Look Who Got thrown Under the Bus for Criminal Prosecution on Banking Crisis

“Furthermore, evidence of the DocX forgery and fabrication process could be used to reach even higher. Who directly solicited the company for fake documents? The foreclosure mill law firms, which then knowingly submitted them into courts. Who directed the foreclosure mills to do that? The mortgage servicers, which are typically units of the biggest banks. Furthermore, there’s no reason to ever request the “entire collateral file” unless you have no other way to generate evidence to prove underlying ownership of the loan. This speaks to a faulty mortgage transfer process, improper securitizations, and generally fraudulent practices at the heart of Wall Street.”

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Editor’s Comment: In a very good piece written by David Dayen for Salon.com (see link below), he takes the government and the bankers to task for masquerading under the “rule of law” while actually undermining it — something that consumers and homeowners have instinctively known for decades.

The general consensus of those in government and on the bench is that they are so deathly afraid of giving a free house to a homeowner that they are willing to overlook criminal and civil misbehavior — leading to granting a free pass to those pretending to be lenders to get the free house.

Worse than that, we have established a climate that allows for the possibility of taking a crime to some indescribable level where it becomes somehow necessary to allow the crime to stand because of the “risk” posed to the rest of society. That Too Big To Fail thing came directly out of the proposition that if the big banks were allowed or forced to fold,  the credit markets would freeze up. So our government gave them even more money than the ill-gotten and well secreted money they made during the mortgage boom, under the supposition that those banks would start lending.

The reverse happened. People received notices in the mail informing them of decreases in their credit limit on credit cards, HELOCs, and cancellation of loan commitments on small businesses and real estate purchases. The outcome predicted by those on Wall Street as well as Hank Paulson, then Treasury Secretary to President Bush, was a massive recession with millions of jobs lost and a huge demographic of people who are working at jobs for less money requiring less of their their talents. Armageddon arrived and we managed to steer our way of of the roughest waters for the time being, but we also proved that the Too Big To Fail hypothesis was dead wrong.

So they have a scapegoat that they are going to send to prison without involving any of her superiors, affiliates or the actual conspirators who created LPS and DOCX. The case proves, however, that people CAN go to jail for these crimes and that the line we were fed about it not being illegal was incorrect or an outright lie. The truth, as we now know it, is that the actions of the banks were a total fraud and that many entities and companies and institutions aided and abetted the the most massive fraud in human history.

Thus the issue is no longer whether there is a case that can be made, proven and thus sending people to jail and ordering restitution to all the injured stakeholders. Instead the issue of who will get thrown under the bus so that nobody really “important” gets the adjoining prison cells.

The recession was her fault. Meet Wall Street’s scapegoat, the one person to get jail time for the most massive mortgage fraud in history. By David Dayen

“This scheme was part of the giant bundle of illegal conduct known as foreclosure fraud. According to statements of fact from the Justice Department, from 2003 to 2009 DocX recorded over one million fake documents. That’s probably a low number. DocX wasn’t just forging signatures, they were fabricating entire loan files. During the bubble years, they created a now-infamous mortgage fabrication price sheet, where mortgage servicers, who had trouble proving in court that they owned the homes they wanted to put into foreclosure, could purchase, at low prices, whatever documents they needed. To “Recreate Entire Collateral File,” basically the whole set of documents including the promissory note? That would set a servicer back $95.00.”

Warren, Cummings and Waters to Banks and Regulators: Not So Fast!!!

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Editor’s Analysis: As we move into the fifth inning of a nine inning game, it looks like we are going into overtime. Just as the GOP failed to read the census and lost the national elections, the Banks have failed to read the Congressional Census and are finding that the “deals” they made with regulators and law enforcement are not the end of the story. There are people in office now who do actually give a damn and who want to do something about Wall Street grifting.

Elizabeth Warren is leading the charge: They want full disclosure of the failed review process, and full disclosure of the deal that was reached. This could be a problem for banks who are holding worthless mortgage bonds and for entities claiming that they own loans that either never existed at all or were misstated in every meaningful way.

Warren and others want oversight of the deal this time and they are likely to get it, one way or another. It would be nice is the President took some time out of his schedule, albeit precious little free time exists, and decide for himself the direction that should be taken now that Geithner is leaving. Maybe he already has.

The questions that remain in the context of doing what is best for the country remain unresolved:

  1. Knowing that the title chain is corrupted in all 50 states and that the amount of chaos ranges all the way up to 80%, what are the remedial steps required to boost confidence in the title registries around the country? At present it is a leap of faith to even buy a plot of empty land.
  2. Knowing now that the investors put up the money and borrowers put down payments on homes and refinancing, how will the victims of Wall Street chicanery be compensated by a appointment of a receiver? Restitution is a fundamental bedrock for fraudulent deals. What economic, legal or financial reason would there be to allow the Wall Street banks that took and kept the loss mitigating payments from insurance, credit default swaps, and bailouts for the U.S. Treasury and Federal Reserve.
  3. Knowing that the quantitative easing and Federal bailouts, insurance and credit default swaps were supposed to mitigate damages and most importantly re-start lending and commerce, how do we move those trillions (estimates run as high as $17+ trillion) back to the economy which remains gasping for air.
  4. Knowing that the Wall Street frequently diverted documents and money from investors, this leaving borrowers with no authorized party with whom they could negotiate a modification based upon the true balance owed on the loans, how will the government announce its conclusions without starting a run on the big banks that may bleed over to the small banks.
  5. Knowing that some 14 banks have grown to a size with cross border relationships that there is no one regulatory agency to watch and correct them, how will the banks be brought down to a size that can be regulated? And in a related matter, how do we level the playing field such that the mega banks no longer control the size, growth, and business plans of smaller banks.
  6. AND knowing the criminal acts performed by or on behalf of the mega banks by specially created corporations, law offices and other vendors, how will the government bring these people to justice in a way that is meaningful — i.e., that will deter Wall Street titans from doing it again?
  7. How will the government take the reigns of regulation such that settlements for pennies on the dollar avoids civil and criminal prosecution by the government that is supposed to protect those who cannot adequately protect themselves, and avoids administrative complaints against the bank charter.
  8. How will the administration demonstrate to every American that the Government is running the show, not the Banks.
  9. Knowing that the vast majority of foreclosures were completed” by strangers to the transactions, what do we do the displaced homeowners and the homes that were put in distress as a result of a ball of lies?
  10. If the review process was revealing damages to homeowners (and indirectly to investors) that were vastly understated, as alleged by numerous whistle-blowers, then what will be installed as a watchdog over that process and what resources will be applied to get to the truth rather than a PR result?

Warren Demands Transparency On Failed Foreclosures
http://www.huffingtonpost.com/2013/01/31/elizabeth-warren-foreclosure-reviews_n_2592551.html

Elizabeth Warren Demands Mortgage Settlement Documents From Regulators
http://news.firedoglake.com/2013/01/31/elizabeth-warren-demands-mortgage-settlement-documents-from-regulators/

Time Running Out on Foreclosure Renters

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Editor’s Comment: It would sound like a joke if it were not so real. First you oversell mortgages, throwing underwriting standards overboard, then comes the inevitable foreclosure and eviction of the homeowner — but not the tenant who WAS protected under Federal law but is no longer going to receive that protection. Millions of people are going to be seeking rental accommodations.

The result? rental prices will go up creating a new tax on those who rent, and housing starts will increase. Think about it, we build a bunch of houses, sell them as exorbitant rates knowing we are going to get thrown back in our lap, we create blighted abandoned neighborhoods and towns and subdivisions, and the solution selected is not to find a way to put people in homes that are unoccupied but to build more houses.

Policy makers like new construction because of the impact on jobs. Investors like renting because they get higher and higher rental income on their properties. But the essential problem of homelessness will remain because the rents will be priced outside the capability of the prospective renters.

Wouldn’t it be a better idea to keep the homes occupied, to prevent blighted neighborhoods where the cities bulldoze the homes away because the banks walked away from their responsibility as “owners?” Wouldn’t it be a better idea to keep getting tax revenue from these homes? Wouldn’t it be better for utilities and local businesses to have the people occupying these homes pay their bills and revive a stagnant economy and unemployment?

Of course we could start with extending the rights of tenants to stay in homes legally rented to them by the homeowners. But amongst the millions soon to be displaced are those homeowners who occupy their homes, who put earnest money into the deal and more money to fix up and furnish the place. Most of them had no idea that the amount demanded in the notice of default, in the foreclosure and in the auction was simply a wild guess without taking into account the money received from insurance, credit default swaps and federal bailouts.

Most had no idea that the party foreclosing on them had not invested one dime into the funding or purchase of their loan. These people were every much a victim of fraud as the investors who bought bogus mortgage bonds. We know the remedy for fraud but in this country it has a twist. If you are big enough and you commit fraud you to keep the money and property obtained through illegal or criminal means. But if you are the little guy then you get prosecuted for numbers on an application form that you never saw, much less filled out until closing along with a 3 inch stack of papers to initial and sign.

PRACTICE HINT: WHETHER YOU ARE REPRESENTING THE HOMEOWNER OR THE RENTER THERE ARE VIABLE, WINNABLE DEFENSES THROUGH DENY AND DISCOVER. WITH RENTERS THE DEFENSE WILL BE RAISED THAT A RENTER CANNOT CHALLENGE TITLE.

But the only reason why the party seeking eviction (forcible detainer) has standing is that title changed. The allegation of a change in title is an essential part of their pleading.

You should argue that if they bring up title then you have the right and obligation to defend it by showing that the title that was recorded was procured through fraudulent means.

The renter still owes the money to the homeowner. The response should be a counterclaim or interpleader in which the homeowner and the “new” owner fight it out over who gets the rent money. Otherwise the renter could be twice liable for the same rent if the unit owner prevails in overturning the foreclosure.

Renters At Risk In Foreclosure Crisis Rely On Short-Term Federal Law

Renters Foreclosure Crisis

A group of homeless people sit around the fire at their homeless encampment near the Mississippi River on Feb. 23, 2012, in St. Louis. (AP Photo/Tom Gannam)

A key law that has prevented millions of low-income tenants from becoming homeless is set to expire at the end of the 113th Congress, kicking off what experts warn could be a new wave of evictions.

Homelessness is up 16 percent among families in major cities since the beginning of the foreclosure crisis, according to a report from the U.S. Conference of Mayors, and the number of renters affected by foreclosure has tripled in the past three years.

While public attention has centered on homeowners, research shows rental properties constitute an estimated 20 percent of all foreclosures, and 40 percent of families facing foreclosure-related evictions are renters. Those numbers translate into millions of Americans at risk of homelessness, many of them children.

What stands between many of those children and the streets is a little-known federal law that, barring congressional intervention, will expire in 2014.

In 2009, the Protecting Tenants at Foreclosure Act (PTFA) granted renters the right to stay in their homes until the end of their lease or, if they have no lease, for a minimum of 90 days. Without that guarantee, renters are dependent on a patchwork system of state and local protections that range from quite good — in California and Connecticut, for instance — to completely inadequate.

“States have not stepped up to ensure protections within their jurisdictions,” said Tristia Bauman, a housing attorney at the National Law Center on Homelessness & Poverty. “And so the PTFA is still the best protection available and we want to make sure that it lasts beyond 2014.”

Bauman is the primary author of the law center’s new report, “Eviction (Without) Notice,” that warns the homelessness problem for renters will only continue to worsen. The total number of renters has increased by 5.1 million nationally since 2000. In 2010, renters made up the majority of households in several of our nation’s most populous cities, and their numbers are expected to grow.

“This report shows how important PTFA’s protections are and the need to make them permanent,” said Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty in a statement. “But it also shows that, because many people are not aware of the law and oversight is limited, PTFA rights are often violated — leaving families across the country out on the street.”

A survey of 156 renters, many of them unaware of their rights under federal law, found the failure of new owners to determine the occupancy status of residents in foreclosed properties to be among the top PTFA violations cited by respondents.

“We found that new owners may make no effort to determine if the property is occupied,” said Bauman. “The tenant is left in a position where they may not know their properties have changed hands until they come home and their door is locked.”

A survey of 227 legal rights advocates cited lack of communication from new owners (85.9 percent); illegal, misleading or inaccurate written notices (68.1 percent); and harassment from real estate agents, law firms or bank representatives (61.1 percent) as top problems.

Pointing to these violations of the PTFA and the ongoing risk of homelessness as a result of the foreclosure crisis, Bauman said, “All of this speaks to the need for this law to continue to be a protection.”

DOJ Probes Wells Fargo: Unravelling the Scam Piece by Piece

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Editor’s Comment and Analysis: For those, like myself, frustrated with the pace of the investigation, we must remember that the convoluted manner in which money and documents were handled was intended to obscure the PONZI scheme at the root of the securitization scam and false claims based upon securitization.

None of us saw anything this complex and after devoting 6 years of life to unraveling this mess I am still learning more each day , even with an extensive background on Wall Street and even with my experience with bond trading, investment banking and related matters.

So first they are going after the low-hanging fruit, which is the obvious misrepresentations to the investors who actually comprise most of the same people who were foreclosed. It was pension funds and retirement accounts managed directly or indirectly by the Wall Street banks that bought these bogus “mortgage-backed” bonds. Those same funds are now underfunded and headed for another bailout fight with the Congress.

The problem is that DOJ is still looking at documents and representations when they should be probing the actual movement of money. It is there that they will find the holy grail of prosecutable crimes. The money just didn’t go the way the banks said it would. The banks took trading profits out of the money before it even landed in an account which incidentally was never titled in the name of the REMIC that issued the fake mortgage bonds backed by loans that did not exist in the “the pool.”

Nonetheless I am encouraged that DOJ is chipping away at this, and getting their feet wet, as they get to understand what was really happening, to wit: a simple PONZI scheme in which the deal would fold as soon as there were no more investments by investors.

This simple core was covered by multiple layers of false documentation, robo-signed documents and other transmissions with disclaimers, such that there would be plausible deniability. In the end it is nothing different than Madoff, Drier or other schemes that have landed many titans in prison for the rest of their lives — unless they died before serving their sentence.

I’m an optimist: I still believe that in the end, these banksters will be brought to  justice for real crimes they committed or were directing through their position in the institutions they supposedly represented. The end result is going to be an overhaul of banking like we have not seen before perhaps in all of U.S. history.

The fact remains that the assets on the balance sheets of these banks are (a) overstated by assets that are either non existent or overvalued and (b) understated by the amount of money they parked off-shore in “off balance sheet transactions.”

In the end, which I predict could still be five years away or more, the large banks will have disappeared and the banking industry will return to the usual marketplace of large, medium and small banks, each easily subject to regulation and audits.

How the staggering toll exacted from the middle class will be handled is another story. Nobody in power wants to give the ordinary guy money even if he was defrauded. But unless they give restitution to the pension funds and homeowners, the economy will continue to drag and lag behind where it should be.

Wells Fargo Wachovia Unit Faces Probe Over Mortgage Practices

Reuters

Nov 6 (Reuters) – The government’s investigation of mortgage-related practices at Wells Fargo & Co includes the making and packaging of home loans by its Wachovia unit, the bank said in a filing Tuesday.

The No. 4 U.S. bank by assets disclosed in February that it may face federal enforcement action related to mortgage-backed securities deals leading to the financial crisis.

In Tuesday’s quarterly securities filing, Wells Fargo reiterated that it’s being investigated for whether it properly disclosed in offering documents the risks associated with its mortgage-backed securities.

The bank also said the government is investigating whether Wells Fargo complied with applicable laws, regulations and documentation requirements relating to mortgage originations and securitizations, including those at Wachovia.

San Francisco-based Wells Fargo acquired Wachovia at the peak of the financial crisis in 2008 as losses in the Charlotte, North Carolina-based bank’s mortgage portfolio ballooned.

Mortgages packaged into securities for investors during the housing boom still haunt big banks years later. Banks have been accused of failing to ensure the quality of the loans and for misrepresenting their risk to investors.

In January, the Obama administration set up a special task force to investigate practices related to mortgage-backed securities at banks.

In the group’s first action, New York State Attorney General Eric Schneiderman last month filed a civil suit against JPMorgan Chase & Co for alleged fraud at Bear Stearns, which JPMorgan bought at the government’s request in 2008.

Why DeMarco Won’t Allow Principal Corrections Despite Instructions

Housing Regulator Defies White House

Obama’s Next Move Unknown

Editor’s Comment and Analysis: It’s unanimous! Except for DeMarco, the housing regulator who won’t let Fannie and Freddie cooperate with principal reductions. Why not?

“The Federal Housing Finance Agency’s own analysis has shown that principal reduction could help up to 500,000 homeowners and save taxpayers as much as $1 billion, Geithner wrote to DeMarco. It could save Fannie Mae and Freddie Mac, the government-controlled mortgage giants that DeMarco is preventing from offering principal reduction, up to $3.6 billion, he said.”

The reason is that Fannie and Freddie are actually creatures of Wall Street. And under the now debunked too big to fail theory, a reduction of principal is bad. Mind you this reduction is only a correction to reflect two things: (1) the appraisals were fraudulently inflated just like the rating companies did with the bogus mortgage bonds and (2)  PAYMENTS received but which are going into the bottom line of the mega banks instead of repaying the lenders.

The reason why the Banks are fighting this tooth and nail are many. But the trigger that they fear is that when the loans are written down, more than $150 trillion in fake “cash equivalent” instruments will disappear and they would need to correct their balance sheets and profit and loss statements to reflect the fact that this whole securitization thing was a sham.

This is the last gasp of Wall Street using a regulator who for reasons of personal ideology or personal finance (or both) can still be manipulated into avoiding the one correction that would bring the entire housing market back, return equity to homeowners (or at least give them a  fighting chance to get to equity in their homes) and stop the drag on the economy.

So it all comes down to this. Who is more important — the banks or the people of this country. Even if you are ideologically opposed to reductions or corrections you must realize that this plan results in a decrease in taxpayer losses. Why would you want anything else when the alternative costs more, leads to bigger government, and will lead the economy to the next recession/depression?

DeMarco’s ideological response is that the correction would lead to a “moral hazard” leading to other people who stop paying their mortgages. They should stop paying but they won’t — because deep down inside homeowners want to do the right thing. And even though I think they are wrong, they believe that the right thing is to pay their debt — even if someone has already paid it through bailout, Fed purchases, insurance, credit default swaps etc.

DeMarco’s response was clearly scripted by Wall Street who are the titans of “moral hazard.” They took booming economies and reduced them to rubble. The bottleneck is at the Banks and the answer is that DeMarco can and will be fired, the Banks will be taken down into sizes that enable regulators to control them, and the economy will eventually recover.

Ed DeMarco, Top Housing Official, Defies White House; Geithner Fires Back

Demarco

In a move that brings two federal agencies as close to warfare as possible within the confines of bureaucratic memos, the Treasury Department called out housing regulator Edward DeMarco on Tuesday for his continued refusal to offer a key piece of housing assistance to underwater borrowers struggling to save their homes from foreclosure.

The Federal Housing Finance Agency’s own analysis has shown that principal reduction could help up to 500,000 homeowners and save taxpayers as much as $1 billion, Geithner wrote to DeMarco. It could save Fannie Mae and Freddie Mac, the government-controlled mortgage giants that DeMarco is preventing from offering principal reduction, up to $3.6 billion, he said.

The response was timed to coincide with DeMarco’s latest letter to Congress, in which he reaffirmed his opposition to principal reduction, a form of loan forgiveness championed by many housing advocates and economists. DeMarco wrote that his agency’s analysis found that the taxpayer benefit of writing down the mortgage values of some loans “would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers.”

This is not the first time DeMarco has irked the Obama administration. As the acting director of the federal overseer of Fannie and Freddie, DeMarco has broad powers to set policy at the companies. The Obama administration — especially Treasury — leaned hard on DeMarco to agree to allow the five banks that signed on to the national mortgage settlement in March to write down the roughly 50 percent of all loans they service that are owned or backed by Fannie and Freddie.

DeMarco said no. He has also resisted entreaties to allow borrowers who obtain a loan modification through the Home Affordable Modification Program, or HAMP, which Treasury administers, to allow loan forgiveness as part of the modification in some circumstances. It is the analysis of whether principal reduction offered through this program would help or hurt taxpayers that is the center of the dispute between Geither and DeMarco.

In the letter sent Tuesday to Congress, DeMarco said that projected benefit to taxpayers is $500 million in the best case, and that most of this aid would go to homeowners who haven’t made a mortgage payment in more than a year.

“Experience dictates that the likelihood of successfully modifying and reinstating these loans is small so that the anticipated benefit is likely to be much less than $500 million,” he said.

The housing regulator also restated his position that allowing some homeowners off the hook for some of what they owe would pose “a moral hazard.”

“This could give borrowers who are current on their mortgages a message that the government endorses forgiving a portion of mortgage debt if hardship can be demonstrated, creating a very broad incentive for underwater borrowers to seek ways to become eligible.”

He also repeated his argument that steps Fannie Mae and Freddie Mac are already taking, such as reducing the interest rate on loans and offering to postpone, or “forbear,” mortgage payments, will help struggling borrowers without posing the moral and financial hazards that come with reducing the value of a loan.

Geithner struck back at that analysis, claiming that DeMarco omitted key details in order to stick to his guns on principal reduction. Even if the longer-delinquent loans that DeMarco referenced are not a part of a program, there are still 300,000 borrowers who could participate in a loan forgiveness program at zero cost to taxpayers, Treasury said.

“[A]s we have discussed many times, the use of targeted principal reduction by [Fannie and Freddie] would provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market and result in a net benefit to taxpayers,” Geithner wrote.

The Federal Housing Finance Agency has overseen the mortgage giants since they were bailed out in 2008, part of the early fallout from the mortgage crisis. Since then, taxpayers have spent roughly $188 billion to prop up the companies, according to the regulator.

Elijah Cummings (D-Md.), one of DeMarco’s fiercest Congressional critics, said in an email that he believes the regulator is behaving recklessly.

“It is incomprehensible that Mr. DeMarco would reject the chance to save up to a billion dollars in taxpayer funds while helping nearly half a million homeowners stay in their homes,” Cummings said. “He should immediately withdraw this reckless and misguided letter and start following the law Congress passed.”

DeMarco’s continued refusal to allow the two mortgage giants to offer loan write-downs has prompted a growing chorus of critics to call for his resignation, or for Obama to fire him.

“If Mr. DeMarco will not change his mind, we need to change his job — and today we’re once again calling on President Obama to fire him,” said Natalie Foster, the chief executive officer of Rebuild the Dream, an advocacy group.

A White House spokesman referred a query to the Treasury Department.

see entire article at War at the White House Over Principal Reduction

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“I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.” Matt Taibbi

From Rolling Stone’s Matt Taibbi on Sheila Bair’s Sarcastic Piece

I hope everyone saw ex-Federal Deposit Insurance Corporation chief Sheila Bair’s editorial in the Washington Post, entitled, “Fix Income Inequality with $10 million Loans for Everyone!” The piece might have set a world record for public bitter sarcasm by a former top regulatory official.

In it, Bair points out that since we’ve been giving zero-interest loans to all of the big banks, why don’t we do the same thing for actual people, to solve the income inequality program? If the Fed handed out $10 million to every person, and then got each of those people to invest, say, in foreign debt, we could all be back on our feet in no time:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Every time I watch a Republican debate, and hear these supposedly anti-welfare crowds booing the idea of stiffer regulation of Wall Street, I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.

Considering that we now know that the Fed gave out something like $16 trillion in secret emergency loans to big banks on top of the bailouts we actually knew about, you might ask yourself: How are these guys in financial trouble? How can they not be making mountains of money, risk-free? But they are in financial trouble:

• We’re about to see yet another big blow to all of the usual suspects – Goldman, Citi, Bank of America, and especially Morgan Stanley, all of whom face potential downgrades by Moody’s in the near future.

We’ve known this was coming for some time, but the news this week is that the giant money-managing firm BlackRock is talking about moving its business elsewhere. Laurence Fink, BlackRock’s CEO, told the New York Times: “If Moody’s does indeed downgrade these institutions, we may have a need to move some business around to higher-rated institutions.”

It’s one thing when Zero Hedge, William Black, myself, or some rogue Fed officers in Dallas decide to point fingers at the big banks. But when big money players stop trading with those firms, that’s when the death spirals begin.

Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk. But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said.

• Meanwhile, Bank of America reported its first-quarter results yesterday. Despite that massive ongoing support from the Fed, it earned just $653 million in the first quarter, but astonishingly the results were hailed by most of the financial media as good news. Its home-turf paper, the San Francisco Chronicle, crowed that BOA “Posts Higher Profits As Trading Results Rebound.” Bloomberg, meanwhile, summed up results this way: “Bank of America Beats Analyst Estimates As Trading Jumps.”

But the New York Times noted that BOA’s first-quarter profit of $653 million was down from $2 billion a year ago, and paled compared to results of more successful banks like Chase and Wells Fargo.

Zero Hedge, meanwhile, posted an amusing commentary on BOA’s results, pointing out that the bank quietly reclassified nearly two billion dollars’ worth of real estate loans. This is from BOA’s report:

During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming.

In other words, Bank of America described nearly two billion dollars of crap on their books as performing loans, until the government this year forced them to admit it was crap.

ZH and others also noted that BOA wildly underestimated its exposure to litigation, but that’s nothing new. Anyway, despite the inconsistencies in its report, and despite the fact that it’s about to be downgraded – again – Bank of America’s shares are up again, pushing $9 today.

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EDITOR’S COMMENT: The Occupy movement is taking on a life of its own, expressing citizen outrage over the behavior of the banks and the complicity of the government in aiding and abetting the stealing of homes. As the movement matures, it is getting increasingly focussed on the weak spots of the Banks and it is having a political effect as well as a judicial effect. Judges are having conferences that differ substantially from the ones they had only 6 months ago.

Judges still want to move their calendar along. And the issue of “finality” still looms large for them — someone has to say “game over.” But they are expressing doubt and dismay as more and more cases show up where it is obvious that the Banks are playing fast and loose with the rules of evidence and more importantly, violating criminal statutes to get a house in which they have no economic interest.

I say we should give the Occupy movement as much support as possible and that we should encourage Occupy leaders to take whatever political action they can to turn the course of the country from becoming a third world nation. The failure of the judicial system and the failure of law enforcement to lead the way on this, as they did when we had the savings loan scandal in the 1980’s is a sure sign that our system is broken and we know who broke it — the Banks.

If we succeed, then we will have reversed control over the government to the people, and reverted to the rule of law required by our Constitution. For those who depend upon the Bill of Rights for their existence, like the NRA (which depends upon the second amendment) they should be aware that acceptance of the status quo means that government can and will take any action it wants ignoring the Constitutional protections that were guaranteed. First, they take your house, then your guns.

Occupy Protests Spread Anti-Foreclosure Message During National ‘Occupy Our Homes’ Action

WASHINGTON — In the late evening on Tuesday, Brigitte Walker welcomed Occupy Atlanta onto her property in an effort to save her Riverdale, Ga., home from foreclosure.

Walker, 44, joined the Army in 1985 and had been among the first U.S. personnel to enter Iraq in February 2003. “I wasn’t happy about it,” she told The Huffington Post early Tuesday afternoon, speaking of her deployment. “But it’s my call of duty so had to do what I was supposed to do. It was a very difficult duty. It was a very emotional duty.”

Walker saw fellow soldiers die, get injured. She saw a civilian with them get killed. “It was very nerve-wracking,” she said. “It makes you wonder if you’re going to survive.”

She was in Iraq until May 2004, when the shock from mortar rounds crushed her spine. Doctors had to put in titanium plates to reinforce her spine, which had nerve damage. Today her range of motion is limited, and she still experiences a lot of pain. She still struggles with post-traumatic stress disorder. Loud noises and big crowds are painful. The Fourth of July is difficult for her

She settled in Riverdale, a town outside of Atlanta, after purchasing a house in 2004 for $139,000. She has a brother who lives in the area and enjoyed it when she would visit him. “It seemed peaceful and quiet,” she said. “That’s what I needed.” Her active duty salary covered the mortgage.

But in 2007, the Army medically retired Walker against her wishes. “I thought I was going to rehab and come back,” she said. “But they told me I couldn’t stay in.” Walker now has to rely on a disability check.

After retiring from the Army, Walker used up her savings, and then got rid of a car to help pay her monthly mortgage payment. “I didn’t have problems until they put me out of the military,” she said. “It was just overwhelming.”

By April of last year, she was starting to fall behind on her mortgage. JPMorgan Chase — which owns Walker’s mortgage, according to an Occupy Atlanta press release — has since begun foreclosure proceedings. She said the bank is set to take her house on January 3.

“Nobody is willing to help me,” Walker said. “Where are the programs to help vets like me? I know I’m one of many.”

Enter Occupy Atlanta.

“I’m very hopeful that it will help me save my home and allow Chase to give me a chance to keep my home,” Walker said, speaking of the Occupiers. She added that she’s willing to celebrate Christmas with the activists.

“I guess,” she said with a laugh. “As long as it takes.”

Hours before Occupy Atlanta joined Walker at her home, the activists organized protests aimed at disrupting home auctions at three area courthouses. At a Fulton County Courthouse, civil rights leader Dr. Joseph Lowery joined 200 demonstrators at the county’s monthly foreclosure auction.

Across the country, activists associated with the Occupy movement and Occupy Our Homes reached out to families threatened by foreclosure and highlighted the crisis with marches, rallies and press conferences.

“Occupy Wall Street started because of a deep need in our country to address the financial and economic crisis that’s been created by the consolidation of wealth and political power in our country,” said Jonathan Smucker, 33, an organizer with Occupy Wall Street in New York. “The foreclosure crisis, at least as much as anything else, illustrates the deep moral crisis that we are facing. It illustrates what you have when you have your whole political system serving the needs of the one percent.”

Mothers spoke out on front lawns. In New York City, Occupy Wall Street marched through the streets of East New York. At the same time, Occupy groups were protesting home auctions in Nevada and New Orleans. In Seattle protesters tried to save a family from eviction. In all, activists took over vacant homes or homes facing foreclosures from being evicted in 20 cities.

During the actions, the activists tried to keep the mood light. In Chicago they planned a house-warming party for a family moving into an abandoned home. To announce their presence in New York, protestes held a block party and, in a play on police tape, wrapped a home in yellow tape bearing the word “Occupy.”

As the protest were taking place, the Government Accountability Office, an investigative arm of Congress, released a new report that found an increasing number of American homes are going unused, a spike attributed to high foreclosure and unemployment rates.

“According to Census Bureau data, nonseasonal vacant properties have increased 51 percent nationally from nearly 7 million in 2000 to 10 million in April 2010, with 10 states seeing increases of 70 percent or more,” the report read. “High foreclosure rates have contributed to the additional vacancies. Population declines in certain cities and high unemployment also may have contributed to increased vacancies.”

Vacant homes can cause a number of problems for the communities their located in, the report noted: “Vacant and unattended residential properties can attract crime, cause blight, and pose a threat to public safety.”

The need for action was obvious to Smucker.

“People need a place to live,” he said. “People need to have homes. Kids need to be able to count on not having to move, having some stability in their lives. That’s something we can all agree on in this country.”

Some of the most powerful stories came from the homeowners Occupiers targeted during the day’s events. One mother from Petaluma, Calif, held a press conference outside her home and discussed her struggle with foreclosure. An Oregon mother talked about her lose of a second job, cancer and bankruptcy at an event at her house.

In Old Fourth Ward neighborhood of downtown Atlanta, Occupiers came to the Pittman family home. Carmen Pittman, 21, said the home has been the backdrop to every family function and holiday dinner as far back as she can remember. The ranch-style home had been in the Pittman name since 1953.

“My every Christmas, my every Thanksgiving, my every birthday, my every dinner was in this house,” Pittman told HuffPost early this afternoon. “This was the base home. We could not stay away form this home. This home is my every memory.”

Now she worries that the last memory she will have is the home’s foreclosure. Her grandmother had become too sick to deal with the ballooning mortgage, and never addressed the court papers that arrived in the mail. Shortly before she passed away, the family finally realized the home was being foreclosed on when they got a notice on the front door. They have had to scramble ever since.

But on Tuesday, Pittman was feeling good about her prospects after the Occupy group had come to the house. “Maybe somebody heard my cries,” she said. “I’m full of sadness and joy. It’s like two mixed feelings at the same time.”

Walker, the Iraq War vet, let the Occupy Atlanta activists set up tents on her property this evening. While her eviction date is still set for Jan. 3, she said she remained cautiously optimistic that her situation could change.

“Everything’s fine,” she said. “Everything’s good. They have the tents set up outside. It’s awesome. I was a little nervous. But it’s awesome. I’m really hopeful and happy. I’m feeling really hopeful. I don’t feel like all is lost anymore.”

Additional reporting by Arthur Delaney.

Just some of the odd foreclosure stories of the last year:

CT Family Never Missed A Payment
Shock Baitch and his wife Lisa of Connecticut were threatened with foreclosure by Bank of America after never missing a payment. BofA mistakenly told credit agencies they were seeking a loan modification. “Now I am literally and financially paying for it,” Baitch told CTWatchdog.com.

NEVADA WHISTLE-BLOWER FOUND DEAD AT 43

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EDITOR’S NOTE: Whether it’s from natural causes, suicide, accident, or murder, the death of anyone is a tragedy for their family and those in their circle. Our condolences to the family and friends of Tracy Lawrence. Her death is not alone. Many people have turned to suicide, taking their families with them into whatever lies beyond this mortal coil. What I personally hope for, is that at the end of the day we have a new structure in place, governed by true morality as its first precept. Meanwhile, the system, the society, and the components of economics, politics and social services continue to decline into irrelevance as people suffer through the pains of the change that is coming.

Tracy Lawrence, Notary Public Who Blew The Whistle On Massive Foreclosure Fraud, Found Dead

Notary Public Who Blew Whistle On Massive Foreclos

The Huffington Post  

Tracy Lawrence, the notary public who blew the whistle on a massive foreclosure fraud scheme, was found dead in her Las Vegas home on Nov. 28, MSNBC reported.

Cause of death has not yet been determined, but Officer Jacinto Rivera, a Las Vegas Metropolitan Police Department spokesman, said the case was not being investigated as homicide. She was 43.

Earlier this month, Lawrence came forward and admitted to the Nevada Attorney General’s Office that she notarized 25,000 fraudulent documents for Lender Processing Services, a Florida company used by most major banks to process home repossessions. The documents were filed with the Clark County Recorder’s Office between 2005 and 2008, The Los Angeles Times reported.

Lawrence also accused two loan officers of allegedly running the massive robo-signing scheme, saying they forged signatures on tens of thousands of default notices. Nevada now alleges that Gary Trafford, 49, of Irvine, Calif., and Gerri Sheppard, 62, of Santa Ana, Calif., directed their employees to forge foreclosure documents, notarize the signatures on the documents they had forged and file the fraudulent paperwork in order to begin foreclosures on homes throughout the county.

Trafford and Sheppard have been indicted on more than 600 counts of offering false instruments for recording, false certification on certain instruments and notarization of the signature of a person not in the presence of a notary public. Authorities are currently negotiating the terms of their surrender, KSNV MyNews 3 reported.

Earlier this month, Lawrence pleaded guilty to one count of notarizing the signature of a person not in her presence, The Associated Press reported. Had Lawrence shown up at her sentencing hearing on Monday, she could have faced a potential sentence of up to one year in jail and a fine of up to $2,000.

On Nov. 17, Lender Processing Services issued a statement acknowledging that the signing procedures on some of documents were flawed. The company also agreed to fully cooperate with the attorney general’s investigation.

“I am deeply committed to ensuring that LPS meets rigorous standards of professional conduct and operating excellence,” newly appointed LPS President and CEO Hugh Harris stated. “I have full confidence in the ability of our leadership team and over 8,000 dedicated employees to deliver on that commitment.”

According to RealtyTrac, Nevada has had the highest foreclosure rate in the nation for 56 straight months.E

 

Minnesota AG Backs NY AG: No Amnesty For Banks

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POLITICIANS SMELL BLOOD: RUN AGAINST THE BANKS

“Every single American has paid a very heavy price for the behavior of the financial industry. Ordinary people have lost homes, jobs, income, and financial security because of the actions of this industry,” Swanson said in a statement emailed to The Huffington Post by a spokesman. “I welcome and embrace all efforts to investigate the banks and their executives and to hold them accountable for unlawful activity.”

Minnesota Attorney General Backs New York’s Eric Schneiderman In National Foreclosure Settlement Talks

Minnesota Lori Swanson

First Posted: 9/13/11 12:24 PM ET Updated: 9/13/11 01:40 PM

NEW YORK — As government officials work to settle claims that the nation’s biggest banks illegally foreclosed on American homeowners, Minnesota Attorney General Lori Swanson has joined a group of law enforcers pushing for a narrow deal that would leave banks exposed to potential legal action in the future.

In a letter obtained by The Huffington Post, Swanson said any settlement with the group of banks over mortgage practices should exclude a release from claims over the creation of mortgage-linked securities. Swanson’s support for a narrow settlement unites her with New York Attorney General Eric Schneiderman and attorneys general from three other states, who have said the banks’ alleged wrongdoing hasn’t been investigated thoroughly enough to merit a broader release from legal liability.

“[T]he banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement,” she said in a Friday letter addressed to Schneiderman, Iowa Attorney General Tom Miller and Associate United States Attorney General Thomas Perrelli. “For example, a settlement that focuses on mortgage servicing standards should not release the banks or their officers from liability for securities claims or conduct arising out of the securitization of mortgages.”

“[A]ny settlement between government regulators and the mortgage industry should have ‘teeth’ — holding the banks accountable for their wrongful conduct, enjoining future unlawful activity, and helping injured homeowners,” she continued.

The federal government, along with attorneys general from all 50 states, launched an investigation into big banks’ mortgage and foreclosure practices after it emerged last fall that mortgage companies employed so-called “robo-signers,” who signed thousands of foreclosure documents without reading them. Banks temporarily halted foreclosures last October, saying they would review documents for errors.

Settlement talks, which began in the spring, seemed to be moving toward a conclusion during the summer months, even though government officials had initiated only a limited investigation into the banks’ alleged wrongdoing, The Huffington Post reported in July. Elizabeth Warren, a staunch consumer advocate and recently a senior Obama Administration adviser, told a congressional panel that claims of illegal foreclosures may not have been fully investigated.

The banks, which include Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial, have pushed for a speedy resolution, as uncertainty over a legal penalty that could reach $20 billion has contributed to persistent slumps in their stock. “When we get that call we’ll be on an airplane, we’ll be down there, we’ll be signing up,” JPMorgan chief executive Jamie Dimon said during a conference call in July.

Schneiderman, who has firmly supported a narrow deal, was last month kicked off the committee leading the 50-state talks at the behest of Iowa’s Miller, who is leading the state group, The Huffington Post reported. That news broke a day after the New York Times editorial board voiced support for New York’s attorney general, saying Schneiderman “should stand his ground in not supporting the deal.”

The skirmish among government officials highlights divisions that have emerged, as federal officials and some state attorneys general advocate for a quick resolution, while others are urging the parties not to settle unless there has been a more thorough investigation. Some attorneys general, including Schneiderman, are also pursuing their own investigations.

Law enforcers recently proposed a deal that would effectively release banks from legal liability for securitization practices, the Financial Times reported earlier this month. The banks, which want the broadest possible immunity, called the latest proposal a “non-starter,” according to the FT.

In addition to Swanson and Schneiderman, the attorneys general from Delaware, Massachusetts and Nevada have also raised concerns about a broad release of legal liability for the banks.

“We have received Attorney General Swanson’s letter and agree that any agreement must not prevent attorneys general investigating the mortgage crisis from following the facts wherever they lead,” Danny Kanner, spokesman for the New York attorney general, said in an emailed statement.

“Every single American has paid a very heavy price for the behavior of the financial industry. Ordinary people have lost homes, jobs, income, and financial security because of the actions of this industry,” Swanson said in a statement emailed to The Huffington Post by a spokesman. “I welcome and embrace all efforts to investigate the banks and their executives and to hold them accountable for unlawful activity.”

BANKS DEFRAUDING TAXPAYERS FACE FATE OF AL CAPONE

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EDITOR’S NOTE:  Somehow this particular article escaped me when it was published by Huffington Post. Like all the other allegations against the participants in the mortgage securitization hoax, the underlying theme is that the major banks simply lied about the ownership, value and nature of the mortgage assets. In this case the government paid them based upon their naked representation that the mortgage liens had been perfected and properly transferred.

 So far the banks have been successful, for the most part, in convincing the public and the courts that the mortgage liens have been perfected and properly transferred in all cases where claims of “ownership” were based upon securitization of debt. But in every case where professionals have been employed and have taken the time to carefully examine both the money trail and the document trail they have reached the conclusion that the documents and the handling of the money has been at best fatally defective and at worst fraudulent, forged,  and fabricated.

 The victims of this hoax include every taxpayer, consumer, homeowner and business in the entire country. As the lawsuits multiply and as the attorney general of each state comes to realize the political risk of siding with the banks, it will become obvious that we are all affected regardless of whether we are directly involved in the foreclosure process or merely suffering the results of collateral damage.

 The debates regarding the debt ceiling, spending and the tax code are mere distractions from the enforcement of existing tax liability of the participants in the massive securitization hoax. As taxpayers we have given the banks considerable resources to kick the can down the road. But the ultimate result cannot be disputed. Trillions of dollars are owed to the federal government, state governments and local governments on transactions that were either not reported at all or were reported with the intent to deceive those governments and deprive them of revenue.

The missing revenue together with the fraudulent receipt of payments from taxpayers for nonexistent or fraudulently represented mortgages and mortgage assets constitute all of the “deficit” that has been reported for all the governmental  entities that supposedly are in distress, bankrupt were subject to downgrade in their credit ratings.

 Simply stated, the deficit money is sitting on Wall Street or offshore under the control of those who control the Wall Street entities that perpetrated the grand securitization hoax. The same is true for individual consumers and homeowners. The scope of the securitization hoax included but was not limited to home loans, credit cards, student loans, auto loans and virtually every other kind of debt imaginable. Lately we have been receiving reports that the securitization hoax is expanding its scope to include life insurance. By inducing those who would otherwise not purchased life insurance (perhaps because they could not afford it) or who would purchase a contract from a life insurance carrier that was not involved in securitization, Wall Street is creating a vehicle which for the first time institutionalizes the motivation to deprive people of their lives.

 There are many permutations of the securitization hoax. The bottom line is that the vendor of the financial products sold to the consumer is not taking any risk, but is being paid, like an actor. In this way Wall Street is essentially the primary actor in the sale of financial products, like all mortgages or insurance, without being regulated or licensed by the appropriate federal or state agency.

The actors (pretender lenders) are either lending their licenses contrary to law or pretending to be licensed and getting away with it because of the apparent complexity of securitization. There is no need for complex analysis. Either they are a lender or they are not. Either they are a mortgage broker or they are not. Either they are an insurance broker or they are not. And if they acted as a lender when in fact their function was as a mortgage broker they have violated the law. And if they acted as a mortgage originator when in fact their function was a mortgage broker, they have violated the law. The administrative agencies regulating the various professions involved in real estate transactions have lots of work to do, lots of discipline to mete out, lots of fines to collect and lots of restitution to order.

 There are hundreds of millions of transactions in which worthless paper was involved which contained claims to obligations, notes and mortgages (which are interest in real property). The fact that these were fraudulent transactions does not take away from the fact that a profit was made, that documents should have been recorded, and that taxes and fees were due. The only question left is whether there are enough people left in government who are willing to use the tools available to them to correct the mess created by the securitization hoax.

Al Capone, the famed mobster, got away with almost everything including murder — until  he was taken down for tax fraud. It doesn’t matter how his reign of terror was ended. What matters is that it did end. And if government had followed through there would not have been anything to replace him. That is the challenge facing today’s government. And more importantly, it is the challenge to our Republic, where inch by inch, personal liberties have been taken away that are still guaranteed by our most basic law — the American Constitution.

___________________________________________________________________

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.”

Those violations are likely only a small fraction of the number committed by home loan companies, experts say, citing the small sample examined by regulators.”

Shahien Nasiripour

Shahien Nasiripour shahien@huffingtonpost.com

Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers [EXCLUSIVE]

Foreclosure Fraud

WASHINGTON — A set of confidential federal audits accuse the nation’s five largest mortgage companies of defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans, four officials briefed on the findings told The Huffington Post.

The five separate investigations were conducted by the Department of Housing and Urban Development’s inspector general and examined Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, the sources said.

The audits accuse the five major lenders of violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government. The audits were completed between February and March, the sources said. The internal watchdog office at HUD referred its findings to the Department of Justice, which must now decide whether to file charges.

The federal audits mark the latest fallout from the national foreclosure crisis that followed the end of a long-running housing bubble. Amid reports last year that many large lenders improperly accelerated foreclosure proceedings by failing to amass required paperwork, the federal agencies launched their own probes.

The resulting reports read like veritable indictments of major lenders, the sources said. State officials are now wielding the documents as leverage in their ongoing talks with mortgage companies aimed at forcing the firms to agree to pay fines to resolve allegations of routine violations in their handling of foreclosures.

The audits conclude that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.

Two of the firms, including Bank of America, refused to cooperate with the investigations, according to the sources. The audit on Bank of America finds that the company — the nation’s largest handler of home loans — failed to correct faulty foreclosure practices even after imposing a moratorium that lifted last October. Back then, the bank said it was resuming foreclosures, having satisfied itself that prior problems had been solved.

According to the sources, the Wells Fargo investigation concludes that senior managers at the firm, the fourth-largest American bank by assets, broke civil laws. HUD’s inspector general interviewed a pair of South Carolina public notaries who improperly signed off on foreclosure filings for Wells, the sources said.

The investigations dovetail with separate probes by state and federal agencies, who also have examined foreclosure filings and flawed mortgage practices amid widespread reports that major mortgage firms improperly initiated foreclosure proceedings on an unknown number of American homeowners.

The FHA, whose defaulted loans the inspector general probed, last May began scrutinizing whether mortgage firms properly treated troubled borrowers who fell behind on payments or whose homes were seized on loans insured by the agency.

A unit of the Justice Department is examining faulty court filings in bankruptcy proceedings. Several states, including Illinois, are combing through foreclosure filings to gauge the extent of so-called “robo-signing” and other defective practices, including illegal home repossessions.

Representatives of HUD and its inspector general declined to comment.

The internal audits have armed state officials with a powerful new weapon as they seek to extract what they describe as punitive fines from lawbreaking mortgage companies.

A coalition of attorneys general from all 50 states and state bank supervisors have joined HUD, the Treasury Department, the Justice Department and the Federal Trade Commission in talks with the five largest mortgage servicers to settle allegations of illegal foreclosures and other shoddy practices.

Such processes “have potentially infected millions of foreclosures,” Federal Deposit Insurance Corporation Chairman Sheila Bair told a Senate panel on Thursday.

The five giant mortgage servicers, which collectively handle about three of every five home loans, offered during a contentious round of negotiations last Tuesday to pay $5 billion to set up a fund to help distressed borrowers and settle the allegations.

That offer — also floated by the Office of the Comptroller of the Currency in February — was deemed much too low by state and federal officials. Associate U.S. Attorney General Tom Perrelli, who has been leading the talks, last week threatened to show the banks the confidential audits so the firms knew the government side was not “playing around,” one official involved in the negotiations said. He ultimately did not follow through, persuaded that the reports ought to remain confidential, sources said. Through a spokeswoman, Perrelli declined to comment.

Most of the targeted banks have not seen the audits, a federal official said, though they are generally aware of the findings.

Some agencies involved in the talks are calling for the five banks to shell out as much as $30 billion, with even more costs to be incurred for improving their internal operations and modifying troubled borrowers’ home loans.

But even that number would fall short of legitimate compensation for the bank’s harmful practices, reckons the nascent federal Bureau of Consumer Financial Protection. By taking shortcuts in processing troubled borrowers’ home loans, the nation’s five largest mortgage firms have directly saved themselves more than $20 billion since the housing crisis began in 2007, according to a confidential presentation prepared for state attorneys general by the agency and obtained by The Huffington Post in March. Those pushing for a larger package of fines argue that the foreclosure crisis has spawned broader — and more costly — social ills, from the dislocation of American families to the continued plunge in home prices, effectively wiping out household savings.

The Justice Department is now contemplating whether to use the HUD audits as a basis for civil and criminal enforcement actions, the sources said. The False Claims Act allows the government to recover damages worth three times the actual harm plus additional penalties.

Justice officials will soon meet with the largest servicers and walk them through the allegations and potential liability each of them face, the sources said.

Earlier this month, Justice cited findings from HUD investigations in a lawsuit it filed against Deutsche Bank AG, one of the world’s 10 biggest banks by assets, for at least $1 billion for defrauding taxpayers by “repeatedly” lying to FHA in securing taxpayer-backed insurance for thousands of shoddy mortgages.

In March, HUD’s inspector general found that more than 49 percent of loans underwritten by FHA-approved lenders in a sample did not conform to the agency’s requirements.

Last October, HUD Secretary Shaun Donovan said his investigators found that numerous mortgage firms broke the agency’s rules when dealing with delinquent borrowers. He declined to be specific.

The agency’s review later expanded to flawed foreclosure practices. FHA, a unit of HUD, could still take administrative action against those firms for breaking FHA rules based on its own probe.

The confidential findings appear to bolster state and federal officials in their talks with the targeted banks. The knowledge that they may face False Claims Act suits, in addition to state actions based on a multitude of claims like fraud on local courts and consumer violations, will likely compel the banks to offer the government more money to resolve everything.

But even that may not be enough.

Attorneys general in numerous states, armed with what they portray as incontrovertible evidence of mass robo-signings from preliminary investigations, are probing mortgage practices more closely.

The state of Illinois has begun examining potentially-fraudulent court filings, looking at the role played by a unit of Lender Processing Services. Nevada and Arizona already launched lawsuits against Bank of America. California is keen on launching its own suits, people familiar with the matter say. Delaware sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions. And New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures.

A review of about 2,800 loans that experienced foreclosure last year serviced by the nation’s 14 largest mortgage firms found that at least two of them illegally foreclosed on the homes of “almost 50” active-duty military service members, a violation of federal law, according to a report this month from the Government Accountability Office.

Those violations are likely only a small fraction of the number committed by home loan companies, experts say, citing the small sample examined by regulators.

In an April report on flawed mortgage servicing practices, federal bank supervisors said they “could not provide a reliable estimate of the number of foreclosures that should not have proceeded.”

The review of just 2,800 home loans in foreclosure compares with nearly 2.9 million homes that received a foreclosure filing last year, according to RealtyTrac, a California-based data provider.

“The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans,” Bair said last week, warning of damages that could take “years to materialize.”

Home prices have fallen over the past year, reversing gains made early in the economic recovery, according to data providers Zillow.com and CoreLogic. Sales of new homes remain depressed, according to the Commerce Department. More than a quarter of homeowners with a mortgage owe more on that debt than their home is worth, according to Zillow.com. And more than 2 million homes are in foreclosure, according to Lender Processing Services.

Rather than punishing banks for misdeeds, the administration is now focused on helping troubled borrowers in the hope that it will stanch the flood of foreclosures and increase consumer confidence, officials involved in the negotiations said.

Levying penalties can’t accomplish that goal, an official involved in the foreclosure probe talks argued last week.

For their part, however, state officials want to levy fines, according to a confidential term sheet reviewed last week by HuffPost. Each state would then use the money as it desires, be it for facilitating short sales, reducing mortgage principal, or using the funds to help defaulted borrowers move from their homes into rentals.

In a report last week, analysts at Moody’s Investors Service predicted that while the losses incurred by the banks will be “sizable,” the credit rating agency does “not expect them to meaningfully impact capital.”

*************************Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 917-267-2335.

Richard Zombeck: Mass Register John O’Brien’s Presentation Draws Crowd of Recorders in Atlantic City

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“I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset — their homes. This is disgusting, and this is criminal,” O’Brien said.

Mass Register John O’Brien’s Presentation Draws Crowd of Recorders in Atlantic City

07/ 5/11 05:06 PM ET

Registers, registrars and recorders from across the country gathered in Atlantic City on Tuesday for the Annual Conference of The International Association of Clerks, Recorders, Election Officials and Treasurers (IACREOT).

Several of those attending made the trip specifically to see Massachusetts Register John O’Brien’s presentation on his findings of massive fraud he and Marie McDonnell of McDonnell Property Analytics, uncovered at the Massachusetts Southern Essex County Registry of Deeds

According to O’Brien, McDonnell discovered that 75 percent of the assignments in the registry are fraudulent.

The audit examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.

McDonnell’s Report includes the following key findings:

  • Only 16% of assignments of mortgage are valid
  • 75% of assignments of mortgage are invalid.
  • 9% of assignments of mortgage are questionable
  • 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute.
  • The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%)
  • There are 683 missing assignments for the 287 traced mortgages, representing approximately180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.

You can Download the PDF of the report at http://www.homepreservationnetwork.com/cat_view/132-press-releases-and-memos or request a copy at www.mcdonnellanalytics.com

“My registry is a crime scene as evidenced by this forensic examination,” O’Brien said. “This evidence has made it clear to me that the only way we can ever determine the total economic loss and the amount damage done to the taxpayers is by conducting a full forensic audit of all registry of deeds in Massachusetts. I suspect that at the end of the day we are going to find that the taxpayers have been bilked in this state alone of over 400 million dollars not including the accrued interest plus costs and penalties. ”

After the presentation O’Brien was inundated by nearly 150 recorders asking questions and wanting to conduct investigations of their own.

“I’m a hard person to please,” said Kevin Harvey, O’Brien’s first Assistant. “This was nothing short of extraordinary.”

Jeff Thigpen, the register of deeds for Guilford County, North Carolina is another early trail blazer in this effort. While he did not attend the conference, I spoke with him on Wednesday.

“What [O’Brien] is pointing out in a fundamental way is that the assignments are fraudulent and people need to look at the findings. It goes to the heart of where we are in all this, Thigpen said, “These institutions were once transparent and trusted, we now have a system that stacks the deck in favor of the financial services industry.”

The report, along with the overwhelming response to it, comes in the midst of settlement talks with banks by the 50 attorney’s general. A settlement that to many homeowner advocates is unacceptable and premature based on how little is actually known about the overall depth and impact of the fraud.

New York Attorney General Eric Schneiderman is expected to lead opposition to what he called a “quick, cheap settlement” of the 50-state investigation into foreclosure practices.

Schneiderman launched his own investigation in April and has found the problem is much deeper. He said he was “stunned” to find the multi-state probe so lacking that no documents or witness depositions had been obtained.

“We have no leverage,” Schneiderman said in an interview with the Democrat and Chronicle.

O’Brien’s report could represent the catalyst to gaining that leverage.

Earlier this month O’Brien vowed not to record fraudulent documents, so the banks started submitting replacement documents, including five from Bank of America, all with new signature and notaries. An obvious and sloppy whitewash of the documents O’Brien initially refused.

“These lenders chose not to sign my affidavit, but rather to submit completely new documents,” O’Brien said. “I believe the Bank’s actions speak louder than words and show their consciousness of guilt.”

O’Brien also told homeowners in his district to check the records at his website to see if their home mortgage documentation has been robo-signed. He’s facilitating consumer protection complaints through the Massachusetts AG. He has provided letters that homeowners can print out and send to their servicers, demanding their full chain of title pursuant to federal law.

In an article today in the Boston Herald Edward Bloom of the Massachusetts Real Estate Bar Association said it’s not clear that robo-signed documents are invalid — or that O’Brien can legally reject them.

“Mr. O’Brien is grinding the real estate business to a halt and he doesn’t have any right to do that,” Bloom said.

But according to Nantucket attorney Jamie Ranney, who points out in a 15 page memo citing Massachusetts law, O’Brien not only has every right to refuse fraudulent assignments, he has a duty to his constituents to do so.

It is without question that a Register of Deeds has an important and fiduciary relationship and responsibility — especially in the Commonwealth where his position is elected — to all of his constituents, as well as to the public at large, all of whom rely and who should be able to rely on the Register’s efforts, supervision, and oversight in assuring, maintaining and promoting the integrity, transparency, accuracy, and consistency of a County’s land records.The Register’s work and supervision of his registry most often revolves around tasks and responsibilities that are generally ministerial in nature. The Register is typically concerned with the daily task of recording of legal document(s) and/or instrument(s) affecting real property where such document(s) and/or instrument(s) are properly presented to the registry for recording on the public land records.

However, the Register’s fiduciary duty goes well beyond these usual ministerial acts in circumstances where the Register has actual knowledge or a subjective good-faith belief/basis for believing that document(s) and/or instrument(s) being presented for recording or registration in the registry for which he has responsibility are fraudulent or otherwise not executed or acknowledged under applicable law. In such cases the Register may lawfully refuse to record such document(s) and/or instrument(s).

O’Brien is calling on the Massachusetts Attorney General to look into his finding and many of the attendees at last weeks conference are planning to do the same.

In a press release Wednesday, O’Brien said:

Once again I am asking Attorney General Martha Coakley and the other state Attorney’s General to follow the lead of New York Attorney General Eric Schneiderman and stop any settlement talks with the banks. The results of this report are only for my registry, but I can assure you that this type of criminal fraud is rampant across the nation. This leaves me to question why anyone would consider settling with these banks until we know the full extent of the damage that they have caused to the homeowners chain of title across this country and the amount of money they have bilked the taxpayers for their failure to pay recording fees.

Fortunately, as Georgetown Law Professor Adam Levetin points out in a recent piece at Credit Slips Massachusetts AG Martha Coakley has no problem going after banks and mortgage servicers. In fact Levetin says, “These settlements have received very little notice in the press, but I think they provide a real template for future AG settlements and are worth examining.”

As with any settlement, one has to be a bit a skeptical when multi-billion dollar industries are willing to part with substantial chunks of change. And since the settlement with the AGs looks like it would release lenders from future claims and hinder law suits on the part of the individual states, O’ Brien’s and Thigpen’s efforts in raising the awareness of this to the other recorders across the country couldn’t come at a better time.

Much like the $8.5 billion settlement with investors Bank of America is willing to part with that doesn’t really settle anything, whatever amount they’re willing to pay the AGs doesn’t look like it’s going to come near what’s really owed to the counties, states, and certainly not to the American people.

“I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset — their homes. This is disgusting, and this is criminal,” O’Brien said.

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BAIR: INDUSTRY COULD BE REELING FOR YEARS TO COME

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EDITOR’S NOTE: They report this like $20 billion is a big number. The Banks caused tens of trillions of dollars in damages, stole $13 trillion from investors, stole some $5 trillion worth of property from homeowners who legally still probably own the property but don’t know it, and they are making a big deal out of $20 billion. That number is a rounding error on the real numbers.

 

Foreclosure Fraud Price Tag: $20 Billion

Foreclosure Crisis

First Posted: 06/ 6/11 09:52 PM ET Updated: 06/ 6/11 09:52 PM ET

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WASHINGTON — The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Three unresolved issues remain, these people said. State and federal officials have not agreed on the scope of banks’ release from liability that would accompany such a deal; negotiators continue to hammer out how much of the money pot will be split between restructuring borrowers’ mortgages and bank fines, and officials are not yet near an agreement on how the coalition of state and federal government agencies will monitor and enforce bank behavior in the wake of a settlement agreement.

The settlement talks are the result of state and federal investigations launched last autumn after widespread reports that the five largest mortgage handlers illegally seized the homes of an unknown number of homeowners and improperly accelerated foreclosure proceedings by failing to amass required paperwork, in some cases allegedly lying about it to local judges. Over the past couple months, government officials have been in discussions with the banks to resolve claims of past abuses and set new standards to govern bank dealings with distressed homeowners.

The banks seek a quick resolution, according to sources who have participated in settlement talks, as falling home prices, a continuing high rate of delinquent borrowers, stagnant home sales, rising unemployment and slower economic growth batters bank stocks. Shares of Bank of America, the largest mortgage servicer, hit a two-year low Monday. Citigroup fell more than four percent. The 24-company KBW Bank Index has fallen nearly 11 percent over the past three months.

Top officials in the Obama administration, like Treasury Secretary Timothy Geithner, have said they want a quick settlement, too. Bank regulator Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, told a Senate panel last month that a settlement must be reached due to “significant” damages the banks face from “flawed mortgage banking processes [that] have potentially infected millions of foreclosures.”

The industry could be reeling for years, Bair warned.

WHY? BECAUSE THEY WANT A FREE HOUSE — THE BANKS, THAT IS — NOT THE BORROWERS

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EDITOR’S RANT: They turned the financial world upside down, taking our society with it. So it should come as no surprise that they would accuse homeowners of trying to get what the banks have been doing now for over three years — GETTING A FREE HOUSE. They never funded the loan and they never purchased the receivable. Yet somehow the government ignores the basic reality and offered window dressing to homeowners in the form of false modifications with servicers and other securitizers who only had the incentive to steal the house. Modifying the loan removes the only incentive they have to stay in the game.

Just because the real lenders won’t step in and make claims or settle with the homeowners who received some of the money that was advanced by the buyers of bogus mortgage bonds, doesn’t mean that that LEGALLY a disinterested third party can come in and say “OK, then I’ll take it.”


Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds

Elizabeth Warren

First Posted: 03/28/11 07:41 PM ET Updated: 03/28/11 07:58 PM ET

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NEW YORK — The nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers’ home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department.

That estimate suggests large banks have reaped tremendous benefits from under-serving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have begun to acknowledge the industry’s fundamental shortcomings.

The dollar figure also provides a basis for regulators’ internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners’ mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it’s worth.

Even the highest of those figures, however, pales in comparison to the likely cost of reducing mortgage principal for the three million homeowners some federal agencies hope to reach. Lowering loan balances for that many underwater borrowers who owe less than $1.15 for every dollar their home is worth would cost as much as $135 billion, according to the internal presentation, dated Feb. 14, obtained by The Huffington Post.

But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms’ improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB’s legitimacy by questioning its authority to act before it’s officially launched in July.

Earlier this month, Warren told the House Financial Services Committee, under intense questioning, that her agency has provided limited assistance to the various state and federal agencies involved in the industry probes. At one point, she was asked whether she made any recommendations regarding proposed penalties. She replied that her agency has only provided “advice.”

A representative of the consumer agency declined to comment on the presentation, citing the law enforcement nature of the federal investigation into the mortgage industry’s leading firms.

The seven-page presentation begins by stating that a deal to settle claims of improper foreclosures “provides the potential for broad reform.”

In it, the consumer agency outlines possibilities offered by the settlement — a minimum number of mortgage modifications, a boost to the housing market — and how it could reform the industry going forward so that investors in home loans and the borrowers who owe them would be able to resolve situations in which borrowers fall behind on their payments without the complications of a large mortgage company acting in its own interest.

The presentation also details how much certain firms likely saved in lieu of making the necessary loan-processing adjustments as delinquencies and foreclosures rose. Bank of America, for example, has saved more than $6 billion since 2007 by not upgrading its procedures or hiring more workers, according to the report. Wells Fargo saved about as much, with JPMorgan close behind. Citigroup and Ally bring the total saved to nearly $25 billion.

The presentation adds that the under-investment far exceeds the proposed $5 billion penalty that has been on the table. People familiar with the matter say the Office of the Comptroller of the Currency wants to fine the industry less than $5 billion.

The alleged shortchanging of homeowners has prolonged the housing market’s woes, experts say, because distressed homeowners who are prime candidates to have their payments reduced aren’t getting loan modifications and lenders are taking up to two years to seize borrowers’ homes.

The average borrower in foreclosure has been delinquent for 537 days before actually being evicted, up from 319 days in January 2009, according to Lender Processing Services, a data provider.

The prolonged housing pain has manifested itself in various ways.

Purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department. Prices declined to the lowest level since 2003, according to the National Association of Realtors. About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February, according to LPS.

A penalty of about $25 billion — based on mortgage servicing costs avoided — would have “little effect” on the five firms’ capital levels, according to the presentation, since the five banks collectively hold about $500 billion in tangible common equity, the highest form of capital. Those numbers notwithstanding, banks and Republicans in Congress have complained that such a large penalty would have a disproportionate impact on bank balance sheets, hurting their ability to lend or pay dividends to investors.

The presentation adds that given the extent of negative equity — underwater homeowners owe $751 billion more than their homes are worth, according to data provider CoreLogic — “we have gravitated towards settlement solutions that enable asset liquidity and cast a wide net.” The solution is an emphasis on reducing mortgage debt and enabling short sales, thus allowing borrowers to refinance into more affordable loans or to sell their homes and move on.

Top Federal Reserve officials and other economists have pointed to the large numbers of underwater homeowners as being one of the reasons behind high unemployment, as underwater homeowners are unable to move to where the jobs are. More than 23 percent of homeowners with a mortgage are underwater, according to CoreLogic.

The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.

If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.

In its presentation, the consumer agency said the new program, titled “Principal Reduction Mandate,” could be “meaningfully additive to HAMP” — the Home Affordable Modification Program, the Obama administration’s primary mortgage modification effort.

The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then “mandate” three million permanent modifications.

News of the level of the consumer agency’s involvement in the state investigation would likely be welcomed by consumer and homeowner advocates, who have long complained of the lack of attention paid to distressed borrowers by federal bank regulators like the OCC and the Federal Reserve.

But Republicans will pounce on the news, creating yet another distraction for a fledgling bureau that was the centerpiece of the Obama administration’s efforts to reform the financial industry in the wake of the worst economic crisis since the Great Depression.

Meanwhile, the banking industry will likely celebrate government infighting as attention is diverted away from allegations of bank wrongdoing and towards the level of involvement of Elizabeth Warren, a fierce consumer advocate and the principal original proponent of an agency solely dedicated to protecting borrowers from abusive lenders.

Warren is standing up the agency on an interim basis. It formally launches in July, at which point it will need a Senate-confirmed director in order to carry out its full authority. One of those areas will be how mortgage firms process home loans for distressed borrowers.

A spokeswoman for JPMorgan Chase declined to comment. Spokespeople for the other four banks were not immediately available for comment.

Unemployment Continues Downward Drag on Housing — And it was Housing that Caused the recession

How Unemployment Is Dragging Down The Housing Market

The Huffington Post Lila Shapiro  First Posted: 03/25/11 02:35 PM Updated: 03/25/11 02:35 PM


Housing Unemployment

Although the United States population has grown by 120 million people in the past fifty-odd years, today’s new homes are selling at just half the pace they were in 1963.

Home sales are being dragged down by the weakness of the labor market and the number of Americans who have grown too discouraged to look for work, economists say. In previous recoveries, the housing market has sometimes buoyed the economy, creating new jobs and driving economic growth. This time, however, the housing market is now lagging behind.

Over at Mish’s Global Economic Trend Analysis, a new chart helps bring employment into the housing story by comparing the ratio of annual new home sales to the size of the civilian labor force. See the chart below.

The point is simple: while the working age population is steadily rising, the size of the labor force is actually shrinking. And those Americans who have grown so discouraged that they have given up looking for work — around 4.9 million as of last month — are unlikely to be in the market for a house.

With construction for new homes all but coming to a halt in February, Americans are on track to buy fewer new homes than in any year since the government began keeping data almost a half-century ago.

Mish lays out the problems, as he sees it:

• Those not in the labor force are not looking
• Those unemployed are not looking
• Those afraid of losing their job are not looking
• Those in a house and underwater are not looking
• Those just out of school and deep in school debt are not looking
• Those facing retirement may be looking to sell or downsize
• Mortgage standards are much tighter for those who are looking

Economists, however, are hard pressed to tie down the exact relationship between a slumping housing market and a weak labor market.

“It’s very hard to zero-in in that way,” said Bank of America-Merrill Lynch economist Michelle Meyer. “But one of the major components for why housing demand has remained very soft is because the labor market is very weak. And until we see that really changing, housing sales will continue to be soft.”

The more significant problem, for Meyer, is how these two factors taken together — housing and unemployment — indicate an economy still in trouble.

“When you think about new home sales, and housing specifically, that obviously ties to what share of Americans are participating in the labor force,” Meyer said. “But you can’t really say that because the labor force shrunk by X amount there is this many fewer homes needed. To me, it’s more of a signal that the fact that the labor force is weak. And that at this point in the recovery, people are still leaving the labor force — that signals to me that the fundamentals are soft.”

Federal Reserve Chairman Ben Bernanke has said that it will likely take five years for the unemployment rate to return to pre-recession levels, while a recent report from the Federal Reserve Bank of San Francisco concluded that the unemployment rate, now hovering around 9 percent, may never return to pre-recession levels.

Here is the chart from Mish’s Global Economic Trend Analysis, comparing annualized new home sales to the civilian labor force ratio, year over year. (Click image for more detail). More graphs over at Mish’s can be found here.

WALL STREET PROFITS ZOOM AS NON-FINANCIAL SECTOR CONTINUES TO FALL

Corporate Profits

NEW YORK — Despite high unemployment and a largely languishing real estate market, U.S. businesses are more profitable than ever, according to federal figures released on Friday.

U.S. corporate profits hit an all-time high at the end of 2010, with financial firms showing some of the biggest gains, data from the federal Bureau of Economic Analysis show. Corporations reported an annualized $1.68 trillion in profit in the fourth quarter. The previous record, without being adjusted for inflation, was $1.65 trillion in the third quarter of 2006.

Many of the nation’s preeminent companies have posted massive increases in profits this year. General Electric posted worldwide profits of $14.2 billion, while profits at JPMorgan Chase were up 47 percent to $4.8 billion.

Corporate profits steadily increased last year as companies continued holding onto record amounts of cash and other liquid assets while cutting costs, laying off workers and wringing more productivity — defined as the amount of output that comes from an hour of work — from remaining staff, even as the recession eased.

To put that in perspective, said Lynn Reaser, the chief economist at Point Loma Nazarene University in San Diego, it’s important to note that companies were able to bring production back up to pre-recession levels without hiring any more workers.

“We have now recovered all of the output lost in the recession, but we are still down by 7.5 million workers,” she said.

In addition to layoffs, some companies continued to cut wages and benefits last year. Sub-Zero, the freezer and refrigerator manufacturer, told workers last year that factories in Wisconsin would have to be shut down, with 500 employees losing their jobs, unless staff took a 20 percent pay cut, The New York Times reported.

Workers were expected to put in more hours without overtime pay, while staff facing fewer hours of work due to furloughs were expected to do as much as they would have in a full workday, according to NPR.

But, economists said, companies may have squeezed as much as they can out of workers, with a decline in profits for non-financial companies in the fourth quarter of last year suggesting that to improve production, companies will have to start hiring seriously again.

On the whole, Reaser said, corporations have significantly improved their balance sheets since the financial crisis. “It’s helped pave the way for a significant gain for corporate capital spending, dividend payouts and corporate buybacks, as well as the significant rise in stock prices,” she said.

But while the financial sector continued to recover from its 2008 meltdown — with profits jumping some $51 billion in the fourth quarter, a gain of 51 percent over the previous quarter — non-financial firms actually saw profits fall by roughly $10 billion, according to the BEA figures.

Part of the reason, said Reaser, was that although high productivity drove down labor costs, persistent unemployment and pinched consumers left companies unable to charge the higher prices needed to boost profits. More companies will start pushing more aggressively to improve profit margins this year, she said.

In order for those efforts to pay off, she said, many companies will have to start hiring — and keep hiring.

Until the end of last year, companies were able to boost productivity by squeezing their remaining workers, who were eager to prove they were worth their paychecks. “But,” said Paul Ashworth, an economist at Capital Economics, “you can’t keep getting more out of workers quarter after quarter after quarter.”

To ramp up production this year, Ashworth said, companies have already started hiring modestly. Federal figures show the economy added total of 192,000 jobs in February, the most in nearly a year. The unemployment rate fell to 8.9 percent last month, the lowest since April 2009.

Economic growth figures released on Friday also suggested firms were slowly stepping up production. The Commerce Department revised upwards its projections for gross domestic product growth in the fourth quarter of 2010, to 3.1 percent from 2.8 percent.

The new projection, BMO Capital Markets senior economist Sal Guatieri said, is “consistent with an economy growing fast enough to gradually reduce the unemployment rate.” But, he said, most of the increase was in business inventories — companies producing and stockpiling more — rather than consumer confidence.

Despite positive signs, economists warned that economic growth could be hit by the twin shocks of high gas prices and the impact of events in Japan, which has hampered auto and electronic supply chains. “There are mild headwinds that will slow growth a little bit,” said Nariman Behravesh, an economist at IHS Global Insight, an economic and financial analysis firm. “They’re not going to derail the recovery, and we’re guessing they’ll be temporary.”

U.S. consumers appear to be growing nervous, thanks to events in Japan, fears over nuclear power, and unrest in the Middle East and north Africa. That anxiety could take an economic toll, with consumer sentiment falling this month to its lowest level since November 2009, according to the Reuters/University of Michigan index.

“The sharp drop in consumer confidence and Japan-related supply chain bottlenecks will likely translate into real GDP growth of only around 2.4 percent in the first quarter, with a bounce back to the 3.5 percent to 4 percent range in the second quarter,” Behravesh said, revising his quarterly GDP growth estimate down from 4.2 percent.

Reuters: Central Banks Worldwide: Past, Present And An Uncertain Future

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EDITOR’S NOTE: The farce of preserving the huge plume of vapor that was created by Wall Street is starting to come home to roost. Central Bankers, are in conflict and politicians are using their influence on what is now a highly politicized sector that SHOULD have been regulating and restricting. The “Too Big to Fail” banks are acting as if they won. Nothing has changed. Perhaps they are right.

The Fed is the ultimate regulator of financial institutions. It is part of the growing orthodoxy that the banks must be saved rather than restricted in their activities. It is a prescription for disaster. It won’t admit its ownership claim in the loans and mortgages, it hasn’t divulged the details of the mortgage bond purchases that would in turn reveal the fictitious nature of the entire securitization scheme that has been and will always be empty, and it has not uttered a word about the behavior of the banks because on a grand scale, it IS the banks.

Central Banks Global Policy

By Paul Carrel, Mark Felsenthal, Pedro da Costa, David Milliken and Alan Wheatley

FRANKFURT/WASHINGTON – On a warm, Lisbon day last May, Jean-Claude Trichet, the ice-cool president of the European Central Bank, was asked whether the bank would consider buying euro zone governments’ bonds in the open market.

“I would say we did not discuss this option,” Trichet told a news conference after a meeting of the ECB’s Governing Council. Four days later, the ECB announced that it would start buying bonds.

Trichet’s U-turn was part of an emergency package with euro zone leaders to stave off a crisis of confidence in the single currency. By reaching for its “nuclear option”, the ECB had also helped rewrite the manual of modern central banking.

That’s happened a lot over the past three years. Since the early days of the financial crisis in 2008, the European Central Bank, the U.S. Federal Reserve and the Bank of England have all been forced to adopt policies that just a few years ago they would have dismissed as preposterous. And the Bank of Japan responded to the Sendai earthquake and tsunami by doubling its own asset-purchase programme, to keep the banking system of the world’s third-largest economy on an even keel.

For a generation, the accepted orthodoxy has been to focus on taming inflation. Financial stability has taken something of a back seat. Now, whether mandated to do so or not, western central banks have bought up sovereign debt to sustain the financial system, printed money by the truckload to stimulate their economies, sacrificed some of their independence to coordinate monetary policy more closely with fiscal decisions, and contemplated new ways of preventing asset bubbles. Some — such as Bank of England Governor Mervyn King — have joined wider political protests at commercial banks that are still behaving as if they are “too big to fail”, and as if being bailed out is just a hazard of business.

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In the measured world of central banking, it amounts to nothing short of a revolution. Otmar Issing, one of the euro’s founding fathers and a career-long monetarist hawk, told Reuters that in buying government bonds the ECB had “crossed the Rubicon”. The question now for the ECB — and for its counterparts in Britain, the United States and elsewhere — is what they’ll find on the other side.

EXTRAORDINARY CIRCUMSTANCES

Don Kohn, a former vice-chairman of the Federal Reserve, realized central banking was changing forever at a routine meeting of his peers in Basel, Switzerland, in March 2008. The shockwaves from the U.S. subprime mortgage meltdown had begun rocking banks around the world and Kohn, a 38-year veteran of the U.S. central bank, listened as one speaker after another described the fast-deteriorating economic conditions.

“It was terrible,” Kohn said. “One of the people at the meeting used the phrase, ‘It’s time to think about the unthinkable’.”
Kohn left the meeting early to return to Washington, but the line stuck in his head. He would use it a few days later to justify his support for a Federal Reserve decision to spend $29 billion to help J.P. Morgan buy investment bank Bear Stearns, which was teetering on the edge of bankruptcy.

That financial meltdown caused a credit crunch that triggered a severe recession and, in countries such as Greece, a sovereign debt crisis. After slashing interest rates practically to zero, central banks desperate to prevent a new global depression had no choice but to expand the volume of credit, rather than its price, by reaching for the money-printing solution known as “Quantitative Easing” (QE). In the eyes of critics, Federal Reserve Chairman Ben Bernanke was living up to his nickname of “Helicopter Ben” — a reference to a speech that he gave in 2002 in which he took a leaf out of the book of the renowned monetarist economist Milton Friedman and argued that the government ultimately had the capacity to quash deflation simply by printing money and dropping it from helicopters.

Until that point, the Fed was a lender of last resort for deposit-taking banks. By invoking obscure legislation from the Great Depression, it also became a backstop for practically any institution whose collapse could threaten the financial system. Kohn and others at the Bear Stearns meeting had just done the unthinkable.

“When the secretary of the (Fed) Board was reading off the proposals … my heart was racing,” Randall Kroszner, a Fed governor at the time, says of the decision.

An academic economist from the conservative, free market-oriented University of Chicago, Kroszner was instinctively against intervention. At the same time, he knew that a decision by the Fed to stay above the fray would trigger financial panic. Before the meeting Kroszner had chatted with Bernanke, another scholar of economic history, about a historic parallel in which financier J.P. Morgan — the person, not the company — opted against stepping in to save the Knickerbocker Trust, precipitating a financial panic in the first decade of the 20th century.

“I couldn’t believe that we were faced with these questions, and I couldn’t believe that I could support them,” Kroszner told Reuters in February. “In these extraordinary circumstances, it was very risky to just say no.”

By the time the $600 billion second round of quantitative easing wraps up in June, the central bank will have spent a staggering $2.3 trillion — more than 15 percent of GDP — buying bonds. It has also created new lending windows to channel funds to financial institutions and investors and expanded its financial safety net for everything from money market mutual funds to asset-backed securities and commercial paper. The Fed argues that its loans have been repaid without any cost to taxpayers, and that the beginning of a recovery in the U.S. economy and the fading of the threat of deflation, which gnawed at Bernanke, justify its bold improvisation.

But some experts, including a number of Fed officials themselves, believe the central bank is paying a big price. Some critics say the Fed’s open-ended provision of next-to-free money is encouraging more reckless risk-taking by banks and speculators. Others say the Fed has exceeded its remit and encroached on the turf of politicians. Some Republicans, in particular, want to curtail the Fed’s powers.

The United States has not been alone. In Britain, the Bank of England has run its own programme of quantitative easing, spending 200 billion pounds (about 14 percent of GDP) mostly on UK government securities, and has introduced a scheme for financial institutions to swap mortgage-backed securities for UK Treasury bills. The ECB took three main steps: adjusting its money market operations to offer unlimited amounts of funds, lowering standards on the collateral it accepts in such operations, and buying bonds. The bond buying, though amounting to 1.5 percent of euro zone GDP, is less radical than the Fed’s because the bank absorbs back the money that its purchases release. But its initiative is still highly controversial.

Issing, the ECB’s chief economist from 1998 to 2006, calls the bond-buying dangerous. But he also concedes that the problems of the past few years have required extreme measures. “It is difficult to justify within the context of the independence of the central bank,” says Issing. “But, on the other hand, the ECB was the only actor who could master the situation. What matters now is that it finalizes this programme and gets out.”

BLOWING UP THE ORTHODOXY

Central banks have historically often been subordinated to governments, but the high inflation and slow growth that followed the oil price shocks of the 1970s ushered in a relatively simple orthodoxy: their goal should be to keep inflation in check. Maintaining a slow and steady pace of price rises became the overriding aim of central bank policy, and independence from political pressures came to be seen as a pre-requisite for achieving this. Starting with New Zealand in 1989, central banks in more than 50 countries adopted explicit, public targets for inflation.

Western governments claimed this was responsible for the Great Moderation, a two-decade period of relatively stable growth in developed economies. It still has many proponents, but the credit crisis has made a mockery of that overriding simplicity, exposing serious flaws in how central banks defined their mission and operated. One flaw: they did little to prevent the build-up of the asset bubbles that triggered the financial crisis, such as the boom in U.S. subprime mortgages. Another: the obsession with inflation blinded them to dangerous trends in banking. After all, what is the point of keeping inflation low if lax lending and feckless financial supervision threaten to tip the economy into the abyss?
“The problem was not that the Fed lacked instructions to avoid a crisis,” says James Hamilton, a professor of economics at the University of California, San Diego and visiting scholar at the central bank on multiple occasions. “The problem was that the Fed lacked the foresight to see the crisis developing.”

Fed Chairman Bernanke doubts central banks can know for sure that an asset bubble has formed until after the event, and feels monetary policy is too blunt a tool to arrest any worrisome developments. At the same time Bernanke, former vice-chairman Kohn and others agree that the central bank might be able to employ broader tools to prevent asset prices from getting too frothy. For example, the Fed regulates margin requirements for buying equities with borrowed funds; it could use these to rein in a galloping stock market.

“The simplicities of extreme inflation targeting — which said if you meet your inflation target and keep inflation stable the rest of the economy would look after itself — have been blown apart,” Sir John Gieve, who was deputy governor at the Bank of England from 2006 to 2009, told Reuters. “The Bank’s objectives have become a lot more complicated. Some people have been quicker to realize this than others. If you talk to the Japanese, they would say they have been doing this for a while.”

ANY ANSWERS?

Could the Fed and its counterparts in Britain and Europe learn from Asian central banks, many of which limit the proportion of deposits that banks can extend as loans? Should they insist that a home buyer make a sizeable deposit when taking out a mortgage — a practice that might have tempered the U.S. housing bubble? Central banks in some emerging economies outside Asia already appear to be adopting such methods – known as ‘macroprudential’ steps – to complement traditional interest rate policy. Turkey has been raising commercial banks’ reserve ratios while simultaneously cutting interest rates, and Brazil signaled this month it would rely more on credit curbs and less on rate increases to fight inflation.

Or should they look closer to home, for example to the central banks of Australia and Canada? Both are inflation-targeters, but they sailed through the global crisis without having to resort to extreme measures. A history of conservative banking regulation in those countries meant they never faced severe credit problems.

“Prior to the crisis a lot more people were of the view that if it’s not broke don’t fix it,” said Dean Croushore, professor of economics at the University of Richmond in Virginia and a former economist at the Philadelphia Federal Reserve. “Policymakers didn’t react, particularly with respect to housing. Maybe being a bit more proactive is a good thing.”
Then again, some Republican lawmakers want the Fed, which has a dual mandate to keep inflation low and maximize employment, to focus exclusively on the first task. They contend that monetary policy is not the right tool to create jobs.
Buying up bonds and bailing out failing firms does indeed blur the boundaries between monetary and fiscal policy. Critically, it also suggests that supposedly autonomous central banks are doing the bidding of politicians.

“Things cannot change in a measured way,” said European Central Bank policy maker Axel Weber earlier this month. He is also head of Germany’s Bundesbank, but last month he stood down as a candidate to succeed Trichet at the ECB. His outspoken opposition to the bank’s bond-buying underlined the rift between the traditional approach to central banking and the political expediency born of the crisis. “There will have to be fundamental change … If institutions are too big to fail, they are too big to exist,” Weber said, echoing comments by King at the Bank of England.

MORE INTRUSIVE

The shift is already happening. “Bond investors are not facing a future change; they are living through a change,” said Gieve, the former Bank of England deputy governor. Inflation remains very important, and I have no doubt my colleagues at the Bank of England take it very seriously … But they are also aware of the need to stabilize the financial system. They need to get the economy on a sustainable growth track.”

Of course the Fed has never operated in a vacuum. Greenspan swiftly cut interest rates after the Black Monday stock market crash in October 1987 and again in September 1998, after the Fed had to organize a $3.5 billion rescue of LTCM, a big hedge fund. But some experts, including Stephen Roach, Morgan Stanley’s non-executive chairman in Asia, have long argued that an explicit financial stability mandate would force the Fed — and other banks — to pay closer attention to looming bubbles and weak links in the system rather than simply mopping the mess up later.

Legislators are giving central banks more powers to keep an eye on financial — as distinct from monetary or economic — trends. Academics have also broadened their reach in that direction, with the Federal Reserve’s prominent Jackson Hole conference last summer featuring a paper arguing that policymakers should pay closer attention to financial variables in their macroeconomic assessments.

That’s exactly the direction things are headed. Since the beginning of this year, ECB boss Trichet has chaired something called the European Systemic Risk Board (ESRB) — a body designed to take a bird’s eye view of Europe’s financial system and flag up emerging problems so the relevant authorities can act. In Britain, the government has decided to disband the Financial Services Authority and give the Bank of England the job of preventing any build-up of risk in the financial system, on top of its monetary policy role. And in the United States, newly enacted legislation gives the Fed a leading role in financial regulation as part of the Financial Stability Oversight Council.

“From a regulatory standpoint, we’ll be more aware and more intrusive in monitoring institutions that are systemically critical,” Dallas Fed President Richard Fisher told Reuters in an interview.

POLITICS, OF COURSE

With those expanded roles comes a greater need for central banks to explain their actions to citizens, markets and politicians alike. Investors will no longer be able to anticipate how policy makers will act just by tracking inflationary trends as they did for a generation before the Great Financial Crisis.

Bernanke made it a priority from the start of his tenure in 2006 to improve communications. He didn’t have to do much to improve upon his oracular and sometimes opaque predecessor, Alan Greenspan, who famously said, “if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

But the crisis exposed the Fed to withering fire. “It’s hard to maintain mystique when there have manifestly been a series of policy errors, not just at the Fed but in many branches of government,” says Maurice Obstfeld, a professor of economics at the University of California at Berkeley.

Even harder, when the big central banks themselves have yet to work out how they will implement their new powers. The new rules in the United States, for instance, give regulators more leeway to wind down global financial institutions deemed too large to fail in case they touch off a catastrophic domino effect as loans are called in. But how that will work in practice remains to be seen.

“At the end of the day it comes down to whether or not the too-big-to-fail resolution mechanisms are robust. There’s still some thinking to be done on that,” David Altig, research director at the Atlanta Fed and a professor at the University of Chicago’s Booth School of Business, said in a telephone interview.

To judge by comments by Weber and King, that’s a big, unanswered, politically charged question. The BoE chief has been vocal in complaining that the concept of “too important to fail” has not been addressed, and that bankers continue to be driven by incentives to load up on risk.

Then there’s the fact that deciding which firm should live and which not is an intensely political process. Look no further than the furor over the U.S. authorities’ decision to bail out insurer AIG and car maker GM, but to let investment bank Lehman Brothers go to the wall months after arranging a rescue of Bear Stearns.

With an expanded awareness of their mandates, wouldn’t central banks be forced to take into account such dilemmas when they are setting interest rates?

“It’s a risk, but one has to be aware of the risk and to avoid it,” says Issing, the former ECB chief economist. “It’s macroeconomic supervision; it’s not micro control of individual banks. But if the European Systemic Risk Board identifies systemic risk, it must be solved with tools of regulation and not by lax monetary policy.”

A FACT OF LIFE

In truth, central banking, by its nature, has always been an intensely political enterprise. To pretend otherwise is naive. War, revolution, depression and calamity have always subjugated central banks to political necessity, and most are still state-owned. Like a country’s highest court, a central bank cannot — no matter how vaunted its independence — be unaware of the political and social mood. The Fed chairman and the U.S. Treasury secretary worked hand in glove during the financial crisis and have the freedom to discuss a range of topics when they meet informally every week.

The political nature of central banking was brought home last month when Weber decided to stand down early. He had judged that he did not have enough political support from the 17 members of the euro zone, and his relationship with German chancellor Angela Merkel was also rocky. He will hand over to Jens Weidmann, Merkel’s economic adviser. Critics of the appointment — and there is no shortage of them in a country that likes its central bankers tough and independent — worry that Weidmann will weaken the Bundesbank’s statutory freedom from political influence.

That misses the point completely, says David Marsh, co-chair of the Official Monetary and Financial Institutions Forum, which brings together central banks, sovereign wealth funds and investors. Marsh says the launch of the euro in 1999 was a political act itself, one that has already led to a much more politicized regime of monetary management.

“The interplay with governments — whatever the statutes say about the supreme independence of the European Central Bank — is a fact of life,” he says. “The mistakes and miscalculations of the last 12 years show how monetary union has to be part of a more united political system in Europe. That is not loss of independence. That is political and economic reality.”

It is against this backdrop that Trichet’s apparent conversion on the road from Lisbon to Brussels last May must be seen.

Niels Thygesen, a member of the committee that prepared the outline of European Economic and Monetary Union in 1988-9, says the euro zone debt crisis forced the ECB to show some flexibility by agreeing to the bond-buying programme. “It is a departure relative to the original vision for the European Central Bank, which was supposed to be a bit isolated from dialogue with the political world,” he says. “On the other hand, I never thought that was quite a tenable situation.”

Thygesen, now a professor at the University of Copenhagen, said he did not particularly like the idea but acknowledged that the ECB might in fact have gained some clout by agreeing to the bond-buying plan. Trichet helped rally euro zone leaders into arranging standby funds and loan guarantees that could be tapped by governments in the currency bloc shut out of credit markets — relieving the ECB of some of the burden of crisis management. “It was part of a bargain and I’m sure Mr Trichet bargained very hard and in a way successfully,” says Thygesen. “The ECB has stood up well and gained substantial respect for its political clout in bringing about actions on the part of governments, which otherwise might not have taken place.”

LESSONS FROM JAPAN

It doesn’t always work out that way. Just ask the Bank of Japan.

The BOJ embarked on quantitative easing as far back as 2001. But a decade on, it has still failed to decisively banish the quasi-stagnation and deflation that has dogged Japan’s economy since the early 1990s. Only once in the past decade, in 2008, has Japan experienced inflation of more than 1 percent — the central bank’s benchmark for price stability.

When the global crisis hit, the BOJ revived a 2002 scheme to buy shares from banks and took a range of other unorthodox steps to support corporate financing. But its actions failed to placate critics who view it as too timid. Senior figures in the ruling party and opposition parties talk of watering down the BOJ’s independence and forcing it to adopt a rigid inflation target.

“The government tends to blame everything on the BOJ,” Kazumasa Iwata, a former BOJ deputy governor, told Reuters. Makoto Utsumi, a former vice finance minister for international affairs, defended the bank’s current set-up, saying it would be “absurd” and “unthinkable” for a developed country like Japan to make its central bank a handmaiden of the government.

The bank’s prompt response to the devastating March 11 earthquake and tsunami has since earned it widespread plaudits. The BOJ poured cash into the banking system, doubled its purchases of an array of financial assets and intervened in the foreign exchange market in coordination with the central banks of other rich nations to halt a surge in the yen that was hurting Japan’s exporting companies.

Charles Goodhart, a professor at the London School of Economics who was on the Bank of England’s Monetary Policy Committee from 1997 to 2000, believes a measure of central bank independence can be preserved, even if cooperation with ministers is needed to keep the banking system stable. “I think trying to maintain the independent role of the central bank in interest rate setting remains a very good idea,” he told Reuters. “When it comes to financial stability issues, at any rate under certain circumstances and at certain times, there will have to be a greater involvement of the government.”
How to achieve that balance is the subject of a whole other debate. “None of this is going to be quite in the separate boxes it has been in the past,” says Gieve, the former Bank of England deputy governor. “If you have inappropriate monetary policy, all the macroprudential instruments in the world will find it very difficult to push water up hill.”

IMPORTING INFLATION

As if the political dimension was not enough of a headache, central bank rate-setters seem to be finding it harder to nail down the sources of the inflation they are tasked to fight. One reason is globalization.

Central banks have traditionally turned a blind eye to a one-off rise in prices stemming from, say, an increase in consumption taxes, a sharp drop in the exchange rate that boosts import costs or, as now, a spike in oil. As long as the price jolt does not change inflationary expectations or worm its way into the broader economy by prompting workers to ask for higher wages, policy makers have usually felt comfortable in keeping their eye on underlying cost pressures at home.

That remains the consensus, as demonstrated by the Bank of England, which has failed to keep inflation down to its 2 percent target for much of the past five years.

But in a world of integrated supply chains, can inflationary impulses be neatly attributed to either domestic or international forces? Does it now make sense, as some analysts argue, to estimate how much spare capacity there is globally, not locally?

The answers to those questions will have huge implications for monetary policy.

Lorenzo Bini Smaghi, one of six members of the ECB’s Executive, has warned that sharper rises in the prices of commodities and goods imported from emerging economies will push up euro zone inflation unless domestic prices are controlled. “A permanent and repeated increase in the prices of imported products will tend to impact on inflation in the advanced countries, including the euro area,” he said in Bologna in January.

St. Louis Fed President James Bullard admits the United States could not consider its own inflation outlook in complete isolation from the rest of the world.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he told a business breakfast in Kentucky in February. The ties that bind global banks and the ease with which capital flows across borders mean that central banks have to be more aware than ever of the international consequences of their policy actions.

Because the dollar is the dominant world currency, the Fed came under widespread fire for its second round of bond buying. Critics in China and Brazil among others charged that dollars newly minted by the Fed would wash up on their shores, stoking inflation and pumping up asset prices.

“How do we conduct monetary policy in a globalised context?” asks Richard Fisher, the Dallas Fed president. “How do we regulate and supervise and develop our peripheral vision for those that we don’t supervise in a formal way, in a globalised context? Not easy.”

Structural shifts in the world economy also raise questions about how long central banks should give themselves to hit their inflation goals — further blurring the picture for investors.

“The central bank always has the choice of the time horizon over which it hits its inflation target,” Thygesen, the Copenhagen professor, said. “As the Bank of England is now learning, it may have to extend that horizon somewhat in particularly difficult circumstances. There may be good reasons for doing it, but that is where the element of discretion lies.”

The Bank of England expects inflation to remain above target this year before falling back in 2012. The ECB, which seeks medium-term price stability, is resigned to inflation remaining above its target of just below 2 percent for most of 2011. In the last 12 months, it stood at 2.3 percent.

It all adds up to a significant shift in the environment in which central banks operate. Policy-making is a whole lot more complicated. With a broader mandate for keeping the banking system safe comes increased political scrutiny. With fast-expanding export economies like China becoming price setters instead of price takers, offshore inflation and disinflation are of growing importance. If the rise in oil prices is due to increased demand from developing nations, for instance, can western central banks still play down ever-higher energy bills as transient?

That all means it will become tougher for central banks to preserve their most precious asset, credibility.

“Look at the ’90s and the early years of this century — central banks were at the peak of their reputation worldwide, and I was already saying at that time that we know from experience that the risk is highest when you are on top,” Issing says. “Central banks have to take care to restore their reputation, if it has been lost. I think this is a difficult situation for central banks worldwide.”

(Paul Carrel reported from Frankfurt, David Milliken from London and Mark Felsenthal and Pedro Nicolaci da Costa from Washington; Additional reporting by Rie Ishiguro in Tokyo; Writing by Alan Wheatley; Editing by Simon Robinson and Sara Ledwith)

Robert Creamer: Big Banks Plan Sneak Attack on Wall Street Reform Law Within Days

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BANKS LAUNCH NATIONWIDE PRESS FOR CONTROL

Editor’s Analysis: Once upon a time, the Banks were content to make an ordinary profit doing ordinary banking things. Now they see us as prey rather than customers to be protected under their risk-averse general policy. Their current policy to to take your money and make it their money. Their current policy is to take your home and make it their home. Their current policy is to take your pension and make it their capital.

The article below picks up on one oef the many ways they are attempting to accomplish their aims without regard to their customers, and frankly without regard to their own shareholders. Management seeks only one thing — more money for themselves and the power and prestige that comes along with it.

Along the way, with government complicity, they have created huge computer networks that are essentially utilities for the banks to transfer funds. Despite numerous efforts by the Department of Justice, they managed to control the rules by making themselves appear quasi-governmental. Small banks and credit unions are scared of Visa, MasterCard etc. They have rules. None of the bank members know what the rules are because they are never actually delivered to any of the banks.

So the name of the game is make the rules, use the infrastructure to control competition, and make it impossible for any competing bank to take market share away from the megabanks because the megabanks get “special treatment.” The megabanks that once started with such innocuous names as Southeast Switch, Inc. in Maitland, Florda, (later called “HONOR”) realized that they could keep the community bankers and credit unions in check while at the same time forcing the smaller banking institutions to PAY FOR the same infrastructure that limits their profitability and their ability to compete with the megabanks.

It’s really the perfect scam. 7000 smaller institutions not only pay the costs of the network system but create a profit for those who prey on unsophisticated customers and smaller banks and credit unions. The supreme irony of this is that a transaction whose actually cost is less than a 1/4 of a cent including communications expense, is now being charged to customers at the rate of $3-$6 and now will be raised to over $10 because of the front end fees and back end fees the mega banks want to charge.

Customers are misled into believing that only by going to BOA can they have the convenience of a bank that is everywhere, when in fact, the network operations that controls ALL transactions is accessible to even the smallest bank. ATM access is possible for the customers of even the smallest bank, without paying any fee in most instances, even if they go to a BOA, Chase or Citi ATM. It is all a lie. Elizabeth Warren wants the public to have access to this information and the banks want Warren’s mouth to be paralyzed. They are not having much luck there so they are resorting to their usual way of doing things — sneaky legislative attacks and sneaky control over state and federal agencies that are there to protect the consumer but instead do as they are instructed by the unknown names and faces at megabanks.

Robert Creamer

Political organizer, strategist and author

Posted: March 24, 2011 08:39 AM
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Big Banks Plan Sneak Attack on Wall Street Reform Law Within Days

Read More: Bank Lobbyists , Debit Card Interchange Fees , Debit Card Swipe Fees , Dick Durbin , Duopoly , Mastercard , Middle Class , Non Competitive Prices , Visa , Wall Street Banks , Wall Street Bonuses , Wall Street Reform Law , War On The Middle Class , Business News

The big Wall Street banks are planning a sneak attack on an essential element of the Wall Street reform law that was passed by Congress last year. They plan to make their move as early as next week.

The target of their attack is the provision limiting the “interchange” fee that the big banks charge retailers and their consumers every time a debit card is used. Right now, so-called “swipe fees” are set by Visa and MasterCard — who control 80% of all credit card transactions. In other words, they are not subject to competitive market pressure of any sort. They are fixed by the Visa-MasterCard duopoly.

According to the Federal Reserve, $16.2 billion of debit interchange fees were paid in 2009.

It is estimated that the financial reform law will save consumers $10 billion of that total. How could that be? Because it should come as no surprise to anyone who has even a passing acquaintance with Economics 101, that fees set by a duopoly have no relationship whatsoever to the costs of the transaction.

They are in fact just one more mechanism that Wall Street has used to siphon an increasing percentage of our Gross Domestic Product out of the pockets of the middle class and into the increasingly-bloated financial sector.

The central problem of our economy — and society — is that virtually every dime of the considerable economic growth of the last twenty years has gone to the top two percent of the population. Wall Street salaries and bonuses have exploded, while middle class incomes have stagnated.

From 1948 to 1980, profits generated by the financial sector represented from 5% to 15% of all U.S. business profits. Then they began to creep up — and finally explode — to an unbelievable 40% right before the Great Recession. They dropped briefly, and by the end of 2009, they were back to 36% .

Let’s remember that the financial sector does not make anything. Its goal is to take a little piece of every transaction as money flows through its hands — what novelist Tom Wolff calls the “golden crumbs.”

In the last twenty years, the exploding financial sector has sucked the lifeblood out of the American middle class. It has vacuumed money out of the pockets of people who actually work for living producing goods and services. It has siphoned off virtually every dime of economic growth so that real middle class incomes have actually fallen at the same time the economy has grown. That wasn’t just disastrous for the middle class — it was catastrophic for our entire economy. It meant that there weren’t enough consumer dollars available to buy new goods and services — a problem that was temporarily solved by the credit bubble until it ultimately collapsed and cost eight million Americans their jobs.

To put it simply, the financial sector — and especially the big Wall Street banks — are a huge cancer growing on our economy.

To have an economy that will allow long-term, widely shared, growth — we have to shrink the financial sector and put money back into the hands of companies that produce actual goods and services, and consumers who buy them.

The Wall Street reform law made a big step in the direction of reining in the big Wall Street banks. And a key element of that law was the provision that prevents the duopoly power of those big banks — exercised through Visa and MasterCard — from fixing the price of the fees merchants pay every time you use your debit card.

The new law requires that these fees must be reasonable and proportionate to the cost of running a debit transaction over that network’s wires. But it turns out their actual cost of providing this service is very low. If prices for “swipe fees” were set by the competitive market, they would dramatically fall because of competitive pressure. But since the prices are set through a duopoly they allow gigantic profits for the banks.

Right now Visa and MasterCard — at their sole discretion — set different fee rates for different types of debit transactions. For example, they charge higher fee rates for small businesses than for large ones. Most debit interchange fee rates are set as a percentage of the transaction amount plus a flat fee (e.g., 0.95% + $0.20). The Fed found that the average interchange fee for all debit transactions in 2009 was 44 cents per transaction, or 1.14% of the transaction amount.

The Fed put out a draft rulemaking in December 2010 that suggested options for reform. Both of the options suggested limiting interchange fee rates for the biggest 1% of banks to 12 cents per transaction (down from the average 44 cents per transaction today). This comes close to the 0.2% debit interchange rate that Visa and MasterCard recently agreed to use in the European Union. A reduction of this amount would save U.S. consumers around $10 billion per year.

Now, this proposed rate is obviously not below their costs, since that’s what they agreed to charge in Europe.

But the big banks are desperate to hang onto the gusher of profit that comes out of American pockets.

They have used their enormous lobbying muscle to convince some otherwise decent Senators, that this is really nothing more than a battle between the banks and retail merchants. Baloney. Non-competitive “swipe fees” are just one more way they reach into the pool of money generated by the real economy and set it aside so it can end up as part of some Wall Street banker’s multi-million dollar bonus check. And you can be certain that most retailers don’t eat the costs of “swipe fees.” They pass the vast majority of these costs on to consumers in the form of higher prices.

Nonetheless, next week the big banks hope to get the Senate to pass an amendment “delaying” implementation of this law. This delay would save the banks — and cost consumers — about $10 billion a year, simple as that. The provision’s original sponsor, Senator Dick Durbin (D-IL), promises to lay down on the tracks to prevent them from being successful. But there is still a grave danger that the bankers will succeed.

That’s because the big banks hope to conduct this attack without a great deal of public notice. They have conducted a vigorous PR campaign inside the beltway, but out in the rest of the country, no one has heard word one about this issue.

And this is just the beginning. If they are successful with “swipe fees,” they will be emboldened to try to gut other sections of this critical law.

The big banks do well under cover of darkness. When they are exposed to the bright light of public attention — as they were during the battle over financial reform — consumers had the high political ground. The Wall Street reform bill got tougher as it moved through the legislative process because Members of Congress were afraid to side with Wall Street against ordinary Americans.

Now, the big banks hope to conduct their attack on the Financial Reform Law while the voters are focused on a new war in Libya, a nuclear disaster in Japan, the battle over collective bargaining and March Madness.

Big bank lobbyists are like cockroaches.When you turn on the light they scatter, but they take over if they’re allowed to operate in the dark.

When you’ve finished reading this article, pick up the phone, call your Senator and turn on the light. Tell them to keep Wall Street from gutting this key provision of the Wall Street Reform Law.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com.

Underwater Homes Officially Reported at 25% of ALL HOMES

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EDITOR’S QUESTION: Just what do they expect these people to do? The actual number of underwater homes  is now approaching 20 million or 40% of all homes — again because of the way they measure it, leaving out things that directly affect the actual price paid and the proceeds of sale. If they think that people are going to sign modifications (i.e., new mortgages waiving all defensive rights against the fraud perpetrated upon them) they better think in terms of reality — who would agree to owe $400,000 on property that is worth $150,000?

I don’t care what you do to the interest rate. The principal MUST be corrected to reflect the reality of the transaction when it first occurred — but that would mean acknowledging appraisal fraud, which would allow people to sue for punitive damages, compensatory damages etc. The only alternative is to use present fair market value which is even lower.

In order for the megabanks to prevail they need your house with you out of it.  In order for the economy to recover, you need to stay in your house, recover any home taken from you so far, and recover at least part of the meager wealth you had before this giant fraud began. No modification plan publicly discussed allows for that to happen. They say that is the goal but it isn’t — not without principal correction to true market value when the loan transaction occurred.

Number Of Underwater Mortgages Rises As More Homeowners Fall Behind

DEREK KRAVITZ 03/ 8/11 01:40 PM AP

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WASHINGTON — The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.

About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That’s up from 22.5 percent, or 10.8 million households, in the July-September quarter.

The number of underwater mortgages had fallen in the previous three quarters. But that was mostly because more homes had fallen into foreclosure.

Underwater mortgages typically rise when home prices fall. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.

Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater.

Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.

In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point.

When a mortgage is underwater, the homeowner often can’t qualify for mortgage refinancing and has little recourse but to continue making payments in hopes the property eventually regains its value.

The slide in home prices began stabilizing last year. But prices are expected to continue falling in many markets due to still-high levels of foreclosure and unemployment.

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