(Diarist's note: This is a very lengthy diary--one of my longest, in fact--with multiple breaking news stories in it, which convey some very depressing new pieces of information about the current state of our economy. If you're looking for uplifting, happy news, I'd sincerely suggest you stop reading this and move along.)
Jeffrey D. Sachs, to quote Project Syndicate, "...is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals." He posted a fairly brief but quite incisive (IMHO) piece over at Project Syndicate on September 30th which, I think you'll agree if you take the time to read it, sums up a lot of progressive Democratic sentiments concering our country's current state of affairs, and our Party's virtually certain rough trek, immediately ahead in: "America's Deepening Moral Crisis."
I'm using Sachs' commentary as the basis for outlining the reality that, more than two years after the implosion of Wall Street, and while many are now referring to our national economy as being in a "recovery," in the real world, the technical nature of our economic recovery means nothing on Main Street. To many, even the use of the word, "recovery," offends their sensibilities since it runs quite counter to everything they see in their personal lives on a daily basis.
In fact, just this morning across the pond, Ambrose Evans-Pritchard notes in the Telegraph that the "IMF admits that the West is stuck in near-depression." (Read that headline, again, please. And, maybe a third time. Let it sink in. Then again, I've been discussing this topic for almost three years.)
Also in fact, contrary to the recovery meme--embraced by far too many in our own party, to the point of alienating their base, at least in many instances--the harsh truth is the U.S. is still very much teetering on the edge of the abyss. And, here are just a few--five, to be precise--of the many (more) recent examples as to why that, indeed, is the case...
# # #
SIDEBAR...
(DIARIST'S NOTE: It's about 2:30AM here on the East Coast, and I was about to post this diary, when I checked over at Naked Capitalism and read this...which ties in directly with what I'd just written. Naked Capitalism Publisher Yves Smith has provided diarist with written authorization to republish her blog's diaries in their entirety for the benefit of the DKos community.)
Quelle Surprise! Team Obama Having Trouble Selling TARP Success
Yves Smith
Naked Capitalism
Monday, October 4, 2010 2:15 AM
Barack Obama is purported to have studied the Lincoln, Roosevelt, and Reagan presidencies in depth before he took office, yet he appears to have ignored one of Lincoln's best known sayings: "You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all of the time."
We've commented at length at the Obama Administration propensity to rely on propagandizing to mask the shortcomings of its policies. No where has this been so evident as on the financial services front. As we wrote:
The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn't a risk; not only was it badly needed, it was just what voters wanted.
But incoming president Obama failed to act. Whether he failed to see the opportunity, didn't understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers....
Obama's repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.
Thus Obama's incentives are to come up with "solutions" that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry's goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.
A core proposition of marketing is that your advertising cannot fundamentally misrepresent your product; you'll not only disappoint and alienate customers, but you will also built a brand reputation for dishonesty. Yet the Obama Administration honestly seems to believe it can snooker Americans on any and every topic. When that approach fails, the fault must be in its messaging, not in its fundamental strategy.
The Financial Times has a revealing piece tonight on the rather late recognition by the Administration that its efforts to depict the TARP as a success are getting no traction. The bizarre thing is the subtext , namely that Administration members themselves as having no choice and being victims:
Although it is too early to come up with a final estimate of the cost of the co-ordinated cleansing of the financial system, the US effort looks to have come comfortably below the average fiscal cost of resolving a systemic crisis - 12.8 per cent of gross domestic product, according to a World Bank study.
Yet no one is expecting political rewards for Democrats in the midterm elections next month. In a striking phrase, Mr Geithner acknowledged at a conference in Washington last week that "we saved the financial system, but lost the country doing it."
Yves here. The 12.8% figure is wildly misleading. It does not include the damage of the crisis to the broader economy, such as the fact that the US is suffering lower growth and much higher unemployment as a result, and this lower output level is just about certain to produce a permanent reduction in the standard of living. The Bank of England, by contrast, has tried to measure the cost of the crisis using these broader considerations (which are admittedly very hard to measure) and has concluded the cost of the financial crisis was one to five times GLOBAL GDP.
Moreover, the tacit assumption in the Geither comment, and other Administration defenses of its bank-friendly actions, is that the choice was the program that the Administration implemented or no intervention at all. But that is bunk. There were plenty of other options for shoring up the battered financial firms; giving them generous support with virtually no strings attached, and in particular, no changes in management, was unheard of, at least outside of kleptocracies. Various forms of resolution, in particular the Nordic model, were widely discussed early in the Obama Administration and pointedly ignored. The Obama crowd took a tough line with the auto companies, dispatching its top brass, forcing the recipients to produce long term plans, forcing bondholders and union members to take haircuts. Why did the banksters get kid glove treatment? The answer is all too obvious: financiers are one of the biggest sources of campaign contributions.
The TARP was created by the Bush regime; why not distance yourself from it or deploy it differently? This Administration has chosen to make the TARP its own and has no one but itself to blame for the consequences.
END OF SIDEBAR...
# # #
1.) The income gap between the haves and the have-nots in this country is worse than it's ever been, and it now eclipses the previous record for this disparity, set in 1928, just prior to the Great Depression.
2.) Anything positive that anyone might have to say about the Dodd-Frank/FinReg bill is a waste of time in light of the truth that it does virtually nothing to prevent another economic calamity (even chief FinReg architect Connecticut Senator Chris Dodd acknowledges this) from hitting us head-on; and, that unfortunate event may not be as far off as some may realize. In fact, while the Congressional Budget Office has projected it--and as none other than White House Press Secretary Robert Gibbs reiterated it, less than two weeks ago--we face a good seven or eight years before we fully emerge from the economic trough created by this Great Recession. In the meantime, any one of a myriad of known problems (never mind the unknown obstacles) within our economic universe could precipitate an event that could derail our economic recovery in a New York minute. And, this could happen at any time; with many of these potential nightmares being totally outside of our government's control, too.
3.) All of the latest propaganda about Wall Street paying off the TARP bailout (especially when considering "2," immediately above) has gotten to the point where many in the MSM are actually putting forth the totally false meme that taxpayers might make a profit. In fact, it is nothing short of a very sad joke, if for no other reason than the realities that: a.) most of the U.S. public conflates TARP with the entirety of the Wall Street bailout when, in fact, it represents only a very small fraction of the total taxpayer "welfare-for-the-rich" tab, b.) and, taxpayers are still on the hook for trillions of dollars in liabilities--with, potentially, trillions more in potential liabilities just ahead--and with many hundreds of billions in Main Street's cash having already vaporized, to date (again, contrary to the MSM TARP meme). Perhaps even more problematic, as NY Times business writer Gretchen Morgenson noted in Sunday's Times (see down below), an inconvenient reality of the passage of the Dodd-Frank legislation is that, in the event of another derivatives blow-up in the marketplace, the Federal Reserve is now formally empowered to bailout our nation's too-big-to-fail ("TBTF") firms (with taxpayer cash, of course) on its own.
4.) The mortgage industry and, perhaps, all of those on Wall Street that profit from it, are about to have the rug pulled out from under them due to the reality that--contrary to what we've read in the past two weeks regarding GMAC's "technical" problems with fraudulent foreclosure documents--the Ally/GMAC mortgage story was merely the small tip of major, systemic fraud pervasive throughout the entire mortgage banking community for at least five years. And, as we're just learning, it will negatively impact upon not just the foreclosure wave that is underway throughout the country, but Wall Street's and our government's entire infrastructure -- if for no other reason than that these latest revelations will serve as the catalyst for inciting a massive wave of litigation -- relating to the housing sector; to the point where U.S. taxpayers may end up getting stuck with yet another bill equivalent to a major portion of the cost of the entire mortgage meltdown, over the past two to three years (i.e.: easily exceeding another trillion dollars), too.
Frankly, all one has to do is reference the reasons for #2, above, to understand why #4 will become so problematic, as I explain further down, below.
5.) Democrats are, more likely than not, about to get nailed in the mid-terms in 30 days; and this will have a debilitating effect upon the Democratic Party's agenda for the remainder of President Obama's first term. (And, frankly, IMHO, comparisons to President Clinton's situation in 1994 are mostly irrelevant, since the world has changed greatly--and mostly not for the better but for the worse--over the past 16 years, as far as our country's economic realities are concerned.)
From Jeffrey D. Sachs: "America's Deepening Moral Crisis:"
UPDATE (10/4/10, 10:30AM EST)-- (Diarist's Note: The folks over at Project Syndicate have just provided me with written authorization to reproduce this article in its entirety for the benefit of the Daily Kos community.)
America's Deepening Moral Crisis
Jeffrey D. Sachs
Project Syndicate
2010-09-30
NEW YORK - America's political and economic crisis is set to worsen following the upcoming November elections. President Barack Obama will lose any hope for passing progressive legislation aimed at helping the poor or the environment. Indeed, all major legislation and reforms are likely to be stalemated until 2013, following a new presidential election. An already bad situation marked by deadlock and vitriol is likely to worsen, and the world should not expect much leadership from a bitterly divided United States.
Much of America is in a nasty mood, and the language of compassion has more or less been abandoned. Both political parties serve their rich campaign contributors, while proclaiming that they defend the middle class. Neither party even mentions the poor, who now officially make up 15% of the population but in fact are even more numerous, when we count all those households struggling with health care, housing, jobs, and other needs.
The Republican Party recently issued a "Pledge to America" to explain its beliefs and campaign promises. The document is filled with nonsense, such as the fatuous claim that high taxes and over-regulation explain America's high unemployment. It is also filled with propaganda. A quotation by President John F. Kennedy states that high tax rates can strangle the economy, but Kennedy's was speaking a half-century ago, when the top marginal tax rates were twice what they are today. Most of all, the Republican platform is devoid of compassion.
America today presents the paradox of a rich country falling apart because of the collapse of its core values. American productivity is among the highest in the world. Average national income per person is about $46,000 - enough not only to live on, but to prosper. Yet the country is in the throes of an ugly moral crisis.
Income inequality is at historic highs, but the rich claim that they have no responsibility to the rest of society. They refuse to come to the aid of the destitute, and defend tax cuts at every opportunity. Almost everybody complains, almost everybody aggressively defends their own narrow and short-term interests, and almost everybody abandons any pretense of looking ahead or addressing the needs of others.
What passes for American political debate is a contest between the parties to give bigger promises to the middle class, mainly in the form of budget-busting tax cuts at a time when the fiscal deficit is already more than 10% of GDP. Americans seem to believe that they have a natural right to government services without paying taxes. In the American political lexicon, taxes are defined as a denial of liberty.
There was a time, not long ago, when Americans talked of ending poverty at home and abroad. Lyndon Johnson's War on Poverty in the mid-1960's reflected an era of national optimism and the belief that society should make collective efforts to solve common problems, such as poverty, pollution, and health care. America in the 1960's enacted programs to rebuild poor communities, to fight air and water pollution, and to ensure health care for the elderly. Then the deep divisions over Vietnam and civil rights, combined with a surge of consumerism and advertising, seemed to end an era of shared sacrifice for the common good.
For 40 years, compassion in politics receded. Ronald Reagan gained popularity by cutting social benefits for the poor (claiming that the poor cheated to receive extra payments). Bill Clinton continued those cuts in the 1990's. Today, no politician even dares to mention help for poor people.
The big campaign contributors to both parties pay to ensure that their vested interests dominate political debates. That means that both parties increasingly defend the interests of the rich, though Republicans do so slightly more than Democrats. Even a modest tax increase on the rich is unlikely to find support in American politics.
The result of all of this is likely to be a long-term decline of US power and prosperity, because Americans no longer invest collectively in their common future. America will remain a rich society for a long time to come, but one that is increasingly divided and unstable. Fear and propaganda may lead to more US-led international wars, as in the past decade.
And what is happening in America is likely to be repeated elsewhere. America is vulnerable to social breakdown because it is a highly diverse society. Racism and anti-immigrant sentiments are an important part of the attack on the poor, or at least the reason why so many are willing to heed the propaganda against helping the poor. As other societies grapple with their own increasing diversity, they may follow the US into crisis.
Swedes recently gave enough votes to a right-wing, anti-immigrant party to give it representation in parliament, reflecting a growing backlash against the rising number of immigrants in Swedish society. In France, Nicolas Sarkozy's government has tried to regain popularity with the working class by deporting Roma migrants, a target of widespread hatred and ethnic attacks.
Both examples show that Europe, like the US, is vulnerable to the politics of division, as our societies become more ethnically diverse.
The lesson from America is that economic growth is no guarantee of wellbeing or political stability. American society has become increasingly harsh, where the richest Americans buy their way to political power, and the poor are abandoned to their fate. In their private lives, Americans have become addicted to consumerism, which drains their time, savings, attention, and inclination to engage in acts of collective compassion.
The world should beware. Unless we break the ugly trends of big money in politics and rampant consumerism, we risk winning economic productivity at the price of our humanity.
Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals.
Project Syndicate is an international association of newspapers dedicated to bringing commentaries written by preeminent voices from across the world to audiences everywhere.
© Copyright 2010. Project Syndicate. All rights reserved.
Diarist's Note: Here are Nate Silver's latest numbers from his NY Times' 538 blog. Any manner by which one slices the spin, the chances of the Democratic Party not losing a significant amount of seats, if not their majority, in the U.S. House of Representatives on November 2nd, 2010, are--barring some unforseen, sea-changing event--virtually nil.]
Sachs continues along in his Project Syndicate post to point out that our country's income inequality between the nation's wealthiest and poorest is at its greatest point of all time (since the metrics on this were first published). He notes that the "...rich claim that they have no responsibility to the rest of society. They refuse to come to the aid of the destitute, and defend tax cuts at every opportunity. " And, Sachs tells us how we've reached a point in the dialogue where we've all but abandoned "...any pretense of looking ahead or addressing the needs of others."
Sadly, just to get to the truth of the matter (or to be reminded of this reality in any sane reference to what is, supposedly, pertinent journalism) in any version of the MSM, one must frequently wander outside of the US mediasphere for incisive commentary about it (from Wednesday's International Business Times): "Income gap between rich and poor in U.S. at record high."
Income gap between rich and poor in U.S. at record high
By Palash R. Ghosh | September 29, 2010 10:28 PM AEST
International Business Times
The income disparity between the wealthiest and poorest Americans expanded to a record high in 2009 as the recession tore at the fabric of the poor and lower middle-class, according to data from the U.S. Census Bureau.
The top 20 percent of American earners -- those making more than $100,000 annually - received 49.4 percent of all income generated in the country, compared with the 3.4 percent earned by those below the poverty line.
That translates to a ratio of 14.5-to-1, up from 13.6 in 2008 and almost double the low figure of 7.69 recorded in 1968.
The U.S. income gap between rich and poor is the greatest among Western industrialized nations.
--SNIP--
"More than other countries, we have a very unequal income distribution where compensation goes to the top in a winner-takes-all economy."
The report from the IBT on this matter tells us the those on the bottom of our country's "income ladder"--below HALF of the federal poverty line, which is equivalent to annual income of less than $10,977 for a family of four--has risen from 5.7% to 6.3% in the past year, alone. And, it the highest at this level since the government started tracking this metric, in 1975. (The article points out that the "...2009 poverty level was set at $21,954 for a family of four, based on an official government calculation that includes only cash income. It excludes non-cash aid such as food stamps.")
Professor Sachs then proceeds to highlight the differences between the two major political parties in the U.S. (Note: Bob Herbert, in his column from Saturday, "The Campaign Disconnect," did somewhat the same) and as he notes, it's really all about who's doing a better job of lying to the middle class. He asks us to remember that there was a time, not too long ago (in the 60's and early 70's), when there actually was a substantial public dialogue very much in support of subjects such as ending poverty and pollution, as well as a major, publicly-supported effort to bring forth nationalized health care (for the elderly, in terms of Medicare). And, support for these initiatives were, at least to some extent, part and parcel of the MSM coverage of these issues, as well.
Nowadays, however, as Paul Krugman reminds us in his Monday NYT op-ed, which is nothing short of a total evisceration and takedown of our MSM, and more specifically, Fox News and Rupert Murdoch, and the Koch brothers, among others (See: "Fear and Favor)," Republicans obtain good press coverage the old-fashioned way: they buy it! And, by the way, as Krugman tells us, the fact that Fox is cutting paychecks to every potential 2012 GOP Presidential nominee, except for Mitt Romney, is conveniently overlooked by most in the current MSM narrative, as well.
Fear and Favor
By PAUL KRUGMAN
New York Times
October 4, 2010
...Now, media moguls have often promoted the careers and campaigns of politicians they believe will serve their interests. But directly cutting checks to political favorites takes it to a whole new level of blatancy.
Arguably, this shouldn't be surprising. Modern American conservatism is, in large part, a movement shaped by billionaires and their bank accounts, and assured paychecks for the ideologically loyal are an important part of the system. Scientists willing to deny the existence of man-made climate change, economists willing to declare that tax cuts for the rich are essential to growth, strategic thinkers willing to provide rationales for wars of choice, lawyers willing to provide defenses of torture, all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultrawealthy families.
--SNIP--
....Well, for one thing, Fox News seems to have decided that it no longer needs to maintain even the pretense of being nonpartisan...
Nobody who was paying attention has ever doubted that Fox is, in reality, a part of the Republican political machine; but the network -- with its Orwellian slogan, "fair and balanced" -- has always denied the obvious. Officially, it still does. But by hiring those G.O.P. candidates, while at the same time making million-dollar contributions to the Republican Governors Association and the rabidly anti-Obama United States Chamber of Commerce, Rupert Murdoch's News Corporation, which owns Fox, is signaling that it no longer feels the need to make any effort to keep up appearances...
--SNIP--
...So the Ministry of Propaganda has, in effect, seized control of the Politburo. What are the implications?
Perhaps the most important thing to realize is that when billionaires put their might behind "grass roots" right-wing action, it's not just about ideology: it's also about business...
Yes. It's not just about ideology; it's also about business....
And, speaking of the devil, in the lead-up to the Great Recession, in 2007 and 2008, 40% of all U.S. business' profits were to be found in our financial services sector. And, of course, that brings us to the woefully inadequate Dodd-Frank/FinReg legislation (a/k/a Wall Street reform legislation) just signed into law, as well as the current, absurdly over-the-top MSM bullshit/hype concerning the cost of the "TARP" bailout.
Frankly, I think MSM coverage of both of these subjects have morphed into nothing short of the downright-surreal, subject to daily distortions in our country's media (and, yes, sometimes even here on Daily Kos). As recently as this past weekend, this has also been noted by people such as Center for Economic Policy and Research economist Dean Baker, NY Times Pulitzer Prize-winning journalist Gretchen Morgenson, and M.I.T. economist Simon Johnson, among many others.
DEAN BAKER: "The Cost of the TARP: One More Time."
The Cost of the TARP: One More Time
Dean Baker
Center for Economic and Policy Research
"Beat The Press" blog
Sunday, 03 October 2010 15:07
Since some folks are determined to spread nonsense about the TARP, I suppose it's necessary for those of us not on Wall Street's payroll to keep trotting out the truth. The basic points of the TARP backers are:
1) it didn't cost us anything;
2) it was necessary; and
3) Dodd-Frank ensures that it will never happen again.
--SNIP--
Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time...
--SNIP--
Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy...
--SNIP--
Claim 3 ignores the fact that we have bigger too big to fail banks than we did before the crisis...
--SNIP--
In short, the TARP opponents are absolutely right. TARP was an unncessary giveaway to the Wall Street crew that was responsible for the financial crisis.
GRETCHEN MORGENSON: "Count on Sequels to TARP."
Count on Sequels to TARP
By GRETCHEN MORGENSON
New York Times
October 3, 2010
THE government is pulling a sheet over TARP, the Troubled Asset Relief Program created during the panic of 2008 to bail out the nation's financial institutions. With the program's expiration on Sunday, we can expect to hear lots of claims from the folks at the Treasury that it was a great success.
Such assertions would be no surprise from a political class justifiably concerned about possible taxpayer unhappiness, the continuing economic turmoil and the midterm elections. But if we have learned anything during this crisis, it is that the proclamations emanating from the Washington spin machine must be taken with an extra-hefty grain of salt.
Consider the claims made last summer that the Dodd-Frank financial reform act reduces the threats that large, interconnected banks pose to taxpayers and the economy when the banks are deemed too big to fail. Indeed, as regulators hammer out the rules governing derivatives transactions, it's evident that the law has created a new set of institutions that will almost certainly be deemed too important to fail if they ever get into trouble. And that means there won't really be an effective way to keep those firms from taking big, profitable, short-term risks that are dumped on the taxpayers when the bets fail.
Morgenson points out the very inconvenient fact (for Wall Street and its supporters) that "...Dodd-Frank specifically provides that "in unusual or exigent circumstances," the Federal Reserve may provide such entities with a financial backstop, including borrowing privileges."
She says, "Remember this: Financial backstop is just another term for a taxpayer bailout."
And, more importantly, she points out that the Dodd-Frank legislation now allows the Federal Reserve to "...pay off the derivatives players directly, rather than indirectly as it did in the disastrous rescue of the American International Group."
Her conclusions, among many other salient facts, are that the U.S. taxpayer may endure significantly greater losses in the event of another AIG-type episode.
She concludes her piece by quoting Boston College professor of finance Edward J. Kane, who also happens to be an authority on regulatory failures....
"In a crisis, these institutions have much more power with the government than taxpayers do and they will make it seem in the interests of responsible officials to rescue them, whether that's Congress, the Treasury or the Federal Reserve. But the notion that you can always throw these losses on the taxpayer in the long run is very, very dangerous. There will come a time when the taxpayers will come close to revolt."
In other words, and among many other inconvenient facts about Wall Street faux reform, the Dodd-Frank legislation officially institutionalizes the concept of socialized losses and privatized profits for Wall Street's derivatives casino.
SIMON JOHNSON: "TARP Is Gone - But May Soon Be Back."
TARP Is Gone - But May Soon Be Back
Simon Johnson
Baseline Scenario
September 30, 2010 6:15AM
...three serious mistakes were made in the implementation of TARP.
First, there was no need to be so excessively generous to the financial executives (and their boards) at the institutions that had to be saved. In part this generosity was due to insufficient safeguards in the legislation (a point Ken Feinberg makes persuasively with regard to compensation), but mostly this was a choice insisted upon by key people in President Obama's economic team.
--SNIP--
Second and closely related, the Obama administration missed the opportunity to change the structure and the incentives of Wall Street when it had the chance, at the very beginning of 2009. The Treasury line, then and now, was that the "essential functions" of the financial system had to be preserved, and this meant no one could be "punished."
--SNIP--
Third, by the time the administration put forward its financial reform ideas, the big banks were back on their feet - and ready to throw huge numbers of lobbyists and unlimited cash into the fight to preserve their right to take inordinate risk and to mismanage their way into disaster.
The administration's proposals were weak to start with and were diluted by the House of Representatives (with a very few holding actions, most notably by Representative Paul Kanjorski). Surprisingly, and against great odds, the legislation was not gutted in the Senate - due primarily to the efforts of Paul Volcker (from the outside) and Senators Kaufman, Levin, Brown, and Merkley, the reforms became a little bit stronger. But the Dodd-Frank Act, while including some sensible consumer-protection measures, essentially does very little to reduce system risk as we move into a new credit cycle. In particular, there is nothing that ensures our biggest banks will be safe enough or small enough or simple enough so that in the future they cannot demand bailouts - the bailout potential exists as long as the government reasonably fears global financial panic if such banks are allowed to default on their debts...
In my diary from Friday, (See: "Wall Street Spawn Still Spew Spin On TARP/Bailout ... Again!") I provided extensively-annotated data (updated through September 30th, 2010) from author and former Bear Stearns senior executive and Goldman-Sachs managing director Nomi Prins which clearly demonstrates that Main Street's cash outlays and ongoing commitments to Wall Street were and are far greater than the amounts discussed in the TARP program, which is generally conflated by most folks on Main Street to the point where it's looked upon as the "Wall Street Bailout," in and of itself. In fact, the TARP program was just one of dozens of our federally-managed Wall Street bailout.
Prins, along with colleague Krisztina Ugrin, over the past three or four hours and just in time for the 10/2 March on D.C., has provided her followers with the latest update of her extremely well-annotated "Bailout Tally," as well as the second annual edition of the Wall Street "Bailout Anniversary Report."
In Ms. Prins' and Ms. Ugrin's reports, aside from the detailed, $2 trillion-plus in housing / real estate / mortgage industry supports, we learn that the top Wall Street firms, including AIG, have received at least one hundred billion dollars in non-TARP funds which may never be repaid. Yes, it's rather clear that at least $100 billion in taxpayer funds, above and beyond the TARP, have gone to Wall Street, and will never be seen again. Period. These taxpayer funds, quite precisely (which I list here including AIG), amount to the following disbursements: AIG $181,835,000,000, Bank of America $19,683,160,000, Citigroup $3,298,290,000, JPMorgan Chase $32,837,870,000, Goldman Sachs $12,900,000,000, Wells Fargo $5,089,038,890, and Morgan Stanley $25,486,220,000.
But, I wish to conclude this list of five items in this post by focusing upon the most recent travesties that are now playing out before us in the U.S. mortgage/foreclosure scene, since they dovetail back to those $2 trillion-plus (in fact it's much more than that, if you look closely at Prins' numbers) in funds which I've labelled "housing / real estate / mortgage industry supports," in the previous paragraph.
Over the past couple of weeks, our country's foreclosure nightmare has rapidly escalated into a series of travesties which could, IMHO, in and of themselves, create massive problems--far worse than anything we've read or heard in the MSM to date--for Wall Street, and perhaps the entire Mortgage-backed securitization sector. As a result, it is not inconceivable to say that the taxpayer's bailout tab for Wall Street could (not will, but "could") increase by a multiple of two, or more, as a result of this problem, alone. And, essentially, the U.S. voter is pretty much powerless to do anything significant about it.
# # #
A quick, "two-minute course" in mortgage-backed securitizations, from Wikipedia...
Mortgage-backed Security
A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans through a process known as securitization.
Securitization
The process of securitization is complicated, and is highly dependent on the jurisdiction upon which the process is conducted. First, mortgage loans are purchased from banks, mortgage companies, and other "originators". Secondly, these loans are assembled into collections, or "pools". While a residential mortgage-backed security (RMBS) is secured by primarily single-family real estate, a commercial mortgage-backed security (CMBS) is secured by commercial and multifamily properties, such as apartment buildings, retail or office properties, hotels, schools, industrial properties and other commercial sites. A CMBS is usually structured differently than a RMBS.
Thirdly, these pools are securitized through various legal methods dependent on the type of MBS and jurisdiction. This securitization is done by government agencies, government-sponsored enterprises, and private entities which may offer credit enhancement features to mitigate the risk of prepayment and default associated with these mortgages. Since residential mortgages in the United States have the option to pay more than the required monthly payment (curtailment) or to pay off the loan in its entirety (prepayment), the monthly cash flow of an MBS is not known in advance, and therefore presents risk to MBS investors. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools. In the United States, most MBS's are issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments. Some private institutions, such as brokerage firms, banks, and homebuilders, also securitize mortgages, known as "private-label" mortgage securities.[1][2]
# # #
Background from a NY Times Editorial from Saturday morning, October 3rd: "On the Foreclosure Front."
On the Foreclosure Front
Editorial
New York Times
October 3, 2010
The housing mess got a lot messier last week as JPMorgan Chase halted 56,000 foreclosures amid doubts that it had correctly followed laws on the foreclosure process. The announcement came soon after GMAC Mortgage suspended an undisclosed number of foreclosures to gain time to review its legal procedures. There may be more suspensions to come.
It is hard to be shocked. During the bubble, banks and other lenders ignored loan standards and stuffed the mortgage pipeline with toxic loans and related securities. Since the bubble burst, efforts to rework bad loans have been slowed by the lenders' resistance, and by their incompetence.
Now we learn that foreclosures, the end of the mortgage pipeline, have also been handled with a disregard for rules and standards. There is a pattern here -- one that lawmakers and policy makers must change.
At issue now are affidavits that a foreclosing lender must file in many states' courts. The person signing the affidavits attests to having knowledge of important facts, like the lender's legal standing to foreclose and the amount owed. But in a rush to process hundreds of thousands of foreclosures, it turns out that the signers at Chase and GMAC processed 10,000 or more documents a month -- "robo-signing" in industry parlance -- without personal knowledge of the facts...
However, shortly after reading the Times' editorial, we learned that (See: "4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet"), essentially, MOST of the mortgage foreclosure industry has existed based upon this house of grossly fraudulent documentation for roughly five years!
4ClosureFraud Posts Lender Processing Services Mortgage Document Fabrication Price Sheet
Yves Smith
Naked Capitalism
Sunday, October 3, 2010 12:01AM
A bombshell has dropped in mortgage land.
We've said for some time that document fabrication is widespread in foreclosures. The reason is that the note, which is the borrower IOU, is the critical instrument to establishing the right to foreclose in 45 states (in those states, the mortgage, which is the lien on the property, is a mere "accessory" to the note).
The pooling and servicing agreement, which governs the creation of mortgage backed securities, called for the note to be endorsed (wet ink signatures) through the full chain of title. That means that the originator had to sign the note over to an intermediary party (there were usually at least two), who'd then have to endorse it over to the next intermediary party, and the final intermediary would have to endorse it over to the trustee on behalf of a specified trust (the entity that holds all the notes). This had to be done by closing; there were limited exceptions up to 90 days out; after that, no tickie, no laundry.
Evidence is mounting that for cost reasons, starting in the 2004-2005 time frame, originators like Countrywide simply quit conveying the note. We are told this practice was widespread, probably endemic. The notes are apparently are still in originator warehouses. That means the trust does not have them (the legalese is it is not the real party of interest), therefore it is not in a position to foreclose on behalf of the RMBS investors. So various ruses have been used to finesse this rather large problem.
The foreclosing party often obtains the note from the originator at the time of foreclosure, but that isn't kosher under the rules governing the mortgage backed security. First, it's too late to assign the mortgage to the trust. Second. IRS rules forbid a REMIC (real estate mortgage investment trust) from accepting a non-performing asset, meaning a dud loan. And it's also problematic to assign a note from the originator if it's bankrupt (the bankruptcy trustee must approve, and from what we can discern, the notes are being conveyed without approval, plus there is no employee of the bankrupt entity authorized to endorse the note properly, another wee problem)...
Bold type is diarist's emphasis.
I'd strongly suggest reading Yves' entire post, because it clearly demonstrates the pervasive extent of these fraudulent documents that have run rampant throughout the mortgage industry over the past five years.
More importantly, you might want to read the last blockquoted paragraph from Yves' post, two paragraphs above. It's VERY IMPORTANT, IMHO.
The bottom line here, from what I can see, is that--between the holders of these mortgage-backed securities, Freddie Mac, Fannie Mae, Ginnie Mae, homeowners, the Wall Street TBTF firms, and the mortgage originators that are still in business--there's going to be a massive onslaught of litigation surrounding MOST foreclosed properties in most states, going forward. And, since Freddie, Fannie and Ginnie either managed or moved the lion's share of these MBS' vehicles, that means the taxpayer's clearly -- at least potentially -- on the hook for this possible liability, too!
Think about this, as I address Jeffrey Sachs' closing commentary in his post which started this tome.
# # #
Sachs told us, on Friday, what we're now reading about in the news, early this morning.
Basically, the bottom line in "America's Deepening Moral Crisis" is "...a long-term decline of US power and prosperity, because Americans no longer invest collectively in their common future."
He posits that we'll remain a wealthy society for "a long time to come," but the United States will become increasingly "...divided and unstable."
I would add that, after reading some of the economic headlines of even the past few hours, these statements are already morphing into self-evident truths.
And, Sachs concludes that our economic growth does not provide any guarantee as far as our well-being or political stability are concerned. He tells us our society has become "increasingly harsh." And, our oligarchs simply "buy their way to political power."
He also points out that "we've become addicted to consumerism," and we suffer from a dearth of "collective compassion." Ultimately, "...we risk winning economic productivity at the price of our humanity."
Here we are, a month out from the mid-term elections, and any one of a myriad (a veritable list) of events, with many of them generally beyond the control of our government (i.e.: increased turbulence in the mortgage marketplace, already-insolvent banks forced to writedown hundreds of billions in additional, unprojected mortgage losses; a major increase in the price of oil, possibly caused by the loss of the US dollar's hegemony in currency markets; unrest in Europe or elsewhere, such as Pakistan, or between China and Japan, and I'm just scratching the surface, etc., etc.) could turn our already-teetering economy into a trajectory which is little more than a 90-degree nosedive to hell.
The list is long. Our time is short. As I've said it before, the old saying, "Knowing the problem is half the solution," applies. Regrettably, when it comes to the public and the Democratic Party's talking points, however, that means we're a long way from even being halfway there.