Tag: Economy

In middle school I was a member of the Fencing Club.

Bank of America Allegedly Foreclosing Fraudulently in Kentucky

Yves Smith, Naked Capitalism

Thursday, November 11, 2010

Many foreclosures show this process was not observed on a widespread basis: the notes were assigned (as in transferred) to the trust right before closing, a violation of the PSA, the New York trust statutes that govern virtually all mortgage securitization trusts, and IRS rules for these trusts (REMIC). When foreclosure defense attorneys started contesting these assignments, suddenly a new ruse started to show up: allonges, which are sheets of paper that contained the needed endorsements, would magically appear out of nowhere. The problem is that an allonge is supposed to be used only when there is no space left on the note for endorsements, including margins and the reverse side, and when it is used, it is supposed to be so firmly attached to the original as to be inseparable. But these “ta da” allonges were always somehow discovered at the custodian, quite separate from the note.

…

This means the odds are awfully high that Bank of America committed multiple frauds on the court, first on the state court in the foreclosures process, and now on the Federal bankruptcy court.

…

This sort of abuse is far more serious than robo signing. As much as the likely misconduct here and robo signing would both be considered frauds on the court, the robo signing is arguably cost cutting gone mad and riding roughshod over proper legal procedures. By contrast, this practice has all the appearances of multiple coverups of the fact that Countrywide trust did not have standing to foreclose on the house. The steps undertaken here look to be a deliberate, concerted effort for the bank to get its way, the law be damned. And this clearly took more parties and more thought than the robo signing abuses.

At a minimum, the attorneys at the law firm and the parties at the servicer had to be aware of this device. And if our reading of this document is correct, this is fraud, pure and simple. It’s high time we see some attorneys disbarred and some law firms go out of business as a result of foreclosure chicanery, as well as serious investigations of the people involved in foreclosure litigation at the servicers and the banks’ general counsel’s office.

(h/t lambert @ Corrente)

Also-

Alan Greenspan: “Fraud, fraud is a fact.” And the banksters are doubling down, with the help of the Obama administration

Thu, 11/11/2010 – 10:51am – lambert

Background- Ireland is in some ways a model of the current state of the U.S. economy in miniature.  Same Real Estate bubble fueled by the same fraud, 3 big banks now all insolvent but bailed out.  Ireland eagerly embraced an austerity program early on.  How is that working out?

“Morgan Kelly is Professor of Economics at University College Dublin.”

If you thought the bank bailout was bad, wait until the mortgage defaults hit home

Morgan Kelly, The Irish Times

Monday, November 8, 2010

WHEN I wrote in The Irish Times last May showing how the bank guarantee would lead to national insolvency, I did not expect the financial collapse to be anywhere near as swift or as deep as has now occurred. During September, the Irish Republic quietly ceased to exist as an autonomous fiscal entity, and became a ward of the European Central Bank.

It is a testament to the cool and resolute handling of the crisis over the last six months by the Government and Central Bank that markets now put Irish sovereign debt in the same risk group as Ukraine and Pakistan, two notches above the junk level of Argentina, Greece and Venezuela.

…

With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.

The German and French banks whose solvency is the overriding concern of the ECB get their money back. Senior Irish policymakers get to roll over and have their tummies tickled by their European overlords and be told what good sports they have been. And best of all, apart from some token departures of executives too old and rich to care less, the senior management of the banks that caused this crisis continue to enjoy their richly earned rewards. The only difficulty is that the Government’s open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State.

…

This €70 billion bill for the banks dwarfs the €15 billion in spending cuts now agonised over, and reduces the necessary cuts in Government spending to an exercise in futility. What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?

…

As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them.

…

Banks have been relying on two dams to block the torrent of defaults – house prices and social stigma – but both have started to crumble alarmingly.

People are going to extraordinary lengths – not paying other bills and borrowing heavily from their parents – to meet mortgage repayments, both out of fear of losing their homes and to avoid the stigma of admitting that they are broke. In a society like ours, where a person’s moral worth is judged – by themselves as much as by others – by the car they drive and the house they own, the idea of admitting that you cannot afford your mortgage is unspeakably shameful.

That will change. The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording. Facing a choice between obligations to the banks and to their families – mortgage or food – growing numbers are choosing the latter.

…

The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits – there is no longer any such thing – but from the pockets of other taxpayers.

…

By next year Ireland will have run out of cash, and the terms of a formal bailout will have to be agreed. Our bill will be totted up and presented to us, along with terms for repayment. On these terms hangs our future as a nation. We can only hope that, in return for being such good sports about the whole bondholder business and repaying European banks whose idea of a sound investment was lending billions to Gleeson, Fitzpatrick and Fingleton, the Government can negotiate a low rate of interest.

…

Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.

(h/t dday, Kevin Drum, and Tyler Cowen)

How’s that austerity thing working out for you? by ek hornbeck, 11/8/10

Monday Business Edition

Following the economic story is a trifle confusing because there are at least 2 threads to it.  One of those threads is the failure of our financial institutions and their systematic culture of fraud.

But another thread is the failure of academic economists and Washington policy makers to correctly diagnose and take action on our National economic problems.

Let me start by saying that what we are seeing in the United States macro economy is a textbook example of the complete and utter failure of Monetary Policy from Milton Friedman to Alan Greenspan.  What ails us is overcapacity and a lack of aggregate demand.  Businesses are making everything that anyone will pay for and could easily make much, much more at little marginal cost.

They are sitting on piles of cash which they are currently using to buy sort term treasuries at 0% interest (a safe way of parking it not investing it), stock repurchases, mergers and acquisitions, expanding overseas operations, and other non productive pursuits; non productive in this case meaning- Not Increasing U.S. Aggregate Demand.

Now the textbook response to a situation like this is for the Government to step in as a purchaser of last resort- Dig Holes.  Fill them up.  At least you’re putting money in people’s pockets and because of the Multiplier Effect Aggregate Demand will rise and your National economy will pick up.  Tested and proven.

Indeed, this is exactly the argument David Broder uses for advocating War with Iran!

Umm… aggressive warfare for economic gain is pretty specifically a war crime Dave.

But it does validate the idea of Government fiscal policy as a tool for jump starting the economy.

Instead of that we are pursuing a policy of pushing on a string.  The object of Bernake’s $600 Billion repurchase is to create negative interest rates in the hopes that losing money by keeping it parked in T-Bills will spur investment.

A thin hope at best and as Krugman points out, by foregoing the chance to create increased expectations of inflation in general we are reducing that incentive.

Doing It Again

By PAUL KRUGMAN, The New York Times

Published: November 7, 2010

Eight years ago Ben Bernanke, already a governor at the Federal Reserve although not yet chairman, spoke at a conference honoring Milton Friedman. He closed his talk by addressing Friedman’s famous claim that the Fed was responsible for the Great Depression, because it failed to do what was necessary to save the economy.

“You’re right,” said Mr. Bernanke, “we did it. We’re very sorry. But thanks to you, we won’t do it again.”

…

For the big concern about quantitative easing isn’t that it will do too much; it is that it will accomplish too little. Reasonable estimates suggest that the Fed’s new policy is unlikely to reduce interest rates enough to make more than a modest dent in unemployment. The only way the Fed might accomplish more is by changing expectations – specifically, by leading people to believe that we will have somewhat above-normal inflation over the next few years, which would reduce the incentive to sit on cash.

The idea that higher inflation might help isn’t outlandish; it has been raised by many economists, some regional Fed presidents and the International Monetary Fund. But in the same remarks in which he defended his new policy, Mr. Bernanke – clearly trying to appease the inflationistas – vowed not to change the Fed’s price target: “I have rejected any notion that we are going to try to raise inflation to a super-normal level in order to have effects on the economy.”

And there goes the best hope that the Fed’s plan might actually work.

Think of it this way: Mr. Bernanke is getting the Obama treatment, and making the Obama response. He’s facing intense, knee-jerk opposition to his efforts to rescue the economy. In an effort to mute that criticism, he’s scaling back his plans in such a way as to guarantee that they’ll fail.

Business News below-

So yesterday I highlighted Black and Wray’s counter response to Bank of America and today Part 2 is available, but before I get to that I’d like to provide some context.

You’ll remember that PIMCO, Blackrock, Freddie Mac, and The Federal Reserve Bank of New York had requested that Bank of America repurchase some $47 Billion Mortgage Backed Securities that violated the performance and disclosure provisions of the contracts they were sold under.  You might also recognize these names as financial players every bit as big and powerful as Bank of America itself.

Well, yesterday BoA rejected that request.  As Atrios says- It’s On.

But you shouldn’t think that Bank of America is the only one with these problems.  Although it is the biggest, JPMorgan Chase & Co, Wells Fargo & Co, Citigroup Inc, US Bancorp and PNC Financial Services Group have $43 Billion or more in exposure to the same types of losses.

While some of Black and Wray’s Part 2 touches on that exposure, what it’s mostly about is the story of Bank of America’s purchase of Countrywide Financial.

An interesting factoid about BoA’s purchase of Countrywide (from the Jonathan Weil, Bloomberg article cited yesterday)-

Here’s how Bank of America allocated the purchase price for that deal. First, it determined that the fair value of the liabilities at Countrywide exceeded the mortgage lender’s assets by $200 million. Then it recorded $4.4 billion of goodwill, a ledger entry representing the difference between Countrywide’s net asset value and the purchase price.

That’s right. Countrywide’s goodwill supposedly was worth more than Countrywide itself. In other words, Bank of America paid $4.2 billion for the company, even though it thought the value there was less than zero.

Since completing that acquisition, Bank of America has dropped the Countrywide brand. The company’s home-loan division has reported $13.5 billion of pretax losses. Yet Bank of America still hasn’t written off any of its Countrywide goodwill.

What genius!  Surely these Masters of the Universe are worth every penny they’re paid, but, it being a free market capitalist system and all, I can’t help myself from pointing out that I personally am willing to lose $17.7 Billion for a much more reasonable rate of compensation.  Since they’re great believers in the efficiency of markets I expect an offer any time.

Let’s Set the Record Straight on Bank of America, Part 2: Eliminating Foreclosure Fraud

William K. Black and L. Randall Wray, The Huffington Post

Posted: November 5, 2010 01:23 PM

Bank of America did not purchase Countrywide for the good of the public. It purchased a notorious lender to feed the ego of their CEO, who wanted to run the biggest bank in America rather than the best bank in America. They certainly knew at the time of the purchase that is was buying an institution whose business model was based on fraud, and it had to have known that a substantial portion of Countrywide’s assets were toxic and fraudulent (since Bank of America’s own balance sheet contained similar assets and it could reasonably expect that Countrywide’s own standards were even worse). The response does not contest the depth of the bank’s insolvency problems should it be required to recognize its liability for losses caused by its frauds.

…

Bank of America’s response to our articles ignores its foreclosure fraud, which we detailed in our articles. News reports claim that the bank sent a 60 person “due diligence” team into Countrywide for at least four weeks. The Countrywide sales staff were notorious, having prompted multiple fraud investigations by the SEC and various State attorneys general. The SEC fraud complaint against Countrywide emphasized the games it played with the computer system. Countrywide had a terrible reputation for its nonprime lending. Nonprime loans were already collapsing at the time of the due diligence, the FBI had warned about the epidemic of mortgage fraud, and the lending profession’s anti-fraud firm had warned that liar’s loans were endemically fraudulent. Is it really possible that Bank of America’s due diligence team missed all of this and that the CEO thought even months later that the Countrywide lending personnel and Countrywide’s computer systems were exceptionally desirable assets?

…

As we explained, fraud begets fraud. Bank of America created over $4 billion in “goodwill” and placed it on its books as an asset when it paid money to acquire Countrywide at a time when it was deeply insolvent on a market value basis. Instead of acquiring an asset, they got thousands of fraudulent employees and officers, a failed computer system and catastrophic losses. So, we have a question for Bank of America, its auditors, and the SEC: why haven’t you written off that entire goodwill account?

And why aren’t people in jail or bankrupted by shareholder and bondholder lawsuits (yet)?

Obama’s Problem Simply Defined: It Was the Banks

James K. Galbraith, The Huffington Post

Posted: November 5, 2010 04:16 PM

(O)ne cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

…

With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed — until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

But new loans? The big banks had given up on that. They no longer did real underwriting. And anyway, who could qualify? Businesses mostly had no investment plans. And homeowners were, to an increasing degree, upside-down on their mortgages and therefore unqualified to refinance.

…

To counter calls for more action, Team Obama produced sunny forecasts. Their program was right-sized, because anyway unemployment would peak at 8 percent in 2009. So Larry Summers said. In making that forecast, the Obama White House took responsibility for the entire excess of joblessness above eight percent. They made it impossible to blame the ongoing disaster on George W. Bush. If this wasn’t rank incompetence, it was sabotage.

Remember “Recovery Summer(s)“?  Nothing has changed.  And until people go to jail for their fraud and the “To Big To Fail” Banks are placed into FDIC Receivership, their incompetent management tossed out on their asses, and broken up, nothing will.

Barack Hussein Obama and the Democratic Party have no one to blame but themselves.

So a couple of weeks ago I highlighted 2 posts by Bill Black and Randall Wray on how Title Fraud, Securities Fraud, and Accounting Fraud (which they call Control Fraud) had the potential to force Bank of America into receivership and contending that was the proper course of action.

Bank of America has issued a response (also on The Huffington Post) and today Black and Wray published the first part of a 2 part counter-response.

I thought it might be of interest.

Let’s Set the Record Straight on Bank of America: Open the Books!

William K. Black and L. Randall Wray, The Huffington Post

Posted: November 4, 2010 06:06 PM

The demands by investors that Bank of America repurchase loans and securities sold under false “reps and warranties” may cause exceptional losses if those making the demands document the broader fraud by the lenders. The article “Bank of America Resists Rebuying Bad Loans” shows that Bank of America’s potential loss exposure to Fannie and Freddie is staggering: “[Bank of America] said it sold $1.2 trillion in loans to the government-controlled housing giants from 2004 to 2008 and has thus far received $18 billion in repurchase claims on those loans.”

…

As argued in a recent article by Jonathon Weil, the bank is nearing a “tipping point” as markets recognize it is “cooking the books,” vastly overstating the value of its assets as it refuses to recognize the true scale of losses on its purchase of Countrywide. Ironically, it still carries on its books $4.4 billion of fictional “goodwill” value created by overpaying for Countrywide (a notorious control fraud), as well as $142 billion of home equity loans that are worth far less. A more honest accounting of “good will” and of the value of home equity loans would take a big bite out of Bank of America’s market capitalization ($116 billion), which has lost 41 percent of its value since April 15. The markets are moving ever closer to shutting down the institution, but Moynihan is not “putting up with” the demand by investors for Bank of America to come clean on its fraudulent practices.

…

The bank’s response primarily criticizes its borrowers as deadbeats, yet the data it provides support points we have made in our prior posts, including Bill Black’s posts about the banks working with the Chamber of Commerce and Chairman Bernanke to extort the Financial Accounting Standards Board (FASB) in order to destroy the integrity of the accounting rules requiring banks to recognize losses on their bad loans. We have explained why the fraudulent officers controlling many lenders followed a strategy of making bad loans at premium yields in order to maximize (fictional) accounting income and their bonuses. This dynamic drove the current crisis. These frauds hyper-inflated the housing bubble and caused trillions of dollars of losses.

Rob Johnson is the Director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute and is a regular contributor to the Institute’s blog NewDeal2.0. He serves on the UN Commission of Experts on Finance and International Monetary Reform. Previously, Dr. Johnson was a Managing Director at Soros Fund Management where he managed a global currency, bond and equity portfolio specializing in emerging markets. He was also a Managing Director at the Bankers Trust Company. Dr. Johnson has served as Chief Economist of the US Senate Banking Committee under the leadership of Chairman William Proxmire and was Senior Economist of the U.S. Senate Budget Committee under the leadership of Chairman Pete Domenici. Dr. Johnson was an Executive Producer of Taxi to the Dark Side, an Oscar Winning documentary produced and directed by Alex Gibney.

Here, Johnson talks with Paul Jay of The Real News Network about the economic fallout from the past couple of years and the 2010 mid term elections, and concludes that…

…the baseline scenario now is one of prolonged stagnation, gridlock in the government, unless Obama essentially capitulates to the agenda of the right. But will we go into a deep downturn similar to 2007, ’08, early 2009? Not necessarily. We may just remain stagnant. Perhaps the best model is the so-called lost decade in Japan, where you have negligible growth, negligible inflation, or even modest deflation, and you just kind of bump along the bottom. The danger of that, as I alluded to previously, is the long-term, persistent unemployment allows the skills of many people in society to atrophy. And the United States, unlike Europe and Japan, does not have a strong safety net, so it probably foments more social unrest, kind of like what we saw in the formation of the protest movements and Tea Party as we approach this election.

Crossposted at Daily Kos and Docudharma

Monday Business Edition

Nobel Prize winning economist Paul Krugman quotes with approval a comment from this post on Irish austerity-

Most people don’t realize that “the markets” are in reality 22-27 year old business school graduates, furiously concocting chaotic trading strategies on excel sheets and reporting to bosses perhaps 5 years senior to them. In addition, they generally possess the mentality and probably intelligence of junior cycle secondary school students. Without knowladge of these basic facts, nothing about the markets makes any sense- and with knowladge, everything does.

How the Banks Put the Economy Underwater

By YVES SMITH, The New York Times

Published: October 30, 2010

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

…

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed – and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

(Nobel Prize Winning) Economist Stiglitz: We need stimulus, not quantitative easing

By Ezra Klein, Washington Post Staff Writer

Saturday, October 30, 2010; 9:07 PM

The Fed, and the Fed’s advocates, are falling into the same trap that led us into the crisis in the first place. Their view is that the major lever for economic policy is the interest rate and if we just get it right, we can steer this. That didn’t work. It forgot about financial fragility and how the banking system operates. They’re thinking the interest rate is a dial you can set and by setting that dial, you can regulate the economy. In fact, it operates primarily through the banking system, and the banking system is not functioning well. All the literature about how monetary policy operates in normal times is pretty irrelevant to this situation.

…

(T)he reason the private market for mortgages has dried up is that everybody knows the moment the government withdraws from the mortgage market, the effect will be that there will be a capital loss on the mortgages – and the same thing goes for our long-term bonds. Now we don’t use mark-to-market accounting, so we’ll pretend they don’t occur, but they will have occurred. We’ll have experienced a loss. The third point is that to avoid recognizing the loss, the Fed is likely to do silly things, like rather than buying and selling government bonds, they’ll pay interest on deposits banks make to the Federal Reserve in order to absorb the liquidity.

There are two problems with this. First, it’s costly, as we’re now paying interest when we didn’t before. Second, we don’t know how well this will work. And because it’s uncertain, you might say that the financial markets, recognizing we’re going into uncharted territory, will request a risk premium. That’ll hurt the U.S. Treasury and would be bad for the economy. So this is not costless. If it were the only instrument, you might say we have no choice. But it’s not. Fiscal policy is a choice, or it should be a choice. By putting fiscal policy off the table, we’re moving down the cost-benefit curve to something much riskier and much less cost-effective.

Mugged by the Moralizers

By PAUL KRUGMAN, The New York Times

Published: October 31, 2010

So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.

But the moralizers will have none of it. They denounce deficit spending, declaring that you can’t solve debt problems with more debt. They denounce debt relief, calling it a reward for the undeserving.

And if you point out that their arguments don’t add up, they fly into a rage. Try to explain that when debtors spend less, the economy will be depressed unless somebody else spends more, and they call you a socialist. Try to explain why mortgage relief is better for America than foreclosing on homes that must be sold at a huge loss, and they start ranting like Mr. Santelli. No question about it: the moralizers are filled with a passionate intensity.

And those who should know better lack all conviction.

John Boehner, the House minority leader, was widely mocked last year when he declared that “It’s time for government to tighten their belts” – in the face of depressed private spending, the government should spend more, not less. But since then President Obama has repeatedly used the same metaphor, promising to match private belt-tightening with public belt-tightening. Does he lack the courage to challenge popular misconceptions, or is this just intellectual laziness? Either way, if the president won’t defend the logic of his own policies, who will?

Business News below.

This past Wednesday “Barack Obama was a guest on The Daily Show, thereby becoming the first sitting president to appear as Jon Stewart’s guest. (In July, Obama became the first sitting president ever to appear on The View.) In the half-hour-long interview, Stewart quizzed his grizzled guest about health-care reform, the financial crisis, and the midterm elections.”

“Stewart’s most combative query concerned National Economic Council director Larry Summers-in particular, Obama’s hiring thereof. ‘We can’t expect different results with the same people,’ Stewart said, referring to Summers’s previous stint as treasury secretary under Bill Clinton. He continued, ‘Larry Summers … that seems like the exact same person.’ Obama, inadvertently quoting his imminently quotable predecessor, replied, ‘Larry Summers did a heckuva job.’ Stewart, somewhat shocked, advised him, ‘You don’t wanna use that phrase…'”

This morning at GRITtv Laura Flanders talked with journalist and Truthdig Editor-in-Chief Robert Scheer, who reminds that “Summers was the chief architect of Clinton-era policies that created the economic crisis in the first place, and that Obama’s appointment of him to get us out of it was never going to result in anything but more money being thrown at Wall Street.”

It’s no wonder that there is now so much irrepressible enthusiasm among the liberals and independents and progressives who tipped the balance in the democrats favor in 2006 and in 2008 to get out and vote for democrats in the 2010 midterm elections.

Monday Business Edition

H/T to letsgetitdone of Firedog Lake and Corrente for pointing out this 2 part piece by Bill Black and Randall Wray over at Huffington Post.

It’s rather long but well worth the read as is letsgetitdone’s commentary on it-

Democratic politicians profess to be puzzled about why people don’t recognize all the current Democratic Congress has done for them. But, if, in fact, they are puzzled, and not just lying about it, then this only reflects on how out of touch they are.

There is not one big issue area in which Congress has acted in the past two years where their legislative outcomes have been fair to the middle class and to working people generally. And that’s why people are so unhappy. Not because they’re stupid. Not because they’re ignorant. And not because their understanding of Washington is deficient.

It is just true that Administration and Democratic efforts in bailing out the banks, passing the stimulus bill, passing the credit card reform bill, passing its health care reform and its finreg bills, and continuing unemployment insurance for the long-term unemployed, have all ended in unjust legislative outcomes. People know that. They can sense and see the basic unfairness of the system and its bias toward those who are wealthy and powerful at the expense of other Americans.

Foreclose on the Foreclosure Fraudsters, Part 1: Put Bank of America in Receivership

William K. Black and L. Randall Wray

Posted: October 22, 2010 02:08 PM

Our first proposition is this: The entities that made and securitized large numbers of fraudulent loans must be sanctioned before they produce the next, larger crisis. Second: The officers and professionals that directed, participated in, and profited from the frauds should be sanctioned before they cause the next crisis. Third: The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, e.g., through fraudulent foreclosures. Foreclosure fraud is an inevitable consequence of the underlying “epidemic” of mortgage fraud by nonprime lenders, not a new, unrelated epidemic of fraud by mortgage servicers with flawed processes. We propose a policy response designed to achieve these propositions.

…

This nation’s most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth — and working class families’ savings — at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed “fraud in the inducement.” Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done — so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

The second piece deals with 3 objections.

Foreclose on the Foreclosure Fraudsters, Part 2: Spurious Arguments Against Holding the Fraudsters Accountable

William K. Black and L. Randall Wray

Posted: October 24, 2010 11:53 PM

Who is Guilty?

Let us deal with the “borrower fraud” argument first because it is the area containing the most erroneous assumptions. There was fraud at every step in the home finance food chain: the appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers’ incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false reps and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.

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Macro Effects and Culpability

What is important to understand, however, is that the financial sector is largely culpable for the generation of speculative frenzy, the creation of the “financial weapons of mass destruction”, and the transformation toward financial fragility that finally collapsed in 2007. In the aftermath we lost 10 million jobs and millions of homeowners lost their homes. The “collateral damage” inflicted by the SDIs (Systemically Dangerous Institutions) is now endangering tens of millions of American families — most of whom played no role in the speculative euphoria. Almost half of American homeowners are already underwater or on the verge of going under. In short, it was Wall Street that turned our homes over to a financial casino — and so far virtually all the losses have been suffered on Main Street.

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Can the Frauds be Foreclosed?

The assertion that the SDIs cannot be resolved because of their size is unsupported. Very large institutions have already been resolved both in this country and abroad. The “too big to fail” (TBTF) doctrine has always been unproven, dangerous, and counter to the law. An institution that is not permitted to fail faces obvious adverse incentive problems. It also destroys healthy competition with institutions that are not considered TBTF. It encourages risk-taking and fraud. And it subverts the law, which requires that insolvent institutions must be resolved.

Business News below.