Reidblog [The Reid Report blog]

Labels: credit, economic crisis, mortgage crisis, New York Times, personal finance, the mortgage meltdown

Labels: bailouts, bank failures, banks, mortgage crisis, Obama administration, Tim Geithner, Wall Street vs Main Street

I’ve watched Mr. Santelli on cable the past 24 hours or so. I’m not entirely sure where Mr. Santelli lives or in what house he lives but the American people are struggling every day to meet their mortgages, stay in their jobs, pay their bills, send their kids to school,” Gibbs said. “I think we left a few months ago the adage that if it was good for a derivatives trader that it was good for Main Street. I think the verdict is in on that,” the press secretary said, poking directly at the cable journalist, who reports from the trading floor at the Chicago Board of Trade.

Gibbs insisted Santelli was misinformed when he said Obama’s program would amount to a transfer of money from prudent taxpayers to those who had taken reckless risks.

“Mr. Santelli has argued, I think quite wrongly, that this plan won’t help everyone,” Gibbs said. “This plan helps people who have been playing by the rules….I would encouraged him to read the president’s plan….I’d be more than happy to have him come here to read it. I’d be happy to buy him a cup of coffee—decaf."

Labels: CNBC, economic recovery plan, mortgage crisis, Obama administration, rich people, Rick Santelli, the Chicago tea party, Wall Street

If this is how the U.S. government is going to operate in a democratic, free-market society, we might as well put a hammer and sickle on the flag.

Labels: bailouts, CNBC, mortgage crisis, Rick Santelli, right wingers, Wall Street

President Obama will unveil today a $75 billion foreclosure prevention program, which the administration expects to reach up to 9 million homeowners.

"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it," Obama will say at a speech in Mesa, Ariz., according to an advance text released by the White House.

The Homeowner Affordability and Stability Plan includes measures to allow homeowners to refinance into loans with cheaper payments, according to a summary of the plan. For example, if a lender agrees to lower a borrower's payment so that it comprises no more than 38 percent of his income, the government would pay to lower the payments further to 31 percent of income. The aim would be to make the payments affordable.

The plan offers incentives for lenders that modify troubled loans, with up to $1,000 for each modification and then another monthly "pay for success" fee as long as the borrower stays current, according to the summary. If the lender reaches an at-risk homeowner before they miss a payment and modifies their loan, the lender would be eligible for another incentive payment.

Homeowners will also be eligible for incentive payments. Those that stay current on their loans could qualify for a "monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan," according to the summary. The homeowner could receive up to $1,000 a year for five years.

The Obama plan does not include provisions to help investors and is focused solely on owner-occupied homes. Officials said the administration is trying to provide enough help to stem foreclosures while not rewarding borrowers who purposefully stop paying. At the same time, Obama's team wanted to risk only as much taxpayer money as absolutely necessary.

The plan "will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans," Obama will say, according to the text of his speech.

The administration estimates that the plan could stop the slide in home prices by up to $6,000 per home, simply by reducing foreclosures. "The effects of this crisis have also reverberated across the financial markets. When the housing market collapsed, so did the availability of credit on which our economy depends," Obama says in the prepared text. "As that credit has dried up, it has been harder for families to find affordable loans to purchase a car or pay tuition and harder for businesses to secure the capital they need to expand and create jobs."

And from WhiteHouse.gov, some of the fine print in the form of a Frequently Asked Questions thread:

Borrowers Who Are Current on Their Mortgage Are Asking:

• What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

• I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

• How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

Question: what is the point of helping homeowners who have an acceptable mortgage payment history? Doesn't that mean they aren't behind on their loans? Just asking. More fine print, and a seeming contradiction:

Borrowers Who Are at Risk of Foreclosure Are Asking:

• What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

• Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

Hm. I guess I'll just wait for the announce.

UPDATE: President Obama is presenting the plan now. It sounds much better somehow in his speech than it did in the WaPo. The plan is clear and straightforward: refinancing Fannie and Freddie backed mortgages to market value, reducing mortgage payments for those in trouble to one-third of their income, allowing homeowners who are "upside down" on their mortgages to refinance at lower interest rates, and he plans to move forward on allowing bankruptcy judges to reduce mortgage payments so that they reflect the fair market value of homes. Perhaps anticipating GOP objections to that provision, Obama pointed out that "that's already the rule for people who own 2, 3 and 4 houses, so it should also be the rule for people who own just one home."

Great point.

Labels: economic recovery plan, mortgage crisis, Obama administration, President Barack Obama, the economy

Labels: Alan Greenspan, mortgage crisis, Phil Gramm, subprime mortgages, the Bush recession

The Bush administration 1.0

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

As for Mr. Bush’s banking regulators, they once brandished a chain saw over a 9,000-page pile of regulations as they promised to ease burdens on the industry. When states tried to use consumer protection laws to crack down on predatory lending, the comptroller of the currency blocked the effort, asserting that states had no authority over national banks.

The administration won that fight at the Supreme Court. But Roy Cooper, North Carolina’s attorney general, said, “They took 50 sheriffs off the beat at a time when lending was becoming the Wild West.”

The president did push rules aimed at forcing lenders to more clearly explain loan terms. But the White House shelved them in 2004, after industry-friendly members of Congress threatened to block confirmation of his new housing secretary.

In the 2004 election cycle, mortgage bankers and brokers poured nearly $847,000 into Mr. Bush’s re-election campaign, more than triple their contributions in 2000, according to the nonpartisan Center for Responsive Politics. The administration did not finalize the new rules until last month.

Among the Republican Party’s top 10 donors in 2004 was Roland Arnall. He founded Ameriquest, then the nation’s largest lender in the subprime market, which focuses on less creditworthy borrowers. In July 2005, the company agreed to set aside $325 million to settle allegations in 30 states that it had preyed on borrowers with hidden fees and ballooning payments. It was an early signal that deceptive lending practices, which would later set off a wave of foreclosures, were widespread.

Andrew H. Card Jr., Mr. Bush’s former chief of staff, said White House aides discussed Ameriquest’s troubles, though not what they might portend for the economy. Mr. Bush had just nominated Mr. Arnall as his ambassador to the Netherlands, and the White House was primarily concerned with making sure he would be confirmed.

“Maybe I was asleep at the switch,” Mr. Card said in an interview.

Labels: Bush administration, mortgage crisis, President Bush, subprime mortgages, the economy, worst president ever

Bush meets with his economic team on March 17, 2008. To Bush's
right are Treasury Secretary Henry Paulsen (center) and National
Economic Council Director Keith Hennessey. Photo: Getty Images

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.

Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

_Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending.

Labels: banks, Bush administration, financial crisis, Henry Paulson, mortgage crisis, the Bush bailout, worst president ever

As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

• More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

Furthermore, though they have become the whipping banks of the right:

Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.

And...

This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.

To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.

But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.

Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.

During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.

In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.

Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.

About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.

But what about the infamous Community Reinvestment Act (the CRA)? Isn't THAT Carter-era abomination to blame for the subprime crisis? Why, no...

Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.

Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."

Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.

What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.

These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.

As much as I love the folks at McClatchy, I said the exact same thing a month ago, in this fantabulous video:

Labels: banks, mortgage crisis, right wingers, subprime mortgages, the Bush recession, the economy, the McCain-Bush economy, u.s. economy

Labels: CRA, economic crisis, mortgage crisis, Wall Street

Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

By Eliot Spitzer
Thursday, February 14, 2008; A25

Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.

Is it just me or does the complaint implicating New York Gov. Eliot Spitzer in a frolic with a call girl read like it was written by people with a very large axe to grind with the now former rising star of the Democratic Party?

Charging documents like this one typically contain the absolute minimum necessary to sustain the accusations.

Prosecutors act as though they'd rather be waterboarded than give up anything beyond what they like to call "the four corners of the complaint."

Not to worry. There was journalistic catnip larded throughout the complaint, enough to stoke the media frenzy for days. Of particular note is the heavy involvement of "Kristen", Spitzer' Valentine eve tryst partner. (Helpfully described as "American, petite, very pretty brunette, 5
feet 5 inches, and 105 pounds.)

...Yeah, conceivably there's some value in broadly hinting at kinky predilections in case Spitzer wants to claim that the financial transactions were unconnected to sex. Maybe it's a warning to him that if he struggles too much, the contents of the sock drawer where the sex toys are stored will be strewn on the carpet.

But it also has the feel of a pile-on -- some payback, a come-uppance for a guy who made a lot of enemies in prosecutions of Wall Street crooks and was seen by some to overplay his hand, to needlessly embarrass his quarry.

Another indicator of an "I'll fix your wagon" flavor to L'Affaire Spitzer is the speed at which the whole thing has unfolded.

The charging affidavit which, remember, doesn't refer to Spitzer by time or other even vague identifier like 'prominent government official', was unsealed last Thursday and by 2 p.m. or so on Monday, when the New York Times posted its first story on the scandal and the governor effectively was toast.

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

• Expanding Homeownership. The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security. In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade. Under his leadership, the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent. Minority homeownership set a new record of 51 percent in the second quarter, up 0.2 percentage point from the first quarter and up 2.1 percentage points from a year ago. President Bush's initiative to dismantle the barriers to homeownership includes:
• American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
• Affordable Housing. The President has proposed the Single-Family Affordable Housing Tax Credit, which would increase the supply of affordable homes;
• Helping Families Help Themselves. The President has proposed increasing support for the Self-Help Homeownership Opportunities Program; and
• Simplifying Homebuying and Increasing Education. The President and HUD want to empower homebuyers by simplifying the home buying process so consumers can better understand and benefit from cost savings. The President also wants to expand financial education efforts so that families can understand what they need to do to become homeowners.
  

NEW YORK (CNN/Money) - Home builders, realtors and others are preparing to fight a Bush administration plan that would require Fannie Mae and Freddie Mac to increase financing of homes for low-income people, a home builder group said Thursday.

The National Association of Home Builders, along with the National Association of Realtors and the Mortgage Bankers Association, are drafting a letter to Alphonso Jackson, secretary of the Department of Housing and Urban Development (HUD), arguing that middle-income home buyers are the ones that will get hurt by the proposed plan, the NAHB told CNN/Money.

In April, the HUD proposed new rules that would raise the percentage of loans bought by the two government-sponsored enterprises (GSEs) that finance borrowers whose incomes are at or below the median for their area, according to the Wall Street Journal .

But the groups will warn in the letter that the proposed rules requiring the two GSEs to finance more "affordable housing" may have "unintended consequences," hurting some poor and middle-income people struggling to afford houses, the Journal said.

Fannie and Freddie, which use their ability to borrow cheaply in the government agency bond market to help middle-to-low income people buy homes, would be compelled to provide more funds to low-income home buyers by slashing their financing of middle-income home buyers, David Crowe of the NAHB told the paper.

The points being raised by the groups have also mirrored objections raised by Fannie and Freddie. Both GSEs said they favor more efforts to promote affordable housing, but say HUD has made some unrealistic assumptions about how much more the GSEs can do over the next few years, the Journal said.

Labels: Bush administration, mortgage crisis, ownership society, the Bush bailout, Wall Street

"We are talking very aggressively with other countries around the world," Paulson said in an interview on ABC News' "This Week." "If a financial institution has business operations in the United States, hires people in the United States...they have the same impact on the American people as any other institution."

Paulson, the architect of the bailout, also said that he will fight requests by Democrats to include a broader stimulus package in the bailout legislation.

"We need this to be clean and quick, and we need to get it in place," said Paulson.

By "clean and quick," he means rush through a bailout for the big boys, with nothing for you, except the bill.

So much for Republicans' belief in the free market. In their former Darwinian belief system, failed companies are supposed to be allowed to fail. Not anymore. Now, Republicans believe in aggressive government intervention to help the richest of firms and investors stay rich. Bailouts for ordinary people who are in danger of losing their homes: not so much. You see, those people are actually to blame...

Meanwhile, the world begins to notice our sudden love of socialism. From the Herald, UK:

Today we will learn further details of what could turn out to be the greatest act of grand larceny in history: the US treasury secretary, Henry Paulson's, trillion-dollar bailout of the US banks. Following last week's crash, the US government has decided to use taxpayer money to buy up all the bad mortgage debts of the banks and investment houses and insurance companies and let them start again with a clean sheet. In other words, save them from the consequences of their own folly. Nothing similar is yet proposed here, but it will.

The Bad Bank bailout is a bad idea. If the bankers get away with this we really will be one step from serfdom. I'm someone who has always tended to the left of the political spectrum, but on this issue I side with the American conservatives, such as Republican Congressman John Culberson, who are saying that this is socialism for the rich. Congress has no right bailing out private investors with money pledged in advance from the children and grandchildren of American citizens.

Advocates of the Bad Bank fund cite the success of the Resolution Trust Corporation (RTC) which sorted out the wreckage from the US savings and loans bust in 1989. But the RTC was very different from this Bad Bank. It collected and eventually sold off loans made by banks that had already gone bust; what is being proposed now is to buy loans before the lenders go under. In other words, it will create an artificial market with artificial prices to perpetuate the bankers' delusion that they are not actually bankrupt.

Still less is Paulson's bailout any kind of legitimate descendant of the Reconstruction Finance Corporation set up by Roosevelt in 1933 to cope with the last comparable banking crisis during the Great Depression. The first thing FDR did was shut the banks down, throw out their managements and halt all dividend payments. He then reopened the banks under new management and under US Treasury supervision, giving federal loans to banks prepared to behave.

And from the Asia Times:

E pluribus hokum or
When the gamblers bail out the casino
By Spengler

Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.

None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, onany terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.

Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?

Believe it or not, there is a rational explanation, and quite in keeping with America's national motto, E pluribus hokum. Part of the problem is that Wall Street, like the ethnic godfather in the old joke, has made America an offer it can't understand. The collapsing the mortgage-backed securities market embodies a degree of complexity that mystifies the average policy wonk. But that is a lesser, superficial side of the story.

Paulson's dreadful scheme will become law, because Americans love their bankers. The bankers enable their collective gambling habit. Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.
Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn't worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.

As it is, many of the baby boomers now on the verge of retirement will spend their declining years working at Wal-Mart or McDonalds rather than cruising the Caribbean. Some of them still have time to tighten their belts and save 10% of their income (by consuming 10% less), plus a good deal more to compensate for the missing savings of the 1990s.

Altogether, they'd rather gamble, and if that requires a bailout of the house, they gladly will chip in to pay for it. After all, today's baby boomers won't pay for the bailout. The next generation of taxpayers will pay for Paulson's $700-$800 billion. If that enables the present generation to keep borrowing rather than saving, it is no skin off their back. If home prices continue to collapse, the baby boomers will die in debt anyway, working at low-paying jobs until the day before their funerals.

And Spengler has this additional, interesting note:

Investment banks typically hold about $30 of securities for every $1 of capital, so a 3% write-down would leave them insolvent. If Lehman Brothers classified 14% of its assets as Level III at the end of the first quarter; Goldman Sachs was at 13%. Why is Lehman bankrupt, and Goldman Sachs still in business? If Secretary Paulson, the former head of Goldman Sachs, had not proposed a general bailout last week, we might already have had the answer to that question.

... Some Democrats in Congress are asking for some form of oversight, but it is hard to imagine how they might use it, for a Treasury with $800 billion to spend would constitute the whole market bid for low-quality mortgage assets, and would set whatever prices it wished. Professionals with years of experience set prices on these securities with great uncertainty. How would an overseer determine if it had set the correct price? And if the Treasury decided to bail out one bank (say, Goldman Sachs) rather than another, how would the overseer judge whether that decision was judicious, politically motivated, venal, or arbitrary?

If a liberal Democratic administration had put hundreds of billions of dollars of taxpayer money at risk by bailing out Bear Stearns and nationalizing American International Group (AIG), Fannie Mae and Freddie Mac, wouldn't conservatives accuse Democrats of "socialism"? Can Mr. McCain now square a circle by calling himself a conservative while favoring increased regulation?

In fact, Mr. McCain championed financial deregulation for years. In 1999, he supported legislation crafted by Phil Gramm, then a senator from Texas, that removed Depression-era walls between banking, investment and insurance companies -- allegedly to make the country's financial institutions more competitive and free to take entrepreneurial risks in the marketplace. (Many Democrats, including Sen. Joe Biden, the party's vice presidential nominee, supported this ill-considered legislation as well.)

The result was the creation of a free-market free-for-all of banks approving home mortgages to people who clearly couldn't afford to repay them if real-estate values stopped rising. It also spurred investment banks to buy and sell packages of mortgages after they had convinced themselves that by "spreading the risk," bad loans could become less-bad loans. Then they bought insurance contracts from gargantuan insurance companies like AIG to spread the risk even further. Investors banked on the fact that if real-estate values stopped rising (impossible!), and more and more people defaulted on their mortgages, Fannie and Freddie would pick up the tab. And, if Fannie and Freddie went down, there would be -- The-Ultimate-Bearer-Of-All-Risks -- the lowly taxpayers.

Now I know what former Sen. Gary Hart meant when he told an audience of wealthy Republican businessmen during his 1984 presidential campaign, "I know why you are conservatives -- you favor private enterprise for the poor and socialism for the rich."

And the boos keep coming, from Krugman, from Roger Cohen, and from Bill Kristol, who advises John McCain to flip-flop again and oppose the bailout. Personally, I'd give the same advice to Barack Obama...

Labels: deregulation, financial crisis, John McCain, mortgage crisis, Republican socialism, the Bush bailout, u.s. economy, Wall Street

Toronto-born Omar Khadr's US military lawyer called on Harper to "stand up and act like a prime minister of Canada" and demand the teenager's return.

... Khadr's military lawyer, Lieutenant Commander Bill Kuebler, along with his criticism of Harper, said yesterday that the military tribunals at Guantánamo "aren't designed to be fair" and designed "to produce convictions".

He said anyone who watched Khadr whimpering for his mother and still believed he had vowed to die fighting with a bunch of hardened al-Qaida terrorists is "crazy".

"The tape shows Omar Khadr not as a hardened terrorist but as a frightened boy."

"It just shows how unreliable anything that they extracted from this kid is would be at trial."

Khadr, who was shown in the video aged 16 and questioned after severe sleep deprivation, will have to remain at Guantánamo until he is prosecuted for war crimes in front of a special US military tribunal, later this year.

The liberal Canadian senator and ex-general Romeo Dallaire told Canada Television's (CTV) Newsnet programme that Khadr is a child solider and should be treated and given the same rehabilitation that Canada devotes to other child soldiers around the world.

"We're getting stabbed in the back," Dallaire told the cable channel. "We have worked for years to assist other nations in eradicating the use of children in conflict. But our own country doesn't even want to recognise that our own citizen (is a child soldier). No matter what his politics are, it's totally irrelevant.

Canada's conservative P.M., Stephen Harper, remains unmoved, and Canadian experts are casting doubt on chances for the boy to return to his home country. [Omar Khadr photo, showing him at age 15, from the Canadian Broadcasting Co.]

Meanwhile in the Middle East, Hezbollah supporters are gleeful at the return of five of their members to Beirut, along with the bodies of some 200 fighters, who were exchanged for the bodies of two Israeli soldiers. In Israel, no celebration, just funerals for the two Israelis, whose capture led to Israel's disastrous 2006 war with Lebanon. In the Independent UK, Robert Fisk writes of Israel's folly, and Hezbollah's hubris. On the exchange, Hezbollah got:

Samir Kuntar – 28 years in an Israeli jail for the 1979 murder of an Israeli, his young daughter and a policeman. He arrived from Israel very much alive, clean shaven but sporting a neat moustache, overawed by the hundreds of Hizbollah supporters, a man used to solitary confinement who suddenly found himself idolised by a people he had not seen in almost three decades. His eyes moved around him, the eyes of a prisoner watching for trouble. He was Israel's longest-held Lebanese prisoner; Hizbollah's leader, Sayed Hassan Nasrallah, had promised his release. And he had kept his word.

... But it was also a day of humiliation. Humiliation most of all for the Israelis. After launching their 2006 war to retrieve two of their captured soldiers, they killed more than a thousand Lebanese civilians, devastated Lebanon, lost 160 of their own – most of them soldiers – and ended up yesterday handing over 200 Arab corpses and five prisoners in return for the remains of the two missing soldiers and a box of body parts.

Read the whole thing. Trust me.

Back to the states, where the New York Times' Caucus blog reports Barack Obama raised $52 million in June (though Chuck Todd pooh-poohed the number this morning on "Morning Joe," saying Obama had better raise that amount since he's not taking public financing. Geez, the media is STILL sore about that?)

Meanwhile, the paper proper reports on how much Iraqis seem to like Obama, quoting one Iraqi general as saying the candidate is "very young, very active" and "we would be very happy if he was elected president." Look for the McCain camp to deride Obama as "the candidate of the Iraqi people" today ... before they have to dial back once the candidate remembers that Iraq is no longer in the Axis of Evil. The same story attempts to throw cold water on Obama's withdrawal plans, however, calling them "complicated" for Iraqis:

... mention Mr. Obama’s plan for withdrawing American soldiers, and the general stiffens.

“Very difficult,” he said, shaking his head. “Any army would love to work without any help, but let me be honest: for now, we don’t have that ability.”

... There was, as Mr. Obama prepared to visit here, excitement over a man who is the anti-Bush in almost every way: a Democrat who opposed a war that many Iraqis feel devastated their nation. And many in the political elite recognize that Mr. Obama shares their hope for a more rapid withdrawal of American forces from Iraq.

But his support for troop withdrawal cuts both ways, reflecting a deep internal quandary in Iraq: for many middle-class Iraqis, affection for Mr. Obama is tempered by worry that his proposal could lead to chaos in a nation already devastated by war. Many Iraqis also acknowledge that security gains in recent months were achieved partly by the buildup of American troops, which Mr. Obama opposed and his presumptive Republican opponent, Senator John McCain, supported.

“In no way do I favor the occupation of my country,” said Abu Ibrahim, a Western-educated businessman in Baghdad, “but there is a moral obligation on the Americans at this point.”

Like many Iraqis, Mr. Ibrahim sees Mr. Obama favorably, describing him as “much more humane than Bush or McCain.”

“He seems like a nice guy,” Mr. Ibrahim said. But he hoped that Mr. Obama’s statements about a relatively fast pullout were mere campaign talk.

“It’s a very big assumption that just because he wants to pull troops out, he’ll be able to do it,” he said. “The American strategy in the region requires troops to remain in Iraq for a long time.”

Why do I not quite trust the Times not to put neocon words into Iraqis mouths? Maybe it's just me ... and Judy Miller... Meanwhile, the paper also reports on the phalanx of media stars and actual anchor people who will chase Barack around the Middle East and Europe when he travels there, as opposed to the "in other news" treatment that McCain's overseas trip received.

The WaPo has three interesting stories today: one on the slowing global economy, and how it's helping the little guys outpace the giant economies of rich, Western nations, like ours. Why?

The U.S. economy and financial system are more closely linked to those in other wealthy nations, particularly in Europe, where rising inflation and the weak dollar are adding to growing trouble. The United States and Europe have "similar economies and share the potential problems of industrialized nations in terms of property price fluctuations and financials," said Simon Johnson, chief economist at the International Monetary Fund. "And they find themselves sharing variable degrees of vulnerability."

As global wealth has shifted during the past decade, emerging markets have become not only increasingly stable but they have also been claiming a larger portion of the world's riches than ever before. If Californians are rushing to withdraw money from banks there, the situation in Kenya is just the opposite: People are flocking to banks to open accounts. The Nairobi exchange, which lists mostly Kenyan companies and a handful of multinational firms, posted 10 percent gains in the three months ended in June as local and foreign investors flocked to the initial public offering of the cellphone giant Safaricom.

Damn.

The WaPo also tries to even out the mortgage crisis exposure of the two presidential candidates, attempting to make former Obama advisers and of all things, Clinton advisers, the equivalent of John McCain's bevy of current lobbyist pals and campaign shot callers who are steeped in Freddie and Fannie lobbying cash. So much for the liberal media.

The Los Angeles Times reports on newly minted FBI investigatee Indymac's latest problem: rival banks are refusing to accept its cashier's checks, adding a new headache for depositors who have been lining up to get their money.

Labels: 2008 election, Barack Obama, Bush administration, current affairs, Florida, Guantanamo, Iran, John McCain, mortgage crisis, news headlines, oil, presidential campaigns, U.S. foreign policy, Venezuela

WASHINGTON - Homebuilders and the mortgage industry are emerging as big victors in a bipartisan agreement reached by Senate leaders on legislation designed to limit the housing crisis.

The $15 billion Foreclosure Prevention Act of 2008, expected to be debated Thursday afternoon on the Senate floor, is drawing fire from critics who say it would do little to actually prevent foreclosures. The bill contains a $6 billion emergency tax break that would let companies use losses from 2008 and 2009 to offset profits earned over the previous four years, instead of the usual two-year timeframe.

That's good news for big homebuilders such as KB Home and Pulte Homes Inc., which have been saddled with massive losses over the past year.

Jerry Howard, chief executive of the National Association of Home Builders, said in an interview that the tax break is "very important to the building community." It will keep many small homebuilders out of bankruptcy, he said, and will prevent large builders from having to liquidate assets.

Other big beneficiaries would be Wall Street banks such as Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley. In fact, any company now struggling after years of healthy profits that pumped up their tax bills could benefit.

While Democrats and Republicans called the bill a productive bipartisan compromise, Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington, questioned whether the trade off was worthwhile for Democrats. "This is first and foremost helping the big villains in the story," he said.

Earlier this year, the National Association of Home Builders was so dissatisfied by lawmakers' actions — notably not including the tax provision in the economic stimulus bill_ that it snapped shut its political purse. NAHB said it would stop making contributions to congressional candidates "until further notice."

Since 1990, the trade group has given nearly $20 million to federal candidates, with 35 percent going to Democrats and 65 percent to Republicans, according to the Center for Responsive Politics. A trade group spokesman could not be reached to comment on whether it plans to open its coffers again if Congress passes the housing bill.

The bill also contains $4 billion in grants to local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance subprime mortgages — those made to borrowers with poor credit — and a $7,000 tax credit for people buying properties in foreclosure.

It includes an additional $100 million — half of what Democrats proposed — for credit counseling to help homeowners avoid foreclosure. And the agreement permanently raises the limit for loans backed by the Federal Housing Administration to $550,000. That amount had been temporarily raised to nearly $730,000 as part of the economic stimulus bill signed by President Bush in February.

Labels: Bush administration, Congress, mortgage crisis

Labels: banks, Federal Reserve, mortgage crisis

WASHINGTON (CNN) — Harried homeowners seeking mortgage relief from a new Bush administration hotline Thursday had to contend with a bit of temporary misdirection from the president himself.

As he announced his plan to ease the mortgage crisis for consumers, President Bush accidentally gave out the wrong phone number for the new “Hope Now Hotline” set up by his administration.

UPDATE: Anyone who dialed 1-800-995-HOPE did not reach the mortgage hotline but instead contacted the Freedom Christian Academy — a Texas-based group that provides Christian education home schooling material.

The White House press office quickly put out a correction moments after the President’s remarks. After dialing the correct number, 1-888-995-HOPE, CNN was connected to a “counselor” within three minutes.

– CNN White House Correspondent Ed Henry

Labels: economy, mortgage crisis

Labels: economy, mortgage crisis

Labels: banks, dollar, financial markets, mortgage crisis