Over the past week, there’s been an incredible amount of economic spin -- even moreso than the normally substantial “load” -- floating around the MSM and the blogosphere, including some downright embarrassingly erroneous, but well-rec’d posts right here at DKos. We’ll get to that in a moment, as well as to my parsing of Paul Krugman’s latest op-ed column in the Labor Day edition of the NY Times, entitled, “The Fatal Distraction.” (Krugman writes of one fatal economic distraction. Herein, I detail not just one but five of them. And, in fact, there are many more than that.)
So, let’s clear up a few myths about these numerous “Fatal Distractions” concerning the various false and misdirected narratives on our economy, of which there have been a great many “reported” during the past week, alone.
FATAL ECONOMIC DISTRACTION #1: The just-announced FHFA civil suits filed against 17 of our nation’s largest mortgage lenders.
We’ll start with all of the hoopla surrounding this past Thursday’s “big” story concerning the Federal Housing Finance Agency’s (the entity responsible for overseeing Fannie Mae and Freddie Mac, among other government-sponsored enterprises, a/k/a “GSEs”) announcement that they’re suing 17 of our nation’s largest mortgage originators for fraud due to those respective lenders’ alleged misrepresentations to Fannie and Freddie concerning the credit quality of various mortgage portfolios that these financial services institutions had sold to those two GSEs.
As the CJR’s (Columbia Journalism Review’s) Ryan Chittum noted on Friday, Treasury Secretary Tim (“Leave the banks alone.”) Geithner had been attempting, for the better part of the past year, to put a lid on all of this litigation by forcing out Acting FHFA chief David DeMarco (the biggest proponent of these civil suits, for which DeMarco had tried to get the litigation ball rolling as early as last Fall). Please read this again, and then read Chittum’s commentary, below. In other words, if our Treasury Secretary had his way, this action and this “news” story this past week never would have seen the light of day.
Fannie’s Regulator Isn’t Playing Obama Team Ball
Ryan Chittum
Columbia Journalism Review (“CJR”)
September 2, 2011 2:22PM
The New York Times scoop that Fannie and Freddie’s regulator, the Federal Housing Finance Agency, is suing the big banks over toxic mortgage assets adds a sort of government imprimatur to the wave of putback lawsuits by private investors.
The funny thing about this case is that it’s somewhat surprising that The Government, so to speak, almost surely doesn’t want to bring it, even though it’s clearly a slam-dunk. That the banks “misrepresent(ed) the quality of mortgage securities they assembled and sold at the height of the housing bubble” is empirical fact. Check out the reporting on Clayton Holdings, which told the Financial Crisis Inquiry Commission that half of the mortgages it checked out during the crisis didn’t meet standards banks promised investors. It told the banks this, and they used Clayton’s reports to demand cheaper prices on the loans they bought to securitize—without passing on the savings or bothering to tell the folks they sold them to.
But the Obama administration primary goal has been to protect the banks, not correct them — much less make them pay for part of their sins, which only took down the global economy and cost some forty or fifty percentage points of GDP. We need to see some reporting on how Treasury views the FHFA move. It’s surely giving Tim Geithner some major heartburn and as Felix Salmon (a contributing editor here) writes, it makes the global mortgage settlement the administration has pushed look even more unlikely.
It was Wednesday, as David Dayen points out, that Brad Plumer and Ezra Klein reported that Geithner had looked for ways to fire FHFA acting director Edward DeMarco (something Treasury denies). He’s still in place because Republicans, then still in the minority, blocked Obama’s pick last November…
Chittum then points to a quote in the same day’s edition of the Financial Times, for a “hint of the tension” between the White House and the FHFA…
But it is a deeply controversial move within the Obama administration, which is looking to ensure that the economy avoids a double-dip recession and that the banking system remains on an even keel. The US Treasury and the FHFA have not always seen eye to eye on financial policy since the crisis.
Then again, as I noted less than a month ago, in THIS post (see excerpt, immediately below), the FHFA issued a report this past Spring which disclosed the inconvenient reality that Fannie Mae and Freddie Mac were currently sitting on $903 billion in ILLIQUID assets which were/are little more than one of many unreported, stealthy, massive bailouts of Wall Street that have occurred before, during and well after 2008.
…We’ve learned over the past few weeks that Fannie Mae and Freddie Mac, the largest government sponsored enterprises (GSE’s) which support Wall Street’s control of our nation’s residential mortgage market (more precisely, the GSE’s have supported Wall Street’s profits, moreso than ever over the past few years, while those too-big-to-fail monsters have laid off record-breaking amounts of their mortgage bubble bets-gone-wrong on taxpayers’ backs) are now sitting on…drumroll please… $903 billion in “illiquid assets” as you read this. (Note, immediately below, these are our government’s own, latest numbers.) And, a significant portion of that amount is, most assuredly, courtesy of none other than Bank of America and their Countrywide Financial subsidiary. See: “Toxic loan dump,” from Reuters’ Agnes T. Crane, 6/22/11 (h/t NYTimes.com).
Toxic loan dump
By Agnes T. Crane
Reuters (link via the NY Times’ website)
June 22, 2011
The U.S. Federal Housing Finance Agency estimates that Fannie Mae owned roughly $513 billion of illiquid mortgages in its investment portfolio at the end of last year. This represents about 65 percent of Fannie’s holdings, up from 48 percent the previous year. Freddie Mac held some $390 billion of illiquid assets, or 56 percent of its portfolio - up from 42 percent the previous year.
The regulator of the two government-run housing finance giants (known as government-sponsored enterprises, or GSEs) expects the proportion of illiquid assets to increase further this year as Fannie and Freddie continue to buy back severely delinquent mortgages - those 120 days or more past due - from the mortgage bonds they guarantee, while at the same time shrinking their overall balance sheets as they are required to do.
Fannie and Freddie are purchasing roughly $10 billion of severely delinquent mortgages a month, Barclays Capital estimates…
Bold type is diarist’s emphasis.
So, let’s provide a mini-summary here: the FHFA, run by a Bush administration holdover (not unusual, since there are a lot of folks from the Bush administration that are currently working in the Obama administration) responsible for overseeing Fannie Mae and Freddie Mac issued a report earlier this year noting that roughly one-third of the $903 billion in illiquid assets that these GSEs currently hold have been purchased by our government in the past year.
And, to wit, the Daily Kos community, earlier this past week, promoted up a post to the “Recommended” list (I won’t provide a link to it, because I’m not going to call out this person, which is better than I can say that this person has done to others) which: a.) discussed the Wall Street Journal’s “awesome” (my word) coverage of our economy, while also providing many “reasons” why our President’s hands are/were, supposedly, tied with regard to the management of much of it, while the WSJ also conveniently failed to include this aspect (see above) of the story in it; and, b.) this, by the way, was in a section of the aforementioned, other diarist’s post which followed most of the entire first-half of it where the Kossack also “reported” upon the totally erroneous “fact” of how the majority of the Federal Reserve’s Board was not appointed by Obama, when, in fact, just the opposite is true. (In fairness to the Kossack in question, they did “acknowledge the error,” after the post left the Rec List, but while still attempting to trivialize the fact that most of the first half of their diary was, simply, incorrect. Reiterating, the first-half of their diary was, simply, wrong on the facts. And, the second portion of it omitted critical aspects of the bailout story, per my commentary, above, which puts that [the entire FHFA story] in an entirely different light.)
But, this FHFA story was only one of many of the most recent, critical and inconvenient truths about our economy that was either, a.) grossly distorted throughout the MSM and the blogosphere over the past few days, or, b.) simply, was never—or barely—covered, and then improperly so, here at the Big Orange, and throughout the MSM.
FATAL ECONOMIC DISTRACTION #2: The ongoing effort by Wall Street and their minions in Washington D.C. to perpetuate “the” lie to Main Street that, somehow, “Wall Street has repaid their bailout(s).” (This is pure, unadulterated bullshit. In fact, Wall Street bailouts have been “taxing” Main Street to the tune of $200 billion-plus per year, at an absolute minimum, since 2008.)
I’ve covered the reality that, since 2008, stealthy welfare-for-the-rich programs, and for Wall Street in particular, have been ongoing to the tune of at least $200 billion per year ever since our economy imploded in September ‘08. While the FHFA story, covered above, provides us with the details of just one of these larger bailout programs (Fannie and Freddie), the truth is there are many others in place today, as well.
Here are links to just a few of the many posts where I have delved into great detail on many of these programs: see HERE, HERE, HERE, and HERE.
Over the past few years, New York Times Pulitzer Prize-winner Gretchen Morgenson has provided us with countless details on many of these—and other—stealthy Wall Street bailouts, including THIS article and THIS piece, from just a month ago. (NOTE: Checkout the headline of her story from August 7th where Morgenson refers to it as: “Wall Street’s Tax on Main Street.”)
HERE is a link to one of the many other Wall Street bailout programs (I’ve only covered some of them up until now), actively in place as you read this, as reported by Ed Harrison over at his Credit Writedowns blog, just a few weeks ago.
And, HERE’S just a taste of blogger George Washington’s extensive coverage of many of these programs, past and present.
Last but not least, HERE’S a link to the Pulitzer Prize-winners over at ProPublica.org, where they provide us with the latest, to-the-penny outstanding tab that Main Street’s carrying (currently over $200 billion is still due to taxpayers, contrary to the absurdly false meme that this has been paid off) for Wall Street’s TARP program, the most well-known (but, unfortunately, not the biggest) bailout scam of all.
But, just like in “FATAL DISTRACTION #1,” up above, over the past week, the DKos community rec’d up a list of the administration’s supposed economic “accomplishments” (again, no link will be provided, since there’s no need to specifically call out anyone), which put forth the totally FALSE notion that Wall Street had repaid its debts to U.S. taxpayers, when—once again—nothing could be farther from the truth. On top of this outrageous lie—which, again, was part of a recent DKos post over the weekend which received many hundreds of rec’s—claims were made in the same post which discussed how the administration was getting tough with bankers’ bonuses and salaries.
So, according to a second highly-rec’d diary in this community over the past few days, the administration continues to put forth the bogus claim that they’re tough on Wall Street when it comes to salaries and bonuses. But, once again, just the opposite is the truth. In fact, we’re witnessing record-breaking bonuses and salaries on Wall Street as you read this.
Well known NYU Professor of Risk Management and author (“The Black Swan”) Naseem Nicholas Taleb along with hedge fund manager Mark Spitznagel have just provided us with additional background on all of this via Project Syndicate. Here’s an excerpt (I encourage you to checkout their entire post)…
The Great Bank Robbery
Nassim Nicholas Taleb and Mark Spitznagel
Project Syndicate.org
2011-09-02
NEW YORK – For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion for banks that have filings with the US Securities and Exchange Commission. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits.
That $5 trillion dollars is not money invested in building roads, schools, and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.
Mainstream megabanks are puzzling in many respects. It is (now) no secret that they have operated so far as large sophisticated compensation schemes, masking probabilities of low-risk, high-impact “Black Swan” events and benefiting from the free backstop of implicit public guarantees. Excessive leverage, rather than skills, can be seen as the source of their resulting profits, which then flow disproportionately to employees, and of their sometimes-massive losses, which are borne by shareholders and taxpayers...
© Copyright 2011, Project-Syndicate.org
Taleb and Spitznagel remind us that it’s all about Wall Street’s ongoing privatization of profits—both real and make believe--and their never-ending socialization of losses on the backs of taxpayers and retirees. They continue on to totally obliterate another piece of propaganda contained in one of the aforementioned, highly-rec’d pieces of economic fiction (to which I refer, above) in this community over the past few days, blowing massive holes in the administration’s continuing false claim(s) that the administration’s been tough on Wall Street salaries and bonuses as the post’s authors inform us: “Perhaps the greatest insult to taxpayers, then, is that bankers’ compensation last year was back at its pre-crisis level.”
FATAL DISTRACTION #3: “The government is getting tough with the too-big-to-fail (‘TBTF’) banks.”
Another case where reality couldn’t be farther from the spin we’re hearing from D.C. these days. All that kabuki about reeling in those above-the-law “fatcats” and putting a saddle on their out-of-control, multinational misdeeds…and Dodd-Frank being the great regulatory panacea (not!) that will rein in the banks…and whaddaya’ got? As M.I.T. economist Simon Johnson told us over at the NY Times’ Economix blog this past Thursday: The likely prospect of even MORE U.S. too-big-to-fail banks, coming right up!
(What was that line from that Janis Joplin song, again? “Financial instability’s just another term for nuthin’ left to lose…”)
3 Questions on Financial Stability
By SIMON JOHNSON
NY Times’ Economix Blog
September 1, 2011, 5:00 am
The Dodd-Frank financial legislation of 2010 created a Financial Stability Oversight Council, tasked with taking an integrated view of risks in and around the financial sector in the United States. Known as the FSoc (pronounced EFF-sock), the council comprises all leading regulators and other responsible officials, headed by the Treasury secretary.
So far, it has done little — reflecting the predominant official view that in the post-crisis recovery phase, financial risks in the United States are generally receding.
But three important and related issues emerged this summer that the FSoc needs to consider quickly: impending bank mergers that could create two more too-big-to-fail banks; whether to force the breakup of Bank of America; and how to rethink capital requirements for large systemically important banks, particularly as continuing European sovereign debt problems undermine the credibility of the international Basel Committee approach to bank capital.
On the merger front, Capital One plans to buy the online business of ING, and PNC is acquiring the American business of Royal Bank of Canada. Both acquisitions would create banks with assets around $300 billion. (Steven Pearlstein had a very good column in The Washington Post on Sunday on the background to these deals.)
In some official minds, Dodd-Frank has made it impossible for too-big-to-fail banks to exist — if any such bank got into trouble, it would be shut down without any significant costs being incurred by taxpayers. Most independent analysts and many people active in financial markets regard this proposition as unproven at best and, most likely, incorrect…
Bold type is diarist’s emphasis.
FATAL DISTRACTION #4: “The “recovery” that may be no longer.
Being a lifelong Democrat I find it somewhat of an affront to my basic sensibilities to hear my Party’s leadership continuing to bloviate on about our “recovery” while at the same time our government is acknowledging that an easy 100,000,000-plus of us live in poverty or on the precipice of it. Put another way: If it’s a “Little Depression” for more than 100,000,000 of us, it’s a Depression for all of us.
Then again, as those who follow my diaries know, I have significant issues with many of the most common metrics used to judge the state of our economy, especially when it’s been widely reported that three of the most important measurements of the state of our nation’s economic health have been subject to major revisions—all downward—in recent months and, in multiple instances, also in years prior to that. Put another way, it’s systemic case of “GIGO,” a/k/a “Garbage In Garbage Out.”
Here are three basic FACTS:
1.) Three weeks ago, the New York Times informed us of the reality that our nation’s gross domestic product (“GDP”) statistics have been quite massively overstated for a very long time.
2.) It’s now common knowledge that, due to “anomalies” in the manner by which the Labor Department’s Bureau of Labor Statistics compiles monthly unemployment numbers, the reality is that our government has been baking in overstated, month-over-month jobless statistics that have been inherently “revised” negatively each year since the Great Recession commenced, in December 2007.
3.) The National Association of Realtors has recently all but acknowledged that they’ve been overstating home sales statistics for at least the last few years.
Meanwhile, the possibility of a double-dip recession becomes more and more real by the day…
So, it should come as less of a surprise to those reading my posts that, over the past ten days, we’re now learning about how many economists and economic pundits are wondering aloud that we may have already entered (or, we’re about to enter) into a double-dip recession, either in the second or third quarters of this year. (The National Bureau of Economic Research, or “NBER,” usually doesn’t call the beginning or end of a recession until up to a year or more after that milestone actually occurs.)
Economic pundit Mish Shedlock, citing potential inaccuracies in the manner by which the government integrates inflation metrics into its GDP data (to make them appear more positive than they may, in fact, be), has an especially good analysis of this in his post from August 29th, entitled: “US In Recesssion Right Here, Right Now.”
It’s important to note that Shedlock’s analysis is supported by quite intensive statistical research via the folks over at Consumer Metrics. And, Mish’s post is further backed-up by graphic analysis from none other than Doug Short, the creator of numerous charts and graphs that are used in conjunction with many economic posts throughout the blogosphere, including right here, at DKos.
Doug Short, himself, also calls into question what he references as overly-optimistic GDP statistics in a post of his own, “Will the “Real” GDP Please Stand Up?,” as well.
But, perhaps even more authoritatively, and as I’ve also been reporting upon his commentary in a couple of posts over the past few weeks, Economic Cycle Research Institute co-founder Lakshman Achuthan has been voicing concern about a double-dip for a couple of months now, with his statements becoming more and more alarmist as we move forward, too.
This year, Democrats have been eating a lot of public relations crow as they’ve been reminded of their patently misplaced optimism as it was glaringly reflected in their numerous public mistatements regarding our “recovery summer,” last year.
If events keep unfolding along the downward trajectory we’re witnessing now into a full-blown, double-dip recession (one which may already be upon us), the reality is that come next Summer and Fall, during the height of the Presidential election year, with a Democratic incumbent spending much of his time explaining why he was even using the word, “recovery,” in 2011--when we were already in the throes of the second leg of a double-dip recession--it will not be a pretty sight.
FATAL DISTRACTION #5: Budget deficits.
Paul Krugman, in his NY Times column on Monday, “The Fatal Distraction,” covers a topic upon which he’s focused throughout the past couple of years: D.C.’s dysfunctional and myopic focus upon budget deficits…
The Fatal Distraction
By PAUL KRUGMAN
New York Times
Labor Day, September 5, 2010
Friday brought two numbers that should have everyone in Washington saying, “My God, what have we done?”
One of these numbers was zero — the number of jobs created in August. The other was two — the interest rate on 10-year U.S. bonds, almost as low as this rate has ever gone. Taken together, these numbers almost scream that the inside-the-Beltway crowd has been worrying about the wrong things, and inflicting grievous harm as a result.
Ever since the acute phase of the financial crisis ended, policy discussion in Washington has been dominated not by unemployment, but by the alleged dangers posed by budget deficits.
Pundits and media organizations insisted that the biggest risk facing America was the threat that investors would pull the plug on U.S. debt. For example, in May 2009 The Wall Street Journal declared that the “bond vigilantes” were “returning with a vengeance,” telling readers that the Obama administration’s “epic spending spree” would send interest rates soaring…
…
…I don’t mean to dismiss concerns about the long-run U.S. budget picture. If you look at fiscal prospects over, say, the next 20 years, they are indeed deeply worrying, largely because of rising health-care costs. But the experience of the past two years has overwhelmingly confirmed what some of us tried to argue from the beginning: The deficits we’re running right now — deficits we should be running, because deficit spending helps support a depressed economy — are no threat at all.
And by obsessing over a nonexistent threat, Washington has been making the real problem — mass unemployment, which is eating away at the foundations of our nation — much worse…
And, this brings us to the subject which should have been the focus and priority number one on President Obama’s agenda since the very first day he took office in January, 2009: JOBS.
If you’re reading my posts for the first time, then you’re probably thinking: “Well, it’s easy to Monday morning quarterback matters, Bob.” But, the reality is that this corporatocratic economy has been my sole focus in my writing here, virtually exclusively, since late 2007. (And, yes, for the first [and, perhaps the only] time since I’ve been posting here, I’m going to say it: “I’ve been right on the money a hell of a lot more than I’ve been wrong, all along, too.” And, that is truly sad, because I really hoped that I’d be wrong.)
The truth is, as a society we are overwhelmed—on a virtually daily basis--with inconvenient reminders of the suffering of those least able to withstand the pain that runs concurrent with the the rampant graft and corruption that has overtaken our government. (It’s amazing what money does for real “bipartisanship,” isn’t it?) And, we’re just now being informed that the President is trying to rebrand himself. But, in just the past few hours, we’re also realizing that only the packaging has changed, and the contents have remained the same:
--NY Attorney General Eric Schneiderman is now the direct target of a character assassination attempt by the administration.
--The United States Department of Justice, when provided with extensive, detailed evidence from HUD on a silver platter, no less, concerning a clearcut case of widespread bank kickbacks in the mortgage industry, doesn’t even lift a finger.
--46 of our nation’s 50 states’ attorneys general have sold out Main Street, and the basic rule of law, to the highest bidder.
--Meanwhile, those that are most vulnerable in our society suffer the most (while Wall Street doesn’t miss a meal).
--And, not to be outdone across the pond, the front page of today’s NY Times is telling us that Europe really may be going down for the count, as well.
And, how ironic is it that the President will be throwing something akin to his own, political “Hail, Mary” immediately prior to the start of the official NFL football season, tomorrow evening?
Even Paul Krugman inferred as much in the closing words to his Monday column, where he commented on some of the many inconvenient realities related to the President’s speech, tomorrow…
…nothing he proposes will actually happen anytime soon. So I’m personally prepared to cut Mr. Obama a lot of slack on the specifics of his proposal, as long as it’s big and bold. For what he mostly needs to do now is to change the conversation — to get Washington talking again about jobs and how the government can help create them.
For the sake of the nation, and especially for millions of unemployed Americans who see little prospect of finding another job, I hope he pulls it off.
Last Friday’s unemployment numbers were explained away, in part, as so many prior consecutive months’ abysmal jobless statistics have been explained here, and throughout the Democratic blogosphere in months past, as being due to this or that event.
This past Friday, Kossack and FPer Laura Clawson had a good post — the only one I could find on the subject, in fact, in the entire community — about August’s quite pitiful BLS’ monthly unemployment report. (I believe she received a little over 20 or 30 rec’s for it.)
This past month, pathetic zero job growth was (we were told), in part, due to the Verizon strike. Before that the excuse was manufacturing production slowdowns caused by parts shortages and shipment delays from Japan. And, before that, earlier in 2011, disappointing unemployment numbers—again, we were told—were due to the weather.
What will be said in Democratic circles when the Bureau of Labor Statistics publishes their September 2011 Employment Situation Report in the first week of October after Bank of America starts to layoff 30,000 employees?
What will we hear about the unemployment statistics in the first weeks of November and December as the US Postal Service gives pink slips to 120,000 of its workers, while they concurrently begin another program to enable 100,000 more employees to leave through attrition?
By then it’ll be Winter again, so there’s always the excuse of that old standby…the weather.
Yeah, let’s just talk about the weather.