New York AG fights foreclosure fraud

New York Attorney General Eric Schneiderman is under pressure from the Obama administration to drop his investigation of fraudulent mortgage foreclosures and go along with a negotiated settlement, which would impose a token punishment on the banks without any guarantee that the abusive practices will stop.

It shows the benefits of a federal system and the separation of powers, which enables a state official to prosecute lawbreakers and independent judges to decide their cases, even when a President is not willing to act.

Eric Schneiderman

The housing boom and bust began when banks induced people whom they knew could never repay to take out mortgages.  Then they repackaged these mortgages into complex securities whose buyers had no way of knowing how unsound the investment is.

The final stage is foreclosure without any documentation as to who holds the mortgage and what is owed.  Processing of foreclosures has been turned over to servicing companies whose only interest is to process as many foreclosures as possible as quickly as possible, not in fulfilling their legal duty to verify who owes what to whom.

In some cases, people who are fully paid up on their mortgages, or have every reason to believe they are fully paid up, have lost their homes.  The mortgages are assigned to mortgage service companies, who add their fees to the original mortgage debt—sometimes without telling the homeowner.

Here’s what the New York Post found in an investigation in the New York metro area.

In a staggering 92 percent of the claims brought by creditors asserting the right to foreclose against bankrupt families in New York City and the close-in suburbs, banks and mortgage servicers couldn’t prove they had the right to kick the families out on the street, a three-month probe by The Post has shown.

But that didn’t stop the banks from trying.

By robosigning documents and pressing foreclosures without the proper paperwork, banks have attempted to steamroll their way over sometimes-outgunned homeowners … .

But homeowners and the courts are starting to fight back.

Forced to finally face the mess, banks find themselves driven to the bargaining table, where they now hope to win a global settlement with all 50 states and the federal government.  The tangled, complex mess in New York shows how tough — and expensive — such a settlement could be for the banks.

The Post dug through more than 150 Chapter 13 bankruptcy filings from June 2010 in New York’s Eastern and Southern federal court districts — covering the five boroughs, Long Island and nearby northern counties including Westchester–in search of local foreclosure or pre-foreclosure cases.  We then put together a random sample of 40 cases where creditors such as banks — but more often loan servicers — filed proofs of claim for first mortgage debt.

The research unearthed claims riddled with robosigners, suspicious documents and outrageous fees.  And in a stunning 37 out of 40 cases, The Post discovered a broken chain of title from the original lender to the company now making claim against a local family for its home and thousands of dollars in questionable fees.

In other words, the bank or mortgage servicer filing the claim failed to prove it has any right at all to make a claim it was owed the debt or that it could seize the home in question.

Click on Banks’ House of Cards for the full New York Post article.

Winning the race to the bottom

Low wages in states such as Mississippi, Alabama and South Carolina, and rising wages and worker unrest in China, may cancel out the cost advantage of locating factories in China, according to the Boston Consulting Group, a management consultant firm.

In short, the United States is competing by driving down the earnings of American workers rather than on the basis of superior inventiveness, productivity and management.

Here is the situation, as reported by Labor Notes:

Wages for China’s factory workers certainly aren’t going to rise to U.S. levels soon.  BCG estimates they will be 17 percent of the projected U.S. manufacturing average—$26 an hour for wages and benefits—by 2015.

But because American workers have higher productivity, and since rising fuel prices are making it even more expensive to ship goods half way around the world, costs in the two countries are converging fast. …

BCG bluntly praises Mississippi’s “flexible unions/workers, minimal wage growth, and high worker productivity,” estimating that in four years, workers in China’s fast-growing Yangtze River Delta will cost only 31 percent less than Mississippi workers.

That’s before you figure in shipping, duties, and possible quality issues. Add it all up, says BCG, and “China will no longer be the default low-cost manufacturing location.”

Labor costs typically are only 10 to 15 percent of the total cost of a manufactured product, so a small wage differential doesn’t make a big difference.

“It takes balls to execute an innocent man”

Veterans of Senator Kay Bailey Hutchison’s unsuccessful 2010 primary challenge to [Texas Governor Rick] Perry recalled being stunned at the way attacks bounced off the governor in a strongly conservative state gripped by tea party fever.  Multiple former Hutchison advisers recalled asking a focus group about the charge that Perry may have presided over the execution of an innocent man — Cameron Todd Willingham — and got this response from a primary voter: “It takes balls to execute an innocent man.”

via POLITICO.com.

I don’t know what was on the mind of the primary voter.  I guess that the voter did not mean the statement literally.  It was probably humorous bravado, like the bumper stickers in an earlier era saying “Nuke the whales.”  What such things really express is the view that only weaklings care about justice.

Robert Reich on Labor Day 2011

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Robert Reich, who was Secretary of Labor in the Clinton administration and now is professor of public policy at the University of California at Berkeley, wrote the following a couple of days ago.

Labor Day is traditionally a time for picnics and parades.  But this year is no picnic for American workers, and a protest march would be more appropriate than a parade.

Robert Reich

Not only are 25 million unemployed or underemployed, but American companies continue to cut wages and benefits.  The median wage is still dropping, adjusted for inflation.  High unemployment has given employers extra bargaining leverage to wring out wage concessions.

All told, it’s been the worst decade for American workers in a century.  According to Commerce Department data, private-sector wage gains over the last decade have even lagged behind wage gains during the decade of the Great Depression (4 percent over the last ten years, adjusted for inflation, versus 5 percent from 1929 to 1939).

The investment theory of politics

I respect honest politicians who do what is right but unpopular.  I understand pragmatic politicians who do what is wrong but popular.   I can understand why politicians refuse to enact laws that are desirable but unpopular.  But what we have now are politicians who are refusing to do things that are obviously necessary and highly popular, such as break up and rein in the “too big to fail” banks.   Why would they do that?

Some light is thrown on this by a book I read recently, Golden Rule: the Investment Theory of Political Parties and the Logic of Money-Driven Political Systems, by a political scientist named Thomas Ferguson.  I became interested in Ferguson’s ideas when I saw him on the on-line Real News Network.

Golden Rule was published in 1995, and incorporates articles published before then, but it is highly relevant.   Ferguson’s analyses of the 1988, 1992 and 1994 elections, with name changes and minor rewrites, could just as easily have been written about the elections of 2004, 2008 and 2010.

Ferguson’s Golden Rule is “to understand who rules, follow the gold.”  This idea is hardly original with him, he did this on a much more granular level than most people.  He contended American politics is about policies—high tariffs vs. free trade, loose money vs. tight money, industrial policy vs. unregulated free enterprise—that some business interests favor and others oppose.

Businesses invest in candidates and political parties, and expect a return on their investment.  Since they have conflicting interests, the public gets to throw its weight onto one side or the other.   But proposals that are adverse to business as a whole don’t get on the public agenda.  According to Ferguson, no political party has ever supported a measure adverse to a business or corporate interest, unless there was some other business or corporate interest behind it.

Ferguson’s research explains a great deal that is otherwise hard to understand—why Bill Clinton, like Barack Obama, ran on a platform of economic growth and then abruptly changed to George H.W. Bush’s priority of bringing down the federal budget deficit.  It is because he could not afford to antagonize Wall Street financial institutions, such as Goldman Sachs.

Rep. Rahm Emanuel once reportedly told his staff:

• The first third of a campaign is money, money and money.
• The second third is money, money and press.
• And the last third is votes, press and money.

By this account, money is six times as important as votes.  That is why there is bi-partisan support for such unpopular policies as the North American Free Trade Agreement, the bank bailouts and “reform” of Social Security.

The influence of corporate wealth is more than just campaign contributions, or even financing right-wing magazines, TV networks, research institutions and advocacy groups.  Wealthy people and organizations have ready access to information that the middle-class voter does not see or even know about.  They understand where their interests lie, and exactly how those interests are affected by governmental action, which is difficult for the average voter to learn. Members of the corporate and financial elite are personally acquainted with members of the political and intellectual elite.  They interact with each other and influence each other, away from the eyes of the public.

Light, shadow and illusion

Savings from raising Medicare eligibility age

Senator Joseph Lieberman has proposed saving money on Medicare by raising the age of eligibility from 65 to 67, and President Obama has indicated he is open to such a plan.

The red circle represents the annual Medicare budget.  The blue sliver represents the estimated saving to the federal government from Senator Lieberman’s proposal.

If the federal government raised the eligibility age for Medicare from 65 to 67, it would save $5.7 billion in 2014, the Kaiser Family Foundation estimates.  While that is a very large number, it is less than 1 percent of $643.4 billion, the Medicare trustees’ estimate of their budget for 2014.

There is more to the story.  Kaiser Family estimates that the 65-year-olds and 66-year-olds who are no longer eligible for Medicare would spend $3.7 billion of their own money on health insurance premiums and medical bills in 2014, and employers would spend an added $4.5 billion for employees and retirees who are no longer eligible for Medicare.  Since both Medicare and the health insurance exchanges would cover a slightly older and unhealthier population, premiums would go up an estimated $2.4 billion.

The total:  Private individuals and companies would have to spend an added $11.4 billion to offset the $5.7 billion reduction in the government’s Medicare budget.

There’s still more.  A study indicates that once you become eligible for Medicare, your chances of surviving a serious illness improve by 20 percent.

So the only thing that would be accomplished by Senator Lieberman’s proposal is to enable certain politicians to say they’re tough—tough, that is, on the old, sick and vulnerable, not the rich and powerful.

An article in the Fall 2009 issue of the Stanford Social Innovation Review explained the study that showed Medicare reduces the death rate from serious illness.  The original article is behind a pay wall, but I found a copy on an unrelated web site.

Virtual reality vs. real reality

During the past generation or two, we Americans have gotten more interested in virtual reality than in real reality.  At the same time virtual reality has gotten better and better, and real reality has gotten worse and worse.

College teacher friends of mine complain about how their students shut out the world as they immerse themselves in their text messaging and social networking.  But is the world they shut out all that great?  They may have understandable reasons for trying to shut out the reality of a bad economy and crushing student loan debt.

Players of World of Warcraft can, if they pay attention and apply themselves, are certain to acquire points, powers, status and treasure.  This isn’t necessarily so of players in the world of reality.

Science fiction is a bellwether in this, as in other things.  The original Star Trek TV series may have been escapist, but it was an escape into strange new worlds, into encounter with new life and new civilizations, of boldly going where no one had gone before.  In The Next Generation, Deep Space Nine and Voyager, some of the most interesting episodes take place in the artificial worlds of the Holodeck and Holosuite, where the characters explore realities they created for themselves.

The word “cyberspace” was coined by the SF writer William Gibson.  I heard a talk once, in which he said he observed people so mentally immersed in their TV and computer screens that their minds were disconnected from where they were.  This inspired him to write  Neuromancer, a novel in which the characters’ minds could literally enter the information networks.

He intended Neuromancer, published in 1984,  as a kind of satire, but some engineers and computer scientists saw it as a vision, which, in a way, they have made into a reality.

The Russian-American doomsayer, Dimitry Orlov, described the result on his web log.

What these new gadgets offer is, simply put, escapism.  In a world of dwindling resources, where each person’s share of the physical realm decreases over time, it is no wonder that physical reality fails to satisfy.  But thanks to the new, intimate, glowing handheld mobile computing devices, the unsatisfactory real world can be blotted out, and replaced with a cleansed, bouncy, shiny version of society in which little avatars utter terse little messages.  In the cyber-realm there are no sweaty bodies, no cacophony of voices to suffer through—just a smooth, polished, expertly branded user experience.

While riding the subway through the Boston rush hour, I have been able to observe just how well these personal electronic mental life support units work in shielding people from the sight of their fellow-passengers, who are becoming a rougher and rougher-looking crew, with more and more people in obvious distress.  By focusing all of their attentions on the tiny screen, they are also spared the sight of our well-worn and crumbling urban infrastructure.  It is as if the physical world doesn’t really exist for them, or at least doesn’t matter.

via Dead Souls.

Winners (for now) in the world economy

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Double click to enlarge

These charts are from Der Spiegel, the German news magazine.

The whirlpool of speculation

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
        ==John Maynard Keynes

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Financial derivatives are a security not backed by any tangible asset.  Buying and selling derivatives is no different from gambling.  Notice how much larger is the market in derivatives than the market in stocks and bonds of actual companies.

The chart is from an article in Der Spiegel, the German news magazine.  Der Spiegel says out-of-control world financial markets make another economic crash virtually inevitable.

Click on Out of Control: the Destructive Power of Financial Markets for an English translation of the complete Der Spiegel article.   It is well worth reading in its entirety.

Hat tip to The Big Picture.

Murphy’s laws of programming

1.  Any given program, when running, is obsolete.

2.  If a program is useless, it will have to be documented.

3.  If a program is useful, it will have to be documented.

4.  Any program will expand to fill available memory.

5.  The value of a program is proportional to the weight of its output.

6.  Program complexity grows until it exceeds the capacity of a programmer to maintain it.

7.  Make it possible for programmers to write in English, and you will find out that programmers cannot write in English.

The secret $1.2 trillion bank bailout

The prevailing wisdom in Washington and on Wall Street is that creating jobs, rebuilding the nation’s infrastructure and even maintaining basic government services is unaffordable.  Yet the Federal Reserve System was able to come up with $1.2 trillion to bail out failing banks and financial institutions.

This information was kept secret until Bloomberg Business News pried it loose a few days ago.  To get the information, Bloomberg needed the Freedom of Information Act, lawsuits that went to the Supreme Court and an act of Congress.

The size of the bailout boggles the mind.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages.  … …

The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

via Bloomberg.

The Federal Reserve Board’s justification for the bailout, according to Bloomberg, is that the bailout was necessary to prevent the collapse of the financial system, that the loans were (mostly but not always) at above-market interest rates, that they were (mostly but not always) backed by adequate collateral, and that the loans were paid back.

I agree it was necessary for the Fed to act to prevent the banking and financial industry from collapsing.  There would have been a domino effect that would have spread through the whole economy, as in the bank failures of earlier eras.  But the rescue should have been like the rescue of General Motors and Chrysler.

In the auto industry rescue, government help was conditioned on getting rid of the incompetent managers who’d caused the problem, letting the stockholders and bondholders take a loss and restructuring the companies so they will be on a sounder footing in the future.

In contrast, the bank bailouts protected the jobs and bonuses of top management, shielded stockholders from loss and allowed a continuation of everything that led to the problem in the first place.

Nouriel Roubini asks: Is capitalism doomed?

Nouriel Roubini is a professor of economics at New York University’s Stern School of Business, and chair of Roubini Global Economics, a financial consulting firm.  He was nicknamed “Dr. Doom” for his predictions that the booming financial and real estate markets were going to crash.  But he proved to be right.  Now he is saying that the capitalist system itself is in crisis.  Here is what he wrote last week in his syndicated newspaper column.

Nouriel Roubini

Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proved wrong).  Firms are cutting jobs because there is not enough final demand.  But cutting jobs reduces labor income, increases inequality, and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the United Kingdom, and rising popular anger in China—and soon enough in other advanced economies and emerging markets—are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness.  Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Unless governments act, he wrote, the world could be on the brink of another depression as bad as the Great Depression of the 1930s.

Over time, advanced economies will need to invest in human capital, skills, and social safety nets to increase productivity and enable workers to compete, be flexible, and thrive in a globalized economy.  The alternative is—like in the 1930s—unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

via Slate Magazine.

All this seems obvious to me.  Why is it not obvious to our political and business leaders?  It is partly because of the excessive power and influence of the wealthy elite, but I think it is also because of the excessive power and influence of financial institutions compared to goods-producing companies.

“Peace be upon them”

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The current issue of Sojourners magazine has a good article about the friendship that developed between members of a Methodist church and Muslim mosque in a town in Tennessee.

Rev. Steve Stone was just trying to be a good neighbor.

Two years ago, the pastor of Heartsong Church in Cordova, Tennessee, on the outskirts of Memphis, learned that a local mosque had bought property right across the street from the church.  So he decided some Southern hospitality was in order.

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A few days later, a sign appeared in front of the church. “Heartsong Church welcomes Memphis Islamic Center to the neighborhood,” it read.

That small act of kindness was the start of an unlikely friendship between the two congregations, one that made headlines around the world.  Members of the mosque and church have shared meals together, worked at a homeless shelter, and become friends over the past two years.  When Stone learned that his Muslim friends needed a place to pray for Ramadan because their building wasn’t ready, he opened up the doors of the church and let them hold Ramadan prayers there.

Critics said that Stone was a heretic for allowing people of another faith to pray in his church building.  He says he’s just doing what Jesus taught him to do. “Jesus told us to love our neighbors,” Stone told Sojourners. “These people are actually neighbors.”

via Sojourners Magazine.

I hope and believe that the Rev. Steve Stone’s is more typical of American thinking that those who are given over to ignorant prejudice.   I read an analysis of the 2010 elections that indicated that the attempt to scapegoat Muslims for partisan political reasons largely backfired.

I have written several posts on this web log rebutting false prejudices against Muslims, but I think that, in general, our American record of upholding religious freedom for all is one to be proud of.   I don’t claim that we Americans are free of prejudice, but I would rather be a Muslim citizen of the United States than a Christian in Egypt or Iraq, a Baha’i in Iran or a Muslim in India.

I also would rather be a Muslim in the present-day United States than a Japanese-American during World War Two, a German-American during World War One or a Catholic citizen of the United States in the 1840s.  We Americans don’t fully live up to our ideals of religious freedom and tolerance, but we’re getting there.

The non-issue of Presidential vacations

I’ve given up the habit of watching network television, so I nearly missed the controversy about President Obama taking a vacation on Martha’s Vineyard.  This item by CBS News set the record straight.

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CBS Radio’s Mark Knoller has kept track of presidential vacations for years and supplied the data.

So far, President Obama has taken 61 vacation days after 31 months in office. At this point in their presidencies, George W. Bush had spent 180 days at his ranch where his staff often joined him for meetings. And Ronald Reagan had taken 112 vacation days at his ranch.

Among recent presidents, Bill Clinton took the least time off — 28 days.

via CBS News.

But I hate to even waste my precious, limited brainpower on which President took the most vacation, or what counts as a vacation.  (Supporters of President George W. Bush claim that being at home on your ranch doesn’t count as being on vacation; unfortunately, President Obama doesn’t own a ranch.)  A Presidential vacation is not really a vacation, since he is never completely away from his job.  But this doesn’t matter, either.

What matters is whether a President’s decisions bring the nation in the direction of peace and prosperity, and keep it mired in war and recession.  If taking time to unwind helps a President – any President – to make good decisions, I’m all for it.  If a President makes bad decisions, it doesn’t matter how many days or hours he spent in the office.

In an earlier era, we didn’t worry about such things so much.  President Nixon had not one, but two, “summer White Houses,” but his harshest critics (such as me) didn’t care about this.  Fussing about trivia diverts attention from the things we should be concerned about – unemployment, foreign wars, civil liberties and the other issues that affect people’s lives.

The feats of an inspired Scottish bicyclist

An extremely close-up look at food

Sun-dried tomato magnified 250 times

Brussels sprout magnified 110 times

This is from a gallery of photographs of food at extreme close-up by San Francisco food photographer Caren Alpert.

Click on Caren Alpert Fine Art for her home page.

Click on Terra Cibus for a statement of her artistic vision.

Click on Caren Alpert Gallery for more of her astonishing photographs.

Hat tip to Jason Kottke.

Cutting off your nose to spite Obama

A friend of mine tells me that his son, the owner of a successful business, has vowed that if the Bush tax cuts are repealed, he will keep his income below $250,o00 in order to keep the government from getting any revenue from the increased rates.  I have heard of other people who say the same thing.

Consider the logic of this.  The current top tax rate is $350 on every $1,000 in income over and above $250,000 a year.   If the Bush tax cuts are allowed to lapse, the person will have to pay $396 for every additional $1,000 over and above $250,000.  So the son is saying that it is worthwhile to give up $604 in income in order to prevent the government from getting an additional $46.

It goes to show that not everybody in business makes economic decisions based on economic incentives.   What would this person have done during the Eisenhower years, when the top tax rate was (in theory) 91 percent or the Nixon years when it was (in theory) 70 percent?

The art of the Japanese manhole cover

“A hair trigger away from economic calamity”

The great economist John Maynard Keynes once wrote:

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.

It seems paradoxical that while government is more intrusive than ever before into the lives of ordinary citizens, it gives free rein to powerful institutions and wealthy speculators to put the economy at risk.

Bart Chilton, commissioner of the Commodities Futures Trading Commission, gave interviews to The Real News Network describing how speculators and “dark markets” put the economy at risk, and drive up the prices of food and fuel.

The first interview in the series is above and the others are below.

The secret of password protection

Click to view

Click on xkcd for more like this.

Tom Ferguson on money and politics

Tom Ferguson, a professor at the University of Massachusetts and a fellow of the Roosevelt Institute, has a lot of good sense and good insight on politics and the economy.  Here he is in an interview with the Real News network in April.

Contrary to what the caption says, he is a professor of political science, not economics, but his real subject is what use to be called political economy—now public policy affects the economy.

What’s on the table, and what’s not

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Click on The Choices Still to Be Made in the New Debt Deal for the source and context of the chart.

Hat tip to zunguzungu.

Looking back on a golden age

Like Roger Chittum, the maker of this video, I feel lucky to have been born when I was (1936).  During my adult years, the United States came as close as it ever has to a society with prosperity for all—a society in which almost any able-bodied person who wanted to work could find a job at decent pay, and those unable to work did not suffer absolute destitution. We had better economic growth during the 30 years following World War Two than we have had since, and the economic prosperity was more widely shared than it has been since.

I am particularly fortunate because I was born in a window that made me too young to be drafted for the Korean Conflict, and too old for the Vietnam Conflict.  I did my active military service in 1956-1958, a time of peace when military service was a good experience.

The foundation of this golden was the high-wage, full-employment economy, which made everything else possible.   I believe in having a social safety net, but it is no substitute for good jobs at a fair wage.

I have an acquaintance, now a respected academic, who told me that when he was young and had time on his hands, he would go to an employment center and get a one-day job at something like unloading trucks.  He would get some good exercise and have some extra money in his pocket.

This was not “American exceptionalism,” although the United States led the way.  All the advanced industrial nations, from Britain, France and Sweden to Germany and Japan enjoyed a greater prosperity in the 30 years following World War Two than ever before.  Now we Americans leading the way down, but others also are on the way down, although some of them are resisting the decline better than we Americans are.

How much more does the top 1% need?

Some 30 years ago, the wealthiest 1 percent of Americans received 9 percent of total American income.  In 2007, the latest year for which figures were available, they received more than 23 percent.

If you believe that the secret of economic growth is to give the wealthy an incentive to invest and create jobs, what additional tax breaks and bailouts do you think they need to have that incentive?  How rich do they have to be before their wealth starts to trickle down?  Do they need 30 percent of the nation’s income? 40 percent? 50 percent? more than 50 percent?