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JPMorgan and other megabanks have now been caught in over a dozen major frauds, including LIBOR-rigging and bid-rigging; yet no prominent banker has gone to jail. Meanwhile, nearly a quarter of all mortgages nationally remain underwater (meaning the balance owed exceeds the current value of the home), sapping homeowners’ budgets, the housing market and the economy. Since the banks, the courts and the federal government have failed to give adequate relief to homeowners, some cities are taking matters into their own hands.
But Jamie Dimon is still golden.
The Stone that Brings Down Goliath? Richmond and Eminent Domain
March 3, 2014
Ellen Brown
In a nearly $13 billion settlement with the US Justice Department in November 2013, JPMorganChase admitted that it, along with every other large US bank, had engaged in mortgage fraud as a routine business practice, sowing the seeds of the mortgage meltdown.
JPMorgan and other megabanks have now been caught in over a dozen major frauds, including LIBOR-rigging and bid-rigging; yet no prominent banker has gone to jail. Meanwhile, nearly a quarter of all mortgages nationally remain underwater (meaning the balance owed exceeds the current value of the home), sapping homeowners’ budgets, the housing market and the economy. Since the banks, the courts and the federal government have failed to give adequate relief to homeowners, some cities are taking matters into their own hands.
Gayle McLaughlin, the bold mayor of Richmond, California, has gone where no woman dared go before, threatening to take underwater mortgages by eminent domain from Wall Street banks and renegotiate them on behalf of beleaguered homeowners. A member of the Green Party, which takes no corporate campaign money, she proved her mettle standing up to Chevron, which dominates the Richmond landscape. But the banks have signaled that if Richmond or another city tries the eminent domain gambit, they will rush to court seeking an injunction. Their grounds: an unconstitutional taking of private property and breach of contract.
How to refute those charges? There is a way; but to understand it, you first need to grasp the massive fraud perpetrated on homeowners. It is how you were duped into paying more than your house was worth; why you should not just turn in your keys or short-sell your underwater property away; why you should urge Congress not to legalize the MERS scheme; and why you should insist that your local government help you acquire title to your home at a fair price if the banks won’t. That is exactly what Richmond and other city councils are attempting to do through the tool of eminent domain.
The Securitization Fraud That Collapsed the Housing Market
One settlement after another has now been reached with investors and government agencies for the sale of “faulty mortgage bonds,” including a suit brought by Fannie and Freddie that settled in October 2013 for $5.1 billion.
“Faulty” is a euphemism for “fraudulent.” It means that mortgages subject to securitization have “clouded” or “defective” titles. And that means the banks and real estate trusts claiming title as owners or nominees don’t actually have title – or have standing to enjoin the city from proceeding with eminent domain. They can’t claim an unconstitutional taking of property because they can’t prove they own the property, and they can’t claim breach of contract because they weren’t the real parties in interest to the mortgages (the parties putting up the money).
“Securitization” involves bundling mortgages into a pool, selling them to a non-bank vehicle called a “real estate trust,” and then selling “securities” (bonds) to investors (called “mortgage-backed securities” or “collateralized debt obligations”).
By 2007, 75% of all mortgage originations were securitized. According to investment banker and financial analyst Christopher Whalen, the purpose of securitization was to allow banks to avoid capitalization requirements, enabling them to borrow at unregulated levels.
Since the real estate trusts were “off-balance sheet,” they did not count in the banks’ capital requirements. But under applicable accounting rules, that was true only if they were “true sales.” According to Whalen, “most of the securitizations done by banks over the past two decades were in fact secured borrowings, not true sales, and thus potential frauds on insured depositories.”
He concludes, “bank abuses of non-bank vehicles to pretend to sell assets and thereby lower required capital levels was a major cause of the subprime financial crisis.”
In 1997, the FDIC gave the banks a pass on these disguised borrowings by granting them “safe harbor” status. This proved to be a colossal mistake, which led to the implosion of the housing market and the economy at large. Safe harbor status was finally withdrawn in 2011; but in the meantime, “financings” were disguised as “true sales,” permitting banks to grossly over-borrow and over-leverage.
Over-leveraging allowed credit to be pumped up to bubble levels, driving up home prices. When the bubble collapsed, homeowners had to pick up the tab by paying on mortgages that far exceeded the market value of their homes. According to Whalen:
[T]he largest commercial banks became “too big to fail” in large part because they used non-bank vehicles to increase leverage without disclosure or capital backing. . . .
The failure of Lehman Brothers, Bear Stearns and most notably Citigroup all were largely attributable to deliberate acts of securities fraud whereby assets were “sold” to investors via non-bank financial vehicles.
These transactions were styled as “sales” in an effort to meet applicable accounting rules, but were in fact bank frauds that must, by GAAP and law applicable to non-banks since 1997, be reported as secured borrowings. Under legal tests stretching from 16th Century UK law to the Uniform Fraudulent Transfer Act of the 1980s, virtually none of the mortgage backed securities deals of the 2000s met the test of a true sale.
. . . When the crisis hit, it suddenly became clear that the banks’ capital was insufficient.
Today . . . hundreds of billions in claims against banks arising from these purported “sales” of assets remain pending before the courts.
Eminent Domain as a Negotiating Tool
Investors can afford high-powered attorneys to bring investor class actions, but underwater and defaulting homeowners usually cannot; and that is where local government comes in. Eminent domain is a way to bring banks and investors to the bargaining table.
Professor Robert Hockett of Cornell University Law School is the author of the plan to use eminent domain to take underwater loans and write them down for homeowners. He writes on NewYorkFed.org:
[In] the case of privately securitized mortgages, [principal] write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution . . . is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.
The problem is blowback from the banks, but it can be blocked by requiring them to prove title to the properties. Securities are governed by federal law, but real estate law is the domain of the states. Counties have a mandate to maintain clean title records; and legally, clean title requires a chain of “wet” signatures, from A to B to C to D. If the chain is broken, title is clouded. Properties for which title cannot be established escheat (or revert) to the state by law, allowing the government to start fresh with clean title.
New York State law governs most of the trusts involved in securitization. Under it, transfers of mortgages into a trust after the cutoff date specified in the Pooling and Servicing Agreement (PSA) governing the trust are void.
For obscure reasons, the REMICs (Real Estate Mortgage Investment Conduits) claiming to own the properties routinely received them after the closing date specified in the PSAs. The late transfers were done through the fraudulent signatures-after-the-fact called “robo-signing,” which occurred so regularly that they were the basis of a $25 billion settlement between a coalition of state attorneys general and the five biggest mortgage servicers in February 2012. (Why all the robo-signing? Good question. See my earlier article here.)
Until recently, courts have precluded homeowners from raising the late transfers into the trust as a defense to foreclosure, because the homeowners were not parties to the PSAs. But in August 2013, in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (July 31, 2013), a California appellate court ruled that the question whether the loan ever made it into the asset pool could be raised in determining the proper party to initiate foreclosure.
And whether or not the homeowner was a party to the PSA, the city and county have a clear legal interest in seeing that the PSA’s terms were complied with, since the job of the county recorder is to maintain records establishing clean title.
Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each).
Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars> in recording fees. (See my earlier article here.)
Counties thus have not only a fiduciary but a financial interest in establishing clean title to the properties in their jurisdictions. If no one can establish title, the properties escheat and can be claimed free and clear. Eminent domain can be a powerful tool for negotiating loan modifications on underwater mortgages; and if the banks cannot prove title, they have no standing to complain.
The End of “Too Big to Fail”?
Richmond’s City Council is only one vote short of the supermajority needed to pursue the eminent domain plan, and it is seeking partners in a Joint Powers Authority that will make the push much stronger. Grassroots efforts to pursue eminent domain are also underway in a number of other cities around the country. If Richmond pulls it off successfully, others will rush to follow.
The result could be costly for some very large banks, but they have brought it on themselves with shady dealings. Christopher Whalen predicts that the FDIC’s withdrawal of “safe harbor” status for the securitization model may herald the end of “too big to fail” for those banks, which will no longer have the power to grossly over-leverage and may have to keep their loans on their books.
Wall Street banks are deemed “too big to fail” only because there is no viable alternative – but there could be. Local governments could form their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. They could then put their revenues, their savings, and their newly-acquired real estate into those public utilities, to be used to generate interest-free credit for the local government (since it would own the bank) and low-cost credit for the local community. For more on this promising option, which has been or is being explored in almost half the state legislatures in the US, see here.
_____________
Ellen Brown is an attorney, president of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.
Who woulda thunk it?
How will future generations view the presidency of Barack Obama? In this issue of Harper’s Magazine, we present our latest commentary on the president and his legacy with a cover story by University of Pennsylvania political science professor Adolph Reed Jr. His essay is a compelling assessment of the failure of the American left. He begins with the left’s abandonment of Franklin Roosevelt’s New Deal principles and achievements, and goes on to criticize both Bill Clinton and Obama for having moved toward the center. Yet Reed’s harshest salvos are directed at the left itself, which he views as effectively dead: it stands for nothing, and is now defined only by its not being the right. A revitalized left is essential, he argues, to our electoral process — and the only way to achieve this is by resurrecting the moribund labor movement.
I can't say anymore than Michael Winship reports in Harper's Magazine.
In his Harper's piece, Reed argues that Democrats and liberals have become too fixated on election results, kowtowing to the status quo rather than aiming for long-term goals that address the issues of economic inequality. "During the 1980s and early 1990s, fears of a relentless Republican juggernaut pressured those left of center to take a defensive stance," he writes, "focusing on the immediate goal of electing Democrats to stem or slow the rightward tide. … Each election now becomes a moment of life-or-death urgency that precludes dissent or even reflection."
Reed says that the presidencies of Democrats Bill Clinton and Barack Obama too often acquiesced to the demands of Wall Street and the Right. Of Clinton's White House years, he clams, "It is difficult to imagine that a Republican administration could have been much more successful in advancing Reaganism's agenda."
And President Obama "has always been no more than an unexceptional neo-liberal Democrat with an exceptional knack for self-presentation persuasive to those who want to believe, and with solid connections and considerable good will from the corporate and financial sectors… his appeal has always been about the persona he projects - the extent to which he encourages people to feel good about their politics, the political future, and themselves through feeling good about him - than about any concrete vision or political program he has advanced. And that persona has always been bound up in and continues to play off complex and contradictory representations of race in American politics."
"The left has no particular place it wants to go," Reed asserts. "And, to rehash an old quip, if you have no destination, any direction can seem as good as any other… the left operates with no learning curve and is therefore always vulnerable to the new enthusiasm. It long ago lost the ability to move forward under its own steam…"
The Quixotic American Left
By Michael Winship, Consortium News
26 February 14
hat's a pretty pathetic knight up there on the cover of the March issue of Harper's Magazine. Battered and defeated, his shield in pieces, he's slumped and saddled backwards on a Democratic donkey that has a distinctly woeful - or bored, maybe - countenance.
It's the magazine's sardonic way of illustrating a powerful throwing down of the gauntlet by political scientist Adolph Reed, Jr. He has challenged the nation's progressives with an article in the magazine provocatively titled. "Nothing Left: The Long, Slow Surrender of American Liberals."
His thesis flies in the face of a current spate of articles and op-ed columns touting a resurgence of progressive politics within the Democratic Party - often pointing to last year's elections of Sen. Elizabeth Warren in Massachusetts and Bill de Blasio as mayor of New York City as evidence - although at the same time many of the pieces note that the wave is smashing up against a wall of resistance from the corporate wing of the party.
In a story titled, "Democrats will dive left in 2016 to distance themselves from Obama" - a headline designed to roil Republican fervor as well as impugn the opposition - the conservative Washington Times quoted Adam Green, cofounder of the Progressive Change Campaign Committee: "Democrats would be smart in the primary and general election to be more populist and stand up for the little guy more on economic issues."
In November, Harold Meyerson wrote in the progressive magazine, The American Prospect, "The constituencies now swelling the Democrats' ranks, Latinos and millennials in particular, have created the space - indeed, the necessity - for the party to move to the left."
And Dan Balz and Philip Rucker reported in The Washington Post earlier this month, "By many measures, the party is certainly seen as more liberal than it once was. For the past 40 years, the American National Election Studies surveys have asked people for their perceptions of the two major parties. The 2012 survey found, for the first time, that a majority of Americans describe the Democratic Party as liberal, with 57 percent using that label. Four years earlier, only 48 percent described the Democrats as liberal…
"Gallup reported last month that 43 percent of surveyed Democrats identified themselves as liberal, the high water mark for the party on that measurement. In Gallup's 2000 measures, just 29 percent of Democrats labeled themselves as liberals."
Nonetheless, Adolph Reed, Jr., who teaches political science at the University of Pennsylvania and is a long-time student of these things, makes a compelling case that we're hearing a death rattle more than a trumpeting call to arms.
In his Harper's piece, Reed argues that Democrats and liberals have become too fixated on election results, kowtowing to the status quo rather than aiming for long-term goals that address the issues of economic inequality. "During the 1980s and early 1990s, fears of a relentless Republican juggernaut pressured those left of center to take a defensive stance," he writes, "focusing on the immediate goal of electing Democrats to stem or slow the rightward tide. … Each election now becomes a moment of life-or-death urgency that precludes dissent or even reflection."
Reed says that the presidencies of Democrats Bill Clinton and Barack Obama too often acquiesced to the demands of Wall Street and the Right. Of Clinton's White House years, he clams, "It is difficult to imagine that a Republican administration could have been much more successful in advancing Reaganism's agenda."
And President Obama "has always been no more than an unexceptional neo-liberal Democrat with an exceptional knack for self-presentation persuasive to those who want to believe, and with solid connections and considerable good will from the corporate and financial sectors… his appeal has always been about the persona he projects - the extent to which he encourages people to feel good about their politics, the political future, and themselves through feeling good about him - than about any concrete vision or political program he has advanced. And that persona has always been bound up in and continues to play off complex and contradictory representations of race in American politics."
"The left has no particular place it wants to go," Reed asserts. "And, to rehash an old quip, if you have no destination, any direction can seem as good as any other… the left operates with no learning curve and is therefore always vulnerable to the new enthusiasm. It long ago lost the ability to move forward under its own steam…"
He continues, "With the two parties converging in policy, the areas of fundamental disagreement that separate them become too arcane and too remote from most people's experience to inspire any commitment, much less popular action. Strategies and allegiances become mercurial and opportunistic, and politics becomes ever more candidate-centered and driven by worshipful exuberance about individuals or, more accurately, the idealized and evanescent personae - the political holograms - their packagers project."
Reed concludes, "The crucial tasks for a committed left in the United States now are to admit that no politically effective force exists and to begin trying to create one. This is a long-term effort, and one that requires grounding in a vibrant labor movement. Labor may be weak or in decline, but that means aiding in its rebuilding is the most serious task for the American left. Pretending some other option exists is worse than useless."
Beyond his call for rebuilding the union movement, there's little solace in Reed's conclusion. If Hillary Clinton decides not to run, a strong progressive candidate could emerge for 2016, although doomsayers point to the failed candidacies of liberals George McGovern in 1972 and Walter Mondale in 1984.
One hope for Democrats is that, like the old joke about the two curmudgeonly brothers, the other one is worse. When it comes to the presidency at least, Republicans are even more riven and in disarray - a jousting tournament in which all the potential knights-in-chief are riding backwards in the saddle.
There is one liberal hope still breathing and we hope it's not its last.
We need to support the organic farmers who are creating a public benefit. (photo: Rodale Institute)
Stop Feeding the Beast and Start Feeding the People
By Coach Mark Smallwood, EcoWatch
25 February 14
ave you ever wondered how anyone makes any money on a $2 bag of nacho-cheese flavored corn chips or a .25¢ apple? Economists and policy wonks have been talking about how we privatize profits and socialize loss here in the U.S. for at least a decade. If your eyes glazed over when you read that, you're not alone. Unfortunately, we can't afford to ignore how this big picture idea affects each and every one of us. What does it mean for Main Street America?
How we grow our nation's food is the perfect snapshot. Organic activists and locavores have also been talking about the same concept for just as long, if not longer: The hidden costs of cheap, industrial food.
We have a system of predatory agriculture in which corporations (aka Big Ag) pursue private gain relentlessly regardless of the social consequences. To bring it closer to home, social consequences can be defined as anything from polluting our water, land and air to impacting the health of our families to making the business of farming economically unsustainable.
Costs such as environmental degradation, declining health and economic insecurity aren't reflected in the price tag because they aren't included in corporate budgets. This is one big reason why there are plenty of profits to be made in toxic agricultural chemicals, junk food and GMOs. But these costs are a burden on us all. Like every parent tries to teach their children: Actions have consequences.
All the garbage that allows Big Ag to make obscene profits is left to our communities to clean up. Take, for example, the Chesapeake Bay and Gulf of Mexico dead zones. Although caused in part by the overuse of synthetic fertilizers and poorly-timed applications of raw manures and biosolids, the negative effects and the "bill" for clean-up go to the American public.
We are what we eat, and we are carrying the costs of corporate greed. In the private profit/social loss equation farmers lose, consumers lose and communities lose.
But life cycle or true cost accounting when it comes to our food system is a numbers nightmare. How do we weigh and measure things like erosion, chemical leaching and run-off, and loss of pollinators like the honeybee and other biodiversity? How do we make a solid connection between food production/consumption and the insidious health impacts of chronic, low-dose exposure to agricultural chemicals and our obesity epidemic?
In a global summit last December whose goal was to "investigate why our current economic system makes it more profitable to produce food in ways that damage the environment and human health, instead of rewarding methods of production that deliver benefits," world leaders recognized that not all agricultural systems are created equal. Farming that not only sustains status quo, but creates a healthier environment is possible. "Some farming methods have public benefit," wrote Dan Imhoff in his coverage of the summit.
Luckily, it doesn't take a global summit or a panel of researchers to figure out what to do: We need to support the organic farmers who are creating a public benefit. It isn't just about growing more, bigger, faster. It is about nourishing ourselves, our families, our communities and the farmers who choose to feed us rather than feeding the corporate beast.
So there!
Can't wait for Spring as my crocus bloomed on February 20 and the daffodils bloomed just yesterday before last night's life-sucking freeze.
Brrrrrrr.
Send help!
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