Rakoff ruling a victory, but it’s not pepper spray

Metaphor fail:

This time it is the Wall Street bankers and not the Occupiers who are getting hit with pepper spray.

The spray comes straight from the laser printer in the chambers of a federal judge, Jed Rakoff, in New York. The victory that Rakoff gave to the Occupy Wall Street movement Monday came from the federal courthouse — not far from Zucotti Park, the lower Manhattan headquarters of OWS.

I agree with Jonathan Macey that Judge Rakoff’s rejection of the piddling SEC settlement with Citigroup was a big victory. But it wasn’t a physical assault on Citigroup. It didn’t violate their rights nor did it violate due process. It was done entirely within the confines of the law.

Macey goes on to write:

It is a significant victory for the ideals of the Occupy Wall Street Movement. And it just might be the first step on to restoring accountability to both Wall Street and the SEC.

I think this could be the case, though while Rakoff and the Occupy movement have expressed shared values, I would not attribute Rakoff’s anger at being treated like a dunce by the SEC and Citigroup to be caused by Occupy. No, Rakoff is an actual sheriff on the beat, who still cares about the rule of law and making sure that government regulators aren’t working for the company’s they are tasked to regulate.

Shifting narrative as Gingrich overtakes Romney

Originally posted at AMERICAblog Elections: The Right’s Field

Jon Ward at Huffington Post has a fantastic piece on the shifting political narrative that has happened while Newt Gingrich has overtaken Mitt Romney for the lead in the Republican presidential primary. At issue is while Romney has been running on a platform of inevitability, large swaths of the GOP base have chosen instead to be drawn to anyone who isn’t him. That has allowed the space to exist for an alternative to come forward. In this moment of the campaign, that alternative is Gingrich. Ward writes:

Yet as the Romney campaign has fought with the White House, Gingrich has developed a head of steam. He is now leading Romney in national polls, as well as in Iowa surveys, and got a big boost Sunday in New Hampshire when the Manchester Union Leader endorsed him.

Romney’s image, meanwhile, has taken some hits for running the misleading ad, and his criticism of Gingrich’s position on immigration provoked ridicule from Rush Limbaugh of Romney’s own muddled and confusing past statements on the issue. There are lingering questions about how much Gingrich’s softer tone about how to deal with undocumented immigrants may hurt him in Iowa, but so far he appears to have weathered the storm rather well, especially given how badly Texas Gov. Rick Perry was hurt by his stumble on the issue.

We are only weeks away from the Iowa caucus and New Hampshire primary. There’s still a lot of politicking to be done, positive ads to air, and likely even more negative ads. The field operation of each campaign will be put to the test in the next two months. And finally we’ll be able to move away from scandal and gaffe driven horse race polling and into actual democracy. We will begin to have a picture of whether or not Romney can win the nomination on a mantle of inevitability or someone like Gingrich will carry the Not Mitt banner to victory.

Until then, the analysis of the race as provided by Ward will remain one of the best. Romney by no means has this locked up and I think we’re in for a whirlwind couple of months.

Programmed mortgage servicer fraud

Matt Stoller at New Deal 2.0 writes about how mortgage servicing companies are programming fraud into their software to ensure they extract the maximum amount of money from homeowners and force them into foreclosure. Long quote:

And what happens when this kind of fraud goes unprosecuted? It continues, even today. The same banks that ran the corrupt home mortgage securitization chain are now committing rampant fraud in the foreclosure crisis. Here’s New Orleans Bankruptcy Judge Elizabeth Magner discussing problems at Lender Processing Services, the company that handles 80 percent of foreclosures on behalf of large banks (emphasis added):

In Jones v. Wells Fargo, this Court discovered that a highly automated software package owned by LPS and identified as MSP administered loans for servicers and note holders but was programed to apply payments contrary to the terms of the notes and mortgages.

The bad behavior is so rampant that banks think nothing of a contractor programming fraud into the software. This is shocking behavior and has led to untold numbers of foreclosures, as well as the theft of huge sums of money from mortgage-backed securities investors.

Here’s how the fraud works: Mortgage loan notes are very clear on the schedule of how payments are to be applied. First, the money goes to interest, then principal, then all other fees. That means that investors get paid first and servicers, who collect late fees for themselves, get paid either when they collect the late fee from the debtor or from the liquidation of the foreclosure. And fees are supposed to be capitalized into the overall mortgage amount. If you are late one month, it isn’t supposed to push you into being late on all subsequent months.

The software, however, prioritizes servicer fees above the contractually required interest and principal to investors. This isn’t a one-off; it’s programmed. It’s the very definition of a conspiracy! Who knows how many people paid late and then were pushed into a spiral of fees that led into a foreclosure? It’s the perfect crime, and many of the victims had paid every single mortgage payment.

And still there are no criminal indictments of banksters for foreclosure fraud, no indictments of servicers for institutionalizing fraud, just silence as banks steal peoples’ homes.

Federal judge blocks SEC settlement with Citigroup

The New York Times is reporting that federal judge Jed Rakoff has thrown out a proposed settlement between Citigroup and the SEC. The SEC had agreed to $285 million in exchange for no admission of wrongdoing in a complaint about Citigroup defrauding investors in a 2007 residential mortgage backed security. Citigroup had told the investors a third party was picking what assets were securitized, when in fact the firm did it themselves. To make matters worse, Citigroup put bad mortgages into the security and then bet against them without telling their investors of their position. According to the Times, “Investors lost $700 million in the fund, according to the S.E.C., while Citigroup gained about $160 million in profits.” They don’t call them banksters without reason!

Judge Rakoff thought $285 million and no admission of wrongdoing or the facts of the case was not good enough for the SEC and wants them to go back and try again, this time with justice in mind – as opposed to what’s good for Citigroup.

The judge, Jed S. Rakoff of United States District Court in Manhattan, ruled that the S.E.C.’s $285 million settlement, announced last month, is “neither fair, nor reasonable, nor adequate, nor in the public interest” because it does not provide the court with evidence on which to judge the settlement.

The ruling could throw the S.E.C.’s enforcement efforts into chaos, because a majority of the fraud cases and other actions that the agency brings against Wall Street firms are settled out of court, most often with a condition that the defendant does not admit that it violated the law while also promising not to deny it.

It truly is remarkable that the SEC thinks a small sum and no admission of guilt is a sufficient punishment for the banks they oversee. What’s worse, this sort of agreement protects banks like Citigroup from being held accountable by the investors they defrauded. This cuts to the core of Rakoff’s objection.

It will be nice to see Citigroup and their captured regulators at the SEC sweat following Rakoff’s ruling.

Debt & Forgiveness

This summer, Yves Smith at Naked Capitalism opted an interview of social anthropologist David Graeber on the history and evolution of debt in human society. In light of the Occupy Wall Street movement and the expanding debt crisis in Europe, the post is worth revisiting.

First, I highly recommend the entire interview, as it is fascinating to read about the different theories for how debt and money emerged, as well as seeing Graeber offer thoughtful disproofs of common assumptions – namely that barter emerged prior to currency and debt.

But what’s more important in the current moment is the connection between debt, morality, and power. Financial and political elites have made clear in the last three years that their own debts must be wiped out at will, at the expense of the 99%. Graeber responds to a question about the current crisis in Europe:

Well, I think this is a prime example of why existing arrangements are clearly untenable. Obviously the ‘whole debt’ cannot be paid. But even when some French banks offered voluntary write-downs for Greece, the others insisted they would treat it as if it were a default anyway. The UK takes the even weirder position that this is true even of debts the government owes to banks that have been nationalized – that is, technically, that they owe to themselves! If that means that disabled pensioners are no longer able to use public transit or youth centers have to be closed down, well that’s simply the ‘reality of the situation,’ as they put it.

These ‘realities’ are being increasingly revealed to simply be ones of power. Clearly any pretence that markets maintain themselves, that debts always have to be honored, went by the boards in 2008. That’s one of the reasons I think you see the beginnings of a reaction in a remarkably similar form to what we saw during the heyday of the ‘Third World debt crisis’ – what got called, rather weirdly, the ‘anti-globalization movement’. This movement called for genuine democracy and actually tried to practice forms of direct, horizontal democracy. In the face of this there was the insidious alliance between financial elites and global bureaucrats (whether the IMF, World Bank, WTO, now EU, or what-have-you).

When thousands of people begin assembling in squares in Greece and Spain calling for real democracy what they are effectively saying is: “Look, in 2008 you let the cat out of the bag. If money really is just a social construct now, a promise, a set of IOUs and even trillions of debts can be made to vanish if sufficiently powerful players demand it then, if democracy is to mean anything, it means that everyone gets to weigh in on the process of how these promises are made and renegotiated.” I find this extraordinarily hopeful.

This strikes me as exactly what one of the main thrusts of the Occupy movement is about – a desire for debt forgiveness, especially in the face of a system that forgives every bad gamble of financial elites.

Moreover, as we’ve seen recently with Robert Cruickshank’s piece calling for student debt forgiveness and some larger calls for a debt jubilee, there is a growing demand for this to happen. For a long while, those fighting the foreclosure crisis have demanded principle write downs, a moderate form of debt forgiveness that has been strenuously rejected by both political and financial elites. Or, to put it more differently, given the situation of crisis financial and political elites have put the world in, it’s hard to imagine there being a solution on scale to address the depths of the crisis other than jubilee.

This moment of popular anger isn’t going to be solved by a piece of tepid legislation regulating corporate money in politics. This anger isn’t going to be quelled by a financial transaction tax. While a massive infrastructure spending and jobs creation effort in the US could reduce some anger here, it would do little to stop the rage felt by the students and unemployed in Greece, Italy, Spain, and Portugal. Throwing all the banisters in jail would probably help things, at least in so far as restoring a sense of the rule of law, without changing the underlying fundamental problems of our economic system, it’s unlikely that change would be forestalled.

What Occupy Wall Street teaches us is that the scale of the problems we face demand solutions which realistically meet the problem. Occupation is a tactic fit for this crisis. But if we are to begin to answer the complaints of the Occupy movement or Los Indignados or any of the protesters in Greece and beyond, we have to look at how individual people and families have been broken by this elite-centric economy. The problem is debt and solution is forgiveness. The only question will be how long will it take, as Graeber says, for sufficiently powerful people to arrive at this position or for the public to amass enough power to make it happen democratically.

Austerity costs Spanish Socialists power

I hope that Democrats learn from what just happened in Spain. Spain’s ruling Socialist Party – which I presume didn’t rule for eight years because of their conservative policies – was just voted out of power after presiding over cruel austerity measures enacted to appease bond vigilantes and ensure that bankers who lost bets not actually lose any money. To put it differently, the liberal party enacted conservative technocratic policies and were punished for it. Unfortunately, as we have now in the US, the alternative offered by the new power-holders is…more austerity!

David Dayen notes that the reason the EU didn’t step in to oust the ruling Socialist government in Spain was because the other side would deliver what they wanted: A-ha, now I see why the EU didn’t step in. The party out of power favored austerity! And since things are so bad in Spain, with nearly 20% unemployment, the party out of power, just by virtue of not being the party in power, was assured of victory, the EU could just sit back and let nature take its course.

When it’s convenient, the EU actually will let democracy run its course!

Austerity doesn’t work. It’s not politically popular. And presiding over brutal cuts that inflict pain on regular people will lead to political punishment by voters. And yet, this is the pathway the power brokers of the Democratic Party are pursuing.