ProPublica is reporting that Freddie Mac has been placing “multi-billion dollar bets designed to only pay off when homeowners remain “trapped” in high interest rate loans, and that the government-owned mortgage monster began increasing such bets late in 2010, which they say is, “the same time Freddie was making harder for homeowners to get out of high-interest mortgages.”

Now, the ProPublica story goes on to say…

“No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.”

And I suppose ProPublica had to say that for whatever reason, probably because that’s what the Freddie Mac SpokesLiar said when they asked about this egregious, fraudulent, criminal behavior that is also AT BEST yet another FAILURE OF GOVERNMENT to protect the American people.

Now, let me be very clear here, so as not to leave any doubt in what we should all understand about this situation that has been uncovered by an investigation conducted by NPR and ProPublica…

1. Freddie Mac has essentially been nationalized. It is 100 percent funded by U.S. taxpayers because if it weren’t for U.S. taxpayers Freddie Mac would be bankrupt. 

2. As ProPublica also points out in its story, Freddie Mac’s charter “calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”  Really, Haldeman?  Or maybe, not so much.

3. The statement above about how Freddie’s traders are “WALLED OFF” from the people at Freddie who have restricted homeowners from getting lower rates so they could keep their homes is OFFENSIVE in so many ways I hardly know where to begin.

First of all, Freddie Mac… IT’S A BOLDFACED LIE.  Do you think you are dealing with a nation of 4 year-olds?  How dare you even try to make such a case to the American people?  Secondly, what right do you have to be “restricting homeowners” from doing ANYTHING?  You are a bankrupt mortgage company that failed so spectacularly that you have cost the American taxpayers incalculable and untold billions of dollars.  The way I see it, you have no right to “restrict” anyone from doing anything.

4. Mr. Charles Haldeman Jr. if you do not end up in prison for the rest of your life, it will be an abominable miscarriage of justice.  When you consider the state of the U.S. and even the world’s economy, and the fragile nature of our banking system, in which almost all trust has been destroyed… Freddie’s acts here constitute TREASON, and Mr. Haldeman should be considered nothing less than a TRAITOR to this country.

No, he didn’t declare war on the United States, or give aid and comfort to our enemies, but congress has, at times throughout our history, passed statutes creating offenses related to treason for acts that undermine the government or the national security, and in my mind, Mr. Haldeman as Freddie Mac’s Chief Executive, most certainly allowed such acts to occur in this case.

5. But Haldeman didn’t commit these acts alone… the others involved must be arrested and tried for these crimes so they may be brought to justice as well.  And where is Mr. Edward DeMarco, the head of the FHFA, the conservator of both Freddie Mac and Fannie Mae?

At an absolute minimum, and to avoid his own prosecution, if that’s even possible, we should all be calling for his IMMEDIATE RESIGNATION, and he should be delivering on national television his most profound apologies to the people of this country, for what he has overseen is a national disgrace at a level I’ve never even contemplated as being possible in this country.

6. Because you should make no mistake about this… the acts committed here have cost more than trillions of dollars in lost wealth, but beyond the incomprehensible monetary cost, they have cost American lives. 

There are children who will grow up without their loving parent or parents because of our foreclosure crisis, senior citizens who have lost all faith in our nation in the last years of their lives… families that have suffered in muted agony for months turned years… and to have used American taxpayer dollars to intentionally exacerbate the effects of the crisis, is so appalling… so contemptible… so utterly vile…  that it truly is unspeakable. 

Eric Holder & Lanny Breuer

Further, U.S. Attorney General Eric Holder should also immediately RESIGN in DISGRACE…

That these unconscionable trades of securities and derivatives, whatever they are, had to be uncovered by an investigation ProPublica and NPR illustrates the, at best laughable, and at worst  corrupt nature of Attorney General Eric Holder and his Department of In-Justice.

Not only has Eric Holder failed to prosecute any of the banking industry executives responsible for our catastrophic economic collapse, but he hasn’t even lifted a finger to do so, or even taken the time to tell the people of this country anything substantive about anything related to the crisis.

It should go with saying that he needs to be replaced, and perhaps this time we should not hire as our “top cop,” a lawyer from Covington & Burling, one of Washington’s biggest white shoe law firms, widely known to represent… WHILE HOLDER and BREUER WERE PARTNERS AT THE FIRM… some of the largest banks in the country, including Bank of America, JPMorgan Chase, CITIGROUP, WELLS FARGO BANK, MERS, one of the largest servicers, and yes… FREDDIE MAC too.

As reported by Huffington Post on January 19th…

“U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.

Covington represented Freddie Mac, one of the nation’s biggest issuers of mortgage-backed securities, in enforcement investigations by federal financial regulators.

A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.

Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.

But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”

And get this…

“Covington declined to respond to questions from Reuters. A Covington spokeswoman said the firm had no comment.”

Roger that.  I understand perfectly.  Let me see if I’ve got this straight…

• President Obama announces Making Home Affordable Program.
• Obama puts Treasury Secretary Geithner in charge of HAMP loan modification and HARP refinancing programs.
• Geithner appoints Fannie Mae administrator and Freddie Mac regulator of MHA programs.
• Obama puts Edward DeMarco in charge of FHFA.
• FHFA is responsible for oversight of Fannie and Freddie.
• Obama and Geithner say they want Fannie & Freddie to offer principal reductions to stem tide of defaults.
• But DeMarco says no to principal reductions, claims it’s because of “short-term accounting reasons.”
• In 2010, Obama nominates permanent replacement for DeMarco, but Republicans in Congress block nomination.
• Charles Haldeman Jr. is in charge of Freddie Mac.
• Late in 2010.Freddie starts making it much harder for homeowners to get out of high interest loans. 
• For example, during Thanksgiving week 2010, Freddie increases post-settlement delivery fees charged to borrowers refinancing.
• Also late in 2010, Freddie starts placing multi-billion dollar bets that pay off by keeping homeowners trapped in high interest loans.
• These investments are called “inverse floaters.” Instead of backed mainly by principal, these are banked by interest payments.
• Because inverse floaters are riskier, they pay much higher rate of return, if people remain in higher interest rate loans.
• Meanwhile, Sec. Geithner and President Obama continue to state publicly that they want loans refinanced and/or modified.
• It’s impossible  to believe that Obama, Geithner, DeMarco, and Haldeman haven’t interacted over the last two years.
• FHFA knew about Freddie’s purchase of $3.4 billion in inverse floaters in 2010.
• The Federal Reserve recently said Fannie and Freddie fees charged make it harder to refinance “difficult to justify.”
• And the U.S. Attorney General Eric Holder was a partner in the law firm representing Freddie Mac, along MERS and major banks.
• Freddie and Fannie need another multi-billion bailout in 2011… and will need more in future.

Does that about cover it?  Awesome.

And President Obama…

If you haven’t figured it out yet, and I think you have, you’ve hired the WRONG PEOPLE, or been given bad advice, because the way your administration has handled the financial and foreclosure crises is fast getting entirely out of anyone’s control.  Today’s crisis is very much like a tsunami in the middle of the ocean when it looks like a small bump on the water.  But it’s approaching the shore and when it arrives it is likely to be 1,000 feet tall and moving at 600 miles per hour.

You are where the buck stops, and ultimately it is your administration that has allowed Freddie Mac to commit these horrific acts against America’s distressed and vulnerable homeowners.  You are the one responsible for putting Covington and Burling lawyers in charge of the DOJ… you are the individual in which we placed our trust and you have let us down.

I wish I thought you were capable of redeeming yourself, but you can’t… can you?  You’re in too deep and can’t see a way out.  You allowed Washington’s powerbrokers and structure to take over your presidency and now you don’t know how to change the path you’re on… I can feel it.  I am truly sorry, as I’ve felt that way before in my life.

All I can say is that you are still the President of the United States and you can break what needs to be broken.  It’s all about inches, like the journey of 1,000 miles beginning with one small step.

ONE LAST THING… A NOTE TO PROPUBLICA and NPR…

Thank you for your work on this.  Now, if you haven’t already done so, would you mind sauntering on over to Fannie Mae to check out what’s trading places over there.  I’m pretty sure I already know, but I don’t want to say because frankly… I don’t want to be right.

And after that… maybe check out what’s trading at all the major banks… you know… just round up the usual suspects and that oughta’ do it, don’t you think?  Yeppers… I think you’ve just uncovered one of the reasons why it’s been so damn hard to get a loan modification.

Because it seems to me that the odds are outstanding that… just like “robo-signing” wasn’t… this ain’t no “isolated incident.”

Mandelman out.

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Mandelman & Field… OUT!

Haven’t you figured it out yet… if it wouldn’t be so rude, the GOP convention would be nominating OBAMA in 2012, right?

That’s why they’re running Newt, Santorum, Bachman, the black guy with hundreds of sexual harassment suits filed against him that he supposedly knew nothing about, what was his name?  He was awesome.  Rick Perry, another Texas Governor who can’t talk?  Ron Paul isn’t even a Republican, so don’t even go there.

There was Gary Johnson, or was his name John Garyson?  Jon Huntsman was Mormon 1.A.  And Tim Pawlenty had a cup of coffee in the race, took one look around and had to get back to running Minnesota.

Oh wait, I forgot about Thaddeus McCotter?  But then, so did you.

I think the inside joke was that no one told Mitt Romney that the whole thing was a giant gag… that they actually wanted Obama in 2012.  So, Mitt thought the others were actually trying to win. So then, remember when The GOP debates were in Nevada?  And they asked Mitt what to do about foreclosures and someone told him to say that he thought they needed to happen faster?  In Nevada?  Foreclosures need to happen faster?  Come on now… I was rolling on the floor.

I just know I’m right about this.  What about Newt’s plan for 9 year-old janitors in poor neighborhoods?  And you want me to believe that he’s seriously campaigning for president?  Come on now… and Newt’s in first or second place?  Sure he is. The man asks his wife for an open marriage, consults for Freddie Mac and bounces ten grand worth of checks… and then wins in South Carolina?  Look, I was born at night, but it wasn’t last night.

And the Godfather’s Pizza guy… Cain?  That was like a Saturday Night Live sketch.  Every day two or three more women show up and start yelling about how he sexually harassed them.  He had no idea that might happen?  Uh huh, sure.

Don’t even get me started on Bachman… I mean, who would have ever thought that Palin’s job could have been at risk.  But along came Michelle and she said, among so many other zingers…

“Carbon dioxide is portrayed as harmful. But there isn’t even one study that can be produced that shows that carbon dioxide is a harmful gas.”

Or what about when she was in South Carolina and she said “Happy Birthday” to Elvis on the anniversary of his death?  She was like watching Phoebe on the television sitcom, “Friends.”

And wasn’t Donald Trump in the race at the beginning too?  People, this is a show for sure.  “Candidate Trump, if you were president, what would you say to the leader of Iran.”  And Trump responds: “I’d simply tell him… You’re Fired.”  (Insert laugh track here.)

I knew something was up for sure when Huntsman started making sense, and they got rid of him immediately.

 Golfing with Boehner…

Ask yourself this question: Why would the Republicans want Obama out?  He does everything they want and more. 

He gave Wall Street untold trillions with no conditions… never closed Guantanamo, is still rearranging rocks in Afghanistan, made Bush look good by winning in Iraq… said he was going to spend $75 billion on helping homeowners but only spent $2.4 billion… let the bankers pay themselves whatever they wanted… threw out health care reform and replaced it with a gift to health insurance insurers…. didn’t regulate derivatives… what more could Republicans ask for?

Obama even alienated enough Democrats and Independents to hand the House back to the GOP in the midterms. Four more years of Obama and the Republicans will have a filibuster-proof majority in the Senate too.

I’m sure the GOP wanted to just go ahead and campaign for Obama in 2012, but how rude would that have been.  I mean, if Mitt Romney had come out saying what a great job Obama has been doing?  That would have been a total ‘no respect.’

So, they had to run someone who they could be sure had no shot whatsoever.  They put the word out and so may showed up, that they just said… “Go ahead, you can all go at it.  We’ll just book a hundred debates so you can all have a chance to pretend you’re running for president.  Just make sure you don’t start making sense out there.”

Mitt’s not sure what’s going on, so he just keeps changing his positions on everything.  They must have someone working with him every night so he knows how to cover the issues properly.

What’s wrong with business in America, Mitt?  “Too much regulation.”  What do we do about immigration?  “Build a fence.”  What’s your number one priority?  “Repeal ObamaCare.”  And, Iran?  “Nuke ‘em.”  Abortion? “Only in certain cases.”  Noooooo, Mitt. “Oh yeah, I’ve got this one… “  Okay, let’s try again… Abortion?  “Over my dead body.”   Good, Mitt, very good.

Of course, every time Obama goes on television they have to send Newt back out there to make sure he doesn’t actually win.

Hey, you can believe what you want.  I’m just saying…

Mandelman out.

Someone recently wrote to me saying that instead of continually telling everyone what’s wrong, I should tell them how to solve the problems we’re facing and I thought to myself… okay, fair enough.  This just isn’t that hard.  We’re not solving things because we don’t want to, not because no one can think of how to solve anything.

So, you ready… I’m going to show you solutions in ONE MINUTE and one solution at a time.. so please try to keep up okay?

1. Problem: Forging documents and filing fraudulent documents in public records… or “Robo-signing,” if you’d prefer.

1. Either pass a law that says these documents don’t need to be signed at all… or stop the filing of forged and fraudulent documents in public records… and Nevada has shown us how to do that… it’s easy and doesn’t cost a nickel.  And foreclosure filings in Nevada dropped by more than 80% as a result of what they did in that state, which was simply to make the penalties criminal and the fines higher for filing a fraudulent document in the public record.  Because, I don’t care if they need to be signed or they don’t need to be signed… but they don’t need to be forged under any circumstances.

2. In simpler terms: If Mickey Mouse is going to sign it, and Donald Duck is going to notarize it… THEN DON’T SIGN IT… because we don’t need it signed.  BUT… if we DO need it signed, then don’t forge it and file a fraudulent document into the public record.  If you do that, it’ll cost you thousands and you could end up in jail.

3. We already have millions of forged and fraudulent docs in our public records thank you very much, and 30 years from now some lawyer will have occasion to pull title docs for whatever reason, he’ll find a forged or otherwise fraudulent document(s) and we’ll be litigating the whole damn thing all over again.  We certainly don’t need that situation exacerbated.  The documents may need to be signed… but they don’t NEED to be forged.

4. We also don’t need to wait until the situation shakes out or the scope of the problem is known… or whatever.  There’s no reason to wait for any of that because it doesn’t matter how we answer any of the unanswered questions… the solution to however you want to define the problem is NOT under any circumstances going to be: “Oh, just forge the signature and file a fraudulent document in the public record.”  NO… that’s not allowed to be the answer no matter how you want to define the problem.

5. I’ve never lost the pink slip to my car… but I’m sure there’s a process to follow if that ever happens.  I call the DMV and fill out some forms and then I… blah, blah, blah… it’s never happened to me so I don’t know what the process is.  But I know what it isn’t.  It isn’t: “Fake one on your Mac, sign Donald Duck’s name, and use it for whatever…”  That is definitely not how it’s done.

6. There shouldn’t be ANY push back to what I’m suggesting here… NONE.  To those who say that the banks will oppose what I’m saying because I’m trying to stop foreclosures I reply: No, I’m not.  I haven’t said a word about stopping foreclosures, I’m talking about stopping the forging of documents and the filing of fraudulent documents into the public record.  I have all the confidence in the world that BofA, Chase and our state/federal  governments are more than capable of coming up with some other process… either that or pass a law that says all you need to do is place a red X on the dotted line… or leave the damn things blank… I don’t care.  But, forgery and fraud are not going to be our chosen methodology for anything ever.

7. The reason for my efforts, as I’ve explained to several state AGs and state legislators, is that what is going on now, with forged and fraudulent docs being used every day all over the country to foreclose on homes, is already changing the nature of the foreclosure crisis.  What was a terribly unfair, incompetent, cronyism, banker friendly, messed up situation is being transformed into organized crime.  Homeowners look at their title documents, and very easily see that the assignments and other affidavits have been robo-signed.  They have tangible proof of a crime having been committed.  They show the judge, he doesn’t care… and they lose their house.

8. That is the definition of organized crime… 5 huge crime families we call banks… committing crimes in the public view… and state law enforcement and the court system refusing to enforce the law because of connections with the banks.  That’s organized crime, period.  And human nature dictates that when people see that their government is failing to uphold the rule of law or enforce the laws against certain individuals or groups… well, they take the law into their own hands.  That’s always been true… it is in fact a fundamental human instinct.

9. If your son or daughter is harmed or your store or home is robbed… and the law refuses to do anything about it because of who you are relative to who the perpetrators are… want to know what happens?  Ask the KKK.  Someone takes the law into their own hands and someone gets shot in the head, or ends up hanging from a tall oak.  Every single time… and any of us are capable of doing just that… taking the law into our own hands.

10. Allowing forgery and fraud to go on unchecked is a BAD idea, and everyone should understand and agree with that.  And aren’t we lucky that we know exactly how to stop it… the State of Nevada has shown us the way.  So, change the law, increase the penalties and problem solved.  Now isn’t that a relief?

And… DING!  

The foreclosure crisis has already been allowed to grow out of control and destroy the American middle class.  Standing by idly while we watch it get even worse, when it’s easy and free to prevent that from happening, is beyond unconscionable.  And if we do it, then we deserve whatever we get as a result.

See, that wasn’t that hard, was it?   ONE MINUTE SOLUTIONS by Mandelman Matters.  Why didn’t I think of that?  Next solution tomorrow, so stay tuned.

Mandelman out.

Saturday night, while I was searching around on iTunes for a podcast on the economy… (OMG, did I just say that out loud?  How sad is that?  Let’s just keep that part about Saturday night between us, okay?)

But, you know the deal, right?  I’ve been doing more and more podcasts and a lot of people really like them and I wanted to see how other podcasts are done in case there was something I could do better or add in, whatever.  In other words, I was checking to see if there were any ideas I could steal… LOL

So, I happen upon a podcast published a few days ago… January 13, 2012… available free on iTunes: NPR on the Economy.  The show’s host is David Green from Morning Edition, and his guest, David Wessell, is the Wall Street Journal’s Economics Editor, and the author of “In Fed We Trust: Ben Bernanke’s War on the Great Panic.”

The topic was the Federal Reserve and how Fed officials have been talking to congress about how our country’s economy can’t recover without the housing market, so I figured… perfect… it’s my favorite issue.  Green opens the show by saying:

“Lately, Federal Reserve officials have been focusing on housing… they’ve been out in public pushing measures they think will help the housing market.”

Have they now, I thought to myself.  How could I have missed the Fed doing that?

Green kicked the discussion into gear by broadly asking Wessell what the Fed is trying to do.  He replied that Fed officials have been saying in speeches and in a 26 page white paper that’s apparently been sent to congress recently, that one reason our economy isn’t doing better is that our housing market is not healing very fast.

I couldn’t help but wonder how that idea could possibly take up 26 pages, but then remembering that it was the Federal Reserve we were talking about, I figured that the first 25 pages were probably cherry-picked data points showing how well the economy is doing, with this tidbit about housing on page 26.

Wessell went on to point out that the President of the New York Fed recently said the following:

“… it was difficult to achieve economic recovery unless the ongoing weakness in housing was addressed,” and that the new President of the San Francisco Fed, John Williams, talked about a “housing depression.”

The “housing depression” phrase caught my attention, as I’m sure it did yours, but then I figured he probably used the phrase in the context of what we would avoid, thanks to the swift and decisive actions of the Fed.

You see, I’m not falling for another goofy “we’re going to save the housing market plan,” that turns out to be another voluntary refinancing program that Fannie and Freddie have already pronounced DOA, but that we won’t hear the abysmal results for until next year at this time.

According to Wessell the Fed is now saying that they’ve done what they can to get the economy working better, and that now the other areas of the government are going to have to pay attention to getting the housing and mortgage market going again.

Sort of a funny way to phrase things, don’t you think?  It sort of made it sound as if we’re supposed to believe that the last three years have been somehow planned the way sub-contractors work together when building a home… “Okay, Congress… we’ve got the framing up, the electrical wired and the slabs poured so you can go ahead with the tile, the window treatments and doors.”

Of course, the reality is that the last three years have looked and felt more like a scene out of Ringling Bros. Greatest Show on Earth, when something like 50 clowns all come rushing in from everywhere, ten of them get out of a tiny car, one gets shot from a cannon, and three monkeys in spandex start circling on bicycles while blowing noisemakers.

Wessell then tells Green that the Fed is now saying that “the alphabet soup of programs that the government has tried to help housing and homeowners isn’t doing enough.”  Green asks if they had any suggestions as to what should be done and Wessell sounds almost exuberant when he replies that yes, “they’ve come up with a list of things they think the government ought to do.”

At this point, the anticipation was practically killing me, and I thought I might pee my pants if I didn’t hear what the Fed had in mind soon.  It’s an election year, you see… and as such, anything is possible.  If you don’t think so, just consider that Obama, after presiding over an administration that pumped $16 trillion into financial sector, is again running as some sort of populist.

So, Green and Wessell then start listing the things the Fed presented to congress in its white paper ostensibly in order to heal the housing market and thereby remove the last standing impediment to beginning our march back to economic prosperity in earnest.

And please remember… in the third paragraph from the top of this article, I placed a link to the specific NPR podcast to which I’m referring, and the reader is encouraged to listen to it after reading what follows to confirm that I have faithfully reprinted what was said by Wessell… verbatim, as it were.

What the Fed told congress will be in bold type, my questions and comments will be plain text.  I really need everyone’s help here, because I think I may have discovered some sort of glitch in the space-time continuum that would explain why Washington appears so entirely out of touch with reality and the rest of the country, if not the world. Either that, or maybe they’re all just dumb and that’s why they wanted government jobs.

 1.    The Fed thinks the government “ought to find a way to reduce the glut of houses for sale, because the banks have taken over so many foreclosed houses there’s just a glut of supply and they’d like to make it easier for banks and others to rent them out in order to reduce the number for sale.”

1. First of all, why does the Fed think there’s a “glut of houses for sale?”  Did someone tell them that’s the case because I think that person may have just been pulling their little Feddy legs.  You see… there isn’t any sort of “glut” of homes on the market.  That’s why it’s called the “shadow inventory,” right?  If the homes were on the market and for sale, I think they’d just call it “the inventory,” and drop the whole “shadow” part.
2. Banks renting out homes does nothing to reduce the number of homes for sale.  Renting out a vacant home does reduce the number of vacant homes, but renting a home doesn’t preclude its owner from selling it.  So, if a home was on the market before it was rented, it’s likely still on the market after you rent it out.
3. The only ways that one could reduce the supply of homes for sale would be to: 1) Stop building new homes and listing them for sale. 2) Stop kicking people out of the ones they own.  3) Tear down the houses listed for sale. 4) Start promising doctors, lawyers, or other high income or net worth individuals that are citizens of foreign countries that if they move here, we’ll give them a new car and send their kids to Harvard for free.  5) Start giving away homes on game shows.
4. And there are no anti-renting statutes in this country that I could find.  In fact, in this country it’s really already very easy to rent something to someone assuming there’s someone who wants to and can rent it.  Maybe someone should introduce the Fed to Craig’s list.

More importantly, are we experiencing a shortage of homes that are available for rent?  I looked online for rentals in zip codes all over the country, and there were rental properties available in all of them.  I think today there are two reasons that many people don’t have a home of their own in which to live: a shortage of money… or the shortage of jobs that pay good money.

If the Fed is so concerned that a glut of homes for sale will derail any chance we have for recovery in our housing market going forward, which in turn will prevent our broader economic recovery, then why doesn’t the Fed’s list suggest that congress do something to prevent the 10.4 million foreclosures that will occur in the next few years, as forecasted by numerous industry experts whose predictions at this stage are based on hard data and mathematics.

CONCLUSION:

Recognizing that without recovery in our housing market our nation can’t sustain any sort of broader economic recovery, the Fed thinks congress should concentrate on reducing the glut of homes for sale… the glut that technically doesn’t exist yet… by making it easier to rent out repossessed homes?

That’s what we should do instead of doing something to prevent the 10.4 million new foreclosures that are certain to occur in the next few years?  The Federal Reserve wrote a white paper to the United States Congress saying that instead we need to address a glut of homes for sale that isn’t here yet by making it easier to rent out repossessed homes?

Read the two paragraphs under CONCLUSION again… slowly.  Now, would anyone care to explain that whole situation to me, because I find the whole thing terrifying.

2. The Fed thinks that “more should be done to make sure that the lenders, Fannie and Freddie and the federal banking regulators haven’t over-reacted to the crisis and are being too stingy and too picky about lending.”  According to Wessell: “The Fed actually said that if mortgages had been this hard to get over the past few decades, we MIGHT today be a nation of renters.”

• The Fed told congress that if people couldn’t get mortgages over the last few decades we MIGHT today be a nation of renters?  No mortgages available MIGHT have meant more renters?  The Fed is not sure that fewer mortgages being available would lead to more renters??  Okay, but I wonder what else MIGHT have occurred.Then, the Fed is UNSURE about why lending in this country is bordering on non-existent and they want Congress to do more to investigate whether there’s been an over-reaction among “picky and stingy” lenders?  Did I get that right?

  Aren’t the guys at the Federal Reserve supposed to understand the issues surrounding lending?  They are, right?

• The Fed has lowered rates to right around zero percent and pumped TRILLIONS into the financial system through all sorts of vehicles… and it hasn’t had any more sustained impact on lending than had they burned incense while chanting Hopi fertility prayers.
• Is it possible in anyone’s mind that the volume of lending available in this country is related to the degree of over-reaction on some sort of pickiness and stinginess index for bankers?
• Or could it be that a powerful wizard has cast a super glue spell on our nation so that no matter what amount of cash is pumped into our lenders, it sticks to the walls of their vaults and therefore can’t be lent out no matter what.

Isn’t it clear by now that the problem with lending in this country is NOT a LIQUIDITY problem and therefore it cannot be addressed through the use of MONETARY POLICY, of which the Fed is in charge?

You don’t need to be an “industry expert” to know what I’m saying here is true.  If it were a liquidity problem, then lowering the rates and pumping cash into the system would have worked and increased lending.  It didn’t, so, it’s not… get it?

One more time…

In this country, ever since the third or fourth quarter of 2007, the securitization market, credit markets, and secondary mortgage markets collapsed and froze solid when investors stopped trusting the credit ratings on mortgage-backed securities and CDOs.  Since then, lending in this country had to be effectively NATIONALIZED.

I say that lending has been NATIONALIZED because over the last three or four years, something north of 95% of the loans related to residential real estate were either Fannie, Freddie, FHA, Ginny, and… well, no that’s it, actually.

Remember when the Fed bought $1.5 trillion in mortgage-backed securities a few years back?   Do you understand WHY the Fed bought those mortgage-backed securities?  Because NO PRIVATE INVESTORS WOULD BUY THEM.  And why might that have been?  Anyone?  Anyone?  Come on now class… let’s not always see the same hands.

They don’t TRUST the securities anymore, very good class.  Why doesn’t the Fed remember any of this?  Or for that matter, the Economics Editor from the Wall Street Journal… to say nothing of the folks at NPR?

3.    According to Wessell, the Fed “is looking for alternatives to foreclosure, that if someone is not going to be able to pay their loan, and a lender is going to have to take it over, they’d like to find a way to speed the process up so it’s not so cumbersome.”

Okay, so the Fed is “looking for alternatives to foreclosure,” but what the Fed means by that is that they want the foreclosure process to be less “cumbersome?”  Less cumbersome than it is now?  Seriously?  What would that process look like, I’m curious to know?

I mean, now… in order to foreclose as a servicer, you don’t need much more than the relatively unsubstantiated claim that the borrower is not making their mortgage payments.  You don’t need to prove you’re the representative of the actual investor(s).  You don’t need to prove that the trust actually holds the note or that it was properly negotiated into the trust.   You can use a MERS assignment, even though it’s been established that the MERS database is often wrong.  You don’t need to show an unbroken chain of title.

In the non-judicial foreclosure states, you need even less, but my point is that you need so little to foreclose in either type of state that servicers have in numerous instances foreclosed on the wrong homes… yes, even with judicial oversight, the wrong home was foreclosed upon more than once or twice.

And, by the way, should you need any sort of paperwork to effectuate the foreclosure, is absolutely SOP to simply manufacture the documents and forge a signature or two… or three… a few hundred thousand times is fine.  Robo-signing is the norm, and I hear the forgeries are getting better, meaning they’re harder to detect.

Oh sure, Nevada has a new tougher law about these things, and other states are sniffing around the need to change things as well, but the Fed wants a “less cumbersome” foreclosure process?

So, what might such a process look like? 

Maybe the whole thing could be handled by phone or online?  That would probably cut down on the need for forged documents.  You could just call everything in.  The screen would just ask the foreclosing party a series of questions, like do you have the right to foreclose?  Yes.  Is this borrower in default?  Yes.  After one or two more questions, the servicer could just email the borrower the eviction notice.

That would be “less cumbersome.”

Look, 85% of homeowners go through the foreclosure process unrepresented by council… they just give up and leave.  Borrowers are not slowing the foreclosure process down or making it too burdensome.  Servicers are, in the vast majority of cases, and by vast I do mean almost all, able to mow down delinquent homeowners at will.

Last fall, I believe Treasury officials admitted that they thought HAMP a success because it slowed down the foreclosure process at a time when the banks couldn’t afford to take back that many homes.  That sentence speaks to accounting policy, and it’s why the banks haven’t taken more homes back to-date.  It’s not that the process is too cumbersome.

And I absolutely promise you… the Fed knows this intimately.

WRAP-UP…

After those stunningly brilliant and thought-leading insights, the host asked Wessell what the reaction from congress has been… and Wessell replied first by exclaiming what a good question that was.  I sounded like Wessell might have given Green a cookie, if he’d had one in his pocket.

Wessell then said the reaction has been “mixed,” and that Sen. Orin Hatch of Utah, a member of the powerful Senate Finance Committee, “sent a blistering letter to Bernanke saying that the Fed is treading on the turf of congress and the regulators and ought to back off and that he’s sure that the Fed wouldn’t appreciate a white paper from congress outlining how the Fed should be thinking about monetary policy.”

Ohhh, snap!

Wessell went on to explain…

“… some people think that this is putting pressure on the regulator of Fannie and Freddie… the FHFA… to do something more to help the housing market during an election season… the Fed says that’s not so.

 

Others say that maybe what the Fed is doing is giving the regulator some cover here by saying that the Fed thinks this is a good idea, it’s in the long-term interests of the taxpayer so we ought to do something here.”

 

Now, Wessell is talking about Ed DeMarco, the guy in charge of the FHFA, which is the conservator for the bankrupt Fannie and Freddie.  We’ve been over this with DeMarco in the past and he’s been very clear that his job is to protect Fannie and Freddie in the short run… period.

I want to be blunt here… whoever Wessell got either of those “insights” from… whichever nameless source… they’re both meaningless.

In fact, the whole podcast is meaningless, and that’s at some of its most useful moments.  What the heck is going on here?

How does the Fed write a white paper and present it to the United State Congress that is packed with proof positive of an entirely inadequate level of knowledge, understanding… education, even?  Am I going to find out that next week, the Fed sends congress a while paper about some issue from 4-5 years ago, and NPR treats it like it’s hot-off-the-press news again.

Is this evidence of a time warp of some design?  Am I on the Truman Show and none of this is real?  Are the politicians in D.C. that amateurish and obtuse?  Do our politicians simply not care, because so few of us pay any attention?  And what in the world happened to NPR?  Was that podcast produced for young children with Down Syndrome or some other physically or mentally impaired group?

I’m serious about this… I want to know how this podcast exists. It’s not 2008… are the people involved just that shallow as far as to their knowledge of the subject?  If you’re not with me here, I’d suggest you go back and read what was said slowly.  Or, better yet, go up to the third paragraph from the top and you can hear moron one and moron two do idiocy in harmony.

That was David Green on Morning Edition on National Public Radio with David Wessell, Economic Editor from the Wall Street Journal, who joins us regularly to talk about the economy…

Mandelman out.

I was born and raised in the Northeast… born in Manhattan… father’s family from Boston with too many Harvard grads to count… and I grew up in Pittsburgh.  As a result… well, it’d be more than safe to say that I’ve never been at risk of being confused with a Southerner.  To my knowledge, after meeting me, nary a soul has later posited: “I forgot to ask, is Martin originally from Alabama or Mississippi?”

Truth be told, people from the Northeast are not bothered in the least by the fact that they’re never mistaken for Southerners.  Truth be told, as soon as many Northeasterners hear an opinion uttered in a Southern accent, we get tempted to respond by saying things like, “Thanks Ebb.  Now go on… don’t you have a lunch counter to segregate, or something like that?”

All right, calm down… it’s a joke… sort of… but my point here is that I’m familiar with the pompous air of intellectual superiority invariably inbred in the stereotypical cartoon Northeasterner, but let’s face it… you held onto the whole segregation thing far too long, and whenever there’s controversy over whether evolution should be taught alongside “creation science,” in public schools, it’s never coming out of Philadelphia.

Alright, I’ll stop fooling around… you know what I’m saying, and besides my point is that while I perhaps used to be capable of leaning that way when it came to southern accents, once I turned 18 years of age, enlisted in the United States Air Force, and found myself sans hair wearing fatigues and combat boots and saluting second lieutenants like they were four-star generals, all that Northeastern intellectual superiority crap flew straight out the window… of the pick-up truck for which I was now inexplicably longing.

You meet and come to respect all kind of folk when you serve in the U.S. military, and before you know it you’re craving SOS on toast, and saying, “Thank you, Ma’am,” with Gomer Pyle-like enthusiasm for the extra scoop of sausage gravy ladled onto your plate.

The fact is, joining the service, as we used to call it, does wonders to wipe any sort of superior smirk of your face, no matter how it got there in the first place.  You act like an idiot at the NCO Club bar, as I did once just after my 21^st birthday, and a Master Sargent cured me of that little behavioral shortcoming with just one punch to my not-so-superior nose.  Say what you will about his methods, but that man knew how to get a point across.

So, why was I telling you about all this?  Heck if I know.… no, wait… I remember… it’s because although I grew up in the Northeast, over the years I’ve learned to love the English language as spoken by those that hail from our nation’s southernmost states.  It’s not that I still didn’t cringe just a little every time Jesse Helms stepped to the podium, but I sure do love the way Southerners communicate with each other.

I remember sitting at the counter of a Waffle House in the Florida panhandle one time, watching these two women waitresses interact as they went about their work serving us all breakfast one morning.  One woman was clearly the more experienced of the two, and you could tell that she was in charge, even though they were both taking orders and refilling coffee cups as they communicated back and forth with each other as needed.

The less experienced waitress was having a problem with the coffee maker and figured she’d solicit help from her more experienced co-worker by calling out to explain the specific nature of the problem she had brewing.  Without missing a single beat in the tempo of the dialog, her more experienced co-worker replied in a tone and cadence straight off of the Steel Magnolia’s set: “Why Sugaah, I’m sure I don’t caahar.”

And that was that… the problem got solved and I can’t remember how… it didn’t matter… and I returned to my biscuits and gravy.

See, the New York City version of that same sentiment would have been something like, “Hey, what do I look like, Mrs. Coffee over here?  Figure it out yourself, bafangool.”  And then, silently… the patrons would have immediately divided into two camps, with half agreeing that the less experienced waitress was in fact, bafangool… and the other half thinking the more experienced waitress was a jerk… picking back up a dollar or two that they were about to leave her as a tip before she had revealed her true self through her chosen reply.

“Why Sugaah, I’m sure I don’t caahar,” was a much better way of saying things.  It was Southern speak for… “F#@k you,” but in a way that didn’t make anyone feel like taking sides.

So, why am I going the long way around the barn telling you this story?  Well, because of Federal Reserve Chairman Ben Bernanke, silly.  Aren’t you following me yet?  Okay, let me spell it out for you.

Yesterday, the Federal Open Market Committee or FOMC, which is a group of Federal Reserve Bank presidents and members of the Fed’s Board of Governors, that since being established by the Banking Act of 1933, meets eight times a year to set “monetary policy” by establishing the Fed’s short-term “open market operations,” which is what they call it when the Fed buys and sells U.S. Treasury securities.

The FOMC sets the target for the “federal funds rate,” the interest rate that banks charge each other for overnight loans, and that target rate impacts the interest rates charged on various loans to both businesses and consumers, which in turn impacts the U.S. money supply.

(If that’s all Geek to you and you’re interested in learning more about how it all works, here’s a link to a Wikipedia page about the FOMC, or send me an email and I’ll be happy to help you translate it from finance geek to regular English.)

Anyway, the FOMC releases transcripts of it’s meeting minutes and slide presentations five years after they’ve taken place, and yesterday the 2006 meeting transcripts were made public.  (You can find the entire year of 2006 FOMC transcripts, etc. HERE.  However, please consult your physician before reading too much of them, as certain combinations of medications and FOMC transcripts can lead to depression and suicidal thoughts… I’m pretty sure.)

That’s why you’ve seen a flurry of articles over the last 48 hours talking about how Bernanke, who assumed the throne in 2006, following the Reign of Greenspan that had lasted as long as anyone could remember, had totally blown it as far as seeing what the housing bust would bring.

Now, first let me just point out that none of this should be considered “news,” unless of course you’ve been incarcerated in Kazakhstan until quite recently, and even then, I have it on good authority that many Eastern Block prison guards were involved in flipping condos in Tampa, so you should have even been able to keep up with U.S housing market news from there.

That Bernanke blew it as related to the housing bust is legendary, although at this point, he’s blown it on so many other pivotal events that criticizing him for this is about like going after Joseph Stalin for overlooking the idea of a Bolshevik dental plan for Siberia’s Gulag-imprisoned dissidents.

Quite a few of my readers obviously felt as if this newly released evidence that Bernanke had in fact blown it would exert a vindicating influence on my psyche, as I’ve been known to rail on about how Bernanke couldn’t keep a hot dog stand on Atlantic City’s boardwalk open for the summer, let alone handle the responsibilities of guiding our country through what will someday be understood to have been, the Great Depression Part Deux… so, many sent me links to the plethora of “Ben blew it” type stories.

I, however, had already visited my personal physician and had him write me a note excusing me from having to expose myself to the 2006 FOMC transcripts… hey, I turned 50 this year and you just have to start limiting the risks you take at a certain point.  I mean, no one lives forever, and although I once went out on Lake Erie in a metal canoe during a lightning storm after drinking, as I recall, about half a gallon of Thunderbird wine, I was like 18 at the time and thus invincible.

Today if I tried something like that, I’d need to stop for Dramamine and TUMS at the very least, and then I’d realize that I didn’t really have the right shoes on, talking myself out of the whole thing and ending up back at the room in time for “The Daily Show,” with Jon Stewart, and perhaps some skim milk and Nilla Wafers if I felt like I needed a treat.

After maybe a dozen calls alerting me to the FOMC’s release of 2006 meeting transcripts, and another 25 people sending me links to this new evidence of Bernanke’s boobery, I somehow weakened and clicked on one that took me to AP ‘s coverage of the apparently earth shattering news.

Here’s how the story began…

WASHINGTON (AP) — Ben Bernanke presided over his first meeting as Federal Reserve chairman in March 2006 believing the nation’s economy could pull off a “soft landing” from falling home prices. Three months later, Bernanke had begun to grasp that he and others had underestimated the risk housing posed to the economy.

Okay, so… no.  That’s not even true.  Three months later than March of 2006 Bernanke realized he had underestimated something related to risk to the U.S. economy?  No, sir… not a chance in the world that’s even close to correct.  In fact, there’s so much wrong with that sentence, that I don’t even know where to begin, so all I’m going to say is…

“Why Sugaah, I’m sure I don’t caahar.”  And let’s move further into AP’s article…

Newly released transcripts of Fed meetings during Bernanke’s first year as chairman show that, among Fed officials, he often expressed the most concern about housing. But no official, according to the transcripts, recognized the extent of the damage a housing bubble would cause. A year later, the housing market’s collapse helped send the nation into its worst recession since the Great Depression.

Nope… again that is not a correct statement.  Do you see the inconsistencies here?  A minute ago the article said that Bernanke had realized something three months after March of ’06, which would have been June of ’06.  Now the article is saying that it was a year later that the housing market collapsed, sending us hurdling towards rampant overuse of Depression era metaphors.

Let’s keep going…

In fact, Treasury Secretary Timothy Geithner, then a Fed official, expressed confidence in September 2006 that “collateral damage” from housing could be avoided.

Well, big beans for Timmy.  In September of 2006, the housing bubble had barely even started to deflate… credit was still flowing like boxed wine at a Sunday afternoon Open House in Phoenix.  Heck, Bear Stearns wasn’t even institutionally lying to clients yet, and someone was able to convince BofA CEO Kenny Lewis that Countrywide was worth $4 billion.

(Besides, when Tim said that he thought we could avoid “collateral damage,” he was probably referring to FDIC Chair Sheila Bair.  I’m told that was his pet name fore Sheila… “Collateral Damage.”  Don’t look at me like that, that’s what I was told… prove I wasn’t.)

Back to the AP article…

… Geithner, who was then president of the Fed’s New York regional bank, expressed more confidence that the economy could weather the troubles in housing, saying the issue would be the impact on consumer and business spending.

 

The discussion by the members of the FOMC, the Fed board members in Washington and 12 regional bank presidents, gave no indication that any of them foresaw the devastating impact that the collapse of the housing bubble would have. The country fell into a deep recession and severe financial crisis that led to the loss of more than 8 million jobs.

Stay with me here… are you starting to see where this is going?

So, first of all we see that Tim Geithner is a babbling brook.  He’s talking about the economy “weathering” a cooling off of the housing market and how the issue would be some resulting impact on “consumer and business spending.”  Why is he saying that?

“Why Sugaah, I’m sure I don’t caahar.”  Let’s keep going…

Bernanke and other Fed officials have said that they failed to see the severity of the shock waves from the housing bust. But the transcripts of their closed-door discussions in 2006 provide new details about how the central bank was responding to the unfolding crisis.

No they don’t.  The transcripts don’t provide any “new details about how the central bank was responding to the unfolding crisis,” unless maybe this reporter is 11 years old and everything he reads is to him, a “new detail.”  The transcripts could provide any such new detail, because the crisis hadn’t happened yet.

The “crisis,” we’re all referring to today didn’t begin until August of 2007.  The official “recession,” didn’t officially begin until December of 2007, and it wasn’t announced as having begun in December of 2007… UNTIL NOVEMBER of 2008.

And the article wraps up with…

The transcripts of the final meeting of the year, in December, showed that Bernanke was still expecting that the economy would experience a “soft landing” in which growth would slow enough to cool inflation but not drop into a recession.

You see, as I’ve written many times in the past, our “CRISIS” has never been the deflating of a housing bubble.  It would have been… but it wasn’t.  It would have been… but in July of 2007… a year after the housing bubble started deflating in earnest, the sudden downgrading of debt securities tied to mortgages caused investors to turn cold essentially overnight, the credit markets froze solid making loans far less available overnight… and soon very near entirely unavailable.

Home prices went into a free fall, and various fleeting stimulus programs and tax incentives notwithstanding, they continue in that free fall today.

As more and more homeowners found themselves underwater, owing more than their home’s value… life events such as job loss, divorce and illness/injury started fueling foreclosures, which added to the other forces that were also creating record numbers of foreclosures… and the deflationary spiral slowly but steadily gained speed incinerating to-date more than $10 trillion in consumer wealth and eroding state revenues at an increasingly alarming pace.

The reporter who wrote the story for AP News referenced above, simply lacked the knowledge base to interpret the FOMC meeting transcripts.

The transcripts, in a way, do show that Bernanke and the Fed missed the housing bust, but only because the housing bust was entirely eclipsed by the global credit crisis, and that’s what we’ve been dealing with ever since the summer of 2007.

Want to have some fun?  Come with me… follow the bouncing boobs, Ben Bernanke and Hank Paulson… and don’t forget to watch the dates… with compiled quotes courtesy of austrianfilter.blogspot.com.

March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

 

April 20th, 2007 – Paulson: “I don’t see subprime mortgage market troubles imposing a serious problem. I think it’s going to be largely contained.  All the signs I look at show the housing market is at or near the bottom.”

 

June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”

 

July 12th, 2007 – Paulson: “This is far and away the strongest global economy I’ve seen in my business lifetime.”

 

October 15th, 2007 – Bernanke: “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.”  (That was the last time we heard from Bernanke on this subject until February of 2008.)

 

February 29th, 2008 – Bernanke: “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”

 

February 28th, 2008 – Paulson: “I’m seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street.”

 

March 16th, 2008 – Paulson: “We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.”

 

March 18th, 2008 – Bear Stearns Bailout Announced

 

May 7, 2008 – Paulson: ‘The worst is likely to be behind us,”

 

May 16th, 2008 – Paulson: “In my judgment, we are closer to the end of the market turmoil than the beginning.”

 

June 9th, 2008 – Bernanke: Despite a recent spike in the nation’s unemployment rate, the danger that the economy has fallen into a “substantial downturn” appears to have waned,

 

July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm,” “… in no danger of failing.  … they are adequately capitalized.”

 

July 20th, 2008 – Paulson: “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

 

August 10th, 2008 – Paulson: “We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)

 

September 8th, 2008 – Fannie and Freddie nationalized. The taxpayer is on the hook for an estimated $1-1.5 trillion dollars. Over $5 trillion is added to the nation’s balance sheet.

 

September 19th, 2008 – Bernanke: “… most severe financial crisis” in the post-World War II era. Investment banks are seeing “tremendous runs on their cash. Without action, they will fail soon.”

 

September 21st, 2008 – Paulson: “The credit markets are still very fragile right now and frozen. We need to deal with this and deal with it quickly.  The financial security of all Americans … depends on our ability to restore our financial institutions to a sound footing.”

 

September 23rd, 2008 – Paulson: “We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses, both small and large, and the very health of our economy.”

Look… are you feeling me here?  Do you see what I’m saying?  What’s the deal?  Are they lying or are they stupid, because there’s no way in the world we should be talking about whether the FOMC meeting transcripts show Bennie and the Feds missed the housing bust.

So, to everyone who sent me the news of the FOMC’s transcripts being released… thank you.  I always appreciate it when my readers send me links to news events they think I should know of, so don’t let my sarcasm about the whole thing prevent that from happening in the future.  But on this subject, I don’t need to be vindicated… what I need is for people to realize how distorted the coverage of the subject has been from the beginning.

Think about it… the banks and the mainstream media have us looking for love in all the wrong places.  We’ve been told to blame borrowers, brokers, servicers… everyone but the bankers who caused the global credit crisis and have continued to defraud… well, everyone involved as they’ve driven our nation’s economy to new lows.

And in the event that you’ve read all of this and still don’t agree, then at this point all I can think of to say to you is…

“Why Sugaah, I’m sure I don’t caahar.”

Mandelman out.

Oh, I know… it’s such a complex problem we’re having lately.  Clearly, it’s far too complicated a problem for any normal mortal brain to grasp…. there seems no hope that we shall ever be able to come to terms with what’s transpired.

Fine.  Absolutely ridiculous… but fine, I guess.  It’s rocket surgery… so be it.

It’s no wonder that we’re struggling to understand things, because according to some, the contributing factors to today’s too-complicated-to-understand crisis go all the way back to 1979.  I’m frankly surprised no one has tracked its roots back to the 1930s… although as I say that, I’m sure some have done just that.  Some are even blaming excessive regulation, a claim so entirely preposterous that it defies imagination.  To blame our global economic meltdown on excessive regulation, is like blaming 9-11 on excessive airport security.

The Attorneys General in Nevada, Massachusetts, Maryland, Arizona, and it is all but certain that there will be others to be named later, have all filed foreclosure process related lawsuits that read like John Grisham novels and in a few cases have even brought criminal charges having to do with what is clearly rampant forgery and fraud in the foreclosure process.

The Office of the Comptroller of the Currency (“OCC”) concluded their investigations in April of 2011, issuing “consent orders,” which basically said that the bankers were guilty of unsafe and unsound practices related to foreclosures, also specified a laundry list of felonious acts and nefarious behaviors.

And, although many are complaining… and perhaps justifiably so… about the absence of criminal prosecutions related to the bankrupting of our financial institutions, we have seen some record-setting settlements to civil lawsuits brought by the SEC… the agency’s settling with Goldman Sachs for $550 million related to the bank’s lack of disclosure in the Abacus 2007-AC1 CDO comes immediately to mind.  Oh, I know… GS admitted no wrongdoing, but that’s the sort of statement issued to placate lawyers and young children.  No one agrees to pay half a billion dollars for doing nothing wrong.

The proposed $285 million mortgage securities fraud settlement between Citigroup and the Securities and Exchange Commission was more of the same non-admission nor denial of guilt silliness, but at least it was rejected by Judge Jed Rakoff who described the deal as being “neither fair, nor reasonable, nor adequate, nor in the public interest,” and further that it deprived the public “of ever knowing the truth in a matter of obvious public importance.”

Citi is to face trial over the allegations in July 2012, but grown-ups should all know the score here… these banks were dirty in their dealings and they are guilty as all get out.  If that weren’t true, they would not be readily offering to settle for three hundred million dollars, and saying that the settlement does not include an admission of guilt is laughable.

There’s also a cadre of class action lawsuits against banks and mortgage servicers whose complaints filed with the courts make damn clear that laws have been broken with reckless abandon, regardless of the settlements-to-come, which I’m sure will also be delivered in no admission of guilt wrapping paper.

Okay, but for the moment anyway… I’m going to say something that will no doubt bother many engaged in the battle for truth, justice and the American way: So what and who cares?

I don’t want to debate with anyone whether they think the problem is bigger than I’ve made it out to be… or smaller.  That’s right… I don’t care which side of this fight you’re on.  For the purposes of this article, you can be a foreclosure defense fanatic who believes that our democracy, the rule of law, and entire free world’s fiscal future hangs in the balance, or you can be a banking industry apologist still claiming a victory in the Ibanez decision and describing robo-signing as merely dotting t’s and crossing i’s… and I don’t care which.

In simpler terms, maybe you think the situation related to foreclosures in this country is a floor wax… or maybe you see it as being a desert topping… my point here applies equally across the board regardless of your view.

However the debate is ultimately resolved, whether foreclosures are ultimately judged floor wax or desert topping… can we all agree on one thing?

The ANSWER to the problems we’re debating related to foreclosures CANNOT and WILL NOT be allowed to be forging signatures on fraudulent documents presented in courts and recorded in our public records.  Can we all please agree that there is NO CHANCE THOSE ARE THE ANSWERS… and I don’t give a rat’s petute how you want to frame the questions… the solution cannot be forgery and fraud, right?

It’s become abundantly clear that Wall Street’s investment bankers, in their bubble-inspired rush to securitize anything with the potential to generate a payment stream, and then rip someone’s face off, derivatively speaking… they screwed up everything but their bonus calculations.  (That documentation they unwaveringly get right, don’t you know.)

Who owns your loan?  I don’t know… and for the moment, I don’t care.  Is the MERS business model salubrious and copacetic, or has it undermined and permanently destroyed property rights in this country?  Not sure, and for the moment not interested.

Did investors invest in “Mortgage-backed Securities?”  Or, does the acronym MBS more appropriately stand for, “Mouthy-backed Sacrilege,” or perhaps, “Monetary-babbled Sacrifices?”  For the purposes of today’s discussion… just give it a rest.

For the moment, I don’t care about Pooling and Servicing Agreements unless they are in place to make sure a pool stays both clean and heated through the winter months.  And if the word “tranches” is really French for “slices,” then I’ll take a couple of tranches of the French Toast, three tranches of bacon, not too crispy, and your finest maple syrup, Garçon.

And I recognize that there is a veritable cluster of you still insistent that the irresponsible acts of Stockton, California’s homeowners effectively eviscerated all of Wall Street’s investment banking powerhouses along with most of the Sovereign Wealth Funds on the planet… and for today… why not… have at it.  For today, I’m even willing to endure your distinctive brand of faith-based foolishness.

But… regardless of how the questions associated with the foreclosure crisis continue to be answered, whether in the courts or state legislatures, we should be able to agree that whatever the questions are… the answer isn’t to allow forgeries of signatures on a fraudulent documents in order to evict someone from a home that can’t be sold for years anyway.  Fraud and forgery are never the answer to anything in a society governed by the rule of law.

If that is going to be allowed to happen, we… and I mean WE, as in ALL OF US… should demand that we stop signing such things altogether.  If a Linda Green look-a-like is going to sign a fraudulent affidavit so that it can be illegally notarized… just don’t sign it or notarize it. 

We don’t need to sign and notarize things if we are committing fraud and forgery every time we do so.  And we very clearly are… it is NOT, as the banks have told us in the past… any sort of isolated incident.

How do we know that?  It’s simple.  Nevada gave us the proof when it passed Assembly Bill 284, which took effect in October 2011. 

The new state law requires those foreclosing on a home to file an affidavit proving they have the right to bring the action — and it increases civil and criminal penalties for using fraudulent documents in a foreclosure.  That same month, foreclosures in Nevada declined by 75 percent.

History cannot be permitted to look back on this crisis and say… well, we fixed it looking the other way on issues that are quite literally forgery and fraud.  It’s as simple as that.  I don’t care who is or isn’t making their mortgage payment… that’s irrelevant.  I don’t care if it’s inconvenient for the banks to do something else.  But we cannot continue to allow our nation’s financial institutions to lie about the nature of the problem and then continue to attempt to solve whatever it is through rampant forgery and fraud.

It has to stop and I do mean NOW.  If you are reading this and you don’t see it the same way, you either lack the capacity for rational thought… or you are just an ass who would be well-served to avoid debating me in public, I assure you.

Euphemistically, they’re called austerity measures.  They hurt the oldest, youngest and poorest in a society.  And although you may not feel their sharp edge quite yet, such programs are very much upon us.

Those who know me know my views about foreclosures today.  In my view, it’s an economic crisis of endemic proportion that is needlessly incinerating the accumulated wealth of our country’s middle class to such a degree that at 50 years old, the idea of recovery in my lifetime is already laughable.  I see the foreclosure crisis as nothing more than a lose-lose scenario… a pointless race to a cancerous bottom with no prospects for winners to be present at its finish line.

I also see the foreclosure crisis through its numerical realities that will soon leave us with no choices… no options… like flotsam and jetsam, a society entirely lost, doomed to invariably and inadequately react, but with no hope of meaningful improvement.  I see the iceberg dead ahead, as the band plays on.

According to the Center on Budget and Policy Priorities, states are facing record shortfalls in fiscal year 2012 because state tax collections remain low, the cost of providing services is rising, and emergency federal aid has largely been depleted.  In 2012, state budget shortfalls started at $103 billion, but some percentage of that amount has already been closed by spending cuts as shown below.  However, 24 states have already projected shortfalls totaling $46 billion for FY2013.  As more states prepare estimates, this total is likely to grow.

The U.S. Census Bureau reports declines in state tax collections during this economic slowdown are the worst ever.  Sales taxes provide the largest source of state tax revenue, and they are steadily declining due to reductions in personal consumption and business purchases. Income taxes and other taxes are also falling as wages and investment income decline.

Of course, spending cuts also reduce economic growth even further.  With the federal aid for states now essentially over, taxes have to be increased and at least 30 states already have enacted tax increases, closed loopholes, restricted tax credits, increased tobacco taxes, raised tuitions, or implemented other revenue-raising measures.

And for those who think they are somehow going to remain above it all… the plain fact is, tax increases on higher-income families are understood to be the least damaging mechanism for addressing state fiscal deficits in the short run. Cutting government spending, or reductions in transfer payments to lower-income families have been proven to be more damaging to a state’s economy than tax increases focused on higher-income families.

When this has happened in Europe, we call them “austerity programs,” and they negatively and significantly impact everyone.  As I’ve assured my readers on countless occasions, no one is getting out of this unscathed.

In California and Massachusetts, recent studies have been conducted to quantify the monetary costs directly attributed to the foreclosure crisis.  Massachusetts found the grand total to be $4 billion a month, including lost equity, a number especially striking because it’s twice the amount forecasted by the CBO in 2007-08.

California’s study, conducted by the California Reinvestment Coalition in conjunction with the Alliance of Californians for Community Empowerment, broke down the costs of the crisis by county.  The following represents the costs of foreclosures for Los Angeles County alone, realized to-date:

• Costs to local governments – $19,229 PER FORECLOSURE for increased costs of safety inspections, police and fire calls, trash removal, and maintenance.  Total costs to LA County to-date… $1.2 billion.

• Property tax revenue losses of $481 million.

• Homeowner equity lost to-date – $78.8 billion.

• Between 2008 – 2012 Californians will have lost 2 million homes to foreclosure.  The costs to the state’s homeowners, local governments and property taxes are estimated to be $650 BILLION statewide.

For fiscal year 2012, California faces a $9.6 billion budget shortfall.  The state has already cut nearly all funding for services supporting HIV/AIDS patients, and it has completely eliminated funding for the state’s domestic violence shelter program and maternal, child, and adolescent health programs.

In addition, California has cut funding for the state’s Healthy Families program, the state’s CHIP program. To make up for the lost funds, the nearly 1 million children in the program will have to pay more for visits to health care providers, and many will have to pay higher premiums as well. These cost increases are certain to cause some percentage of families to drop from the program.

These types of cuts to state spending are only the tip of the iceberg, no pun intended. 

• An estimated 8,200 families in Arizona lost eligibility for temporary cash assistance. The time limit for that assistance was cut to 36 months from 60.
• Alabama has ended homemaker services for approximately 1,100 older adults. These services often allow people to stay in their own homes and avoid nursing home care.
• Colorado cut public school spending by $260 million, nearly a 5 percent decline from fiscal year 2010. The cuts equal more than $400 per student.
• Florida’s 11 public universities raised tuition by 15 percent for the 2010-11 academic year and with a similar increase in 2009-10, means a total two-year increase of 32 percent.
• In Minnesota, as a result of higher education funding cuts, approximately 9,400 students lost their state financial aid grants entirely, and the remaining state financial aid recipients will see their grants cut by 19 percent.
• Virginia’s $700 million in K-12 education cuts for the current biennium include the state’s share of school district operating and capital expenses, and funding for class-size reduction in Kindergarten through third grade.
• Washington reduced assistance for thousands of people physically or mentally incapacitated and unable to work in 2011. For 28,000 adults enrolled in the state’s Disability Lifeline program, the typical monthly benefit has fallen by $81 to $258 from $339.
• Changes in Connecticut’s Medicaid program will result in over 220,000 pregnant women, parents, caretaker relatives and disabled and elderly adults losing coverage for over-the-counter medications and nutritional supplements.
• Massachusetts has cut $2.2 million from HIV/AIDS prevention programs, and cut dental benefits for approximately 700,000 low-income residents. The cuts also ended a health insurance program for low-income legal immigrants.
• Michigan will end a medical coverage program for 950 adults with dependent children unable to afford employer-sponsored health insurance after transitioning from welfare to work and exhausting the 12-month transitional medical assistance available to them.
• New Hampshire’s fiscal year 2011 budget reduced the state hospital’s beds by 15, which will result in 500 fewer patients treated per year.
• New Jersey’s cuts will result in approximately 50,700 low-income adults losing access to health care coverage.
• Washington is increasing premiums by an average of 70 percent for a health plan serving low-income residents.  Premiums for the poorest plan members will double and are expected to cause between 7,000 and 17,000 enrollees with no medical plan coverage.
• Several states, including California, Michigan, Nevada, and Utah, have dropped coverage of dental and/or vision services for adult Medicaid recipients.

And that’s not even close to the whole story on what are a growing number of austerity programs that will soon be felt by every American citizen in one way or another.

• At least 31 states have implemented cuts that will restrict low-income children’s or families’ eligibility for health insurance or reduce their access to health care services.
• At least 29 states plus the District of Columbia are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or are significantly increasing the cost of these services.
• At least 34 states and the District of Columbia are cutting aid to K-12 schools and various education programs.
• At least 43 states have cut assistance to public colleges and universities, resulting in reductions in faculty and staff in addition to tuition increases.
• And at least 44 states and the District of Columbia have made cuts affecting state government employees.

The Center on Budget and Policy Priorities also reports that at least 34 states and the District of Columbia have cut spending on K-12 educational programs…

• Arizona eliminated preschool for 4,328 children, funding for schools to provide additional support to disadvantaged children from preschool to third grade, and funding for books, computers, and other classroom supplies. The state also halved funding for kindergarten, leaving parents with the cost of keeping children in school beyond a half-day schedule.
• California reduced K-12 aid to local school districts by billions of dollars and cut a variety of programs, including adult literacy instruction and help for high-needs students.
• Colorado reduced public school spending in FY 2011 by $260 million, $400 per student.
• Georgia cut state funding for K-12 education in FY 2011 by $403 million.  The cut has led to exempting local school districts from class size requirements.
• Hawaii shortened the school year by 17 days and furloughed teachers for those days.
• Illinois cut school education funding by $311 million in 2011.  Cuts included the elimination of a grant program intended to improve the reading and study skills of at-risk students from kindergarten through the 6^thgrade.
• Mississippi cut by 7.2 percent funding for the Mississippi Adequate Education Program, a program to bring per-pupil K-12 spending up to adequate levels in every district.
• Massachusetts cut state education aid by $115.6 million in FY 2011.  It also made a $4.6 million, or 16 percent cut to funding for early intervention services, which help special-needs children.
• New Jersey cut funding for afterschool programs aimed to enhance student achievement and keep students safe between the hours of 3 and 6 p.m. The cut will likely cause more than 11,000 students to lose access to the programs and 1,100 staff workers to lose jobs.
• North Carolina cut by 21 percent funding for a program targeted at small schools in low-income areas and with a high need for social workers and nurses. As a result, 20 schools will be left without a social worker or nurse.
• In Virginia a $500 million reduction in state funding for some 13,000 support staff such as janitors, school nurses, and school psychologists was made permanent.

Other services are being cut as well…

• California is eliminating cost-of-living adjustments to assistance programs for low-income families and cutting child care subsidies.
• Colorado is cutting payments for mental health providers and eliminating funding for treatment for an estimated 626 patients each year in the state’s mental health institutes.
• In Connecticut, the governor has ordered budget cuts that help prevent child abuse and provide legal services for foster children.
• The District of Columbia cut its homeless services funding by more than $12 million, or 20 percent. It also reduced its cash assistance payments to needy families and cut funding for services that help low-income residents stay in homes and communities.
• The South Carolina Department of Juvenile Justice has already lost almost one-fourth of its state funding, resulting in over 260 layoffs and the closing of five group homes, two dormitories, and 25 after-school programs.
• Connecticut, Delaware, Maryland, Michigan, Minnesota, New Hampshire, New Jersey, New York, Ohio, Rhode Island, Virginia, Wisconsin, and Wyoming, have implemented reductions in funding for policing, child care assistance, meals for the elderly, hospice care, and various services for veterans and seniors.

The U.S. Bureau of Labor Statistics reports that state spending cuts are having a significant impact on employment. The total number of people employed by state and local governments has fallen by over 400,000 since August 2008, while the need for services produced by those workers has increased.

We’ve ignored it so long it’s become insurmountable… well, that’s just great.

Today, California has 2 million homes in some stage of the foreclosure process… 40 percent have made no payment for over two years, and 70 percent have made no payment for over a year.  If each of the 2 million homeowners availed themselves of just 10 hours of legal assistance, it would require roughly 15,000 years for a lawyer to help everyone.  To get through that workload in a year, we’d need 15,000 trained professionals and attorneys to help… and yet the state continues to offer no guidance to it’s citizens outside of “call your bank or a HUD counselor,” a strategy that hasn’t changed a single thing for the better over the last four years.

Quite incredibly, our responses and attempts to mitigate the damage caused by the foreclosure crisis at both state and federal levels have ALL been spectacular failures… and there have been dozens of plans and programs backed by un-spent budgets rising into the hundreds of billions of dollars.  Nineteen “hardest hit states” have received billions… and there is nothing meaningful to show for any of it.

Alabama - $162,521,345

Arizona - $267,766,006

California – $1,975,334,096

Florida - $1,057,839,136

Georgia – $339,255,819

Illinois - $445,603,557

Indiana - $221,694,139

Kentucky - $148,901,875

Michigan - $498,605,738

Mississippi - $101,888,323

Nevada - $194,026,240

New Jersey - $300,548,144

North Carolina - $482,781,786

Ohio - $570,395,099

Oregon - $220,042,786

Rhode Island - $79,351,573

South Carolina - $295,431,547

Tennessee - $217,315,593

Washington DC - $20,697,198

In point of fact, HAMP is our country’s superstar success by all measures, a program that began with $75 billion, first reduced to $50 billion, and most recently to some $37 billion… while amounts spent to-date are reported by the GAO to be $2.4 billion, and not all of that was spent on HAMP.

So, consider this… If we had a crisis affecting hamsters and we budgeted $75 billion or $37 billion to address it… and three years later we had only spent a couple of billion, there would be a national outcry denigrating those in charge as being guilty of cruelty to hamsters.

And just in case you weren’t moved by the state budget cuts I listed above, please don’t be lazy about this… read them again.  Put yourself in the shoes of the people who have lost access to the programs described.  And understand that I didn’t even list half of the cuts already in place… not even half.

And think about what happens when you take away access to a doctor for a child with special needs from a parent who has nowhere else to turn.  They often find a way, however, a parent’s love knows no bounds.  And sometimes the way they find puts a gun in your face.

Mandelman out.

ENOUGH FAILING… NO ONE FAILS THAT MANY TIMES IN A ROW.

Send me your email TODAY and be a registered MandelmanDOER.  We don’t have much time left before none of this matters anymore.  Don’t worry… I only need your email so we can communicate without my needing to post everything on Mandelman Matters… in some things we’ll want the element of surprise.  It’s not any sort of business gimmick… I hate having to keep track of emails, believe me.

Arizona Representative Jack Harper has absolutely stumped the panel, as they say.  If you had asked me what the Arizona legislature might do to make things MUCH worse this coming year, I’m not sure I could have come up with much.  I’m sure I wouldn’t have guessed this development even if given a hundred chances.

Like, what could you do to INCREASE foreclosures in a state where at least 50% of the mortgages are already underwater?  This year, Arizona came in #3 in the nation for declines in property values at 8.1%.  Unemployment is rock solid steady at 9%, assuming you stop counting those no longer looking for a job or those under-employed.  Now, I realize that Nevada is slightly in the lead here, but is Arizona that determined to win the race to the bottom?  Awfully competitive, if you ask me.  You’re already showing up Florida.

Currently, Arizona is a “non-recourse” state, meaning that if a homebuyer walks away from a house that’s underwater, meaning that the amount owed is more than the value of the property, the lender CANNOT recover the difference from the homeowner.

I AM NOT MAKING THIS UP.  YES, I’M BEING SARCASTIC, BUT EVERY SINGLE FACT IS CORRECT.  I’LL BE PROVIDING LINKS AT THE END SO YOU CAN READ IT THE BORING WAY.

The Arizona Bankers Association has been trying to change that for years so banks could go after the homeowners for the amount of the deficiency, and finally they’ve found their boy in Jack Harper.  Inconceivably, Harper says he will introduce a bill that will make Arizona’s homeowners responsible for deficiency judgements after foreclosure.  That could mean, if you owe say $500,000 and your home sells at auction… for say $100,000… like, in 2025 or whatever… now the bank will be able to come after you for the $400,000.

Harper, who by the way is no slouch legislatively speaking… he’s the Chairmoron (is that how you spell that?) of the powerful House Ways and Means Committee, has decided that Arizona’s status as a “nonrecourse” state is what’s keeping its real estate market from recovering. He says that people abandoning their homes further depresses the value of nearby homes… and he’s not happy about that.

According to Harper…

“The idea is to keep people from being encouraged to just walk away from their house any time they’re a little bit upside down on their mortgage,” said Harper, chairman of the House Ways and Means Committee.

Go back and re-read that sentence.  That sentence may very be a once in a lifetime opportunity.  And if it neither makes you feel enraged or sick to your stomach… you have already died inside.

The Arizona Bankers Association has been fighting for years to repeal the current law.  They say that when borrowers default, that means less money available for new loans.  They claim that lenders “get stuck with repossessed homes they cannot sell for enough at auction to recoup their losses,” and they want more than anything to be able to go after the borrowers for the difference.

Just so we’re clear… AND I DO WANT TO BE DAMN CLEAR ABOUT THIS… that is a complete and total LIE.

We should all know by now that our loans were “SECURITIZED,” sold off in complex securities to European banks and state pension plans.  Repossessed homes don’t decrease the amount of money there is for mortgages in Arizona.  The money for mortgages in Arizona NEVER came from Arizona… it never came from the bankers either.  If you meet anyone that believes that, walk away from them immediately, and for God’s sake keep them away from children.  ”They” are the best argument ever for forced sterilization.

Oh, and by the way… essentially ALL of the lending in this country today… and for the last four years… is from the U.S. government… Fannie, Freddie, FHA, VA… that’s it.  If anyone says otherwise, please refer them to me.

NOW FOR THE BEST PART… and Hat-tip to one of my favorite Arizona foreclosure defense attorneys, Beth Findsen…

Arizona’s laws that allow homeowners to walk away from mortgages were part of a legislative deal made in 1971, says Arizona Association of Realtors’ CEO Tom Farley.

Until then, a bank that wanted to foreclose on a home because of nonpayment on a mortgage had to go to court, a lengthy and cumbersome process.

That year, Arizona became a “deed of trust” state. The change, sought by the banks, meant lenders could foreclose on a property simply by giving notice and then taking possession 91 days later.

What the lenders gave up in exchange for that law was the ability to go after the home-loan borrowers, Farley said.

Yes, the bankers wanted Arizona to be a non-recourse state.  They wanted Arizona’s homeowners to be able to walk away and not owe the difference, because they didn’t want to hassle with the whole judicial foreclosure process.  They wanted to be able to foreclose faster.  And since they never lend their own money anyway, who cared…. foreclosing faster was better for them.

Of course, that was when Arizona’s property values were ALWAYS GOING UP in the future.  Hold onto the house and get more for it later.  Now that prices are in a free fall, make the deadbeat homeowners pay… f#@k ‘em!  They haven’t lost EVERYTHING yet.  Some of them still have cars we could repossess and sell off for scrap metal, and just think how that would help the traffic problems in the Valley of the Sun.  And jewelry… I’ve heard some may still have wedding rings and crap like that.

Jack “Jackass” Harper is a special kind of moron, however, as evidenced by his supporting statements.  Are you ready?

From the Arizona Daily Star, Saturday, December 10, 2011…

“Harper, a Republican lawmaker from Surprise, acknowledged that lenders may have ignored normal underwriting standards. But he said that’s not their fault.”

Keep going, if I had to read it so do you…

“The federal government uses the Community Reinvestment Act to intimidate the federally chartered banks,” he said. “They give them goals about how many loans you have to make in underserved, low-income areas. And the banks then start making risky loans to meet the goal.”

I can’t believe I have to do this but please stay with me.

1. The Community Reinvestment Act… OF 1979, by the way… had NOTHING to do with anything in 2008.  It was not a sleeping time bomb waiting for almost 30 years to destroy the planet’s economy.  And it doesn’t have any impact on Spain, Ireland, Italy, Australia… you get the idea, right?

2. If it were something related to the Community Reinvestment Act of 1979, then it would stand to reason that the foreclosures would be mostly in Community Reinvestment Act areas, right?  Is Scottsdale one of those?  I didn’t think so.

3. The Community Reinvestment Act only applies to federally chartered banks… NOT mortgage companies and Wall Street investment banks like New Century, Option One, Ameriquest, First Alliance, Lehman Bros., Bear Stearns, Washington Mutual, World Savings, Downey Savings, and the rest of the sub-prime shitheads that made all of the loans he’s talking about.  And no… it wasn’t Fannie and Freddie either… look it up for yourself if you don’t believe me.

4. The Community Reinvestment Act is about preventing discrimination and “redlining.”  Is Harper suggesting that what we need more of is discrimination and redlining?

I could go on, but my fingertips are already bleeding from pounding on the keyboard I’m going to replace as soon as I post this.

How about some more Harper from the Arizona Star?

He also said he DOES NOT believe that the banks bear some responsibility for the bad loans and should have to absorb some of the losses when borrowers default.

“The banks are taking all the risk and the buyer is taking none, other than what their down payment is,” he said.

Nope, I’m done.  I’ve got nothing else to say.  But, get this…

Harper says he’s willing to compromise and allow the banks to only go after an amount considered “fair market value,” and all I can say is that’s mighty white of him.  So, if you owe $500,000 and you walk away or lose your home to foreclosure… and your house is said to be worth say $250,000… even though God couldn’t sell it for that amount… all they can chase you for is the $250,000.

And just in case some of you are thinking… so what, I’ll just file bankruptcy… think again.  Ever since the new bankruptcy laws of 2005, that’s no easy answer or panacea.  Harper’s new law would make sure that you who already feel like you’ve lost everything… would actually be forced to LOSE LITERALLY EVERYTHING.

The really crazy thing is that Jackass Harper doesn’t even win the prize for elected morons in Arizona.  Besides him, Nancy McLain, and who could forget Carl Seel… the corporate seal, as I like to call him ever since he got his hundred grand principal reduction right before he arrived too late to propose an amendment to help homeowners in foreclosure… but at the federal level there’s Republican Senator Jon Kyl.

On the subject of extending unemployment benefits through this coming year, since there are NO JOBS, and some 25 million Americans hopelessly out of work… Senator Kyl recently claimed that…

“Continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

YEAH!  You are a lazy group out there in Arizona, and if they keep allowing you to collect unemployment, you’ll never get off your butts and look for work.  Hey, don’t look at me, you guys elected him.

IN CONCLUSION…

Well, I will say one thing about this economic crisis… it’s certainly bringing out the CRAZY in some folks.  Like Republicans, for example.  And don’t even think about accusing me of being some kind of loony-left, Democratic partisan hack because not only did I vote for Reagan and the first George Bush, but I voted for Dubya TWICE.  (I also voted for Obama in ’08, but that only proves that I’m a pragmatist… not a crazy person.  McCain/Palin didn’t even deserve to come in second.)

I used to be a Republican because for some reason I was under the impression that they were pro-business.  They used to be pro-business, didn’t they?  I could have sworn…

Anyway, this past year you might remember that I was the one who broke the story about SB 1259… the bill that vanished into thin air after passing the Republican controlled Arizona State Senate 28-2, courtesy of the inconceivably insensitive and I would say at least brainwashed, if not entirely corrupt, Rep. Nancy McLain.

The whole thing was a big misunderstanding actually… I didn’t realize that Arizona used some other kind of government … I had always assumed the state was using the same kind of democracy thing the rest of the states were, but come to find out, I was wrong.  I’m not sure what they call it, but apparently, in Arizona they let Nancy McLain decide on which bills legislators get to vote.  If Nancy doesn’t like it, Arizona doesn’t get it.  Hey, it’s okay with me, I don’t live there and Democracy’s not exactly winning any awards lately anyway.

One more thing…

A Personal Message to Senator Harper…

Okay, here’s the deal Jack.  I hope this embarrassed you.  What you’re proposing is going to hurt so many people that I cried writing about it.  It is either the product of some highly uneducated thinking, or you are a corrupt piece of crap bought and paid for by banking lobbyists.   For the moment, I choose to believe that you don’t know any better and actually have your state’s best interests at heart.  I’m going to assume that you are misguided or misinformed… that you are not a misanthrope.  (Look it up.)

So, if that’s the case, I want to help.  Get in touch with me confidentially.  No one will ever know.  I’ll help you understand what you are missing, what you should consider if you want to: Stabilize homeprices and stop people from walking away from underwater loans… at no cost to taxpayers.  And, supplement the state budget deficit without raising taxes.

I’ll even help design a graceful and strategic way out of your idiotic statements about the bill you shouldn’t have proposed… I’ll take down my post, and say wonderful things about you… and never tell a living soul you contacted me… ever.  I’ll sign any confidentiality agreement you want.

Or, stay on the track you’re on, in which case I’ll be writing about you constantly.  If anyone ever looks you up on Google, they’ll have to wade through page after page of my articles about your shortcomings… the Internet sucks that way, I know.  Eventually, even your own mother will vote for a Democrat.

Think about it, Jack… Google search is forever, and there’s still time to course correct.  I’m a very reasonable guy… I’m a communications strategist that has worked for some of the largest investment banks on Wall Street and some of the largest corporations on the planet for 20 years.  I’m smart as a whip about these subjects… ask around, you’ll see.

I’ve had a hard year, Jack… trying to change things for the better in this country… you can just imagine, right?  So, I’m cranky and would welcome someone to take out my frustration on in writing.  Don’t let it be you, Jack.  It won’t be any fun at all, my facts are never wrong, and you are the definition of a public figure.  Are you feeling me, Jack… I wouldn’t say any of this if it weren’t that important to stop what you’re doing.

At least sleep on it.  My email is mandelman@mac.com.  I’m here for you, if you’ll just give it a try, I’ll have you running for governor or the U.S senate within 5 years.

Mandelman

Do you think that was too subtle?  I sure hope he comes over from the dark side.  He looks like such a nice young man.  In fact, I printed him out, and I’m putting his 8″x10″ glossy on top of our Christmas tree this year.  God Lord, Arizona… WTF do you have going on over there.

And you know how much I love your state too.  You know what this means, don’t you?  Now, I’m going to have to go to Vegas or New Mexico… come on fix this… I love the Camelback Inn.

Mandelman out.

###

And lest anyone think that I embellished a single fact in this story, I NEVER do that and you can read the straight news for yourself at any of the links below.

Planned Arizona Bill lets Banks Go After Homeowners Who Bail (This is on Beth Findsen’s blog, so please read this one first.)

Arizona Senator Wants to Penalize Those Who Strategically Foreclose

New Bill Could Prohibit Homeowners from Walking Away

State lawmaker wants to restrict mortgage walkaways

Lawmaker wants to change state’s non-recourse status

Joseph Vissarionovich Stalin was a part of The October Revolution in 1917… or the Bolshevik Revolution, if you grew up during the Wonder Years here in the USA.  Following the death of Vladimir Lenin in 1924, he consolidated power, put down competing factions within the Communist Party and was the Premier of the Soviet Union from 1941 to 1953.

Stalin is known for increasing the power and scope of the state’s secret police and intelligence agencies.  After WWII, he became the focus of literature, poetry, music, paintings and film.  He was credited with almost god-like qualities, accepting numerous titles, including Coryphaeus of Science, Father of Nations, Brilliant Genius of Humanity, Great Architect of Communism, Gardener of Human Happiness, and others.  Leon Trotsky criticized Stalin’s “cult of personality,” so in 1940, Stalin had his secret police in Mexico assassinate him.

As the head of the Politburo, he consolidated near-absolute power during the 1930s, orchestrating the Great Purge of the Communist Party, which was justified as an attempt to expel ‘opportunists’ and ‘counter-revolutionary infiltrators’. Many that were targeted by the purge were sent to Gulag labor camps… others were simply executed after NKVD troikas, which amounted to three people who convicted without trial.

According to official Soviet estimates, more than 14 million were sent to the Gulag between 1929 and 1953, with another 7 to 8 million deported and exiled to remote areas of the Soviet Union.  It is estimated that up to 43% of them died of diseases or malnutrition.  But, all of that was only the tip of the iceberg… en total, it is estimated that Stalin was responsible for the deaths of some 60 million people.  The things Stalin did were so horrific they cannot be comprehended… and in fact, he makes the top three of every list of the most evil genocidal murderers I could find online.

So, you can imagine my surprise when on “Meet the Press” yesterday, when Senator Lindsey Graham was asked why Senate Republicans blocked the appointment of Richard Cordray to head the Consumer Financial Protection Bureau (“CFPB”), he responded by describing the new agency as, “something out of the Stalinist Era.”

Now, it would be easy for me to make fun of this sort of statement… frankly, it’s in my nature to do so… but, I’m going to leave that to John Stewart and the rest of the folks on “The Daily Show”.  The truth is… this just isn’t funny any more.

The CFPB’s mandate is simply to protect consumers from financial fraud.  The idea for the Bureau originally came from Elizabeth Warren, and after a nasty political fight last year, it was written into the Wall Street financial reform legislation and signed into law.

According to Ron Suskind’s book, “Confidence Men,” however, the banking lobby told Treasury Secretary Geithner in no uncertain terms that they’d allow the Bureau’s creation, as long as Ms. Warren didn’t get to run it.  So, very nicely done there, banker people.  I’m especially glad that I wasted so much time writing articles asking people to show their support for Ms. Warren to their elected representatives.

It’s worth mentioning that the CFPB is about as benign a federal agency as could be imagined… they’ve got it operating under the Federal Reserve, for heaven’s sake.  Last week, the agency proposed a simplified credit card application designed to make costs, risks and terms easier for consumers to understand.  Here’s a copy of that Stalinist… no… I meant, simplified application:

CFPB Proposed Credit Card Applicaiton

Yeppers, after looking at that application, I see exactly what Senator Graham means now.  I mean, maybe that credit card application by itself isn’t the end of the world, but clearly it places us on a slippery slope leading directly to NKVD troikas and tens of millions sent to gulags in… let’s see, where would our version of Siberia be… I don’t know… Alabama?

Now, let us be very clear about what is going on here…

The new Consumer Financial Protection Bureau is one component of a bill that has already been signed into law by the President of the United States.  Period.  It is the law of our land.  If someone wants to change it, there is a legislative process in place for that, so by all means, go to town.  The only thing our legislators need concern themselves with is the implementation of our country’s new law. That’s their job, and the American people should be telling their elected representatives to get to work and stop screwing around.

You see, this is why we’re in the mess we’re in today… because we… and I do mean you and me… never seem to demand that this sort of thing stop immediately.  When they did away with our usury laws, the laws limiting the amount of interest that can be charged, we said nothing.  When some tried to pass laws to limit or prevent predatory lending, we hardly said a word about it.

Now, when right in front of our eyes, the banking lobby is pushing to make the only federal agency whose role is to protect consumers entirely toothless, once again we’re failing to make our voices heard.  I know this because if we were making our voices heard, no politicians would dare try to pull this sort of disingenuous crap, especially in an election year.

As it stands, and solely to appease the Republicans/bankers, the agency now reports to the Federal Reserve, which is a far cry from the original intent.

The only group that opposes the CFPB is the banking lobby and the reasons are simple… they want to continue to deceive and mistreat consumers without anyone being able to say a word about it.  They’ve been fighting any and all laws that protect consumers for 30 years now, while we’ve been sleeping… no, I mean… shopping… and this is just more of the same corrupt crap.

The only difference is that today, the Republicans… and yes, I do mean ALL of them, with the exception of those representing the Republic of Maine… are now willing to stand up and let the country see that they are here to do the bidding of the banksters.  They don’t care who gets screwed over by predatory lenders or deceptive financial product offerings.  They’re here to do what Wall Street wants them to do and that’s that.  They don’t care what the law says… bankers said no to the CFPB having any power… and no means no.

Until the CFPB’s director is confirmed, by the way, the bureau cannot use the power it received under the Dodd-Frank law… most notably it cannot regulate mortgage originators and payday lenders.  Mortgage originators and payday lenders… that’s who the Republicans are protecting by blocking all appointees?  Yes.

Currently, the board of regulators for the bureau needs a two-thirds majority to veto decisions. Senator Dean Heller of Nevada has said that the Republicans would oppose confirmation of ANY appointee unless the CFPB is restructured so that a “board of bank regulators is given the power to veto bureau decisions.”  Republicans also want Congress to be able to cut funding to the agency.  In other words, either the bankers are in control, or there will be no CFPB.

“The reason Republicans don’t want to vote for it is we want a board, not one person making all the regulatory decisions, and there’s no oversight under this person; he gets a check from the Federal Reserve.  We want him under the Congress so we can oversee the overseer,” Graham told NBC’s “Meet the Press.”

“This consumer bureau that they want to propose is under the Federal Reserve, no appropriation oversight, no board. It is something out of the Stalinist era,” Graham said.

That’s Mitch’s good side.

This idiotic, dishonest and flagrantly corrupt sentiment was echoed by Republican Senate Minority Leader Mitch McConnell who apparently said on “Fox News Sunday” that the blocking of Cordray’s appointment came as a result of his party opposing a ‘czar’ with unchecked power.

Mitch, Mitch, Mitch… we can all see what this is… it’s you and yours continuing to do the bidding of the Wall Street bankers… it’s you and yours continuing to block anything designed to help Main Street… it’s you and yours perfectly willing to be the proximate cause of untold pain and suffering for hundreds of millions of people in this country.

And, I probably wouldn’t have connected the dots before, but now that Republican Senator Lindsey Graham mentions it… that does sound somewhat “Stalinist” to me.

How about this for a 2012 slogan… “Go Stalinist.  Vote Republican in 2012!”

Or, what about… “Protecting Consumers is What’s Killing this Country.  Vote for the GOP in 2012!”

No?  Okay, how about… “Bankers Know Best… Vote Republican in 2012!”

Or… “Poor People Need Loan Sharks!  Vote Republican in 2012.”

Still no good?  Sheesh, tough crowd.

I told you this wasn’t funny anymore.

OH, ONE MORE THING…

On December 6, 2011… just a few days ago actually… Minority Leader Mitch McConnell, Ranking Member Richard Shelby, Senate Banking Committee Chair Tim Johnson, and Majority Leader Harry Reid all received a letter from Rep. Elijah Cummings (D-MD)… and then they promptly and completely ignored it.  Check it out… it’s worth it.
Congressional Letter in Support of Nomination of Richard Cordray Former AG to Run the CFPB

Mandelman out.

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What you are about to read has not been smoothed out or otherwise homogenized, it’s just the news as it’s coming at me… and you.  Go ahead… read it and then tell me everything’s just fine.

Retail sales alchemy…

Thanksgiving airfares were up 20% this year over last, according to AAA the average price of a gallon of gas has risen almost 20 percent, and a 16-pound turkey and all the trimmings cost an average of $49.20, which is 13 percent more than last year, according to the American Farm Bureau Federation.

Adding to the problem of rising prices, the study released in October by Sentier Research showed that since December of 2007, real median household income dropped by just under 10 percent in this country.  And the number of open credit card accounts fell by another six million in Q3 of this year, bringing the total down by 23 percent since the peak in 2008.

And yet, according to the National Retail Federation (“NRF”), this past weekend broke records for consumer spending… $52.4 billion, which is up by 16 percent over last year’s $45 billion.  Not only that, but the NRF is also reporting that more consumers went shopping this year… 226 million versus 212 million last year.  Between Thursday and Sunday, holiday shoppers spent $398.62 each, the most spent since 2008 when shoppers spent $372.57, the NRF says.

It’s all very confusing because 2008 was one of the worst holiday shopping seasons on record.  That year, the NRF was forecasting that holiday sales would increase by 2.2 percent, but when the dust settled, holiday sales actually fell by 2.8 percent.

The NRF is predicting that holiday sales will increase by 2.8 percent this year, but a survey released just yesterday, conducted by Bankrate.com, showed that 42 percent of Americans said they planned to spend less this year as compared with last… only 10 percent said they planned to spend more than last year.

In addition, the Consumer Confidence Index^®, declined in October. The Index now stands at 39.8, down from 46.4 in September.  The Present Situation Index decreased to 26.3 from 33.3, and the Expectations Index declined to 48.7 from 55.1 last month.  The proportion of consumers that are anticipating an increase in income declined to 10.3 percent from 13.5 percent.

The views held by corporate CEOs turned even more pessimistic in Q3, as well.  Only 11 percent now say conditions are better compared to six months ago, which is down from 33 percent last quarter.  And CEOs’ optimism about the short-term outlook also deteriorated sharply. Currently, about 19 percent of business leaders anticipate an improvement in economic conditions over the next six months, down from 43 percent in the second quarter.

Housing markets continue their decline…

During the third quarter of this year, the number of people signing up for new mortgages fell 17 percent, the lowest level since mid-2000, which translated into a $114 billion decline in mortgage borrowing.

On November 7, 2011, Fitch released data showing that foreclosures this year have essentially doubled as compared with last year at this time.  The rate of new foreclosures has ascended to over 10 percent a month, according to Fitch’s latest performance metric, which is almost twice the rate one year ago.  Of course, one year ago the “robo-signing” scandal wasn’t yet being ignored in its entirety, so the largest banks were pretending to investigate and correct the minor dalliance some people refer to as fraud and forgery.

Fitch also said that the higher foreclosure rates mean that U.S. housing prices will probably fall another 10 percent before stabilizing.  Then a few paragraphs later, Fitch said the higher foreclosure rate will lower housing prices lower by increasing the inventory of houses on the market, and that the full number of new houses on the market won’t be evident for another year.

Nonetheless, Fitch is apparently comfortable with its forecast that “U.S. housing prices will probably fall another 10 percent before stabilizing.”  And, just in case anyone was wondering why investors around the world no longer trust our ratings agencies, of which Fitch is one… I really have no clue.

And isn’t it interesting that the State of California’s latest property assessment data shows that the state’s properties are worth $4.3 trillion, which is only a FOUR PERCENT DROP from their peak… BUT according to the FHFA, home prices in California are down by 37 PERCENT.

Gosh, it kind of makes one wonder what valuations the banks are using for those untold millions of REO properties we lovingly call the “shadow” inventory.  You don’t suppose the bankster balance sheets are artificially inflated, do you?  Nah… they wouldn’t do that… again… would they?

Fitch Ratings announced last week, while we were all wrapped up in our holiday eating fest, that U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most-troubled nations.

According to Fitch: “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen.  Further contagion poses a serious risk.”

As of September 30th, according to Fitch, the six largest U.S. banks – JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. and Morgan Stanley (MS) — had $50 billion in risk tied to the GIIPS.  So-called cross-border outstandings to France, for all except Wells Fargo were $188 billion, including $114 billion to French banks.  Risk to Britain and its banks was $225 billion and $51 billion, respectively.

So far, Europe’s debt crisis has toppled FOUR elected governments.  Italian bond yields remained at about 7 percent, which was the threshold that led Greece, Portugal and Ireland to seek bailouts — and shares of French banks, including BNP Paribas (BNP) SA and Societe Generale (GLE) SA, dropped due to concerns that they’ll need more capital… meaning ANOTHER BAILOUT.

We might as well face it… the Euro is dead.  And we are living on a razor’s edge.

Have no fear, the GOP candidates are here…

With the GOP presidential race just about in full spin, the statements being made are getting pretty inflated as well.  Romney came out swinging with a statement about how Obama has made “massive defense cuts,” which caused me to spit out my coffee first thing one morning.  The more accurate statement might have gone something like this:

“In an effort to curtail deficit spending, Congress and the administration agreed to slow the pace of defense spending.  That doesn’t mean we’ll be spending less on defense… next year’s budget is still increasing as compared with this year’s, but it’s not going up as fast as in past years.”

It’s just not the same, is it?  No punch whatsoever.  Kinda’ made me drowsy writing it.  Never mind then.  Memo to Romney Campaign: Go back to the lying.

And Perry plans to have U.S. troops invade Mexico in order to combat drug violence in that country.  See, it’s hard to tell whether I’m lying or not, isn’t it?  But, no… I’m not… that’s what Perry said during the last debate.

Apparently, Freddie Mac paid Newt Gingrich between $1.6 million and $1.8 million in consulting fees over roughly eight years.  During that period, Gingrich consulted with Freddie Mac executives on a program to expand home ownership, an idea Mitchell Delk, Freddie Mac’s chief lobbyist, said he pitched to President George W. Bush’s White House.

Delk was quoted by numerous media outlets as saying:

“I spent about three hours with him talking about the substance of the issues and the politics of the issues, and he really got it.”   He added that the two discussed “what the benefits are to communities, what the benefits could be for Republicans and particularly their relationship with Hispanics.”

The multi-million dollar amount is quite a bit more than the $300,000 payment from Freddie Mac that Gingrich was asked about during a Republican presidential debate on Nov. 9^th.  It also exceeded the amount disclosed during the congressional investigations into the collapse of the housing industry.

Newt also announced his proposal to repeal our bothersome child labor laws because, according to Newt:  “Currently child-labor laws and unions keep poor students from bootstrapping their way into middle class.”

Newt went on to explain that in his way of thinking, “In poverty stricken K-12 districts, schools should enlist students as young as 9 to14 to mop hallways and bathrooms, and pay them a wage.”

According to Politico, he also said one thing that’s absolutely true: “This is something that no liberal wants to deal with.”

The New York Times quoted Newt as saying the following about his controversial… no, that’s not the right word… his IDIOTIC proposal:

“You say to somebody, you shouldn’t go to work before you’re what, 14, 16 years of age, fine.  You’re totally poor. You’re in a school that is failing with a teacher that is failing. I’ve tried for years to have a very simple model. Most of these schools ought to get rid of the unionized janitors, have one master janitor and pay local students to take care of the school. The kids would actually do work, they would have cash, they would have pride in the schools, they’d begin the process of rising.”

Of course, none of this should come as any sort of surprise.  It was Newt, after all, that proposed bringing back orphanages for children on welfare, back in 1994.

The New York Times article actually quoted the president of the American Federation of Teachers, Randi Weingarten, who labeled Newt’s proposal: “Absurd.”  She went on to say…

“Who in their right mind would lay off janitors and replace them with disadvantaged children — who should be in school, and not cleaning schools.  And who would start backtracking on laws designed to halt the exploitation of children?”

Hopefully, that was rhetorical.

Newt was speaking to an audience at the John F. Kennedy School of Government at Harvard University when he announced this… umm… innovative… no, that’s not the right word… oh yeah… IDIOTIC proposal.

In his closing remarks, Newt promised: “You’re going to see from me extraordinarily radical proposals to fundamentally change the culture of poverty in America and give people a chance to rise very rapidly.”

That must be where that colloquialism comes from… you know, you hear people saying it all the time… “Rising like a janitor.”

One more thing…

Fannie Mae and Freddie Mac are two giant bankrupt mortgage banks… we had to bail them out to the tune of $170 BILLION… SO FAR, and everyone agrees that the final number will be well in excess of $220 BILLION.

There is no question about it… Fannie and Freddie were the single biggest recipients of bailout money from the taxpayers.  And now… filings show that nearly $100 million of those tax dollars went to lucrative pay packages for their “top” executives.

The top five executives at Fannie Mae received $33.3 million in 2009 and 2010, while the top five at Freddie Mac received $28.1 million. And each company has set pay targets of as much as $17 million for its top managers for 2011.

Acting Director of the Federal Housing Finance Agency Edward DeMarco approved over $12 million in bonuses for government backed… no, government OWNED… Fannie & Freddie.  He says, and with a straight face mind you… that it was necessary to keep experienced executives at the companies.

Without looking it up, I want to say that in the fall of 2008, Fannie was leveraged at around 176:1… Freddie was leveraged at 110:1.  Together they represent the most irresponsible borrowers the world has ever known.

So, what do we do?  We give them a hundred million in bonuses and then let them foreclose and repossess 8 million homes to-date… the vast majority of which will never sell at anything more than a severely distressed price.  Many will have to be torn down, having lost their economic viability en total.

And there you have it…

Mandelman out.

Wow, when it comes to our economy, what a difference a month or so makes, wouldn’t you say?  I mean, last month the economic news was not good… terrible, even.  And to make sure that everyone understood what was up… or, rather down… I wrote about it here, here, and here.  To say nothing of here and here.

So, wasn’t I surprised to find that less than a month later, everything economically speaking had completely turned around and we were once again having a “recovery.”   Obviously, the ‘Happy News’ folks that have tremendous influence over the mainstream media in this country had been working overtime, so I thought I’d better look things up and set things straight once again.

So, here are a few of the recent headlines:

“Consumer spending drives stronger U.S. growth”

“U.S. Economic Growth Accelerates”

“Economy expands 2.5 percent in the third quarter”

“U.S. Economy Rebounds”

“Where are the recession calls now?”

Ooooh… SNAP!

Why that sure does make one feel happy does it not?  Woohoo!   Go ahead and click the play button… you’ve got an extra minute or two… Come on get happy!

Okay, so the first claims I wanted to look at were the reports that consumer spending had recently exceeded the expectations of economists, and was providing proof that the economy was once again not in a recession.   Consumer spending, or “personal consumption” as the government’s econowonks like to call it, is said to be roughly 70 percent of our GDP.

The bottom-line… much of what the government is reporting is nothing more than a mirage, with the rest either easily explained or not indicative of a growing economy, but rather a shrinking one.

Borrowing…

Let’s start with the government’s claim that total borrowing in September, excluding any meager real estate related borrowing, increased by $7.4 billion.  This looked like an extraordinary increase to me, because the prior month, August, reports showed a $9.7 decrease in consumer borrowing, the largest decrease in 16 months.

According to AP…

Total consumer borrowing rose by $7.4 billion in September, the Federal Reserve said Monday. In August, it had fallen by the most in 16 months.

The September increase reflected a 5.8 percent increase in borrowing in the category that includes car and student loans. But the category that covers credit card purchases dropped 1 percent after larger declines in July and August.

To begin with, the $7.4 billion number is NOT seasonally adjusted… they probably didn’t have time to do those calculations.  And beyond that apparent oversight, roughly half of the increase came as a result of student loans?  Wow, student loans in the fall… go figure.  Who would have thunk it?

The other half was auto loans, and that number was easily understood by looking at the average age of U.S. vehicles on the road today, which has surged to 10.7 years, from 8.9 years at the start of the decade, according to R.L. Polk & Co. That’s both an all-time record, and sales resulting from pent up demand, not a growth spurt in the economy.

Oh, and by the way… the other kind of borrowing… you know, the kind that really would indicate that things were looking up for American households, credit card borrowing actually DECLINED by one percent or $627 million.

But, according to the Bureau of Economic Analysis (“BEA”), the increase “primarily reflected positive contributions from personal consumption expenditures,” but a big part of the problem lies in what the government thinks we personally consume.  To keep things in nice round numbers let’s assume our GDP to be $14 trillion, and 70 percent of that we’ll call $10 trillion.

So, for example, out of the $10 trillion in personal consumption, you’ll find a little over $2.0 trillion in claims paid by Medicare, Medicaid and providers of private health insurance for things like hospital stays, prescription drugs, doctors, nursing homes, durable medical equipment… all of health care’s goods and services.

Now, clearly consumers aren’t really “spending” these dollars, it’s more like they’re being spent on behalf of consumers.  My wife was recently in the hospital for some surgery and our health insurance company will be paying the bill, which I’m sure will be tens of thousands of dollars, but we wrote a check for our deductible, $500.  (And, she’s just fine, by the way.)

The government’s GDP calculations also include several categories referred to as “imputed,” which total $1.5 trillion, roughly 11 percent of GDP.  Included in the “imputed” category are things that don’t involve any actual money changing hands.

The largest of these is the $1.1 trillion considered “rent” that in theory homeowners pay to themselves to live in their own homes… the government refers to this category as, “imputed rental of owner-occupied nonfarm housing.” As to what this actually means, I have no idea.  What I do know is I’ve never written myself a check to cover the rent for living in my own home.

And there’s also a $240 billion entry that’s supposed to cover “financial services furnished without payment,” you know… like the supposed value of services like free checking accounts, or free online banking… to which I can only say… LOL.

There’s also a “social services” category to cover things like spending by religious groups and social advocacy organizations, spending on research and development by universities and other private institutions, and spending by political parties.  I understand why this category is included… all of the areas listed above are to some degree funded by individuals making contributions, although government funding is also involved, as is interest income earned on the investments of the organizations themselves.

To call these entries in the GDP calculations “consumer spending” is kind of… what’s the word I’m looking for… oh yeah… goofy.  The amounts are not “spent” by consumers; they’re just accounting entries that are used to make the government’s books balance, and they certainly create a situation far too opaque to be any sort of reliable indication that things are looking up.

Still, the casual observer is seeing the headlines proclaim that consumer spending is going nowhere but up… so are they really?  The answer is an easy one… of course not.  Why in the world would consumer spending be “up” all of a sudden?  The only answer is… it wouldn’t.  But you have to dig in to find the distortions.

The lion’s share of the overall increase was for services and by “services” the government was talking about necessities: housing and utilities, health care, food services and accommodations, and financial services and insurance. When you consider that the Consumer Price Index (CPI) is up 3.9 percent on an annualized basis, which includes food prices being up by 4.7 percent and energy up by 19.3 percent, it’s pretty clear that we’re not talking growth, we’re talking inflation driven by higher oil prices… which again would tend to reduce consumer spending… at least the kind of spending that matters when talking economic growth.

Additionally, our trade deficit shrunk again, with exports increasing by $31.6 billion, while imports only went up by $7.3 billion… and, like credit card debt, the lower number for imports would point to a reduction in consumer spending, not an increase.

Here are a few other facts that have to be weighing on consumer spending, no matter what the government wants to say…

According to MSNBC News, Most of the unemployed no longer receive benefits

Early last year, 75 percent were receiving checks. The figure is now 48 percent — a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America’s 14 million unemployed have had no job for a year or more.

In the recoveries from the previous three recessions, the longest average duration of unemployment was 21 weeks, in July 1983.  By contrast, in the wake of the Great Recession, the figure reached 41 weeks in September.  But the economy has remained so weak that an analysis of long-term unemployment data suggests that about 2 million people have used up 99 weeks of checks and still can’t find work.

And there’s more good news behind that…

Number of Americans in poverty at record high

A record number of Americans — 49.1 million — are poor, based on a new census measure that for the first time takes into account rising medical costs and other expenses.  Based on the revised formula, the number of poor people exceeds the record 46.2 million, or 15.1 percent, that was officially reported in September.

Without food stamps, the poverty rate would have risen to 17.7 percent, which translates to about 5 million more people. That program was expanded in 2009 as part of the federal stimulus plan; the expansions are now phasing out gradually and will expire completely in 2014.

Best if taken with a grain of salt… or maybe two grains…

Just to give you an idea of how reliable the projections of consumer spending can often be, in a Bloomberg/BusinessWeek from April 9, 2008, the following paragraph appeared:

Some economists think the combination of economic stimulus checks soon to arrive from the federal government and lower interest rates should keep consumer spending from falling off a cliff. “We think consumers will narrowly skirt a downturn despite the recession in the overall economy,” write Richard Berner and David Greenlaw of Morgan Stanley in a just-released report.

So, yeah… nice job forecasting, fellas… we really dodged a bullet there.

The fact is that there are so many ways the numbers reporting consumer spending can be manipulated that it’s completely impossible for anyone to be sure their numbers are right… or even close to right.

On September 20, 2011, an article titled, Consumer Spending Data: If It Is Right, Is It True? had the following to say:

However, so many studies are issued on the subject, it is hard to know which ones are true. Statistics fluctuate so greatly that it is impossible for any report to be a single, entirely accurate reflection of what American consumers are doing now and what they will do in the future.

What we do know…

Here’s what we do know… consumer spending always picks up in the fall… it’s back to school and pre-holiday shopping at work.  And we know from the website shadowstats.com, run by economist, John Williams, that unemployment if calculated properly is a lot closer to 23 percent than it is to the 9 percent “Happy” number reported in the press.

And we also know that, according to an AP News story on the latest data from Fitch…

Fitch: Foreclosure rates are now twice last year’s

Foreclosures on delinquent U.S. mortgages have almost doubled from this time last year, according to the latest reading from Fitch Ratings.  Fitch said the higher foreclosure rate will push housing prices lower by increasing the inventory of houses on the market.

So, knowing those things… that foreclosures are up dramatically, and that unemployment is being under-reported by the federal government and ultimately the main stream media… and that since the crisis began, all of these sorts of projections have been wrong far more times than they’ve been right… we shouldn’t really have to go to the trouble of looking this stuff up every couple of weeks just because the government is releasing more… well… crap would be a good word there.

For the foreseeable future, whenever you hear that everything’s coming up roses, just say… okay… and pass the salt.

Mandelman out.

P.S. And since we started with The Partridge Family making us happy, I thought we should close out with a more appropriate theme song for our times… come on, click play… you’ve got another minute…