Mr. Obama’s Very Very Busy Week

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Since Obama tried to sneak in a trade agreement making it easier to outsource jobs to Korea after the newspapers have gone to bed, I thought it wise to catalog what a “productive” (in the Frederick Taylor sense) week he has had:

  1. Freeze pay of federal workers
  2. Attack Social Security
  3. Cut taxes for the stinking rich
  4. Censor Wikileaks
  5. Cut Food Stamps at a time of record reliance on them
  6. Make it easier to send manufacturing jobs to South Korea
  7. Fiddle while 10% of the country can’t find jobs

Senate Banking Commitee on Foreclosure Fraud

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Follow along on CSPAN or the Committee Site.

Dodd started by noting the increasing evidence that foreclosure fraud is a giant mess, both by referencing the Bank of America testimony that notes did not get sent to trusts during the securitization process, and by noting that the estimates for how much this may cost the bank have gone up, to $134 billion.

Btw, it’s not part of the hearing, but consider this stat:

Housing and aggregate demand have not recovered because nearly 15 million owners are estimated to owe about $771 billion more on their homes than they are worth.

That basically means that roughly 15 million families have had a $51,000 tax imposed on them, largely because of the bank-created inflated prices.

Thus far, FDIC head Sheila Bair has said that second lien-holders need to take a hit, and Fed Governor Dan Tarullo has said that banks will need to provide estimates for expected putback losses.

OCC Acting head John Walsh says they’ve got 100 Bank Examiners investigating foreclosure fraud.

John Walsh, in response to Dodd’s question about why the regulators have been so delayed, said, “We were conducting horizontal exams in 2008, saw rise in complaints, there were clear deficiencies. We were pushing servicers.” No. He hasn’t explained why they haven’t done anything about these deficiencies.

Tarullo: The attention was focused on pace of modifications, not on the process itself.

Shelby to Tarullo: When did you first learn of the problems.Tarullo: When Ally came to us the day before the public announcement.

Shelby: Are we close to solving problem. Tarullo: Related to relative balance of foreclosures to mods. Need integrated approach.

Shebly: They have standards.

Tarullo: No, the banks are required to have their own processes. Race to foreclose among owners, but be standardized.

Reed: Should 100% of loans be evaluated for mod.

Bair: We think a global settlement.

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Vampire Squid Pissy about Response to Data Octopus Demands

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We’ve discussed US negotiations with Europe over the SWIFT database at length here. Basically, after the Lisbon Treaty went into effect last year, the EU Parliament balked at giving Americans free run of the SWIFT database. The EU and US put an interim agreement in place. Which the EU Parliament then overturned in February. The US then granted EU citizens privacy protections Americans don’t have. But then the US started negotiating unilateral agreements with countries, using the Visa Waiver as blackmail to force individual countries into submission (and, some in Europe suggested, drumming up a terrorist threat to add to the pressure).

Alexander Alvaro, the home affairs spokesman of the Germany’s Free Democratic Party (FDP) in the European Parliament, likened the US demands for data sharing to a “data octopus.”

One of the cables from yesterday’s WikiLeaks dump offers a window into the US perspective on the negotiation, in a cable from the US Embassy to Germany to the Secretary of State’s Office. The cable speaks disparagingly of the FDP.

Germany has become a difficult partner with regards to security-related information sharing initiatives following the September 27 national elections, which brought the FDP into the governing coalition. The FDP sees themselves as defenders of citizens’ privacy rights and these views have led the FDP to oppose many of Germany’s post-9/11 counterterrorism legislative proposals (see reftels). At times, the FDP’s fixation on data privacy and protection issues looks to have come at the expense of the party forming responsible views on counterterrorism policy.

[snip]

The FDP returned to power after a ten-year foray in the opposition and key leaders lack experience in the practical matters of tackling real-world security issues in the Internet age. In our meetings we have made the point that countering terrorism in a globalized world, where terrorists and their supporters use open borders and information technology to quickly move people and financing, requires robust international data sharing. We need to also demonstrate that the U.S. has strong data privacy measures in place so that robust data sharing comes with robust data protections.

So Ambassador Philip Murphy’s office bad mouths a party that had been in opposition for ten years to his colleague–including Hillary Clinton–who had been in opposition for eight, suggesting the Germans were too naive to understand what was good for them.

But there’s one more detail that makes this disdain of those who dislike the data octopus cute.

Before Ambassador Philip Murphy was the DNC’s Finance Chair for its last two years of apparently ignorant opposition, he spent 23 years at the Vampie Squid, Goldman Sachs.

So this amounts to one of the geniuses who crashed the global economy–not least with some pretty tricky international financial flows–badmouthing the Germans for not understanding the crime that can happen using those flows.

Ireland Cuts Minimum Wage 11.5% to Protect 12.5% Corporate Tax Rate

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The Fianna Fail government in Ireland has released the austerity plan it promised in response for the big bank bailout the rest of Europe forced on it.

There’s a lot that’s awful in it: big cuts in pension, huge increases in tuition costs, and a ludicrous claim that this austerity plan will help Ireland’s economy grow.

But I think the most telling aspect of it is that it lowers minimum wage from 8.65 euro to 7.65, a cut of 11.5%. But it retains Ireland’s controversial 12.5% corporate tax.

Meanwhile, the bond markets are none too impressed with Ireland’s plan.

There are lot of reasons to treat the plan with skepticism, if not outright derision. But I think the lack of confidence that this will work is the increasing likelihood that the governments on which the banksters are relying to push through this bankster bailout may not survive.

Imagine how banksters would fear the prospect that democracy will eventually, inevitably, if not here than in Portugal, get in the way of bank bailouts?

Fines and “Resolving this Mess”

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Yves does a thorough smackdown on the departing Michael Barr’s description of all the things the government is going to get to the bottom of the foreclosure fraud problem, noting that the foreclosure task force simply isn’t investigating the problem in enough detail to understand, much less solve, the problem.

But I wanted to look just at Barr’s language, both in his interview with Felix Salmon and in his presentation to the Financial Stability Oversight Council yesterday. Here are the five things he described as the key focus of the Foreclosure Working Group:

  1. Determining the scope of problems
  2. Holding the banks accountable for fixing these problems
  3. Making sure individuals who have been harmed are given redress and that firms pay penalties where appropriate for their actions
  4. Getting the mortgage servicing industry to do a better job for households in financial difficulty by providing alternatives to foreclosure
  5. Acting in a coordinated and comprehensive way to hold the firms accountable, bring clarity and certainty, and help households

Note, already, the choice of language here. The working group will “hold the banks accountable … for fixing these problems.” The firms will “pay penalties where appropriate for their actions.”

Barr uses the language the federal government has been consistently using since the scope of this problem became widely clear, in which the government envisions “holding banks accountable” by forcing them to operate effectively going forward, while making right the crimes of the past. Nowhere, in his presentation to the FSOC at least, does Barr envision holding the people who committed fraud accountable. In fact, there’s a lovely detail at 7:54 where Barr describes that the process is designed to assess whether affidavits and claims “are accurate.” Now, the government learned sometime since May–six months ago now–that they are not. But they have not yet prosecuted anyone for fraud. Which leads me to believe that when Barr says “assess whether affidavits are accurate,” he means, “assess whether they accurately reflect the state of the loan,” and not whether “the claims made by robo-signers are in fact true.”

And besides, how in hell could the government give those who have been harmed redress if the government is only reviewing a select subset of the loan files? Is the government going to provide everyone who believes they were screwed some legal aid to prove their claim?

Now compare what the soon-to-be-gone Barr told the FSOC in its kabuki public session with what he told Salmon.

And keeping everything coordinated is the new Financial Fraud Enforcement Task Force which has been put together under the leadership of Justice’s Tom Perrelli.“Why are we investing these resources and including Tom Perelli in the discussions?” asked Barr. “We’re holding the banks accountable to fix it.” I asked him whether he thought that was even possible. “Their conduct suggests they can’t,” he said, adding that “they can be held accountable for not following the law. HUD can assess significant fines on them.”

Barr was clear about what he expected to happen in 2011. Specifically, he said, “if there are legal violations found, banks are responsible for fixing them and for addressing the problems.” And more generally, the government’s actions “will increase the chance that when foreclosures happen, they will happen according to established law.”

After listing all the investigating going on, Barr stresses they’re coordinating with DOJ’s Financial Fraud Task Force. Why are they including the FFTF (which, btw, seems to focus primarily on origination fraud)? As a way, Barr explains, “to hold the banks accountable to fix it”–echoing that same formula of holding banks accountable to fix problems, but not to be prosecuted for committing fraud. Now jump ahead to where Barr describes how they can be held accountable: “they can be held accountable for not following the law. HUD can assess significant fines on them.” Let me repeat, again, that HUD has been aware of the foreclosure problems since around May and has thus far levied no fines. More importantly, note how (at least in Salmon’s presentation) Barr jumped from having DOJ hold the banks accountable to HUD doing so? Either Barr doesn’t believe DOJ has the power or the will to hold banks accountable and he reverts to fines as the magical way the federal government will holds the banks accountable. And the outcome of all this? To “increase the chance that when foreclosures happen, they will happen according to established law.” Not, “to make sure we restore the integrity of the property system,” but to increase the overall odds but not guarantee that when a family is thrown out of its home, they were done so legally.

Barr doesn’t even envision ending foreclosure fraud! He just envisions making it much less likely, shifting the odds somewhat from the stacked odds the banksters currently enjoy.

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FSOC’s 15 Minutes to Save the World

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As I noted, the Financial Stability Oversight Council is meeting today. As announced, they discussed foreclosure fraud and securitization.

For less than 15 minutes.

And then they moved on, without once raising the issue of whether or not the banks’ exposure due to securitization problems posed a systemic risk to our financial system.

As the first order of business in the public session (the Council had an hour of private business before the public session), the departing Michael Barr reviewed what the “foreclosure working group” was doing about the problem. He noted that there seemed to be problems, but described that onsite examiners were collecting information and would not be done doing that until the end of the year; they’d issue a substantive report in January. He did, however, say that there had been significant putbacks and he expected them to continue.

And that was it. Timmeh Geithner asked if anyone had questions. And no one did. No one asked, “What do you expect will happen between now and January?” No one asked, “Do you think this is systemic?” No one asked, “What kind of exposure are we talking about here? Are the banks insolvent?”

No one even pointed out that existing home sales were sliding again, at least partly because the banksters couldn’t sell their foreclosures and partly because consumers weren’t stupid enough to buy them. So no one mentioned that waiting until January may not be so smart, as nothing is getting fixed in the meantime.

Now perhaps they did ask these questions during the hour of private business before the cameras started rolling. Perhaps they spent the hour before we got to watch screaming “hair’s on fire, hair’s on fire, hair’s on fire,” before taking a sip of tea, and then performing a complete lack of concern about this. Perhaps they talked about how serious this might be before we were allowed to watch, not wanting to concern the markets (which are busy freaking out, in any case, about a run on Europe’s banks).

But the optics of it–this apparent lack of concern about the way the banks will postpone admitting to their own insolvency by degrading the private property system in this country at the expense of real people–suck. They sure provide zero confidence that the FSOC intends to do its job to prevent this from becoming a systemic crisis.

Update: Felix Salmon has a good article describing where Michael Barr thinks this is all going.

Me? I’m w/Salmon. This isn’t going to fix things. Note, particularly, that Barr (who is probably one of the more aggressive folks at Treasury on this, at least for the next two weeks) is still just talking about fines, not prison.

Michael Barr–Liaison on Foreclosure Fraud Investigation–Leaves Treasury

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Just one week ago, Iowa’s Attorney General Tom Miller told Chris Dodd that Assistant Secretary of the Treasury for Financial Institutions Michael Barr was the key person from Treasury working with the Attorneys General investigation into foreclosure fraud.

Miller: We haven’t had any contact with the [Financial Stability Oversight Council]. We have had repeated contact with the Department of the Treasury, with Assistant Secretary Michael Barr and his staff. We’ve developed a terrific ongoing relationship with them. We talk about these issues and try and help and support each other on these issues. So we’ve had a lot of discussions with Treasury but not with that particular Council.

That’s funny. Because Barr is leaving Treasury. Imminently.

Diana Farrell, deputy director of President Barack Obama’s National Economic Council, and Assistant Treasury Secretary Michael Barr are leaving the administration, adding to the turnover in the ranks of the White House economic team that worked on the government’s response to the worst financial crisis in more than 70 years.

Farrell will leave by the end of the year and Barr’s last day at Treasury will be Dec. 3. Both played key roles in shaping Obama’s financial regulatory overhaul plan, which was signed into law in July.

[snip]

Treasury spokesman Steve Adamske said Barr would continue his academic career at the University of Michigan in Ann Arbor.

(Note, Barr is not currently listed as teaching next semester.)

In addition to working with the Attorneys General “investigating” the banksters’ foreclosure fraud, Barr had been considered a leading candidate–after Elizabeth Warren–to lead the Consumer Finance Protection Board and/or the Office of the Comptroller of the Currency (the agency that regulates the big banks) and (as the Bloomberg piece makes clear) had a key role in Dodd-Frank.

As you recall, the same day that Tom Miller told Dodd he was working closely with Barr, at almost the moment when Miller said the investigation would take months, sources that sounded an awful lot like the banks were suggesting a deal on the “settlement” ending the “investigation” was close. But even that article didn’t seem to suggest it’d be done by December 3.

Also note, the Financial Stability Oversight Council–the entity set up by Dodd-Frank to stave off systemic crises–meets on Tuesday; they promise to address efforts so far on the foreclosure fraud problem.

The group will provide an update on what various agencies are doing to investigate widespread paperwork problems that have called into question millions of foreclosures across the country, as well as how regulators are coordinating with the Justice Department, state attorneys general and other officials scrutinizing the mess.

Mind you, I don’t know what Barr’s departure means. But I find it notable that–after recently being floated for key positions going forward and given his role in efforts to respond to the foreclosure mess–he is leaving now.

How Ireland Is Like AIG

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This summarizes everything I’ve been hearing about the forced bailout of Ireland over the weekend.

The pressure for a bailout of Ireland did not come from Ireland itself—it came from Eurozone officials. If anything, Irish Finance Minister Brian Lehnihan’s announcement over the weekend that Ireland would seek a bailout was a concession to its European Union friends.So why would the Eurocrats demand a bailout of Ireland when Ireland insisted it didn’t need one?

The first reason is that much of Ireland’s debt—both its sovereign debt and the debt of its banks—is held by many of Europe’s largest financial institutions. The continued downward pressure on the market value of Ireland’s debt was causing balance sheet issues for these banks. Many of Europe’s banks had written credit default swaps on Irish debt, which was draining cash. Finally, the banks were finding it increasingly expensive to borrow against Irish debt—that is, other banks would not lend money in exchange for Irish debt as collateral, except at steep discounts—creating the potential for a credit crunch.

[snip]

Which means that this is not so much a bailout of Ireland—it’s a bailout of Ireland’s counterparties. That is to say, it’s a bit like Europe’s version of AIG: a backdoor bailout of invisible financial players who failed to manage their exposure to a shaky borrower.

But this is where things will get interesting. Ireland’s Greens have already called for a new election and the ruling Fianna Fail will surely be thrown out early next year. In fact, the government probably won’t last long enough to pass the budget with the further austerity requirements demanded by EU.

Unlike with AIG, we didn’t have much opportunity to refuse to pay the banksters bill (we were left solely with the opportunity to kick out the party that had made the AIG deal, though it didn’t get us much in terms of new players). But the Irish may well have that opportunity.

It almost makes me want to go take my Irish citizenship for a test drive…

Oversight and Investigation: “Why Should They Take You Seriously?”

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Yves Smith has a post laying out one of the most troublesome aspects of the response to the revelation of foreclosure fraud. As she explains, to conduct an “independent review” of its PR-servicing “review” of its own servicing practices, GMAC picked the lawfirm that has been in charge of its national counsel on servicing issues.

A Birmingham, Alabama law firm, Bradley Arant Boult Cummings, has been GMAC’s national counsel on real estate servicing matters for some time (see here for examples of some of the matters it has handled).

Curiously, Bradley Arant is one of the firms that GMAC engaged to conduct an “independent review” after its use of robo signing became public:

GMAC Mortgage is initiating an independent review of foreclosures in all 50 states and examining foreclosure sales nationwide to ensure procedures and documentation are accurate….

The firms hired to conduct the review are Sullivan & Cromwell LLP, Bradley Arant Boult Cummings LLP, Morrison & Foerster LLP and PricewaterhouseCoopers LLP, said a person familiar with the matter.

Given Bradley Arant’s long-standing and extensive involvement in GMAC’s mortgage business, how can it legitimately be part of the team conducting the review? It’s incentives will be to minimize any problems, for a host of reasons, the most important being so as not to ruffle a big meal ticket and to avoid the exposure of any issues that might create liability for the firm.

[snip]

Bradley Arant is certain to frame its examination as narrowly as possible and not consider potentially troublesome but germane questions such as who at the contracting organizations (LPS, Fannie, other servicers) might also be culpable.A broader look is key to understand who really bears responsibility. Foreclosures of securitized loans increasingly look to be what Bill Black would call a criminogenic environment, in which the major perps are deeply entwined and work together. And if caught, it is clearly in their best interest to cut loose the weakest, most dispensable actor in their tidy group, the foreclosure mill.

So in many ways, the selection of Bradley Arant makes perfect sense. It is familiar with the terrain, so it will be able to issue a plausible-sounding report. It is also so deeply part of this questionable backwater that it is highly unlikely to make a bottoms up investigation and potentially rock the boat.

Couple the prospect of law firms involved in the fraud conducting “independent” investigations of their own fraud with this exchange from Thursday’s House Financial Services hearing on robo-signing. Maxine Waters asks the Acting Comptroller of the Currency, John Walsh, whether or not OCC (which regulates the big banks) has imposed any penalties on the servicers for their fraud.

Waters: I asked earlier about whether or not fines had been levied from the Treasury Department [see that exchange here]. Let me turn to the OCC. Since we started experiencing the fallout from the subprime boom, has OCC taken any enforcement actions against servicers?

[long pause]

Walsh: We have certainly issued supervisory requirements on them, matters requiring attention and other things to remedy–

Waters: Have you levied any fines?

Walsh: I do not believe that we have.

Waters: Have you issued any cease and desist orders?

Walsh: I don’t believe that there have been any public actions against them.

Waters: Have you threatened to revoke any charters?

Walsh: No.

Waters: Do you think that the servicers really believe that you mean business if they don’t have to fear any consequences?

Walsh: Well, I think the consequences are quite clear and present to them. I mean that we can compel action and the threat of more serious penalties–

Waters: But you haven’t done that. You haven’t done any of that! Why should they take you seriously?

Walsh: The supervisory process is one that happens–does not mainly happen in the public spotlight. It happens in the dealings directly with the institution through the process of examination, matters requiring attention, and other things. Only when a particular problem is identified that rises to the appropriate level do we get into the area–

Waters: Let’s talk about examiners. If you have examiners onsite, can you explain how you don’t know about all the problems that have recently come to light? What do the examiners do?

Walsh: There’s, as I mentioned, our attention was focused on the modification process, it would be quite unusual for us to be in the room or present at the point where an affidavit is being signed or a notarization is taking place. We do rely on the systems and controls of the financial institution, its own internal audit, or any flags that raise the issue, like our complaint function. And unfortunately those did not raise an alarm about this process. [my emphasis]

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Debbie Stabenow to Chair Agriculture Committee

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Finally, some good news coming out of November’s election.

Debbie Stabenow has been selected to replace the outgoing Blanche Lincoln as Chair of the Senate Agriculture Committee. (There had been some concern that Big Ag would oppose someone like Stabenow and instead push Kent Conrad to take the position.)

As I’ve explained before, this means that a Senator from a state with diverse, smaller-scale agriculture will take over and preside over 2012’s Agriculture Bill. Hopefully, this will present an opportunity to refocus our Ag policy on smaller scale, more healthy agriculture.

She’s got some statements from leaders of MI’s Ag community posted; the describe some of her past focus on specialty crops, food safety, and research.

“Senator Stabenow and her staff worked very hard on the 2008 farm bill to make sure there were new provisions that are specific to specialty crop farmers in Michigan and throughout the United States. She has been a champion for food safety programs, conservation, energy and research. We need an elected official like Senator Stabenow who is interested in Michigan agriculture, and working to grow and expand the economic engine in the state that creates jobs and keeps our food supply safe.” – Phillip J. Korson II, President of The Cherry Marketing Institute.

[snip]

“Sen. Debbie Stabenow has been a friend of agriculture and farms, large and small, serving the Michigan State House, U.S. House, and U.S. Senate Agriculture Committees and been an advocate for strong Michigan food systems. She really listens to farmers, both commodity crop and specialty crop growers, regarding their concerns about federal policy.” – Elaine Brown, Executive Director of the Michigan Food and Farming Systems.

“We are very appreciative of Senator Stabenow’s tireless efforts in support of the International Food Protection Training Institute’s mission to improve food safety nationwide. As Chairwoman, we expect that Senator Stabenow will continue to build on her strong track record in agriculture and food safety.” – Gerald Wojtala, Executive Director of the International Food Protection Training Institute.

“Senator Stabenow filled a leading role in the writing and passage of the 2008 Farm Bill. Senator Stabenow authored the first ever Specialty Crops title, which recognized the importance of these crops to our country’s agriculture. She also helped in many other provisions of the bill, particularly support for agricultural research and conservation programs.”- Dave Smith, Executive Director of the Michigan Vegetable Council.

Congratulations Senator Stabenow.