Holder told the House Judiciary Committee at a hearing today that the department is reviewing the April report by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin, a Michigan Democrat. Holder didn’t say which aspects of the report, which probed the causes of 2008 financial crisis, are under review
In 2007, the report says, Deutsche Bank rushed to sell off mortgage-backed investments amid worries that the market for subprime loans was deteriorating.
“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007 about a deal stocked with securities created from raw material produced by Ameriquest and other subprime lenders.
Senator Carl Levin (D-MI) and former Goldman Sachs Mortgages Department head Daniel Sparks, Senate Governmental Affairs Subcommittee on Investigations hearing, April 27, 2010
Dylan Ratigan with special guest New York Times’ Louise Story, discussing the 600+ page report uncovering Goldman Sachs scheme to defraud investors. According to Bloomberg, The U.S. Justice Department and regulators will have to determine whether employees and executives of Goldman Sachs Group Inc. violated any laws when they traded securities tied to the housing market and testified to Congress about the transactions, Senator Carl Levin said.
United States Senate
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman
Tom Coburn, Ranking Minority Member
WALL STREET AND
THE FINANCIAL CRISIS:
Anatomy of a Financial Collapse
~
MAJORITY AND MINORITY
STAFF REPORT
PERMANENT SUBCOMMITTEE
ON INVESTIGATIONS
UNITED STATES SENATE
April 13, 2011
In the fall of 2008, America suffered a devastating economic collapse. Once valuable securities lost most or all of their value, debt markets froze, stock markets plunged, and storied financial firms went under. Millions of Americans lost their jobs; millions of families lost their homes; and good businesses shut down. These events cast the United States into an economic recession so deep that the country has yet to fully recover.
This Report is the product of a two-year, bipartisan investigation by the U.S. Senate Permanent Subcommittee on Investigations into the origins of the 2008 financial crisis. The goals of this investigation were to construct a public record of the facts in order to deepen the understanding of what happened; identify some of the root causes of the crisis; and provide a factual foundation for the ongoing effort to fortify the country against the recurrence of a similar crisis in the future.
Using internal documents, communications, and interviews, the Report attempts to provide the clearest picture yet of what took place inside the walls of some of the financial institutions and regulatory agencies that contributed to the crisis. The investigation found that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.
While this Report does not attempt to examine every key moment, or analyze every important cause of the crisis, it provides new, detailed, and compelling evidence of what happened. In so doing, we hope the Report leads to solutions that prevent it from happening again.
This is the second column in a series responding to Stephen Moore’s central assaults on regulation and the prosecution of the elite white-collar criminals who cause our recurrent, intensifying financial crises. Last week’s column addressed his claim in a recent Wall Street Journal column that all government employees, including the regulatory cops on the beat, are “takers” destroying America.
In late February, Charles Ferguson’s film – Inside Job – won the Academy Award for Best Documentary. And now the film documenting the causes of the 2008 global financial meltdown has made its way online (thanks to the Internet Archive). A corrupt financial industry, its corrosive relationship with politicians, academics and regulators, and the trillions of damage done, it all gets documented in this film that runs a little shy of 2 hours.
Inside Job (now listed in our Free Movie collection) can be purchased on DVD at Amazon. We all love free, but let’s remember that good projects cost real money to develop, and they could use real financial support. So please consider buying a copy.
Hopefully watching or buying this film won’t be a pointless act, even though it can rightly feel that way. As Charles Ferguson reminded us during his Oscar acceptance speech, we are three years beyond the Wall Street crisis and taxpayers (you) got fleeced for billions. But still not one Wall Street exec is facing criminal charges. Welcome to your plutocracy…
This site is documenting historical events. The following plan and speech that never mounted to anything has become nothing more than broken promises. Be sure to catch the video down below as well.
Our country faces its most serious economic crisis since the great depression. Working families, who saw their incomes decline by $2,000 in the economic “expansion” from 2000 to 2007, now face even deeper income losses. Retirement savings accounts have lost $2 trillion. Markets have fallen 40% in less than a year. Millions of homeowners who played by the rules can’t meet their mortgage payments and face foreclosure as the value of their homes have plummeted. With credit markets nearly frozen, businesses large and small cannot access the credit they need to meet payroll and create jobs.
Barack Obama and Joe Biden have a plan to revitalize the economy.
Immediate Action to Create Good Jobs in America
Immediate Relief for Struggling Families
Direct, Immediate Assistance for Homeowners, Not a Bailout for Irresponsible Mortgage Lenders
A Rapid, Aggressive Response to Our Financial Crisis, Using All the Tools We Have
1. IMMEDIATE ACTION TO CREATE GOOD JOBS IN AMERICA
The economy has lost 760,000 jobs this year — and some forecasters expect the unemployment rate to exceed 8 percent by the end of next year. Addressing the financial crisis will help prevent the most severe loss of jobs from the crisis. But taking direct steps to create jobs will also strengthen the economy and help with the financial crisis. Barack Obama and Joe Biden’s overall economic agenda is pro-jobs, including their plans to eliminate America’s dependence on foreign oil and bring down healthcare costs. But Obama and Biden believe we must take additional aggressive steps to jump-start job creation right now:
A New American Jobs Tax Credit: Obama and Biden will provide a new temporary tax credit to companies that add jobs here in the United States. During 2009 and 2010, existing businesses will receive a $3,000 refundable tax credit for each additional full-time employee hired. For example, if a company that currently has 10 U.S. employees increases its domestic full time employment to 20 employees, this company would get a $30,000 tax credit — enough to offset the entire added payroll tax costs to the company for the first $50,000 of income for the new employees. The tax credit will benefit all companies creating net new jobs, even those struggling to make a profit.
Raise the small business investment expensing limit to $250,000 through the end of 2009:Obama and Biden will give small businesses an additional incentive to make investments and start creating jobs again by providing temporary business tax incentives through 2009. The February 2008 stimulus bill increased maximum Section 179 expenses to $250,000 but this expires in December 2008. This provision will encourage all firms to pursue investment in the coming months, but will particularly benefit small firms which generally have smaller amounts of annual property purchases and so choose to expense the cost of their acquired property.
Zero capital gains rate for investment in small businesses: Barack Obama and Joe Biden believe that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why they will eliminate all capital gains taxes on investments made in small and start-up businesses. They also want to cut taxes for the small businesses that create jobs but are struggling with restricted access to credit on top of skyrocketing health care and energy costs.
Save one million jobs through immediate investments to rebuild America’s roads and bridges and repair our schools: The Obama-Biden emergency plan would make $25 billion immediately available in a Jobs and Growth Fund to help ensure that in-progress and fast-tracked infrastructure projects are not sidelined, and to ensure that schools can meet their energy costs and undertake key repairs starting this fall. This increased investment is necessary to stem growing budget pressures on infrastructure projects. In addition, in an environment where we may face elevated unemployment levels well into 2009, making an aggressive investment in urgent, high-priority infrastructure will serve as a triple win: generating capital deployment and job creation to boost our economy in the near-term, enhancing U.S. competitiveness in the longer term, and improving the environment by adopting energy efficient school and infrastructure repairs. In total, Obama and Biden’s $25 billion investment will result in 1 million jobs created or saved, while helping to turn our economy around.
Partner with America’s automakers to help save jobs and ensure that the next generation of clean vehicles is built in the United States: Senator Obama pushed for $50 billion in loan guarantees to help the auto industry retool, develop new battery technologies and produce the next generation of fuel efficient cars here in America. Congress passed only half of this amount — it is critical that the administration speeds up the implementation of the first half and that Congress move quickly to enact the second half. In addition, Obama and Biden believe that with the tremendous uncertainty facing the auto industry, and the small and medium business suppliers who depend on them, it is critical that we keep all options on the table for helping them weather the financial crisis.
2. IMMEDIATE RELIEF FOR STRUGGLING FAMILIES
Even when the overall economy was growing, most American families were not sharing in this growth. The typical non-elderly household saw its income decline by more than $2,000 from 2000 to 2007 as expenses skyrocketed. Weekly wages, adjusted for inflation, are now lower than they were a decade ago. Barack Obama and Joe Biden’s overall economic plan will relieve the squeeze on families and foster bottom-up growth. But they are proposing that we implement several measures immediately:
A tax cut for 95 percent of workers and their families — plus seniors: Barack Obama and Joe Biden propose a permanent tax cut of $500 for workers and $1,000 for families. A first round of these tax credits could be mailed out quickly by the IRS based on tax returns already filed for tax year 2007. In addition, Obama and Biden would extend these expedited tax credits to senior citizens who are retired as a down payment on his plan to eliminate taxes for all seniors making up to $50,000.
Extend unemployment insurance benefits and temporarily suspend taxes on these benefits:Millions of Americans are looking for work but unable to find it in the weak economy. Today, more than one in five unemployed workers has been out of work for more than half a year — the highest level since early 2005. Obama supported extending unemployment insurance this summer, but already 800,000 jobless workers have exhausted those benefits and are being left without any unemployment compensation. Obama and Biden believe Congress should immediately extend unemployment insurance for an additional 13 weeks to help families that are being hit hardest by this downturn. In addition, they believe we should temporarily suspend taxes on unemployment insurance benefits as a way of giving more relief to families.
Penalty-free hardship withdrawals from IRAs and 401(k)s in 2008 and 2009: Many families are going to be facing unique economic hardship over the coming year. To help these families pay their bills and their mortgages and make it through these tough times, Obama and Biden are calling for legislation that would allow withdrawals of 15% up to $10,000 from retirement accounts without penalty (although subject to the normal taxes). This would apply to withdrawals in 2008 (including retroactively) and 2009.
Instruct the Treasury to allow seniors to delay required withdrawals from 401(k)s and IRAs:Currently seniors are required to start withdrawing from their 401(k)s and IRAs at age 70 1/2 and every year thereafter over their lifetime. But the explicit requirement that withdrawals continue on an annual basis — and the related requirement that the amount withdrawn be based on currently much higher year-end 2007 asset values — is based on Treasury regulations, not the statute, which has a less specific mandate. That means the Secretary of the Treasury has authority to change its regulations to protect seniors from being forced, at this critical time, to sell their investments and “lock in” their losses just after market values have plummeted in an almost unprecedented fashion. Obama and Biden are calling on Treasury to temporarily suspend the required withdrawals for retirees over age 70 1/2. Because retirees often make these required withdrawals late in the year, there is still time to help millions of affected seniors — but only if done promptly. In addition, because lower-income seniors may have no choice but to take withdrawals this year and in 2008, Obama and Biden will exempt any withdrawals made up to the required minimum amount from taxation. This will give seniors the flexibility they deserve — to forgo withdrawals if they choose or to take those withdrawals tax free if they need those resources to pay their bills.
Funds to counteract high heating costs this winter: Obama and Biden are calling for supplementing the recently passed LIHEAP funding to ensure that cold-weather states can cushion the impact of high energy prices for their residents this winter. The Energy Information Administration said that consumers will pay a projected $1,137 to heat their homes from Oct. 1 to March 31 — 15 percent more than last year’s heating outlay during this time. Homeowners that use heating oil rather than natural gas could see increases of 23 percent compared to last year. As part of his $25 billion state fiscal relief package, Obama’s plan will supplement existing LIHEAP funding to help state programs expand to cover more residents while continuing to provide a meaningful benefit.
3. DIRECT, IMMEDIATE ASSISTANCE FOR HOMEOWNERS, NOT A BAILOUT FOR IRRESPONSIBLE MORTGAGE LENDERS
Over the past two years, Americans have lost 20 percent of the value of their homes. In some parts of the country home values have fallen by twice that amount. In combination with a rapidly deteriorating economy, that means more and more families are having a hard time meeting their monthly mortgage payments. At the same time, many states are considering property tax hikes that will burden homeowners still further. And millions of families who have seen the value of their homes fall below the cost of their mortgages need assistance in restructuring their mortgages to stay in their homes.
Barack Obama and Joe Biden’s plan provides direct relief to help America’s homeowners pay their mortgages, stay in their homes, and avoid painful tax increases while protecting taxpayers and not rewarding the bad behavior and bad actors who got us into this mess:
Instruct the Secretaries of the Treasury and Housing and Urban Development (HUD) to use their existing authority to more aggressively modify the terms of mortgages: Barack Obama was an early champion of the HOPE for Homeowners Act that passed over the summer. In addition, Obama insisted that the financial rescue plan Congress recently passed include authority for the Secretary to work with servicers to modify the terms of mortgages for homeowners who played by the rules. Obama and Biden believe that both of these plans should be implemented aggressively and comprehensively. In addition, Obama and Biden are calling on Treasury and HUD to develop a plan to work with state housing agencies to coordinate broad mortgage restructurings. The Dodd-Frank legislation gives states broader authority to help struggling homeowners, and coordination is essential to ensure that state and national efforts are working in concert to help as many homeowners as possible at the minimum cost to taxpayers.
Reform the bankruptcy code to assist homeowners and remove legal impediments to encouraging broader mortgage restructuring: Obama and Biden are also calling for legislation to close the loophole in our bankruptcy code that allows bankruptcy judges to modify the terms of mortgages on investment properties and vacation homes but not on primary residences. He also believes we should clarify the legal liability of mortgage servicers so that servicers who work with struggling homeowners to modify their mortgages will receive legal protections. And we should remove any tax- or legal-related impediments to encouraging shared-equity mortgages within the HOPE for Homeownership process.
Enact a 90-day foreclosure moratorium for homeowners who are acting in good faith: Financial institutions that participate in the financial rescue plan should be required to adhere to a homeowner’s code of conduct, including a 90-day foreclosure moratorium for any homeowners living in their homes who are making good faith efforts to pay their mortgages. This will help create stability until the more far-reaching solutions are implemented and give both sides a chance to work out an agreement.
Provide $25 Billion in state fiscal relief to help avoid painful property tax increases: Budget crunches across the nation are putting our local governments in the untenable position of having to choose between raising property taxes and cutting vital services. Obama has proposed $25 billion in state fiscal relief that, coupled with the new emergency facility to address the state credit crunch, will help states and localities continue to provide essential services like health care, police, fire and education without raising taxes or fees.
Create a universal mortgage tax credit for homeowners: Barack Obama believes we should immediately enact a 10 percent refundable tax credit on the mortgage interest paid by hardworking American families who do not itemize their taxes. This credit will help offset the cost of mortgage payments for at least 10 million middle-class homeowners.
4. A RAPID, AGGRESSIVE RESPONSE TO THE FINANCIAL CRISIS — USING ALL THE TOOLS WE HAVE
Barack Obama and Joe Biden believe that our deep systemic financial market crisis requires a systemic response. They fought to ensure that the recently-passed financial rescue package gave the Treasury the tools to stabilize the financial system, while protecting taxpayers and ensuring CEOs would not get rich in the process. However, this stabilization will only occur if the Treasury, Federal Reserve, FDIC, and other government entities use their authority and move quickly and aggressively to address the financial crisis.
It is now clear that our financial markets will not restart until financial institutions are lending again. Because of the extensive losses many of these institutions have suffered, they need more capital so that they will have the money to lend to families and businesses. Obama and Biden recognized this early, and were heartened by the Treasury’s stated intention to use its recently granted authority to inject capital into our financial institutions. However, Secretary Paulson must turn this intention into action quickly and aggressively, in a manner that strengthens confidence in our banks, protects taxpayers, does not reward CEOs, and is strictly temporary.
In addition, our financial authorities must stand ready to take additional, complementary actions — consistent with the systemic nature of this crisis — to ensure this Treasury initiative is successful:
Be prepared, if necessary, for broader assurances for credit to banks: First, we must be prepared to provide additional, temporary assurances to achieve the effective functioning of financial markets. Depending on developing circumstances, these steps could include additional measures by the Federal Reserve, extending insurance to all deposits, or guaranteeing a broader range of liabilities of the banking system including overnight loans. Any such steps should be coordinated internationally where appropriate and feasible. They should be accompanied by additional oversight to ensure appropriate use of guaranteed funds and by the expectation that financial institutions taking advantage of these guarantees will raise more capital.
Extend asset purchases to unfreeze other critical sectors: Second, the Treasury should not limit itself to purchasing mortgage-backed securities under the financial rescue plan recently passed by Congress. The Treasury should use the authority it has under the new law to help unfreeze markets for individual mortgages, student loans, car loans, loans for multi-family dwellings, and credit card loans.
Make credit available to small businesses and state or local governments: Third, we should take immediate steps to support non-financial institutions including small businesses and states and municipalities. The Federal Reserve and Treasury have acted to preserve the availability of liquidity for financial institutions and, more recently, have created a program to purchase commercial paper directly from the large corporate issuers. Small businesses and state and local governments, however, are having serious difficulty obtaining necessary financing from debt markets.
Address the credit crisis facing our states and localities: Barack Obama and Joe Biden propose that the Federal Reserve and the Treasury work together to design a facility to provide a funding backstop to the state and municipal government debt market similar to the recently announced program for the commercial paper market. The Federal Reserve should determine whether it has sufficient legal authority to establish such a facility on its own — if not, it should work with Treasury and the Congress to achieve this goal. This new facility should be designed to protect taxpayer resources while ensuring that state and local governments can continue to provide vital services to their residents.
Address the credit crisis facing our small businesses: To address the massive credit crunch that is threatening America’s small businesses, Barack Obama and Joe Biden are proposing two immediate steps: (1) a nationwide emergency lending facility for small businesses that could be run through the SBA’s Disaster Loan Program, which helped thousands of businesses in the wake of 9/11; and (2) temporarily eliminating fees on the SBA’s 7(a) and 504 loan guarantee programs for small businesses, to help increase private lending for small businesses.
Trade
Barack Obama and Joe Biden believe that trade with foreign nations should strengthen the American economy and create more American jobs. They will stand firm against agreements that undermine our economic security.
Fight for Fair Trade: Obama and Biden will fight for a trade policy that opens up foreign markets to support good American jobs. They will use trade agreements to spread good labor and environmental standards around the world and stand firm against agreements like the Central American Free Trade Agreement that fail to live up to those important benchmarks. Obama and Biden will also pressure the World Trade Organization to enforce trade agreements and stop countries from continuing unfair government subsidies to foreign exporters and nontariff barriers on U.S. exports.
Amend the North American Free Trade Agreement: Obama and Biden believe that NAFTA and its potential were oversold to the American people. They will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.
Improve transition assistance: To help all workers adapt to a rapidly changing economy, Obama and Biden will update the existing system of Trade Adjustment Assistance by extending it to service industries, creating flexible education accounts to help workers retrain, and providing retraining assistance for workers in sectors of the economy vulnerable to dislocation before they lose their jobs.
End tax breaks for companies that send jobs overseas: Barack Obama and Joe Biden believe that companies should not get billions of dollars in tax deductions for moving their operations overseas. They will fight to ensure that public contracts are awarded to companies that are committed to American workers.
Reward companies that support American workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-Ill) and Sherrod Brown (D-Oh) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the U.S.; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military.
Manufacturing and Green Jobs
Invest in our next generation innovators and job creators: Obama and Biden will create an Advanced Manufacturing Fund to identify and invest in the most compelling advanced manufacturing strategies. The Fund will have a peer-review selection and award process based on the Michigan 21st Century Jobs Fund, a state-level initiative that has awarded over $125 million to Michigan businesses with the most innovative proposals to create new products and new jobs in the state.
Double funding for the manufacturing extension partnership: The Manufacturing Extension Partnership (MEP) works with manufacturers across the country to improve efficiency, implement new technology and strengthen company growth. This highly-successful program has engaged in more than 350,000 projects across the country and in 2006 alone, helped create and protect over 50,000 jobs. But despite this success, funding for MEP has been slashed by the Bush administration. Barack Obama and Joe Biden will double funding for the MEP so its training centers can continue to bolster the competitiveness of U.S. manufacturers.
Invest in a clean energy economy and create 5 million new green jobs: Obama and Biden will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial scale renewable energy, invest in low emissions coal plants, and begin transition to a new digital electricity grid. The plan will also invest in America’s highly-skilled manufacturing workforce and manufacturing centers to ensure that American workers have the skills and tools they need to pioneer the first wave of green technologies that will be in high demand throughout the world.
Create new job training programs for clean technologies: The Obama-Biden plan will increase funding for federal workforce training programs and direct these programs to incorporate green technologies training, such as advanced manufacturing and weatherization training, into their efforts to help Americans find and retain stable, high-paying jobs. Obama and Biden will also create an energy-focused youth jobs program to invest in disconnected and disadvantaged youth.
Boost the renewable energy sector and create new jobs: The Obama-Biden plan will create new federal policies, and expand existing ones, that have been proven to create new American jobs. Obama and Biden will create a federal Renewable Portfolio Standard (RPS) that will require 25 percent of American electricity be derived from renewable sources by 2025, which has the potential to create hundreds of thousands of new jobs. They will also extend the Production Tax Credit, a credit used successfully by American farmers and investors to increase renewable energy production and create new local jobs.
National Infrastructure Investment
Barack Obama and Joe Biden believe that it is critically important for the United States to rebuild its national transportation infrastructure — its highways, bridges, roads, ports, air, and train systems — to strengthen user safety, bolster our long-term competitiveness and ensure our economy continues to grow.
Create a National Infrastructure Reinvestment Bank: Barack Obama and Joe Biden will address the infrastructure challenge by creating a National Infrastructure Reinvestment Bank to expand and enhance, not supplant, existing federal transportation investments. This independent entity will be directed to invest in our nation’s most challenging transportation infrastructure needs. The Bank will receive an infusion of federal money, $60 billion over 10 years, to provide financing to transportation infrastructure projects across the nation. These projects will directly and indirectly create up to two million new jobs and stimulate approximately $35 billion per year in new economic activity.
Technology, Innovation and Creating Jobs
Barack Obama and Joe Biden will increase federal support for research, technology and innovation for companies and universities so that American families can lead the world in creating new advanced jobs and products.
Invest in the sciences: Obama and Biden support doubling federal funding for basic research and changing the posture of our federal government from being one of the most anti-science administrations in American history to one that embraces science and technology. This will foster home-grown innovation, help ensure the competitiveness of U.S. technology-based businesses, and ensure that 21st century jobs can and will grow in America.
Make the Research and Development Tax Credit permanent: Barack Obama and Joe Biden want investments in a skilled research and development workforce and technology infrastructure to be supported here in America so that American workers and communities will benefit. Obama and Biden want to make the Research and Development tax credit permanent so that firms can rely on it when making decisions to invest in domestic R&D over multi-year timeframes.
Deploy next-generation broadband: Barack Obama and Joe Biden believe we can get broadband to every community in America through a combination of reform of the Universal Service Fund, better use of the nation’s wireless spectrum, promotion of next-generation facilities, technologies and applications, and new tax and loan incentives.
Small Business
Provide tax relief for small businesses and start-up companies: Obama and Biden will eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation. Obama and Biden will also support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation.
Create a national network of public-private business incubators: Obama and Biden will support entrepreneurship and spur job growth by creating a national network of public-private business incubators. Business incubators facilitate the critical work of entrepreneurs in creating start-up companies. Obama and Biden will invest $250 million per year to increase the number and size of incubators in disadvantaged communities throughout the country.
Labor
Obama and Biden will strengthen the ability of workers to organize unions. He will fight for passage of the Employee Free Choice Act. Obama and Biden will ensure that his labor appointees support workers’ rights and will work to ban the permanent replacement of striking workers. Obama and Biden will also increase the minimum wage and index it to inflation to ensure it rises every year.
Ensure freedom to unionize: Obama and Biden believe that workers should have the freedom to choose whether to join a union without harassment or intimidation from their employers. Obama cosponsored and is a strong advocate for the Employee Free Choice Act (EFCA), a bipartisan effort that makes sure workers can exercise their right to organize. They will continue to fight for EFCA’s passage and Obama will sign it into law.
Fight attacks on workers’ right to organize: Obama has fought the Bush National Labor Relations Board (NLRB) efforts to strip workers of their right to organize. He is a cosponsor of legislation to overturn the NLRB’s “Kentucky River” decisions classifying hundreds of thousands of nurses, construction workers, and professional workers as “supervisors” who are not protected by federal labor laws.
Protect striking workers: Obama and Biden support the right of workers to bargain collectively and strike if necessary. They will work to ban the permanent replacement of striking workers, so workers can stand up for themselves without worrying about losing their livelihoods.
Raise the minimum wage: Barack Obama and Joe Biden will raise the minimum wage, index it to inflation and increase the Earned Income Tax Credit to make sure that full-time workers earn a living wage that allows them to raise their families and pay for basic needs.
Mortgages, Homeownership, and Bankruptcy
Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, they’ll give a tax credit to all middle-class homeowners, and they’ll reform our bankruptcy laws to protect working people.
Create a universal mortgage credit: Obama and Biden will create a 10 percent universal mortgage credit to provide tax relief to homeowners who do not itemize. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
Ensure more accountability in the subprime mortgage industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
Mandate accurate loan disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
Close bankruptcy loophole for mortgage companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.
Credit Cards and Lending
Obama and Biden will establish a five-star rating system so that every consumer knows the risk involved in every credit card. They also will establish a Credit Card Bill of Rights to stop credit card companies from exploiting consumers with unfair practices.
Create a credit card rating system to improve disclosure: Obama and Biden will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card’s features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
Establish a Credit Card Bill of Rights to protect consumers: Obama and Biden will create a Credit Card Bill of Rights to protect consumers. The Obama-Biden plan will:
Ban Unilateral Changes
Apply Interest Rate Increases Only to Future Debt
Prohibit Interest on Fees
Prohibit “Universal Defaults”
Require Prompt and Fair Crediting of Cardholder Payments
Cap outlandish interest rates on payday loans and improve disclosure: Obama and Biden will extend a 36 percent interest cap to all Americans. They will require lenders to provide clear and simplified information about loan fees, payments and penalties, which is why they’ll require lenders to provide this information during the application process.
Encourage responsible lending institutions to make small consumer loans: Obama and Biden will encourage banks, credit unions and Community Development Financial Institutions to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business.
Reform bankruptcy laws to protect families facing a medical crisis: Obama and Biden will create an exemption in bankruptcy law for individuals who can prove they filed for bankruptcy because of medical expenses. This exemption will create a process that forgives the debt and lets the individuals get back on their feet.
Work-Family Balance
Obama and Biden will double funding for after-school programs, expand the Family Medical Leave Act, provide low-income families with a refundable tax credit to help with their child-care expenses, and encourage flexible work schedules.
Expand the Family and Medical Leave Act: The FMLA covers only certain employees of employers with 50 or more employees. Obama and Biden will expand it to cover businesses with 25 or more employees. They will expand the FMLA to cover more purposes as well, including allowing workers to take leave for elder care needs; allowing parents up to 24 hours of leave each year to participate in their children’s academic activities; and expanding FMLA to cover leave for employees to address domestic violence.
Encourage states to adopt paid leave: As president, Obama will initiate a strategy to encourage all 50 states to adopt paid-leave systems. Obama and Biden will provide a $1.5 billion fund to assist states with start-up costs and to help states offset the costs for employees and employers.
Expand high-quality afterschool opportunities: Obama and Biden will double funding for the main federal support for afterschool programs, the 21st Century Learning Centers program, to serve a million more children. Obama and Biden will include measures to maximize performance and effectiveness across grantees nationwide.
Expand the child and dependent care tax credit: The Child and Dependent Care Tax Credit provides too little relief to families that struggle to afford child care expenses. Obama and Biden will reform the Child and Dependent Care Tax Credit by making it refundable and allowing low-income families to receive up to a 50 percent credit for their child care expenses.
Protect against caregiver discrimination: Workers with family obligations often are discriminated against in the workplace. Obama and Biden will enforce the recently-enacted Equal Employment Opportunity Commission guidelines on caregiver discrimination.
Expand flexible work arrangements: Obama and Biden will create a program to inform businesses about the benefits of flexible work schedules; help businesses create flexible work opportunities; and increase federal incentives for telecommuting. Obama and Biden will also make the federal government a model employer in terms of adopting flexible work schedules and permitting employees to request flexible arrangements.
“We cannot allow homeowners and small towns to suffer because of the mess made by Wall Street and by Washington and for those Americans in danger of losing their homes today I’m also proposing a three month moratorium on foreclosures. If your a bank…if your a bank or a lender who’s getting money from the rescue plan that passed congress and your customers are making a good faith effort to make their mortgage payments and renegotiate their mortgage you will not be able to foreclose on their home for three months. We need to get to give the people the breathing room to get back on their feet”
To top the icing on the cake guess who was hired as the Obama Administration’s Chief of Staff? … but one of these Wall Street Lieutenants JPMorgan Chase’s William Daley on 1/6/2011
Forgive me, I must start by pointing out that three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail and that’s wrong.” – Charles Ferguson 2011
From Academy Award® nominated filmmaker, Charles Ferguson (“No End In Sight”), comes INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.
Narrated by Academy Award® winner Matt Damon, INSIDE JOB was made on location in the United States, Iceland, England, France, Singapore, and China.
Earlier today, I did a podcast with Shahien Nasiripour from the Huffington Post on the current state of the justice system in America. The full transcript is on it’s way.
NEW YORK — After the last major banking crisis, some two decades ago, roughly 3,800 bankers were prosecuted and sentenced to prison terms, by the Justice Department’s count. Yet this time, some four years after the economy descended into the most punishing financial crisis since the Great Depression, the public still waits for the Obama administration to deliver a similar kind of justice.
The 2007-’09 financial crisis was “avoidable,” a bipartisan, congressionally-appointed panel concluded last week. Mortgage fraud “flourished” in the run up to the collapse. Securities fraud was apparently widespread.
“Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities,” the Financial Crisis Inquiry Commission wrote in its report on the causes of the collapse. About $1 trillion worth of home loans made from 2005 to 2007 were “fraudulent,” the commission said, citing testimony from experts. The Illinois Attorney General, Lisa Madigan, told the commission that she defined fraud to include lenders’ “sale of unaffordable or structurally-unfair mortgage products to borrowers.”
And yet, the perp walk so many Americans crave — Treasury Secretary Timothy Geithner once referred to it as the “very deep public desire for Old Testament justice” — hasn’t occurred. Wall Street figures have largely gone untouched. Bank directors kept their jobs. In a sign that perhaps the fallout from the crisis has passed, outsized compensation is back.
“People need to go to jail,” said Liz Ryan Murray, policy director of National People’s Action, an advocacy organization that helped launch the website CrimeShouldntPay.com. “If you steal something, you go to jail. If you falsify documents, you go to jail. Why doesn’t that apply to big bank executives?”
From Academy Award® nominated filmmaker, Charles Ferguson (“No End In Sight”), comes INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.
Narrated by Academy Award® winner Matt Damon, INSIDE JOB was made on location in the United States, Iceland, England, France, Singapore, and China.
Lets not act surprise…by now we all know ANYTHING the US GOVERNMENT touches turns to ___________!
Because these lying banksters get away with ________________! We should foreclose on their _____________and kick them to the curb! Get your stress out and fill in the blank!
WE are not fools and we do not believe one thing they say!
First Posted: 06-29-10 06:22 PM | Updated: 06-29-10 06:22 PM
Potentially “thousands” of troubled homeowners were denied opportunities to lower their monthly mortgage payments under the Obama administration’s signature foreclosure-prevention plan due to servicer errors and inadequate oversight by the Treasury Department, a government audit has found.
Mortgage servicers failed to comply with basic guidelines, used different criteria to evaluate borrowers, recorded error rates up to six times their established thresholds, and couldn’t provide evidence that potentially eligible homeowners had been solicited for the administration’s Home Affordable Modification Program, also known as HAMP.
The errors are partly due to Treasury’s failure to issue specific guidelines for servicers to follow, and the administration’s lack of quality-control standards. Because servicers aren’t required to adhere to the same set of standards, there’s a risk that firms aren’t identifying practices “that may lead to inequitable treatment of borrowers or harm taxpayers through greater potential for fraud or waste,” according to a Thursday report by the Government Accountability Office.
But even if servicers were fraudulently modifying loans or improperly denying modifications to distressed homeowners, Treasury “has yet to establish specific consequences or penalties for noncompliance,” the GAO notes. The department has yet to fine any servicers for noncompliance, according to the report.
Already, “Treasury specifically allows some differences in how servicers evaluate borrowers… that could result in inconsistent outcomes for borrowers,” the report found.
The end result could be the “inequitable treatment” of struggling homeowners who were looking to an administration for help during the worst economic downturn since the Great Depression. HAMP is the centerpiece of the administration’s $75 billion effort to stem the rising tide of foreclosures.
“I find it saddening and frustrating that none of these problems, which we among other people identified to Treasury over a year ago, have been meaningfully addressed,” said Diane E. Thompson, a lawyer with the National Consumer Law Center. “And as a result, we lost a major opportunity to stem the foreclosure crisis.”
OUR nation’s Congressional machinery was humming last week as legislators reconciled the differences between the labyrinthine financial reforms proposed by the Senate and the House and emerged early Friday morning with a voluminous new law in hand. They christened it the Dodd-Frank bill, after the heads of the Senate Banking and House Financial Services Committees who drove the process toward the finish line.
The bill is awash in so much minutiae that by late Friday its ultimate impact on the financial services industry was still unclear. Certainly, the bill, which the full Congress has yet to approve, is the most comprehensive in decades, touching hedge funds, private equity firms, derivatives and credit cards. But is it the “strong Wall Street reform bill,” that Christopher Dodd, the Connecticut Democrat, said it is?
For this law to be the groundbreaking remedy its architects claimed, it needed to do three things very well: protect consumers from abusive financial products, curb dangerous risk taking by institutions and cut big and interconnected financial entities down to size. So far, the report card is mixed.
On the final item, the bill fails completely. After President Obama signs it into law, the nation’s financial industry will still be dominated by a handful of institutions that are too large, too interconnected and too politically powerful to be allowed to go bankrupt if they make unwise decisions or make huge wrong-way bets.
Speaking of large and politically connected entities, Dodd-Frank does nothing about Fannie Mae and Freddie Mac, the $6.5 trillion mortgage finance behemoths that have been wards of the state for almost two years. That was apparently a bridge too far — not surprising, given the support that Mr. Dodd and Mr. Frank lent to Fannie and Freddie back in the good old days when the companies were growing their balance sheets to the bursting point.
So what does the bill do about abusive financial products and curbing financial firms’ appetites for excessive risk?
For consumers and individual investors, Dodd-Frank promises greater scrutiny on financial “innovations,” the products that line bankers’ pockets but can harm users. The creation of a Consumer Financial Protection Bureau within the Federal Reserve Board is intended to bring a much-needed consumer focus to a regulatory regime that was nowhere to be seen during the last 20 years.
It is good that the bill grants this bureau autonomy by assigning it separate financing and an independent director. But the structure of the bureau could have been stronger.
For example, the bill still lets the Office of the Comptroller of the Currency bar state consumer protections where no federal safeguards exist. This is a problem that was well known during the mortgage mania when the comptroller’s office beat back efforts by state authorities to curtail predatory lending.
And Dodd-Frank inexplicably exempts loans provided by auto dealers from the bureau’s oversight. This is as benighted as exempting loans underwritten by mortgage brokers.
Finally, the Financial Stability Oversight Council, the überregulator to be led by the Treasury secretary and made up of top financial regulators, can override the consumer protection bureau’s rules. If the council says a rule threatens the soundness or stability of the financial system, it can be revoked.
Given that financial regulators — and the comptroller’s office is not alone in this — often seem to think that threats to bank profitability can destabilize the financial system, the consumer protection bureau may have a tougher time doing its job than many suppose.
ONE part of the bill that will help consumers and investors is the section exempting high-quality mortgage loans from so-called risk retention requirements. These rules, intended to make mortgage originators more prudent in lending, force them to hold on to 5 percent of a mortgage security that they intend to sell to investors.
But Dodd-Frank sensibly removes high-quality mortgages — those made to creditworthy borrowers with low loan-to-value ratios — from the risk retention rule. Requiring that lenders keep a portion of these loans on their books would make loans more expensive for prudent borrowers; it would likely drive smaller lenders out of the business as well, causing further consolidation in an industry that is already dominated by a few powerful players.
“This goes a long way toward realigning incentives for good underwriting and risk retention where it needs to be retained,” said Jay Diamond, managing director at Annaly Capital Management. “With qualified mortgages, the risk retention is with the borrower who has skin in the game. It’s in the riskier mortgages, where the borrower doesn’t have as much at stake, that the originator should be keeping the risk.”
In the interests of curbing institutional risk-taking, Dodd-Frank rightly takes aim at derivatives and proprietary trading, in which banks make bets using their own money. On derivatives, the bill lets banks conduct trades for customers in interest rate swaps, foreign currency swaps, derivatives referencing gold and silver, and high-grade credit-default swaps. Banks will also be allowed to trade derivatives for themselves if hedging existing positions.
But trading in credit-default swaps referencing lower-grade securities, like subprime mortgages, will have to be run out of bank subsidiaries that are separately capitalized. These subsidiaries may have to raise capital from the parent company, diluting the bank’s existing shareholders.
Banks did win on the section of the bill restricting their investments in private equity firms and hedge funds to 3 percent of bank capital. That number is large enough so as not to be restrictive, and the bill lets banks continue to sponsor and organize such funds.
On proprietary trading, however, the bill gets tough on banks, said Ernest T. Patrikis, a partner at White & Case, by limiting their bets to United States Treasuries, government agency obligations and municipal issues. “Foreign exchange and gold and silver are out,” he said. “This is good for foreign banks if it applies to U.S. banks globally.”
That’s a big if. Even the Glass-Steagall legislation applied only domestically, he noted. Nevertheless, Mr. Patrikis concluded: “The bill is a win for consumers and bad for banks.”
Even so, last Friday, investors seemed to view the bill as positive for banks; an index of their stocks rose 2.7 percent on the day. That reaction is a bit of a mystery, given that higher costs, lower returns and capital raises lie ahead for financial institutions under Dodd-Frank.
Then again, maybe investors are already counting on the banks doing what they do best: figuring out ways around the new rules and restrictions.
A version of this article appeared in print on June 27, 2010, on page BU1 of the New York edition.
The big mortgage financing company, which owns or guarantees millions of mortgages, announced on Wednesday that it would sue homeowners who have the capacity to pay but default anyway. It also said it would prevent these strategic defaulters from getting a new Fannie Mae-backed loan for seven years, which could potentially shut millions of buyers out of the market.
But it was unclear, the experts said, why Fannie Mae was threatening delinquent owners and what it hoped to achieve. The new direction seems to run counter to the Obama administration’s efforts to reinvigorate the housing market. And there were basic questions about how Fannie would be able to distinguish between those homeowners who defaulted intentionally and the unfortunate ones who had no choice.
“How are they going to do this, and for what result?” asked Grant Stern, president of the Morningside Mortgage Corporation on Bay Harbor Islands, Fla. “So they can find the people who have a little money left after their house crashed and take it away from them?”
A Fannie Mae spokeswoman said that the goal of the new punitive policies was to force defaulting homeowners to work with their servicers to surrender their houses through either a lender-approved short sale or by formally giving up the deed.
“We really want to encourage borrowers to pursue alternatives to foreclosure,” said the spokeswoman, Janis Smith.
Fannie’s newly aggressive stance comes as the debate is heating up over how much, if at all, borrowers should be held liable for their foreclosures.
Republicans recently added a measure to a Federal Housing Administration financing bill in the House of Representatives that would forbid strategic defaulters from getting an F.H.A.-insured loan.
The California Legislature is debating a proposed law that goes in the other direction, shielding many more delinquent borrowers from debt collectors.
Fannie and its sister company, Freddie Mac, control 30 million mortgages, providing liquidity to the housing market. They have been under government conservatorship since September 2008; the ultimate cost of the rescue to taxpayers might hit $400 billion.
Chris Dickerson of the Federal Housing Finance Agency, which regulates Fannie, said, “We support Fannie Mae taking a policy position that discourages borrowers who can afford to pay their mortgage from walking away.”
Fannie Mae will announce the details of its new program next month, when the servicers who collect mortgage payments on Fannie’s loans will get explicit instructions on how to make recommendations for lawsuits.
But for some in the mortgage business, the new direction seemed little more than a cruel joke.
“Fannie wants to lock people up in a jail of negative net worth for much of the rest of their lives,” said Lou Barnes, a Colorado mortgage banker. “They’re bringing back the debtor’s prison.”
The plan poses some political problems as well as practical ones. Fannie Mae might be a ward of the government but its new policy is at distinct odds with the Obama administration, which has been trying to restart the fragile housing market by lowering interest rates, offering tax credits and insuring millions of new loans.
A Treasury Department spokesman said Fannie Mae’s plan did not represent official Obama administration policy. A spokesman for Freddie Mac said it was closely following Fannie’s moves but had not yet adopted them.
Strategic defaults have been a rising concern for years. Lenders first noticed people purposefully ditching their houses early in the financial crisis. In late 2007, Kenneth D. Lewis, then chief executive of Bank of America, said people were remaining current on their credit cards but defaulting on their home loans, a phenomenon that he said “astonished” him.
The lenders are less surprised now, but perhaps more worried. Bank of America said recently that it was putting owners in danger of foreclosure into payment plans that were supposed to be affordable — but that a third of the borrowers were failing to pay anyway.
“You could say the customer is choosing not to make those payments,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans.
Borrowers who stop paying the mortgage can get a year of free rent, and sometimes two. “There is a huge incentive for customers to walk away,” Mr. Schakett said in a recent media briefing.
Fannie is not saying how many of its borrowers are strategically defaulting. The firm’s delinquency rate, traditionally about 0.5 percent of its portfolio, began sharply ascending in mid-2007. At the beginning of this year, it leveled off at 5.5 percent.
About a quarter of homeowners with mortgages, or about 11 million households, owe more than their home is worth, and are potentially vulnerable to a strategic default. A flat or rising real estate market could encourage many of them to hold on; a declining market would suggest it was time to go.
Fannie was established as a federal agency in 1938 but was chartered by Congress as a private company in 1968. For years it prospered by virtue of its special status as a government-sponsored entity charged with increasing the nation’s homeownership rate, enriching its shareholders and executives in the process.
During the housing boom Fannie overreached and bought many loans of buyers who were ill-equipped to pay them. Its fate is uncertain; it is not even clear it will be around in seven years to enforce any edicts.
Christopher F. Thornberg, a principal at Beacon Economics who correctly forecast that the housing boom would implode, said he understood what Fannie was trying to do, and even sympathized to a degree.
It is rational economics, he said, to assume that someone who walked away from an unpaid mortgage once might do so again. It also made sense, he said, for Fannie to try to limit strategic defaults from becoming an even bigger problem. And the new program also addresses the moral hazard question, Mr. Thornberg said: If borrowers are not punished for their missteps, they might not learn their lesson and might do it again.
And yet, he noted, the banks were bailed out, and their executives walked away rich. “Why should I pay my dues when they did not?” he said. “There is no clean answer on this.”
Once more they are going after the WRONG PARTY and they KNOW IT!
Fannie and Freddie were responsible for so much of this meltdown – and now we have to listen to their ranting and thuggery. Is there a hole deep enough for these guys?
They are so angry because their precious RMBS trusts are being exposed as schemes to loot pension funds, and that will make it harder to sell the next batch of poison they are cooking up.
First Posted: 06-23-10 11:03 PM | Updated: 06-23-10 11:28 PM
Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday.
A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.
About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won’t return to positive equity until late 2015 or early 2016.
And Fannie Mae, an arm of the federal government and a big part of the Obama administration’s housing policy, wants to make sure that if struggling families walk away, they suffer for it.
Homeowners who strategically default or did not work “in good faith” to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years. The firm said it will also pursue homeowners in court, seeking so-called “deficiency judgments” to recoup outstanding debt by seizing borrowers’ other assets. Thirty-nine states do not limit the ability of lenders to recover what they’re owed.
Fannie Mae said that next month the firm “will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.”
“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” Terence Edwards, Fannie’s executive vice president for credit portfolio management, said in a statement.
Strategic defaults among homeowners have been on the rise. More than a million homeowners went that route last year, nearly double the amount in 2008 and more than four times the level in 2007, according to a recent analysis by the credit reporting company Experian and Oliver Wyman, a management consulting firm. A study by a team of academics from the University of Chicago and Northwestern University estimated that nearly a third of home mortgage defaults in March were strategic. The deeper underwater homeowners are, the more likely they are to walk away from their mortgage, the researchers noted.
Earlier this month, the House of Representatives passed a bill barring strategic defaulters from obtaining home mortgages backed by the Federal Housing Administration. The agency guarantees nearly one in four new mortgages.
“I can’t help but notice that every group now frantically calling for tough penalties for homeowners who walk away was virulently opposed to judicial modification of mortgages in bankruptcy,” Rep. Brad Miller, a North Carolina Democrat, told the Huffington Post.
Bank of America and Citigroup, the nation’s largest and third-largest banks by assets, respectively, support changing existing law to give federal judges the power to modify mortgages in bankruptcy, otherwise known as “cramdown.” Proponents argue that if homeowners were able to modify their mortgages in bankruptcy, the number of strategic defaults would substantially decrease, if not nosedive.
About 3 million homes will receive foreclosure notices this year, real estate research firm RealtyTrac estimates. More than 1 million will be repossessed by lenders, adding to the nearly 2.2 million homes that lenders took over from 2007 to 2009.
Fannie Mae and its sister firm Freddie Mac guarantee nearly three out of every four new mortgages, according to leading industry publication Inside Mortgage Finance. The two firms control about $5.5 trillion in home mortgages, according to their federal regulator. That’s nearly half of all outstanding mortgage debt in the U.S. Their share of the mortgage market is nearly double what it was 20 years ago.
Because Fannie controls such a large portion of new mortgage issuance, the freezing out of homeowners for seven years could prove devastating.
Brent T. White, a law professor at the University of Arizona, recently wrote in an academic paper that most homeowners can recover from a foreclosure within two years. In fact, defaulting on a mortgage is not as bad as most people think, White notes.
“Lenders are unlikely to pursue a deficiency judgment even in recourse states because it is economically inefficient to do so; there is no tax liability on ‘forgiven portions’ of home mortgages under current federal tax law in effect until 2012; defaulting on one’s mortgage does not mean that one’s other credit lines will be revoked; and most people can expect to recover from the negative impact of foreclosure on their credit score within two years (and, meanwhile, two years of poor credit need not seriously impact one’s life),” he writes.
There is a “huge financial upside” for seriously underwater homeowners to strategically default on their mortgages, White said.
While it’s still taboo among most homeowners, it’s common behavior among corporations.
In December, Morgan Stanley, the nation’s sixth-biggest bank by assets, walked away from five San Francisco office buildings the $820-billion firm purchased as part of a landmark $2.43-billion deal near the height of the real estate boom. A group led by Tishman Speyer Properties gave up a 56-building apartment complex in Manhattan in January after defaulting on some $4.4 billion in debt. A spokesman for the California Public Employees’ Retirement System, the nation’s biggest municipal pension fund and one of several investors in the venture, told the Huffington Post that they “basically walked away from it.”
Fannie was effectively nationalized in September 2008. Taxpayers own 79.9 percent of Fannie and Freddie. The Obama administration announced on Christmas Eve that it would provide unlimited financial assistance to the firms, disregarding what was a $400 billion cap on taxpayer bailouts. Their debt is backed by the U.S. government.
The two firms, facing growing losses on sour mortgages in perhaps a worsening housing market, have already taken $145 billion from taxpayers. Fannie Mae is responsible for $83.6 billion of that bailout.
Freddie Mac did not say it would take a similar position on strategic defaulters.
“Such so-called strategic defaults, once rare, are now common enough to jeopardize the already-weak housing and mortgage markets,” wrote economists Celia Chen and Cristian deRitis of Moody’s Economy.com in an April 13 note. “If the trend continues, strategic defaults could both accelerate the pace of home foreclosures and also make it harder for new borrowers to obtain mortgages. Both factors would in turn worsen the decline in house prices.”
JPMorgan Chase, the nation’s second-largest bank by assets with more than $2.1 trillion, warmed investors last month that underwater homeowners may not continue to make their payments even when they’re able to, according to a May 10 filing with the Securities and Exchange Commission.
A top executive at Freddie Mac posted a note on the firm’s website pleading with homeowners to not intentionally walk away from their homes.
“Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy,” Freddie Executive Vice President Don Bisenius argued in a May 3 note.
The firm warned investors and analysts about the risk of increased strategic defaults in March 2008. Referring to it as “ruthlessness,” Dick Syron, Freddie’s former chairman and CEO, said the firm was “seeing an increase in ruthlessness” that had “the potential for changing consumer behavior.”
Fannie Mae said Wednesday that borrowers who have “extenuating circumstances may be eligible for new loan in a shorter timeframe” than the seven-year period it’s warning about.
Republicans in the House recently tried to rein in the twin mortgage giants. Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, attempted Wednesday to amend the financial reform bill under consideration by the House and Senate to mandate that the federal government appoint an inspector general to oversee Fannie and Freddie. The mortgage behemoths’ federal regulator has been operating without an independent watchdog looking over it and Fannie and Freddie since 2008.
Republicans have also tried to amend the bill to subject Fannie and Freddie to the Freedom of Information Act so members of the public can keep tabs on the firms by compelling the disclosure of documents and records.
Both efforts were thwarted by House Financial Services Committee Chairman Barney Frank (D-Mass.), who ruled that they were not “germane” to the legislation under consideration.
Emails sent after normal business hours to spokesmen for the White House and Treasury Department requesting comment were not returned.
Ryan Grim contributed reporting. THE HUFFINGTON POST
Updated: Monday, 17 May 2010, 7:40 AM CDT
Published : Monday, 17 May 2010, 7:40 AM CDT
ALEXANDER SUPGUL MyFoxHouston
Web Producer
HOUSTON – Homicide investigators say a northwest Houston home under foreclosure apparently led the struggling residents to take their own lives.
Police arrived at approximately 11 p.m. Sunday to the home on Arncliffe Drive near Antoine Drive and found a married couple shot to death.
The couple left notes that indicated the shootings were suicides and a result of financial difficulties including the foreclosure of their home.
Investigators say the couple were found on their bed with the suicide notes alongside of them.
Because investigators say their corpses were decaying for more than one month, the stench of their bodies could be smelled across the street. The smell apparently alarmed a neighbor enough to contact police.
“Shitty Shitty Bank Bank” – A Financial Collapse Parody From [STANION STUDIOS] Bait and Switch TV: Investigative Satire (Episode/Show 2) GREAT BALLS OF FIRE – THE FEDERAL RESERVE & BANKING IN AMERICA www.baitandswitchtv.com A new internet TV channel about CONTROVERSY
Center for Media and Democracy and www.BanksterUSA.org
Posted: March 28, 2010 09:43 AM
My recollection is a bit hazy. How does one kill a zombie exactly? Do you stake it? Cut off its head? Nationalize it? Perhaps it’s time to ask the experts at Bloomberg News.
Lost in the haze of the hoopla surrounding the insurance reform bill was some big news on the financial reform front. On March 19, Bloomberg won its lawsuit against the Federal Reserve for information that could expose which “too big to fail” banks in the United States are walking zombies and which banks were merely rotting.
Bloomberg, which has done some of the best reporting on the financial crisis, is also leading the charge on the fight for transparency at the Federal Reserve and in the financial sector. While many policymakers and reporters were focusing their attention on the $700 billion Troubled Asset Relief Program (TARP) bailout bill passed by Congress, Bloomberg was one of the first to notice that the TARP program was small change compared to the estimated $2-3 trillion flowing out the back door of the Federal Reserve to prop up the financial system in the early months of the crisis.
Way back in November 2008, Bloomberg filed a Freedom of Information Act request asking the Fed what institutions were receiving the money, how much, and what collateral was being posted for these loans. Their basic argument: when trillions in taxpayer money is being loaned out to shaky institutions, don’t the taxpayers deserve to know their chances of being paid back?
Not according to the Fed. The Fed declined to respond, forcing Bloomberg to sue in Federal Court. In August of 2009, Bloomberg won the suit. With the backing of the big banks, the Fed appealed , and this month, Bloomberg won again. A three judge appellate panel dismissed the Fed’s arguments that the information was protect “confidential business information” and told the Fed that the public deserved answers.
The Fed is the only institution in the United States that can print money. It can drag this case out as long as it wants, but isn’t it a bid odd that taxpayer dollars are being used to keep information from the taxpayers?
After an unexpectedly rocky confirmation battle, Ben Bernanke kicked off his new term as Fed Chair in February with pledges of openness and transparency. “It is essential that the public have the information it needs to understand and be assured of the integrity of all our operations, including all aspects of our balance sheet and our financial controls,” said Bernanke. President Obama also pledged a new era of transparency when he entered office. What is going on here?
One theory is that Fed is hiding the secret assistance it provided to the financial sector, because it would expose how many Wall Street institutions are truly walking zombies, kept alive by accounting tricks like deferred-tax assets, “a fancy term for pent-up losses that the bank hopes to use later to cut its tax bills,” according to Bloomberg’s Jonathan Wiel. If this is the case, it raises doubts about the wisdom of Congress’ only plan to take care of the “too big to fail” problem by trusting regulators to “resolve” failing banks. If there is no will to resolve them now, why should we think regulators will resolve them in the future?
Another theory is that the Fed is hiding the fact that it broke the law by accepting a boatload of toxic assets as collateral. The law says the Fed is only supposed to take “investment grade” assets as collateral.
In either case, the public deserves answers. “This money does not belong to the Federal Reserve,” Senator Bernie Sanders. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”
The President and the Fed Chairman must live up to their pledges of transparency. They can start by abandoning this lawsuit and opening the doors on the Secrets of the Temple.
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