No-fault settlement fuels never-ending bailout

Two striking details reveal the true nature of the highly touted national foreclosure settlement.

The first is that the banks admit no wrongdoing.

Here’s a sample of the illegality and the misconduct with which the federal authorities and the 49 state attorneys general charged the banks. It goes way beyond robo-signing, the banks’ widespread practice of using forged or unverified documents in the foreclosure process:

▪                Providing false or misleading information to borrowers,

▪                Overcharging borrowers and investors for services of dubious value,

▪                Denying relief to eligible borrowers,

▪                Foreclosing on borrowers who were pursuing loan modifications,

▪                Submitting forged or fraudulent documents and making false statements in foreclosure and bankruptcy proceedings

▪                Losing or destroying promissory notes and deeds of trust,

▪                Lying to borrowers about the reasons for denying their loan modifications,

▪                Signing affidavits without personal knowledge and under false identities,

▪                Improperly charging excessive fees related to foreclosures

▪                Foreclosing on service members on active duty

▪                Making false claims to the government for insurance coverage

But the feds and the state attorneys general want to let the banks off the hook without having to admit to any of it.

This is the kind of no-fault settlement for which the Securities and Exchange Commission has increasingly come under fire, [but which companies agree to as a cost of doing business. For example, the national foreclosure settlement only costs the banks about $5 billion in real money, a drop in the bucket compared to their profits. It’s not enough to actually deter the banks from future bad conduct.

The rest of its estimated $25 billion value is supposed to be determined by a complex series of credits that the bankers get for what they should be doing anyway – modifying mortgage loans and offering principal reductions to underwater homeowners.

The authorities still have to get a judge in Washington, D.C. to sign off on it.

Too bad the settlement wasn’t presented to U.S. District Judge Jed Rakoff in New York, who’s been adamant in questioning no-fault settlements and refusing to rubber stamp them.

His comments, though directed at the SEC, are relevant to the national foreclosure settlement.

Rejecting an SEC no-fault settlement with Citigroup last November, Judge Rakoff said that such settlements are “hallowed by history, but not by reason” and create the potential for abuse because they ask “the court to employ its power and assert its authority when it does not know the facts.”

Rakoff questioned what government officials would get from the settlement “other than a quick headline.”

Though he was talking about an SEC settlement with Citigroup, he could have been describing the national foreclosure settlement, which exacts too little a price from banks for their wrongdoing and offers too little to homeowners.

The settlement provides that banks will spend $17 billion on principal reductions and another $3 billion on refinancings. But according to an analysis by the Brooking Institute’s Ted Gayer, less than 5 percent of the nation’s 11.1 million homeowners will qualify for help under the settlement.

It also presents the general laundry list of wrongdoing without any specificity – it names no names or specific facts. One of the big criticisms of the foreclosure settlement is that the authorities didn’t do a real law-enforcement style investigation to assemble a case before sitting down to “negotiate” the settlement, weakening their hand with the banks.

The second aspect of the foreclosure settlement that reveals its weakness is how the authorities are suggesting they’re going to monitor whether the banks will comply. Just exactly how are we going to make sure that the big banks deliver even the relatively small number of loan modifications and principal reductions they’ve promised?

According to the settlement, the banks themselves are going to self-report on their progress.

Then an “independent” monitoring committee is going to check these reports, and then levy fines if the banks aren’t hitting certain targets. But the monitors consist of the same regulators who have already facilitated the banks’ earlier failed foreclosure mitigation efforts, and have touted this current settlement as a “landmark.” Having already proved their reluctance to get tough on the banks so far, how much incentive do they have to get tough with banks later on?

It sounds flaky to me.

The whole robo-signing scandal stems from banks use of forged, false or unverified documents, poor recordkeeping and the inability of anybody in the courts or government to get the banks to follow the law or hold them accountable.

On top of that, when it comes to keeping their previous commitments to deliver loan modifications in earlier attempts to address the foreclosure crisis, the banks have failed miserably.  The investigative journalism outfit Pro Publica has assembled reams of data about the shortcomings of previous government-sponsored loan modification efforts.

So now we think it’s a good idea for them to police themselves?

The entire settlement looks more like the government’s latest efforts to prop up the nation’s floundering too big to fail banks than a real attempt at either law enforcement or robust help for homeowners and the housing market.

Where is Judge Rakoff when we really need him?

 

Foreclosure / Martin Column / Outrage / Too Big To Fail - 03/14/2012

Citizens United Was Not the First (And May Not Be the Last)

Citizens United is hardly the first time that five justices of the U.S. Supreme Court have granted corporations special rights under the Constitution. In fact, you can chart the twists and turns in the politics of our country by the Supreme Court’s interpretation of the Constitution’s protection of big business.

During the First Gilded Age, when utility and railroad companies accreted enormous political power, the nation’s high court routinely blocked progressive reforms on the ground that they interfered with “freedom of contract.” The era is known by its most controversial decision, Lochner vs. New York, in 1905. The U.S. Supreme Court struck down a state law that barred bakers from being forced to work more than ten hours a day.  The Court relied on a creative interpretation of the Fourteenth Amendment, which commands “No State shall … deprive any person of life, liberty, or property, without due process of law…”

Just as Citizens United equates money with freedom of speech under the First Amendment, the five to four majority of the Supreme Court in Lochner equated “liberty” with the “right” of a company to impose onerous and often dangerous working conditions on men, women and children. This judicial policy of deregulation combined with speculation and greed to produce the Great Depression. But President Roosevelt’s efforts to rescue the nation from the financial abysss were blocked by the Supreme Court, until Roosevelt provoked a constitutional crisis by proposing to add additional justices to the Supreme Court (one for every justice over seventy years old!) to create a majority that would support his legislation. In effect, FDR chose to fight politics on the high court with more politics. Having impaired the Court’s integrity and independence, the pro-big business Justices backed down, permitting New Deal legislation to take effect. Twenty years later, the Supreme Court acknowledged that, “the day is gone when this court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought.”

Though the Supreme Court ultimately stopped second-guessing the policies enacted by the Legislative Branch under the guise of interpreting the Constitution, its decision in Citizens United reflects an increasingly politicized Supreme Court. And what goes around, comes around. Even as Citizens United has ignited a grassroots rebellion and calls for a constitutional amendment to undo the Supreme Court's damage to our democracy, scholars and pundits on the corporate-funded right are promoting the resurrection of Lochner.  The legal attack on the 2010 federal health care reform can be seen as one manifestation of a revived challenge to the power of government to regulate industry.  We’ll see how this plays out with the current majority of the Supreme Court when they begin to hear arguments against universal health care later this month.

Citizens United / Harvey Column / Supreme Court - 03/12/2012

Nice recovery, if you can afford it

According to economists and the media, in June 2009 we came out of the deepest recession since the Great Depression and we’ve been on the upswing since. Unemployment’s down, with corporate profits recouping their losses from the recession and hitting new highs along with the stock market.

But it really continues to be a tale of two economies: one that works for the 1 percent and another, in which the 99 percent are increasingly falling behind.

For some striking evidence, look at the recent study by a prominent economist reported in the New York Times.

As the recovery took hold in 2010, UC Berkeley economist Emmanuel Saenz reported, the top 1 percent captured 93 percent of the income gains.

Top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent. That tiny gain followed a drop of nearly 12 percent over the previous two years – the largest two-year drop since the Depression.

Other signs on the economic landscape also show the wreckage for those not protected by wealth.

Despite a dip in unemployment and the most the most recent more optimistic job creation numbers, the economy isn’t producing enough jobs on a sustained basis to permanently reduce unemployment. And many of the jobs that have been created pay severely reduced wages. Under the two-tiered wage systems increasingly favored by U.S. corporations, new blue-collar jobs pay start at a steeply lower hourly wage than they did in the past – $12 to $19 an hour as opposed to $21 to $32.

One in seven Americans are on food stamps, while high gas prices put the squeeze on low-income and working people alike. Meanwhile, foreclosures are on the rise in the wake of the state attorneys general announcement of a settlement over foreclosure fraud charges with the biggest banks, though the details of the settlement still haven’t been released.

The Occupy movement has put the great divide between the 1 percent and the 99 percent on the political map, forcing President Obama to acknowledge income inequality in his state of the union speech as the “defining issue” of our time, while the Republican’s front-running presidential candidate, Mitt Romney has dismissed such concerns as “envy.”

Obama’s concern about inequality has yet to translate itself into effective action, and it’s unclear, given the strong ties he’s had to the big banks and corporate titans, whether he’s capable of delivering.

Occupy, after delivering a much-needed jolt to the public discourse, likewise, has also yet to show that it can go beyond influencing the debate to actually winning gains for the 99 percent and reducing the widening inequality gap.

It’s no coincidence that income inequality has accelerated as large corporations have grown more influential in our political system through the clout of their cash, encouraging deregulation, tax cuts, trade deals and a host of other policies that benefit the 1 percent and disadvantage the rest of us. The fight against income inequality and for a more fair economy inevitably leads to the fight to rid our government of toxic corporate donations. Find out about WheresOurMoney’s constitutional amendment to undo Citizens United, the U.S. Supreme Court’s terrible decision that unleashes unlimited, anonymous corporate political donations, here.

 

 

 

Income inequality / Jobs crisis / Martin Column / Occupy - 03/09/2012

Freakout in the Bonus Bubble

Did you hear the one about the hedge fund employee complaining that he’s got to scrape by on $350,000 this year because of his lower bonus?

This is not an anti-banker joke, it’s a Bloomberg News story.

In the story, reporter Max Abelson gets finance industry workers to open up about their feelings about their financial sacrifices in the wake of a reduction in bonuses this year.

One hedge fund marketing director acknowledges that he is “freaking out, like a rat in trap on a highway with no way out” because he will be unable to keep up with his kids’ private school tuition, summer rental and the upgrade to his Brooklyn duplex.

Bonuses were down about 14 percent across the financial industry last year in the wake of a second annual plunge in profits of more than 50 percent.

Noting that profits plunged a lot more steeply that the bonuses, the New York Times Dealbook column, which often takes the Wall Street view, couldn’t summon much sympathy. Reporter Kevin Rose sniffed, “It is apparently going to take more than shrinking bank profits to put a big dent in Wall Street bonuses.”

Wall Street bankers remain by any measure well paid, with an average annual compensation, including bonuses, of $361,180 in 2010, the last year for which averages are available. That’s 5 ½ times the average pay for Americans.

So to help put the bankers’ problems in perspective for the rest of us who might be having a hard time working up any empathy, Bloomberg rustles up a high-priced accountant.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”

What a load of malarkey.

What the Bloomberg report neglects to mention is that the financial industry actually compensated for the lower bonuses by raising bankers’ salaries.

While some bank defenders claim the brouhaha over bonuses is just envy, a report from New Bottom Line earlier this year puts the bankers’ bonuses into sharp focus. It found that bankers’ total compensation at the six biggest banks amounted to $144 billion last year – second only to the total paid out in 2007 before the meltdown.

Since the 2008 financial collapse, the banks we bailed have paid out a total of half a trillion dollars in compensation.

According to the report, if the bankers let go of just half of their compensation packages, banks could afford to underwrite principal on all the underwater mortgages in the country.

If bankers chose to forgo just 72% of their bonuses, they could fill the nearly $103 billion budget gap plaguing the nation’s city and states.

The bankers aren’t getting this money because they have contributed so much to the well being of the country. They’re getting it because they’ve captured both the political system and their regulators, who continue to do the bankers’ bidding. We can’t expect them, the bankers or the politicians or the regulators, to stop on their own.

We’re going to have to do it.

Check out our constitutional amendment to undo U.S. Supreme Court’s Citizens United ruling, which opened the gates wide for bankers and other corporate titans to influence our government with an unlimited and anonymous tidal wave of cash.

 

Bonuses / Martin Column - 03/06/2012

Capital Punishment by Corporate Proxy

There are two kinds of death penalty in this country. One of them I bet you’ve never really thought about.

First there’s the death penalty imposed by the state for particularly heinous crimes. This one’s been churning for decades – we all know about it, and many of us have strong feelings about it. In 1978, for example, California voters passed an initiative authorizing capital punishment for an expanded list of crimes. A few days ago, a coalition of organizations announced they had collected enough signatures to put a measure on the November ballot that would ban the death penalty in California.  Make no mistake: this is one of those social issues that inspire passions of biblical proportions. Whichever way voters go on this, it’ll be an intense, high visibility campaign... over the fate of 719 people on California's Death Row. In 2011, California executed two people; three in 2010.

Then there’s the death penalty almost nobody ever mentions, but claims many more victims – all of them innocent.

I’m talking about the one carried out on a daily basis by corporations that put profits over people’s lives. Consider the death toll that results when insurance companies refuse to sell a health insurance policy at a reasonable price. A study by Harvard researchers concludes that nearly 45,000 Americans die each year because they lack health insurance and go without the care they need. About 5,300 of those are in California – more than the number of homicides and suicides in the state combined.

Deaths due to malpractice by medical personnel in hospitals alone are estimated at 195,000 annually.

Water, air and soil pollution is reported to be responsible for forty percent of all deaths worldwide.

Most of the corporate policies reflected in these statistics on fatalities are based on a simple financial calculus of profit v. loss. The prototypical example is the decision by Ford executives in the 1970s to manufacture a car with a known fatal defect: a gas tank that could explode in the event of a moderate car accident. The company’s engineers were aware of the flaw, but the cost of the repair – $11 per vehicle – was deemed too expensive. Ford decided it’d be cheaper to pay the medical and court costs of the victims and their next of kin. You can read Ford’s cost/benefit analysis here.

Who knows how many Americans have died an early death after losing their jobs, their homes and their life savings in the financial collapse engineered by Wall Street speculators four years ago?

Why isn't there more discussion of this form of capital punishment? As I explained in a book on medical malpractice years ago, mayhem perpetrated behind closed doors in the suites isn’t as accessible, nor as easily translated into graphic videos and television news stories, as is crime in the streets.

“Corporations are people,” Mitt Romney candidly explained to an angry American last year. The U.S. Supreme Court’s 2010 decision in Citizens United indisputably granted these inanimate creatures the freedom of speech that once belonged to humans only. Abetted by government incompetence or deliberate inaction, some corporations have gained even greater power: the power to make life or death decisions for many Americans.

I don’t mean to diminish the importance of the debate over the death penalty here in California; the point made by the supporters of the new initiative to ban capital punishment is that a relatively small number of prisoners are costing everyone else a ridiculous amount of money. But we citizens ought to pay at least the same amount of attention to the de facto death penalty that corporate greed can impose.

Citizens United / Harvey Column / Supreme Court - 03/05/2012

A "landmark" we still can't see

For the most part, the big media and housing nonprofits have bought the government’s hype on the recent foreclosure fraud settlement, lauding it with great fanfare as a historic landmark.

It’s a good thing that not all our national landmarks are as phony as that settlement has turned out to be.

If they were, none of them would still be standing.

If big media had taken a more objective view, rather than just copying the authorities’ press releases, they might have chosen another, much less dramatic description, such as “yet to be released.”

The best description might take a few more words: “designed to make the Obama administration and state attorneys general look like they’re doing something while letting banks off the hook and leaving homeowners out in the cold and taxpayers and investors holding the bag.”

The settlement continues to raise more questions than it answers. For example, California’s attorney general Kamala Harris announced that the state would get $18 billion in foreclosure relief from the national settlement.

But then a couple of days later, Jeff Collins of the Orange County Register reported that Harris hadn’t offered a complete explanation.

As it turns out, the state might get only $12 billion.

The amount, Harris’ people explained to Collins, depends on which of two methods you used to calculate it.

“There are two sets of numbers,” said Linda Gledhill, a Harris spokeswoman told Collins.

Hah! Who knew?

One method calculates the cost of the settlement to banks, which as explained in the settlement’s “executive summary” are required to provide $25.2 billion in a variety of forms of assistance to borrowers. But providing that assistance doesn’t actually cost them $25 billion.

Apparently the settlement only requires the banks to pay out $5 billion in cash, with the balance consisting of a yet to be released complex system of credits that the the government will give the banks credit for offering the assistance, with details yet to be announced.

Meanwhile, the Financial Times (registration required) has been parsing the sparse publicly available details about the settlement. Their prognosis: The settlement shifts the costs of modifying mortgages from the banks to the taxpayers and to investors who bought securitized mortgages. As a result, it resembles another bailout more than it does a settlement.

Neil Barofsky, the former Inspector-General of the Troubled Asset Relief Program told the FT:

“If the banks are doing something under this settlement, and cash flows from taxpayers to the banks, that is fundamentally an upside-down result.”

And keep in mind that the actual settlement agreement still hasn’t been released yet, more than ten days after it was announced. What exactly is the hangup?

Do the authorities really expect us to take their word for it? How gullible do they think we are?

Remember how the 2008 bank bailout started: a three-page document submitted by the treasury secretary.

As my colleague Harvey Rosenfield warned when the President first announced the settlement, we’ll be in for a lot of surprises when the actual settlement is actually released, whenever that will be.

And something tells me they won’t be the good kind of surprises.

California Attorney General Kamala Harris / Foreclosure / Martin Column / President Barack Obama / SIGTARP - 02/22/2012

The Supreme Court Shot the Sheriff

"Corporations are people." Two years ago, that's what five justices of the United States Supreme Court gaveled into our Constitution, ruling in the now-infamous Citizens United case that spending money is a form of "freedom of speech" and that when corporations put up money to elect people, they are just exercising their First Amendment rights.

Two months ago, the Montana Supreme Court said wait a minute. It upheld a state law, enacted by Montana voters through the initiative process in 1912, that bars corporations from trying to influence elections. The justices of the Montana Supreme Court argued that the Montana law is different than the federal law that the US Supreme Court threw out, relying on what they described as an especially disturbing history of corporate corruption in Montana government.

When it comes to constitutional law, you can't get closer to the Gunfight at the O.K. Corral than this, as I recently explained.

That's a better analogy than you think.

The campaign finance laws, designed over decades to slow down the accretion of political power by special interests, were like a lazy sheriff in a western gold rush town - barely able to keep up with the legal and illegal maneuverings of outlaw corporateers, while average citizens became increasingly like bystanders in their own democracy.

Then the Supreme Court rode into town and shot the sheriff.

Now we are back to the Wild West, with corporate gunslingers targeting anyone - officials and civilians – who are in the way of their profits and prerogatives. Corporate money, often disguised and hidden behind a fortress of deception, has charged through the Republican presidential primaries, not to mention an untold number of state elections throughout the country. The full fury of this greed-driven onslaught will become apparent in the fall, as Wall Street and the .01 percenters weigh in not just to defeat President Obama (who has not cooperated enough) but any number of other candidates on ballots nationwide, not to mention initiatives put on the ballot by real, live citizens detouring corrupt legislators by taking matters into their own hands.

You can already sense defeat among government officials trying to figure out what defenses, if any, are left against the corporate hordes - the CEOs in their sky-high boardrooms quietly counting dollars and deciding which politicians have earned their financial support (or can be bought); the lobbyists with unlimited expense accounts to wine, dine and drive the quid pro quo; the vast underground of consulting firms and PR flacks that follow corporate orders.

No one could have imagined that Montana, with a population barely larger than a big city, would rise to challenge the United States Supreme Court. The Montana court ruling is an inspiring attempt to evade the deathly embrace of Citizens United and, at the same time, inescapably a courageous challenge to the ideologues now re-writing the nation's laws. It can be found here (PDF).

"Western Tradition Partnership" – the shadowy entity that was caught violating Montana's anti-corrupt practices act – immediately challenged the Montana decision, and last Friday, United States Supreme Court Justice William Kennedy (chief author of the Citizens United decision) issued an order blocking the Montana court ruling from taking effect until the court decides what to do with the appeal.

At least two of the Supreme Court justices who disagreed with their colleagues in Citizens United are hoping the Court will reconsider that ruling. In Friday's order, Justices Ginsberg and Breyer stated:

Montana’s experience, and experience elsewhere since this Court’s decision in Citizens United v. Federal Election Comm’n, 558 U. S. ___ (2010), make it exceedingly difficult to maintain that independent expenditures by corporations “do not give rise to corruption or the appearance of corruption.” .... [The appeal] will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway.

Observers of the Court think that's a lost cause. Renowned constitutional scholar Erwin Chemerinsky believes that the U.S. Supreme Court will reverse the Montana Supreme Court by the same five to four majority in Citizens United. Still, Citizens United's impact on America's democracy has already been catastrophic, and support for proposals like ours to amend the Constitution has spread across the United States and transcends partisan labels. At the same time, Justices Scalia, Thomas and Alito are under fire for their close ties to conservative pro-business organizations, further undermining confidence in the impartiality of the nation's highest court. I would not underestimate the power of public opinion to affect the outcome of this showdown – if not now, then in the not too distant future of our country.

 

 

Citizens United / Harvey Column / Uncategorized - 02/21/2012

“There Oughta Be A Law” – Want to Play?

I wrote last week that until we change the Constitution to permanently kick corporate money out of politics, we can forget about Congress protecting us from cell phone company contracts that strip consumers of their right to go to court.

I got a lot of interesting email on that post, because most people who read “Where’s Our Money” and other blogs think there “oughta be a law” of some kind. But no matter what you believe in or where you stand on the ideological spectrum, anybody who is trying to make America a better place for human beings is going to have a hard time overcoming the corrupting effect of corporate money on public officials and the democratic process.

Think I’m wrong? Here’s my challenge:

Name a policy issue that involves our power as voters, consumers, workers, taxpayers or even shareholders and I will show you how corporate money has derailed any serious progress on the matter.

If you don’t want to post it publicly, just ask that your comment remain private, or send me an email.

The same day I mused on our new status as second-class citizens courtesy of the US Supreme Court’s Citizens United decision, President Obama’s re-election campaign endorsed a constitutional amendment to reverse that ruling. "The President favors action—by constitutional amendment, if necessary—to place reasonable limits on all such spending," the Obama campaign said. This came in the context of a another controversial move: the President had decided to encourage supporters to donate to one of the Super PACs supporting him. “Super PACs” are the shadowy groups that the Supreme Court freed of restraints on political spending in Citizens United. Tens of millions of dollars, most of it from unidentified corporations and wealthy donors, have poured into the Republican primaries. But that’s just a fraction of what Super PACs are expected to spend to unelect Barack Obama in November.

In a stark example of biting the hand that has fed it, Wall Street has made it clear that it is offended even by the timid financial reforms mustered by the Obama Administration over the last few years. Now that the taxpayers have resuscitated the Money Industry, it wants to go all the way back to the insane deregulatory policies that pushed the nation into a depression in 2008.

There was a lot of critical commentary about the announcement, not just by hypocrite Republicans like John Beohner, but also by commentators on the left who feel Obama betrayed his commitment to campaign finance reform.

I for one can’t see how any candidate from either party can afford not to play by the deregulated rules of legalized bribery blessed by the Supreme Court. Like Obama’s campaign manager said, “unilateral disarmament” in the face of a massive attack of big money makes no sense. Our electoral system now assures the survival only of the financially fattest.

But will Obama really fight for the 28th Amendment? It’s one thing to endorse the concept and quite another to press for a change in the Constitution that would strip the corporate establishment of its power to elect candidates and dictate laws. The President has the bully pulpit and phenomenal power, but like the rest of us, he can't hope to pass any laws if corporations maintain a hammerlock over the legislative branch. No one knows better than he how the powerful insurance lobby turned health care reform into a corporate boondoggle. If President Obama thinks there oughta be a law, any meaningful law, in his second term, he's going to have confront Citizens United.

 

Citizens United / Congress / Harvey Column / Supreme Court / Uncategorized - 02/13/2012

The Truth About the AG Mortgage Settlement...."Coming Soon"

The "settlement agreement" between state attorneys-general, the Obama Administration and five large banks over unlawful home foreclosures was front-page news everywhere this morning. Only one problem: you can't get a copy of the agreement itself.  All we have is a few hand picked details promising "relief" to defrauded borrowers, and pledges by the banks that they'll obey the law from now on.

Check out the special web site, which proudly trumpets the "landmark settlement," the "historic"agreement and the "landmark relief," but offers only a factsheet entitled "Servicing Standards Highlights" that purports to summarize the deal, and a bunch of phone numbers for the banks and the AGs.

Everything else is "coming soon."

This is an outrage, and frankly, the news media and all the rest of the pundits out there ought to have demanded the full and complete document before heralding the settlement as a major event. To my astonishment, most of the reports I read today failed to note that the actual settlement agreement has not been released to the public.

Ever heard of the lawyer's favorite maxim, "the devil's in the details"? The banks here were accused of failing to comply with legal technicalities like proving that they actually held the mortgage to the homes they foreclosed on.  When it comes to themselves, the bankers know those details matter: You can be sure that their lawyers have negotiated and reviewed every single comma. Shouldn't American taxpayers and homeowners, who have borne the terrible brunt of these banks' gross irresponsibility and greed for the last three years, had a chance to review the proposal before our elected officials signed on the dotted line?

I've seen this kind of stunt many times before - for example,  a settlement of a lawsuit that was described by the parties in a press release as returning $500 million in overcharges to insurance customers. Months later, the settlement agreement itself is quietly filed with the court, and surprise! You had to fill out a ten page claim form to get your money, and the insurance company got to keep whatever's left. (As a lawyer for one of the policyholders, I joined with Consumer Watchdog in an objection to the settlement.)

It is no little irony that many people lost their homes because they didn't read the fine print of the loans, or couldn't understand what it meant. But when it comes to the settlement of the fiasco, no one can read it even if they want to. We have nothing in print, fine or otherwise, beyond the press materials.

Remember you heard it first here: there'll be lots of surprises when we finally get to look at the details of this deal.

 

 

Foreclosure / Foreclosures / Harvey Column - 02/10/2012

Betrayals and Bailouts

In the latest betrayal from Freddie Mac, the same clever devils who helped bring us the financial collapse three years ago, there is unfortunately no surprise.

The high rollers who run the company, whose mission is supposed to be to support homeowners, apparently still think it’s a good idea to use our homes as a casino.

That’s the conclusion reached in an investigative report by NPR/Pro Publica, which found that Freddie Mac had placed billion-dollar investment bets that paid off when borrowers couldn’t refinance from high-interest mortgages into more affordable loans.

According to the NPR/Pro Publica report, Freddie Mac increased “these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.”

In effect, Freddie Mac combined high interest mortgages into packages of securities and sold some to speculators, but it kept the ones that would result in the biggest profits so long as the homeowner never refinanced. Freddie Mac stands to lose if its customers refinance and taske advantage of lower rates.

Freddie Mac was betting against homeowners even though taxpayers had bailed out it and its larger sister, Fannie Mae and the government placed the under a conservatorship after the housing bubble burst in 2008 and it faced mounting mortgage losses.

Though Freddie Mac and Fannie Mae are known as government-sponsored entities, they in fact have been private, profit-making entities for four decades.

Congress created Fannie and Freddie as private companies with a public mission ­– supporting homeownership, by insuring the mortgages issued by commercial lenders. But the companies had government officials sitting on their boards, and got breaks on taxes and recordkeeping requirements.

During the real estate bubble, the two firms adopted all the bad behavior of other big financial institutions – and worse. Authorities found that at Fannie Mae, senior executives cooked the books between 1998 and 2004, making it look like they hit profit targets in order to justify $115 million in bonuses. Three top executives eventually reached a $31.4 million settlement [with govt or private private pre-bailout] – without admitting guilt.

Executives at the Freddie Mac and Fannie Mae spent millions on campaign contributions and lobbying, courting both Democrats and Republicans (including presidential contender Newt Gingrich) in a successful campaign to ward off more stringent regulation and tighter reins on their bookkeeping, all the while taking on greater amounts of risk, establishing close ties with one of the worst offenders in spreading toxic loans, Countrywide Bank. Meanwhile executives at the two firms were paid lavishly, even after the bailout.

Republicans love to blame the GSEs for the financial collapse, labeling them do-gooder agencies who went wrong in pursuing too aggressively an agenda of providing housing to low-income people.

In his excellent autopsy of the financial collapse, “The Great American Stick-up,” Robert Scheer finds merit in much of the conservative critique. He labels the Fannie Mae and Freddie Mac “highly culpable” for causing the financial crisis – but not for the reasons Republicans say. While the GSEs used the rhetoric of helping people, their efforts to boost low-income and middle-class wasn’t their primary mission, or the reason for their downfall.

Fannie and Freddie didn’t go under because they were trying too hard to help people; it was because they were doing everything they could to super-charge their profits, just like the Wall Street firms.

Scheer quotes the testimony of a one-time regulator, Armando Falcon, who faced stiff opposition from Republicans as well as Democrats when he tried to rein in Fannie and Freddie. Falcon testified in April 2010 before the Financial Crisis Inquiry Commission, which investigated the causes of the meltdown. “The firms would not pursue any activity…unless there was a profit to be made,” Falcon said. “Fannie and Freddie invested in subprime and Alt A mortgages in order to increase profits and regain market share. Any impact on meeting affordable housing goals was a by-product of the activity.”

 

 

 

 

Executive Pay / Foreclosure / Martin Column - 02/07/2012