Important News Stories

On February 19, 2010, in Background and Research, by Tiffiniy Cheng

Inside the crisis at AIG Fortune: An interview with their general counsel who left because of compensation rules at AIG. She would not be able to get severance pay/golden parachutes if she got into the top 10 highest paid at AIG.

Fears of mass UK banking exodus prove unfounded Guardian: “Numbers of people applying for jobs in Swiss financial sector last year actually fell, despite warnings by Boris Johnson that new taxes would drive them away”.. “If you are in a global economy, a national supervisory regime cannot be enough, so you’ve got to look at the rules under which financial institutions operate globally. One of those rules is that the banks… make a proper contribution to society,” said Brown. And what is so wrong with that?

Shock as British deficit equals that of Greece Independent: “It is clear that a more credible plan to restore the public finances to health will be required shortly after the general election in order to keep the markets and rating agencies at bay.”

The Safety vs. Easy Money Policy Dilemma Comes Into Focus Yves Smit: ”

Our economic and financial model of the last 30 years, that of a high degree of international trade and robust cross border capital flows, may be inherently unstable. There are three factors that suggest why.

The first is empirical: large cross border capital flows are associated with bigger and more frequent financial crises. Correlation is admittedly not causation, but that conclusion emerges resoundingly from Carmen Reinhart and Kenneth Rogoff’s work on financial crises. Similarly, the post war period through the mid-1970s, which was notably free of major incidents, was one of capital controls and less trade than now.

The second is that we have a defect in our current currency arrangements, similar to one that plagued the gold standard. Countries that run sustained trade deficits are punished via deflationary adjustments. But there are no mechanisms from discouraging countries from running sustained surpluses, particularly by pegging their currencies too cheaply. France accumulated large gold reserves in the runup to the Great Depression in just this fashion, as China and the Asian tigers have accumulated large foreign exchange reserves in our day. While it is easy to blame the profligate borrower, it takes two to tango.

The third is that it may prove impossible to have an effective international regulation for capital markets firms. As a second Financial Times piece, on Obama’s plans to increase capital ratios, indicates, some of the measures the US would like to implement do not sit well with European banks:”

Jobless claims report points to long-term unemployment problem Ed Harrison

In the week ending Feb. 13, the advance figure for seasonally adjusted initial claims was 473,000, an increase of 31,000 from the previous week’s revised figure of 442,000. The 4-week moving average was 467,500, a decrease of 1,500 from the previous week’s revised average of 469,000.

The jobless claims series is the best real time dataset we have – and right now it is pointing to a weak and halting recovery. There are still 5.5 million people on the unemployment roles (4.6 using the seasonally-adjusted data).  However, there are a record 5.8 million people collecting extended unemployment benefits as well.  So, this brings us to a record 11.3 million people collecting some sort of unemployment insurance benefit in the United States.

“The most distressing difference however is the last line – EUC 2008. This is the number of individuals on extended benefits – and that number has trebled since the depths of the recession. Translation: long-term unemployment rates have skyrocketed. And since long-term unemployment equals loss of skills and employability, we are looking at statistics that will translate into a human tragedy for many Americans if and when the employment picture brightens.”
The Future of Public Debt Big Picture: “From the BIS, a paper on the future of public debt, some lucid and helpful musings on the entitlement mess on the other side of the current sovereign debt explosion in OECD countries: The Future of Public Debt”. Public debt is unwieldy and growing, bad for business.

Administration to provide more aid to homeowners Washington Post: “President Obama will announce a plan Friday to direct $1.5 billion in taxpayer money to five state housing finance agencies to help them develop new programs for addressing the housing crisis in their communities, according to a senior administration official.

The five states — California, Nevada, Arizona, Michigan and Florida — have been among the hardest hit by the housing crisis and have seen home values decline more than 20 percent. The initiative will be financed through the government’s Troubled Assets Relief Program (TARP).

Obama is scheduled to make the announcement in Nevada on Friday morning alongside Senate Majority Leader Harry M. Reid (D-Nev.), who faces a tough reelection battle this year.”

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Big banks haven’t even signed up

On January 19, 2010, in Background and Research, by Tiffiniy Cheng

Bloomberg reports that the biggest banks haven’t signed onto the program to modify mortgages like they said they would and like they need to do in order to make up for their predatory loans.

Numbers are showing that “Bank of America, Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. carry such mortgages at about $150 billion more than their value”.

The U.S. Treasury Department has failed to win agreements to get struggling borrowers’ home- equity debt reworked, among the biggest roadblocks to reducing foreclosures that may reach a record 3 million this year.

None of the lenders holding a combined $1.05 trillion of the debt has signed contracts requiring participation in the second-mortgage modification plan announced eight months ago. The largest banks remain “committed” to joining, Meg Reilly, a department spokeswoman, said in an e-mail.

President Barack Obama in February announced a $75 billion program to cut first-mortgage payments. The Treasury detailed a plan on April 28 in which second-mortgage owners modify or retire debt when the first lien is changed, saying it would be running in a month. The near-record level of home-equity debt held by lenders including Bank of America Corp. and Wells Fargo & Co. may lead to foreclosures that threaten housing stability after the worst slump since the 1930s.

How to Stop Foreclosures and Our Modern-Day Debt Shackles

On January 18, 2010, in The Public, by Danny Schechter

Aid Has Failed To Reach Those In Need Here as in Haiti — Is it Time for a Moratorium and Debt Relief ?

Danny Schechter is author of “The Crime of Our Time”.

Are we in a national emergency? If you think of the recent terror incident over Detroit, you would say yes. New rules were put in place overnight. The President took responsibility and ordered immediate changes. There was a sense of urgency.

Then, take a look inside Detroit with its growing unemployment, and massive wave of foreclosures and urban blight. There was no sense of an emergency except briefly when tens of thousands of people lined up recently outside Cobo Hall to fill out applications for a share of just $15 million in new federal assistance. There were momentary fears of a riot. You can bet if there was an Al Qaeda presence, there would be an outbreak of martial law.

Billions have already been allocated to buy new screening machines at airports because of a lone underwear bomber. In contrast, the response to our domestic economic disaster and debt crisis seems tepid.

In Africa, our government and others agreed to debt forgiveness programs because it was clear that colonial powers had illegally shackled the newly independent states with an unsustainable debt burden. Those debts were imposed, suffocating, unfair, and illegal. Recently, just before the earthquake, Haiti won a billion dollars in debt foregiveness and then promptly began to borrow money again.

Haiti’s problems may mirror our own in another way with Presidential proclamations of “help on the way” undermined by poor or non-existent delivery.

Here in our country, millions of people were talked into taking bogus Subprime loans that lenders knew were illegal. According to the FBI there was “an epidemic of mortgage fraud.” These loans were then securitized by Wall Street and sold worldwide with misrepresented values. Another fraud.

They were also insured by companies like AIG with shady insurance deals to protect against the foreclosures they knew would follow. This was not just business as usual but in part a criminal enterprise.

Today, default/delinquency/foreclosure rates continue to skyrocket and soon there will be more prime mortgages in arrears than subprime ones, More than 25% of all mortgages are now “under water.”

Do the victims of these scams not deserve relief even in a society that places the protection of property rights over human rights?

An online legal dictionary reminds us that the government has powers to act that it is not using. “ As a function of its Police Power, a state may suspend contractual rights when public welfare, health, or safety are threatened. During the World War I housing shortage, some New York landlords raised rents to exorbitant levels and evicted tenants who failed to pay…

Some states went further, imposing a debt moratorium. It happened in Minnesota during the depression when there was a sharp rise in foreclosures on farm property, “Fifty years later the Minnesota legislature responded again to public pressure to relieve farm debts by passing another Mortgage Moratorium Act (Minn. Stat. § 583.03 [Supp. 1983]).”

According to the writer Alex Abella, who contributes to the LA Times, “In its view, the state had a right under its police power to declare an economic emergency “to safeguard the public and promote the general welfare of the people” which necessitated the drafting and implementing of the moratorium.

“Needless to say, financial interests — banks, loan holders — sued, losing both at the state and the federal level. When the case finally arrived at the U.S. Supreme Court, Chief Justice Charles Evans, in the case of Blaisdell versus Home Building & Loan Association upheld the constitutionality of the Moratorium as a “reasonable means to safeguard the economic structures upon which the good of all depend.”

If you believe as I do that there is an emergency affecting the most vulnerable among us, as foreclosures grow and poverty deepens, isn’t it time to start thinking about debt relief, not just temporary adjustments such as questionable mortgage modifications?

For nearly two years, I have been calling to modify loans, not foreclose on homes. The government said they would do it but their programs don’t appear to be working because banks and real estate companies make more money foreclosing than making deals that keep homeowners under their roofs

The consequence: 14 million families—and we are talking millions of children too—forced into the streets or worse conditions.

The New York Times blamed the President’s Making Home Affordable program for increasing the agony of homeowners.

“Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.”

Wrote a critic on the Atlantic: “Obama’s Making Home Affordable program is actually increasing the agony of homeowners, who pour money down the rat hole of their mortgage rather than recognizing the loss and starting over. In the meantime, the modification programs disguise the true condition of bank balance sheets (because modified mortgages are not yet non-performing mortgages), and slow down the process of recovery.

The Washington Post found, “The government’s foreclosure relief program is sputtering, according to government data showing that the pace of help being offered to struggling homeowners slowed last month and many borrowers are at risk of losing the aid they have already received.”

The LA Times went further, “Only 31,382 of more than 700,000 mortgage modifications under the federal program had been made permanent by the end of November…The numbers reinforced the bleak picture that Treasury Department officials painted last week when they said the number of permanent reductions was low. They unveiled new measures, including the threat of fines, to push mortgage servicers to improve their performance.”

When airport security doesn’t work, they junk it. It is time to do the same with programs that are not helping homeowners. These half-measures that are being so half-heartedly implemented are a cruel disgrace.

But if we are to solve this problem, we are going to need to press the Administration and the banks to recognize they must go further. To achieve that, we need to get back in the streets to push for what we really need: debt relief, and a moratorium.

Some may consider this demand unrealistic but sometimes demanding the impossible is precisely what makes the possible more possible. Remember the esson Dr. Martin Luther King taught us:” we never get change without demanding it. We never have and we never will.”

Mediachannel News Dissector Danny Schechter discusses these issues in his new book “Crime of Our Time” and a companion film. See PlunderThecrimeofourtime.com. Comments to dissector@mediachannel.org

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