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Thursday, August 9, 2012

Time to REBEL! 5 Ways We Can Break the Big Banks' Death Grip on the Economy




Wall Street’s incredible greed and arrogance may have finally handed us the tools and leverage we need.
 
Photo Credit: Lily Rothrock via Flickr
 
Let’s be honest. Many people are feeling a little hopeless and cynical about whether anything can change how Wall Street banks run roughshod over the economy and our democracy. We’ve marched, rallied, sat-in and thousands have been arrested--and yet bankers have remained unrepentant, unpunished, unindicted and seemingly untouchable. But the wheels of history are turning and Wall Street’s incredible greed and arrogance may have finally handed us the tools and leverage we need to challenge and break the death grip Wall Street has on struggling people and communities around the country.

Two critical tools--the LIBOR fraud scandal and the potential to start exercising eminent domain to seize bank-owned properties--can supercharge the ongoing campaigns focused on Wall Street. For the first time we can align moral and legal arguments with real leverage to demand that banks renegotiate the debt that is bankrupting communities and drowning homeowners around the country. The single most important step we can take to address local budget deficits is to force banks to renegotiate toxic deals held by local government and to rewrite mortgages for underwater homeowners. Combined, this would pump hundreds of billions into local economies.

First some definitions:

The LIBOR fraud scandal may seem confusing, but it is really pretty simple. Over $800 trillion in loans, derivatives and other financial deals are based on LIBOR (the London Interbank Offered Rate). The banks fixed the rate to increase their profits at our expense and now everyone all over the world is trying to figure out how much it has cost the rest of us.

Whatever the ultimate number is (there are estimates of hundreds of billions in damages), this scandal has permanently torpedoed the notion that there is “moral hazard” in debt relief for regular folks. We can now prove what we’ve always suspected--that the big banks have rigged the game in their favor and that our deals with them are inherently unfair and should be renegotiated. Oakland, California has taken a first step by demanding Goldman Sachs renegotiate a toxic swap the city is trapped in, saying it will boycott Goldman Sachs in the future if the bank won’t renegotiate.

Eminent Domain. Government has long seized property to create room to build shopping malls and stadiums. Those same laws can be used to seize underwater mortgages from banks and then rewrite them at their real value so homeowners can stay in their homes at greatly reduced mortgage costs. If banks are unwilling to reset mortgages at fair market value, then local governments can lawfully seize their property for the common economic good. They would merely have to pay the banks fair market value for the mortgages, which would force the banks to take significant writedowns. San Bernardino County and Berkeley, California have already started down this road.

It is time to REBEL, against Wall Street and the big banks and to start fixing the economy and reclaim our democracy. There are five steps to this:
1. Renegotiate public and housing debt. We need to lift up the demand loud and clear that we want to renegotiate public debt and that it is unfair and illegal to hold local governments and public services hostage to Wall Street’s toxic loans. It is estimated that banks have already sucked more than $50 billion out of local communities through toxic loans, fees and tricky deals that cities are locked into.

2. Exercise eminent domain. There are 16 million underwater homes, worth $2.8 trillion, that are $1.2 trillion underwater. Resetting those mortgages to fair market value would save the average underwater homeowner $543 per month, pumping $104 billion into the national economy every year. This would create 1.5 million jobs nationally.* If just five of the most severely underwater cities used eminent domain they could seize $140 billion worth of underwater homes from banks, forcing banks to take a $30 billion haircut on underwater loans.

3. Boycott big banks and move public money. One of the key profit centers for banks is their government business. And it isn’t just LIBOR they cheated on. There are investigations and growing scandals around price fixing on municipal bonds as well. Furthermore, banks are holding cities hostage on Letters of Credit (LOC’s) by ratcheting up the cost knowing if cities refuse to pay they may be forced to pay huge termination fees. If increasing numbers of cities, pension funds and other holders of public capital chose to boycott certain big banks and moved money out of those banks, it could be a huge financial hit for them.

4. Enact resolutions at local governments and pension funds. There is a simple way to get started that will send chills down Wall Street banks’ spines. Let’s start moving resolutions in cities and counties big and small around the country, demanding that local government and pension funds explore suing banks over LIBOR and prepare to use eminent domain to seize underwater mortgages from banks if they won’t renegotiate debt. This sample resolution is a first step in raising the issue locally and starting to build a campaign to force local governments to hold Wall Street accountable.

5. Litigate and legislate. But it isn’t enough just to pass resolutions--that is only a first step. If the banks refuse to renegotiate the debt than we need to litigate and legislate in our local communities. Our pension funds need to sue to recoup their losses. Local government needs to sue to get out of bad deals and claw back money banks unfairly made off of local taxpayers. And we need to follow the lead of Oakland, Los Angeles and other cities that have passed laws saying they will divest from banks that engage in unfair banking practices.

Since the financial crisis hit in 2008, community groups like National People’s Action, ACCE, New York Communities for Change, the New Bottom Line, the Alliance for a Just Society and Right to the City, to name a few, have joined with unions, Occupy Wall Street, Occupy Our Homes and hundreds of thousands of people who have stood up to Wall Street greed. Wall Street and banking royalty are no longer untouchable. We have the tools and we have the leverage--let's start using them to start winning for our communities and families. It is our responsibility to REBEL. All of our futures depend on it!

*These figures represent updated estimates from last year's report, The Win-Win Solution, from the New Bottom Line, which investigated the effects on the economy of writing down all underwater mortgages to current market value.  
 
Stephen Lerner is a labor and community organizer and the architect of the Justice for Janitors campaign.

Monday, August 6, 2012

Very Bad Things Happen When We Depend on the Same People Who Caused the Foreclosure Crisis to Track Its Destruction




Investigations  

There is not a single federal agency that has tracked foreclosures comprehensively, a massive information gap that prevents the work of journalists, advocates and policymakers alike.

 
 
 
 
It’s a simple set of questions: “How many foreclosed properties are there in the country? What zip codes are they in? What factors sent people’s homes underwater?” For policy makers, journalists or anyone trying to size up or address the years-old housing crisis, these questions present the natural place to start. But their answers don’t quite exist.
In Chicago, for example, the city’s official vacant property count, which relies on the banks’ reporting, hovers just under 5,000. The Chicago Tribune estimates 18,000. Housing activists say there are well over 100,000.   
 
Vacant homes in Chicago are so destructive to their neighborhoods and wider communities—dragging down property values, preventing the stabilization of markets and becoming havens for violent crime—that Mayor Emanuel recently announced that the city would spend $4 million finding and demolishing just 200 foreclosed properties.
 
Foreclosures are happening en masse all over the country, and Chicago is not unique in having absolutely no comprehensive list of in-progress or completed foreclosure properties, hampering any attempts to rehabilitate vacant homes or aid people being hit by the crisis.
 
Nationally, there is not a single federal agency that has taken the initiative to track foreclosures comprehensively, a massive information gap that prevents the work of journalists, advocates and policymakers alike. 
 
The government is instead relying on the expensive, potentially biased and seemingly inaccurate information amassed by mortgage bankers, real estate hawks and credit reporting agencies. How this happened is a story of congressional warnings and broken promises, of lack of funding, and ultimately, the increasing dependence on the for-profit sector to quantify and analyze our lives. In this sense, it’s not only a story of the government’s failure, but also of Wall Street’s almost unquestioned power to determine not only value, but reality itself. 
 
The story begins in March 2009, near the peak of the foreclosure crisis, when the government admitted that it was being blindsided.
 
"The failure of federal banking and housing regulatory agencies to gather and analyze quality market intelligence is striking,” the Congressional Oversight Panel reported. “Absent more complete and accurate information, legislators, regulators, and market participants are flying blind."
 
At this point, the government was still scrambling to collect information about how the crisis had happened in the first place and relying on for-profit information providers; companies such as RealtyTrac and industry insiders like Mortgage Bankers Association of America. For the public, that meant it was nearly impossible to access information about the housing crisis without pulling out a credit card, since the majority of these third-party providers charge high fees for their information and withhold their raw data, precluding any public accountability.
 
“Housing data in general is a huge problem,” says Bill McBride, who writes the blog Calculated Risk. 
 
For one thing: none of the available sources match up, making it impossible to aggregate the data into a comprehensive set or to make comparisons across different databases. 
 
A piece McBride posted in March quoted one company’s estimate of 91,000 January foreclosures along with another company’s estimate of 71,000 for the same month, exemplifying the information gap.
 
“Centralized data on foreclosures would help,” McBride says, “but that would just be a start. I was hoping we’d see a new emphasis on housing data following the housing bubble, but it hasn’t happened.”
 
Richard Neiman, a member of the Congressional Oversight Panel, stated the problem explicitly in 2010: “Improved intelligence on the mortgage market is critical to preventing future crises… Currently, Congress, banking regulators, consumer advocates, and other policymakers are left with incomplete or unreliable data purchased from third-party vendors or with limited data provided voluntarily by the industry.”
 
Part of the Dodd-Frank Act, signed almost exactly two years ago, mandated the creation and maintenance of a foreclosure database. But the project seems not to have started in any meaningful way.
 
“Currently, HUD lacks the funding necessary to create the database and lacks the statutory authority to compel reporting to HUD of information necessary to compile the data,” said Lemar Wooley of HUD. “Congress has not appropriated funds for this project.”
 
A spokeswoman for the new Consumer Financial Protection Bureau could not report any updates on the foreclosure database mandated two years ago, which came with no legislated deadline.
 
Meanwhile, the government’s vision of the foreclosure crisis might be on the verge of going even blinder. The House of Representatives recently voted to end the American Community Survey, used by the Census to help the federal government decide how to distribute some $450 billion per year in funding. 
 
Rather than holding predatory mortgage lenders and industry actors accountable, the House legislative response to budget shortfalls -- exacerbated by the economic collapse caused by Wall Street and the government’s inability to regulate it -- was to turn to that same private sector to measure that very sector’s failure.
 
The majority of what foreclosure data is available comes from private vendors, many of which stand to profit from foreclosures and some of which, the facts suggest, may have engaged in practices that contributed to the housing crisis in the first place. These include Realtytrac, which calls itself “the leading online marketplace of foreclosure properties,” Lender Processing Services, CoreLogic, and the Mortgage Bankers Association of America.
 
Several agencies recently took enforcement actions against Lender Processing Services, which provides HUD with mortgage delinquency rates. A standing cease-and-desist order remains in effect by the Federal Reserve, the FDIC and other agencies against LPS since April 13, 2011, for, among other things, "executing assignments of mortgages containing inaccurate information”—probably not a quality one looks for in their data provider. Two months ago, the Federal Housing Administration publicly questioned an LPS report showing 63,000 April foreclosures when FHA’s data showed 19,000. A HUD staffer who spoke on the condition of anonymity said LPS sells the agency information covering about 80 percent of the market for around $300,000 each year.
 
RealtyTrac, used by the likes of National Public Radio, HUD and even people testifying to the House of Representatives on behalf of homeowners, has received a series of complaints for defrauding customers and providing inaccurate data.
 
Another popular source of information is the HOPE Now Alliance, a group of lenders representing about two thirds of outstanding mortgages in the United States. In 2008 the group said they had helped one million homeowners save their homes; the Office of the Comptroller of Currency said that HOPE had vastly overstated their work and helped less than 200,000. Given the lack of an authoritative housing information database, experts simply threw up their hands at the discrepancy.
 
Nationally, homeowners continue to suffer an average of 40,000 foreclosures every month (or so the industry says), and accurate information is necessary for states to allocate the aid from the recent $26 million settlement to underwater homeowners. Meanwhile, urban planners and local governments are struggling to save hard-hit neighborhoods without having comprehensive pictures of the problem.
 
“It’s like this secret they just don’t want you to know about,” said Kathryn Clark, a former urban planner and artist who was so astonished by the lack of foreclosure data that she has begun mapping the foreclosures onto quilts in order to represent the crisis. “It’s crazy what you have to pay to access it. It’s frustrating. It’s shocking. It amazes me.”
 
Citizens used to be able to look to the USPS Administrative Data On Address Vacancies, made available through HUD for vacancy data; however, USPS and HUD decided to renegotiate their data sharing agreement -- right in the middle of the housing crisis -- and as a result, now only allow official governmental entities and non-profit organizations to access the data.  
 
“I think it would be good if the government itself could actually collect loan performance data,” said the HUD staffer. He said he has hope that a Dodd-Frank regulation requiring the use of universal loan identifiers will make it easier to merge databases and create a clearer picture of the crisis. The CFPB is currently writing rules for this tool, but the enforcement mechanism is unclear.
 
More than simply helping us to cope with the crisis, accurate housing information is necessary if we are to avoid another bubble.
 
The HUD staffer explained that predicting housing bubbles relies on the government knowing whether homes are being purchased for immediate residential purposes or for future, speculative profits. By 2005, for example, nearly 30% of all houses were being purchased as unused investments, not homes. Had the government known that, perhaps it could have predicted the spectacular collapse only three years later.
 
At this rate, the government won’t be able to predict the next time, either.
 
“To get a handle on when growth in prices in a housing market is not due to actual demand for housing to be lived in, or supported by growing incomes – that’s the hard thing to detect,” said the HUD staffer. “And that’s kind of the definition of a bubble.”
 
 Sam Jewler and Chris Herwig are two Occupy activists and journalists in based in Washington, DC.

Friday, August 3, 2012

"F" The Bureaucracy! The White House Can Help Homeowners Right Now


 


August 2, 2012 at 17:41:47

"F" The Bureaucracy! The White House Can Help Homeowners Right Now

By (about the author)





A recent study showed that more homes are underwater than originally believed. Roughly 16 million borrowers owe the banks $1.2 trillion (with a "t") for real estate value value that no longer exists. We did some projections from that date to come up with the full scope of the problem and found that more than 40 million people live in those homes, with total mortgages outstanding of roughly $4.8 trillion.

Major principal reduction would reduce the monthly burden for millions of families. It would free up tens of billions of dollars -- or hundreds of billions -- reducing monthly payments substantially. Struggling households would then spend most of that money for things other than the unjust enrichment of wealthy bankers -- consumer goods and services, mostly.

A broad principal relief plan would be the equivalent of a massive stimulus program, one that could create millions of jobs and help jump-start economic growth. And it would do it without costing the Federal government a cent.

Stop That Bureaucrat!

The Administration's actions for struggling homeowners have generally run the gamut from ineffectual or inept to downright cynical. Now the White House says it wants to do more, but there's a problem: Edward DeMarco. DeMarco's the Acting Director of the FHFA, the agency which took control of government-backed lenders Fannie Mae and Freddie Mac after their bipartisan-backed "privatization" led to an orgy of executive greed and incompetence.

Whether out of ideology or bank coziness, DeMarco has refused every entreaty for principal from detailed economic analyses to heartfelt moral appeals. As Paul Krugman notes today in a post called "Fire Ed DeMarco," DeMarco's latest move is outrageous. He's gone well beyond his agency's mandate to justify his inaction. As Krugman says, "deciding whether debt relief is a good policy for the nation as a whole is not DeMarco's job."

DeMarco's now the Administration's target of choice, with Tim Geithner playing the "good cop" role. "I urge you to reconsider this decision," Geithner wrote to DeMarco in genteel public memo whose mildness brought to mind Groucho Marx's remark to a gangster who was about to kill him:

"I'm not in the habit of making threats, Sir, but there'll be a letter about this in the Times tomorrow morning!"

Bizarro Jimmy Stewart?

Can one bureaucrat's intransigence stymy an entire Administration? If so then DeMarco's the Bizarro World version of Jimmy Stewart in Mr. Smith Goes to Washington, tie askew and sweat pouring down his brow, staging a one-man holding action against decent government.

The so-called "independence" of regulators is a complex topic for another day. What that usually means is that agencies become captive to the industries they regulate, leaving them "independent" only from the public that created them. But some doubt the whole story and say DeMarco's merely a foil.

Yves Smith says "Obama has never been serious about helping homeowners," and nothing in his Administration's performance refutes that. "DeMarco knows he won't be fired," writes David Dayen. "He's become the symbol in the story, and the Administration is much more interested in symbolism when it comes to housing."

Paul Krugman, on the other hand, argues that while "the uncomfortable truth... is that the administration -- and Tim Geithner in particular -- seemed indifferent or even hostile to debt relief for a long time."

"That was a big mistake," adds Krugman. "But it's also in the past, and the administration has now seen the light."

So who's right ? The only one way we'll ever know one way or the other is if the Administration does something meaningful about principal reduction.


Quit "F"-ing Around

It can certainly do a lot more than write scolding letters. First, the President can fire DeMarco. Actually he doesn't even need to fire him, since he's only an Acting Director. He can simply make a recess appointment. The President might even be able to fire DeMarco for cause: DeMarco has willfully neglected a number of his agencies' responsibilities, which are clearly laid out on Fannie Mae's website and include "Reduce the number of foreclosures" and "Help families keep their homes."

Fire him for cause, Mr. President, and let the "CEO Candidate" try to tell the people why you shouldn't. Then turn your attention toward all underwater homeowners, not just those who would be helped by current proposals for FHFA-centered delinquent borrower programs.

That means addressing HAMP, the Administration's cynically-nicknamed "extend and pretend" program, so it provides relief to more homeowners and no longer allows banks to manipulate, mislead, and provide usurious rates to their victims.
The White House can work with the Consumer Financial Protection Bureau or another appropriate agency to implement an aggressive "name and shame" policy toward banks that continue to rip off their customers, either through HAMP or independently.
The Administration must also shift the focus of its debt relief efforts away from delinquent borrowers and begin promoting broader solutions aimed at the wide universe of underwater homeowners. One of DeMarco's few legitimate criticisms of White House policy hinges on the fact that homeowners reap benefits from falling behind on their payments, which could encourage more of them to do the same.

That's true. it also feeds into popularly-held biases against principal reduction, and discriminates against those who have kept up with their payments. Helping delinquent homeowners is arguably another way of helping banks in the guise of helping ordinary people, whereas broader relief might force the banks to step up.

Which leads to another important job for the President, one that doesn't require the approval of any "F"-in' bureaucrat: He can make the moral case for America's homeowners in a clear, strong voice. So far he hasn't done that -- partly because some key members of his team buy into the unfair notion that underwater homeowners, unlike Wall Street bankers, don't deserve to be helped.

The Undeserving

You can skip this section if you like, but it might be worth a quick refresher course on how we got here: A home is "underwater" when the borrower owes more than the house is worth on today's market.

How did that happen to so many people? Banks knowingly pushed home loans on people who couldn't afford the "balloon" payments hidden in the fine print. Other borrowers were suckered by deceptive techniques that ranged from general proclamations ("a home is your best investment") to individual scams (i.e., using crooked adjusters to inflate the home's values, burying unaffordable provisions in massive and unreadable loan documents, encouraging the falsification of loan documents).

The banks then packaged these junk loans into "mortgage-backed securities," often fraudulently misrepresenting them as higher-grade investments. Then they made massive profits from the ensuing bubble in housing value -- a bubble which, given their legions of paid economists and analysts, they should have would collapse. Instead they kept loosening their standards, writing riskier and risker loans, bundling more and more loans into deceptive securities -- and collecting bigger and bigger bonuses.

When the entire edifice came crashing down, the banks took trillions in loan relief in a way that amounted to billions in outright gifts from the taxpayer. They then entered into a massive wave of foreclosure fraud to evict those same borrowers from their homes -- fraud which included mass perjury, forgery, and other crimes. The executives who had supervised this entire process all kept their jobs -- and their bonuses.

But when it came time to offer principal reduction to their victims -- the chance to reduce the amount owed to something closer to market value -- they and their Washington friends cried that this assistance, which would provide great relief from the damage they inflicted on the economy, would be "unfair."

The billionaire bankers and those who rescued them even said -- get this -- that asking them to adjust these debts would "reward the undeserving."

Brought To You by the Letter "F"

So there's something else the President can do without Edward DeMarco's permission, and its importance shouldn't be minimized: He can clearly and forcefully explain the massive injustice that's been done to these homeowners. (See our "Moral Hazard Scorecard" for more details.)

The President can demand justice. He can tell Wall Street he'll do everything in his power to restore justice -- and we mean everything. Many people remember Franklin D. Roosevelt's heated war of words with Wall Street. ("I welcome their hatred!") Far fewer recall how bankers stung by FDR's rhetoric and fearful of public rejection voluntarily pledged to do more -- and did. Rhetoric matters.
With or without Edward DeMarco, the White House can take concrete steps to help homeowners -- and it can use the President's "bully pulpit" to fight back against the bullies. The only way homeowners will know that the
Administration's doing something for them is when it does something -- really does something.

If the President and his team move aggressively on principal reduction, their actions won't just help underwater homeowners: they'll also help the whole economy. That could prevent the President and his party from getting the grade that all politicians dread at election time -- an "F."

So there's something else the President can do without Edward DeMarco's permission, and its importance shouldn't be minimized: He can clearly and forcefully explain the massive injustice that's been done to these homeowners. (See our "Moral Hazard Scorecard" for more details.)

The President can demand justice. He can tell Wall Street he'll do everything in his power to restore justice -- and we mean everything. Many people remember Franklin D. Roosevelt's heated war of words with Wall Street. ("I welcome their hatred!") Far fewer recall how bankers stung by FDR's rhetoric and fearful of public rejection voluntarily pledged to do more -- and did. Rhetoric matters.
With or without Edward DeMarco, the White House can take concrete steps to help homeowners -- and it can use the President's "bully pulpit" to fight back against the bullies. The only way homeowners will know that the Administration's doing something for them is when it does something -- really does something.

If the President and his team move aggressively on principal reduction, their actions won't just help underwater homeowners: they'll also help the whole economy. That could prevent the President and his party from getting the grade that all politicians dread at election time -- an "F."



http://www.huffingtonpost.com/rj-eskow/the-dumbest-bipartisa

Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future 
The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.

http://www.huffingtonpost.com/rj-eskow/the-dumbest-bipartisa

Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future