We're Number 2! We're Number 2!

(Click on image to enlarge and then kindly drag your backside back.)

David Horsey's May 30 column has been sitting on the back burner of my brain pan because I just wasn't quite sure what to do with it.  I mean, is he implying that we've shifted our national focus on a "cold war" from Russia to China?  Or is he simply asserting that because our government has become so dysfunctional we've lost our leadership role?  Or both?  Because it's such a short column, I am quoting it in its entirety, contrary to the rules of fair use.  Hopefully he and the Los Angeles Times will forgive me.

Despite prognostications otherwise, it is not inevitable that the United States will cede its place as the world’s leading nation to China. But if the American political system remains as dysfunctional as it is today, China may rise above us by default.

While China invests in infrastructure, our federal government allows the nation’s highways, bridges and power grid to deteriorate. While China puts a premium on education and research, our national politicians refuse to provide the resources needed to educate a new, diverse generation of young Americans to a level necessary to compete with the world or to keep American laboratories and experimental enterprises functioning at full power.

China is burdened by a stifling one-party political system. Still, decisions get made, action is taken, stuff gets built, things get done.

The United States has a two-party system that is so gummed up by unscrupulous political warfare, unending campaigns and ideological idiocy that it may as well be a no-party system. No party can get anything accomplished because few political leaders have a vision of a common national interest that rises in importance above partisan advantage.

If China wins the future, it will happen because American leaders failed to stay in the game.   [Emphasis added]

It's pretty hard to disagree with any of Horsey's assertions, but I think he has oversimplified things just a tad.

Yes, China has become an economic powerhouse, and, yes, that huge nation has locked in energy and mineral contracts with Iraq, Iran, and Latin America.  But that hasn't been cost-free.  Right now, China is suffering from some huge pollution problems, problems that affect the entire world, not just China.

China is a major exporter to the world, but in most parts of the world, governments have opted for austerity programs to kick-start their economies, programs which, of course, have had the opposite effect.  What happens when other countries can't afford to buy Chinese goods?  Will buying companies in other countries make up for that?  That remains to be seen.

Finally, China has become a creditor nation, especially for the US.  We fought two wars (Afghanistan and Iraq) off-budget under George W. Bush by borrowing huge sums from China.  Unless our economic picture brightens, those loans will remain unpaid.  Then what?

Horsey is right that China is rapidly becoming the number one power in the world, if it isn't already, but our dysfunctional government is only one part of the problem.  And China will be facing its own challenges in both the short and the long term.

Reality Based Financing

While it is diverting to listen to born-again fiscally responsible wingnuts piping up on the floor of the House to insist social programs are going to break the bank, it's actually happening among the leaders. Working its way through obscure official channels rather than in the dog and pony shows the freakish right wing keeps throwing, Pay-Go legislation is being put in place to give actual underpinnings to our national government.

After the 'throw money at rich folks' approach the wingers employed over eight years in total power over spending, this works back toward sound finances. Soundness is much needed, as those burned by our catastrophic behavior in world finance are beginning to look at replacing the almighty dollar with a currency not subject to winger whimsy.

A bipartisan group of lawmakers grilled White House Budget Director Peter Orszag at a hearing Thursday over the administration’s flexibility on a new pay-as-you-go law that would allow for trillions of dollars in exemptions.

The administration is asking lawmakers to pass legislation that would require any new federal program to be paid for either by cutting spending or raising taxes. But the White House has agreed to exempt a few big-ticket items that have added to the nation’s budget deficit.

During the House Budget Committee hearing, Rep. Xavier Becerra (D-Calif.) noted the exemptions will cost more than $3 trillion over 10 years. Policies that won’t be subject to pay-go restrictions under Obama’s bill include the extension of middle-class tax cuts enacted during the Bush administration, funds to keep the Alternative Minimum Tax from hitting middle-income Americans and Medicare payments to physicians.

“If we don’t extend a number of these [exemptions], we could see an increase in the reduction of the deficit,” said Becerra, the vice chairman of the House Democratic Caucus.

Orszag said items were exempted because neither lawmakers nor the White House have come up with ways to pay for them. Those policies also have broad support from both Democrats and Republicans in Congress.

But Rep. Lloyd Doggett (D-Texas) suggested lawmakers consider letting more of the tax cuts, championed by President George W. Bush, expire, and not just the ones for those Americans making more than $200,000.
(snip)
House Majority Leader Steny Hoyer (D-Md.), who has called on the House to take up the bill in July, said the pay-go law is necessary to stem the increase in debt.

“By reducing the amount of money spent on interest payments on the debt, we will be better able to make investments in areas that make our economy strong, such as healthcare, energy and education,” he said.

The measure has less support in the Senate; though Majority Leader Harry Reid (D-Nev.) has backed it, Sen. Kent Conrad (D-N.D.), whose Senate Budget Committee would mark up any pay-go bill, has criticized the measure for exempting expensive items.

But Hoyer and House Speaker Nancy Pelosi (D-Calif.) have pledged not to consider any new tax bills from the Senate unless the upper chamber takes up pay-go legislation. The House leaders’ pay-go promise came in response to the $3.6 trillion budget resolution, which called for discretionary spending levels higher than Blue Dog Democrats wanted.

Reality won't get much attention in the media, but reality bites when the actual practice is profligacy. Returning to sound finances is overdue. When our society suffers real losses as it has in school spending, infrastructure, and collapse of our health system, we are required to get hold of the process of spending again.

The slow, steady progress of return to sanity is being accomplished by leadership while the opposition scurries about trying to light the fires faster than they can be put out.

Up In Smoke

If you are facing an economic meltdown, what do you do? In cases coming to light now, many desperate people lit up the car. Insurance companies are paying on arson, as the times get worse.

Of course, there are a few signs that the fire was intentional, I see. Having removed all your valuables first is a major one. That was true of house fires as well, I have learned from a little reading on the topic. The family pets being out is yet another indicator.

Pressed by the current financial environment car owners render to deceptive tricks to get more money. According to the reports from the Associated Press a growing number of people are torching, sinking or ditching their vehicles and then reporting them stolen to cash in on the insurance.

A number of SUVs were found ablaze in the Nevada desert. Cars were dumped in a Miami canal and a BMW was discovered buried in a field in Texas. Besides, some people deliberately parked their vehicles in the path of a hurricane.

You may well be asking yourself by now exactly why I'm researching burning cars. Actually, I had to file an insurance claim when a truck backed into me, and came on this development of lighting the jalopy, while I was working on that.

Wednesday at the Clay Fire Department, a special seminar was held to help investigators learn how to spot arson.

Two cars were burned at the seminar; one to show what an accidental car fire looks like, and one that was a car arson.

To make a determination between the two, the investigators there were instructed to look for specific clues, like where the fire started on the car, what was missing from the vehicle and the background information -- for instance, if the car owner had any financial or insurance problems.

Investigators say any one of those clues would typically point to fraud.

“In the state of New York, there are some signs of an increase of vehicle arsons, and it's concerning for law enforcement and the industry -- and we pay, in New York State, another $350 a year per person because of fraud investigations,” says State Police auto theft investigator Peter Kontos.

About 120 people attended Wednesday's seminar. Organizers hope investigators will now have all the tools necessary to properly spot car arsons.

Fire investigators say cars intentionally set on fire tend to burn faster and longer because an accelerant is typically used. Accidental fires are usually caused by a catalytic converter.

This is certainly a step beyond refinancing the house, which I understand no longer exists, to make it possible to go on spending more than you have coming in. As my own accident was relatively minor, I am pretty sanguine about it.

The innovation so prized by our financial institutions comes out in innumerable ways. Self-financing by lighter is yet another estimable invention, wouldn't you say? It's not going to rock the world economy just yet, though it's sure to be unwelcome news to insurance companies. The atmospehre toward insurance companies isn't exactly going to mitigate that inclination to cheat them, after the 'innovation' shown toward our pocketbooks.

My insurance company isn't that AIG that I kinda own, anyway.

Inflation Mythology

That former darling of the self-described fiscal conservatives who tipped this world into economic disaster, the Federal Reserve is coming up for grabs. Presently headed by Ben Bernanke, it will be in the unenviable position of the gold ring at the country fair carousel. Anything goes.

Of course, the Fed has been used to fend off disaster, and the policies it has used have been those that would produce immediate results. For long-term policies of choice, your financial mogul horde is going to fight back. For saving their hides, Bernanke is the new punching bag.

Federal Reserve Chairman Ben S. Bernanke will defend his unprecedented actions to prevent a financial collapse as debate on whether he should be reappointed begins.

Bernanke, whose term expires Jan. 31, faces lawmakers at a hearing this week on steps to aid Bank of America Corp.’s takeover of Merrill Lynch & Co. as Congress increasingly questions the Fed’s interventions. The session comes after a two-day meeting on monetary policy that starts today.

President Barack Obama has said the Fed chief has done an “extraordinary job” without committing to reappoint him. Treasury Secretary Timothy Geithner, in reference to a possible candidacy for Obama economic official Lawrence Summers, told a lawmaker last week it wasn’t “appropriate” to pledge that top advisers weren’t in the running for the job.

“The vultures are circling,” said David M. Jones, a former Fed economist who is president of DMJ Advisors LLC in Denver. Bernanke is “going to be on the defensive,” even after “turning confidence around” since the depths of the crisis, he predicted.

The evil policies that reputedly turned around the economy had an effect that strikes fear in those reputed hearts of the financial kingdom. They distribute wealth outside the inner ring. Worst of all, the general distribution of wealth brings an 'inflationary' effect.

That the inflation bugaboo was the most dreaded of all happenings came through in a reecent Wall Street Journal editorial.

We get worried, however, when Fed Governors begin to say that their days of fighting inflation are over. Fed Vice Chairman Roger Ferguson has been declaring the monetary equivalent of "mission accomplished" wherever he goes, most recently in a November 21 Chicago speech. "Inflation still seems more likely to move lower than to increase," Mr. Ferguson averred, making us wonder what prices he has been watching.

Perhaps none. Mr. Ferguson and Fed Governor Ben Bernanke seem preoccupied instead with productivity growth and what they call "the output gap."

The obsession with inflation by the ghouls at WSJ should be a good indicator that this is an effect we as working and wage-earning consumers should not fear. In inflation, your earning powers are worth more. Your debt shrinks, in real dollars. Toxic holdings even out in value with the 'good' holdings so corporate and investor debts diminish. Homes, savings, corporate real estate, all gain. The only losing factor in this scenario is the debt holder. The pile of gold in the mogul horde swimming pools loses value.

The last thing anyone wishing for economic justice needs to fear is inflation.

The legislators who are considering the next Federal Reserve chairmanship will be warned by financial interests that they have to do the right thing and stop recovery in its tracks before wealth can be allowed to follow value.

In order to continue toward prosperity, that is exactly what needs to happen.

Nothing But Words

A lot of instant analysis is going into telling you what to think about the new financial regulatory plan from President Obama, so I will help you out by throwing in some more. My favorite comment so far was from a guest on PBS' Nightly Business Report last night, a financier named Robert Albertson, Chief Strategist, Sandler O'Neill. I picked him because his analysis was priceless.

Albertson said; I'm very disappointed to see this. This is deck chair movement. This is words.

In case you don't recognize this charge, it repeats complaints about Treasury Secretary Geithner's original plan that was presented to the congress, which wingers said just was nothing but a sketch, and no more than words.

In both cases, I am suspicious that what that really meant was that the complaints were from the usual subjects, who are going to obstruct anything positive or beneficial, and don't want to take the time and trouble to invent anything that really counter the plan.

Even wingnuts have qualms about continuing the lack of regulation that Alan Greenspan has admitted led to this mess. Coming up with the newest line is going to take practiced obstructionism, and they're hard at work right now on that. But for the meantime, I thought 'nothing but words' worked really well. In the movie Amadeus, Mozart has produced a great piece of music, and the king likes it but feels he has to have some reservations, so he announces that it has 'too many notes'. That has always seemed to me like a beautiful example of criticism for the sake of coming up with something to find wrong.

Let's see now, we have a Constitution that is 'nothing but words'. For eight years of maladministration, our system of laws was nothing but words. For that matter, the rule of law without being imposed is nothing but words. And without penalties, any law is nothing but words. Even those not regretted Signing Statements (hereinafter SS) are nothing but words, lacking the power to carry them out. Those particular SS nothings, though, were used to destroy our constitutional system and re-institute legislation by the executive. The executive did not have the power constitutionally, but with an executive branch to carry out law by SS, could do it anyway.

What's in a word? The wingnuts like to throw around Fannie and Freddie, and blame our financial crisis on those institutions although their mortgage default rate was very much below average. Of course, Fannie and Freddie are the right wing's code words for non-white, a.k.a. low income, borrowers.

Another set of meaningless words are Triple-A Rating, a grade given to valueless, a.k.a. toxic, investments in mortgages that were thrown like beads at Mardi Gras - at anyone who would pick them up off the street. Of course, when the financial community threw those words, it had detached value from money altogether, so the words really had no meaning. This is the community that wants President Obama's regulations to be undermined, thrown out, and represent 'just words'.

That thought was expressed well at Time yesterday.

...gaming capital requirements is what banks do. For the next decade or two I imagine regulators will do a pretty good job of policing this. Eventually they won't.

Banks have been of this sort at the highest level, which is why we're in trouble now. I disagree with author Justin Fox on this point. When loans are retained by the original loan originator, they have an interest in making real loans that are not 'just words' - that liar loan of recent years. Banks don't have to be fly-by-night high stakes gamblers, and what is behind and integral to the regulations is return to value, the thing that makes our financial system work.

Rules, Regulations and Laws

There aren't many reasons for having a government that doesn't rule. The unfortunate use that was made of this one for the previous maladministration was simple protection of the moneyed interests from rules.

The results have been catastrophic. While I have reservations about the authorities now in place to prevent further losses, I do have hope that a return to sound practices is in progress. Today's WaPo op-ed from Treasury Secretary Geithner and Director Summers of the National Economic Council give reason for optimism. They have written up a series of needed controls for a financial system that had been looted rather than used to our advantage. As Mr. Geithner has stated, we need to act not, while the need is still at the forefront of our consciousness.

The financial system failed to perform its function as a reducer and distributor of risk. Instead, it magnified risks, precipitating an economic contraction that has hurt families and businesses around the world.

We have taken extraordinary measures to help put America on a path to recovery. But it is not enough to simply repair the damage. The economic pain felt by ordinary Americans is a daily reminder that, even as we labor toward recovery, we must begin today to build the foundation for a stronger and safer system.
(snip)
Some people will say that this is not the time to debate the future of financial regulation, that this debate should wait until the crisis is fully behind us. Such critics misunderstand the nature of the challenges we face. Like all financial crises, the current crisis is a crisis of confidence and trust. Reassuring the American people that our financial system will be better controlled is critical to our economic recovery.

Exactly. If we do not acknowledge that laws are for the purpose of protecting the people, and are needed for that reason, we ignore the reason for government.

When people who have no desire to keep this country's people safe are in power, there is obvious danger to our well being. Nothing has been more proven than that ill will toward America cannot ever again be allowed to happen in the highest realms of the U.S.

Business Needs Consumer Protection

This morning's news, that the president is considering adding consumer protections to financial oversight, is welcome if a bit ironic. In a consumer economy, it is vital to have consumers. Only ideological blindness could ever have persuaded any member of the business community that preventing regulations - that protect their consumer from being flushed down the toilet - are against their own interests.

In her role overseeing the bailout, Dr. Elizabeth Warren has encountered the underlying causes of our economic crisis, and this has produced an excellent concept for protecting our future. Without protections for the public, we have recreated the Great Depression, and will take some time to recover from those damages.

Dr. Warren has provided insight to a public-oriented president, who has seen that we need a body to oversee, not promote, the financial segment. The lack of real vision has turned present regulatory bodies into part of the industry it was supposed to preside over. The concern of profit for financial companies became its object, rather than the interests of the economy as a whole.

The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds, according to several sources familiar with the matter.

The proposed commission would be one of the administration's most significant steps yet to overhaul the financial regulatory system. It would also be one of its first proposals to address causes of the financial crisis such as predatory mortgage lending.

Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.

Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation. Last night, senior policymakers, including Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers, were to discuss the idea at a dinner held at the Treasury Department.


Responsibility for regulation of consumer financial products is currently distributed among a patchwork of federal agencies. Some of these regulators regard consumer protection as a low priority.
(snip)
The leading proponent of such a commission is Elizabeth Warren, a Harvard University law professor who now chairs the Congressional Oversight Panel for the government's financial rescue initiative. Her plan is the kernel of the idea the White House is now considering, sources said.

Warren wrote in a 2007 article in the journal Democracy that the government had failed to protect American consumers in their relationships with financial companies.

"It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street," Warren wrote. "Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?"

Warren proposed creating a new commission modeled on the Consumer Product Safety Commission, which protects buyers of products such as bicycles and baby cribs...."The Federal Reserve was supposed to do this, but they were asleep at the switch," Schumer said. (Emphasis added.)

While the new regulatory body would no doubt challenge the primacy of the financial insustry in regulating itself, legislators will have no excuse for further protecting the very interests that have led to financial disaster. The expected resistance has already been allowed to overrule common sense once. The results are the present disaster the world's economy is experiencing. There is no longer any reason for believing in former Fed Chief Alan Greenspan's now rejected dogma: it is in their own interests, so the financial community could be expected to regulate itself.

Protection of individual rights from rapacity is a pretty obvious basic function of our government. Only years of unrealistic insistence on the business segment's role of creating employment, something that it definitively has failed to do, ever has obscured the government's role in protecting its citizens. Employment has gone offshore, wages have been reduced, and the whole economy has sunken into impoverishment as a result.

The business leaders who have swallowed and parroted the failed credos are responsible for a great deal of damage. Those that have seen their businesses fail or suffer huge economic blows are learning; the consumer is part and parcel of their plan, and their greatest necessity. Business managers unable to grasp the basic concept of supply and demand, that without demand they can fold their tents and slink away, deserve to fail.

A body of consumer protection advocates would revitalize what is now a failing economy. By keeping the public from being defrauded, it would go a long way to save the distressed consumer economy that we all rely on. A new reality-based regulatory commission would protect an entire economy from the greed of sheer monopolists, those who have destroyed it.

Lawlessness, a.k.a. deregulation, profits the criminals, but it undermines the protection society needs from its government. The administration is on the right track.

Sawing Off the Branch You're Sitting On

What our new government is faced with is a nightmare, and what it needs to do is throw lifelines to the millions of us struggling to survive. That unemployed workforce is going to keep growing, as businesses that depend on the Mighty Consumer keep going under. It's not going to happen quickly.

One example is happening here, and I participated yesterday, in the death throes of that old southern institution, the Piggly Wiggly. Ours went out of business, unable to keep on without those longtime deep pockets and overtaxed by the competition of price slashing big supermarkets/superstores. Bargain hunters will be well stocked for awhile, but the prices are rising daily and cutting back on what we can afford.

The kind of slice and dice business practices that is ending numerous business histories like Piggly Wiggly's is alive and maiming businesses big and small. Our newly elected government for the people is struggling to keep the wolves at bay, and whether they will succeed or not is still a big question.

The hedge funds suing Chrysler because it's charged with keeping its commitments to retirees is symptomatic of the struggles President Obama and his executive branch are going through. This morning WaPo features an unusually informative editorial on that crunch. Harold Meyerson stands out for his deep and serious factual writing.

Liquidation is what the hedge funds want, on the theory that they could realize more than what the Treasury's plan offered them, from the sale of -- well, it's not clear what they think Chrysler can sell off at a decent price. Old auto factories in Michigan and Indiana? Who would buy them? To what end?

If the hedge funds are standing on principle, it's the principle that holders of secured debt should always have first claim to a bankrupt company's assets. But if they thought the administration would honor their claims above those of the public and other Chrysler stakeholders, they didn't do their due diligence about the Treasury officials who are in charge of restructuring the auto industry. In particular, they missed a 2006 speech delivered to a group of investors by Ron Bloom, the onetime investment banker who left Wall Street for the Steelworkers union, which he represented in scores of steel company restructurings, and whom President Obama tapped, along with Steve Rattner, to head up the administration's auto task force.

The banks and bondholders that lend companies money, Bloom said, constantly track the value of the bonds they hold, which enables "those who like the risk-reward ratio to take it and those who don't to liquidate their position and move on." Compare that, Bloom went on, to the position of retirees who deferred wage claims so that they could have a pension and medical benefits in retirement. If the company can't honor those claims, the retiree, unlike the bondholder, can't "take the company's promise, convert it to its present value and sell it to someone who would like to own it."

The Treasury's plan for Chrysler, and its proposed plan for General Motors, gives those retirees stock in the company -- the only way to keep afloat their otherwise unredeemable investment in Chrysler (that is, their medical benefits). It gives the public a stake in the company in return for its loans. It scraps the old management and board of directors, and downsizes the company to a point where the government believes it can become profitable again. It requires that 40 percent of Chrysler's production be performed in the United States -- a perfectly sensible, if groundbreaking, condition from a government that is committed to preserving and boosting domestic manufacturing.

In other words, the Treasury's approach to the auto industry is equitable, responsible to taxpayers and economically sensible.

The mogul horde that has brought this country to its lowest point since the Great Depression is peculiar for its resistance to any vestiges of decency. True to Business School rationale, greed is tantamount to godliness to these new criminal class members. Destroying the trust our system is founded on has been the last, worst, step, and they took it with gusto. Agreements are sacred only when they get more for the CEO, not when they protect the employees or the retirees.

Another deeply factual, and scary, analysis of the corporate monsters is presented at Mother Jones. It outlines the differences that Meyerson has pointed out, that the bosses took over running the country, and they have ruined things for us all.

....corporate executives have, for the past 35 years, managed to gild their retirement benefits even as they hollowed out workers' pensions. It started with the 1974 Employee Retirement Income Security Act, the law ostensibly designed to ensure that workers could collect the retirement benefits they'd earned. erisa brought some important reforms—including establishing the federal Pension Benefit Guaranty Corporation (pbgc) to help workers whose pensions went bust—but it also was riddled with favors to business. And in the decades since, legions of lobbyists have helped create numerous new loopholes, exemptions, and special deals. The result is two separate and unequal pension systems: Executives get the equivalent of antebellum mansions, while workers get leaky shacks liable to collapse at the first harsh economic wind.

It is a step beyond, to see as we have here at the cab, that business has suffered as much as individuals in the general collapse. What was supposed to be in the interests of the business leaders has ruined their own prospects by ignoring its basic dependence on disposable income, the basis for consumer largesse.

We've written the modern day myth of the destruction of that goose that laid the golden egg. It will take modern day miracles to bring that goose back to life. Even when the consumers are revitalized, they will not be inclined to roll those golden eggs back into vapid consumption again.

Short Selling and Shortchanging

Some background noise in the financial meltdown has been the suspicion that shortsellers were spreading panic and capitolizing on it because they profit when shorted stocks' prices fall. Hedge funds are the main perpetrators of shortselling, which is essentially betting that a stock is about to fall in price.

Today's Dallas Morning News has a fascinating collection of comments on proposed regulation that would prohibit shorting a stock that already was falling (the 'uptick' which was instituted in the Great Depression and later abolished), and cutting off trading in any stock that already had fallen 10%. The indication this has given, that faults present in shortselling bore some responsibility for catastrophic losses, gives some financial executives pause.

Two opposing views among those presented struck me as pretty loaded;

John Standerfer, executive vice president, Austin-based S3 Matching Technologies LP

I am worried about new rules or regulations without an adequate definition of a problem.

Last July, the SEC said the reason financial stocks were going down was due to short-sellers and not fundamentals. Since then, it has become clear that the short-sellers were right and the SEC was wrong. The majority of the companies on the initial short-sell list would not exist today if they hadn't received government funding.

If there really are situations where undue short-selling pressure drove stocks down intentionally and unjustly, then by all means the SEC should do something to combat it. But if that were the case, why haven't they provided any examples of this, and why didn't they present a single proposal designed to combat that scenario?

Shad Rowe, president, Rowe & Co.

These proposals represent a belated, albeit small, recognition of the catastrophic, anything-goes financial regulatory environment over the last few years. The more speed bumps the better.

In the past, short-sellers sniffed out financial fraud and pricked speculative bubbles. This last time, they fomented financial panic for gigantic profit. That is wrong, and the least we can do is make it a little more difficult.

That the SEC, of a criminally malperforming previous executive branch, was wrong in many aspects makes modul hordes' pointing fingers at shortselling dubious in my view, as well. The cretin's SEC failed to rein in irresponsible practices in securities trading, and also accepted information from investors like Madoff without supervising their actual practices. They were partially to blame, as is former Fed chief Alan Greenspan for refusing to stop bond ratings firms acting in the interests of traders by false good ratings they gave to poor investment prospects. A public interest orientation at SEC bodes well for change to the cronyism that prevented it from performing its duties in the past eight years.

Still, shortsellers do appear to have undermined stocks they were shorting, and gained by the resulting fall in price. Regulation that would hamper this kind of theft by deceit is as needed as are laws, and punishments, that would effect regulators that do not do their job.

Freep Trade

As the new U.S.Trade Representative, Ron Kirk is finally confirmed after one of several obstructed nominees from President Obama. One of the lessons the wingers holding up nominees have taught is that they are unalterably opposed to change from the disastrous course that the previous maladministration had charted. The determined pursuit of industry goals that ran roughshod over workers' rights here and abroad has done us a huge amount of damage, and wingers are determined that it will stay in place so their ideology will be shown as firm as it is infirm for the country.

The man President Obama has put in place has long and deep relationships with all the elements in this maelstrom, and shows every sign of being able to contain the damages done by war criminals in the executive branch. Hopefully, he can make some headway toward undoing the damage as well.

Actually, experience in Dallas politics, as mayor, should serve Representative Kirk well against the influences he's going to confront.

It's been three weeks since the Senate confirmed Kirk, a lawyer, free-trade advocate and friend of President Barack Obama. And already it's clear: Kirk's biggest challenges may come not from protectionism abroad but from "headwinds" at home.

With that in mind, Kirk hasn't just carved out time getting to know such counterparts as the World Trade Organization director and the European Union trade commissioner (whose title, "baroness," he playfully admired at a photo-op).

He has also been schmoozing key U.S. lawmakers, among them Charlie Rangel, the raspy House chairman who oversees tariffs. They go way back; Rangel even stumped for Kirk in the 2002 Senate race the former mayor lost.

The charm and connections help explain why Obama chose someone who admits his trade expertise is limited. With economic anxiety sapping public support for trade, Obama needed someone with the salesmanship and charisma to tame City Hall and, more recently, command $1 million a year as a lawyer and lobbyist.

Kirk's charge isn't merely to cut deals and enforce complex rules. It's to restore the perception that trade deals can create prosperity, not just send jobs overseas.
(snip)
His basic approach: he's not interested in "deal fever." Enforcing the rules already in place is a far higher priority than hammering out new pacts. On Tuesday, for instance, he announced $54.8 million worth of tariffs on Canadian softwood lumber.

But he'd rather build relationships than get litigious, he said.

It might take four or five years to resolve a formal complaint through the World Trade Organization, he said, and "if you are a cattle producer in Texas, if you are growing wheat in Montana or rice somewhere else, you are ultimately better served if I can pick up the phone and talk with one of my counterparts in whatever country, and get this resolved sooner than later."

Although 'pragmatist' has been reduced to four-letter word status by many of my friends here on the left, it's going to take something of that nature to negotiate between the Charybdis and Scylla aspects of foreign trade policy. Profits were the only measure in the past but they can't be abdicated totally in our present economic abyss. Captain Richard Phillips, in the hands of Somalia pirates, has about as much prospect of easy sailing. Getting to a point that U.S. profits from trade on all levels, not just at the financiers' pinnacle, is the trick.

On the side of the mogul horde we have all sorts of forces rallying, as noted by Veterans Today when they discovered that the KKKarl Rove group was using their members to front for the usual dirty tricks with vile aims, as stated in their newsletter:

The group warning us about the New World Order is actually being led by the people they are supposed to be against.

It seems the Republican Party, after having been abandoned by the Christian Coalition, thought it could go after the Ron Paul supporters by pretending to be "just plain folks." Yup, the Forbes and DuPont familiies, Westinghouse, Prudential, Aetna and McDonald Douglass along with thousands of lawyers working for every crooked industry and phony front group in America, all suddenly "libertarians" supporting "the little guy" against big government and the rich.

This was the "dirty tricks" front group Karl Rove used during the campaigns, the ones that pumped out all thsoe stories we later learned were lies.

Trade Representative Ron Kirk has encountered these crooked forces before, and knows them well. We all wish Kirk well, and he will need those good wishes.

Still, brandishing the torches and pitchforks by the public has been a very good activity lately; it's made the point that the election laid down. Betrayals of the public interest are intolerable from any government, but this is the one that is called on to make right the many wrongs done to this country by criminal misconduct of the last maladministration.

Trade can enrich instead of beggar the U.S., and that is how it must be wielded by Ron Kirk if he is to fill his office as it should be filled.

The Golden Mean(ie)

The spectacle of the CEO of Goldman Sachs, Lloyd Blankfein, admitting that the poor little banksters had gone astray had many reactions yesterday. Pearlstein at WaPo was amusing us this a.m. with a few choice observations, and a few lessons he thought Blankfein hadn't quite taken in.

"We collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public's long-term interests," said Blankfein, whose unflashy, straightforward style is more Mr. Whipple than Gordon Gekko.

Explaining why the industry failed to understand the risks it was taking, Blankfein identified the kinds of rationalizations that people latched on to: the growing strength of emerging markets, the plentiful supply of liquidity and the availability of new risk-hedging instruments.

"We rationalized because our self-interest in preserving and growing our market share, as competitors, sometimes blinds us -- especially when exuberance is at its peak," Blankfein said.

He also acknowledged that too much faith was put in risk models that turned out to be badly flawed and that the size of the firms and the complexity of the financial instruments had been allowed to grow faster than the "operational capacity to manage them."

To make sure it doesn't happen again, Blankfein called for stepped-up regulation of banks and even hedge funds. He also laid out a spot-on set of guidelines for industry bonuses that would give greater weight to the performance of the entire firm than just individual performance and reflect long-term risks as well as the short-term gains.

Okay, so it's not exactly up there with the confessions of St. Augustine, but it's a start.
(snip)
It's all well and good for the Goldman Sachs chairman to call for better regulation of the financial industry. But regulators are unlikely to do much better during the next bubble unless we can find better ways to insulate them from Wall Street's outsize political influence.

Pearlstein sees a culture of taking advantage of consumer confidence a.k.a. gullibility, as a major problem and influence by intense lobbying the other.

It's a beginning, to paraphrase Pearlstein. What even the best paid financial wizards seem unable to face, though, is pretty simple to me. Businesses have been undercut by the very means these mogul hordes intended to benefit them, the deprivation of income of our working classes. The reliance on consumers is ludicrous in the fact of policies that disable consumers. Living wages isn't just about the person who earns them, it's also about the economy that RELIES on them.

The great prosperity of the '50's came not from wealthy financiers making money out of sows' ears, but about a working class that could afford that vital Disposable Income. With it, they purchased the refrigerators and television sets that made us a model of prosperity.

From a system that rewarded all work, the moguls devolved into milking profits out of their firms until they strangled, while holding the rewards of their workers down. The result was strangled firms and loss of purchasing power by consumers, while it all was shoveled into the pockets of the stranglers. This class warfare meant that a huge divide between income for those at the top, who were counterproductive, and those in the working, productive, realm grew exponentially wider apart.

Maybe a little Socrates would help them. Recall, the ideal state was one without immoderate amounts of wealth or poverty.

...our aim in founding the State was not the disproportionate happiness of any one class, but the greatest happiness of the whole; we thought that in a State which is ordered with a view to the good of the whole we should be most likely to find justice, and in the ill-ordered State injustice

Nice of the mogul horde to illustrate Plato's point in The Republic. What we have is disaster for the whole State because the very wealthy turned everything to their own accumulation instead of making the simple deduction that they depended on purchasers for their products. That goose that laid the golden eggs, the consumer, was eaten for eight years. Hopefully, it won't take eight years to fatten it back up, but things aren't looking very hopeful at the present.

QL was remarking the other morning that from her point of view as a retiree - with much diminished income because of the reduced value of retirement funds - it looks like we all worked a year or so for those earnings pitched into the pot that this financiers' meltdown has overturned.

What the wingnuts like to call socialist - welfare - European - class warfare - is really basic good sense, and taught by most religions. Robbing the poor to give to the rich just doesn't work, not for anyone. Those fortunes lost by investors are not the result of poor folks taking to the streets proposing injustices; they're the results of equanimity in the face of those injustices.

More Socratic wisdom; ...credit is like fire; when once you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to rekindle it again.

Immoderation amounted to stupidity on the part of Wall Street and on the part of the past maladministration. Unfortunately, we all will suffer the consequences.

Forgetfulness

What a treat it is to hear the Party of Nope waxing eloquent over the disaster they have created in this country's economy. Now I am waiting to hear them admit that it was their wars and their tax cuts that were the cause. I am watching Diane's state's congressman Dreier. Sorry, he's on par with my own congressman Hall, who totally supports oil interests over his constituents. These disgraces to their country have done more damage than any foreign enemy could have done. Now they are arguing that more of the same is going to bring prosperity after eight years of bringing economic damage.

Today in the WaPo we get an op-ed by Judd Gregg that goes to the last extreme of debauchery, and after the song and dance routine he did in accepting - then rejecting - nomination to the cabinet, Gregg wants to blame the president for exactly the crime against this country his party has committed.

When speaking with the hardworking New Hampshire families and business owners whom I represent in Washington, I hear the same concerns echoed by Americans across the country. People are worried about keeping their jobs, their homes and their savings safe. They ask, "When will the economy recover? What kind of economic future will our children have?"

These questions are not easy to answer. Yet I believe that over the next couple of years, the country will recover from this severe recession. We are an inherently resilient nation.

Our longer-term future is harder to predict, though, especially since the Democratic Congress is on the cusp of adopting President Obama's budget blueprint. This is a defining budget. It shows very clearly where the president and the Democratic majority want to take our country: sharply to the left.
ad_icon

There is no doubt that the president came into office facing significant economic challenges. To stabilize the economy, he has been forced to take aggressive steps, some of which may have been necessary to avert a systemic financial collapse.

But don't be fooled when the president says the economy he inherited is the reason that future deficits and debt skyrocket.

The president's budget makes clear that a huge expansion of government is not just about today's economic downturn. Once the recession is behind us, this budget will continue pushing for more and more government in our everyday lives.

Instead of tightening Uncle Sam's belt the way so many American families are cutting back these days, the president's proposal spends so aggressively that it essentially adds $1 trillion to the debt, on average, every year.

Except for some accounting gimmicks, the budget makes no attempt to cut wasteful spending or find savings. It ignores reform for major entitlement programs such as Medicare and Social Security, which are on track to cost us $67 trillion more than we have over the next 75 years.

The new spending is coupled with the largest tax increase in U.S. history -- $1.5 trillion over 10 years.

Who will pay all those taxes? The president says it's just the rich. But let's keep in mind that a lot of these "rich" people are actually small-business owners, and small businesses create 70 percent of the new jobs each year. When millions of Americans are out of work, taxing job creators and making it harder to run a business are certainly not the answer.

Moreover, all American families will get stuck with a new "light-switch tax" on electricity bills that is in the president's budget. Even though taxes will go up dramatically, this new revenue will not be used to reduce the deficit. Instead, it is going to expand the government beyond what we can afford.

Excuse me, these small businesses and American families were doing great when the Gangsters came into power. They have gone into debt and been delivered a damaged economy by the failure of this gang to keep our laws enforced, as former Federal Reserve chairman Alan Greenspan admitted.

Having destroyed the economy, having failed, the Gang of Nope tries to keep the Democrats from saving it. This beggars the imagination. Representative McGovern describes the political piece called a budget that the wingers have introduced as a brochure, which is kind as a description. Finally, today there are actual numbers. They're proposing to cut school funding, and vaguely, financial services, which would inevitably involve medicare and medicaid, now there's the way to help out the populace. In hard times that they have created, they would make things worse.

For investors in the stock market the gang of nope said would regulate itself, their hard-earned dollars have been taken away by about half. For those of us who saw that their policies were destroying our economy, we've lost much less than those who trusted them.

The example to be totally avoided is that set by this gang that robbed the country for eight years. Fool me once, shame on you....

Nappies Hustled

Get your attention? The title may bring a smile, but what has happened near here is disturbing. How desperate do you have to be to steal diapers?

The crime story near my house is about a man who had a need big enough to risk prison for some diapers. As I have worked in charities before, I know that sometimes people can't afford diapers when their babies have to have one. I've gone into a church nursery and taken a stack of diapers for some one in need, myself. This news item shouldn't come as a surprise.

In tough times some are stealing it seems out of necessity. Before Thanksgiving a woman was accused of stealing a turkey from a local grocery store. More recently a man stole two packs of diapers from a Dollar General in Sherman.

Those desperate in this economy are taking desperate measures. Athough no one can prove a motive for stealing, it seems more items of necessity are disappearing from store shelves. This is not the first time an incident like this has happened. Advice? If your on a tight budget shop around. Some stores are keeping prices low for residents.

Joy Ashby, DME Coordinator for TMC Medical Supplies says, "We just don't do much of a markup. We are trying to help keep prices low for the community."

If you are looking for low priced items such as diapers, a 20 pack at TMC is only $3 while other stores prices range from $5 to $11 a pack.

This isn't a local crime wave. It seems that similar events are occurring in other places as well.

I was at a Walgreens store in an upscale Nashville neighborhood buying shaving razors. Like most stores, this place keeps the shaving stuff behind lock and key. The difference is that managers also alarmed their display case, so that when the door is unlocked a little alarm goes off that grows increasingly louder—and more annoying—until the case is locked again.

I remarked to the woman helping me that it seemed odd to keep shaving supplies behind an alarmed door. She told me that as the economy deteriorates, they're having a much bigger problem with shoplifting.

"It's gotten much worse just in the last month," she said. "We've even taken to locking up some of the diapers. That's how desperate people are getting."

She paused, looked over her shoulder and said in a low tone, "But if someone is in such bad shape that they need to steal diapers for their kids, it's hard for me to not want to just give them to them."

Good for you, saleslady. This reminds me of a Fish and Wildlife officer who confided that if they knew people were shooting geese to feed the family, as long as the hunter wasn't killing really endangered wildlife, the officers looked the other way.

A fatality of our cut-throat economy is that too many working people feel more threatened than sympathetic. The economic meltdown may be a time to take another look at our own habits of giving.

The crime in our area isn't huge, it's rural and in a place where people generally know each other there are a lot of very good reasons to keep your act clean. Sadly, that doesn't mean you can't be required to work without pay to keep a position. The work without pay is called 'working off the book', and I have heard from fellow workers at a few places that they'd been able to hang onto a needed job only by doing it for managers who in turn were required to show really good profits to keep their jobs.

In other words, you can rob people secure in keeping a record of good behavior, but stealing to take care of your children will get you in trouble.

We're growing extra rows in our gardens for folks who need to eat. Today I have a closet to clean out. There are a bunch of cleanliness-related products I will probably never use, and might help some one out if I make a trip to the local shelter. I just may have to pick up some diapers on the way.

You're invited.

*****************************************************

Update: Good grief, the diapers I found were more like $8 for 24. I would definitely be boiling the cloth kind in a washtub in the back yard, if I had little fellas to care for right about now.

Those Yurpeans

I believe that I finally heard something on Meet The Press that was worthwhile. Katy Kay said that if you had lost your job in the European countries you had health care and your children were still getting an education, so why should you have to pay to clean up the mess that we have made.

I am not one of those upper .01% in income, so that last 10 years of tax cuts for that percentile have not benefited me. On the other hand, I have reached the age of being able to go on Social Security, so my years of working have given me that benefit. I do, however, realize that the work of most of my fellowmen have gone to benefit the rich, and they are in desperate straits if they have lost their jobs.

President Obama has been elected by those of us who have realized that our hours at work have been taken away from us. We need to shove a bit harder. What is called by wingnuts 'socialized medicine' is the opposite of for-profit medicine. An insurance industry denies health care that the public needs, and is paying for. Their profits are between us and basic needs, and that has to change. The insurance moguls are determined to keep it that way and they are spending our money, in the form of premiums, to lobby against us.

Yes, I just got my insurance bill. In August I will be eligible for Medicare. Will I pay for another five months for insurance, which I have never needed, and which supports lobbying against my interests? I'm thinking hard about that one.

As to education, I always paid for that through my taxes. My children went to school in Montgomery County, MD, at the highest tax rate in the country. My son's first grade teacher spelled her country's name Ameruca. No, I'm not kidding. In the evenings, over dinner, I read to my children. That probably did as much good as their attendance at school.

This country is in very big trouble. I am hopeful that from the economic stress they have brought on, the wingers will be forever out of power. We need to be diligent in making sure our children inherit a country that protects its workers. The abuse of our working people has brought disaster to everyone it's been inflicted on.

The whole world is watching, again.

Evil Presidentin'

It's always startling to see the ideas wingers come up with to impugn their opponents. Today at Dan Froomkin's discussion that went on from 1 to 2 p.m. ET, there was a doozy.

Seems the right wing has not been able to convince anyone that President Obama created the economic meltdown. Here's the latest tack they're taking.

The president is making the crisis go on longer than it should - deliberately. The more crisis, the more of his evil aims he can pursue, like, say, 'socialized medicine'.

Froomkin is trying to handle this evenhandedly, and I wish he wouldn't.

Minnesota: Here's my concern...Obama is not overreaching so much as taking advantage of the financial crisis in order to implement social programs with an overwhelming liberal bent. He and his administration are eager to not let this crisis go to waste. So why kill the golden goose?

Dan Froomkin: Wait, so you're saying he's intentionally extending the crisis to take advantage of it? That strikes me as unlikely.
****************************************************

Minneapolis: I surely hope and pray they are not. But when you hear the same phrase "never let a good crisis go to waste" and Treasury is slow to announce details of bailout plans, it makes a person wonder. But no, I don't truly believe they are intentionally prolonging this, but I do think they are "using" this crisis to further their agenda.

Dan Froomkin: And that is certainly a supportable argument -- they'll admit that themselves. And it's a legitimately trouble view, if you think what they're doing is going to make things worse rather than better.
****************************************************

Fremont, Calif.: I think Minnesota is doing what many people do; ascribe to others their own motives. There's no doubt the previous administration saw the turmoil engendered by the 9/11 attacks as an opportunity to push through all kinds of changes, changes that would not have been acceptable under normal circumstances. Now they see another emergency situation and fully expect others to do as they would.

Dan Froomkin: Well, that's an interesting point. I guess the question in both cases is: Did the president inappropriately spread and exploit fear?

To decide that, you need to decide how scary each situation really is.

I for one still wish Bush had said: Don't let the terrorists scare you. But then, like you say, he might not have been able to achieve his goals.

There just is no comparison between the use of the presidency that we saw for eight years of malfeasance, and the use of the office that we are seeing now to serve the public. I guess if I were somehow forced to justify evil I would want to divert anyone watching by finding something I could call evil in the other point of view.

This accusation of enabling the depression, though, is farfetched enough to think it won't sway any rational folks. There are enough of the commenters on blogs that I see snatching at any excuse to accuse the president of any sort of rottenness, though, that I guess any peg will do if you have a hat you really need to hang. Still, this doesn't look any more viable than trying to accuse President Obama of causing the meltdown that he was elected by.

One question/answer set I particularly liked today;
"Karl Rove: So we're to get advice from Karl Rove? Didn't he help the last guy? How did that work out? Seems to me Obama has a hell of a mess on his hands and it's not time to take a Bush type vacation though. Maybe by August he can ignore stuff like Bush did his first August.

Dan Froomkin: Amazing, huh? Here's Obama senior adviser David Axelrod on the value of Rove's advice. "

The link is to Axelrod saying, "The last thing that I think we are looking for at this juncture is advice on fiscal integrity or ethics from Karl Rove -- anyone who's read the newspapers for the last eight years would laugh at that."

I'm writing some advice to the pundittoes who are concern trolling about the president doing too much; The adults are in charge, deal with it.

And to their editors, hopefully the end is near, as the really transparent motivation of their stenographers daily shows how much they hate the public interest, or is it just the public, and want it to get shafted some more?

The internets increasingly are the one habitat that's friendly to/for rational thought. Welcome to all of you here. Sorry I let the gremlins in. Shhh. They're gone now.

The discussion ended with this great comment from a questioner;
"Obama is doing what he said he would do, and that's what we elected him for. If the DJIA is down, it's because it's not what Wall Street wanted. But that's OK; they didn't vote for him. We did."

Mortgage Lenders Want Their Loot

The insistence by lenders to homeowners who got placed in bad loans, that they the lenders should suffer no losses, has been an obstacle to efforts to forestall the housing crisis. In Maryland the state has been a leader in those efforts, and Governor O'Malley writes an op-ed today in WaPo detailing how their efforts have been fought by lenders.

A continuing claim of lenders that allowing judges to revise mortgages so that homeowners can pay them off is unjust and will force them to raise new mortgage rates has been and is a ruse to burden the mortgage holders with all the losses. It is a standard that we have pointed out at cabdrollery previously.

We strengthened lending and licensing standards for mortgage professionals and banned prepayment penalties and other defective features of loans. We eliminated the fast track to foreclosure to give homeowners more time to work with their lenders and develop alternative solutions that could allow them to stay in their homes.

These reforms addressed the problem prospectively, but homeowners with toxic loans continue to try in vain to get real help from their lenders. We created a hotline for citizens and convened an army of housing counselors and pro bono attorneys to provide advice. We reached agreements with six mortgage servicers to provide meaningful loss mitigation to homeowners in the state. Yet too many Marylanders still have been unable to access sustainable solutions. Our reach is limited, and most of the largest servicers fall under federal regulation. As a state, we've exhausted our options. Although we're helping more people than ever, more people than ever need our help.

Maryland's experience can provide lessons as the Obama administration prepares to implement its plan. Maryland was the second state to require loan servicers to report data regarding loan modification efforts. The data are startling: Many homeowners are receiving modifications that result in the same or even higher monthly payments because of a failure to forgive fees, penalties and arrearages. Few modifications result in a reduction of the principal balance. As long as servicers continue to refuse to reduce principal, meaningful relief will be impossible for all too many homeowners.

During our negotiations with servicers, we learned that in most cases they have substantial discretion to alter the terms and conditions of loans, including the ability to reduce principal. They all say they want to reduce foreclosures, but too many servicers lack the will to do so.

Homeowners need leverage to counter this lack of will, which is why the Senate must act quickly to reform bankruptcy law to allow judges to alter the terms of home loans. The House passed such legislation last week. Bankruptcy judges can alter the terms on car loans, boat loans and other consumer loans -- but not loans on a person's primary residence. This exclusion must be removed.

Congress should also require institutions receiving funds from the Troubled Assets Relief Program to demonstrate progress in providing sustainable modifications. These institutions should be required to report detailed data and should be held to benchmarks, including having to demonstrate a significant number of loan modifications that result in lower payments.

The greed that financial industry members has shown in the economic meltdown is prevalent in many of their claims. The insistence that they must not be made to suffer losses that they have brought on is evident throughout the foreclosure brouhaha. The lenders sold a faulty product, but they are determined they will not suffer for it.

The ideology of the greedy is that they should receive all the rewards for their innovation, but those who fell for this should pay all the costs. This is the thinking that has robbed the world of prosperity, and it needs to be shut off now.

Bankruptcy is a desperate state, and the court should be enabled to make the conditions bearable. Highway robbery by lenders has to be punished, rather than rewarded.

Loosers

With the huge disaster that homeowners and lenders have suffered, it would seem reasonable to conclude that anyone wanting to buy a home would be very careful. Of course, those ads on glossy paper keep coming in advising you that great deals are available. Just trust your local financial whiz.

Unfortunately, enough buyers are getting sucked in that we have a new crisis, called Quick Defaults. Making one or less payment, the ill equipped buyers are finding they are over their heads in debt and leaving.

Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data.

Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

If a loan "is going into default immediately, it clearly suggests impropriety and fraudulent activity," said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.
ad_icon

The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid.

Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.

More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year.
(snip)
Dean Hackemer, president of Access National Mortgage, defended direct marketing, saying it increases competition among lenders and thus forces down interest rates for borrowers. He blamed his firm's rising defaults on a bleak economy that has cost some borrowers their jobs. But he added that many of the lenders now running into trouble with FHA loans were previously selling subprime loans and related Alt-A mortgages, which required no documentation.

Refinanced Back Into Trouble

Among FHA loans with instant defaults, the upward trend is especially pronounced in refinanced deals. The number of refinancings that defaulted after zero payments or one have more than quadrupled since then end of 2007 and now represent two-fifths of all instant defaults.

The FHA is attractive to borrowers looking to refinance, in part because the agency allows for cash-out refinances, a practice Apgar called "particularly problematic." It has become rare among conventional lenders, who fear that borrowers will take the cash and walk away from the loan.
ad_icon

The FHA also permits "streamlined" refinancing, in which established FHA borrowers get lower rates without verifying their income. The thinking is that borrowers who are on time should stay that way if their rate drops.

Karmen Carr, a housing finance consultant for the FHA, said some mortgage brokers have been known to game the system. They coax homeowners to refinance repeatedly even though it's a costly process for the borrower, she said.

The tragedies keep mounting. Penalties for fraud should be redoubled, and regulation of lenders based on their inability to keep the borrowers they inveigle into taking out loans.

Bank regulators were charged with reporting patterns of consistent losses so that they could be investigated. The regulators for the most part failed to do this during boom times.

The lending industry has fallen into a pattern of making loans that are unsustainable. Weaning out the crooks is overdue.

Pity the Mogul Horde

What a heartwarming debate on the floor of the House of Representatives occurred this morning. The amount of concern for the property banks might lose, and the misfortunes possible for banks that made bad loans, was touching.

Representatives pled with their Democratic colleagues to show their regard for the threatened lenders by insuring that homeowners didn't profit from rational behavior which would allow the courts to consider the values they have lost in ruling on mortgage repayment plans. The so-called 'cramdown' provision would take into account the actual value at issue and ability to pay, represented in the borrowers' plans. That would mean the bank has to take a share in the losses brought on by reckless lending.

The Helping Families Save their Homes in Bankruptcy Act of 2009 passed out of a U.S. House of Representatives committee on Feb. 24; it now heads to the full House for consideration.

Among other things, the bill would allow bankruptcy judges to order banks to reduce mortgage principal amounts or restructure terms — a practice known as “cramdowns” — for homeowners that file for Chapter 13 bankruptcy protection. President Barack Obama expressed support for the plan when he signed a $75 billion foreclosure relief package in Arizona on Feb. 18.

But opponents say it could lead to higher mortgage rates, as lenders will charge more to protect themselves in case of default. About 350,000 additional U.S. households likely would file for Chapter 13 in the 10 years after the measure become law, according to estimates published Feb. 23 by the Congressional Budget Office (CBO). Even without the change, the CBO expects Chapter 13 filings to rise 13 percent this year, to nearly 400,000.

In some ways, the cramdown proposal is similar to what’s allowable under Chapter 12, a provision in the bankruptcy code that was created in 1986 to help family farmers. Back then, farmers who had used high-priced land as loan collateral during the 1970s risked losing their farms when exports and farmland prices suddenly dropped in the ’80s.

Chapter 12 “allowed basically this cramdown idea on real estate, where essentially what a debtor could do was file at the bottom of the recessionary cycle, and have the debtor’s farm valued at whatever the current value was regardless of what the mortgage amount was,” said Jim Burghardt, a Denver, Colo.-based attorney who represented agricultural banks at the time. “The court would split the mortgage debt between secured — i.e. the current value of the ground — and unsecured claims for the remainder of the debt. Then the debtor could restructure the mortgage around the secured amount. So if you’re the lender, you get a reduction in the value of your collateral and a reamortization of the debt. Usually in these kinds of bankruptcies, the unsecured creditors are getting pennies on the dollar.”

The practical result of the change was that banks worked harder than ever to keep their farmer clients out of bankruptcy, Burghardt said.

What a novel idea, that lenders might want to make sure that the entities/people taking out loans could repay them! How very quaint.

Of course, regulation that required lenders to make reasonable loans, assuring themselves of the ability to repay the loan, might have been a much more loving approach by the wingers who now want to let the lenders off the hook entirely. Actual supervision would have kept the whole mess from happening in the first place. Being ignored along with the traditional actuarial tables on affordability is the bonus being paid agents to place more expensive, less sustainable, loans.

It is not the place of our government to insure profit for the irresponsible, but that is the role your wingers are playing out. This is an instance of lenders lobbying against the natural behavior of the market - culling out those that are incompetent or just too greedy. It's past time for the bankers' lobbies to be reined in.

All of the losses should not be suffered by those who received mortgages that lacked justification, at the hands of those that made the loans. Cramming down the homeowner is the worst solution to the problems reckless mortgagors have inflicted on us all.

Texas Running Out of Funds for Unemployed

Remember last week when Texas' governor Rick Perry was grandstanding about how he was going to turn down President Obama's stimulus funds rather than risk spending more, two years from now? This week, he's running out of money. Funny how that happens when you're not planning well.

The Texas Workforce Commission is going to have to ask the federal government for money to pay existing claims.

The head of the Texas Workforce Commission says the state may need to seek a federal loan to maintain the unemployment compensation trust fund.

Chairman Tom Pauken says with more people losing their jobs, that a "real deficit" could come by September of October.

The update comes as Texas lawmakers debate expanding unemployment benefits.

"It's just a bad situation," Pauken said in a story for Saturday's San Antonio Express-News and Houston Chronicle. But everyone will continue to get their benefits, he said, as Texas plans to deal with the potential shortfall problem in advance.

Texas had 26,071 initial claims for benefits during the week of Feb. 14, compared with 11,226 initial claims for the same period one year ago.

Texas could obtain an interest-free loan from the federal government to keep the state fund solvent, Pauken said. After that, Texas could issue bonds, with a tax increase on businesses to pay for the financing, he said.

The Texas Association of Business opposes changes to the state's jobless program.

The official projection from the TWC says the jobless fund's balance, by Oct. 1, is estimated to fall from the current $1.1 billion to $109.4 million.

That would be far below the required $859 million, an amount equal to 1 percent of all taxable wages. The TWC in January was projecting a $447 million shortfall.

Texas could receive $555 million in federal stimulus money if it changes its jobless benefits to allow more people to qualify. The matter would involving adjusting the time period used to determine whether people are eligible for benefits.

GOP Gov. Rick Perry has said he is against funding to expand programs and then leaving Texas to pay when the federal money is gone.

No one questions what it means to have lame-brained poseurs in charge of the state. It has meant poor to criminally inadequate services. It has meant scandalous rulings that favor business and destroy public interest. It is past time for the state's voters to begin ending the insanity.

That Sen. Hutchison is favored over the incumbent governor is one indication that the spectacle of reprehensible misbehavior is breaking through the state's usual indifference to rational government policy.

Prepare to Come About

For you sailors, you know that's the call that tells everyone on board to watch out for their heads because the sail is about swing over the deck. Unfortunately for our economy, and particularly for members of Boards of Directors and regulatory boards, the call never came as the nation's mortgage industry turned into a massive fraud.

Originally, mortgage servicors were investors in mortgage purchasers; in the scramble to invent investment bundles, those servicors turned into sales agents for golden fleecings. The regulation that was needed had been negated over the past eight years. Its absence was a major contributory element to the disaster we have in our economy now.

Boards of Directors have been used to an avuncular role, paid good salaries for helping the company management produce profits. Whistle blowing at freewheeling policies was almost antithetical to what they were asked to do.

Dallas Mayor Tom Leppert is now caught in an embarrassing position. He served on the WaMu board while it went down, caught up in unsound lending insanity.

After a conference call with fellow board members of Washington Mutual on Oct. 15, 2007, Dallas Mayor Tom Leppert boarded a night flight to Seattle to attend a full meeting of directors the next day in the company's hometown.

On Oct. 17, with the mayor back in Dallas, Washington Mutual shocked investors by backpedaling on an optimistic business forecast it had issued just two weeks earlier.

Things were getting worse, not better, the nation's largest savings and loan said. The housing market was deteriorating more rapidly than expected. Larger losses from risky mortgage loans could be expected in the future.

Since joining the WaMu board in 2005, Leppert has had a front-row seat on the mortgage boom and bust that caused the biggest bank failure in U.S. history and contributed to what is becoming the world's worst economic downturn since the Great Depression.

WaMu's ascent to the heights of American finance, the risks it allegedly took to get there and the collapse that followed illustrate some of the origins of the crisis that has vaporized home equity and retirement savings for millions of Americans.

The company's downfall is also affecting the roughly 100 branches and nearly 2,500 employees it had in the Dallas-Fort Worth area when it failed. WaMu's assets were acquired in September by J.P. Morgan Chase & Co. Some local branches are being closed.

It's unclear what advice Leppert – a successful businessman who has based his political appeal in part on his business savvy – provided on the WaMu board. He and other directors declined to comment for this article.

Leppert remains a director of WaMu's holding company, which is in bankruptcy. The company, its officers and some directors, including Leppert and Dallas attorney Regina Montoya, who joined the board in 2006, are defendants in legal action stemming from the company's troubles.
(snip)
One of the written questions submitted to the mayor asked why he didn't resign from the WaMu board at the same time he resigned from the board of Leighton Holdings, an Australian company, in early 2007. He resigned from two other corporate boards shortly after being elected.

Though he declined to answer, some insight into Leppert's thinking might come from brief comments he made to Dave Levinthal, city hall reporter for The News, in early September last year, soon after Killinger resigned as CEO and two weeks before WaMu failed.

"The feeling is that there's sufficient capital and good things ahead," the mayor said of WaMu's prospects. "But that's about as far as I can go. I'm not a designated spokesman."

The errors of regulators have been widespread in the financial industry's massive fall from grace. The formerly booster role, usually played by friends of the management, turned suddenly into one of sheriff. The new direction was felt recently by the Enron functionaries, and that fraudulent business's Board of Directors came under scrutiny that could have cost individual members huge fines. The administration of the past eight years was a big boon to those former directors, as no action was ever taken against them.

The inaction by S.E.C. has enabled fraudulent business practices in the case of Enron, the financial industry in subprime mortgages and bundlings, and most recently in failing to oversee Bernie Madoff's ponzi scheme. That body, too, is under new requirements as public interest replaces enrichment of business leaders under this administration.

If Ms. Schapiro does not whip the SEC into shape, her job and her legacy as a career regulator could be at stake.

The pressure is on her. Even a cursory glance at recent SEC action in the area of enforcement shows that the agency has been slow or inefficient in a number of matters, both large and small.

For Ms. Schapiro, foremost is an explanation as to why the SEC neglected to act on a credible tip that Bernard Madoff's investment business was a sham.

Although the function of the regulatory boards became one of purely figurehead functions under business servicing leadership, it is time for our regulatory restructuring to require more. The role of enabler is no longer possible. The country needs business to return profits instead of losses for society, and that is going to be a new consciousness for members of the boards.

The boom is swinging, and some heads are at risk.