Around the Web: Now, They Won't

I remember when the Obama administration burst into office leading the nation in its campaign mantra: Yes we can. Later they adapted a new mantra to acknowledge how bad the economy was but how hard they were trying to fix it: It could have been worse. After the Democrats got walloped in the midterms, the president adjusted with his latest mantra: this was the best I could do.

Now his treasury secretary has offered the administration’s latest spin: No, you can’t.

Tim Geithner, the architect of so much of the administration’s no questions asked bailout of corporate America, is refusing homeowners facing foreclosure access to legal assistance to fight to save their homes, Zach Carter reports at Huffington Post.

Democrats from foreclosure-ravaged states are working on legislation that would overrule Geithner’s edict but the leadership isn’t interested.

This in spite of the massive failure of the administration’s foreclosure relief program, even when mortgage servicers are wrongfully attempting to throw people out of their homes.

According to a recent survey, banks started foreclosure proceedings against 2,500 homeowners while they were in the process of getting their mortgages modified.

When it comes to fixing the inadequate programs they’ve offered to fix the foreclosure mess, the Obama administration has offered a consistent mantra: No, we won’t.

Meanwhile, the state attorney general leading the 50-state investigation into the foreclosure scandal, Tom Miller, has some pretty tough talk.

Unlike the Obama administration, Miller comes right out and says that the mortgage principal should be reduced as part of any settlement with mortgage servicers. “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s,” Miller said. “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.”

And yes he will, Miller insists, put financial criminals in jail.

Around the Web / Foreclosures / Martin Column - 12/16/2010

Around the Web: Bigger Than Wikileaks

While the Wikileaks dump of secret diplomatic got more publicity, the Federal Reserve’s reluctance release of data on details of what it was up to in the bailout is actually the bigger story.

It’s a giant step towards the direction of democracy in a financial system that hasn’t had any.

What are we finding out? For one thing, just how much dishonesty is built into our knowledge of the financial system. Because corporate leaders never expected the data to be released, they lied, mischaracterized or downplayed their reliance on the Fed’s largesse.

Aaron Elstein lays it out at CrainsBusinessNewYork.com in a blog post headlined `Whoppers from the Bailout Binge’, (ht the Audit, which provides an excellent roundup of Fed dump coverage).

“In some cases,” Elstein writes, “the actions taken by companies jarringly contrast with their executives’ public comments about the bailout program.”

Along with the stunning secrecy that has surrounded the process and the dishonesty of the corporate recipients of the taxpayers’ generosity, a couple of other main themes emerged from scrutiny of the Fed data.

First, not only did U.S. taxpayers come to the aid of large European banks, they also gave emergency loans to many of the biggest U.S. businesses, like GE, Verizon and even Harley-Davidson. All of these institutions were deemed too big to fail, or even suffer more than a some sleepless nights’ worth of economic distress in the financial meltdown. About the only entities not deemed worthy of saving in the meltdown were many of the taxpayers themselves ­ who foot the bill for the whole extravaganza. The institutions that dreamed up the toxic loans got a bailout the taxpayers should have read the fine print more carefully, dammit!

Second, the Fed’s $3.3 trillion rescue scheme was rife with conflicts of interests. Members of regional Fed boards sat in on decisions to help out their own institutions, and corporations like BlackRock acted as paid advisers to the process and also bought securities on behalf of clients as part of the Fed’s efforts.

To put what’s happening in perspective, Matt Stoller, former senior policy adviser to former Rep Alan Grayson, the fiery Florida Democrat who recently lost his re-election bid, wrote this fine piece in Naked Capitalism.

Around the Web / Martin Column - 12/04/2010

Lame Ducks, Bogus Excuses

Sen. Chris Dodd brought the big banks back to Capitol Hill Tuesday to hear more about the foreclosure mess.

By the end of the day Dodd, who is retiring from the Senate after presiding over the watering down of financial reform, had a novel response: he called for an investigation.

By now nearly federal agency as well as every state attorney general is already investigating the scandal, after banks disclosed the shoddy record-keeping they were using in the foreclosure process.

How hard any of these investigations is really digging is an open question. But the more the merrier, according to Dodd. He suggested it would be a first test for the systemic risk council, which was set up under the financial reform law that bears his name, along with his House colleague Barney Frank.

The systemic risk council will be made up of members of the Obama administration, led by Treasury Secretary Tim Geithner. The administration has already brushed off the foreclosure scandal, so it’s highly unlikely the council would come back later and reverse its assessment.

Meanwhile the congressional bailout monitor, now headed by former Delaware senator Ted Kaufman, issued a stern warning about the consequences of the foreclosure scandal in its monthly report. “If document irregularities prove to be pervasive and, more importantly, throw into question ownership of not only foreclosed properties but also pooled mortgages, the result could be significant harm to the financial stability,” the monitor wrote.

Not to worry, the big banks keep reassuring us. It’s just a matter of some sloppy paperwork.

The big banks’ credibility, to put it politely, is not so hot. For example, Bank of America insists that they would be doing better modifying mortgages if not for the investors standing in the way. So the investigative journalism outfit Pro Publica took a look and found out their explanation was bogus.

Around the Web / Bank of America (BoA) / Martin Column - 11/17/2010

Around The Web: Shorting Justice

Too big to fail is apparently good not only for a taxpayer-funded bailout, it can also get you a get out of jail free card.

In the latest example of just how far above the law titans of finance now live, a Colorado prosecutor has declined to file felony hit and run charges against a wealthy Morgan Stanley Smith Barney money manager who left the scene after striking a bicyclist while driving his 2010 Mercedes.

Tougher charges, the prosecutor explained, would have damaged the bankers’ source of income, which could have limited his ability to pay restitution.  The banker, Martin Erzinger, manages about $1 billion in assets. Morgan Stanley received about $10 billion in federal bailout money.

Meanwhile the banker’s victim, a New York City doctor, faces a lifetime of pain, according to the Vail Daily. The prosecutor offered a variety of lame explanations for accepting the bankers’ guilty plea to two misdemeanors rather than a felony: the banker had no prior record, there were no drugs or alcohol involved, and harsher charges might have jeopardized the banker’s ability to pay restitution. The prosecutor insisted that he had rejected a more lenient plea offered by the banker’s lawyer, which would have allowed his client to wipe his record clean after a time.

Why the prosecutor believed he was obliged to reach a plea deal at all rather than taking the case to trial remains a mystery. Then again, a trial could have been inconvenient for the banker.

I covered criminal courts in Los Angeles for several years and I don’t recall local prosecutors acting so deferential to accused criminals, even those wearing expensive suits. In fact, criminal defense attorneys were always complaining about how law enforcement authorities liked to try to humiliate their white-collar clients by requiring them to come to court through a gantlet of news cameras in what was known as the dreaded “perp” walk.
Maybe the Colorado prosecutor’s attitude toward bankers has trickled down to him from the Obama administration. Its lenient treatment of bankers throughout the financial crisis has been interrupted only by occasional Asperger-like outbursts of populist rhetoric.  Most recently the president has taken a hands-off approach to the scandal surrounding the handling of foreclosure cases. The banks, inundated with foreclosures, couldn’t be bothered with following the legal requirements to prove that they actually own the mortgages on which they want to foreclosure or to guarantee that the required documentation is in order. The president has balked at proposals for a temporary foreclosure moratorium while the banks straighten out the mess.  Unlike the president and the Colorado prosecutor, some judges are beginning to insist on accountability.

Around the Web / Martin Column / Outrage - 11/10/2010

Around the Web: They Told Us So

The foreclosure robo-signing scandal may not have been making headlines until a month ago, but nobody should be surprised that it has finally erupted.

There have been warnings after warnings, all of them ignored by politicians, policy makers and the mainstream media.

Among those who have been ringing the alarm bells is Florida lawyer April Charney, with Jacksonville Area Legal Aid, who has traveled the country to train lawyers how to challenge foreclosures. In California, Walter Hackett, of Inland Empire Legal Services, has overseen a listserv for consumer attorneys representing borrowers facing foreclosure. Web sites like 4closurefraud.org have also been relentlessly focused on the issue.

Earlier this year, Mother Jones ran a stinging story, “Can Anyone Stop The Predatory Lenders?” detailing the misdeeds of mortgage servicers. Reporter Andy Kroll pointed out that the feds were basically paying the same shoddy characters who engineered the subprime crisis to fix the mess.

And Bloomberg’s Jonathan Weil cautions against taking comfort from the big bankers who are now trying to minimize the impact of the fiasco they created. “Three years ago, as the subprime mortgage crisis began to spiral, one of the lessons the public should have learned is that the leaders of these companies often have no idea what’s going on inside them,” Weil writes. “We may be witnessing the same phenomenon again. There’s no excuse this time for anyone to be surprised.”

Around the Web / Foreclosures / Martin Column - 10/21/2010

Fear Factor, Financial Crisis Edition

The administration has been touting what a good deal the Troubled Asset Relief program turned out to be for taxpayers – most of the $700 billion has been repaid; the banks after all, did not collapse, and it only ended up costing us around $50 billion after repayments.

“TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system,” Tim Geithner, the treasury secretary, said in a statement today.

But now we’ve got a whole new threat to the financial system, according to the bankers. They contend that if the public ever finds out the facts surrounding the rest of the bailout, it will cause them “irreparable harm.”

This is the part of the bailout the administration doesn’t talk about, with costs that dwarf the piddling billions spent on the TARP program. These are the trillions in secret loans the Federal Reserve provided financial institutions.

If it wasn’t for a dogged reporter at Bloomberg News, it would all still remain a big secret.

But the reporter, Mark Pittman, convinced his employer that the public had a right to know who the Fed was loaning the taxpayer’s money to, and under what terms. Bloomberg filed suit in November 2008.

The Fed and the banks fought the lawsuit for nearly two years. But in August a federal appeals court rejected the Fed and the banker’s arguments. Fed president Ben Bernanke announced in late September that the agency would finally make the information public by December 1.

Anybody care to bet on the chances that the big banks will fold when the information comes out? Any bets on revelations that will graphically show just how cozy both Bush and Obama administrations were with the big banks?

The banks’ response to the lawsuit reminds me of the atmosphere of fear and crisis the previous administration and the banks created, with the major media’s assistance, at the time of the original bailout. No time for questions, no time for debate. Hand over the blank check now or the whole economic system will blow up, they screamed.

Pittman died last year at 52. He remains one of the few heroes that emerged from the financial collapse, who raised tough questions in the months and years leading to the meltdown and was not intimidated by the banks’ fear mongering, continuing to demand answers.

Meanwhile, at some point, the bureaucrats will get around to the audit of the Federal Reserve’s activity since 2007. Congress passed that audit with broad bipartisan support in the face of fierce opposition from the administration, as part of financial reform. No doubt we will hear another round of predictions of disastrous consequences as the results of that audit are readied for release. It’s supposed to be conducted by the General Accounting Office.

From the beginning of the crisis to today, fear has been the most potent weapon used by the bankers and the bureaucrats to get their way, along with the complexity of the system the banks are always ready to clobber the public with. The spirit of reporter Mark Pittman remains one of the strongest antidotes we’ve got.

Around the Web / Federal Reserve / Martin Column - 10/06/2010

Around The Web: Wall Street Rules

When it comes to the big money, we’re still playing by Wall Street rules.
For example, California pension officials are paying their investment advisors hefty bonuses  even though the funds suffered whopping losses in the real estate crash, an investigation by Associated Press found.

The pension fund faces unfunded liabilities of billions of dollars, though there are sharp differences about the exact amount.

While the rest of the state suffers layoffs, cutbacks and furloughs, life is good for the crew at CALPERS. Fifteen employees were paid more than $200,000 – two more than two years earlier. Though the fund lost nearly $60 billion, all the funds investment managers got bonuses of more than $10,000, and several got more than $100,000.
CALPERS’ generosity extended beyond its investment advisers; the agency also gave its public affairs officer nearly $19,000 in bonuses for two straight years, and a human resources executive who got nearly $16,000 for those years.
Officials at CALPERS offer a variety of explanations: they say the bonuses cover 5 years to encourage their advisers to think long term, not short term. As a result, some of the managers’ funds that saw the steepest short-term declines got the largest bonuses. They have to pay the big bonuses despite the losses because they’re contractually obligated. They insist they have to pay the bonuses because if they don’t, their investment advisers will go to work at hedge funds.

Sound familiar? These are the same explanations we got from the big, bailed out banks who insisted that they had to hand over huge bonuses even though had to go on the dole.
CALPERS’ bonus system seems guaranteed to give its investment advisers lavish bonuses. When times are tough, the bonuses are a little less lavish. But none of the investment experts are actually accountable or will lose out for plunging the state’s pension in too deep into an unsustainable real estate bubble.

California’s pension system is hardly alone in making sure that those who manage its money are rewarded handsomely whether they win or lose.

In Massachusetts, the executive director of the state employees pension fund quit earlier this year while the Legislature contemplated a pay cap. Michael Travelgini, was paid a base salary of $322,000. In 2008, even though the fund’s investments lost money, they did better than other states, so he was given a $64,000 bonus.

Travelgini said the state’s investment managers weren’t paid enough. He’s going through the revolving door to work at a hedge fund that does business with the state, though he won’t solicit the state for a year.

These compensation issues are a strong reminder for the rest of us the lingering issues of the bubble culture. The people who run the pension systems seem to have been infected by the culture of Wall Street and forgotten whose money they’re managing. It will take a powerful disinfectant to remind them.

Around the Web / Executive Pay / Martin Column - 09/27/2010

Around The Web: Nothing Natural About Financial Disaster

Maybe this is the one that will finally cause people to take to the streets.

The crack investigative journalists at Pro Publica and NPR’s Planet Money have uncovered the latest evidence of how the big bankers schemed to keep their bonuses and fees coming by creating a phony market for their mortgage-backed securities, which were tumbling in value as the housing market tanked in 2006.

The Pro Publica/NPR investigation shows how the bankers from Merrill-Lynch, Citigroup and other “too big to fail” financial institutions undermined a system of independent managers who were supposed to be evaluating the value of the securities. The banks simply browbeat the managers into buying their products rather than face losing the banks’ business.

Meanwhile, the bankers continued to make money off every deal, even though the rest of us paid a high price for their continued trafficking in complicated financial trash.

Then when the entire business unraveled in the financial collapsed, these bankers got a federal rescue and a return to profitability.

Pro Publica acknowledges it’s complex material, so they’ve accompanied their investigation with a cartoon and graphs to make it easier to understand.

My WheresOurMoney colleague Harvey Rosenfield wrote recently about the falseness of the claim that either Hurricane Katrina or the financial collapse were primarily natural disasters. The NPR/ProPublica investigation is yet more evidence that the bankers’ irresponsible self-dealing turned a downturn in the housing market into full-blown catastrophes.

Writing on his blog Rortybomb, Mike Konczai hones in on the stark contrast in the fate of the bankers and many of the rest of us:  “Remember that by keeping the demand artificially high for the housing market in the post-2005, these banks created its own supply of crap mortgages. These mortgages inflated and then crashed local housing prices. Meanwhile the biggest banks got tossed a lifeline and homeowners can’t even short sale their home much less have a bankruptcy judge that can set their mortgage to the market price with a large penalty. And everyone lines up to tell those people what ‘losers’ they are, how `irresponsible’ they’ve been for being pulled into becoming the artificial supply for artificially created demand of housing debt. What sad times we are living in.”

Meanwhile the SEC is supposedly investigating the self-dealing. We’re still waiting for the tougher new SEC that the Obama administration promised. In the latest indication that we may have to wait a while longer, a federal judge has rejected the agency’s proposed $75 million settlement with Citibank over charges that the bank misled its own shareholders about the shrinking value of its mortgage-backed securities. The SEC said the bank misled investors in conference calls by saying its subprime exposure was $13 billion, when it was actually more than $50 billion. Among the pointed questions the judge asked: Why should the shareholders have to pay for the misdeeds of the bank executives, and why didn’t the SEC go after more of the executives?

The judge’s questions about accountability mirror the uneasy questions a lot of us have about this administration’s reluctance to take on the bankers whose behavior led to ruin for the country while they profited.

Around the Web / Derivatives / Executive Pay / Martin Column / Outrage / Securities and Exchange Commission (SEC) / Too Big To Fail / Uncategorized - 08/31/2010

Around the Web: Volcker Rules - Not!

Until the morning of January 21, 82-year-old former Federal Reserve president Paul Volcker had been a lonely and largely ignored figure among President Obama’s economic advisers.

Volcker seemed to be the only one of Obama’s advisers not under the spell of the “too big to fail banks” and their highly touted innovations.

Volcker was especially vocal about protecting the public from the financial world’s riskier innovations. As he told a financial conference last year, “Riskier financial activities should be limited to hedge funds to whom society could say: ‘If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected.’ ”

It was Volcker who had said that the only financial innovation to benefit consumers in the last 20 years was the ATM card.

But he wasn’t getting much traction with the president and his advisers.

Then the Democrats lost Ted Kennedy’s Senate seat.

In a lurch back toward the populism he had embraced during his campaign, President Obama hastily reached out for Volcker.

During a press conference, the president endorsed something he called the Volcker rule as an essential plank of his financial reform plan. That rule would restrict banks from risky proprietary trades with their own (borrowed) money.

Here’s what the president said:

“Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.  If financial firms want to trade for profit, that's something they're free to do.  Indeed, doing so –- responsibly –- is a good thing for the markets and the economy.  But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.”

For more on proprietary trading and the Volcker rule, read this from Rortybomb’s Mike Konczal and the NYT. For more about why the Volcker rule was a good idea, see this from WSJ’s Dealbreaker.

Obama mentioned the Volcker Rule a couple more times, as did the man who was marshaling financial reform through the House, Rep. Barney Frank.

But neither the president nor anybody else in the Democratic leadership ever mounted a public campaign to make it an essential part of reform. In fact, within a month, the president was already backing off his support of the Volcker rule.

And now, like many other parts of the reform that would have protected consumers and inconvenienced banks, it has been largely gutted.

Bloomberg reports “lobbying by banks and congressmen sympathetic to Wall Street’s views, as well as some administration members in the banks’ defense, trampled the views of Volcker and others who favored a stronger proposal.”

The weaker provisions won’t even go into effect for as many as 12 years.

It would have been one thing for Obama and the Democrats to go down swinging on the Volcker Rule. But they didn’t even put up much of a fight.

If you’re as disappointed as I am with the president’s lack of leadership on this, after he made such a big deal about it, why not let him know?

Around the Web / Financial Reform Legislation / Martin Column / Paul Volcker / President Barack Obama - 06/30/2010

Around the Web: Landmark or Pit Stop?

I understand why people feel the need to tout the historical significance of the financial reform package that passed the conference committee. The president needs it politically and those who support him want to give him credit for getting anything at all in the face of the onslaught of bank lobbyists. Lots of folks worked very hard against tremendous odds to get something passed.

But I think a more sober analysis shows that what’s been achieved is pretty modest. It hands over many crucial details to the same regulators who oversaw our financial debacle.

Summing up, Bloomberg reports: “Legislation to overhaul financial regulation will help curb risk-taking and boost capital buffers. What it won’t do is fundamentally reshape Wall Street’s biggest banks or prevent another crisis, analysts said.”

Zach Carter characterizes it as a good first step. The Roosevelt Institute’s Robert Johnson writes: “This first round was not the whole fight. It was the wake-up call and the beginning of the fight. Rest up and get ready. There is so much more to do.”

The question is when we’ll get the chance to take the additional steps that are needed. The public is skeptical that the new rules will prevent another crisis, according to this AP poll. The Big Picture’s Barry Ritholtz grades the various aspects of the reform effort. Overall grade? C-. Top marks go to the new minimum mortgage underwriting standards. But legislators get failing grades for leaving four critical issues on the table: “to big to fail banks,” bank leverage, credit rating agencies and corporate pay.

Ritholtz saves some of his harshest evaluation for the proposal to house the new consumer protection agency inside the Federal Reserve, which he finds “beyond idiotic.”

Around the Web / Executive Pay / Financial Reform Legislation / Martin Column - 06/25/2010