09/14/2015 archive

Lehman Day: Making Fun of the Second Great Depression Crowd

By Dean Baker, Truthout

Monday, 14 September 2015 00:00

This week marks the seventh anniversary of the collapse of Lehman Brothers, the huge investment bank. This collapse set off the worldwide financial panic that brought Wall Street to its knees. The anniversary of this collapse, September 15, is the day set aside to ridicule the people who warned of a second Great Depression (SGD) if the Treasury Department and the Federal Reserve Board didn’t rescue the Wall Street banks.

Just to recount the basic story, there is no doubt that without a government bailout most of the big Wall Street banks would have gone under. Citigroup and Bank of America were both effectively bankrupt and remained on life support with hundreds of billions of dollars of government subsidized loans well into 2010. The remaining investment banks, Merrill Lynch, Morgan Stanley, and Goldman Sachs were all facing bank runs. These would have been unstoppable without the helping hand of big government. Many other financial institutions also would have been brought down in the maelstrom, but these giants were for sure dead ducks at the time of the bailouts.  

There is no doubt that the initial downturn would have been more severe if the market was allowed to work its magic and put these banks out of business. But the question the SGD gang could never answer is how this collapse would prevent the government from boosting the economy immediately afterward. After all, then Federal Reserve Board Chair Ben Bernanke once ridiculed people who questioned the ability of the government to boost the economy, commenting the government “has a technology, called a printing press…”

Rather than sitting through a decade of double-digit unemployment, why would Congress not pass a large stimulus package supported by aggressive monetary policy from the Fed? There certainly was no economic obstacle to this path. And the claim that political gridlock somehow would have prevented any stimulus flies in the face of history. Even Republicans have supported stimulus to counter economic slumps. For those too young to remember, the last such incident was the stimulus package signed by President George W. Bush in February of 2008, when the unemployment rate was 4.7 percent.

In short, the idea of the government sitting paralyzed while the unemployment rate sat in the double digits is entirely an invention of the SGD crew. It has no basis in the real world.

It is easy to see why the SGD myth persists. Most obviously, the big Wall Street banks like to pretend they did us all a favor by letting the government bail them out. In their story the bailout wasn’t about saving Goldman Sachs and Citigroup, it was about rescuing the economy.

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They want the public to believe that the issues involved are complicated and beyond the understanding of normal people. This is why their focus is always the financial crisis. After all credit default swaps and collaterized debt obligations can be complicated.

On the other hand, the basic story of the housing bubble was pretty damn simple. When the country saw an unprecedented run-up in house prices it should have caught some economists’ attention. After all, the US housing market was the largest market in the world and it was not previously subject to erratic fluctuations of this sort.

The huge construction boom driven by the bubble was also not a secret. Nor was the flood of dubious loans, which even at the time were the subject of jokes about their poor quality by people in the industry.

In short, the story of the housing bubble and the devastation wreaked on the economy by its collapse is a simple one that the great minds of the economics profession should have all seen coming. Rather than acknowledge that they made a colossal blunder, it’s much better to build up the myth that it’s all so complicated. And, if we didn’t give Wall Street everything it wanted, we would be subject to the curse of the SGD.

Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.

Officials Cover Up Housing Bubble’s Scummy Residue: Fraudulent Foreclosure Documents

by David Dayen, The Intercept

Sep. 14 2015, 8:17 a.m.

Every day in America, mortgage companies attempt to foreclose on homeowners using false documents.

It’s a byproduct of the mortgage securitization craze during the housing bubble, when loans were sliced and diced so haphazardly that the actual ownership was confused.

When the bubble burst, lenders foreclosing on properties needed paperwork to prove their standing, but didn’t have it – leading mortgage industry employees to forge, fabricate and backdate millions of mortgage documents. This foreclosure fraud scandal was exposed in 2010, and acquired a name: “robo-signing.”

But while some of the offenders paid fines over the past few years, nobody cleaned up the documents. This rot still exists inside the property records system all over the country, and those in a position of authority appear determined to pretend it doesn’t exist.

In two separate cases, activists have charged that officials and courts are hiding evidence of mortgage document irregularities that, if verified, could stop thousands of foreclosures in their tracks. Officials have delayed disclosure of this evidence, the activists believe, because it would be too messy, and it’s easier to bottle up the evidence than deal with the repercussions.

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In both of these cases, evidence of fraudulent activity harming homeowners has either been suppressed or not acted upon. Refusing to investigate illegal actions is an effective way of remaining in denial. But refusing to release the contents of those investigations, or refusing to rule on cases where the illegal actions have already been proven, really takes denial to the extreme.

In November 2010, Georgetown law professor Adam Levitin explained in testimony before the House Financial Services Committee why there were no real investigations of bank misconduct during the foreclosure crisis.

“Federal regulators don’t want to get this information, because they are too scared that if there is a problem, they’re going to have to do something about it,” Levitin said.

Most people never expect to get arrested but many who do are poor and cannot afford a lawyer to represent them, so they are provided with a public defenders. Sounds fair but is it? According to John Oliver, host of HBO’s “Last Week Tonight,” it is far from fair or adequate.

John Oliver: If you’re forced to rely on “hideously broken” public defender system, “you’re f*cked”

By Scott Eric Kaufman, Salon

On “Last Week Tonight” Sunday, host John Oliver discussed the plight of those forced to rely on “the attorneys provided for you” if you can’t afford one – public defenders – and how the poor are being “charged for access to a hideously broken system.” [..]

Oliver later discussed the ordeal of a Floridian who was arrested on a traffic violation and racked up over $600 in court fees in order plead “no contest.” “They may as well as charged him an irony fee,” Oliver said, “because as it turns out, being poor in Florida is really fucking expensive.”

Arrested? John Oliver Has A Warning You Have To Hear

Ed Mazza, Huffington Post

Public defenders are so overworked that they often handle hundreds of cases — or in Fresno County, California, they handle up to 1,000 felony cases a year when state guidelines say they should only have 150.

And in New Orleans, some public defenders get an average of seven minutes to prepare a case. [..]

It’s so bad that New Orleans is turning to crowdfunding to make up its budget shortfall, Oliver said, and many states now even charge people for access to a public defender.

“We have a system where conceivably, if you cannot afford an attorney, one will be provided for you, provided that you pay that attorney, which is absurd,” Oliver said. “You can’t tell people something’s free and then charge them for it. This is the American judicial system — not Candy Crush.”

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Paul Krugman: Labour’s Dead Center

Jeremy Corbyn, a long-time leftist dissident, has won a stunning victory in the contest for leadership of Britain’s Labour Party. Political pundits say that this means doom for Labour’s electoral prospects; they could be right, although I’m not the only person wondering why commentators who completely failed to predict the Corbyn phenomenon have so much confidence in their analyses of what it means.

But I won’t try to get into that game. What I want to do instead is talk about one crucial piece of background to the Corbyn surge – the implosion of Labour’s moderates. On economic policy, in particular, the striking thing about the leadership contest was that every candidate other than Mr. Corbyn essentially supported the Conservative government’s austerity policies.

Worse, they all implicitly accepted the bogus justification for those policies, in effect pleading guilty to policy crimes that Labour did not, in fact, commit. If you want a U.S. analogy, it’s as if all the leading candidates for the Democratic nomination in 2004 had gone around declaring, “We were weak on national security, and 9/11 was our fault.” Would we have been surprised if Democratic primary voters had turned to a candidate who rejected that canard, whatever other views he or she held?

Dean Baker: To fix the debt, stop Fed rate hikes

Deficit hawks should join the fight against interest rate hikes

The drumbeat for a rate hike by the Federal Reserve Board seems to be unstoppable. When the data seem to undermine one argument for a hike, the rate hike advocates simply change course.

The original rationale for higher interest rates was the need to stop inflation. We have had people harping on the risk of hyper-inflation since 2009. Inflation has remained stubbornly low these last six years, consistently remaining under the Fed’s 2.0 percent target. If anything, the recent trend has been downward as a result of the collapse of the price of oil and other commodities.

If the threat of inflation isn’t adequate for selling an interest-rate hike, the next move was the need to have higher rates to attack bubbles. The big problem with this story is that it is not clear that we have any bubbles, nor is it obvious that hiking interest rates is the best way to address them if we did.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

September 14 is the 257th day of the year (258th in leap years) in the Gregorian calendar. There are 108 days remaining until the end of the year.

On this Day in 1901, U.S. President William McKinley dies after being shot by a deranged anarchist during the Pan-American Exposition in Buffalo, New York.

President and Mrs. McKinley attended the Pan-American Exposition in Buffalo, New York. He delivered a speech about his positions on tariffs and foreign trade on September 5, 1901. The following morning, McKinley visited Niagara Falls before returning to the Exposition. That afternoon McKinley had an engagement to greet the public at the Temple of Music. Standing in line, Leon Frank Czolgosz waited with a pistol in his right hand concealed by a handkerchief. At 4:07 p.m. Czolgosz fired twice at the president. The first bullet grazed the president’s shoulder. The second, however, went through McKinley’s stomach, pancreas, and kidney, and finally lodged in the muscles of his back. The president whispered to his secretary, George Cortelyou  “My wife, Cortelyou, be careful how you tell her, oh be careful.” Czolgosz would have fired again, but he was struck by a bystander and then subdued by an enraged crowd. The wounded McKinley even called out “Boys! Don’t let them hurt him!” because the angry crowd beat Czolgosz so severely it looked as if they might kill him on the spot.

One bullet was easily found and extracted, but doctors were unable to locate the second bullet. It was feared that the search for the bullet might cause more harm than good. In addition, McKinley appeared to be recovering, so doctors decided to leave the bullet where it was.

The newly developed x-ray machine was displayed at the fair, but doctors were reluctant to use it on McKinley to search for the bullet because they did not know what side effects it might have on him. The operating room at the exposition’s emergency hospital did not have any electric lighting, even though the exteriors of many of the buildings at the extravagant exposition were covered with thousands of light bulbs. The surgeons were unable to operate by candlelight because of the danger created by the flammable ether used to keep the president unconscious, so doctors were forced to use pans instead to reflect sunlight onto the operating table while they treated McKinley’s wounds.

McKinley’s doctors believed he would recover, and the President convalesced for more than a week in Buffalo at the home of the exposition’s director. On the morning of September 12, he felt strong enough to receive his first food orally since the shooting-toast and a small cup of coffee. However, by afternoon he began to experience discomfort and his condition rapidly worsened. McKinley began to go into shock. At 2:15 a.m. on September 14, 1901, eight days after he was shot, he died from gangrene surrounding his wounds. He was 58. His last words were “It is God’s way; His will be done, not ours.” He was originally buried in West Lawn Cemetery in Canton, Ohio, in the receiving vault. His remains were later reinterred in the McKinley Memorial, also in Canton.

Czolgosz was tried and found guilty of murder, and was executed by electric chair at Auburn Prison on October 29, 1901.