Tag: Economics

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.

The Huffington Post Investigation Fund (dot org) is reporting that major Wall Street Banksters and Hedge Funds are getting into the kind of get rich quick real estate scams you normally find in a late night infomercial.

This particular confidence game is to purchase the right to collect back taxes, fees, and liens from cash strapped local governments at discounts on the dollar and then sick their high retainer, temporarily idle, forclosure departments on the homeowners to run up fees, fines, and forclosures.

I’ll quote it as I would any article of similar length, they allow crossposting but the embed code violates too many rules.

The New Tax Man: Big Banks And Hedge Funds

By Fred Schulte and Ben Protess, Huffington Post Investigative Fund

First Posted: 10-18-10 08:28 AM Updated: 10-18-10 09:40 AM

Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.

…

In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.

…

Years ago, the big banks left the buying of tax liens largely to local real estate specialists and small-time investors. These days, banks and hedge funds, stung by the failure of many speculative investments, see tax liens as a relatively safe option that can yield returns of around 7 percent.

Some banks also are packaging tax liens as securities – in a similar way to how unpaid home loans are securitized – and selling them to investors.

If mortgage holders fail to pay overdue taxes, an investor could waltz off with a home worth hundreds of thousands of dollars for the price of paying the owner’s tax bill. Most homeowners eventually pay their debt.

…

Some two dozen states and the District of Columbia allow tax sales, which spare the governments from added expenses of hiring their own debt collector, or foreclosing and becoming a landlord. Local governments generally require minimal identification – for instance, a Social Security number. They allow bidders to choose whatever names they wish, and don’t check to see if bidders are using multiple identities.

In the Middle Ages this was called Tax Farming.

“Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must.”

“the only thing that has actually remotely slowed down the relentless rise of carbon emissions over the last two to three decades is recession.”

— Tim Jackson

British Economist Tim Jackson studies the links between lifestyle, societal values and the environment to question the primacy of economic growth.

He currently serves as the economics commissioner on the UK government’s Sustainable Development Commission and is director of RESOLVE – a Research group on Lifestyles, Values and Environment. After five years as Senior Researcher at the Stockholm Environment Institute, Jackson became Professor of Sustainable Development at University of Surrey, and was the first person to hold that title at a UK university.

He founded RESOLVE in May 2006 as an inter-disciplinary collaboration across four areas – CES, psychology, sociology and economics – aiming to develop an understanding of the links between lifestyle, societal values and the environment.

In 2009 Jackson published “Prosperity without Growth: Economics for a Finite Planet”, a substantially revised and updated version of Jackson’s controversial study (.PDF, 136 pp.) for the Sustainable Development Commission, an advisory body to the UK Government. The study rapidly became the most downloaded report in the Commission’s nine year history when it was launched in 2009.

Filmed in July at TEDGlobal 2010, here is Tim Jackson’s economic reality check, a 20 minute talk he gave for the TEDGlobal audience…

I want you to imagine a world, in 2050, of around nine billion people, all aspiring to Western incomes, Western lifestyles. And I want to ask the question — and we’ll give them that two percent hike in income, in salary each years as well, because we believe in growth. And I want to ask the question: how far and how fast would be have to move? How clever would we have to be? How much technology would we need in this world to deliver our carbon targets? And here in my chart. On the left-hand side is where we are now. This is the carbon intensity of economic growth in the economy at the moment. It’s around about 770 grams of carbon. In the world I describe to you, we have to be right over here at the right-hand side at six grams of carbon. It’s a 130-fold improvement, and that is 10 times further and faster than anything we’ve ever achieved in industrial history. Maybe we can do it, maybe it’s possible — who knows? Maybe we can even go further and get an economy that pulls carbon out of the atmosphere, which is what we’re going to need to be doing by the end of the century. But shouldn’t we just check first that the economic system that we have is remotely capable of delivering this kind of improvement?

..transcript below..

This is the man that Obama needs to put on speed dial.

Global Economy Will Suffer More Financial Crises in Next 10 Years: Roubini

The global economy will suffer a “couple of financial crises over the next 10 years” as financial reforms are not going in the right direction and not enough is being done, warned Nouriel Roubini, chairman at Roubini Global Economics.

“Nothing has changed fundamentally. When the regulatory reform was passed by the U.S. Congress, my view is too little, too late,” Roubini told CNBC Monday on the sidelines of the World Capital Markets Symposium in Kuala Lumpur, Malaysia.

Roubini said even if the world economy doesn’t slip into a double-dip, the effects will still be felt.

“We are already in a situation which is going to feel like a recession, (even) if we are not in one,” he said.

“And if the economic data surprise on the down side, we are going to have a correction of the stock markets, widening of credit spreads, increased volatility, increase risk aversion, then it leads to a shock for the real economy.”

The Defining Issue: Who Should Get the Tax Cut – The Rich or Everyone Else?

by Robert Reich, Sunday, September 19, 2010

Who deserves a tax cut more: the top 2 percent – whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy – or the rest of us?

…

The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs.

But it would blow a giant hole in the budget – $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone.

…

The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all.

And, again, nothing trickled down.

As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt – but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going.

The Winds of Deflation

by Robert Reich, Friday, September 17, 2010

(Y)ou have what could be a recipe for deflation: Flat consumer prices, weekly earnings, and hours, coupled with increased pessimism about where the economy is heading.

Consumers aren’t buying. They’re acting rationally. Their debt load is still huge, they’re worried about keeping their jobs, they know they have to tighten belts, and they’re justifiably worried about the future.

But for the nation as a whole, it spells even more trouble. If consumers hold back even more, prices will start dropping. When and if they do, consumers will hold back even more in anticipation of still lower prices. That means more layoffs and less hiring.

It’s a vicious cycle. And once deflation sets in, it’s hard to reverse. Just ask Japan.

Why No Amount of Fiscal or Monetary Stimulus Will Be Enough, Given How Small A Share of Total Income the Middle Now Receives

by Robert Reich, Tuesday, September 21, 2010

Every indicator suggests third-quarter growth will be as slow if not slower than in the second quarter. Consumer confidence is down. Retail sales are down. Housing sales are down. Commercial real estate is in trouble.

A growth rate of 1.6 percent means even higher unemployment ahead. Maybe we’re not in a double-dip but we might as well be in one. Growth this slow is the equivalent of heading downward, relative to the growth needed to get us out of the hole we’re in.

…

Even though (The E)conomy is heading downward, flooding it with more money may not help.

The problem isn’t the cost of capital. Most businesses can get all the money they need. Big ones are still sitting on $1.8 trillion in cash.

The problem is consumers, who are 70 percent of the economy. They can’t and won’t buy enough to turn the economy around. Most don’t qualify for more credit given how much they already owe (or have already defaulted on).

Without consumers, businesses have no reason to borrow more. Except to speculate by buying back their own stock and doing mergers and acquisitions, which is exactly what they’re doing.

…

(The Economy) can’t run on its own because consumers have reached the end of their ropes.

After three decades of flat wages during which almost all the gains of growth have gone to the very top, the middle class no longer has the buying power to keep the economy going. It can’t send more spouses into paid work, can’t work more hours, can’t borrow any more. All the coping mechanisms are exhausted.

Anyone who thinks China will get us out of this fix and make up for the shortfall in demand is blind to reality.

So what’s the answer? Reorganizing the economy to make sure the vast middle class has a larger share of its benefits. Remaking the basic bargain linking pay to per-capita productivity.

Good riddance to bad rubbish, but also ‘too little, too late’.

As Atrios puts it-

Decision Points

They screwed up first with a too small stimulus.

They screwed up second last December/January when they got skeered of zombie unicorns invisible bond vigilantes.

They screwed up the third time when they thought recovery summer was here and the jobs growth was coming, despite very little evidence of that.

And-

Bye Larry

Don’t let the door…

And maybe one day you can explain to the world why an "insurance policy" was all that was needed.

Update:

Chris in Paris–

If this is correct, we may be in for an even more conservative economic agenda. Should that be the case, there’s really even less reason to support this administration.

Administration officials are weighing whether to put a prominent corporate executive in the NEC director’s job to counter criticism that the administration is anti-business, one person familiar with White House discussions said. White House aides are also eager to name a woman to serve in a high-level position, two people said. They also are concerned about finding someone with Summers’ experience and stature, one person said.

His “experience and stature?” Really? So another scoundrel with deep ties to Wall Street who represents everything that’s wrong with the current system? It better be a hard right turn so he can attract the Teabaggers because this sounds like one kick too many for liberals.

I see the Democrats are finally beginning to understand that the key to winning is the need to frame their own message. It’s about time:

“The Obama tax cuts for the middle class”

Call them “the Obama tax cuts for the middle class.”

Top Democratic leaders in the House are discussing using that phrase to rebrand President Obama’s proposed extension of the Bush tax cuts for those making less than $250,000, senior leadership aides tell me.

The use of the phrase has the informal support of Nancy Pelosi and Majority Whip James Clyburn, and Pelosi has used the phrase in private meetings, leadership aides tell me. Rank and file House Dems are privately discussing the phrase. Top Senate aides also like the idea.

Right on. Take the bull by the horns and start taking the credit for the really good ideas. Don’t even mention the name of that President who initiated those cuts that will benefit the middle class if they are extended. Only invoke his name for the deficit inflating cuts for the wealthiest. Remind voters that even the middle class tax cuts will still benefit the rich.

Keeping money in the hands of people who will spend it one of the best ways to stimulate the economy. The House and Senate Democrats on the campaign trail need to make this their top message as a way to stimulate job growth and the economy which will reduce the deficit even further. Take back the word “stimulus” as a positive part of that message.

Make “The Obama Tax Cuts the message” the Democratic message.

Cross posted @ GOS

Tax Cuts May Prove Better for Politicians Than for Economy

By DAVID KOCIENIEWSKI, The New York Times

Published: September 10, 2010

The nonpartisan Congressional Budget Office  this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report  added that tax cuts for high earners would have the smallest “bang for the buck,” because wealthy Americans were more likely to save their money than spend it.

…

“It may have some small impact along the margins, but firms don’t hire based on tax breaks; they hire based on demand,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “So a lot of the tax breaks are likely to be rewarding people and companies for that they were going to do anyway.”

…

Edward D. Kleinbard, former chief of staff of the bipartisan Joint Committee on Taxation, said the reliance on tax expenditures had distorted the budget process because it induced the public to overlook the fact that – unless they are accompanied by spending reductions – tax cuts have the same effect on the deficit as additional spending. It also allows politicians to make unsubstantiated claims about the power of tax-cutting to accomplish other economic goals, he said.

“The thought that tax cuts pay for themselves or that tax cuts alone can turn around this economy is magical thinking,” said Mr. Kleinbard, now a law professor at the University of Southern California. “The debate has become so unrealistic it makes you want to scream.”

My emphasis, because the Gray Lady doesn’t do that.

Obama to Tap Goolsbee as Chair of Council of Economic Advisers

Administration sources tell ABC News that at the start of his press conference Friday morning, President Obama will formally announced that he is appointing University of Chicago economist Austan Goolsbee to be chair of his Council of Economic Advisers.

Goolsbee, 41, has already been confirmed by the Senate to serve as one of the three economists on the CEA; President Obama has the prerogative to appoint the chair. The former chair, Christina Romer, departed last week, returning to teach at the University of California at Berkeley. Goolsbee is also chief economist for the Presidential Economic Recovery Advisory Board. . . .

Goolsbee’s appointment will mean that all of the president’s top economic advisers — Goolsbee, National Economic Council director Larry Summers, Treasury Secretary Tim Geithner — are white men who graduated from Ivy League schools. Not that there’s anything wrong with that.

(no, not sexist, elist at all)

Once called “Elliott Ness meets Milton Friedman” by comedian Jon Stewart, Goolsbee considers himself a data driven economist known for his expertise in tax policy and high-tech industries.

More Economics.

The Tortoise Economy

by Robert Reich

Wednesday, September 8, 2010

After a typical recession, growth surges until the economy reemerges from whatever hole it fell into and returns to its normal growth path. Usually that surge isn’t difficult to accomplish once the upswing begins because all the assets the economy needs to get back to its old path are readily available – lots of people who have been laid off or have come into the job market and been unable to find work, unused office and retail space, factories and equipment that had been idled. After the economy returns to normal and almost all these people and physical assets are back to work, growth slows to its normal pace.

But this time it’s not happening that way. More than two and a half years after the Great Recession began, many months after we hit bottom and when in a normal “recovery” we’d expect growth to surge, the opposite is happening. Growth is slowing.

…

The underlying problem is structural, not cyclical. There will be no return to normal because normal got us into the hole in the first place. And the normal kind of prescriptions can’t possibly get us out. Until the economy is restructured so more Americans share in its gains, the economy won’t make many gains. We’ll be forever trying to scale a wall that can’t be, because the vast majority of Americans lack the purchasing power to move upward.

The current battle is over the extension of the Bush Tax Cuts.  Whether for the rich or just those under $250K they are by definition NOT STIMULATIVE.  It doesn’t add anything to aggregate demand because it’s money you already have.  It is not being spent to create new demand.

Likewise business tax cuts.  Businesses are already sitting on $2 Trillion that they are not spending because there is no demand for the goods and services they produce.  They are awash in cash and credit and giving them any more is like pushing a string.

That leaves Government and they have 2 choices, give money to people who will spend it (which is why giving to the poorest is the most stimulative, because they’ll definitely spend and not save it thus creating demand), OR spending it themselves.  The only “stimulative” part of Obama’s new proposal is the $50 Billion spent on Infrastructure and it’s not enough.  The rest of the money is wasted pushing string and if you claim to care about “deficits” (and the bond market says you shouldn’t even if you’re not a Modern Monetary Theorist) you’re a hypocritical liar to support that and not the spending.

IF you wish to increase aggregate demand AND not increase the deficit THEN you should be talking about explicitly redistributionist policies that take money away from those who are not spending it to create demand and giving it to those who will.

Supply side economics is “Voodoo Economics”.  It has been tried and it has failed.  Spectacularly.

The most economically productive period in American History is the 40s, 50s, and 60s when the concentration of wealth was lower, the marginal tax rates higher, and business more regulated.

It’s amazing to me that those most anxious to turn back the clock socially are the most reluctant to do so economically.