The so-called “centrists” at Third Way Foundation have come out against a national foreclosure moratorium, but like many of Third Way’s policies, there’s nothing centrist about their opposition. Third Way is simply throwing American homeowners under the bus in the service of Wall Street profits. That sellout isn’t surprising when you examine the membership of Third Way’s Board of Trustees. Fully two-thirds of the think tank’s board work in finance, including some of the nation’s largest financial firms: JPMorgan Chase, Morgan Stanley, Fortress Investment Group and other Wall Street titans who stand to lose big bucks in the foreclosure fraud fallout.
Third Way Vice Chairman David Heller is the Global Head of Equity Trading for Goldman Sachs, and sits on the firm’s risk-committee. Goldman Sachs has placed enormous bets on the housing market, and other Third Way board members face similar sraits: William Daley works for JPMorgan Chase—a bank that has already suspended foreclosures in order to sort out its own problems. Derek Kirkland is global co-Head of Morgan Stanley’s Financial Institutions Group, and Michael Novogratz is President of Fortress Investment Group, one of the largest hedge funds in the world.
Daniel Loeb has a spot on the board. Yes, that Daniel Loeb, the whining Wall Street hedge fund manager who infamously complained that President Barack Obama wanted to violate American protections against "nonpunitive taxation, constitutionally guaranteed protections against persecution of the minority and an inexorable right of self-determination"-- because Obama favored raising the capital gains tax. All of these people, and dozens of others on the Third Way board, stand to lose or gain enormous amounts of money from the foreclosure fraud outbreak and the federal response.
Even the author of the memo, Jason Gold, used to work for bailed-out banks First Horizon, Bank of America and Merrill Lynch. All of this information is available on Third Way’s website, but not one word of the think tank’s memo on a foreclosure moratorium mentions any possible conflict of interest, nor are any actual conflicts of interest detailed.
Independent think tanks shouldn’t be promoting policies that their board members stand to financially benefit from without explaining their financial interests. If Jason Gold and Third Way want to oppose a foreclosure moratorium, fine—but they should demonstrate exactly what they have to gain from such a policy in their memo.
Third Way and other centrist groups like to claim they’re staking out political middle ground, when in fact they’re just advocating policies that funnel money to entrenched corporate interests. Wall Street is very good at this game, as evidenced by the fact that 20 of the 30 members of Third Way’s board work for Wall Street. These aren’t policies that create jobs or improve the economy—they’re just giveaways for special interests. As one Democratic policymaker who requested anonymity told me, "Third Way's policy model is an utter catastrophe. They are basically Weimar Democrats."
Aside from the glaring conflicts-of-interest, Third Way’s argument against a foreclosure moratorium is totally incoherent. None of the points made stand up to even cursory levels of economic scrutiny—it’s the sort of thing you’d expect to see from the Mortgage Bankers Association, not an independent think tank. Third Way claim that a moratorium will scare buyers away from the market and put downward pressure on home prices. It’s a nice talking point, but any sane buyer should already be spooked by the facts that have emerged on bank documentation policies. The moratorium isn’t going to reduce confidence—years of banker abuse already has. Banks skimped on their paperwork to cut costs, and are now resorting to systematic fraud to cover-up very big problems. They’ve charged borrowers illegal fees, foreclosed on the wrong homes, and sold the same mortgage to different investment banks to be packaged into different securities. That kind of behavior scares borrowers. Repairing the damage isn’t nearly as frightening.
Third Way also claims that a moratorium would hurt community banks and credit unions. Hard to see how that’s the case if the moratorium only “forestalls” foreclosures, rather than preventing them, as Third Way claims, but if this is really a huge problem, just exempt credit unions and banks with less than $1 billion in assets from the moratorium. Illusory problem solved.
Third Way also argues that a moratorium is unfair to taxpayers—but taxpayers are likely to be the single largest party defrauded in the documentation scam. Taxpayers own trillions of dollars in mortgage-backed securities through the Federal Reserve, Fannie Mae and Freddie Mac. A moratorium can help us indentify problems and make claims against banks who have acted inappropriately.
This reasoning is not simply divorced from economic reality—it’s internally inconsistent. Third Way says that a foreclosure moratorium would only “forestall” foreclosures, not prevent them—and then turns around and insists that a moratorium would encourage people not to pay their mortgages. If it’s not a permanent solution, no sane borrower is going to stop paying.
Unless it already makes sense for borrowers to stop paying their mortgages. Third Way board member Derek Kirkland is a bigwig at Morgan Stanley. Last year, Morgan Stanley realized that a handful of properties it had purchased in San Francisco were not worth what Morgan Stanley owed on the mortgages. So Morgan Stanley made a rational decision: instead of wasting its money on payments for a devalued property, it walked away from the mortgages. This is called a “strategic default,” and Third Way explicitly comes out against it in their memo. But iff the board members of Third Way are okay with strategic defaults, what right do they have to hold American homeowners to a different standard?
Helping homeowners isn’t part of some radical leftist agenda—it’s a basic prerequisite for economic recovery. When homeowners are burdened with unnecessary, predatory, and even fraudulent debt, they don’t have money to spend on productive economic activities that create jobs. Punishing borrowers for fraud committed by bankers simply doesn’t make sense. A foreclosure moratorium won’t solve all of our problems, but it can help us sort them out so that homeowners who deserve help can be identified, along with bankers who have committed fraud.
Calls to Third Way were not immediately returned.