively underwater, so they can’t move. And they used to be about 66 percent of home sales, those who would sell a home in order to buy another one.
2.Getting a loan today requires 20 percent down at least and a fairly high credit score, and we’re short a few million people with either of those things going for them, right? (Average FICO at Fannie Mae still over 760.)\
3.The only people selling now are those who have to, because this isn’t exactly the best time to cash in your equity position. And the only people buying are trying to steal something.
4.The burden of student loan debt continues to cause people to delay family formation, and that means fewer first time buyers than in the past. (Allan Carlson PhD, president of The Howard Center for Family, Religion & Society has an excellent research paper here.)
5.There’s a shadow inventory, made up of homes that have gone back to the bank but are not being put on the market. Why? Because there’s no one to buy them, silly. In Maricopa County, which is Phoenix et al, has about 16,000 properties listed in the MLS and roughly 112,000 REOs. Beverly Hills has a dozen homes on the market at the moment, and 186 REOs. Just for future reference, that’s not what a “bottom” looks like, millions of distressed and deteriorating homes being kept off the market.
6.Foreclosures haven’t slowed down. No they haven’t. No… they haven’t. Banks slowed down on foreclosing this past year because they were waiting for the AG settlement to provide them with immunity from the whole fraudulent paperwork thing. They’re about to kick foreclosures back into high gear again, so NO THEY HAVEN’T. And there’s no reason for them to.
7.Is that enough, or do you want to hear about aging baby boomers, changing attitudes about homeownership, or consumer debt ratios? ‘Nuf said, right? If you want more, it looks like Michael Olenick has a great piece on this subject this morning on Naked Capitalism here. (I haven’t read it all yet though, so let me know if I missed something important. I’m pretty sure that he and I agree on most everything related to this subject.)
Just try to remember what I’ve said countless times… NOTHING goes down in a straight line.
Warren Buffett admitted yesterday that he was “dead wrong” about housing when he predicted it would recover by now. That’s cute, isn’t it? The billionaire made a boo-boo. Ooopsie! But, he’s still a billionaire and the people that listened to him in 2009 and 2010 are the current wave of foreclosures at FHA, which by the way, is the new sub-prime and the next bailout for sure.
Buffett has no idea what he’s talking about. He’s been living in the same house in Omaha, Nebraska since 1958. Have you been to Omaha, Nebraska? Well, I have. And the fact that some multi-billionaire is still living in the same house he bought in 1958 in Omaha is not quaint… it’s not “old school.” It’s f#@king nuts. Insane. Weird. Like, as in… needs some sort of clinician to diagnose it, sort of weird.
I don’t know what his deal is… but I’ll bet it’s difficult to pronounce.
B. NO, unemployment is NOT “down.” The only thing that changed to any significant degree is the participation rate, which dropped to its LOWEST point in 29 years.
That means that more people stopped looking for work, not that more people found it.
The participation rate sunk to 63.7 percent last month, which is the lowest since May of 1983! Do you remember 1983? I do, and it was God awful. It means that roughly 88 million people in this country over 16 years old not only didn’t have a job, but weren’t even trying to find one. Not even trying.
I’ll bet they’re a cheery, upbeat bunch. Probably all out looking for houses to buy now that we’re hitting the bottom and all. Maybe Buffett will put them to work so they can all buy homes in Omaha…. and then kill themselves.
The employment-to-population ratio, which is the percentage of Americans that have jobs… HAS NOT CHANGED AT ALL. It’s 58.5… the SAME as it was in January 2010. Oooh baby… what our dust, we’re recovering now.
Oh, wait. That’s right… I totally forgot… everything’s fine… it’s a “jobless recovery,” remember? So, why is Bernanke so worried about the whole unemployment thing anyway? It’s “jobless” so we’re right on track, we’re in line with the forecasts… hitting the numbers perfectly.
The “headline” unemployment rate in which we like to bathe in this country only counts people who answer the phone and tell the survey taker that they’re actively looking for work. And if more people were looking, then the unemployment rate would be a lot higher. So, what Obama really needs is for more people to STOP LOOKING. And if that doesn’t make you want to chew on glass all by itself, then I don’t really know what to say to you.
Seems like most folks are cooperating though, because at the beginning of this month, based on the latest census data, the Labor Department increased the number of working age people by 1.5 million, and of those 1.25 million were not even looking for work, so you gotta’ figure they’re all Obama supporters, right? Just doing their part.
Bloomberg’s got the data here, in case you feel a need to check my numbers.
C. NO, the stock market at 13,000 doesn’t mean anything good. Think of it as Bernanke pushing string.
The Fed chief continues to do the only thing he can do, I suppose… come right out and promise low interest rates until at least 2014 and pump money into the system like a mad man. The problem is that money isn’t exactly going places.
Since the recession in 2008, M1 money supply has increased by an absolutely jaw-dropping 60 percent, coming in over $2.2 trillion in January of this year, and with no end in sight… it’s going higher for sure. And tons of cash makes the stock market happy, but today’s cash flood isn’t doing much for the economy.
Money supply is one part of the equation, but the other component to the deal is called “velocity,” and the velocity of money in this country has fallen off a cliff, going from 10.37 in late 2007 to 7.09 as of late 2011. Ouch.
Velocity of money is about how fast money is changing hands, buying goods and services… you know, making for economic activity. And the scads of money Bernanke continues to pump into the system with reckless abandon isn’t moving… it’s not changing hands… he’s just pushing string, get it?
As a result of all this, what they call the M1 “multiplier” has stayed below the 1.0 level for the last three years. The multiplier effect is an economics term that refers to the amount of commercial bank money that’s created by central bank money. So, it’s like the Fed increases it’s loans to banks and its purchases of government securities (called bonds) and by doing so pushes money into the commercial banks who are in turn supposedly “encouraged” to loan it out and earn interest, and thereby turn the Fed’s one dollar into more than one dollar.
Except it’s not happening, right? In fact, between August 2008 and November 2009, bank reserves grew by 500 fold, from $2 billion to one trillion. The banks didn’t lend it out. They didn’t find the excess money very encouraging. Do you know why? Because they knew that we were getting screwed, that’s why.
They knew we were in debt big time, because they’re the ones that put us there, and they knew that we’d be getting no help from the government, so there weren’t a whole lot of people to lend it to without taking on too much risk. So, they just kept it. And that’s why I keep saying, it’s not a liquidity crisis, it’s a credit crisis.
So, you know you have a credit crisis if the money multiplier is 1, right? Because if banks were lending the money out, the multiplier would have to be greater than one, right?
And when you have a credit crisis, then many people can’t buy houses, and that means that the prices of houses will go DOWN. And that means that we won’t spend like we used to when our houses were worth a lot more and there was credit available, and that means companies will make less money and lay people off. And that leads to more foreclosures, which puts additional downward pressure on house prices, which leads to more foreclosures still.
So… super low interest rates for an extended period of time… literally trillions in cash sitting in bank reserves with more being pumped into the system every day, but with the velocity of that money falling and a multiplier that stays at 1… add it all up and what do you get?
Well, on one hand you get a stock market that’s artificially pumped up by the Fed’s assurance of continued low rates, and a free flowing money supply. But on the other hand you have anemic velocity, a multiplier stuck on 1, and unemployment that’s only getting worse, which means company’s won’t be growing they’ll be shrinking… so you has is an economy that’s deflating.
Bernanke would rather deal with just about anything than deflation, so he just keep a-printing and a-pumping hoping against hope that one day the banks will be so bloated with cash that they loan it to anyone that asks. It’s really quite sad, if you think about it. Poor little man… only knows one trick and when it isn’t working all he knows to do is just try it over and over again. Makes me get all teary eyed, poor guy. Someone should really teach him a new trick.
Last thing… take the artificially pumped up stock market and hold it up next to the dog-doo economy and what do you see? You see some seriously over valued stocks, which is another way of saying that you see stocks priced to deliver some exceptionally poor returns to investors.
Because one day, the Fed won’t be able to pump, because the pump she will run dry, as all pumps do. And then what will be holding up the market at these levels… uh oh… no clothes… run away!
Then you’ll hear, “Come Mr. Tally man, tally me banana,” and daylight will come and you’ll want to go home.
So… housing is not, not, not at bottom, – check. Unemployment not improving – check. And does the stock market at 13,000 mean something to the economy? Nothing good – check.
Oh yeah… and then there’s always Greece, et al. Can’t forget them. Opah!
You might want to bookmark this page, so as the election gets closer and thing get even better than they are today, you’ll be able to contain yourself.
The Perfection Of Crony Capitalism: Use Regulation To Destroy Competitors
by Charles Hugh Smith from Of Two Minds
Crony capitalism uses its wealth to impose government regulations designed to hinder, cripple and destroy small business competitors.
In the U.S. we now have the perfection of cloaked crony capitalism: corporate cartels use their vast concentrations of capital and revenue to buy the political leverage needed to write regulations specifically designed to eliminate competition.
Recall that the most profitable business model is a monopoly or cartel protected from competition by the coercive Central State. Imposing complex regulations on small business competitors effectively cripples an entire class competitors, but does so in "stealth mode"--after all, more regulations are a "good thing" (especially to credulous Liberals) which "protect the public" (and every politico loves claiming his/her new raft of regulations will "protect the public.")
This masks the key dynamic of crony capitalism: gaming the government is the most profitable business model. Where else can you "invest" a few hundred thousand dollars (to buy political "access" and lobbying) and "earn" a return in the millions of dollars, and eliminate potential competitors, too? No other "investment" even comes close.
The ever-expanding galaxy of regulations that business owners have to meet is a function of the corruption of government, i.e. corporations lobbying the government to pass laws and regulations (usually written by industry lobbyists to the specifications of their clients) specifically designed to eliminate competition by raising the costs of compliance amd imposing heavy fines via enforcement.
As an example, let's take a slice of American mythology, the family farm, that is under increasing pressure from just this sort of Corporate-State crony capitalism. Consider the family-owned small to medium size farmer who understands that the farm is a nature-based system that requires certain practices to maintain the health of the farm and the quality of your produce/meat/milk.
Suddenly a number of corporate agribusiness farms (i.e. concentrated animal feeding operations--CAFO) spring up nearby where thousands of pigs/cows are crammed into huge barns and the operation is run like a factory, enabling the CAFO to produce meat or milk at a significantly cheaper cost or production.
What's left out of the equation is the pollution to the environment and any associated health costs and damages to the values of the neighboring properties (Of course, these CAFOs are never sited near an affluent neighborhood).
In addition, the quality of the meat is suspect, as all the potential disease outbreaks that come with monoculture practices and crowded conditions can only be suppressed with constant, massive quantities of antibiotics. This is the perfect condition--animals packed together, plentiful manure, constant use of antibiotics--to create super-bugs that are resistant to antibiotics. Life being what it is, opportunistic and adaptive, eventually these resistant bacteria find a new and unprotected host, human beings.
A small family farm cannot duplicate these risk factors; only CAFOs can generate this kind of bacteriological danger to the populace.
These kinds of systemic costs created by the CAFOs are transferred to the taxpayer, including the local farmer who has to compete with the CAFO.
Since government in the U.S. is always for sale, and since the revolving door between the legislative and regulatory agencies and the lobbying industry is always spinning, it's straightforward to hire "the right people" and "express your concerns" to the corrupt politicos.
Here are some examples of the crony-capitalist favors corporate lobbying and campaign contributions can buy:
1) The government may give massive direct subsidies to the CAFO, depending how effective the "farm" lobby is (most farm subsidies go to large agribusinesses and not to small farmers).
2) The government will pass regulations that apply to the farmer's operations but require an entire new layer of compliance, reporting etc. that is beyond the financial capability of small operations.
3) The government may initiate enforcement actions against the farmer for non-compliance and if he's not rich, he will get steamrolled by the government regulators because he can't hire adequate legal representation.
4) The government often will not penalize the CAFO on the same relative basis, if it is part of a large corporation which have the resources to fight the government in the courts (i.e. the enforcement personnel don't have the necessary resources to do long protracted battles with Panzer divisions of corporate lawyers);
5) When there's an incident of blatant government over-reach or corporate favoritism that gets press coverage, the government agency will say they will "revamp the system" which is a code-phrase for passing even more regulations that secures them even more power.
In other cases, the regulatory agency was hampered from doing its job due to corruption/lobbying/political pressure from powerful corporate players.
As the regulatory thicket expands in complexity and scope, many of the regulations will not be adequately enforced because enforcement is now beyond the capability of the agency tasked with enforcement and monitoring. But the small/medium farmer will have to comply with them anyway, and if they don't, then that leaves a door open for corporate-directed regulators to take them down later with heavy fines for non-compliance.
6) The government gets complaint tips from a CAFO about the independent farmer, so he's subjected to a rigorous compliance inspection, whether or not the complaint is legitimate. It's like the vehicle inspections you get if you're caught "driving while black"-- with enough effort, some violation somewhere can be trumped up into a fat fine.
7) The regulations become so complex that prosecutors are reluctant to bring then to court because they're worried that a jury may not understand them. As a result, criminal cases are rarely brought against CAFOs and other corporate cartels.
After a few cycles of crony capitalism, competition has been destroyed, and you end up with something like America's "sickcare" system: no matter where you go, there's only two health insurance providers and their pricing is (surprise!) always about the same (it's called price fixing; that's the way cartels work).
Regulations don't arise unbidden; they arise to accomplish two tasks:
1. Enforce crony capitalism by eliminating or crippling competitors and establishing highly profitable cartels or quasi-monopolies protected by a bought-and-paid-for Central State.
2. They justify the budgets and payrolls of government agencies at all levels of government. A few years ago I mentioned a town that was trying to add a commuter train stop to an existing rail line. The process involved something like nine agencies, and as a result it has yet to be approved, a decade later. But the application did create a decade of justification-for-our-budget for agencies that might have been revealed as wasteful friction without the make-work application to diddle over for a decade.
For a common-sense overview of the death-spiral of regulation, please read Over-regulated America: (The Economist) The home of laissez-faire is being suffocated by excessive and badly written regulation.
The only way anything will change is if money is banned from politics (i.e. all elections are taxpayer-financed) and lobbying is also banned. As long as the legislative and regulatory branches of government are for sale, then willing corporate buyers will be crowding round the kiosk, buying profitable slices of corrupt crony-capitalism for their own gain. If you don't, your competitor will, and then you'll be eliminated as "dangerous competition." That's the essence of crony capitalism.
Crony capitalism uses its wealth to impose government regulations designed to hinder, cripple and destroy small business competitors.
In the U.S. we now have the perfection of cloaked crony capitalism: corporate cartels use their vast concentrations of capital and revenue to buy the political leverage needed to write regulations specifically designed to eliminate competition.
Recall that the most profitable business model is a monopoly or cartel protected from competition by the coercive Central State. Imposing complex regulations on small business competitors effectively cripples an entire class competitors, but does so in "stealth mode"--after all, more regulations are a "good thing" (especially to credulous Liberals) which "protect the public" (and every politico loves claiming his/her new raft of regulations will "protect the public.")
This masks the key dynamic of crony capitalism: gaming the government is the most profitable business model. Where else can you "invest" a few hundred thousand dollars (to buy political "access" and lobbying) and "earn" a return in the millions of dollars, and eliminate potential competitors, too? No other "investment" even comes close.
The ever-expanding galaxy of regulations that business owners have to meet is a function of the corruption of government, i.e. corporations lobbying the government to pass laws and regulations (usually written by industry lobbyists to the specifications of their clients) specifically designed to eliminate competition by raising the costs of compliance amd imposing heavy fines via enforcement.
As an example, let's take a slice of American mythology, the family farm, that is under increasing pressure from just this sort of Corporate-State crony capitalism. Consider the family-owned small to medium size farmer who understands that the farm is a nature-based system that requires certain practices to maintain the health of the farm and the quality of your produce/meat/milk.
Suddenly a number of corporate agribusiness farms (i.e. concentrated animal feeding operations--CAFO) spring up nearby where thousands of pigs/cows are crammed into huge barns and the operation is run like a factory, enabling the CAFO to produce meat or milk at a significantly cheaper cost or production.
What's left out of the equation is the pollution to the environment and any associated health costs and damages to the values of the neighboring properties (Of course, these CAFOs are never sited near an affluent neighborhood).
In addition, the quality of the meat is suspect, as all the potential disease outbreaks that come with monoculture practices and crowded conditions can only be suppressed with constant, massive quantities of antibiotics. This is the perfect condition--animals packed together, plentiful manure, constant use of antibiotics--to create super-bugs that are resistant to antibiotics. Life being what it is, opportunistic and adaptive, eventually these resistant bacteria find a new and unprotected host, human beings.
A small family farm cannot duplicate these risk factors; only CAFOs can generate this kind of bacteriological danger to the populace.
These kinds of systemic costs created by the CAFOs are transferred to the taxpayer, including the local farmer who has to compete with the CAFO.
Since government in the U.S. is always for sale, and since the revolving door between the legislative and regulatory agencies and the lobbying industry is always spinning, it's straightforward to hire "the right people" and "express your concerns" to the corrupt politicos.
Here are some examples of the crony-capitalist favors corporate lobbying and campaign contributions can buy:
1) The government may give massive direct subsidies to the CAFO, depending how effective the "farm" lobby is (most farm subsidies go to large agribusinesses and not to small farmers).
2) The government will pass regulations that apply to the farmer's operations but require an entire new layer of compliance, reporting etc. that is beyond the financial capability of small operations.
3) The government may initiate enforcement actions against the farmer for non-compliance and if he's not rich, he will get steamrolled by the government regulators because he can't hire adequate legal representation.
4) The government often will not penalize the CAFO on the same relative basis, if it is part of a large corporation which have the resources to fight the government in the courts (i.e. the enforcement personnel don't have the necessary resources to do long protracted battles with Panzer divisions of corporate lawyers);
5) When there's an incident of blatant government over-reach or corporate favoritism that gets press coverage, the government agency will say they will "revamp the system" which is a code-phrase for passing even more regulations that secures them even more power.
In other cases, the regulatory agency was hampered from doing its job due to corruption/lobbying/political pressure from powerful corporate players.
As the regulatory thicket expands in complexity and scope, many of the regulations will not be adequately enforced because enforcement is now beyond the capability of the agency tasked with enforcement and monitoring. But the small/medium farmer will have to comply with them anyway, and if they don't, then that leaves a door open for corporate-directed regulators to take them down later with heavy fines for non-compliance.
6) The government gets complaint tips from a CAFO about the independent farmer, so he's subjected to a rigorous compliance inspection, whether or not the complaint is legitimate. It's like the vehicle inspections you get if you're caught "driving while black"-- with enough effort, some violation somewhere can be trumped up into a fat fine.
7) The regulations become so complex that prosecutors are reluctant to bring then to court because they're worried that a jury may not understand them. As a result, criminal cases are rarely brought against CAFOs and other corporate cartels.
After a few cycles of crony capitalism, competition has been destroyed, and you end up with something like America's "sickcare" system: no matter where you go, there's only two health insurance providers and their pricing is (surprise!) always about the same (it's called price fixing; that's the way cartels work).
Regulations don't arise unbidden; they arise to accomplish two tasks:
1. Enforce crony capitalism by eliminating or crippling competitors and establishing highly profitable cartels or quasi-monopolies protected by a bought-and-paid-for Central State.
2. They justify the budgets and payrolls of government agencies at all levels of government. A few years ago I mentioned a town that was trying to add a commuter train stop to an existing rail line. The process involved something like nine agencies, and as a result it has yet to be approved, a decade later. But the application did create a decade of justification-for-our-budget for agencies that might have been revealed as wasteful friction without the make-work application to diddle over for a decade.
For a common-sense overview of the death-spiral of regulation, please read Over-regulated America: (The Economist) The home of laissez-faire is being suffocated by excessive and badly written regulation.
The only way anything will change is if money is banned from politics (i.e. all elections are taxpayer-financed) and lobbying is also banned. As long as the legislative and regulatory branches of government are for sale, then willing corporate buyers will be crowding round the kiosk, buying profitable slices of corrupt crony-capitalism for their own gain. If you don't, your competitor will, and then you'll be eliminated as "dangerous competition." That's the essence of crony capitalism.
Name The Bubble
by Tyler Durden
As the title suggests, please name the latest bubble:
If you said student loans, you were correct. What is curious is that while virtually everyone has known about the student loan bubble in recent quarters, it is only for the past 3 that the Fed has actually started to disclose this data in its consumer loan excel spreadsheet (link - page 3). For historical data prior to 2011 we had to pull Bloomberg data (TDBCSTUD Index) going back to 1999. Perhaps the recent astronomical jump is why the Fed has been keeping a tight lip on this data...
And for those to whom this is news, here are some thoughts on the matter from before.
As the title suggests, please name the latest bubble:
If you said student loans, you were correct. What is curious is that while virtually everyone has known about the student loan bubble in recent quarters, it is only for the past 3 that the Fed has actually started to disclose this data in its consumer loan excel spreadsheet (link - page 3). For historical data prior to 2011 we had to pull Bloomberg data (TDBCSTUD Index) going back to 1999. Perhaps the recent astronomical jump is why the Fed has been keeping a tight lip on this data...
And for those to whom this is news, here are some thoughts on the matter from before.
Amerika, Why Can’t We Jail Bankers?
by Matthew D. Weidner, Esq.
We’re coming up on four years since the financial crisis of 2008 nearly took this nation over the edge. But just as the jalopy called our nation’s financial system started to fly off into the abyss, the banker elites and their hand-picked handmaidens at all levels of government stepped in and bailed them all out. President Bush wrote the check, then President Obama cashed it. Parties no longer matter, I submit they merged into a White Collar Criminal Oligarchy with the election of Bush II and a deal cut over the botched Bush/Gore election of 2000.
So here we are years later and the details of the diabolical crime spree continue to leak out like discharge from an infected boil. A few piddling investigations, a few press conferences with get tough pronouncements but nothing, not a single thing, has been done to punish all of those who caused this hell that we continue to live in today.
Oh sure, for many people things seem okay. They’re not in foreclosure, they have a job. They are getting by. But even those who are getting by are drowning in very real ways that are just not recognized…yet.
Have you seen the streets of Greece? If you only watch the network news you sure haven’t, but everyone should be paying attention to the fact that the streets in Greece are literally on fire, with hundreds of thousands of people out protesting. The thing that we all need to understand is that the debt fundamentals that brought the Greeks into the street are even worse here in the United States of America. The percentage of government debt and personal debt for the good ole USA is actually higher than that of the Greeks.
We have not yet felt the crippling pain of massive cuts in social services and extraordinary hits to spending, but we will. We simply cannot avoid the math. Heap together the existing government debt, the personal debt, the student loans, divide that across the working population multiplied by reasonable estimates of growth and GDP and we’re rioting in the streets. And if this were not bad enough, heap on top of that sinking ship the trillions of dollars that we all shelled out to bail out the criminal elite that set up…and profited obscenely from this Rube Goldberg minefield of a world economy. They saddled us all with a debt burden that we simply cannot overcome. Hundreds of thousands of dollars in real debt per person that must be repaid….somehow….or else.
I see no leaders on the national scene, but there are a few leaders in this state. Senator Mike Fasano and Representative Darren Soto come to mind. But just watch how Senator Fasano continues to be punished by the Republican leadership for raising the kind of common sense objections that you and I have. And Darren Soto tries to push back, confronting the absurd orthodoxy of the Republican party that has been in power in this state for more than 18 years, but he is quickly drown out and pushed aside by a power machine that dispatches any dissent with ruthless effectiveness.
At some point in time, this will all come home to roost for all of us. The debt collectors for the bills we all carry will come literally bashing down our doors. Will the debt collectors be the Chinese, demanding payment of their bonds and sovereign debt? Will the debt collectors be the corporate oligarchs that are even now concentrating their extraordinary power? Or will it be the federal and state governments themselves, coordinating their strike teams even now with joint “protection” drills and homeland security exercises in tiny Florida towns?
And when this all starts to happen, thinking and feeling Americans will explode with fury and rage. They will rightly question why the crushing boot of austerity and oppression slams down on their necks while the “leaders” and the architects of this coming tyranny stare down at them with condescending glares, and absurd comments like, “if only they would have all gone out and gotten jobs.”
The sickening reality is we are all victims of an inevitable and crushing killer. Our future, and the future of our children is gone, buried under the weight of the debt and the oppression that comes with it. Our nation today exists as a failed political and social experiment. Our government hijacked as it has been by the corrupting influence of corporations that have no moral or ethical obligations to restrain them has failed in its only true function To Protect Us All From Enemies Foreign And Domestic.
And so democracy will indeed come full circle. We are seeing the final act in the tragedy called democracy play out in the streets of Greece. Like the final frames in an old 8 mm movie, the street scenes will play out first in Greece, then in Portugal and Italy, then across Europe and finally here in America.
And as tragedy plays out slowly, we all sit idly by like theater goers who know the tragic ending is coming and can feel the searing heat of the theater on fire, but who are paralyzed and do nothing to leave the building or prevent the end that we all know awaits us.
The only sign that will suggest we might avert part of this fate will be handcuffs and perp walks, jail for the bankers. But it’s unlikely that will ever come, so get ready for the searing heat of a fiery revolution.
We’re coming up on four years since the financial crisis of 2008 nearly took this nation over the edge. But just as the jalopy called our nation’s financial system started to fly off into the abyss, the banker elites and their hand-picked handmaidens at all levels of government stepped in and bailed them all out. President Bush wrote the check, then President Obama cashed it. Parties no longer matter, I submit they merged into a White Collar Criminal Oligarchy with the election of Bush II and a deal cut over the botched Bush/Gore election of 2000.
So here we are years later and the details of the diabolical crime spree continue to leak out like discharge from an infected boil. A few piddling investigations, a few press conferences with get tough pronouncements but nothing, not a single thing, has been done to punish all of those who caused this hell that we continue to live in today.
Oh sure, for many people things seem okay. They’re not in foreclosure, they have a job. They are getting by. But even those who are getting by are drowning in very real ways that are just not recognized…yet.
Have you seen the streets of Greece? If you only watch the network news you sure haven’t, but everyone should be paying attention to the fact that the streets in Greece are literally on fire, with hundreds of thousands of people out protesting. The thing that we all need to understand is that the debt fundamentals that brought the Greeks into the street are even worse here in the United States of America. The percentage of government debt and personal debt for the good ole USA is actually higher than that of the Greeks.
We have not yet felt the crippling pain of massive cuts in social services and extraordinary hits to spending, but we will. We simply cannot avoid the math. Heap together the existing government debt, the personal debt, the student loans, divide that across the working population multiplied by reasonable estimates of growth and GDP and we’re rioting in the streets. And if this were not bad enough, heap on top of that sinking ship the trillions of dollars that we all shelled out to bail out the criminal elite that set up…and profited obscenely from this Rube Goldberg minefield of a world economy. They saddled us all with a debt burden that we simply cannot overcome. Hundreds of thousands of dollars in real debt per person that must be repaid….somehow….or else.
I see no leaders on the national scene, but there are a few leaders in this state. Senator Mike Fasano and Representative Darren Soto come to mind. But just watch how Senator Fasano continues to be punished by the Republican leadership for raising the kind of common sense objections that you and I have. And Darren Soto tries to push back, confronting the absurd orthodoxy of the Republican party that has been in power in this state for more than 18 years, but he is quickly drown out and pushed aside by a power machine that dispatches any dissent with ruthless effectiveness.
At some point in time, this will all come home to roost for all of us. The debt collectors for the bills we all carry will come literally bashing down our doors. Will the debt collectors be the Chinese, demanding payment of their bonds and sovereign debt? Will the debt collectors be the corporate oligarchs that are even now concentrating their extraordinary power? Or will it be the federal and state governments themselves, coordinating their strike teams even now with joint “protection” drills and homeland security exercises in tiny Florida towns?
And when this all starts to happen, thinking and feeling Americans will explode with fury and rage. They will rightly question why the crushing boot of austerity and oppression slams down on their necks while the “leaders” and the architects of this coming tyranny stare down at them with condescending glares, and absurd comments like, “if only they would have all gone out and gotten jobs.”
The sickening reality is we are all victims of an inevitable and crushing killer. Our future, and the future of our children is gone, buried under the weight of the debt and the oppression that comes with it. Our nation today exists as a failed political and social experiment. Our government hijacked as it has been by the corrupting influence of corporations that have no moral or ethical obligations to restrain them has failed in its only true function To Protect Us All From Enemies Foreign And Domestic.
And so democracy will indeed come full circle. We are seeing the final act in the tragedy called democracy play out in the streets of Greece. Like the final frames in an old 8 mm movie, the street scenes will play out first in Greece, then in Portugal and Italy, then across Europe and finally here in America.
And as tragedy plays out slowly, we all sit idly by like theater goers who know the tragic ending is coming and can feel the searing heat of the theater on fire, but who are paralyzed and do nothing to leave the building or prevent the end that we all know awaits us.
The only sign that will suggest we might avert part of this fate will be handcuffs and perp walks, jail for the bankers. But it’s unlikely that will ever come, so get ready for the searing heat of a fiery revolution.
Sunday, February 26, 2012
Foreclosure settlement a failure of law, a triumph for bank attorneys
by Barry Ritholtz
washingtonpost.com
After many months of wrangling, a foreclosure settlement has been reached between 49 state attorneys general and a consortium of banks.
It is an epic failure of law and a triumph for bank attorneys.
It will accomplish little of value, as I’ll explain. First, let’s recall what the “robosigning” foreclosure scandal was all about.
Foreclosure is an extremely serious issue in American jurisprudence. As a nation of laws with strong respect for property rights, we have always treated this process appropriately. After all, having a sheriff forcibly evict a family that typically made a down payment, moved into a home, lived there for some years, made payments, etc., is disruptive — for the family, the lender and the neighborhood.
Foreclosure laws vary from state to state. However, all are specific and precise as to the legal steps that must be followed, from the homeowner’s initial delinquency onward. There are benefits to giving the homeowner a chance to “cure their default.” It is in everyone’s interest for the homeowner to catch up if possible.
We never want to see an innocent party “accidentally” evicted from a home. The legal system has evolved so this has become a “legal impossibility.” Imagine returning home from work or vacation to find the front door padlocked, the belongings strewn all over the block, a big orange sticker screaming “FORECLOSED” on the garage door, with an auction sign in the front lawn. Now imagine that this occurred even though you are not in default or even delinquent on payments. Thanks to the robosigning banks, this legal impossibility has happened repeatedly, even to homeowners who paid cash for their houses and had no mortgages. Imagine that — foreclosed with no mortgage.
Before any foreclosure can proceed, a lender must run through a checklist of specifics for the court to move forward. This review can take 45 to 120 minutes per file and addresses, for instance:
●When was the original loan made, and for how much?
●Who is the borrower? Who is the original lender?
●What is the address of the property?
●Which bank holds the mortgage note? Was the note transferred? When?
●When was the last payment made?
●How much is owed on the loan?
●Was the borrower notified of the delinquency? Default?
●Has the borrower been served notice? When, where and how?
Banks review these details to make sure there was not an administrative error. (Oops! We applied payments to wrong account!)
The banker who reviewed these files fills out and signs an affidavit, which is then notarized. It is the written equivalent of sworn testimony in court. Judges take affidavits extremely seriously. False affidavits bypass the entire fact-finding and legal process, and the result can be a miscarriage of justice. Anyone who lies on one commits perjury, a felony punishable by jail time.
At least, they used to get jail time.
Before the settlement, we learned that nearly every aspect of the robosigned documents was false. None of the details were ever reviewed. The signatures attesting to the review of the documents were fabricated — made by someone other than the person whose name was on the document. Neither person — the supposed signatory to the document nor the hired forger — ever validated the facts of each case. All of the safeguards put in place to make sure foreclosures were done correctly and legally were bypassed. Even the notary stamps were bogus — they were not real, and not signed by a notary to validate that the signer and the signature matched.
How did this happen? Instead of a careful review, people were hired to rubber-stamp hundreds of foreclosure documents an hour. Former burger flippers were paid $8 to $10 an hour to violate the law, file false affidavits and commit perjury. Some of the information was correct, but much of it was wrong — and none of it was verified for court purposes.
And now we have this grand settlement.
What will the impact be?
Economically, it will have no effect. The dollar amount is small relative to the U.S. economy. Indeed, the total impact of the settlement is less than one ten-thousandth of annual gross domestic product.
Then there’s the “math.” The number touted is $26 billion, but that’s wildly misleading. At most, it’s $6 billion, paid out by a consortium of banks. The other $20 billion is for capital write-downs for delinquent homeowners that were going to happen anyway. These were homes that the banks anticipated taking a $50 billion-to-$100 billion hit on. Only now, they get a tax benefit for it.
As far as the U.S. housing market goes, the impact will be minimal. About one out of five mortgages are underwater — meaning the house is worth less than is owed on it. Today, more than 11 million mortgages are underwater.
The settlement won’t affect the majority of these homes. Depending on which analysis you believe, the borrowers who receive a principle write-down will get $2,000 to $20,000 off their mortgage. This will not appreciably change the situation for most borrowers. They owe many tens of thousands more than the house is worth; some are hundreds of thousands of dollars behind in payments. Most will be as likely to default after this write-down as before. The impact on the overall underwater-mortgage issue is almost nonexistent.
The bigger issue is the economics of criminality. Most people who get caught committing crimes are punished. Commit a felony — if you run a bank — and your shareholders pay a monetary fine. Violating the law has merely become the banker’s cost of doing business.
Thus, the robosigning agreement has allowed the mass production of perjury. It has gone unrecognized and unpunished. It has made perjury a business expense, like travel or office furniture. The same reckless approach to giving loans to unqualified people was institutionalized, leading to another reckless approach to foreclosing homes.
We still don’t know who ordered these crimes, who is responsible for this, whether they still are in their jobs — or whether they are in a position of authority to do the same thing again.
Last, politically, the settlement reveals the corrupting influence of bank bailouts. Government is supposed to enforce laws equally and fairly. Instead, it is protecting its investments in rogue banks. They are committed to their original error and are loath to admit it. This is the reason that after a surgical accident, a new surgeon does the repair. He is objective and has nothing to hide. Conflicted governments, though, are focused on their reputation and reelection.
The robosigning agreement will serve as an exemplar to future generations of what not to do when confronted with failing banks.
washingtonpost.com
After many months of wrangling, a foreclosure settlement has been reached between 49 state attorneys general and a consortium of banks.
It is an epic failure of law and a triumph for bank attorneys.
It will accomplish little of value, as I’ll explain. First, let’s recall what the “robosigning” foreclosure scandal was all about.
Foreclosure is an extremely serious issue in American jurisprudence. As a nation of laws with strong respect for property rights, we have always treated this process appropriately. After all, having a sheriff forcibly evict a family that typically made a down payment, moved into a home, lived there for some years, made payments, etc., is disruptive — for the family, the lender and the neighborhood.
Foreclosure laws vary from state to state. However, all are specific and precise as to the legal steps that must be followed, from the homeowner’s initial delinquency onward. There are benefits to giving the homeowner a chance to “cure their default.” It is in everyone’s interest for the homeowner to catch up if possible.
We never want to see an innocent party “accidentally” evicted from a home. The legal system has evolved so this has become a “legal impossibility.” Imagine returning home from work or vacation to find the front door padlocked, the belongings strewn all over the block, a big orange sticker screaming “FORECLOSED” on the garage door, with an auction sign in the front lawn. Now imagine that this occurred even though you are not in default or even delinquent on payments. Thanks to the robosigning banks, this legal impossibility has happened repeatedly, even to homeowners who paid cash for their houses and had no mortgages. Imagine that — foreclosed with no mortgage.
Before any foreclosure can proceed, a lender must run through a checklist of specifics for the court to move forward. This review can take 45 to 120 minutes per file and addresses, for instance:
●When was the original loan made, and for how much?
●Who is the borrower? Who is the original lender?
●What is the address of the property?
●Which bank holds the mortgage note? Was the note transferred? When?
●When was the last payment made?
●How much is owed on the loan?
●Was the borrower notified of the delinquency? Default?
●Has the borrower been served notice? When, where and how?
Banks review these details to make sure there was not an administrative error. (Oops! We applied payments to wrong account!)
The banker who reviewed these files fills out and signs an affidavit, which is then notarized. It is the written equivalent of sworn testimony in court. Judges take affidavits extremely seriously. False affidavits bypass the entire fact-finding and legal process, and the result can be a miscarriage of justice. Anyone who lies on one commits perjury, a felony punishable by jail time.
At least, they used to get jail time.
Before the settlement, we learned that nearly every aspect of the robosigned documents was false. None of the details were ever reviewed. The signatures attesting to the review of the documents were fabricated — made by someone other than the person whose name was on the document. Neither person — the supposed signatory to the document nor the hired forger — ever validated the facts of each case. All of the safeguards put in place to make sure foreclosures were done correctly and legally were bypassed. Even the notary stamps were bogus — they were not real, and not signed by a notary to validate that the signer and the signature matched.
How did this happen? Instead of a careful review, people were hired to rubber-stamp hundreds of foreclosure documents an hour. Former burger flippers were paid $8 to $10 an hour to violate the law, file false affidavits and commit perjury. Some of the information was correct, but much of it was wrong — and none of it was verified for court purposes.
And now we have this grand settlement.
What will the impact be?
Economically, it will have no effect. The dollar amount is small relative to the U.S. economy. Indeed, the total impact of the settlement is less than one ten-thousandth of annual gross domestic product.
Then there’s the “math.” The number touted is $26 billion, but that’s wildly misleading. At most, it’s $6 billion, paid out by a consortium of banks. The other $20 billion is for capital write-downs for delinquent homeowners that were going to happen anyway. These were homes that the banks anticipated taking a $50 billion-to-$100 billion hit on. Only now, they get a tax benefit for it.
As far as the U.S. housing market goes, the impact will be minimal. About one out of five mortgages are underwater — meaning the house is worth less than is owed on it. Today, more than 11 million mortgages are underwater.
The settlement won’t affect the majority of these homes. Depending on which analysis you believe, the borrowers who receive a principle write-down will get $2,000 to $20,000 off their mortgage. This will not appreciably change the situation for most borrowers. They owe many tens of thousands more than the house is worth; some are hundreds of thousands of dollars behind in payments. Most will be as likely to default after this write-down as before. The impact on the overall underwater-mortgage issue is almost nonexistent.
The bigger issue is the economics of criminality. Most people who get caught committing crimes are punished. Commit a felony — if you run a bank — and your shareholders pay a monetary fine. Violating the law has merely become the banker’s cost of doing business.
Thus, the robosigning agreement has allowed the mass production of perjury. It has gone unrecognized and unpunished. It has made perjury a business expense, like travel or office furniture. The same reckless approach to giving loans to unqualified people was institutionalized, leading to another reckless approach to foreclosing homes.
We still don’t know who ordered these crimes, who is responsible for this, whether they still are in their jobs — or whether they are in a position of authority to do the same thing again.
Last, politically, the settlement reveals the corrupting influence of bank bailouts. Government is supposed to enforce laws equally and fairly. Instead, it is protecting its investments in rogue banks. They are committed to their original error and are loath to admit it. This is the reason that after a surgical accident, a new surgeon does the repair. He is objective and has nothing to hide. Conflicted governments, though, are focused on their reputation and reelection.
The robosigning agreement will serve as an exemplar to future generations of what not to do when confronted with failing banks.
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