Anti-business Tea Party?

An article in today’s New York Times by Mike McIntire about the close relationship the Tea Party movement has had with American business is pretty damning. It highlights a string of bizarre synergy between a supposedly populist movement and business interests around things like keeping Asian paper tariff free, opposing net neutrality, and commercial space travel. Amidst some really good reporting on the Tea Party’s fealty to big corporate interests, McIntire includes this paragraph:

The Tea Party movement is as deeply skeptical of big business as it is of big government. Yet an examination of the Institute for Liberty shows how Washington’s influence industry has adapted itself to the Tea Party era. In a quietly arranged marriage of seemingly disparate interests, the institute and kindred groups are increasingly the bearers of corporate messages wrapped in populist Tea Party themes.

I honestly don’t know what makes McIntire think “The Tea Party movement is as deeply skeptical of big business as it is of big government.” The Tea Party has been largely engineered by money from rightwing corporate donors like the Tea Party. The actual activists have been funneled towards activities that protect corporate interests and fly in the face of any claims to populism.

More to the point, the Tea Party has never been anything other than the same old Republican dead enders who stood by the Bush administration while they turned a massive budget surplus into our largest deficits ever. None of these grassroots Republicans said one word about the Bush administration’s fiscal irresponsibility. Only when a Democrat occupied the White House did these self-described deficit hawking populists remember they cared about the deficit.

McIntire’s piece is otherwise quite good. It goes deep into the realities of the Tea Party and exposes the “movement” as being run by corporate Republican operatives, funded by corporate Republican businessmen, and used as a tool to further corporate Republican interests. The only thing which McIntire isn’t able to report is why grassroots Tea Party activists actually let themselves take part in this sort of shilling against their own economic interests.

Konczal on Homeowner Organizing

Mike Konczal at Rortybomb runs with some of Stephen Lerner’s ideas about homeowner organizing.

Collective bargaining is the cure to this kind of power differential – give consumers access to the same expertise that businesses would draw on in these circumstances. Explicit in unions are that a small fee up front gets you full representation later – an insurance fund against fraud and exploitation, something that Marine could have used when paying lawyer expenses by the hour out of pocket. It also creates organizations for putting political pressures on what are clearly political problems.

Because this is, at its core, a distributional issue. If we had let the banks fail then these mortgages could have been sold off for a fraction of what they were worth, and the principal writedowns could have happened efficiently. Instead we backstopped their losses, didn’t force writedowns, tried to push programs like PPIP which would have used FDIC money to inflate the value of these mortgage bonds, and in general have hoped the banks could become whole by recapitalizing through earnings. The only way to do that is to keep extensive pressure on homeowners and consumers.

To put it a different way, these losses have happened. They are here. It’s just a matter of how they get shared. We’ve done everything we can to protect the banks on this. Meanwhile, unnecessary foreclosures are running rampant across the country, putting balance-sheet pressures on neighborhoods, hurting municipality budgets and hitting investors and making residential and business investment difficult. And on the other side, one of the most durable pieces of the safety net created in the United States, the bankruptcy code, something that manages the distribution of losses when debts go horribly wrong, is broken when it comes to first mortgages. Bankruptcy court can temper moral hazard by making both sides take an upfront hit and share any appreciation later on, but Obama and the Treasury team have had no interest in making these adjustments.

Lerner responds to Beck’s attacks

Stephen Lerner goes to The Nation to respond to the attacks Glenn Beck has launched on him:

What did I say that led Beck to spend two nights attacking me and defending big banks and Wall Street CEOs?

I think I may have found part of the answer in what disgraced former Wall Street stock analyst Henry Blodget admitted when he echoed Beck’s wild theories on Business Insider. Describing my remarks, he wrote, “Many Americans will undoubtedly sympathize with and support them.”

So that was it: Beck, right-wingers and Wall Street sympathizers went ballistic because they knew the ideas I talked about are far from being a secret leftist conspiracy; in fact, they’re in sync with the thinking of most Americans. In my talk, I raised a very simple yet powerful idea: that homeowners, students, citizens and workers should make the same practical decisions Wall Street and corporate CEOs make every day—they should reject bad financial deals.

Beck and Wall Street are terrified that regular Americans will begin to challenge the double standard that allows one set of rules for the rich and another for the rest of us. They are petrified of the growing understanding, among people of diverse political backgrounds, that our country isn’t broke; that the tiny elite at the top has manipulated the economic crisis it created to grow even richer and more powerful while the rest of us suffer the consequences; and that Wall Street and corporations, sitting on record profits, are holding the country hostage, essentially threatening a capital strike if they don’t get further tax and regulatory breaks.

As long as Wall Street and the superrich feel secure and confident, they have no reason to negotiate a fair deal with the rest of us. Only by creating uncertainty and instability for them—by disrupting unfair business as usual—can we build the strength to challenge their stranglehold on our economy and our democracy.

Mortgage Modification Dealings

Last week I took a guess and wrote “meaningful principle modifications could run $800-900 billion plus.” That was a shot in the dark, but recent reporting by Shahien Nasiripour at Huffington Post shows that I was likely a good ways off the mark, at least in so far as how the CFPB has estimated the number of underwater homeowners and what it will take to get them to a reasonable level of equity in their homes.

The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.

If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.

The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then “mandate” three million permanent modifications.

Getting to 5% equity for 3 million homeowners would be $135 billion, but getting to 5% equity for all 12 million underwater homeowners would be $540 billion. That’s a ways off from what I’d suggested, but it’s still many times bigger than any number that’s actually being discussed for a settlement.

Yves Smith is skeptical about the validity of the numbers being put out being justified.

But arguing over a pretty much made-up figure misses the critical point: the money the servicers saved is not even remotely the right basis for thinking about the appropriate settlement level. Settlements are based on potential liability. For instance, in 1998 the tobacco settlement, the tobacco companies agreed to pay a minimum of $206 billion over 25 years to be released from liability on Medicare lawsuits on health care costs plus private tort liability.

The saved costs bear no relationship to the banks’ legal liability for servicer-driven foreclosures, nor to the damage they have done to homeowners or broader society through their actions. It’s like basing the penalties in a robbery on the unpaid parking fees and rental costs of the car used to make the heist.

This resorting to completely irrelevant metrics results from the problem we have harped on from the onset of the settlement talks: the lack of investigations. You can’t settle what you haven’t investigated.

What’s most troubling is Smith’s conclusions:

This document looks to be rooted in Jean Baptiste Colbert’s saying: “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing”. Any number that was within hailing distance of the real damage done by foreclosure (which father of securitization Lew Ranieri was astonished to learn in 2008 was standard practice), rather than by doing mods for viable borrowers, would be a multiple of the levels under discussion here; and the servicer-driven foreclosure aspect pushes the figure higher still. This document bears the hallmarks of looking to rationalize a figure that would sound big enough to impress the public as being punitive, yet not hurt the banks at all (as page 4 demonstrates). But having a settlement designed around not damaging predators is certain to perpetuate their destructive conduct.

I actually don’t think that’s right. Already this number of $20-30billion has been under massive attack from the banks’ representatives in Washington: the Republican Party. They’re pitching a fit and will be certain to continue to do that. The political fight is a way for banks to ensure that even a number like this is viewed as too big and too putative. They are rejecting the opening bid and they’re able to do this knowing the number will be reduced. But yes, whatever comes from this, I don’t see it deterring banks from continuing “their destructive conduct.”

Too Big to Prosecute

William Greider in The Nation:

A better name for the Justice Department’s softened policy might be “too big to prosecute.” Just as the Federal Reserve used the “too big to fail” doctrine to rescue big financial institutions from their mistakes, Justice has created an express lane for businesses and banks to avoid the uglier consequences of their illegal behavior. As a practical matter, the option is reserved for the larger companies represented by the leading law firms. They have the skill and clout to negotiate a tolerable settlement.

The piece is a great look at how corporations, specifically Wall Street banks, have avoided any punishment for their crimes. Usually banks escape with minimal fines that in no way hinder the ability to continue to operate, let alone be deterred from illegal behavior in the future.

“Crime is defined as price rather than punishment,” Greenfield notes. In the new normal, “corporations can say, ‘Well, is the crime worth the price, discounted by the probability of getting caught?’ Because you can’t make a corporation go to prison. They have no morality, no human personality or sense of morals, other than the morality of the market that reduces everything to money. If the only way to punish companies is with money, then the fine sets the price for crime.”

Restoring a corporate death penalty would be a hell of a way to punish corporations who break the law. Of course the odds of that in today’s political environment strike me as just about zero. Greider’s article floats a number of lesser penalties that could be used to rein in corporate malfeasance. He makes a good point towards the end about how we should be thinking about punishing corporations for illegal behavior:

Business failure gets punished unsentimentally. Criminal behavior should be clearly defined as business failure.

Greider’s closing point is that the best way to ensure that there starts to be accountability for corporate criminal behavior is to stay on the course we are on and change nothing. The next collapse will happen and it will likely be caused, at least in part, by criminal behavior at the corporate helm. At that point, the level of outrage will provide sufficient drive towards meaningful reform. Or at least that’s Greider’s expectation. That it requires massive economic pain to become a possibility is obviously a discouraging point. People organizing around this issue would do well to try their best to get change now before there are literally pitchforks and torches coming to get the banksters. This was largely President Obama’s argument in early 2009, that he’s the one standing between banks and the angry masses. Greider’s piece should be a reminder to the President and to corporate leaders that when the next collapse comes, the level of anger will be orders of magnitude greater than it is now. Rather than get to that point, I think it would behoove corporate leaders to come to the table now and take actions that would help avoid another financial collapse.

Krugman vs Austerity

Krugman is shrill today:

In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.