home defenders league

How to Fight Wall Street - and Transform a Nation

Richard Eskow — Thu, 21 Jun 2012 18:41:01 -0400

Eric Schneiderman was right.

New York State's Attorney General told an audience at the Take Back the American Dream Conference that we need a "transformational politics" that will change the way we look at ourselves, our society, and our economy.

The wealthy have amassed an ever-greater share of our national income through conscious policy choices, said Schneiderman,not through an act of God.They've been able to divert our nation from a production economy to a financial-speculation economy the same way.

Schneiderman was suggesting that political action should help us change the way we view our economic world.

Free Your Mind, Arrests Will Follow

I couldn't agree more. Thanks to an expensive and intensive decades-long campaign of propaganda and political influence-peddling, many Americans re-adopted a mythology about wealth that had been discredited and abandoned by most of the world (including the United States) in the 20th Century. We need to transform ourselves, remove the blinders, and see things as they really are.

Schneiderman's distinction between "transformational" and "transactional" politics was also valid: Voters don't just want to see a legislative accomplishment - any accomplishment - regardless of its impact. They want to see accomplishments that reflect who we are as a people, and which advance us as a society.

But transformation will need some involvement from the world of "transactional" activity, too. As I told the group, I can't think of any single act that would be more "transformative" that the arrest of a senior Wall Street executive.

Wall Street: CSI

The occasion was a panel discussion on "Taking On Wall Street" moderated by MSNBC's Alex Wagner. Activist Tracy Van Slyke and I joined Schneiderman for an open-ended discussion on the topic. (The video's below.)

Could a CEO arrest like the one I described ever take place? Should it? Individuals and groups of people are innocent until proven guilty - but there's an overwhelming mountain of evidence suggesting that a great many crimes took place.

There are at least two areas of criminal activity worth concentrating on: mortgage documentation, and securities. Perjury, forgery, and tax evasion are among the potentially criminal acts that have been well-documented in the mortgage area. Most of these apparent crimes occurred around two basic activities, the first of which was the use of the MERS system. That combination database and pseudo-corporation was a mechanism for avoiding the payment of local taxes, and which allowed financiers to transfer ownership of a mortgage debt without notifying local authorities.

The second area of apparent criminal activity in the mortgage documentation arena involved "robo-signing," in which banks hired unskilled employees or vendors to mass-produce foreclosure papers in which courts were falsely told that the bank possessed title documents and other items which it did not in fact possess.

Securities fraud, as well as other forms of investor fraud, involved misleading investors about the true value of the institution or fund in which they're investing. That can be done by making false statements, or through lying by omission (leaving out important facts about the investment). There is considerable evidence that Wall Street CEOs and other bank executives did plenty of both. (See here, for example).

Jamie Talks, JPM Walks

Moderator Alex Wagner also asked the panel about the recent testimony of JPMorgan Chase CEO Jamie Dimon - testimony in which the relentlessly self-promoting executive admitted that he knew more than he let on about his bank's multibillion-dollar London losses when he told investors on a phone call it was a "tempest in a teapot." That immediately triggers red flags for anyone who understands securities law, and the SEC promptly announced it was beginning an investigation.

Let's hope that the SEC's "London whale" investigation doesn't end as virtually all of them have in recent years: with a settlement in which the very investors who were presumably defrauded wind up paying the cost of a settlement which is paid by the bank, and not by the executives who broke the law - while those executives "neither admit nor deny wrongdoing."

Bank shareholders should fight that kind of outcome as aggressively as anyone. They should lay down the law for executives: If the law wasn't broken, we're not paying a nickel in settlement charges. And if it was.broken, we want to know who the criminals are so we can punish them - by "clawing back" their ill-gotten income, and then firing them.

Remember, JPMorgan Chase has paid billions of dollars in recent years to settle criminal charges. Their stock performance has been pretty lousy, too, like that of other big banks. With a track record like that, why aren't more shareholders up in arms?

We need to appropriate the gun lobby's slogan, with a little rephrasing:

Banks don't commit crimes. Bankers do.

Oh, yeah? Make me!

Attorney General Schneiderman is co-chair of the President's Task Force on Mortgage Fraud, and it was presumably with that role in mind that he told the audience of a (reportedly apocryphal) exchange in which Franklin D. Roosevelt told a group of activists: "I agree with you. Now go out there and make me do it."

Democrats and independent progressives should adopt that attitude toward the White House - with a passion. If the President and his party don't do something to convince the public they're really going after crooked bankers, they run a much greater chance of losing everything in November.

The counter-narrative being pushed by the Right - and, too often, by the White House as well - is that bankers may have behaved badly but "didn't break the law." Both the President and Treasury Secretary Geithner have taken that position in recent months. But it's wrong: It's wrong to ignore compelling evidence to the contrary. It's wrong to pronounce your own verdicts from Washington before any thorough investigations have been conducted.

And it's not just morally wrong. It's politically wrong, too. It undermines public confidence in our government - and in those who lead it.

Homeowners 30 Percent Guilty, Bankers 100 Percent Innocent?

The narrative which says bankers are innocent also argues that underwater homeowners shouldn't receive meaningful mortgage relief because that would "reward the undeserving" and help "greedy" and "dishonest" homeowners.

To believe this narrative, you have to believe that 16 million homeowners defrauded their lenders, but not a single banker committed a crime! And that 31 percent of homeowners - nearly one in three - is an undeserving fake, but 100 percent of bankers are upright citizens who deserved all the Federal help they received.

That's nonsense. Only today we received more evidence that Washington Mutual deliberately misled homeowners into borrowing more money on their homes than they were worth, by firing home appraisers who wouldn't dishonestly inflate the value of the home so that they could make more money on the loan!

This is exactly what a GE Capital subsidiary was accused of doing in places like West Virginia, and it provides even more compelling evidence that the vast majority of America's underwater homeowners were neither dishonest nor foolish:

They were conned.

Power to the (Underwater) People

Washington Mutual eventually failed, of course, and the government brokered its sale to ... you guessed it: JPMorgan Chase. If the value of WaMu homes was artificially inflated by crooked adjusters, the result is artificially inflated value on JPMorgan Chase's books - and unfairly inflated debt for JPMorgan Chase's borrowers.

No wonder influential bankers (and campaign contributors) like Jamie Dimon are resisting principal write downs. That's why, as Tracy Van Slyke pointed out, we need groups like the Home Defenders League which will organize underwater homeowners into a political force. As we noted, we did some calculations and concluded that we can reasonably estimate the following:

• 40 million people live in underwater homes.
• 24 million voters live there, too.
• They owe a total of $4.8 trillion in mortgage debt to the banks.
• $1.2 trillion of that amount is "underwater."

Here's the best way to help promote justice, economic fairness, and liberal ideals: Activists must demand real action on bank criminality from the President, Attorney General Holder, the Mortgage Fraud Task Force, and the Attorneys General for all fifty states.

Real action, especially criminal investigations, will reinforce another goal popular among progressives: electing Democrats. Now that 91 percent of MoveOn's members have voted to support President Obama's reelection, their next step should be tomake it more likely - by pressuring him to take legal action against crooked bankers, a move that will be popular across the political spectrum.

As for underwater homeowners, imagine what could happen if they get organized. If they demand legal action against crooked bankers it will help prevent more bank crimes in the future, which could save us from the next crash. If they receive principal reduction, the billions in relief could serve as a new economic stimulus without taking a penny from the Federal government.

If these homeowners get organized, and then bring in their friends, families, communities, and allies, the result could be ... well, transformative.

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40 Million Strong: Underwater Homeowners Can Fight and Win ... If They Get Organized

Richard Eskow — Thu, 07 Jun 2012 22:29:32 -0400

It sounds like hype to say it, but underwater homeowners can change the course of history. It's not me saying that - it's the numbers. People who owe more than their homes are worth have the power to become the a powerful new political and economic force.

They've got the numbers, they've got the votes, and - if they can get organized - they've got the economic clout. And we can prove it.

This is something I and others have been pondering for a while, and it's been on my mind again as I look forward to being on a panel at the Take Back the American Dream conference with New York Attorney General Eric Schneiderman, Heather McGhee from Demos, and MSNBC's Alex Wagner. It also came up in a conversation we had this weekend on The Breakdown with members of the Home Defenders League, a group that's looking to organize underwater homeowners.

How powerful are those homeowners? The numbers are staggering.

40 Million Strong

A new and more acfurate study by Zillow shows that the number of underwater homes is higher than we had thought, and that that 16 million homes are underwater. If those households are the same size as the American average, then the average number of people living in them is 2.6. (I thought it might be higher, but I cross-tabulated some Census Bureau numbers and came up with 2.63.)

That's more than 40 million people.

40 million people is more than the population of Connecticut. Of Iowa. Of Mississippi. Of Kansas, Arkansas, Utah, Nevada, New Mexico, West Virginia, Nebraska, Idaho, Maine, Hawaii, New Hampshire, Rhode Island, Montana, Delaware, South Dakota, Alaska, Vermont, North Dakota, the District of Columbia, and Wyoming ...

In fact, it's more than all of them put together.

That's right: The number of people living in underwater homes is larger than the number of people living in twenty-two states and the District of Columbia. The residents of those states are represented by 44 Senators. The number of people living in underwater homes is greater than the entire population of California, our largest state.

How many voting-age people live in underwater homes? Statistics are hard to come by, but if we assume it's 1.5 voters per household here's the figure we get:

24,000,000 voters. 132,618,580 people voted in the last Presidential election. That means these homeowners could account for as much as 18 percent of all voters - if they all turned out to vote. It also makes them one of the largest potential voting blocs in the country.

These numbers are going to get smaller little by little as foreclosures move forward, so we may eventually have to give back Connecticut. But it's a huge number. If the Home Defenders League continues to show up at Obama and Romney rallies and steps up its efforts to exert pressure on both parties - and if it's able to rally large numbers of underwater homeowners - underwater homeowners could become an enormous political force.

A Debtors' Revolution

They could become an equally powerful financial force, too.

We don't normally think of underwater homeowners as having economic clout, but they do - if they get organized. How much clout? Zillow now estimates the underwater portion of their mortgages at $1.2 trillion. That's "trillion," with a "t." And that's just the lost value in their mortgages.

But their clout doesn't just extend to the mortgage amount that's underwater. It involves the whole amount owed to the banks. Another data group, CoreLogic, reported at the end of 2011 that the average "underwater" amount on these homes - the difference between what was owed and what the home is worth - was $64,000. But the average total owed was $252,000.

If these ratios are still accurate, then we can multiply that $1.2 trillion by four to get the total amount these underwater homeowners owe banks:

$4.8 trillion.

To paraphrase an old saying, if one person doesn't pay their mortgage it's a tragedy. If 16 million don't pay, it's a freakin' revolution.

When you do it, it's immoral. When they do it, it's "strategic."

It was a stunning act of moral hypocrisy for the Mortgage Bankers Association, which calls itself "the voice of the real estate finance industry," to do a short sale on its Washington DC headquarters, walking away from its own underwater loans even even as CEO John Courson was lecturing homeowners on their "legal obligation" and the terrible "message they would send" if they did the same. (More here.)

How did the Mortgage Bankers Association get away with it? How was Morgan Stanley able to walk away from its San Francisco headquarters when the building's value plummeted below what it owed, abandoning both the building and the debt despite having available capital of $213.2 billion?

Do you think they were given moralistic lectures about being greedy, or about how they should've known better? Do you think they told to worry about "the message they would send"? Do you think their lenders threatened them with legal action?

Do you think their FICO scores went down, or that any of their executives had problems with their next job application?

What these corporations did is called "strategic defaulting," number of others have done it too. How did they do it? With clout. They command a lot of money, and that makes them powerful. They also do enough other business with their colleagues to make it worthwhile for lenders to give them a pass, or cut them a generous deal that reduces the principal they owed.

Sure, they're all country-club buddies, too, and homeowners are not. But these are people who'll negotiate with anyone - once it's clear they have more to lose than they have to gain by not negotiating.

Eyeball to Eyeball

Does that mean that 16 million underwater homeowners should strategically default too? Not necessarily - but they should be willing to default, if that's what it takes, and they should be prepared to act in an organized manner. After all, even if only one-fourth of these mortgages (in dollar terms) went "on strike," the banks would losing more than a trillion dollars from their books.

If homeowners are willing to go to the brink, to walk away if necessary rather than pay unjust mortgages, banks will suddenly become very willing to negotiate. But they won't do it until it's clear they have a lot to lose if they don't.

It's about hanging tough to get a fair deal - and not giving up until you do. They call it "Staring eyeball to eyeball to see who'll blink first."

Sure, the banks can repossess the underwater negotiators' homes, but another Zillow study showed that banks lose far more than the underwater amount when they do that. If something like this became a mass movement, or anything approaching one, the banks would stand to lose hundreds of billions of dollars unless they came to the bargaining table prepared to make deals.

Hundreds of billions? As William Shatner used to say, "Now you're negotiating!"

Movement and Reality

Is this all a fantasy? After all, even the Home Defenders League isn't talking about a mortgage strike - yet. And it, like other efforts to fight bank fraud against homeowners, is still in the start-up phase. But things could change quickly if the movement catches hold, just as it did in the Arab Spring and the early weeks of the Occupy movement.

How can it become a movement? The right mental state helps. If they haven't already, underwater homeowners have to get past the shame some of them are still feeling. That emotion's been imposed on them by corporate-fueled media. (Sometimes that shame has led to suicidal thoughts and acts, and to the kinds of heartbreak reflected in the emails I began receiving when I first started writing on this topic a while back.)

Nothing's better for getting past unwarranted shame than getting together with others who are in the same situation.

Then people have to get organized and disciplined. They have to decide how far they're willing to take this struggle, and how committed they're willing to become to various forms of action: political protest, nonviolent demonstrations, arrests, or legal action arising from non-payment of mortgages. They'll have to choose leaders and negotiators.

Realistically, these homeowners aren't all going to act in unison. But if large enough numbers of them band together, they can change ... everything.

Nothing to Lose

First people need to get interested, then they need to get involved. Both of these steps can be taken at the Home Defenders League, at gatherings like the American Dream conference, at Occupy rallies, and at other places where independent activists are willing to fight for economic justice.

It doesn't cost a nickel - and it could be the best investment anyone's ever made.

As Kris Kristofferson said, "Freedom's just another word for nothing left to lose." Underwater homeowners have already lost a lot. It's time to use their hard-won freedom to win a little justice, too.