bank bailout

Years of Discontent Trigger American Autumn

Leo Gerard — Fri, 07 Oct 2011 11:15:10 -0400

To convey the significance of the Occupy Wall Street movement, NBC News anchor Brian Williams this week quoted the 1960s Buffalo Springfield song, For What It’s Worth:

“There is something happening here. What it is ain't exactly clear.”

Maybe it’s unclear what the Occupy Wall Street movement ultimately will accomplish. But what’s happening – for the past three weeks in New York and now in hundreds of towns across North America – is a roiling, inspirational, grassroots expression of anger, disgust and revolution.

And, frankly, given what’s been going on in the United States since the bank bailout, it’s amazing that this uprising didn’t precede the Arab Spring. The powers-that-be, from the rich and influential to their coin-operated politicians and corporate-owned media, have mocked and belittled and ignored the protesters, the 99 percenters as they call themselves – everyone but the richest one percent. No matter what the critics say, these young people, with righteous outrage and new age communication, have launched the American Autumn.

This revolt could have started in the spring of 2009, immediately after the Bush administration pushed through Congress the Troubled Asset Relieve Program (TARP), the $700 billion in taxpayer money spent to prop up banks that had gambled and lost untold trillions. A Bloomberg News investigation later would show that the United States lent, spent or guaranteed as much as $12.8 trillion to save the banks. Despite that help, the Wall Street recklessness ruined the American economy, throwing tens of millions out of jobs and homes.

Poverty and hunger skyrocketed in the richest country in the world. As tax revenue fell, states, towns and school districts slashed essential public services and laid off teachers, librarians, firefighters and police officers.

Maybe it just took this long for the middle class to grasp all the horrible effects of the Wall Street gambling and to realize that a government held hostage by country club conservatives bent on cutting public services just made matters worse. Maybe young people looked at unrestrained war spending, Pell Grant slashing and voter disenfranchising and decided they were fed up and not going to take foreclosure of their futures anymore.

Whatever the spark, the American Autumn began three weeks ago in New York City’s Zuccotti Park, formerly Liberty Square. Late in September, some of the one percenters sipped Champaign on an upscale restaurant balcony as they looked down on the protesters in the streets below. This week, as protests spread, wealthy risk-takers at the Chicago Board of Trade put signs in the windows of their ritzy offices bragging, “We are the 1 percent.” They don’t get it.

Nor does Bank of America. Here’s a bank bailed out by taxpayers that just announced it would begin imposing a new fee – $5 a month, $60 a year – on debit card users. This bank also just announced that it would worsen the recession caused by bankster recklessness by laying off 30,000 workers.

This is a bank that engaged in the habitual, anti-capitalistic Wall Street practice of rewarding poor executive performance by giving its CEO Brian T. Moynihan a $9 million bonus immediately after the institution he runs lost $2.2 billion in 2010. Moynihan responded to criticism of the $5 fee by saying customers – and ultimately taxpayers -- must line his pockets and that of shareholders, regardless of how badly he runs the bank or how stupidly he gambles with its money. That’s because, he asserted, the bank has a “right to make a profit.” No matter what.

The media and country club conservatives belittled the protesters. Here’s what Herman Cain, a Tea Partier seeking the GOP nomination for president, said:

“Don’t blame Wall Street, don’t blame the big banks if you don’t have a job or you’re not rich. Blame yourself!”

He continued:

“It’s not a person’s fault because they succeeded. It’s a person’s fault if they failed. And so this is why I don’t understand these demonstrations and what it is that they’re looking for.”

He called the protesters “anti-capitalist,” although it was the banks that sought a socialist bailout from the government when they got themselves in trouble.

Cain didn’t blame banksters for unemployment, even though it was Wall Street gambling that took down the economy. He blames the teachers and police officers thrown out of work by local governments that are cash-strapped as a result of the recession -- caused by Wall Street recklessness.

Cain and the media keep saying they don’t understand what the protesters want. They just don’t get it.

A specific list of demands is unnecessary. What the 99 percenters want is obvious. They want the American dream restored. Good public education for everyone. Equity in opportunity. Shared sacrifice so that the rich pay a tax rate at least equal to that charged the middle class. An end to poverty and unemployment in the richest country in the world.

In the Buffalo Springfield song, For What It’s Worth, lyrics talk of 1960s youths criticized for their protests:

“Young people speaking their minds
Getting so much resistance from behind.”

This time protesters will get backing. The members of my union, the United Steelworkers, get it. Members of the unions of the AFL-CIO and Change to Win federations get it.

We’re here to support the young people of the American Autumn.

What Does Wikileaks have on Bank of America?

Mary Bottari — Thu, 13 Jan 2011 21:55:22 -0500

WikiLeaks founder Julian Assange is promising to unleash a cache of secret documents from the hard drive of a U.S. megabank executive. In 2009, he told Computer World that the bank was Bank of America (BofA). In 2010, he told Forbes that the information was significant enough to "take down a bank or two," but that he needed time to lay out the information in a more user-friendly format.

Recent new reports suggest that BofA is now moving into high gear on damage control, creating a "war room" and buying up hundreds of derogatory Internet domain names including BankofAmericaSucks.com and BrianMoynihanblows.com (BofA's CEO).

Before the big banks start calling for Assange's internment at Guantanamo, the question worth considering is what does Wikileaks have on America's largest bank?

Legal Liability for Toxic Mortgages

BofA is already under the gun, defending itself from multiple lawsuits from private investors as well as Fannie and Freddie demanding that the bank buy back billions worth of toxic mortgages-backed securities. The firm stopped issuing subprime mortgages in 2001, but it kept underwriting subprime mortgage-backed securities for many years. In September 2009, for example, BofA underwrote $239 million worth of securities backed by subprime loans. BofA has reserved $4.4 billion for these "put back" lawsuits. If Assange has emails showing that top executives at BofA knew they were peddling toxic dreck to investors, it would rock the firm and give tremendous ammunition to the army of lawyers already knocking on BofA's door.

Reckless and Illegal Foreclosures

BofA is at the heart of the robo-signing scandal and has wrongfully foreclosed on countless American families. One poor woman returned to a vacation home to find it locked, all her possessions gone -- including the ashes of her late husband. How could such a mistake be made? A BofA employee deposed in February 2010 said that she signed as many as 8,000 foreclosure documents a month without reviewing them, in violation of the law. Mounting questions about the fraudulent and illegal foreclosure practices at the big banks and mortgage service companies prompted BofA to temporarily halt foreclosures nationwide in October 2010. If Wikileaks can document that top BofA officials have a callous disregard for legal processes and constitutionally protected property rights, BofA's mounting legal liability may not be sustainable.

Countrywide Headaches

In 2008, BofA acquired Countrywide, one of the most aggressive and fraudulent lenders during the housing bubble. The result has been a trainwreck of liability and lawsuits for the megabank that now has over 1.3 million customers in foreclosure. To settle the lawsuits with Illinois, California and eight other states over predatory lending, BofA came up with an $8.4 billion loan relief plan for those holding Countrywide mortgages. In June, 2010 BofA paid $108 million to settle a Federal Trade Commission case that charged Countrywide with having extracted excessive fees out of borrowers facing foreclosure. BofA paid $600 million in August 2010 to settle shareholder claims that Countrywide had concealed the riskiness of its lending standards. There is no end in sight for these suits. In June 2010 the State of Illinois sued Countrywide again, this time over racial discrimination in its lending practices. Wikileaks could have further documentation of Countrywide's illegal and reckless underwriting practices or ongoing fraud at BofA.

Taxpayer Paid Bonuses

BofA acquired the brokerage firm Merrill Lynch for $50 billion in January 2009. The U.S. government blessed the merger with a $20 billion bailout loan to aid BofA. After the acquisition went through, it was revealed that Merrill Lynch had lost $15.8 billion in the last quarter of 2008 and that $3.6 billion in bonuses were paid ahead of schedule to top executives at Merrill. Among beneficiaries of the bonus bonanza was Merrill's CEO John Thain, who famously spent a million redecorating his office at the height of the crisis. About the deal New York Attorney General Andrew Cuomo said: "One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding." If Wikileaks has emails showing top executives knowingly used bailout bucks for bonuses, this ugly chapter in history could be reopened, prompting Congressional investigations and further bailout backlash.

Still Too Big To Fail

In addition to the $25 billion in TARP bailout money and the $20 billion for purchasing Merrill, America recently learned of the extraordinary actions taken by the Federal Reserve to prop up BofA at the height of the crisis, details that were kept secret from the public. When the Fed was forced to release data about its emergency loan programs in December 2010, we found that BofA tapped an estimated $931 billion from the Fed in short term loans and government subsidies. If Wikileaks has information showing that America's biggest bank is only being kept alive by accounting tricks and ongoing government subsidies, the result could be another government bailout. Or is it possible we might see the first orderly dissolution of a of a "too big to fail" under the new Wall Street reform law?

"We Don't Suck"

BofA doesn't just want you to know that their CEO Brian Moynihan doesn't suck, they want you to know that their top staff does not suck either. The bank has started buying damaging domain names for a long list of executives, prompting many to wonder: just what have those executives been up to over there at BofA?

Hopefully Wikileaks and Julian Assange will soon let us know.

* * * *

Learn more about America's biggest bank in Sourcewatch.

Barney Frank and the Fed Bailout Fallacy

Zach Carter — Thu, 09 Dec 2010 10:05:49 -0500

Mike Stark has posted a provocative on-the-street interview with Barney Frank about the recently released Fed data. Frank offers what is now a standard defense of the Fed's bailout operations: Without them, the economy would have collapsed, so critics should just quit whining. But Frank takes this line a step further, accusing liberal Fed critics of playing into the hands of right-wingers who don't want to extend any economic relief to anybody for anything, ever. It's all hooey.

Here's Frank:

"On the whole, frankly, those who were looking for conspiracies and scandals were disappointed. I think the fact is, what you saw was a series of events that worked pretty well and helped the economy . . . . Would you have had the Fed do nothing? At a time when there was no credit available, would you have had the Fed do nothing? That's what the right-wing wants."

First, the "disappointed" critics line massages away the fact that the Fed failed to disclose an enormous amount of information. We still don't know the credit ratings of collateral accepted at some facilities, and we don't know the trading prices of securities they accepted as collateral at any of the facilities. Without that information, we can't determine whether many of these actions were scandalous.

Second, yes-- without major government intervention, the economy would indeed have collapsed. Really, the economy collapsed anyway—two years later unemployment is near double-digits—but it's safe to say the collapse would have been worse had the Fed failed to act. But just because the Fed had to do something doesn't mean it had to do exactly what it did. There were always other alternatives, and the most obvious would have involved attaching some strings to the bailout facilities.

If you want this money, you have to help homeowners avoid foreclosure, or your executives have to take a hike, or you all have to spend the next month wearing a shirt that reads, "I hijacked the U.S. economy and all I got was this lousy t-shirt." Just about anything to make clear that aid from the U.S. government came at a price would have been better than, well, nothing.

Frank spends a good deal of the discussion arguing that liberal Fed critics are catering to right-wing agendas:

"My friends on the liberal side shouldn't always focus on the negative. You're playing into the hands of the right-wing. You know, it's the right wing that thinks this is some terrible conspiracy. This was a case of government intervention. The Federal Reserve is a government entity. It intervened substantially to stave off worse damage than we would have gotten, and I think it's a great mistake for people on the liberal side to engage in this kind of Fed-bashing."

The Fed had extraordinary powers and was not faced with the choice of whether to intervene, but of how to intervene. I fail to see what is so ultraconservative about objecting to free money for fabulously wealthy criminals/fools who wrecked the economy with predatory loans.

Indeed, it seems to me that the ideological pressure here is really on Frank's shoulders. When a traditional liberal icon like Frank endorses a bankers-and-brokers-first policy, the public starts to believe that all Democratic policies are just handouts for Wall Street. This was the biggest reason why voters abandoned Democrats at the polls last month. The stimulus and the bailout were all mushed together in peoples' minds.

But things get really interesting when Stark proposes cutting checks to individuals instead of making loans to the banks. Frank responds:

"You understand how fallacious that is because the money was paid back . . . You acknowledge the money was paid back. Doing what you're suggesting, cutting everybody a check, they wouldn't have paid the money back . . . You're saying instead of lending the banks money, why don't we give it to individuals? Because then you would have had that much more deficit!"

Frank gets the best of this argument because Stark proposes cutting checks instead of making loans. But what if the Fed had offered everyone in the country a loan at zero or near-zero percent interest, on the condition that individuals put up sufficient collateral? This is a (very) charitable way of describing what the Fed did to support the banking system. If the same courtesy had been extended to individuals, I'm sure plenty of people would have defaulted. But certainly not everybody-- zero percent loans are actually pretty easy to pay back. And for those people who did in fact default, the Fed could have simply held onto the collateral to avoid taking a loss.

It's not obvious that this policy ends up working wonders—plenty of people would have been unable to post collateral, and for many who could, the risk of losing the lawnmower in order to pay the heating bill for another couple of months isn't really a great deal. There's no way to gauge whether the additional spending generated could have brought the unemployment rate down very much. And of course, personal loans wouldn't have helped debt-burdened homeowners very much. But then again, neither did any of the policies the Fed actually implemented!

And it is obvious that the government wouldn't end up taking a big loss on a big direct-lending-to-actual-people policy. As a result, crowing about the government turning a profit on the Fed's bailout facilities is really very silly. That doesn't stop Frank from doing it, however:

"It came back with interest! . . . The Fed is making money off that."

In short, you don't have to endorse Michelle-Bachmann-dystopia to object to the Fed's bailouts. Watch the whole thing:

Ben Bernanke and Conservative Economic Sabotage

Zach Carter — Tue, 23 Nov 2010 16:01:39 -0500

The Republican Party's newfound political assault on Ben Bernanke is a grim reminder of the actual conservative economic agenda for the next two years. The midterm elections taught Republicans a destructive lesson: With Democrats in power, the worse the economy gets, the better Republicans do at the voting booth. Economic sabotage is the essential Republican strategy for winning the White House in 2012. They will block every effort to actually improve the economy they can, and make a big show out of criticizing any economic aid they can't block.

The Party's hypocrisy on the economy has been clear for months. They scream about the deficit when a few billion dollars worth of unemployment benefits are at stake, but deficit worries disappear when the $700 billion in Bush tax cuts for the rich are under discussion. When they do muster an economic defense of the Bush regime, it's the line that a recession is no time to raise taxes. This is a fundamentally Keynesian argument—a bad Keynesian argument, but Keynes through and through. And it's the same argument Republicans and conservative pundits deployed to enact the Bush tax cuts back in 2001 and 2003. It's a bad argument because tax cuts aren't particularly effective at stimulating the economy, especially when they target the rich. Unemployment benefits, in fact, would be a staggeringly more efficient mechanism, as former John McCain adviser Mark Zandi has repeatedly detailed.

Which brings us to Ben Bernanke, the most conservative candidate that President Barack Obama could possibly have appointed to head the Federal Reserve. The current Republican uproar against Bernanke shields the fact that he is, in fact, a Republican himself. He was a top economic adviser to President George W. Bush, who appointed Bernanke to the Fed's Board of Governors and eventually to Fed Chairman post. When Obama reappointed him to the job, a handful of Republicans objected on the grounds that Bernanke had approved generous bailouts of financial firms. Nevertheless, a majority of Senate Republicans still voted to reconfirm him—making his reappointment the most popular decision that Obama has made among Republicans. Republicans got their man, and they let him through.

But now Bernanke is taking a beating from conservative pundits and Republican politicians for the Fed's latest round of "quantitative easing." It's not just coming from the crazies, either. Even relatively milquetoast Senators like Bob Corker of Tennessee have threatened to strip the Fed of its mandate to promote full employment. Don't worry about whether people actually have jobs, you nervous Fed ninnies. Just focus on inflation, whatever the economic cost.

The timing of this argument is particularly instructive, since, right now, we are not experiencing inflation. We are, in fact, dangerously close to deflation, as rampant foreclosures continue to drive down home values.

But the Republican assault is not an attempt to fix the economy or even say intelligible things about the economy. It's straightforward political payback. Bernanke is directly contradicting the Republican midterm message, exposing the Republican anti-spending mantra as an economic disaster, and Republicans aren't going to stand for it.

Republicans just convinced a lot of voters that socialist intergenerational thief Barack Obama caused high unemployment with his budget busting economic stimulus. Government spending is the villain-- not the Wall Street excess or predatory lending that Republicans shepherded for eight consecutive years, not even the generous bank bailouts that Republicans approved.

But last week, Bernanke gave a speech emphasizing that the Fed's actions to revive the economy require Congressional help. Quantitative easing is basically an interest-free credit card for the U.S. government, allowing it to borrow money at negative real interest rates in order to spend that money on job-creation efforts. Since already record-low interest rates on Treasury bonds haven't been enough to convince congress that now is the time to borrow and spend, the Fed is driving those rates even lower. But for this credit card to work, Congress has to use it. It has to enact further economic stimulus, spending money to create jobs.

This kind of talk makes Congressional Republicans look stupid. Now it's not just Barack Obama and his anti-colonialist father who support government spending to boost the economy, it's a very high-profile Republican economist, too. Obama can't be a radical socialist when top-ranking Republicans agree with him. And God forbid that Bernanke's recent statements actually create pressure for Congress to do something about jobs. Lowering unemployment means reelecting Obama.

None of this is to say that Bernanke is some kind of liberal savior, or even a particularly good Fed Chairman. He oversaw bailouts that could have been much more effectively designed, to say the least, and he has not been open about those packages with Congress or the public. He's resisted calls for Fed transparency and waged misleading attacks on financial reform legislation.

But he isn't toeing the Republican Party line on Big Bad Government Spending. And Republicans are going to keep hammering him until he does.

Obama's Top Priority Must Be Jobs, Not Republican Appeasement

Zach Carter — Wed, 03 Nov 2010 12:08:31 -0400

Economic policy has faced grave challenges over the past two years, hamstrung by obstructionist Republicans in the U.S. Senate and Wall Street-friendly advisers in the Obama administration. With the Republican Party now in control of the House, it seems certain that any major action to create jobs will face tremendous obstacles. This is a global calamity. But the political lesson of the past two years should be clear: all the good PR in the world can't whitewash a terrible economy. For the next two years, President Obama and his Congressional allies must do everything they can to actually improve the job market. Without a better economy for ordinary Americans, Democrats are doomed in 2012.

Ezra Klein presents what he thinks is a rosy view of how policy could proceed after last night. To me, it looks like exactly the sort of empty political gesture that Democrats should be fighting. Ezra envisions Obama and new House Speaker John Boehner, R-Ohio, reaching a grand bargain on economic policy: the payroll tax is lifted for a year, $50 billion in infrastructure spending is approved, the unspent 2009 stimulus money is abandoned, and $400 billion in spending cuts over 10 years are approved.

Ezra calls this the next chapter in an imaginary "universe where the government works." It's more like the next chapter in an imaginary world where the government works, and every policymaker is completely insane. Sure, the deal would convince voters that Democrats and Republicans can pass legislation (if it passed). But the result would be a neutral to negative impact on the job market. Continuing today's avoidable economic suffering is bad enough in its own right, but it's also a political disaster for Democrats.

If Obama heads into 2012 with double-digit unemployment, he will lose. End of story. Voters have a terrible view of Republicans, and they just sent over 60 new Republicans to Washington because Obama didn't bring down the unemployment rate. Those results prove that Democrats' backs are already up against the wall on 2012. Fixing the economy takes time, and we need strong, serious action as soon as possible, or we are headed for political calamity.

Why won't Ezra's policy package work? It has two useful elements—a tax cut to hire more workers, and $50 billion in infrastructure spending. Both of these would help some—if the tax cut was really wildly effective, they might combine to take the unemployment rate down by half a percentage point. But these useful policies would be offset by other spending cuts. And unless we're only cutting $600 hammers in the Pentagon budget, those spending cuts are going to kill jobs. To get $400 billion in cuts, we'd have to find 667 million of those hammers.

Lifting the payroll tax really might help create jobs. We don't know how many, but it surely wouldn't be as effective as simply hiring people outright, and that's what government spending—"stimulus" or otherwise—does. In other words, Ezra has outlined a proposal to kill jobs in order to maybe create some.

Showing that they can work with Republicans won't save Democrats in 2012. Only real economic results will. Aggressive PR about how you really actually did fix things won't convince people who are out of a job or in foreclosure. They know the economy still sucks, and even worse, they know you're not telling the truth.

So Obama also has to get his messaging in order. It may very well prove to be the case that Republicans block all but the most modest of steps to create jobs. Obama can't pretend that these steps are enough, and he cannot hesitate to attack Republicans, holding out hope that maybe, someday they will magically come to their senses and start approving policies that promote growth. He can't keep repeating the Republican talking points Rahm Emmanuel fed him over the past two years—the government can create jobs. Right now, it's the only entity that can.

Getting past "partisanship" doesn't mean cutting whatever crappy deal you can with your political adversaries. It means eschewing political grandstanding for good policy. Without good policy, bipartisanship is a pyrrhic victory.

So Obama has to fight hard for policies that actually bring the unemployment rate down, and he must be willing to defend his policy proposals from Republican attacks, making a clear moral case for why spending to support jobs is a good idea. Republicans know that they can win the White House in 2012 by simply blocking Obama and letting the economy fall apart. They'll do it. They already have. Obama has to hold Republicans rhetorically accountable so they fear the electoral consequences of obstruction enough to vote in favor of policies that actually work.

If Republicans refuse to cooperate, Democrats must at least demonstrate to voters that they are working for voters, not for bigwig bankers. The stimulus package approved in 2009 was too small for a variety of reasons, but one of them was due to the fact that Larry Summers and Timothy Geithner expected the financial system to help revive the economy. It didn't, because the system is dominated by too-big-to-fail behemoths with massive losses embedded in their balance sheets.

It's been very fashionable in D.C. to say that the bank bailouts "worked," even though they were unpopular. But they didn't work—banks aren't lending. And they didn't work because banks are still saddled with hundreds of billions of dollars worth of lousy assets. Regulators are allowing banks to account for those assets at inflated values, which protects the banks from losses. So banks trade securities instead of lending, and slowly recognize losses as they rake in gambling profits. This is why the foreclosure fraud scandal has sent bank stock prices on a downward trend—investors know that enough documentation will spark a new wave of losses, causing big trouble for Wall Street.

So we still need to fix the financial system. Banks must be forced to recognize their losses. Where those losses render a bank insolvent, the bank has to be restructured—shareholders wiped out, creditors taking a hit, and taxpayers putting up money only where doing so prevents a cascade of defaults. This will be painful, but no more painful than watching a recovery without credit.

And if Obama can't get these policies, he needs to at least fight for them. Prosecute the deep fraud in the financial system that is being uncovered every day. Explain to voters that Republicans are blocking job-creation.

These policies will be extremely difficult to secure in the face of anything close to the Republican obstruction we've seen over the past two years. But Democrats simply have no other choice. Without major action on the economy very soon, the White House is already gone.

AIG Redux: Wall Street Presses Regulators To Repeal New Derivatives Rules

Zach Carter — Thu, 28 Oct 2010 09:47:05 -0400

It's been pretty well-documented that the ultimate fate of Wall Street reform will depend on a series of highly technical proceedings at federal regulatory agencies. If regulators adopt tough new rules, the financial overhaul could succeed well beyond the expectations of optimistic reformers. But there is a very real danger that banks will be able to roll regulators during these quiet and technical affairs, without any real public oversight. One of the most important areas to watch are the rules surrounding derivatives—the shadowy market that brought down AIG. The battle is already under way, and the bank lobby isn't pulling its punches.

Wall Street reform basically did two things unquestionably well. It created a new Consumer Financial Protection Bureau to curb bank abuses, and it reined in the derivatives market, which is currently a hotbed for fraud, abuse and systemic risk. There are dozens of smaller-bore accomplishments in the Dodd-Frank bill, but derivatives and the CFPB are the two major wins.

Take a look at this 7-page letter from The American Bankers Association—the bank lobby—and this 10-page letter from the International Swaps and Derivatives Association (ISDA)—another Wall Street lobby group. See if you can spot where they regulators to completely erase the legislative progress on derivatives.

You probably can't-- unless you're a bank lobbyist, a finance lawyer or a nerdy blogger. And the bank lobby loves it that way, because there are only a few nerdy bloggers out there, even fewer financially literate mainstream reporters, and hundreds and hundreds of bank lobbyists. Here are the critical passages from page 6 of the ISDA letter, and page 4 of the ABA letter. I'll explain why it's so destructive below. ISDA:

Financial" risks are "commercial risks." The dictionary definition of "commercial" is "of, pertaining to, or characteristic of commerce." The term "commercial risk" should be defined against this background.

ABA:

It is very important for our members that the term "commercial risk" be interpreted broadly enough to include financial risk for depository institutions.

In the years leading up to the financial crash of 2008, banks could trade complex derivatives completely in the dark. If Goldman Sachs wanted to make a deal with AIG, all they had to do was make a phone call (or just as frequently, type out an AOL instant message). No government regulator looked at this trade, and nobody in the market evaluated whether either party could possibly make good on it.

And so AIG built up literally trillions of dollars in exposure to the housing market by betting money it didn't have with big Wall Street banks. And banks, eager to dump the risks posed by crappy mortgages onto AIG, didn't bother to figure out if AIG could ever possibly make good on all of its derivatives contracts.

Ultimately, AIG got burned badly, and the banks came crying to Washington for help. The Federal Reserve acquiesced, and funneled billions of dollars to AIG, which in turn went directly to major banks—most notably Goldman, which scored $12 billion from the first round of payments alone.

One way to fix this problem is to give the market some scrutiny over derivatives trading—the same kind of scrutiny it has over ordinary stock trades. This is a minimum step—as we've seen with flash crashes and naked short sales, market scrutiny isn't a guarantee against fraud, abuse or excess. But it's a lot better than nothing.

So the Wall Street reform legislation required all derivatives contracts to be traded through what's known as a "central clearinghouse." This is basically a third company that serves as an intermediary between the two firms that want to trade—the way the New York Stock Exchange stands between two companies trading a stock.

When Goldman calls up AIG, the clearinghouse forces both companies to post margin on the trade, verifies their ability to make good on it, and agrees to foot the bill of one party can't pony up.

But the big banks, operating primarily through the U.S. Chamber of Commerce, were able to carve-out a big loophole in this process. Surely not every trade needed to be centrally cleared, they argued. Plenty of farmers and manufacturers ink derivatives contracts in order to insure themselves against ordinary, non-financial commercial business risks. If a farmer is worried that the price of wheat might go up or down, he can go to JPMorgan Chase and ink a trade. The farmer pays JPMorgan a few dollars every month, and if the price of wheat goes too high or too low, JPMorgan agrees to pay the difference to the farmer. We don't want to punish poor farmers for excesses committed on Wall Street.

This argument was always stupid for lots of reasons, but it ultimately won the day. "End-users" like airlines and farmers that wanted to hedge "commercial risks" were not required to trade through a clearinghouse.

Fast forward to September 20, and the bank lobby is trying to pull a fast one by redefining the word "commercial." The bank lobby is trying to convince regulators that the business risks of financial institutions—banks, hedge funds and companies like AIG—ought to count as "commercial risks." If the bank lobby succeeds, they'll allow all kinds of huge financial firms to keep their derivatives trading in the dark, and leave the economy open to another AIG-style calamity.

That would directly benefit major Wall Street banks like Goldman Sachs, JPMorgan Chase and Bank of America. Remember, it's not just the farmer who avoids the clearinghouse when she hedges a "commercial" risk—it's the trade itself. That means that the bank on the other side of the trade gets to deal off the grid, as well. So long as the too-big-to-fail Wall Street banks conduct their riskiest, most abusive deals with hedge funds, insurance companies or anybody except another too-big-to-fail Wall Street bank, they could keep their trading totally secret. That is exactly what happened with AIG, and with these two letters, the bank lobby is pressuring regulators to maintain that status quo. If the TBTF derivatives dealers get into trouble again, after all, they can always come to taxpayers for a bailout, just as they did with AIG.

So there you have it. A full 900 words of blogging to explain why a single word in a letter from bank lobbyists threatened to undo one of the most significant accomplishments from the Wall Street reform bill.

There are literally hundreds of rules like this coming. And Republicans are already vowing to hamstring regulators if they gain control of the House next year.

The French Connection: That Jailed Banker Raises US Issues

Richard Eskow — Tue, 05 Oct 2010 19:12:36 -0400

Remember 2003, when so many Americans hated France for refusing to participate in the Iraq invasion? The airwaves were filled with insults about "effete" and "cowardly" Frenchmen, the phrase "cheese eating surrender monkeys" was on lips across the nation, and rich patriots were boycotting Rhône wine in the spirit of national sacrifice. Well, munch on a Freedom Fry and ponder this: Finally, after one stunning revelation of big bank lawlessness after another, a banker is going to jail... in France.

That's a bit of a national embarrassment, n'est-ce pas?

Jerome Kerviel was sentenced today to five years in prison (with two years suspended), and was ordered to pay the equivalent of $6.7 billion US in damages. There are a number of questions about Kerviel's case, although the most puzzling one for American banker sensibilities might be the fact that he never profited personally from his massive trades. That part of Kerviel's psychology is incomprehensible to the Wall Street mind: He made his firm billions of dollars, yet earned less than $200,000 US per year for his efforts. A true American shark would have nothing but contempt for a sucker like that.

Guess who got off pretty much scot free in the whole deal? Société Générale, the bank that employed him. If the name sounds familiar, here's why: Société Générale was one of beneficiaries of the US taxpayers' largesse when, as a counterparty to AIG, the government directed AIG to pay the French bank $11.9 billion. That's 100 cents on the dollar for what AIG owed Société Générale for credit default swaps and CDS collateral postings.

Newspaper reports about Kerviel say that he generated more than 1.4 billion euros in profits during a single year. And yet there was so little curiosity about his activities that he was still able to bet more that $50 billion euros, more than the entire market value of the bank that employed him, without getting caught. As an AP story reported, " an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel's activities."

Despite the warnings, Société Générale was shocked -- shocked -- to find out that gambling was going on in there.

In that sense, the judge's ruling was, to say the least, odd. While the French are to be applauded for their willingness to indict a banker, the court's ruling bent over backward to exonerate and placate the bank itself. The court ordered Kerviel to reimburse the bank for the entire amount it allegedly lost. While Kerviel will actually never be able to do that, it was the judge's was of saying that the bank bore absolutely no responsibility for what occurred on its premises. It was also a repudiation of Kerviel's assertion that other traders were doing the same things he was. Instead of reprimanding the bank for its horrible risk management practices -- controls so sloppy that the entire bank could be put at risk by mid-level employee -- presiding judge Dominique Pauthe praised the bank's response to the crime once it had happened.

If the bank had left the vault doors open, presumably the judge would have praised it for sounding the alarm after it had been robbed.

But then, Société Générale has a way of getting lucky where the authorities are concerned. The US decision to pay the bank the full value of its AIG obligations demonstrates that. Think about it: In the course of a year, an allegedly "rogue" trader wreaked so much havoc that it cost Société Générale $6.7 billion -- and the US government honored an obligation for nearly double that amount. Had the US let AIG go down or refused to honor this obligation, SocGen's fate might have been very different. Instead it survived this incident, is planning to hire 1200 traders and bankers, and saw a little stock bounce from today's decision.

The French bank seems to have done well by its association with Goldman Sachs, too, after Goldman brokered a number of its arrangements with AIG. It's important to remember the role those two firms played in the months preceding the financial collapse. As Bloomberg News reported:

Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG's ability to pay.

"It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government's arms," said Charles Calomiris, a finance professor at Columbia Business School in New York.

In other words, they had already bled a lot out of AIG before it collapsed, and yet were still able to receive 100 cents on the dollar where others might have been forced to settle for less. As with the Kerviel affair, SocGen's oversight appears to have been lax when it came to its AIG agreements. David Fiderer properly notes SocGen's casual indifference to a major investment, deferring that task to Goldman. Not that Goldman didn't work for its client (and itself) in return: It's been accused of engaging in serious gamesmanship over its valuation of some of the securities in question. Many Americans who are already outraged over AIG's counterparty payouts may not know that AIG believed it had overpaid Goldman $1.56 billion, or that Goldman had refused to have its valuations reviewed by a panel of independent firms.

One of the open questions about l'affaire Kerviel is whether he acted alone. At the very least, there were enormous gaps in SocGen's internal controls. At worst, the bank looked the other way while one or more of its traders generated huge profits.

But the real question is for our country, not France: Where are the US indictments and convictions? We've already discussed the curious decision not to prosecute anyone at AIG. But then, the French don't have our SEC, which has so often chosen to cut sweetheart deals that leave bank shareholders on the hook for the illegal behavior of bank executives, while letting the bankers themselves walk away with their freedom and their bonuses. Senators aren't the only ones upset about that. Judges are furious with these slap-on-the-wrist SEC agreements.

In fact, "sweetheart deal" was the phrase a judge used to describe the SEC's agreement with Barclay's Bank. The Barclay's case was the fourth in a series of cases where banks violated international law only to be let off easy, prompting the judge's comments. As the New York Times

reports:

"Judge Sullivan asked why the government had not indicted and prosecuted the foreign banks, rather than agreeing to the settlements. He also asked whether any individuals from Barclays were being held responsible, though no one else has been charged in the case.

"One must wonder what the penalty is, said Judge Sullivan ...

Judge Sullivan's comments was part of a litany of judges' complaints along the same lines. These judges understand that criminal prosecution of banks -- and bankers -- has precisely the deterrent effect we need to protect society. We've seen rampant bank criminal behavior go unpunished, from stock fraud to forged mortgage documents to laundering drug money.

The French court's air kiss to Société Générale was unacceptable, given that bank's negligent (or complicit) role in Kerviel's action. So in one sense, Kerviel's the fall guy (even if he's not the hero some of the French seem to think he is). But at least Kerviel's conviction and sentence might have a deterrent effect on future bankers. The US bankers who engaged in criminal behavior are walking around free. They're writing big checks to political candidates, whining that nobody likes them and, of course, drinking nothing but the best French wines.

DISCLAIMERS: Two potential conflicts of interest here -- I used to work for AIG, and I'm one-quarter French. When I was about 18 years old I mentioned that second fact to a very pretty young Parisian woman in my broken French as our train approached the Gare du Nord, to which she responded in true Gallic fashion: "How nice for you."

_________________________

This post was produced as part of the Curbing Wall Street project. >

Bankers Broke The Economy And Got Rich Doing It

Zach Carter — Fri, 01 Oct 2010 14:38:47 -0400

Today’s absurd William Cohan column actually argues that we don’t need consumer protections in banking—nevermind the subprime explosion, the $8 trillion dollar housing bubble or the 1.2 million foreclosures expected this year. Nevermind the $38 billion in overdraft fees the banking industry reaped in 2009, or the ridiculous fine-print on credit cards. Nope, in William Cohan’s crazy world, the mortgage crisis was basically a problem caused by idiot consumers who—according to Cohan-- don’t even deserve basic legal protections.

Cohan makes only two real points in his column, both of them profoundly stupid. The silliest objection is his obviously disingenuous sticker-shock at the $500-million-a-year budget the new Consumer Financial Protection Bureau will have:

“In an era of huge budget deficits and a depleted treasury, that’s a lot of money for taxpayers to fork over every year to support a new government bureaucracy designed to protect us from our own worst impulses.”

Nobody who knows anything about budgets could be appalled by this number. Even by the standards of government bureaucracy, the CFPB’s funding is paltry. It’s only 10% of the Fed’s annual budget, and about half of the SEC’s. Eliminating or quintupling the CFPB’s funding would be totally insignificant to the overall federal budget. But even if this number did matter, Cohan’s analysis is preposterously short-sighted.

Employing a police force seems like a waste of taxpayer dollars until you get robbed, and so it is with financial regulation. Right now the U.S. economy struggling through a horrible recession, which has included significant government expenditures to bailout Wall Street and keep the job market afloat. All of this was caused by a predatory lending binge financed and implemented by Wall Street. Decent consumer protections would have prevented the housing bubble from getting totally out of control, and would have prevented Wall Street from destroying itself. If it costs us $500 million a year to save 8 million jobs, $8 trillion in household wealth, and $4 trillion in bailout money, that seems like a pretty good deal to me.

This budgetary argument holds no matter who is responsible for the mortgage crisis, be they banks or borrowers, predatory or pristine. But Cohan doubles down on his idiocy, saying that actually, borrowers don’t deserve to be protected from predatory banks.

Like virtually every senseless diatribe against the CFPB written over the past two years, this attack isn’t directed against the CFPB itself, but against the very idea of consumer protection—something that has been a common-sense element of bank regulation for centuries. Things got off track over the past thirty years (with accelerating aggressiveness during the Bush years) as bank regulators simply stopped enforcing consumer protection laws.

The CFPB does not create some wild new standard of regulation—it’s just an effort to ensure that somebody actually enforces the basic consumer protection mandate that existing regulators have ignored. The existing regulators failed, because they’re more worried about short-term bank profitability—the more money a bank makes, the less likely it is to fail, and the less likely that the regulator will be embarrassed by a disastrous bank failure. To existing agencies, it doesn’t matter where that profitability comes from—if it’s from predatory lending, they’ll just look the other way. The CFPB breaks this perverse incentive structure by establishing an agency that only works with consumer protection issues—not bank profitability.

Cohan waits until the final paragraph of his column to deliver the “evidence” for why we don’t need a CFPB, and he gets it completely, horribly wrong.

“Yes, some people who have lost their homes were victims of fraudulent mortgage brokers and shady lenders. But the vast majority of those who held the billions of dollars in mortgages now foreclosed on knew exactly what they were doing. And one of the dirty little secrets of the financial crisis is that one homeowner after another signed mortgage-loan documents that were filled with inaccurate information about his or her net worth, assets, salaries and ability to make monthly mortgage payments. Why would someone sign a loan document knowing full well the information on it was inaccurate and the mortgage could never be repaid?”

The only real statistic on mortgage fraud comes from the FBI, and it doesn’t back up Cohan’s claims at all. As early as 2004, the FBI was warning about an “epidemic” in mortgage fraud—not a few bad apples, not “some people,” but an epidemic . We know that mortgage fraud was standard operating procedure at Washington Mutual, now part of JPMorgan Chase, and they weren’t alone—for five years, rampantfraud was a basic component of the U.S. mortgage machine. And according to the FBI, 80 percent—repeat, 80 percent—of this fraud was perpetrated by the lender.

So, let’s answer Cohan’s question. Why would people knowingly set themselves up for foreclosure? They wouldn’t! The key incentives for fraud and deception do not apply to rational borrowers who want to live in their homes. They apply to lenders, who were being paid very well to push borrowers into unaffordable mortgages. Bankers and brokers were paid kickbacks to steer borrowers into subprime loans, when those same borrowers would have qualified for ordinary mortgages. With heavy demand for mortgage-backed securities on Wall Street, banks knew they could issue garbage loans and stick other investors with the tab—so they did. The list of lenders who pawned their crappy loans off onto other people includes many of the biggest names in finance: Wells Fargo, Wachovia, Citigroup Bank of America, Countrywide, Washington Mutual and more. Banks stood to make a lot of money from fraud. Borrowers, by contrast, could count on foreclosure. Who do you think is going to falsify the income on loan applications?

Sure, there were borrowers who tried to game the system. But the story of mortgage fraud in the housing bubble is overwhelmingly a story of malpractice by bonus-crazed bankers, not borrowers. We need Elizabeth Warren and the CFPB to protect our economy from such abuses. This is a question of basic law enforcement, something Cohan apparently believes should not apply to ordinary citizens looking to buy a home.

Crony Capitalism: Wall Street's Favorite Politicians

Zach Carter — Tue, 28 Sep 2010 17:02:59 -0400

A full 90 members of Congress who voted to bailout Wall Street in 2008 failed to support financial reform reining in the banks that drove our economy off a cliff. But when you examine campaign contribution data, it's really no surprise that these particular lawmakers voted to mortgage our economic future to Big Finance: This election cycle, they've raked in over $48.8 million from the financial establishment. Over the course of their Congressional careers, the figure swells to a massive $176.9 million.

The complete list of these Crony Capitalists is below, along with the money they pulled in from Big Finance, according to data compiled by the Center for Responsive Politics (opensecrets.org). The career data goes back to 1989. Of the 69 House members who voted with Wall Street on both the bailout and financial reform, 60 are Republicans, while nine are Democrats. All 21 Senators who voted with Wall Street on both issues are Republicans, and Republicans raked in over 90 percent of the total campaign contributions. Here's a chart showing Wall Street's total contributions to this crowd for the 2010 cycle, by political party:

And here's one showing total Wall Street contributions over the course of their careers:

These aren't the only politicians carrying water for Wall Street—only the most flagrant. Some of the bank lobby's savviest servants on Capitol Hill do their dirty work early in the legislative process. They push through technical amendments and deploy complex procedural tricks to defang a bill, but when the final vote comes, they can still create the appearance of taking a stand against Wall Street's interests. Rep. Melissa Bean, D-Ill., is a master of this technique, and Tea Party favorite Sen. Scott Brown, R-Mass., was able to claim credit for voting in favor of reform after demanding—and receiving—a host of big bank giveaways in return for his vote.

Nor are Republicans the only recipients of Wall Street largesse. Bean, for instance, has pulled in over $773,000 from Wall Street in the 2010 cycle alone, while working overtime to carve loopholes into new consumer protections (she's scored $2.4 million over the course of her Congressional career). And the Democratic leadership has received millions as well.

When it comes to dealing out economic damage, no special interest group has been able to wreak more havoc that Big Finance. After inflating an $8 trillion housing bubble and sparking a recession that has cost the economy over 8 million jobs, public pressure to crack down on Wall Street was intense. And the public is still clamoring for Wall Street accountability—after two years in office, the Wall Street reform bill remains the most popular legislative effort championed by President Barack Obama, and getting tough on Big Finance has been a reliable re-election strategy for embattled incumbents.

But harnessing the Wall Street beast proved a tortuously long and difficult process, taking nearly two years despite its economic urgency. And while the bill that Congress approved this year has plenty of virtues, many of the most critical reforms were simply not addressed by the legislation. The too-big-to-fail financial behemoths that taxpayers bailed out in 2008 are even bigger today, banks can still gamble with taxpayer money, and the foreclosure crisis continues to ravage neighborhoods across the country. Until these issues are addressed, the U.S. economy will remain beholden to Wall Street's bonus-crazed whims.

But if you follow the money, it's obvious why so much work remains to be done on financial reform. This year alone, Wall Street spent a staggering $251 million fighting financial reform. According to a separate analysis of campaign contributions performed by Public Citizen, lawmakers who voted with Wall Street on both the bailout and reform received nearly triple the campaign cash of those who opposed Wall Street (figures in the Public Citizen study don't correspond to those I've compiled, as Public Citizen examined contributions from 2007 through July of 2010).

Despite the popularity of Wall Street reform, 90 members of Congress didn't even want to publicly pretend to support reining in almost universally reviled banks. When you're trying to decide which bums to throw out in November, here's one place to start. These members of Congress are okay with setting up economic calamities, and they don't mind paying for them with your tax dollars.

Here's how Wall Street's contributions break down among Wall Street's 21 Senate Cronies. For 2010:

For their careers:

And here are all of the Cronies, along with their Wall Street hauls:

Senator	2010 Wall Street Cash	Career Wall Street Cash
Sen. Lamar Alexander (R-TN)	$1,600,000	$4,900,000
Sen. Robert Bennett (R-UT)	$1,500,000	$2,600,000
Sen. Kit Bond (R-MO)	$333,600	$3,300,000
Sen. Richard Burr (R-NC)	$1,500,000	$3,300,000
Sen. Saxby Chambliss (R-GA)	$2,500,000	$3,500,000
Sen. Tom Coburn (R-OK)	$451,700	$1,200,000
Sen. Bob Corker (R-TN)	$3,100,000	$3,300,000
Sen. John Cornyn (R-TX)	$3,200,000	$4,700,000
Sen. John Ensign (R-NV)	$1,300,000	$2,600,000
Sen. Lindsey Graham (R-SC)	$1,100,000	$2,000,000
Sen. Judd Gregg (R-NH)	$233,200	$1,100,000
Sen. Orrin Hatch (R-UT)	$1,400,000	$2,600,000
Sen. Kay Bailey Hutchison (R-TX)	$1,400,000	$4,700,000
Sen. Johnny Isakson (R-GA)	$1,500,000	$4,200,000
Sen. John Kyl (R-AZ)	$2,800,000	$3,800,000
Sen. Dick Lugar (R-IN)	$412,200	$2,500,000
Sen. John McCain (R-AZ)	$947,600	$34,000,000
Sen. Mitch McConnell (R-KY)	$4,300,000	$5,300,000
Sen. Lisa Murkowski (R-AK)	$268,200	$909,700
Sen. John Thune (R-SD)	$1,600,000	$3,900,000
Sen. George Voinovich (R-OH)	$435,200	$2,800,000
21 Republicans
0 Democrats
Senate Total	$31,881,700	97,209,700

House Member	2010 Wall Street Cash	Career Wall Street Cash
Rep. Rodney Alexander, R-La.	$106,500	$422,300
Rep. Spencer Bachus, R-Ala.	$611,600	$4,400,000
Rep. Gresham Barrett, R-S.C.	$20,400	$806,700
Rep. Marion Berry, D-Ark.	$24,900	$663,700
Rep. Judy Biggert, R-Ill.	$395,000	$1,900,000
Rep. Roy Blunt, R-Mo.	$1,200,000	$3,800,000
Rep. John Boehner, R-Ohio	$1,300,000	$3,700,000
Rep. Jo Bonner, R-Ala.	$90,400	$702,200
Rep. Mary Bono Mack, R-Calif.	$190,000	$733,400
Rep. John Boozman, R-Ark.	$257,700	$491,000
Rep. Dan Boren, D-Okla.	$123,100	$722,200
Rep. Rick Boucher, D-Va.	$92,700	$1,400,000
Rep. Charles Boustany Jr, R-La.	$226,300	$934,600
Rep. Kevin Brady, R-Texas	$157,000	$840,500
Rep. Henry Brown, R-S.C.	$35,700	$494,000
Rep. Vernon Buchanan, R-Fla.	$336,800	$1,400,000
Rep. Ken Calvert, R-Calif.	$180,300	$940,300
Rep. Dave Camp, R-Mich.	$588,000	$1,700,000
Rep. John Campbell, R-Calif.	$413,400	$1,200,000
Rep. Eric Cantor, R-Va.	$2,100,000	$4,400,000
Rep. Mike Castle, R-Del.	$749,100	$3,200,000
Rep. Howard Coble, R-N.C.	$23,400	$502,500
Rep. Tom Cole, R-Okla.	$110,000	$686,000
Rep. Mike Conaway, R-Texas	$161,500	$711,800
Rep. Ander Crenshaw, R-Fla.	$86,100	$717,000
Rep. Henry Cuellar, D-Texas	$90,600	$606,900
Rep. Charlie Dent, R-Pa.	$177,900	$881,000
Rep. Chet Edwards, D-Texas	$324,200	$1,900,000
Rep.Vernon Ehlers, R-Mich.	$8,500	$292,200
Rep. Jo Ann Emerson, R-Mo.	$143,900	$904,400
Rep. Mary Fallin, R-Okla	($1,000)	$340,700
Rep. Rodney Frelinghuysen, R-N.J.	$86,200	$840,300
Rep. Jim Gerlach, R-Pa.	$251,600	$1,800,000
Rep. Kay Granger, R-Texas	$140,000	$1,100,000
Rep. Wally Herger, R-Calif.	$171,500	$1,100,000
Rep. Peter Hoekstra, R-Mich.	($1,000)	$300,600
Rep. Bob Inglis, R-S.C.	0	$572,800
Rep. Peter King, R-N.Y.	$173,900	$1,600,000
Rep. Mark Kirk, R-Ill.	$1,900,000	$4,200,000
Rep. John Kline, R-Minn	$170,900	$989,100
Rep. Jerry Lewis, R-Calif.	$31,800	$748,000
Rep. Daniel E. Lungren, R-Calif.	$147,700	$622,500
Rep. Howard McKeon, R-Calif.	$132,100	$1,100,000
Rep. Gary Miller, R-Calif.	$144,500	$902,000
Rep. Harry Mitchell, D-Ariz.	$130,900	$558,000
Rep. Sue Myrick, R-S.C.	$93,600	$1,200,000
Rep. Soloman Ortiz, D-Texas	$40,200	$381,700
Rep. George Radanovich, R-Calif.	$24,900	$462,000
Rep. Mike Rogers, R-Ala.	$128,200	$1,000,000
Rep. Hal Rogers, R-Ky.	$50,200	$468,000
Rep. Ileana Ros-Lehtinen, R-Fla.	$127,000	$986,000
Rep. Paul Ryan, R-Wis.	$531,500	$1,900,000
Rep. Jean Schmidt, R-Ohio	$121,900	$519,700
Rep. John Shadegg, R-Ariz.	$39,700	$1,200,000
Rep. Bill Shuster, R-Pa.	$30,700	$403,600
Rep. Mike Simpson, R-Ind.	$20,500	$266,900
Rep. Ike Skelton, D-Mo.	$112,500	$524,200
Rep. Lamar Smith, R-Texas	$258,900	$1,300,000
Rep. Mark Souder, R-Ind.	$40,500	$405,800
Rep. Zack Space, D-Ohio	$169,300	$476,300
Rep. John Sullivan, R-Okla.	$79,200	$494,800
Rep. Lee Terry, R-Neb.	$202,600	$1,400,000
Rep. Mac Thornberry, R-Texas	$42,500	$603,400
Rep. Patrick Tiberi, R-Ohio	$555,500	$2,800,000
Rep. Fred Upton, R-Mich.	$81,700	$929,400
Rep. Greg Walden, R-Ore.	$180,700	$732,400
Rep. Zach Wamp, R-Tenn.	0	$715,700
Rep. Joe Wilson, R-S.C.	$155,500	$580,200
Rep. Frank Wolf, R-Va.	$90,400	$1,100,000
60 Republicans	$15,873,400	$72,443,800
9 Democrats	$1,108,400	$7,233,000
House Total	$16,981,800	$79,676,800

Will Wall Street's Foreclosure Fraud Save Troubled Borrowers?

Zach Carter — Mon, 27 Sep 2010 13:42:48 -0400

I'll have plenty to say about the escalating foreclosure fraud scandal later this week. For now: This is a big, big deal. It isn't a clerical error, it's an aggressive attempt to slap borrowers with thousands of dollars in illegal fees for the luxury of being foreclosed on. And what's more, this absurd, shady business was priced into the entire mortgage securitization scheme from the get-go. Banks have been fudging their documentation for years in order to cut costs and score higher profits from securitization—the business model has relied on this corner-cutting since day one of the housing boom.

The good news is that borrowers can use this epic fraud to defend themselves. If a bank can't prove that it has the right to foreclose on a borrower by showing the proper documentation to a judge, then it doesn't have the right to foreclose. This is a tremendous opportunity for neighborhood advocates. Make them pony up the docs, it might just save your home. The problem isn't restricted to GMAC—foreclosure counselors and attorneys talk about the issue of forged or destroyed documentation all the time, and we already know that JPMorgan Chase and Countrywide (now Bank of America) have major documentation problems. Including GMAC, that's three of the biggest players in every aspect of the mortgage market.

If courts actually follow the law here, we get the best of both worlds—big losses for Wall Street on their predatory loans, and borrowers who get to stay in their homes (mortgage-free, at that). The only question is whether these mortgage losses prove so severe that Wall Street banks come back begging to the government for another bailout. If so, it's an opportunity to do what should have been done in 2008—break up these financial monsters into smaller creatures that don't require bailouts when they fail.

Yves Smith quotes a mortgage banker who assumes that Congress will simply legislate this problem away for Wall Street. Don't count on it. Nobody-- not even the most subservient Wall Street sycophant in the Republican Party—is eager to bailout Wall Street again, particularly to spare megabanks the costs of explicit, documented fraud.

The trick, of course, is making sure that the courts actually follow the law.