Pensioners Will Feel the Pinch from Illegal Mortgages and Foreclosures

Posted on May 30, 2012 by Neil Garfield

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Editor’s Comment:

There are many people whose opinion produces the resistance of government to rip up the banks that got us into this economic mess. They all say government is too big, that we already have too much regulation and that Obama is the cause of the recession. Their opinions are based largely on the fact that they perceive the borrowers as deadbeats and government assistance as another “handout.” 

But when it comes down to it, it’s easy to make a decision based upn ideology if the consequences are not falling on you. Read any news source and you will see that the pension funds are taking a huge hit as a rsult of illegal bank activities and fraudulent practices leaving the victims and our economy in a lurch.

The article below is about public pensions where the pension funds and the governmental units took a monumental hit when the banks sucked the life out of our economy. TRANSLATION: IF YOU DEPEND UPON PENSION INCOME YOU ARE LIKELY TO FIND OUT YOU ARE SCREWED. And even if you don’t depend upon pension income, you are likely to be taxed for the shortfall that is now sitting in the pockets of Wall Street Bankers.

Think about it. If the Banks were hit hard like they were in Iceland andother places (and where by the way they still exist and make money) then your pension fund would not have the loss that requires either more taxes or less benefits. And going after the banks doesn’t take a dime out of pulic funds which should (but doesn’t) make responsible people advocating austerity measures rejoice. They still say they don’t like the obvious plan of getting restitution from thieves because the theives are paying them and feeding them talking points. And some of us are listening. Are you?

Public Pensions Faulted for Bets on Rosy Returns

By: Mary Williams Walsh and Danny Hakim

Few investors are more bullish these days than public pension funds. While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.”

Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers — who pay part of the cost of public pensions through property and other taxes.

In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.

But to many observers, even 7 percent is too high in today’s market conditions.

“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.” Public retirement systems from Alaska to Maine are running into the same dilemma as they struggle to lower their assumed rates of return in light of very low interest rates and unpredictable stock prices.

They are facing opposition from public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.

In addition to lowering the projected rate of return, Mr. North has also recommended that the New York City trustees acknowledge that city workers are living longer and reporting more disabilities — changes that would cost the city an additional $2.8 billion in pension contributions this year. Mr. North has called for the city to soften the blow to the budget by pushing much of the increased pension cost into the future, by spreading the increased liability out over 22 years. Ailing pension systems have been among the factors that have recently driven struggling cities into Chapter 9 bankruptcy. Such bankruptcies are rare, but economists warn that more are likely in the coming years. Faulty assumptions can mask problems, and municipal pension funds are often so big that if they run into a crisis their home cities cannot afford to bail them out. The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long term, according to the Center for Retirement Research at Boston College. Actual experience since 2000 has been much less, 5.7 percent over the last 10 years, according to the National Association of State Retirement Administrators. (New York State announced last week that it had earned 5.96 percent last year, compared with the 7.5 percent it had projected.)

Worse, many economists say, is that states and cities have special accounting rules that have been criticized for greatly understating pension costs. Governments do not just use their investment assumptions to project future asset growth. They also use them to measure what they will owe retirees in the future in today’s dollars, something companies have not been permitted to do since 1993.

As a result, companies now use an average interest rate of 4.8 percent to calculate their pension costs in today’s dollars, according to Milliman, an actuarial firm.

In New York City, the proposed 7 percent rate faces resistance from union trustees who sit on the funds’ boards. The trustees have the power to make the change; their decision must also be approved by the State Legislature.

“The continued risk here is that even 7 is too high,” said Edmund J. McMahon, a senior fellow at the Empire Center for New York State Policy, a research group for fiscal issues.

And Jeremy Gold, an actuary and economist who has been an outspoken critic of public pension disclosures, said, “If you’re using 7 percent in a 3 percent world, then you’re still continuing to borrow from the pension fund.” The city’s union leaders disagree. Harry Nespoli, the chairman of the Municipal Labor Committee, the umbrella group for the city’s public employee unions, said that lowering the rate to 7 percent was unnecessary.

“They don’t have to turn around and lower it a whole point,” he said.

When asked if his union was more bullish on the markets than the city’s actuary, Mr. Nespoli said, “All we can do is what the actuary is doing. He’s guessing. We’re guessing.”

Vermont has lowered its rate by 2 percentage points, but for only one year. The state recently adopted an unusual new approach calling for a sharp initial reduction in its investment assumptions, followed by gradual yearly increases. Vermont has also required public workers to pay more into the pension system.

Union leaders see hidden agendas behind the rising calls for lower pension assumptions. When Rhode Island’s state treasurer, Gina M. Raimondo, persuaded her state’s pension board to lower its rate to 7.5 percent last year, from 8.25 percent, the president of a firemen’s union accused her of “cooking the books.”

Lowering the rate to 7.5 percent meant Rhode Island’s taxpayers would have to contribute an additional $300 million to the fund in the first year, and more after that. Lawmakers were convinced that the state could not afford that, and instead reduced public pension benefits, including the yearly cost-of-living adjustments that retirees now receive. State officials expect the unions to sue over the benefits cuts.

When the mayor of San Jose, Calif., Chuck Reed, warned that the city’s reliance on 7.5 percent returns was too risky, three public employees’ unions filed a complaint against him and the city with the Securities and Exchange Commission. They told the regulators that San Jose had not included such warnings in its bond prospectus, and asked the regulators to look into whether the omission amounted to securities fraud. A spokesman for the mayor said the complaint was without merit. In Sacramento this year, Alan Milligan, the actuary for the California Public Employees’ Retirement System, or Calpers, recommended that the trustees lower their assumption to 7.25 percent from 7.75 percent. Last year, the trustees rejected Mr. Milligan’s previous proposal, to lower the rate to 7.5 percent.

This time, one trustee, Dan Dunmoyer, asked the actuary if he had calculated the probability that the pension fund could even hit those targets.

Yes, Mr. Milligan said: There was a 50-50 chance of getting 7.5 percent returns, on average, over the next two decades. The odds of hitting a 7.25 percent target were a little better, he added, 54 to 46.

Mr. Dunmoyer, who represents the insurance industry on the board, sounded shocked. “To me, as a fiduciary, you want to have more than a 50 percent chance of success.”

If Calpers kept setting high targets and missing them, “the impact on the counties won’t be bigger numbers,” he said. “It will be bankruptcy.”

In the end, a majority decided it was worth the risk, and voted against Mr. Dunmoyer, lowering the rate to 7.5 percent.


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Forensic Analysis: Unions Amass Armory of Research on Foreclosures of Securitized Mortgages

Posted on March 30, 2010 by Neil Garfield
“We did not service the loan,” Mr. Dale said. “We did not originate the loan, and we were not the financial entity that placed it into foreclosure. Do you understand what a trustee does?”
Editor’s Note: Well, Yes Mr. Dale, we do understand what a trustee does and can do —- nothing. So why are you initiating foreclosures if you say that a trustee doesn’t do that?
Mr. Dale is reading from the end of the enabling documents instead of the first page where it looks like Trustee is really a trustee and that there really is a trust and that the trust holds assets. But by the time you read to the end of the document, the trustee is not a trustee, there is no trust and even if there was, there is nothing in the trust.
It is all an illusion. The “Trustee” is a “contingent agent” for a “conduit” (REMIC) that holds nothing. The enabling document is nothing more than the equivalent of an operating agreement in an LLC.
The “pool of loans” is owned by the investors who, as creditors, purchased mortgage backed derivative securities whose value is derived SOLELY from the promise to pay executed by the homeowners.
March 24, 2010

Unions Make Strides as They Attack Banks

By STEVEN GREENHOUSE and LOUISE STORY

When the city of Los Angeles started looking into its complex financial contracts with banks earlier this year, some council members turned to an unusual corner for financial advice: labor unions.

Turns out that union leaders had amassed an armory of research on derivatives, mortgage foreclosures and even Wall Street pay as part of their effort to hold bankers accountable for the economic pain they helped cause in Los Angeles and across the country.

Unions have criticized Wall Street before. But their attacks have taken on a new shape, both in ferocity and style, over the last 18 months, ever since the federal government doled out billions of dollars in bank bailouts.

Why? Labor leaders say the fortunes of banks and unions are linked more than people realize. Wall Street manages union pension portfolios worth hundreds of billions of dollars. Much of that is invested in financial institutions, giving unions a loud voice as shareholders.

Then there are all the unionized workers whose fates are indirectly shaped by the world of high finance. The jobs of hundreds of thousands of union members, like police officers and teachers, have been threatened by municipal budget cuts, made worse in some cases by exotic investments gone bad.

More abstractly, union leaders are framing their fight against Wall Street as a symbolic one, underscoring America’s large disparities in wealth and wages.

“Many unions see that they need to be responsible for not just members’ needs at the bargaining table, but other hardships in their lives, like foreclosures and high mortgage costs,” said Peter Dreier, a political science professor at Occidental College in Los Angeles.

Unions are holding up many of their own members as victims of the banks’ bad bets, like subprime mortgages, and are providing a steady stream of research in an effort to demystify the exotic financial products that they say are harming dozens of cities. Unions have also helped underwrite Americans for Financial Reform, a prominent group pushing for further bank regulation.

Labor leaders were among the first to call for the resignation of Bank of America’s chief executive, who did retire months later. Unions issued a scathing report on bank bonuses, months before the federal pay czar presented his findings, and they criticized Goldman Sachs’s bonus pool just before the bank said its chief would receive only stock.

This month, the A.F.L.-C.I.O., the nation’s main labor federation, has organized 200 protests nationwide to publicly shame bankers, calling for new taxes on bankers’ bonuses and on speculative short-term financial transactions — in the hope of collecting tens of billions of dollars to finance a job creation program.

“They played Russian roulette with our economy, and while Wall Street cashed in, they left Main Street holding the bag,” Richard L. Trumka, the A.F.L.-C.I.O.’s president, said last Friday at a rally in Philadelphia. “They gorge themselves in a trough of taxpayers’ dollars, while we struggle to make ends meet.”

Labor is directly at odds with Wall Street on unionization drives and many other matters. Banks and private equity firms own stakes in many businesses that unions would like to unionize, like nursing home chains and food service companies. Labor groups like the Service Employees International Union and the A.F.L.-C.I.O. are pressuring financial companies not to oppose union membership drives.

It is hard to know for certain whether the unions’ efforts have affected decisions made by Wall Street firms. But for cities like Los Angeles, feeling the squeeze of lower tax receipts, the service employees’ pressure campaign seemed to have had an impact.

“They knew more about our own water deal than I knew,” said Richard Alarcón, a Los Angeles councilman, referring to an interest-rate swap between the city’s water system and the Bank of New York Mellon that converted the system’s variable-rate bonds into bonds with a fixed rate. “They also knew the dynamics of swap deals, and they were very helpful.”

As the city faces a deficit of nearly $500 million, the council was unhappy that Los Angeles would have to pay Bank of New York millions of dollars a year.

“Our members don’t like it any more than other Americans when cities have less firefighters, less teachers or less police officers,” said Andy Stern, president of the service employees’ union.

The labor protests against the banks sometimes have murky targets. This month, service employees joined community leaders on the City Hall steps in Oakland, Calif., to denounce Goldman Sachs for arranging interest-rate swaps that have the city paying the bank millions a year.

After that rally, union leaders led a march to a local Citigroup branch. Goldman declined to comment, but a Citigroup representative scoffed.

“We weren’t even involved in those deals,” said Alex Samuelson, a Citigroup spokesman. “We were just a symbolic place to go and rail against Wall Street. You can’t go to a Goldman Sachs branch.”

Many bankers criticize the protests, saying they make lots of noise but often accomplish little. Steve Bartlett, president of the industry’s Financial Services Roundtable, who has been the target of several union-led protests, including one outside his home on a Sunday morning, said, “Protests can be misguided or even damaging to your cause.”

While union leaders say they are championing the concerns of Main Street, their antibank campaign has certainly advanced some of labor’s longtime objectives, like unionizing workers.

For instance, the S.E.I.U. has pressed several banks and private equity firms to agree to allow card check — a process that makes unionization easier — at companies in which they own stakes.

Service employees officials say they urged Goldman Sachs, which owns part of the food service company Aramark, to get Aramark to accept card check and not oppose an organizing drive. In December, the union’s president, Mr. Stern, even met with Goldman’s chief executive, Lloyd C. Blankfein, about universal health care and other labor-related issues.

Labor unions are using some of their members’ hard-luck stories to frame their battle as one between the haves and the have-nots, and in some cases that tactic is advancing the unions’ traditional goals in contract talks.

In February, for example, the service employees’ union publicized that one of its members cleaned the office of U.S. Bank’s chief in Minneapolis. That janitor, Rosalina Gomez, was facing foreclosure, and the union publicized that U.S. Bank had purchased her home in the foreclosure.

Steve Dale, a spokesman for the bank, said the union was attacking U.S. Bank even though JPMorgan Chase was the bank servicing Ms. Gomez’s mortgage. U.S. Bank, he said, was just the trustee, holding the loan for a mortgage bond.

“We did not service the loan,” Mr. Dale said. “We did not originate the loan, and we were not the financial entity that placed it into foreclosure. Do you understand what a trustee does?”

That aside, when the union threatened to have Ms. Gomez approach U.S. Bank’s chief, Richard K. Davis, at an awards luncheon, the bank rushed to set up a meeting between Ms. Gomez and JPMorgan. Fifty union supporters were at the site of the luncheon to conduct a silent vigil, with several reporters on hand.

Also at that time, the union was in contract negotiations with Ms. Gomez’s employer, the janitorial company that cleans U.S. Bank’s headquarters. Javier Morillo-Alicea, a leader of the union’s Minneapolis local, said its effort to embarrass the bank helped persuade the cleaning company to reach a contract that raised wages and provided better health insurance for the janitors.

“We put a lot of pressure on the bank,” he said, “and that led to a really good contract settlement in a tough economy.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 2 Comments »

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