Are Victims of Mortgage Lender Fraud about to get their Justice?

The DOJ has filed a lawsuit against BOA on so-called “hustle mortgages” that accuses the lender of selling bad mortgages to Fannie and Freddie.  I’m going to follow this, believe me, because it represents a ‘big deal’ for any one that does research in banking, lending, or moral hazard.  I’m not a lawyer–nor do I play one on TV–so the finer parts of the law are not in my knowledge ballpark.  However, I expect this to influence both lending behavior and the willingness of larger banks to merge with banks in bad shape.  The latter is a trick used by regulators to deal with a problem bank.  Bank of America is basically being sued over mortgages originated through a Countrywide program called the “hustle mortgage”.  It supposedly continued the program after its merger to Countrywide.

This is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac.

Manhattan U.S. Attorney Preet Bharara said: “For the sixth time in less than 18 months, this Office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill. As described, Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects. These toxic products were then sold to the government sponsored enterprises as good loans. This lawsuit should send another clear message that reckless lending practices will not be tolerated.”

FHFA Inspector General Steve A. Linick said: “To prevent fraud, conducting quality reviews and complying with underwriting standards are critical. Countrywide and Bank of America allegedly engaged in fraudulent behavior that contributed to the financial crisis, which ultimately falls on the shoulders of taxpayers. This type of conduct is reprehensible and we are proud to work with our law enforcement partners to hold all parties accountable.”

SIGTARP Special Inspector General Christy Romero said: “The complaint filed today alleges serious and significant misrepresentations that Bank of America made before and during the time taxpayers invested $45 billion in TARP funds in the bank. SIGTARP and its law enforcement partners will investigate allegations of wrongdoing by TARP recipients, particularly conduct that results in substantial losses to the government and taxpayers.”

Are we beginning to see the DOJ move on the banksters?  Has this got anything to do with the stampeded to Romney by all things Wall Street?

The Bank of America lawsuit is the sixth brought against a major U.S. bank by the Justice Department in less than 18 months over what Bharara called “reckless mortgage practices in the lead-up to the financial crisis.”

This month, the government sued Wells Fargo & Co. (WFC), the biggest mortgage lender and servicer, over claims the San Francisco-based bank made reckless loans that caused losses for a federal insurance program when they defaulted. The complaint alleges misconduct over more than a decade related to the bank’s participation in a Federal Housing Administration program and follows similar cases against other lenders including Citigroup Inc. (C) and Deutsche Bank AG. (DB)

A state and federal task force is investigating misconduct in the bundling of mortgage loans into securities before the housing bust. The group’s first legal action was this month, when New York Attorney General Eric Schneiderman sued JPMorgan Chase & Co. (JPM), the biggest U.S. lender, over defective mortgage loans underlying securities, a suit he said would act as a template for other such cases. The bank has denied wrongdoing.

Fannie Mae and Freddie Mac losses totaled more than $1 billion, Bharara said. The Justice Department’s complaint was brought under the federal False Claims Act, which allows for triple damages.

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

“Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters,” Larry DiRita, a spokesman for the Charlotte, North Carolina-based company, said in an e-mailed statement. “The claim that we have failed to repurchase loans from Fannie Mae is simply false. At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

The government said in the complaint that Bank of America “systematically removed every check” in the issuance of mortgages and then sold the “flawed” mortgages to Fannie Mae and Freddie Mac. Both relied on Bank of America’s assurances that the mortgages they purchased complied with their standards, the U.S. said.

According to the complaint, Countrywide initiated “the Hustle” in 2007 just as mortgage loan defaults were increasing nationally and Fannie Mae and Freddie Mac were tightening their loan purchasing standards to reduce risk. The Countrywide program did just the opposite, the U.S. said.

This suit is based on information from a whistle blower and has been in the works since February.

According to court records, Wednesday’s case was originally filed under seal in February by Edward O’Donnell, a Pennsylvania resident and former executive vice president at Countrywide Home Loans who had worked there between 2003 and 2009.

In that complaint, O’Donnell said Countrywide and later Bank of America dismissed his “numerous” objections to the Hustle, and that he became “one of the lone voices” in his division pointing to escalating loan quality issues and defaults.

O’Donnell could not immediately be reached for comment, and his lawyer did not immediately respond to requests for comment.

Grab your bowl of popcorn.  This should be interesting.


Friday Reads

Good Morning!

Well, we’ve always known Pat Robertson was a little off.  Reconcile all his throw back ideas about women and the GLBT community with his views on decriminalizing marijuana, I dare you!!

“I really believe we should treat marijuana the way we treat beverage alcohol,” Mr. Robertson said in an interview on Wednesday. “I’ve never used marijuana and I don’t intend to, but it’s just one of those things that I think: this war on drugs just hasn’t succeeded.”

Mr. Robertson’s remarks echoed statements he made last week on “The 700 Club,” the signature program of his Christian Broadcasting Network, and other comments he made in 2010. While those earlier remarks were largely dismissed by his followers, Mr. Robertson has now apparently fully embraced the idea of legalizing marijuana, arguing that it is a way to bring down soaring rates of incarceration and reduce the social and financial costs.

“I believe in working with the hearts of people, and not locking them up,” he said.

Rush has lost at least 50 advertisers after his horrendous, personal attacks on a university student exercising her first amendment rights. Just what kind of advertisers does the big blowhard have left?  Well, he’s picked up an online dating service for married people interested in extramarital relations. There’s your family values for you!!!

Advertisers learned something about Rush Limbaugh’s demographic this week.

“Here we thought lots of pleasant, upstanding people were listening to and enjoying the rational things Rush had to say,” dozens of companies said. “Apparently not.”

It turns out that people who really, truly still enjoy Rush Limbaugh’s show are — how do I put this? — jerks.

At least that’s what the new advertisements moving into the vast empty lot of Rush Limbaugh, Inc., implies. “Ah,” you say, as a rat runs over your foot and several people offer payday loans and try to sell you watches from their trench coats. “This place seems to have gone downhill somewhat.”

So far, he’s picked up AshleyMadison.com, the site where you go to cheat on your wife, and another Web site that is explicitly for sugar-daddy matchmaking.

Republicans in the House have basically gone after finance regulators in a way that would basically change one of the major mandates of the Fed’s economic stabilization mandate and the SEC’s ability to police the markets for fraud.  The FED suggestions are outrageous.  They would completely stop the FED’s ability to stimulate the economy and would change the composition of the FED board from economists to the Bank’s District Presidents who are answerable to their member banks. 

The bill, which will be formally introduced later this week by Congressman Brady, would eliminate the employment leg of the dual mandate, requiring the Federal Reserve to focus only on price stability.

The legislation would also restructure the Federal Open Market Committee (FOMC). The bill would give permanent seats on the committee to the twelve regional Federal Reserve bank presidents, who are chosen by regional Federal Reserve Bank directors. Those boards are composed of private citizens.

While Mary Shapiro of the SEC has been begging for more money to regulate Wall Street, this bill would remove more funds.

Yesterday, SEC chairman Mary Schapiro begged Congress to increase the agency’s funding, arguing that “the rapidly expanding size and complexity of the markets presents enormous oversight challenges.” Representative Barney Frank, ranking member of the House Financial Services Committee, offered a bill to provide that funding—and Republicans voted lockstep to trash it.

Republicans on the committee offered the perverse argument that since the SEC has repeatedly suffered oversight breakdowns in the past, it’s not entitled to additional funding. Representative Jo Ann Emerson, a Missouri Republican and member of the House Appropriations Committee, echoed this argument in the hearing with Schapiro yesterday:

“I think this body is reticent to throw more money at the SEC until ya’ll have proven that you have addressed the structural problems from within…in a comprehensive way,” [Emerson said]. “Since 2001, SEC’s budget has increased over 200 percent. Despite this tremendous growth in resources over the past decade, the SEC failed to detect Ponzi schemes such as Madoff and Stanford, the U.S. financial system nearly collapsed, and judges continue to question SEC settlements and regulations.”

Further starving a regulatory agency that’s already clearly unable to handle its massive mission is not a terribly convincing argument—one would have to truly believe the SEC is completely capable of policing Wall Street but simply suffering from “structural problems,” as Emerson asserts. (To give a sense of the very real funding problems, JPMorgan Chase—only one of the 35,000 entities the SEC is tasked with regulating—spends four times the entire SEC budget on information technology alone).  But it’s the only argument Republicans have—the SEC is funded entirely by fees from the financial industry, so Republicans can’t carp about the deficit.

None of these folks seem to have any idea about what caused the financial crisis nor how much the underfunding and disabling of regulators and regulators have played into all these problems  It’s really disheartening.

Meanwhile, Romney has told a university student that students going to cheap schools they could afford would be better than government student loans.  BTW, where are there cheap schools now?

Mr. Romney was perfectly polite to the student. He didn’t talk about the dangers of liberal indoctrination on college campuses, as Rick Santorum might have. But his warning was clear: shop around and get a good price, because you’re on your own.

“It would be popular for me to stand up and say I’m going to give you government money to pay for your college, but I’m not going to promise that,” he said, to sustained applause from the crowd at a high-tech metals assembly factory here. “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And hopefully you’ll find that. And don’t expect the government to forgive the debt that you take on.”

There wasn’t a word about the variety of government loan programs, which have made it possible for millions of students to get college degrees. There wasn’t a word urging colleges to hold down tuition increases, as President Obama has been doing, or a suggestion that the student consider a work-study program.

And there wasn’t a word about Pell Grants, in case the student’s family had a low enough income to qualify. That may be because Mr. Romney supports the House Republican budget, which would cut Pell Grants by 25 percent or more at a time when they are needed more than ever.

Instead, the advice was pretty brutal: if you can’t afford college, look around for a scholarship (good luck with that), try to graduate in less than four years, or join the military if you want a free education.

Robert Scheer writes about Dennis Kucinich who will leave Congress after his term finishes.  His district was merged with Marcy Kaptur’s and she won on Tuesday. It’s an interest profile for a quirky politician.

Kucinich never competed in that way. He has been a national symbol of resistance to excessive government power and waste. He also has been a champion of social justice. His has been a rare voice, and one way or another it must continue to be heard. Simply put, when it came to the struggle for peace over war, Dennis was the conscience of the Congress. And he was always at the forefront in defending the rights of unionized workers who once formed the backbone of a solid middle class and who are now threatened with extinction.

Kucinich will surely be back for another turn in public life. As he put it in our Playboy interview:

“I appreciate Woody Allen’s humor because one of my safety valves is an appreciation for life’s absurdities. His message is that life isn’t a funeral march to the grave. It’s a polka.”

What’s on your reading and blogging list today?

 


William Black Goes Ballistic

I’ve been reading William Black’s essays and posts, watching his video interviews and You Tube presentations, ever since I saw him on Bill Moyers Journal speaking frankly, no holds barred, about how the financial industry had brought the country to its knees and gotten away with it.  He spoke frankly again during his Congressional testimony last year when he came right out and called the mortgage debacle that nearly finished the US economy . . . fraud.  Yes he used the ‘f’ word!  This was unlike other ‘experts’ who insisted there was no inkling of trouble on the horizon, that the financial meltdown was ‘an act of the economic gods,’ a huge surprise, the product of overly optimistic financial predictions.

No, Black said.  It was fraud.  It was criminal.  In case you missed that testimony, you can watch below.  It’s worth a second go-around.

Too bad Black’s comments were basically ignored, caught up in the razzle-dazzle of excuses, half-truths and political posturing that’s become all too familiar to anyone paying attention.  Business as usual is still the acceptable mantra.  In case, you’ve forgotten [time flies when we’re having so much fun], William Black headed Poppy Bush’s forensic audit team during the S&L scandal, which ultimately led to 1000 elite felony convictions.

Black’s investigative team wasn’t kidding around.

William Black came out yesterday morning with his own take on President Obama’s SOTU announcement of a Task Force [The Let’s Try It Again Task Force], quoting POTUS:

And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.

Black suggests we look at the wording, the avoidance of using the ‘f’ or ‘c’ word.  That would be fraud and criminal.  His response to this and Eric Holder’s follow up memorandum:

The working group will not “investigate … abusive lending” and it will not “hold accountable those who broke the law … [by defrauding] homeowners.” It will not “speed assistance to homeowners.” It will not “turn the page on an era of recklessness” – and fraud, not “recklessness” is what prosecutors should prosecute. The name of the working group makes its crippling limitations clear: the Residential Mortgage-Backed Securities Working Group. Attorney General Holder’s  memorandum about the working group makes clear that the name is not misleading. The working group will deal only with mortgage-backed securities (MBS) – not the fraudulent mortgage origination that drove the crisis (the only exception is federally insured mortgages).

Clearly, he’s not impressed.  No, instead he’s disgusted and enraged.  In fact, the essay nearly jumps off the page with genuine anger.  He goes on to say:

The working group is a symbolic political gesture designed to neutralize criticism of the administration’s continuing failure to hold accountable the elite frauds that drove the crisis. Neither the Bush nor the Obama administration has convicted a single elite fraud that drove the crisis. This is a national disgrace and represents the triumph of crony capitalism. Remember that the FBI warned in September 2004 that there was an “epidemic” of mortgage fraud and predicted that it would cause a financial “crisis.” There are no valid excuses for the Bush and Obama administrations’ failures. The media have begun to pummel the Obama administration for its failure to prosecute. The administration could not answer this criticism with substance because it has nothing substantive to offer in prosecuting elite mortgage origination frauds. The ugly truth is that we are three full years into his presidency and Holder could not find a single indictment to bring that Obama could brag about in his SOTU address. Who doubts that Holder and Obama would have done so if they had anything in the prosecutorial pipeline? Why do Holder and Obama have nothing in the pipeline?

One of the other things that deeply disturbs Black is President Obama’s willingness to play politics in this matter, float the gambit of the Task Force /Working Group and the reputation of Eric Schneiderman to create the appearance of a genuine hands-on effort.  But this move is not genuine as far as Black is concerned and contradicts the very essence of President Obama’s SOTU address, conjuring up the Seal Team that took out Osama Bin Laden—a team effort, concentrating on the mission.

This is no more than vulgar propaganda, Black claims.

He also refers to a disclosure made by Scot Paltrow for Rueters 10 days ago, revealing that US Attorney General Eric Holder and Lanny Breuer, heading the DOJs criminal division [also a co-chair of the ‘Let’s Try It Again Task Force], had been partners at Covington and Burling, a well-established and well-heeled law firm that represented many of the largest banks, providing cover for their clients through key arguments on the MERS debacle.

Conflict of interest anyone?

The state Attorney Generals?  They were lobbyied, leaned on, even offered [as was the case of AG Kamala Harris, CA] $8 billion to assist damaged California homeowners in a bid to agree to the original deal, which would have offered the big banks immunity from liability.  All so the President could announce ‘a deal’ in his State of the Union address, even though homeowners would be left out to dry and bank executives, who led deliberate “accounting control frauds,” could continue their conduct with absolute impunity.

This is ugly, made all the uglier in that it was sanctioned through and by the White House.  Black suggests that Eric Schneiderman recognized the leverage he had, agreed to join the Task Force as a co-chair with the stipulation that the original deal be modified, specifically concerning civil liability in mortgage origination fraud.

This might explain Jamie Dimon’s whine last Friday, pouting and claiming bankers are the objects of unfair discrimination.  Really?  Here’s the average American’s response:

Of course, you would think that this mess would be a window of opportunity for Republicans in an election year.  What an incredible club to use on President Obama to win the WH, maybe the House and the Senate by gargantuan majorities.

No fear there because for every compromised Democrat there is an equally compromised Republican.  Both the Democrats and Republicans rely heavily on campaign contributions from the financial sector.  Neither side is willing to cut their bankers [crooked or not] off at the knees.

What to do?  What better reason to support any and all actions to get money out of the political arena.  Until we do?  The world belongs to the highest bidder.


Falling Out of Love with . . . Eric Schneiderman

When I first heard about NY State Attorney General Eric Schneiderman standing up and pushing back against DC’s rush to settle with Wall St bankers and mortgage servicers over the foreclosure debacle, I cheered.  In fact, I did more than cheer.  I wrote to Schneiderman and thanked him for having the courage and integrity to stand with American homeowners, those who had been abused by unfair [and illegal] business practices, and then further compromised by mortgage modifications and refinancing schemes that turned into a giant con game.

The stories were always the same, particularly with the mod and refi angle.  Homeowners called their lending representatives.  They were encouraged to fill out mountains of paperwork, pay a particular monthly amount, and then [months later] once they fulfilled their obligation?  They were told they did not qualify, would be required to pay ‘x’ amount of dollars upfront or the local sheriff would be knocking at the door.  And not for a friendly ‘hello.’

The bait and switch games have been cruel, destructive and predatory.  The idea that these same financial institutions–unable to produce proper and legal paperwork on many of these properties, the whole robosigning/MERS debacle—were being offered a sweetheart deal including immunity from civil and criminal prosecution was nothing short of outrageous.

Schneiderman stood up first and said, ‘No.’  He was later joined by five additional state attorney generals: Beau Biden [DE], Martha Coakley [MA], Catherine Cortez Masto [NV], Kamala Harris [CA] and Lisa Madigan [IL]. Each has pledged to independently investigate the malfeasance and fraud in the mortgage industry and seek prosecution where warranted.

However, during his State of the Union Address, President Obama announced the creation of a Federal Mortgage Fraud Task Force. To my dismay and that of many others, it was subsequently announced the aggressively independent Schneiderman was joining the DC team.

The immediate question [and I’m glad I’m not alone in this]: Will Eric Scneiderman be sucked into the Washington Borg, be used for window dressing by the Administration or remain staunchly on the side of ordinary Americans, who have been abused and sucker-punched enough.

Though I’m generally an optimist, I have to admit—it does not look good.

As an article at Yves Smith’s site pointed out, the very fact that negotiations with the TBTFs proceed uninterrupted sends up a red flag.  Why proceed with negotiations, offering the banks a back door exit, if you’re running an investigation into fraud?  The composition of the Task Force is also troubling, composed as it is with people from the original Task Force that has done very little.  Consider Eric Holder, for instance—not exactly the poster child of a justice fighter.

Additionally, indications are that a miniscule fraction of FBI agents [10] have been assigned to the Task Force in comparison to William Black’s forensic team [1000] to tackle the S&L scandal.  Matt Stoller stated that the current investigation is on the order of 40x the magnitude and complexity although I actually heard Bill Black say the magnitude was in the 70-80x range.

In the same article, Stoller quotes Eric Holder, who seems to truly believe [or at least wants everyone else to believe] that the Administration and the DOJ have been dedicated to rooting out corruption:

On Tuesday night, the President referenced this initiative, asking us to, “hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”

That is precisely what we intend to do.  And the good news is that we aren’t starting from scratch.

Over the past three years, we have been aggressively investigating the causes of the financial crisis.  And we have learned that much of the conduct that led to the crisis was – as the President has said – unethical, and, in many instances, extremely reckless.  We also have learned that behavior that is unethical or reckless may not necessarily be criminal.  When we find evidence of criminal wrongdoing, we bring criminal prosecutions.  When we don’t, we endeavor to use other tools available to us – such as civil sanctions – to seek justice.  My number one to commitment to the American people is that we will continue to devote significant resources to combating financial fraud and be as aggressive and creative as we can be in holding accountable those who, in violating the law, contributed to the financial crisis.

For example, in just the last six months, the Department has achieved prison sentences of 60, 45, 30, and 20 years in a variety of financial fraud cases charging securities fraud, bank fraud, and investment fraud.   And, just last month, I announced the largest fair lending settlement in history, resolving allegations that Countrywide Financial Corporation and its subsidiaries engaged in a widespread pattern or practice of discrimination against minority borrowers from 2004 through 2008.

Either the Administration and DOJ have done a very poor job of keeping the public abreast of their multiple investigations/prosecutions or the average layperson would refer to this claim as: Don’t trust your lying eyes.

Schneiderman has reportedly stated that if the investigation is not on the up and up, he will publicly step away. He has insisted that the investigative work will be rigorous and unrelenting.

I hope he means it.  I hope the queasy sense I have in my gut is wrong because false champions have become the disheartening rule.

Though I’m more likely to see the glass half full than half empty, I and many others have witnessed the same repetitive pattern:  promising, good-intentioned men and women go to DC, only to be chewed up in the machine.  Or irreparably compromised. And though I’ve always believed Barack Obama inept in leadership qualities, he does have an uncanny ability to disable and defang his opponents. David Dayen wrote a convincing essay to the same effect.

I want to be wrong about this.  I hope the naysayers are wrong, too.

Breaking up is hard to do.


Greedy Bastards

No, I am not making an editorial comment.

But after nonstop blathering served up by the GOP, only to be followed by President Obama’s Teddy Roosevelt impersonation [although I have to admit—the State of the Union was a surprisingly good speech], I thought a moment of palate cleansing might be in order.  In this case Dylan Ratigan offers up the sorbet.

Ratigan is someone willing to call out the shysters, the casino players and shakedown artists, including their political handmaidens for what they truly are, and ‘Greedy Bastards’ is the title of his newly released book.  The author’s name may ring a bell because Dylan Ratigan has a public platform on MSNBC, an hour-long show Monday through Friday.  The program airs at 4:00 pm, EST, in my neck of the woods.

Ratigan’s slant focuses on the collision of worlds, that of finance and politics, how the incestuous relationship is literally squeezing the life out of the United States.  His take is not an indictment of capitalism.  Rather it is an indictment of what is posing as capitalism, a system he refers to as ‘extractionism.’

Ratigan is not a newcomer or a pundit simply reading a script.  He worked the financial beat with Bloomberg News, serving as Global Managing Editor to Corporate Finance until 2003.  He’s also the former anchor and co-creator of CNBC’s Fast Money.  He has launched and anchored a number of financially-related broadcasts over the years but decided to leave Fast Money after the 2008 financial meltdown.  Ratigan has publicly stated that he was personally disgusted by the Wall Street banking sector’s shakedown of the American public.  The Dylan Ratigan Show was launched to provide discussion and analysis of the financial/government intersection, a system that has acquiesced to the wanton theft of the Nation’s wealth and resources by . . . Greedy Bastards, of course.

Though the show has been on air for three years, Ratigan has admitted that his voice was finally heard after an infamous meltdown last August.  It was an on-air rant that would have made Patty Chayefesky proud, a Howard Beale moment.

That woke people up!  It also led to Ratigan’s Get the Money Out [of politics] Movement, working towards a Constitutional Amendment to remove the corrosive element of money in the political sphere.  And then, there’s the book.

One thing I liked about Ratigan’s approach is that instead of pointing out one segment of the population for public pillorying, his title basically refers to a state of mind and the all too frequent way of doing business and politics in the 21st century.

For instance, in the case of capitalism, Ratigan uses the example of venture capital, a subject that has come up in reference to Romney’s connection to Bain & Company, specifically Bain Capital.  From Chapter 1:

If I start a venture capital firm that lends out money to drug researchers trying to find new cures for disease, and I get rich doing it, then I made my money by investing in the productive future of the country. I used my money in a way that facilitated scientific innovation and a cure.  I’m what the director of the Havas Media Lab Umair Haque a ‘capitalist who makes.’  But instead, if I take the same money and use it to lobby for changes in government regulation—changes that help me trick a union into investing its retirement savings in flawed investments so that I can collect the commissions—then I may move as many dollars into my bank account as someone who funded cures for diseases, but I haven’t made anything.  I’m a ‘capitalist who takes,’ exploiting my power to influence the government for my own private gain, no matter the harm to anyone else.  I’m a greedy bastard.

The latter example, taking money from others without providing anything of value is, according to Ratigan, the opposite of capitalism.  An extractionist system loses increasing value over time until there’s nothing left.  Call it the vampire or vulture model. A system based on the extractionist principle, provides no incentive for people to make good deals, where both sides benefit.  Instead, it rewards those who take and give nothing in return.

Sound familiar?

Ratigan covers the areas that have pushed the extractionist model to the max: banking, education, healthcare, energy, trade negotiations and the unholy alliance of government and big money fueling the feeding frenzy of the Nation’s resources and our future.  But unlike many gloom and doom tomes, Ratigan offers solutions and  brings an optimism to the subject, namely that we have the ideas, the people and yes, even the money to solve what at times seems insolvable.  He concludes in a rather convincing way that what is needed is a realignment between investment and the needs of capable, innovative people.  If loans and investments offered the highest returns when they provided the highest value as opposed to simply taking the highest risk, then prevailing attitudes and business practices would shift and win/win deals would be created.

Sound like pie in the sky?  I don’t think so.  Yes, it’s a matter of will, public pressure to exact the necessary changes but this realignment idea is possible by citing the goals first, and then targeting the resources to get there.  Ratigan refers to this as hotspotting—zeroing in on the problem, determining what methodology provides the best results, and then aiming resources to match those needs.

Though some critics have dismissed this idea, it is very attuned to what Bill Clinton recently suggested in his Esquire interview about highlighting the successes and needs across the country, and then linking them, matching them up.  Just another turn on the realignment idea:

. . . the two best things you could do are the infrastructure bank and a simple SBA-like loan guarantee for all building retrofits, where the contractor or the energy-service company guarantees the savings. So that allows the bank to loan money to let a school or a college or a hospital or a museum or a commercial building unencumbered by debt to loan it on terms that are longer, so you can pay it back only from your utility savings. You could create a million jobs doing that because of the home models that are out there now.

There are these two guys on Long Island who started a little home-repair deal. They got thirty-five employees now, and they’re — they can go in, tell you how much they’ll save you. There’s an operation in Nebraska that’s in and out in a day, and they’re averaging more than 20 percent savings, and conservative Republican Nebraska is the only state in the country that has 100 percent publicly owned power.

And,

You’ve got Orlando with those one hundred computer-simulation companies. They got into computer simulation because you have the Disney and Universal theme parks, and Electronic Arts’ video-games division. And the Pentagon and NASA desperately need simulation, for different reasons. So there you’ve got the University of Central Florida, the biggest unknown university in America, fifty-six thousand students, changing curriculum, at least once a year, if not more often, to make sure they’re meeting whatever their needs are, and they’re recruiting more and more professors to do this kind of research that will lead to technology transfers to the companies. You’ve got Pittsburgh actually becoming a real hotbed of nanotechnology research. You’ve got San Diego, where there are more Nobel-prize-winning scientists living than any other city in America. You’ve got the University of California San Diego and other schools there training people to do genomic work. Qualcomm is headquartered there, and there are now seven hundred other telecom companies there, and you’ve got a big private foundation investing in this as well as the government, and nobody knows who’s a Republican or who’s a Democrat, they’re just building this networking.

We have fabulously innovative, creative people working on all kinds of things.  Our true wealth is in our people; our true value is . . .  us.

Ratigan is now on a 30-million jobs tour showcasing business enterprises that are, in fact, answering a need, offering value to their communities, providing jobs and in the best capitalist tradition—making a profit.

The endnote is that the country hasn’t lost its edge.  We’ve lost the path that works, the one that values quality and integrity.  Greedy Bastards will always exist, those hoping to make a quick buck [or trillions of bucks] off the backs of others. They have no shame.  The goal is to make them and their thievery the exception, not the rule.

Btw, Ratigan’s book is highly readable, written for the layperson.  No economic degrees required.  If you’ve been following the financial blowout and/or Ratigan’s show, this will be a fast review.  If you’re just starting to pay attention, consider the book a primer—what the country underwent and where we need to go.  The sooner, the better.  Ratigan encourages us to reclaim our voice, demanding that our people and country come first.

It’s a worthy message.  Read the book.  Get the word out.


A Tale of Two Speeches, A Tale of Two Men

On Tuesday, Barack Obama delivered a speech in Kansas.  Osawatomie, Kansas to be exact.  With little subtlety, this was an attempt to conjure up the spirit of Teddy Roosevelt, the TRex of the early 20th Century, the scrappy yet privileged pugilist, who pitted himself against monopolies, rabid financiers and proudly defended the American ‘square deal.’  In truth, TR was no saint.  But he was a man of conviction.  And action.

Barack Obama has proven himself a weak sister by any comparison.  Yet, he and his handlers, his ever-present speechwriters saw fit to mirror Roosevelt’s words.  We’re to believe that Obama is a populist at heart, a Roosevelt clone, calling on the Nation to embrace progress over privilege.  The square deal becomes the fair chance.  The review of abuses and lawlessness that TR was not afraid to call destructive become a wrong.  Legislative solutions and regulatory oversight that TR specifically cites are mentioned in passing or given more credit than they’re actually due, eg., the stripped down Dodd-Frank bill.  Notice there was no mention of reinstating Glass-Steagall, something that wouldn’t solve the entire mess we find ourselves in but would be an important first step in the reform process.

Let’s get real.  Barack Obama has no intention of reforming anything.  Unlike TR who said:

“Words count for nothing except in so far as they represent acts.”

And Barack Obama?   He’s countered with words leading nowhere.

He was against the Iraq War, only there’s no record of his opposition.  His ‘just words’ speech—a steal from an earlier Deval Patrick oratory—said everything the man has proven himself to be, an empty talker.  Where is the evidence that Barack Obama is or ever was a defender of the ‘ordinary man and woman?”  Oh yes, he was a community organizer.  And what exactly were his accomplishments?  He was a State Senator.  Accomplishments, please [beyond representing the interests of slum landlords].  And as a US senator?  Accomplishments?

Nada.

Let’s line this up against a few of Teddy Roosevelt words made flesh:

  • Successfully prosecuted the Northern Securities Co. for the merger of the Northern Pacific, The Great Northern and the Chicago, Burlington and Quincey railroads under the Sherman Antitrust Act.
  • Restored public confidence in the government’s ability to hold the country’s most powerful men accountable to the law.
  • Frequently warned conservative critics that revolutionary upheaval was likely to be inspired by an ‘attitude of arrogance on the part of property owners and their unwillingness to recognize their duty to the public.’
  • Pushed through Congress legislation establishing the Department of Commerce and Labor and within that Department the Bureau of Corporations, authorized to investigate and publicize suspect corporate activities.
  • Challenged the corporate view that business records be kept in secrecy and that employers had a right to deal with employees as they saw fit [one need only review the deplorable working conditions and wages of the era to understand the need for reform] with no interference from the Government.
  • Brokered a peace between Russia and Japan, for which he earned the Nobel Peace Prize.

There’s more, of course—the good, the bad and the ugly.  TR was not perfect but unlike the present occupant of the White House, he had a vision that was his and his alone.  He was the public face and voice of the American Progressive Movement that would eventually lead to improved working conditions, a woman’s right to vote, union legitimacy and new attitudes regarding our environment–conserving our national, natural treasures for the future–among other things.

Teddy Roosevelt was a man of the moment and a man with a legacy.

Now think of Barack Obama, the lack of vision, the broken promises, the man in search of an identity:  JFK, FDR, Abraham Lincoln.  And now Teddy Roosevelt.  This is the blank slate upon whom everything has been written but nothing has stuck.  Oh yes, we have the healthcare reform bill, a legislative mystery written behind closed doors then sealed with secret insurance industry deals and wet kisses to Big Pharma.  We also have wars continued and financed, record unemployment [jobs which will not be replaced by pretty words],  nearly 46 million Americans receiving food stamps [1 in 7], houses still underwater with few promised modifications and/or relief and 20+% of our children classified as ‘food insecure.’

This is not a vision.  It’s a disaster.  I’ll leave you with Teddy Roosevelt’s words, from his own Kansas speech:

I stand for the square deal. But when I say that I am for the square deal, I mean not merely that I stand for fair play under the present rules of the games, but that I stand for having those rules changed so as to work for a more substantial equality of opportunity and of reward for equally good service.

And,

The object of government is the welfare of the people. The material progress and prosperity of a nation are desirable chiefly so far as they lead to the moral and material welfare of all good citizens.

And,

One of the fundamental necessities in a representative government such as ours is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests. I believe that every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations; and a similar provision could not fail to be useful within the States.

These are words most of us can believe in, spoken August 31, 1910.  I’d encourage readers to take a few moments and read TR’s words in their entirety.

Then read Obama’s speech.

Two speeches.  Two men.

If President Obama wants to slip on the mantle of Teddy Roosevelt, become a born-again populist in 2012, he’ll need action to prove his words.

Why?

Because the days of blind faith are over.


Monday Reads

Good Morning!!

One of the few television shows I actually watch regularly these days is Criminal Minds.  The profiling activities fascinate me. I’ve actually passed on my addiction to BostonBoomer who sent me this CBS story which sounds like something right off of their series.  A young woman was abducted by a very disturbed young man and was successfully returned to her family in Kearney, Nebraska. Gotta love a happy ending!

Kidnapping victim Anne Sluti came home Friday, a week after the 17-year-old was whisked away from a local mall parking lot and kept hostage hundreds of miles away in Montana.

With a bruise under her right eye and an FBI baseball cap on her head, Sluti stepped off a private jet with her parents and brother. A small group of family members and friends shrieked with excitement.

“Thank God she’s alive,” said her aunt Sue Daniel. She placed a sign in the dashboard of her minivan that showed a happy face and said “Welcome Home, Anne.”

“I’m just happy to get back home,” Sluti said earlier in the day as the family prepared to leave Kalispell, Mont. “I want to thank everyone who helped me get home safely.”

Remarked her mother, Elaine Sluti, “Someone at the hotel said to me this morning, ‘Have a good day.’ Believe me, we are having a very good day.”

We knew there was a major cover up on the Fukushima melt down.  Here’s a Guardian story that indicates that the fuel rods may have completely melted down. Scary stuff. This time reality mimics the move The China Syndrome.

Fuel rods inside one of the reactors at the Fukushima Daiichi nuclear power plant may have completely melted and bored most of the way through a concrete floor, the reactor’s last line of defence before its steel outer casing, the plant’s operator said.

Tokyo Electric Power (Tepco) said in a report that fuel inside reactor No 1 appeared to have dropped through its inner pressure vessel and into the outer containment vessel, indicating that the accident was more severe than first thought.

The revelation that the plant may have narrowly averted a disastrous “China syndrome” scenario comes days after reports that the company had dismissed a 2008 warning that the plant was inadequately prepared to resist a tsunami.

Tepco revised its view of the damage inside the No 1 reactor – one of three that suffered meltdown soon after the 11 March disaster – after running a new simulation of the accident.

It would not comment on the exact position of the molten fuel, or on how much of it is exposed to water being pumped in to cool the reactor. More than nine months into the crisis, workers are still unable to gauge the damage directly because of dangerously high levels of radiation inside the reactor building.

If you haven’t read Eliot Spitzer’s article on Slate about the $7 trillion secret loan program, you really should.  It is also something that seems more Hollywood than reality.  Spitzer is calling for perp walks.

During the deepest, darkest period of the financial cataclysm, the CEOs of major banks maintained in statements to the public, to the market at large, and to their own shareholders that the banks were in good financial shape, didn’t want to take TARP funds, and that the regulatory framework governing our banking system should not be altered. Trust us, they said. Yet, unknown to the public and the Congress, these same banks had been borrowing massive amounts from the government to remain afloat. The total numbers are staggering: $7.7 trillion of credit—one-half of the GDP of the entire nation. $460 billion was lent to J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley alone—without anybody other than a few select officials at the Fed and the Treasury knowing. This was perhaps the single most massive allocation of capital from public to private hands in our history, and nobody was told. This was not TARP: This was secret Fed lending. And although it has since been repaid, it is clear why the banks didn’t want us to know about it: They didn’t want to admit the magnitude of their financial distress.

The banks’ claims of financial stability and solvency appear at a minimum to have been misleading—and may have been worse. Misleading statements and deception of this sort would ordinarily put a small-market player or borrower on the wrong end of a criminal investigation.

Spitzer cites this Bloomberg Analysis which is something we’ve looked at before but bears a second viewing. After stabilizing the financial system, every effort should have been made by regulators and the current administration to purge the financial industry of toxic senior management. They also should have taken over some of the huge banks and sliced and diced them into more appropriately sized regional banks.  None of this actually happened, however if you read Confidence Men, you’ll see that it wasn’t for Sheila Baer’s lack of trying and it was actually the original concept supported by Obama.  The Geithner Treasury evidently ran all kinds of end run plays to stop this from happening.  Geithner continually proves that his loyalties are to huge financial institutions.

… the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.

For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”

Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.

“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”

Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.

This is completely unacceptable.  It is one thing for the FED to help stabilize the financial system, it’s another one for the Treasury to ignore the requests of the President and to prevent a key regulator–FDIC in this case–from doing its job. The other culprit identified in the Confidence Men narrative is Rahm Emmanuel.  The narrative on Obama and Baer’s desire to shut down Citibank and the obfuscation from Geithner and Emmanuel is the stuff of movies focused on government conspiracies.

One of the plotlines in Ron Suskind’s Confidence Men concerns the various bureaucratic and substantive moves through which Tim Geithner and Rahm Emmanuel dissuaded the president from ordering the seizure and shutdown of Citigroup. The story starts with the fact that Larry Summers and Christina Romer, who were sympathetic to the idea, lacked the staff resources to develop a plan for doing it, while Geithner, who had the staff, thought it was a bad idea. Sheila Bair also had the staff, and also wanted to go ahead, but was out of the loop:

But when it came to controlling information, there was one area in which Geithner’s office had been successful. Key disclosures of what actually happened in the March 15 “showdown” never leaked. Bair didn’t know, and never found out, that the president had been trying to push forward what the FDIC chairwoman was recommending. He wasn’t successful, either. Alan Krueger said one reason Treasury dragged its feet on a constructing a plan for Citigroup’s resolution was Sheila Bair. They would have had to consult the FDIC chairwoman. After all, her agency is in the business of closing banks. “The fear was that Sheila would leak it,” Krueger said, in a comment echoed by others at Treasury. “And there’d be a run on Citi.” He added that this was one of many reasons: “It was more than just that. The bottom line is Tim and others at Treasury felt the president didn’t fully understand the complexities of the issue, or simply that they were right and he was wrong, and that trying to resolve Citi and then other banks would have been disastrous.”

Krueger, for one, disagreed, and that very day he was due to have lunch with someone uniquely suited to edify him about the resolution of troubled banks: Andrea Borg, the Swedish finance minister.

It seems that many West Wing technocrats are much more interested in their post-DC careers than their current duties and responsibilities to US law.  I’ve said many times that were in a much better position for a major and uncorrectable meltdown–much like the Japanese Fukushima plant–should these circumstances continue.  The vulnerability of the nation’s largest banks to any kind of contagion is substantial.  Their ability to bring down the payments and credit system is fully understood by the FED who instigated more money floodgate opening last week to aid those same banks with that same senior management muck their way through the Eurozone crisis.  Any private institution that has had to call on the Government for that much assistance doesn’t deserve to be in business.  We shouldve GM’d them all.

Here’s a link to CBS and last night’s 60 minutes (h/t Elizabeth Warren) on Prosecuting Wall Street.

Two whistleblowers offer a rare window into the root causes of the subprime mortgage meltdown. Eileen Foster, a former senior executive at Countrywide Financial, and Richard Bowen, a former vice president at Citigroup, tell Steve Kroft the companies ignored their repeated warnings about defective, even fraudulent mortgages. The result, experts say, was a cascading wave of mortgage defaults for which virtually no high-ranking Wall Street executives have been prosecuted.

So, that’s my little contribution to the discussion this morning.  What’s on your reading and blogging list this morning?