Category: The New Depression

Stupid, stupid, stupid

~ susie ~ 7 Comments

This might be the stupidest thing I’ve ever heard Obama say. Just an insultingly blatant attempt to appeal to teabaggers — who will never support him anyway, because he’s a Democrat, and black, to boot:

Facing Republican complaints about big government and federal salaries, President Obama said Friday that government agencies might leave some vacancies unfilled as his administration looks for ways to save money.

He did not rule out furloughing employees, as some states have, but he warned that such action could result in a loss of services for taxpayers.

Speaking to members of the Trotter Group, an organization of black columnists, Obama addressed a range of subjects, including election momentum and campaign financing, the economy and the District’s schools.

Obama deflected complaints from Republicans on Capitol Hill and conservative think tanks that federal employees are overpaid.

He said his team has examined pay levels, “and the data we get back indicates that high-skilled workers in government are slightly underpaid. Lower-skilled workers are slightly overpaid relative to the private sector.

“And that’s not surprising,” he added, “because it’s a unionized workforce” in government, while the private sector’s typically is not.

Nonetheless, Obama said that just as people and companies have had to be cautious about spending, “government should have to tighten its belt as well. We need to do it in an intelligent way. We need to make sure we do things smarter, rather than just lopping something off arbitrarily without having thought it through.”

Obama has asked agencies to develop plans for cutting budgets by 5 €ƒpercent. But how that would be accomplished would be decided on a case-by-case basis, he said.

“In some cases, they may say we don’t need to fill vacancies,” he said.

Obama said he wants to achieve “the best possible service at the lowest possible price to taxpayers.“

Could I just point out something relevant here? The difference between government and the private sector is that a business owner looks for ways to get a product or service to market that are just good enough they won’t be rejected by consumers — or get him sued. So he cuts corners, often compromising quality and safety (but hey, there’s always a chance the Republicans will take over and he won’t have to worry about pesky things like that, anyway!) so he can put more money in his own pocket, and that of shareholders. So private sector employees are supposed to turn out the highest possible volume at the fastest possible speed, at the lowest possible wages, with marginal quality. (Mortgage documentation, anyone?)

Government employees, on the other hand, work within a system that, until rather recently, placed the highest premium on correct procedures and compliance with federal regulation. No special emphasis on speed, because that would compromise the need for correctness. For example, you really don’t want someone who’s inspecting food manufacturers to be rushing through his or her work.

When they started to outsource government jobs to the private sector, that’s when quality, compliance and effective oversight went out the window. Far too many of the federal jobs that remain are infected by that “running government like a business” mentality. We see the effects of it in lax oversight everywhere.

So please, President Obama, don’t even go there. Businesses are only using the economic crisis as protective cover to fire workers and stockpile cash, not because they have to “tighten their belts.” That’s the first thing.

The second is, we have millions of Americans out of work, and the interest rates on the deficit are extremely low. This is exactly the right time to expand the federal workforce, not cut it.

Please stop pandering to these people. We won’t respect you for it, and it won’t help Americans who so badly need jobs.

Doing favors for bankers

~ susie ~ 1 Comment

Via Digby, this column from John Carney, a senior CNBC columnist:

Because the politicians will not let the financial stability of the largest bank in the nation be threatened by contractual rights. Not when there’s an easy fix available that won’t cost taxpayers a dime.

Here’s what is going to happen: Congress will pass a law called something like “The Financial Modernization and Stability Act of 2010” that will retroactively grant mortgage pools the rights in the underlying mortgages that people are worried about. All the screwed up paperwork, lost notes, unassigned security interests will be forgiven by a legislative act.

There’s a big difference between the financial crisis of 2008 and the new crisis. In 2008, banks were destabilized by the growing realization that they were over-exposed to the real estate market. Huge portions of their balance sheets were committed to mortgage-linked investments that were no longer generating the expected revenues or producing losses. That was a problem of economics that could only be solved by recapitalizing banks or letting some of the biggest banks in the U.S. fail.

The put-back crisis is not driven by economics. It is driven by legal rights. And there’s simply zero probability that the politicians in Washington are going to let Bank of America or Citigroup or JP Morgan Chase fail because of a legal issue.

So here’s what I expect will happen. The lame duck session of Congress will pass a bill that essentially papers over the misdeeds of the banks that originated mortgage securities. Every member of Congress and every Senator who has been voted out of office will cast a vote for the bill. And the President will sign it.

Will the public be outraged? Probably. Financial bloggers will scream from the high heavens against another bailout of the banksters. Congress may try to create some cost for banks in exchange for the forgiveness, perhaps requiring more mortgage modifications.

But the much feared put-back apocalypse will be laid to rest.

If you’re skeptical about the possibility that this will happen, you have greater faith than I do in the ability of the political system to resist doing favors for bankers.

Political science

~ susie ~ 2 Comments

Two retirees were leaning on the diner counter, talking.

“It’s terrible, what’s happened to this country,” the one with the green flannel shirt said to his friend. “They’ve screwed everything up, and now these new bastards will come in and make it even worse.”

“We used to make things here,” he said, reeling off a list of once-local products. “Now all these factories are empty, they make everything in China while these fat bastards get rich and everyone here gets laid off.

“I don’t know what people are gonna do.”

His friend shook his head in vehement agreement.

“It’s over. It’s over. America? It’s never gonna be the same again. People aren’t even gonna remember we used to have it good here for awhile.”

Corporate media: No fraud, just an oopsy!

~ susie ~ 3 Comments

It’s the strangest thing. Most of the national media is talking about this as if it’s just sloppy paperwork — instead of systemic fraud:

DEERFIELD BEACH, Fla – Bank of America, Chase, and other huge banks have stopped foreclosures due to potential problems with paperwork.

Now, a South Florida law firm says it has hundreds of cases in Palm Beach County that prove some of those banks may have been committing a crime.

The law firm calls them “robo signers,” people who rushed faulty foreclosure paperwork through the court system.

Within a tower of foreclosure depositions shown at the Ticktin Law Group’s Deerfield Beach office, senior legal counsel Peter Ticktin says the group has discovered the groundwork of an illegal home foreclosure system.

Ticktin said, “It’s massive, it’s criminal, it’s wrong and it’s proven with what lawyers call a mountain of evidence.”
Continue reading “Corporate media: No fraud, just an oopsy!” →

Protecting the bankers

~ susie ~ 2 Comments

The reason they’re faking the mortgage documentation is that if the bankers admit what’s wrong with the chain of title conveyance, the mortgage loans are no longer eligible for the trusts the bankers sold to investors — and under their own terms of agreement, “true sale” was probably not achieved and the liability reverts to the banks.

Investors are likely to sue to recover their money. The government will probably stand behind Fannie Mae and Freddie Mac investors, but private banks are another matter. Some major dominoes are about to fall.

It’s important that we don’t fall for the media misdirection here: It’s not “poor banks getting screwed by mortgage deadbeats.” It’s really “poor investors getting screwed by banks who knowingly sold them worthless mortgage bonds.” Felix Salmon:

This kind of information was valuable to Citigroup: it showed them that the quality of the loan pool was much lower than you’d think just by looking at the ostensible underwriting standards.

Armed with this information, Citigroup would do two things. First of all, it would take those 582 rejects and put most of them back to the underwriter. Essentially, they said, the loans weren’t as advertised, and they didn’t want them. But Citi would still keep some of them in the pool.

But remember that Clayton had tested only a small portion of the loans in the pool. So Citi knew that if there were a bunch of bad loans among the loans that Clayton tested, there were bound to be even more bad loans among the loans that Clayton had not tested. And those loans it couldn’t put back to the originator, because Citi didn’t know exactly which loans they were.

If there had been any common sense in the investment banks, that would have been the end of the deal. But there wasn’t. Rather than simply telling the originator that its loan pool wasn’t good enough, the investment banks would instead renegotiate the amount of money they were paying for the pool.

This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.
Continue reading “Protecting the bankers” →

Mortgage bonds

~ susie ~ 3 Comments

No wonder the banksters are so jumpy. Felix Salmon:

This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.

In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.

Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.

I talked to one underwriting bank — not Citi — which claimed that investors were told that the due diligence had been done: on page 48 of the prospectus, there’s language about how the underwriter had done an “underwriting guideline review”, although there’s nothing specifically about hiring a company to re-underwrite a large chunk of the loans in the pool, and report back on whether they met the originator’s standards.

In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.

The bank I talked to didn’t even attempt to excuse its behavior. It just said that Clayton’s taste-testing was being done by the bank — the buyer of the loan portfolio — rather than being done on behalf of bond investors. Well, yes. That’s the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information.

This whole scandal has nothing to do with the foreclosure mess, but it certainly complicates matters. It’s going to be a very long time, I think, before the banking system is going to be free and clear of the nightmare it created during the boom.

Update: KidDynamite asks a good question in the comments: were the bond investors able to do their own due diligence on the loan pool? The answer is no, they weren’t — the prospectus did not include the kind of loan-level information which would enable them to do that.