Obama Sells Out Homeowners Again: Mortgage Settlement a Sad Joke February 23, 2012Posted by rogerhollander in Barack Obama, Economic Crisis, Housing/Homelessness.
Tags: ally financial, bailout, bank of america, Citibank, Economic Crisis, foreclosures, harp, home owners, jpmorgan chase, mortgage settlement, mortgages, Obama, roger hollander, subprime, tarp, ted rall, Wells Fargo
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Joe Nocera, the columnist currently challenging Tom Friedman for the title of Hackiest Militant Centrist Hack–it’s a tough job that just about everyone on The New York Times op-ed page has to do–loves the robo-signing settlement announced last week between the Obama Administration, 49 states and the five biggest mortgage banks. “Two cheers!” shouts Nocera.
Too busy to follow the news? Read Nocera. If he likes something, it’s probably stupid, evil, or both.
As penance for their sins–securitizing fraudulent mortgages, using forged deeds to foreclose on millions of Americans and oh, yeah, borking the entire world economy–Ally Financial, Bank of America, Citibank, JPMorgan Chase and Wells Fargo have agreed to fork over $5 billion in cash. Under the terms of the new agreement they’re supposed to reduce the principal of loans to homeowners who are “underwater” on their mortgages–i.e. they owe more than their house is worth–by $17 billion.
Some homeowners will qualify for $3 billion in interest refinancing, something the banks have resisted since the ongoing depression began in late 2008.
What about those who got kicked out of their homes illegally? They split a pool of $1.5 billion. Sounds impressive. It’s not. Mark Zuckerberg is worth $45 billion.
“That probably nets out to less than $2,000 a person,” notes The Times. “There’s no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file.”
Readers will recall that I paid more than that for a speeding ticket. 68 in a 55. This is the latest sellout by a corrupt system that would rather line the pockets of felonious bankers than put them where they belong: prison.
Remember TARP, the initial bailout? Democrats and Republicans, George W. Bush and Barack Obama agreed to dole out $700 billion in public–plus $7.7 trillion funneled secretly through the Fed–to the big banks so they could “increase their lending in order to loosen credit markets,” in the words of Senator Olympia Snowe, a Maine Republican.
Three years after TARP “tight home loan credit is affecting everything from home sales to household finances,” USA Today reported. “Many borrowers are struggling to qualify for loans to buy homes…Those who can get loans need higher credit scores and bigger down payments than they would have in recent years. They face more demands to prove their incomes, verify assets, show steady employment and explain things such as new credit cards and small bank account deposits. Even then, they may not qualify for the lowest interest rates.”
Financial experts aren’t surprised. TARP was a no-strings-attached deal devoid of any requirement that banks increase lending. You can hardly blame the bankers for taking advantage. They used the cash–money that might have been used to help distressed homeowners–to grow income on their overnight “float” and issue record raises to their CEOs.
Next came Obama’s “Home Affordable Modification Program” farce. Another toothless “voluntary” program, HAMP asked banks to do the same things they’ve just agreed to under the robo-signing settlement: allow homeowners who are struggling to refinance and possibly reduce their principals to reflect the collapse of housing prices in most markets.
Voluntary = worthless.
CNN reported on January 24th: “The HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners–a far cry from the promised 4 million.”
Or the 15 million who needed help.
As usual, state-controlled media is too kind. Banks didn’t “lose” documents. They threw them away.
One hopes they recycled.
I wrote about my experience with HAMP: Chase Home Mortgage repeatedly asked for, received, confirmed receiving, then requested the same documents. They elevated the runaround to an art. My favorite part was how Chase wouldn’t respond to queries for a month, then request the bank statement for that month. They did this over and over. The final result: losing half my income “did not represent income loss.”
It’s simple math: in 67 percent of cases, banks make more money through foreclosure than working to keep families in their homes.
This time is different, claims the White House. “No more lost paperwork, no more excuses, no more runaround,” HUD secretary Shaun Donovan said February 9th. The new standards will “force the banks to clean up their acts.”
Don’t bet on it. The Administration promises “a robust enforcement mechanism”–i.e. an independent monitor. Such an agency, which would supervise the handling of million of distressed homeowners, won’t be able to handle the workload according to mortgage experts. Anyway, it’s not like there isn’t already a law. Law Professor Alan White of Valparaiso University notes: “Much of this [agreement] is restating obligations loan servicers already have.”
Finally, there’s the issue of fairness. “Underwater” is a scary, headline-grabbing word. But it doesn’t tell the whole story.
Tens of millions of homeowners have seen the value of their homes plummet since the housing crash. (The average home price fell from $270,000 in 2006 to $165,000 in 2011.) Those who are underwater tended not to have had much equity in their homes in the first place, having put down low downpayments. Why single them out for special assistance? Shouldn’t people who owned their homes free and clear and those who had significant equity at the beginning of crisis get as much help as those who lost less in the first place? What about renters? Why should people who were well-off enough to afford to buy a home get a payoff ahead of poor renters?
The biggest fairness issue of all, of course, is one of simple justice. If you steal someone’s house, you should go to jail. If your crimes are company policy, that company should be nationalized or forced out of business.
Your victim should get his or her house back, plus interest and penalties.
You shouldn’t pay less than a speeding ticket for stealing a house.
Tags: bank of america, chase, citigroup, elizabeth warren, eric schneiderman, Federal Reserve, geithner, home foreclosures, homeowner assistance, jpmorgan, kathryn wylde, main street, robo=signing, roger bybee, tarp, Wall Street, Wells Fargo
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expose the destructive thinking of our financial and political elites.
“Corporations are people, my friend,” Mitt Romney recently declared.
That was pretty clumsy coming from a mega-millionaire Republican candidate,
as he was backing the 2010 U.S. Supreme Court decision Citizens United
opposed by no less than 80 percent of the public because of the enormous
political power it confers
upon the rich.
But how about the notion that “Wall Street is our Main Street,” which was voiced
by Federal Reserve official Kathryn Wylde? Her assertion was especially
startling because her explicit duty is “to represent
the public” in determining how to handle the massive wrongdoing of major banks
in ramming through home foreclosures.
However, Wylde was merely being honest about the aims of federal policy. The
idea that “Wall Street is Main Street” and its protection was the uppermost goal
in the mind of top Treasury Department officials. The plight of working families
on the verge of losing their homes—well, that was somehow a much, much lower
The major banks—Bank of America, Citigroup, JPMorgan Chase and Wells
Fargo—are facing legal pressure from the attorneys general of all 50 states over
their practices, including “robo-signing.”
With the ownership of mortgages spread among thousands of investors due to
securities designed to minimize the risk, it becomes hopelessly complex to prove
ownership of a home when a bank wants to foreclose, as Chris Hayes of The
Nation explained on MSNBC Wednesday night.
But no sweat! Presto—the banks came up with reams of bogus documents and then
hired employees whose job was to sign affidavits saying that yes, indeed, Bank
of America owned the home in question. Untold thousands of families were thus
These unlawful practices brought together the 50 attorneys general who
demanded—no, not time in jail for bank CEOs—$20 billion in fines that would be
devoted to mortgage modifications. In exchange, the bankers would get total
immunity from prosecution.
When New York Attorney General Eric Schneiderman—who this week was dismissed
from the executive committee of the 50-state AG investigation—balked at
accepting the deal, Wylde, the public’s watchdog, told
It is of concern to the industry that instead of trying to facilitate
resolving these issues, you seem to be throwing a wrench into it. Wall Street is
our Main Street — love ’em or hate ’em. They are important and we have to make
sure we are doing everything we can to support them unless they are doing
Wylde’s concern for the banks—already the recipients of taxpayers’ generous
2008 TARP bailout package—has been matched throughout the past two and a half
years of Obama administration programs designed to help homeowners.
The programs were supposed to help desperate
working families faced with rising
interest rates and falling home values to stay in their homes.
Recent reports and articles on foreclosures should assure Wylde that the
bankers have been treated with kid gloves from day one of the mortgage-relief
programs. First, the Obama Administration apparently ruled out the idea of
prosecuting bank officials for their multiple offenses, as Mary Bottari of
Bankster USA points
Perverse incentives on Wall Street allowed top executives to make more money
on flawed loans than boring old 30-year mortgages.
Even though there is widespread agreement that Wall Street’s endless appetite
for high-interest, high-fees loans to fuel the mortgage securitization machine
had a causal role in supercharging the housing bubble, not one mortgage servicer
provider or big bank CEO has been put in jail. This compares to over 1,000
successful prosecutions of top officers during the Savings and Loan crisis of
the late 1980s.
The almost uniform judgment of government officials outside Treasury
Secretary Timothy Geithner is that the homeowner assistance programs have been a
disaster. Former Senator Ted Kaufman of Delaware said: “We have a $700 billion
program that basically helped all the banks but really hasn’t done a whole lot
for people who in the process of losing their homes.”
Elizabeth Warren, the consumer advocate who inspires fear and loathing among
Republicans, “grilled” Geithner at a June hearing in Washington D.C. for shaping
the programs around the needs of banks and other financial institutions rather
than homeowners, the New York Times reported:
“Forgive me, Mr. Secretary, but you say we designed the program from the
beginning, in effect you’re saying, not to save everyone,” she said. “You
designed it around servicers who, I wrote it down when you said it, ‘servicers
have done a terrible job.’
“We only have three months left, with hundreds
of thousands of families facing foreclosure,” she continued. “Is it time to
rethink whether or not a mortgage foreclosure prevention program that is based
on a group of servicers whom you describe as having done a terrible job, is a
program that perhaps should be redesigned?”
Particularly tragic is that these programs were proposed at a moment when the
public was ready
for truly innovative action to help families on the verge of losing their
With the antiforeclosure programs failing so badly, the nation is in no
condition to cope with a housing picture that is, if anything, worsening,
according to economist Jack Rasmus.
Foreclosures now approach 10 million, with some sources predicting 13-14
million before the current housing cycle bottoms. That’s about one-fourth of all
mortgages in the U.S. The numbers for homes in negative equity are even greater at around 16 million.
money. Much of our finacial services industry and their leaders are based in NY
City and adjacent areas, providing directly and indirectly 500,000 jobs.many of
them among the best paying and paying a living wage. That also means huge
precentages of tax revenues to NY City and State as well as huge amounts of
campaign contibutions/bribes to politicans of both parties. That means you don’t
want to chase them out with even sound and reasoned criminal proscution or civil
actions to Texas or other rich and corporate friendly states.
that the NYS AG is an elected position, so they too are looking for campaign
contributions thus comprimising their proscution policies. Look at what happened
to Elliot Spitzer who went after the NY Stock Exchange and AIG where somehow it
come up that he was seeing prostitutes – probably by those interests having
private investigators looking for any dirt they could throw on him to get
revenge for his active going after their abuses.
The Crisis That Could Bring Down Obama April 16, 2009Posted by rogerhollander in Barack Obama, Economic Crisis.
Tags: bailout, banks receivership, charles keating, Economic Crisis, elizabeth warren, failed banks, Goldman Sachs, insolvent banks, liquidate banks, receivership, roger hollander, ruth conniff, subsidize banks, tarp, tim geithner, toxic assets, Wall Street, Wells Fargo, william black
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Published on Thursday, April 16, 2009 by The Progressive
Goldman Sachs reports better-than-expected profits this quarter. Wells Fargo cleared record profits last week. The President, understandably, points to signs of hope and encourages Americans to be optimistic about the economy. But when do we move from healthy confidence to a confidence game? The banks are reporting profits thanks to massive infusions of taxpayer bailout funds. It’s simply silly to be lulled by cheery-sounding reports when the institutions are actually insolvent. At some point we have to take a clear-eyed look at the massive failure of our financial system. Ignoring it won’t make it go away.
That’s more or less what Elizabeth Warren, the distinguished chair of the Congressional Oversight Panel, says in her panel’s six-month report on the bank bailout. Warren, the government’s watchdog, concedes that there are differences of opinion on her panel, which probably accounts for her very carefully couched discussion of the crisis. Although she told The Observer that it is “preposterous” that the government hasn’t fired the bank managers who are responsible for the derivatives disaster, her panel’s report is cautious, with a scholarly explanation of the crisis in her video introduction. Nonetheless, the underlying criticism is obvious.
In a financial crisis like the current one, Warren explains, the government has three choices: 1. Liquidate failed banks. (That’s what happened in the S&L crisis. The government took over institutions, fired the managers, wiped out investors, but protected depositors. A lot of savings and loans simply went out of business.) 2. Put them in receivership. (That’s what Sweden did in the 1990s: failed managers were fired and replaced, depositors were protected, and the banks were returned to private hands under new management with healthier balance sheets.) or 3. Subsidize the banks. This last option is what led Japan to its “lost decade”–the real value of bank assets are obscured, as the government funnels tax money into insolvent banks, propping them up indefinitely. This last is the approach the United States is now taking.
If you want to hear someone absolutely destroy that approach to the current crisis, check out a round of recent interviews with William Black, the professor of economics and law at the University of Missouri who was deputy director of the Federal Savings and Loan Insurance Corp. during the S&L crisis in the 1980s. Black, who liquidated a few banks in his time and earned the eternal enmity of Charles Keating, minces no words in describing the massive fraud by bankers and the regulators, including Treasury Secretary Tim Geithner, whom he describes as abetting them.
“This whole bank scandal makes Teapot Dome look like some kind of kids’ doll set,” Black told the investors’ journal Barron’s in an interview published in the print edition on April 13. (The interview appeared online on April 9, but you need a paid subscription to access the site). He covers the same points in a highly watchable interview on Bill Moyer’s Journal..
“We have lost the ability to be blunt,” Black tells Barrons. He is talking about the person he describes to Bill Moyers as a “failed regulator,” Geithner. “Now we have a situation where Treasury Secretary Tim Geithner can speak of a $2 trillion hole in the banking system, at the same time all the major banks report they are well capitalized. And you have seen no regulatory action against what amounts to a $2 trillion accounting fraud. The reason we don’t see it–aren’t told about it–is that if they were honest, prompt corrective action would kick in, and then they would have to deal with the problem banks.”
In other words, the banks are insolvent. That’s why they must rely on the Troubled Assets Relief Program. But at the same time, they are claiming to be healthy. Both things can’t be true.
So we get smiley-face reports about how Goldman and Wells Fargo are posting record profits. Investors and citizens are supposed to be excited to see those profit numbers–comprised of their own tax dollars plus the banks refusing to accurately value their toxic assets.
This is more than an unfortunate downturn, Black says. It is the result of massive, pervasive fraud, and a deregulatory culture that has nurtured criminal behavior by very highly paid bank executives.
The whole culture is rotten. And the regulators come right out of that corrupt, Wall Street culture.
“No one has to tell someone to stretch the numbers,” Black says of the way corruption trickles down through these institutions. “It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20 percent get the bulk of the benefits and the bottom 10 percent get fired. You don’t directly tell your employees to lie or cheat. You set up an atmosphere of results at any cost.”
Yet we live in a broader culture so enamored of the money-making magicians of Wall Street that a front-page story in the Sunday New York Times is still lamenting the “brain drain” on Wall Street. The lead anecdote features former UBS employee (whose firm’s major screw-ups turned it into a prime TARP welfare recipient). He is so disturbed by shrinking bonuses and a climate of gloom in his old gig that he has moved to the high-rolling Aladdin Capital. That’s the real name. As in Poof! There goes your money!
It’s time for real regulation to stop all this, says Black. Geithner must go.
“Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama’s presidency,” he predicts.
The beauty part: real regulators will have no trouble getting through Congress, Black tells Moyers, because they pay their taxes.
Obama Sides With Banks Accused of Racism April 8, 2009Posted by rogerhollander in Barack Obama, Criminal Justice, Economic Crisis, Racism.
Tags: Andrew Cuomo, anti-discrimination, bailout recipients, bank of america, bank racism, bush administration, Capital One, Citi, clearing house, cuomo, doj, elena kagen, eliot spitzer, eric holder, fdic, jp moregan chase, justice department, obama administation, occ, office comptroller currency, racial discrimination, racism, roger hollander, sheila blair, stephanie mencimer, Wells Fargo
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Published on Tuesday, April 7, 2009 by Mother Jones
The administration defends lenders that allegedly bilked
minority customers. What gives?
A number of big national banks stand accused of systematically bilking black and Latino borrowers. And the administration of our first black president is siding with the banks.
At the end of April, the Obama administration will go before the US Supreme Court to argue that those banks-including bailout recipients Bank of America, Citi, Wells Fargo, and JPMorgan Chase-should be allowed to duck a state investigation into their lending practices. If that sounds like the politics of the past, it is. The Obama administration has opted to maintain the stance of the Bush administration-one opposed by the NAACP and other major civil rights groups. And it won’t be some Bush holdover making the arguments in Cuomo v. The Clearing House Association (an industry group whose membership includes the world’s largest banks). Instead, the banks will be defended by the office of Obama’s new solicitor general, former Harvard Law School dean Elena Kagan, whom some conservatives have branded a “radical leftist” because of her record opposing military recruitment on college campuses.
The case got its start in 2005, when then-New York attorney general Eliot Spitzer discovered that many banks operating in his state were issuing a disproportionate number of high-interest loans to African Americans and Hispanics. Invoking state anti-discrimination laws, Spitzer wrote to those banks, politely asking for more information about their lending practices. He didn’t even issue a subpoena. Rather than respond to the request, the banks sued Spitzer. They argued that they were legally entitled to blow him off because federal banking law preempted the state investigation-that is, only the feds could make such a request, not some lowly state AG.
To make their case, the banks sought help from the Bush administration, through the Office of the Comptroller of the Currency. The OCC is a little-known federal bank regulator that over the past decade has become increasingly active in helping those banks and their subsidiaries squash state efforts to rein in abusive predatory lending practices. The OCC joined the banks in the case as a plaintiff, asserting that a Civil War-era banking law made the OCC the only sheriff in town. When it came to big national banks like Bank of America and Wells Fargo, only the OCC, it argued, could force the banks to comply with state consumer protection laws like those banning racial discrimination in lending.
With the OCC’s backing, the banks prevailed in the trial court and the US Court of Appeals for the 2nd Circuit. New York’s current attorney general, Andrew Cuomo, has appealed the case to the Supreme Court, which will hear oral arguments in late April. Kagan’s office will be representing the OCC. The administration’s position in Clearing House stands in sharp relief to other parts of the US government, where financial system regulators have recently come out in opposition to shielding banks from state consumer protection laws and enforcement.
In March, on the same day Kagan was confirmed as solicitor general, Federal Deposit Insurance Corporation chair Sheila Bair, a Bush appointee, told the Senate banking committee that “it is time to examine curtailing federal preemption of state consumer protection laws…it has now become clear that abrogating sound state laws, particularly regarding consumer protection, created an opportunity for regulatory arbitrage that frankly resulted in a race-to-the-bottom mentality.”
Yet in their briefs in Clearing House, lawyers for the OCC and Obama’s solicitor general say that the OCC has used its authority appropriately and has done a terrific job of protecting consumers from abusive bank practices. It’s a dubious claim at best. Until 2008, the OCC had never taken a public consumer protection action against a major bank. In fact, the OCC’s light touch with national banks prompted many state-chartered banks to switch their charters just so they could evade stricter state regulation.
In an amicus brief in Clearing House, lawyers for consumer advocates cite the example of Capital One, a company whose deceptive and unfair credit card practices were investigated for several years by the West Virginia attorney general. Three years into the investigation, the bank changed its status from a state-charted bank to an OCC-chartered bank. Less than two weeks later, Capital One asked a federal court to halt the attorney general’s investigation, arguing that the OCC was now the only entity that could initiate such a probe. The judge who heard the suit recognized that the bank was simply trying to evade the attorney general. Nonetheless, he believed the law required him to stop the state investigation.
Over the years, the OCC has tried to prevent state consumer protection actions against all sorts of shady practices. For instance, the OCC has intervened to prevent states from cracking down on telemarketing fraud and misbehavior by car dealerships, an unlicensed trade school, an air-conditioning company, and a mall that issued gift cards-all because each of these entities had a financing relationship with OCC-chartered banks. The OCC’s track record in enforcing anti-discrimination laws like those at the heart of the Clearing House case is equally dismal. In their amicus brief, consumer lawyers note that the OCC has brought only four formal enforcement actions under the Equal Credit Opportunity Act since 1987. And during the Bush administration, it didn’t refer a single discriminatory mortgage lending case to the Justice Department. Yet in her brief, Kagan argues that the OCC “vigorously enforces fair lending laws against national banks.”
Kagan’s brief appears as if it were largely written during the last administration, which it no doubt was. It touts the supposedly great work done by the OCC’s Customer Assistance Group, which Kagan and the OCC say has facilitated the recovery of tens of millions of dollars by injured consumers. Back in 2005, I filed a Freedom of Information Act Request with the OCC for information about how many people in this group actually investigated and resolved consumer complaints. The answer I eventually got many, many months later? Three, in an agency that fields more than 70,000 complaints a year from bank customers. In years past, the group has recouped less than $8 million annually for consumers-a drop in the bucket compared to the billions banks collect via abusive credit card practices or overdraft fees.
By comparison, the state attorneys general the OCC has tried to neutralize have successfully gone after many lending institutions for sleazy practices and recouped sums that dwarf anything the OCC has recovered. During the past decade, attorneys general in various states banded together and settled cases against Household and Ameriquest Mortgage Company, once some of the nation’s biggest subprime lenders. The AGs recouped more than $800 million for consumers, but they were often prevented from bringing similar cases against big banks because of OCC interventions. And in Clearing House, the Obama administration is now defending the OCC’s turf-conscious obstructionism.
The administration’s brief in Clearing House was due only six days after Kagan was confirmed. Reversing course in a case this far along would have been both legally and administratively problematic for her and the administration. But consumer advocates have seen a few hints between the lines of her brief that the administration intends to change its regulatory policy at the OCC. It is hard to imagine that Obama would really want to usurp the states and remake the OCC as the nation’s preeminent financial consumer protection agency. That would make the federal banking regulator ultimately responsible for policing thousands of unscrupulous car dealers, air-conditioning installers, trade schools, or even mall gift-card programs, simply because they had financing relationships with national banks. Not only does the OCC not have the resources to do all that; it has enough on its plate right now just keeping the banks afloat. As Daniel Mosteller, litigation counsel to the Center for Responsible Lending, observes, “Is the OCC really going to start investigating malls?”
Those Hit Hardest Get No Bailout March 18, 2009Posted by rogerhollander in Economic Crisis.
Tags: AIG, aig bonuses, air millionaries, amy goodman, Andrew Cuomo, bank of america, banks, denis moynihan, Economic Crisis, economic meltdown, geithner, Goldman Sachs, grassley, hsbc, larry sumers, naacp, poverty, president obama, roger hollander, subrpime mortgages, taxpayer bailouts, US Treasury, Wall Street, Wells Fargo
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Published on Wednesday, March 18, 2009 by TruthDig.com
by Amy Goodman
Taxpayers’ bailout money for AIG bonuses has rightfully provoked a massive backlash against AIG, Wall Street, President Barack Obama and his economic advisers, Treasury Secretary Timothy Geithner and Larry Summers. The U.S. public now owns 80 percent of AIG. The outrage is bipartisan: Iowa Republican Sen. Charles Grassley even suggested that AIG executives “resign or go commit suicide.” New York State Attorney General Andrew Cuomo just released details on the bonuses, exposing AIG’s ridiculous claim that they are “retention bonuses” aimed at keeping key employees, since 11 of those who received bonuses of $1 million or more are no longer employed by AIG.
These AIG millionaires may need to return their unearned millions (Congress may pass a tax law aimed just at them, taxing their bonuses at 100 percent). But will the outrage help those who have been hardest hit by the economic meltdown? Will the hundreds of millions of dollars in various stimulus packages and bailouts find its way to regular people who are trying to get by, or will it go only to corporations deemed “too big to fail,” leaving behind millions of people who are, apparently, small enough to fail?
The Center for Social Inclusion has just issued a report on the economic meltdown and how best to solve the problem. It links race to the lack of opportunity and to the prevalence of the notorious subprime mortgages that triggered the economic crisis.
CSI Executive Director Maya Wiley told me, “We have to stimulate equality in order to stimulate the economy.” Access to education, transportation, housing and a clean environment give people a firm footing to respond to crisis and to succeed. Noting that “shovel-ready” stimulus jobs in construction will disproportionately favor those who are already in that industry, predominantly white males, Wiley is pushing for “community benefits agreements for construction jobs [that] ensure when the government has construction contracts, low-income people, people of color, women, are going to have their fair share of those jobs.” Since people of color are more likely to live far from available jobs and are less likely to have cars, Wiley says, “we must ensure that the way transportation dollars get spent go to transit … to connect people who need jobs to the places where there are jobs.”
The group United for a Fair Economy also highlights the racial wealth divide, noting that “24 percent of blacks and 21 percent of Latinos are in poverty, versus 8 percent of whites. In the corporate world, we are seeing the highest executive pay and the biggest bailouts in history. CEO pay is 344 times that of the average worker.”
Prevailing wisdom posits that freeing up credit will save the economy, thus these huge banks need hundreds of billions of dollars in taxpayer bailouts. But the crisis was initially caused by defaults on subprime mortgages. One option at the outset would have been to support the distressed homeowners, helping them avoid foreclosure. Wiley points out that “35 percent of subprime mortgage holders were actually eligible for prime-rate loans. … Most of those were people of color … communities of color did not have fair access to credit.”
The banks and the mortgage lenders pushed bad loans on poor and minority borrowers. The NAACP has just filed lawsuits against Wells Fargo and HSBC, alleging “systematic, institutionalized racism in subprime home mortgage lending.”
The banks bundled the bad loans into securities and sold them, then created derivatives based on these securities that are impossible to understand, let alone value. AIG insured the investment banks against potential losses from these complex derivatives. The U.S. Treasury bailed out the banks along with AIG. AIG then paid out tens of billions of its bailout money to the very large banks that already received billions in bailout funds: Bank of America and Goldman Sachs. Yet, despite the hundreds of billions being siphoned off by these megabanks, we are told that the credit market is still frozen. Many European banks also received funds this way, including Swiss bank UBS, which offers secret bank accounts that allow the richest Americans to avoid taxes. In effect, beleaguered U.S. taxpayers are bailing out wealthy U.S. tax dodgers.
Obama has surrounded himself with financial advisers who are too cozy with Wall Street, like Summers and Geithner. It’s time to direct the stimulus to the people who need it, to those whose tax dollars are funding it.
Denis Moynihan contributed research to this column.
Tags: arizona state, bank of america, credit cards, debt, debt trap, jonahtan glater, jpmorgan chase, michigan state, new mexico state, predatory loans, roger hollander, student credit, student loan, university of orgeon, visa, Wells Fargo
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“They did a good job,” Mr. Muneio, 21 and a junior at Michigan State, said of the tactic. “It was good advertising.”
Bank of America’s relationship with the university extends well beyond marketing at sports events. The bank has an $8.4 million, seven-year contract with Michigan State giving it access to students’ names and addresses and use of the university’s logo. The more students who take the banks’ credit cards, the more money the university gets. Under certain circumstances, Michigan State even stands to receive more money if students carry a balance on these cards.
Hundreds of colleges have contracts with lenders. But at a time of rising concern about student debt — and overall consumer debt — the arrangements have sounded alarm bells, and some student groups are starting to push back.
The relationships are reminiscent of those uncovered two years ago between student loan companies and universities. In those, some lenders offered universities an incentive to steer potential borrowers their way.
Here at Michigan State, the editors of the student newspaper wrote this fall that “it doesn’t take a giant leap for someone to ask why the university should encourage responsible spending when it receives a cut of every purchase.”
At Arizona State University, students set up a table on campus last spring to warn of the danger of debt and urge students to support limits on on-campus marketing.
The contracts, whose terms vary but usually involve payments to colleges or alumni associations that agree to provide lists of students’ names, have come under harsh criticism in Washington.
“That is absolutely outrageous, the sharing of students’ information with the banks,” Representative Carolyn B. Maloney, Democrat of New York, who oversaw a June hearing on campus credit card marketing, said in a recent interview. “That should be outlawed.”
College campuses are one place that young Americans are introduced to credit and the possibility of spending beyond their means, a problem now confronting the nation as a whole. For banks, the relationships are a golden marketing opportunity. For colleges, they are a revenue source at a time of declining public funding. And for students, they help pay the bills and allow more shopping.
But debt incurred in college becomes a serious burden at graduation, especially in a recession in which jobs are scarce. A survey of more than 1,500 college students by US PIRG in Washington found that two-thirds had at least one credit card. Seniors with balances had an average debt of $2,623 on their cards.
University officials say that their agreements with card issuers comply with the law and bring in valuable revenue.
“It provides money for scholarships and other programs,” said Terry R. Livermore, manager of licensing programs at Michigan State. He said that the program was aimed primarily at alumni and the university would not include sharing student information in future credit card contracts. “The students are such a minuscule portion of this program.”
Jennifer Holsman, executive director of the alumni association at Arizona State, said the association tried to teach students about responsible uses of credit. “We work closely with Bank of America to provide educational seminars to students in terms of being able to get information about how to pay off credit cards, how not to keep balances,” she said.
Credit card issuers say that they try to educate students to use cards responsibly and that the cards they offer on campus have more restrictive terms than cards offered to alumni.
“The available credit for undergraduates is capped at $2,500,” said Betty Riess, a spokeswoman for Bank of America. “We want to take a fair and responsible approach to lending because we want to build the foundation for a longer-term banking relationship.”
Ms. Riess said the bank had agreements with about 700 colleges and alumni associations, making it one of the biggest, if not the biggest, card issuer on campuses. She said that only 2 percent of the open accounts under those agreements belonged to students, but also said it was not possible to determine what percentage of program revenue resulted from fees and charges on those student cards.
Stephanie Jacobson, a spokeswoman for JPMorgan Chase, wrote in an e-mail message that the bank had fewer than 25 contracts with colleges or alumni associations and that while some of the contracts gave it the right to ask for and use lists of student names and addresses, the bank had not done so since 2007.
That may be because football games present a marketing opportunity that requires no address information. Abigail D. Molina, a second-year law student at the University of Oregon, applied in 2007 for a Chase Visa offered at a tent outside a football game. In exchange, she received a blanket.
“I mostly wanted the blanket,” Ms. Molina said. She added that this was her second university credit card. In 1994, when she was an undergraduate at the university, she applied for a card at a booth on campus and then accumulated about $30,000 in debt, almost all of it on the card. In 2001 she filed for bankruptcy. Looking back, she said it was “shockingly easy” to get the card, even as a first-year student.
Mr. Muneio, the Michigan State student, said he did not apply for a Bank of America card because he already had two Visa cards. “The last thing I need is another account to keep track of.”
Many students are unaware of the contracts that universities have with credit card issuers and do not question the presence of marketers on campus or applications in their mailboxes, despite recent protests on a few campuses.
Sometimes, the contracts have confidentiality provisions. Universities may try to distance themselves, stating that the contracts are only between alumni associations and banks. But the universities provide alumni groups with lists of current students’ names, addresses and telephone numbers, which the groups pass on to banks.
The New York Times obtained information about and, in some cases, copies of contracts between lenders, public colleges and their alumni associations using open records requests. Because private colleges are not subject to open records laws, they are not included.
While most universities contacted for this article did not provide detailed financial information on the contracts — the University of Pittsburgh, for example, confirmed only that it had an agreement — two did share numbers.
The alumni association of the University of Michigan is guaranteed $25.5 million over the term of its 11-year agreement with Bank of America. Under the agreement, the association agreed to provide lists of names and addresses of students, alumni, faculty, staff, donors and holders of season tickets to athletic events.
Much of the money goes toward scholarships, said Jerry Sigler, vice president and chief financial officer of the alumni association. He was unsure what students were told about the program.
“Students are generally told how they can opt out of having their information publicly displayed in directories or provided in response to requests like this,” Mr. Sigler added. “But it’s not to my knowledge specific to the credit card program.”
Michigan State University gets $1.2 million a year but is guaranteed at least $8.4 million over seven years, according to its agreement. The contract calls for a $1 royalty to the university for every new card account that remains open for at least 90 days, $3 for every card whose holder pays an annual fee, and a payment of a half percent of the amount of all retail purchases using the cards.
For cards that do not have an annual fee, the bank pays $3 if the holder has a balance at the end of the 12th month after opening an account, a provision that appears to give the university an incentive to get cardholders into debt.
A few schools have adopted policies that prohibit sharing student contact information.
Ball State University’s alumni association, which has a contract with JPMorgan Chase, does not provide information on students, said Ed Shipley, executive director of the association. “Who we market to is our alumni because that’s our purpose,” he said. However, the bank is permitted to set up marketing tables at athletic events.
The University of Oregon, whose alumni association also has a marketing agreement with Chase, stopped providing student addresses as concern grew about student debt, according to Julie Brown, a university spokeswoman. The university still permits marketing booths at athletic events.
Some research suggests that students may be using credit cards less frequently, in favor of debit cards linked to their bank accounts. A survey last spring by Student Monitor, a Ridgewood, N.J., company that tracks trends on campus, found that 59 percent of undergraduate students had debit cards, up from 51 percent in 2000.
But universities have arrangements with banks that offer debit cards too, perhaps raising some of the same issues that the credit card deals do.
At New Mexico State University, for example, students are given the option of opening a bank account with Wells Fargo if they want to convert their campus identification into a debit card.
The accounts are not mandatory, said Angela Throneberry, assistant vice president for auxiliary services at the university. But, she said, “There’s some revenue sharing that happens as part of this.”
A Quiet Windfall for US Banks November 11, 2008Posted by rogerhollander in Economic Crisis.
Tags: $700 billion bailout, $700 Billion Wall Street Bailout, bank takeovers, Bush bailout, corporate giveaway, Economic Crisis, PNC National City, roger hollander, tax law, tax shelters, Treasury Secretary Henry M. Paulson Jr., US Banks, US Treasury Department, Wells Fargo
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Monday 10 November 2008
by: Amit R. Paley, The Washington Post
Treasury Secretary Henry Paulson. (Photo: Reuters)
The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
”Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code – a provision that limited a kind of tax shelter arising in corporate mergers – came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. “This is part of our overall effort to provide relief,” he said.
The Treasury itself did not estimate how much the tax change would cost, DeSouza said.
A Tax Law “Shock”
The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury’s work seemed focused almost exclusively on the bailout.
”It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
More than a dozen tax lawyers interviewed for this story – including several representing banks that stand to reap billions from the change – said the Treasury had no authority to issue the notice.
Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”
Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.
Lawmakers decried the tax shelters as a scam and created a formula to strictly limit the use of those purchased losses for tax purposes.
But from the beginning, some conservative economists and Republican administration officials criticized the new law as unwieldy and unnecessary meddling by the government in the business world.
”This has never been a good economic policy,” said Kenneth W. Gideon, an assistant Treasury secretary for tax policy under President George H.W. Bush and now a partner at Skadden, Arps, Slate, Meagher & Flom, a law firm that represents banks.
The opposition to Section 382 is part of a broader ideological battle over how the tax code deals with a company’s losses. Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.
During the current Bush administration, senior officials considered ways to implement some version of the policy. A Treasury paper in December 2007 – issued under the names of Eric Solomon, the top tax policy official in the department, and his deputy, Robert Carroll – criticized limits on the use of losses and suggested that they be relaxed. A logical extension of that argument would be an overhaul of 382, according to Carroll, who left his position as deputy assistant secretary in the Treasury’s office of tax policy earlier this year.
Yet lobbyists trying to modify the obscure section found that they could get no traction in Congress or with the Treasury.
”It’s really been the third rail of tax policy to touch 382,” said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.
“The Wells Fargo Ruling”
As turmoil swept financial markets, banking officials stepped up their efforts to change the law.
Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country’s largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort. Lobbyists for the biotechnology industry also raised concerns about the provision at an April meeting with Solomon, the assistant secretary for tax policy, according to talking points prepared for the session.
DeSouza, the Treasury spokesman, said department officials in August began internal discussions about the tax change. “We received absolutely no requests from any bank or financial institution to do this,” he said.
Although the department’s action was prompted by spreading troubles in the financial markets, Carroll said, it was consistent with what the Treasury had deemed in the December report to be good tax policy.
The notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.
The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.
The Jones Day law firm said the tax change, which some analysts soon dubbed “the Wells Fargo Ruling,” could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.
The tax world, meanwhile, was rushing to figure out the full impact of the notice and who was responsible for the change.
Jones Day released a widely circulated commentary that concluded that the change could cost taxpayers about $140 billion. Robert L. Willens, a prominent corporate tax expert in New York City, said the price is more likely to be $105 billion to $110 billion.
Over the next month, two more bank mergers took place with the benefit of the new tax guidance. PNC, which took over National City, saved about $5.1 billion from the modification, about the total amount that it spent to acquire the bank, Willens said. Banco Santander, which took over Sovereign Bancorp, netted an extra $2 billion because of the change, he said. A spokesman for PNC said Willens’s estimate was too high but declined to provide an alternate one; Santander declined to comment.
Attorneys representing banks celebrated the notice. The week after it was issued, former Treasury officials now in private practice met with Solomon, the department’s top tax policy official. They asked him to relax the limitations on banks even further, so that foreign banks could benefit from the tax break, too.
Congress Looks for Answers
No one in the Treasury informed the tax-writing committees of Congress about this move, which could reduce revenue by tens of billions of dollars. Legislators learned about the notice only days later.
DeSouza, the Treasury spokesman, said Congress is not normally consulted about administrative guidance.
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides.
In an off-the-record conference call on Oct. 7, nearly a dozen Capitol Hill staffers demanded answers from Solomon for about an hour. Several of the participants left the call even more convinced that the administration had overstepped its authority, according to people familiar with the conversation.
But lawmakers worried about discussing their concerns publicly. The staff of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, had asked that the entire conference call be kept secret, according to a person with knowledge of the call.
”We’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”
Grassley and Sen. Charles E. Schumer (D-N.Y.) have publicly expressed concerns about the notice but have so far avoided saying that it is illegal. “Congress wants to help,” Grassley said. “We also have a responsibility to make sure power isn’t abused and that the sensibilities of Main Street aren’t left in the dust as Treasury works to inject remedies into the financial system.”
Carol Guthrie, spokeswoman for the Democrats on the Finance Committee, said it is in frequent contact with the Treasury about the financial rescue efforts, including how it exercises authority over tax policy.
Lawmakers are considering legislation to undo the change. According to tax attorneys, no one would have legal standing to file a lawsuit challenging the Treasury notice, so only Congress or Treasury could reverse it. Such action could undo the notice going forward or make it clear that it was never legal, a move that experts say would be unlikely.
But several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
”None of us wants to be blamed for ruining these mergers and creating a new Great Depression,” one said.
Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.
”It’s just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system,” said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”