Thievery Under the TARP April 22, 2009
Posted by rogerhollander in Economic Crisis.Tags: AIG, bailout, bush administration, d.e.shaw, Economic Crisis, Federal Reserve, Goldman Sachs, hedge funds, Henry Paulson, inspector general, lawrence summers, obama administation, Robert Scheer, roger hollander, tarp, tarp fraud, taxpayer money, timothy geithner, toxic assets, treasury department, Wall Street
add a comment
Published on Wednesday, April 22, 2009 by TruthDig.com
We are being robbed big-time, but you can’t say we haven’t been warned. Not after the release Tuesday of a scathing report by the Treasury Department’s special inspector general, who charged that the aptly named Troubled Asset Relief Fund bailout program is rife with mismanagement and potential for fraud. The IG’s office already has opened 20 criminal fraud investigations into the $700 billion program, which is now well on its way to a $3 trillion obligation, and the IG predicts many more are coming.
Special Inspector General Neil M. Barofsky charged that the TARP program from its inception was designed to trust the Wall Street recipients of the bailout funds to act responsibly on their own, without accountability to the government that gave them the money.
He pointed to the example of AIG, which has acted as a conduit of funds to the banks it had insured without being required to tell the government what it is doing: “Failure to impose this requirement with respect to the injection of yet another $30 billion into AIG would not only be a failure of oversight, but could call into question the credibility of the government’s efforts.”
AIG is just one example in a bailout that has left the financial conglomerates unsupervised as they spend taxpayer money in what the report termed a government program of “unprecedented scope, scale and complexity,” putting the public and the Treasury Department in the dark as to how the money is being used by the very tycoons who got us into this mess. “The American people have a right to know how their tax dollars are being used,” Barofsky wrote in the report, which sharply criticized the government for failing to hold financial institutions accountable.
For all of its criticism of the original program, designed by the Bush administration, the report was equally severe in denouncing the Obama administration’s plan to partner with hedge funds and other private capital groups to buy up the “toxic” holdings of the banks. Charging that the plan carries “significant fraud risks,” the inspector general’s report pointed out that almost all of the risk in this new trillion-dollar plan is being borne by the taxpayers. The so-called private investors would be able to put up money they borrowed from the Fed through “nonrecourse” loans, meaning if the toxic assets purchased prove too toxic and the scheme failed, the private investors could just walk away without repaying the Fed for those loans.
The reason those loans may prove even more toxic than expected and the price paid by this government-underwritten partnership far too high is that the government is purchasing the most suspect of the banks’ mortgage packages. In addition, the plan is to accept at face value the evaluation of those packages by the very same credit-rating firms whose absurdly wrong estimates of the dollar worth of these securities helped create the problem that now haunts the world’s economy. “Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis,” the report found.
As with the entire banking bailout, the new plan of Obama’s treasury secretary, Timothy Geithner, is likely to enrich the very folks who impoverished the rest of us, as the report notes: “The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit.”
At the heart of this potentially massive fraud was the original decision of Henry Paulson, President Bush’s treasury secretary and a former Goldman Sachs chairman, to not require the recipients of the bailout, such as his old firm, to account for how the money was spent. Unfortunately, President Obama’s administration continued that practice.
The only difference is that the amount of public money being put at risk is now far greater, and the hedge funds, which are totally unregulated, have been brought in as the central players. One of the largest of those hedge funds, D.E. Shaw, carried Obama’s top economic adviser, Lawrence Summers, on its payroll to the tune of $5.2 million last year. He may have reason to trust these secretive enterprises that operate beyond the law, but the public does not.
Proof that Geithner’s Bank Plan Is a Massive Giveaway to the Bastards Who Started This Mess April 5, 2009
Posted by rogerhollander in Economic Crisis.Tags: beithner bank plan, citigroup, fdic.taxpayer, geithner, Goldman Sachs, joshua holland, jpmorgan chase, moral hazard, Morgan Stanley, roger hollander, spencer bachus, tarp, toxic assets, treasury department, troubled assets, zombie banks
add a comment
Posted by Joshua Holland, AlterNet at 1:17 PM on April 3, 2009.
Banks ”colluding to swap assets at inflated prices using taxpayers’ dollars.”
Recall the Geithner Bank Plan in a nutshell: private investors will partner with the government to buy those “toxic” assets off of struggling “zombie banks.” The buyers would put about 7 percent of the purchase price down, and the Treasury Department would match that with another 7 or so percent. Then the FDIC would offer government-backed loans for the remainder.
If the assets were to recover their value and turn a profit down the road, the investors would split the profits with the government. But if they don’t – if their values continue to tank, and it’s entirely likely many will — then you and I and everyone else we know who pays taxes will be on the hook for the lion’s share of the losses.
In other words, we’re letting bargain-hunters pick up the “troubled assets” that are burdening a number of financial institutions for pennies on the dollar, and limiting their downside risk if it doesn’t turn out well. It’s a pretty sweet deal for those investors. And, as I wrote when Geithner first announced the plan, it’s also pretty much the definition of “moral hazard.”
That background is important in order to understand just how incredibly infuriating this report from The Financial Times is:
US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.
The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.
[...]
Participating in the plan as a buyer could be complicated for Citi, which has suffered billions of dollars in writedowns on mortgage-backed assets and is about to cede a 36 per cent stake to the government.
Citi declined to comment. People close to the company said it was considering whether to take part in the plan as a seller, buyer or manager of the assets, but no decision had yet been taken.
[...]
Goldman and Morgan Stanley have large fund management units and have pledged to increase investments in distressed assets.
This week, John Mack, Morgan Stanley’s chief executive, told staff the bank was considering how to become “one of the firms that can buy these assets and package them where your clients will have access to them”.
Goldman and JPMorgan did not comment, but bankers said they were considering buying toxic assets.
Get it? We first pumped tens of billions of dollars into these institutions via the TARP, set up another program to aid them further by offering investors the opportunity to purchase the “shitpile” on their books with sweet federal subsidies, and they then turn around and now they’re essentially going to buy the assets back with taxpayer-backed loans.
FT again:
Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.
Administration officials reject the criticism because banking is part of a financial system, in which the owners of bank equity — such as pension funds — are the same entities that will be investing in toxic assets anyway. Seen this way, the plan simply helps to rearrange the location of these assets in the system in a way that is more transparent and acceptable to markets.
What mumbo-jumbo — “banking is part of the financial system.” Thanks, but there’s a difference between pension funds and the financial institutions who have taken boatloads of public cash because they were deemed “too big to fail.”
But the obviousness of Big Finance’s rip-off may get in the way of its success. The Financial Times warns, “public opinion may not tolerate the idea of banks selling each other their bad assets …”
And let’s give a Republican who’s trying to capitalize on that sentiment some rare credit around here …
Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidized windfalls”.
Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”
Shocking but true: Spencer Bachus is 100 percent right.
PS: Make sure to catch this piece in today’s WaPo about Giethner’s own role in creating the financial meltdown.
<!–
–>
The Real AIG Scandal March 18, 2009
Posted by rogerhollander in Economic Crisis.Tags: AIG, AIG bailout, aig bonuses, aig counterparties, aig scandal, bank of america, barclays, bernanke, deutsche bank, eliot spitzer, geithner, Goldman, Goldman Sachs, Henry Paulson, jpmorgan chase, lloyd balnkfein, Merrill Lynch, Morgan Stanley, roger hollander, tarp, taxpayers, treasury department, ubs
add a comment
The Real AIG ScandalIt’s not the bonuses. It’s that AIG’s counterparties are getting paid back in full.
Posted Tuesday, March 17, 2009, at 10:41 AM ET
AIG’s Manhattan, N.Y., office
Everybody is rushing to condemn AIG’s bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG’s counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?
For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman’s collapse, they feared a systemic failure could be triggered by AIG’s inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG’s counterparties are justified with an appeal to the sanctity of contract. If AIG’s contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.
But wait a moment, aren’t we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won’t be laid off. Why can’t Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn’t we already give Goldman a $25 billion capital infusion, and aren’t they sitting on more than $100 billion in cash? Haven’t we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn’t they have accepted a discount, and couldn’t they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?
The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.
So here are several questions that should be answered, in public, under oath, to clear the air:
What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?
Was it already known who the counterparties were and what the exposure was for each of the counterparties?
What did Goldman, and all the other counterparties, know about AIG’s financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn’t they bear a percentage of the risk of failure of their own counterparty?
What is the deeper relationship between Goldman and AIG? Didn’t they almost merge a few years ago but did not because Goldman couldn’t get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG’s business model was not to pay on insurance it had issued.
Why weren’t the counterparties immediately and fully disclosed?
Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.
Obama’s Bush league decision March 6, 2009
Posted by rogerhollander in Criminal Justice.Tags: Al-Haramain, Barack Obama, bush administratin, department of justice, Dick Cheney, doj, eric holder, fbi, Jon B. Eisenberg, judge walker, Opinion, roger hollander, security clearances, separation of power, state secrets privilege, supreme court, treasury department, warrantless wiretaping
add a comment
The president’s lawyers continue to block access to information that could expose warrantless wiretapping. Is this change we can believe in?
By Jon B. Eisenberg, www.salon.com
March 6, 2009 | Last July and September, I recounted in Salon how, in the case of Al-Haramain Islamic Foundation Inc. v. Bush, where I am one of the plaintiffs’ lawyers, government attorneys for the Bush administration had gone to extreme and even bizarre lengths to prevent the federal courts from determining the legality of President Bush’s warrantless wiretapping program. The government’s problem is a top-secret document that the Treasury Department accidentally disclosed to Al-Haramain, an Islamic charity in Oregon. The Treasury Department was investigating the charity in 2004 for purportedly financing terrorist activities. We believe the document confirms the surveillance of Al-Haramain and two of its lawyers as part of the 2004 investigation, and confirms their standing to sue as victims of the program, and for an adjudication of its illegality.
For three years, the Bush administration attempted to assert the state secrets privilege in an effort to prevent us from using the secret document to establish standing. (The state secrets privilege, which is rooted in a 1953 Supreme Court case, allows the government to squelch civil lawsuits involving classified evidence that is a state or military secret.) On Jan. 5, 2009, United States District Judge Vaughn Walker issued a key ruling in our favor, saying that, upon issuance of top secret security clearances to some of the plaintiffs’ attorneys, we may be given access, under secure conditions, to the secret document as well as other secret material filed by the government in the case, for the purpose of adjudicating standing. After extensive background checks by the FBI, the government granted top secret security clearances to us.
On Jan. 20, Barack Obama became president of the United States. This gave us “hope.” We finally expected to see, in the Justice Department’s handling of the case under Attorney General Eric Holder, some “change we can believe in.” But it hasn’t happened. Incredibly, the Justice Department has continued to assert the state secrets privilege in the Al-Haramain case, even though Judge Walker ruled last July that the privilege does not apply to the case.
Thus, during the first weeks of the Obama administration, the government is continuing to abuse the state secrets privilege in the Al-Haramain case. The Obama administration, while taking a big step this week toward government transparency by releasing some Bush-era secret memos, at the same time seems to be continuing the Bush-era strategy of preventing the courts from passing judgment on Bush’s (well, really Dick Cheney’s) radical theories of presidential power. The case is now called Al-Haramain Islamic Foundation Inc. v. Obama.
On Feb. 27, the 9th Circuit Court of Appeals rejected an emergency request by the Justice Department — that’s Obama’s Justice Department — for an immediate stay of further proceedings before Judge Walker. The 9th Circuit’s ruling allows Judge Walker to give us access to the secret court filings and adjudicate standing. That evening, the government attorneys did something mind-boggling: They informed Judge Walker in a public court filing that if he intends to give us access to the secret filings in the case, the government will “withdraw that information from submission to the Court.” Evidently that means executive branch authorities (who? the FBI? the Army?) will attempt to seize the documents from Judge Walker. That would be a violation of the constitutional separation of powers, unprecedented in this nation’s history. Incredibly, the Obama administration seems to be provoking a separation-of-powers crisis between the executive and judicial branches.
In yet another public filing with Judge Walker on Feb. 27, the government lawyers informed him that the government’s previous secret filings in the Al-Haramain case contain “an inaccuracy” that “cannot be set forth on the public record.” The “inaccuracy” is described only in secret filings accompanying the public filing. It appears that high officials in the Bush administration asserted a falsehood or falsehoods in their previous secret filings with the court, which the Obama administration is attempting to keep secret. What could that “inaccuracy” be? We haven’t a clue, because … it’s a secret!
What on earth is going on here? Have Obama’s people really decided to continue traveling the Bush path of abusing the state secrets privilege — perhaps for reasons of political expediency — or do they just need more time to get up to speed on the Al-Haramain case before they start doing the right thing? We wait to see. And we wait to see how Judge Walker responds to these latest outrages by the Bush — oops, I mean the Obama — administration.
Billions Dished Out in the Shadows March 4, 2009
Posted by rogerhollander in Economic Crisis.Tags: AIG, aig rescue, Ben Bernanke, economic advisors, Federal Reserve, financial products, president obama, regulatory oversight, Robert Scheer, roger hollander, stimulus package, timothy geithner, treasury department, treasury secretary, us taxpayers, Wall Street bailout
add a comment
Robert Scheer, www.huffingtonpost.com, March 4, 2009
This is crazy! Forget the bleating of Rush Limbaugh; the problem is not with the quite reasonable and, if anything, underfunded stimulus package, which in any case will be debated long and hard in Congress. The problem is with what is not being debated: the far more expensive Wall Street bailout that is being pushed through–as in the case of the latest AIG rescue–in secret, hurried deal-making primarily by the unelected secretary of the treasury and the chairman of the Federal Reserve.
Six months ago, we taxpayers began bailing out AIG with more than $140 billion, and then it went and lost $61.7 billion in the fourth quarter, more than any other company in history had ever lost in one quarter. So Timothy Geithner and Ben Bernanke huddled late into the night last weekend and decided to reward AIG for its startling failure with 30 billion more of our dollars. Plus, they sweetened the deal by letting AIG off the hook for interest it had been obligated to pay on the money we previously gave the company.
AIG doesn’t have to pay the 10 percent interest due on the preferred stock the U.S. government got for the earlier bailout funds because that interest will now be paid out only at AIG’s discretion, which means never. The preferred stock, which got watered down, carried a cumulative interest, meaning we taxpayers would have recaptured some money if the company ever got going again, but that interest obligation was waived in the new deal.
We’ve already given AIG a total of $170 billion–an amount that dwarfs the $75 billion allocated to helping those millions of homeowners facing foreclosures. And more will be thrown down the AIG rat hole because President Barack Obama is blindly following the misguided advice of his top economic advisers, who insist that AIG is too big to fail.
“AIG provides insurance protection to more than 100,000 entities, including small businesses, municipalities, 401(k) plans and Fortune 500 companies who together employ over 100 million Americans,” the joint Treasury Department and Fed statement declared while insisting that for that reason, plus the “systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high.”
What about the cost of inaction by Treasury and the Fed before this meltdown? If AIG were so important to the American economy, shouldn’t government regulators have been looking more closely at its activities? They couldn’t then, and even now they don’t understand what AIG has been up to, because the company was allowed to operate in an essentially unregulated global economy in which multinational corporations have their way. As the Treasury/Fed statement concedes: “AIG operates in over 130 countries with over 400 regulators and the company and its regulated and unregulated subsidiaries are subject to very different resolution frameworks across their broad and diverse operations without an overarching resolution mechanism.”
Oh, really? And you’re discovering that only now, when you’re making us bail AIG out? It wasn’t that long ago that a couple of hustlers operating out of an AIG office in London were going wild making money off selling insurance on credit default swaps that no one could understand, but the company execs loved those huge profit margins. To challenge their maneuvering, as some in Congress attempted, was said by their defenders, including Geithner, to put them at an unfair disadvantage in the world market. Ignorance was bliss … until the bubble burst.
This was all belatedly conceded by Bernanke in his Senate testimony on Tuesday: “AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets–took huge losses. There was no regulatory oversight because there was a gap in the system.”
AIG used to be in the conventional insurance business, covering identifiable risks it knew something about, until it took advantage of deregulation and a lack of government surveillance to come up with contrived new financial products. Even Maurice Greenberg, the man who built AIG from the ground up over a span of 40 years before he was forced out amid corruption charges in 2005, admits that he didn’t understand the newfangled financial gimmicks that the company was peddling. This week, claiming he too was swindled, Greenberg sued in federal court, charging the AIG execs who forced him out with “gross, wanton or willful fraud or other morally culpable conduct,” over the credit default swap portfolio that was part of his settlement.
U.S. taxpayers now have ownership of almost 80 percent of AIG, but with the company’s once solid traditional insurance business now suffering a steep loss of consumer confidence, it’s not likely that even the formerly healthy parts of the company will be worth much. What we have here is all pain and no gain for the taxpayers roped into this debacle, which is proving to be the story of the entire banking bailout.
Robert Scheer is editor in chief of Truthdig and author of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America.
Resistance to Housing Foreclosures Spread Across the Land January 24, 2009
Posted by rogerhollander in Economic Crisis.Tags: ACORN, bailout, bankruptcy, ben ehrenreich, bernanke, chris dodd, community organization, Economic Crisis, evictions, faith bautista, fdic, Federal Reserve, foreclosure freeze, foreclosures, housing crisis, immigrant borrowers, migrant borrowers, mortgage meltdown, mortgate crisis, mubauhay alliance, president obama, roger hollander, schwarzenegger, senate banking, sub-prime, treasury department, Wall Street
add a comment
23 January 2009
by: Ben Ehrenreich, The Nation
Community-based movements to halt the flood of foreclosures have been building across the country. And they’re not the usual suspects.
”This is a crowd that won’t scatter,” James Steele wrote in the pages of The Nation some seventy-five years ago. Early one morning in July 1933, the police had evicted John Sparanga and his family from a home on Cleveland’s east side. Sparanga had lost his job and fallen behind on mortgage payments. The bank had foreclosed. A grassroots “home defense” organization, which had managed to forestall the eviction on three occasions, put out the call, and 10,000 people — mainly working-class immigrants from Southern and Central Europe — soon gathered, withstanding wave after wave of police tear gas, clubbings and bullets, “vowing not to leave until John Sparanga [was] back in his home.”
”The small home-owners of the United States are organizing,” Steele concluded, “tardily perhaps, but none the less surely.” It wasn’t just homeowners — three months earlier the governor of Iowa had called out the National Guard after farmers stormed a courthouse and threatened to hang the judge if he didn’t stop issuing foreclosures. They left him in a ditch, bruised but alive. By the end of the 1930s, farmers’ and home-owners’ struggles had pushed the legislatures of no fewer than twenty-seven states to pass moratoriums on foreclosures.
The crowds appear to be gathering again — far more quietly this time but hardly tentatively. Community-based movements to halt the flood of foreclosures have been building across the country. They turned out in Cleveland once again in October, when a coalition of grassroots housing groups rallied outside the Cuyahoga County courthouse, calling for a foreclosure freeze and constructing a mock graveyard of Styrofoam headstones bearing the names of local communities decimated by the housing crisis. (They did not, unfortunately, stop the more than 1,000 foreclosure filings in the county the following month.) In Boston the Neighborhood Assistance Corporation of America began protesting in front of Countrywide Financial offices in October 2007. Within weeks, Countrywide had agreed to work with the group to renegotiate loans. In Philadelphia ACORN and other community organizations helped to pressure the city council to order the county sheriff to halt foreclosure auctions this past March. Philadelphia has since implemented a program mandating “conciliation conferences” between defaulting homeowners and lenders. ACORN organizers say the program has a 78 percent success rate at keeping people in their homes. One activist group in Miami has taken a more direct approach to the crisis, housing homeless families in abandoned bank-owned homes without waiting for government permission.
It’s unlikely, though, that any of these activists will be able to relax soon. Other than calling for a ninety-day freeze on foreclosures — which, given that loan negotiations can take many months to work out, would almost certainly be inadequate — President Obama has been consistently vague about his plans to address the foreclosure crisis. He has indicated his support for a $24 billion program proposed in November by FDIC chair Sheila Bair, which would offer banks incentives to renegotiate loans, aiming to reduce mortgage payments to 31 percent of homeowners’ monthly income. Obama’s economic team has since worked with House Financial Services Committee chair Barney Frank on a bill that would require that between $40 billion and $100 billion of what’s left in the bailout package be spent on an unspecified foreclosure mitigation program. It would be left to Obama’s Treasury Department to design that program. But Frank’s and Bair’s proposed plans are voluntary. Banks that choose not to accept federal assistance won’t have to renegotiate a single loan.
Community organizers, however, aren’t sitting around waiting for banks to come to the table. Nowhere have they had more cause to keep busy than in California, home to a quarter of the 3.2 million foreclosures filed in the country last year. The collapse of the state’s hyperinflated real estate market has left as many as 27 percent of mortgage holders owing more on their homes than the properties are worth; California’s foreclosure rate is more than twice the national average. From San Diego to Stockton, in churches, union halls and community centers, angry homeowners have been organizing to freeze foreclosures and impose a systematic modification of home loans.
The crisis has produced some unlikely activists. Faith Bautista didn’t start out as a rabble-rouser. A small, energetic and stubbornly cheerful woman, she has run a tiny nonprofit called the Mabuhay Alliance since 2004. Until recently, it functioned as an all-purpose minority small-business association. With a staff of six working out of a mini-mall office behind an auto parts store in an industrial section of San Diego, the Mabuhay Alliance served a largely Filipino community (mabuhay translates roughly from Tagalog as viva!) offering, among other services, free income-tax preparation, microloans and counseling for first-time homeowners.
It was through the latter program that Bautista heard the first rumblings of the mortgage meltdown, which would ultimately bring down Wall Street’s most powerful financial firms. Southern California’s development boom hadn’t yet begun to ebb in late 2006, but, Bautista says, “people were already calling us and asking what was going to happen. They were clearly going to default.”
The community Mabuhay serves — about 40 percent Filipino, the remainder Latino, African-American and other Asians — was hit particularly hard. Throughout the housing boom, immigrant and minority borrowers were disproportionately issued high-priced subprime loans, even when they qualified for less expensive, fixed-rate mortgages. One study by the California Reinvestment Coalition found that African-American and Latino borrowers were nearly four times as likely as whites to receive high-cost mortgages. Bautista had an adjustable-rate mortgage on the home she bought in 2004. Her monthly payments soon leapt to $6,000. It took her nine months, she says, and a personal meeting with the CEO of the bank that held her mortgage, to renegotiate the loan. It quickly became obvious to her that fighting the banks on an individual basis would be inadequate to the scale of the crisis — only an organized battle for systematic changes would help keep people in their homes.
In the early months of 2007, as the first of the subprime lenders began to declare bankruptcy, Bautista started contacting major lenders, asking them to stop foreclosures and take part in a “massive loan-modification program” — dropping interest rates, writing down principals and donating executive bonuses to a fund for borrowers at risk of default. If lenders shared responsibility for the crisis, she calculated, homeowners shouldn’t bear the full brunt of the suffering. Not surprisingly, she laughs, “they didn’t want to talk to us.”
That summer, with the help of the Greenlining Institute, a Berkeley-based research and advocacy group that works on racial equality issues, she was able to arrange a meeting with Countrywide co-founder and CEO Angelo Mozilo. At the time, almost one-fourth of Countrywide’s subprime loans were delinquent. The meeting, Bautista says, was fruitless: “Eyes are closed, ears are closed.” Over the next few months, she met three more times with Countrywide management, getting nowhere. “They didn’t want to admit they were doing anything wrong.”
Elected officials appeared equally blind to the extent of the problem. Countrywide’s stock had plummeted, but the influence of the nation’s largest mortgage lender still ran deep. Mozilo’s so-called Friends of Angelo program had cut favorable deals on loans to his highly placed acquaintances, including Christopher Dodd and Kent Conrad, chairs of the Senate banking and budget committees, respectively. And Countrywide, along with other top mortgage lenders and industry associations, spent tens of millions of dollars lobbying Congress and gave millions more in campaign contributions. By mid-October 2007, the government’s only response to the foreclosure crisis had been the creation of the Hope Now alliance, a voluntary mortgage-industry coalition that established a telephone hot line to aid homeowners in altering the terms of their mortgages. But, critics say, the program has done little more than design repayment plans that in many cases actually increased borrowers’ monthly payments. “I call it Hope Not,” quips Bautista.
At the state level, things weren’t much better. Governor Arnold Schwarzenegger brokered a nonbinding agreement in which Countrywide and other lenders volunteered to extend the introductory low interest rates on some adjustable-rate mortgages. It only deferred disaster and did nothing for those who were already in default. Meanwhile, new foreclosure records were being broken every month.
The day before Thanksgiving, the Mabuhay Alliance, joined by the Mexican-American Political Alliance, staged a protest in front of Countrywide’s San Diego office. They attempted to hand-deliver a turkey to Mozilo, who, not counting stock options, would be paid $22 million in 2007, down from $42 million in 2006. Once again, the doors were locked. Only about fifty people showed up that day, but the protest got enough press to have a powerful symbolic effect. “No one was willing to take on Mozilo in California,” says Greenlining’s Robert Gnaizda. “He held enormous power. And [Bautista] took him on. She forced the financial industry to pay attention.”
The next week, Bautista and Gnaizda went to Washington and met with Federal Reserve chief Ben Bernanke and FDIC chair Sheila Bair, asking for a freeze on foreclosures and wholesale relief for mortgage holders. Bair was receptive, Bautista says. Bernanke was not. Eight months later, when the FDIC took over IndyMac, Bair immediately suspended foreclosures. “Now they’re willing to do it,” Bautista shrugs. If they’d acted earlier, she says, “all those people who were foreclosed wouldn’t have been foreclosed.”
In December, a few weeks after the Countrywide protest, she and Gnaizda wangled a meeting with California Attorney General Jerry Brown, asking him to sue Countrywide for defrauding borrowers. He wasn’t interested, Bautista says. The following June, a few days before Bank of America bought out the crippled lender, Brown finally filed suit against Mozilo and Countrywide. Gnaizda explains the delay: “Countrywide was not weak in December.”
In the meantime, all the major loan providers in the country have agreed to work with Mabuhay to modify individual loans. This means, Bautista says, that Mabuhay can help about twenty people a week. She is far from satisfied. Despite the hundreds of billions of dollars given to the financial industry, no federal or state government has provided any substantive relief to the people hit the hardest by the mortgage crisis — the ones who are losing their homes. “You gotta start from the bottom and go up,” Bautista says. “If you start at the top, then at the bottom you get crumbs. You get nothing.”
In December Mabuhay sponsored a “foreclosure clinic” at a community college in the San Francisco Bay Area city of Vallejo, which despite its small size — its population is about 112,000 — boasted the tenth-highest foreclosure rate in the country at the time. About 150 anxious homeowners showed up, clutching thick folders of financial documents, waiting to speak with mortgage counselors. Their stories were painfully similar: one couple was struggling to pay an interest rate of 16 percent; another was unable to make $4,300 monthly payments and owed $630,000 on a home worth $370,000; another, in their mid-60s, had resigned themselves to losing the home in which they’d lived for twenty-three years and spending their retirement in a motor home.
Standing beside Bautista at the front of the auditorium, Gnaizda did his best to channel the crowd’s frustration into action. “Ten million families are facing foreclosure right now,” he said. “Change is not going to come about because President Obama wants it to. He is not going to act unless you hold his feet to the fire.”
Gnaizda was not alone in that conclusion: other grassroots efforts to stop foreclosures have been sprouting up all over California. In metropolitan Los Angeles and Oakland, groups like ACORN had already established an effective infrastructure to organize low-income homeowners. A list of community demands that came out of a December 2007 ACORN-sponsored meeting at an Oakland senior center became the basis for a July state law requiring banks to warn homeowners thirty days before filing a notice of default. The law is credited with dramatically lowering foreclosure rates in California for two months after it took effect. (Predictably, foreclosure rates resumed their northward climb after that.)
More recently, ACORN has been pushing the adoption of the program the group helped pioneer in Philadelphia, a mandatory mediation process that forces lenders to negotiate with homeowners before filing a judgment of default. “If they can’t figure this out in Sacramento,” says ACORN’s Austin King, “they’re not trying.”
Much of the local organizing on the issue, though, has not come from the usual activist suspects. Circumstances have forced groups that usually practice more staid forms of engagement into the fray, particularly in the former industrial towns just beyond the urban fringe, which have been among those hit hardest by the economic collapse. The antiforeclosure movement in Antioch, about thirty-five miles east of Vallejo, began with ten people forming an organizing committee at a local Catholic church. “We just heard dozens and dozens of stories of people struggling to keep their homes, of people losing their homes. They couldn’t get any of the banks to respond or even speak to them,” says Adam Kruggel, executive director of Contra Costa Interfaith Supporting Community Organization (CCISCO). Two hundred and fifty people showed up at the group’s first meeting on the issue. “We sort of deputized ourselves,” Kruggel says. “The government wasn’t regulating the banks, so we were going to embarrass them in public.”
The strategy worked. CCISCO protested in front of several Antioch bank branches in May. Lenders soon began returning the group’s phone calls and agreeing to renegotiate their members’ loans. But the Bush administration’s bailout plan generated enough anger that, Kruggel says, “we realized we needed to work on a local and national level. For less than what [the Treasury] gave Wells Fargo, they could create a loan-modification program that could save a million and a half families their homes.” CCISCO began coordinating with similar efforts one county over in Stockton and halfway across the country in Kansas City, and the group sent a lobbying delegation to Washington. It’s asking for a six-month freeze on foreclosures and a cap on mortgage payments at 34 percent of family income. “Any bank that got any bailout money needs to do systematic loan modifications,” Kruggel says. “We’re not going to wait for the Obama administration.”
Craig Robbins, who directs ACORN’s foreclosure campaign, echoes Kruggel’s sentiment: “We’re excited about some of the things Obama has been saying, but there’s got to be tremendous pressure for a real, comprehensive federal solution.” Taking cues from Depression-era antiforeclosure movements, ACORN activists began disrupting foreclosure sales at courthouses across the country in Januaary. “We’re looking to throw a wrench in the foreclosure machinery,” says Robbins, adding that ACORN is planning to organize “rapid defense teams” ready to turn out crowds on short notice to prevent evictions. Until that happens, it might help to remember that the crowd of thousands that came to the Sparanga family’s defense in Cleveland didn’t gather until four years into the Depression. This one has just begun.
———
Ben Ehrenreich, a journalist and novelist based in Los Angeles, is the author of The Suitors.
Can Africa survive Obama’s advisers? January 8, 2009
Posted by rogerhollander in Africa, Economic Crisis.Tags: Africa, africa debt, aids south africa, apartheid, Bill Clinton, Economic Crisis, Federal Reserve, IMF, jubilee usa, lawrence summers, naomi klein, nyerere, Obama, patrick bond, paul volker, rhodes, robert rubin, roger hollander, shock doctrine, South Africa, stiglitz, thabo mbeki, tim geithner, transafrica, treasury department, volker shock, Wall Street, wall street journal, washington consensus, World Bank
add a comment
Kenyans celebrate Obama’s victory.
Patrick Bond
November 12, 2008 — One of Barack Obama’s leading advisers has done more damage to Africa, its economies and its people than anyone I can think of in world history, including even Cecil John Rhodes. That charge may surprise readers, but hear me out.
His name is Paul Volcker, and although he is relatively unknown around the world, the 82-year-old banker was recommended as “a legend!” to Obama by Austan Goolsbee, the president-elect’s chief economic adviser (and a professor at the University of Chicago). Volcker was recently profiled by the Wall Street Journal: “The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression.”
We’ll consider the impact of Volcker’s rule on Africa in a moment. But why dredge up crimes nearly 30 years old?
This kind of reckoning is important, as three current examples suggest:
- Reparations lawsuits are now being heard in New York by victims of apartheid who are collectively requesting US$400 billion in damages from three dozen US corporations who profited from South African operations during the same period. Supreme Court justices had so many investments in these companies that in May they had to bounce the case back to a lower New York court to decide, effectively throwing out an earlier judgment against the plaintiffs: the Jubilee anti-debt movement, the Khulumani Support Group for apartheid victicms, and 17 000 other black South Africans.
- Last month a San Francisco court began considering a similar reparations lawsuit — under the Alien Tort Claims Act — filed by Larry Bowoto and the Ilaje people of the Niger Delta against Chevron for 1998 murders similar to those that took the life of Ken Saro-Wiwa on November 10, 1995.
- In Boston last month, Harvard University’s Pride Chigwedere released a study into preventable deaths — at least 330 000 — caused by former African National Congress and South African President Thabo Mbeki’s AIDS policies during the early 2000s. The ex-president has “blood on his hands”, according to Zackie Achmat of the Treatment Action Campaign, requesting a judicial inquiry.
The same critical treatment is appropriate for Volcker, because of the awesome financial destruction he imposed, within most Africans’ living memory. His policies stunted the continent’s growth when it most needed internal economic coherence.
Even the International Monetary Fund’s official history cannot avoid using the famous phrase most associated with the Fed chair’s name: “The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the world’s governments to cope with the economic instabilities of the 1970s… [including the] monetary contraction in the United States (the ‘Volcker Shock’) that brought a sharp rise in world interest rates and a sustained appreciation of the dollar.”
Volcker’s decision to raise rates so high to rid the US economy of inflation and strengthen the fast-falling dollar had special significance in Africa, write British academics Sarah Bracking and Graham Harrison: “1979 marked a radical change in global economic policy, inaugurated with the ‘Volcker Shock’ (so called after Paul Volcker, then chairman of the Board of Governors of the Federal Reserve) when the United States suddenly and dramatically raised interest rates, [which] increased the cost of African debt precipitously, since a majority of debt stock was held in dollars. The majority of the newly independent states had been effectively delivered into at least twenty years of indentured labor. From that point on access to finance became a key policing mechanism directed at African populations.”
Adds journalist Naomi Klein in her book The Shock Doctrine, “In developing countries carrying heavy debt loads, the Volcker Shock was like a giant Taser gun fired from Washington, sending the developing world into convulsions. Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans… It was after the Volcker Shock that Brazil’s debt exploded, doubling from $50 billion to $100 billion in six years. Many African countries, having borrowed heavily in the seventies, found themselves in similar straits: Nigeria’s debt in the same short time period went from $9 billion to $29 billion.”
The numbers involved were daunting for low-income countries. According to University of California economic geographer Gillian Hart, “Medium and long-term public debt shot up from $75.1 billion in 1970 to $634.4 billion in 1983. It was the so-called Volcker Shock… that ushered in the debt crisis, the neoliberal counterrevolution, and vastly changed roles of the World Bank and IMF in Latin America, Africa, and parts of Asia.”
Elmar Altvater of Berlin’s Free University recalls how the world “slid into the debt crisis of the 1980s after the US Federal Reserve tripled interest rates (the so called ‘Volcker Shock’), leading to what later has been described as the ‘lost decade’ for the developing world.”
How “lost”? The British Medical Journal complained in 1999 of orthodox World Bank structural adjustment policies that immediately followed: “According to Unicef, a drop of 10-25% in average incomes in the 1980s-the decade noted for structural adjustment lending-in Africa and Latin America, and a 25% reduction in spending per capita on health and a 50% reduction per capita on education in the poorest countries of the world, are mostly attributable to structural adjustment policies. Unicef has estimated that such adverse effects on progress in developing countries resulted in the deaths of half a million young children-and in just a 12-month period.”
A few honest mainstream economists also explain Africa’s economic crisis in these terms. “The external shock that might have precipitated the developing country slowdown is the increase in real interest rates after the Volcker Shock in 1979″, wrote World Bank senior researcher William Easterly in 2001. “The interest on external debt as a ratio to GDP has a statistically significant and negative effect on growth.”
A few blocks away from the Federal Reserve, one of Volcker’s closest allies was World Bank president Tom Clausen, formerly Bank of America chief executive officer. As the Volcker Shock wore on, in 1983, Clausen offered his board of directors this frank confession: “We must ask ourselves: How much pressure can these nations be expected to bear? How far can the poorest peoples be pushed into further reducing their meagre standards of living? How resilient are the political systems and institutions in these countries in the face of steadily worsening conditions? I don’t have the answers to these important questions. But if these countries are pushed too far, and too much is demanded of them without the provision of substantial assistance in their adjustment efforts, we must face the consequences. And those will surely exact a cost in terms of human suffering and political instability.”
At that point, “Africa was not even on my radar screen”, Volcker told interviewers Leo Panitch and Sam Gindin.
Meanwhile, the World Bank’s sister institution, the International Monetary Fund, was described by Tanzanian president Julius Nyerere as “a neo-colonial institution which exploits the poor to make them poorer and serves the rich to become richer”. Volcker had, ironically, played a central role in the destruction of the Bretton Woods system’s dollar-gold convertibility arrangement, effectively a US$80 billion default on holders of dollars abroad, when in 1971 he served Richard Nixon as under-secretary of the Treasury.
Eight years later, he was chosen to chair the Federal Reserve, which sets US (and by extension world) interest rates. As Jimmy Carter’s domestic policy advisor Stuart Eizenstat explained, “Volcker was selected because he was the candidate of Wall Street. This was their price, in effect.”
In 1985, Ronald Reagan offered Clausen’s job to Volcker, but he decided to stay on at the Fed until 1987, when he went back to a high-paid Wall Street job.
He’s back
Now he is back, and according to a recent profile by the Wall Street Journal, “Obama is increasingly relying on Mr. Volcker. His staff now routinely reviews policy proposals and speeches with Mr. Volcker. Conference calls and face-to-face meetings of the Obama economic team are often reorganized to accommodate his schedule. When the team discusses the financial crisis, ‘The most important question to Obama: What does Paul Volcker think?’ says Jason Furman, the campaign’s economic-policy director… When Sen. Obama raised the prospect of a package of spending and tax measures to ‘stimulate’ the economy, Mr. Volcker disapproved. ‘Americans are spending beyond their means,’ he told the group. A stimulus package would delay the belt-tightening and savings needed, he added, proposing instead better regulation and assistance to banks.”
By November 8, the odds of Volcker being appointed US Treasury Secretary were 10%, according to the WSJ‘s betting pool. The race was between New York Federal Reserve Bank president Tim Geithner and former Bill Clinton-era Treasury Secretary Lawrence Summers, at 40% odds each. Geithner served under Summers and Robert Rubin in Bill Clinton’s Treasury Department during the 1990s.
Summers is best known for the sexism controversy which cost him the presidency of Harvard in 2006. But 15 years earlier he gained infamy as an advocate of African genocide and environmental racism, thanks to a confidential World Bank memo he signed when he was the institution’s senior vice president and chief economist: “I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that… I’ve always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low…”
After all, Summers continued, inhabitants of low-income countries typically die before the age at which they would begin suffering prostate cancer associated with toxic dumping. And in any event, using marginal productivity of labour as a measure, low-income Africans are not worth very much anyhow. Nor are African’s aesthetic concerns with air pollution likely to be as substantive as they are for wealthy northerners.
Such arguments were said by Summers to be made in an “ironic” way (and in his defence, he may have simply plagiarised the memo from a colleague, Lant Pritchett). Yet their internal logic was pursued with a vengeance by the World Bank and IMF long after Summers moved over to the Clinton Treasury Department, where in 1999 he insisted that Joseph Stiglitz be fired by World Bank president James Wolfensohn, for speaking out against the impeccable economic logic of the Washington Consensus.
Volcker, Summers and a whole crew of similar capitalist economists are whispering in Obama’s ear for a resurgent US based on brutal national self-interest. They need Obama to relegitimate shock-doctrinaire neoliberalism — and in turn, they need Obama’s Africa advisers (like Witney Schneidman) to promote military imperialism in the form of the Africa Command.
Whose advice will prevail?
Can Obama instead hear supporters like Bill Fletcher, Imani Countess and Danny Glover, who made TransAfrica (as one example) a visionary economic justice organisation, by fighting the policies of Volcker and Summers? Can AfricaAction, the Institute for Policy Studies, the American Friends Service Committee, Jubilee USA, ActionAid and other genuine advocates for the continent get a word in edgewise, between fits of cackling from the corporate liberals who think they own Obama? Will the president-elect ever get advice from economists James K. Galbraith of the University of Texas or Center for Economic and Policy Research codirectors Dean Baker and Mark Weisbrot, who correctly read the various financial crises way ahead of time, and whose records promoting social justice would serve Africa far better?
Probably not. So it is vital for Africans to wake up to the danger that the likes of Volcker and Summers represent. Anyone paying attention to the continent’s economic decline since 1980 knows the damage they did, but Obama apparently needs to hear more of their sins against his father’s people before he chooses his Treasury Secretary next week. And while he’s at it, how about a revision of Obama’s utterly neoliberal ‘fundamental objective’ for the continent, which is “to accelerate Africa’s integration into the global economy”?
[Patrick Bond directs the Centre for Civil Society in Durban, South Africa: http://www.ukzn.ac.za/ccs; this article was originally a ZNet commentary.]
The Sanctity of AIG’s Contracts March 16, 2009
Posted by rogerhollander in Criminal Justice, Economic Crisis, Torture.Tags: AIG, aig bonuses, aig executives, chrysler, cia interrogations, contract concessions, contracts, Federal Reserve, ford, geithner, general motors, glenn greenwald, International law, Larry Summers, obama administration, roger hollander, treasury department, uaw, united auto workers
add a comment
Published on Monday, March 16, 2009 by Salon.com
by Glenn Greenwald
Larry Summers, Sunday, on AIG’s payment of executive bonuses:
Associated Press, February 18, 2009:
Apparently, the supreme sanctity of employment contracts applies only to some types of employees but not others. Either way, the Obama administration’s claim that nothing could be done about the AIG bonuses because AIG has solid, sacred contractual commitments to pay them is, for so many reasons, absurd on its face.
As any lawyer knows, there are few things more common – or easier — than finding legal arguments that call into question the meaning and validity of contracts. Every day, commercial courts are filled with litigations between parties to seemingly clear-cut agreements. Particularly in circumstances as extreme as these, there are a litany of arguments and legal strategies that any lawyer would immediately recognize to bestow AIG with leverage either to be able to avoid these sleazy payments or force substantial concessions.
Since the contracts are secret and we’re apparently just supposed to rely on the claims of AIG and Treasury Department lawyers, it’s impossible to identify these arguments specifically. But there are almost certainly viable claims to be asserted that the contracts were induced via fraud or that the bonus-demanding executives themselves violated their contracts. Independently, it’s inconceivable that there aren’t substantial counterclaims that AIG could assert against any executives suing to obtain these bonuses, a threat which, by itself, provides substantial leverage to compel meaningful concessions. Many of these executives were, after all, the very ones responsible for the cataclysmic losses.
The only way a company like AIG throws up its hands from the start and announces that there is simply nothing to be done is if they are eager to make these payments. One might expect AIG to do so — they haven’t exactly proven themselves to be paragons of business ethics — but the fact that Obama officials are also insisting that nothing can be done (even while symbolically and pointlessly pretending to join in the populist outrage over these publicly-funded “retention payments”) is what is most notable here.
Legal strategies aside, just as a business matter, one of the first things which every compnay in severe distress does is go to its creditors, explain that it cannot make the required payments, and force re-negotiations of the terms. That’s as basic as it gets. To see how that works, just look at what GM and other automakers did with their union contracts – what they were forced by the Government to do as a condition for their bailout. Obviously, if a company goes into bankruptcy, then contracts to pay executive bonuses are immediately nullified, but the threat of bankruptcy or serious financial distress is, for obvious reasons, very compelling leverage to force substantial concessions. And the idea that, in this economy, AIG executives (of all people) will be able simply to leave and go seek employment elsewhere unless they receive their “retention bonuses” (even assuming that’s an undesirable outcome) is nothing short of ludicrous.
There may be other reasons why the Treasury Department decided it wanted AIG to pay these bonuses (Marcy Wheeler considers some of those reasons here), but this claim from Larry Summers that the sanctity of contracts precludes any alternatives is not just false, but insultingly so. It’s difficult to recall anything quite so vile as watching hundreds of millions of dollars in taxpayer money flow to AIG executives. One would expect the Obama administration to do everything possible to prevent that from happening. Instead, they seem to be doing the opposite.
UPDATE: Jane Hamsher has more here on AIG’s insultingly frivolous claims as to why these contract obligations are unavoidable, and here FDL has a petition, to be delivered to the House Financial Services Committee during Wednesday’s hearing on the AIG payments, demanding full disclosure before any more payments are made.
On a related note, could someone please reconcile Larry Summers emphatic declaration that “we are a country of laws” with this:
To use Larry Summer’s eloquent phrase (perversely deployed to justify the AIG bonus payments): if “we are a country of law,” we would probably do something about these severe violations of law that are right in front of our faces, particularly since we all know exactly who the lawbreakers are.
Apparently, this “we are a country of law” concept means that hundreds of millions of dollars in taxpayer money must be transferred to the AIG executives who virtually destroyed the financial system, but it does not mean that something must be done when high government officials get caught plainly breaking the law. What an oddly selective application of the “rule of law” this is.
Glenn Greenwald was previously a constitutional law and civil rights litigator in New York. He is the author of the New York Times Bestselling book “How Would a Patriot Act?,” a critique of the Bush administration’s use of executive power, released in May 2006. His second book, “A Tragic Legacy“, examines the Bush legacy.