Category Archives: recession

Leverage?

ArchimedesSome members of the chatterati may have taken Archimedes a bit too literally: “Give me a place to stand and with a lever I will move the whole world.”  Often too much emphasis is placed on the fulcrum and not quite enough on the part about the ancient mathematician needing a place to stand.  The word of the week sounds like “leverage” in Washington, D.C. Who has it? Who doesn’t? And, so what? The So What part isn’t all that interesting.

Although the pundit class is thoroughly fascinated at the moment with how much leverage the President and the Republicans may each possess after the self inflicted Fiscal Cliff fiasco, most of their comments can be categorized as post game “analysis” of the variety which is more commonly associated with post game “analysis” of a sporting event.  It’s never quite enough to declare one team or another victorious based on the scoreboard numbers — “we” have to “know” why one team won and the other lost.  In reality, we really don’t.

So, in the parlance of political reporters emulating the post game questions of their sports writer colleagues — can the President win the next game? A game of Debt Ceiling already scheduled by the Republicans and given official status by the post game analysts.

It depends on where you stand.

There are two major elements of the federal debt that deserve serious scrutiny.  First, during the Bush Administration’s policy of credit card conservatism we racked up two wars (off the budget and supported by supplemental appropriations), a major addition to the Medicare program (Medicare Part D, also unpaid for) and one major Recession.  All were guaranteed to increase the national debt.  The first two increased spending and the latter cut into the tax base.

Secondly, we do need to reduce the national debt, but how we do it is important.  This is one of those occasions which calls for a scalpel, not a meat axe.

It is also important to stand on firm ground.

A few facts are in order.  The first part of standing on terra firma before attempting to leverage anything is to dismiss some media mythology about trends in the national budget deficits.  The following chart should provide an illustration of the inaccuracy of the Now That A Democrat Is In The White House The Deficit Is Out Of Control Myth:

Bush Obama Deficit trends

The chart illustrates what happens when two wars, one major Medicare addition, and a nasty Recession contribute to national spending. It also shows the effect of Obama Administration policies mentioned earlier, a point at which we should note that the Bush Administration toted up about $5.1 trillion in expenses, while as of last June the Obama Administration’s policies resulted in about $983 billion in spending.

Bush Obama Spending ComparisonIn short, if we are really serious about deficit reduction then we need to eschew the policies that got us into this mess in the first instance, i.e. unnecessary tax cuts, and two very expensive wars.

OK, so if we don’t get involved in more military operations, we resist the myth that tax cuts somehow cause economic growth (which they never have), and we regulate our financial markets more effectively in order to mitigate the excessive enthusiasm of traders who created the last great mess, then where do we cut?

It’s time for another reality check.

Here’s where the money goes:

Budget Categories

Since Social Security is a self-funding program, which as President Reagan famously cautioned in 1984 doesn’t add to the federal deficit (video), we can take that 20% out of the equation right now.  Anyone who is truly serious about the single issue of Social Security solvency should be clamoring to increase the cap on earnings liable to the payroll tax, currently set at a measly $110,000. We also need to remove the mandatory spending from the discussion because what we cut will have to be from discretionary spending.

The FY 2013 budget calls for spending $666.2 billion by the Department of Defense.  Another $80.6 billion is allocated to the Department of Health and Human Services (Medicare, Medicaid), and the Department of Education (Pell Grants, Title I, student loan guarantees, etc.) is scheduled to spend or entail $67.7 billion while the 4th largest chunk of the budget goes to the Veterans Administration which has $60.4 billion in scheduled spending.

In short, we’ve budgeted for $1,510 billion in discretionary spending in FY 2013.  The Department of Defense is on track to receive 44.12% of ALL the discretionary spending in the national budget.   Yet calls to cut military spending brings on the wailing of voices, the gnashing of teeth, and the rending of garments about “making us less safe” in an uncertain world.  In spite of all the wailing, gnashing, and rending — that one single department consumes 44.12% of the entire pot of discretionary spending is something we ought to be discussing.

Medicare is another matter.  IF we are truly serious about deficit reduction then we need to have more than the simplistic discourse already in evidence.  There is a false choice being presented, as though the only options are to privatize the Medicare program (give Granny a coupon and let her go out and find her own insurance) or to create a Single Payer national health care system.  While I wouldn’t be sorry to see a Single Payer system, this is an argument for another day.  The point is that there are options between these two proposals.

The central focus point should be that nothing which doesn’t have a bearing on health care cost containment is going to make much difference in the spending levels.   Privatization doesn’t address the cost containment issue, and a single payer system without cost containment elements is merely a recipe for increased expenses.

Now that the campaign season is over we can dismiss the Republican rhetoric about “Obama cut $716 out of Medicare,” and consign to the dust bin the notion that the Affordable Care Act somehow impinges on Medicare benefitsBusiness Week explains:

From 2010 to 2019, Obamacare trims payments to providers by $196 billion. They agreed to take a cut because they will get so many new patients, thanks to the individual mandate. Another $210 billion will be generated by raising Medicare taxes on the wealthy (that’s households earning more than $250,000). Another $145 billion comes from phasing out overpayments to Medicare Advantage. About 25 percent of seniors use the program—in which private plans compete for Medicare dollars—instead of traditional fee-for-service Medicare. Under Obamacare, the government has to keep Medicare Advantage costs in line with those of traditional Medicare. More savings come from streamlining administrative costs.

Thus, if we trim payments to providers, phase out over-payments for profitable private health care policies, and put some reins on administrative costs we’ll find about $716 billion in savings for the Medicare program.  Other cost savings may also be the result of more efficient record keeping, especially in the pharmaceutical segment.  Anyone who’s dealt with the medical issues of an elderly parent knows of multiple prescriptions written from several physicians who may or may not consult with one another.  The result can be as minimal as two (or three) prescriptions for the same medication at different dosages; or, as detrimental as two prescription medications which should not be taken together.

However, the bottom line is still the bottom line — unless and until we are ready to discuss health care cost containment we’ll be immersed in the rhetoric of low bludgeon and high dudgeon without much result.

When we discuss funding for the Department of Education it’s important to note that the FY 2013 discretionary requests yield an official number, $69.8 billion — if we include Pell Grants.  Pell Grants constitute about $22.8 billion of the total, a decrease from $23.8 billion in the FY 2011 budget.  Without the Pell Grants the total discretionary spending in the FY 2013 budget is $47 billion.   There are two constituencies with major stakes in arguing about these funds.

Parents.  Unless one is amenable to the elitist argument that kids should have access to only the level of education their parents can afford (which makes social mobility a moot point) parents are going to need assistance paying for their children’s education.  Whether we like it or no, education is a labor intensive business.  We can trim educational spending by continuing what the Obama Administration has started — saving approximately $61 billion by cutting the banks out of their role as middlemen in the student loan program [NYT]– but it really doesn’t do to cut efforts to educate our young people.  It also doesn’t make economic sense since a college degree is worth money in the marketplace.

Educations Pays Local school districts.  Cash strapped and semi-starved local school districts rely on funds for Special Education programs, Title I services, School Lunch programs, to make up budget shortfalls.  While the level of federal involvement at the local level isn’t all that much it does cover expenses local districts would be hard pressed to meet were the monies cut.

Hostage Taking

How we fund, or de-fund, these major activities depends on who is being held hostage and by whom.   Did the President allow the Republicans to gain “leverage” by taking the tax rates off the table in the next Congressionally manufactured debt ceiling debacle. Or, are we going to change hostages?

Will the Republican stance be that all other programs must be cut in order to spare the 44.12% consumed by the Department of Defense?

Will the GOP position be that Medicare must be privatized in order to practice “sound fiscal responsibility?”

Will the GOP position be that Social Security must be “reformed” (read cut) in the interest of “fiscal accountability and deficit reduction” even though it adds not a nickel to the federal debt?

Will the Administration simply say — You manufactured this debt ceiling “crisis” live with it?  Remembering that if the national credit rating is downgraded this will likely mean that the cost of borrowing (yields paid to those who invest in Treasuries) will go up, exacerbating the problem rather than addressing it.

Will the point be made to the American people that while the credit card analogy is handy, the United States of America doesn’t have creditors it has investors.  Our federal government accesses funds by issuing bonds.   And WE own most of those bonds.

Here’s the little chart again:

Who owns US debt

42.2% of the money “borrowed” by the U.S. government is an asset for U.S. individuals and financial institutions.   Today’s yield curve doesn’t indicate a government which is having to pay all that much to get people and institutions to invest in it:

Daily Yield CurveEven 30 year bonds are paying only 3.0% interest.

The amount of leverage always depends on where one stands and places the fulcrum.

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Filed under Congress, Economy, education, Federal budget, Health Care, Medicaid, Medicare, national debt, Obama, privatization, recession

Wall Street Fine, Main Street Not So Much, States Caught in the Middle

The situation in Nevada is beginning to demonstrate the universal application of the great literary phrase: “It was the best of times, it was the worst of times.”  Consider the following information from a Las Vegas Sun article about therapeutic services for disabled children back in March:

“In 76 percent of the cases reviewed, the state did not provide all of the services called for in plans agreed to by state caseworkers and families. This was “due to a lack of available personnel resources” and reduced hours the state had to contract with therapists.”

In 52 percent of cases, the state did not initiate services within 30 days, as required by the federal government. This was “attributable to the lack of personnel resources as a result of the reduction in the amount of funds available for contract services.”

There are 2,477 children receiving these services, such as they are, and another 250 ranging in age from newborn to 3 years of age on a waiting list.   So youngsters with autism, physical disabilities, developmental issues, and other serious medical challenges are in the cross hairs of a support system in which “fewer children could have more services, or more children could have fewer services.”  This is what an austerity budget means.   For everyone. If there are no increases in revenues, then all public services will be caught in the same bind as the kids — fewer may have more, or more can receive fewer.

However, in a political climate still clutching the remnants of the failed Voodoo economics of the Trickle Down Artists, and the ephemeral mythology that lower taxes magically transforms spreadsheet pixel dust into increased revenues,  any attempt to raise revenue is the antithesis of good politics.  [“Sandoval, not in favor of business tax initiative“, LVSun]

The often and well debunked MYTH [EconoFact]  that lower rates of taxation will generate the revenues necessary to provide essential government services simply doesn’t work in the real world in which there are pot holes in asphalt, 30 kids in a kindergarten class, not enough health inspectors to cover the number of restaurants in a single year, not enough deputies to keep trucks from speeding through small towns, aging fire fighting equipment, and what might generously be called “antique” drinking water delivery systems.

For small businesses in Nevada this isn’t the best of times either.  Nevada’s experiencing job growth of about 1.1% YOY, a tick behind the national YOY job growth of 1.4%.  [DETR] Of special note is that the capital region — Carson City — has lost 4.2% of its job growth.  In fact, the capital city MSA is the only one in the state which is having declining job growth.

When the “business” of a MSA is primarily government then the private sector is affected when government declines.  We can craft a little home-made chart showing what happened to Carson City in terms of the percentage change YOY in its taxable sales as reported to the Department Of Taxation, as the state shed jobs and shaved the budget.  (pdf reports)

It’s no wonder small businesses and local retailers feel the bind when there’s been only one YOY increase since 2007 — and they started digging and backfilling out of the prior four year hole.  This is what an “austerity” budget looks like to local businesses trying to function in an area in which government payrolls help support the local economy.

So, why all the demand for “austerity,” if it doesn’t help provide public services and it doesn’t help local businesses? 

Federal and state deficits are a problem when interest rates are high.  Here’s one of the simplest explanations I’ve found so far:

“When long-term interest rates are high, a federal deficit competes against and “crowds out” private borrowing and investment. When long-term interest rates are low, the federal deficit is not taking away from borrowing by the private sector. On the contrary, the federal deficit is acting as a needed boost to aggregate demand in the economy, an action also known as “fiscal policy.” When the economy is slack, every dollar of reduction in federal spending takes three or four dollars off of our gross national product.”  [Grayson](emphasis added)

Got that?   The “crowding out private borrowing and investment” happens when interest rates are HIGH.”   So, what are the long term interest rates now?  The Treasury 20 year CMT is 2.13%. [Treasury] What does this look like in a historical context?  This:

The overall trend line doesn’t seem to indicate “high interest rates” does it?  Notice that the top of the line for the interest rates shown on the chart doesn’t go above 5.5%  Now, let’s compare that to the 30 yr. CMT for a previous era, say 1980 to 1990:

Since the old 30yr column has gone the way of the DoDo, and really long term Treasuries are spoken of as 25+’s, perhaps a better comparison would be the current 20 year rates:

The rate for 20 year notes hasn’t crept up over 3.08% during 2012 thus far.  We could sit and look at pretty charts all day, and the message would remain the same — this is NOT a period of HIGH interest rates, therefore the old “government borrowing drives out private capital” maxim doesn’t apply.  What the heck! Let’s look at one more — the U.S. Treasury’s Yield Curve showing the yields (rates) for all the notes available:

And, there it is — a graphic illustration of Low Interest Rates.  So, let’s get this straight.  We have to have an “austerity budget,” meaning that the federal government has to cut back on aid to the states, because when the government has to borrow money it crowds out private investment — EXCEPT when interest rates are low.   No, this doesn’t make sense, and Laura D’Andrea Tyson explains why:

“The “crowding out” argument explains why large and sustained government deficits take a toll on growth; they reduce capital formation. But this argument rests on how government deficits affect interest rates, and the relationship between government deficits and interest rates varies.

When there is considerable excess capacity, an increase in government borrowing to finance an increase in the deficit does not lead to higher interest rates and does not crowd out private investment. Instead, the higher demand resulting from the increase in the deficit bolsters employment and output directly, and the resulting increase in income and economic activity in turn encourages or “crowds in” additional private spending.”  [NYT] (emphasis added)

How do we know when we have excess capacity?  High unemployment is one really good tell.   What have we learned?

(1) Austerity budgets, the result of program funding cuts without any new revenue don’t serve to provide basic services for Nevada citizens, and others throughout the nation.

(2) We know that in regions in which government spending constitutes one of the major supports of the local economy local retailers and other small businesses see their sales decline.

(3)  Deficit reduction is necessary when government borrowing during periods in which we are operating at or close to our economic capacity when interest rates will be affected by the “crowding” to get capital.

(4) Our interest rates, for even very long term treasury notes, are exceedingly  low.

(5) Our economy is not functioning close to its capacity — witness the unemployment rates.

Therefore, the argument that we have to privatize Social Security, turn Medicare into a voucher coupon program, cut women and children off WIC nutrition support, take SNAP benefits from working families, cut spending for infrastructure maintenance and improvement, slash preventative medicine and wellness programs, and leave the national parks to rot…. because We Have To Reduce The Deficit — is ultimately ideology and currently bogus economics.

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Filed under conservatism, Economy, Federal budget, Health Care, Infrastructure, Medicaid, Medicare, Nevada economy, nevada health, Nevada politics, nevada taxation, public employees, recession, Romney, Social Security, Taxation

The Quick Easy Fix Jumped The Lazy Grey Shark

Life would be lovely if we had Quick Fixes for Every Problem.  Flat tires would instantly repair themselves and major economic issues would disappear immediately.  If there were Quick Fixes the Las Vegas housing market wouldn’t be reporting a 30 year low in new home sales.  [LVinc] However, there aren’t many Quick Fixes in the world, and restoring the housing market isn’t like taking an aspirin for a minor headache.

The kernel of the problem is here: “During the current recession, Las Vegas new home sales have tumbled because of high unemployment, which is now at 12.5 percent, and lower prices driven by competition with foreclosed homes.” [LVinc]  Key elements: Recession, Unemployment, and Saturated Market.  Let’s look at the recession part for now.

RecessionTechnically speaking the Recession is over.  The NBER made the Recession official in December 2007.  [WSJ] And, according to NBER, which makes such official calculations for us, the Recession was  over in June 2009. [NBER] So, why do economic writers and other journalists still say things like “in the current recession,” or “in these tough economic times?”

The answer is that official calculations and conclusions are drawn from broad measures of economic activity [NBER] which indicate an increase in economic activity.  So, once things get moving upward again — the Recession is officially over.  Notice that this has nothing to do with making up for losses. According to the NBER the recession is over when the economy starts expanding again, NOT when individuals and businesses have recouped their losses.

Therefore, while the recession is officially over, it doesn’t feel that way because, as Warren Buffett put it in late 2010, “On any commonsense definition, the average American is below where he was before, or his family, in terms of real income, GDP,” (gross domestic product) Buffett said on CNBC. “We’re still in a recession. And we’re not gonna be out of it for awhile, but we will get out of it.” [SeekingAlpha]

It’s January 2012 and the “average American” still hasn’t recouped the losses of 2007-2009, which tells us a couple of things.  It tells us that the collapse of the housing bubble and the Great Recession were drastic economic events, and it tells us that we have systemic problems that aren’t going to go away with incantations of politico-economic piety.

The following chart from the Federal Reserve [CNNMoney] shows what happened to household wealth during the collapse:

Obviously, the blue line isn’t back where it started in the 1st Quarter of 2007.  “U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.” [CNNMoney] (emphasis added)  Even climbing back up didn’t fix everything, because as of June 2011 we were still $7.7 trillion below where we were in June 2007. *

Income distribution trends aren’t helping.  The rich and the well educated, have been able to shrug off the effects of the decline in household wealth, and are leading the recovery such as it is.  For the American Middle Class the story is unfortunately different:

“Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. Median incomes declined outright from 1999 to 2009. For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But that fig leaf has since blown away. And the recession has pressed hard on the broad center of American society.”  [Atlantic]

The trends in income inequality do make a difference, because as wealth is siphoned upwards, the portion of the population which once drove “consumer spending” and hence the consumer economy, doesn’t have the clout it had in 2007.  [Reuters/Salmon]

If we believed most of the classical economists who predicted that with the expansion of the economy beginning in June 2009 the median household income would have at least started to revert to the mean we would have been as wrong as they were.  It didn’t.  Instead, “it fell off a cliff.” [Salmon] Why?

(1) The loss of that much household wealth put the brakes on consumer spending.  The contraction in consumer spending reduced demand for goods and services, and the contraction in demand further restricted employment opportunities.

(2) The trend in American employment from manufacturing and other sectors into the less well paying service sector has been documented since at least June 2008.  The Population Bulletin (pdf)

Their chart shows the increase in the percentage of the work force in the service sector (generally less well paying) since the 1950s.

(3) We’ve been watching the wrong numbers.  It’s popular in some circles to keep an eye on Productivity statistics as a measurement of economic health.  What’s “productivity?”

“An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other GDP components such as business inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labor growth, wage levels and technological improvement.”  [Investopedia]

In simpler terms “productivity” is all about doing more with less, the standard definition of efficiency.  That would be less capital and less labor.  Translation: Higher productivity numbers usually mean a corporation has fewer people who are now working harder to produce an increasing amount of stuff.   This has great meaning for investors, who will be impressed by the increasing productivity of the Great American Widget Company’s operations.  It is not so impressive to those who might have thought of working for the Great American Widget Co.

The real question is how did we come to believe that our overall economy was in good shape because the productivity numbers were increasing?  Productivity numbers are important to investors, and the investor-class (i.e. the Financialists) have been promoting their perspective in business news for the last three decades.

When the hole into which we have fallen is sharp and steep, like the loss of at least $16.4 Trillion in household wealth, and employment trends have been steadily increasing in less well paying jobs, and income distribution trends have eroded the spending capacity of middle income Americans, and we’ve been fooling ourselves that increasing productivity equates to economic health in the real economy, then the probability of a Quick Fix in an economy controlled by  Financialist Sharks is low indeed.

* For a more specific look at the loss in household wealth during the Recession see the Federal Reserve’s publication (pdf) “Surveying the Aftermath of the Storm: Changes in Family Finances 2007-2009,” March 2011.

The ILO’s report (pdf) on “Global Employment Trends: 2011” adds information on the uneven employment trends in the global economy.  See also: “Can the Middle Class Be Saved?” The Atlantic, September 2011.

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Filed under Economy, Nevada economy, recession

Oh, Brother Can You Spare A CDS? Financialism Erodes Free Market Capitalism

   “They used to tell me I was building a dream, and so I followed the mob,
    When there was earth to plow, or guns to bear, I was always there right on    the job.
    They used to tell me I was building a dream, with peace and glory ahead,
    Why should I be standing in line, just waiting for bread?

One out of every 44 homes in the Las Vegas, NV metropolitan area is in foreclosure. [Vegas Inc] Nevada has a 13.4 unemployment rate.  The Las Vegas area is still experiencing 14.2% unemployment, the Reno-Sparks area 13.2%, and the Carson City area 12.7%. [DETR] 115,745 children in the state of Nevada are living in financial strapped homes, with income below the ‘poverty line.’ [NCCP] 25% of those children are living in homes where there is a least one parent employed full time.  44% of the youngsters are living in homes where a parent is employed part time or part of the year.  32% are living in homes where a parent is unable to find work. [NCCP]

In 1995 the average median wage for Nevada workers who qualified for unemployment compensation under the terms of NRS 612 was $25,708, in 2010 it was $39,629.  [DETR] Average median wages went up by $13,921 which would be a pleasant increase were it not for the fact that median wages were hard pressed to keep up with inflation during that period. [SSA]

Health care costs per capita for both treatment and insurance in the United States between 1970 and 2008 rose faster and higher here than in any other developed country.  [KFF] Between 1982 and 2007 college tuition and fees increased by 439%, national median family income increased by 147%.  [NYT]

In short, Nevadans and all other Americans, were “right on the job,” trying to build their own American Dreams.   So, why are 13.4% of workers in Las Vegas unemployed?  Why are 115,745 children in Nevada living below the poverty line?  Why is the prospect of an education — clearly linked to lower unemployment rates — becoming increasingly unattainable for American families?

   Once I built a railroad, I made it run, made it race against time.
    Once I built a railroad; now it’s done. Brother, can you spare a dime?
    Once I built a tower, up to the sun, brick, and rivet, and lime;
    Once I built a tower, now it’s done. Brother, can you spare a dime?

Perhaps because, as the song says, we built things.  We, as a country, built automobiles, refrigerators, washing machines, television sets. We manufactured tires, and carpets, and clothing, and toys.  We built airplanes, and tricycles.  We manufactured travel trailers and camping stoves.  We built office buildings and bungalows.  Why did we lose so many jobs?

  Once in khaki suits, gee we looked swell,
        Full of that Yankee Doodly Dum,
        Half a million boots went slogging through Hell,
        And I was the kid with the drum!

What did we discover when unemployment for veterans was studied in 2010? “Young male veterans (those ages 18 to 24) who served during Gulf War era II had an unemployment rate of 21.9 percent in 2010, not statistically different  from the jobless rate of young male nonveterans (19.7 percent).” [DoL]   The AFL-CIO called unemployment among Iraq-Afghanistan veterans a ‘quiet crisis,  ‘The Bureau of Labor Statistics reported that unemployment rate for Iraq and Afghanistan veterans was 12.4 percent in July, up from 11.8 percent in July 2010. In August, the jobless rate for these veterans had dropped slightly to 9.8 percent, but it does not include veterans who are underemployed or have stopped looking for work.”  Why aren’t there jobs for returning soldiers, sailors, airmen and women, and Marines?

    Say, don’t you remember, they called me Al; it was Al all the time.
    Say, don’t you remember, I’m your pal? Buddy, can you spare a dime?

What happened?

American workers didn’t change.  They are still capable of building railroads, office buildings, homes, and schools.  They are still able to build automobiles, airplanes, and dining room tables.  The workers didn’t suddenly become unproductive, indeed American productivity has increased by 2.7% annually since 1987.  [BillShrink]

If workers didn’t change, what happened in the last three decades to alter the economic system in which we live?  What happened to Free Market Capitalism that it could no longer channel savings into investments in American manufacturing, and long term American infrastructure construction and maintenance?

Tom Armistead, contributing writer for Seeking Alpha, has the answer: “Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments.”  And the implications of this ‘primary activity?’

“…financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own, a weird shadow dimension, a hall of mirrors, a distorted alternate reality that intersects and reacts with the real economy in unpredictable and destructive ways. “

Ed Hess, writing for Forbes magazine, provides more specifics:

“Over the last 25 years American capitalism has become financialism, which is primarily transactional, unrestrained greed. Financialism embraces the view that the only purpose of business is to create shareholder value, measured primarily by short-term results. The dominance of short-termism is evidenced by the magnitude of institutional stock “renting” for terms of 12 months or less, the volume of high-speed, high-frequency algorithmic short-term trading, the short average tenures of chief executive officers and the dominance of executive compensation tied solely to short-term results.”

Expressed more simply, when Financialism overtakes Free Market Capitalism there is less incentive for long term investment, for larger and more tangible results in construction, manufacturing, and transportation.  There is more incentive for short-term trading profits, and far more propensity for volatility.   IT becomes all about how much, how fast, and how profitably a person can make short term transactions.

Hess continues:

“As financialism has come to prevail over the last 25 years or so, the economic condition of the U.S. has in many ways weakened, with middle-class income stagnation, increased income inequality, the exporting of jobs and our manufacturing capacity and increased risks of financial volatility.

I am concerned that the wise men of Wall Street have lost sight of or forgotten a fundamental point: that no economic system can survive if it doesn’t produce reasonable results for most of its members. That doesn’t mean income equality, but it does mean that the system has to work well enough to keep most of its citizens believing in it and playing in it.” [emphasis added]

Suzanne McGee, a writer for Barron’s, added her analysis in Chasing Goldman Sachs.”   Her version of Financialism emerges in the early 1980s:

“…beginning in the 1980s, several things happened that took Wall Street in a very different direction. One was the rise of a shadow banking system, in the form of hedge funds and private equity firms. These lightly regulated entities earned outsize returns by pursuing risky strategies that would have been unthinkable for most traditional Wall Street banks; over time, private equity firms and hedge funds became the Wall Street banks’ best clients.”  [WaPo]

The drive for short term maximized profits defined by Armistead and explained by Hess, is further examined by McGee:

“The drive to maximize profits to shareholders, to improve the return on equity — the ultimate yardstick used when “chasing Goldman Sachs” — led Wall Street firms into all sorts of behavior that separated their best interests from society’s. Whereas the earlier structure of private partnerships encouraged bankers to keep track of the overall risks their firms were undertaking, the growth and profit imperatives of shareholder companies meant one thing only: Make more deals to generate more fees.”  [WaPo]

In other words, when “manipulating financial instruments” becomes the primary activity, when it values short term gains above long term investment and stability, and when the drive for short term profits becomes the “ultimate yardstick,”  then the Free Market Capital system devolves from transferring wealth into productive investment to pouring paper into the shadows to make a quick profit.

Immediate “Shareholder Value” is better served by lowering wages than by investment in factory modernization.  Immediate “Shareholder Value” is better promoted by off-shoring and outsourcing jobs than by training new employees.  Immediate “Shareholder Value” is more rewarding when infrastructure expenses can be minimized.

Simon Johnson, former IMF chief economist describes this new Financial Sector:

“From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.”  [Atlantic]

However, the point is not that the financial sector grew — much of that can be explained by the demand for financial services in new markets overseas — but that along with the increasing share of domestic profits and copious executive compensation the financial sector has absorbed to itself an inordinate amount of political and economic clout.

“Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.”   [Atlantic]

The mindset of American commercial interests evolved from “The Business of America is Business,” to the Business of America is Banking.  “What’s good for General Motors is good for America” (Charles Wilson, Pres. GM 50 years ago) has become “What is good for Wall Street…”

Gradually becoming swamped by the Wall Street boosters of Financialism is the notion that the financial sector is only ONE part of our complete economy.  It is an absolutely important sector, but so is manufacturing, and so is retail merchandising.   Investment and finance has transformed from serving to channel funds into productive forms of business investment for its clients  into a behemoth that primarily profits from proprietary trading for itself.

Why should the practitioners of Financialism be overly concerned with securing capital for factory expansion or modernization when there are more profits to be made in high volume trading?  Why should our Financialists be concerned with small business lending when there is more profit to be derived from credit default swaps?   The financial sector which once acted analogously to the heart pumping blood through the veins and arteries of American commerce, has reserved to itself the vital liquidity needed to finance American businesses.

And so, the bankers fight to secure Free Trade Agreements to facilitate the free movement of capital across borders, to repeal the modest financial market reforms in the Dodd-Frank Act, to prevent the full implementation of the  Consumer Financial Protection Bureau, to prevent meaningful regulation of the derivatives markets, to allow the banks to regulate themselves and set their own standards for risk, and to reduce the effectiveness of outside oversight by the SEC, CFTC, and other regulators.   What they are demanding is not Free Market Capitalism — it is unfettered unrestrained unregulated  Financialism.

Free Market Capitalism invests in infrastructure.  Free Market Capitalism requires a productive, healthy, educated work force.  Free Market Capitalism demands maintenance, innovation, and expansion of its manufacturing base.  Free Market Capitalism needs the savings of the work force.  Financialism yawns and asks the adjacent trading desk, “Brother can you spare me a CDS?”

“Brother Can You Spare A Dime?” Songs of the Depression, CUNY.

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Filed under Economy, financial regulation, Foreclosures, income inequality, NAFTA, Nevada economy, nevada unemployment, off shoring jobs, recession, unemployment

Bogus, or How To Make Excuses For Corporate Amorality

If corporations are “people,” as the U.S. Supreme Court and the Republican Party would have us believe, then perhaps they should be held to account for their lack of human propensities?   As former President Bill Clinton observed in the video linked in the previous post, the American public has been treated to an interesting combination of corporate amorality and corporate public relations for the last three decades.

While corporations have made it abundantly clear that stock prices and short term profitability are the twin gods of industry at the moment, corporate public relations campaigns seek to mollify our discomfort with notions that energy giants are seeking new technologies.  The uncomfortable truth is that energy giants have been reducing the percentage they spend on research and development.   See the research and graphs here.*

Banks are now “friendly” again.   One even changed its retail banking division’s name to “Main” as in Main Street.  One became “Ally,” what could be friendlier than an ally?  This goes nowhere toward explaining why such practices as Robo-signing, and deceptive foreclosure practices are common knowledge in our law enforcement communities.  The advertising campaigns are a thin papering covering economic sectors the control of which is held by those who have little interest in corporate citizenship and a great deal more interest in corporate image.

When Image becomes more important than Identity we can reasonably assume that the divide between public relations and public interests has increased, along with the distance between the reality of public perception about corporate behavior and the actuality.   If a positive image is the goal then we can also assume much of what we’re seeing and hearing is Bogus.

Examples from the Bogus Hall of Shame

#1.Corporations aren’t expanding because of burdensome regulations.”   Bogus.  The energy corporations have trumpeted their claim that regulations “kill jobs,” but the facts don’t fit their portrayal:

“…at the macro level, existing research does not support the claim that regulation impairs the job market or job growth. According to John Irons and Isaac Shapiro, the paper’s authors, regulation generally has no significant impact on the labor market as a whole. If anything, regulations, particularly environmental regulations, hold the potential to create jobs. (Pollution control standards create work for the pollution abatement industry, for example.”  [OMBWatch]

House Leadership has gotten into the act, with such repetitions of the corporate line as this from Representative Eric Cantor (R-VA):

“House Majority Leader Eric Cantor has characterized many of these new EPA rules as “regulatory burdens to job creators” and has scheduled a series of votes, beginning this week, aimed at halting them. This latest research from EPI explains that Cantor’s characterization of these rules is inaccurate.  EPI’s research finds that the dollar value of the benefits of the major rules finalized or proposed by the EPA so far during the Obama administration exceeds the rules’ costs by an exceptionally wide margin. Health benefits in terms of lives saved and illnesses avoided will be enormous.  EPI also finds that the costs of all finalized and proposed rules total to a tiny sliver of the overall economy, suggesting that fears that these rules together will deter economic progress are unjustified.”  [EPI] (emphasis added)

#2. “Banks aren’t lending because of federal regulations, or ‘uncertainty’ over federal intrusion into the financial sector.”  Bogus.   It is true that banks are wary of leveraging themselves as they did during the Housing Bubble and the Derivative Creation Spree in which they indulged before their houses of asset backed securities collapsed on them in the Fall of 2008.  However, that doesn’t fully explain their reluctance to make retail and small business lines of credit more available.

One problem for the commercial or retail borrower is that banks are still trying to squirm free of the excesses of their Housing Bubble and its consequences.  As of February 2009, Forbes reported that banks were hoarding cash (with excess reserves of $1.7 billion) while toting up their toxic assets.  “Banks are trying to unload troubled assets, for starters, while at the same time, they are being forced to hold loans on their balance sheets they normally would have sold off as packaged securities, and they have had to pick up the slack in the commercial paper market when borrowers were frozen out.”

A GAO study of the proprietary trading conducted by 6 large banks and hedge funds reported:

“In 13 quarters during this period, stand-alone proprietary trading produced revenues of $15.6 billion–3.1 percent or less of the firms’ combined quarterly revenues from all activities. But in five quarters during the financial crisis, these firms lost a combined $15.8 billion from stand-alone proprietary trading–resulting in an overall loss from such activities over the 4.5 year period of about $221 million. However, one of the six firms was responsible for both the largest quarterly revenue at any single firm of $1.2 billion and two of the largest single-firm quarterly losses of $8.7 billion and $1.9 billion.”

The GAO report highlights the fact that there is much profit to be gained from proprietary trading — but also much to be lost, and if the banks and hedge funds are still trying to recoup in the wake of the Housing Bubble collapse it may be a while before lending opens up again.

There’s also the matter of clearing those toxic mortgages to be considered, especially by Bank of America.   BofA’s ReconTrust lost a round in a Utah court concerning fraudulent non-judicial foreclosures, [KCSG] and the Nevada Attorney General put BofA on notice that action may be taken in regard to foreclosure practices in Nevada.  [Vegas, Inc]

What appears to be uncertain is not anything included in the Dodd-Frank Act, but whether banks will be able to (1) clear toxic assets off their own books; and, (2) figure out what to do with questionable Level 3 securities that are still looming in the bankers’ vision:

“…the top 10 U.S.-owned banks had $13.8 billion in “unrealized losses” that have lasted at least a year in their investment portfolios as of Sept. 30, according to a Wall Street Journal analysis. Such losses are baked into banks’ book value, but don’t get counted against earnings as long as the banks believe the investments will later rebound. If those losses were assessed against earnings, it would have reduced the banks’ pretax income for the first nine months of 2010 by 21%, according to the Journal analysis.”  [WSJ]

Those pesky “Level 3” securities have declined by 24% recently but they are still on the books, still difficult to value, and still part of the problem.

“One problem centers largely on “Level 3” securities, illiquid investments that can’t be easily valued using market prices. According to the Journal analysis, as of Sept. 30, the top 10 banks had $360.7 billion in “Level 3″ securities. That amounts to 42.6% of the banks’ shareholder equity, a pile of assets whose value is hard to verify.” [WSJ]

There is another issue for bankers — demandStandard & Poor reported lagging demand for commercial loans and “muted” interest from banks in the subject as of May 2011.  Lending for “spec” housing and real estate development is still dormant as of September 2011.  [BizJournal] No surprise therein.   There are a couple of pink clouds in this otherwise gray panorama — small and medium sized businesses are increasingly interested in upgrading infrastructure and this bodes well for commercial lending, which was up 6.2% in August 2011.  [MarketWatch]

This brings us to a question of priorities, would a banker be more uncomfortable making more loans because of some nebulous anxiety over the application of the provisions of financial reform legislation — or more likely to be uncomfortable because there are approximately $360.7 billion (42% of equity) still on the books as “Level 3” securities?   Which would make a banker more anxious: Statutory limitations on proprietary trading or limitations on demand in the housing sector?

There are explanations enough to illustrate the tenuous financial status of banking and corporate expansion in the United States at the moment, but sound-bite expressions of ideological tenets aren’t the answers — they don’t even address the right questions.  In short, they are bogus.

References and Resources:  *Kammen and Nemet “The Incredible Shrinking R&D Budget,” Access Almanac, Fall 2005.  (pdf)  U.S. Banks Offered Deal on Robo-Signing, CNBC, September 5, 2011.   “60 Minutes Exposes Major Lenders’ Deceptive Foreclosure Practices,” CBS News, April 7, 2011.   Shapiro and Irons, “Regulation, Employment, and the Economy: Fears of Job Loss Are Overblown, EPI  (pdf) April 12, 2011.   OMBWatch, “Regulations Benefit Job Market,” April 12, 2011.   NREL, “Alternative Energy: Solar, Wind, Geothermal,” (pdf) October 23, 2007.   Shapiro, “Tallying up the impact of new EPA Rules,” EPI,  May 31, 2010.

Moyer, “Banks Promise Loans But Hoard Cash,” Forbes, February 3, 2009.   GAO: “Proprietary Trading: Regulators Will Need More Comprehensive Information…” July 13, 2011.   Wall Street Journal, “Risky Assets Still Lurk At Banks,” February 2, 2011.  Seeking Alpha, “U.S. Commercial Lending Lags,”  June 2011.

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Filed under banking, financial regulation, Foreclosures, oil companies, recession, subprime mortgages

BofA: Bailouts Front Door, Back Door and the Prosecutors Who Have Come Knocking

Finally!  Someone takes on the Big Bankers and their foreclosure policies, the Nevada Attorney General :  “Cortez Masto wants to revoke a 2009 settlement with BofA over loan abuses involving its Countrywide Financial Corp., saying the bank has violated its terms. She claims the banking giant has harmed homeowners by failing to modify their mortgages and maliciously deceived some by telling them their loans would be modified, then foreclosing on them. BofA denies the allegations.”  [LVSun]

Among the problems with Bank of America’s procedures: Poor training for personnel dealing with customers, Limiting the time personnel could spend with customers, Requiring repeated and unnecessary resubmission of various kinds of documentation.  The practice which appears the most egregious is that of telling a customer that the mortgage modification process was underway, collecting the payments — and then foreclosing anyway.

This isn’t the only litigation facing Bank of America and its assumption of Countrywide Financial’s highly questionable loans.   It seems Countrywide routinely held on to documentation for its mortgages including the original notes.  If true, then litigation in New Jersey could reveal that while BofA thought the mortgages had been securitized — approximately 96% were supposed to be — BofA may be on the hook for these. BofA’s other problem is that if the securities were supposed to be “mortgage backed” and aren’t, then investors can force BofA to buy them back.   [DailyFinance]

Problems such as the November 2010 New Jersey litigation have multiplied.  The decision by former BofA CEO Kenneth Lewis to purchase Countrywide for $4.2 billion is still creating problems.  BofA posted a second straight quarterly loss in January 2011 resulting from its writedowns of mortgage losses.  [Reuters]  The problems were supposed to have been mitigated in 2009, but that may not necessarily be the case.

The “common wisdom” was that after the Housing Bubble burst and the Credit Crunch began banks were much tighter with their lending, their underwriting standards were better, and their mortgage products were improved.  Not. So. Fast.  There is evidence to the contrary.

Bank of America was the second largest mortgage lender in 2009, behind Wells Fargo. Its volume was up 116% over the previous year. Meanwhile, Citigroup and JP Morgan were pulling back, allowing the size of their mortgage business to shrink. ”  [CNBC]  There was about $2 trillion in mortgages written in 2009, and obviously that isn’t all that far below the 2007 Bubble Level of $2.4 trillion.   CNBC’s Jon Carney summed up the situation: “Bank of America is probably still screwed.”

By June 2011 Bank of America was looking at $27 billion in mortgage losses by 2013, and this figure didn’t include the $46 billion the Bank had already absorbed.  Worse still, federal investigators were noticing that Bank of America was “purposely dragging its feet” when it came to disclosing its foreclosure practices and policies.  HUD officials found that the Bank of America was refusing to allow its employees to discuss the foreclosure processes, and the Attorneys General in New York and California were launching their own investigations.   [Forbes]

As of August 30, 2011 Bancorp was suing Bank of America:

“The lawsuit, which was filed in New York on Monday, claims Countrywide sold U.S. Bancorp a pool of over 4,000 loans originally valued at $1.75 billion. U.S. Bancorp claims Countrywide ignored its own mortgage underwriting guidelines when issuing those loans.

According to the complaint, Countrywide agreed to repurchase loans within 90 days if any of the statements made in the loan contract wound up being untrue. Those statements included an assertion that the loans complied with the bank’s underwriting guidelines.”

US Bancorp is asking that Countrywide/BofA repurchase the mortgages in this “pool.”

Thus Bank of America is in a double bind.  On one hand, it can try to mitigate its losses by foreclosing on the toxic mortgages (and get itself in trouble with federal and state entities for failing to properly assist homeowners in the process) and on the other, it must find a way to satisfy those who bought the Countrywide mortgage “pools,” investors who thought they were purchasing securitized assets based on authentic mortgage underwriting guidelines.

That Big Deal on January 11, 2008 in which Bank of America paid $4 billion for Countrywide [CNN] now gives every appearance of being a Big Bust.   But, CEO Lewis was confident at the time:

“Bank of America Chairman and CEO Kenneth Lewis suggested he was aware of the troubles that his firm was taking on, but said acquiring Countrywide was a “rare opportunity” for his company.  “Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Lewis said in a statement.”

The bloom was off the rose by September 2009 when Lewis announced he was retiring as CEO of Bank of America.  [HuffPo]  Lewis had been earning a $1.5 million annual salary from BofA until October 2009 when he announced he would not accept a salary for his remaining tenure.  However, the “zero” didn’t include the $53 million in pension benefits and the $69 million in stock options which were also part of his final compensation package.  [CNN]

Bank of America was allocated $45 billion in initial “bailout funding,” [BBC] and the bank was allowed to sell some $73 billion in toxic mortgages to Fannie/Freddie for $500 million.  [TheStreet]  As for Angelo Mozilo, the individual who “cooked” up the mortgages for Countrywide — he was allowed to cut a deal with the SEC and prosecution was dropped.  [DailyFinance]  Yves Smith at Naked Capitalism provides more background on this aspect of the Countrywide debacle.  How was Mozilo’s fraud not prosecutable?   Among the answers, “secondary liability:”

“Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.”  [NC]

So, Lewis took home his compensation package and Mozilo escaped prosecution,  keeping the $132 million he “earned” in 2007.

Meanwhile back in the neighborhoods,  Bank of America is still trying to foreclose on the toxic (Countrywide) mortgages by any means available and homeowners in Nevada and elsewhere are being asked to submit and resubmit documentation as the foreclosure procedure drags on.

PS: Please don’t try to convince me that Mozilo and Lewis are “job creators.”

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Filed under banking, financial regulation, Foreclosures, housing, recession, Securities Exchange Commission, TARP

>Cat Exits Bag: Wall Street Banks Want Control Of Secondary Mortgage Market

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So, now it’s public. In case one might have wondered why members of the Republican Party were so eager to launch calumny upon Fannie Mae and Freddie Mac about their roles in “causing” the imploded housing bubble, the answer has now become ever so much more clear. Wells Fargo, along with some other large banking concerns would like to establish themselves as “the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.” [NYT] All the usual players have been present, see list. That’s right: The banks would now take over the bundling of mortgages into securitized packages (Does this sound familiar?) while the loans on which the securitized instruments are based would be “guaranteed by the government.” (Read: Taxpayers, as in we the people)  Thus, the banks get all the profits, and the taxpayers take all the risks. Nice work if you can get it.

…Fannie and Freddie have helped lower rates for the bulk of homeowners. Some Republicans are trying to narrow this broad role, and on Thursday, several conservative researchers released a proposal on how to do so. But banks, for their part, have told the administration that removing the guarantee would wipe out the widespread availability of the 30-year mortgage, fundamentally reshaping the American housing market.” [NYT] And wouldn’t you know, the American Enterprise Institute has just the recommendation for privatizing the secondary mortgage market…to the redounding credit (and profits) of the Bankers. (pdf)

By the lights of the AEI the only thing the government should do is to focus on “ensuring mortgage credit quality.” Translation: The government should protect the banks’ money by focusing on individual and family credit standards — not the banks’ lending standards. Programs, according to the AEI,  should not focus on getting people into homes, but upon securing the lowest level of risk possible to the lending institution. Translation: The government’s job is to protect the banks from lending to unqualified borrowers — not to protect borrowers from mortgage scams and other highly questionable practices by those offering the mortgages.  And here comes the clincher:

Finally, Fannie and Freddie should be eliminated as GSEs and privatized—but gradually, so the private sector can take on more of the secondary market as the GSEs depart. The gradual withdrawal of the GSEs from the housing finance market should be accomplished by reducing the conforming loan limit by 20 percent each year, according to a published schedule so the private sector knows what to expect. These reductions would apply to the conforming loans limits for both regular and high-cost areas. Banks, S&Ls, insurance companies, pension funds, and other portfolio lenders would be supplemented by private securitization, but Congress should make sure that it does not foreclose opportunities for other systems, such as covered bonds.” [AEI pdf]  (underlining added)

More of the secondary market?  If the GSE’s depart the banks will have ALL of the secondary market. So, “the private sector knows what to expect?”  I think the private sector can reasonable expect that with the banks running the entirety of the secondary mortgage market we can all assume that the mortgages will be sliced, diced, and shuffled into those Wonderful Tranches that served so well to help create the Credit Default Swaps and Synthetic CDOs. — With, of course, the government (that would be us) bearing the obligation of guaranteeing the underlying loans.  And, of course, those would be both the regular and the jumbo loans in addition to the subprime offerings.  But wait, there’s more!  “Congress should make sure that it does not foreclose (what an inappropriate choice of terms?) opportunities for other systems such as covered bonds.” Heaven fore-fend we’d not allow the bond trading desks to get in on this government (that would be us) action.

Meanwhile back in Nevada, 1 out of every 66 homes in Clark County is in some stage of foreclosure, and statewide 1 out of every 84 homes is facing foreclosure. [RealtyTrac] Ah, it seems not so long ago when the foreclosure vultures started winging their way into the Silver State ready and very willing to turn other people’s misery into a tidy profit — as on February 2, 2009, when the Nevada Attorney General’s office joined with 11 other State AGs to encourage the Office of the Comptroller of the Currency to deal with banks that were stalling mortgage modification procedures.  The Nevada AG’s office started warning about possible “foreclosure consultant scams” in March 2009, and again discussed the modification issue on March 6, 2009. The same month a former talk radio host was arrested for creating a “mortgage rescue” scam.  There were a couple more indictments along these lines in June 2009. While the vultures were scanning the desert for fodder, several States Attorneys General were looking closely at the mortgage originators.

On July 24, 2009 there was a national settlement with Countrywide Financial ($3,041,882) to the 3,467 Nevada mortgage holders who were duped by the firms mortgage sales persons. Fast forward to January 2011 and we find the Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), may be the first to settle with 50 state attorneys general who are investigating foreclosure practices.

So that we get all this straight: (1) The major banks who encouraged highly questionable mortgage lending during the housing bubble want (2) the American taxpayin’ public to guarantee (3) loans approved by the mortgage lending sector (4) while insuring the creditworthiness of the borrowers, and (5) while fighting tooth and nail not to have to settle foreclosures based on “robo-signing” and documents which they do not now possess — like the mortgages.  It doesn’t take much imagination to reduce this down to a refrain from the banking sector similar to: We really screwed up big time with the mortgages we repackaged and bundled during the Housing Bubble, and now since we screwed up even more than Fannie and Freddie — we’d like all their loans too!  Like I said, nice work if you can get it.

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Filed under credit, recession, secondary mortgage market