Category: Economy

NYT Calls for National Servicing Standards

The New York Times’ editorial board:

For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.

National servicing standards could succeed where antiforeclosure programs have failed, namely, in compelling banks to help clean up the mess they did so much to create.

In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.

Standardization and transparency are important pieces of what needs to get done. But this isn’t just about stopping foreclosures or encouraging modifications int he strict sense that the Times is pushing. It’s also about regulating mortgage servicers – making sure that fee pyramiding schemes are stopped, improving billing documentation for homeowners, and enforcing existing laws for mortgage servicing. Mike Konczal’s piece yesterday has a lot of detail about what servicing standards should look like.

Konczal on fixing mortgage servicing

Mike Konczal has a good, comprehensive piece in The American Prospect on how we need to go about fixing mortgage servicing and unraveling the foreclosure crisis. For those looking for a primer on the problem, Konczal’s is a good place to start:

Three elements are needed to reform this broken system. The first is an in-depth investigation of the mortgage-servicing industry’s abuses. The second is the creation of a proper system for the servicing of debt with enforceable consumer protections. The last is a more effective plan to limit foreclosures and get a floor under housing prices, using better and more comprehensive loan modifications.

The piece looks at ways to address these main issues. Overall I think Konczal pulls his punches a bit when it comes to the settlements floated out of the state attorneys general negotiations with banks, but this line about what the banks are asking for in a settlement is key:

The leaked settlement offer by the banks is nothing but a promise to do what they should have been doing all along. But whatever trust the largest banks may have had has been destroyed in the post-crash era, and any plan that has weak or nonexistent enforcement and penalties should be considered dead on arrival for progressives.

The banks’ proposal is a joke, as is anything that basically amounts to them following the laws and regulations they were already supposed to be following.

“One Day”

Matt Stoller, writing at Naked Capitalism:

This increasing rigidity of the global economic order is frightening, and dangerous. It is the consequence of the new normal, Spanish and Wisconsin-colored flames licking up at the system be damned. One day, these protests won’t be leaderless, rudderless, and directionless. Perhaps the popular energy on that date will be channeled through an electoral system, perhaps not. Perhaps figures like New York AG Eric Schneiderman represent a new generation of leaders bent on restructuring our cultural obligations into a social contract that is stable and somewhat just.

One day a chunk of the elites will break away from this consensus, as the system experiences a breakdown that is so severe it threatens the interests of a powerful constituency group. For now, we will be watching the embers.

I’m not sure why Stoller presumes that elites breaking away from consensus will be a catalyst for better channeling popular energy. I’d presume that such an outcome is possible, but certainly not necessary nor sufficient for producing “a social contract that is stable and somewhat just.”

A willful desire to block the road to the future

AFL-CIO President Richard Trumka is giving a big speech today on the economy, the American Dream and labor’s independence from political parties. In it, he says:

From the beginning of this country, through our efforts and our ideas, working people have made the American Dream real. And what is that dream? It is the idea that if you work hard and play by the rules you will enjoy economic security and build a better future for your children. It is not that a few of us will be rich, but that all of us will be treated fairly, that we will look after each other, and that we will all have a share in the wealth we create together.

But this just isn’t true. Workers are being punished for playing by the rules, while banksters, mortgage servicers, robosigners, and Wall Street firms are making billions of dollars by breaking the rules with abandon. The great hoax is that our government – from federal regulators to state Attorneys General to the Department of Justice – has politely refused to do anything close to requiring Wall Street follow the law.

Trumka is overly optimistic about the health of the American Dream in America today, but much of the rest of his speech is spot on. I particularly liked this passage:

And not just meanness. Destructiveness. A willful desire to block the road to the future. How else can you explain governors of states with mass unemployment refusing to allow high-speed rail lines to be built in their states? How else can you explain these same governors’ plans to defund higher education, close schools and fire teachers, when we know that without an educated America, we have no future?

Here in Washington, the Republicans in Congress have defunded housing counselors and fuel aid for the poor, and they are blocking worker training and transportation infrastructure.

But the final outrage of these budgets is hidden in the fine print. In state after state and here in Washington, these so called fiscal hawks are actually doing almost nothing to cut the deficit. The federal budget embraced by House Republicans, for example, cuts $4.3 trillion in spending, but gives out $4.2 trillion in tax cuts that disproportionately benefit wealthy individuals and corporations. Florida is gutting aid for jobless workers and using the money saved to cut already-low business taxes. At the end of the day, our governments will be in no better fiscal shape than when we started – they are just being used as a pass-through to enrich the already rich – at a time when inequality stands at historic levels.

Think about the message these budgets send: Sacrifice is for the weak. The powerful and well-connected get tax cuts.

All these incredible events should be understood as part of a single challenge. It is not just a political challenge – it’s a moral challenge. Because these events signal a new and dangerous phase of a concerted effort to change the very nature of America – to turn this into an “I’ve got mine” nation and replace the land of liberty and justice for all with the land of the war of all against all.

It’s not even all against all. Instead what is being orchestrated is a war of the Other 98% versus the Other 98%, with the richest Americans safe and cozy and out of the line of fire.

The press has touted this speech as Trumka laying down a marker for the labor movement’s independence from either political party. To some extent he does this. But what’s much more interesting to me than the hard-to-believe claims of drawing hard lines against Democrats is Trumka’s analysis of the policies which are facilitating an escalating transfer of wealth from working people to the top 2%. That’s why this speech matters and it’s what will continue to be relevant beyond the 2012 election season.

Why Movements Matter

This piece in the American Prospect by Vivien Labaton and Gara Lamarche, titled “Why Movements Matter,” is definitely worth reading. On the one hand, I strongly agree with the identification of pro-worker, pro-fair taxation, and pro-immigrant rights movements as pointing in the direction of a meaningful broader progressive movement (though if you were to look at these three, all based around economic fairness, it might be more accurate to describe it as a populist movement). There is real anger in America at the class warfare being waged by elites on the rest of us. That anger is manifesting itself around different issues – the assault on workers, austerity for workers, tax cuts for the rich, and stigmatization and regulation of immigration to the point of denying immigrants human dignity and pushing them into indentured servitude for the rich and businesses. The campaigns in response to these issues are symptoms of class warfare being waged against working Americans.

However I don’t think contemporaneous outpourings of anger against the attacks on workers, austerity, tax cuts for the rich, and demonization of immigrants is sufficient to say there actually is a resurgent progressive movement. These responses are signs that there is an untapped potential. Yes, there can be organizing around populist economic issues that amount to opposing the transfer of wealth from working Americans to wealthy elites. Yes, some of that organizing is taking place. But it’s too disparate and disjointed. I don’t know what is necessary to pull these separate threads together. Obviously citizen-driven movements like UK Uncut and US Uncut have had success organizing in leaderless models. But I do think leaders matter and so far I don’t see any elected officials, religious leaders, activists, or union leaders stepping up to make this case in a way that is penetrating national consciousness or even the different populist movement threads that need to be woven together. We have a long way to go. The only thing that gives me hope about us getting where we need to be and a populist/progressive movement coming together in America is that the pace of the assault on working Americans is so great that it is giving birth to anger and outrage, which in turn fuels the opposition to it. In short, the general public is ahead of leaders of the public. Interesting things could come from this, but a movement won’t grow itself.

Schneiderman!

Gretchen Morgenson of the New York Times:

The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

Officials in Eric T. Schneiderman’s, office have also requested meetings with representatives from Bank of America, Goldman Sachs and Morgan Stanley, according to people briefed on the matter who were not authorized to speak publicly. The inquiry appears to be quite broad, with the attorney general’s requests for information covering many aspects of the banks’ loan pooling operations. They bundled thousands of home loans into securities that were then sold to investors such as pension funds, mutual funds and insurance companies.

This is good news. While it’s not clear if Schneiderman is pursuing criminal or civil charges, it’s a big step forward in terms of oversight. As New York’s Attorney General, Schneiderman is uniquely positioned to investigate Wall Street, something his predecessors Eliot Spitzer and Andrew Cuomo did repeatedly. Most important in the Morgenson article:

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions — that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis. Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

Any foreclosure settlement that takes place prior to an actual investigation into the banking industries foreclosure practices would a colossal miscarriage of justice. AGs have a duty to investigate what actually happened before trying to paper over it with a settlement. Hopefully other AGs are emboldened by Schneiderman’s investigation and start their own independent looks at what’s going on with foreclosure fraud.

Paul Ryan & Class Warfare

Rep. Paul Ryan, per Mike Allen’s Playbook:

House Budget Committee Chairman Paul Ryan (R-Wis.), in text for luncheon speech of Chicago Economic Club: “Class warfare may be clever politics, but it is terrible economics. Redistributing wealth never creates more of it. Sowing social unrest and class envy makes America weaker, not stronger. Playing one group against another only distracts us from the true sources of inequity in this country – corporate welfare that enriches the powerful, and empty promises that betray the powerless.”

Paul Krugman responds:

Actually, for the most part critics of his plan haven’t focused on the distributional issues so much as on the nonsense he’s talking; they’ve been playing the arithmetic card, not the class warfare card. But yes, the Ryan plan does impose huge sacrifice on the poor and the middle class, while cutting taxes on the rich and corporations.

And this is, of course, the game conservatives have played over and over again since Reagan. Without exception, their policy proposals call for sacrifice on the part of most people, but lavish tax cuts on high incomes — and when you point this out, they yell “class warfare”.

Krugman comes close to getting it, but stops himself on simple facts and doesn’t look at the big picture. It’s not that Republicans complain when they get called out for the factual consequences of “their policy proposals call for sacrifice on the part of most people, but lavish tax cuts on high incomes.” It’s that when Republicans push policies like the Ryan budget, they are perpetrating class warfare. It’s not that Ryan is whining about getting called out. It’s that he’s following the Karl Rove playbook and attacking his opponents for his own weakness. His play is a massive assault on working Americans by wealthy elites; it would create an even-greater transfer of wealth from working Americans to the rich than what is already taking place. Ryan is hitting back at his critics for doing exactly what his actual proposal does: wage class warfare. It’s intended to be a distraction and to the extent that Krugman doesn’t throw it right back in Ryan’s face it seems to have worked on The Shrill One.

Taibbi: The People vs Goldman Sachs

Matt Taibbi has laid what is probably his most exhaustive look into Goldman Sachs:

It wouldn’t be hard for federal or state prosecutors to use the Levin report to make a criminal case against Goldman. I ask Eliot Spitzer what he would do if he were still attorney general and he saw the Levin report. “Once the steam stopped coming out of my ears, I’d be dropping so many subpoenas,” he says. “And I would parse every potential inconsistency between the testimony they gave to Congress and the facts as we now understand them.”

I ask what inconsistencies jump out at him. “They keep claiming they were only marginally short, that it was more just servicing their clients,” he says. “But it sure doesn’t look like that.” He pauses. “They were $13 billion short. That’s big — 50 percent of their risk. It was so completely disproportionate.”

Lloyd Blankfein went to Washington and testified under oath that Goldman Sachs didn’t make a massive short bet and didn’t bet against its clients. The Levin report proves that Goldman spent the whole summer of 2007 riding a “big short” and took a multibillion-dollar bet against its clients, a bet that incidentally made them enormous profits. Are we all missing something? Is there some different and higher standard of triple- and quadruple-lying that applies to bank CEOs but not to baseball players?

This issue is bigger than what Goldman executives did or did not say under oath. The Levin report catalogs dozens of instances of business practices that are objectively shocking, no matter how any high-priced lawyer chooses to interpret them: gambling billions on the misfortune of your own clients, gouging customers on prices millions of dollars at a time, keeping customers trapped in bad investments even as they begged the bank to sell, plus myriad deceptions of the “failure to disclose” variety, in which customers were pitched investment deals without ever being told they were designed to help Goldman “clean” its bad inventory. For years, the soundness of America’s financial system has been based on the proposition that it’s a crime to lie in a prospectus or a sales brochure. But the Levin report reveals a bank gone way beyond such pathetic little boundaries; the collective picture resembles a financial version of The Jungle, a portrait of corporate sociopathy that makes you never want to go near a sausage again.

Again, read the whole piece. Taibbi has done some of the best reporting on the financial collapse broadly and the actions of Goldman Sachs specifically. Much of this article isn’t new information so much as a thoroughly accessible presentation of the case against Goldman. Taibbi is really bang the drum loudly for criminal prosecution of Goldman Sachs executives. I hope he gets it, but frankly I’m not optimistic.

Even Bond Dealers Want Tax Increases

Reuters:

A majority of top Wall Street bond dealers and money managers say spending cuts alone cannot solve the U.S. budget problems and tax increases must be part of the mix.

In a Reuters survey conducted on Tuesday, 17 out of 29 fund managers and economists representing major Wall Street bond dealing firms said the Republicans’ favored option of spending cuts alone would not a work.
…
In contrast, of the money management firms in the Reuters survey, which oversee nearly $2 trillion in investments, 13 favored a mix of spending cuts and tax hikes.

So bond dealers and money managers, unlike Republicans, recognize that solving the budget problems require a combination of tax increases and spending cuts. Of course I don’t really care what bond dealers and money managers and their Wall Street brethren think about solving budget problems. But it’s fairly remarkable that even people who are very conservative and normally side with Republicans are capable of recognizing that increasing revenue has to be part of the equation here. Maybe someone should show them the Congressional Progressive Caucus’s budget?

A Job Guarantee Program

Writing at New Deal 2.0, Marshall Auerback makes a strong case for creating a WPA-inspired Job Guarantee program. Much of the post explains the importance of prioritizing job creation over spending cuts right now, which I obviously agree with, but the explanation of how a specific job creation program could work is smart and inspiring.

In my view, a universal Job Guarantee program would be the best way forward and truest to the spirit of the WPA. The jobs would pay basic wages and benefits with a goal to provide a living wage. The program would take all comers — anyone ready and willing to work, regardless of education, training, or experience. We could adapt the jobs to the workers. As the late Hyman Minsky put it, we could “take the workers as they are”, work them up to their ability, and then enhance their skills through on- the-job-training. Additionally, the guaranteed public service job would be a counter- cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. Such a program would remain a permanent feature of our economy, acting as a buffer stock to put a floor under unemployment, while maintaining price stability whereby government offers a fixed wage which does not “outbid” the private sector, but simply creates a stabilizing floor and thereby prevents deflation.