Mortgage Fraud

The ACORN I Know

davidswanson — Thu, 24 Sep 2009 18:05:44 -0400

By David Swanson

If someone told you that a bunch of low-income people, most of them African-American or Latino, most of them women, most of them elderly, had been victimized by a predatory mortgage lender that stripped them of much of their equity or of their entire homes, you might not be surprised. But if I told you that these women and men had gotten together and, after three years of work, brought the nation's largest high-cost lender to its knees, forced it to sell out to a foreign company, and won back a half a billion dollars of what had been taken from them—one of the largest consumer settlements ever—you'd probably ask me what country this had happened in. Surely it couldn't have been in the United States of the Second Gilded Age, the land of unbridled corporate power and radical government activism on behalf of the rich and the greedy.

Yet, it was. These victims identified a problem and named it "predatory lending" in the late 1990s. Their campaign to reform Household International (also known as Household Finance and as Beneficial) played out from 2001 to 2003, concluding with a settlement that includes a ban on badmouthing the company. That's why more people haven't heard about this. The families who fought back and defeated Household are barred from bragging about it or teaching the lessons they learned, because that would require recounting the damage that Household did to homes and neighborhoods. These families are members of ACORN, the Association of Community Organizations for Reform Now.

I was ACORN's communications coordinator during much of the Household campaign, but left before it ended. No one has asked me not to tell this story.

In low-income minority neighborhoods in the United States, what little wealth there is, is in home equity. Home equity makes up 74.9 percent of the net wealth for Hispanics in the bottom two income quintiles (0-40 percent) and 78.7 percent of the net wealth for African Americans in the second income quintile (20-40 percent). There have been gains in minority home ownership over the past few decades, in part as a result of the work by community groups like ACORN and National People's Action to force banks to make loans in these communities, but the home ownership is fragile and not protected by additional savings. Lenders in the past decade have focused on stripping away equity and community groups have been forced to focus on keeping out loans that are worse than no loans at all.

Most high-cost loans are refinance loans. Too often they are marketed aggressively and deceptively, including through live- checks in the mail that result in very high-cost loans that the lender will be only too happy to refinance into a new mortgage. Often these loans are made with excessive, sometimes variable, interest rates, outrageously high fees, and fees financed into the loans so that the borrower pays interest on them and often is not told about them. They are made with bogus products built in, on which the borrower also pays interest. Hidden balloon payments force repeated refinancings for additional fees each time. Mandatory arbitration clauses attempt to prevent borrowers from taking lenders to court. The practice of loaning more than the value of a home traps borrowers in loans they cannot refinance with a responsible lender. Consolidation of additional debts further decreases equity, placing the home at greater risk. Quiet omission of taxes and insurance from a mortgage that previously included those charges results in a crisis when yearly bills arrive.

Predatory lenders turn the usual logic of lending upside down. They make their money by intentionally making loans that the borrowers will be unable to repay. They charge fees for each refinancing until finally seizing the house. Fannie Mae has estimated that as many as half of all borrowers in subprime (high-cost) loans could have qualified for a lower cost mortgage.

High-cost loans are not just made to people with poor credit. They're often made to people who have poor banking services in their neighborhoods.

ACORN members don't take abuse of their neighborhoods lying down, and Household was a leading cause of the rows of vacant houses appearing in ACORN neighborhoods in the 1990s. ACORN launched a campaign to reform Household that included numerous strategies. One, an ACORN stand-by, was direct action. Repeatedly, ACORN members in numerous cities around the country simultaneously protested in Household offices to demand reform. At the same time, ACORN was working to pass anti-predatory lending legislation in local and state governments and Congress. ACORN members made sure that in each case the victims testifying were victims of Household and that Household's abuses were highlighted. When ACORN released major reports on predatory lending, the examples included were always from Household.

ACORN also worked with the Coalition for Responsible Wealth to advance a shareholder resolution that would have tied Household's executives' compensation to ending its predatory lending. In 2001 Household held its shareholders meeting in an out-of-the-way suburb of Tampa, Florida. A crowd of ACORN members was there with shark suits and shark balloons to protest.

The resolution won 5 percent. Over the next year, ACORN pressured state pension funds and other shareholders. Household held its 2002 meeting an hour and a half from the nearest airport in rural Kentucky. Members made the trip by car from all over the country. The protest may have been the biggest thing the town of London, Kentucky had seen in years. The resolution won 30 percent.

As a result, various local and state governments threatened to divest from Household. ACORN also put pressure on stores like Best Buy that used Household credit cards. At the same time, ACORN Housing Corporation was assisting many Household victims in either refinancing out of their Household loans or at least canceling some of the rip-off services built into their loans, such as credit insurance. ACORN was also getting the word out to stay away from Household.

ACORN wrote up numerous accounts of Household predatory loans and took them to the attorney generals in state after state urging investigations. ACORN similarly pressured federal regulators to act. ACORN assisted borrowers in filing a number of class-action suits against Household targeting those of its practices that were clearly illegal even under existing law. They let Wall Street analysts know what Household stood to lose from these lawsuits, as well as from various reforms that Household periodically announced in its attempt to hold off the pressure.

But ACORN members never let up. They protested again and again at Household offices and held press conferences in front of homes about to be lost to Household. They protested the secondary market that was putting up capital for these predatory loans and they held a major protest at the trade group that lobbied in Washington for Household and its fellow sharks. Then, in the summer of 2002, in the wealthy suburbs north of Chicago, victims of Household from around the country poured out of busses by the thousands onto the lawns of the board members and the CEO of Household. They knocked on doors and spoke to those who had hurt them from a distance. When the police made them leave, ACORN members plastered "Wanted" posters all over the neighborhood telling the board members' neighbors what crimes the Household executives were guilty of.

Through all of this, we worked the media. I kept a database of victims' stories and contact information and put them in touch with reporters whenever the reporters were willing to tell not just the victimization story but also the story of fighting back. We generated several hundred print articles and several hundred TV and radio stories about Household's predatory lending practices. We worked the small neighborhood papers, flyers in churches, posters on walls. We provoked lengthy articles in the New York Times, Washington Post, Wall Street Journal, Los Angeles Times , and Forbes Magazine . We kept up an endless barrage in the trade press: the American Banker, National Mortgage News, etc.

A handful of ACORN staff people with great expertise and unrelenting effort organized thousands of members to drive this campaign until Household agreed to pay victims $489 million through the 50 states attorneys general, and later agreed to pay millions more through ACORN, as well as to reform its practices.

This campaign was an example of what can be done if enough different angles are pursued at once and the company ripping you off is put on the defensive and constantly hit with the unexpected. This campaign increased the size and power of ACORN to effect future progressive change. This is good news for low-income neighborhoods, but bad news for Wells Fargo, the predatory lender next on ACORN's list.

David Swanson was communications coordinator for ACORN from 2000 to 2003, and is the author of the new book "Daybreak: Undoing the Imperial Presidency and Forming a More Perfect Union" by Seven Stories Press. You can order it and find out when tour will be in your town: http://davidswanson.org/book

A New Way Forward Is Live Streaming Teach-Ins on Opposition to Bankster Bailout

davidswanson — Mon, 08 Jun 2009 11:55:40 -0400

http://www.livestream.com/anewwayforward

The webcasting events are:
New York City, 6/8 at 7PM with Leo Hindery, Les Leopold, Alice Kessler-Harris at the Tank, (webcasted)

San Francisco, 6/10 at 6:30PM with Ernesto Dal Bo, Doug Rucskoff, Donald Goldmacher at Mechanic Library, (webcasted)

New York City, 6/10 at 7PM video screening with Danny Shechter, New Roosevelt Institute, Working Families at Le Poisson Rouge (webcasted)

Washington DC, 6/11 at 9:00AM with Simon Johnson, John Taylor, Nancy Cleeland, Mike Lux at the Capitol Hill, (one hour broadcast delay)

"Looting of America" Author Sees Opportunity in Meltdown

davidswanson — Wed, 27 May 2009 12:41:13 -0400

By David Swanson

I've just interviewed Les Leopold, who blames the recent financial disasters on trends that began over 30 years ago, explains how a great deal of Wall Street's "investing" has had as much connection to the real economy as fantasy baseball has to baseball, diagnoses the failures of labor and the left to resist the financialization of the economy, views the current situation with genuine optimism as a rare moment in which we might be able to make necessary changes to regulate finance and to shift money from a tiny group of billionaires to the rest of society, and explains why that latter step is needed to stabilize any economy.

With teach-ins planned everywhere on June 10th and people trying to educate each other on exactly what just happened to trillions of our children's dollars, you could do a lot worse than to gather some friends together, read or listen to, and discuss, this interview, and then take appropriate actions.

Here's the audio in an mp3. It's a little under an hour.

David Swanson interviewing Les Leopold:

DS: This is David Swanson from AfterDowningStreet.org and Democrats.com and elsewhere, and I am very privileged to have here for this recording Les Leopold who has co-founded and directed both the Labor Institute and the Public Health Institute, who helped to form the Blue-Green Alliance which brings labor together with environmental activism, and who is the author of an award-winning biography, The Man Who Hated Work and Loved Labor: The Life and Times of Tony Mazzocchi, and of the book we are going to be talking about this evening, The Looting of America. It’s a long title, but it’s worth it: The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity and What We Can Do About It.

Les, great to have you.

LL: Well, thank you very much, David. I’m very glad to be here.

DS: Thanks for being here. It is a wonderful book. It’s not too long. I greatly enjoyed it, and it explained some crazy-sounding things to me from Wall Street that I had no idea what they could possibly be. Things liked “cubed, collateralized debt obligations,” and so forth. I don’t know if we have time on this, in this interview, for you to explain all the terms to everyone. They can get it from reading The Looting of America, but use your judgment and explain what we need.

But maybe if I could I’d like to start here: There is sort of a basic rule of economics that you say you and others have been taught. That is that when productivity goes up, the workers pay goes up. Not just that it should, but that it does, as some sort of a rule. And yet that hasn’t been true for quite some time. Can you discuss what has happened?

LL: Basically from World War II to the mid-70’s if you look at the productivity index, and we should define productivity – it’s the amount of output per worker hour. And the wealth of nations is basically determined by the value of output per worker hour. The more valuable that worker hour, the greater the prosperity of the nation. So it’s what is beneath pumping up the line of gross domestic product and other things like that. And our standard of living.

The productivity index and the average hourly wage of the non-supervisory production worker (which is something that is tracked in the statistics books, the government statistics books), those two numbers went up virtually in tandem from World War II to the middle of the 1970’s, and the thinking was that as productivity goes up, corporations make more money, they then hire more workers, which drives up the price of labor, and, the real price of labor after you take into account inflation, and as the two go up together, prosperity within your country goes up. And this was one of the reasons American capitalism was such a shining example around the world. The standard of living in the post-World War II period was phenomenal for the average working person, virtually throughout the country. There were exceptions – farm workers, African-American farm workers in the south, etc., - but overall there was a wonderful increase in the standard of living.

Something very strange started to happen in the mid 1970’s that, the two got de-coupled. It was no longer, what we thought was automatic turned out not to be automatic. In fact, there were other factors involved, and productivity continued to rise and, but the average worker’s wage after inflation went flat and started to go down. And this created an enormous change in the American economy, because the gap between those two lines first was hundreds of billions of dollars and now trillions of dollars, and that money had to go somewhere. It was no longer going to the average working person. In fact, it went to the very, very top of the income ladder. And that’s the source of our current crisis. A huge amount of money going to a very few people at the top.

DS: Now that seems relevant and interesting and disturbing and maybe even offensive, but I’m not sure it’s going to be clear to everybody right away how that 30-year trend could have caused the recent financial disaster. What’s the connection?

LL: It wasn’t clear to me either. And your listener or reader should be skeptical. So what. The money goes to the top, and the theory was when the money goes to the elite - and this was sort of the theory of the deregulatory, Reaganomics era – it started actually with Jimmy Carter, deregulation started then and some other trends we’ll talk about in a minute – but the theory was that the investor class, the elite, would be the investor class, and they would take that money and they would plough it back into new industries and this would lead to, you know, even more growth and productivity, even more jobs, even higher standard of living. And up to a point, that’s true. But there was so much money that floated to the top that there actually, the amount of investments that could be found that were moderate, you know, that were relatively good, solid investments began to get used up.

And the “Wall Street Journal” refers to a “wall of money” that existed out there that was looking for investments. And that wall of money, you could only buy, look, you could only invest so much, you could only spend so much on yourself. I mean, how many homes, how many cars, etc. The rest of it was still seeking investment opportunities. And Wall Street is not stupid. They became very aware that there were literally trillions of dollars out there seeking a home. And they came up with it.

They invented financial instruments to meet that demand. And the instruments they created are so amazing it would take, it took a book to kind of unwind it all, but they are so phenomenally detached from reality, they literally became a series of bets. And those chickens finally came home to roost on a lot of those bets. That’s the third piece of it.

So the first piece was the productivity got detached from real wages. Money drifted to the top, and those people ran out of places to invest it and they start to invest in what I call “vanity finance.”

DS: Can we stop at step two for a minute because I don’t know if that’s going to be clear to everybody right away. I don’t know if it’s clear to me. You say in the book as well, there’s a line on p. 17 that stopped me when I read it that says: “There was so much money roaming the globe that it ran out of real economy investments. Instead, much of this massive surplus found its way into high finance.”

And yet, we’re trained, I think, to think of entrepreneurs and the investing class as driving innovation. Why some handful of these people 30 years ago couldn’t have thought to create investments in infrastructure or in green jobs in better schools or in mass transit. What prevented the creation of real economy investment?

LL: That’s a good question. But some of the things that you mention there are public real investments. That’s not what, you don’t invest in infrastructure and schools, education if you are a private investor. And you’re also not likely to be able to by yourself break through on clean energy. That usually, you know, those, or alternative energy operations. That usually requires massive government investment.

What you’re looking for as a private investor is a good investment and you’ll be willing to speculate some on venture capital, and money did go there. In fact, the dotcom boom was fueled precisely by the money that was looking for a home.

But there was too much of it. You can only absorb in the private sector a certain amount of investment at a time. Otherwise it gets very, very risky, and if it’s your money, that’s not what you want to do. What you want is something that looks much safer, or at least moderately safe.

And so that financial instruments created by the financial community looked a lot safer. So, yeah, you put some money into new industries, into the dotcom boom, into securitized subprime mortgages as well, and then you start drifting into securities based on subprime mortgages that were designed to look like they were AAA-rated securities. That money, those kind of instruments attracted a whole lot of money.

Where that money could have gone, could have, should have gone, is precisely in infrastructure investment, education, energy, health care reform, but that’s what the public sector is supposed to do. And the public, if you recall, taxes were dramatically cut, especially on the wealthy, so the money to do those wonderful investments wasn’t there.

DS: So these investors who were looking for a safer place than risky new energy technologies or schools or things that tend to be public investments found investments that they thought were relatively safe but perhaps were not, were concocted with some fudging of numbers and some tricks and some fancy footwork that’s discussed in your book, The Looting of America, that perhaps in the way that some victims of predatory mortgage loans were taken in, the highest level of investors were taken in. Am I reading that correctly?

LL: It’s amazing, virtually everybody involved was taken in except the people who were, even the people actually who were marketing this stuff. See, the money is made by creating, packaging, selling, and reselling these instruments. The fees are embedded in it, so you make the money up front. And this was incredibly lucrative for the financial community.

Step by step the large financial institutions started making money hand over fist off the fees that these things generated, and as long as the economy was booming, especially the housing market going up and up and up, which turned out to be that which was being bet upon mostly during this period, but other things as well, as long as these things went up there was little chance of people losing their money, and the fees being made were enormous. The profits of the financial sector started to hog, became the most profitable sector of the economy, and it, I think at one point it almost hit 40 percent of all the corporate profits were in the financial community.

But it turns out as we’re learning now, these profits were phony. For example, the nine largest financial institutions had, according to the New York times, in the three years prior to the crash this fall, had earned quote/unquote 300 billion dollars. And now they’ve lost all that. It’s all gone. Except it was paid out. In other words, those companies are now, have now gone in the red equal to all the money they previously made. Of course, the money they previously made has already been paid out, half of which has gone to, you know, bonuses and salaries within those companies. And we’re now making up the difference through the TARP program, and trying to salvage the economy from a great depression.

So, but it was phenomenally successful as it was going on. And the reason that the investors invested in these instruments was (1) that they had these good ratings and they paid a little bit more than, they were constructed that they paid a little bit more than a super-safe government investment, or comparable government bond. And when you’ve got a lot of money and you can make a half a percent more, you’re making a lot more money.

DS: Right.

LL: They couldn’t sell them fast enough. And they kept inventing new ways to create them, even when there were no underlying assets that were attached to them, which is, you know, a mind-blowing concept that I ran into as I was working on this book.

DS: Right. Investing in bets on investments actually owned by completely other people. I mean, these layers of phoniness so that this is not an economy in any way connected to the production of actual valuable products or services. Explain to people why this phony, fantasy finance economy couldn’t simply be allowed to fail without actually worsening the real economy.

LL: Well, I need to give a, maybe, let me try to explain a little bit more how these instruments work by going to the analogy of fantasy sports, fantasy baseball.

DS: OK.

LL: Because it’s a, fantasy baseball is a synthetic derivative. In fantasy baseball, you and 12 other people get together and form a league and you draft real baseball players onto your team and you get ranked by how many home runs, RBIs, stolen bases, etc., your team has. And you own players, but you don’t really own them. The person, the real major league baseball player, if I have Derek Jeter on my team, Derek Jeter doesn’t know he’s on my team. In fact, he’s probably on a couple of thousand or 15,000, or 20,000 fantasy baseball teams right this very moment. Nobody owns him other than the New York Yankees, but he’s part of all these fantasy leagues.

And there is betting taking place right in these various leagues. The winner gets a certain amount of money, second place gets a certain amount of money. And money will exchange hands at the end of the year, and there are books that you can buy based on, you know, how to play fantasy baseball. There are stat services that track this every day for the teams involved. So there’s a whole enterprise surrounding fantasy baseball, which is all, it’s a game based on owning real players but you don’t really own them. You just track their statistics. Your team is derived, a derivative, a synthetic one, based on real major league baseball.

Well, imagine the same thing based on housing. And you can play, you can do the same thing. You can make all kinds of bets, and you can own all kinds of housing without actually owning it. You can play fantasy housing bets. And that all works really fine, except let’s go back to real baseball. What happens in fantasy baseball if the real major leagues go on strike? If the real thing has a problem and goes on strike, all the fantasy baseball leagues collapse, entirely. They are worth nothing. You can’t play. You can’t do anything. All the books and stats services collapse. They all go under, because they are built like a pyramid on top of the real thing.

Well, the same thing happened in housing. The housing market that all these bets, these betting leagues were based upon, all these fantasy finance securities were based upon, hit a limit. At a certain point prices couldn’t go up any more and they started to go down. It was the equivalent of going on strike. And when they did start to go down, all these betting leagues, securities that were based on it in the superstructure, just like fantasy baseball, all those instruments started to crash in value. And when they crashed, everything around it started crashing, and you had an enormous implosion of financial worth.

There is a school system, there are five school systems in the Milwaukee area that got snookered into buying $200 million worth of these fantasy finance securities. Kenosha, for example, spent $37 million, and they were doing this to try to raise money for a retiree benefit fund. And that $37 million when the crash took place is now worth, in one year it went from $37 million to under $1 million. That’s how far it crashed, the fantasy finances had crashed. And this is what happened all over the globe.

Now, your question is, why couldn’t we let this happen? Well, if we just let, here’s the situation we were in: The banks had not only created and sold these fantasy finance instruments, but they kept a lot of them as well. The ones they couldn’t sell they kept on their books because they looked very valuable. Other people wanted them. And so, and they had these offshore, off-book connections where they set up these things in the Cayman Islands, these separate little corporations that were basically where the game was being played. They had those, too.

Well, once the crash started, their books were littered with these valueless, if they sold them they would be worth the same thing as the Kenosha school system. They would go from $37 million to less than $1 million. And then if, if they did this, then the bank itself would be insolvent. It would go under. It would have to file for bankruptcy which is kind of what happened, which is exactly what happened to Bear Stearns and it was merged away and then it happened to Lehman Bros., and the markets all over the world started to collapse.

And it was about to happen to AIG. And I’ve got to tell that story because then you’ll see what would happen if we let it collapse.

DS: OK.

LL: AIG decided that what it was going to do was insure other people’s bets. In other words, it would be like if I had a fantasy baseball team and it would say, OK, we’re gonna, if you finish in the bottom two out of 12, we’ll make up the difference. We’ll provide insurance, financial insurance for you. And you’ll pay us a certain amount four times a year and a certain amount up front and we’ll get those fees and if something goes wrong with your team, we’ll insure it.

Well, they figured if they insured enough different teams, enough different speculative securities, they couldn’t all go south at the same time. So they would, so they decided to insure more and more. And they figured out that this was a gold mine, because they had a AAA rating themselves, and as a result, in their contracts, their insurance contracts (they don’t call it insurance because that would be illegal, that’s regulated; they call them credit default swaps, that’s not regulated – still not regulated), so they issued these insurance policies basically on these risky financial securities. And they figured, we’ll do enough of them and we’ll make a huge amount of money because we don’t have to put up anything in return. We have a AAA rating, we will get all these fees, this was the most profitable of any of the divisions within AIG. They were going to get all these fees without putting up anything in return. Cost them almost nothing.

So they issued $450 billion worth of insurance. Well, when the economy started to go down, the housing market collapsed, and these various fantasy finance instruments started to get into trouble, they had to quickly come up with money to cover their bets. Well, very quickly they didn’t have enough money, and once they didn’t have enough money, their rating agencies were about to switch their rating from, or did switch their rating away from AAA which meant that the people who were on the other side of the bets were allowed to then take their assets, or AIG had to quickly sell the assets.

Now, if AIG, AIG didn’t have, couldn’t possibly raise enough money in time, and no one is going to lend them any money, so they would have gone under. If they went under, and they were about to go under, they would have owed $450 billion to all these other financial institutions all over the world. Had they not paid their bets, those institutions would have gone under. Those institutions also did the same thing. They had bets to other institutions. They wouldn’t have been able to pay off their bets. And you would have seen a domino situation right around the globe.

We were a millisecond away from that massive meltdown, and, you know, whatever criticisms I may have of how it was done and what, you know, the various administrations were up to, the Bush administration in the end, had they not acted on AIG, we’d be selling pencils on the street right now. It would be a disaster. Bank after bank after bank after bank would have folded.

DS: And not just banks but school districts and pension funds, and . . .

LL: Oh, all kinds, everybody that took out insurance would now be insolvent or close to being insolvent. You would have had a massive crash. I mean, it was bad enough as it is, but it would have been, I think, by a factor of ten times worse. JP Morgan would have gone under, I believe. You know, a lot of the other Wall Street firms would have gone under because they were counting on that insurance. Uh, anyway, so . .

DS: And this would have impacted real people in the real economy.

LL: That’s another thing I think that needs to be better understood. People kind of view the finance community as another sector. It’s not another sector. It’s the kind of the heart and lungs of the economy. It breathes. It’s everywhere. Uh, virtually every single financial institution, school district even, rely on financing, on a periodic basis or on a daily basis. Every aspect of the economy relies on . . . The way I like to picture it is, imagine the globe. On the surface of the globe is real production. The air is finance. You need a certain, you need the right amount of air for the real economy on the surface of the globe to prosper, and if the air gets too thin or it gets too stormy, you have, all hell breaks loose on the surface of the globe.

And what happened was, once these institutions started to fail and the values started to crash and these fantasy finance instruments that were, you know, based on not much more than fantasy baseball, once the crash took place, the strike took place, as it were, you had an implosion of credit problems. Banks were afraid to lend to each other, for starters, because, think about it. They knew how much toxic, how many toxic assets they had on their books. They knew every other bank had toxic assets on their books, and they knew how close they were to going under. They’re not going to give money to another bank that is also about to go under. They needed their own capital to be able to stay solvent. So bank after bank after bank after bank held onto their money.

The money market funds froze up. And money market funds are absolutely invaluable because that’s what corporations use to make payroll. They depend on selling paper for 30 or overnight or for 30 days and then rolling it again and again and again. They use that money to make payroll and they use their earnings for higher return investments in their company and elsewhere.

So all of that started to freeze up. And once the credit system freezes up, the economy, when they talk about the economy falling off the cliff, that’s what happens. It just stops functioning. It starts sputtering. People can’t get credit to buy things. Companies can’t get credit to buy things. Then the people that are waiting to sell things can’t sell them. They start laying off people. Everybody starts laying off people. Everybody stops buying things as well, and you get a downward spiral, a deflationary spiral.

This is what happened after 1929, after the crash then, and it was mismanaged as well at that time by the federal government in the Hoover administration, or so the literature suggests. But anyway, once that credit freeze starts going into the real economy, you get a dramatic, instantaneous recession. I mean GM and the Big Three auto companies would have problems anyway, but nothing like what they are facing now. I mean Toyota, everybody is seeing, witnessing a humongous drop in sales. That’s not because all of a sudden people got poor. It’s because the credit system froze up. And when it freezes the entire economy in a sense comes to a halt just long enough to cause chaos, and it’s happening on a global level. Virtually no country is immune.

DS: And I think we should make clear, as your book does, I think, if I’m reading it right, that the world of finance out there in the atmosphere doesn’t just impact the real world and the real economy when and if it collapses, but is for better and worse and often for worse interacting with the real economy all along and in many ways driving us to the cliff that we then are in the position of being about to fall off. And so, in regards to the housing market that you suggested was central to this, and you said that the housing market hit a limit. It was interesting in reading your book and others that in some ways the housing market was driven to that limit by the world of finance.

So, you know, I used to work with a community group called ACORN, and we would try to prevent predatory loans, and eventually we got to the point of trying to hold accountable the companies that were buying the predatory loans, and so I sort of viewed it from that direction, in that sequence, and yet in some ways it may have gone the other way – that the people throwing all this money around to buy these securitized packages of reshaped predatory loans were driving the creation of more and more and more of these subprime loans out there.

LL: You’re absolutely right. Think about it this way. Very interesting phenomenon occurred. Remember we talked about the productivity kept going up and wages didn’t go up?

DS: Yeah.

LL: Well, the response, both of the financial community and by the average consumer, was to take on more debt. The average ratio up until the splitting of the two lines was about 60 cents on the dollar. Every dollar you earned, on average, people had about 60 cents in debt. Well, as wages stopped going up and some of this fabulous wealth of the super rich got recycled back to consumers in the form of debt - credit card debt, mortgage debt, car loans, student loans, on and on and on. Well, the ratio went from 60 cents on a dollar to $1.20 per dollar! It doubled. Virtually the debt load on the average consumer doubled.

DS: Borrowing what we had earned had our pay been based on productivity.

LL: Well, there’s a limit to how much debt a consumer can take on. There’s just a limit. You know, at some point you can’t service the debt. And that means if your indebtedness was driving up, let’s say, the housing market, and everybody was thinking, “Well, if I get into trouble, prices are going up, I’ll sell my house and I’ll still be able to pay off my debt,” at some point it isn’t going to work any more. I mean, it’s obvious it wasn’t going to work anymore.

If you look at the price of houses, it followed, housing prices followed gross domestic product almost exactly until about six, seven, eight years ago, and then it shot up like a rocket, straight up, had no connection any more to gross domestic product. You know, that couldn’t last.

But, you know what, I don’t want the listener to get a misconception. You could take all the subprime mortgages that happened and all the predatory lending, you could take that entire problem and all it all up, and at most it is a $300 billion dollar problem. You could pay off everybody’s mortgage and clean up that problem for about $300 billion.

DS: And that’s two percent of household net worth, you say in the book.

LL: Yep.

DS: Two percent, so . . .

LL: But that wasn’t the problem. The problem was that they basically sold, securitized, those same subprime mortgages again and again and again. It was like selling the Brooklyn Bridge over and over and over again. So that $300 billion turned into $1.2, $1.5 trillion of toxic waste and not it’s scattered all over the place.

That’s, when the TARP money had to be used it wasn’t to take care of the subprime mortgages, it was to take care of all that, to try to deal with all those toxic assets. They’re still trying to figure out how to deal with the toxic assets. It’s such a thorny problem. Because . . .

DS: Right.

LL: . . . nobody wants to realize the losses on those things. So we, with the selling of it again and again. Look, it became, funny thing was, it’s true that the market for subprime mortgages was driven by the financial community, not by, you know, a conveyor belt was set up. They wanted those subprime mortgages as fast as possible to package and make the huge fees and sell to investors. But, you know what, that got to be too much of a pain in the butt. So the figured out how to do that without ever even owning the mortgages. Because to get title to a thousand mortgages and put them in a pool and do all the fancy things they did became too time consuming. So they invented a way to do it without owning them at all. That’s called synthetic. And that’s how they created synthetic collateralized debt obligations. That’s where it got to be like fantasy baseball.

They just created new securities that were tracking subprime mortgages without owning subprime mortgages.

DS: Yeah.

LL: And people bought them and they had value and they borrowed money against them as well. So you started to have a pyramid of mortgages based on nothing and then loans taken out against those mortgages that are based on nothing. So even a small hiccup in the actual housing market below would cause a cascading set of problems.

DS: So the actual problem in the housing market is $300 billion. Here we are having shelled out trillions with a “T” of our children’s money with no end in sight, and the problem is still there. So, as I think you explain extremely well in the book The Looting of America, it wasn’t just, this can’t be just blamed on poor people who bought too big a house.

LL: Oh, god, yeah. That’s what I think folks would, you know, like, Wall Street would probably like us to believe that, but I, I actually think that those people who are watching this thing know better. And what the fundamental problem comes down to is the financial free markets left to their own devices, in other words, pure, free market financial capitalism left to its own devices doesn’t work. It will crash.

We are witnessing a real time experiment in what happens when we deregulate high finance and let it go do its own thing. Left to its own devices, sooner or later it’s going to create fantasy finance instruments because it’s profitable to do so. We broke down, starting in the 70’s, we started to get rid of as many controls, all the New Deal controls virtually were undermined or eliminated in the 70s and 80s and right on through the 90s.

And attempts to regulate these instruments were actually beaten back. Phil Gramm did a masterful job in passing legislation, it wasn’t actually signed, that made it illegal to regulate the credit default swap market, this illegal, this insurance that we described.

By the way, the reason, if it was called insurance it would never be allowed, is in the insurance industry you have to have a material interest, well, a couple of things. You have to have real assets to cover your insurance policies if you are an insurance company. And second of all, there has to be a tangible interest. You can’t insure your neighbor’s house if you don’t own your neighbor’s house. And thirdly, 10,000 people can’t insure your neighbor’s house, because the insurance company knows if you do stuff like that, well, the temptation to burn down your neighbor’s house, have a suspicious fire there, goes up because there are a lot of people betting on it to go down.

Right now, 10,000 people can bet on the demise of GM. No problem. There are more than 10,000 people who will bet on the demise of GM. It’s OK to do that and totally unregulated.

But anyway, the, this is the result, this game, this casino . . . Historically, one of the things I found fascinating is the idea of finance, high finance being a casino is something that has been discussed for the last 200 years. There has always been a question of, “How do you get finance to do what it needs to do in the economy without it turning into a casino? How do you separate the utility that it provides from the speculation and gambling? Where is the line? How do you do it?” Very difficult to do, and we tried, now we’ve just tried an experiment in virtually total deregulation and it was an unmitigated disaster. That’s the lesson we have to learn here.

DS: And the . . .

LL: You can’t rely on the free market to police itself.

DS: And all of those bets on the demise of GM, there clearly is some acceptance among some elites in this country of the possibility of the demise of GM, did anyone bet on the demise of AIG?

LL: Probably. But you know, we won’t know because the settlements take place after the bankruptcy. That’s when the money gets totaled up, the best on both sides. And a lot of them wash out.

DS: Sure.

LL: And a lot of people bet both ways, whether they went, you know, long on the stock and they used the credit default swap to go short, you know, that kind of stuff. So you don’t know how it all, how much with AIG.

I suspect that, and I haven’t tried to do this . . . I did it with GM. You could actually, if you Google, you can get the price of a credit default swap for GM. The last time I looked it was something like, you had to cover $10 million worth of bonds you had to pay, for insuring it, you had to pay $8 up front and then some phenomenal amount of money.

DS: Wow.

LL: My guess is there’s something similar with AIG. If you want it, someone will sell it to you.

DS: So, this craziness, in this conversation you’re citing deregulation and you do in the book, too, and you propose a Financial Produce Safety Commission that would actually ban products that do no good and do harm, these crazy instruments we’re talking about, but the impression I get from reading the book is that you don’t think we could ever regulate sufficiently to count on avoiding a repetition, and that in fact we should be charging for financing disaster insurance – a sort of tax on . . .

LL: I’ll take it one step further. I’m not convinced that we have the wherewithal, let’s put it this way: We now, we now know that when these financial institutions get large enough we can’t let them fail. I mean, there are people out there that say, “Oh, let them go down. Let them go under.”, etc., you know. They would have loved to let them go under, but, you know, we’d be in a great depression if we let them go under.

Not like, in fact it’s not like letting any real company quote/unquote go under. It’s like, you know, suffocating a huge, you know, a huge piece of everybody’s economy when you let these big things go under.

So what do you do with them? Some people say, “Well, you should break them up into smaller entities.” Well, you know, I wonder if you can really get away with doing that. I’m wondering whether ultimately they have to be regulated like a public utility. That they have to be, you have to literally regulate it. I’m not saying the government necessarily has to own it lock, stock, and barrel, but you have to regulate it for the public good. That the idea of letting these folks just, you know, pay themselves whatever they want to pay themselves, go in whatever business they want to go into, create whatever insurance they want to create, those days have to be behind us.

The financial disaster insurance is, I’m basically making the argument that two things have, maybe I did it kind of klutzily in the book, but simply put, I think I did this properly at the end of one of the chapters, two things have to happen: we have to move money from the financial sector, the bloated financial sector into the real economy, and we have to move money from the top of the income ladder, the tippy, tippy top, to the middle class and working people and the poor. Those are the two most important things that need to happen to stabilize the economy.

Every time we’ve let money drift up to the top, in a very short period of time you go into a major depression. That’s what happened in the 20s and it’s happened again now. A disaster. And there’s no . . . one way to move money from the financial sector into the rest of the economy is to put a very small fee or tax (I call it insurance) on every single financial transaction. So if people want to zing money all over the world in a hurry like every nanosecond, they’ve got to pay a little bit into the fund. They want to do all these credit default swaps, or if we regulate them they’ll come up with another way to do these kinds of transactions and bets of one kind or another or currency bets or whatever they want to do – every time you do, 0.3 of one percent of the value of the transaction goes into, you know, the public sector. It pays us back for all the money we put in now and it protects us the next time around, and it helps move money from the financial sector into the real economy.

There is no reason in the world why we should ever let a financial executive make, you know, $10, $20, $30, $50, $100, $200 million dollars for pushing money around. I mean, it’s been proven now that what they did had no social utility, and we’re bailing them out. Now. Yet, all that, there’s just no economic reason ever to pay people that much money for doing that kind of work. It has to stop. And the sooner we get there, the better.

DS: Well, I love Sam Pizzigati’s idea of a maximum wage and even tying it to a minimum wage, and you mention such things in the book as well as raising the minimum wage and permitting re-unionization with the Employee Free Choice Act, creating single-payer health coverage, using progressive taxation, etc. I mean, these seem like the standard left positions, but you’re making an argument that all of these are needed to avoid financial disaster.

LL: Yeah. I don’t have to make this argument. As a matter of fact, Sam is more radical than I am on this.

DS: He is, and I agree with him, but . . .

LL: I’m saying we don’t even have to think about doing this outside the financial sector. If we just capped wages in the financial sector . . .

DS: Right.

LL: . . . president’s wage cap. To any institution that receives federal money or federal support. That would be an incredible signal for people, you know, to start going into other professions. If you want to, you know, earn a decent living don’t keep thinking that, you know, you’re going to graduate from college and in three years you’re going to be making a million dollars. I mean, . . .

And then the system crashes and we have to bail out your institution. That doesn’t seem like a very smart thing, smart way to run your country.

So, I’m willing . .

DS: So in the financial sector we cap salaries at the salary of the US president, and I would add to that that we limit radical increases of the salary of the US president because I wouldn’t put that past anybody.

LL: Well, that would be very interesting. But I, the point being is we’re not talking about radical conservative here. We’re talking about do you want the system to operate, or do you want it to continually crash. That, you’ve got to prove to me that you have another way to stop, I think that the burden of proof is now on the free marketers and the partial regulators. You’ve got to prove to me that we’re not going to, it’s not going to, they’re not going to work their way right around those regulations and we’re going to be into, move into another crash.

The sector is too big and there is too much money at the top of the income scale. Until we do something about those two things, and if you don’t like the proposals that I’ve put forward then come up with your own, but until we move money from the financial sector to the real economy, from the top to the middle and the bottom, and the tippy top. I don’t care about, you know, people making, you know $500,000 a year. I’m not even concerned. I’m talking about, you know, $10, $20, $30, $50, $500 million. I’m talking about billionaires. It’s obscene to let that go on and it’s not obscene just from a moral point of view. It is dangerous, absolutely dangerous to our economy to allow that to happen.

And, look it’s happened twice in 70 years, and with the interconnected global economy as it now stands, you know, it doesn’t take much to disrupt it. If we’re going to keep letting it happen it’s going to happen again with more severity. And we’re not out of this one yet. We don’t really know how we’re going to pay it all back.

DS: And I would just add I think it is as dangerous to our representative democracy as it is to the economy, and I think your book lays out an incredible vision and a wide range of systemic reforms that I’m wondering if there’s anything you see on the horizon at the moment. Have there been any bills introduced, are there any proposals that have the beginnings of any sort of legs that you would encourage people to support.

LL: Well, you know, there was talk of wage caps on Wall Street. But, you know, the Obama administration is very reluctant to do it. Congress is pushing harder. You know, there’s talk about dramatically limiting some of these derivatives. Actually there’s talk about product safety stuff, but, you know, there are loopholes in it.

What’s missing now which makes me a little, which makes me worry, is not what the Obama administration is doing because they are trying to do something. What worries me is that there is no articulate voice outside the administration that is calling for dramatic change. There is a line from the Roosevelt administration where, it goes something like: some progressive labor people came in and made all these demands . . .

DS: A. Philip Randolph.

LL: Was it A. Philip Randolph?

DS: Yes.

LL: And Roosevelt told him, “OK. Go out there and make me do it.”

DS: Yeah.

LL: Well, that’s what has to happen. If there is no pressure coming, there’s some coming from the Congress, but there’s no, what’s missing now, for example, is a labor movement that has an articulated alternative vision that had popular support that could say, “Look. These are the things that have to happen now.” Everyone is kind of relying on Obama to do it for them, and I don’t think that’s possible unless the spectrum of debate changes.

What I fear most happening now is a certain kind of financial amnesia is going to set in. We’re going to forget how we got here, and we’re going to look at the problems at GM, and the right is going to come in and start blaming Fanny and Freddie, and they’re going to blame big government, and it’s going to get to be a muddle. And that’s what happens when you don’t have, you know, popular organizations. In fact, there’s really no left, at least that I can see, that is laying out an alternative platform.

Actually, one of my critiques of the left is, at least large swaths of it, just ignored the financial sector. You know, it was all about bosses and workers in the real economy and kind of finance, finance was kind of like another sector off to the side.

But anyway, something needs to, some kind of popular, for us not to, you know, go through all these things again and again we’re going to have to see an alternative vision get put forth on the popular level so that there’s pressure on Obama not to cave into, you know, what . . .

DS: ... people who paid for his campaign want. The, I want to let you go, but there are a couple of quick questions on this point. There’s a sort of an ad hoc, grassroots coalition put together called A New Way Forward with a web site http://www.anewwayforward.org In their list of proposals, you know, is sort of general themes and there’s good overlap with your proposals, and if I’m correctly informed you’re going to be speaking at one of the events. They are organizing events everywhere on June 10. Is this a good tool to try to enlarge and move forward.

LL: Sure. I’m for anybody trying to, you know, if they can pull it off and attract people to it, that would be fantastic. Becomes a great place for a dialogue, a great place to develop a deeper, broader understanding of how we got here so we don’t forget, and how we, you know, where we want to go in the future. Yeah, that’s a nice formation.

I kind of wish that the larger institutions - environment, labor and others – saw the need to also participate more fully in this kind of thing, but you know, it’s relatively early, so let’s see how it unfolds. I wish them all the best. I’m going to do what I can to support them.

DS: I think you’re absolutely right, and my hope, of course, is that people will go to these teach-ins and organize more of them on June 10 and then reach out to labor unions they are part of and other groups they are part of and create a bigger movement. And there is at http://www.anewwayforward.org a nice little video that people can show at these teach-ins that goes into some of these issues, but I would strongly recommend that between now and June 10th people get copies of The Looting of America by Les Leopold and then discuss it at these teach-ins on June 10.

Let me just ask you about two pieces of legislation before I let you go because I do know of a couple of bills that seem at least tangentially to address what we’re talking about here. We haven’t talked a lot about the Federal Reserve, but, you know, more of, you know, the biggest chunk of this money that has been handed out in these bailouts has gone through the Federal Reserve, and yet Congress isn’t allowed to see what’s happening there, even though it is public money, and so there’s a bill that, at this point has some Democratic support but more Republican support that’s called the Federal Reserve Transparency Act. It has about 180 co-sponsors and, you know, you only need 218 to pass a bill. Is that a good . . .

LL: Look, transparency is obviously a good thing. You know, the American people can’t be in the dark. It’s kind of interesting that you’re saying that, the Republicans obviously think this is a kind of a wedge issue that they can embarrass the Obama administration with. I support it but not, you know, for that reason.

DS: Well, of course.

LL: We need transparency. That’s a good thing.

DS: The other one – there are a number of bills, and the strongest one may be Sen. Bernie Sanders’ bill, but on the question of usury, of, you know, traditions that date back for millennia, of not allowing lenders to lend at exorbitant rates. And Sen. Sanders’ bill would cap the interest rates on credit cards and so forth at 15 percent. Now, I don’t know . . . there may be some argument out there that people can only do good business if they can charge 20 or 30 or 500 percent interest, but I, I don’t grasp that. What do you think of those sorts of . . .

LL: Give it at try. I mean, at this point, it seems to me all the free market arguments, there are dozens of free market arguments I believe that would say why it is that you shouldn’t cap interest rates.

DS: But they were in the past, right? We have tried it and it worked better?

LL: Well, nothing has worked worse than what we just went through.

DS: Yes.

LL: So, I’m for, again, I think the burden of proof goes the other way. I say, “Try it.” The argument is going to be, you know, credit will dry up, etc. I go, “So what?” Credit will dry up, you know, consumer credit, predatory consumer credit will dry up a little bit more.

I’m with Bernie on this when I say, “Give it a shot.” There is a long history. This history is 5,000 years old and then some about how to deal with basically predatory lending, you know, high usury. It’s been an issue for 5,000 years. It’s very, very difficult. Doesn’t seem to go away. So I think it’s a very good period in which to experiment.

You don’t get these opportunities that often. I feel like I’ve been unshackled from sort of an ideological post that had both my arms wrapped around it and tied behind my back. You know, you couldn’t, the free market was, you know, in finance with miracle workers, you know, the people that were making all this money were donating it here and there and were viewed as gods. You know, you’re supposed to, like, you know, worship them. And it turns out that what they were doing was running a high class casino that went bust. And now we can talk about what really went on which is those markets don’t work that way, so if we want to try to put a cap on interest rates, usurious interest rates, let’s give it a shot.

DS: Well, that is a wonderful, optimistic note to end on the account of what does not seem a very optimistic story, and so I think it’s wonderful to see this as a time of hope for more fundamental change. And I think this story is told as well as I’ve seen it anywhere else in the book of our guest.

We’ve been speaking with Les Leopold. The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity and What We Can Do About It from Chelsea Green Publishing and you can get it anywhere online or at your local book stores.

Les, thank you very much for taking so much time with us.

LL: Oh, it’s my pleasure and thank you for all the wonderful work you’re doing. You’re a terrific writer and commentator and I wish you all the best.

DS: Thanks for that.

TAKE ACTION:

Financial Fiasco Teach-Ins on June 10th
How did we get here? What has the government done so far? What should our economy look like?
A New Way Forward is encouraging people to hold "teach ins", video screenings on June 10th! Go here!
http://www.anewwayforward.org/demonstrations
Here's a terrific 35 minute video to download and show at home (or at the public library or other event location).
Read Fantasy Finance and Real Fixes.

Interview transcribed by Linda Swanson.

Fantasy Finance and Real Fixes

davidswanson — Fri, 22 May 2009 12:48:16 -0400

By David Swanson

If you're like me you find it at least a bit disturbing that we're giving trillions of dollars to save the economy to the very people who wrecked it, and more disturbing that we're doing so without any solid basis for expecting to get much of it back and without making fundamental changes to prevent a repetition. But if you're like me, you also aren't 100 percent certain how a credit default swap works with a cubed collateralized debt obligation, much less whether such a monstrosity needs to be eliminated or reformed. What to do?

Well, a coalition of concerned citizens called "A New Way Forward" ( http://anewwayforward.org ) is organizing teach-ins everywhere on June 10th ( http://anewwayforward.org/demonstrations ) and if you don't have people who feel up to the role of teachers, or even if you do, there's a terrific video at that website to download, show, and discuss. Just doing this much will make you more confident in discussing the single largest transfer of wealth any of us have seen, and it will connect you with others who share your concerns as well as your hesitations. There is also a wonderful collection of articles and books available on the right hand side of this page: http://anewwayforward.org/blog

A New Way Forward has digested this information and arrived at three proposals:

"NATIONALIZE: Experts agree on the means -- Insolvent banks that are too big to fail must incur a temporary FDIC intervention - no more blank check taxpayer handouts.
REORGANIZE: Current CEOs and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused.
DECENTRALIZE: Banks must be broken up and sold back to the private market with strong, new regulatory and antitrust rules in place-- new banks, managed by new people. Any bank that's "too big to fail" means that it's too big for a free market to function."

I'm inclined to agree with those general ideas, but I've also just read an excellent new book that takes a broader view and offers broader solutions while calling into doubt the idea that the fixes listed above will be sufficient on their own. I recommend adding to any financial shenanigans reading list "The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity, And What We Can Do About It," by Les Leopold. The introduction to this book ends thus:

"And then there's the subprime-mortgage puzzle. The financial media has all but concluded the crash was caused by risky mortgages taken out by poor people and deadbeats who couldn't afford them, and issued by reckless lenders who should have known better. About $1.3 trillion worth of such mortgages are out there. Of that, about $300 billion are in default or nearly so…. Please, can someone explain how that amount (about 2 percent of household net worth, could devastate the world's financial system? To date, the taxpayer has put up about $2 trillion in bank bailouts and loan guarantees. Why didn't that take care of the problem long ago? Like some perverse modern-day miracle of fishes and loaves, how did $300 billion of bad debt multiply into trillions of dollars in financial toxic waste? Poor people did all that? In this book I go after these questions -- and I hope the answers will tell us a good deal about our economic woes and what to do about them. At the very least, I hope to contribute modestly to our collective financial literacy. In short, if I can understand this crap, so can you."

And you really can and it's really worth doing. The bulk of "The Looting of America" is devoted to the explanation of what's happened. And the root cause turns out not to be deregulation or oversized banks or a lack of accountability for fools and crooks, although all of those things helped. The tragic flaw in the system turns out to be the now-thirty-year-old divergence of productivity and income, the denial of a steady share of our own earnings to working people, the gradual transfer of great sums from the rest of us to a very small group of extremely wealthy people. Of course, such a transfer of wealth might seem offensive, but how could it actually cause the situation in which we needed to transfer another huge pile of wealth to the same people through our government? Well, essentially we created a situation in which investors couldn't find anything in the real economy to invest in anymore. All the real stuff was already invested in. Had someone created a way to invest in new industries, infrastructure, green energy, and mass transit, we might all be smiling about it now. Instead, investors figured out ways to invest in fantasies, to make bad investments look good, and to gamble other people's money on the fate of yet other people's investments without investing in anything real at all.

Credit: http://www.dilbert.com

So, when Leopold comes to his recommendations at the very end of the book, some of them may sound familiar and others harebrained, unless you've read the preceding chapters, in which case they all sound sensible or newly strengthened. The recommendations include (in a list I've created by pulling ideas out of the text):
1-Financial disaster insurance: we should collect premiums (or taxes) from all financial transactions to sure up the real economy against the next collapse of the fantasy one by investing in infrastructure and all the useful real investments that those with too much money on their hands don't always manage to find or create on their own.
2-Without expecting that we can prevent the next bubble and burst, we should attempt to lessen it by establishing a Financial Product Safety Commission that would ban dangerous financial "products" like collateralized debt obligations. Any product too difficult for skilled regulators to comprehend would be banned for that reason alone.
3-Undo the transfer of the wealth from our increased productivity: "If each billionaire inside the casino walked out with 'only' $100 million per person, they would leave $1.52 trillion sitting on the table. If these chips landed in the public coffers, let's say via steeply progressive income and wealth taxes, we could invest $150 billion a year in developing and deploying renewable energy alternatives -- ten times what President Obama called for during his campaign. Or we could provide free tuition for every student at every public college and university -- in perpetuity."
4-Re-unionize. Permit it by passing the Employee Free Choice Act.
5-Cap the salaries at any financial company taking government money at the salary level of the U.S. president ($400,000). Or do that for all companies taking public handouts.
6-Create single-payer health coverage, which would provide a significant stimulus to the economy.
7-Create a maximum wage.
8-Raise the minimum wage.

Another central concern for many worried about our financial fate is the role played by the Federal Reserve, which someone rightly remarked is no more federal than Federal Express. It's a private company running our financial policies and inventing and distributing money. Not only does the Constitution place such powers in Congress, but the Congress is currently not even permitted to know what the Fed is up to. It would be, however, if H.R. 1207, the Federal Reserve Transparency Act of 2009, were to pass the House of Representatives and an unprecedented avalanche of public pressure force the Senate to miraculously go along. The House bill has 179 cosponsors plus one sponsor. That's almost unheard of. No bill has that many cosponsors. It only takes 218 votes to pass. So, if we could get 38 more cosponsors we'd be getting somewhere. Here's a page on which to take action:
http://action.firedoglake.com/page/s/Fed1207

(And, by the way, applause to my congressman Tom Perriello who has signed onto this -- the second thing he's ever done that I applauded.)

There's also a particular regulation that ought to be enforceable and in fact used to be enforced fairly well, that would limit the ability of the non-working class to rip the rest of us off. I'm talking about a ban on usury. There are bills in both houses of congress to limit the interest that creditors can charge. Senator Bernie Sanders' bill (S. 582) would limit interest to 15 percent. Even those who believe we would all perish if billionaires had to fly on the same airplanes as other people and couldn't purchase that third yacht might support the idea of limiting the interest on their own credit cards to 15 percent. Surely the masters of the universe can make a dishonest living at 15 percent the same as at 22 percent or 400 percent, right? Now would be a good time to call your senator and representatives.

How to Take Congress Back from the Banks

Bob Fertik — Thu, 30 Apr 2009 22:00:00 -0400

Bankruptcy "cramdown" reform was defeated in the Senate today, which caused Sen. Dick Durbin to accurately declare, "banks own the place." Glenn Greenwald, Jane Hamsher and Howie Klein explain how. So what do we do about it?

Chris Bowers thinks we must retreat until broader cultural change occurs:

If you want broad progressive change in America, it is essential to look beyond the electoral and legislative realm. Surely we must maintain our efforts on the political front, but the leading edge of progressive change is coming in other areas. Things like the network neutral Internet, increasing immigration, increasing acceptance of the LGBT community, and shifting religious identification are making the country more progressive than any single or combination of political campaigns over the past two decades.

But Scarecrow wants to fight and reminds us we already own the banks:

Are we really that helpless against an industry that has tanked the US economy and whose largest members are de facto wards of the state?

Excuse me, but if the amount of bailout funds, for which we received preferred shares, already provided the largest banks were converted to the equivalent amount of voting stock, the US would virtually own the major banks. Moreover, if the US government reversed or reduced its policy of guaranteeing bank loans, or stopped bailing them out through pass-throughs from AIG, the major banks would face serious problems instead of crowing about how they don't need federal bailouts.

Scarecrow blames President Obama for not exercising the government's ownership rights:

For some unexplained reason, Obama feels he must assure the Wall Street Journal that he doesn't want to intervene in the banking industry, even though the industry has put millions of people out of work, destroyed their economic security and is now crippling efforts to reform them. But grownup Americans get it even if the Republican crazies can't or won't, so just stop apologizing and get on with what needs to be done.

We need a champion, Mr. President. You have leverage and you have a bully pulpit, and the public is rightfully furious at the banks. These are weapons. Use them.

We should definitely push President Obama to use our ownership stake in the banks to pressure them to stop blocking the changes we need to make.

But we should also take aim at the specific way the banks (and every other industry) "own the Senate," as Durbin said.

First, we must prohibit lobbying by any corporation that gets Federal money, whether contracts or TARP. As Jane Hamsher writes,

Let's just be clear on this: money that went to banks through TARP was used to lobby these Senators. TARP recipients simply hid behind lobbying organizations like the MBA and the ABA who did the dirty work of screwing mortgage holders out of badly needed relief to the benefit of the banks, once again.

Second, we need to pass clean elections (public funding) of Congressional races.

Third, we need to restore the Founding Fathers' definition of bribery. As Atrios writes,

the system of legalized bribery we have in this country is so part of how our government runs that unless someone is literally funneling cash into their bank accounts (and sometimes not even then) it's just seen as business as usual.

I would expand the definition bribery so it meaningfully includes any money given to a campaign for legislation.

What America needs more than anything else is a legal definition of "bribery" that reflects the "original intent" of the Founders - paying money to an elected or appointed official to get a special benefit, regardless of whether it goes into his pocket or his campaign. It should not require a freezer full of cash (like William Jefferson) or a fee-for-service list (like Duke Cunningham) to trigger a bribery investigation.

Update 1: David Sirota notes,

Bankruptcy judges currently have this "cramdown" power to renegotiate mortgage terms on vacation homes and investment properties. Vacation homes and investment properties are disproportionately owned by very rich people.

and rightly asks

can someone please ask Democratic proponents of cramdown (who I do genuinely applaud for their courage) why they didn't just make this point over and over again? The bought off whores who voted against this bill were allowed to make this debate into one about whether it is "fair" to let people renegotiate loans they agreed to. That's a shame, because the real question is whether it is "fair" to let judges help rich people keep their vacation homes but not let those same judges help regular people keep their primary residences.

The answer, of course, is "framing." Republicans wage every battle by first identifying a winning frame, then repeating it ad nauseum. Democratic leaders - especially progressives - still haven't learned this essential strategy. Maybe netroots hero Darcy Burner can use her new position at the American Progressive Caucus Policy Foundation to change this?

Update 2: Adam Green highlights the absense of any progressive mobilization for cramdown, and contrasts this with the successful mass mobilization for Net Neutrality.

In rebuttal, Bowers reiterated the need for broad cultural change before political change is possible. But how would cultural change ever result in a successful Senate vote for cramdown? It would have to produce 80 progressive Senators to overcome the unavoidable 20-odd Democratic Corporatists, which is pretty much impossible given the culture of all the Red States. The only way to win these battles is to ban lobbying by contractors, separate Corporatists from their Corporate donors through "clean elections" and redefine bribery as the Founding Fathers intended.

Update 3: Bob Borosage says we need a real grassroots movement to push Obama to the left:

what Obama has been missing has been an independent, obstreporous citizens' movement demanding fundamental reform. Roosevelt had the labor movement, the Townsend Clubs, Huey Long, socialists and communists challenging him from the left. Johnson had the civil rights movement forcing his hand...

The New Deal we remember - Social Security, the Wagner Act, Fair Labor Standards, the SEC and Glass Stegall, progressive taxation - came not in the first 100 days, but as Roosevelt, under pressure from his left, geared up for re-election. The Voting Rights Act surely would not have been passed with Selma, and many other sacrifices transforming public opinion to enable Johnson to act...

The country would be far better served with an angry populist movement that indicts Wall Street but demands greater support for working families and Main Street. But anyone building that movement will have to understand that they might earn respect, but they won't be loved in the White House.

Help the Economy by Helping Homeowners -- Or Just Help Homeowners Because You're Human

davidswanson — Mon, 02 Mar 2009 19:42:14 -0500

From Center for Responsible Lending

On Thursday, the U.S. House of Representatives postponed helping homeowners and the economy by delaying action on a crucial bill (H.R. 1106). Please take the time to tell them the only way to get the economy back on track is to stop foreclosures.

For each day that Congress delays this vote:

* Another 6,600 families lose their homes.
* More families living near foreclosed properties see their home values drop.
* More senior citizens lose their life savings.
* More families can't send their children to college because they have lost their home equity.
* Towns and cities lose tax revenue and struggle with the extra costs of dealing with vacant properties.
* Economic recovery remains that much more out of reach.

TELL YOUR REPRESENTATIVE TO STAND UP FOR ORDINARY AMERICANS AND VOTE FOR H.R. 1106. DON'T WEAKEN IT. SUPPORT ENACTMENT NOW.

Do it.

Send a letter to the following decision maker(s):
Your Congressperson

Below is the sample letter:

Subject: Help the Economy By Helping Homeowners

Dear [decision maker name automatically inserted here],

I am writing to urge you to vote in favor of H.R. 1106, which I understand was scheduled to be voted on last week.

Each week that passes without a vote on H.R. 1106, 46,000 more families lose one of their greatest investments: their home. Each foreclosure also hurts their neighbors, whose property values drop as foreclosures continue. That translates to less property tax revenue, which means less money for vital services in communities such as schools, police protection and public works.

As the economy continues to deteriorate, our country can't stand another delay. We need you to bring this bill forward and ensure its passage. As someone who is very concerned about the costs of foreclosures for everyone--including the negative impact on communities, schools and senior citizens--I am depending on you to make our voices heard. The Administration's foreclosure prevention plan is strong, but an important part of it is to permit, as an alternative to forecl osure, the courts to modify loans if lenders will not.

This is an important measure that will help America's families, our communities and the overall economy. Support this legislation in its current form. Please don't weaken it.

This week, you have another chance to do the right thing for the economy and homeowners. Please vote in favor of H.R. 1106.

Sincerely,

Do it.

Rick Santelli Meet America

Bob Fertik — Fri, 20 Feb 2009 14:07:43 -0500

My favorite part of Rick Santelli's now-famous CNBC rant is when he waves to the floor traders around him and shouts, "This is America!" And after his rant went viral, he claimed 99% of the emails he received were supportive.

Really? Rick Santelli, meet America.

dday:

Lost from this complaint is the plain fact of predatory lending, that lenders got cash rebates to put people in crappy, high-interest mortgages, that they hid terms of the agreement and denied disclosure, and that all of those hardworking folks are seeing their property values plummet as a result of millions of foreclosed homes glutting the market. To the tune of $6 trillion dollars in home value.

Jane Hamsher:

Rick Santelli is just the explosive Id of CNBC, saying what everyone else thinks. Somehow it's not the pervasive institutional rot, the criminal malfeasance at the highest levels, or the Chairman of the Federal Reserve telling Americans over and over again that housing prices would never go down. They have convinced themselves that the real problem is once again people at the absolute bottom of the economic scale. If they'd only used appropriate "judgment" and lived within their means, we'd all be fine.

David Sirota:

the question is the same question that's always been at the heart of economic politics: Which side are you on? And the answer, if you look at the hard data, is that most Americans are Grassroots Populists: those who think Wall Street and the government are colluding to rip off taxpayers, and who think the crumbs of aid for so-called "losers" that Santelli is ragging on is way too small - not way too much.

The gap, of course, is in the portrayal. If you watch television or read op-ed pages, the Market Populists get most of the attention. Indeed, Market Populism is portrayed as the "centrist" mainstream sentiment in the United States. Just look at David Brooks' New York Times column this morning. He non-sarcastically insists that Santelli's comments were "lustily" representative of mass popular anger at "these injustices" - not the injustices on Wall Street, mind you, but the supposed injustices of people now losing their homes. Meanwhile, Grassroots Populism - ie. seething populist anger at Corporate America - is depicted as the ideology only of a tiny fringe. It's as if the media is a funhouse mirror on society - a bizzaro world where up is down, black is white, and free market fundamentalism is portrayed as a mass-based movement.

Ryan Chittum:

What sent Santelli, CNBC’s hot-air, oops, “On-Air Editor,” over the edge? The homeowner bailout. Of course, he didn’t get himself into nearly this much of a lather over the trillions of dollars we’ve given to Wall Street welfare cases and the busted banks. Oh no. He’s mad that non-financial-service-professionals, otherwise known as homeowners, or, according to Santelli “losers,” are up now for help—to the tune of $275 billion, much of which would go to the banks anyway...

We at The Audit have written repeatedly about the blame-the-homeowners meme that’s been so popular in misdirecting people away from the real culprits in the crisis: the financial-services boiler rooms that created all those junk mortgages and bundled them into crap securities for sale to all-too-trusting rubes (aka “clients”) around the world.

I understand there’s a powerful undercurrent of outrage from some people who are paying their mortgages (or renting) who disdain those who aren’t or can’t.

But let’s understand what’s going on here. This homeowner bailout isn’t really even aimed at easing people’s suffering. It’s aimed at the banks, whose downward spiral will not stop until the housing market stabilizes.

The question is do we step in and try to engineer the softest landing we can—or do we let it feed on itself until we all go down?

kayinmaine:

There is lots of blame to go around, of course, but what pisses me off is Santelli is one of those assholes who keeps blaming the poor in this country for the downturn of our economy, when it’s guys like him who have made MILLIONS BY SUCKING OFF THE SHADOW ECONOMY TIT and can’t understand why our nation has spun out of control! They’re the ones who are to blame and who are the losers.

Assholes. I’m so sick of them. Could someone please round up the greedy fuckers of our nation and shove some tea bags up their asses so they can have a party as Santelli suggests in his little rant? Thank you!

What is happening today in the stock market and in our economy was already underway under George Bush, you know, the president who didn’t do a damn thing to plug the hole in the ship. Had his neocons in the House & Senate in 2005 passed laws to regulate the banking industry, our economy may very well be a ton better today. Instead, we have President Obama who is being blamed by the greedy wingers like Santelli for trying to make right with the American people, which tells me that Wall Street and the companies associated with it don’t give a flying rats ass about this country. At all.

Santelli is the loser. And a maggot. The End.

Update 1: Eric Boehlert laughs at Santelli's "populist" credentials:

Rick Santelli is a Bond Market Reporter for CNBC. He joined CNBC Business News as on-air editor in 1999, reporting from the floor of the Chicago Board of Trade. His focus is primarily on interest rates, foreign exchange and the Federal Reserve. A veteran trader and financial executive, Santelli has provided live reports on the markets in print and on local and national radio and television. He joined CNBC from the Institutional Financial Futures and Options division at Sanwa Futures. There, he was a vice president, handling institutional trading and hedge accounts for a variety of futures related products. Prior to that, Santelli worked as vice president of Institutional Futures and Options at Rand Financial Services Inc., served as managing director at the Derivative Products Group of Geldermann Inc., and was vice president in charge of Interest Rate Futures and Options at the Chicago Board of Trade for Drexel Burnham Lambert. Santelli began his career in 1979 as a trader and order filler at the Chicago Mercantile Exchange in a variety of markets. He received a bachelor's degree from the University of Illinois Champaign-Urbana.

Holiday Spine Awards: Nadler, Frank, Bair

davidswanson — Thu, 25 Dec 2008 07:56:06 -0500

A Car Dealer Explains Why the Bailout is a Raw Deal

dlindorff — Sun, 07 Dec 2008 11:52:05 -0500

By Dave Lindorff

A brief conversation I had earlier this week with a car dealership
executive while standing in a post office line demonstrated simply both
why the bank deregulation and consolidation process of the past two
decades has been a screw job for ordinary people, and why the
Washington bailout has been both a taxpayer rip-off and a failure (if
it was even intended to work!).

I was chatting with the guy standing behind me who works at one of
the 14 dealerships in a Philadelphia-area regional family-owned chain
of GM dealerships called Bergey’s. Noting that a number of big dealers
like Knopf (a Chrysler Dealer) and McGarrity’s (Ford) had been closing,
I asked this Bergey’s manager if the problem was that the banks had
frozen lending, making it hard for people to buy new cars.

He laughed. “There’s no problem getting car loans from the small
community banks around our dealerships,” he said. “They’ve got plenty
of money to lend, and they’re happy to lend it to car buyers. The
problem is that people are too worried about the economy and about
their jobs to go out and buy a new car.”

And that’s it in a nutshell. The so-called “credit freeze” is a
problem afflicting the giant national and global banks, like Citibank
and B of A, which went on a tear with all of those derivative
investments and loans, like CDOs and subprime mortgages, and which have
been pushing credit on consumers with usurious rates that could only
lead to default eventually. Most smaller community banks, many of them
family owned or privately held, credit unions, and S&Ls (which were
suitably chastened by their own disastrous scandals of two decades
ago), have been lending responsibly and are fully solvent and happy to
extend credit to people who are credit-worthy.

The big banks may be technically insolvent, and in desperate need of
federal bailouts lest they go under and leave their investors holding
the empty bag, but the small banks that serve most of the nation’s
ordinary folks have a different problem. They themselves aren’t
insolvent, but their clients are—or at least they are worried that they
might become that way.

That’s why they aren’t buying houses and seeking mortgages, and it’s why they aren’t buying cars.

What’s needed, clearly, is not money for the big commercial banks
that got greedy and ran into a ditch. It’s support for the American
people, so that they don’t have to hunker down into a crouch and not
continue to participate in the economy.

When you see foreclosed signs going up along your own street, it
makes you start worrying about making your own mortgage payments. When
one in eight people are losing their jobs, just about everyone with a
job starts to have friends and relatives who are out of work, and that
paycheck starts to seem pretty precarious.

The hundreds of billions of dollars paid to and invested in big
commercial banks that don’t do much for the little guy anyway is doing
nothing at all to ease that pain and anxiety among the grassroots.
Instead, it’s just being pocketed by bank managers and rich investors,
to be put to a “higher” use somewhere else than on a depressed “Main
Street.” (Note that the government has put no strings on the money,
much of which is being used to buy other banks, or even to lend
overseas.)

That’s why all those car dealerships are folding.

This brings me to that feeding frenzy of bank deregulation I
mentioned earlier. The whole idea of allowing the creation of national
banks like Citibank and Bank of America and Wells Fargo, and of going
one step further and allowing banks to merge with brokerages and
insurance companies, which began in earnest during the Clinton
administration and went ballistic in the Bush administration, was
deceptively marketed to the public as being “good for the consumer.”
The come-on was that by allowing state and regional banks to merge into
national institutions, and by allowing them to add investment banking
and insurance operations, consumers would get more services from their
bank and have the supposed "advantage" of “one-stop shopping” at their
bank.

Anyone who watched it happen, however, saw how bogus that claim was.
I lived in New York City as it was going on, and as banks like Citibank
bought up their competitors, fees began to appear for services that had
no fees before, like checking and even passbook savings, savings
accounts began to require minimum deposits, CD interest rates fell as
penalties proliferated, and small loans became harder to get. Some
banks actually began to state, at least to analysts and to reporters in
the financial press, that they were no longer interested in serving
“small” clients, and were instituting measures designed to discourage
them or drive existing small clients away.

Soon, it was impossible in many neighborhoods of New York to find a bank to serve ordinary people.

As a matter of fact, these big banks don’t even help when it comes
to “big bank”-type stuff. Consider international finance activities
like foreign currency exchange. When my wife, a harpsichordist, came
home last week from a month-long tour of performances in China, Taiwan,
Hong Kong and Macau, she had with her $1000 worth of Taiwanese
currency—the fee for a gig that she had not had time to change into US
currency while in Taiwan or Hong Kong, where such transactions are
commonplace and inexpensive. Back in Philadelphia, we called around to
the big commercial banks—all global institutions—to see if they could
change the money. They could, but at absurd cost. Take Citibank. That
institution said it would only change up to $700 worth of bills unless
my wife had an account with them, and in any event, it was offering a
rate of 39.5 Taiwanese dollars to one US dollar—way worse than the
posted rate that day of 33.5/1. In other words, they were willing to
change up to $700 worth of currency, but at a cost of 18%, plus a $10
fee! That means they’re making 35% on a two-way conversion of currency!
Thanks a lot! The other banks were no better.

Want another example. Bank of America was a big recipient of taxpayer
funded bailout money from the US Treasury and the Federal Reserve Bank.
But it has refused to lend money to Republic Windows & Doors Co., a
factory in Chicago, that has been forced to close and lay off its 300
workers with only three days' notice, foregoing the legally required
60-days' pay and earned vacation pay. This is a story that will be
repeated more and more. At Republic, the workers, members of the United Electrical Workers union, are fighting back with a sit-down strike
demanding their money. If you want to support them, go to:
Union Voice Campaign

It’s all been a scam, and now we’re seeing the result: banks have
become so huge and their tentacles have been allowed to reach into so
many parts of the economy, that all of the national ones are deemed
“too big to fail.” Hence the outrageous bailout, which now has the
government pledged to back over $8 trillion in bank debts. (We’re
talking about a government, remember, that is itself was already
technically insolvent).

So back to my car d
ealer in the post office line. “We’re not going to see things get
better until people are confident enough in their incomes to invest in
a new car,” he said.

How will we get there? Certainly not by keeping Citibank or B of A
afloat. Those big banks should all be busted up, with the fragments
left to compete, and to sink or swim along with the rest of the
nation’s banks. No bank should be national in scope, and no banking
institution should be able to extort federal aid by claiming it is “too
big to fail.”

Instead of bailing out the big banks and their investors, the
government should be expanding and making more generous the nation’s
unemployment compensation program, which has always been scandalously
inadequate both in the percentage of the unemployed who are covered,
and in the size of the checks paid out, as well as the duration of the
benefit. It should be expanding welfare benefits. It should be
establishing a program to help people in danger of foreclosure to stay
in their homes (note: only the wealthy get tax subsidies, in the form
of 100% deductibility of mortgage interest rate payments—those too poor
to use itemized deductions get no help). And it should be establishing
a major program of publicly funded jobs for those whose employers have
gone bust.
___________________
DAVE LINDORFF is a Philadelphia-based journalist and columnist. His
latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and
now available in paperback). His work is available at www.thiscantbehappening.net

A State Attorney General Stops Home Foreclosures - Exactly As They All Should

davidswanson — Thu, 13 Nov 2008 14:26:17 -0500

Massachusetts judge stops foreclosures on H&R Block unit's loans
By Jerry Kronenberg, Boston Herald

A Massachusetts judge is blocking H&R Block from automatically foreclosing on up to 9,700 Bay State homeowners, ruling that the firm apparently wrote mortgages with "reckless disregard (for) the risk of foreclosure."

"Any lender with even a modicum of business morality should recognize that it is immoral, unethical and unscrupulous to issue a home loan with reckless disregard (for) the risk of foreclosure," Suffolk Superior Court Judge Ralph Gants wrote in a preliminary injunction against H&R Block.

Massachusetts Attorney General Martha Coakley has sued Block over Bay State subprime mortgages issued by the firm's Option One subsidiary.

Coakley claims the high-risk loans violated state consumer-protection laws. She also alleges that Option One charged black and Latino borrowers inflated fees.

Block did not return calls seeking comment, but has denied the charges in court papers.

Nonetheless, Gants' injunction orders Block not to foreclose on any Massachusetts subprime borrower without first giving Coakley's office 30 to 45 days to review the person's loan.

In cases where officials find questionable mortgage terms, Block must first try to negotiate a loan "workout," then seek court approval to foreclose if talks fail.

Gants' order expands on a landmark ruling he issued earlier this year in a lawsuit against subprime-mortgage giant Fremont General.

In that case, the judge declared whole classes of subprime loans "structurally unfair" - a violation of state consumer-protection laws.

Fremont appealed Gants' decision to the state Supreme Judicial Court, which heard oral arguments last month but has yet to rule in the case.

*******************

AG shuts down two mortgage originators
By Boston Business Journal

Massachusetts Attorney General Martha Coakley's office announced Wednesday that it has secured a preliminary injunction against two mortgage originators accused of deceptive mortgage practices.

The injunctions prevent Option One Mortgage Corp. and H&R Block Mortgage Corp. from initiating or advancing foreclosures on loans that may have been secured using unfair business practices. The Attorney General's office filed suit against the two companies alleging they originated thousands of subprime mortgages in the state when the companies knew the customers would not be able to afford the loans. It also alleges that the companies discriminated against minority borrowers in Massachusetts by charging them higher points and fees to close their loans than white customers.

Under the order, American Home Mortgage Servicing Inc., which is servicing loans for Option one, must give the Attorney General's Office at least 30 days notice before it intends to foreclose on any such loan, and if the Attorney General objects, obtain approval from the Court before foreclosing on a loan.

"We are pleased by the court's decision and the relief it will afford, both to homeowners and to the communities suffering from the effects of Option One's loans," said Attorney General Coakley in a statement. "The economic crisis continues to worsen, and predatory subprime lending is at the core of the problem. This decision is further support that some subprime lenders engaged in irresponsible and unlawful lending practices. We intend to hold accountable those who engaged in such unlawful lending conduct."