Tuesday, October 26, 2010
Public works employees uprooted 45 live oaks and 20 crape myrtle trees from the intersection of U.S. 41 near State Road 54.
The trees were planted 10 years ago at a cost of $129,000. The county now said it is too expensive to maintain the trees at a cost of $10,000 a year.
The Florida Department of Transportation had an agreement with Pasco County to maintain the trees after road work in the area was completed, but budget constraints changed that.
Longtime Pasco resident Michelle Leigh said she hates to see the trees go.
"That's terrible," she said. "That is a waste of money. They spent over $100,000 to plant these trees and 10 years later they want to chop them down. That is a total waste of money."...
Updated: Scroll down for VIDEO - Bill Black with Max Keiser.
This is a beauty. Are you listening Sheila Bair.
Bill Black says that the FASB 157 Hour Of Power, and delusion, is over. Banks are still insolvent. The Fed is complicit. Put the banks with the most fraud into government receivership, sack management teams, investigate, find the hidden balance sheet secrets, then prosecute.
- "Foreclosure fraud is the only thing standing between banks and Armageddon. The financial media treats Bank of America as if it were a legitimate bank rather than a "vector" spreading the mortgage fraud epidemic throughout much of the Western world."
By William K. Black
The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.
The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon.
- The fraudulent CEOs looted with impunity, were left in power, and were granted their fondest wish when Congress, at the behest of the Chamber of Commerce, Chairman Bernanke, and the bankers' trade associations, successfully extorted the professional Financial Accounting Standards Board (FASB) to turn the accounting rules into a farce.
- The FASB's new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional "income" and "capital" at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.
- The inflated asset values allow the Fed and the administration to ignore the Fed's massive loss exposure and allow Treasury to spread propaganda claiming that TARP resolved all the problems -- at virtually no cost.
Donovan claims that we have held the elite frauds accountable -- but we have done the opposite. We have made the CEOs of the largest financial firms -- typically already among the 500 wealthiest Americans -- even wealthier. We have rewarded fraud, incompetence, and venality by our most powerful elites.
If the government does not hold the fraudulent CEOs responsible, who is supposed to stop the epidemic of elite financial fraud? Obama's answer is the fraudulent CEOs themselves, at a time of their choosing. You can't make this stuff up.
Bank of America chose to purchase Countrywide at a point when it -- and its senior leaders -- were infamous. Bank of America made some of these Countrywide leaders its senior leaders. Yet, Bank of America is not treated as a criminal entity. President Obama, Attorney General Eric Holder, Donovan, and Barr cannot even bring themselves to use the "f" word -- fraud. They substitute euphemisms designed to trivialize elite criminality. The administration officials do not call for Bank of America to be the subject of a criminal investigation. They do not demand that Fannie, Freddie, Ambac, the FHFA, and Pimco file criminal referrals about Countrywide's frauds. They do not demand that Fannie, Freddie, and the Fed refuse to purchase or take as collateral any mortgage instrument from Bank of America. No one at the Harvard Club in New York moves to kick Bank of America's officers out of their club! The financial media treats Bank of America as if it were a legitimate bank rather than a "vector" spreading the mortgage fraud epidemic throughout much of the Western world.
Appointing a receiver for an SDI will be a major undertaking for the FDIC, but it is also well within its capabilities. Contrary to the scare mongering about "nationalizing" banks, receivers are used to returning failed banks to private ownership. Receiverships are managed by experienced bankers with records of competence and integrity rather than the dread "bureaucrats." We appointed roughly a thousand receivers during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush.
Here is how it works. A receiver is appointed on Friday. The bank opens for business as normal (from the bank's customers' perspective) on Monday. The checks clear, the ATMs work, and the branches all open. The receiver's managers direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted.
The receiver is also a well-proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations.
Video: William K. Black with Max Keiser -- Aired Sep. 12, 2010
Bill Black helped send more than 1,000 criminal bankers to jail in the 80's for their part in the $150 billion S&L crisis. This time around, exactly ZERO fraudsters have been sent to the hooskow in a $6 trillion intergalactic banking blowout.
I pity CEO Brian Moynihan and the 284,000 other employees of Bank of America Corp (BAC). That includes 15,000 Merrill Lynch brokers who are still recovering from the financial crisis and now have to explain to their clients why they work for a firm that is at the epicenter of America’s housing crisis.
Not only have they seen $80 billion in stock market value evaporate since April but they also have to suffer the humiliation of having a parent company bone-headed enough to pay $4 billion for Countrywide, the financial firm created by subprime mortgage pimp Angelo Mozilo. That mess could wind up costing BAC $50 billion, excluding legal fees and brand value deterioration. Remember Countrywide originated $1.4 trillion in mortgages from 2005 to 2007 alone.
The latest ugly news for Bank of America is actually coming from Europe, where big institutional money managers and other mortgage securities buyers are now beginning to organize for an assault. This information comes from John Mauldin’s, Thoughts from the Frontline Weekly Newsletter. His e-letter is a must-read for many money managers and serious investors.
This week he devotes a lot of his letter to testimony that seems to prove that big banks like Citigroup (C) and BAC were negligent and even willfully careless in underwriting subprime mortgages. He also reports on some new ominous developments brewing overseas and that law firm Quinn Emanuel Urquhart & Sullivan , which specializes in going after money center banks, has been hired by Fannie Mae and Freddie Mac parent, the FHFA. Below is an excerpt of his newsletter, if you want the full version, click here.
Mauldin: Investment banks large and small originated a lot of subprime garbage in the 2005-2007 era. This week PIMCO, Black Rock, Freddie Mac, the New York Fed, and – what I think is key and no one has picked up on – Neuberger Berman Europe, Ltd., an investment manager to a managed-account client, came together and sued Countrywide for not putting back bad mortgages to its parent, Bank of America. This is the first of what will be a series of suits aimed at getting control of the portfolio and peeking into the mortgages.
Basically, if buyers of 25% or more of a mortgage-backed security can come together, they have standing to sue the mortgage servicer to do its duty to the investors and make putbacks of bad mortgages, and if they fail to do so the plaintiffs can take control of the process and take the issuer to court directly (that’s a very simplistic description but roughly accurate).
There are two key take-aways. First, note that a European entity is involved. Hundreds of billions of dollars of this junk was sold to European banks and funds. And these guys get together at conferences (sometimes they even invite me to speak). So Helmut will be talking to Lars who will talk to Jean Pierre and they will realize they all own some of this junk. They will be watching with very real interest to see how the big boys at PIMCO and Black Rock and the New York Fed fare in their efforts. And then you can count on them all piling on (more later on this).
Second, little noticed this week was the fact that The Litigation Daily wrote that Philippe Selendy of Quinn Emanuel Urquhart & Sullivan has been retained by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, to investigate billions of dollars in potential claims against banks and other issuers of mortgage-backed securities.
Who? Not on your celebrity list? Just wait. He will soon be getting the best tables everywhere. He and his firm are the guys representing MBIA in all their cases against Countrywide and Merrill Lynch. And they are kicking ass. Slowly to be sure, but very steady. That means Fannie and Freddie are getting ready to get serious.
They were sold well over $227 billion of the subprime garbage issued in 2006 and 2007. And the bad stuff started before then. But they have one advantage that the guys at PIMCO, et al. don’t have: they (or actually the FHFA) are a federal agency. That means they have subpoena power. The agency has sent 64 subpoenas to issuers of mortgage-backed securities, and although they have not said who they went to, they obviously include almost everyone and clearly all the big players. (They couldn’t have ignored Goldman, could they? Naah. Too obvious.)
From American Lawyer.com (I know, this website is probably already on your favorites list, but for those souls who actually have a life I provide the text):
“Through those subpoenas, the agency could gain access to the loan files for the mortgages that backed the securities it bought and thus establish whether the mortgages were what the issuers represented them to be in securities contracts. According to the Journal, the difficulty of obtaining loan files has been a big obstacle for investors trying to force issuers to repurchase bonds.
If it all plays out the way Mauldin is predicting, there is a lynch mob gathering and Bank of America and other big subprime pushers like Citigroup are firmly in their sights. It is no wonder John Paulson is apparently getting a bit nervous about BAC’s prospects [see article].
Since April, Bank of America has lost about $80 billion in stock market capitalization. Contrast this to the $67.5 million (not billion) punishment the SEC has arranged for former CEO Angelo Mozilo. It’s kind of a joke considering that Countrywide is paying for $20 million of the settlement and Bank of America (current owner of Countrywide) is paying Mozilo’s legal fees.
I asked Scott DeCarlo, chief statistician at Forbes, for the tally on Mozilo’s compensation from Countrywide alone. He figured that from 1999 through 2007 Mozilo took down more than $540 million in salary, bonus and stock options. Thus the SEC’s great settlement victory of $67.5 million won’t really affect Angelo day-to day. His fine is like a slap on the wrist. It won’t crimp the Mozolo family’s lifestyle for one minute while there are thousands of families devastated by this debacle. I think that super wealthy, rogue executives like Angelo should be forced to do mandatory jail time. A year or so inside of prison is a real punishment for a rich guy, and it is something they will never forget, or live down.
Foreclosure fraud is ruffling a lot of feathers on Wall Street, and while the full scope of losses remains unclear, even major banks are now acknowledging that this is a multi-billion-dollar disaster, not just a set of minor paperwork headaches.
So how bad will it get for Wall Street? There are several disaster scenarios in which the housing market simply shuts down, where the potential losses for Wall Street are simply incalculable. But even situations that do not directly rip apart the basic functioning of the mortgage system could be enough to shut down one or more big banks, creating serious trouble for the financial system, and a major test of the recent Wall Street reform bill.
JPMorgan Chase loves using its research department to push its political agenda, and the bank is currently characterizing the foreclosure fraud outbreak as a set of “process-oriented problems that can be fixed.” That puts them in the rosy optimist camp for this crisis, and they’re projecting a total of $55 billion to $120 billion in losses for the entire industry, spread out over a few years.
But take a look at the analysts’ methodology. The actual scope of losses gets drastically larger if you just change a few arbitrary assumptions.
JPMorgan’s analysts look at about $6 trillion in mortgages issued between 2005 and 2007—this is the height of the bubble, but it excludes plenty of lousy loans issued in 2003, 2004 and 2008. They then estimate defaults of $2 trillion and losses of $1.1 trillion on those defaults.
So far, these estimates are reasonable. According to Valparaiso University Law School Professor Alan White, banks lose about 58 percent of the value of a subprime loan at foreclosure. JPMorgan is estimating 55 percent. The notion that one-third of mortgages issued at the height of the bubble will default may seem extreme, but the analysis includes both first-lien mortgages and second-lien mortgages (home equity loans). For houses with multiple mortgages, there’s going to be a double-hit when the first lien goes bad. Right now, the official statistics from Mortgage Bankers Association indicate that 14 percent of first mortgages are delinquent or in foreclosure. The longer unemployment stays near 10 percent, the higher that figure will go.
Things don’t get out of control until JPMorgan’s analysts start deploying their assumptions. First, they assume that Fannie and Freddie will attempt to sack banks with losses from 25 percent of the defaults they see. Of those 25 percent, they assume Fannie and Freddie will successfully force banks to eat losses on 40 percent, leading to total losses of 10 percent. Why 25 percent? Why 40 percent? The analysts don’t say. JPMorgan expects private-sector investors to be able to saddle banks with just 5 percent of foreclosure losses, citing a host of technical legal hurdles that make it hard for investors to have their cases heard in court.
So JPMorgan’s loss projections are nothing more than a guess—and a low-ball guess at that. JPMorgan is assuming that only five to 10 percent of looming foreclosure losses will actually hit big banks. Change that assumption—20 percent, 60 percent, 80 percent—and things get far worse for Wall Street than JPMorgan’s “worst-case” scenario predicts.
Let’s consider the exposures of a single bank to put things in context, and let’s pick Bank of America, since analysts seem to agree that BofA has the most to worry about right now. They were a big issuer of mortgages themselves, but they also purchased the notoriously predatory Countrywide Financial and also picked up securitization behemoth Merrill Lynch in 2008, giving them far more problems (hilariously, BofA actually paid cash to acquire these balance-sheet-busters).
The most dire estimates for losses on Fannie and Freddie loans at BofA have come from Christopher Whalen at Institutional Risk Analytics and Branch Hill Capital. Whalen has estimated $50 billion in Fannie and Freddie losses for the megabank, while Branch Hill has estimated $70 billion.
The trick is, BofA has $2.1 trillion in total exposure to Fannie and Freddie, according to Whalen. That means even Branch Hill’s massive loss projection only amounts to a loss rate of about 3.5 percent.
As of July 2010, Fannie Mae had a serious delinquency rate of 4.82 percent—these are loans where families have missed at least three payments, but haven’t been evicted. For Freddie Mac, the number is 3.83 percent. Not all of those losses can be pushed back on the banks, but those numbers will go up as the unemployment rate stays high. Tip the scales just a few percentage points and it’s easy to envision catastrophic losses for banks.
But there’s reason to believe that Bank of America is in even worse shape with regard to Fannie and Freddie than any of its peers. Countrywide was the single largest provider of loans to Fannie Mae during the housing bubble. Literally 28 percent of the loans Fannie Mae bought up in 2007 came from Countrywide. Fannie even featured a full-page, smiling photograph of Countrywide CEO Angelo Mozilo in their 2003 Annual Report (.pdf, see page 16).
It’s much easier for banks to lose money on bad loans they sold to the GSEs than it is for them to lose money on securities they sold to purely private-sector investors. The fact that Bank of America’s most notorious wing was the top provider to Fannie Mae during the peak years of the housing bubble does not bode well for the bank’s balance sheet.
But this is just exposure to Fannie and Freddie. The private sector is angry about all kinds of things—from wronged borrowers to deceived investors. Investors are already organizing against both mortgage servicers—for improperly handling troubled loans—and against investment banks—for selling them garbage. They aren’t just angry about fraudulent foreclosures—evidence is mounting that mortgage servicers can’t even handle the profits from mortgages correctly, and aren’t sending investors reliable, verifiable payments.
Yesterday investors sent a letter pressuring Countrywide’s servicing arm to push losses from bad mortgage bonds back on the bank that sold them. Legally, it’s a complicated maneuver, since Countrywide itself issued those bonds—but that just shows the multiple levels at which megabanks like BofA are exposed to fraud losses. Their original sale of mortgages to borrowers, the packaging of those mortgages into securities, the handling of payments and foreclosures, and the accounting for all of these activities—all of this is about to be subjected to serious fraud examinations by people who are trying to make money.
Up until yesterday, big banks thought they had a get-out-of-jail free card on investor lawsuits. Investors have to bring together 25 percent of the buyers of any mortgage bond in order to sue the bank that issued it—even if the actual lawsuit is an open-and-shut fraud case. Investors had not been cooperating. But yesterday’s letter to Countrywide is a big deal—even though it’s not (yet) a lawsuit, some of the biggest names in finance were going after Countrywide’s cash: BlackRock, PIMCO and even the New York Federal Reserve.
Bill Frey, who runs the hedge fund Greenwich Capital, has organized a massive clearinghouse of mortgage investors for the express purpose of bringing lawsuits against big banks that issued bogus mortgage-backed securities. He told me this afternoon that he’s about to move: In the next couple of weeks Greenwich and other investors will bring big lawsuits against major banks.
Will these combined troubles be enough to sink any big banks? If investors can win a couple of lawsuits, easily.
Zach Carter is AlterNet's economics editor. He is a fellow at Campaign for America's Future, which he represents on the steering committee of Americans for Financial Reform. He is a frequent contributor to The Nation magazine.
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From the Boston Herald:
U.S. Rep. Barney Frank, in an intensifying clash with GOP upstart Sean Bielat, has pledged not to take campaign cash from lenders that got federal bailouts — yet has raked in more than $40,000 from bank execs and special interests connected to the staggering government loans, a Herald review found.
Frank vowed in February 2009 that he wouldn’t accept campaign donations from banks that received money under the $700 billion Troubled Asset Relief Program (TARP) or political action committees tied to such institutions.
But Frank has hauled in thousands from top execs at Bank of America, Citizens Bank, Wainwright Bank, JP Morgan Chase and other institutions that received billions in TARP money.
Just yesterday, Frank made new campaign finance disclosures showing he received $17,000 from top executives of Bank of America — including $2,000 from CEO Brian Moynihan. B of A received $45 billion in bailout money. In all, Frank has hauled in at least $27,000 since 2009 from bank execs — and $13,000 from PACs — connected to banks that received TARP funding, including:
- $5,000 earlier this month from the Bank of America Corp. Federal PAC.
- $10,000 in August and September from the Bipartisan PAC/Bank of New York Mellon Corp.; Mellon received $3 billion from TARP.
- $2,000 in June 2009 from the Financial Services Roundtable PAC, which counts TARP recipients B of A, JP Morgan Chase and Wells Fargo among its members.
- $1,000 in March from U.S. Bancorp PAC; the Minnesota-based bank received more than $6 billion in TARP funds.
JAKARTA (AFP) – A major 7.5-magnitude earthquake struck off the west coast of Indonesia Monday, seismologists said, but there were no reports of damage or casualties and an earlier tsunami warning was lifted.
The area is 245 kilometres west of Bengkulu on Sumatra island and 280 kilometres south of Padang -- an area popular with tourists.
The Indonesian Geophysics and Meteorology agency lifted an earlier tsunami warning.
Residents reported shaking as far away as the West Sumatran provincial capital of Padang, according to an AFP reporter, but fears of widespread damage eased a few hours after the quake.
"There was shaking that went on for about three seconds or so. Residents panicked and ran to the hills but now they are starting to come down. There's no report of casualties or damage," Disaster Management Agency spokesman Priyadi Kardono told AFP.
The power and shallow depth of the earthquake prompted the US-based Pacific Tsunami Warning Center to issue a "tsunami watch" bulletin to guide local authorities on how to respond but that was later cancelled.
Indonesia sits on the Pacific "Ring of Fire", where the meeting of continental plates causes high volcanic and seismic activity, and the archipelago is frequently struck by powerful earthquakes.
A 7.1-magnitude quake off the north coast of Papua in June killed 17 people and left thousands homeless.
The 2004 Asian tsunami -- triggered by a 9.3-magnitude quake off Sumatra -- killed at least 168,000 people in Indonesia alone.
A 7.6-magnitude quake killed about 1,000 people in the port of Padang on September 30 last year.
- BAIR: LITIGATION FROM SERVICER ISSUES COULD BE `VERY DAMAGING’
- BAIR SAYS FORECLOSURE PROBLEMS WILL REQUIRE `GLOBAL SOLUTION’
- BAIR: CRISIS REQUIRES `DECISIVE’ ACTION FOR MORTGAGE SYSTEM
- BAIR: FDIC SECURITIZATION RULES `CONSISTENT’ WITH DODD-FRANK
- BAIR SAYS CRISIS REVEALED `CRITICAL FLAWS’ IN MORTGAGE FINANCE
No **** Sherlock.
- Lots of notes appear to have never been conveyed. When the MBS holders get their landsharks into this, the servicers and securitizers are screwed. Got it? Done, baked, cooked, finished.
- The only “Global Solution” is to put the institutions that did this into recievership. Right now. BEFORE the landsharks cause a VERY disorderly collapse. We have a resolution authority. Use it. These institutions must be forced to eat the crap that they foisted off on pension funds and insurance companies. If they claimed they had original endorsed paper for each loan (and they all did) and did not that is black-letter fraud. So is selling someone paper you claim is good when you know it is not, and again, we have under-oath testimony documenting that this was done willfully and intentionally. This is fraud in the inducement against MBS holders and those who committed it must be forced to eat the consequences.
- The question of fraud in the inducement against borrowers must be answered to. This is not a “technical matter.” Citibank’s former chief underwriter has testified under oath that he, and the rest of management, knew that 60% of production was bogus in 2006 and 80% in 2007. These loans are avoidable under long-existing law. You cannot create a binding contract where you have reason to know that the other party cannot perform, and long-standing law codifies this officially in terms of debts and security instruments - giving someone a loan where they retain insufficient assets and income to pay as agreed renders the security of the instrument and thus the loan avoidable. Period!
Dodd-Frank has a consistent procedure.
It’s called RESOLUTION and you need to employ it RIGHT NOW.
On her blog, Ellen Brown, J.D. writes on August 18, 2010:
Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.Under the aforementioned scenario, banks are meant to suffer tremendous losses due to their fraud. The banks are looking forward to President Obama legitimizing their fraud in signing a bill called the Interstate Recognition of Notarization Act (Patrick Leahy, D-Vt) he pocket vetoed prior to the elections. President Obama merely sent the bill back to the Senate wanting the legislature to "clean it up a bit". In other words President Obama has all intention of giving a free pass to the banks to still own title on people's properties. The Senate attempted to "sneak" the bill through without public debate.
This article from the Huntington Post, demonstrates how politicians used the timing of the National Notary Association's presentation at the Congress two months ago as a camouflage for its legislative activities to create the Interstate Recognition of Notarization Act. (I was initially invited but didn't attend).
The bill has been passed by the House three times since 2007, and each time it died in the Senate Judiciary Committee.
Why did the world's greatest deliberative body let it get through this time? It happened because Calvin Coolidge, the 30th president of the United States, was a notary public from Vermont, according to Judiciary Committee aides.
It all started, the aides said, when committee chairman Sen. Patrick Leahy (D-Vt.) participated in an Aug. 3 "Why Coolidge Matters" event with the National Notary Association at the Library of Congress. "Senator Leahy was so very gracious to carve out some of his time to join us at the Library of Congress event, and we are grateful for his kind words regarding Calvin Coolidge as well as his support of the important roles played by Notaries Public," wrote Michael Robinson, executive director of the National Notary Association, in a Sep. 14 email to Leahy's office. Robinson asked if anyone from Leahy's office would be interested in H.R. 3808, the notarization bill that had passed the House of Representatives by a voice vote in the springtime.
"In September, after hearing from the National Notary Association....Senator Leahy, in consultation with the Committee's Ranking Member, Senator Jeff Sessions, examined the legislation," Judiciary Committee aides wrote in an email. "Having heard no objections from advocates, States or stakeholders, and having checked with the Department of Justice, the bill was discharged from the Judiciary Committee. It was passed with the unanimous consent after every Senate office was notified that it was being considered and there were no objections." - How the Controversial Foreclosure Bill Made It Through Congress with No Public Debate
Banks have already been caught attempting to confiscate property owners have paid off due to the confusion of paperwork. The courts have proven to be on the side of the banks but the people have only just begun to fight.
When it came time to foreclose on properties banks hired "robo signers" to rubber stamp documentation fraudulently. They lost title of the property, plain and simple. The courts are dealing with it. Some judges don't care and just rubber stamp the foreclosures.
Other judges are taking note of it due to pro se litigants such as Randy Kelton at Rule of Law Radio (above video) who are bringing them before grand juries scaring the hell out of them.
WASHINGTON (AP) — Federal banking regulators are examining whether mortgage companies cut corners on their own procedures when they moved to foreclose on people's homes, Federal Reserve Chairman Ben Bernanke said Monday.
Preliminary results of the in-depth review into the practices of the nation's largest mortgage companies are expected to be released next month, Bernanke said in remarks to a housing-finance conference in Arlington, Va.
"We are looking intensively at the firms' policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures," Bernanke said. "We take violation of proper procedures very seriously," he added.
The central bank's decision adds weight to federal and state investigations into whether banks used flawed documents to foreclosure on homeowners.
Attorneys general in all 50 states plus the District of Columbia are jointly investigating whether paperwork and legal procedures were handled properly. At the federal level, the Treasury Department's Office of the Comptroller of the Currency last month asked seven big banks to examine their foreclosure practices. The OCC and the Federal Deposit Insurance Corp. are also working with the Fed on its examination.
In addition to probing the banks handling of foreclosure documents, Fed staffers and other federal agencies are evaluating the potential effects of the foreclosure debacle on the real-estate market and on financial institutions, Bernanke said.
The Federal Reserve oversees bank holding companies — typically Wall Street's biggest banks — including Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo.
The inquiries come as Bank of America and Ally Financial Inc.'s GMAC Mortgage have resumed processing foreclosures, after halting them temporarily to review documents. Both lender face allegations that employees signed but didn't read foreclosure documents that may have contained errors. Other companies, including PNC Financial Services Inc. and JPMorgan, have halted tens of thousands of foreclosures after similar practices became public.
The federal agencies have a range of options at their disposal. They include issuing a "cease and desist" order requiring a company to stop engaging in a specific practice. They can impose fines on the companies. Agencies also can take less drastic actions, such as crafting a plan with the company to fix any problems.
Bernanke didn't provide details in his speech.
According to people familiar with the examination, the banking agencies are looking into whether companies had controls in place when foreclosure documents were signed, what procedures were in place to proper handle documents, and whether employees involved in the foreclosure process were adequately trained.
Dubious mortgage practices and lax lending standards were blamed for contributing to a housing bubble that eventually burst and thrust the economy from 2007-2009 into the worst recession since the 1930s. Many Americans took out home loans that they didn't understand and bought homes that they couldn't afford.
As a result, foreclosures have soared to record highs. It's one of the negative forces restraining the economy's ability to get back on sounder footing.
Now more than 20 percent of borrowers owe more than their home is worth, and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further, Bernanke said.
"With housing markets still weak, high levels of mortgage distress may well persist for some time to come," Bernanke warned.
It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren't tracked very consistently, and the U-3 and U-6 statistics we use today weren't used back then. And statistical "adjustments" such as the "birth-death model" are being used today that weren't used in the 1930s.
But let's discuss the facts we do know.
The Wall Street Journal noted in July 2009:
The average length of unemployment is higher than it's been since government began tracking the data in 1948.
The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.
The Christian Science Monitor wrote an article in June entitled, "Length of unemployment reaches Great Depression levels".
60 Minutes - in a must-watch segment - notes that our current situation tops the Great Depression in one respect: never had we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months:
Pulitzer Prize-winning historian David M. Kennedy notes in Freedom From Fear: The American People in Depression and War, 1929-1945 (Oxford, 1999) that - during Herbert Hoover's presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24% longer than three years; and 11% longer than four years.
Blytic calculates that the current average duration of unemployment is some 32 weeks, the median duration is around 2o weeks, and there are approximately 6 million people unemployed for 27 weeks or longer.
As I noted in January 2009:
In 1930, there were 123 million Americans.At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.
Will unemployment reach 25% during this current crisis?
I don't know. But the number of people unemployed will be higher than during the Depression.
Specifically, there are currently some 300 million Americans, 154.4 million of whom are in the work force.
Unemployment is expected to exceed 10% by many economists, and Obama "has warned that the unemployment rate will explode to at least 10% in 2009".
10 percent of 154 million is 15 million people out of work - more than during the Great Depression.
But it is important to look at some details.
For example, official Bureau of Labor Statistics numbers put U-6 above 20% in several states:
- California: 21.9
- Nevada: 21.5
- Michigan 21.6
- Oregon 20.1
And certain races and age groups have gotten hit hard.
According to Congress' Joint Economic Committee:
By February 2010, the U-6 rate for African Americans rose to 24.9 percent.34.5% of young African American men were unemployed in October 2009.
As the Center for Immigration Studies noted last December:
Unemployment rates for less-educated and younger workers:
- As of the third quarter of 2009, the overall unemployment rate for native-born Americans is 9.5 percent; the U-6 measure shows it as 15.9 percent.
- The unemployment rate for natives with a high school degree or less is 13.1 percent. Their U-6 measure is 21.9 percent.
- The unemployment rate for natives with less than a high school education is 20.5 percent. Their U-6 measure is 32.4 percent.
- The unemployment rate for young native-born Americans (18-29) who have only a high school education is 19 percent. Their U-6 measure is 31.2 percent.
- The unemployment rate for native-born blacks with less than a high school education is 28.8 percent. Their U-6 measure is 42.2 percent.
- The unemployment rate for young native-born blacks (18-29) with only a high school education is 27.1 percent. Their U-6 measure is 39.8 percent.
- The unemployment rate for native-born Hispanics with less than a high school education is 23.2 percent. Their U-6 measure is 35.6 percent.
- The unemployment rate for young native-born Hispanics (18-29) with only a high school degree is 20.9 percent. Their U-6 measure is 33.9 percent.
No wonder Chris Tilly - director of the Institute for Research on Labor and Employment at UCLA - says that African-Americans and high school dropouts are experiencing depression-level unemployment.
And as I have previously noted, unemployment for those who earn $150,000 or more is only 3%, while unemployment for the poor is 31%.
The bottom line is that it is difficult to compare current unemployment with what occurred during the Great Depression. In some ways things seem better now. In other ways, they don't.
Factors like where you live, race, income and age greatly effect one's experience of the severity of unemployment in America.
In addition, wages have plummeted for those who are employed. As Pulitzer Prize-winning tax reporter David Cay Johnston notes:
Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined....And see this, this, and this.
The Prime Minister suggested that, rather than simply attempt to sell the taxpayers' 83% stake in the lending giant quickly and at as great a profit as possible, the shareholding could be used as a strategic lever to force it to influence its lending policies.
He was addressing the CBI in a speech focused on the continuing difficulties small and medium-sized businesses are having in obtaining bank loans.
“We've got a great opportunity in that we now own some rather large banks and we have to make some decisions as they go back into the private sector about the balance between maximising revenue for the Treasury...and making sure we have a good and competitive banking sector.”
“I want to make sure we have a banking sector that is really focused on SME lending...rather than thinking how can I become a bigger and bigger investment bank'.”
Banking analysts said the government may be considering following the Swedish model, where the government holds large stakes in the banking sector after bailing it out in the Nineties. No decision is likely until the Banking Commission reports in summer.
Today, in another must-read piece, economics professors William Black and L. Randall Wray confirm:
Several banks would go after the same homeowner, each claiming to hold the same mortgage (Bear sold the same mortgage over and over).As USA Today pointed out in 2008, Bear was one of the big players in this area:
Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July.Alot of toxic mortgages and mortgage related assets ended up on the taxpayer's tab directly or indirectly.
Bear Stearns was linked to many other financial institutions, through the mortgage-backed securities it sponsored as well as through complex financial agreements called derivatives.
The Fed wasn't so much concerned that 85-year-old Bear Stearns would go bankrupt, but rather that it would take other companies down with it, causing a financial meltdown.
For example, as Bloomberg noted in April 2009:
Maiden Lane I is a $25.7 billion portfolio of Bear Stearns securities related to commercial and residential mortgages. JPMorgan refused to buy them when it acquired Bear Stearns to avert the firm’s bankruptcy.
The Fed’s losses included writing down the value of commercial-mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said. Properties in California and Florida accounted for 45 percent of outstanding principal of the residential mortgages.
According to Los Angeles City Controller Wendy Greuel, the contrarians may have been right.
In a recent audit and follow-up press release, the city controller’s office says that of the $111 million in stimulus funds the city has already received of the $594 originally awarded, the city has created or retained a total 54.46 jobs.
The LA Department of Public Works, which was given the majority of the funds totalling some $71 million, was projected to save or create 238 jobs. The finally tally? According to the audit, 37.7 jobs were saved and just 7.76 jobs were created – costing U.S. taxpayers nearly $10 million for each new job.
In a statement to the press, Greuel said that with a 12% unemployment rate in the city, administrators need to do a better job of cutting through the red tape. “While it doesn’t appear that any of the ARRA funds were misspent, the City needs to do a better job expediting the process and creating jobs. We’re going to continue to audit how these funds are spent, to ensure that they are expended quickly and correctly. I’m pleased that since our auditors completed their field work, the Departments have begun to implement the changes we identified to help get this money out the door faster,” said Greuel.