Danny Schechter : The 'Fraudclosure' Backstory

Illustration by Matt Mahurin / The Washington Independent.
U.S. workers in need of rescue:
Report from the epicenter of 'fraudclosures'

It's dark as a dungeon way down in the mine...

By Danny Schechter / The Rag Blog / October 25, 2010

WEST PALM BEACH, Florida -- In all of the economic issues we are dealing with, there is always a “back story, a deeper context” that is usually missing,“disappeared” like those Allende supporters in Chile in the l970’s who wanted to empower workers, not just rescue them, when they get buried in a deep hole.

Most deeper issues go uncovered. Luis Campos, Director of the School of Anthropology at Chile’s Universidad Academia de Humanismo Cristiano, points out, “more buried than the miners themselves, the demands and the rights of the indigenous population continue to be flouted and unrecognized in our country.”

Many unsafe mines worldwide are still at risk from China to Zambia.

Who woulda thunk -- certainly not the 1300 “journalists” on the scene -- that this mine disaster had its origins in the era when Richard Nixon and Henry Kissinger helped snuff out an emerging popular democracy in the name of protecting what West Palm Beach-based writer and former economic “hit man,” John Perkins, calls the corporatocracy?

Historian Juan Cole poses these questions:

Are copper and gold mine owners stronger in relation to workers and have they escaped government regulation because the U.S. engineered a coup in 1973 to destroy the Chilean Left?

Was the San Estaban mining company’s ability to marginalize the union and to disregard input from the workers rooted in American-imposed corporate privilege? In other words, was the trapping of these workers in the first place Richard Nixon and Henry Kissinger’s fault?

The deep hole in that Chile mine was caused in part by a gold rush there -- triggered, in turn by, a global financial crisis MADE IN THE USA. It had its counterparts in the U.S., and not just among those 29 miners who perished in the big main mine in West Virginia, last April, a disaster that was supposed to lead to new safety rules that the Republicans have been insidiously blocking.

There is another hole we need to focus on. Millions of us are trapped in our own mines, "underwater” in homes that have lost value with bills we cannot afford, trapped in unemployment, in jobs that are gone and not coming back. Poverty is up and the noxious Newt Gingrich wants to end the food stamps that so many now depend on.

There is no rescue in sight, and the human plight of most of the millions affected takes part outside of media sight.

The gaggle of reporters that covered the mine rescue as a human-interest story -- not a political issue -- missed the backstory there, just as they miss our own here.

Far fewer reporters are covering this crisis.

Here in Florida, one epicenter of the housing catastrophe, homeowners were shell-shocked by the latest fraudclosure crime wave. Denise Richardson writes in the Sun Sentinel,

Last I knew, knowingly signing documents fraudulently and using them in a court of law is frowned on, right? It's criminal, isn't it? Or is it only criminal if you are a homeowner and not a bank? Seems we've gone to great lengths to create and then accept a double standard here.

Perhaps these financial crimes -- yes, that’s what they are, crimes -- continue to happen because we never addressed the real problems to begin with. You can’t fix a problem you don't acknowledge. Does anyone believe that was done to help protect the rights of homeowners? Let’s call it what it is: fraud.

An attorney in Deerfield Beach, Florida, representing 3,000 foreclosure victims, has taken hundreds of depositions from bank employees who admit they knew nothing about the details of the evictions they signed off on. Many are now being put down as “Burger King Kids,” yet they know more about real whoppers than this lot knows about real estate. RealtyTrac reports that foreclosure and REO homes accounted for 24 percent of all residential sales during the second quarter? That is huge!

Here in relatively affluent Palm Beach County, homeowners are number one in the state for the average number of loans in foreclosure that are delinquent. It has the fourth highest number of foreclosures, 45,829, with an average delinquency of 623 days. You will recall that Bernie Madoff once turned Palm Beach into a hunting ground for his ponzi scheme.

This situation is worse than we realize, and not just for the people most directly affected. No one knows how much the banks will lose in the class action suits, fines, and legal actions to come. Some think it could be tens of billions, suggesting another bailout may be in the offing, probably by the Federal Reserve Bank.

Paul Krugman questions whether the banks had the right to seize many of these homes, arguing, “The mortgage mess is making nonsense of claims that we have effective contract enforcement -- in fact, the question is whether our economy is governed by any kind of rule of law.”

Buried in the Business section, on page B-8 of The New York Times, way down in an article saying the banks may be on the hook for billions, was this very revealing paragraph speaking to a problem that I have been raising for years, making clear the fraud problem is not just with foreclosures.

Inside the investment houses, several traders said nerves were frazzled further by worries that banks could face much bigger mortgage related losses, not from foreclosures, but because of questions about how the money was lent in the first place. If it turns out that mortgages were bundled together and sold improperly, more holders could sue the banks and force them to buy back tens of billions in mortgage-backed securities.

Frazzled nerves so far seem the worst punishment the banksters have tasted. They have just decided to reward themselves with a new round of raises and bonuses worth $144 billion with few criticisms. The Government has meanwhile just “settled” for $73 million with Countrywide, the leading predatory lender. That means that a prosecution of its top executives, the poster boys for mortgage criminality, will be dropped. Notes the website Housing Doom:

Even having to pay $77.5 million, Mozilo still nets $61.5 million, just between November 2006 and October 2007. Maybe “crime doesn’t pay,” but one of the lessons of the housing bust is that fraud does.

What should be done? Webster Tarpley speaks for many in calling for a national moratorium on foreclosures, a course of action rejected by the White House.

The current chaos in home foreclosures is once again the direct responsibility of the zombie bankers themselves, who have neglected all traditional legal and accounting standards concerning the necessary paper trails in their frenzied desire to securitize mortgage loans and make them into toxic derivatives in the form of asset-backed securities and mortgage backed securities. The zombie bankers, already the recipients of $24 trillion of public largess in the form of the various bailouts, have turned out to be incompetent even in the technical aspects of their own thieving racket.

But the chaos in the bankers’ filing systems is nothing compared to the chaos created by the millions of foreclosures they have engineered, based on adjustable-rate mortgages and similar misleading contracts which never should have been legal in the first place. For some time, it has been evident that the defense of the American middle class requires a blanket, orderly, federal freeze (or moratorium) on all foreclosures on primary residences, similar to the New Deal protections offered to family farms by the landmark Frazier-Lemke Act of 1935-1949 during the previous depression.

Ellen Brown, author of Web of Debt, goes further in Yes Magazine, asking if it is “Time to Break Up the Too-Big-to-Fail Banks?”

Popular financial analysts, crippling bank losses from foreclosure flaws appear to be imminent and unavoidable. The defects prompting the “RoboSigning Scandal” are not mere technicalities but are inherent to the securitization process. They cannot be cured. This deep-seated fraud is already explicitly outlined in publicly available lawsuits

There is, however, no need to panic, no need for TARP II, and no need for legislation to further conceal the fraud and push the inevitable failure of the too-big-to-fail banks into the future.

The faux populists of the Tea Party right have been silent on the issue. Glenn Beck dropped all populist pretensions by calling on followers to give money to the Chamber of Commerce so they can better pursue a corporate agenda. One Republican here assured me that Barney Frank caused the whole financial crisis and that he will be tossed out of office in the midterm election. (He didn’t just blame him -- he hates him!) At the same time, one right wing website did publish a detailed denunciation of housing fraud.

As depressing as the lack of any real ongoing mass-based populist movement of the left or the right is another reality that The Washington Post finally spills even as millions of Americans buy into the illusion that new politicians can save us while angry voters here in Florida prepare to vote the Tea Party into office.

Let us tell you an Ugly Truth about the economy, a truth that no one in power or who aspires to power wants to share with you, at least until after the midterm elections are over. It's this: There is nothing that the U.S. government or the Federal Reserve or tax cutters can do to make our economic pain vanish overnight.

So what will it be? More money for the banks to bring them under control, more illegal foreclosures, or some type of justice for homeowners? Will this crisis lead us to demand action to break up these financial behemoths or will we just sit by and watch a new crisis sweep us deeper into our own mines of despair?

["News Dissector" Danny Schechter is a journalist, author, Emmy award winning television producer, and independent filmmaker who also writes, blogs, and speaks about media issues. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org.]

Listen to Thorne Dreyer's Sept. 28 interview with journalist and filmmaker Danny Schechter on Rag Radio here. To find all shows on the Rag Radio archives, go here.

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US Financial Institutions: Corrupt to the Core?

This graphic shows Bank of America's loans to directors, executives and other insiders since 2001. Graphic by David Puckett, Research by Stella Hopkins.
Secrecy shrouds insider loans
By Stella M.Hopkins / March 23, 2009

Experts see potential conflicts of interest in banks' $41 billion in insider lending, some during credit crunch and bailout.

Banks nationwide hold $41 billion in loans to directors, top executives and other insiders, a portfolio that experts say should be stripped of secrecy.

Insider lending to directors is particularly troublesome because it could cloud the judgment of people charged with protecting shareholders and overseeing bank management, the experts say.

Charlotte's two big banking names are among the biggest insider lenders.

At Bank of America, those loans more than doubled last year, to $624 million – the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch.

Wachovia ended 2008 with $747 million of insider loans, second only to the much larger JPMorgan. All of the loans were held by Wachovia directors or their companies, with just five holding the largest. Last year, the company had to sell itself amid staggering losses in part due to a 2006 deal.

Insider loans, ranging from home mortgages to multi-million-dollar lines of credit for big companies, are legal but largely shrouded from public scrutiny.

Banks don't have to explain increased insider lending. They don't have to disclose individual loan amounts or terms for any insiders, including executives. Directors and their businesses, often the largest insider borrowers, are completely shielded. Directors must approve insider loans greater than $500,000, so they sometimes vote on loans for each other or the executives they oversee.

Insider favoritism is against the law. Bankers and regulators say the loans are subject to greater scrutiny to ensure insiders aren't getting better terms and are creditworthy.

But top corporate governance experts contend that insider lending carries serious potential for conflict of interest among bank officials and must be stripped of secrecy. They argue that lending to directors, the watchdogs of management, must be revealed so shareholders can gauge their independence. And disclosure should be paramount for banks receiving government aid, said Ed Lawrence, a University of Missouri-St. Louis finance professor and co-author of a 1989 study that was a rare look at insider lending.

Seven of the 10 banks with the largest insider loans received a total of more than $50 billion in the banking bailout late last year, according to an Observer analysis of banks' federal filings.

“It's good for the public to know…where the money is going,” Lawrence said. “When you start taking public money, we hold them to a much higher standard.”

Terms of loans a key issue

The majority of the nation's 8,000-plus banks make insider loans, some very small. At the end of last year, banks had $41billion of insider loans, up 5.7 percent from a year earlier, according to the Observer's analysis.

Insider loans accounted for less than 2 percent of the banks' assets, amounts that are generally unlikely to seriously damage banks if the loans go sour. The loans tend to make up a larger percentage of business for smaller banks.

Not all large banks are big insider lenders. Wells Fargo, for example, was about the size of Wachovia before the San Francisco bank swooped up the wounded Charlotte institution late last year. Wells ended last year with $20 million of insider loans, a fraction of Wachovia's $747 million. Neither bank would discuss the disparity.

Most publicly traded companies were banned from making insider loans in 2002, part of the regulatory rush following the collapse of Enron and other accounting scandals.

But banks were excluded from the ban, partly because they're in the business of lending and also because the loans have been subject to extensive regulation for more than 25 years.

The loans were blamed for bank problems during the nation's S&L crisis. Lawrence and others have linked insider lending to bank failures. In December, the chairman of a large Irish bank resigned after revelations he had $109 million of secretive insider loans. In January, the government seized the Dublin bank.

“Studies of bank failures have found that insider abuse, including excessive or poor quality loans made, … is often a contributing factor to the failure,” says the “Insider Activities” handbook from the Comptroller of the Currency, the lead regulator for big national banks.

Banks can be hurt by even the perception of insider favoritism, the guide says.

“We don't have a difficulty with insider loans when they're properly written and extended,” said Ray Grace, the N.C. deputy banking commissioner who heads bank supervision for state-chartered firms. “It makes a certain amount of sense that a director or bank officer take that business to their own bank rather than shop it to a competitor.”

A key requirement is that insider loans be on the same terms as those to similar outsiders.

“This is a highly scrutinized area, so usually any problems would be caught early,” said Mindy West, a Federal Deposit Insurance Corp. chief whose job includes crafting instructions for bank examiners.

Large banks, such as Bank of America, have regulatory officials on site. Smaller banks are typically examined every 12 to 18 months. Regulatory officials request insider loan details for review prior to their regular bank examinations, West said. The FDIC has regulatory authority over about 5,100 banks.

New loans and increases in existing loans are especially likely to be scrutinized, West said. And a loan balance that doubled would probably trigger a second look.

Objectivity may be at risk

Longtime governance expert Charles Elson doesn't advocate banning insider loans, although he was startled the loans can run into hundreds of millions. But, he said, banks need to make full disclosure, revealing names, amounts and terms. He is especially concerned about disclosure for loans to directors and their interests.

“Management, who can dictate the terms of the loan, are being overseen by the director who is a beneficiary,” said Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. “It compromises the director's ability to be objective.”

As borrowers, directors might be less rigorous when evaluating the CEO or other executives, he said. They might be unwilling to buck management when approving deals.

Wachovia's board approved its 2006 acquisition of mortgage lender Golden West Financial, a vote that ultimately helped push the bank near collapse. Shortly before that approval, the bank had $1.47 billion in insider lending. Fifteen borrowers held the largest loans. Banks aren't required to disclose details of past lending, so there's no way to identify those borrowers.

At the end of 2008, all of the bank's $747 million in insider loans was held by directors or their companies, said Julia Bernard, a spokeswoman for Wells Fargo, which bought Wachovia last year. Five borrowers held the largest loans. Bernard said most of the loans were made before 2008.

Wachovia's former chairman and longtime director, Lanty Smith, did not respond to two calls for comment.

Nell Minow, co-founder of The Corporate Library, said directors should take their business elsewhere if they aren't comfortable with disclosure.

“Do you want them as directors or do you want them as customers?” she said. “To the extent there's even the perception of conflict of interest, it's very important for them to be very transparent.”

TOP 10 INSIDER LENDERS

JPMorgan Chase, New York, $1.48 billion

Wachovia, Charlotte, N.C., $747 million

M&I Marshall & Ilsley, Milwaukee, $644.4 million

Bank of America, Charlotte, $624.2 million

Northern Trust, Chicago, $523.5 million

Union Bank, San Francisco, $499.3 million

BB&T, Winston-Salem, N.C., $493.8 million

Commerce Bank, Kansas City, Mo., $467.9 million

Regions Bank, Birmingham, Ala., $444.3 million

Comerica Bank, Dallas, $391.5 million

(Note: Wells Fargo, based in San Francisco, bought Wachovia on Dec. 31.)

Source / Charlotte Observer

Thanks to Mike Woods and Mariann Wizard / The Rag Blog

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Seattle P-I Becoming First Internet Only Newspaper

Roger Oglesby, right, of The Seattle Post-Intelligencer, announced the paper’s final print edition. Photo: Dan DeLong/Seattle Post-Intelligencer, via Associated Press.
Seattle Paper Shifts Entirely to the Web
By William Yardley and Richard Pérez-Peña / March 16, 2009

SEATTLE — The Seattle Post-Intelligencer will produce its last printed edition on Tuesday and become an Internet-only news source, the Hearst Corporation said on Monday, making it by far the largest American newspaper to take that leap.

But The P-I, as it is called, will resemble a local Huffington Post more than a traditional newspaper, with a news staff of about 20 people rather than the 165 it had, and a site with mostly commentary, advice and links to other news sites, along with some original reporting.

Other newspapers have closed and many more are threatened. But the transition to an all-digital product for The P-I will be especially closely watched in an industry that is fast losing revenue and is casting around for a new economic model.

For one thing, the closing may end up putting greater pressure on the surviving and financially struggling Seattle Times, because of the end of a joint operating agreement between the two papers. It may even bring closer the day when Seattle has no local paper at all.

And the way The P-I is changing might hint at a path for future newspaper closings. To some extent, in shifting its business model, it will enter a new realm of competition. It will compete not just with the print-and-ink Times, but also with an established local news Web site, Crosscut.com, a much smaller nonprofit organization that focuses on the Northwest. The move shows how some newspapers, in the future, may not vanish but move the battle from print to the digital arena.

“The bloodline will live on,” Roger Oglesby, the paper’s publisher and editor, told the employees Monday morning in the newsroom. The Web site will remain at the paper’s address, SeattlePI.com, and assume its new form on Tuesday.

Under the decades-old joint operating agreement, The Times handled all non-newsroom operations for both, like printing, delivery, advertising and marketing. Hearst executives said they were dissolving that agreement, but it was not clear how that would affect the money-losing Times. It will no longer have to share revenue with Hearst, but it will also be unable to share expenses — the same situation The Denver Post found itself in after its rival, The Rocky Mountain News, folded late last month.

For their part, Times executives said that the end of The P-I was a short-term challenge, but a potential lifeline in the long run. “Had Hearst not made this decision, the survival of The Times was unlikely,” said Jill Mackie, vice president for public affairs at The Times.

The new P-I site has recruited some current and former government officials, including a former mayor, a former police chief and the current head of Seattle schools, to write columns, and it will repackage some material from Hearst’s large stable of magazines. It will keep some of the paper’s popular columnists and bloggers and the large number of unpaid local bloggers whose work appears on the site.

Among those survivors is Monica Guzman, 26, who writes The Big Blog, which she describes as tapping into “the conversation about news in Seattle, whatever stories are getting buzz, whatever people seem to be most interested in talking about.”

Sitting at her desk surrounded by departing reporters who packed boxes quietly or sipped whiskey, Ms. Guzman said it was “more than this hunk of paper” that she would miss, but her colleagues and their encyclopedic knowledge and instincts. “To go on without some of that, it’s a little scary,” she said.

The P-I lost $14 million in 2008. Hearst announced in January that if it could not find a buyer, it would cease printing. Few people expected a buyer to emerge.

Hearst hopes to capitalize on the healthy Web traffic The P-I already has, about 1.8 million unique visitors a month, according to Nielsen Online. It usually outranks the online readership of The Times, despite much smaller print circulation, 118,000 on weekdays last year, compared with 199,000 for The Times.

“We clearly believe we are in a period of innovation and experimentation, and that’s what this new SeattlePI.com represents,” said Steven R. Swartz, president of Hearst’s newspaper division. “We think we’ll learn a lot, and we think the Seattle market, being so digitally focused, is a great place to try this.”

The new P-I will be led by Michelle Nicolosi, executive producer of the site since 2005, who has been an editor and prize-winning reporter. David McCumber, the managing editor, and Mr. Oglesby will not stay with The P-I, but will remain with Hearst in some capacity, executives said.

Hearst said it would offer severance packages to about 145 employees. Because the newspaper has had no business staff of its own, the new operation plans to hire more than 20 people in areas like ad sales.

Among the new columnists, Hearst said, will be Norm Rice, a former Seattle mayor; Maria L. Goodloe-Johnson, who heads the city’s public schools; John McKay, a former United States attorney; and two former governors.

David Brewster, the publisher of Crosscut, praised Hearst for “creating new journalism,” rather than completely shutting down The P-I. “There’s definitely room,” he said. “Seattle will be quite a vital place.”

Ruth Teichroeb, an investigative reporter who was among those who lost their jobs, said she worried about what would be lost. “The thing that’s always been closest to my heart is The P-I’s coverage of the underdog, people who are invisible,” she said. “Those people who have the least voice in society are losing access to another part of the mainstream media.”

[William Yardley reported from Seattle, and Richard Pérez-Peña from New York.]

Source / New York Times

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Cole: Financial Trouble in the Newspaper Industry

The End of Newspapers? Or is there a Journalism School Model?
By Juan Cole / March 1, 2009

You wonder if the last front page article in the last newspaper will be about the demise of the newspaper?

I especially regret the possibility that the San Francisco Chronicle might close, or become part of a single-owner print media monopoly in the Bay area. The Chronicle has been one of the papers I have regularly checked in on ever since newspapers started being available on the web. I'd be sad if it were gone.

I attended a conference of editors of major foreign policy magazines in London a couple of years ago, and we had a presentation from a major UK newspaper. The editor said that he couldn't be sure of still being in business in five years. Their advertising in the print edition kept falling off, subscriptions and circulation were in a tailspin, and the internet was a monetary black hole. They had tried charging for internet access, and few readers ponied up. They had tried putting it up for free but trying to attract advertising. But the advertisers were not sure of the value of "hits" and "page views" and wouldn't advertise much online nor pay much for an ad (tell me about it). So basically the newspaper was entering a world in which there was no business model.

The presentation was prophetic.

I worked for a newspaper in Beirut in my 20s. I have always enjoyed newspapers, and it has been one of the benefits of becoming a prominent blogger that I got to have a lot to do with journalists, with whom I usually have a lot in common. And, I've benefited enormously from the active news-gathering of journalists, often at the risk of their very lives.

Journalism is two parts: news-gathering and commentary. I'm on the commentary side for the most part, though very occasionally I do some news-gathering. Since the nineteenth century, academics have often been commenters, so the only thing new is that because of the rise of the internet and blogging, I did not have to begin by convincing an editor to publish me. Since editors are hard to convince, and many in journalism appear to have been traumatized somewhere along the way by an incomprehensible professor, it was better that way.

It does seem odd that so few of the prominent bloggers of the early to mid zeroes ended up with long-term stable positions in traditional media. After all, they have proved that they could attract hundreds of thousands or even millions of page views. It was as though print media editors and owners just couldn't see the new medium nor its flora and fauna, until it was too late. I can remember hearing back that op-ed editors were nervous about commissioning pieces from bloggers, because the bloggers wrote so much they were over-exposed. They did not realize that a city newspaper was then a whole different market and readership than the blogosphere (the two overlap more now).

And now the newspaper as a form of print publication may be on its last legs. And whereas I have a paying day job, news-gathering journalists are in danger of losing theirs, and they are a little unlikely to go on doing difficult and sometimes dangerous news-gathering on a pro bono basis.

Some have suggested that we go to an endowment model for newspapers. I'm all for it. Others have warned that it would make the newspapers beholden to rich donors. Surely you jest. The old joke was that anyone can own a newspaper, all you need is a million dollars (it is a really old joke; you'd need a lot more than that.) One of the problems with newspapers is in fact that usually they are owned by the wealthy, and often the wealthy stuck their fingers into the machinery of the newspaper.

As long as internet neutrality, what I call internet liberty, isn't crushed, the demise of the traditional newspaper holds out the possibility of a press that more closely reflects the interests of the ordinary people, instead of the urban business classes.

So the endowment model is in my view actually much less likely to make the reporters beholden to special interests. Once the money is in the endowment, the donor's leverage is much reduced. Of course, if you were actively trying to increase the endowment, you might be tempted not to make waves . . . But presumably that would not be the normal state of affairs for all endowed journalists. It should be a 501 c 4 endowment rather than c3, i.e., the kind that allows partisan political activity.

The main problem with the endowment model is that an endowment has to be just enormous to generate enough money to accomplish anything. A conservative approach to an endowment would dictate that only 5 percent of the annual profit generated by the principle should be available for spending. To pay a senior journalist $100,000 a year, you'd need $2 million in the bank, and with fringe benefits it would be $2.5 mn. A staff of 40 journalists and editors would require an endowment of $100 mn.

Have you ever tried to get anyone to just give you $100 million? And that was when anyone had it to give.

It does occur to me that there is one institution that routinely raises that sort of money, which is the university. I wonder if the journalism school might not be the matrix of the web-based newspaper of the future. (How to mix between public and private, and 501 c 3 and 501 c 4 type endowments I don't pretend to know). But if it were possible, and if the school had the journalists do some teaching, so as to be able to attract tuition money, you might be able to generate proper salaries and leave enough time for newsgathering and writing. How to handle foreign correspondents isn't clear, but a city beat wouldn't be so hard. And after all, you could have the Paris and Berlin city beat correspondents translated to get the international news. You might also have to take subscriptions from readers who want a month-long series from e.g. Baghdad, the way the 18th century travel writers did (readers who wanted a true-life adventure book preordered it and so allowed it to come into being.) That would be a sort of MoveOn.org model for some journalism.

And if the journalists taught some courses, those courses wouldn't have to just be on journalism. They'd after all be fine teachers of writing, and some have disciplinary specialties. But an institution that taught clear, hard-hitting writing would be golden in itself. Despite the handwringing about liberal arts education, there are still lots of companies that want employees who can write clearly and concisely and powerfully. They'll eventually be hiring again. (It is a little ironic that the newspapers, which are running stories about how iffy a liberal arts education is in hard times, are the ones in trouble. Whereas my university, which teaches the liberal arts, is so far doing just fine, as are most of its graduates.)

Now journalists might accuse me of trying to rope them into my crazy kind of life. But I really am just thinking out loud about how to save the profession. Lots of new models will likely emerge, since there certainly is a market for news. The academic Journalism School/ Newspaper may be one of them.

Of course, another possibility is for newspapers and news magazines to find ways of getting customers to pay for subscriptions, even on the web. Salon.com, for which I write a regular column, has as far as I know been running in the black. It began as a co-op, and does remarkably independent journalism. For those of you who care about this issue, and good journalism, I urge you to subscribe if you can afford it nowadays. (You can tell if you can afford it if you still ever get Starbucks capuccino-style drinks).

Source / Informed Comment

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Some Litttle-Known Financial Crisis Trivia

Rep. Paul Kanjorski of Pennsylvania explains how the Federal Reserve told Congress members about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occured over the period of an hour or two.

Thanks to Axis of Logic / The Rag Blog

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Acorn: Fighting the Banks to Counter Foreclosures

Jonathan Westin, an Acorn organizer, comforted Denise Parker, whose house was being foreclosed on, after she spoke at an Acorn training session in Brooklyn. Photo: James Estrin/The New York Times.
A Bid to Link Arms Against Eviction
By Fernanda Santos / February 17, 2009

As resistance to foreclosure evictions grows among homeowners, community leaders and some law enforcement officials, a broad civil disobedience campaign is starting in New York and other cities to support families who refuse orders to vacate their homes.

The community organizing group Acorn unveiled the campaign with a spirited rally on Friday at a Brooklyn church and will roll it out in at least 22 other cities in the coming weeks. Through phone trees, Web pages and text-messaging networks, the effort will connect families facing eviction with volunteers who will stand at their side as officers arrive, even if it means risking arrest.

“You want to haul us out to jail? Fine. Let the world see how government has been ineffective,” Bertha Lewis, Acorn’s chief organizer, said in an interview. “Politicians have helped banks, but they haven’t helped families in the way that it’s needed, and these families are now saying, enough is enough.”

At the onset of the foreclosure crisis, the problem was regarded by some as one of a homeowner’s own making, the result of irresponsible decisions made by families who chose to live beyond their means. But as foreclosures spread across the country, devastating even solidly middle-class communities, the blame has slowly shifted to the financial companies that made questionable loans and have received billions of dollars in federal aid to stave off collapse.

In recent months, a budding resistance movement has grown among Americans who believe they have been left to face their predicament on their own — and the Acorn campaign is an organized expression of that frustration, Ms. Lewis said. Instead of quietly packing up and turning their homes over to banks, homeowners are now fighting back.

On Feb. 9, a man scrawled a message on the roof of his house in a suburb of Los Angeles: “I Want 2 Be Heard.” Then he barricaded himself inside when deputies showed up to evict him, surrendering after a few hours. In October, a woman in San Diego chained herself to her front porch after the bank that held her mortgage refused to renegotiate the terms. She remains in her home, but has received a second eviction notice.

And last year in Boston, neighbors and activists locked arms outside eight buildings that had been foreclosed upon to prevent the authorities from forcing residents onto the streets.

Sheriffs in some places have also taken a stand. In Wayne County in Michigan, Sheriff Warren C. Evans, suspended all evictions starting Feb. 2 until the federal government implements a plan to help homeowners facing foreclosures.

In Cook County in Illinois, which includes Chicago, Sheriff Thomas J. Dart directed a lawyer to review all eviction orders to protect people who kept on paying rent after the buildings where they lived had been seized by banks. In Butler County in Ohio, Sheriff Richard K. Jones ordered his deputies not to evict people who had no place else to go.

“This is a cold place in the winter and I will not give people a death sentence for not paying their debts,” Sheriff Jones said in an interview. “These are human beings, responsible middle-class people who fell on hard times, and I just can’t toss them out onto the streets.”

Acorn’s strategy is modeled on a movement the group led in the 1980s, when squatters occupied and set out to renovate thousands of abandoned city-owned buildings in New York, Philadelphia and Detroit, among other cities. The motivation was to solve what Ms. Lewis has called “the working family’s housing crisis.”

In cities like Orlando, Fla., which has one of the nation’s highest foreclosure rates — and Boston, Houston, Baltimore, Oakland, Calif., and Tucson, Ariz. — Acorn organizers have been creating networks to alert a homeowner’s neighbors when an eviction has been scheduled or deputies are on the way. Some volunteers will summon friends and relatives to converge at the home, while others will be in charge of notifying the news media. Organizers are also recruiting lawyers willing to defend for no fee those who are arrested.

The campaign, called Home Defenders, enlisted about 500 participants during meetings held Friday and Saturday in New York and five other cities. Ms. Lewis and other organizers said that they believed the number will reach into the tens of thousands within weeks.

“This is a desperate, last-ditch effort by folks who are working two or three jobs, single mothers, elderly people who don’t know what else to do to save their homes,” said Ginny Goldman, Acorn’s lead organizer in Texas, where the campaign began in Houston on Saturday.

The rally in Brooklyn, at Brown Memorial Baptist Church in Fort Greene, drew about 150 people. There were homeowners, Acorn members, community advocates and candidates for the City Council. One councilman, Mathieu Eugene, was carrying a slab of papers as thick as a large dictionary, each sheet representing, he said, a family facing foreclosure in his district, which includes parts of Crown Heights, Flatbush and Kensington.

The church’s pastor, the Rev. Clinton M. Miller, opened the gathering with this prayer: “If anybody here is facing foreclosure, God, we ask that a miracle be made and a home be saved.”

Then, between homeowners’ sharing their plight, the crowd chanted, “Enough is enough.”

One homeowner, Myrna Millington, 73, who lives in Laurelton, Queens, said that she had to take a second mortgage on her home of 38 years to pay for repairs that turned out to be more extensive than originally planned. What Ms. Millington did not know was that she had signed for a subprime loan, which carried interest rates so high she could not keep up with the payments. Her house was foreclosed on in September.

“I may lose my home, but I’m only leaving in handcuffs,” Ms. Millington said.

Another homeowner, Denise Parker, a mother of three who works as a housekeeper at two Midtown Manhattan hotels, bought a home in Springfield Gardens, Queens, in 2005 with an adjustable interest rate that, after two years, went up every six months. Her payments started at $3,500 and now are $5,050 a month, she said. She fell behind last year and her house is scheduled to be auctioned off on Friday.

“I refuse to leave the home that I’ve worked so hard to keep,” Ms. Parker, 42, told the audience. “I will not let the bank take my home and I will not leave.”

Eviction resistance actions are scheduled for Thursday in cities including New York, Oakland and Houston. Organizers will try to recruit enough volunteers to form a human wall on the sidewalk to avoid being arrested for trespassing. But occupying a house or having people attach themselves to a home could also be a tactic.

The campaign has earned praise and raised concern. Sheriff Dart, in Illinois, said it was a “slippery slope when you have individuals deciding whether they can lawfully remain in their homes.”

Sheriff Jones, in Ohio, equated the planned resistance to “chaining yourself to a tree that’s about to be cut down” and said that though he may not agree with it, he sympathizes.

In Washington, Acorn has found a staunch supporter in Representative Marcy Kaptur of Ohio, who, during a discussion last month about the $700 billion bailout package for financial companies, took to the floor of the House and instructed people to “stay in your homes — if the American people, anybody out there, is being foreclosed, don’t leave.”

In an interview, Ms. Kaptur said, “I’m thrilled that the American people are rising up and exercising the power that Wall Street has taken away from them.”

Source / New York Times

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FBI: 'We Knew That the Mortgage-Brokerage Industry Was Corrupt.'

Bank repossession, foreclosure and for sale signs sit outside a foreclosed home in Houston. Two retired FBI officials asserted that the Bush administration was thoroughly briefed on the mortgage fraud crisis and its potential to cascade out of control, but made the decision not to give back to the FBI the agents it needed to address the problem. Photo: AP.
FBI saw mortgage fraud early
By Paul Shukovsky / January 28, 2009

The FBI was aware for years of "pervasive and growing" fraud in the mortgage industry that eventually contributed to America's financial meltdown, but did not take definitive action to stop it.

"It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes," said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities.

"We knew that the mortgage-brokerage industry was corrupt," the first of the retired FBI officials told the Seattle P-I. "Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism."

The FBI not only lacked the resources, but also never got the tips it needed from the banking regulatory agencies. The Securities and Exchange Commission, the Office of Thrift Supervision and the Office of the Comptroller of the Currency also failed to detect the securities issue, said the first retired FBI official.

"These are very resource-intense cases that take a lot of work by very skilled people," said John Falvey Jr., a former federal prosecutor who currently does white-collar criminal defense work in Boston.

And Falvey said that financial executives who deliberately chose not to learn the facts about dicey mortgage-lending practices in their companies -- who chose to be "willfully blind" to such practices and the subsequent securitization of those mortgages -- could be vulnerable to prosecution for securities fraud.

Both retired FBI officials asserted that the Bush administration was thoroughly briefed on the mortgage fraud crisis and its potential to cascade out of control with devastating financial consequences, but made the decision not to give back to the FBI the agents it needed to address the problem. After the terrorist attacks of 2001, about 2,400 agents were reassigned to counterterrorism duties.

This mass reassignment was first chronicled by the Seattle P-I in the Terrorism Tradeoff, a series of investigative reports beginning in 2007 and stretching into 2008. That administration policy, the P-I reported, resulted in a dramatic plunge in FBI criminal investigations and referrals for prosecution. And recent data from Syracuse University researchers shows the problem has worsened.

FBI Assistant Director Ken Kaiser -- in a statement - took issue last week with any implication "that if the FBI had made more arrests for mortgage fraud, the crisis could have been averted. To even suggest that is a cry for a lesson in both civics and basic economics.

"It is not a fair or realistic assessment."

The FBI is now making one of its largest hiring pushes ever. The bureau is seeking 850 new agents this year, some to fill vacancies that had been allowed to languish for years even as the administration blocked efforts to reinforce the FBI's crime squads.

Still, a P-I analysis of information provided by the FBI shows that 850 new agents doesn't come close to restoring the bureau's crime squads. It would take more than double the number of agents and at least $400 million of new funding to bring the bureau's corps of crime-fighters back to pre- 9/11 levels.

But Deputy Director Steve McMillin of the Bush White House's Office of Management and Budget told the P-I last year that even partially restoring the FBI crime-fighting capabilities was not a priority.

"The assumption that how it was pre- 9/11 is how it ought to be for all time is not the correct premise," he said.

The first retired FBI official said: "We made a direct pitch (for more agents) to the OMB even though we weren't supposed to and they said no." Instead, "we were looking at reductions, not additions."

Further complicating efforts to detect and prosecute mortgage fraud, banks and other mortgage lenders were making so much money from the constant churn of transactions and the continually escalating price of homes that the fraud that did arise simply didn't cost the industry enough money to raise their concerns.

"You had victim banks that would not acknowledge that they were victims," said the first retired FBI official. " 'We're not out any money,' they would say. Nothing has been foreclosed. The banks weren't reporting, the regulators weren't regulating and the FBI was concentrating on external mortgage fraud as opposed to the underlying internal problem."

And the administration's attention was turned to terrorism.

When FBI Director Robert Mueller was briefed on mortgage fraud, "his eyes would glaze over," the first retired FBI official said. "It was not something that he would consider a high priority. It was not on his radar screen."

"We knew we had a broader problem, but you've got a Justice Department and the administration saying you need to concentrate on domestic intelligence and counterterrorism," the first official said. "It wasn't very popular to ask for resources for anything. It was dead on arrival."

The second FBI official said: "Mueller was caught in a box.

"Mueller actually circumvented the Justice Department and the OMB to get resources. But he was shut down" by the administration.

Public statements by one high FBI executive shows that the bureau was well aware of the potentially devastating impact of rampant mortgage fraud at least five years ago. The executive ominously foretold the crisis in testimony before Congress.

"Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing," Chris Swecker, then assistant director of the criminal investigation division, said in October 2004 before the House subcommittee on housing and community opportunity.

Then Swecker made a chillingly accurate prediction of the coming mortgage meltdown and financial collapse:

"The potential impact of mortgage fraud on financial institutions in the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market."

Swecker went on to describe the scenario that ultimately wrecked financial havoc around the world: "Often mortgage loans sold in secondary markets are used by financial institutions as collateral for other investments. ... When loans sold in the secondary market default and have fraudulent or material misrepresentation ... these loans become a nonperforming asset, and in extreme fraud cases, the mortgage-backed security is worthless. Mortgage fraud losses adversely affect loan-loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution itself."

Swecker declined recently to comment, other than to say, "My testimony in 2004 speaks for itself."

But Kaiser, who currently occupies Swecker's old post, warned against misinterpreting the testimony.

"In context, Assistant Director Chris Swecker meant he believed the FBI could stay focused on mortgage fraud to prevent fraud from becoming the major driver that would cause a collapse of credit in the housing market," Kaiser said in comments e-mailed to the P-I earlier this month. "We believe by a good measure, the bureau did that.

"The FBI's Criminal Division has arrested 1,000 suspects and targeted 180 criminal enterprises since 2004," Kaiser said. "We targeted those lenders and buyers involved in multiple frauds or cases where the profits went to drug crews, gangs or organized crime. More investigations are ongoing. But the FBI is a law enforcement and intelligence agency, we are not banking regulators."

It wasn't just the FBI's white-collar crime program that lacked the resources and political will to do its job.

The Office of Thrift Supervision and the Office of the Comptroller of the Currency "and the bank regulators are really the first line of defense," the first official said. "The investigative agencies (like the FBI) are the second line of defense. We all caught the mortgage fraud aspect. But none of us caught the corporate fraud aspect."

But even if the regulatory agencies had come to the FBI with the tips, the resources necessary to pull off such an inquiry simply did not exist.

"There were two hurdles," said the second retired FBI official, "not enough agents working in the criminal area and not enough (federal prosecutors) to prosecute these complex cases. You have to have investigators to follow the money, you have to follow the decision making to take it up to the corporate suites. And we didn't have it."

The FBI had every certified public accountant in the bureau working on big fraud cases such as Enron and HealthSouth, the first retired FBI official said. "The ones that weren't working (those cases) went to terrorist financing."

The SEC, said the official, did not show an interest in working with the FBI on the problem, either. And it didn't begin responding to pervasive financial corruption until after the economy collapsed.

"The regulators are the ones embedded in the banks," the first retired FBI official said. "They would be able to see it if they were looking. They were the first line of defense in detecting it."

SEC officials declined to comment.

Thrift office spokesman William Ruberry said, "The OTS has a robust enforcement program to investigate and take appropriate action against corruption and fraud uncovered by our examiners, reported by consumers or conveyed by other sources."

Comptroller's office spokesman Kevin Mukri said only that "the OCC has always had and continues to have a professional and cooperative working relationship with all law enforcement agencies."

Nevertheless, high FBI and Bush administration officials knew a potentially devastating problem was on the horizon and failed to stop it.

"It was a sleight of hand because the public thought the administration was resourcing counterterrorism when in fact they were forcing cannibalization of the criminal program," the retired FBI official said. "Now the chickens have come home to roost."

[P-I reporter Daniel Lathrop contributed to this report.]

Source / Seattle Post-Intelligencer

Thanks to Mariann Wizard / The Rag Blog

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Pilgrim's Pride and Tysons Benefit from Bailout

As our Friend and contributor, Diane Stirling-Stevens, says of this article, "Another bit of news that made me do "#$*&(#$&(*#$&(#*&$#"." We couldn't agree more. Big Ag is a significant economic and health issue, and we remain hopeful that the new administration will address it.

Richard Jehn / The Rag Blog

Malia & Sasha Obama Get Organic School Lunches; Your Kids Get Bailout Chicken From Big Ag
By Obama Foodorama / January 8, 2009

Malia and Sasha Obama started school on Monday at Sidwell Friends in Washington, and in addition to a lovely Quaker-inflected education, they're going to be enjoying a lunch program that relies on organic foods, with menus that are well planned and highly nutritious. It's all of a piece with Sidewell's excellent program of environmental stewardship, which teaches ethical and green values with concrete things like locally grown veggie stew. Malia and Sasha definitely won't be eating lunch meat purchased from companies with terrible food safety, pollution and ethics problems, but your kids might be, because the USDA just bailed out the top two poultry producers in the US with a $42 million purchase of chicken products, which are going into school lunch programs across the country. The bailed-out poultry companies, unfortunately, both have ridiculously bad track records.

Pilgrim's Pride gets $30 million of the bailout money because they filed for bankruptcy last month. But it's difficult to believe anyone actually wants to eat Pilgrim's Pride products, let alone that these products are now going to be fed to children. In 2002, listeria-contaminated products from Pilgrim's Pride were responsible for 7 deaths, 149 hospitalizations, and a huge wave of illness among people who'd eaten the contaminated foods (more details here). The recall of more than 29.5 million pounds of meat was then a record breaker. Worse, Pilgrim's Pride had known about their listeria contamination for months before taking action, and the Food Safety and Inspection Service had cited them for more than 40 infractions previously (mold, cockroaches, leftover food on conveyor belts...). In 2004, Pilgrim's had another very high profile "problem" with horrifying animal abuse in one of their facilities (videotaped, of course), which led to more state and federal investigations, and public outrage.

How, you may wonder, does a food company that murders people, sickens thousands, is cited repeatedly by state and federal agencies for safety infractions, and mistreats its food animals, remain in business and get bailout money, and have their food served to kids, who are even more susceptible to foodborne illnesses than adults?? Yeah, that's The Question of The Ages.

Tysons Foods, the second largest poultry producer in the US, is also getting bailout bucks, and they have a grim history, too. They've been sued many times for making people ill with contaminated products; they've been involved in a years-long lawsuit brought by the state of Oklahoma for dumping poultry excrement into the Illinois River watershed (poisoning the water supply), they've been sued for injecting eggs with antibiotics so they can claim their chickens are "antibiotic-free;" former employees say the company slaughtered chickens inhumanely; and Tyson's has also been placed under a federal consent decree for maintaining facilities segregated by race at one of their processing plants.

With this bailout, USDA is, once again, putting economics ahead of public health. Could Barack stop the chicken from these two companies from getting on to childrens' lunch plate? Another Question For The Ages. He should put an end to this kind of insanity, because he's a big proponent of school lunch programs. As a Senator, Barack voted for The Farm Bill, and he went on the record as saying it was in part because of the billions of dollars earmarked for nutrition assistance and school lunches. In general, this is a terrific thing, because the statistics hardly need repeating: Nearly one in six children and teens are overweight, and diet-related (Type II) diabetes -- until recently rare in children -- is reaching epidemic levels. But we're pretty sure Bam had no idea that two companies with appalling safety records might in future be allowed to dump 60 millions pounds of their products on to lunch trays nationwide. Neither Pilgrim's Pride nor Tysons represents the kind of "change" in agriculture policies that Obama says he stands for; nor are they ethical or environmentally friendly. But this kind of bailout nonsense is something Barack will face repeatedly when he takes office; the USDA and FDA are both notorious for protecting the interests of business rather than the interests of American consumers. And we haven't even touched on the nutrition/health aspects of Pilgrim's Pride and Tyson's products. Both companies feed their chickens chow that is from genetically modified corn, a controversial food source because it may well lead to health problems on its own, such as infertility, allergies, obesity...and both companies produce "fast foods," such as chicken fingers and chickens nuggets...

Obama Mamas (and Papas!) all over the country will be sending their kids to school to dine out on the terrible leftovers of the Bush administrations' awful food and farming policies, and Barack needs to move as swiftly as possible to make sure all kids will be able to eat school lunches like those Malia and Sasha will be enjoying. Alice Waters has been working hard to try to get Barack converted to the ethical/sustainable foodist program, but she hasn't been lobbying--yet--over school lunch programs, even though her own Chez Panisse Foundation was a pioneer in creating grow-your-own/locally sourced school lunch programs. It's dire that Barack gets up to speed on this, too. All children should be able to eat the way Malia and Sasha will at Sidwell Friends, and that's not just pie-in-the sky thinking. It's possible, and necessary.

Source / La Vida Locavore

Thanks to Diane Stirling-Stevens / The Rag Blog

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Rogers: "We're Going to Have a Lost Decade"

Jim Rogers calls most big U.S. banks "bankrupt"
By Jonathan Stempel / December 11, 2008

NEW YORK - Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). Some of the funds are being used for acquisitions.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Rogers said he shorted shares of Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.P: Quote, Profile, Research, Stock Buzz) before the government nationalized the mortgage financiers in September, a week before Lehman failed.

Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets.

While not saying how long the U.S. economic recession will last, he said conditions could ultimately mirror those of Japan in the 1990s. "The way things are going, we're going to have a lost decade too, just like the 1970s," he said.

Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year.

But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity, "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."

Many analysts cite Lehman's Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets.

Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman.

"Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony.... All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."

Rogers said is investing in growth areas in China and Taiwan, in such areas as water treatment and agriculture, and recently bought positions in energy and agriculture indexes.

[For summit blog: summitnotebook.reuters.com. Reporting by Jonathan Stempel; Additional reporting by Jennifer Ablan and Herbert Lash.]

Source / Reuters

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Foreclosure Chronicles : The Desperate Hours of Addie Polk

1918: Bathing suit parade, the year Addie Polk was born.
1919: Race Riots in Chicago.
2008: Fannie Mae foreclosed on the home of Addie Polk; Annie Mae Polk put a gun to her chest.
'In 1970, Robert and Addie Polk bought a small white wood-frame house in a Black neighborhood of Akron for $10,000. Or to put it another way, he exchanged years of labor on the Goodrich assembly line for a place to live.'

On October 1, 2008, a sheriff and his deputy knocked on the door of a small white house in Akron, Ohio. Addie Polk, the 90-year-old Black woman who lived there, went to her dresser and looked at the foreclosure notice that had been duct-taped to her door a month earlier. She pulled out her life insurance policy. She put it next to her keys.

And then she opened the drawer where the pistol was kept.

Addie Polk was born in 1918. It was the year World War 1 ended. That war—between England, France, Russia and the U.S. on one side, and Germany on the other—was fought over which imperialist powers would control the colonies of Asia, Africa and Latin America. The war brought carnage on an unprecedented scale—five million lives thrown onto the altar by the “great powers” to determine the outcome. The war also brought huge changes, all over the world.

In the United States, the war provided a chance to make big profits. But the American capitalists needed workers to make those profits, and their preferred source of workers—the impoverished immigrants from Europe—were cut off by the war.

So the capitalists cast their gaze to the South, where the masses of Black people were still chained to the land. The South, where Black people were forced to grow and pick the cotton, from can’t see in the morning to can’t see at night, only to end up deeper in debt at year’s end—while the landlords grew richer. The South, where Black people had to step off the sidewalk when a white man walked down it, and turn their eyes to the ground when they talked to a white man. Where they couldn’t drink out of fountains reserved for whites, or go to school with whites. And where those who didn’t go along were jailed and made into a new kind of slave on the road gangs and in the mines of the South...or were beaten...or were lynched.

So when the northern capitalists put out the word that they would, for the first time, hire Black people in large numbers, the people responded. They fled the horrors of the South for the “promised land” of the North in massive numbers, and half a million found jobs in the big northern industries. Sometimes, especially in the early days of the migration, the Black people heading North would even break into cheers and song when the train passed over the Mason-Dixon line—the dividing line between North and South.

Akron—where Addie Polk was to make her home—boomed in the war as well. It became the “rubber capital” of the world, churning out tires. Its population went from 69,000 in 1910 to nearly 210,000 in 1920. And Akron, where a lynch mob had once run wild for two days in 1900, saw a Black community begin to take root.

But when the war ended, the boom ended. Capital could no longer profitably employ many Black people who had come North. It didn’t need them.

And besides—the social order was becoming unglued. In Russia, the Bolsheviks had led the masses to make a revolution. This revolution was led by the formerly bitterly-exploited working class and it had, as a central point, freedom and equality for the oppressed nationalities of the Russian empire. The revolution, and the communist ideology that led it, were gaining worldwide influence. And the Black men who had been drafted in World War I had been trained and sent to Europe to fight for the U.S.—where they were in some cases treated as equals by European whites. The men of property and power decreed that traditional social relations—the hierarchy—must be forcibly hammered back into place.

And so in 1919, when Addie Polk was one year old, the cheers on the train turned to dust in the people’s mouths. White workers (along with small businessmen, shopkeepers, etc.) were, once again, mobilized as white people—to protect “their” jobs and “their” neighborhoods. Scores of cities, North as well as South, witnessed barbaric white rampages against African-Americans. Chicago was the worst, with at least 38 Black people killed. Norfolk, Virginia was in a way the most bitterly and bloodily ironic, as a white mob broke up a reception for Black troops returning from World War I and murdered six. Hundreds fell to the violence of white mobs—with at least eight Black people being publicly burned.

But there was also something new afoot. W.E.B. Du Bois, a great Black intellectual and leader of the time, put it this way: “Today we raise the terrible weapon of self-defense. When the murderer comes, he shall no longer strike us in the back. When the armed lynchers gather, we too must gather armed. When the mob moves, we propose to meet it with bricks and clubs and guns.”

The riots finally ended. But the majority of Black people who had come north had been cast and hammered into a subordinate position within the working class. They were to be the last hired and first fired, and when they did work they were to be confined to the very worst, dirtiest and most dangerous jobs. They were segregated into housing that was almost as expensive as it was dilapidated, and cast into broken-down schools that barely deserved the name; and they were dogged at every turn by brutalizing and murdering police. Northern capital inserted Black workers into its system—and in such a way that their labor would turn super‑profits for the system.

This was the world in which Addie Polk took her first steps; the world in which she learned her ABCs; the world in which she grew to womanhood.

Addie Polk looked at the pistol. She heard again the knock at the door, and the voices of law enforcement. She felt the blood pounding in her chest, and pounding in her brain. She picked up the pistol and walked, stiffly, over to her bed.

When World War 2 came in the 1940s, capital once again had need of Black labor—and this time on a far greater scale than before. Now millions more Black people came North. Black men like Robert Polk—Addie Polk’s husband—could find work at Goodrich Tire. The dirtiest, the hardest, and the most dangerous work—but work.

America came out of World War 2 on top. U.S. capital called the tune for the whole world—except for the Soviet Union and the new revolutionary socialist state in China. Facing off against the challenge of the socialist world, and riding atop the imperialist heap, the capitalist rulers of America felt they could—and they felt they had to—pay higher wages to the workers within the U.S., to pacify them and turn them away from any radical movement.

These capitalists also felt that they could—and that they had to—begin to make some concessions to Black people. On the one hand, the big changes of the “Great Migration” and of the upheaval of the war itself contributed to a more militant mood among Black people from all strata, and to growing grassroots resistance. On the other hand, it didn’t go down well internationally for the United States to pose as the supposed great upholder of freedom, when millions of its own people were legally forced to endure segregation, to live without political or social rights, and to face lynch-mob violence at any time.

But those concessions were not enough to stop Black people from rising up, first in the civil rights movement and then in the Black liberation struggle. Over 250 American cities erupted in rebellion during the 1960s. A spirit of defiance took hold and a revolutionary movement began to develop, in the streets and on the campuses and more broadly beside—including the factories where Black workers labored. The ruling class was forced to grant concessions far beyond what they had ever envisioned, and this included opening up jobs that were formerly reserved for whites.

Meanwhile, Robert Polk worked in one of those factories. He punched in each morning and when he did he turned over all his life force to the greater good—and profit—of Goodrich Tire. He punched out each night and went home dead tired. And on payday, he would open the envelope to find just enough to provide the necessities that would bring him back again to the time clock early Monday morning.

It was the “equal exchange” that, multiplied a billion times, keeps capitalism running—the exchange of one person’s life force and labor power, which produces those profits, for the means of subsistence. The “equal exchange” that results in the most profound inequality in wealth, in power, and in life-chances. The “equal exchange” on which all the so-called financial instruments are built. The “equal exchange” that masks a relation of exploitation: the exchange of labor power for wages.

In 1970, Robert and Addie Polk bought a small white wood-frame house in a Black neighborhood of Akron for $10,000. Or to put it another way, he exchanged years of labor on the Goodrich assembly line for a place to live.

Addie Polk lay down on her bed, pistol in her hand. Still the voices, still the occasional knock. She put the pistol to her chest. She began to squeeze the trigger with the 90-year-old fingers that were so achy, and finally so tired.

Capitalism came into the world unique—the only economic system in which innovation was a necessity. No capitalist knows how much “the market will bear”—they don’t know in advance if they can sell all that they produce. But if they do not sell, they go under. So they must constantly figure out ways to produce more goods more cheaply. They invest in new, more productive machinery and they constantly search for ways to more thoroughly exploit the workers they already employ...or else they shift operations altogether.

The U.S. stood atop the heap after World War 2. But European capital innovated. The tire companies of Akron “lost market share” in the ‘70s and early ‘80s to new kinds of tires produced first in Europe, and then in the factories of the “third world.” Soon the factories shut down. Akron, once dubbed the “rubber capital” of the world, found a new title as the city decayed: the “meth capital” of Ohio. Akron, now nearly 30% African-American, saw crack invade its Black community and the streets and schools fall further into disrepair. On Addie Polk’s street, the roadbed comes right up through the concrete, and nearly every other house lies empty, or is up for sale.

Robert Polk died in 1995. But capital was not done with Addie Polk yet. There was blood yet left to suck. Just as meth and crack rampaged through Akron, stoking people up to make it through one more day of hell, new “instruments” of credit gave the capitalist economy a shot of new energy. Politicians and financial commentators on TV talked as high and as giddy about this as a cranked-out meth freak yammering in a bar. But these new “credit instruments” now turn out to have victims. They have victims all over the world on a horrendous scale—and they have victims within the U.S. as well.

Addie Polk’s house had been hers, bought and paid for, “free and clear.” But in a society where the basic necessities of health care, for instance, constantly climb out of reach ...in a situation where no one even pretends that the social security and the pittance of a pension for industrial workers are enough to survive on...Addie Polk needed money. The sharks came—not the street-corner ones, but the “legitimate” ones. And they offered her deals—mortgage your house again and get the money you need, up front. And then mortgage it once more, to pay off your earlier deal and to get more money. It was all part of what they now call “the real estate bubble.”

And like so many others, when the real hidden terms kicked in, Addie Polk fell behind. The notices began to come. Knocks on the door, followed by the frightening papers that said NOTICE in big red letters and threatened eviction. The lending company foreclosed. And on October 1, 2008, three men with guns stood downstairs, preparing to move Addie Polk and the few cherished possessions of 90 years, into the streets.

Addie Polk held the gun to her chest, and pulled the trigger. Did she cry out in despair when the first shot missed, and hit her shoulder? We don’t know. But if she had second thoughts, they carried no force—for she marshaled the strength to pull the trigger yet again.

Addie Polk, somehow, did not die. Her neighbor, Robert Dillon, had climbed into her window to check on her and found her stretched out, unconscious, on the bed. She was rushed to the hospital, where she remains today. The mortgage holder, stung by the bad publicity, promises, for now, to let her remain in her home—when and if she gets out of the hospital.

Last week, it was announced that another 765,000 houses entered into the foreclosure process, or were actually being auctioned in the last three months alone.

The end is not in sight.

Source / Revolution

Also see Fannie Mae forgives loan for woman who shot herself / CNN / Oct. 3, 2008

Thanks to Mercedes Lynn de Uriarte / The Rag Blog

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Eschenbach: Solving the Subprime Crisis

Treating the disease, not the symptoms: a comparison of proposed solutions to the problems resulting from the bursting of the housing bubble.
By Sid Eschenbach / The Rag Blog / November 16, 2008

There have been a variety of proposals for this line of attack, including recently by Martin Feldstein in the WSJ. I have also proposed a plan, outlined below. Following my plan is a précis of Feldstein’s plan, followed by a comparison of both. There is great merit in a strategy of treating the disease and not the symptoms.

First, some pertinent data points:

• Number of families who now hold a subprime mortgage: 7.2 million
• Proportion of subprime mortgages in default: 14.44 percent
• Proportion of subprime mortgages made from 2004 to 2006 that come with “exploding” adjustable interest rates: 89-93%
• Proportion of completed foreclosures attributable to adjustable rate loans out of all loans made in 2006 and bundled in subprime mortgage backed securities: 93%
• Number of subprime mortgages set for an interest-rate reset in 2007 and 2008: 1.8 million Valued at: $450 billion

There are 7.2 million subprime mortgages out there worth 1.3 trillion, of which possibly 70% of them have exploding rate mortgages, which means about 5 million have exploding rates. Exploding rate mortgages account for 93% of the bad mortgages, which means that possibly 4.5 million of these will go bad, or 63% of the total, at a value of $820 billion and an average value of $180,000. If the ARMs reset from 7% to 12%, the increase in monthly payments is about $590 per month. $590 per month times the total of 5 million is about 3 billion dollars per month. Therefore, $700 billion would pay for 233 months, or nearly 20 years of payments… and this without renegotiating the loans so that maybe they just go to… say… 9% with the government picking up the difference. The holders of all the CDO’s would then be able to value them, mark them back to market, solve their balance sheet problems… financial problems solved.

From the housing markets point of view, it would relieve the pressure of the foreclosure spiral forcing down prices more than ‘normal’, and provide the time cushion necessary for the economy to recover and housing to rebound. Any homeowner who elected to avail himself of the help would give up all or a part of the appreciation of the property over time, penalizing them for getting jammed up, but not penalizing the guy who is paying his mortgage, playing by the rules, and betting that his home is indeed a good investment over the long term.

If the sub-prime ARMS were renegotiated down to 9%, the monthly payments the government would be liable for would be an average of $225 per house per month, or $1.1 billion annually. The $700 billion under those circumstances would be good for 636 months, or 53 years…

So in review, the proposal is to:

• Allow the Government to become an ‘investment partner’ in troubled mortgages:
• have the government guarantee payment of particular mortgages by
• taking over the portion of the payment of the amount above the ‘teaser’ rate, leaving the existing mortgagee paying the original rate while the government pays the increase,
• while simultaneously renegotiating that ARM rate down so the difference is smaller.
• In exchange for this help from their new ‘partner’, the original mortgagee gives up rights to future appreciation of the asset, penalizing him for a bad decision, not rewarding him for it.

Benefits of the action:

• Stabilization of the housing market by ending foreclosures
• Slows the fall in house values, shoring up all real estate assets both residential and commercial
• Small relative rescue price for the government, as the payments are monthly, not lump sum.
• No budget busting huge amounts of capital required in any one year, but rather very nominal amounts in any particular year.
• No bankruptcy interventions necessary.
• Homeowners who can’t pay are saved and penalized, while homeowners who can are not penalized.
• The market in all mortgage related securities will be reestablished, as payment is now guaranteed, allowing all holders of all financial products based on the mortgages to have confidence in their value.
• No need to try and ‘untangle’ all of the bundled, sold, sliced and diced mortgages… they will be paid.
• Market liquidity and company balance sheets will be reestablished through the market itself.
• Allows Mark to Market rule to continue to be used
• Moral hazard: companies that participated in selling the bubble take a hit for their reckless behavior through the discount in the ARM through the revaluing downwards of their assets.

This would be a much cheaper and more effective way to solve the problem… renegotiate the exploding rate, paying the difference and profiting from the increase in asset value over time.

The following is the proposal advanced by Feldstein in the WSJ:

The Problem Is Still Falling House Prices
By Martin Feldstein / October 4, 2008

The bailout bill doesn't get at the root of the credit crunch.

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.
...
We need a firewall to break the downward spiral of house prices. Here's how it might work. The federal government would offer any homeowner with a mortgage an opportunity to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. This would be available to new buyers as well as those with mortgages. The interest on that loan would reflect the government's cost of funds and could be as low as 2%.
...
Consider a homeowner who has a mortgage equal to 90% of the value of his home. The 15% decline in the value of his house that may be needed to bring it back to its prebubble level would shift that homeowner into negative equity. Further price declines would make default attractive. But the 20% mortgage replacement loan would take the loan-to-value ratio to 72% from 90%, making it unlikely that prices would fall far enough to push him into negative equity. An interest saving that could be as large as $3,000 a year would provide a strong incentive to accept the mortgage-replacement loan, even if the individual thinks that he might temporarily have a moderate level of negative equity.

Below is a comparison of the advantages of the two plans point by point:

• No budget busting huge amounts of capital required in any one year, but rather nominal amounts in any particular year.
• Feldstein’s plan would require huge outlays of capital, a trillion dollars by his own estimate, in order to protect the 5,000,000 threatened mortgages, which is a totally unnecessary budget buster
• No need to try and ‘untangle’ all of the bundled, sold, sliced and diced mortgages… they will be paid.
• A benefit of both plans.
• Slows the fall in house values, shoring up all real estate assets both residential and commercial
• A benefit of both plans
• Doesn’t penalize those who ‘play by the rules’
• The Feldstein plan rewards those who for what ever reason can’t make their payments by making them eligible for a very cheap very long term loan. This penalizes those who are paying and is unfair on its face.
• Allows Mark to Market rule to continue to be used
• A benefit of both plans
• By establishing a value for all the mortgage-related assets, the markets in them will restart, liquidity problem solved.
• This is less clear under Feldstein’s plan, as there still could be defaults. Payment is left to the original mortgagee, and what if they decided to take that $80,000 and pay off some other more pressing bill. Because of that threat, the trillions of dollars in derivatives would not be as secure and thus would not be as valuable. They may be as liquid, but at a risk induced lower price… not a good thing.
• Moral hazard: companies that participated in selling the bubble take a hit for their reckless behavior through the discount in the ARM through the revaluing downwards of their assets.
• Feldstein’s plan does not recognize the need to lower the ARM (more appropriately an ERM – exploding rate mortgage) increases through a blanket one time renegotiation with all holders. This is equivalent to what happens when someone secures a better deal rescuing a company than the deal originally offered to the original stock holders… such is life.
• The program could be expanded to include anyone who was threatened with foreclosure due to ARMs… not just sub-prime, but Alt-A, etc.
• A benefit of both plans.
• No bankruptcy interventions necessary.
• A benefit of both plans.

The Subprime Crisis Index

Number of families who now hold a subprime mortgage: 7.2 million
Proportion of subprime mortgages in default: 14.44 percent
Dollar amount of subprime loans outstanding: $1.3 trillion
Dollar amount of subprime loans outstanding in 2003: $332 billion
Percentage increase from 2003: 292%
Number of subprime mortgages made in 2005-2006 projected to end in foreclosure: 1 in 5
Families with a subprime loan made from 1998 through 2006 who have or will lose their home to foreclosure in the next few years: 2.2 million
Projected maximum equity that will be lost through foreclosure by families holding subprime mortgages: $164 billion
Proportion of subprime mortgages made from 2004 to 2006 that come with “exploding” adjustable interest rates: 89-93%
Proportion approved without fully documented income: 43-50%
Proportion with no escrow for taxes and insurance: 75%
Proportion of subprime loans bundled into mortgage-backed securities made to speculators (those who own but don’t occupy a home) in 2006: 5%
Difference in delinquency rates between speculators and owner-occupants: 0.1 percentage points, or virtually no difference
Difference in delinquency rates between subprime adjustable-rate and fixed-rate mortgages: 14.7 percentage points
Proportion of completed foreclosures attributable to speculators among all adjustable rate loans made in 2006 and bundled in subprime mortgage backed securities: 7%
Proportion of completed foreclosures attributable to adjustable rate loans out of all loans made in 2006 and bundled in subprime mortgage backed securities: 93%
Percentage increase of interest rate on an “exploding” ARM resetting to 12% from 7%: 70%
Typical increase in monthly payment (3rd yr): 30% to 50%
Number of subprime mortgages set for an interest-rate reset in 2007 and 2008: 1.8 million, valued at: $450 billion
Proportion of 2006 home loans to African American families that were subprime: 52.44%
Proportion of 2006 home loans to Hispanic and Latino families that were subprime: 40.66%
Proportion of 2006 home loans to white non-Hispanic families that were subprime: 22.20%

Subprime vs. Prime Loans

Subprime share of all mortgage originations in 2006: 28%
Subprime share of all mortgage origination in 2003: 8%
Subprime share of all home loans outstanding: 14%
Subprime share of foreclosure filings in the 12 months ending June 30, 2007: 64%
Year-over-year increase in foreclosure filings on subprime loans with adjustable rates (2nd quarter 2006 to 2007): 90%
Increase in foreclosure files on prime fixed-rate loans during the same period: 23%
Proportion of subprime mortgages with prepayment penalties: 70%
Proportion of prime mortgages with prepayment penalties: 2%
Estimated proportion of subprime loans made by independent mortgage lenders not affiliated with a federally insured bank

• In 2004 51%
• In 2005 52%
• In 2006 46%

The negative effects of subprime foreclosures are spreading.

• Nearly 45 million homes NOT facing foreclosure will decline in value by an
  estimated $223 billion, with most of the decline hitting in 2008 and 2009, as
  subprime foreclosures lower the prices of surrounding homes.
• Because of property devaluations caused by subprime foreclosures, 24 states and 42 counties will lose over $1 billion each in local house prices and tax bases.
• More than 90 subprime mortgage lenders have gone out of business as of July.
• Up to half of the 450,000 families whose subprime adjustable rate mortgages will reset in the next three months will lose their home in foreclosure.
• Foreclosures cost lenders an estimated $50,000 per home in processing fees, liquidation-sale price cuts and other costs. “In 2003 this translated into approximately $25 billion in foreclosure-related costs for lenders alone---well before the 2006 foreclosure spike.”

The Rag Blog

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