Showing posts with label mortgage crisis. Show all posts
Showing posts with label mortgage crisis. Show all posts
Tuesday, December 27, 2011
Monday, October 24, 2011
New Obama Foreclosure Plan Helps Banks At Taxpayers' Expense
Monday, October 24, 2011 by Huffington Post
WASHINGTON -- The Obama administration is introducing a new
program on Monday designed to lower monthly mortgage payments for more
troubled homeowners.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out. This, in effect, leaves the US taxpayer holding the toxic debt created by a private, profit-hungry bank. But a key new condition in the plan would shift the financial liability for refinanced loans from Wall Street banks to the American taxpayer. And by focusing on lower payments, the program does not confront what housing experts view as the core problem in the foreclosure crisis -- borrower debt that exceeds the value of one's home.
Faced with the weak response to the Home Affordable Refinance Program, the Obama administration is planning to open up the program to all borrowers who owe more on their mortgage than their homes' worth, commonly dubbed being underwater, and have not missed a mortgage payment. HARP had been limited to borrowers who owed up to 25 percent more than their home is worth. More than 22 percent of all home mortgages -- or 10.9 million homes -- are currently underwater, according to CoreLogic data. Fewer than 900,000 borrowers have elected to go through HARP to date.
The revised program also eliminates several fees associated with refinancing that can make the decision to refinance uneconomical for borrowers. But the potential benefit of the eliminated fees could be relatively small: If a few thousand dollars worth of fees made refinancing a bad deal for underwater borrowers, the ultimate benefits that refinancing can pose would remain limited.
On a conference call with reporters, White House National Economic Council Director Gene Sperling referred to the HARP expansion as "a win-win policy" that will result in "less defaults" and "fewer foreclosures." But one of the program's new terms will benefit private-sector Wall Street banks, potentially at the expense of taxpayers.
The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.
If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank -- promises that may directly be tied to the borrower's current financial problems -- banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.
While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem -- owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid.
"In most cases people would probably be better off walking," said economist Dean Baker, co-director of the Center for Economic Policy and Research.
During a conference call with reporters, Department of Housing and Urban Development Secretary Shaun Donovan acknowledged that negative equity is a problem, and said the administration hopes to address the issue on other fronts. Donovan cited settlement negotiations with big banks over widespread allegations of foreclosure fraud and initiatives under the Home Affordable Modification Program, a separate Obama foreclosure-relief plan administered by banks, as key initiatives.
New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have both objected to the foreclosure fraud settlement talks on the grounds that they give away too much to banks without investigating the scope of fraud problems in the system.
The Home Affordable Modification Program has been a hotbed for the kind of borrower abuses that the administration is pressuring lenders to settle over.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out. This, in effect, leaves the US taxpayer holding the toxic debt created by a private, profit-hungry bank. But a key new condition in the plan would shift the financial liability for refinanced loans from Wall Street banks to the American taxpayer. And by focusing on lower payments, the program does not confront what housing experts view as the core problem in the foreclosure crisis -- borrower debt that exceeds the value of one's home.
Faced with the weak response to the Home Affordable Refinance Program, the Obama administration is planning to open up the program to all borrowers who owe more on their mortgage than their homes' worth, commonly dubbed being underwater, and have not missed a mortgage payment. HARP had been limited to borrowers who owed up to 25 percent more than their home is worth. More than 22 percent of all home mortgages -- or 10.9 million homes -- are currently underwater, according to CoreLogic data. Fewer than 900,000 borrowers have elected to go through HARP to date.
The revised program also eliminates several fees associated with refinancing that can make the decision to refinance uneconomical for borrowers. But the potential benefit of the eliminated fees could be relatively small: If a few thousand dollars worth of fees made refinancing a bad deal for underwater borrowers, the ultimate benefits that refinancing can pose would remain limited.
On a conference call with reporters, White House National Economic Council Director Gene Sperling referred to the HARP expansion as "a win-win policy" that will result in "less defaults" and "fewer foreclosures." But one of the program's new terms will benefit private-sector Wall Street banks, potentially at the expense of taxpayers.
The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.
If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank -- promises that may directly be tied to the borrower's current financial problems -- banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.
While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem -- owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid.
"In most cases people would probably be better off walking," said economist Dean Baker, co-director of the Center for Economic Policy and Research.
During a conference call with reporters, Department of Housing and Urban Development Secretary Shaun Donovan acknowledged that negative equity is a problem, and said the administration hopes to address the issue on other fronts. Donovan cited settlement negotiations with big banks over widespread allegations of foreclosure fraud and initiatives under the Home Affordable Modification Program, a separate Obama foreclosure-relief plan administered by banks, as key initiatives.
New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have both objected to the foreclosure fraud settlement talks on the grounds that they give away too much to banks without investigating the scope of fraud problems in the system.
The Home Affordable Modification Program has been a hotbed for the kind of borrower abuses that the administration is pressuring lenders to settle over.
Thursday, September 8, 2011
U.S. government to sue major banks over mortgages
The lawsuits are set to be filed Friday or early next week against Bank of America, JP Morgan Chase, Goldman Sachs, Deutsche Bank and others, the newspaper reported, citing three unnamed individuals briefed on the matter.
The lawsuits will accuse the banks of bundling toxic mortgages -- held by borrowers with inflated or falsified incomes -- as securities and marketing them to investors.
When the borrowers failed to pay their bills, the securities lost value, contributing to the loss of $30 billion by government-backed mortgage firms Fannie Mae and Freddie Mac, losses borne mostly by taxpayers, the Times said.
The two firms, along with two other smaller agencies, currently insure or guarantee 90 percent of all new US home loans.
Instead of trying to force the banks to buy back the tainted bonds, authorities are demanding reimbursement for losses on the securities held by Fannie and Freddie, the Times said.
None of the banks in question responded to requests for comment from the Times, but it said they argued privately that the losses were caused by the general economic downturn and not by any deception related to mortgages.
They also argue that Fannie and Freddie were sophisticated investors who knew that the bonds carried a certain level of risk.
The Times said the suits are being filed now because of a statute of limitations that expires on Wednesday, the three-year anniversary of the government's takeover of Fannie and Freddie.
Wednesday, February 16, 2011
Home Sweet Wall Street
Wednesday, February 16, 2011 by TruthDig.com
by Robert Scheer
A most dastardly deed occurred last Friday when the Obama administration issued a 29-page policy statement totally abandoning the federal government’s time-honored role in helping Americans achieve the goal of home ownership. Instead of punishing the banks that sabotaged the American ideal of a nation of stakeholders by “securitizing” our homesteads into poker chips to be gambled away in the Wall Street casino, Barack Obama now proposes to turn over the entire mortgage industry to those same banks.
The proposal, originated by Treasury Secretary Timothy Geithner, involves nothing less than a total “winding down” of the 80-year-old federal housing program, setting instead a new goal of a two-tiered America in which the masses are content to be mere renters of the American Dream. Such a deal for a country where, as the report concedes, “Half of all renters spend more than a third of their income on housing, and a quarter spend more than half.”
Wall Street
This is the same Geithner who during his tenure in the Clinton Treasury Department championed the total deregulation of the then-emerging market in collateralized debt obligations that sliced and diced people’s home mortgages into the toxic securities that created what his new report calls the greatest economic crisis since the Great Depression. Later, as president of the New York Fed, he cheered on the banks as they went hog-wild, conning folks into buying homes they couldn’t afford and stuffing them into the incomprehensible securities that form the rot at the core of our bankrupt economy.
This is a made-in-the-U.S. nightmare that we inflicted on the world, thanks to an explosion in those toxic securities brought on by the deregulation that most of the Obama economic brain trust supported when they worked for President Bill Clinton and during the ensuing bubble years when they enriched themselves. As the report admits:
Of course Fannie Mae and Freddie Mac also bear responsibility for the meltdown. They had morphed into for-profit enterprises and, just as with the Wall Street firms, the massive bonuses paid out to their top executives were contingent on the value of their stock prices, which in turn were fattened by the sale of those same toxic assets. As the Obama report puts it, “Fannie Mae and Freddie Mac’s profit-maximizing structure undermined their public mission.” What the administration should have proposed is to return the government-sponsored housing agencies to their original function as nonprofit entities supplementing, rather than aping, the practices of greedy bankers.
It wasn’t meant to end this way, and key Democrats, quite a few of them Clinton alums now in the Obama administration, bear the responsibility for the sad fate of Roosevelt’s dream. As the Obama proposal concedes: “Improving how housing was financed was an important part of these broader Depression-era reforms. In the 1930s, following severe mortgage market disruptions, widespread foreclosures, and sinking homeownership rates, the government created the Federal Housing Administration (FHA), Fannie Mae, the Federal Home Loan Banks (FHLBs) and several decades later, Freddie Mac to help promote secure and sustainable homeownership for future generations of Americans. Fannie Mae and Freddie Mac held true to their original mission for many years.” What the report then neglects to discuss is the demise of Roosevelt’s grand experiment at the hands of Democratic Party hustlers who turned the agencies away from their “original mission” and into their personal piggy banks while getting Democrats in Congress to approve regulations enabling their greed.
The folks around President Obama know this sad tale well because some of them were principal actors in the housing agencies’ betrayal of the public trust. Just take the case of Tom Donilon, whom Obama recently appointed to the highly sensitive position of national security adviser. It was Donilon who was the top legal counsel and lobbyist for Fannie Mae from 1999 to 2005, a period when the agency went off the tracks in backing Countrywide and other private-sector bandits in their irresponsible rip-off scams. “He was in charge of the lobbyists. … That process involved using the Hill to rein in the regulators,” noted Stephen Blumenthal, who, as director of the Office of Federal Housing Enterprise Oversight, was hindered by Donilon’s lobbying. As the report concedes without mentioning Donilon’s role, “Over the years, Fannie Mae and Freddie Mac’s aggressive lobbying efforts had successfully defeated efforts to bring them under closer supervision.”
Donilon, who received $10 million in the three years leading up to the scandal of 2004, when Fannie Mae was fined $400 million for juggling its books to enhance executive bonuses, will never have any trouble financing a home purchase. Not so the tens of millions of Americans who have lost their homes because of his reprehensible actions and the many more in the future who will be denied government support in trying to get a place of their own.
by Robert Scheer
A most dastardly deed occurred last Friday when the Obama administration issued a 29-page policy statement totally abandoning the federal government’s time-honored role in helping Americans achieve the goal of home ownership. Instead of punishing the banks that sabotaged the American ideal of a nation of stakeholders by “securitizing” our homesteads into poker chips to be gambled away in the Wall Street casino, Barack Obama now proposes to turn over the entire mortgage industry to those same banks.
The proposal, originated by Treasury Secretary Timothy Geithner, involves nothing less than a total “winding down” of the 80-year-old federal housing program, setting instead a new goal of a two-tiered America in which the masses are content to be mere renters of the American Dream. Such a deal for a country where, as the report concedes, “Half of all renters spend more than a third of their income on housing, and a quarter spend more than half.”
Wall Street
This is the same Geithner who during his tenure in the Clinton Treasury Department championed the total deregulation of the then-emerging market in collateralized debt obligations that sliced and diced people’s home mortgages into the toxic securities that created what his new report calls the greatest economic crisis since the Great Depression. Later, as president of the New York Fed, he cheered on the banks as they went hog-wild, conning folks into buying homes they couldn’t afford and stuffing them into the incomprehensible securities that form the rot at the core of our bankrupt economy.
This is a made-in-the-U.S. nightmare that we inflicted on the world, thanks to an explosion in those toxic securities brought on by the deregulation that most of the Obama economic brain trust supported when they worked for President Bill Clinton and during the ensuing bubble years when they enriched themselves. As the report admits:
“The U.S. is … the only high income country in which securitization plays a major role in housing finance.”Yet instead of ending that practice Obama now calls for more of the same:
“The Administration believes the securitization market should continue to play a key role in housing finance.”Indeed, the plan’s goal of eliminating Fannie Mae and Freddie Mac will dry up the alternative public funding that has provided a source of mortgage support ever since President Franklin Delano Roosevelt launched Fannie Mae to check the power of the banks over mortgages. Now Obama proposes to eliminate that check and leave would-be homeowners to the tender mercy of the banking giants.
Of course Fannie Mae and Freddie Mac also bear responsibility for the meltdown. They had morphed into for-profit enterprises and, just as with the Wall Street firms, the massive bonuses paid out to their top executives were contingent on the value of their stock prices, which in turn were fattened by the sale of those same toxic assets. As the Obama report puts it, “Fannie Mae and Freddie Mac’s profit-maximizing structure undermined their public mission.” What the administration should have proposed is to return the government-sponsored housing agencies to their original function as nonprofit entities supplementing, rather than aping, the practices of greedy bankers.
It wasn’t meant to end this way, and key Democrats, quite a few of them Clinton alums now in the Obama administration, bear the responsibility for the sad fate of Roosevelt’s dream. As the Obama proposal concedes: “Improving how housing was financed was an important part of these broader Depression-era reforms. In the 1930s, following severe mortgage market disruptions, widespread foreclosures, and sinking homeownership rates, the government created the Federal Housing Administration (FHA), Fannie Mae, the Federal Home Loan Banks (FHLBs) and several decades later, Freddie Mac to help promote secure and sustainable homeownership for future generations of Americans. Fannie Mae and Freddie Mac held true to their original mission for many years.” What the report then neglects to discuss is the demise of Roosevelt’s grand experiment at the hands of Democratic Party hustlers who turned the agencies away from their “original mission” and into their personal piggy banks while getting Democrats in Congress to approve regulations enabling their greed.
The folks around President Obama know this sad tale well because some of them were principal actors in the housing agencies’ betrayal of the public trust. Just take the case of Tom Donilon, whom Obama recently appointed to the highly sensitive position of national security adviser. It was Donilon who was the top legal counsel and lobbyist for Fannie Mae from 1999 to 2005, a period when the agency went off the tracks in backing Countrywide and other private-sector bandits in their irresponsible rip-off scams. “He was in charge of the lobbyists. … That process involved using the Hill to rein in the regulators,” noted Stephen Blumenthal, who, as director of the Office of Federal Housing Enterprise Oversight, was hindered by Donilon’s lobbying. As the report concedes without mentioning Donilon’s role, “Over the years, Fannie Mae and Freddie Mac’s aggressive lobbying efforts had successfully defeated efforts to bring them under closer supervision.”
Donilon, who received $10 million in the three years leading up to the scandal of 2004, when Fannie Mae was fined $400 million for juggling its books to enhance executive bonuses, will never have any trouble financing a home purchase. Not so the tens of millions of Americans who have lost their homes because of his reprehensible actions and the many more in the future who will be denied government support in trying to get a place of their own.
Tuesday, February 15, 2011
The Invisible, Growing Leaderless Revolution in America (3 articles)
Sunday, February 13, 2011 by CommonDreams.org
by Will Wilkinson
At first glance, the “leaderless revolution” in Egypt has nothing in common with the recent closing of Allyson’s, a local deli here in our small Oregon town. Until you hear why the bank called the note. “… the balance and payments are due.”
Quoting from a CommonDreams.org article by David Porter on Egypt:
The banker’s quote appeared in a story carried by our local paper and it wasn’t accompanied by any mitigating compassion. Apparently he didn’t feel it was necessary to show any. It’s the golden rule in action: he who has the gold makes the rules. Period. And, it’s happening everywhere.
A San Francisco friend tells me about his eleven months of futile communication with the bank that holds his mortgage. They lost his paperwork three times. All he wanted was to renegotiate the payments. Finally, he’s walking away. But first, he’s stopped making any payments at all. He’ll live in the house until he is forced to leave. When he does leave, the house will sit empty, tied up in red tape, while homeless people crowd the streets nearby.
A Texas couple fights Blue Cross and Blue Shield who have both denied coverage of life saving heart surgery for their newborn baby, on the basis that it is a pre-existing condition. Pre-existing? He was born with it. Reading the official responses from these companies… it’s the same story. They simply don’t want to pay. They are in business to make money, as are the banks. Providing some sort of service is an irritating necessity. The less actually provided, the more successful these businesses are.
Meanwhile, out on the streets where we live, the anger is building towards a breaking point. How many Allyson’s closing down, how many home owners walking away (or being driven out), how many of us losing our savings to pay for health care, how many “confrontations with local officials and elites” will it take to finally get us out on the streets? When will the world start watching a “leaderless revolution” here in America? We don’t have a dictator to oust. For us, it’s a ruling oligarchy immune to influence by voting. It’s bankers, corporations, multi-whatillionaires, an enabling government, those with the gold, the power and no interest in us, beyond milking us everyday like the docile sheep they believe us to be.
The leaderless revolution in Egypt took years to develop. There wasn’t much news about it along the way. Likewise here in the good old USA. So, when it finally erupts, as it inevitably will, it may seem like a surprise. But it won’t be; it is inevitable. The only question is “When?”
But we’re innovators, at least those of us who’ve survived so far with our imaginations intact. We don’t have to wait for thousands to march together, maybe in Times Square. We’ve actually got a lot of power right now. And, ironically, our power resides in the same place it does for those who rule us: money. Imagine the day when we take our money out of those banks and begin lending it to each other? Fifty friends in our small community coming up with $5,000 each could have saved our favorite deli.
Risky? Not as risky as banks and the carnage they wreak in our communities every day. So, am I suggesting local, citizen-operated banks? Sort of. But what I imagine is more neighborly than the word “bank” can possibly ever convey now, it’s meaning forever corrupted by the heartless behavior we’re witnessing. It’s simpler, more like friends just supporting each other. Financially. What a concept. And imagine not charging interest. No interest. No taxes. Just favors between trusting friends.
Maybe some day we will be out on the streets and the world will watch breathlessly as the next American Revolution turns tables. But we can start right now without any fanfare at all, taking baby steps to regain our power, one friendly exchange at a time. We hear the stories of grief every day and it’s our friends who are telling them. How about, instead of just sympathizing and worrying that I might be next - which explains why I’m clinging to that $5,000 I’ve got stashed in the stranger’s bank - I respond in the most practical way possible? I take my hoarded wealth and put it in play. “Here, will this help?”
What have I got to lose? Well, my $5,000. So how much have I already lost to investments gone bad? To strangers? (As I write this I’m feeling a bit like I do when I wake up from a weird dream.) Why not lose mine to friends right here in my own community? But, of course, as we all know from experience, true no-strings-attached generosity always returns rewards that far exceed the value of what we offered. We do know that, because we already give and receive with each other that way. But now may be the time to start exchanging cash. It’s been the hold out. For obvious reasons. After all, it’s the symbol of what enslaves us, the currency of the middleman.
This is probably a worst-case scenario for our masters, that we make them and their paper power unnecessary. But if they aren’t going to be neighborly, why would we really want to have anything to do with them?
Monday, February 14, 2011 by CommonDreams.org
by Will Wilkinson
At first glance, the “leaderless revolution” in Egypt has nothing in common with the recent closing of Allyson’s, a local deli here in our small Oregon town. Until you hear why the bank called the note. “… the balance and payments are due.”
Quoting from a CommonDreams.org article by David Porter on Egypt:
“It is the slowly-accumulating momentum of hundreds of thousands of confrontations with local officials and elites… that slowly develop the courage, confidence and essential horizontal networks bubbling below the surface…”How many Allyson’s stories are accumulating throughout America? How many business owners and employees, home owners and credit card users have had their lives turned upside down by banker’s decisions like this one, so utterly devoid of humanity?
The banker’s quote appeared in a story carried by our local paper and it wasn’t accompanied by any mitigating compassion. Apparently he didn’t feel it was necessary to show any. It’s the golden rule in action: he who has the gold makes the rules. Period. And, it’s happening everywhere.
A San Francisco friend tells me about his eleven months of futile communication with the bank that holds his mortgage. They lost his paperwork three times. All he wanted was to renegotiate the payments. Finally, he’s walking away. But first, he’s stopped making any payments at all. He’ll live in the house until he is forced to leave. When he does leave, the house will sit empty, tied up in red tape, while homeless people crowd the streets nearby.
A Texas couple fights Blue Cross and Blue Shield who have both denied coverage of life saving heart surgery for their newborn baby, on the basis that it is a pre-existing condition. Pre-existing? He was born with it. Reading the official responses from these companies… it’s the same story. They simply don’t want to pay. They are in business to make money, as are the banks. Providing some sort of service is an irritating necessity. The less actually provided, the more successful these businesses are.
Meanwhile, out on the streets where we live, the anger is building towards a breaking point. How many Allyson’s closing down, how many home owners walking away (or being driven out), how many of us losing our savings to pay for health care, how many “confrontations with local officials and elites” will it take to finally get us out on the streets? When will the world start watching a “leaderless revolution” here in America? We don’t have a dictator to oust. For us, it’s a ruling oligarchy immune to influence by voting. It’s bankers, corporations, multi-whatillionaires, an enabling government, those with the gold, the power and no interest in us, beyond milking us everyday like the docile sheep they believe us to be.
The leaderless revolution in Egypt took years to develop. There wasn’t much news about it along the way. Likewise here in the good old USA. So, when it finally erupts, as it inevitably will, it may seem like a surprise. But it won’t be; it is inevitable. The only question is “When?”
But we’re innovators, at least those of us who’ve survived so far with our imaginations intact. We don’t have to wait for thousands to march together, maybe in Times Square. We’ve actually got a lot of power right now. And, ironically, our power resides in the same place it does for those who rule us: money. Imagine the day when we take our money out of those banks and begin lending it to each other? Fifty friends in our small community coming up with $5,000 each could have saved our favorite deli.
Risky? Not as risky as banks and the carnage they wreak in our communities every day. So, am I suggesting local, citizen-operated banks? Sort of. But what I imagine is more neighborly than the word “bank” can possibly ever convey now, it’s meaning forever corrupted by the heartless behavior we’re witnessing. It’s simpler, more like friends just supporting each other. Financially. What a concept. And imagine not charging interest. No interest. No taxes. Just favors between trusting friends.
Maybe some day we will be out on the streets and the world will watch breathlessly as the next American Revolution turns tables. But we can start right now without any fanfare at all, taking baby steps to regain our power, one friendly exchange at a time. We hear the stories of grief every day and it’s our friends who are telling them. How about, instead of just sympathizing and worrying that I might be next - which explains why I’m clinging to that $5,000 I’ve got stashed in the stranger’s bank - I respond in the most practical way possible? I take my hoarded wealth and put it in play. “Here, will this help?”
What have I got to lose? Well, my $5,000. So how much have I already lost to investments gone bad? To strangers? (As I write this I’m feeling a bit like I do when I wake up from a weird dream.) Why not lose mine to friends right here in my own community? But, of course, as we all know from experience, true no-strings-attached generosity always returns rewards that far exceed the value of what we offered. We do know that, because we already give and receive with each other that way. But now may be the time to start exchanging cash. It’s been the hold out. For obvious reasons. After all, it’s the symbol of what enslaves us, the currency of the middleman.
This is probably a worst-case scenario for our masters, that we make them and their paper power unnecessary. But if they aren’t going to be neighborly, why would we really want to have anything to do with them?
++++++++++++++
Monday, February 14, 2011 by CommonDreams.org
The massive rise of popular protests around the Middle East and North Africa coincided with the convening of the World Social Forum in Dakar, Senegal. While the former were the subject of deserved and extensive media attention, the latter was virtually ignored by mainstream media. Yet all these gatherings of activists should be seen as part of a single, global movement that has been unfolding for over a decade.
While protesters in Egypt seek to topple corrupt and authoritarian rulers, activists at the World Social Forum have been doing the long-term and painstaking work of building a global movement to transform the basic structures of our world economy. It is those structures that enable the greed and brutality of individual leaders while maintaining the conditions against which Egyptians, Jordanians, Yemenis as well as Ecuadorans, Indians, and Detroiters are all resisting.
A new regime in Egypt will not fundamentally reduce youth unemployment. New leadership in Jordan will not solve the global climate crisis. Changes in local and national governments, without larger structural changes, will not end the land speculation, corporate monopolies, and militarization that plague communities worldwide.
While we must support the protests in the Middle East, it is vital that we see how they are connected to other struggles, including the massive protests last fall across Europe as well as the larger and more inclusive global justice movement that has created the World Social Forum process.
In a recent analysis of the Egyptian protests, Horace Campbell identifies the most important characteristics of these “21st century revolutions”:
As governments and empires use force to maintain their preferred world order, another world is being created and nurtured “from below.” We must recognize the many forms the revolution of the 21st century takes and support it in all of its manifestations.
Monday, February 14, 2011 by CommonDreams.org
While protesters in Egypt seek to topple corrupt and authoritarian rulers, activists at the World Social Forum have been doing the long-term and painstaking work of building a global movement to transform the basic structures of our world economy. It is those structures that enable the greed and brutality of individual leaders while maintaining the conditions against which Egyptians, Jordanians, Yemenis as well as Ecuadorans, Indians, and Detroiters are all resisting.
A new regime in Egypt will not fundamentally reduce youth unemployment. New leadership in Jordan will not solve the global climate crisis. Changes in local and national governments, without larger structural changes, will not end the land speculation, corporate monopolies, and militarization that plague communities worldwide.
While we must support the protests in the Middle East, it is vital that we see how they are connected to other struggles, including the massive protests last fall across Europe as well as the larger and more inclusive global justice movement that has created the World Social Forum process.
In a recent analysis of the Egyptian protests, Horace Campbell identifies the most important characteristics of these “21st century revolutions”:
- The revolutions are made by ordinary people independent of vanguard parties and self-proclaimed revolutionaries;
- They are network-based and are developing innovative tools and technologies to foster autonomous, horizontal, and cooperative networks;
- They are led by ordinary people who have taken initiative and stepped up to contribute to the movement’s self-mobilization and its effort at self-emancipation;
- They rely on and seek to build revolutionary non-violence for self-defense;
- Their ultimate revolutionary idea is for a world where human beings can live in dignity and freedom from dictatorship and violence
As governments and empires use force to maintain their preferred world order, another world is being created and nurtured “from below.” We must recognize the many forms the revolution of the 21st century takes and support it in all of its manifestations.
+++++++++++++++++++++
Monday, February 14, 2011 by CommonDreams.org
Many reasons have been cited for the runaway food costs that have plagued Egypt's citizens: increased global demand, floods and drought in grain-producing nations, reduced supplies because of biofuel production, Federal Reserve policies. But it's becoming clear that our own dirty little secret -- risky financial derivatives, like those that spurred the U.S. mortgage crisis -- have bubbled up from the toxic Wall Street pavement as a major cause. We need to dig deeper into the dirt.
The richest 1% of Americans, unlike lower-income earners who spend mostly on consumer goods, can spend much of their annual trillion dollar windfall from tax cuts and deregulation on high-stakes investment opportunities. And this they have done, with great success and little regard to the global consequences.
One of their strategies is the "long-only" commodities index fund, by which speculators keep buying even when a rising market would normally motivate them to sell. This can put massive inflationary pressure on a commodity. According to 25-year trading veteran Daniel Dicker, these investment vehicles, which didn't even exist a few years ago, have caused such a market imbalance that it's nearly impossible to avoid a bubble in food prices.
Dicker remarks about the importance to financial traders to "capitalize on the supply shortages," and about the need by governments to stockpile basic commodities to prevent food emergencies. He also notes the speed with which these trades occur. Apparently it all happens too fast for a humanitarian response.
As a result, according to the New York Times, wheat has reached its highest price in 28 years, and the effects are being felt in Egypt and Haiti and other countries whose citizens live on a few dollars a day. Harper's Magazine editor Frederick Kaufman notes that Egypt's inflation rate on food has reached 17% PER MONTH.
The financial players, says Kaufman, are investing in "imaginary wheat." In 2008 the publication Price Perceptions said, "index funds alone now own about 1 billion bushels of Chicago wheat compared to annual US production of about 500 million." 'Fantasy finance,' as Les Leopold calls it.
Not surprisingly, unregulated free market defenders deny all this. The Economist says, "there is little empirical evidence that investors cause more than fleeting distortions to commodity prices." Resource Investor claimed in 2008 that while "commodity market speculation by long-only index funds has increased markedly...most commodity futures markets experienced an equally dramatic or even greater increase in selling by commercial hedgers."
But Frederick Kaufman counters that "speculators are outnumbering the physical hedgers by about 4 to 1 in these markets." Revenues from speculative trading at Goldman Sachs alone more than quintupled over the past two years. Way back in 2007 a Market Club Trader's Blog commented that "As money has flooded into this (Goldman Sachs Commodity Index), prices have continued higher."
In his February 4, 2011 Common Dreams essay "Food, Egypt and Wall Street," Institute for Policy Studies writer Robert Alvarez cited one of the main reasons for this sordid financial state of affairs, the Commodity Futures Modernization Act of 2000: "Before this law, the Commodity Futures Trading Commission (CFTC) served as a cop on the beat, enforcing rules that prevent distortion of manipulation of prices beyond normal supply and demand. But Wall Street Banks and companies such as ENRON, and British Petroleum were determined to make a lot more money from speculation by exempting energy-derivative contracts and related swaps from government oversight."
Alvarez quotes noted hedge trader Michael McMasters: "This amounts to 'a form of electronic hoarding and greatly increases the inflationary effect of the market. It literally means starvation for millions of the world's poor.'"
We're letting a few thousand well-positioned financial experts fashion games of chance that earn them billions with other people's money. And, now, with other people's lives.
The richest 1% of Americans, unlike lower-income earners who spend mostly on consumer goods, can spend much of their annual trillion dollar windfall from tax cuts and deregulation on high-stakes investment opportunities. And this they have done, with great success and little regard to the global consequences.
One of their strategies is the "long-only" commodities index fund, by which speculators keep buying even when a rising market would normally motivate them to sell. This can put massive inflationary pressure on a commodity. According to 25-year trading veteran Daniel Dicker, these investment vehicles, which didn't even exist a few years ago, have caused such a market imbalance that it's nearly impossible to avoid a bubble in food prices.
Dicker remarks about the importance to financial traders to "capitalize on the supply shortages," and about the need by governments to stockpile basic commodities to prevent food emergencies. He also notes the speed with which these trades occur. Apparently it all happens too fast for a humanitarian response.
As a result, according to the New York Times, wheat has reached its highest price in 28 years, and the effects are being felt in Egypt and Haiti and other countries whose citizens live on a few dollars a day. Harper's Magazine editor Frederick Kaufman notes that Egypt's inflation rate on food has reached 17% PER MONTH.
The financial players, says Kaufman, are investing in "imaginary wheat." In 2008 the publication Price Perceptions said, "index funds alone now own about 1 billion bushels of Chicago wheat compared to annual US production of about 500 million." 'Fantasy finance,' as Les Leopold calls it.
Not surprisingly, unregulated free market defenders deny all this. The Economist says, "there is little empirical evidence that investors cause more than fleeting distortions to commodity prices." Resource Investor claimed in 2008 that while "commodity market speculation by long-only index funds has increased markedly...most commodity futures markets experienced an equally dramatic or even greater increase in selling by commercial hedgers."
But Frederick Kaufman counters that "speculators are outnumbering the physical hedgers by about 4 to 1 in these markets." Revenues from speculative trading at Goldman Sachs alone more than quintupled over the past two years. Way back in 2007 a Market Club Trader's Blog commented that "As money has flooded into this (Goldman Sachs Commodity Index), prices have continued higher."
In his February 4, 2011 Common Dreams essay "Food, Egypt and Wall Street," Institute for Policy Studies writer Robert Alvarez cited one of the main reasons for this sordid financial state of affairs, the Commodity Futures Modernization Act of 2000: "Before this law, the Commodity Futures Trading Commission (CFTC) served as a cop on the beat, enforcing rules that prevent distortion of manipulation of prices beyond normal supply and demand. But Wall Street Banks and companies such as ENRON, and British Petroleum were determined to make a lot more money from speculation by exempting energy-derivative contracts and related swaps from government oversight."
Alvarez quotes noted hedge trader Michael McMasters: "This amounts to 'a form of electronic hoarding and greatly increases the inflationary effect of the market. It literally means starvation for millions of the world's poor.'"
We're letting a few thousand well-positioned financial experts fashion games of chance that earn them billions with other people's money. And, now, with other people's lives.
Wednesday, November 17, 2010
Extend Jobless Benefits Not Tax Cuts For The Rich
Wednesday, November 17, 2010 by Talking Points Memo
Why The Lame Duck Congress Must Extend Jobless Benefits For Hard-Hit Families But Not Tax Cuts For The Rich
by Robert Reich
America's long-term unemployed -- an estimated 4 million or more -- constitute the single newest and biggest social problem facing America.
Now their unemployment benefits are about to run out, and the lame-duck Congress may not have the votes to extend them. (You can forget about the next Congress.)
The long-term unemployed can't get work because there are still five people needing work for every job opening. And the long-term jobless are often at the end of the job line: Either they don't have the right skills or enough eduction, or have been out of work so long prospective employers are nervous about hiring them.
They're also a big problem for the economy. Without enough money in their pockets, they and their families can't pay their mortgages, which keeps fueling the mortgage crisis. Nor can they replace worn-out cars and clothing, or buy muchof anything else, which is a drag on the economy.
Republicans and many blue-dog Dems say we can't afford another extension.
But these are many of the same people who say we should extend the Bush tax cuts for the wealthy for at least another two years.
Extending the Bush tax cuts for the top 1 percent would cost an estimated $120 billion over the next two years. That's more than another unemployment benefit extension would cost.
The unemployed need the money. The rich don't.
Moreover, the top 1 percent spends a small fraction of their income. That's what it means to be rich -- you already have most of what you want. So extending the Bush tax cut to them won't stimulate the economy.
Yet people without jobs, and their families, are likely to spend every penny of unemployment benefits they receive. That will go back into the economy and save or create jobs.
A Labor Department report shows that for every $1 spent on unemployment insurance, $2 are spent in the economy. If you don't believe the Labor Department, maybe you'll believe Goldman Sachs analyst Alec Phillips, who estimates that if unemployment benefits are allowed to expire, the American economy would slow by a half a percent.
Republicans are still spouting nutty Social Darwinism. Cutting taxes on the rich is better than helping the unemployed, they say, because the rich will create jobs with their extra money while giving money to the unemployed reduces their desire to look for work.
Rubbish. The Bush tax cuts on the top never trickled down. Between 2002 and 2007 the median wage dropped, adjusted for inflation. And job growth was pathetic.
Jobless benefits don't deter the unemployed from finding work. In most states, unemployment benefits are a fraction of former wages. And as long as unemployment remains sky-high, there are no jobs to be had anyway.
Besides, the economic downturn was hardly their fault. If anyone is to blame it's the high-flyers on Wall Street who gambled away other people's money, and the rich denizens of corporate executive suites who have sliced payrolls in order to show higher profits (and get more money from their stock options).
So why reward the people at the top with an extension of the Bush tax cut that will blow a hole in the budget deficit? And why fail to extend jobless benefits to hardworking Americans who got the boot?
Quick action is needed. Jobless benefits begin to lapse in just two weeks. Two million unemployed workers will be affected. If Congress fails to act, another 1.2 million will stop receiving benefits by the end of December. Most of the rest of those who now receive federal emergency extended benefits will gradually lose them.
Don't extend the Bush tax cuts to the wealthy. Give unemployment benefits to people who need them.
Why The Lame Duck Congress Must Extend Jobless Benefits For Hard-Hit Families But Not Tax Cuts For The Rich
by Robert Reich
America's long-term unemployed -- an estimated 4 million or more -- constitute the single newest and biggest social problem facing America.
Now their unemployment benefits are about to run out, and the lame-duck Congress may not have the votes to extend them. (You can forget about the next Congress.)
The long-term unemployed can't get work because there are still five people needing work for every job opening. And the long-term jobless are often at the end of the job line: Either they don't have the right skills or enough eduction, or have been out of work so long prospective employers are nervous about hiring them.
They're also a big problem for the economy. Without enough money in their pockets, they and their families can't pay their mortgages, which keeps fueling the mortgage crisis. Nor can they replace worn-out cars and clothing, or buy muchof anything else, which is a drag on the economy.
Republicans and many blue-dog Dems say we can't afford another extension.
But these are many of the same people who say we should extend the Bush tax cuts for the wealthy for at least another two years.
Extending the Bush tax cuts for the top 1 percent would cost an estimated $120 billion over the next two years. That's more than another unemployment benefit extension would cost.
The unemployed need the money. The rich don't.
Moreover, the top 1 percent spends a small fraction of their income. That's what it means to be rich -- you already have most of what you want. So extending the Bush tax cut to them won't stimulate the economy.
Yet people without jobs, and their families, are likely to spend every penny of unemployment benefits they receive. That will go back into the economy and save or create jobs.
A Labor Department report shows that for every $1 spent on unemployment insurance, $2 are spent in the economy. If you don't believe the Labor Department, maybe you'll believe Goldman Sachs analyst Alec Phillips, who estimates that if unemployment benefits are allowed to expire, the American economy would slow by a half a percent.
Republicans are still spouting nutty Social Darwinism. Cutting taxes on the rich is better than helping the unemployed, they say, because the rich will create jobs with their extra money while giving money to the unemployed reduces their desire to look for work.
Rubbish. The Bush tax cuts on the top never trickled down. Between 2002 and 2007 the median wage dropped, adjusted for inflation. And job growth was pathetic.
Jobless benefits don't deter the unemployed from finding work. In most states, unemployment benefits are a fraction of former wages. And as long as unemployment remains sky-high, there are no jobs to be had anyway.
Besides, the economic downturn was hardly their fault. If anyone is to blame it's the high-flyers on Wall Street who gambled away other people's money, and the rich denizens of corporate executive suites who have sliced payrolls in order to show higher profits (and get more money from their stock options).
So why reward the people at the top with an extension of the Bush tax cut that will blow a hole in the budget deficit? And why fail to extend jobless benefits to hardworking Americans who got the boot?
Quick action is needed. Jobless benefits begin to lapse in just two weeks. Two million unemployed workers will be affected. If Congress fails to act, another 1.2 million will stop receiving benefits by the end of December. Most of the rest of those who now receive federal emergency extended benefits will gradually lose them.
Don't extend the Bush tax cuts to the wealthy. Give unemployment benefits to people who need them.
Thursday, September 16, 2010
US homes lost to foreclosure up 25% for the year
US home repossessions spike in August to highest level since start of mortgage crisis
Lenders took back more homes in August than in any month since the start of the U.S. mortgage crisis.
The increase in home repossessions came even as the number of properties entering the foreclosure process slowed for the seventh month in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
In all, banks repossessed 95,364 properties last month, up 3 percent from July and an increase of 25 percent from August 2009, RealtyTrac said.
August makes the ninth month in a row that the pace of homes lost to foreclosure has increased on an annual basis. The previous high was in May.
Banks have been stepping up repossessions to clear out their backlog of bad loans with an eye on eventually placing the foreclosed properties on the market, but they can't afford to simply dump the properties on the market.
Concerns are growing that the housing market recovery could stumble amid stubbornly high unemployment, a sluggish economy and faltering consumer confidence. U.S. home sales have collapsed since federal homebuyer tax credits expired in April.
That's one reason fewer than one-third of homes repossessed by lenders are on the market, said Rick Sharga, a senior vice president at RealtyTrac.
"These (properties) are going to come to market, but very slowly because nobody wants to overwhelm a soft buyer's market with too much distressed inventory for fear of what it would do for house prices," he said.
As a result, lenders are putting off initiating the foreclosure process on homeowners who have missed payments, letting borrowers stay in their homes longer.
The number of properties receiving an initial default notice — the first step in the foreclosure process — slipped 1 percent last month from July, but was down 30 percent versus August last year, RealtyTrac said.
Initial defaults have fallen on an annual basis the past seven months. They peaked in April 2009.
Still, the number of homes scheduled to be sold at auction for the first time increased 9 percent from July and rose 2 percent from August last year. If they don't sell at auction, these homes typically end up going back to the lender.
More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to RealtyTrac. The firm estimates more than 1 million American households are likely to lose their homes to foreclosure this year.
In all, 338,836 properties received a foreclosure-related warning in August, up 4 percent from July, but down 5 percent from the same month last year, RealtyTrac said. That translates to one in 381 U.S. homes.
The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.
Among states, Nevada posted the highest foreclosure rate last month, with one in every 84 households receiving a foreclosure notice. That's 4.5 times the national average.
Rounding out the top 10 states with the highest foreclosure rate in August were: Florida, Arizona, California, Idaho, Utah, Georgia, Michigan, Illinois and Hawaii.
Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures.
Lenders are offering a variety of programs to help homeowners modify their loans, but their success rates vary. Hundreds of thousands of homeowners can't qualify or fall back into default.
The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis but has made only a small dent in the problem. Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out.
The program, known as Making Home Affordable, has provided permanent help to about 390,000 homeowners since March 2009.
Regardless, many troubled borrowers have seen their efforts to get a loan modification stymied.
Larry Book of Winter Garden, Fla., was one packet away from a permanent loan modification from Chase under the Obama administration's foreclosure prevention plan after more than a year of back and forth and one failed attempt.
But his modification never went through. Instead, his loan was transferred from Chase to IBM Lender Business Process Servicers in July and he was told he owed $9,562.62 and must bring his mortgage current by Sept. 15 or foreclosure proceedings will begin.
"It just becomes too exhausting," Book said about the modification process. "That's why some people walk away. But I've invested too much and given up too much to just let it go."
By The Associated Press - Thursday, September 16th, 2010
Lenders took back more homes in August than in any month since the start of the U.S. mortgage crisis.
The increase in home repossessions came even as the number of properties entering the foreclosure process slowed for the seventh month in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
In all, banks repossessed 95,364 properties last month, up 3 percent from July and an increase of 25 percent from August 2009, RealtyTrac said.
August makes the ninth month in a row that the pace of homes lost to foreclosure has increased on an annual basis. The previous high was in May.
Banks have been stepping up repossessions to clear out their backlog of bad loans with an eye on eventually placing the foreclosed properties on the market, but they can't afford to simply dump the properties on the market.
Concerns are growing that the housing market recovery could stumble amid stubbornly high unemployment, a sluggish economy and faltering consumer confidence. U.S. home sales have collapsed since federal homebuyer tax credits expired in April.
That's one reason fewer than one-third of homes repossessed by lenders are on the market, said Rick Sharga, a senior vice president at RealtyTrac.
"These (properties) are going to come to market, but very slowly because nobody wants to overwhelm a soft buyer's market with too much distressed inventory for fear of what it would do for house prices," he said.
As a result, lenders are putting off initiating the foreclosure process on homeowners who have missed payments, letting borrowers stay in their homes longer.
The number of properties receiving an initial default notice — the first step in the foreclosure process — slipped 1 percent last month from July, but was down 30 percent versus August last year, RealtyTrac said.
Initial defaults have fallen on an annual basis the past seven months. They peaked in April 2009.
Still, the number of homes scheduled to be sold at auction for the first time increased 9 percent from July and rose 2 percent from August last year. If they don't sell at auction, these homes typically end up going back to the lender.
More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to RealtyTrac. The firm estimates more than 1 million American households are likely to lose their homes to foreclosure this year.
In all, 338,836 properties received a foreclosure-related warning in August, up 4 percent from July, but down 5 percent from the same month last year, RealtyTrac said. That translates to one in 381 U.S. homes.
The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.
Among states, Nevada posted the highest foreclosure rate last month, with one in every 84 households receiving a foreclosure notice. That's 4.5 times the national average.
Rounding out the top 10 states with the highest foreclosure rate in August were: Florida, Arizona, California, Idaho, Utah, Georgia, Michigan, Illinois and Hawaii.
Economic woes, such as unemployment or reduced income, are now the main catalysts for foreclosures.
Lenders are offering a variety of programs to help homeowners modify their loans, but their success rates vary. Hundreds of thousands of homeowners can't qualify or fall back into default.
The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis but has made only a small dent in the problem. Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out.
The program, known as Making Home Affordable, has provided permanent help to about 390,000 homeowners since March 2009.
Regardless, many troubled borrowers have seen their efforts to get a loan modification stymied.
Larry Book of Winter Garden, Fla., was one packet away from a permanent loan modification from Chase under the Obama administration's foreclosure prevention plan after more than a year of back and forth and one failed attempt.
But his modification never went through. Instead, his loan was transferred from Chase to IBM Lender Business Process Servicers in July and he was told he owed $9,562.62 and must bring his mortgage current by Sept. 15 or foreclosure proceedings will begin.
"It just becomes too exhausting," Book said about the modification process. "That's why some people walk away. But I've invested too much and given up too much to just let it go."
Monday, August 23, 2010
More Bad Housing Policy
Fannie and Freddie: Live Public or Die
By DEAN BAKER
The administration took its first step towards resolving the final status of Fannie Mae and Freddie Mac with a big conference at the White House last week. In keeping with its housing policy to date, it seems intent on taking the worst possible course.
These mortgage giants have played an important role in making housing more affordable in the United States. Fannie Mae created the secondary market in mortgages when it was established as a government-owned company during the New Deal. Its willingness to buy mortgages from banks essentially created the basis for the 30-year fixed rate mortgage that is the standard today.
The virtue of the original Fannie Mae was that it was simple and cheap. It bought and held 30-year mortgages. It did not securitize them. This avoided the costs and risks associated with securitization. At every step in the securitization process the financial industry expects to make money, and often lots of it, since salaries are so bloated. In addition to saving these costs, a public Fannie also had no incentive to engage in risky gambles to inflate profits. Its top management was paid civil servant wages, not the tens of millions that go each year to top Wall Street executives.
Holding the mortgage on its books meant that Fannie Mae, and therefore the government, was bearing the interest rate risk associated with the mortgage, in addition to the risk that the mortgage would go bad. Interest rate risk is the risk that interest rates will rise. If the standard interest rate for a 30-year mortgage rises from 5.0 percent to 6.0 percent, then a newly issued 30-year mortgage will lose more than 12 percent of its value. Sharper rises in interest rates, as we saw in the inflation wracked '70s, led to large losses on mortgages for Fannie and Freddie, as well as banks and savings and loans that held 30-year mortgages.
While this risk is raised as a danger if these government-owned mortgage giants are allowed to hold their mortgages, it really does not pose a problem for the government. The government is a massive issuer of long-term debt. In the event that a government-owned Fannie and Freddie are taking a big hit due to a rise in inflation rates, then the government simultaneously getting a bonanza from the reduction in the real value of the debt it owes.
In other words, insofar as a sudden burst of inflation erodes the value of the mortgages held by Fannie and Freddie, it will likely be offset by the reduction in the value of the debt the government owes the public. In short, we are hedged against this risk.
If we are interested in a cheap and efficient way to sustain the secondary mortgage market, it would be hard to beat the old government-owned Fannie model. It may make sense to keep Freddie as a source of competition and to ensure some dynamism, but if efficiency is the goal, then keeping Fannie and Freddie as government-owned companies would be the way to go.
But, this approach seems to be off the agenda since it makes too much sense. Instead, the consensus seems to be to design some hybrid model in which private profit-making banks will decide which mortgages will get a government guarantee.
We are assured by the housing finance wizards that the government regulators will effectively police the private banks. The basic issue is the problem of moral hazard: Private banks have incentive to issue the guarantee to the worst junk around, since they can will make money on the process and the risk goes to the government. It is difficult to believe that anyone who has lived through the crisis of the last three years would want to re-establish this sort of situation.
The alternative to the hybrid or the government-owned Fannie/Freddie route is simply to let them die over a period of 5-10 years and leave mortgages to the private sector. We know that the private sector can and does issue mortgages without government support.
This is demonstrated by the existence of the jumbo mortgage market. Jumbo mortgages exceed the size limits set for a loan to be purchased by Fannie and Freddie. Even in the current environment the spread is only 90 basis points (9/10ths of a percentage point) compared with the Fannie/Freddie backed conformable mortgages, and it is typically much less.
If ideological and political considerations prevent us from establishing the most efficient mortgage system, relying on a purely private model is almost certainly better than trying to construct a convoluted hybrid. The potential benefits from this mixed system are fairly modest – a slight reduction in mortgage interest rates. While the risks from not doing right are large.
If we want to have the government subsidize the mortgages of moderate- and middle-income homeowners, it can be easily done through the tax code or other mechanisms. There is no reason to set up a whole new system of finance to accomplish this purpose.
Unfortunately, the smart money is on the convoluted route because the big money stands to gain this way. The waste in such a system is income for folks like Citigroup and Bank of America. And we all know that the most dangerous place to stand in modern America is between the financial industry and a policy that will enhance its profits. So, looks for more bad housing policy coming out of Washington.
By DEAN BAKER
The administration took its first step towards resolving the final status of Fannie Mae and Freddie Mac with a big conference at the White House last week. In keeping with its housing policy to date, it seems intent on taking the worst possible course.
These mortgage giants have played an important role in making housing more affordable in the United States. Fannie Mae created the secondary market in mortgages when it was established as a government-owned company during the New Deal. Its willingness to buy mortgages from banks essentially created the basis for the 30-year fixed rate mortgage that is the standard today.
The virtue of the original Fannie Mae was that it was simple and cheap. It bought and held 30-year mortgages. It did not securitize them. This avoided the costs and risks associated with securitization. At every step in the securitization process the financial industry expects to make money, and often lots of it, since salaries are so bloated. In addition to saving these costs, a public Fannie also had no incentive to engage in risky gambles to inflate profits. Its top management was paid civil servant wages, not the tens of millions that go each year to top Wall Street executives.
Holding the mortgage on its books meant that Fannie Mae, and therefore the government, was bearing the interest rate risk associated with the mortgage, in addition to the risk that the mortgage would go bad. Interest rate risk is the risk that interest rates will rise. If the standard interest rate for a 30-year mortgage rises from 5.0 percent to 6.0 percent, then a newly issued 30-year mortgage will lose more than 12 percent of its value. Sharper rises in interest rates, as we saw in the inflation wracked '70s, led to large losses on mortgages for Fannie and Freddie, as well as banks and savings and loans that held 30-year mortgages.
While this risk is raised as a danger if these government-owned mortgage giants are allowed to hold their mortgages, it really does not pose a problem for the government. The government is a massive issuer of long-term debt. In the event that a government-owned Fannie and Freddie are taking a big hit due to a rise in inflation rates, then the government simultaneously getting a bonanza from the reduction in the real value of the debt it owes.
In other words, insofar as a sudden burst of inflation erodes the value of the mortgages held by Fannie and Freddie, it will likely be offset by the reduction in the value of the debt the government owes the public. In short, we are hedged against this risk.
If we are interested in a cheap and efficient way to sustain the secondary mortgage market, it would be hard to beat the old government-owned Fannie model. It may make sense to keep Freddie as a source of competition and to ensure some dynamism, but if efficiency is the goal, then keeping Fannie and Freddie as government-owned companies would be the way to go.
But, this approach seems to be off the agenda since it makes too much sense. Instead, the consensus seems to be to design some hybrid model in which private profit-making banks will decide which mortgages will get a government guarantee.
We are assured by the housing finance wizards that the government regulators will effectively police the private banks. The basic issue is the problem of moral hazard: Private banks have incentive to issue the guarantee to the worst junk around, since they can will make money on the process and the risk goes to the government. It is difficult to believe that anyone who has lived through the crisis of the last three years would want to re-establish this sort of situation.
The alternative to the hybrid or the government-owned Fannie/Freddie route is simply to let them die over a period of 5-10 years and leave mortgages to the private sector. We know that the private sector can and does issue mortgages without government support.
This is demonstrated by the existence of the jumbo mortgage market. Jumbo mortgages exceed the size limits set for a loan to be purchased by Fannie and Freddie. Even in the current environment the spread is only 90 basis points (9/10ths of a percentage point) compared with the Fannie/Freddie backed conformable mortgages, and it is typically much less.
If ideological and political considerations prevent us from establishing the most efficient mortgage system, relying on a purely private model is almost certainly better than trying to construct a convoluted hybrid. The potential benefits from this mixed system are fairly modest – a slight reduction in mortgage interest rates. While the risks from not doing right are large.
If we want to have the government subsidize the mortgages of moderate- and middle-income homeowners, it can be easily done through the tax code or other mechanisms. There is no reason to set up a whole new system of finance to accomplish this purpose.
Unfortunately, the smart money is on the convoluted route because the big money stands to gain this way. The waste in such a system is income for folks like Citigroup and Bank of America. And we all know that the most dangerous place to stand in modern America is between the financial industry and a policy that will enhance its profits. So, looks for more bad housing policy coming out of Washington.
Thursday, August 5, 2010
An August Surprise from Obama?
James Pethokoukis | AUG 5, 2010 | Reuters
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:
Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:
1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.
2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:
GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2010.
And this from Mizuho Securities:Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.
As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.
3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.
4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus 2.0 (3.0?, 4.0?) right now.August is supposed to be a slow month for Washington politics. But maybe not this one.
Monday, June 7, 2010
Fixing the Housing Mess
Go Back to the Old Design
By DEAN BAKER
A main goal of financial reform should be to promote simplicity and efficiency. In the case of housing finance, this means keeping Fannie Mae and Freddie Mac as publicly run companies.
The logic here is straightforward. Fannie Mae was created as a public company in the Depression to establish a secondary mortgage market. Before its creation, banks in various regions could often find themselves overloaded with mortgages and lacking the capital to make new loans.
By buying mortgages from banks, Fannie Mae allowed banks to issue more mortgages while limiting their exposure to risks from the housing market. Fannie Mae played a central role in supporting the postwar housing boom that hugely expanded homeownership.
The efficiency of Fannie Mae was lessened when it became a quasi-public company, alongside its newly created competitor Freddie Mac. This meant Wall Street-type salaries in the millions and tens of millions, instead of the six-figure paychecks that top-level government bureaucrats draw. It also created an incentive to take excessive risk, since the government would bear the downside from losing bets.
Fannie and Freddie got themselves into trouble in the housing bubble by first failing to recognize the bubble and second by jumping into junk mortgages near the end of the bubble. Contrary to claims of political conservatives, the decision to get into the subprime mortgages had little to do with helping moderate-income families buy homes. It was a desperate effort to recover market share from the investment banks.
Fannie and Freddie can continue to play an important role in promoting home ownership by going back to the original design. They should be boring publicly owned companies that buy and hold mortgages. Securitization in the context of a government-owned company simply adds unnecessary expense and complication. It is completely unnecessary to supply capital for mortgages, since the companies can raise it directly by selling their own stock and bonds.
If private issuers can meet the needs of a secondary market better or more efficiently than Fannie and Freddie, then they will have the opportunity to do so. But, the United States does not need a financial industry that cannot compete successfully with government bureaucrats.
By DEAN BAKER
A main goal of financial reform should be to promote simplicity and efficiency. In the case of housing finance, this means keeping Fannie Mae and Freddie Mac as publicly run companies.
The logic here is straightforward. Fannie Mae was created as a public company in the Depression to establish a secondary mortgage market. Before its creation, banks in various regions could often find themselves overloaded with mortgages and lacking the capital to make new loans.
By buying mortgages from banks, Fannie Mae allowed banks to issue more mortgages while limiting their exposure to risks from the housing market. Fannie Mae played a central role in supporting the postwar housing boom that hugely expanded homeownership.
The efficiency of Fannie Mae was lessened when it became a quasi-public company, alongside its newly created competitor Freddie Mac. This meant Wall Street-type salaries in the millions and tens of millions, instead of the six-figure paychecks that top-level government bureaucrats draw. It also created an incentive to take excessive risk, since the government would bear the downside from losing bets.
Fannie and Freddie got themselves into trouble in the housing bubble by first failing to recognize the bubble and second by jumping into junk mortgages near the end of the bubble. Contrary to claims of political conservatives, the decision to get into the subprime mortgages had little to do with helping moderate-income families buy homes. It was a desperate effort to recover market share from the investment banks.
Fannie and Freddie can continue to play an important role in promoting home ownership by going back to the original design. They should be boring publicly owned companies that buy and hold mortgages. Securitization in the context of a government-owned company simply adds unnecessary expense and complication. It is completely unnecessary to supply capital for mortgages, since the companies can raise it directly by selling their own stock and bonds.
If private issuers can meet the needs of a secondary market better or more efficiently than Fannie and Freddie, then they will have the opportunity to do so. But, the United States does not need a financial industry that cannot compete successfully with government bureaucrats.
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