C-JThe size of the award is obviously large, what bothers me most is who stole their money? Will the perps be prosecuted for using Indian Trust funds for their own personal profit? C-J
By Ashby Jones
Associated Press
Elouise Cobell, the lead plaintiff, with Interior Secretary Ken Salazar on Tuesday. Attorney General Eric Holder is at right. Photo: Manuel Balce Ceneta/Associated Press. Federal Indian law — or the law pertaining to the land and other holdings owned by Native Americans — isn’t a typical area of coverage for us. But when a lawsuit between Native American and the U.S. government settles for $3.4 billion, well, we sit up and take serious notice.
The federal government announced on Tuesday that it intends to pay that sum to settle claims that it has mismanaged the revenue in American Indian trust funds. According to the NYT’s account, the settlement could end one of the largest and most complicated class-action lawsuits ever brought against the United States.
According to the NYT story, the Interior Department manages about 56 million acres of Indian trust land scattered across the country. The government handles leases on the land for mining, livestock grazing, timber harvesting and drilling for oil and gas. It then distributes the revenue raised by those leases to the American Indians. In the 2009 fiscal year, it collected about $298 million for more than 384,000 individual Indian accounts.
The lawsuit accuses the federal government of mismanaging that money. As a result, the Indians contend that they are owed far more than what they have been paid.
Under the settlement, the government would pay to compensate the Indians for their claims of historical accounting irregularities and any accusation that federal officials mismanaged the administration of the land itself over the years.
The lawsuit may not have been this long-running, but it did span three presidencies, generate 22 published judicial opinions, and went before a federal appeals court 10 times.
Elouise Cobell, the lead plaintiff who filed the class-action lawsuit in 1996, said she believed that the Indians were owed more, but that it was better to reach an agreement that could help impoverished trust holders than to spend more years in court. She said she had originally expected the litigation to last only two or three years.
“We are compelled to settle by the sobering realization that our class grows smaller each day as our elders die and are forever prevented from receiving just compensation,“ Cobell said.
Attorney General Eric Holder on Tuesday said: “The United States could have continued to litigate this case, at great expense to the taxpayers. It could have let all of these claims linger, and could even have let the problem of fractionated land continue to grow with each generation. But with this settlement, we are erasing these past liabilities and getting on track to eliminate them going forward.”
Friday, December 11, 2009
Tuesday, December 8, 2009
Monday, December 7, 2009
Making Home Affordable Program… Treasury Finally Admits IT’S A DUD!
From Mandelman Matters
Posted: 06 Dec 2009 05:27 AM PST
Here’s what The New York Times said today about Treasury’s response to the news about the Making Home Affordable Program:
“AFTER months of playing pretend, the Treasury Department conceded last week that the Home Affordable Modification Program, its plan to aid troubled homeowners by changing the terms of their mortgages, was a dud. The 10-month-old program is going nowhere, the Treasury said, because big institutions charged with implementing it are dragging their feet.”
Gee, now there’s some breaking news for you… these guys at the Times, they’re true investigative news hounds, aren’t they? Next week I’m hoping to learn who won the Presidential Election in 2008.
Oh, and by the way, Treasury is nowhere near finished “playing pretend,” as the Times put it. Geithner is the best pretend player in the pretend business. He’s got all the banks pretending they’re solvent and profitable. He’s got them pretending they haven’t lost a dime on commercial property and that the homes they’ve foreclosed on but haven’t sold are still worth what they were when they were purchased or last refinanced.
The only problem is that all this pretending makes the banks look like they’re having a fabulous year, and so the $91 billion the banks have set aside to pay out in bonuses in just a few weeks is not being paid in pretend dollars. I wonder if I can pretend to pay my taxes next year.
The Times story then continued:
“After the government spent hundreds of billions of dollars bailing out banks, the Obama administration rolled out the $75 billion loan modification plan to show its support for beleaguered homeowners. But if the proof of the pudding is in the eating, homeowners are going hungry.”
Is that why Obama rolled out the Making Home Affordable plan? To show his support for the beleaguered homeowners? That’s fascinating. And here I had thought he rolled it out because if he didn’t all the banks would implode as prices continued to fall until everyone just started walking away, leaving the country in a depression and turning his presidency into something that would make G.W. Bush’s presidency look like FDR, Reagan, Kennedy and Clinton all rolled into one. I thought he might have done it because the people that put up the money to bail out the banks that caused this crisis are the same ones watching their homes dive off a cliff in terms of their value. No? Okay then, never mind.
The Times story then went on to point out the obvious:
“A stalled loan modification plan might not be worrisome if the foreclosure crisis were abating. Yet at the end of September, a record 14.4 percent of borrowers were either in foreclosure or delinquent on their mortgages, the Mortgage Bankers Association reported.”
Yes, I suppose that is true. If foreclosures weren’t the biggest problem in the country right now, a stalled loan modification program might be less worrisome. Thank you New York Times for pointing that out. I don’t know what I would have done with out you.
And they went on to say:
“It’s time for the government to acknowledge the flaws in its program and create one that might actually succeed. Only then will the supply of homes for sale, and the pressure on prices associated with that overhang, be reduced.”
Ya’ think? Oh what the heck, we’ve spent the last several years listening to the government not acknowledge much of anything in the way of “flaws,” so what the heck, I suppose it is time.
Personally, since my home has dropped in value by 45% over the last two years, from $900,000 to $500,000, I would have voted yes on the whole “create one that might actually succeed,” thing a tad sooner. Like maybe last year would have been nice. No problem, though… I understand that Obama’s been busy ending the Iraq War, closing Guantanamo Bay, creating millions of jobs, fixing health care, and ending the Don’t Ask, Don’t Tell policy in the military… oh yeah, and bringing home the Olympics for Chicago, don’t want to forget that major victory.
Okay, I don’t want to just sit here being sarcastic about what a monumental mess this whole rescue housing thing has been. Well, I’m not saying that it’s not fun, it is. But, I’d much prefer the government to get something right as related to housing. Just one thing would be nice.
The article talked about re-default rates being too high, which is no surprise when you consider the deflationary collapse we’ve been in for the last couple of years. But the article also pointed out another possible cause of the higher re-default rates:
“The terms of loan modifications also make them especially failure-prone because the government calculates “affordability” (how much mortgage debt a borrower can actually manage) in a highly unusual way — raising serious questions for the housing market over all and for the program’s effectiveness for borrowers.
For example, in devising what it considers an affordable mortgage payment, the program doesn’t account for all of a borrower’s debts — the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower’s first mortgage payment, insurance and property taxes.
As a result, what may look like an affordable mortgage payment under the Treasury plan quickly becomes onerous when other debt is added. While the government may ignore a borrower’s second lien and revolving credit obligations, you can be sure the creditors that extended those loans will not. Re-defaults seem a likely result.”
Look, if I’m the only one who’s thinking what I’m about to say, would someone please email me so I can have someone put myself out of my misery? Just wait until I’m looking the other way, and smash me in the back of my head with a shovel. If you cared about me at all, you’d do it.
So, the government calculates affordability by not considering anything but the house payment, insurance and property taxes? And the Times finds this to be “highly unusual”? “Highly unusual”? And I suppose I’d be out of line here to suggest that a better phrase might be “incredibly stupid”? I’m sure. I know what you guys think… Mandelman Matters… he’s so sarcastic… he’s funny… I got such a laugh… well… check yourself, because that’s not funny and the fact that you’re not in a tearful rage and gassing up to stand in front of the White House and scream is monumentally sad. Highly unusual, my Aunt Fannie.
The Times story also discussed negative equity as being a leading cause of foreclosures. This is a view that is gaining momentum of late, and I find that both interesting and terribly important. From the very first article that I wrote on this topic, almost two years ago, I used the phrase “foreclosures breed foreclosures,” as a way to try to convey that once the dominoes start falling in the wrong direction, they feed on each other until one foreclosure becomes the proximate cause of the next.
The government, however, began by seeing the foreclosures as being caused by irresponsible sub-prime borrowers taking on too much debt as a result of lax, or even nonexistent lending standards. After a while, the word causing foreclosures was unemployment. Now… finally… our government is recognizing that it may just be negative equity that is driving the volume of foreclosures that much higher. It may have something to do with a recent study conducted at the Kellog School of Management that showed 17% of borrowers will walk away from their mortgages when they’re 45%+ underwater.
Whether negative equity or unemployment is the primary driver of today’s increasing number of foreclosures isn’t important, at least not to me. What is important is that we all come to understand that none of us is immune from being seriously harmed by the ongoing crisis in the housing market, and to the extent that it is allowed to continue to spread, there will be precious few among us that won’t look back and wish we had done more sooner.
As a nation, we don’t want to modify mortgages for the benefit of those in foreclosure, we need to modify mortgages for the benefit of those not yet in foreclosure. Or in other words, don’t modify my neighbor’s mortgage to help my neighbor, modify it to help me.
It helps to consider that mortgage modifications often are not in the best interest of the borrower, especially when the property in question is underwater by a lot. It’s easy to see that when you look at a guy with a $500,000 on a house worth $250,000. Lowering that guy’s interest rate a couple of points for five years and extending the loan out to 40 years… is not for his benefit from a financial perspective.
If you wanted to do something to benefit that borrower, tell him to stop making his payments, live in the house rent-free for as long as possible, and then hand the bank the keys and go rent a beautiful home for a couple of years, at half the amount owed now. That’s what would be in the best interests of the homeowner, not a modification in many instances.
Then there’s the issue of second mortgages and HELOCs. But, the Times story points out:
“Unfortunately, there is a $442 billion reason that wiping out second liens is not high on the government’s agenda: that is the amount of second mortgages and home equity lines of credit on the balance sheets of Bank of America, Wells Fargo, JPMorgan Chase and Citigroup.”
There are messy conflicts between banks or investors when one holds the first and another the second. But the Times story quotes the head of mortgage strategy at Amherst Securities Group, Laurie Goodman, and what she had to say on the topic of principal reductions.
“AN interesting data point: when banks do own all the mortgages on a property they seem to see the merit in principal reduction modifications. Studying second-quarter government data, the most recent available, Ms. Goodman found that when banks owned the loans, 30.5 percent of modifications reduced principal balances. When they service someone else’s loan or hold a second lien on the property, they rarely allow principal reductions.”
Good to know Ms. Goodman, I appreciate that and will look for it from now on.
Perhaps predictably, the Times story does wrap up with a brief paragraph on the perceived “moral hazard,” asking the question, “Why should someone who borrowed too much be given a reduction the amount owed, while someone else who did not act irresponsibly isn’t granted a modification?” To give you an idea of how things have changed, here’s how the story in the Times responded to the “moral hazard” point of view.
“But doing nothing also has hazards, the most obvious being continuing foreclosures, which nobody wants, and further declines in real estate prices that will hurt homeowners as well as investors.”
And, I would like to echo… CAUSE EVEN MORE FORECLOSURES, which ultimately will bankrupt the banks completely, to the point that there won’t be enough money on the planet to paper over the problem.
So, maybe the New York Times has been a tad slow catching on, but now that they’ve started the ball rolling in this regard, perhaps we’re that much closer to solving the problem.
Personally, I think it’s past time for Mr. Geithner to realize that he can’t pretend us into a recovery, and if he doesn’t soon show an understanding of that, then it’s time for the country to stop pretending and put someone into the job of Treasury Secretary that’s a realist… and will really fix what the investment bankers have destroyed.
Oh, and one more thing… sooner would be better than later.
Posted: 06 Dec 2009 05:27 AM PST
Here’s what The New York Times said today about Treasury’s response to the news about the Making Home Affordable Program:
“AFTER months of playing pretend, the Treasury Department conceded last week that the Home Affordable Modification Program, its plan to aid troubled homeowners by changing the terms of their mortgages, was a dud. The 10-month-old program is going nowhere, the Treasury said, because big institutions charged with implementing it are dragging their feet.”
Gee, now there’s some breaking news for you… these guys at the Times, they’re true investigative news hounds, aren’t they? Next week I’m hoping to learn who won the Presidential Election in 2008.
Oh, and by the way, Treasury is nowhere near finished “playing pretend,” as the Times put it. Geithner is the best pretend player in the pretend business. He’s got all the banks pretending they’re solvent and profitable. He’s got them pretending they haven’t lost a dime on commercial property and that the homes they’ve foreclosed on but haven’t sold are still worth what they were when they were purchased or last refinanced.
The only problem is that all this pretending makes the banks look like they’re having a fabulous year, and so the $91 billion the banks have set aside to pay out in bonuses in just a few weeks is not being paid in pretend dollars. I wonder if I can pretend to pay my taxes next year.
The Times story then continued:
“After the government spent hundreds of billions of dollars bailing out banks, the Obama administration rolled out the $75 billion loan modification plan to show its support for beleaguered homeowners. But if the proof of the pudding is in the eating, homeowners are going hungry.”
Is that why Obama rolled out the Making Home Affordable plan? To show his support for the beleaguered homeowners? That’s fascinating. And here I had thought he rolled it out because if he didn’t all the banks would implode as prices continued to fall until everyone just started walking away, leaving the country in a depression and turning his presidency into something that would make G.W. Bush’s presidency look like FDR, Reagan, Kennedy and Clinton all rolled into one. I thought he might have done it because the people that put up the money to bail out the banks that caused this crisis are the same ones watching their homes dive off a cliff in terms of their value. No? Okay then, never mind.
The Times story then went on to point out the obvious:
“A stalled loan modification plan might not be worrisome if the foreclosure crisis were abating. Yet at the end of September, a record 14.4 percent of borrowers were either in foreclosure or delinquent on their mortgages, the Mortgage Bankers Association reported.”
Yes, I suppose that is true. If foreclosures weren’t the biggest problem in the country right now, a stalled loan modification program might be less worrisome. Thank you New York Times for pointing that out. I don’t know what I would have done with out you.
And they went on to say:
“It’s time for the government to acknowledge the flaws in its program and create one that might actually succeed. Only then will the supply of homes for sale, and the pressure on prices associated with that overhang, be reduced.”
Ya’ think? Oh what the heck, we’ve spent the last several years listening to the government not acknowledge much of anything in the way of “flaws,” so what the heck, I suppose it is time.
Personally, since my home has dropped in value by 45% over the last two years, from $900,000 to $500,000, I would have voted yes on the whole “create one that might actually succeed,” thing a tad sooner. Like maybe last year would have been nice. No problem, though… I understand that Obama’s been busy ending the Iraq War, closing Guantanamo Bay, creating millions of jobs, fixing health care, and ending the Don’t Ask, Don’t Tell policy in the military… oh yeah, and bringing home the Olympics for Chicago, don’t want to forget that major victory.
Okay, I don’t want to just sit here being sarcastic about what a monumental mess this whole rescue housing thing has been. Well, I’m not saying that it’s not fun, it is. But, I’d much prefer the government to get something right as related to housing. Just one thing would be nice.
The article talked about re-default rates being too high, which is no surprise when you consider the deflationary collapse we’ve been in for the last couple of years. But the article also pointed out another possible cause of the higher re-default rates:
“The terms of loan modifications also make them especially failure-prone because the government calculates “affordability” (how much mortgage debt a borrower can actually manage) in a highly unusual way — raising serious questions for the housing market over all and for the program’s effectiveness for borrowers.
For example, in devising what it considers an affordable mortgage payment, the program doesn’t account for all of a borrower’s debts — the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower’s first mortgage payment, insurance and property taxes.
As a result, what may look like an affordable mortgage payment under the Treasury plan quickly becomes onerous when other debt is added. While the government may ignore a borrower’s second lien and revolving credit obligations, you can be sure the creditors that extended those loans will not. Re-defaults seem a likely result.”
Look, if I’m the only one who’s thinking what I’m about to say, would someone please email me so I can have someone put myself out of my misery? Just wait until I’m looking the other way, and smash me in the back of my head with a shovel. If you cared about me at all, you’d do it.
So, the government calculates affordability by not considering anything but the house payment, insurance and property taxes? And the Times finds this to be “highly unusual”? “Highly unusual”? And I suppose I’d be out of line here to suggest that a better phrase might be “incredibly stupid”? I’m sure. I know what you guys think… Mandelman Matters… he’s so sarcastic… he’s funny… I got such a laugh… well… check yourself, because that’s not funny and the fact that you’re not in a tearful rage and gassing up to stand in front of the White House and scream is monumentally sad. Highly unusual, my Aunt Fannie.
The Times story also discussed negative equity as being a leading cause of foreclosures. This is a view that is gaining momentum of late, and I find that both interesting and terribly important. From the very first article that I wrote on this topic, almost two years ago, I used the phrase “foreclosures breed foreclosures,” as a way to try to convey that once the dominoes start falling in the wrong direction, they feed on each other until one foreclosure becomes the proximate cause of the next.
The government, however, began by seeing the foreclosures as being caused by irresponsible sub-prime borrowers taking on too much debt as a result of lax, or even nonexistent lending standards. After a while, the word causing foreclosures was unemployment. Now… finally… our government is recognizing that it may just be negative equity that is driving the volume of foreclosures that much higher. It may have something to do with a recent study conducted at the Kellog School of Management that showed 17% of borrowers will walk away from their mortgages when they’re 45%+ underwater.
Whether negative equity or unemployment is the primary driver of today’s increasing number of foreclosures isn’t important, at least not to me. What is important is that we all come to understand that none of us is immune from being seriously harmed by the ongoing crisis in the housing market, and to the extent that it is allowed to continue to spread, there will be precious few among us that won’t look back and wish we had done more sooner.
As a nation, we don’t want to modify mortgages for the benefit of those in foreclosure, we need to modify mortgages for the benefit of those not yet in foreclosure. Or in other words, don’t modify my neighbor’s mortgage to help my neighbor, modify it to help me.
It helps to consider that mortgage modifications often are not in the best interest of the borrower, especially when the property in question is underwater by a lot. It’s easy to see that when you look at a guy with a $500,000 on a house worth $250,000. Lowering that guy’s interest rate a couple of points for five years and extending the loan out to 40 years… is not for his benefit from a financial perspective.
If you wanted to do something to benefit that borrower, tell him to stop making his payments, live in the house rent-free for as long as possible, and then hand the bank the keys and go rent a beautiful home for a couple of years, at half the amount owed now. That’s what would be in the best interests of the homeowner, not a modification in many instances.
Then there’s the issue of second mortgages and HELOCs. But, the Times story points out:
“Unfortunately, there is a $442 billion reason that wiping out second liens is not high on the government’s agenda: that is the amount of second mortgages and home equity lines of credit on the balance sheets of Bank of America, Wells Fargo, JPMorgan Chase and Citigroup.”
There are messy conflicts between banks or investors when one holds the first and another the second. But the Times story quotes the head of mortgage strategy at Amherst Securities Group, Laurie Goodman, and what she had to say on the topic of principal reductions.
“AN interesting data point: when banks do own all the mortgages on a property they seem to see the merit in principal reduction modifications. Studying second-quarter government data, the most recent available, Ms. Goodman found that when banks owned the loans, 30.5 percent of modifications reduced principal balances. When they service someone else’s loan or hold a second lien on the property, they rarely allow principal reductions.”
Good to know Ms. Goodman, I appreciate that and will look for it from now on.
Perhaps predictably, the Times story does wrap up with a brief paragraph on the perceived “moral hazard,” asking the question, “Why should someone who borrowed too much be given a reduction the amount owed, while someone else who did not act irresponsibly isn’t granted a modification?” To give you an idea of how things have changed, here’s how the story in the Times responded to the “moral hazard” point of view.
“But doing nothing also has hazards, the most obvious being continuing foreclosures, which nobody wants, and further declines in real estate prices that will hurt homeowners as well as investors.”
And, I would like to echo… CAUSE EVEN MORE FORECLOSURES, which ultimately will bankrupt the banks completely, to the point that there won’t be enough money on the planet to paper over the problem.
So, maybe the New York Times has been a tad slow catching on, but now that they’ve started the ball rolling in this regard, perhaps we’re that much closer to solving the problem.
Personally, I think it’s past time for Mr. Geithner to realize that he can’t pretend us into a recovery, and if he doesn’t soon show an understanding of that, then it’s time for the country to stop pretending and put someone into the job of Treasury Secretary that’s a realist… and will really fix what the investment bankers have destroyed.
Oh, and one more thing… sooner would be better than later.
Friday, December 4, 2009
This Little-Known Rule Could Send Gold to $10,000
By Porter Stansberry
Dec 2 2009 9:10AM
www.dailywealth.com
It's one of those numbers that's so unbelievable you have to actually think about it for a while...
Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.
Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?
How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."
What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.
When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.
The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money-management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."
The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default.
The U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.
According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.
Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.
So... where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP.
Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or Russian central banks, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.
So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.
One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None owns even 1% of its total reserves in gold.
I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory. Coincidentally, the New York Times repeated my warnings – nearly word for word – a few weeks ago. They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.
My readers know that Greenspan-Guidotti means the U.S. is likely to have a severe currency crisis within the next two years. How high will gold go during this crisis? Nobody can say for sure. We've never been in the situation we are now. The numbers have never been so large and dangerous. But I wouldn't be surprised at all to see gold at $10,000 an ounce by 2012. Make sure you own some.
Good investing,
Porter Stansberry
Dec 2 2009 9:10AM
www.dailywealth.com
It's one of those numbers that's so unbelievable you have to actually think about it for a while...
Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion.
Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from?
How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. As they say on Wall Street, "a rolling debt collects no moss."
What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt... at ever shorter durations... at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.
When governments go bankrupt, it's called a "default." Currency speculators figured out how to accurately predict when a country would default. Two well-known economists – Alan Greenspan and Pablo Guidotti – published the secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule.
The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world's largest money-management firm, PIMCO, explains the rule this way: "The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support."
The principle behind the rule is simple. If you can't pay off all of your foreign debts in the next 12 months, you're a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
So how does America rank on the Greenspan-Guidotti scale? It's a guaranteed default.
The U.S. holds gold, oil, and foreign currency in reserve. It has 8,133.5 metric tonnes of gold (it is the world's largest holder). At current dollar values, it's worth around $300 billion. The U.S. strategic petroleum reserve shows a current total position of 725 million barrels. At current dollar prices, that's roughly $58 billion worth of oil. And according to the IMF, the U.S. has $136 billion in foreign currency reserves. So altogether... that's around $500 billion of reserves. Our short-term foreign debts are far bigger.
According to the U.S. Treasury, $2 trillion worth of debt will mature in the next 12 months. So looking only at short-term debt, we know the Treasury will have to finance at least $2 trillion worth of maturing debt in the next 12 months. That might not cause a crisis if we were still funding our national debt internally. But since 1985, we've been a net debtor to the world. Today, foreigners own 44% of all our debts, which means we owe foreign creditors at least $880 billion in the next 12 months – an amount far larger than our reserves.
Keep in mind, this only covers our existing debts. The Office of Management and Budget is predicting a $1.5 trillion budget deficit over the next year. That puts our total funding requirements on the order of $3.5 trillion over the next 12 months.
So... where will the money come from? Total domestic savings in the U.S. are only around $600 billion annually. Even if we all put every penny of our savings into U.S. Treasury debt, we're still going to come up nearly $3 trillion short. That's an annual funding requirement equal to roughly 40% of GDP.
Where is the money going to come from? From our foreign creditors? Not according to Greenspan-Guidotti. And not according to the Indian or Russian central banks, which have stopped buying Treasury bills and begun to buy enormous amounts of gold. The Indians bought 200 metric tonnes this month. Sources in Russia say the central bank there will double its gold reserves.
So where will the money come from? The printing press. The Federal Reserve has already monetized nearly $2 trillion worth of Treasury debt and mortgage debt. This weakens the value of the dollar and devalues our existing Treasury bonds. Sooner or later, our creditors will face a stark choice: Hold our bonds and continue to see the value diminish slowly, or try to escape to gold and see the value of their U.S. bonds plummet.
One thing they're not going to do is buy more of our debt. Which central banks will abandon the dollar next? Brazil, Korea, and Chile. These are the three largest central banks that own the least amount of gold. None owns even 1% of its total reserves in gold.
I examined these issues in much greater detail in the most recent issue of my newsletter, Porter Stansberry's Investment Advisory. Coincidentally, the New York Times repeated my warnings – nearly word for word – a few weeks ago. They didn't mention Greenspan-Guidotti, however... It's a real secret of international speculators.
My readers know that Greenspan-Guidotti means the U.S. is likely to have a severe currency crisis within the next two years. How high will gold go during this crisis? Nobody can say for sure. We've never been in the situation we are now. The numbers have never been so large and dangerous. But I wouldn't be surprised at all to see gold at $10,000 an ounce by 2012. Make sure you own some.
Good investing,
Porter Stansberry
Real Estate Appraiser sued because roof leaks 9 years later.
Claim of the Week -- Roof Leaks 9 Years After Appraisal
By Peter Christensen
We see many frivolous claims against appraisers. No matter how accurate or careful an appraiser may be, these sorts of claims will be filed anyway.
This particular claim relates to an appraisal for a purchase loan on a single family house in a mid-western state. The home was appraised for the lender at about $60,000. The homeowner has sent a demand letter to the appraiser demanding that the appraiser pay the homeowner about $9,000 to replace the roof and remove a tree that is causing damage to the roof. The homeowner alleges the roof recently started leaking and that the appraiser should have identified this condition in the appraisal report. Here's what makes the claim standout: the appraisal was done in 2000, 9 years and countless windstorms ago. So, here we have a non-client, non-intended user complaining about a roof that started leaking 9 years after the appraisal, a report which clearly stated that the appraiser was not a home inspector and that the report was prepared for the purpose of the mortgage transaction only.
By Peter Christensen
We see many frivolous claims against appraisers. No matter how accurate or careful an appraiser may be, these sorts of claims will be filed anyway.
This particular claim relates to an appraisal for a purchase loan on a single family house in a mid-western state. The home was appraised for the lender at about $60,000. The homeowner has sent a demand letter to the appraiser demanding that the appraiser pay the homeowner about $9,000 to replace the roof and remove a tree that is causing damage to the roof. The homeowner alleges the roof recently started leaking and that the appraiser should have identified this condition in the appraisal report. Here's what makes the claim standout: the appraisal was done in 2000, 9 years and countless windstorms ago. So, here we have a non-client, non-intended user complaining about a roof that started leaking 9 years after the appraisal, a report which clearly stated that the appraiser was not a home inspector and that the report was prepared for the purpose of the mortgage transaction only.
Thursday, December 3, 2009
The Most Important Supreme Court Decision for Homeowners and Our Economy In Decades
Originally posted by Mandelman Matters Blog.
http://mandelman.ml-implode.com/author/mandelman/
Cuomo v. Clearing House
There are some things that every single US citizen should know…
Preface
In 2003, the Office of the Comptroller of the Currency (“OCC”), proposed a regulation that would preempt essentially all state banking and financial services laws as applied to national banks and their operating subsidiaries. In other words, if a state’s governor, legislature or Attorney General didn’t like the way a bank was operating for whatever reason… tough cheese… not much could be done about it. The regulation meant that only federal agencies could do much of anything as far as the national banks were concerned.
The regulation was opposed by the National Conference of State Legislatures, which is an organization that’s supposed to make sure that state legislatures have a strong and cohesive voice in the federal system, but in this instance that “strong and cohesive” voice must have lacked strength and/or cohesiveness, because in 2004, the OCC got its way and their proposed regulation went into effect.
But that’s no way to start telling a story…
Our story begins in New York, way back in 2005…. the good old days, as it were… when, for the first time ever, the Federal Reserve released home mortgage data that included information on the race, sex and income of loan applicants. Well, New York’s then-Attorney General, Elliot Spitzer, apparently perused the Fed’s data and noticed that if a person had a high interest (read: sub-prime) mortgage, the odds were quite good that he or she was a minority.
In other words, Elliot got the idea in his head that maybe… just maybe, the banks were taking unfair advantage of inner city lower income types by forcing them into lousy loans just because they could. Crazy, I know. Where in the world would he get a wild-ass idea like that, do you suppose? Oh that’s right, from the Federal Reserve’s published data, I forgot. Anyway, Spitzer decided he’d better take a closer look into the lending practices of national banks.
Spitzer claimed authority to conduct his investigation under federal and state anti-discrimination and consumer protection laws, and sent “letters of inquiry” to the banks asking for information related to their lending practices.
Now, here’s where it starts to get weird…
In response to Spitzer’s “letter of inquiry,” the Clearing House Association (“CHA”), which can be described as a “consortium,” (or perhaps “cabal” is a better word) of national banks,” filed a lawsuit against Spitzer, asking the court to issue an injunction stopping Spitzer from issuing any subpoenas in his investigation. Not to be left out, the OCC brought a similar action and the two suits were combined into one. Obviously, somebody didn’t want the AG of NY looking at any bank lending practices.
In The National Bank Act it states: “No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof.”
The courts agreed with the position taken by the CHA and OCC, issuing a permanent injunction against Attorney General Spitzer that prevented him from issuing any subpoenas or demanding an inspection of any national banks’ records. The New York Attorney General was not going to be allowed to take a closer look at any of the bank’s lending practices. The court held that the phrase “visitorial powers” is ambiguous, but that the OCC’s interpretation of the phrase, in that it preempted the states from enforcing state laws on national banks, was reasonable and therefore entitled to something called “Chevron deference”.
“Chevron deference” is not a new fuel additive that keeps your car’s engine clean. The term does, however, come from a U.S. Supreme Court decision involving the oil and gas company, Chevron.
Chevron deference is considered a doctrine of administrative law. It states that when a law is judged to be ambiguous, but it falls within the subject matter jurisdiction of a federal agency, then as long as the agency’s interpretation is considered reasonable, then it’s the final word on the subject. In other words, when no one can agree what a law means, and you let a federal agency decide the answer, it’s known as “Chevron deference”.
Spitzer was never one to be easily dissuaded; he appealed the decision, but lost again. And that was the end of Elliot’s go at the national banks.
Then, in 2007, a Supreme Court decision again confirmed OCC’s preemption of state laws and regulations as related to banks, when the court ruled that Wachovia Mortgage Corporation, which was a wholly owned subsidiary of Wachovia Bank, was not subject to regulation by the Michigan Office of Insurance and Financial Services.
Still with me? Hang in there… it’ll be worth it.
Cuomo v. Clearing House: This Changes Everything
Fast forward to 2009, New York’s Attorney General is now Andrew Cuomo and he’s decided to pick up where Elliot left off when he was rudely interrupted spending money on a hooker. AG Cuomo basically argued that the OCC’s interpretation so significantly altered the balance of power between state and federal governments, that it required a clear statement by Congress. He even questioned whether “visitorial powers” were involved in his actions. All he wanted to do was enforce state laws.
Cuomo also argued that the OCC’s interpretation made national banks immune from any state enforcement of consumer protection and/or antidiscrimination laws. He said that because the OCC doesn’t have the ability and expertise to emulate the roles of state attorneys general, it should not be permitted to preempt the states’ traditional role, protecting consumers’ interests.
It’s the Supreme Court we’re talking about here, so there was a fair amount of arguing back and forth, but to make a long story at least somewhat shorter, the bottom-line is that he won… Cuomo did it! The Supreme Court finally overturned their previous decisions on the OCC interpretation and as of this past June 28th ruled 5-4 that federal banking regulations did not preempt the ability of states to enforce their own fair-lending laws.
In reaching that decision, the court opened up the national banks to being investigated by state attorneys general related to violations having to do with state consumer protection laws. At that moment, the bankers knew, as the song says, that they had trouble… right here in River City.
And that, ladies and germs, is why you’ve got to love the good old judicial branch, with their lifetime appointments. It may not sound like much, but at least we know that there are five people with power in our government that don’t concern themselves with the banking lobby’s highly influential and well-funded influence peddlers.
State Attorneys General Start Your Engines…
Although the media has only recently started to catch on, the impact of the court’s decision was immediately understood by state Attorneys General across the country, many of whom have already started assigning their staffs to the exploration of how their new-found power might be used. Unquestionably, their first stop is the foreclosure crisis, although future efforts are likely to include other lending related issues such as credit cards, and the like.
Arizona’s AG, Terry Goddard, is one of the attorneys general leading the pack. Arizona continues to be one of the states hardest hit by foreclosures, and Goddard has had enough with the lip service of lenders and servicers. Foreclosures across his state now consistently exceed 7,000 a month.
Lenders and servicers have been asking Goddard to encourage homeowners to contact them directly, so that’s exactly what he’s done to-date. But the homeowners that try to contact their banks, just end up calling the AG back, basically saying they’d likely have more success obtaining a loan modification by calling a cactus.
According to a recent story in The New York Times, Goddard said: “People call and get the runaround. Their paperwork gets lost. It’s time to stop this absurd dance.”
The Times’ story quotes Goddard as saying that he and other AGs have tried to be persuasive with the lenders and servicers in an effort to get them to be a meaningful part of a solution to the crisis that they had such a large role in creating. But Goddard says: “… their waterfall of excuses, the abysmal numbers of modifications, tells us that persuasion is not working. As a result, we’re moving much closer to litigation.”
Goddard and his peers in other states are considering lawsuits accusing the banks of creating and marketing millions of bad loans, and failing to fulfill their promises related to loan modifications. Such lawsuits would have been impossible prior to June’s Supreme Court decision in Cuomo v. The Clearing House.
Every state has laws that prohibit fraud in consumer lending, and states are now exploring the idea of litigation alleging that the banks engaged in massive fraud against consumers by marketing unintelligible loans that they knew would be impossible for most people to repay. Banks did so to earn what added up to billions in short-term fee income from originating the loans, and then quickly sold the loans to government entities, like Fannie and Freddie, who then required costly taxpayer funded bailouts.
Cranky Bankers…
The banks and their powerful lobbies, it should go without saying, are none too pleased with the recent developments inspired by the Supreme Court’s decision. The Mortgage Bankers Association, one of those lobbies, declined to comment on the situation when asked by The New York Times, but spokesperson John Mechem had the unmitigated audacity to warn… or rather, threaten that consumers would be the ones that end up paying for any increased legal activity.
As quoted by the Times, Mechem said: “Lawsuits add to the patchwork of regulations that increases compliance costs to lenders, which in turn increases the cost of credit to borrowers.”
What a jackass this guy is. I mean, I don’t think I can remember hearing anyone say anything quite that offensive, since perhaps that little pocket-knife rattling moron in Iran said something about taking on the world over nuclear power. I’m not proud of what I’m about to admit, but when I read what Mechem said, all I could think of was kicking his insipid little ass all around a parking lot.
How dare you, Mr. Mechem? Who in the world do you think you are? Did you really just respond to the possibility of state lawsuits designed to right the unthinkable wrongs committed against American consumers and our society as a whole by those who write your paycheck, by saying that we better not because your guys will make us all pay? Did you think that would get us to back down and let your guys off the hook? You’re an idiot, Mechem, a real life, honest to goodness idiot.
And not only that, but did you really threaten us with increasing the cost of credit? Seriously? Seriously?
How in the world could taxpayers possibly ever pay more for the cost of credit than we’re paying NOW as a result of what the banks did over the last so many years? You mean that you’ll make us pay more than that? More than the $700 billion in TARP, and the countless TRILLIONS in free loans?
What are the banks going to do, charge 70% on credit card balances? More than 390% on hard money loans, the new limit set by the credit card reform legislation that you weakened before allowing it to pass through the legislature earlier this year? How about more than $25 for a $2.50 overdraft?
Go ahead, Mechem, go tell the bankers of this country to just try to punish us by heading down such a path, and the next time I personally borrow a nickel will be… hmmm… let’s see… perhaps when pigs fly, comes to mind, which will be roughly the same year your pals get their next zillion dollar bonus. I’d rather live in a tent under the 405 Freeway and keep my retirement savings in a Hills Brothers coffee can, then back down to your bullying threats.
The Banking Lobby Shifts Into High Gear…
Every single American should know: If the banks have anything to do with it, the American consumer’s victory won’t last long. The banks are hot and heavy lobbying Washington D.C. to make this problem go away. They want Congress to block the states from being able to take more aggressive legal action. They want Congress to preempt any state laws that are more restrictive than federal statutes.
In fact, just two weeks ago, the House Financial Services Committee voted to give the federal government the power to stop states from regulating the behavior of national banks in certain instances. The new rule says that the OCC can override the states in cases where the OCC finds that a state’s laws interfere with regulatory policies at the federal level. Not the end of the world, perhaps, but it’s sure to represent only the beginning of the bank’s efforts to dismantle any laws that attempt to level the playing field or place them at risk of being held accountable for what they’ve done or may do in the future.
When it comes to the banks, you can count on the fact that they only want to play in a game where it’s heads they win and tails we lose.
Goddard says that after the Cuomo v. Clearing House decision he had a virtual parade of bank executives coming through his offices expressing the desire to better address the 7,000 monthly foreclosures by improving the loan modification process. But, Goddard says that the bankers were unwilling or unable to provide him with any of the information he asked for, such as how many and what types of loans they have in his state.
Goddard is far from alone in his thoughts about the banks and servicers. Illinois Attorney General Lisa Madigan brought a civil rights suit against Wells Fargo. When the suit started, the Wells Fargo branches were operating under a state charter, and the bank responded to the state’s subpoena. But soon, the Illinois branches were moved and placed under control of Wells’ national bank charter and that was the end of that. Wells Fargo immediately informed the state of the change, stopped cooperating with the subpoenas, and basically said: “But thank you for playing.”
Madigan says that this sort of maneuvering has made it easy for those in the banking industry to hide misconduct and avoid prosecution for years. And Ohio’s Attorney General, Richard Cordray was quoted by the Times as saying: “For the better part of eight years, the federal regulators were not being aggressive, and at the same time we were disabled. There was nothing holding back irrational and irresponsible practices.”
Wake up, America. Or as sure as I’m writing this, defeat will be snatched from the jaws of victory…
So far this year, while most Americans have seemingly been preoccupied with other things, the banking lobby has managed to have its way with every single piece of legislation our legislature has considered or ultimately passed. The Democrats, and some Republicans, and supposedly President Obama wanted to reform the bankruptcy code to allow judges to write down mortgages on primary residences for homeowners filing bankruptcy… but the banking lobby, after spending a reported $45 million in lobbying efforts, killed the legislation… twice.
The credit card reform bill came in like a lion, but when the banking lobby was done with it, was passed into a lamb of a law. The controversial Home Valuation Code of Conduct, or HVCC, which gives the banks greater control of appraisals, and removes all the other parties to a real estate transaction from the picture, was adopted nationally without it even going though the legislative process.
H.R. 1728, which has been named the Mortgage Reform and Anti-Predatory Lending Act, neither reforms mortgages, nor does it meaningfully address what most people think of as predatory lending. Instead, this bill, which has already passed the House and is now in the Senate, limits the rules and increases the costs born by individuals when selling homes they themselves own.
And, as far as passing any legislation even remotely designed to prevent the global meltdown of our financial markets in the future by tightening up regulatory oversight of the commercial and investment banks in this country… well, we’ve done absolutely nothing in that regard. Even the creation of a new federal agency, whose purpose would be to protect consumers from the often egregious acts of banks and other financial institutions, has been moving though our legislature with the speed and grace of a wild boar moving whole, through the digestive tract of a python.
There should be no question in anyone’s mind at this point that our government is being driven by the financial oligarchy that has amassed too much legislative clout over the last thirty years of bull market. What’s in the best interests of Wall Street should no longer be seen as being in the best interests of the country as a whole. And if we don’t let our elected representatives know that we are watching and will not tolerate our elected officials blindly voting according to the wishes of the banking lobby, then our economy will not begin the recovery we’re hoping for, and frankly, we will deserve everything we collectively get.
The United States Supreme Court has decided that a state can look into and prosecute financial institutions that operate as part of our national banking system when they’re suspected of having broken the laws of that state. And that will be the law of our land, unless we say nothing, in which case I have no doubt whatsoever, that the banking lobby will persuade Congress to pass legislation that will render the court’s ruling moot and let lenders and servicers off the hook for wrong doing yet again.
It’s up to us, the voters, as we enter the coming election year, to make sure our elected representatives hear our voices loud and clear:
Vote as the banks tell you to vote and there’s not enough money in the world to get you reelected, but vote in the best interests of the people of this country, and you won’t need the banking lobby’s money to get reelected.
Iowa’s AG, Tom Miller, seemed downright thrilled with the Supreme Court’s decision, by the way. The story in the Times quoted Mr. Miller as enthusiastically saying:
“We’re back on the field. That’s really important. Certainly there will be some litigation.”
I sure hope so, Mr. Miller, I certainly do hope so.
http://mandelman.ml-implode.com/author/mandelman/
Cuomo v. Clearing House
There are some things that every single US citizen should know…
Preface
In 2003, the Office of the Comptroller of the Currency (“OCC”), proposed a regulation that would preempt essentially all state banking and financial services laws as applied to national banks and their operating subsidiaries. In other words, if a state’s governor, legislature or Attorney General didn’t like the way a bank was operating for whatever reason… tough cheese… not much could be done about it. The regulation meant that only federal agencies could do much of anything as far as the national banks were concerned.
The regulation was opposed by the National Conference of State Legislatures, which is an organization that’s supposed to make sure that state legislatures have a strong and cohesive voice in the federal system, but in this instance that “strong and cohesive” voice must have lacked strength and/or cohesiveness, because in 2004, the OCC got its way and their proposed regulation went into effect.
But that’s no way to start telling a story…
Our story begins in New York, way back in 2005…. the good old days, as it were… when, for the first time ever, the Federal Reserve released home mortgage data that included information on the race, sex and income of loan applicants. Well, New York’s then-Attorney General, Elliot Spitzer, apparently perused the Fed’s data and noticed that if a person had a high interest (read: sub-prime) mortgage, the odds were quite good that he or she was a minority.
In other words, Elliot got the idea in his head that maybe… just maybe, the banks were taking unfair advantage of inner city lower income types by forcing them into lousy loans just because they could. Crazy, I know. Where in the world would he get a wild-ass idea like that, do you suppose? Oh that’s right, from the Federal Reserve’s published data, I forgot. Anyway, Spitzer decided he’d better take a closer look into the lending practices of national banks.
Spitzer claimed authority to conduct his investigation under federal and state anti-discrimination and consumer protection laws, and sent “letters of inquiry” to the banks asking for information related to their lending practices.
Now, here’s where it starts to get weird…
In response to Spitzer’s “letter of inquiry,” the Clearing House Association (“CHA”), which can be described as a “consortium,” (or perhaps “cabal” is a better word) of national banks,” filed a lawsuit against Spitzer, asking the court to issue an injunction stopping Spitzer from issuing any subpoenas in his investigation. Not to be left out, the OCC brought a similar action and the two suits were combined into one. Obviously, somebody didn’t want the AG of NY looking at any bank lending practices.
In The National Bank Act it states: “No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof.”
The courts agreed with the position taken by the CHA and OCC, issuing a permanent injunction against Attorney General Spitzer that prevented him from issuing any subpoenas or demanding an inspection of any national banks’ records. The New York Attorney General was not going to be allowed to take a closer look at any of the bank’s lending practices. The court held that the phrase “visitorial powers” is ambiguous, but that the OCC’s interpretation of the phrase, in that it preempted the states from enforcing state laws on national banks, was reasonable and therefore entitled to something called “Chevron deference”.
“Chevron deference” is not a new fuel additive that keeps your car’s engine clean. The term does, however, come from a U.S. Supreme Court decision involving the oil and gas company, Chevron.
Chevron deference is considered a doctrine of administrative law. It states that when a law is judged to be ambiguous, but it falls within the subject matter jurisdiction of a federal agency, then as long as the agency’s interpretation is considered reasonable, then it’s the final word on the subject. In other words, when no one can agree what a law means, and you let a federal agency decide the answer, it’s known as “Chevron deference”.
Spitzer was never one to be easily dissuaded; he appealed the decision, but lost again. And that was the end of Elliot’s go at the national banks.
Then, in 2007, a Supreme Court decision again confirmed OCC’s preemption of state laws and regulations as related to banks, when the court ruled that Wachovia Mortgage Corporation, which was a wholly owned subsidiary of Wachovia Bank, was not subject to regulation by the Michigan Office of Insurance and Financial Services.
Still with me? Hang in there… it’ll be worth it.
Cuomo v. Clearing House: This Changes Everything
Fast forward to 2009, New York’s Attorney General is now Andrew Cuomo and he’s decided to pick up where Elliot left off when he was rudely interrupted spending money on a hooker. AG Cuomo basically argued that the OCC’s interpretation so significantly altered the balance of power between state and federal governments, that it required a clear statement by Congress. He even questioned whether “visitorial powers” were involved in his actions. All he wanted to do was enforce state laws.
Cuomo also argued that the OCC’s interpretation made national banks immune from any state enforcement of consumer protection and/or antidiscrimination laws. He said that because the OCC doesn’t have the ability and expertise to emulate the roles of state attorneys general, it should not be permitted to preempt the states’ traditional role, protecting consumers’ interests.
It’s the Supreme Court we’re talking about here, so there was a fair amount of arguing back and forth, but to make a long story at least somewhat shorter, the bottom-line is that he won… Cuomo did it! The Supreme Court finally overturned their previous decisions on the OCC interpretation and as of this past June 28th ruled 5-4 that federal banking regulations did not preempt the ability of states to enforce their own fair-lending laws.
In reaching that decision, the court opened up the national banks to being investigated by state attorneys general related to violations having to do with state consumer protection laws. At that moment, the bankers knew, as the song says, that they had trouble… right here in River City.
And that, ladies and germs, is why you’ve got to love the good old judicial branch, with their lifetime appointments. It may not sound like much, but at least we know that there are five people with power in our government that don’t concern themselves with the banking lobby’s highly influential and well-funded influence peddlers.
State Attorneys General Start Your Engines…
Although the media has only recently started to catch on, the impact of the court’s decision was immediately understood by state Attorneys General across the country, many of whom have already started assigning their staffs to the exploration of how their new-found power might be used. Unquestionably, their first stop is the foreclosure crisis, although future efforts are likely to include other lending related issues such as credit cards, and the like.
Arizona’s AG, Terry Goddard, is one of the attorneys general leading the pack. Arizona continues to be one of the states hardest hit by foreclosures, and Goddard has had enough with the lip service of lenders and servicers. Foreclosures across his state now consistently exceed 7,000 a month.
Lenders and servicers have been asking Goddard to encourage homeowners to contact them directly, so that’s exactly what he’s done to-date. But the homeowners that try to contact their banks, just end up calling the AG back, basically saying they’d likely have more success obtaining a loan modification by calling a cactus.
According to a recent story in The New York Times, Goddard said: “People call and get the runaround. Their paperwork gets lost. It’s time to stop this absurd dance.”
The Times’ story quotes Goddard as saying that he and other AGs have tried to be persuasive with the lenders and servicers in an effort to get them to be a meaningful part of a solution to the crisis that they had such a large role in creating. But Goddard says: “… their waterfall of excuses, the abysmal numbers of modifications, tells us that persuasion is not working. As a result, we’re moving much closer to litigation.”
Goddard and his peers in other states are considering lawsuits accusing the banks of creating and marketing millions of bad loans, and failing to fulfill their promises related to loan modifications. Such lawsuits would have been impossible prior to June’s Supreme Court decision in Cuomo v. The Clearing House.
Every state has laws that prohibit fraud in consumer lending, and states are now exploring the idea of litigation alleging that the banks engaged in massive fraud against consumers by marketing unintelligible loans that they knew would be impossible for most people to repay. Banks did so to earn what added up to billions in short-term fee income from originating the loans, and then quickly sold the loans to government entities, like Fannie and Freddie, who then required costly taxpayer funded bailouts.
Cranky Bankers…
The banks and their powerful lobbies, it should go without saying, are none too pleased with the recent developments inspired by the Supreme Court’s decision. The Mortgage Bankers Association, one of those lobbies, declined to comment on the situation when asked by The New York Times, but spokesperson John Mechem had the unmitigated audacity to warn… or rather, threaten that consumers would be the ones that end up paying for any increased legal activity.
As quoted by the Times, Mechem said: “Lawsuits add to the patchwork of regulations that increases compliance costs to lenders, which in turn increases the cost of credit to borrowers.”
What a jackass this guy is. I mean, I don’t think I can remember hearing anyone say anything quite that offensive, since perhaps that little pocket-knife rattling moron in Iran said something about taking on the world over nuclear power. I’m not proud of what I’m about to admit, but when I read what Mechem said, all I could think of was kicking his insipid little ass all around a parking lot.
How dare you, Mr. Mechem? Who in the world do you think you are? Did you really just respond to the possibility of state lawsuits designed to right the unthinkable wrongs committed against American consumers and our society as a whole by those who write your paycheck, by saying that we better not because your guys will make us all pay? Did you think that would get us to back down and let your guys off the hook? You’re an idiot, Mechem, a real life, honest to goodness idiot.
And not only that, but did you really threaten us with increasing the cost of credit? Seriously? Seriously?
How in the world could taxpayers possibly ever pay more for the cost of credit than we’re paying NOW as a result of what the banks did over the last so many years? You mean that you’ll make us pay more than that? More than the $700 billion in TARP, and the countless TRILLIONS in free loans?
What are the banks going to do, charge 70% on credit card balances? More than 390% on hard money loans, the new limit set by the credit card reform legislation that you weakened before allowing it to pass through the legislature earlier this year? How about more than $25 for a $2.50 overdraft?
Go ahead, Mechem, go tell the bankers of this country to just try to punish us by heading down such a path, and the next time I personally borrow a nickel will be… hmmm… let’s see… perhaps when pigs fly, comes to mind, which will be roughly the same year your pals get their next zillion dollar bonus. I’d rather live in a tent under the 405 Freeway and keep my retirement savings in a Hills Brothers coffee can, then back down to your bullying threats.
The Banking Lobby Shifts Into High Gear…
Every single American should know: If the banks have anything to do with it, the American consumer’s victory won’t last long. The banks are hot and heavy lobbying Washington D.C. to make this problem go away. They want Congress to block the states from being able to take more aggressive legal action. They want Congress to preempt any state laws that are more restrictive than federal statutes.
In fact, just two weeks ago, the House Financial Services Committee voted to give the federal government the power to stop states from regulating the behavior of national banks in certain instances. The new rule says that the OCC can override the states in cases where the OCC finds that a state’s laws interfere with regulatory policies at the federal level. Not the end of the world, perhaps, but it’s sure to represent only the beginning of the bank’s efforts to dismantle any laws that attempt to level the playing field or place them at risk of being held accountable for what they’ve done or may do in the future.
When it comes to the banks, you can count on the fact that they only want to play in a game where it’s heads they win and tails we lose.
Goddard says that after the Cuomo v. Clearing House decision he had a virtual parade of bank executives coming through his offices expressing the desire to better address the 7,000 monthly foreclosures by improving the loan modification process. But, Goddard says that the bankers were unwilling or unable to provide him with any of the information he asked for, such as how many and what types of loans they have in his state.
Goddard is far from alone in his thoughts about the banks and servicers. Illinois Attorney General Lisa Madigan brought a civil rights suit against Wells Fargo. When the suit started, the Wells Fargo branches were operating under a state charter, and the bank responded to the state’s subpoena. But soon, the Illinois branches were moved and placed under control of Wells’ national bank charter and that was the end of that. Wells Fargo immediately informed the state of the change, stopped cooperating with the subpoenas, and basically said: “But thank you for playing.”
Madigan says that this sort of maneuvering has made it easy for those in the banking industry to hide misconduct and avoid prosecution for years. And Ohio’s Attorney General, Richard Cordray was quoted by the Times as saying: “For the better part of eight years, the federal regulators were not being aggressive, and at the same time we were disabled. There was nothing holding back irrational and irresponsible practices.”
Wake up, America. Or as sure as I’m writing this, defeat will be snatched from the jaws of victory…
So far this year, while most Americans have seemingly been preoccupied with other things, the banking lobby has managed to have its way with every single piece of legislation our legislature has considered or ultimately passed. The Democrats, and some Republicans, and supposedly President Obama wanted to reform the bankruptcy code to allow judges to write down mortgages on primary residences for homeowners filing bankruptcy… but the banking lobby, after spending a reported $45 million in lobbying efforts, killed the legislation… twice.
The credit card reform bill came in like a lion, but when the banking lobby was done with it, was passed into a lamb of a law. The controversial Home Valuation Code of Conduct, or HVCC, which gives the banks greater control of appraisals, and removes all the other parties to a real estate transaction from the picture, was adopted nationally without it even going though the legislative process.
H.R. 1728, which has been named the Mortgage Reform and Anti-Predatory Lending Act, neither reforms mortgages, nor does it meaningfully address what most people think of as predatory lending. Instead, this bill, which has already passed the House and is now in the Senate, limits the rules and increases the costs born by individuals when selling homes they themselves own.
And, as far as passing any legislation even remotely designed to prevent the global meltdown of our financial markets in the future by tightening up regulatory oversight of the commercial and investment banks in this country… well, we’ve done absolutely nothing in that regard. Even the creation of a new federal agency, whose purpose would be to protect consumers from the often egregious acts of banks and other financial institutions, has been moving though our legislature with the speed and grace of a wild boar moving whole, through the digestive tract of a python.
There should be no question in anyone’s mind at this point that our government is being driven by the financial oligarchy that has amassed too much legislative clout over the last thirty years of bull market. What’s in the best interests of Wall Street should no longer be seen as being in the best interests of the country as a whole. And if we don’t let our elected representatives know that we are watching and will not tolerate our elected officials blindly voting according to the wishes of the banking lobby, then our economy will not begin the recovery we’re hoping for, and frankly, we will deserve everything we collectively get.
The United States Supreme Court has decided that a state can look into and prosecute financial institutions that operate as part of our national banking system when they’re suspected of having broken the laws of that state. And that will be the law of our land, unless we say nothing, in which case I have no doubt whatsoever, that the banking lobby will persuade Congress to pass legislation that will render the court’s ruling moot and let lenders and servicers off the hook for wrong doing yet again.
It’s up to us, the voters, as we enter the coming election year, to make sure our elected representatives hear our voices loud and clear:
Vote as the banks tell you to vote and there’s not enough money in the world to get you reelected, but vote in the best interests of the people of this country, and you won’t need the banking lobby’s money to get reelected.
Iowa’s AG, Tom Miller, seemed downright thrilled with the Supreme Court’s decision, by the way. The story in the Times quoted Mr. Miller as enthusiastically saying:
“We’re back on the field. That’s really important. Certainly there will be some litigation.”
I sure hope so, Mr. Miller, I certainly do hope so.
Tuesday, December 1, 2009
Fed to Conduct ‘Small Scale’ Triparty Reverse Repos
Nov. 30 (Bloomberg) -- The Federal Reserve said it will test one of the tools for an eventual withdrawal of the central bank’s unprecedented monetary stimulus while stressing that the trials themselves don’t represent any change in policy.
The New York Fed said it will conduct “small scale, real value” three-way reverse repurchase transactions in coming weeks. The tests are “a matter of prudent advance planning by the Federal Reserve,” the statement said, and “no inference should be drawn about the timing of any change in the stance of monetary policy in the future.”
Policy makers led by Fed Chairman Ben S. Bernanke are considering how to withdraw the more than $1 trillion they have pumped into the financial system to combat the deepest recession since the 1930s. Along with raising the overnight bank lending rate, Fed officials have said they may use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to withdraw or neutralize cash in the banking system.
“We don’t think it’s any indication that they’re likely to implement an exit strategy soon, or even in the next several quarters,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of 18 primary dealers that trade with the Fed. “It’s important for the Fed to make sure the market is aware that the tools they do have work, even if they’re not ready to use them yet.”
The Fed cut its benchmark interest rate to as low as zero last December and adopted asset purchases as its main policy tool. The Fed is buying $1.25 trillion of agency mortgage-backed securities and about $175 billion of housing agency debt. The Fed in October completed a $300 billion program of U.S. Treasury securities purchases.
Rate Outlook
The central bank probably won’t raise its benchmark interest rate above 0.25 percent until August, according to the median forecast of 45 economists surveyed by Bloomberg News.
The Fed on Nov 4. repeated it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
Payrolls in the U.S. probably fell by 120,000 workers this month, according to the median of 67 analysts surveyed by Bloomberg News ahead of a Dec. 4 Labor Department report. The unemployment rate probably held at 10.2 percent, a 26-year high.
The world’s largest economy has lost 7.3 million jobs since the recession began in December 2007. The jobless rate is projected to exceed 10 percent through the first half of next year, according to the median forecast of economists surveyed this month.
Treasury Notes
Treasury notes were little changed today. The 10-year note’s yield increased one basis point, or 0.1 percentage point, to 3.21 percent at 1:36 p.m. in New York.
The reverse repo transactions are being conducted to ensure “operational readiness” at the Fed, clearing banks and primary dealers, today’s statement said. They will have “no material impact” on the availability of reserves or on market interest rates, it said.
“You could look at it as a case of due diligence by the Fed,” said Ward McCarthy, chief financial economist at Jefferies & Co., also a primary dealer.
In a reverse repo, the Fed loans securities for a set period. At maturity, the securities are returned to the Fed, and the cash to the dealers.
Market Rates
The transactions will be conducted at current market rates, and the aggregate amount outstanding “will be very small relative to the level of excess reserves,” today’s announcement said. The results will be posted on the New York Fed’s Web site and will be listed as liabilities on the Fed’s consolidated balance sheet statements.
The New York Fed said on Oct. 19 that it was working with market participants on how it would use reverse repurchase agreements to help drain cash. It also said the central bank was considering expanding the counterparties for reverse repo operations beyond the 18 primary dealers.
The New York Fed said it will conduct “small scale, real value” three-way reverse repurchase transactions in coming weeks. The tests are “a matter of prudent advance planning by the Federal Reserve,” the statement said, and “no inference should be drawn about the timing of any change in the stance of monetary policy in the future.”
Policy makers led by Fed Chairman Ben S. Bernanke are considering how to withdraw the more than $1 trillion they have pumped into the financial system to combat the deepest recession since the 1930s. Along with raising the overnight bank lending rate, Fed officials have said they may use reverse repos, pay interest on excess bank reserves and sell securities directly to investors to withdraw or neutralize cash in the banking system.
“We don’t think it’s any indication that they’re likely to implement an exit strategy soon, or even in the next several quarters,” said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of 18 primary dealers that trade with the Fed. “It’s important for the Fed to make sure the market is aware that the tools they do have work, even if they’re not ready to use them yet.”
The Fed cut its benchmark interest rate to as low as zero last December and adopted asset purchases as its main policy tool. The Fed is buying $1.25 trillion of agency mortgage-backed securities and about $175 billion of housing agency debt. The Fed in October completed a $300 billion program of U.S. Treasury securities purchases.
Rate Outlook
The central bank probably won’t raise its benchmark interest rate above 0.25 percent until August, according to the median forecast of 45 economists surveyed by Bloomberg News.
The Fed on Nov 4. repeated it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
Payrolls in the U.S. probably fell by 120,000 workers this month, according to the median of 67 analysts surveyed by Bloomberg News ahead of a Dec. 4 Labor Department report. The unemployment rate probably held at 10.2 percent, a 26-year high.
The world’s largest economy has lost 7.3 million jobs since the recession began in December 2007. The jobless rate is projected to exceed 10 percent through the first half of next year, according to the median forecast of economists surveyed this month.
Treasury Notes
Treasury notes were little changed today. The 10-year note’s yield increased one basis point, or 0.1 percentage point, to 3.21 percent at 1:36 p.m. in New York.
The reverse repo transactions are being conducted to ensure “operational readiness” at the Fed, clearing banks and primary dealers, today’s statement said. They will have “no material impact” on the availability of reserves or on market interest rates, it said.
“You could look at it as a case of due diligence by the Fed,” said Ward McCarthy, chief financial economist at Jefferies & Co., also a primary dealer.
In a reverse repo, the Fed loans securities for a set period. At maturity, the securities are returned to the Fed, and the cash to the dealers.
Market Rates
The transactions will be conducted at current market rates, and the aggregate amount outstanding “will be very small relative to the level of excess reserves,” today’s announcement said. The results will be posted on the New York Fed’s Web site and will be listed as liabilities on the Fed’s consolidated balance sheet statements.
The New York Fed said on Oct. 19 that it was working with market participants on how it would use reverse repurchase agreements to help drain cash. It also said the central bank was considering expanding the counterparties for reverse repo operations beyond the 18 primary dealers.
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