Category: Economy

Obama floating cuts to Big Three social programs

The Financial Times reports that President Obama is going to propose cuts to Medicaid, Medicare and Social Security as part of his deficit reduction proposal.

Barack Obama is expected to lay out a plan next week that would cut several hundred billion dollars from Medicare and Medicaid, the large government healthcare schemes for the elderly and the poor, as part of a pitch to cut future deficits by more than $1,500bn.

Senior White House officials said the US president would base a detailed blueprint for fiscal reform, which is to be delivered on Monday, on an earlier speech he delivered in April on deficit reduction.

The announcement could create tensions within the Democratic party, which has traditionally staunchly defended Medicare. Mr Obama’s fiscal proposal will be released just one week after the president unveiled a separate plan to raise more than $450bn to pay for a jobs bill that senior officials said would be the president’s singular focus in coming weeks.
…
Mr Obama’s plan could also feature a change in the way the US government measures inflation, switching to a less generous chained-consumer price index. The biggest impact of this measure – which could save between $250bn and $300bn over ten years – would be felt by recipients of Social Security, the retirement scheme.

Obama announced in his jobs speech that he would seek cuts to Medicaid and Medicare, so while that isn’t really surprising, it’s still incredibly disheartening. Cutting Social Security’s COLA benefits is also really destructive.

If a Republican president proposed cuts to Medicare, Medicaid and Social Security, the outcry and opposition from liberal groups would be defining. Democratic members of the House and Senate would fight tooth and nail to stop the cuts. Labor would turn out their members to protest the cuts. The airwaves would be flooded with ads hitting Republicans for this assault on the social safety net and online advocacy groups would bombard the White House with calls, emails, and faxes from outraged members.

But when the cuts are proposed by a Democratic president, the odds of this response seems radically reduced. Labor unions were universally supportive of the President’s jobs speech, praising him for turning towards job creation and infrastructure investment. I don’t hold out hopes that there will be an equally swift outpouring of statements criticizing Obama for trying to pay for tax cuts by cutting Social Security, Medicaid and Medicare.

There are obvious electoral problems with a Democrat leading the charge to cut the Big Three programs. It’s a Nixon going to China moment, only this time it’s a bad thing. But more importantly, these cuts will have a devastating human affect. These are programs that keep people out of poverty. These programs care for sick people. They are crucial to maintaining a middle class in America. The idea that we have to cut these programs to “save” them was treated as a laughable oxymoron by progressives laughed when Republican politicians said it. If Obama goes ahead with these proposals, he should face the exact same response from the left as his ideological predecessors in the Republican Party received.

More AGs drawing lines in the sand on bank settlement talks

Originally posted at AMERICAblog

Minnesota Attorney General Lori Swanson has written a very powerful letter to Iowa AG Tom Miller, NY AG Eric Schneiderman and an associate AG at the Department of Justice stating where she stands on the fifty forty-five state robosigning settlement talks with the nation’s five largest banks. In it, she calls for a settlement with “teeth”. She goes on:

[T]he banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement. For example, a settlement that focuses on mortgage servicing standards should not release the banks or their officers from liability for securities claims or conduct arising out of the securitization of mortgages or liability arising out of the use of the Mortgage Electronic Registry System (“MERS”), where those claims have not been investigated or fairly addressed through the settlement. In addition, I am sure we all agree that the banks and their officers cannot and should not be released from criminal liability in any civil settlement

This is strong stuff. Swanson also supports the FHFA lawsuit against the banks and calls on her colleagues not to do anything to impede it. She writes, “We should fully welcome and support all legitimate efforts to investigate the banks and to hold them accountable for their unlawful activity, which has been enormously destructive to this country and our citizens.”

Swanson joins Schneiderman, Catherine Cortez Masto of Nevada, Beau Biden of Delaware, and Martha Coakley of Massachusetts as AGs who have stood up for strong settlement demands and their right to investigate. Biden has recently come under criticism by Delaware’s Democratic Governor Jack Merkell, who wants Biden to back off the banks and not try to investigate them. Biden’s response, fortunately, is strong:

“My job is to protect homeowners, investors and all Delawareans affected by the abuses of the mortgage industry that created this economic crisis. I do not settle matters that have not been investigated, and there remains a lot of work to be done in understanding the scope of the mortgage industry’s bad conduct that has hurt so many. Our economy works the best when everyone plays by the rules, and we must hold those who brought our financial system to the brink of collapse to account.” [Emphasis added]

There’s clear momentum in the direction of holding banks accountable. As more attorneys general come out against a broad settlement on foreclosure and securitization fraud, the less likely any settlement becomes. Kudos to AGs Swanson and Biden for standing up to the banks and for their constituents.

Census: US poverty & uninsurance rates hit new highs

According to the US Census, poverty and uninsurance rates are at all-time highs.

The Census Bureau reports the number of Americans in poverty jumped to 15.1 percent in 2010, a 27-year high.

About 46.2 million people, or nearly 1 in 6, were in poverty. That’s up from 43.6 million, or 14.3 percent, in 2009. It was the highest level since 1993.

The number of people lacking health insurance increased to 49.9 million, a new high after revisions were made to 2009 figures. Losses were due mostly to working-age Americans who lost employer-provided insurance in the weak economy. Main provisions of the health overhaul don’t take effect until 2014.

It’s time for political elites to start paying attention to how much pain has already been inflicted on the poor, working, and middle classes of America in this economy. Stop with the deficit hawking, stop pushing austerity and the help American people now. People have felt more than enough pain for one economic downturn.

Alternatively, we can just embrace more austerity!

A bit on the Obama’s jobs speech

After the deficit deal passed a month ago, I made this prediction about the jobs pivot:

If I had to put money down, I’d predict that if any jobs bill moves forward, it will consist of more than 50% tax cuts, and probably more likely, a four or five to one ratio of tax cuts to stimulative spending measures.

Of the $447 billion in the jobs segment of Obama’s proposal, we have this breakdown:

O.K., about the Obama plan: It calls for about $200 billion in new spending — much of it on things we need in any case, like school repair, transportation networks, and avoiding teacher layoffs — and $240 billion in tax cuts.

Keep in mind that Obama is rolling out a two-part plan here. First, he previewed the American Jobs Act as a largely job creation piece of legislation. But within that preview, the President also made clear that he will pair this with a deficit reducing agenda that exceeds $1.5 trillion. From the speech:

The agreement we passed in July will cut government spending by about $1 trillion over the next 10 years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I am asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan — a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run.

Given that the GOP mantra, albeit wrong, has been that tax cuts reduce the deficit, it’s not hard to imagine there being further tax cuts emerging from the Super Committee. So at minimum, I was right about the lower bounds of the jobs pivot being at least 50% tax cuts. But this is just the proposal and what is passed (if anything passes) will likely look very different from what we heard last night. Obviously there’s plenty of time and space for the ostensible jobs bill to end up with an even greater majority going towards tax cuts.

The larger issue is that while I strongly support action around job creation (particularly in infrastructure spending and aid to states), the idea of paying for it by cuts to Medicare and Medicaid, let alone other federal social spending programs, is intensely unacceptable to me. While the President may have delivered the most forceful and passionate speech of his tenure in office, replete with genuine historical praise of past accomplishments of liberal governance, using it as a jumping off point for more deficit reduction and cuts to the social safety net is not only bizarre but dangerous. Cutting Medicare to save it is as intellectually honest and persuasive as bombing for peace or fucking for virginity. It just doesn’t work like that. And I can’t say playing the role of Cassandra makes me feel good, either.

Obama’s Power: Dems on deficit committee now want more than $1.5t in cuts

Originally posted at AMERICAblog

There is an emerging consensus amongst the Democrats who will serve on the deficit commission (aka Catfood Commission 2, Electric Class Warfare) that the mandate of $1.5 trillion in deficit cuts is insufficient.

Democrats on the new joint deficit Super Committee will seek more than the $1.5 trillion in deficit reduction they’ve been tasked with finding, in order to help offset some of those costs.“All of us would like to set as a target for ourselves even more than $1.5 trillion,” Rep. Chris Van Hollen (D-MD), who’s also the top House Democrat on the Budget Committee, told reporters at a Tuesday Capitol press conference.

For those not paying attention, President Obama (after Warren Buffett said it in his much-linked NYT op-ed) called for the deficit commission to go beyond $1.5 trillion in cuts. The Democrats on the commission, including liberals like Xavier Becerra, have moved to be where the President has been saying the commission should go. When Obama gives a speech tomorrow night (and a subsequent one in following days more specifically about deficit cuts), it will direct Congress as to where he thinks these cuts beyond $1.5 trillion should come from. Sadly, the answer seems to be Social Security, Medicare, and Medicaid.

David Dayen points out that this is a pretty clear rebuttal to the notion that the President is not capable of shaping the course of legislative and policy debates, especially with regard to Congress as a coequal branch of government.

If you listen to [Obama’s] public statements, he clearly wants this tax cut and spending cut agenda to go forward. And now, his Democratic colleagues on the Catfood Commission, even the putatively liberal ones like Xavier Becerra, are mimicking him. That’s because a President has a lot of influence and power.

Take this as a reminder that President Obama is not weak and certainly not dis-empowered from pursuing the agenda he wants to pursue.

WaPo ed board dishonestly attacks Schneiderman

The conservative Washington Post editorial board has weighed in on the settlement talks between banks and fifty forty-six state attorneys general around robosigning. Oddly the WaPo blames New York Attorney General Eric Schneiderman for the foreclosure crisis, because he wants to investigate what is happening and prosecute any illegal actions by the banks. The WaPo ed board basically wants a quick settlement so they can move on with as little damage to banks as possible (undisclosed coincidence: Warren Buffett owns a big piece of the Washington Post, as well as Bank of America and Wells Fargo).

But beyond the usual dishonesty that goes along with any pro-banker screed around foreclosure and securitization fraud, the Post’s editorial board just makes up a few facts in their attack on Schneiderman:

The majority of the other attorneys general, led by Tom Miller of Iowa, have kicked Mr. Schneiderman out of the negotiations, accusing him of making excessive demands. Mr. Schneiderman protests that the banks are to blame, for trying to use the robo-signing case to get immunity they could use on the securities front. Mr. Miller and his colleagues respond that they have no intention of letting the banks off that particular hook.

First, Miller kicked Schneiderman off of the executive committee unilaterally. There was no vote of other AGs, at least according to, ahem, the Washington Post.

Second, and more importantly, Miller is offering the banks a release around securitization fraud. Shahien Nasiripour at the Financial Times reported on Monday night:

State prosecutors have proposed effectively releasing the companies from legal liability for allegedly wrongful securitisation practices, according to five people with direct knowledge of the discussions.

As we’ve seen before, when the banks send their allies out to attack Eric Schneiderman, there is little regard to the truth.

FHFA To Sue Big Banks for Investment Putbacks

The New York Times is reporting that the FHFA, the agency which oversees Fannie Mae and Freddie Mac, is planning on suing twelve major banks today or Tuesday, accusing the banks of “misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble.”

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Until the suit is filed, we won’t know exactly how much money FHFA is seeking to get from the banks. This move is in a similar mold to other efforts to putback loses onto the banks, thereby reducing the liabilities  incurred by Fannie and Freddie. FHFA administrator Ed DeMarco, a holdover from the Bush administration, has pursued this strategy for a while now. The statute of limitations on filing this sort of securitization lawsuit expires this coming Wednesday, so there’s some sense that this is happening now to get any action in under the wire.

The banks and their surrogates are trotting out the idea that Fannie and Freddie are sophisticated investors, who should have been able to tell that things Standard & Poors rated as AAA were not in fact anywhere near AAA quality investments.  I’m not clear how well the, “They should have known we were peddling junk and were just paying ratings agencies to say it wasn’t” defense will play out in court. The problems with securitization go far beyond what the Times describes, with many of these securities put together while the underlying loans were already delinquent, in foreclosure, in bankruptcy or already owned by the banks. Hopefully FHFA comes out with big numbers in their lawsuit that adequately reflect the scale of the securities fraud committed by these banks and seek restoration, as well as punishment, for this fraud.

Banks still fabricating documents in foreclosure fraud

For those not paying close attention to this issue already, it may be news to you that despite being outed a year ago for using the practice of robosigning to fabricate thousands of documents used to foreclose on homeowners, banks are still using this practice today. American Banker:

Some of the largest mortgage servicers are still fabricating documents that should have been signed years ago and submitting them as evidence to foreclose on homeowners.

The practice continues nearly a year after the companies were caught cutting corners in the robo-signing scandal and about six months after the industry began negotiating a settlement with state attorneys general investigating loan-servicing abuses.

Several dozen documents reviewed by American Banker show that as recently as August some of the largest U.S. banks, including Bank of America Corp., Wells Fargo & Co., Ally Financial Inc., and OneWest Financial Inc., were essentially backdating paperwork necessary to support their right to foreclose.

Some of documents reviewed by American Banker included signatures by current bank employees claiming to represent lenders that no longer exist.

David Dayen explains what this means:

And you see, the banks HAVE to fabricate documents. Because they destroyed the private property system through improper and sloppy securitizations and lost or missing mortgage assignments during the bubble years, and as such they cannot prove standing to foreclose without lying. Robo-signing is a crime, but it’s also a cover-up for a much bigger crime, which involves MERS and improper mortgage transfer and securities fraud. The robo-signed, forged, fabricated documents are the smokescreen being used to foreclose and get the real problem off the books. Banks are trying to wriggle off the hook by saying they are merely “memorializing” past actions with the fake documents. Some courts aren’t buying it; the pooling and servicing agreements stipulate that all assignments showing transfers must take place within 60 days, not years later through “memorialized” actions.

What this really comes down to is that making a settlement with banks around robosigning now, while there has been no real investigation by the state law enforcement officials who are negotiating a settlement and while the practice is continuing as the negotiations go on, is dangerous and premature. The banks can’t possibly be negotiating in good faith with Tom Miller and the other state AGs because they’re still committing the crimes they want to be released from prosecution for!

There’s a massive criminal scheme being revealed by the press and a handful of diligent public officials like Attorneys General Eric Schneiderman, Catherine Cortez Masto and Beau Biden, as well as county Registers of Deeds like Jeff Thigpen in North Carolina and John O’Brien in Massachusetts. These officials seem committed to pursuing investigation and accountability. It’s time their peers get on board.

S&P Still Giving Subprime RMBS AAA Ratings

Remind me why S&P is still allowed to exist? Bloomberg:

Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government.

S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties. New York-based S&P stripped the U.S. of its top rank on Aug. 5, saying Washington politics were making the country less creditworthy.

Leave Tom Miller Alone!!!!

Originally posted at AMERICAblog

We are finally seeing righteous indignation is within the 50 state attorneys general settlement talks:

Another person close to the talks, who like several others spoke on the condition of anonymity to discuss the situation more freely, said many in the group are “just exasperated. . . . This smear campaign of lies and innuendo, it’s uncalled for, it’s unprecedented, and it threatens substantial consumer harm.”

If you think this referred to the smears being launched by Wall Street and the Obama administration at NY AG Eric Schneiderman, you’d probably agree with it. But you’d be wrong. Apparently the push by Schneiderman, Beau Biden, Catherine Cortez Masto and other allies for a deal which doesn’t shut down their ability to investigate foreclosure and securities fraud is hurting Iowa AG Tom Miller’s fee-fees.

“We’ve been accused of being in bed with the banks. To say that to a group of people who have spent the last seven to 10 years fighting mortgage abuses day in and day out is an insult of the highest order,” said Iowa Assistant Attorney General Patrick Madigan, a longtime Miller deputy, who has worked on major settlements with subprime lenders such as Countrywide and Ameriquest. “It’s just unreal.”

I guess Miller’s office has a real problem when the entire New York Democratic congressional delegation chides him for tossing Schneiderman out of the talk’s executive committee. Instead of responding to Jerrold Nadler et alia, Miller is running to the press to complain about his unilateral, pro-bank actions coming under scrutiny.

The reason Miller is being accused of being in bed with banks is because that’s what you call it when you raise more than $250,000 from the finance industry right after announcing that you’re leading a 50 state investigation into that same industry. It happens when you then shift from guaranteeing to “put people in jail,” to producing a settlement term sheet before you even sat down to negotiate with the banks. It happens when you kick the individual who has done more to ensure that there is actually investigation before a settlement off the executive committee for having the temerity to try to get the best deal possible. If Tom Miller’s office doesn’t like being accused of being in bed with banks, he should get out of the bed and start investigating the banks.