Feds Unsettle Foreclosure Abuses

Wall Street is apparently about to win another round as federal regulators prepare to sign off on a “slap on the wrist” settlement stemming from widespread abuses in the foreclosure process.

The settlement continues the federal policy of relying entirely on the banks’ voluntary compliance, despite repeated examples of banks using fraudulent and forged documents to foreclosure on homeowners. The settlement apparently imposes no fines.

“Judges don’t tell burglars to go design their own plan to stop breaking into people’s homes and report back in 30 days,” said Rev. Lucy Kolin of the PICO National Network in response to the settlement, which is supposed to be announced later this week. “A judge would get laughed off the bench if they did this, and yet this is exactly what the Fed, OCC and FDIC have chosen to do.”

At Credit Slips, Georgetown Law prof Adam Levitin first labels the proposed settlement “Potempkin regulation,” then decides the better analogy for where we are on bank regulation is the “inmates running the asylum.”

The Obama administration’s lack of enthusiasm for holding the big banks accountable doesn’t exactly come as a surprise. Dog bites man.
They were supposed to working with the 50 state attorneys general to investigate the extent and impact of the foreclosure problems, but the attorneys general and the Fed have yet to conduct an investigation worthy of the name, as if they were investigating violations of law, which they should be. If the Feds and the AG's insist on negotiations with the banks, negotiation without robust investigation is a recipe for disaster.

What’s left unclear by reports of the proposed settlement is whether the state AGs are now free to pursue investigations and remedies on their own or whether the settlement will undercut them.

That’s especially relevant in places like California, where the state’s new attorney general, Kamala Harris, ran a strong election campaign promising to protect homeowners from foreclosure abuses and to hold banks accountable. During the “negotiations”, Harris hasn’t had much, if anything, to say. Her office hasn’t been returning my calls.

Now that the Feds have once again caved in to the big banks, Harris will have the opportunity to keep her campaign promises and enforce the law equally. Homeowners will be counting on her.

 

 

Around the Web / Federal Reserve / Foreclosure / Martin Column - 04/07/2011

Happy Talk

Treasury officials and many politicians are busy patting themselves on the back because the Troubled Asset Relief Program will end up costing taxpayers less then expected.

The way these folks describe it the TARP and other aspects of the federal bailout were just supposed to function as a loan program for the banks while they were having some trouble.

TARP is also winning praise for having “restored trust” in our financial system.

Beyond the scary rhetoric that gave birth to the bailout and self-congratulatory sermons it’s being buried with, the bailout consisted of a set of rules and a way of picking winners and losers in the economic crisis that did anything but build trust.

Remember when the Fed chair, Ben Bernanke, insisted that he was a Main Street guy, that he was interested in the financial system only inasmuch as it helped out Main Street?

But the bailout institutionalized a system where the government could only afford to bail out the biggest bankers and corporate officials while abandoning smaller banks and business owners along with millions of troubled homeowners and vulnerable employees.

As Fortune’s Alan Sloane wrote, “the more bailout rocks you turn over, the more well-connected players you find who aren't being forced to pay the full price of their mistakes.”

Oh well, the apologists say, nothing’s perfect. It could have been so much worse.

One official who hasn’t joined in the festivities is Neil Barofsky, the former special inspector for the Troubled Asset Relief Program, who bid the bailout a scathing farewell in the New York Times, which you can read here.

The Obama administration and bailout apologists would like to have us believe that it was just a necessary first stage of the recovery to ensure that the bankers stayed rich and the wealthiest Americans’ increasing share of the nation’s wealth kept on growing.

But in Barofsky’s view, there was nothing inevitable about the no-strings attached bailout that filled the bankers’ pockets while offering little to Main Street. It had nothing to do with the operation of the free market either. It was very carefully crafted by public officials working hand in hand with Wall Street to maintain its power while gnawing away at the increasingly fragile livelihoods of ordinary Americans.

As Barofsky notes, “Treasury officials refuse to address these shortfalls. Instead they continue to 
stubbornly maintain that the program is a success and needs no 
material change, effectively assuring that Treasury's most specific 
Main Street promise will not be honored.”

And while recent employment gains are welcome news, Dean Baker points out the losers – African-Americans among whom unemployment remains distressing high and wage earners in general, whose pay is not keeping up with inflation.

The bailout celebration is just part of the happy talk designed to buoy the notion that the recovery is well underway. But this bailout-fueled recovery continues to pick highly predictable winners – with the powerful, wealthy and politically connected doing swimmingly while everybody else just limps along.

 

 

Around the Web / Martin Column / SIGTARP / TARP - 04/04/2011

Culture of Greed 1, Crackdown 0

When President Obama appointed his new chief of the Securities and Exchange Commission, he promised she would “crack down on the culture of greed and scheming.”

But that culture seems to be getting the better of Mary Schapiro after the resignation of her agency’s top counsel, amid allegations of questionable ethics.

That former top counsel, David Becker, is among those whose family actually made money from the massive frauds of Bernard Madoff.

As SEC general counsel, Becker recently argued for a change in policy that would have allowed his family to keep more of the fortune they made from Madoff, rather than turning it over to pay those who lost money.

Becker might have been considered a curious choice for a new tougher SEC, considering that during an earlier stint as a top SEC lawyer earlier in the decade, Becker was among those who failed to crack down on Madoff, despite highly publicized warnings.

Now Becker has decamped back to the corporate firm from where he came, leaving Schaprio, his former boss, sputtering about what she can and can’t say about what she knew about Becker’s Madoff investments and when she knew it.

This is, of course, catnip to the Republicans looking for any opportunity to embarrass the Obama administration. Never mind that they oppose any kind of regulation of the financial industry at all.

What a great gift Schapiro and Becker have handed Republicans: proof that the Obama administration’s promises to protect us from the “culture of greed and scheming” were nothing more than a sham. Meanwhile, Becker slams the swinging door in our faces and goes back to his real job – representing the interests of big banks and financial interests.

 

 

 

 

Around the Web / Martin Column / Securities and Exchange Commission (SEC) - 03/09/2011

From Prosecutions to Peanuts

It was only last December that the head of a 50-state attorney general investigation into foreclosure fraud boldly told homeowner advocates, “We will put people in jail.”

That was Tom Miller, Iowa attorney general, who added, “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s…there should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin.  To have a race between foreclosures and modifications to see which happens first is insane.”

That was then. Now Miller is backing off his tough talk, replacing it with a strategy of negotiating with the big banks and a bunch of federal agencies to come up with a settlement.

The amount of the potential settlement is $20 billion, according to press reports.

Gone is any notion of prosecutions.

There’s been a lot of discussion about whether this amount is too high or too low. The banks contend that they might have been sloppy about their paperwork but they foreclosed on only a few people who hadn’t been making their mortgage payments. No harm, no foul.

But homeowner advocates and critics are outraged, arguing that the banks are guilty of more than slovenliness, they violated laws intended to protect consumers. You can’t pass laws that require banks to follow certain procedures and then allow the banks to flout them. That reinforces one of the most corrosive aspects of the bailout and its aftermath – that the system is rigged so that the banks don’t have to follow the law.

Not to mention that $20 billion is pocket change to the big banks and won’t go far in modifying the mortgages that they refused to touch so far.

In addition, any fund that is controlled by the banks rather than a responsible government agency is a recipe for continued inaction by the banks.  See the disastrous Obama Administration HAMP program, which is somewhere between an abject failure and an actual scam that rips off homeowners.

Miller’s retreat is not the only distressing signal coming from the foreclosure front. Here in California the new state attorney general, Kamala Harris, made the strong protection of homeowners in foreclosure a key plank of her campaign. Yet her office recently signed off on a feeble $6.8 million settlement of a lawsuit against Angelo Mozilo and another top official of Countrywide Financial who presided over that company’s orgy of subprime lending before the financial collapse.

$5.2 million of the money goes into a restitution fund for victims. Mozilo and his president, David Sambol, admitted no wrongdoing. They’re not on the hook for the money- Bank of America, which bought Countrywide will pay it for them.
As David Dayen points out on Firedoglake, the settlement was probably inherited from her predecessor, the present governor, Jerry Brown. But that doesn’t mean she has to tout such a pittance as some great victory for the state.

It’s just a very small drop in a bucket with a very big leak in it.

If you live in California, you can call Harris’ office and suggest she stop caving into predatory lenders and start living up to her campaign promises.

Wherever you live, please contact your attorney general and remind them they are, after all, not the bankers’ buddies, but the people’s prosecutors.

Here are numbers where you can reach your state attorney general.

 

Around the Web / Foreclosures / Martin Column / Outrage - 03/04/2011

Will Afghan Bailout Trump U.S. Homeowners?

At least you know where the Tea Party stands. If it’s a government program, they want to end it.

The Democrats are murkier. They propose tepid solutions to serious problems like the foreclosure crisis, then when their programs don’t work it, ends up reinforcing the Tea Party’s arguments that government doesn’t work.

So the Tea Party-driven Republicans come along and want to whack the Obama administration’s failed foreclosure prevention scheme known as the Home Affordable Modification program. They would probably want to whack it even if it was working, but that’s another subject.

The Tea Party doesn’t offer anything in its place. Homeowners are pretty much on their own at the mercy of the banks.

So much for the American Dream.

Many people have pointed out that the HAMP program is something between an abject failure and a scam that rips off already beleaguered homeowners.

The Obama administration doesn’t offer so much of an argument in its defense as a hapless shrug. In this video, Treasury Secretary Timothy Geithner acknowledges that the foreclosure prevention program amounts to a “tragic, terrible mess.”

But hey, the administration says, it’s better than nothing.

Meanwhile, the foreclosures continue while authorities investigate massive fraud by the banks in the foreclosure process.

This is not a debate calculated to offer much confidence that our public officials can deal effectively with the problems that afflict those of us who live in the reality-based community.

I was reflecting on this tawdry spectacle while reading about the latest developments in the latest “too big to fail” bank bailout to strike at U.S. taxpayers – this one in Kabul, Afghanistan. My colleague Harvey Rosenfield warned about this brewing fiasco several weeks ago.

Apparently the wildly corrupt officials and their cronies used the bank as their private piggy bank, and the bank’s imminent collapse is now a greater threat to Afghanistan’s security than the Taliban.

As recently as last September, officials were offering assurances that U.S. taxpayers would not have to pay for a bailout. Now apparently if we don’t cough up $1 billion the war and the country will be lost and all the previous billions we’ve squandered there will have been wasted.

So we can’t afford a dime to help homeowners in this country but we must spend $1 billion to bail out the Afghans.

I don’t expect the Democrats to put up much of a fight against such an outrage.

I hope the Tea Party stands strong on this one.

 

 

 

Around the Web / Foreclosures / Martin Column / Outrage / Too Big To Fail - 03/02/2011

Don't Let the Bad Guys Get Away!

Hollywood loves a good chase. Last night at the Oscars, Tinsel Town sent a strong message to the rest of the country – the bad guys are getting away, and the cops aren’t even on their trail.

For a brief instant the Obama administration’s sorry efforts in holding bankers accountable for the financial collapse took center stage at, of all places, the Academy Awards.

Accepting his Oscar for “Inside Job,” his documentary about the financial collapse, Charles Ferguson used the opportunity to remind the audience of millions that not a single banker had gone to prison for fraud.

Ferguson was saying what the mainstream media has deemed a non-story, following President Obama’s lead in downplaying accountability while highlighting evidence of economic recovery.

But Ferguson joins a handful of prominent critics, including Bill Black, Simon Johnson, former Sen. Ted Kaufman, Dean Baker and Matt Stoller, who have been sending the same message in a variety of less prominent venues.

Meanwhile the president, far from insisting that his prosecutors develop fraud cases against top bankers, appoints them to top positions in his administration.

Typical is this recent column from the New York Times oped columnist Joe Nocera, who pooh-poohs the criminal aspects of the financial meltdown, blaming it on widespread “mania.”

Make no mistake; these are hard cases to make. In the 90s I covered the prosecution of savings and loan magnate Charles Keating, the poster child for bad behavior and political shenanigans for that earlier banking fiasco that also followed a rash of deregulation. Keating was convicted in both state and federal court. Though the convictions were overturned, Keating did serve four and a half years of his five-year state sentence.

Good prosecutors don't mind tough cases. They enjoy the challenge. But their bosses set their priorities and have to give them the support they need.

The Obama administration is barely even trying, afraid of alienating the bankers it’s trying to court. The cases that have been brought are either minor sideshows or they’ve been mishandled.

A local prosecutor told me that federal authorities have shown no interest in the painstaking work of building serious cases against bank executives, which would involve authorities going after minor players such as mortgage brokers, and working their way up the chain of responsibility.

In Inside Job, former New York state attorney general Eliot Spitzer has a suggestion for prosecutors – do unto the bankers what the prosecutors did unto him: go through their credit card receipts looking for evidence of illicit activity, like paying for high-priced hookers. Bust the bankers for their bad personal behavior and then obtain their cooperation in investigating financial abuse.

It may work; it may not. But at least prosecutors wouldn’t be sitting on their hands. They’d be doing their jobs – aggressively going after the bad guys.

 

 

Around the Web / Martin Column / Uncategorized - 02/28/2011

Going Without Heat For Goldman-Sachs

With all the trillions tossed around in the government’s efforts to prop up the big banks, a $2.9 billion taxpayer-funded windfall to Goldman-Sachs might not sound like that big a deal.

But imagine if we still had that $2.9 billion, if it was still in the federal coffers and not in the pockets of Goldman bankers.

Maybe President Obama wouldn’t feel the need to cut off aid for poor people to help pay for heating oil through the cold winter – that $2.9 billion would more than pay for the proposed cuts.

Maybe you’re not in favor of helping poor people stay warm in the winter.

How about space travel?

That $2.9 billion could pay for nearly a year’s worth of research on manned space travel, which is also under threat.

But what did we taxpayers get from this generosity to Goldman Sachs?

Absolutely nothing. Worse than that, we rewarded extremely bad behavior.

The $2.9 billion payment was arranged by federal authorities as part of what they have described as their emergency efforts to salvage the financial system in the wake of the financial collapse brought on by the bankers’ greed, recklessness and fraud, enabled by regulators’ laxity.

The Federal Reserve, which was supposed to be overseeing this massive giveaway to the banks, contends it didn’t intend to give the windfall to Goldman-Sachs bankers. It was just $2.9 billion that got away from them in their hurry to fill the bankers’ pockets with our cash- I mean- save the economy. McClatchy News Service, using bland journalism-speak, calls it a “potentially huge regulatory omission.”

Goldman hit the jackpot on our bailout of AIG, in which taxpayers compensated the firm 100 cents on the dollar for bad proprietary trades. That means Goldman gambled with its own money, which it is entirely entitled to do.

But when they lose their money, as the old blues song says, they should “learn to lose.”

Lucky for Goldman, we’re there to pick them up, dust them off and wish them well, no questions asked.

Just how much longer are we going to allow our public officials, Republican and Democrat, to use our money to foot the bill for these deadbeats’ bad gambling debts?

Just how many people are going to have to go cold before we cut Goldman off?

AIG / Around the Web / Federal Reserve / Financial Crisis / Goldman-Sachs / Martin Column / Outrage / President Barack Obama / Too Big To Fail - 02/18/2011

The President's Odd Jobs Choice

About the only the job that Jeffrey Immelt would be less qualified for than jobs czar would be to lead a crackdown on the influence of big money lobbyists.

Oh wait- there is no crackdown on lobbying.

So Immelt, the CEO of General Electric, will have to make do with the job the president has given him as head of the administration’s reconfigured outside economic advisory council, which is supposed to focus on job creation.

I’ve written before about G.E. as a prime example of how major corporations benefited from the bailout without exhibiting any gratitude to taxpayers.

To say that Immelt is a weird choice for a job creation initiative is an understatement.

Under Immelt’s stewardship, G.E. has shredded thousands of jobs in the U.S. while outsourcing many jobs to India and China. In the years before the financial collapse, G.E. focused on building up its enormous credit operation, which melted down under the weight of bad loans along with the rest of the financial sector. If not for the generosity of taxpayers, who gave G.E. more than  $16 billion in low-interest loans to keep it afloat, Immelt himself probably wouldn’t have a job. In 2008, Forbes named Immelt one of the U.S. most overpaid executives.

His company has engaged in economic blackmail, threatening the state of Massachusetts that G.E. would close plants if state officials didn’t cough up tax breaks. It’s true that Immelt’s GE has embraced green technology – but only wherever there is a substantial government subsidy involved.

Meanwhile, GE is spending more than any other firm on lobbying, while it pays little or no taxes.

If Immelt has had any previous innovative ideas about substantially reducing unemployment, he’s kept them to himself. This is the person our president chooses to lead his jobs effort? For Immelt and other corporate and financial titans, the “too big to fail” bubble has never really burst. They’re continuing to rake in profits and shape government policies in their own interests, while the majority who don’t have access to power are shut out from financial security as well as political influence. Rather than challenging this unequal equation, our president has chosen to try to climb into the bubble himself.

Around the Web / Executive Pay / Martin Column / Too Big To Fail - 02/02/2011

D.C. Disconnect: Revolving Door Edition

When it comes to shaping the Obama administration’s economic policies, only those with tight connections to the nation’s too big to fail banks need apply.

The latest example is the new director of the Office of Management and Budget, Jacob Lew.

He spent most of his career working in government and academia, with one significant exception – a stint as chief operating officer of Citibank’s Alternative Investments Division, which manages about $7 billion in investments in developing countries. Lew was one of those banking executives whose huge post-bailout bonus enraged the public.

In Washington, the issue barely surfaced in Lew’s confirmation hearings. Lew suggested he was too busy running Citibank to notice that the place was drowning in toxic collateralized debt obligations that nobody even understood.

Meanwhile, the guy Lew replaced, Peter Orzag, is headed for a high-paying banking post of his own – at Citibank.

Lew and Orzag were among the large, bipartisan banking-friendly crowd who apparently failed to comprehend or question what was going on around and beneath them in the years immediately preceding the financial crisis.

During that time, one of the places where Orzag and Lew would gather was the Hamilton Project, a high-powered D.C.-based think tank within the Brookings Institute where Democratic Party politicians and bankers could get together to drink in the wisdom of the project’s founder, Robert Rubin, the treasury secretary under President Bill Clinton, a major proponent of banking deregulation, mentor to current top Obama financial advisers Tim Geithner and Larry Summers – and then, the president of Citibank.

The Hamilton Project has been described as a “bastion of the fiscally moderate wing of the Democratic Party.” But it would be more precisely described as the home of the increasingly influential too big to fail bank wing of the Democratic Party.

And who showed up to welcome the launch of the project in 2006?

None other than then-Sen. Barack Obama, who told the assembled crowd, “I would love just to sit here with these folks and listen because you have on this panel and in this room some of the most innovative, thoughtful policymakers, people who have both ideas but also ways of implementing them into action. Our country owes a great debt to a number of people who are in this room because they helped put us on a pathway of prosperity that we are still enjoying, despite the best efforts of some.” (Watch it here.)

This door swinging jovially back and forth between Wall Street and Washington is so common that it registers as a non-event, and makes a mockery of the Kabuki theater of the supposed hostility between Obama and the financial titans.

Ira Stoll at The Future of Capitalism reminds us, in case we forgot, of other members of the Obama economic team who cashed in on Wall Street before it melted down and they joined the administration, like top economic adviser Laurence Summers and $5.2 million a year, one day a week job at the D.E. Shaw hedge fund, and former chief of staff and Chicago mayoral candidate Rahm Emanuel, who got paid $16.2 million for working for a year and a half at the investment banking firm Wasserstein Perella.

As for Orzag, his departure for Citibank created a faint stir in the mainstream media, where Ezra Klein of the Washington Post notes that Orzag doesn’t appear to be in it for the money, since he’s “fairly wealthy” already, and “his lifetime of public service positions does not suggest a man particularly motivated by income.”

But at the Atlantic’s blog, James Fallow viewed Orzag’s move as an example of Washington’s structural corruption. His comments strike me as stating what is blindingly obvious to anyone who lives and works outside the opaque world of Washington. “The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution – and then, less than two years after his administration took office, would take a job that (a) exemplifies the growing disparities the administration says it's trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service – this says something bad about what is taken for granted in American public life.

For Baseline Scenario’s James Kwak, it’s also more than a straightforward conflict of interest. Why does a young, highly educated energetic member of the elite, who presumably doesn’t need a Wall Street paycheck, want to work at Citibank?

“Orszag wanting to work at a megabank — instead of starting a new company, or joining a foundation, or joining an NGO, or becoming an executive at a struggling manufacturing company that makes things, or even being a consultant to countries with sovereign debt problems — is the same as an engineer from a top school going to Goldman instead of a real company. It’s not his fault, but it’s a symptom of something that’s bad for our country.”

Around the Web / Martin Column / President Barack Obama / Too Big To Fail - 12/22/2010