The Housing Bubble

A follow-up to my 3/17 post(s):
 
First, thanks to the HBB community for the many kind messages of support.  I’ll soon be boarding my plane in Osaka and coming home from Japan. I’ll leave here emotionally healthier and spiritually richer from my experience. That’s a direct causal result of what the Japanese people showed me here. Can it be that healthy societies are as contagious as unhealthy ones?
 
And if so, then may I add one last observation from this trip - in Japan there’s no such thing as, “…this is pointless and I’m tired so I quit.” I guess that means I’ve got to keep trying to make ours a healthy one.  Anyway, for some reason, I can’t seem to get this song out my head:
 
   All my bags are packed I’m ready to go I’m standing here outside your door I hate to wake you up to say goodbye.
But the dawn is breaking it’s early morn’
The taxi’s waiting, he’s blowin’ his horn Already I’m so lonesome, I could cry So kiss me and smile for me Tell me that you’ll wait for me Hold me like you’ll never let me go I’m leaving on a jet plane I don’t know when I’ll be back again Oh babe I hate to go …
 

MikeinBend had a question yesterday about tax liability on a foreclosure.

Here is the info:

“Another problem with mortgage foreclosure is possible income tax consequences. The general rule is that when a lender forgives or cancels a debt the borrower can incur income tax on the amount of debt forgiveness. When you arrange a discount in your mortgage in order to sell house (a so-called “short sale”) the mortgage lender will cancel part of your mortgage debt and you will receive a tax form 1099 telling the IRS that you have imputed income for the amount of debt reduction. You will also incur income tax liability for a deed in lieu of foreclosure. The taxable income will be the difference between the property value and the balance of the mortgage loan on the date you surrender the property to the bank.

For those borrowers who do not qualify for protection of the new Act there is an insolvency exception to imputed income from the cancellation of mortgage debt. If a borrower is financially insolvent when he surrenders the mortgaged property to the lender voluntarily or through foreclosure there will be no imputed income. A borrower who files bankruptcy is presumed to be insolvent, so that a bankruptcy debtor cannot suffer imputed income tax liability because the bankruptcy discharges personal liability under a mortgage note. More information is available from IRS Publication 908 and IRS tax form 982. Both forms can be found at irs.gov.”

http://www.alperlaw.com/mortgage_fcdef.html

You guys will love this: one of the schools I work at just hired a math teacher… who… was… a… Wall Street banker.

The great housing reset

The housing bust left many things in its wake, but some of the most troubling detritus are the “zombie” and obsolete subdivisions sprawled across peripheral areas - approved and platted, some partially built but most just lots, unimproved roads and the occasional lone lamppost - all over the country but particularly prevalent in the South and Intermountain West.

Many developers rushed for entitlements in the real estate run-up to 2007, said Jim Holway, executive director of Western Lands and Communities, a joint venture of the Sonoran Instituteand the Lincoln Institute, speaking on the panel “Reshaping Development Patterns” at the New Partners for Smart Growth conference in Charlotte. The planned developments are typically in far-flung locations, make it difficult for others to get permitting in better locations, and lock in water allocations. Much of the land wouldn’t be developed for 5 or 10 years under the best of circumstances, let alone amid the plummeting demand.

The zombie subdivisions “are never going to move,” said Kathy Rinaldi, county commissioner for Teton County, Idaho, where nearly 5,000 homes and lots lie fallow in over 36 approved, unbuilt, and incomplete subdivisions across thousands of acres of environmentally valuable land. Some developers are changing their schemes to create more density and open space, but others, including a development around a golf course where the topsoil has been scraped for fairways, simply hope and wait for the market to come back. In the meantime, property tax collections are down over 80 percent, there are $250 million in foreclosures in the works, and the local paper is thick with legal notices reflecting extensive litigation. The county would like to figure out how to “incentivize replatting,” Rinaldi said. Public sentiment generally favors respect for property rights, though some want to see the subdivision developers’ entitlements revoked.

http://www.expertclick.com/NewsReleaseWire/Lincoln_House_February_2011_Newsletter_Lincoln_Institute_of_Land_Policy,201135341.aspx

Unrelated to housing, I couldn’t help but notice that the US is shooting missiles into Libya, with the approval of our “Nobel Peace Prize” President, who is now overseeing 3 wars (I mean conflicts), after promising from “day one” to close Guantanimo and focus on Jobs “like a laser”. It’s refreshing to see that there is no military intervention that the Peace President isn’t willing to interject US troops into. And, of course, I am sure we will get a Rose Garden photo op interview explaining how all this fits in well with the “stimulus” programs. Amazing. Just amazing.

If Megabank, Inc can succeed politically with Republican-led efforts to gut funding of federal government operations, perhaps they can protect themselves from the rule of law which menaces their outlaw activities.

FBI chief defends mortgage fraud efforts

Related News
* Geithner seeks swift foreclosure pact with banks Tue, Mar 15 2011
* Rajaratnam defense attacks star U.S. trial witness
Tue, Mar 15 2011
* Affairs, tapes, bonus spill into Rajaratnam trial
Mon, Mar 14 2011
* Renault says sorry to execs over false spy claims
Mon, Mar 14 2011
* Analysis: Mortgage settlement proposal likely doomed
Fri, Mar 11 2011

Analysis & Opinion
* U.S. budget cut seen threatening state, local financial crime-fighting
* Home market isn’t on rebound yet

Wed Mar 16, 2011 3:14pm EDT
* FBI director says 3,000 mortgage fraud cases pending
* More than 55 probes into subprime mortgage industry-FBI
By Jeremy Pelofsky

WASHINGTON, March 16 (Reuters) - FBI Director Robert Mueller defended on Wednesday the Obama administration’s efforts to prosecute Wall Street executives responsible for the U.S. mortgage meltdown amid criticism from some lawmakers that not enough has been done.

The agency has more than 3,000 open investigations into mortgage fraud alone, with 94 task forces and some 340 agents assigned, Mueller told the House of Representatives’ Judiciary Committee.

Michigan Representative John Conyers, the committee’s top Democrat, questioned whether the FBI was responsible for the lack of prosecutions related to financial and mortgage fraud and if anyone has been held responsible for the meltdown.

“I would have to strongly disagree with that portrayal of our efforts,” Mueller said. “We have had takedowns about every six months, persons arrested for mortgage fraud, securities fraud, corporate fraud. There are ongoing trials in that arena.”
…

MARCH 19, 2011
OBAMA: ‘Today we are part of a broad coalition. We are answering the calls of a threatened people. And we are acting in the interests of the United States and the world’…

MARCH 19, 2003
BUSH: ‘American and coalition forces are in the early stages of military operations to disarm Iraq, to free its people and to defend the world from grave danger’…

Was the behavior merely shabby, or was it actually illegal? Hopefully those who work inside the Beltway realize there is a difference.

Lots of these charges sound to me like illegal financial fraud (especially encouraging debtors to stop making payments, then foreclosing on them because they stopped making payments), but I don’t claim to be an expert on what kinds of financial fraud are legal and what kinds are not.

Attorneys general try to rein in lenders’ shabby behavior on modifications
By Kenneth R. Harney, Friday, March 18, 7:20 PM

When you take out a home mortgage, do you expect to be treated fairly and competently by your bank or loan servicer?

Most likely you do. But the widely publicized “robo-signing” and foreclosure scandals suggest that for thousands of homeowners, fair dealing and competence have not been routinely available at some of the largest mortgage servicing operations in the country.

According to witnesses at recent congressional hearings:

* Borrowers with on-time payment histories who sought loan modifications frequently were told they needed to stop payments for two to three months before they would be eligible to even discuss possible changes to their loan terms. When they applied for modifications, they were sent foreclosure notices because they were in default.

* Major lenders and servicers often put borrowers on a “dual track” system — negotiating loan modifications and trial payment plans under federal programs while simultaneously initiating foreclosure procedures.
…

Had to go to a dinner last evening with my wife. She intro’d me to a banker (small/local) and it didn’t take long to turn the topic to the current state of affairs (housing/banking).
One thing of interest to me was FDIC insurance. Banks and thrifts must pay premiums for FDIC insurance coverage, and their monies collected by the agency are invested in Treasury Department securities. The combination of mandatory premium payments and profits earned on the securities investments goes into the FDIC insurance fund. However, according to my source the banks only pay premiums on domestic accounts which for small banks is 100%. BofA on the other hand supposedly only holds about 27% domestic accounts and only pays premiums on those accounts and thus has a hugh liability hanging on the remaining balances if this too-big-to-fail bank were to go under. This one bank failure to virtually wipe out FDIC.

‘The lender that financed Orange County Choppers’ new headquarters in the Town of Newburgh has filed a foreclosure action against the builder of custom motorcycles, alleging that it missed its July mortgage payments…The Choppers stopped making mortgage payments in order to put pressure on the lender to modify the terms of the loans, according to Choppers’ lawyer Richard Mahon. Mahon said that when the headquarters was built in 2007, it was valued at about $12 million. Because of the economic downturn, the building is now worth between $7 million and $8 million, he estimated.’

‘He also said that it would be wrong to assume that Paul Teutul Sr. is broke because of his company’s failure to pay. “Orange County Choppers and Paul have substantial assets,” he said.’

http://www.recordonline.com/apps/pbcs.dll/article?AID=/20101118/BIZ/11180319

SAN ONOFRE: Nuke plant re-licensing under spotlight
Some lawmakers raise new questions after of Japan disaster
By PAUL SISSON
North County Times - The Californian
Posted: Saturday, March 19, 2011 7:12 pm

San Onofre Nuclear Generating Station’s plan to extend its operating license to keep the plant running past 2022 could face new hurdles in light of the unfolding nuclear crisis in Japan.

To get the license extension, plant owner Southern California Edison needs approval from the Nuclear Regulatory Commission, as well as various permits and approvals from state agencies such as the California Coastal Commission and Public Utilities Commission.

According to the NRC, nuclear plants must undergo a rigorous 22-month process, which includes new studies aimed at making sure the plant’s materials and procedures are robust enough to continue operating for an additional 20 years.

Both of San Onofre’s reactors started generating electricity in 1982.

There has been no decision to halt or modify the extension process, NRC spokeswoman Lara Uselding said Friday.

“Right now, the chairman has said we are continuing with these reviews,” Uselding wrote in an e-mail response, referring to NRC chief Gregory Jaszko.
…

Japan’s crisis and the U.S. energy future
By Union-Tribune
Saturday, March 19, 2011 at midnight

What’s happening in Japan is a tragedy (“Japan nuclear crisis worsens,” March 17), and the consequences are terrible.

At the same time, the nuclear industry is being used as the whipping boy. The media, with their insatiable appetite for finding the worst in every story, are attacking one of the proven best sources of electrical power.

In the U.S. over about 50 years, there has been one serious accident with a release of nuclear fallout. How many serious oil-refinery fires and other failures have occurred during that same period?
…

These are desperate times:

http://www.break.com/index/epic-home-sale-commercial-2024361

Does the huge black title cloud provide adequate cover for squatters who stopped paying their mortgages to live rent-free forever?

Why the Foreclosure Mess Settlement Proposal Can’t Fix the Damage
By ABIGAIL FIELD
Posted 6:00 PM 03/18/11

Ever since this fall, when the mortgage industry’s robo-signing scandal first broke, people have been aware that banks have been illegally foreclosing on homes.

Now there’s a huge fight over what to do about that, mostly focused on a 27-page proposal that was supposed to represent the consensus of the 50 state attorneys general, but apparently doesn’t. On top of that effort came a report of a “shock and awe” modification push from the federal government, but as Yves Smith at Naked Capitalism details, it’s neither good policy nor practical.

One feature of both the attorneys general’s proposal and the “shock and awe” maneuver is speed.

The attorneys general are in such a hurry to find a solution that they haven’t even investigated the banks: They’re just relying on consumer complaints to define the problem. Similarly, the shock-and-awe plan involves an impossible six month deadline. As Treasury Secretary Timothy Geitner explained to Congress: “All parties have a stake in bringing this to resolution as quickly as possible” and “It’s very important that we try to bring this to bed as quickly as we can.”

At least part of this desire for a fast fix is rooted in the belief that an agreement will help the housing market recover, which in turn will help straighten out the overall economy. That’s true to some extent: If millions of mortgages were successfully modified and unnecessary and servicer-driven foreclosures were halted, as the settlement proposes, that would be good for the economy and the real estate market.

The Enormous Clouded Title Problem

But the settlement doesn’t go nearly far enough to save the housing market. In fact, it can’t go far enough, because it can’t address one of the most confounding problems the banks have created: the millions of properties nationwide that now have “clouded” titles.

To put it plainly: Because of these bad titles, property owners can’t prove they own the properties they think they bought, and banks can’t prove they had the right to sell them.

Even though it’s impossible to know how many properties are affected, I have confidence in saying millions nationally for the following reasons:

* More than 1 million foreclosures have been completed since 2005; nearly 200,000 were completed in the third quarter of 2010 alone.

* Foreclosures involving securitized mortgages seem to be flawed as a rule, not the exception.

* Even when foreclosures may have been otherwise valid, the practices of foreclosure attorneys have clouded titles.

* The problems are ongoing. More flawed foreclosures are completed every day.

* The clouded title problem extends well beyond foreclosures. Both MERS, the electronic database that holds more than half the mortgages nationally, and possible securitization failures could have damaged the titles of the properties even though the borrowers are current on their mortgages.
…

Is Farmland the Next Bubble?
March 17, 2011 2:52 PM EDT

With rising commodity prices, farmland has become a hot commodity itself. Farmland values have doubled in the past decade, reaching a national average of $2,140 an acre in 2010.

Farmland values in areas of Illinois jumped more than 20 percent last year, according to a new report. Farmland increases of 14 to 18 percent were reported from 2009 to 2010 across parts of northern Illinois, while the central part of the state saw increases in values between 10 percent to 22 percent, according to a new report by the Illinois Society of Professional Farm Managers and Rural Appraisers. The increasing value on farmland is expected to continue throughout the year.

“Illinois farmland values were driven higher by increasing expectations of farm income as the 2010 year progressed and commodity prices increased,” says Don McCabe of Soy Capital Agricultural Services.
…

5 housing trends in early 2011
By Marcie Geffner • Bankrate.com

Selling a home will be a challenge due in part to a dearth of qualified buyers and the huge “shadow inventory” of homes that are stuck in the foreclosure process, but not yet on the market. If those dynamics and high rates of unemployment persist, so will the downward pressure on home prices.

Lower prices may attract more buyers, but many of them won’t be able to qualify for a home loan. Lower prices could also increase the supply of for-sale homes if more owners walk away from their mortgages.

“I don’t see any positives” for home sellers, O’Toole says.

http://www.bankrate.com/finance/mortgages/5-housing-trends-in-early-2011-1.aspx - 74k -

The next edition of the DSM (The Diagnostic and Statistical Manual of Mental Disorders) should include a diagnosis for “dream house” psychosis. Here’s a case study:

http://www.nytimes.com/2011/03/20/nyregion/20turanos.html?pagewanted=1&_r=1&adxnnl=1&adxnnlx=1300644039-XHJO7JpsR9yyphdfw6hTXA

A shift in demand towards lower-quality housing and away from upscale housing should ideally be reflected as deflation, as consumers are choosing to substitute less desirable (more affordable) housing for more desirable (less affordable) housing in their household expenditures. To the extent this shows up in official statistics as inflation is a reflection of the inability of price indexes in use to properly reflect housing costs (e.g. a shift in relative prices of rentals compared to more expensive owner-occupied housing).

* AHEAD OF THE TAPE
* MARCH 21, 2011

Housing Gloom Doesn’t Extend to Rentals

* By KELLY EVANS

Not all real estate is in the dumps.

Housing data due this week aren’t likely to be encouraging. Figures Monday are expected to show sales of existing homes fell nearly 4% in February from January. On Tuesday, the government’s index of home prices is forecast to register its seventh drop in eight months. And on Wednesday, economists anticipate new home sales in February will post a monthly increase of about 2% monthly increase, which will do little to dent January’s nearly 13% decline.

Partly because of this, the rental market is heating up. Average U.S. apartment vacancy rates dropped to 6.6% last year from 8%, according to property-research firm Reis, while rents rose 2.3%. This has developers salivating over the potential for a multiyear rental boom. After all, the glut of foreclosed, single-family homes so far isn’t proving much competition. Occupied apartments rose by about 58,000 in the fourth quarter, the biggest increase for that period in 10 years, according to Reis.

It is “very good to be in the apartment business today,” David Neithercut, chief executive of Equity Residential, the biggest public U.S. real-estate investment trust, remarked at a recent conference. Population growth, a gradual firming of the labor market and a drop in the U.S. homeownership rate to 65% from its near-70% peak could generate about 4.5 million new renter households over the next five years, according to Greenstreet Advisors.

That level of demand “will far outstrip supply” through 2015, Greenstreet reckons, given the relatively low level of multifamily homebuilding in recent years. No wonder developers are itching to get in on the action. A multifamily production index from the National Association of Home Builders to track developer sentiment jumped to 40.8 in the fourth quarter, its highest reading since 2006.

It’s not all wine and roses, though. Because real-estate construction is a relatively small part of the U.S. economy now and the single-family market remains depressed, the rental boom isn’t likely to boost overall economic growth. And increased rental activity may increase inflation. Shelter accounts for nearly a third of the consumer-price index.
…

* THE WEEKEND INTERVIEW
* MARCH 19, 2011

Mega-Banks and the Next Financial Crisis
Hedge-fund manager Paul Singer recognized the risks of subprime mortgages and bet against them. Now he warns that monetary policy could cripple American banks again.
By JAMES FREEMAN

At the height of the housing bubble, hedge-fund manager Paul Singer was shorting subprime mortgages. By the spring of 2007, he was warning regulators on both sides of the Atlantic that the world was facing a major financial crisis.

They ignored him. Now the founder of Elliott Management says the biggest banks are headed for another credit meltdown. Among the likely triggers for the next crisis, Mr. Singer sees one leading candidate: Monetary policy “is extremely risky,” he says, “the risk being massive inflation.”

In some areas gas prices have reached $4 per gallon, and now Americans must brace themselves for higher grocery bills. This week the Labor Department reported that February wholesale food prices posted their sharpest increase since 1974. News like that has driven Mr. Singer to the history books: He treats visitors to his 5th Avenue office to a copy of a 1931 treatise on German currency debasement, Constantino Bresciani-Turroni’s “The Economics of Inflation.”

Mr. Singer—who launched Elliott in 1977 and has delivered a 14.3% compound annual return (compared to the S&P 500’s 10.9%)—is not comparing today’s Federal Reserve to the Reichsbank of the early 1920s. Rather, he’s once again warning financial regulators. This time the message is: Don’t take for granted investor faith in a major currency.

While at Harvard Law School, Mr. Singer turned down a research job with his intellectual hero, Daniel Patrick Moynihan, to pursue a career in finance. Today, he’s still looking for heroes among the stewards of the major currencies. Central bankers, particularly at the Fed but also in Europe, “seem to be acting as if they have unlimited flexibility to ease monetary policy,” he says.

He specifically targets the Fed’s “unprecedented” policy of sustaining near-zero interest rates and its exercise in money-printing, “Quantitative Easing 2,” that has it buying medium- and longer-term securities from the Treasury. “In effect they’re treating confidence in fiat money—in paper money—as inexhaustible, that it’s a tool that’s able to be used not just in the throes of crisis,” but also as “a virtually complete substitute for sound fiscal, regulatory and taxing policy.”
…

School year could end weeks early under worst-case state budget
Some question whether it’s a real possibility or another budget threat
By Maureen Magee, UNION-TRIBUNE
Sunday, March 20, 2011 at 3 p.m.

Teachers and parents throughout the region and state have grown accustomed to significant cutbacks in their public schools, increased demands for fundraising and threats to layoff faculty as California copes with its relentless fiscal crisis.

But schools could face a financial hit so severe in the coming school year that many may be shut down as many as six weeks early, under an extreme cost-cutting measure that was first suggested in January with little fanfare and has been gaining traction ever since.

That means children could be cut lose from school in April next year, just after Easter.
…

Would it really be legal for the Fed to sell toxic subprime-mortgage to AIG without accepting any other bids? Isn’t their a risk the sale price would be below market value, handing AIG a windfall profit?

* MARKETS
* MARCH 20, 2011, 6:02 P.M. ET

AIG, Fed in Subprime-Bond Standoff
By SERENA NG

American International Group Inc. is trying to force the hand of the Federal Reserve on a large portfolio of subprime-mortgage bonds it wants to repurchase, putting the central bank in the position of weighing taxpayers’ interests against those of the government-controlled insurer.

Earlier this month, AIG disclosed an offer to pay $15.7 billion, or roughly 53 cents on the dollar, for mortgage securities it once owned that have been on the Fed’s balance sheet since late 2008, after AIG was bailed out by the U.S. government.

The formal bid followed months of what AIG executives perceived to be wavering by central-bank officials over whether to sell the bonds.

AIG wants the securities for their high yields. It believes they will help boost the company’s financial position ahead of a planned stock offering that will allow the Treasury Department to recoup some of the bailout money it put in during the financial crisis.

For the Fed, however, the choice isn’t clear-cut. It bought the bonds as one of several steps it took to help stabilize AIG in 2008, and wasn’t expected to hold them indefinitely. But the Fed has faced criticism for not being tougher on the insurer and the banks that benefited from the AIG bailout. In deciding whether to sell the bonds, the central bank will need to show it is doing well by taxpayers.

At the same time, any effort by the Fed to seek bids from outside investors for the subprime bonds could weigh on the prices of similar securities, an outcome that could hurt banks holding such securities.
…

Mortgages
More Borrowers Are Opting for Adjustable-Rate Mortgages
The New York Times
By LYNNLEY BROWNING
Published: March 17, 2011

IN the years since the financial crisis, adjustable-rate mortgages, or ARMs, with their low initial interest rates that changed over time, have been considered riskier than fixed-rate loans and shunned by most buyers. But these days more people are being persuaded to give the loans a try.

This time around, lenders are rolling out more conservative ARM products — without the gimmicky extra-low “teaser” rates that adjust every six months, or the “pick-a-pay” and “option” features that allow borrowers to pay less than the monthly interest, only to be hit with a huge bill down the road.

Those ARMs were hallmarks of the subprime mortgage boom that fueled the soaring rate of mortgage defaults and home foreclosures nationwide.

“An adjustable now is basically a prime product,” said Michael Moskowitz, the president of Equity Now, a lender in New York. “There’s definitely a comeback in their popularity.”

Bank of America, for example, had nearly twice as many ARM transactions last month as it did a year ago, according to Terry H. Francisco, a spokesman, and ARMs now account for 10 percent of all its home loans.

Mortgage brokers and lenders say the loans most in demand are the “5/1” and “7/1,” in which the initial interest rate is fixed for the first five or seven years — after which many homeowners typically think about selling or refinancing anyway — then adjusted annually at a capped rate toward a maximum level.
…

I’ve got a theory…..

Our so-called government has done some snooping around, instead of listening to their lobbyists/consultants/soothsayers, and have discovered that our whole freaking mess of an economy is built on BS, and criminal activity, and about 50% of the population would be in jail, if they were able to prosecute everybody involved.

The problem is, they same group of weasels sold the REAL economy to the Chinese, Indians, Mexicans, etc. etc. for pennies on the dollar.

They know they are fooked (as in pitchforks and gullotines) if the serfs figure this out. So the plan is to paint as rosy a picture as possible going forward to confuse the issue, and pray for either divine intervention, or develop an exit strategy to try to escape…..realizing that in the event of chaos, finely developed plans have a way of falling apart quickly.

A Looming Disaster: Europe
As a nation reels from an earthquake’s destruction, an entire continent faces an economic crisis of its own.
by Robert J. Samuelson
March 20, 2011

While the world has been transfixed with Japan, Europe has been struggling to avoid another financial crisis. On any Richter scale of economic threats, this may ultimately count more than Japan’s grim tragedy. One reason is size. Europe represents about 20 percent of the world economy; Japan’s share is about 6 percent. Another is that Japan may recover faster than is now imagined; that happened after the 1995 Kobe earthquake. But it’s hard to discuss the “world economic crisis” in the past tense as long as Europe’s debt problem festers—and it does.

Just last week, European leaders were putting the finishing touches on a plan to enlarge a bailout fund from an effective size of roughly €250 billion (about $350 billion) to €440 billion ($615 billion) and eventually to €500 billion ($700 billion). By lending to stricken debtor nations, the fund would aim to prevent them from defaulting on their government bonds, which could have ruinous repercussions. Banks could suffer huge losses on their bond portfolios; investors could panic and dump all European bonds; Europe and the world could relapse into recession.

Unfortunately, the odds of success are no better than 50–50.

Europe must do something. Greece and Ireland are already in receivership. There are worries about Portugal and Spain; Moody’s recently downgraded both, though Spain’s rating is still high. The trouble is that the sponsors of the bailout fund are themselves big debtors. In 2010, Italy’s debt burden (the ratio of its government debt to its economy, or gross domestic product) was 131 percent; that exceeded Spain’s debt ratio of 72 percent. Debt ratios were high even for France (92 percent) and Germany (80 percent).
…

There are reports that Gadhafi’s home was hit in an airstrike. Earlier reports said that there were human shields there. So now we are protecting civilians by blowing them up?

The Cato Journal
The Rule of Law or the Rule of Central Bankers?
Lawrence H. White

Economists often prescribe that countries seeking economic development should embrace the principle of the rule of law. I want
to suggest that we listen to our own advice and apply it to our monetary
and financial system. The principle of the rule of law could usefully
guide us in resolving the extraordinary situation we have been in
for the past two years or so, and even more importantly help us to
avoid future crises.

The approach of Federal Reserve and Treasury officials during
this crisis, unfortunately, has been to consider every possible remedy
but applying the rule of law.

In case you think I exaggerate, let me quote Ben Bernanke. At a
strategy meeting with other Fed and Treasury officials early in the
crisis he declared, as reported by the New York Times: “There are no
atheists in foxholes and no ideologues in financial crises” (Baker
2008). Over at the U.S. Treasury, when Neel Kashkari, the Treasury’s
chief bailout administrator under Secretary Hank Paulson, was asked
by a reporter how the Treasury would spend the $700 billion in
bailout money that Congress had provided (essentially without
instructions), Kashkari replied that nothing was ruled out. To quote
a news account: “ ‘We are looking at everything,’ he said. ‘We are trying to figure out what will provide the most benefit to the financial system’ ” (Ellis 2008).
…
Friedrich Hayek in his classic work The Road to Serfdom contrasted “a country under arbitrary government” from a free country that observes “the great principle known as the Rule of Law.”

“Stripped of all technicalities,” he continued, “this means that government in all its actions is bound by rules fixed and announced beforehand—rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge” (Hayek [1944] 2007: 112).
…

BOOK REVIEWS
This Time Is Different: Eight Centuries of Financial Folly
Carmen M. Reinhart and Kenneth S. Rogoff
Princeton, N.J.: Princeton University Press, 2009, 463 pp.

Carmen Reinhart and Kenneth Rogoff’s wide-ranging,
quantitative study of financial crises is a landmark work. Reinhart
and Rogoff have taken advantage of the advances of the last 20
years in economic history, personal computers, and the Internet to
assemble a large data set covering most countries of any importance
for the world economy. They are the first researchers to base
their generalizations about financial crises on data that combine
geographic breadth with great historical depth.

The “this time is different syndrome” is the mistaken belief
that financial crises happen to other people at other times and
places, but not to us here and now, because we are doing things
better, we are smarter, and we have learned from past mistakes,
so old rules of valuation no longer apply.
…
Those of us who live in rich countries think of defaults on
sovereign external debt as a malady characteristic of poorer
countries, but that is not the case. The United States restructured its debt in 1790 in a partial de facto default, while France defaulted eight times from 1558 to 1788. Yet both then “graduated,” avoiding default thereafter and having their bonds recognized by investors as low in risk. Why some countries graduate and others do not is a puzzle for future researchers to piece together.

As well as defaulting on external debt, many governments have
defaulted on their domestic debt. Reinhart and Rogoff’s work here
is the most novel part of the book, because before their efforts,
long-term international data on domestic debt were severely
lacking. Especially valuable is their analysis of debt and inflation.
Many inflations have been so high as to drive people away from
using local currency, thereby reducing government revenue from
the “inflation tax.” The deeper logic underlying this seemingly
illogical behavior is that high inflation can greatly reduce the real
value of domestic debt.

Although some countries have graduated from debt crises, banking
crises are a recurring phenomenon in rich and poor countries alike.
The worldwide crisis of 2008–09 is but the latest illustration of this
truth. The implication is that economic policymakers need to fi gure
out how to withstand the shocks banking crises cause rather than
thinking they can eliminate the shocks.

The chapters on currency crashes and on the U.S. subprime
crisis and its worldwide consequences cover ground that has been
well trod by others, although part of the apparent lack of novelty
is the result of the delay between manuscript submission and
publication. Even here, and despite sparse data, Reinhart and
Rogoff break new ground by showing how frequently crises have
been connected with booms and busts in housing markets.

Summarizing what we have learned from the history of financial
crises, the authors conclude that we may be able to have better
early warnings of crises with better data, especially data on house
prices and on government debt including contingent liabilities.
They also observe that banking crises tend to be protracted, and
to have huge effects on government debt, which on average rises
86 percent in real terms in the three years following a crisis. They
caution against premature celebration for countries that seem to
have recently graduated from debt default; many have soon fallen
back into default.
…

has not posted but meant to say bombed compound which contains home of Ghadafi.

The Financial Times
Law chief takes hard line on US foreclosures
By Suzanne Kapner in New York
Published: March 20 2011 22:50 | Last updated: March 20 2011 22:50

The Iowa state attorney-general leading a nationwide investigation into improper foreclosure practices said he had no plans to back away from a controversial plan to force banks to write down the principal balance on some mortgage loans, in spite of growing opposition from lawmakers and other enforcement officers.

“I’m perfectly willing to hear from the banks on how we should do this,” Tom Miller told the Financial Times. “But we’re not depending on them to come up with a solution.”

Mr Miller is adopting a hard line as he prepares to begin negotiations with banks over serious lapses in foreclosure proceedings that led to at least some borrowers losing their homes inappropriately.
…

Death toll from Japan’s disasters over 8,000; more than 12,000 missing
By David Nakamura and Joel Achenbach, Sunday, March 20, 7:30 PM

TOKYO — The official death toll in Japan soared past the 8,000 mark Sunday, nine days after a powerful earthquake and tsunami ravaged the northeast coast. Yet amid this grim reality came a piercing note of uplift when rescuers reached an 80-year-old woman and her 16-year-old grandson trapped in a house in a village that had mostly been swept away by the March 11 tsunami.
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Local real estate experts imagine housing without Fannie Mae, Freddie Mac
Tulsa World file
By ROBERT EVATT World Staff Writer
Published: 3/20/2011 2:21 AM
Last Modified: 3/20/2011 4:18 AM

President Barack Obama said last month that he’d like to phase out Fannie Mae and Freddie Mac.

Though he didn’t give a specific plan of action for the troubled mortgage giants - options he tossed out included eliminating government involvement except for loans for the poor and veterans, and continuing to back loans with the help of taxpayers - he made it clear he didn’t see a role for the two any longer.

That kind of move would radically change the way homes are bought and could even make it costlier to buy a home, said Roger M. Beverage, president and CEO of the Oklahoma Mortgage Bankers Association.

“I don’t know how you could phase them out, unless you did it over an extended period of time,” he said.

“Their holdings are just so massive.”
…

“In all likelihood, it is that same homeowner who will pay for the subsidy in their role as taxpayer.”

I call BS on this statement. As we have often discussed here, the great preponderance of mortgage interest deduction benefits flow to those who are wealthy enough to afford conformable mortgages in the $500K+ price range. Hence the mortgage interest deduction is a form of welfare to the wealthy; in particular, renters realize no benefit from it, but do share the tax burden of helping to pay for other people’s luxury home purchases.

Perspective
Housing Market Will Be Fine Without 30-Year Fixed Loans
By MARK A. CALABRIA Posted 03/16/2011 06:08 PM ET

As Congress begins debating the future of Fannie Mae and Freddie Mac, proponents of keeping the taxpayer on the hook for the mortgage market argue that without such support the 30-year fixed-rate mortgage would disappear. The advantages of the 30-year mortgage have, however, been grossly exaggerated. Subsidizing it should not serve as an excuse for continuing to put the taxpayer at significant risk.

First, we should recognize that the 30-year fixed isn’t going anywhere. The “jumbo” mortgage market offers a 30-year fixed without a government guarantee. In fact, fixed-rate mortgages have historically been around half of the jumbo market.

Of course it is more expensive — but more expensive to the borrower does not mean more expensive to society. After all, someone has to pay for a subsidy. In all likelihood, it is that same homeowner who will pay for the subsidy in their role as taxpayer.
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Regulator Rumble: SEC Going After Fannie and Freddie Execs
Mar 18 2011, 10:18 AM ET By Daniel Indiviglio

The Securities and Exchange Commission is finally taking on the biggest bailout recipients of them all: Fannie Mae and Freddie Mac. How could things go so horribly wrong — resulting in a still-growing $150 billion bill to taxpayers — without any shenanigans? Perhaps Fannie and Freddie executives misled investors, who provided funding for mortgages of worse quality than the companies led on. But since the firms’ disclosures were approved by the Federal Housing Finance Authority, the suit sets up a clash of regulators.

Zachary A. Goldfarb and David S. Hilzenrath at the Washington post report on the SEC’s move to target Fannie and Freddie execs. Their article only provides a glimpse at what they’re being accused of, however:

The allegations are slightly different for both the companies. One of the chief allegations against Fannie executives is that it characterized mortgage loans as “prime” — meaning high-quality — when they should have been classified in a more risky category of loans.

In theory, this should be quite easy to prove. If you know the characteristics of the mortgages in Fannie and Freddie’s portfolio, then you can pretty easily determine if the disclosures matched up with the loans. What were the borrower credit scores, loan-to-value ratios, incomes, mortgage types, etc? If you know these characteristics, then you can quickly toss them into prime or subprime buckets. But this simplicity raises a question: if investors were misled in this easy-to-determine way, wouldn’t they have figured it out by now and successfully sued the firms?
…

March 15, 2011, 4:26 p.m. EDT
Democrats and GOP diverge on Fannie
Republicans seek less involvement in housing sector
By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — Republicans and Democrat senators clashed on Tuesday over overhauling Fannie Mae and Freddie Mac in the wake of a Treasury Department report on the troubled housing giants.

At issue are three long-term scenarios that the Treasury posed for consideration in February for how to revamp the two government-controlled agencies, which were driven to the brink of collapse during the financial crisis in 2008.

The lack of consensus indicates that lawmakers have a long way to go before approving a statute, even though the Obama administration is urging Congress to approve a law within two years. The Senate Banking Committee, which is expected to draft legislation on the issue, on Tuesday held its first hearing on the housing industry since the Treasury released its report. Read about Treasury’s report

Republicans called for a virtually privatized system in which the government’s role in the mortgage market would be significantly reduced. In this scenario, only the Federal Housing Administration would be allowed to guarantee a small group of mortgages for low- and moderate-income borrowers who meet creditworthiness criteria.

“The less involvement by the public sector in housing the better, so it would certainly be on that end of the spectrum that I would be leaning,” said Sen. Bob Corker, Republican of Tennessee, in an interview after the hearing.
…

PB’s editorial comment: It is precisely the government’s “longstanding commitment” to trying to turn all American households into homeowner households which culminated in the Fall 2008 financial disaster. Now that we know where such a fatally flawed policy leads, it is time to end the policy.

Letter
Discouraging Home Buyers
Published: March 13, 2011

To the Editor:
Re “New Housing Era: 30-Year Mortgage May Fade” (front page, March 4):

A world without Fannie Mae and Freddie Mac is one thing, but it is inconceivable that prospective home buyers will be well served by mortgage financing that relies solely upon a private market. A strong government backstop is essential to ensure a stable and adequate supply of credit for home buyers and to maintain a liquid secondary market, and there are ways to provide that support without exposing taxpayers to unnecessary risk.
…
Along with other sectors of the economy, housing faces a challenging road back to normalcy. Dismantling the government’s longstanding commitment to housing will make that return all the more difficult, if not impossible. If we should be unfortunate enough to see the day when the 30-year mortgage becomes a luxury product, you can be certain that many families will be falling by the wayside in their attempts to become homeowners.

Bob Nielsen
Chairman
National Association of Home Builders
Washington, March 8, 2011

Feds extend home rescue program
Friday March 11, 2011 4:44 PM By Ellen Yan
A foreclosure sign is seen on the lawn
Photo credit: AP Photo/Mel Evans

Federal officials have just announced an extension to the refinance program aimed at helping homeowners who owe more on their mortgages than their homes are worth.

The Home Affordable Refinance was set to expire June 30 but has been extended to June 30, 2012, said the Federal Housing Finance Agency. The program covers Freddie Mac and Fannie Mae loans, and since its inception two years ago, about 622,000 mortgages have been refinanced, according to the agency’s latest quarterly report.

The Mortgage Bankers Association had lobbied the agency for the extension, saying the housing market was still in a shaky state.

Under the program, lenders, investors and loan servicers get financial incentives to help borrowers who are current on their payments but whose mortgages are up to 125 percent of the property value.
…

Scathing report alleges corruption at CalPERS

A former chief executive and two former board members of the public employee pension fund are accused of steering billions of dollars to politically connected firms.

By Marc Lifsher and Stuart Pfeifer, Los Angeles Times
March 14, 2011, 9:12 p.m.

Reporting from Sacramento and Los Angeles –—
In a scathing report, a former chief executive of the California public employee pension fund was accused of pressuring subordinates to invest billions of dollars of pension money with politically connected firms.

A 17-month investigation also found that Federico Buenrostro Jr. — along with former pension fund board members Charles Valdes and Kurato Shimada — strong-armed a benefits firm to pay more than $4 million in fees to consultant Alfred J.R. Villalobos, who later hired Buenrostro.
…

What the Demise of Fannie Mae and Freddie Mac Means for the Future of Homeownership
Published: March 16, 2011 in Knowledge@Wharton

By most accounts, the federally sponsored mortgage giants Fannie Mae and Freddie Mac did not cause the housing and mortgage crisis. But they were a big part of the problem, prompting a taxpayer bailout costing more than $130 billion.

Now, seeking to protect taxpayers from future meltdowns, the Obama administration wants to phase out the two firms over an unspecified period and leave the lion’s share of the mortgage market to private lenders. It would be a dramatic change, given that the private market has shriveled in recent years, leaving Fannie, Freddie and the Federal Housing Administration to back about 90% of all new home loans. The administration also proposes a reduced role for the FHA, one that would focus on providing mortgages for the needy.

How would a phase-out of Fannie and Freddie affect the availability of mortgages, loan rates and home prices? In the end, would such a dramatic change be good for homeowners or not?

Opinions vary, and no one can know for sure. The mortgage and housing markets are complex, and a controlled experiment that removes Fannie and Freddie but leaves everything else the same is obviously not possible, says Wharton real estate professor Todd Sinai. “There’s a debate over whether Fannie and Freddie successfully reduced mortgage rates paid by borrowers, or increased the mortgage availability for borrowers, or whether they just took their implicit [government] subsidy and generated higher returns for shareholders,” Sinai says. “If Fannie and Freddie were successful in making mortgage credit cheaper and more available, then eliminating [them] would have a negative impact on house prices.”
…

Are Mortgages Cheaper in the U.S.?
Posted by Mark A. Calabria

As Congress and the White House continue to debate the future of Fannie Mae and Freddie Mac, one of the oft heard concerns is that if we eliminate all the various mortgage subsidies in our system, then the cost of a mortgage will increase. There certainly is a basic logic to that concern. After all, why have subsidies if they don’t lower the price of the subsidized good. Of course some, if not all, of said subsidy could be eaten up by the providers/producers of that good.

All this begs the question, with all the subsidies we have for mortgage finance, are mortgages actually cheaper in the U.S.? While not perfect, one way of answering that question is to look at mortgage rates in other countries. Although every developed country has some sort of government intervention in their mortgage market, almost all have considerably less support then that provided by the U.S.
…

Freddie, Fannie and Guantanamo Bay
By Logan Mohtashami
Benzinga Columnist
February 23, 2011 11:20 AM

Freddie & Fannie Reform: President Obama said he would close Guantanamo Bay as soon as he became President. Now, the White House put out a plan to reform Freddie and Reform. I am wondering which will close first, Guantanamo Bay or the GSE’s.
…

Fannie, Freddie: Late to the Party?
Posted by Mark A. Calabria

Debates over the causes of the financial crisis sometimes center on whether Fannie Mae and Freddie Mac were “late to the party” in terms of subprime lending. As it relates to the recent crisis, I address this question elsewhere.

The GSEs and their apologists do claim to have been big contributors to one party: the expansion of homeownership in the United States. Yet the facts suggest otherwise.
…
The real growth in GSE activity occurred during the 1980s, particularly the later half. The reason? The implosion of the savings and loan industry. It seems we simply substituted several thousand mismanaged and under-capitalized thrifts for two large mismanaged and under-capitalized thrifts. Interestingly enough, as the GSEs were doubling their market-share in the 1980s the homeownership rate actually fell. By the time the GSEs had reached a market-share of 50%, the U.S. homeownership rate had already come close to the rate we see today, of 66%.

The data clearly show that we became a nation of homeowners with little assistance from Fannie and Freddie. Not only did they join that party late, they simply took the place of the last group to ruin the party: the S&Ls.

Pull the Plug on Fannie, Freddie
By: Examiner Editorial
11/21/08 1:00 AM

Let’s face it: it’s time to pull the plug on Fannie Mae and Freddie Mac. The mortgage giants are already on life support, courtesy of the taxpayers. The New York Stock Exchange threatened to delist them last week after their stock fell to less than a dollar a share. Taxpayers are inheriting their $6.8 trillion debt – equivalent to two-thirds of the entire national debt - and it would require massive transfusions of public funds to keep these creaky New Deal relics alive.

Like all government programs, Fannie and Freddie – which were created to help Americans with limited financial means buy homes - seemed like a good idea at the time. But the private-gain, public-risk model used by these quasi-governmental entities has proven to be a spectacular failure. Millions of people they “helped” have either lost their homes to foreclosure or watched the value of their property precipitously decline.

After the federal government seized the mortgage giants this summer, it was discovered that, unlike the auto industry, they had few real assets left to save. So there’s no rational reason left to resuscitate companies that not only decimated the housing market, but were instrumental in triggering an international credit crisis.

Congress and the Bush administration’s Justice Department failed to launch a full-bore investigation five years ago when former Fannie CEO Franklin Raines based executive bonuses on more than $4 billion of “misstated” earnings he blithely attributed to “accounting errors” – not outright fraud. Note that the same senators now in a lather over GM honcho Rick Wagoner’s $14.4 million paycheck looked the other way as Raines received more than $90 million in compensation during his tenure at Fannie.
…

Mortgage Q&A: Spreading the blame for a mess
By Henry Savage
The Washington Times
11:09 a.m., Thursday, March 17, 2011

A couple of weeks ago I wrote a column that referenced recently retired senator Christopher Dodd and Rep. Barney Frank as the most vocal supporters of increasing homeownership in America. With such support also came their support of subprime lending.

In my 19 years in business, I have never originated a single subprime loan, no matter how lucrative it might have been. Subprime loans just never made sense to me.

A very good client of mine works on Capitol Hill and sent me a message indicating his disagreement with my criticism of Mr. Frank and Mr. Dodd. He’s right. There’s plenty of blame to go around.

I’d like to recap the “blame game.”

First, the federal government: The Clinton administration, enthusiastically followed by the Bush administration, supported “easy money” credit policies that opened up mortgage giants Fannie Mae and Freddie Mac to their version of subprime lending, known as “Alt-A” loans. These administrations wanted to increase homeownership in America.

Second, Wall Street, Fannie Mae and Freddie Mac: During the housing boom, Fannie and Freddie, along with Wall Street finance companies, loved the subprime market. They gobbled up high-yielding subprime loans like a child does candy, assuming property values would always rise and therefore minimize defaults.

Third, mortgage originators, including lenders, bankers and brokers: These folks were in charge of loan production. This meant Fannie, Freddie and Wall Street could receive their yields, and the federal government could tout more homeownership. Not all, but many of these originators solicited loans that were not in the consumers’ best interest.

Last, the American consumer: I’m a firm believer in personal responsibility. Just because a lender is willing to lend a consumer a million dollars, does that mean the consumer should take the loan? The consumer bears much of the responsibility of this mess by taking a mortgage in excess of what he can afford.
…

March 18, 2011, 9:31 pm Legal/Regulatory
Many Banks Are Clinging to Billions in Bailout Money
By BEN PROTESS and ERIC DASH
Minh Uong/The New York Times

Even as the nation’s biggest banks stepped further out of the government’s shadow on Friday, hundreds of financial institutions were still hanging on to billions of taxpayers’ dollars.

Nearly 600 institutions, ranging from large regional powerhouses to small community banks, are holding on to more than $30 billion — about 13 percent of the $245 billion handed out to banks at the height of the financial crisis.
…

Delaware jobs: Sliding home prices stall construction, idling thousands
10:34 PM, Mar. 19, 2011
Written by ERIC RUTH

As spring slowly shoulders winter aside, homebuilders and house buyers alike are beginning to re-emerge, bringing some new life to a residential real-estate market that has been so soft for so long.

At Brenford Woods near Smyrna, siding is going up on some new single-family homes. At Dennison Ridge in Hockessin, work is getting under way on 12 new town homes.

It’s a shard of hope for a sector of Delaware’s economy that has shed thousands of jobs in the past few years — a segment that bore the brunt of the deep recession and has remained depressed long after idled bankers, nurses and lab technicians landed new positions.

But it’s a very thin reed for the many professions who rely on a vigorous trading of residential real estate, spanning professions from carpenters, plumbers, electricians and landscapers to attorneys, Realtors, bankers, contractors and even insurers and home-furnishing retailers.

“The housing market does not feed the rich developer. The housing market feeds the plumber, the framer, the drywaller, the Amish community, the cleaning services,” said Jennifer Casey, executive vice president of the Home Builders Association of Delaware.
…

The Financial Times
Fannie and Freddie: a fool’s errand
Review by Christopher Caldwell
Published: March 21 2011 01:03 | Last updated: March 21 2011 01:03

Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance, by Viral Acharya, Matthew Richardson, Stijn van Nieuwerburgh, Lawrence J White, Princeton, RRP£16.95, $24.95

It is comforting to think of the late, calamitous bubble in US subprime real estate as having been caused by greed. If greed were the culprit, Americans could become better people as they grew more solvent. Unfortunately, there is a strong case that sentimentality and social conscience did as much to drive the US economy into a ditch as hard-headedness and lust for profit. Four New York University finance professors make a version of that case in Guaranteed to Fail.

The US real estate market is more heavily supported by government than any other in the west. Big tax breaks – from deductions for mortgage interest to exemptions from capital gains – subsidise homeowning over apartment-dwelling. But the jewels in the crown of US housing policy are the government-sponsored enterprises (GSEs), which by 2009 guaranteed or owned $5,390bn worth of mortgages. The Federal National Mortgage Association (Fannie Mae), which dates from the New Deal of the 1930s, and the more recent Federal Home Loan Mortgage Corporation (Freddie Mac) are not quite government agencies, since executive salaries there used to run into the tens of millions. But neither are they real private companies, since the US president appoints board members. Rather they are corruption-sowing hybrids, profitmaking groups that carry an implicit guarantee of government support – or did, until their bail-out in September 2008 made it perfectly explicit. The authors believe the GSEs will cost as much as $350bn and will net out as the most costly part of the federal banking rescue.
…

Endorsements:

“Guaranteed to Fail is a down-to-earth analysis of why Fannie Mae and Freddie Mac collapsed and why housing finance is broken. The authors provide clear solutions to fixing this complex problem. This is a timely and important book.”–Nouriel Roubini, coauthor of Crisis Economics: A Crash Course in the Future of Finance

“Guaranteed to Fail is a comprehensive and well-written study of the role played by Fannie and Freddie in the events leading up to the financial crisis. It also suggests the way forward. This book is timely as well as insightful, and will be an influential contribution to the debate on the role of government-sponsored enterprises.”–Raghuram G. Rajan, author of Fault Lines: How Hidden Fractures Still Threaten the World Economy

“This is an excellent book. Guaranteed to Fail presents a cogent proposal for the resolution of the current conservatorship of Fannie Mae and Freddie Mac. It documents the historical, economic, political, and financial issues that led to the current crisis, and presents all the issues in a fair and informative manner.”–Dwight Jaffee, University of California, Berkeley

PROTESTS MOUNT AGAINST BIG BANKS STATEWIDE AND LOCALLY

HOMEOWNERS & COMMUNITY MEMBERS ASK PUBLIC TO SUPPORT LEGISLATION TO SLOW FORECLOSURES; RAMONA CITIZENS LAUNCH NATIONAL REFORM CAMPAIGN

About 50 protested in downtown San Diego to “Hold Wall Street Accountable”; all rights reserved 2011 (c) Morton Gaudette

March 20, 2011 (San Diego) — Rallies held in San Diego, Ramona, and across California last week demanded accountability by big banks and called on the public to support new legislative bills aimed at curbing California’s soaring foreclosure rates.

David Lagstein, an organizer of the “Hold Wall Street Accountable” rally in front of Bank America in downtown San Diego March 16, noted that there were similar events throughout the state. “The people that came to our event were a mix of homeowners and members of coalition organizations. We are now doing district meetings with legislators in San Diego and throughout the state to try to push these bills through the community process,” he said, adding that larger actions are planned in April.

Organizations involved in the effort include the Alliance of Californians for Community Empowerment (ACCE) (representing low-income people, immigrants and workers), PICO, a network of faith-based groups seeking to bring voices of ordinary Califiornians into the policy arena, Service Employees Union International (SEIU), the Ramona Forum (a progressive community group) and the Home Defenders League (www.homedefendersleague.org) , a group battling the power of big banks and Wall Street.

A website about the campaign also includes a study that claims to document costs of foreclosures in California at http://www.refundcalifornia.org. According to the site, two million foreclosures are projected in California alone in 2012; Californians have lost $627 billion in savings in their homes amid a recession in which 1.2 million jobs have been lost and the state faces a $26 billion budget deficit. At the same time, banks have benefited from $789 billion in federal bail-outs—while $146 billion in bank bonuses and pay were made.
…

Does Dick Cheney hunt in Canada this time of year?

Duck Hunt Protester Shot in Face
March 19, 2011

A female protester has been shot in the face on the opening day of the 2011 duck shooting season in Western Victoria. Video courtesy of the Herald Sun.

Marsh on Monday
March 21, 2011, 12:02 a.m. EDT
Germany’s teutonic plates start nuclear U-turn
Commentary: Merkel gives in to regional politics
By David Marsh, MarketWatch

LONDON (MarketWatch) — Technologically-advanced countries like Germany and Japan with sophisticated populations, a labile psychology and a fraught past are never going to react in a simple manner to a breakdown in the economic and industrial order.

During the past week, the Germans have not set a good example, casting away logic and apparently deciding future energy policy on the basis of an emotional spasm rather than a clearly-thought out strategy.

In Japan, we have seen mighty tectonic shifts, with tragic effects. In Germany, teutonic plates have been swirling around uncontrollably, and the country has undergone a nuclear U-turn at the hand of Angela Merkel, the normally iconically-cool Chancellor.
…

Op-Ed Columnist
Another Inside Job
By PAUL KRUGMAN
Published: March 13, 2011

Count me among those who were glad to see the documentary “Inside Job” win an Oscar. The film reminded us that the financial crisis of 2008, whose aftereffects are still blighting the lives of millions of Americans, didn’t just happen — it was made possible by bad behavior on the part of bankers, regulators and, yes, economists.

What the film didn’t point out, however, is that the crisis has spawned a whole new set of abuses, many of them illegal as well as immoral. And leading political figures are, at long last, showing some outrage. Unfortunately, this outrage is directed, not at banking abuses, but at those trying to hold banks accountable for these abuses.

The immediate flashpoint is a proposed settlement between state attorneys general and the mortgage servicing industry. That settlement is a “shakedown,” says Senator Richard Shelby of Alabama. The money banks would be required to allot to mortgage modification would be “extorted,” declares The Wall Street Journal. And the bankers themselves warn that any action against them would place economic recovery at risk.

All of which goes to confirm that the rich are different from you and me: when they break the law, it’s the prosecutors who find themselves on trial.
…

This writer concurs with my suggestion that at least part of the Republitard attack on the federal government is aimed at gutting the effort to reinstitute a rule of law in the banking sector.

In the Arena
Reality Check: Who’s Afraid of Reforming Wall Street?
By Joe Klein Thursday, Mar. 03, 2011
Illustration by Matt Dorfman for TIME

“Three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail,” said Charles Ferguson, accepting a well-deserved Oscar for Inside Job, his documentary about the great Wall Street heist. “And that’s wrong.” Of course it is — but that shouldn’t be a surprise. To put bad guys in jail, you need police and prosecutors. The financial police we have, agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have been laughably inept in the era of financial deregulation. The SEC wasn’t even able to spot the broad-daylight highway robbery committed by Bernard Madoff. And so, in 2010, the Obama Administration nudged through Congress the Dodd-Frank financial-reform bill, which was designed to put real cops, with real regulatory heft, on the financial beat. And now, in 2011, the Republican House seems intent on quietly gutting the bill under the sordid camouflage of budget cutting. “They’re defunding the police after we had the biggest bout of looting in history,” an Administration official told me. “That’s just crazy.”
…

Inside Job director on Geithner, Goldman, and criminal bankers
March 15, 2011 4:15 pm
Charles Ferguson elaborates on his famous Oscar speech.
by Adam Lashinsky, senior editor-at-large

Inside Job, which recently won the Academy Aware for best documentary film of 2010, continues to be a conversation starter. Paul Krugman titled his latest column in The New York Times, “Another Inside Job.” Time Magazine’s Joe Klein evokes director Charles Ferguson’s now-famous acceptance speech at the Oscars in which the filmmaker lamented that so far no one has gone to jail for crimes to committed during the financial crisis of 2008.

Despite lots of overheated rhetoric, it never has been completely clear to me exactly which crimes people think were committed. If Klein, a political writer, has any ideas of specific crimes, he isn’t letting on. He writes about “the shyster army peddling tricky mortgages, usurious credit-card rates and unscrupulous payday-check-cashing shops.” Colorful language, yes. Examples of laws broken, no.

I put this question to Ferguson himself recently in a public interview in San Francisco. The best he could come up with was “accounting fraud” and “self-dealing” by unnamed, lower-down investment-bank employees. This isn’t to say crimes weren’t committed, and Klein’s strongest point is that the cops don’t have the resources to fight the criminals.

For anyone willing to dig more deeply on the subject, Ferguson contains a wealth of knowledge. He’s also willing to be pushed and to defend his assertions. The interview I did with him can be viewed here. I’ve also posted an unedited transcript of the interview below.
…

Why Isn’t Wall Street in Jail?
Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them
By Matt Taibbi
February 16, 2011 9:00 AM ET
…

Originally published March 17, 2011 at 5:44 PM
Page modified March 17, 2011 at 11:59 PM
Jon Talton
FDIC suit against WaMu executives may be a step toward justice

The financial collapse that caused the Great Recession was not an act of God. Nor was it the result of poor deadbeats buying houses. It was caused by the dodgy financial “innovations” and outright swindles cooked up on Wall Street and in the banking sector — with Washington Mutual as the horrid poster child.

Special to The Seattle Times

THOMAS JAMES HURST / THE SEATTLE TIMES

Most Americans have been asking for more than two years the question that Rolling Stone’s incendiary journalist Matt Taibbi put simply: “Why isn’t Wall Street in jail?”

After all, the financial collapse that caused the Great Recession was not an act of God. Nor was it the result of poor deadbeats buying houses. It was caused by the dodgy financial “innovations” and outright swindles cooked up on Wall Street and in the banking sector — with Washington Mutual as the horrid poster child.

If a poor 17-year-old had robbed $10 from a liquor store, he would soon be in the clutches of Sheriff Sue, on his way to a state pen, which is very good at rehabilitating soft criminals into hard ones. But the well-heeled authors of the worst economic collapse since the Great Depression have just been enjoying their millions.

Can we finally expect some justice?

We will get a sense from the lawsuit filed by the Federal Deposit Insurance Corp. against former WaMu CEO Kerry Killinger, as well as Stephen Rotella, former chief operating officer; David Schneider, former president of WaMu’s Home Loans division; Killinger’s wife, Linda; and Rotella’s wife, Esther.

It seeks to recover $900 million, alleging among other things that the executives “led WaMu on this lending spree knowing that the real-estate market was in a “bubble that could not support such a risky strategy over the long term.”
…

Opinion
Will banksters get away with it?
Wall Street crime goes deeper: The system means prosecutors fail to jail corporate criminals.
Danny Schechter Last Modified: 26 Feb 2011 17:21 GMT

Danny Schechter offers ten reasons why Wall Street ‘criminals’ get ‘bail-outs and not ‘jail-outs’ [GALLO/GETTY]

Hats off to Matt Taibbi for staying on the Wall Street crime beat, asking in his most recent report in Rolling Stone: “Why Isn’t Wall Street in Jail?”

“Financial crooks,” he argues, “brought down the world’s economy — but the feds are doing more to protect them than to prosecute them.”

True enough, but that’s only part of the story. The Daily Kos called his investigation a “depressing read” perhaps because it suggests that the Obama Administration is not doing what it should to reign in financial crime. Many of the lawyers he calls on to act come from big corporate law firms and buy into their worldview.

Kos should be more depressed by the failure of the progressive community to focus on these issues, and not pressing the government to do the right thing.

There is much more to this story. It’s also more about institutions than individuals, more about a captured system that enables and covers up crime and, then, deflects attention away from the deeper problem.
…

Four time bombs that will blow up Wall Street

* COMMENT Paul B. Farrell, MarketWatch
* From: The Wall Street Journal
* March 08, 2011 8:27AM

PUT Goldman Sachs CEO Lloyd Blankfein in jail for six months, and all this will stop, all over Wall Street and America, a former congressional aide tells Matt Taibbi in his latest Rolling Stone attack, “Why Isn’t Wall Street in Jail? Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them.”

Taibbi’s right, everyone knows Wall Street’s run by a bunch of dictators who are doing more damage to democracy and capitalism than North Africa’s dictators. But jail the CEOs of Goldman, Citi, BofA or my old firm Morgan Stanley? Too late.

Only a revolution will stop Wall Street’s self-destructive capitalism. And watching the people revolt against dictators like Mubarak and Gaddafi reminds us of the spirit that sparked America’s revolution in 1776. But today we need a 1930s-style revolution.

During the S&L crisis two decades ago America had a backbone, indicted 3800 executives and bankers. Today’s leaders have no backbone. Besides jail time won’t reform the darkness consuming Wall Street’s soul. We’re all asleep, in denial about the moral crisis facing America. Yes, we need a new revolution.
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All the Devils are getting away scot-free.

Talking Business
Biggest Fish Face Little Risk of Being Caught
By JOE NOCERA
Published: February 25, 2011

So much for Angelo Mozilo taking the fall for the financial crisis.

Angelo Mozilo, the former chief executive of Countrywide Financial. Prosecutors have found it tough to build cases against executives whose companies helped kindle the financial crisis.

Late last week, word leaked out that Mr. Mozilo, who had co-founded Countrywide Financial in 1969 — and, for nearly 40 years, presided over its astonishing rise and its equally astonishing fall — would not be prosecuted by the Justice Department. Not for insider trading. Not for failing to disclose to investors his private worries about subprime loans. Not for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers.

In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions “did not amount to criminal wrongdoing.”

Just months earlier, the Justice Department concluded that Joe Cassano shouldn’t take the fall for the financial crisis either. Mr. Cassano, you’ll recall, is the former head of the financial products unit of the American International Group, a man whose enthusiasm for credit-default swaps led, pretty directly, to the need for a huge government bailout of A.I.G. There was a time when it appeared that there was no way the government would let Mr. Cassano walk. But it did.

And then there’s Richard Fuld, the man who presided over Lehman Brothers’ demise. Though he was the subject of an investigation shortly after the Lehman bankruptcy, it appears that prosecutors are moving on.

Most of the other Wall Street bigwigs whose firms took unconscionable risks — risks that nearly brought the global financial system to its knees — aren’t even on Justice’s radar screen. Nor has there been a single indictment against any top executive at a subprime lender.
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