Article 43
Sunday, September 27, 2009
The Ultimate Sign Of Our Lethargy
By Bill Maher
Huffington Post
September 27, 2009
New Rule: If America can’t get its act together, it must lose the bald eagle as our symbol and replace it with the YouTube video of the puppy that can’t get up. As long as we’re pathetic, we might as well act like it’s cute. I don’t care about the president’s birth certificate, I do want to know what happened to “Yes we can.” Can we get out of Iraq? No. Afghanistan? No. Fix health care? No. Close Gitmo? No. Cap-and-trade carbon emissions? No. The Obamas have been in Washington for ten months and it seems like the only thing they’ve gotten is a dog.
Well, I hate to be a nudge, but why has America become a nation that can’t make anything bad end, like wars, farm subsidies, our oil addiction, the drug war, useless weapons programs - oh, and there’s still 60,000 troops in Germany - and can’t make anything good start, like health care reform, immigration reform, rebuilding infrastructure. Even when we address something, the plan can never start until years down the road. Congress’s climate change bill mandates a 17% cut in greenhouse gas emissions… by 2020! Fellas, slow down, where’s the fire? Oh yeah, it’s where I live, engulfing the entire western part of the United States!
We might pass new mileage standards, but even if we do, they wouldn’t start until 2016. In that year, our cars of the future will glide along at a breathtaking 35 miles-per-gallon. My goodness, is that even humanly possible? Cars that get 35 miles-per-gallon in just six years? Get your head out of the clouds, you socialist dreamer! “What do we want!? A small improvement! When do we want it!? 2016!”
When it’s something for us personally, like a laxative, it has to start working now. My TV remote has a button on it now called “On Demand”. You get your ass on my TV screen right now, Jon Cryer, and make me laugh. Now! But when it’s something for the survival of the species as a whole, we phase that in slowly.
Folks, we don’t need more efficient cars. We need something to replace cars. That’s what’s wrong with these piddly, too-little-too-late half-measures that pass for “reform” these days. They’re not reform, they’re just putting off actually solving anything to a later day, when we might by some miracle have, a) leaders with balls, and b) a general populace who can think again. Barack Obama has said, “If we were starting from scratch, then a single-payer system would probably make sense.” So let’s start from scratch.
Even if they pass the shitty Max Baucus health care bill, it doesn’t kick in for 4 years, during which time 175,000 people will die because they’re not covered, and about three million will go bankrupt from hospital bills. We have a pretty good idea of the Republican plan for the next three years: Don’t let Obama do anything. What kills me is that that’s the Democrats’ plan, too.
We weren’t always like this. Inert. In 1965, Lyndon Johnson signed Medicare into law and 11 months later seniors were receiving benefits. During World War II, virtually overnight FDR had auto companies making tanks and planes only. In one eight year period, America went from JFK’s ridiculous dream of landing a man on the moon, to actually landing a man on the moon.
This generation has had eight years to build something at Ground Zero. An office building, a museum, an outlet mall, I don’t care anymore. I’m tempted to say that, symbolically, all America can do lately is keep digging a hole, but Ground Zero doesn’t represent a hole. It is a hole. America: Home of the Freedom Pit. Ironically, it’s spitting distance from Wall Street, where they knock down buildings a different way - through foreclosure.
That’s the ultimate sign of our lethargy: millions thrown out of their homes, tossed out of work, lost their life savings, retirements postponed - and they just take it. 30% interest on credit cards? It’s a good thing the Supreme Court legalized sodomy a few years ago.
Why can’t we get off our back? Is it something in the food? Actually, yes. I found out something interesting researching last week’s editorial on how we should be taxing the unhealthy things Americans put into their bodies, like sodas and junk foods and gerbils. Did you know that we eat the same high-fat, high-carb, sugar-laden shit that’s served in prisons and in religious cults to keep the subjects in a zombie-like state of lethargic compliance? Why haven’t Americans arisen en masse to demand a strong public option? Because “The Bachelor” is on. We’re tired and our brain stems hurt from washing down French fries with McDonald’s orange drink.
The research is in: high-fat diets makes you lazy and stupid. Rats on an American diet weren’t motivated to navigate their maze and once in the maze they made more mistakes. And, instead of exercising on their wheel, they just used it to hang clothes on. Of course we can’t ban assault rifles - we’re the first generation too lazy to make its own coffee. We’re the generation that invented the soft chocolate chip cookie: like a cookie, only not so exhausting to chew. I ask you, if the food we’re eating in America isn’t making us stupid, how come the people in Carl’s Jr. ads never think to put a napkin over their pants?
Bill Maher is host of HBO’s “Real Time with Bill Maher”
Section Dying America •
View (0) comment(s) or add a new one •
Printable view • Link to this article •
Home •
Wednesday, September 23, 2009
MERS
Landmark Decision Promises Massive Relief For Homeowners And Trouble For Banks
By Ellen Brown
September 22, 2009
A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In LANDMARK NATIONAL BANK V. KELER 2009 KAN LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.
Eliminating the Straw Man Shielding Lenders and Investors from Liability
The development of electronic mortgages managed by MERS went hand in hand with the securitization of mortgage loans chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into financial products called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of corporate shield that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy McCandless describes the problem like this:
“[MERS] has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note. Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumers home. . . . So imposing is this opaque corporate wall, that in a vast number of foreclosures, MERS actually succeeds in foreclosing without producing the original note - the legal sine qua non of foreclosure much less documentation that could support predatory lending defenses.”
The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS relationship is more akin to that of a straw man than to a party possessing all the rights given a buyer. The court opined:
“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.
MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a security. The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
The Potential Impact of 60 Million Fatally Flawed Mortgages
The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file lost-note affidavits with the court; and judges usually let these foreclosures proceed without objection. But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.
Following the Boyko decision, in December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.”
Needless to say, however, the banks did not buy back their toxic waste, and no bank officials went to jail. As Olender predicted, in the fall of 2008, massive taxpayer-funded bailouts of Fannie and Freddie were pushed through by Henry Paulson, whose former firm Goldman Sachs was an active player in creating CDOs when he was at its helm as CEO. Paulson also hastily engineered the $85 billion bailout of insurer American International Group (AIG), a major counterparty to Goldmans massive holdings of CDOs. The insolvency of AIG was a huge crisis for Goldman, a principal beneficiary of the AIG bailout.
In a December 2007 New York Times article titled “The Long and Short of It at Goldman Sachs,” Ben Stein wrote:
“For decades now, . . . I have been receiving letters [warning] me about the dangers of a secret government running the world . . . . [T]he closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.”
The pirates seem to have captured the ship, and until now there has been no one to stop them. But 60 million mortgages with fatal defects in title could give aggrieved homeowners and securities holders the crowbar they need to exert some serious leverage on Congress - serious enough perhaps even to pry the legislature loose from the powerful banking lobbies that now hold it in thrall.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and the money trust. She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from the money trust. Her eleven books include Forbidden Medicine, Natures Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are WEBOF DEBT and ELLEN BROWN.
---
New York’s U.S. Bankruptcy Court Rules MERS’s Business Model Is Illegal
By L. Randall Wray, Professor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri, Kansas City
Huffington Post
February 16, 2011
United States Bankruptcy Judge Robert Grossman has ruled that MERS’s business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.
For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system—which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees and to subvert five centuries of property law. Its chickens have come home to roost.
Wall Street wanted to transform America’s housing sector into the world’s biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the “reps and warranties” falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall Street banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS—the industry’s creation—stepped up to the plate to facilitate the fraud. The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.
Here’s MERS’s business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the “mortgagee of record” and the “nominee” of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS’s registry.
A mortgage has two parts, the “note” and the “security” (not to be confused with the MBS) or “deed of trust” that is usually just called the “mortgage”. The idea behind MERS was that the “note” would be transferred from seller to purchaser, but the “mortgage” would be held by MERS. In fact, MERS recommended that the “note” be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign “lost note affidavits").
At each transfer, the note and mortgage are supposed to be “assigned” to the new owner; MERS claimed that because it was the “mortgagee of record” and the “nominee” of both parties to every transaction, there was no need to assign the “mortgage” until foreclosure. And it argued that since the old adage is that the “mortgage follows the note” and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of “virtual reality” so that there is a clear chain of title that allows the servicers to foreclose.
The Judge rejected every aspect of MERS’s argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the “true” owner. It also found that “mortgagee of record” is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS’s claim that as nominee it can assign notes or mortgages—a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:
“According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word “agency.” MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents.”
Judge Grossman rejected MERS’s arguments, saying that mere membership in MERS does not provide “agency” rights to MERS, and agreeing with the Supreme Court of Kansas that ruled “The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant—their description depended on which part they were touching at any given time.”
He went on to disparage MERS’s claim that since in legal theory the “mortgage follows the note”, the Court should overlook the fact that MERS separated them. He stopped just short of saying that by separating them, MERS has irretrievably destroyed the clear chain of title, although he hinted that a future ruling could come to that conclusion:
“MERS argues that notes and mortgages processed through the MERS System are never “separated” because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) ("[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable")."
That would mean not only the end of MERS, but also the end of the banks holding unenforceable mortgages because they were not, and cannot be, “perfected”. MERS and the banks screwed up big time, and there is no “do over”—there is no valid lien on the property, so owners have got their homes free and clear.
There have been numerous court rulings against MERS—including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York’s ruling is that the judge specifically set out to examine the legality of MERS’s business model. As the judge argued in the decision, “The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court”. In the scathing opinion, Judge Grossman variously labeled MERS’s positions as “stunningly inconsistent” with the facts, “absurd, at best”, and “not supported by the law”. The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.
What is particularly ironic is that MERS actually forced the judge to undertake the examination of its business model. The case before the judge involved a foreclosed homeowner who had already lost in state court. The homeowner then approached the US Bankruptcy Court to argue that the foreclosing bank did not have legal standing because of MERS’s business practices. However, by the “Rooker-Feldman” doctrine (or res judicata), the US Bankruptcy Court is prohibited from “looking behind” the state court’s decision to determine the issue of legal standing. Hence, Judge Grossman ruled in the bank’s favor on that particular issue.
Yet, MERS’s high priced lawyers wanted to push the issue and asked for the Judge to rule in favor of MERS’s practices, too. So while MERS won the little battle over one foreclosed home, it lost the war against the nation’s homeowners. The Judge ruled against MERS on every single issue of importance. And it was MERS’s stupid arrogance that brought it down.
As I predicted two weeks ago, MERS would be dead within weeks. Judge Grossman has driven the final stake through its black heart. The half of America’s homeowners whose mortgages are registered at MERS have been handed a “get out of jail free” card. Wall Street has no right to foreclose on their property. The tide has turned. It won’t be easy, but homeowners in those states with judicial foreclosures now have Judge Grossman on their side. Those in the other states (just over half) will have a tougher time because they can lose their home before they ever get to court. But the law is still on their side—foreclosure by members of MERS is theft—so class action lawsuits may be the way to go.
MERS is dead, but can the banks survive? There are two separate issues. First, there are the “reps and warranties” given by the mortgage securitizers (Wall Street investment banks) to the investors (pension funds, GSEs, PIMCO, and so on). We now know that a quarter to a third of the mortgages bundled to serve as backing for the securities did not meet stated quality. Worse, we also know that the banks knew this—they hired third parties to undertake “due diligence” to check quality. This was not done to protect the investors, rather, the purpose was to strengthen the bargaining position of the securitizers, who were able to reduce the prices paid for the mortgages. Now, the investors are suing the banks for restitution--forcing them to cover the losses and buy-back the bad mortgages at original price. To add insult to injury, even the NYFed is suing them. That is a lot like having your parents sue you for their inadequate parental oversight of your behavior.
The second issue is that the mortgages backing the securities were supposed to be placed in Trusts (affiliates of the securitizing banks), with the Trustee certifying not only that the mortgages met the reps and warranties but also that the documents were up to snuff and safely locked away. We know they were not. As mentioned above, MERS told the servicers to hold the notes, and many or most of them were destroyed or lost. Further, the notes were separated from the mortgages—making them null and void. In any case, they are not at the Trusts. This means the MBSs are not backed by mortgages, meaning the MBSs are unsecured debt. MERS’s business model ensures that. So, again, the banks must take back the fraudulent securities—paying off the investors.
What can Wall Street do? Well, I suppose the “help wanted” signs are already up at MERS and Wall Street banks: “Needed: Burger King Kids to Robo-sign forged quasi-professional-looking docs”. The problem is that even with tens of thousands of Robo-Kids, Wall Street will not be able to pull off a vast criminal conspiracy on the necessary scale. Think about it: 60 million mortgages, each sold ten times, means 600 million transactions and assignments that have to be forged. MERS’s documentation was notoriously sloppy, relying on voluntary recording by members. The Robo-Kids would have to go back through a decade of records to manufacture a paper trail that would convince now-skeptical judges that there is a clear chain of title from the first recording in the public record through to the foreclosure. It ain’t going to happen.
The only other hope is that Wall Street can call in its campaign contribution chips and get Congress to retroactively legalize fraud. That is what they do in those dictatorships that protestors are now bringing down in the Middle East. Is Washington willing to take that risk, just to please its Wall Street benefactors?
The court documentis available SOURCCE. It is terrific reading.
Section American Solidarity •
View (0) comment(s) or add a new one •
Printable view • Link to this article •
Home •
Tuesday, September 22, 2009
Verizon’s New Privacy Policy
For sale: Your cell phone habits
One Gripe Line reader thinks Verizon Wireless is asking to share too much of his personal information
By Christina Wood
Gripeline
September 22, 2009
Albert took the time to read one of those privacy notices that came to him via e-mail and discovered, as he puts it, “Verizon Wireless is giving themselves the right to SHARE MY INFORMATION quite broadly.”
The e-mail referred to Albert’s CPNI (Customer Proprietary Network Information), the data collected by telecommunications companies based on the customer’s usage. It includes details about the services you buy and use, right down to their location, configuration, and quantity. According to the PRIVACY AND CONSUMER PROFILING REPORT from EPIC (Electronic Privacy Information Center), “CPNI includes subscribers’ names, addresses, services, amount of usage of services, and calling records. ‘Calling records’ are lists of phone numbers that the subscriber receives calls from or dials.”
Together with the customer’s name and phone number, that can potentially YIELD A GREAT DEAL OF INFORMATION about your habits, friends, associates, and interests.This sort of data is fascinating to marketers; they like to purchase aggregated lists of what interests you—along with easy ways to contact you—so that they can sell you things.
Even if you don’t mind that, things can go terribly wrong when that data falls into the wrong hands. According to the EPIC report, “One of the largest commercial profilers, Metromail (now owned by Experian), used prisoners to enter personal information from surveys into computers.” A bad idea? Certainly. According to the report, one woman was stalked as a result by “a convicted rapist and burglar who knew everything about her--including her preferences for bath soap and magazines.” In this case, the data was gathered from surveys and sources other than her cell phone habits, but EPIC categorizes this sort of behavior-rich data-gathering as profiling.
“Most people consider CPNI private,” says the Privacy and Consumer Profiling report. “And under a 1996 telecommunications law, companies must first gain permission from the subscriber (opt-in) before using CPNI for marketing. However, telecommunications companies have challenged the interpretation of that law, and seek to sell CPNI and allow marketing and profiling based on individuals’ calling behaviors with ONLY OPT-OUT protections.”
Section Privacy And Rights •
View (0) comment(s) or add a new one •
Printable view • Link to this article •
Home •
Monday, September 21, 2009
The Economy Is A Lie, Too
Things wont get better until free trade, outsourcing, and the raping of everyone from the real thieves - corporate executives, and a corrupt, sociopathic US government - changes.
- Hungry and Homeless in 2009
The Economy Is A Lie, Too
By Paul Craig Roberts
September 21, 2009
Americans cannot get any truth out of their government about anything, the economy included. Americans are being driven into the ground economically, with one million school children now homeless, while Federal Reserve chairman Ben Bernanke announces that the recession is over.
The spin that masquerades as news is becoming more delusional. Consumer spending is 70% of the US economy. It is the driving force, and it has been shut down. Except for the super rich, there has been no growth in consumer incomes in the 21st century. Statistician John Williams of SHADOWSTATS reports that real household income has never recovered its pre-2001 peak.
The US economy has been kept going by substituting growth in consumer debt for growth in consumer income. Federal Reserve chairman Alan Greenspan encouraged consumer debt with low interest rates. The low interest rates pushed up home prices, enabling Americans to refinance their homes and spend the equity. Credit cards were maxed out in expectations of rising real estate and equity values to pay the accumulated debt. The binge was halted when the real estate and equity bubbles burst.
As consumers no longer can expand their indebtedness and their incomes are not rising, there is no basis for a growing consumer economy. Indeed, statistics indicate that consumers are paying down debt in their efforts to survive financially. In an economy in which the consumer is the driving force, that is bad news.
The banks, now investment banks thanks to greed-driven deregulation that repealed the learned lessons of the past, were even more reckless than consumers and took speculative leverage to new heights. At the urging of Larry Summers and Goldman Sachs CEO Henry Paulson, the Securities and Exchange Commission and the Bush administration went along with removing restrictions on debt leverage.
When the bubble burst, the extraordinary leverage threatened the financial system with collapse. The US Treasury and the Federal Reserve stepped forward with no one knows how many trillions of dollars to ғsave the financial system, which, of course, meant to save the greed-driven financial institutions that had caused the economic crisis that dispossessed ordinary Americans of half of their life savings.
The consumer has been chastened, but not the banks. Refreshed with the TARP $700 billion and the Federal Reserve’s expanded balance sheet, banks are again behaving like hedge funds. Leveraged speculation is producing another bubble with the current stock market rally, which is not a sign of economic recovery but is the final savaging of Americans wealth by a few investment banks and their Washington friends. Goldman Sachs, rolling in profits, announced six figure bonuses to employees.
The rest of America is suffering terribly.
The unemployment rate, as reported, is a fiction and has been since the Clinton administration. The unemployment rate does not include jobless Americans who have been unemployed for more than a year and have given up on finding work. The reported 10% unemployment rate is understated by the millions of Americans who are suffering long-term unemployment and are no longer counted as unemployed. As each month passes, unemployed Americans drop off the unemployment role due to nothing except the passing of time.
The inflation rate, especially “core inflation,” is another fiction. Core inflation does not include food and energy, two of Americans’ biggest budget items. The Consumer Price Index (CPI) assumes, ever since the Boskin Commission during the Clinton administration, that if prices of items go up consumers substitute cheaper items. This is certainly the case, but this way of measuring inflation means that the CPI is no longer comparable to past years, because the basket of goods in the index is variable.
The Boskin Commissions CPI, by lowering the measured rate of inflation, raises the real GDP growth rate. The result of the statistical manipulation is an understated inflation rate, thus eroding the real value of Social Security income, and an overstated growth rate. Statistical manipulation cloaks a declining standard of living.
In bygone days of American prosperity, American incomes rose with productivity. It was the real growth in American incomes that propelled the US economy.
In today’s America, the only incomes that rise are in the financial sector that risks the country’s future on excessive leverage and in the corporate world that substitutes foreign for American labor. Under the compensation rules and emphasis on shareholder earnings that hold sway in the US today, corporate executives maximize earnings and their compensation by minimizing the employment of Americans.
Try to find some acknowledgement of this in the mainstream media, or among economists, who suck up to the offshoring corporations for grants.
The worst part of the decline is yet to come. Bank failures and home foreclosures are yet to peak. The commercial real estate bust is yet to hit. The dollar crisis is building.
When it hits, interest rates will rise dramatically as the US struggles to finance its massive budget and trade deficits while the rest of the world tries to escape a depreciating dollar.
Since the spring of this year, the value of the US dollar has collapsed against every currency except those pegged to it. The Swiss franc has risen 14% against the dollar. Every hard currency from the Canadian dollar to the Euro and UK pound has risen at least 13 % against the US dollar since April 2009. The Japanese yen is not far behind, and the Brazilian real has risen 25% against the almighty US dollar. Even the Russian ruble has risen 13% against the US dollar.
What sort of recovery is it when the safest investment is to bet against the US dollar?
The American household of my day, in which the husband worked and the wife provided household services and raised the children, scarcely exists today. Most, if not all, members of a household have to work in order to pay the bills. However, the jobs are disappearing, even the part-time ones.
If measured according to the methodology used when I was Assistant Secretary of the Treasury, the unemployment rate today in the US is above 20%. Moreover, there is no obvious way of reducing it. THERE ARE NO factories, with work forces temporarily laid off by high interest rates, waiting for a lower interest rate policy to call their workforces back into production.
The work has been moved abroad. In the bygone days of American prosperity, CEOs were inculcated with the view that they had equal responsibilities to customers, employees, and shareholders. This view has been exterminated. Pushed by Wall Street and the threat of takeovers promising “enhanced shareholder value,” and “incentivized by performance pay,” CEOs use every means to substitute cheaper foreign employees for Americans .
Despite 20% unemployment and CUM LAUDE ENGINEERING GRADUATES WHO CANNOT FIND JOBS or even job interviews, Congress continues to support 65,000 annual H1-B work visas for foreigners.
In the midst of the highest unemployment since the Great Depression WHAT KIND OF A FOOL do you need to be to think that there is a shortage of qualified US workers?
Section Dying America •
View (0) comment(s) or add a new one •
Printable view • Link to this article •
Home •
Sunday, September 20, 2009
Mortgage Meltown Phase II
“Option" mortgages to explode, officials warn
By James Pethokoukis
Additional Reporting by Julie Haviv
Editing by Padraic Cassidy
Reuters
September 19, 2009
The federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset.
"Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams.
“That’s the NEXT ROUND of potential foreclosures in our country,” he said.
Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These “underwater” mortgages have been a driving force behind rising defaults and mounting foreclosures.
In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state’s attorney general, Terry Goddard, told Reuters after the meeting.
“It’s the other shoe,” he said. “I can’t say it’s waiting to drop. It’s dropping now.”
The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan’s principal.
When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan’s interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.
Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they “threaten a much greater hit to the consumer than the subprimes,” Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.
Miller said option-ARMs were discussed at Tuesday’s meeting on mortgage scams, which brought state attorneys general from across the country together with U.S. Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, and Federal Trade Commission Chairman Jon Leibowitz.
The mortgages tend to be “jumbo,” or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more DESPERATE to refinance big debts.
Goddard said his office is investigating hundreds of cases where companies have made fraudulent promises, and charged large fees, to mortgage defaulters.
The U.S. housing market has suffered the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy.
Some signs of stabilization emerged recently, with sales rising and home price declines moderating in many regions of the country. Home prices in some regions have risen.
However, many economists say there is still a huge supply of unsold homes lingering on the market and that, coupled with a frenzy of more foreclosures ahead, should depress home prices for the rest of 2009.
Real estate data firm RealtyTrac, in its August 2009 U.S. Foreclosure Market Report, said foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on 358,471 U.S. properties during the month, a decrease of less than 1 percent from the previous month, but an increase of nearly 18 percent from the same month a year ago.
The report said one in every 357 U.S. housing units received a foreclosure filing last month.
Section Dying America • Section Next Recession, Next Depression •
View (0) comment(s) or add a new one •
Printable view • Link to this article •
Home •
