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Archive for January, 2012
Tuesday January 31, 2012
Tuesday, January 31st, 2012A Web of Financial Fraud and Criminality: America’s Shadow Banking System By Ellen Brown
Tuesday, January 31st, 2012
URL of this article: www.globalresearch.ca/index.php?context=va&aid=28878
Global Research, January 26, 2012
The Wall Street Journal reported on January 19th that the Obama Administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the “robo-signing” scandal. The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed. Investigation reveals that it did not just happen occasionally but was an industry-wide practice, dating back to the late 1990s; and that it may have clouded the titles of millions of homes. If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail – fraud, forgery, securities violations and tax evasion.
To the President’s credit, however, he seems to have shifted his position on the settlement in response to protests before his State of the Union address. In his speech on January 24th, President Obama did not mention the settlement but announced instead that he would be creating a mortgage crisis unit to investigate wrongdoing related to real estate lending. “This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” he said.
The Deeper Question Is Why
Whether massive robo-signing occurred is no longer in issue. The question that needs to be investigated is why it was being done. The alleged justification—that the bankers were so busy that they cut corners—hardly seems credible given the extent of the practice.
The robo-signing largely involved assignments of mortgage notes to mortgage servicers or trusts representing the investors who put up the loan money. Assignment was necessary to give the trusts legal title to the loans. But assignment was delayed until it was necessary to foreclose on the homes, when it had to be done through the forgery and fraud of robo-signing. Why had it been delayed? Why did the banks not assign the mortgages to the trusts when and as required by law?
Here is a working hypothesis, suggested by Martin Andelman: securitized mortgages are the “pawns” used in the pawn shop known as the “repo market.” “Repos” are overnight sales and repurchases of collateral. Yale economist Gary Gorton explains that repos are the “deposit insurance” for the shadow banking system, which is now larger than the conventional banking system and is necessary for the conventional system to operate. The problem is that repos require “sales,” which means the mortgage notes have to remain free to be bought and sold. The mortgages are left unendorsed so they can be used in this repo market.
The Evolution of the Shadow Banking System
Gorton observes that there is a massive and growing demand for banking by large institutional investors – pension funds, mutual funds, hedge funds, sovereign wealth funds – which have millions of dollars to park somewhere between investments. But FDIC insurance covers only up to $250,000. FDIC insurance was resisted in the 1930s by bankers and government officials and was pushed through as a populist movement: the people demanded it. What they got was enough insurance to cover the deposits of individuals and no more. Today, the large institutional investors want similar coverage. They want an investment that is secure, that provides them with a little interest, and that is liquid like a traditional deposit account, allowing quick withdrawal.
The shadow banking system evolved in response to this need, operating largely through the repo market. “Repos” are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities—the securitized units into which American real estate has been ground up and packaged, sausage-fashion. The collateral is bought by a “special purpose vehicle” (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn. This money is used by the banks for other lending, investing or speculating. Gorton writes:
This banking system (the “shadow” or “parallel” banking system)—repo based on securitization—is a genuine banking system, as large as the traditional, regulated banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.
All Behind the Curtain of MERS
The housing shell game was made possible because it was all concealed behind an electronic smokescreen called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.). MERS allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws. Title would be recorded in the name of MERS as a place holder for the investors, and MERS would foreclose on behalf of the investors. Payments would be received by the mortgage servicer, which was typically the bank that signed the mortgage with the homeowner. The homeowner usually thinks the servicer is the lender, but in fact it is an amorphous group of investors.
This all worked until courts started questioning whether MERS, which admitted that it was a mere conduit without title, had standing to foreclose. Courts have increasingly held that it does not.
Making matters worse for the servicing banks, Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP—a government loan modification program designed to help at-risk homeowners meet their mortgage payments—the servicers would have to produce the paperwork showing the loan had been assigned to the trust.
The hasty solution was a rash of assignments signed by an army of “robosigners,” to be filed in the public records. But the documents are patent forgeries, making a shambles of county title records.
Complicating all this are tax issues. Since 1986, mortgage-backed securities have been issued to investors through SPVs called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid. Yet the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust’s closing date. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.
John O’Brien, Register of Deeds for the Southern Essex District of Massachusetts, calls it a “criminal enterprise.” On January 18th, he called for a full scale criminal investigation, including a grand jury to look into the evidence. He sent to Massachusetts Attorney General Martha Coakley, U.S. Attorney General Eric Holder and U.S. Attorney Carmen Ortiz over 30,000 documents recorded in the Salem Registry that he says are fraudulent.
From Lending Machines to Borrowing Machines
The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent, but because they have been required to in order to come up with the collateral (in this case real estate) to back their loans. It is the way our system is set up: the banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates.
“Instead of lending into the economy,” says British money reformer Ann Pettifor, “bankers are borrowing from the real economy.” She wrote in the Huffington Post in October 2010:
[T]he crazy facts are these: bankers now borrow from their customers and from taxpayers. They are effectively draining funds from household bank accounts, small businesses, corporations, government Treasuries and from e.g. the Federal Reserve. They do so by charging high rates of interest and fees; by demanding early repayment of loans; by illegally foreclosing on homeowners, and by appropriating, and then speculating with trillions of dollars of taxpayer-backed resources.
Not only has the system destroyed county title records, but it is highly vulnerable to bank runs and systemic collapse. In the shadow banking system, as in the old fractional reserve banking system, the collateral is being double-counted: it is owed to the borrowers and the depositors at the same time. This allows for expansion of the money supply, but bank runs can occur when the borrowers and the depositors demand their money at the same time. And unlike the conventional banking system, the shadow banking system is largely unregulated. It doesn’t have the backup of FDIC insurance to prevent bank runs.
That is what happened in September 2008 following the bankruptcy of Lehman Brothers, a major investment bank. Gary Gorton explains that it was a run on the shadow banking system that caused the credit collapse that followed. Investors rushed to pull their money out overnight. LIBOR—the London interbank lending rate for short-term loans—shot up to around 5%. Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt.
Fixing the System
The question is how to eliminate this systemic risk. As noted by The Business Insider:
Regulate shadow banking more tightly, and you probably have to also provide government backstops. Shudder. Try to shut the thing down or restrict it and you suck credit out of the system, credit which much of the non-financial “’real” economy uses and needs.
Interestingly, countries with strong public sector banking systems largely escaped the 2008 credit crisis. These include the BRIC countries—Brazil Russia, India, and China—which contain 40% of the global population and are today’s fastest growing economies. They escaped because their public sector banks do not need to rely on repos and securitizations to back their loans. The banks are owned and operated by the ultimate guarantor—the government itself. The public sector banking model deserves further study.
Whatever the solution, a system that requires the slicing and dicing of mortgages behind an electronic smokescreen so they can be bought and sold as collateral for the pawn shop of the repo market is obviously fraught with perils and is unsustainable. Please contact your state attorney general and urge him or her not to go through with the robo-signing settlement, which will be granting immunity for crimes that are not yet fully known. Phone numbers are here. The surface of this great shadowy second banking system has barely been scratched. It needs a very thorough investigation.
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
BOOK: Web of Debt by Ellen Hodgson Brown
Description
Publication Date: January 1, 2012
EXPLODING THE MYTHS ABOUT MONEY. Our money system is not what we have been led to believe. The creation of money has been privatized, or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the Federal Reserve, the branches of which are 100% privately owned. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money. Web of Debt unravels the deception and presents a crystal clear picture of the financial abyss towards which we are heading. Then it explores a workable alternative, one that was tested in colonial America and is grounded in the best of American economic thought, including the writings of Benjamin Franklin, Thomas Jefferson and Abraham Lincoln. If you care about financial security, your own or the nation’s, you should read this book.
EIA: Today’s Gasoline Prices Monday, January 30, 2012
Tuesday, January 31st, 2012
Weekly Retail Gasoline Prices, Regular Grade, by Week and PADD (Self Service Prices per Gallon, Including Taxes) Date 1/16/2012 1/23/2012 1/30/2012 U.S. 3.391 3.389 3.439 PADD 1 - East Coast 3.431 3.456 3.522 PADD 1a - New England 3.482 3.507 3.575 PADD 1b - Central Atlantic 3.460 3.494 3.548 PADD 1c - Lower Atlantic 3.394 3.412 3.486 PADD 2 - Midwest 3.362 3.307 3.349 PADD 3 - Gulf Coast 3.210 3.228 3.291 PADD 4 - Rocky Mountain 3.003 3.012 3.029 PADD 5 - West Coast 3.607 3.623 3.650 PADD 5b - West Coast less CA 3.447 3.466 3.493 California 3.700 3.714 3.741
http://www.eia.gov/petroleum/gasdiesel/
Op-Ed: Redefining risk and reward amid changing economy – Robert Reich
Tuesday, January 31st, 2012
San Francisco Chronicle
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/01/29/IN3F1MTOH8.DTL&type=printable
Robert Reich
Public policy professor Robert Reich says [Mitt] "Romney is right: Free enterprise is on trial. But he’s wrong about the question at issue. It’s not whether America will continue to reward risk-taking. It’s whether an economic system can survive when the real risks are so disconnected from the rewards."
The Truth About the Conservative Mind: Why Reactionaries from Edmund Burke to Sarah Palin Have Fought Real Liberty by Corey Robin
Tuesday, January 31st, 2012
Corey Robin / The Chronicle of Higher Education
Conservatism is a reaction to democratic movements, like OWS, that challenge the authority of elites.
January 29, 2012 |
The following is an adapted excerpt from Corey Robin’s "The Reactionary Mind: Conservatism from Edmund Burke to Sarah Palin." Click here to buy a copy.
It’s been a rotten few months for the nation’s wealthiest 1 percent. From the senatorial candidacy of Elizabeth Warren to Occupy Wall Street, economic elites have faced a concerted attack on their riches and power, their arrogant and unaccountable ways. And you can hear it in their voices, or at least the voices of their spokesmen. House Majority Leader Eric Cantor declared, "I, for one, am increasingly concerned about the growing mobs occupying Wall Street and the other cities across the country." Mitt Romney told an audience in Florida that "I think it’s dangerous—this class warfare." So rattled is George Will that he’s been forced to pull out a playbook from an older time. All but calling Warren a Communist, he accused the Oklahoma-born scholarship kid of believing that the government "is entitled to socialize—i.e., conscript—whatever portion" of an individual’s property "it considers its share."
After decades of "compassionate conservatism," "a thousand points of light," and "Morning in America," dark talk of class warfare on the right can seem like a strange throwback. So accustomed are we to the sunny Reagan and the populist Tea Party that we’ve forgotten a basic truth about conservatism: It is a reaction to democratic movements from below, movements like Occupy Wall Street that threaten to reorder society from the bottom up, redistributing power and resources from those who have much to those who have not so much. With the roar against the ruling classes growing ever louder, the right seems to be reverting to type. It thus behooves us to take a second look at the conservative tradition, not just its current incarnation but also across time, for that tradition provides us with an understanding of why the conservative responds to Occupy Wall Street as he does.
Since the modern era began, men and women in subordinate positions have marched against their superiors. They have gathered under different banners—the labor movement, feminism, abolition, socialism—and shouted different slogans: freedom, equality, democracy, revolution. In virtually every instance, their superiors have resisted them. That march and démarche of democracy is one of the main stories of modern politics. And it is the second half of that story, the démarche, that drives the development of ideas we call conservative. For that is what conservatism is: a meditation on, and theoretical rendition of, the felt experience of having power, seeing it threatened, and trying to win it back.
Despite the very real differences among them, workers in a factory are like secretaries in an office, peasants on a manor, slaves on a plantation—even wives in a marriage—in that they live and labor in conditions of unequal power. They submit and obey, heeding the demands of their managers and masters, husbands and lords. Sometimes their lot is freely chosen—workers contract with their employers, wives with their husbands—but its entailments seldom are. What contract, after all, could ever itemize the ins and outs, the daily pains and continuing sufferance, of a job or a marriage? Throughout American history, in fact, the contract has served as a conduit to unforeseen coercion and constraint. Employment and marriage contracts have been interpreted by judges to contain all sorts of unwritten and unwanted provisions of servitude to which wives and workers tacitly consent, even when they have no knowledge of such provisions or wish to stipulate otherwise.
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Book: The Reactionary Mind: Conservatism from Edmund Burke to Sarah Palin by Corey Robin
Description
Late in life, William F. Buckley made a confession to Corey Robin. Capitalism is "boring," said the founding father of the American right. "Devoting your life to it," as conservatives do, "is horrifying if only because it’s so repetitious. It’s like sex." With this unlikely conversation began Robin’s decade-long foray into the conservative mind. What is conservatism, and what’s truly at stake for its proponents? If capitalism bores them, what excites them?
Tracing conservatism back to its roots in the reaction against the French Revolution, Robin argues that the right is fundamentally inspired by a hostility to emancipating the lower orders. Some conservatives endorse the free market, others oppose it. Some criticize the state, others celebrate it. Underlying these differences is the impulse to defend power and privilege against movements demanding freedom and equality.
Despite their opposition to these movements, conservatives favor a dynamic conception of politics and society–one that involves self-transformation, violence, and war. They are also highly adaptive to new challenges and circumstances. This partiality to violence and capacity for reinvention has been critical to their success.
Written by a keen, highly regarded observer of the contemporary political scene, The Reactionary Mind ranges widely, from Edmund Burke to Antonin Scalia, from John C. Calhoun to Ayn Rand. It advances the notion that all rightwing ideologies, from the eighteenth century through today, are historical improvisations on a theme: the felt experience of having power, seeing it threatened, and trying to win it back.
Congressman Ron Paul’s Texas Straight Talk: Failed Fed Policies Prolong the Agony
Tuesday, January 31st, 2012
Monday, January 30, 2012
Failed Fed Policies Prolong the Agony
“The Federal Reserve’s interest rate price-setting board, the FOMC, met last week. They will continue to set the federal funds rate at well below 1%, and plan to keep it low until the end of 2014. That’s a year and half longer than they planned when they met just last month. Chairman Bernanke says they are keeping interest rates so low for so long because the economic outlook warrants it…”
Click here to read the full article: http://bit.ly/yk0gUl
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