Saturday, June 20, 2009
What Went Wrong
...What caused the economic disaster that we are now facing? While there are a number of factors, the core of the disaster was the expansion of the subprime mortgage market. Lenders, left to their own devices, tend not to make highly risky loans. These highly risky loans are called subprime mortgages (because the borrowers are below what the lender considers optimum credit rating). These loans are to people with poor or no credit history, or who cannot document their earnings (you know, like with paycheck stubs or statements from their business's accountant).
In 1977, something called the Community Reinvestment Act was passed by Congress to deal with the claim of "redlining"--that lenders were reluctant to lend money in minority neighborhoods. It wasn't that the lenders were racists; they looked at the value of homes in the poorest neighborhoods and were reluctant to take risks. The CRA, however, had little in the way of teeth.
In 1992, the Federal Reserve Bank of Boston released a study that claimed that there was lending discrimination against blacks going on, because they compared lending rates for whites and blacks with equivalent incomes, and found that blacks were less likely to get loans. But other economists have since pointed out that whites and blacks with equivalent incomes have very different net worths. Whites with the same income tend to have much higher net worth than blacks at that level.
Throughout the 1990s, ACORN pressured banks throughout the Chicago area to get more lending to subprime borrowers....
...The Clinton Administration's efforts to expand lending to blacks and Hispanics, while well intentioned, required more subprime mortgage lending. The most effective way to do this was to change Fannie Mae and Freddie Mac's underwriting rules...
...These two GSEs (government sponsored enterprises), because they buy a big chunk of privately originated mortgages, are in a position to substantially change the risk equation. If Bank of America knows that a $720,000 mortgage to a guy making $14,000 a year is so risky that Fannie Mae isn't going to buy this mortgage, then they have to carry the risk on this paper--and they won't do very many such mortgages. If they know that Fannie Mae likely will buy it, why not? They make some money on the loan origination, they earn interest as long as they carry the paper--and then they can sell it to Fannie Mae. And the change in underwriting rules did change the equation--dramatically....
...What happens when you dramatically expand the number of people buying homes? It drives up prices. What happens prices of houses start rising? Why, people start speculating--and not millionaires who can afford to make six mortgages while a house sits vacant, but people who were told that they could buy a house, wait three months, and resell it for $40,000 more. Some did, at the start of this tulip bulb mania. And those at the end discovered what happens when the boom slows even a little--you end up a with a house you paid too much for, and that you can't sell for what you paid, and you can't rent it for enough to cover the mortgage.
The separation of loan origination from long-term loan servicing created an incentive to make a lot of loans--then sell them to someone else while the potato was still hot. Golden West S&L, for example, was sold by Herbert and Marion Sandler to Wachovia for $24.2 billion just as the bubble was hitting its peak. (The details are in this May 9, 2006 San Francisco Chronicle article.) They then took their $2.4 billion that they personal received, and used it to fund Democratic activities....
...Third warning: a November 11, 2003 Wall Street Journal editorial about the housing finance market. White House chief economist N. Gregory Mankiw argued for stronger regulation of Fannie Mae, because of the risks to taxpayers. And who argued against? “Congressman Barney Frank criticized Mr. Mankiw because he is worried about the tiny little matter of safety and soundness rather than ‘concern about housing.’ But as Mr. Mankiw pointed out, most of the federal subsidy for the companies goes to enrich private investors and executives, not poor home-owners.”
The following sentence from that 2003 editorial is especially prescient: “One weakness of democracy is that it tends to ignore problems before they erupt into crises. The risk portfolios of Fannie Mae and Freddie Mac are a classic example.”...
The Myth of Financial Deregulation
...Had mark-to-market regulations been more flexible banks would have had more time to raise capital and sell assets. Had Wall Street firms not seen Washington as a lender of last resort that would bail out investments gone awry, they would have managed their risk better. Had capital reserve ratios been higher banks and investment institutions would have had more liquidity when prices dropped (though some firms, like AIG, simply became insolvent and wouldn't have been saved by higher reserves). Or, if qualified special purpose entities—an off-balance sheet accounting method—had required more transparency, banks would have had to keep more risky mortgages on their books, subject to reserve requirements.
Indeed, even if these three deregulations had no caveats explaining away their supposed link to the current financial crisis, they would still hardly constitute a historical trend. In contrast, historical periods of high regulation have proven decidedly unfavorable. Financial sector regulation during the 1970s was much heavier than today, and that did not prevent stagflation, with unemployment reaching nine percent in May 1975 and inflation nearly topping 14 percent.
Similarly, Europe currently boasts some of the world's tightest financial sector regulations, and its banks have suffered just as much, if not more than American banks in this recession. European banks made the same bad bets, the same poor investments, and the same over-leveraged mistakes—despite more regulation and government oversight....
ObamaCare is a Trojan Horse for Socialized Medicine
...That Medicare is in serious, serious trouble no one can dispute. Its projected unfunded liabilities over 75 years, from 2007 to 2082, are about $36 trillion, according to the latest Medicare Trustees report. If current trends persist, by the end of that time Medicare will be devouring 19% of gross domestic product—or $3 trillion, an amount equal to the entire U.S. budget right now. It will take a heartburn-inducing 135% increase in payroll taxes to bring it into actuarial balance.
Despite Medicare's dismal record, Obama and his comrades hold Medicare up as an example for the private sector. Why? Because between 1997 and 2006, Medicare's health spending per enrollee grew 4.6% annually while that of private plans grew 7.3%. By tapping this 2.7% difference, they argue that they can perform the triple miracle of reining in escalating health care costs, and at the same time extending health insurance to the 46 million uninsured without imposing any extra cost on the economy.
But this is 21st century snake oil.
Medicare hasn't controlled costs by discovering some wonder drug to deliver new efficiencies that the private sector doesn't have. In fact, the Government Accountability Office lists Medicare as a "high-risk" program, thanks to its long-term financial problems and its vulnerability to fraud. Rather, Medicare has cut costs by deploying the economic equivalent of leech-therapy: slashing payments to providers. The only reason providers haven't been bled out of existence is because they have offset these cuts by raising prices charged to private insurance plans. In effect, then, the good performance of Medicare that Obama and Co. tout has been purchased by beggaring the private plans that they deride.
There is a rich literature testifying to this phenomenon. A study last December by Milliman Inc., an independent consulting firm, commissioned by America's Health Insurance Plans, found that underpayment by Medicare and Medicaid accounted for nearly an 11% increase in the health care costs of private plans. This means that on average a privately insured family is forced to pick up about $1,800 extra every year of the government's slack. Private plans, all in all, are subsidizing government programs to the tune of $90 billion annually.
Milliman's findings are far from ground-breaking. They merely confirm previous research, including a 2006 study by Jack Zwanziger and Anil Bamezai in Health Affairs, which found a clear correlation over the years between decreasing government payments and rising insurance premiums in California. They calculated that a 1% relative decrease in the average Medicare price is associated with a 0.17% increase in the corresponding price paid by privately insured patients. ..
The Medicare Monster
...The two primary lessons of Medicare are the chronic problem of woefully underestimating program costs and the impossibility of genuine cost control. A closer look at Medicare shows why these two problems are certain to plague a government-administered universal health-care plan.
The cost of Medicare is a good place to begin. At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee estimated that Medicare would cost only about $ 12 billion by 1990 (a figure that included an allowance for inflation). This was a supposedly "conservative" estimate. But in 1990 Medicare actually cost $107 billion.
This is a mere bagatelle compared with "conservative" projections for the next generation. The Congressional Budget Office estimates that Medicare will cost $223 billion by 1997. Constance Homer, deputy secretary of Health and Human Services, warns that "by the year 2003, at the current rates, we will be spending more on Medicare than we do on Social Security."
The news gets even worse for the "out years" after that. The Health Care Finance Administration has given up making long-range projections of budget outlays of Medicare. Instead, HCFA makes calculations about the "actuarial balance" of the program–how much of the nation’s payroll will be required to pay for the program.
The 1992 annual report of the Federal Hospital Insurance Trust Fund, which pays for the hospital-insurance portion of Medicare, warns that the Medicare program "is severely out of financial balance" and could go bust as soon as the year 2000. The report says expenditures from the hospital fund represented 1.3 percent of the nation’s gross domestic product in 1991 and will grow to 4.7 percent by 2065. To cover the cost, the Medicare payroll-tax rate will have to more than quadruple, from the current rate of 2.9 percent to 13.79 percent....
Why the state cannot save the economy
One of the arguments that goes almost unquestioned, certainly in Europe, is that what is required is re-regulation, a systematic form of state intervention both in the financial markets and in other sectors. I find this outlook puzzling, since it is based on the assumption that the recent past has been an era of neo-liberalism where the state had a small and undistinguished role in social and economic life. In reality, the state already has a formidable presence in the economy, and has had for a very long time.
For example, in every major economy, we have seen very large government budget deficits in recent decades. In the UK and elsewhere, the public sector has played a crucial role in the creation of new jobs. Many of the financial policies now linked to the global recession are part-and-parcel of this state involvement in the economy, from low interest rates to encouraging consumer spending to the housing boom. The state has not been a neutral observer but an active promoter of these things.
Contrary to popular prejudice, the state is not a stranger to regulation. Listening to contemporary debates, you could be forgiven for thinking that the European Union (EU) is the most unregulated place in the world. Yet if you look more closely, you will find that while there has been some deregulation in some sectors, in the financial and banking markets for example, there has also been an expansion of state regulation in a whole number of areas in various different ways – including in finance and banking. Anyone who has had to put up with the rise of corporate governance and its many petty rules will know what I am talking about. The world of business is far more regulated than ever before....
Too Big to Fail, or Succeed
...Designating particular financial firms for this kind of special regulatory treatment clearly signals to the markets that these institutions are too big to fail. It will reduce the perceived risk of lending to them, enabling them to raise funds at lower cost than their smaller competitors.
In other words, the administration's plan would create what are essentially government-sponsored enterprises like Fannie Mae and Freddie Mac in every sector of the financial economy -- insurers, securities firms, finance companies, bank holding companies, and hedge funds -- where these specially regulated firms are to be designated. The result will be devastating for competition. Larger firms will squeeze out smaller ones and aggressive small companies will have less opportunity to overcome the government-backed winners.
Moreover, the administration's proposal to provide a special bailout mechanism for large firms confirms the likelihood that these firms will never be closed down or liquidated. Citing the market turmoil that followed Lehman's collapse, the administration will argue that failures like this are "disorderly." But failure comes from risk-taking -- the very source of our economy's strength -- and it is ultimately risk-taking and its consequences that the administration's plan is intended to prevent....
...The president has said on several occasions, including in yesterday's speech, that "I've always been a strong believer in the power of the free market." But his administration's prescriptions tell a different story. In AIG, GM, Chrysler, Fannie Mae and Freddie Mac we can see the future that the administration envisions for our economy -- a sclerotic and unchanging structure of big companies working with, protected by, and relying on big government.
Christian Soldiers
The growing controversy over military chaplains using the armed forces to spread the Word.
Ever since former president George W. Bushreferred to the war on terror as a “crusade” in the days after the September 11 attacks, many have charged that the United States was conducting a holy war, pitting a Christian America against the Muslim world. That perception grew as prominent military leaders such as Lt. Gen. William Boykin described the wars in evangelical terms, casting the U.S. military as the "army of God." Although President Obama addressed the Muslim world this month in an attempt to undo the Bush administration's legacy of militant Christian rhetoric that often antagonized Muslim countries, several recent stories have framed the issue as a wider problem of an evangelical military culture that sees spreading Christianity as part of its mission.
A May article in Harper’s by Jeff Sharlet illustrated a military engaged in an internal battle over religious practice. Then came news about former Defense secretary Donald Rumsfeld’s Scripture-themed briefings to President Bush that paired war scenes with Bible verses. (In an e-mail published on Politico, Rumsfeld aide Keith Urbahn denied that the former Defense secretary had created or even seen many of the briefings.) Later in May, Al-Jazeera broadcast clips filmed in 2008 showing stacks of Bibles translated into Pashto and Dari at the U.S. air base in Bagram and featuring the chief of U.S. military chaplains in Afghanistan, Lt. Col. Gary Hensley, telling soldiers to “hunt people for Jesus.”...
...The effort is an example of what critics call a growing culture of militarized Christianity in the armed forces. It is influenced in part by changes in outlook among the various branches' 2,900 chaplains, who are sworn to serve all soldiers, regardless of religion, with a respectful, religiously pluralistic approach. However, with an estimated two thirds of all current chaplains affiliated with evangelical and Pentecostal denominations, which often prioritize conversion and evangelizing, and a marked decline in chaplains from Catholic and mainstream Protestant churches, this ideal is suffering. Historian Anne C. Loveland attributes the shift to the Vietnam War, when many liberal churches opposed to the war supplied fewer chaplains, creating a vacuum filled by conservative churches. This imbalance was exacerbated by regulation revisions in the 1980s that helped create hundreds of new "endorsing agencies" that brought a flood of evangelical chaplains into the military and by the simple fact that evangelical and Pentecostal churches are the fastest-growing in the U.S....
Jesus killed Mohammed:
The crusade for a Christian military
....Humphrey had been in Samarra for a month, and until that day his stay had been a quiet respite in one of the world’s oldest cities. Not long before, though, there had been a hint of trouble: a briefing in which his squad was warned that any soldier caught desecrating Islamic sites—Samarra is considered a holy city—would fall under “extreme penalty,” a category that can include a general court-martial and prison time. “I heard some guys were vandalizing mosques,” Humphrey says. “Spray-painting ’em with crosses.”
The rest of that Easter was spent under siege. Insurgents held off Bravo Company, which was called in to rescue the men in the compound. Ammunition ran low. A helicopter tried to drop more but missed. As dusk fell, the men prepared four Bradley Fighting Vehicles for a “run and gun” to draw fire away from the compound. Humphrey headed down from the roof to get a briefing. He found his lieutenant, John D. DeGiulio, with a couple of sergeants. They were snickering like schoolboys. They had commissioned the Special Forces interpreter, an Iraqi from Texas, to paint a legend across their Bradley’s armor, in giant red Arabic script.
“What’s it mean?” asked Humphrey.
“Jesus killed Mohammed,” one of the men told him. The soldiers guffawed. JESUS KILLED MOHAMMED was about to cruise into the Iraqi night....
...Christian fundamentalism, like all fundamentalisms, is a narcissistic faith, concerned most of all with the wrongs suffered by the righteous and the purification of their ranks. “Under the rubric of free speech and the twisted idea of separation of church and state,” reads a promotion for a book called Under Orders: A Spiritual Handbook for Military Personnel, by Air Force Lieutenant Colonel William McCoy, “there has evolved more and more an anti-Christian bias in this country.” In Under Orders, McCoy seeks to counter that alleged bias by making the case for the necessity of religion—preferably Christian—for a properly functioning military unit. Lack of belief or the wrong beliefs, he writes, will “bring havoc to what needs cohesion and team confidence.”
McCoy’s manifesto comes with an impressive endorsement: “_Under Orders _should be in every rucksack for those moments when Soldiers need spiritual energy,” reads a blurb from General David Petraeus, the senior U.S. commander in Iraq until last September, after which he moved to the top spot at U.S. Central Command, in which position he now runs U.S. operations from Egypt to Pakistan. When the Military Religious Freedom Foundation (MRFF) demanded an investigation of Petraeus’s endorsement—an apparent violation of the Uniform Code of Military Justice, not to mention the Bill of Rights— Petraeus claimed that his recommendation was supposed to be private, a communication from one Christian officer to another.
“He doesn’t deny that he wrote it,” says Michael “Mikey” Weinstein, president of MRFF. “It’s just, ‘Oops, I didn’t mean for the public to find out.’ And what about our enemies? He’s promoting this unconstitutional Christian exceptionalism at precisely the same time we’re fighting Islamic fundamentalists who are telling their soldiers that America is waging a modern-day crusade. That _is _a crusade.”
Petraeus’s most vigorous defense came last August from the recently retired three-star general William “Jerry” Boykin—a founding member of the Army’s Delta Force and an ordained minister—during an event held at Fort Bragg to promote his own book, Never Surrender: A Soldier’s Journey to the Crossroads of Faith and Freedom. “Here comes a guy named Mikey Weinstein trashing Petraeus,” he told a crowd of 150 at the base’s Airborne and Special Forces Museum, “because he endorsed a book that’s just trying to help soldiers. And this makes clear what [Weinstein’s] real agenda is, which is not to help this country win a war on terror.”
“It’s satanic,” called out a member of the audience.
“Yes,” agreed Boykin. “It’s demonic.”...
...But as Mikey’s client base grows, so too do the ranks of his enemies. The picture window in his living room has been shot out twice, and last summer he woke to find a swastika and a cross scrawled on his door. Since he launched MRFF four years ago, he has accumulated an impressive collection of hate mail. Some of it is earnest: “You are costing lives by dividing military personnel and undermining troops,” reads one missive. “Their blood is on your hands.” Much of it is juvenile: “you little bald-headed fag,” reads an email Mikey received after an appearance on CNN, “what the fuck are you doing with an organization of this title when the purpose of your group is not to encourage religious freedom, but to DENY religious freedom?” Quite a bit of it is anti-Semitic: “Once again, the Oy Vey! crowd whines. This jew used to be an Air Force lawyer and got the email”—a solicitation by Air Force General Jack Catton for campaign donations to put “more Christian men” in Congress, which Mikey made public—“just one more example of why filthy, hook-nosed jews should be purged from our society.”...
...Mikey Weinstein did not get his Pentagon job. In fact, the generals whom Mikey thought would face a reckoning under a Democratic administration remain in place or in line for promotion. Not only did Obama keep on Robert Gates as defense secretary; he retained the secretary of the Army, Pete Geren—another star of the Christian Embassy video, who also, in commencement remarks at West Point last year, characterized America’s wars in Iraq and Afghanistan as struggles for religious freedom against the “darkness and oppression” of radical Islam—and also appointed as his national security adviser the retired Marine general James Jones, a regular on the prayer breakfast circuit. Nobody believes the new president shares Bush’s religious sentiments, but clearly he is willing to shave constitutional protections in exchange for evangelical peace. The new president appears to have adopted a hands-off approach not just to religion in the military but to the very relationship between church and state....
Thursday, June 18, 2009
Lawsuit Paints Loan Crisis In Black, White and Brown
In what appears to be the first legal action of its kind, an association of community-based organizations has filed a federal civil rights complaint against two of the three largest Wall Street ratings agencies, charging that their inflated ratings on subprime mortgage bonds disproportionately caused financial harm to African American and Latino home buyers.
The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investors Service and Fitch Ratings enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."
The agencies "knew or should have known" that subprime loans disproportionately were marketed to minority consumers -- a process known as "reverse redlining" -- and that those borrowers would ultimately default and go into foreclosure at high rates, according to the complaint.
Fitch Managing Director David Weinfurter said the NCRC's filing "is fully without merit, and Fitch intends to defend itself vigorously." Moody's had no immediate comment.
The filing cites multiple studies that found that African Americans and Latinos received a disproportionate share of subprime loans during the housing boom years. A Federal Reserve study in 2006 estimated that 45 percent of mortgages extended to Latinos and 55 percent of loans to African Americans were subprime -- a rate "three to four times that of non-Hispanic whites."
Because the loans often came with terms that increased borrowers' probability of default -- upfront teaser rates followed by unaffordable payment adjustments, no required documentation of applicants' incomes or assets, hefty prepayment penalties -- African Americans with subprime mortgages are projected to lose $71 billion to $92 billion through foreclosures while Latinos are projected to lose $75 billion to $98 billion, according to one study cited in the complaint.
"Had subprime loans been distributed equitably," the complaint says, "losses for whites would be 44.5 percent higher and losses for people of color would be about 24 percent lower." ...
...Critics such as Berenbaum argue that without Wall Street's mass securitizations of high-risk mortgages -- with stamps of approval from the ratings agencies -- far fewer subprime loans would have been made and far fewer minority homebuyers would have ended up in foreclosure.
Banks Sued No Matter What They Do
Banks get sued for discrimination no matter what they do. If they don’t make enough loans in low-income, predominantly minority neighborhoods, they get accused of “redlining,” and are subject to sanctions under politically-correct laws like the Community Reinvestment Act, which contributed to the financial crisis by pressuring lenders to make risky mortgage loans.
But if they do make such loans, they get accused of “reverse redlining,” and get sued by the liberal special-interest groups and municipalities that encouraged them to make such loans during the mortgage bubble. Baltimore and various borrowers have also brought “reverse redlining” lawsuits against banks.
The Washington Post reported yesterday that bond-rating agencies like Moody’s and Fitch are now getting sued, too, for “reverse redlining,” under the theory that they encouraged risky loans to low-income minorities (who subsequently regretted taking out those loans) by giving respectable ratings to the mortgage-backed securities produced by packaging those mortgage loans. The plaintiffs include the National Community Reinvestment Coalition, which has been pressuring lenders to make risky loans to low-income minorities for years. They blame the ratings-agencies for allowing lenders to make loans to minorities with “insufficient borrower income levels.”...
More Government Waste, Corruption, and Corporate Welfare, Thanks to the Obama Administration
...Billions of tax dollars are being spent on bailing out carmakers, but the primary beneficiaries of this corporate welfare are not the car companies themselves, which could have survived without federal bailouts by simply abrogating their collective bargaining agreements and dealer-contracts in a standard bankruptcy-court reorganization, but the United Auto Workers Union, which spent millions electing Obama and is now calling the shots. Taxpayers and pension funds are being ripped off to enrich the UAW, which enjoys wages much higher than the average American.
A similar government bailout of the auto industry actually backfired in England in the 1970s, destroying its carmakers by leaving them with excessive wages, inefficiency, and political meddling in car design.
Now, even liberal commentators are questioning whether the mushrooming auto bailouts pass constitutional muster, such as Charles Lane in today’s Washington Post. (Lane is so liberal and pro-government that in a front page article in 2003, he characterized the Supreme Court’s 2003 decisions as collectively being great for “civil liberties,” even though he admitted that the Supreme Court had rejected free speech claims in 7 out of its 8 First Amendment cases that term, largely because Lane approved of its decision upholding the University of Michigan Law School’s race-based affirmative action plan — even though legally permissible affirmative-action plans are a discretionary government function, not an individual right or civil-liberty).
Conservative columnist George Will also has a column today criticizing the auto bailouts. He points out that the Administration’s current claim that it can use TARP bank-bailout money for an auto bailout is at odds with the Treasury Department’s past admissions to the contrary: “Last September, Treasury Secretary Henry Paulson testified to the Senate that TARP money was necessary for ailing ‘financial institutions.’ Nowhere in the bill’s 169 pages was there any reference to government funding of ‘automobile’ or ‘manufacturing’ companies. In November, Paulson told a House committee: ‘I’ve said to you very clearly that I believe that the auto companies fall outside of [TARP's] purpose.’” ...
Activist Financier 'Terrorizes' Bankers in Foreclosure Fight
Bruce Marks doesn't bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.
"I'm tired of borrowers being screwed!" Mr. Marks yelled into the phone. "You're incompetent!" Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive.
Mr. Marks's nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners -- emblazoning "Predator" across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it's called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.
Housing Advocate Bruce Marks of the Neighborhood Assistance Corp. of America at a 'Save the Dream' event he organized in Columbia, S.C., in March to help troubled homeowners get their mortgage payments reduced.
Andy McMillan for The Wall Street Journal
In the 1990s, Mr. Marks leaked details of a banker's divorce to the press and organized a protest at the school of another banker's child. He says he would use such tactics again. "We have to terrorize these bankers," Mr. Marks says.
Though some bankers privately deplore his tactics, Mr. Marks is a growing influence in the lending industry and the effort to curb foreclosures. NACA has signed agreements with the four largest U.S. mortgage lenders -- Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. -- in which they agree to work with his counselors on a regular basis to try to arrange lower payments for struggling borrowers. NACA has made powerful political friends, such as House majority whip James Clyburn of South Carolina, and it receives federal money to counsel homeowners....
...Mr. Marks grew up in affluent Scarsdale, N.Y., and Greenwich, Conn. He says a childhood stuttering problem gave him sympathy for underdogs, which evolved into a career as an activist. He studied business to "know the enemy," earning an M.B.A. and working briefly for the Federal Reserve Bank of New York. A later job for a labor union stirred his interest in reviving poor neighborhoods and helping people afford homes.
In 1988 he launched NACA. It soon began arranging loans for Boston-area banks that were eager to show they were serving poor neighborhoods, in compliance with the 1977 Community Reinvestment Act.
The organization has been allocated $34.5 million from a new federal program to counsel distressed mortgage borrowers, to be paid to groups such as NACA little by little as they provide counseling. NACA's slice is nearly 10% of the program's funds; the rest goes to more than 100 other nonprofits and state agencies. Besides these grants, most income to cover NACA's roughly $40 million annual budget comes from the fees lenders pay it for arranging new mortgages, typically $2,500 per loan.
Another NACA event is the "predator's tour." In February, it sent hundreds of protesters to the homes of bankers and investors in posh New York suburbs such as Rye, N.Y., and Greenwich. One stop was the home of William Frey of Greenwich Financial Services, a broker-dealer specializing in mortgage-backed securities. He was a target because he resisted some aspects of a settlement that called for modifying loans.
State attorneys general had accused Countrywide Financial Corp. of predatory lending, and Countrywide's new owner, Bank of America, settled the suit last year by agreeing to modify many mortgages. A fund Mr. Frey controls then sued the bank. The suit didn't take issue with the settlement but complained that the bank had passed on most of the cost of it to buyers of securities backed by Countrywide's loans.
Mr. Frey was the target of the protest in which NACA dumped furniture on the lawn. "They had hundreds of people trespassing on my property," he says.
"I have a difference with Bank of America. I have a substantial amount of assets with them," Mr. Frey says. "We take them to court. This is how we do it in this country....It's a civilized society." The response from NACA, he adds, "is a mob showing up at someone's house to intimidate them to drop this suit. At what point do people say, 'This is starting to be uncomfortable'?"
"It should be uncomfortable," says Mr. Marks. "You win a campaign by being relentless. Everybody has a breaking point....At some point they say, 'How do I get these crazies off my back?' "
Some lenders have refused to sign contracts to work with NACA, among them HSBC Holdings, Barclays and Credit Suisse Group. All declined to comment. Mr. Marks says some banks that won't sign agreements do negotiate individual cases with NACA. Even so, NACA sometimes pictures their executives and the executives' homes on its Web site.
It recently added a photo of William Gross of Pacific Investment Management Co., the big bond house known as Pimco, along with pictures of his home and other information. Mr. Marks says his contacts in banking and government tell him Pimco doesn't support the administration's push to modify mortgages. "We're exposing them," Mr. Marks says. A spokesman for Pimco said neither it nor Mr. Gross would comment.
Mr. Marks says financial executives should be held personally responsible for actions that affect people's lives, and "if they interpret that as intimidation, so be it."...
Durbin cashed out during big stock collapse
As U.S. stock markets plummeted last September, the Senate's No. 2 Democrat, Dick Durbin, sold more than $115,000 worth of stocks and mutual-fund shares and used much of the money to invest in Warren Buffett's Berkshire Hathaway Inc.
The Illinois senator's 2008 financial disclosure statement shows he sold mutual-fund shares worth $42,696 on Sept. 19, the day after then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged congressional leaders in a closed meeting to craft legislation to help financially troubled banks. The same day, he bought $43,562 worth of Berkshire Hathaway's Class B stock, the disclosure shows....
Analysis: Reckless Mortgages Brought Financial Market to Its Knees
...Defaults have been at historically high rates despite reasonable economic growth and a relatively low unemployment rate of 6.1 percent.
Some, such as James H. Carr, the CEO of the National Community Reinvestment Coalition, argue that the high default rates are a result of "unfair and deceptive practices, steering customers to high price loans . . . High upfront payments made it so that they couldn't later pay their mortgages."
Surprisingly, research done by economists a decade ago in 1998, particularly by Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, predicted the current problems and tried to warn people of a different cause. Starting during the early 1990s, mortgage-underwriting standards have been consistently weakened. Many of the names involved in the forefront of those changes, Freddie Mac and Fannie Mae as well as Countrywide and Bear Stearns, have been the most prominent financial entities to become insolvent....
Monday, June 15, 2009
The NHS is bleeding to death, and the time to operate is now
Many people would have been rather confused yesterday when they switched on the Today programme and heard that the health service is basically bankrupt. Apparently, the NHS needs another £10 billion from the taxpayer to survive in three years' time (put another way, just less than the cost of paying for the entire police service).
Listeners would have been forgiven for thinking: hang on, hasn't the NHS had a lot of extra money already? And they would be right. After a decade of historic spending increases, the NHS budget has more than doubled, from around £45 billion to £105 billion. The service has 41,800 more doctors and 84,700 more nurses. To say the NHS has never had more resources is an understatement: it is in a wonderland of extra money, on a scale that its leaders never expected. Quite amazing, then, that it is coming back to the taxpayer cap in hand....
Saturday, June 13, 2009
The New Wage Controls
The U.S. "market" economy took another hard-to-believe turn this week with the Obama Treasury appointing a "compensation czar" to dictate wage controls on private companies that take taxpayer money and offer guidelines for every other U.S. publicly traded company. Can wage and price controls for everyone be far behind?
The Treasury says that's not what it has in mind, but then much of what government has done in the past eight months would have been scoffed at even a year ago. Richard Nixon disavowed wage and price controls right up until the time he imposed them in 1971. The Obama Administration is hardly restrained as a matter of principle against such brute government force, and if prices start rising after our current Great Reflation, well, you read the warning here first....
...Mr. Geithner has a point, but his analysis also neatly avoids Washington's own role in encouraging "the risk of excessive leverage." Wall Street's compensation model of big bonuses for big risks has been in place for decades. How do you think Robert Rubin and Jon Corzine made fortunes at Goldman Sachs in the 1980s and 1990s?
What changed this decade is that Washington's housing policies and flood of easy money created a subsidy for credit, and especially for mortgage products, that encouraged bankers to take on even more debt and greater risks. The bankers were doing, in short, what Alan Greenspan and Barney Frank subsidized them to do. Blaming the bankers for making bigger money in the bargain is a political diversion....
Canada's ObamaCare Precedent
...Born and raised in Canada, I once believed that government health care is compassionate and equitable. It is neither.
My views changed in medical school. Yes, everyone in Canada is covered by a "single payer" -- the government. But Canadians wait for practically any procedure or diagnostic test or specialist consultation in the public system.
The problems were brought home when a relative had difficulty walking. He was in chronic pain. His doctor suggested a referral to a neurologist; an MRI would need to be done, then possibly a referral to another specialist. The wait would have stretched to roughly a year. If surgery was needed, the wait would be months more. Not wanting to stay confined to his house, he had the surgery done in the U.S., at the Mayo Clinic, and paid for it himself.
Such stories are common. For example, Sylvia de Vries, an Ontario woman, had a 40-pound fluid-filled tumor removed from her abdomen by an American surgeon in 2006. Her Michigan doctor estimated that she was within weeks of dying, but she was still on a wait list for a Canadian specialist....
...Overall, according to a study published in Lancet Oncology last year, five-year cancer survival rates are higher in the U.S. than those in Canada. Based on data from the Joint Canada/U.S. Survey of Health (done by Statistics Canada and the U.S. National Center for Health Statistics), Americans have greater access to preventive screening tests and have higher treatment rates for chronic illnesses. No wonder: To limit the growth in health spending, governments restrict the supply of health care by rationing it through waiting. The same survey data show, as June and Paul O'Neill note in a paper published in 2007 in the Forum for Health Economics & Policy, that the poor under socialized medicine seem to be less healthy relative to the nonpoor than their American counterparts....
The Media Fall for Phony 'Jobs' Claims
..."Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."
Mr. Fratto sees a double standard at play. "We would never have used a formula like 'save or create,'" he tells me. "To begin with, the number is pure fiction -- the administration has no way to measure how many jobs are actually being 'saved.' And if we had tried to use something this flimsy, the press would never have let us get away with it."
Of course, the inability to measure Mr. Obama's jobs formula is part of its attraction. Never mind that no one -- not the Labor Department, not the Treasury, not the Bureau of Labor Statistics -- actually measures "jobs saved." As the New York Times delicately reports, Mr. Obama's jobs claims are "based on macroeconomic estimates, not an actual counting of jobs." Nice work if you can get away with it.
And get away with it he has. However dubious it may be as an economic measure, as a political formula "save or create" allows the president to invoke numbers that convey an illusion of precision....
Obama's Health Cost Illusion
The main White House argument for health-care reform goes something like this: If we spend now on a hugely expensive new insurance program for the middle class, we can save later by reducing overall U.S. health spending. This "tastes great, less filling" theory could stand some scrutiny, not least because it is being used to rush through the greatest social spending program in American history.
What if this particular theory turns out to be a political illusion? What if the speculative cost savings never report for duty, while the federal balance sheet is still swamped with new social obligations that will be impossible to repeal? The only possible outcome will be the nationalization of U.S. health markets, which will mean that almost all care will be rationed by politics.
Since Medicare was created in 1965, U.S. health spending has risen about 2.7% faster than the economy and on current trend would hit 20% of GDP within a decade. Every public or private attempt to arrest this climb has failed: wage and price controls in the 1970s, the insurance industry's "voluntary effort" in the '80s, managed care in the '90s....
Global Temperature Trend Update
Every month University of Alabama at Huntsville climatologists John Christy and Roy Spencer report the latest global temperature trends from the satellite data. Below are the newest data updated through May 2009. Interestingly, there has been essentially no warming trend for nearly a decade now....
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