California Free Press

The Real Center of American Politics: A Reflection on Jon Stewart and Stephen Colbert

by Robert Reich

Saturday, October 30, 2010

The true center of American politics isn’t found where most of us agree. We fiercely disagree. That’s not a problem. Democracy assumes disagreement.

The true center is about how we resolve those disagreements. Most of us believe we should work them out respectfully.

We don’t believe in winning political arguments through bullying, name-calling, lying, intimidating, or using violence.

In other words, the political center isn’t about what we decide It’s about how we decide. A central tenet of American democracy is a commitment to vigorous debate, done honestly and civilly.

That’s why some of what we’ve been witnessing recently is troubling.

Consider the foot-stomping incident in Kentucky by Rand Paul supporters, just outside a Senate debate. Or Alaska GOP Senate candidate Joe Miller’s security detail handcuffing a reporter from a liberal-leaning website.

Consider last year’s congressional town hall meetings where members of Congress were shouted down, a Tampa town hall meeting turned violent, and gunshots were fired at Democratic campaign headquarters in Arizona.

Consider the outright lies about “death panels,” “government takeovers,” and the President’s nationality.

Consider Rep. Joe Wilson’s “you lie” outburst against the President on the House floor.

And the vitriol emanating at all hours from rage radio, yell television, and Fox News – against immigrants, intellectuals, “coastal elites,” gays, and the President.

We’re better than this.

This is not respectful disagreement. It’s thuggery. It has no legitimate role in a democracy. And most Americans are fed up with it.

Sadly, we needed two comedians to remind us.

Why Aren’t Business Leaders Standing Up To the Tea Party?

by Robert Reich

Friday, October 29, 2010

America’s business leaders have not exactly shied away from offering political views. Verizon CEO Ivan Seidenberg has accused President Obama of creating a hostile environment for investment and job-creation, while General Electric’s Jeff Immelt says the administration is out of sync with entrepreneurs.

All of which makes particularly curious the deafening silence of business leaders about the tea party that’s now taking over the GOP and about to take over a chunk of Congress. Maybe business leaders see it as a relatively harmless fringe group advocating the fiscally responsible small-government positions most CEOs agree with. Business leaders should take a closer look.

Even if it’s now on the fringe, the tea party won’t be for long. By fueling the Republican surge in the midterm elections, the tea party has become the single most powerful force in the GOP. It’s backing at least 14 Senate candidates, both challengers and incumbents, and is playing a significant role in scores of House races. It has already shaken the GOP to its core, defeating establishment Senators Lisa Murkowski in Alaska and Bob Bennett in Utah, and exerting a strong gravitational pull on many other Republicans, such as Arizona’s John McCain. It will be a force in the run-up to the 2012 presidential election. Presidential aspirant Newt Gingrich has already declared his fealty, and Sarah Palin has become its grande dame.

Beyond fiscal rectitude and less spending, tea party candidates are targeting the central institutions of American government. The GOP Senate candidate from Kentucky, Rand Paul, is among several who want to abolish the Federal Reserve. They blame the Fed for creating the Great Recession and believe that the economy would be better off without a single institution in Washington setting monetary policy. Even Maine’s stolid Republican Party, now under tea party sway, has called for eliminating the Fed. In a Bloomberg poll a few weeks ago, 60% of tea party adherents wanted to overhaul or abolish the Fed (compared with 45% of all likely voters).

Another tea party target is the Internal Revenue Service. South Carolina Sen. Jim DeMint, who has emerged as the Senate’s leading tea party incumbent, says that his “main goal in the Senate will not only be to cut taxes, but to get rid of the IRS.” Mr. DeMint’s goal is echoed by many tea party candidates, including Arkansas Rep. John Boozman, now running for Senate.

At the least, business leaders who complain about uncertainties caused by Mr. Obama’s policies might be concerned. John Castellani, the former head of the Business Roundtable who is now running the Pharmaceutical Research and Manufacturers of America, told Bloomberg Businessweek this month, with remarkable understatement, “This kind of extremism makes it much harder to plan from a business perspective.”

GE’s Mr. Immelt may be unhappy with President Obama, but he’ll be far unhappier if the tea party takes over the GOP. Tom Borelli, director of the Free Enterprise Project of the National Center for Public Policy Research, a conservative think tank and vocal supporter of the tea party movement, has demanded Mr. Immelt’s resignation, calling GE an “opportunistic parasite feeding on the expansion of government.” Among Mr. Immelt’s alleged sins: taking federal subsidies for clean energy. In a press release last week, the National Center for Public Policy Research stated clearly: “Liberal CEOs are the next target for tea party activism.”

Presumably, business leaders should also be uncomfortable with the Tea Party’s nativism. At the first national convention of the “Tea Party Nation” last February in Nashville, Tom Tancredo, former Colorado congressman and now Tea-Party-sponsored candidate for governor (as an Independent), brought the crowd to its feet by denouncing the “cult of multiculturalism” and accusing immigrants of threatening America’s Judeo-Christian values. “This is our country,” he declared to wild cheers. “Take it back!”

More than half of Tea Party backers say they’d be more likely to vote for a candidate who supports changing the 14th Amendment to prevent the children of non-citizens born in the U.S. from automatically becoming citizens. And Tea Partiers strongly support Arizona’s recent immigration law making failure to carrying immigration documents a crime and giving police broad powers to detain anyone suspected of being in the country illegally. “We’re all Arizonans now,” says former Alaskan Gov Sarah Palin.

Many Tea Partiers similarly recoil from global institutions and agreements. Minnesota Representative Michele Bachmann, leader of the House’s Tea Party caucus, calls the Group of 20 summit “one short step” away from “one world government,” and suggests America withdraw from international economic organizations. “I don’t want the US to be in a global economy where our economic future is bound to that of Zimbabwe” she says. And a higher proportion of Tea Partiers oppose free trade than does the American population in general. In a recent WSJ/NBC poll, 61 percent of respondents who characterized themselves as Tea Partiers thought trade was bad for America.

Under normal times ideas like these wouldn’t gain much public traction. Why are they now? Because of the continuing effects of the Great Recession. History has shown that people threatened by losses of jobs, wages, homes, and savings are easy prey for demagogues who turn those fears into anger directed at major institutions of a society, as well as individuals and minorities who become easy scapegoats – immigrants, foreign traders, particular religious groups. Were it not for their ongoing economic stresses, Americans wouldn’t be receptive to abolishing the Federal Reserve and the IRS, or believe government and big business were conspiring against them, or turn nativist and isolationist.

Business leaders should be standing up to the tea party. And they should be actively supporting policies to relieve the economic stresses that fuel it. Their silence in both regards is not only bad for business; it threatens the stability of our economic and political system.

Road to Corporate Serfdom

Published on Saturday, October 30, 2010 by CommonDreams.org

by Ralph Nader

It was Bill Clinton’s campaign strategist, James Carville, who in 1992 created the election slogan: “It’s the Economy, Stupid.” For the 2010 Congressional campaigns, the slogan should have been: “It’s Corporate Crime and Control, Stupid.”

But notwithstanding the latest corporate crime wave, the devastating fallout on workers, investors and taxpayers from the greed and corruption of Wall Street, and the abandonment of American workers by U.S. corporations in favor of repressive regimes abroad, the Democrats have failed to focus voter anger on the corporate supremacists.

The giant corporate control of our country is so vast that people who call themselves anything politically—liberal, conservative, progressive, libertarian, independents or anarchist—should be banding together against the reckless Big Business steamroller.

Conservatives need to remember the sharply critical cautions against misbehaving or over-reaching businesses and commercialism by Adam Smith, Frederic Bastiat, Friedrich Hayek and other famous conservative intellectuals. All knew that the commercial instinct and drive know few boundaries to the relentless stomping or destruction of the basic civic values for any civilized society.

When eighty percent of the Americans polled believe ‘America is in decline,’ they are reflecting in part the decline of real household income and the shattered bargaining power of American workers up against global companies.

The U.S. won World War II. Germany lost and was devastated. Yet note this remarkable headline in the October 27th Washington Post: “A Bargain for BMW means jobs for 1,000 in S. Carolina: Workers line up for $15 an hour—half of what German counterparts make.”

The German plant is backed by South Carolina taxpayer subsidies and is not unionized. Newly hired workers at General Motors and Chrysler, recently bailed out by taxpayers, are paid $14 an hour before deductions. The auto companies used to be in the upper tier of high paying manufacturing jobs. Now the U.S. is a low-wage country compared to some countries in Western Europe and the trend here is continuing downward.

Workers in their fifties at the BMW plant, subsidizing their lower wages with their tax dollars, aren’t openly complaining, according to the Post. Not surprising, since the alternative in a falling economy is unemployment or a fast food job at $8 per hour.

It is not as if we weren’t forewarned by our illustrious political forebears Fasten your seat belts; here are some examples:

Thomas Jefferson—“I hope that we shall crush in its birth the aristocracy of our monied corporations, which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.”

Abraham Lincoln in 1864—“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.” (1864)

Theodore Roosevelt—“The citizens of the United States must control the mighty commercial forces which they themselves call into being.”

Woodrow Wilson—“Big business is not dangerous because it is big, but because its bigness is an unwholesome inflation created by privileges and exemptions which it ought not to enjoy.”

Franklin D. Roosevelt—“The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power.”

Dwight Eisenhower, farewell address—“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.”

And, lastly, a literary insight:

Theodore Dreiser—“The government has ceased to function, the corporations are the government.”

Are you, dear reader, the same now as you were when you began reading this column?

Ralph Nader is a consumer advocate, lawyer, and author. His most recent book - and first novel -  is, Only The Super-Rich Can Save Us. His most recent work of non-fiction is The Seventeen Traditions.

Out of the Frying Pan and Into the Fire: The Illogic and Insanity of Throwing Out Incumbents and Replacing Them With the Party of No

by John Lawrence

All indications are that the electorate, fed up with the way things are going in Washington, will vote the Democrats out and Republicans in next Tuesday. Does this make any sense? Shouldn't we stop and ask ourselves why there has been so little progress in Washington? Republicans in the Senate voted "No" on virtually every piece of legislation Democrats brought forth. They filibustered anything and everything on the theory that nothing would get done, people would get dissatisfied and vote out the people who were trying to accomplish something and vote in the party who obstructed every attempt at progress. Sure enough, it appears that they were right. People dissatisfied with a lack of progress are about to vote into office the very party responsible for that lack of progress. Is this insane or what?

Does the voting public even look beneath the surface as to what's going on in Washington? If so they would surely have seen that the Republican strategy was and is to defeat Obama at every turn regardless of how much good his policies would be for the country. Obama certainly doesn't have all the answers and his big mistake, in my opinion, was to cater too much to Republicans and conservatives in the first place. In the prevailing climate the notion of bipartisanship is a joke. Republicans and some Democrats are so venal and self-serving that their only goal is to serve their corporate masters and lap up their financial rewards when they leave Congress to become lobbyists. Obama watered down many of his initiatives in the hopes of winning over some Republcicans. It didn't really work as a general policy. On other issues he adopted more or less the conservative approach despite the abysmal record that 30 years of Reaganism and Bushism has left in its wake. Reagan and Bush policies have created a nation which for all intents and purposes has joined the Third World. Before Reagan took over, the US was a manufacturing nation that was a net creditor. Now all the manufacturing jobs have left for Asia and the US is a debtor nation like no other still trading on the fact that the dollar is the world's reserve currency. Some day we'll realize that that was more of a curse than a blessing because it only allows us to go deeper and deeper into debt.

Obama's big mistake though was failing to properly analyze the causes of the Great Recession. He and the Democrats thought the country would bounce back if only the banking system was not allowed to disintegrate. The result was that they bailed out Wall Street but failed to give much help to Main Street. Of course, Republicans were basically happy with this result but they wouldn't go so far as to give Obama any credit. Much to the current administration's dismay, the economy did not bounce back. Unemployment remains at ridiculous levels with the unemployed losing their houses in record numbers. Foreclosures continue apace. The combination of lack of jobs and people getting kicked out of their homes represents the bankruptcy of the Obama administration's approach to getting the economy back on track. But if the American public thinks the Republicans, having been voted into office and the Democrats thrown out, will do any better, they have another think coming. The Republican approach will be to accelerate joblessness and homelessness. Under the Republicans, the safety net will be shredded totally. The growing transfer of wealth from the poor and middle class to the rich will increase.

So what is the public thinkling? If they think that voting the Republicans in will save their jobs or their houses, they are absolutely nuts. The Republicans will revert to the policies of Reagan and Bush which have been tantamount to the destruction of the US economy. Jobs will continue to be outsourced. The unemployed will have their benefits reduced. The long term unemployed will be cut off completely. Any public program that benefits the poor will be eliminated. The hollowing out of the middle class will continue on steroids. While Obama and the Democrats have been reluctant to analyze the structural changes that Bush and Reagan policies have brought about and to propose anything too radical in terms of correcting them, Republicans having regained power will do all they can to run the economy into the ditch again. They will transfer wealth from poor to rich with a vengeance. They will ramp up the War Department and spend more trillions in futile battlefield endeavors and foreign adventurism. They will do all they can to put an end to social security and Medicare.

Is this what the public really wants? Don't they understand that Republican policies of the last 30 years are the problem, not the solution. Do they really want a return to those policies? If so, they will have to bear the responsibility for hastening the destruction of the US as a democratic, largely middle class nation and turning it into a corporatist state where the former middle class will have to get used to the role of being peons and peasants. They will have been responsible for hastening their own demise.

 

Banks Screw Homeowners on Foreclosures!

By Dina ElBoghdady

Washington Post Staff Writer
Saturday, October 30, 2010; 12:53 AM, From the Washington Post

After Valarie Stovall fell behind on the mortgage on her home near Hagerstown, her lender agreed in April to slash her monthly payment by $300, and she immediately started paying the reduced amount.

That's why, Stovall said, she thought nothing of the yellow flier she ripped off her screen door as she returned from the grocery store one afternoon last July.

"Then I read it and went 'Oh my God,'" she said. "It was a notice of eviction."

Across the country, struggling homeowners are increasingly tripped up by mortgage lenders that press ahead with foreclosures regardless of any effort they make to provide borrowers with relief on unaffordable mortgages.

Amid the worst housing crisis since the Great Depression, mortgage companies have established a dual-track approach toward troubled homeowners, negotiating with them over loan modifications while trying to seize their homes.

Top government officials have been urging lenders to redouble their efforts at modifying burdensome loans and have barred lenders from foreclosing on homeowners who are seeking to rework their mortgages under a federal program. Mortgage companies, however, have continued to pursue this two-track strategy, with a widening toll especially on those homeowners who have been trying to resolve their mortgage difficulties before they snowball, according to federal and state officials and consumer advocates.

During the last month, several major lenders have temporarily halted thousands of foreclosure cases amid reports that fraudulent court documents and improper procedures have been used to evict people from their homes. But disarray within the mortgage industry goes much further. And the foreclosure pause has done little to address the common industry practice of taking homes from people who'd been led to believe they could save them.

"It's still happening everywhere," said Arizona Attorney General Terry Goddard, who has tried to bar the dual-track process in his state, one of the hardest hit by the foreclosure crisis. "It's one of the largest complaints I get. . . . The lenders need to make a choice. What do they want: a foreclosure or a loan modification?"

In Centreville, Woodrow Roberts III said he enrolled last October in a loan modification program with Bank of America. At the time, he was still current on his $3,000-a-month payments but wanted some relief until he could find a second job. The bank agreed to trim the monthly payment by $600 for a three-month trial period and consider Roberts for a permanent modification, he recalled.

After three months, he said, he heard nothing from the bank. "I called in every week to see the status of my loan," Roberts said. "After a year of phone calls and no real information, I received a letter in the mail." It said he had been rejected for a modification and that he owed more than $8,800 - the total he'd thought his payments had been reduced over the course of the year plus fees. If he didn't pay, the letter warned, his home would be sold at a foreclosure auction Nov. 12.

"If I knew this type of program could risk everything, I would have never entered into this program," Roberts said. He explained he can't afford to pay the sum demanded all at once and hasn't been allowed to spread it out over time.

In response to a reporter's question about the case, Bank of America spokeswoman Jumana Bauwens said Roberts was turned down for a permanent loan modification under the federal program because his income was too high to qualify. But she said the bank is now reviewing whether he is eligible for alternative relief.

Kevin Matthews, a Gulf War veteran, was initially rejected when he applied to his lender, USAA, for a modification of the mortgage on his Baltimore rowhouse. But when a housing counselor contacted USAA on his behalf, the lender invited him to reapply, Matthews said. The counselor filled out a 70-page application for Matthews in early May.

The lender did not respond to this new request until after his home was taken away in a foreclosure sale two weeks later, he alleged. He was evicted in June while he was away on school-related travel.

Roger Wildermuth, a USAA spokesman, said his firm was no longer responsible for Matthews's loan because it had been sold to GMAC, though GMAC employees in his case would have identified themselves as USAA workers "to create a seamless customer experience." James Olecki, a GMAC spokesman, said his firm "put forth every effort to pursue all alternatives in this case."

Matthews is now suing the foreclosure attorneys. If he loses, the tab for his defaulted loan would fall on taxpayers because his mortgage is guaranteed by the Department of Veterans Affairs.

"It's like the right hand doesn't know what the left is doing," said Michael J. Gugerty, a real estate attorney in the District. "I think what happens is you can talk to the loan modification people but that doesn't take you out of the assembly line they've set up for foreclosure."

The Mortgage Bankers Association said lenders often file initial foreclosure paperwork as they work to modify a loan. John Mechem, an MBA spokesman, said they want to make sure that if the modification effort fails, they can promptly move forward with the foreclosure, which can take up to three years to complete depending on the state. Fannie Mae, Freddie Mac and the Federal Housing Administration impose deadlines for filings on loans these agencies guarantee or own, he said.

But Phillip Robinson, a lawyer at the nonprofit law firm Civil Justice Inc. in Baltimore said, "Attorneys and housing counselors here and all over the country complain every day about this kind of thing."

In June, the Obama administration tightened the rules for the government-sponsored program, which pays lenders if they rework a borrower's loan, to ban mortgage companies from conducting a foreclosure sale unless the modification has already been denied. The administration also ordered lenders to notify the lawyers handling foreclosures on their behalf that a borrower does not qualify for a modification before a sale can proceed.

Valarie Stovall has taken the matter into her own hands. After the eviction notice was taped to the door of her house in Williamsport, Md., near Hagerstown, she sold every piece of jewelry her mother left her - including a platinum and diamond ring passed down in her family for generations - to hire lawyers, she recounted.

 They told her "'do not leave the house unoccupied for any reason. If somebody comes to the house and tells you that you have to leave, call the police,' " Stovall said. "I was afraid to go to the grocery store, afraid to go anywhere for fear of what would happen."

Stovall first bought her two-level colonial in 2004. Five years later, when a back injury forced her to leave her job arranging dental board exams, she retired and applied to her lender, SunTrust Bank, for a loan modification because she feared she would fall behind, she said.

In April, eight months after she applied for relief, the bank approved Stovall for a three-month trial modification that reduced her monthly payment to $543 from about $830.

Stovall said she made each payment on time, in May and June. But shortly after making the June payment, she received a foreclosure notice.

"I called SunTrust and they said: 'Don't worry about it. The loan modification and foreclosure programs run parallel with each other and as long as you're in the loan modification process, nothing will happen,' " she said.

Still uneasy, Stovall called the bank's foreclosure lawyer, who reassured her that the lender was correct. She sent in her July payment. The foreclosure notices kept coming and Stovall kept calling. SunTrust told her that the foreclosure sale couldn't be put on hold until a date for the sale had been scheduled. The bank told her to call back 10 days before her home was to be auctioned off.

"That made me really nervous, but their attorney said the same thing," she said.

In June, with the sale date set for July 9. Stovall reached a SunTrust representative who told her she would go ahead and put a stop notice on the foreclosure sale. But when Stovall called back a few days before the scheduled sale, there was no such notice entered on her record. A SunTrust supervisor asked Stovall to resubmit her bank statements and other paperwork, and Stovall did.

Five days after the sale date, the eviction notice arrived. It looked like so many other fliers that regularly appear on her door step from lawn care services and house cleaners trying to solicit business. She glanced at it only after putting down her grocery bags. "That's when I lost it," Stovall said.

Stovall managed to reach the supervisor she'd spoken to only days earlier. "First she said she never received the paperwork," Stovall said. "Then she said: 'Oh, here it is. I found it. You don't qualify.' "

There was no further explanation. Stovall was told the supervisor's supervisor was not available. By then, her property had already been taken back by the bank.

SunTrust would not comment about the case for this article.

Stovall's lawyer asked a local court to dismiss the foreclosure case. SunTrust sent her lawyer an e-mail, saying it would negate the sale.

But the case itself was not dismissed, leaving open the prospect of another foreclosure sale.

So Stovall sued SunTrust. The case is pending in federal court in Maryland.

"I am just sitting here biting my fingernails," she said. "I have good days, when I think it's going to work out and then sometimes I have panic attacks and I cry in jags. Even though I know in my heart that I'm right, I don't know what the courts are going to do."

 

Scary New Wage Data

by David Cay Johnston | Oct. 25, 2010 04:35 AM EDT from Tax.com

Now for some really scary breaking news, from the latest payroll tax data.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.

Not a single news organization reported this data when it was released October 15, searches of Google and the Nexis databases show. Nor did any blog, so the citizen journalists and professional economists did no better than the newsroom pros in reporting this basic information about our economy.

The new data hold important lessons for economic growth and tax policy and take on added meaning when examined in light of tax return data back to 1950.

The story the numbers tell is one of a strengthening economic base with income growing fastest at the bottom until, in 1981, we made an abrupt change in tax and economic policy. Since then the base has fared poorly while huge economic gains piled up at the very top, along with much lower tax burdens.

A weak foundation cannot properly support a massive superstructure, as the leaning Tower of Pisa shows. The latest wage data show the disastrous results some of us warned about, although like the famous tower, the economy only lists badly and has not collapsed.

Measured in 2009 dollars, total wages fell to just above $5.9 trillion, down $215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $313 billion or 5 percent in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1 percent, the number of idle hands and minds grew by 6 million.

These figures show, far more powerfully than the official unemployment measure known as U3, how both widespread and deep the loss of jobs was in 2009. While the official unemployment rate is just under 10 percent, deeper analysis of the data by economist John Williams at http://www.shadowstats.com shows a real under- and unemployment rate of more than 22 percent.

Only 150.9 million Americans reported any wage income in 2009. That put us below 2005, when 151.6 million Americans reported wages, and only slightly ahead of 2004, when 149.4 million Americans held at least one paying job.

For those who did find work in 2009, the average wage slipped to $39,269, down $243 or 0.6 percent, compared with the previous year in 2009 dollars.

The median wage declined by the same ratio, down $159 to $26,261, meaning half of all workers made $505 a week or less. Significantly, the 2009 median wage was $37 less than in 2000.

To give this some perspective, from 1992 to 2000 the number of people earning any wages grew by 21 million, but nine years later just 2.8 million more people had any work.

These wage data, based on the Medicare flat tax on all compensation, tell us only about the number of people who earned wages and how much. They tell us nothing about whether these individuals were underemployed, had to work more than one job, earned fringe benefits, or were employed at a level commensurate with their abilities.

But they do give us a stunning picture of what’s happening at the very top of the compensation ladder in America.

The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

Average Median Wages, 1990 to 2009 (in 2009$)

Back in 1994, when the top category the government reported on was $20 million or more of compensation, only 25 people were in that rarefied atmosphere, and their average earnings came to just under $45 million in 2009 dollars.

What does this all mean? It is the latest, and in this case quite dramatic, evidence that our economic policies in Washington are undermining the nation as a whole.We have created a tax system that changes continually as politicians manipulate it to extract campaign donations. We have enabled ‘‘free trade’’ that is nothing of the sort, but rather tax-subsidized mechanisms that encourage American manufacturers to close their domestic factories, fire workers, and then use cheap labor in China for products they send right back to the United States. This has created enormous downward pressure on wages, and not just for factory workers.

Combined with government policies that have reduced the share of private-sector workers in unions by more than two-thirds — while our competitors in Canada, Europe, and Japan continue to have highly unionized workforces — the net effect has been disastrous for the vast majority of American workers. And of course, less money earned from labor translates into less money to finance the United States of America.

This systematic destruction of the working class and middle class has come during an era notable for celebrating the super-rich just for being super-rich. From the Forbes 400 launch in 1982 and Robin Leach’s Lifestyles of the Rich and Famous in 1984 to the faux reality of the multiplying Real Housewives shows, money voyeurism has grown in tandem with stagnant to falling incomes for the vast majority. There has also been huge income growth at the top and the economic children of income inequality: budget deficits and malign neglect of our commonwealth.

This orgy of money exhibitionism has created a society in which commas — it takes three to be a billionaire — count more than character. We have gone so far down this path that we bailed out bankers, allowing them to keep the untaxed wealth in their deferral accounts and, with a few exceptions, retaining shareholder value, while wiping out investors in General Motors and Chrysler as a condition of their bailouts. And while autoworkers had to take severe pay cuts, bonus time on Wall Street is at new record levels.

The American economy in the three decades before Ronald Reagan’s election did not produce a mass audience for celebrating wealth. In that era, books that emphasized character sold better than today.

During the years from 1950 to 1980, the share of total income going to those at the top declined, and the real incomes of the vast majority grew much more quickly than did nearly all incomes at the very top.

In those years, America had the money, and vision, to invest in the future through education, research, and infrastructure.

In nearly three decades of Reaganism, however, we have become a society of mine-here-and-now. Now what we hear from Washington is about today, not tomorrow. War without sacrifice (or a congressional declaration). Savings without interest. More government services while lowering taxes.

In this era, the incomes of the vast majority have barely grown while incomes at the top have soared. Reaganism has trimmed the base of the income ladder while placing a much heavier weight on the top. Narrowing the base while adding weight to the apex does not make a stable structure. Here are some numbers that may surprise those ages 50 and under, taken from the latest analysis of tax return data by Emmanuel Saez and Thomas Piketty, who have won worldwide praise for their groundbreaking work examining changes in income distribution:

Bottom 90 Percent Income Share Changes

1950	64.44 percent
1980	65.37 percent
Change	+0.93 percentage points increase
2008 Change	51.77 percent
Since 1980	-13.59 percentage points decrease

So a three-decade era in which the bottom 90 percent increased their share of all income slightly was followed by a 28-year period at whose end income had fallen sharply. The 2009 data show that it has only gotten worse since then.

While the vast majority must get by on a much smaller share of the national income pie, the re-slicing resulted in concentrated benefits at the top. The top 10 percent enjoyed a nearly 40 percent increase in their share of the income pie. But within the top 10 percent, the re-slicing of the income pie between 1980 and 2008 was also heavily weighted to the top.

Those in the 90th to 95th percentile income category saw their income share rise by just 0.24 percentage points. The 95th to 99th income category got 2.43 percentage points more slice of the national income pie.

That means that of the 13.59 percentage points of increased pie going to the top 10 percent of Americans, the top 1 percent earned almost 11 percentage points of it. Now look at how the pie was sliced within the top 1 percent:

Income Share Gains, in Percentage Points,
in 2008 Over 1980 for Top 1% of Earners

99 to 99.5	99.5 to 99.9	99.9 to 99.99	99.99 to 100
1.21	2.73	3.23	3.76

Notice that as you move to the right, the numbers of taxpayers shrink, but the percentage points grow. The theme: more and more for fewer and fewer.

Income shares tell us about how groups are doing relative to one another. But you can’t spend income shares, so let’s look at incomes.

From 1950 to 1980, the average income of the bottom 90 percent grew tremendously. Not so since then:

1950 1980 Increase % Increase $17,719 $30,941 $13,222 74.6%

1980 2008 Increase % Increase $30,941 $31,244 $303 1%

Had income growth from 1950 to 1980 continued at the same rate for the next 28 years, the average income of the bottom 90 percent in 2008 would have been 68 percent higher, instead of just 1 percent more.

That would have meant an average income for the vast majority of $52,051, or $21,110 more than actual 2008 incomes. How different America would be today if the typical family had $406 more each week — less debt, more savings, and more consumption.

So how about the top? This is where the changes in incomes in these two eras become interesting, very interesting.

What the figures below show is that the closer you got to the top of the ladder in the era from 1950 to 1980, the smaller your relative increase in income, except for the very top, whose gains were slightly more than those of the bottom 90 percent. Since 1980, however, the bottom 90 percent of Americans have seen their incomes go nowhere, while on the highest steps of the income ladder, the further up you are, the greater your gains.

Add in today’s decreased number of jobs, and all these data add up to policies that can be described with one word: failed.

Homeowners Facing Foreclosure Demand Recourse

By ANDREW MARTIN and MOTOKO RICH

Published: October 27, 2010 by the New York Times

Sonya Robison is facing a foreclosure suit in Colorado after the company handling her mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing the locks on her home, too.

Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage trust that, according to court records, does not exist.

As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and more homeowners are stepping forward to say that they were victims of bank mistakes — and in many cases, demanding legal recourse.

Some homeowners say the banks tried to foreclose on a house that did not even have a mortgage. Others say they believed they were negotiating with the bank in good faith. Still others say that even though they are delinquent on their mortgage payments, they deserve the right to due process before being evicted.

Some consumer lawyers say they are now swamped with homeowners saying they have been wronged by slipshod bank practices and want to fight to keep their homes. Joseph deMello, a Massachusetts lawyer who represents Mr. Rought, said the common denominator in many of the cases was an overwhelmed system of foreclosures in which banks relied on subcontractors to do much of the work.

“No one double-checks anything,” he said. “It’s completely high volume and that’s unfortunately what leads to this.”

It may never be known how many homeowners have legitimate claims against the banks, real estate and banking experts say, because lenders do not release such data and because the vast majority of cases never make it to court.

For the last month or so, some of the nation’s largest banks have temporarily halted foreclosures in some states amid accusations that the paperwork used as evidence to oust homeowners was incomplete or signed off by so-called robo-signers who did little to check its veracity.

Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork and resolve any outstanding legal issues.

“We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure,” said Paul Leonard, vice president for government affairs of the housing policy council at the Financial Services Roundtable, an advocacy group for the nation’s largest financial institutions.

Consumer lawyers and housing experts acknowledge that it is relatively rare that a bank initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at all. More common, they say, are instances where homeowners have applied for mortgage modifications but get foreclosed upon anyway.

In a report to Congress released this week, a federal inspector general described the government-sponsored modification program, known as the Home Affordability Modification Program, as deeply flawed.

While about 467,000 mortgages had received permanent modifications under the program, an estimated 3.5 million homes will receive foreclosure notices this year, an increase of 26 percent over 2009, the report says.

“You have this promise of relief for borrowers but actually getting that relief is like a zigzag line from point A to point B,” said Jose Vasquez, a lawyer for Colorado Legal Services.

Ms. Robison’s case is a variation on the theme. When she returned home to Yoder, Colo., outside Colorado Springs, from a holiday trip in December 2008, she found the locks changed and her electricity, gas and water heater shut off. A sign on the door advised her to contact Safeguard Properties, a company hired by the mortgage servicer, Litton Loan Servicing.

The notice came as a shock to Ms. Robison, a single mother of three who is now 36. She had renegotiated her mortgage just months before and was current on her payments. When she finally got back into her house, the food in the refrigerator was rotten and her lawn mower and air compressor had been taken.

When she called Litton, an employee admitted that the company had made a mistake in changing the locks, according to court documents. In order to reimburse her for her losses, Ms. Robison said, the employee told her he would “work something out” regarding her January mortgage payment, so she did not make it, court records show.

But when Ms. Robison paid her February and March mortgage payments, they were returned. And in March, Deutsche Bank initiated foreclosure proceedings. “I’ve been wanting to pay them the whole time, but they basically stopped taking my payments,” she said.

Deutsche has asserted its right to Ms. Robison’s house under a document that is meant to assign ownership of a mortgage note, known as an allonge. But Ms. Robison’s lawyer, Stephen Brunette, says Deutsche Bank is not named in the allonge that the bank submitted during court proceedings and does not appear on any other documents relating to her home.

Both Deutsche Bank and Litton Loan Servicing declined to comment about the case. A Deutsche Bank spokesman noted that the mortgage servicer, not the trustee, is usually responsible for handling foreclosures.

In Michigan, Mr. Rought says that the bank went after the wrong person.

Mr. Rought bought the cabin from Deutsche Bank on Jan. 27, 2009, paying in cash. He spent the next seven months fixing it up in anticipation that his daughter, Hannah, “would live in the house and be away from her parents for the first time in her young life,” court records show.

But in August of that year, when the Roughts pulled into the driveway, they noticed that something was wrong. The American flag was missing, the house had been broken into and the locks had been changed.

The Roughts’ belongings were gone too, including an heirloom dining room table, pots and pans, a pile of firewood — even the bracket used to hang the American flag. A contractor for Deutsche Bank, Field Asset Services, left a sign tacked to the front door, so the Roughts contacted them and said a mistake had been made.

A month later, however, Deutsche Bank’s representatives came to winterize the house, pouring antifreeze in the sinks and toilets and disconnecting the water pump. “We had expected an answer by now and quite frankly am appalled by the total lack of respect and professionalism of your company,” Mr. Rought wrote in a Dec. 1, 2009, letter to Field Asset Services. “We are trying to be patient and settle this peaceably. What would you do?”

Eventually, Mr. Rought hired a lawyer. Deutsche Bank declined to comment, and Field Asset Services did not return calls seeking comment.

Charlotte and Thomas Sexton, of Carlisle, Ky., fell behind on their mortgage payments because the payments on their adjustable-rate mortgage spiked upwards and Ms. Sexton lost her job.

They tried unsuccessfully to sell the home, to refinance it and to modify their mortgage payment. When the Bank of New York Mellon filed a foreclosure notice last summer, they went to a local lawyer, Brian Canupp, who, with the help of a forensic accountant, found a problem in the foreclosure filing.

Last month, a judge tossed out a foreclosure judgment after Mr. Canupp argued that the mortgage trust that claimed to own the Sextons’ promissory note —Mortgage Pass-Through Certificates Series 2002-HE2 — did not exist.

Instead, another trust, called IXIS Real Estate Capital Trust, Series 2005-HE2, claimed to own the Sextons’ note, court records show.

Ms. Sexton said that regardless of who owns her promissory note, she just wants to stay in her home and hopes that the bank will eventually agree to a loan modification.

“We found a mistake,” she said, “that gave us a light at the end of the tunnel.”

Getting Medieval On Your Assets: Four Reasons Foreclosure Fraud Really, Really Matters

by Richard (RJ) Eskow

Consultant, Writer, Senior Fellow with The Campaign for America's Future

Posted: October 28, 2010 02:12 PM on Huffington Post

The current debate over foreclosure fraud has been a revelation, even for those of us who have become familiar with the power of moneyed interests to influence the national dialog. Despite overwhelming evidence of widespread lawbreaking and deception, there's still a popular point of view that says that fraudulent foreclosures are "just a technicality" and that what we're seeing is neither a systemic problem nor a crime wave of epidemic proportions.

Actually, it's both. Here are four reasons why the foreclosure fraud scandal is very important. They're counterarguments to the conventional "paperwork" wisdom, a point of view whose numbing effects threaten to anesthetize us to the profound significance of this scandal.

1. Dragnet

A recent New York Times article is just one of many that put names and faces to the foreclosure scandal: A man who paid cash for a vacation cabin found that foreclosure papers had been filed and his locks had been changed, despite the fact that there was no mortgage on the property. A couple was foreclosed upon -- successfully -- by a mortgage trust that court papers say doesn't exist. A woman in Colorado also had her locks changed by mistake, so the bank offered to let her skip a mortgage payment as an apology. When she did, foreclosure papers were filed on her.

 

The writers of the Times article also frame the counterargument: "Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills ... " That's Argument #1 in favor of downplaying the foreclosure fraud controversy: Sure, there have been some outrageous cases like the ones listed above. But the vast majority of people facing foreclosure really have mortgages, and they're really delinquent on them. So, the argument goes, what's the big deal? Fix the paperwork, weed out the errors, and let's all get on with our lives.

Here's the real problem: Any massive invasion of personal rights and liberties will catch some people who deserve to be caught. If we placed the entire country under martial law, initiated a state of siege, and rounded up every suspicious-looking person in America with a nationwide dragnet, many -- perhaps most -- of the people dragged off to jails would be guilty of something. But that's not how free societies operate. People have rights, even if they owe money.

The legal process around foreclosures has become a massive dragnet, run and managed by the financial services industry with the compliance of too many state and national legal institutions. The most egregious stories -- i.e., people who paid cash for houses and had them seized anyway -- are almost certainly a small minority of the foreclosure cases out there. But they show us how badly corrupt the entire process has become, and how far we've drifted away from fundamental principles of due process.

2. The Dukes of Moral Hazard

Here's the complete sentence from the Times article: "Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have not paid their bills, often because they bought more house than they could afford or because they lost their jobs. As a result, they will most likely lose their homes eventually, once the banks clean up their paperwork ..." That's a point the financial services industry is only too happy to underscore: "We believe that the overwhelming majority of the cases will be that the loan was seriously delinquent and needed to go to foreclosure," the article quotes an industry spokesperson as saying.

While the Times journalists did some excellent reporting for this piece, their sentence (above) framed the situation so well - from the financial industry's point of view, that is - that a quote from the industry itself was almost redundant. Sure, a lot of people "bought more house than they could afford," and some of them did so irresponsibly. But the financial industry's all too happy to leave it at that, characterizing all these foreclosures as problems of individual character rather what they really are: a breakdown of process, law, and ethics on a systemic level.

According to the most recent report from Lender Processing Services, Inc., 9.22% of all mortgages in the US are delinquent - and that's not counting those that are in foreclosure. 8.22% are either in foreclosure or more than 90 days overdue. All told, roughly 11% of all mortgages are either delinquent or in the foreclosure process. That's a problem with the system, not the product of millions of flawed individual characters.

Here's the bottom line: More than one in ten mortgages is in bad trouble. What's more, one in four mortgages is underwater, which means there's not enough collateral to cover billions of dollars in loans. The generous explanation for the banking industry is that they're completely incompetent at what they do. A huge chunk of the loans they've written are bad. Forgive the language here, but the bank-friendliest explanation for this systemwide breakdown is that bankers suck at what they do.

But the real explanation is that they knew these loans were bad -- and wrote them anyway.

Why? Because they intended to make quick and easy money by pumping up housing values, churning loans to customers who they knew couldn't pay. (The customers didn't know that, but the banks did.) They thought they could float this crap game forever, riding an ever-growing bubble and tossing the defaulting homeowners away when they couldn't pay the nut. But the bubble burst and the crap game got shut down.

They were able to walk away from this massive nationwide scam by convincing the country that the only irresponsible parties were people who "bought more house than they could afford." It worked, too. But now they've been caught in widespread fraud -- and they want to walk away from that, too. Nobody's suggesting there weren't irresponsible buyers out there, too. But so far, the bankers have been able to convince the country that the "moral hazard" was everybody's but theirs -- even though they were running the entire system, and it's the entire system that's broken down.

This time, the guilty parties should be made to pay for criminal behavior. And they should be forced to accept some of the financial consequences of their bad behavior by writing down some of the principal on the bad loans they've issued and sold.

3. Contract Killers

A loan is a contract, an agreement between two parties. The lender agrees to provide a certain sum of money, which the borrower agrees to repay according to agreed-upon terms and conditions. One of the biggest problems with the foreclosure fraud scandal - and the systems, tricks, and traps that created it - is that it obscures the contractual record between the parties, leaving all the information (and all the power) on one side of the transaction.

Consider the woman whose bank offered to let her skip a monthly payment in return for accidentally changing her locks, and then proceeded to foreclose on her. With shell games like the mortgage industry's MERS, which obscures the actual trail of ownership and insulates the lender from court proceedings, the bank in question doesn't even have to show up during the foreclosure process. That means that she's denied the right to face her trading partner in court. Due process is trampled upon, and so is the right to legally enforce a contract.

People facing foreclosure aren't just people who lost their jobs or "bought too much house." They're people who had a deal with their bank. Then they were hit with late fees, or unilateral changes to their loan terms, or other surprises that caused them to fall into a spiral of debt. Of those who have missed payments, many of them have a legitimate case to make: that the other party broke the contract and that's why they've missed payments. The foreclosure fraud scandal has taken away their right to defend themselves in court.

4. Getting Medieval On Your Assets

The last counterargument is literally an ancient one. It's based on the long-established right of any citizen to be inviolable in their home and possessions. This goes back to the Magna Carta, which established that the will of the monarch wasn't arbitrary and that the property of "freemen" could not be seized without proper legal recourse. This principle was enshrined in the Fifth Amendment of the Constitution, which says "No person shall be deprived of life, liberty or property without due process of law." (emphasis mine)

It's bad enough that we've seen massive violations of the Constitution and people are saying it's no big deal. But we're also seeing massive violations of a legal principle that was established as an inalienable human right ... in 1215 AD! And people are still saying it's no big deal. This isn't a "technical" problem or a "paperwork" issue. It reflects on our national character, and our will to preserve the rights and liberties that have existed for eight centuries.

The problem isn't that some people bought "more house than they can afford." The problem is that we have more rights as free citizens than the banking industry can afford. So, naturally, they want us to pretend those rights don't exist. If we do, we'll lose them. And that will be a really big deal.

_______________________________________________________________

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.

He can be reached at "[email protected]."

Website: Eskow and Associates

Halliburton and the Upcoming Election

by Robert Reich

Thursday, October 28, 2010

Next Tuesday Americans will be deciding whether to hand over even more of our government to corporations that have been plundering America  – such as Goldman Sachs, JP Morgan Chase, Citibank, Wellpoint insurance, Massey Energy, and Halliburton, the giant oil services company.

Not every large corporation is irresponsible, of course, but plunderers that get away with it gain a competitive advantage over the more responsible, and thereby lead a race to the bottom.

Case in point: The staff of the presidential commission investigating the BP oil spill has just revealed that Halliburton executives knew the cement it was using to seal BP’s Deepwater Horizon oil well was likely to be unstable but didn’t tell BP or act on the information.

In a letter to the commission’s seven members, the staff found that the failure of the cement was a key factor in the blowout that caused millions of barrels of crude oil to escape into the Gulf of Mexico. (Not the sole factor, of course; most of the blame for the disaster, says the staff, still rests with BP and Transocean, the company BP hired to drill the well.)

Halliburton has not sat out this election. Last May, as Congress began investigating its role in the disaster, its political action committee made 14 contributions — 13 to Republicans and one to a Democrat. Many were involved in the investigation; others had responsibility for overseeing oil drilling in the Gulf. It was the biggest donation month for Halliburton’s PAC since September 2008.

Halliburton, in case you’ve forgotten, is not exactly a model citizen. It has evaded U.S. taxes and export bans through foreign subsidiaries; admitted to bribing foreign officials (a subsidiary paid $2.4 million to a Nigerian government official in exchange for favorable tax treatment); conceded in an internal memo (leaked to the Wall Street Journal) its cost controls for government contracts in Iraq were “antiquated” and its procurement “disorganized; was found by Pentagon auditors to have overcharged estimated at $27.4 million for meals served to American troops at five military bases in Iraq and Kuwait (in one camp billing for an average 42,000 meals a day but serving only 14,000).

The list of Halliburton’s crimes goes on and on. And yet, somehow, Halliburton goes on piling up profits. How? Because of its deep connections to Washington.

Dick Cheney hadn’t had any experience in the oil business when he became Halliburton’s CEO in 1995. But he did have experience in government – as George H.W. Bush’s Secretary of Defense. And those military ties were invaluable to the company. Under his reign, Halliburton rose from 73rd to 18th on the Pentagon’s list of top contractors, and the money garnered from government-sponsored agencies (such as the Overseas Private Investment Corporation and the Export-Import Bank) soared from $100 million in the five years prior to Cheney’s arrival to $1.5 billion a few years after.

As vice president to George W. Bush, Cheney made sure Halliburton’s stunning performance would continue (Cheney continued to receive checks from the company). According to congressional inquiries, Cheney’s vice presidential office was instrumental in forcing the Environmental Protection Agency to remove sections on climate change from reports in 2002 and 2003 (a process Christine Todd Whitman, then the E.P.A. administrator, subsequently described as “brutal.”) The Bush-Cheney administration also sought to control or censor congressional testimony about climate change by federal employees, and tampered with other reports in order to inject uncertainty into the climate debate.

Which brings us back to the Deepwater Horizon blowout. Halliburton’s executives knew the cement it used to seal the well was filled with mud — but Halliburton said nothing presumably because doing the job correctly would have cost too much. And, hell, Halliburton is in business to make money.

Halliburton isn’t on the ballot next Tuesday, but it might as well be.

Only $4.2 Billion To Buy This Election?

by Robert Reich

Wednesday, October 27, 2010

This, from the Washington Post’s conservative pundit George Will:

Total spending by parties, campaigns and issue-advocacy groups concerning every office from county clerks to U.S. senators may reach a record $4.2 billion in this two-year cycle. That is about what Americans spend in one year on yogurt, but less than they spend on candy in two Halloween seasons. Proctor & Gamble spent $8.6 billion on advertising in its last fiscal year.

Those who are determined to reduce the quantity of political speech to what they consider the proper amount are the sort of people who know exactly how much water should come through our shower heads — no more than 2.5 gallons per minute, as stipulated by a 1992 law. Is it, however, worrisome that Americans spend on political advocacy — determining who should make and administer the laws — much less than they spend on potato chips, $7.1 billion a year?

In a word, Mr. Will, yes.

The number of dollars spent isn’t the issue; it’s the lopsidedness of where the dollars come from. Even if the total were only $1000, democracy would be endangered if $980 came from large corporations and wealthy individuals. The trend is clear and worrisome: The great bulk of campaign money is coming from a narrower and narrower circle of moneyed interests.

Anyone who doubts the corrupting effect has not been paying attention. Our elected representatives have been acutely sensitive to the needs of Wall Street bankers, hedge-fund managers, and the executives of big pharma, big oil, and the largest health insurance companies. This is not because these individuals and interests are particularly worthy or specially deserving. It is because they are effectively bribing elected officials with their donations. Such donations are not made out of charitable impulse. They are calculated investments no less carefully considered than investments in particular shares of stock. They are shares in our democracy.

Why $4.2 billion and not ten times that amount? Because the high-rolling political investors don’t need to spend a dollar more in order to exert overwhelming influence.

This figure, by the way, leaves out the tens of billions of dollars dedicated to lobbying, lawyering, and public relations — all of which deliver specific legislative outcomes the campaign money fuels. The economy of Washington, D.C. depends on this gigantic flow of funds (supporting the polished facades of refurbished hotels, fancy restaurants, trendy bistros, office complexes of glass and polished wood, well-appointed condos, hotels with marble-floored lobbies and thick rugs, restaurants serving $75 steaks and offering $400 magnums of vintage French wine.) Washington’s seven suburban counties are listed by the Census Bureau as among the nation’s twenty with the highest per-capital incomes.

Failing to include this larger apparatus in an estimate for how much money now greases the legislative skids is analogous to estimating the cost of private transportation in America by what’s purchased at the gas pump without mentioning automobiles, roads, and bridges.

Indeed, a full accounting of the cost of the flow of money into our political system would also include the carnage and roadkill in its path — the public’s increasing cynicism about democracy, and America’s decreasing capacity to do what most of its citizens desperately need.

The Highly Educated Homeless

Posted by grantlawrence at 6:41 pm on Alternet

October 25, 2010

Posted by grantlawrence on @ 6:41 pm

Article printed from speakeasy: http://blogs.alternet.org/grantlawrence

URL to article: http://blogs.alternet.org/grantlawrence/2010/10/25/the-highly-educated-homeless/

By Grant Lawrence

 

“….we haven’t really gotten the credit for what we have done….”
Speaker of the House Nancy Pelosi

In some respects, this depression is worse than the Great Depression.

There is no holiday on making mortgage payments, there are no public works jobs to keep people working, and there is little hope.

In fact, if you watch the 60 minutes video below you will see a large crowd of permanently unemployed in Silicon Valley, California. Nearly every one of them has a college degree. Also there are many with Ph.Ds and masters degrees.

These people thought they were doing everything right. They got their educations, they worked hard, and they saved for retirement. They are people in their 40s, 50s, and 60s that now have little chance of getting a decent job. They are happy with getting any job, even part time jobs.

Their unemployment benefits are gone and they are losing their homes.

They are part of a so called ‘recovery’ but that recovery is moving them right on to the streets.

 

I work as a school counselor and mental health counselor in Gallup, New Mexico.

Janitors With Ph.D.s: Why We're Spending Way Too Much on Higher Education

From AlterNet / By Lauren Kelley

 

Some 17 Million Americans have college degrees but don't need them. Should we be encouraging even more people to pursue degrees when their economic futures are far from certain?

 

October 25, 2010  |

For politicians, boosting college graduation rates has always been a fairly uncontroversial goal to support. The Obama administration is doing so, rather relentlessly, through a number of initiatives designed to better prepare students for college and support them once they get there.

The assumptions are 1) that students who graduate from college have increased potential for economic mobility, and 2) the more students who earn college degrees, the more our economy will grow. But are either of those assumptions still true, in light of our new economic reality? Or are we wasting money investing in a sector that's producing thousands of janitors with Ph.D.s?

One thing's for sure: our higher education system has produced thousands of janitors with Ph.D.s or other professional degrees -- about 5,057 of them, in fact, plus more than 8,000 waiters and waitresses. When you look at all college degrees, there are more than 317,000 over-educated Americans serving us our meals, more than 80,000 shaking our martinis and some 62,000 mowing our lawns.

In all, about 17 million people in this country have completed college only to end up working jobs that require a skill level below that of a bachelors degree, according to the Bureau of Labor Statistics.

 

 

You can be sure that many college-educated McDonald's workers have career goals that they've been unable to achieve because of the nation's crippling 22.5% underemployment rate; some of them will, theoretically (and hopefully), move into their intended career one day. But what of the millions of people who don't switch over to careers that require a degree, either by choice or because of circumstance?

Richard Vedder of the Chronicle of Higher Education argues that this is one sign the U.S. has over-invested in higher education. He points to a new National Bureau of Economic Research report written by three acclaimed economists, which concludes, "In general, marginal and average returns to college are not the same." In layman's terms, that means that even if our investment in higher education is yielding a decent return on average, efforts to build on that investment might yield a less-good return. Or, even more simply put, there is a point of diminishing returns in higher education. And, according to these indicators at least, we appear to have reached it.

Over at the blog for the Center for College Affordability and Productivity, Christopher Matgouranis makes a similar argument, noting that the 4.4% unemployment rate for college grads may be better than the abysmal national rate (9.6%), but still suggests that a bachelor's degree is no longer "a guaranteed path to a cushy middle class life-style."

When considering public policy aimed at increasing the percentage of college graduates in the labor force, it must be an imperative to consider what these people will be doing after graduation. Is it socially responsible for us to encourage individuals to enroll in college and accumulate massive debt when the benefits are becoming increasingly uncertain? I think not. An increase in the overall percentage of college graduates will just see that more will end up underemployed (or unemployed altogether).

Encouraging students to go to college regardless of their skill level or inclination and with dwindling potential for economic benefit can lead to "credential inflation" -- the phenomenon whereby college degrees are "watered down" and employers start requiring a degree for jobs that do not warrant one. (Despite what some employment ads suggest, you probably do not need a college degree to answer a phone, or to build cabinets.)

An obvious solution is to the invest a greater percentage of our resources in vocational and other professional certification programs, which would cost less for both students and the government and could produce people who are more appropriately trained for the careers they want to and/or will pursue.

On the other hand, it could be that there's nothing wrong with encouraging young Americans to pursue degrees as long as we can ensure that they'll receive a high-quality education. After all, students go to college for more than just career training -- they also go to expand their minds, find their place in the world, meet new people and, quite often, to grow up a bit before entering the workforce. And there's nothing wrong with that, per se.

But either way, the blind assumption that dumping more money into the higher education sector will lead to certain economic gains is naïve, if not irresponsible, and requires a deeper look.

Lauren Kelley is an associate editor at AlterNet and a freelance writer and editor who has contributed to Change.org, The L Magazine and Time Out New York. She lives in Brooklyn.

Washington, D.C. The Real Haiti Tragedy: Nearly $1 billion in Aid Held Up By One Senator

October 8, 2010

By `

(The Loop21) — While hundreds of thousands suffer without water, electricity, and shelter in Haiti, one man from the privileged comfort of his tax payer supported Washington D.C. office has held $917 million in aid to Haiti hostage. Earlier this year the United States pledged to provide nearly a billion dollars in aid to help rebuild earthquake ravaged Haiti. Both the Senate and the House of Representatives passed legislation making $917 million available for the rebuilding effort. Because Congress did not spell out exactly how the money was to be spent, a separate authorization bill accomplishing this task was needed. Without the authorization bill the money would not be dispersed.

Using a little heard of device known as the Senate hold, Senator Tom Coburn (R) has blocked this authorization bill from reaching the floor of the Senate, in effect holding hostage well over $900 million needed to re-build earthquake ravaged Haiti.

His justification – a $5 million provision in the authorization bill he considers wasteful. Never mind the fact the provision would fund a Haiti coordinator charged with developing a rebuilding strategy for the country. According to the Associated Press, $1 million a year for five years would be used to pay for the coordinator and a staff of up to seven people.

Rather than waste money, it seems like such a coordinator position would actually save money by ensuring funds were spent according to a well thought out plan.

Nevertheless, Senator Coburn seems fine blocking desperately needed funds over a provision that constitutes less than 0.6 percent of the spending authorization bill.

One can only wonder about the true motives of Senator Coburn’s actions. As a man who so proudly touts his Christian conservative roots, shouldn’t Coburn heed the spirit of his faith – one that calls for compassion and admonishes believers to help those less fortunate than ourselves? As a physician shouldn’t Coburn be more in tune with human suffering?

Coburn’s actions are emblematic of an even larger problem – a hopelessly broken Senate, one in which arcane rules adversely affect the lives of real people. The Senate hold Coburn placed on the Haitian aid authorization bill is a prime example.

Not only does a hold allow a Senator to block legislation from coming to the Senate floor for a vote, but it allows the Senator to do this in complete anonymity. Only investigative reporting by the Associated Press uncovered Senator Coburn as the senator responsible for blocking aid to Haiti.

In a democratic system, a single senator shouldn’t have the power to so cowardly hold legislation, impeding the work of Congress in the process. Yet, Republicans have used holds not only to block legislation but to also prevent the appointment of Presidential nominees.

Senator Richard Shelby (R) earlier this year blocked an unprecedented 70 Presidential appointments. Republican blocks on judicial nominees have been so numerous that a dangerously high 103 appointments in federal district and appellate courts remain unfulfilled.

Just as devastating has been the Republican use of the filibuster, a tactic that forces 60 senators to agree before a bill can proceed to passage instead of a simple 51 percent majority.

Good legislation has repeatedly been stalled or sacrificed at the hand of the filibuster, even when a majority of Senators were in favor of it.

Among them – legislation to end tax breaks to companies that ship jobs overseas, repeal of the Don’t Ask, Don’t Tell ban on gays in the military, extension of unemployment benefits for the jobless, small business tax cuts, and emergency aid to states to save the jobs of thousands of teachers and public employees.

In fact, by early this year the House of Representatives had already passed 290 pieces of legislation that subsequently stalled in the Senate – a place where legislation and common sense go to die. In the process real Americans facing real problems have suffered.

And where has the media been in all this? It seems they would rather report on the antics of the Tea Party than shine light on a dysfunctional Senate. Are we a culture that would rather hear about Lindsay Lohan’s latest arrest than the inhuman actions of a leader who prevents aid from reaching earthquake victims?

Was Haiti just the “flavor of the month”? Have we so quickly forgotten the human suffering and devastation, moving on to the next item in our 24/7 news cycle?

The devastation in Haiti was a true human tragedy. Yet equally as tragic is a broken Senate whose rules allow politicians to capriciously obstruct legislation that could help millions of people.

Now that you think about it, should we even be surprised Senator Coburn is holding desperately needed aid to Haiti hostage? His own party in the Senate has been holding the American public hostage for nearly two years.

Socialism? The Rich Are Winning the US Class War: Facts Show Rich Getting Richer, Everyone Else Poorer

Published on Monday, October 25, 2010 by CommonDreams.org

by Bill Quigley

The rich and their paid false prophets are doing a bang up job deceiving the poor and middle class. They have convinced many that an evil socialism is alive in the land and it is taking their fair share. But the deception cannot last – facts say otherwise.

Yes, there is a class war – the war of the rich on the poor and the middle class – and the rich are winning. That war has been going on for years. Look at the facts – facts the rich and their false paid prophets do not want people to know.

Let Glen Beck go on about socialists descending on Washington. Allow Rush Limbaugh to rail about “class warfare for a leftist agenda that will destroy our society.” They are well compensated false prophets for the rich.

The truth is that for the several decades the rich in the US have been getting richer and the poor and middle class have been getting poorer. Look at the facts then make up your own mind.

Poor Getting Poorer: Facts

The official US poverty numbers show we now have the highest number of poor people in 51 years. The official US poverty rate is 14.3 percent or 43.6 million people in poverty. One in five children in the US is poor; one in ten senior citizens is poor. Source: US Census Bureau.

One of every six workers, 26.8 million people, is unemployed or underemployed. This “real” unemployment rate is over 17%. There are 14.8 million people designated as “officially” unemployed by the government, a rate of 9.6 percent. Unemployment is worse for African American workers of whom 16.1 percent are unemployed. Another 9.5 million people who are working only part-time while they are seeking full-time work but have had their hours cut back or are so far only able to find work part-time are not counted in the official unemployment numbers. Also, an additional 2.5 million are reported unemployed but not counted because they are classified as discouraged workers in part because they have been out of work for more than 12 months. Source: US Department of Labor Bureau of Labor Statistics October 2010 report.

The median household income for whites in the US is $51,861; for Asians it is $65,469; for African Americans it is $32,584; for Latinos it is $38,039. Source: US Census Bureau.

Fifty million people in the US lack health insurance. Source: US Census Bureau.

Women in the US have a greater lifetime risk of dying from pregnancy-related conditions than women in 40 other countries. African American US women are nearly 4 times more likely to die of pregnancy-related complications than white women. Source: Amnesty International Maternal Health Care Crisis in the USA.

About 3.5 million people, about one-third of which are children, are homeless at some point in the year in the US. Source: National Law Center on Homelessness and Poverty.

Outside Atlanta, 33,000 people showed up to seek applications for low cost subsidized housing in August 2010. When Detroit offered emergency utility and housing assistance to help people facing evictions, more than 50,000 people showed up for the 3,000 vouchers. Source: News reports.

There are 49 million people in the US who live in households which eat only because they receive food stamps, visit food pantries or soup kitchens for help. Sixteen million are so poor they have skipped meals or foregone food at some point in the last year. This is the highest level since statistics have been kept. Source: US Department of Agriculture, Economic Research Service.

Middle Class Going Backward: Facts

One or two generations ago it was possible for a middle class family to live on one income. Now it takes two incomes to try to enjoy the same quality of life. Wages have not kept up with inflation; adjusted for inflation they have lost ground over the past ten years. The cost of housing, education and health care have all increased at a much higher rate than wages and salaries. In 1967, the middle 60 percent of households received over 52% of all income. In 1998, it was down to 47%. The share going to the poor has also fallen, with the top 20% seeing their share rise. Mark Trumball, “Obama’s challenge: reversing a decade of middle-class decline,” Christian Science Monitor, January 25, 2010. http://www.csmonitor.com/USA/2010/0125/Obama-s-challenge-reversing-a-decade-of-middle-class-decline

A record 2.8 million homes received a foreclosure notice in 2009, higher than both 2008 and 2007. In 2010, the rate is expected to be rise to 3 million homes. Sources: Reuters and RealtyTrac.

Eleven million homeowners (about one in four homeowners) in the US are “under water” or owe more on their mortgages than their house is worth. Source: “Home truths,” The Economist, October 23, 2010.

For the first time since the 1940s, the real incomes of middle-class families are lower at the end of the business cycle of the 2000s than they were at the beginning. Despite the fact that the American workforce is working harder and smarter than ever, they are sharing less and less in the benefits they are creating. This is true for white families but even truer for African American families whose gains in the 1990s have mostly been eliminated since then. Source: Jared Bernstein and Heidi Shierholz, State of Working America. http://www.stateofworkingamerica.org/swa08_00_execsum.pdf

Rich Getting Richer: Facts

The wealth of the richest 400 people in the US grew by 8% in the last year to $1.37 trillion. Source: Forbes 400: The super-rich get richer, September 22, 2010, Money.com

The top Hedge Fund Manager of 2009, David Tepper, “earned” $4 billion last year. The rest of the top ten earned: $3.3 billion, $2.5 billion, $2.3 billion, $1.4 billion, $1.3 billion (tie for 6th and 7th place), $900 million (tie for 8th and 9th place), and in last place out of the top ten, $825 million. Source: Business Insider. “Meet the top 10 earning hedge fund managers of 2009.” http://www.businessinsider.com/meet-the-top-10-earning-hedge-fund-managers-of-2009-2010-4

Income disparity in the US is now as bad as it was right before the Great Depression at the end of the 1920s. From 1979 to 2006, the richest 1% more than doubled their share of the total US income, from 10% to 23%. The richest 1% have an average annual income of more than $1.3 million. For the last 25 years, over 90% of the total growth in income in the US went to the top 10% earners – leaving 9% of all income to be shared by the bottom 90%. Source: Jared Bernstein and Heidi Shierholz, State of Working America. http://www.stateofworkingamerica.org/tabfig/2008/01/19.pdf

In 1973, the average US CEO was paid $27 for every dollar paid to a typical worker; by 2007 that ratio had grown to $275 to $1. Source: Jared Bernstein and Heidi Shierholz, State of Working America. http://www.stateofworkingamerica.org/tabfig/2008/03/SWA08_Wages_Figure.3AE.pdf

Since 1992, the average tax rate on the richest 400 taxpayers in the US dropped from 26.8% to 16.62%. Source: US Internal Revenue Service. http://www.irs.gov/pub/irs-soi/07intop400.pdf

The US has the greatest inequality between rich and poor among all Western industrialized nations and it has been getting worse for 40 years. The World Factbook, published by the CIA, includes an international ranking of the inequality among families inside of each country, called the Gini Index. The US ranking of 45 in 2007 is the same as Argentina, Cameroon, and Cote d’Ivorie. The highest inequality can be found in countries like Namibia, South Africa, Haiti and Guatemala. The US ranking of 45 compares poorly to Japan (38), India (36), New Zealand, UK (34), Greece (33), Spain (32), Canada (32), France (32), South Korea (31), Netherlands (30), Ireland (30), Australia (30), Germany (27), Norway (25), and Sweden (23). Source: CIA The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html

Rich people live an average of about five years longer than poor people in the US. Naturally, gross inequality has consequences in terms of health, exposure to unhealthy working conditions, nutrition and lifestyle. In 1980, the most well off in the US had a life expectancy of 2.8 years over the least well-off. As the inequality gap widens, so does the life expectancy gap. In 1990, the gap was a little less than 4 years. In 2000, the least well-off could expect to live to age of 74.7 while the most well off had a life expectancy of 79.2 years. Source: Elise Gould, “Growing disparities in life expectancy,” Economic Policy Institute. http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20080716/

Conclusion

These are extremely troubling facts for anyone concerned about economic fairness, equality of opportunity, and justice.

Thomas Jefferson once observed that the systematic restructuring of society to benefit the rich over the poor and middle class is a natural appetite of the rich. “Experience declares that man is the only animal which devours his own kind, for I can apply no milder term to…the general prey of the rich on the poor.” But Jefferson also knew that justice can only be delayed so long when he said, “I tremble for my country when I reflect that God is just, that his justice cannot sleep forever.”

The rich talk about the rise of socialism to divert attention from the fact that they are devouring the basics of the poor and everyone else. Many of those crying socialism the loudest are doing it to enrich or empower themselves. They are right about one thing – there is a class war going on in the US. The rich are winning their class war, and it is time for everyone else to fight back for economic justice.

Bill is Legal Director of the Center for Constitutional Rights and professor of law at Loyola University New Orleans. You can reach Bill at [email protected]

Embrace the Cooperative Movement

Published on Tuesday, October 26, 2010 by the Austin American-Statesman (Texas)

by Carlos Perez de Alejo

In the midst of mounting economic insecurity, fueled by widespread unemployment, foreclosures and budget cuts, many are seeking alternative models to business as usual. From community gardens to bartering networks, grassroots efforts are sprouting up across the country. One pillar of the trend is an international institution with over 160 years of experience in local, sustainable economic development: a cooperative.

Since the mid-1800s, cooperatives have promoted a people-centered model that sets them apart from conventional businesses. Unlike traditional corporations, which are owned and controlled by outside shareholders, cooperatives are businesses owned and democratically controlled by their members — the people who use their services or buy their goods.

Co-ops exist in a variety of forms in countless industries across the U.S. and around the world. United on the basis of member-ownership and democratic control — generally following the decision-making principle of "one-member, one-vote" — co-ops have a range of ownership structures. In whatever form they take, however, surveys repeatedly demonstrate that consumers rate co-ops as more trustworthy than investor-owned corporations.

In the U.S. alone, the model has been embraced by more than 130 million members, served by over 29,000 cooperatives operating in nearly all sectors of the economy.

Cooperatives play a vital role in local economic development, helping people improve their lives through jobs and access to goods and services. The demonstrated benefits have sparked growing interest in the cooperative movement worldwide.

In light of the economic crisis, many people have embraced worker cooperatives as an effective pathway out of poverty. Owned and controlled by the people who work in the business, worker co-ops have an impressive track record of providing stable jobs with asset-building potential, higher wages, a deeper connection to the local community and an array of personal and professional development opportunities.

Worker cooperatives often operate on the basis of a "triple bottom line," measuring success not simply by the money they earn, but by the well-being of their workers; their sustainability as a business; and their contribution to the community and the environment. Cooperatives have served as a foundation for growth of the green economy, where worker-owned businesses operate primarily in labor-intensive sectors such as recycling, solar installation, landscaping, green cleaning and deconstruction.

In Austin, Third Coast Workers for Cooperation, a cooperative development center dedicated to building worker-owned green businesses with low-income communities, is working with a group of low-income women to establish Yo Mamas Catering Co-op, a worker-owned catering business.

"We wanted jobs that would provide a good living for ourselves and our families," says Sylvia Barrios of Yo Mamas. "We've spent a lot of time working for other people. ... Now we want more control over our lives and we think Austin is ready for more worker-run businesses."

Indeed, Austin has its share of notable worker-run businesses: Ecology Action, a recycling center in downtown; Tribe Creative Agency, an advertising agency focused on the "Common Good"; and the Black Star Co-op, a worker-managed, consumer-owned brew pub.

As one of the more noteworthy cities for socially and environmentally responsible local businesses, Austin is ripe for more growth in the cooperative sector. Socially and environmentally responsible practices are not just a trend within cooperatives — it's just how they work. That's the cooperative difference.

© 2010 Statesman

Perez de Alejo is co-director of the Austin-based Third Coast Workers for Cooperation.

After the Midterms: Why Democrats Move to the Center, and Republicans Don’t

by Robert Reich

Monday, October 25, 2010

If Republicans succeed in taking over the House and come even close to gaining a majority in the Senate, expect calls for the President to “move to the center.” These will come not only from Republicans but also from conservative Democrats, other prominent Dems who have been defeated, Fox Republican News, mainstream pundits, and White House political advisers.

After the 1994 midterm, when Dems lost the House and Senate, Bill Clinton was told to “move to the center.” He obliged by hiring the pollster Dick Morris, declaring the “era of big government is over,” abandoning much of his original agenda, and making the 1996 general election about nothing more than V-chips in televisions and school uniforms.

It happened in the 1978 midterm when Dems lost ground and Jimmy Carter was instructed to “move to the center.” He obliged by firing his entire cabinet, apologizing for the errors of his ways, and making the 1980 general election about absolutely nothing.

Oddly, though, after Republicans suffer losses in the first midterms they pay no attention to voices telling them to move to the center. If anything, Ronald Reagan and the two Bushes moved further right.

Could it be that Republican presidents understand a few things Democrats don’t? For example:

1. There is no “center” to American politics. The “center” is merely what most people tell pollsters they think or want at any given time. Trying to move to the center by following polls means giving up on leadership because you can’t lead people to where they already are.

2. By the first midterm the public is almost always grouchy because the president wasn’t a messiah and didn’t change the world. No single president has that kind of power. The higher the expectations for change at the start of an administration, the greater the disillusionment.

3. Presidents’ parties always lose the first midterm elections because the President isn’t on the ticket, and the opposing party has had time to regroup and refuel. It’s always easier for the party on the outs to attack — and to mass troops for the assault — than for the party inside to defend.

4. The economy trumps everything else, even though presidents aren’t really responsible for it. So when it’s bad — as it was during the first midterms of Carter, Reagan, and Clinton — voters penalize the president’s party even more than usual. When it’s very bad, the electoral penalty is likely to be that much larger.

Why are Democratic presidents so much more easily intimidated by the “move to the center” rhetoric after midterm losses than Republican presidents?

Because Democrats think in terms of programs, policies, and particular pieces of legislation. It’s easy to reverse course by compromising more and giving up on legislative goals. Bill Clinton never mentioned the words “health care reform” after the 1994 midterms.

Republicans think in terms of simple ideas, themes, and movements. It’s far harder to reverse course on these (look what happened to the first George Bush when he raised taxes), and easier to keep them alive: Republican presidents just continue looking for opportunities to implement them.

Republicans are also more disciplined (ask yourself which party attracts authoritarian personalities and which attracts anti-authoritarians). This makes it easier for them to stay the course. Their base continues to organize and fulminate even after midterm defeats. Democrats, on the other hand, are less organized. Electoral defeats tend to fracture and dissipate whatever organization they have.

Republicans are cynical about politics from the jump. Political cynicism fuels them. Democrats are idealistic about politics. When they become cynical they tend to drop out.

Message to Obama: Whatever happens November 2, don’t move to the center. Push even harder for what you believe in. Message to Democrats: Whatever happens, keep the courage of your conviction and get even more active.

Initial Unemployment Claims and Monthly Employment Situation Data Don't Compute

by John Lawrence

According to the initial unemployment insurance (UI)claims data for September 2010 there were 1,478,361 claims. According to the Bureau of Labor Statistics (BLS) website this represents an undestimate of jobs actually lost since it doesn't count voluntary quits which aren't eligible for unemployment insurance. Also it doesn't count those lost jobs which aren't covered by unemployment insurance in the first place. For example, self-employed workers, unpaid family workers, workers in certain not-for-profit organizations, and several other small (primarily seasonal) worker categories are not covered. In addition, the insured unemployed exclude the following:

• Unemployed workers who have exhausted their benefits
• Unemployed workers who have not yet earned benefit rights (such as new entrants or reentrants to the labor force)
• Disqualified workers whose unemployment is considered to have resulted from their own actions rather than from economic conditions; for example, a worker discharged for misconduct on the job
• Otherwise eligible unemployed persons who do not file for benefits

So we might safely conclude that at least a million and a half workers lost their jobs in September 2010. But, according to the Employment Situation for September 2010 put out by the BLS, there were 95,000 lost non-farm jobs in September. This is based on the Current Employment Statistics (CES) survey which surveys 140,000 businesses and government agencies each month. For these two figures to compute there would have to be 1.5 million minus 95,000 jobs created in September 2010 and 1.5 million jobs lost in order to jibe with the initial unemployment claims data. This would compute to a figure of 95,000 jobs lost because the BLS is computing net jobs created or destroyed not absolute numbers of jobs created or destroyed. We infer the absolute numbers that would be necessary according to the initial unemployment claims data.

While the number of initial unemployment claims is a hard and fast number, the number of jobs created or destroyed is based on a survey and this survey is inherently inaccurate. Not only is it based on a survey but part of the number is based on an econometric model! And with so many (actual not net) jobs lost in September (or in any other recent reference month) according to initial UI claims data, the net jobs created or lost according to the CES amounts to little more than a margin of error. Note that the BLS doesn't include data about the absolute number of jobs created and the absolute number of jobs lost, only the net. So one must assume based on the initial unemployment claims that the net involves at least 1.5 million actual jobs lost in September. The net of 95,000 jobs lost is so much smaller than the two numbers (jobs created minus jobs destroyed) that must be subtracted that it is inherently inaccurate.

This throws the whole measurement scheme of the BLS into doubt. Since their figures are inherently inaccurate, they can't be trusted. What we know for sure is that at least 1.5 million jobs were lost. This is a hard and fast figure. What we don't know is how many jobs were created (BLS only gives us the net). Therefore, my contention is that nowhere near the 1.4 million jobs that the BLS implies were created in September 2010 were actually created. This leaves us with the conclusion that huge numbers of jobs are being destroyed in the US economy and are not being replaced. The rest is statistical sleight of hand.

The fact of the matter is that the BLS would not even have to use a survey to estimate the number of jobs lost or created in any given month. It has access to hard and fast numbers instead. Those numbers can be derived from the payroll taxes that each employer pays. Employers pay a payroll tax for each employee. The amount of taxes paid divided by the tax per employee gives the number of employees employed per business. This can be summed up over all businesses and government agencies. The IRS has the data to come up with a hard and fast number for the number of employees and hence the number of jobs for the entire economy. The change month to month represents the jobs lost or gained for the current month.

In addition to statistical inaccuracies, the survey presents other problems. It relies on the honesty of businesses and government agencies to report the number of jobs created or destroyed. Private employers and government agencies have a disincentive to provide honest data about job destruction because they have a vested interest in making the economy look as good as possible and to cover up the fact that they are outsourcing jobs. They want consumers to be upbeat about the economy so that they will go out and buy stuff. Consumers are less likely to be upbeat if hundreds of thousands of jobs are leaving the economy each month. And I don't believe there is any penalty for underreporting the number of lost jobs so this in and of itself results in inaccurate data. As we all know, businesses will do everything within their power to profit themselves as the money spent on TV ads and lobbyists attests to.

The American public has a right to expect more accurate figures concerning job creation or destruction. They have a right to know if their jobs are being shipped overseas and to what extent. The BLS needs to revamp its techniques in order to provide the American public with more accurate figures.

Debt, Taxes, Jobs: How They're All Interrelated

by John Lawrence

The upcoming election is all about jobs. No, it's all about taxes. No, it's all about debt. Well, I guess it depends on who you talk to. The Tea Partiers are all concerned about the debt and lowering taxes. That supposedly will produce more jobs. Only we've tried that for 10 years and it hasn't worked. Lowering taxes is not going to produce any jobs. That's been established. But that amounts to the Republicans' jobs program: lower taxes. Well, how does lower taxes - if it doesn't produce more jobs - affect the national debt. Well, the Republicans have a track record on that too. Lowering taxes increases the debt because there are less revenues coming into the Federal government. George Bush pretty much proved that. In fact the deficit - which is the yearly contribution to the debt - would by and large be eliminated if we just eliminated all the Bush tax cuts - those on the wealthy and those on the middle class.

So let's say we eliminate the Bush tax cuts on everyone. Problem solved at least as far as adding to the debt is concerned. Of course there are other ways of raising additional government revenues which would also eliminate the deficits. Problem is the government as presently constituted doesn't have the political will do do any of them. But one thing is for sure: you can't lower taxes and reduce the debt. And if lowering taxes doesn't produce more jobs, it seems like a no brainer to at least solve the debt problem by raising taxes, not necessarily on the middle class, but somewhere.

Thom Hartmann in his new book Rebooting the American Dream says this:

One way in which the think tanks and the conservative media con the American public is to conflate income taxes for the rich with income taxes for everyone else. And this is the crux of the con job. When Bill Clinton proposed tax increases in 1993, think tanks like Heritage and Cato immediately opposed them with their myths about the negative consequences of tax increases.

Those negative consequences would be a lack of job creation. But we've had low taxes and ... WHERE ARE THE JOBS??!! If job creation is not a consequence of lowered taxes, which has been historically proven, then why not raise taxes on those who can afford to pay? Taxes could be raised on the rich and lowered on the middle class. The $100 billion that corporations park offshore each year, and, consequently, pay no taxes on could be reclaimed by changing the law. The middle class has already been pounded by the fact that most income over the last 10 years has gone to the upper income groups resulting in the greatest amount of income and weath inequality since the 1920s.

So it's a no brainer to raise taxes on the wealthy to solve the deficit problem at least. Now what about the jobs problem? Right now corporations are being given tax breaks to move jobs out of the US. It's hard to believe but that is government policy. Democrats tried to pass a law changing this, but guess who opposed it? That's right, the Republicans who will do everything in their power to keep the present status quo which favors the big corporations who want to increase profits by offshoring jobs to where they can be performed by cheap labor. So it's patent BS that lowering taxes on corporations will create more jobs in the US when the overriding penchant is for corporations to outsource jobs, and they will continue to do that tax breaks or no tax breaks.

Most big corporations are multinationals. That means they have no allegiance to the US or to American jobs. They will create jobs wherever it's profitable to do so. Right now a lot of American corporations are American in name only; they do most of their business - both in terms of producing and in terms of selling - overseas. So why not change the law to discourage imports that could be produced in the US and give favorable treatment to companies that create jobs in the US. Obviously, the US cannot just be a consumer market for products produced abroad. Stuff must be produced here in order that workers can earn enough money to consume the products they need. The US cannot be just a consumer market for multinational companies.

So how are more jobs in the US to be created? 1) Discouraging imports and encouraging production within the US. 2) Massive government involvement in infrastructure repair and creation. #2 would require government expenditures that would increase debt only if the money is borrowed. However, raising taxes can not only be a solution to solving the debt problem, but it can also be a partial solution to solving the jobs problem without increasing the debt. So why isn't it being proposed by the Democrats? Partly, it's because right wing media has labeled Obama a socialist already for his puny American Recovery and Reinvestment Act which was mainly another tax cut. All this tax cut did was add to the debt. The puny amount that was directed towards saving and creating jobs was not big enough to have a major effect on the unemployment rate although it did some good. What is needed is a massive infrastructure investment program and revenue enhancement in the form of tax increases on those who can afford to pay to fund it.

So there you have it: problem solved, debt stabilized, jobs created. And the way it's solved is to raise taxes on those possessing all the money that's sloshing around in the casino economy and going back to a tax structure similar to what was in effect under Eisenhauer (when the top marginal tax rate was 91%) and Nixon (when the top marginal tax rate was 70%). Not only are the Bush tax cuts ruining the financial solvency of the US government but the Reagan tax cuts are adding to the ruin. But Democrats can hardly run on raising taxes even though they are gaining some traction with the idea of raising taxes on the wealthy but not on the middle class. They need to keep repeating this theme so that the American middle class will deconflate raising taxes with raising taxes on everyone.

How American Income Inequality Hit Levels Not Seen Since The Depression

First Posted: 10-22-10 05:10 PM   |   Updated: 10-22-10 05:42 PM, From Huffington Post

WASHINGTON (Reuters, By Emily Kaiser) - In 2007, when the world was on the brink of financial crisis, U.S. income inequality hit its highest mark since 1928, just before the Great Depression.

Coincidence? Maybe not.

Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.

This raises a host of social, economic and political questions. Should public policy aim to reduce inequality, and if so by what means? Does concentrated wealth at the top of the income spectrum generate asset bubbles, or vice versa? Could raising taxes or interest rates ward off financial meltdowns?

Americans are generally not bothered by inequality because they believe with hard work, they, too, can strike it rich. Government policies aimed at spreading the wealth rarely get much support. (Remember 2008, when then-candidate Barack Obama's campaign-trail comment about redistributing the wealth catapulted "Joe the Plumber" into media stardom?)

"It is usually only left-leaning rich people that care about inequality in the U.S.," said Carol Graham, a senior fellow at the Brookings Institution think tank who studies the economics of happiness.

Those attitudes may be subtly shifting, although it is unclear that this is anything more than just a temporary knee-jerk reaction to the latest bout of turmoil.

During the last period of economic expansion, 2002 to 2007, the top 1 percent enjoyed 10.1 percent annual income growth, adjusted for inflation. For the other 99 percent, the growth rate was just 1.3 percent, Saez found. That meant the top 1 percent received 65 cents of every dollar in income growth.

"We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it," he concluded.

COMMON THREADS

There is little agreement among economists about what precisely links high inequality to crises, which helps explain why so few officials saw the financial upheaval coming.

Rapid expansion of credit is one common thread.

Robert Reich, a Berkeley public policy professor and a labor secretary under President Bill Clinton, thinks stagnant middle-class wages led households to pull equity from their homes and overload on debt to maintain living standards.

Raghuram Rajan, a professor at the University of Chicago's Booth School of Business and a former chief economist of the International Monetary Fund, believes governments tend to promote easy credit when inequality spikes to assuage middle-class anger about falling behind.

"One way to paper over the rising inequality was to lend so that people could spend," Rajan said.

In the 1920s, it was expansion of farm credit, installment loans and home mortgages. In the last decade, it was leveraged borrowing and lending, by home buyers who put no money down or investment banks that lent out $30 for each $1 held.

"Housing credit gave you an instrument to assist those falling behind without them feeling they're beneficiaries of some sort of subsidy," Rajan said. "Even if their incomes are stagnant, they feel really good about becoming homeowners."

BUBBLES AND YACHTS

Another theory is that concentration of wealth at the top sends investors searching for riskier interest-bearing savings. When so much cash is sloshing around, traditional safe investments such as Treasury debt yield very little, and wealthy investors may seek out fatter returns elsewhere.

Mark Thoma, who teaches economics at the University of Oregon, wonders if the flood of investment cash from the ultra-rich -- both in the United States and abroad -- encouraged Wall Street to create seemingly safe mortgage-backed securities that later proved disastrously risky.

"When we see income inequality rising, we ought to start looking for bubbles," he said.

Kemal Dervis, global economy and development division director at Brookings and a former economy minister for Turkey, said reducing inequality isn't just a matter of fairness or morality. An economy based on consumption needs consumers, and if too much wealth is concentrated at the top there may be times when there is not enough demand to support growth.

"There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."

MISSING THE LINK

The fact that economists are even examining the link between inequality and financial crises shows just how much the thinking has changed in the wake of the Great Recession.

Paul Krugman, the Nobel prize-winning economist, said that before 2008, when he spoke of inequality approaching levels last seen before the Great Depression, it would inevitably lead to questions about whether another crisis was looming.

"No, I'd say -- there really isn't a clear reason why high inequality should lead to macroeconomic crisis," he recalled in a presentation to a conference on income inequality in June.

Now, he says, he is considering whether inequality somehow creates macroeconomic vulnerability.

Krugman certainly wasn't the only one who dismissed the idea of a connection between inequality and crisis before the latest episode.

Ajay Kapur, a Deutsche Bank strategist, spotted the inequality parallels between the 1920s and the most recent decade, but didn't see the meltdown coming. The former Citigroup strategist created a stir five years ago when he built an investment strategy around his thesis that essentially divided the world into two camps: the rich and the rest.

Kapur told clients in 2005 that the United States and a handful of other economies were developing into "plutonomies" where the wealthy few powered economic growth and consumed much of its bounty, while the "multitudinous many" shared the leftovers.

Plutonomies come around only once or twice a century, he argued -- 16th century Spain, 17th century Holland, the Gilded Age. The last time it happened in the United States was during the "Roaring 1920s".

There was money to be made by buying shares of luxury companies that made toys for the rich, he told clients, suggesting a basket of stocks that included upscale retailer Burberry and luxury home builder Toll Brothers.

"When I presented this to clients, they said, 'Okay, this is interesting because you're telling me what happened in the 1920s is happening right now, and you obviously know what happened after 1929, right?'," Kapur said in an interview.

His response? That can't happen again because we know better now.

"To be perfectly honest.... I certainly didn't think it would all melt down in 2007. I'd be lying if I said that."

Kapur still isn't convinced there is a direct connection, and points out that 2007 and 1928 are only two data points and it's dangerous to draw conclusions from such a small sample.

SEEDS OF INEQUALITY

Inequality doesn't always lead to financial crisis, which makes it difficult for policymakers to know when it might be growing into a serious problem that ought to be addressed.

Many of the root causes -- technological advances, financial innovation, higher education -- are social goods, not ills, so it makes little sense to attack them.

The traditional view among economists is that combating inequality would hurt growth. Many argue that inequality is "if anything, favorable to -- or at least a necessary by-product of -- economic growth," as Federal Reserve Bank of Dallas researchers wrote in a 2008 paper on inequality.

In the decades before the Great Depression, advances in mass-production and transportation enabled large-scale factories to churn out more goods with fewer workers.

In the past two decades, the big change was the explosion of personal computing and the Internet. The ability to instantaneously transmit masses of information over thousands of miles meant workers no longer needed to be in the same place, and jobs could easily shift to low-cost locales such as Bangalore, India, or Shenzhen, China.

Demand for unskilled labor fell. The relatively small segment of the population with the qualifications to compete -- in the 1920s, a high school diploma; in today's economy, a college degree -- earned more money, widening the wealth gap.

Unemployment data bears that out. Even before the latest recession started in late 2007, the jobless rate for those with only a high school diploma was more than double the rate for those with at least a Bachelor's degree. As of September 2010, unemployment among high school graduates was 10 percent; for those with a four-year college degree it was just 4.4 percent.

This suggests one government response to inequality should be to channel more money into education, said Jack Ablin, chief investment adviser for Harris Private Bank in Chicago.

Ablin said only a small sliver of his high net-worth clients inherited their wealth, so simply comparing wealth concentration between the 1920s and now may be a bit unfair.

"Becoming wealthy in the olden days was almost genetic," he said, referring to wealth handed down from generation to generation.

I CAN BE BILL GATES

The work hard, get rich formula is deeply embedded in the American psyche, which helps explain why Americans have generally tolerated inequality.

For every dynastic family name such as Kennedy or Rockefeller, there are those who reached the top through creativity and sweat, from Sam Walton who built the global Walmart empire from a single dime store in Arkansas, to Google founders Larry Page and Sergey Brin who started their company in a garage.

Rags to riches tales are an integral part of what makes the United States a beacon to immigrants who dream of a better life. No one embodies that better than President Obama, whose mother once turned to food stamps to feed her family, yet he was able to attend top-tier universities and aspire to the most powerful office in the world.

Graham, the Brookings economist who studies happiness, said most Americans, including the poor, believe that hard work is more important than luck in getting ahead.

"If I work hard enough, I too can be Bill Gates," is how Graham explains the philosophy.

The only groups that don't share that view and consistently rank toward the bottom on measures of happiness are the long-term unemployed and those without health care, she said.

Both groups grew during the recession. As of September, there were 6.1 million people who had been out of work for more than six months, more than four times as many as there were at the start of the recession.

Deborah Coleman is one of the long-term unemployed. There is no disguising the anger felt by the 58-year-old former telecommunications company manager in Cincinnati, who has been out of work for more than two years.

"Am I pissed that I have lost everything while the rich on Wall Street are still living it up? You bet I'm pissed," she said. "I'm one of the many people who've lost everything and then been swept under the carpet."

TAXING THE RICH

Graham does not yet have enough data to determine whether attitudes toward inequality shifted after the financial crisis, but she suspects there has been very little movement.

The debate over whether to extend Bush-era tax cuts for the wealthiest households may provide an early litmus test. Obama has proposed keeping the lower tax rates only for families making less than $250,000, but Republicans and a handful of Democrats went them extended for all.

Obama's framing of the issue suggests the White House does not see much voter support for using tax policy to even out income inequality.

On the campaign trail in 2008, Obama told Joe Wurzelbacher, who became known as Joe the Plumber, that if the economy is good for those at the bottom, it's going to be good for everyone. His comments about redistribution sparked fury among conservatives who saw it as evidence the future president harbored socialist leanings.

Since that "spread the wealth" gaffe, Obama has chosen his words more carefully and regularly points out that he is no modern-day Robin Hood.

Ending the tax breaks for the wealthiest "isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag," Obama said recently.

His opponents say imposing higher taxes would kill the economic recovery because the rich spend, invest and hire more than everyone else, faintly echoing the plutonomy theme laid out by Deutsche Bank's Kapur.

DREAMLESS DEAD

Like cholesterol, there is a "good" and a "bad" kind of inequality, according to Francois Facchini, an economist at the University of Paris.

The "good" kind is aspirational. It encourages people to strive toward success, like Graham's Bill Gates analogy. The "bad" kind fosters disillusionment, a feeling that no matter how hard you work, you cannot win.

Pollster John Zogby sees a growing number of Americans falling into the second category. He calls them the "Dreamless Dead," those who no longer believe in the existence of the American Dream of hard work begetting success.

Those who work hard but fail to get ahead lose faith in the dream, he said. Beginning in the 1990s, Zogby noticed an increase in the percentage of people who said they were working in jobs that paid less than previous positions.

"That's when I started to zero in on the American Dream because my assumption was it was going up in smoke," he said.

In the early 1990s, 14 percent of those polled by Zogby said they were making less money than they had before. After the recession, the percentage had more than doubled.

Janet Townsend, who has worked at General Motors for 34 years, is one of those faced with the prospect of a drastic pay cut. She was told she'd have to take a 50 percent wage reduction because GM wanted to sell the Indianapolis plant where she works to a private investor. Union workers opposed the deal. The plant will be shut next year.

"I haven't seen any auto executives or Wall Street bankers taking a paycut, in fact their pay seems to keep going up," she said. "This country is built on the principles of life, liberty and the pursuit of happiness.

"But when a corporation tries to make me take a 50 percent pay cut, then you're taking away my right to pursue happiness while enhancing your own."

A NEWCOMER TO WASHINGTON

If inequality can lead to financial catastrophe and voter outrage, should Washington try to stop it from getting too wide?

Obama's avoidance of spread-the-wealth comments would indicate the White House does not think there is political backing for policies aimed explicitly at redistribution.

However, at least one new arrival to Washington's policy-making scene, Fed Vice Chairman Janet Yellen, has expressed concern that extreme inequality could ultimately undermine American democracy.

"Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people," she wrote in a 2006 speech.

The public policy response depends on what the root problem really is. Thoma, the University of Oregon economist, said it still isn't clear whether bubbles cause inequality or inequality causes bubbles.

If it is the former, Yellen and the Fed could play a role in preventing disaster by raising interest rates or tightening regulation when they see evidence of a dangerous asset price bubble building.

Fed Chairman Ben Bernanke has argued that interest rates are too blunt of an instrument to prick asset bubbles because they could tip the entire economy into recession rather than targeting a narrow source of instability.

If inequality is the core issue, more progressive taxes or investing in education programs might be more effective.

ON AVERAGE, YOU'RE DOING OKAY

Before policymakers can act, they will need to get better at identifying unsafe imbalances.

The most commonly used measuring tools, such as per capita income, can be misleading because they report at averages. Data on average income, for example, can be skewed by huge gains at the top, making spending power appear higher than it really is.

Willard Wirtz, who was President John F. Kennedy's labor secretary in the 1960s, is often credited with saying: "When you have your head in the freezer and your feet in the oven, on average you are doing okay."

Steve Landefeld, director of the Bureau of Economic Analysis which produces thousands of reports including GDP, has proposed adding more data series that might serve as an early warning system that imbalances were building.

One bright red flag that policymakers seem to have missed pre-crisis was the disconnect between swiftly rising house prices and stagnant wages for most middle-class workers.

TESTING SOCIAL COHESION

Left alone, income inequality looks likely to continue rising at least through this year. The stock market has already regained more than half of the ground lost between an October 2007 all-time high and a March 2009 trough. Those gains flow disproportionately to the wealthy.

Meanwhile, the overall unemployment rate will probably end the year about where it started, at 9.7 percent, while the education gap widens. The jobless rate for college graduates has come down by 10 percent since January; for those who didn't finish high school, it has risen 1 percent.

This pattern has been in place for more than a decade and it has not generated much popular support for addressing income inequality. That may change as strained U.S. finances eventually force officials to choose where to cut spending.

In the next five years, the government debt burden may reach a critical point where it is growing at a faster rate than the economy, pushing up taxes and diverting money that could be spent more productively on research or education.

Credit rating agency Moody's has warned that the budgetary decisions facing the United States and many other rich countries may "test social cohesion."

"Will society accept the measures that need to be taken to stabilize the debt position of the government?" Moody's analyst Steven Hess said in an interview.

"Economic growth is not going to get the country out of the negative debt trajectory it now faces," he said.

Means-testing social security payouts so that less money goes to the wealthiest would be one way to help curb the deficit and income inequality at the same time. Other ideas might include phasing out tax write-offs for mortgage interest for higher-income homeowners.

Both options are likely to be considered by a federal deficit commission that is due to report its findings in December. Its recommendations, however, are not binding, so Congress may choose an entirely different path -- one that does less to address inequality.

Hess said he did not expect the sort of riots and protests that have marked austerity pushes in Greece and other parts of Europe, but said inequality can heighten social tension.

Kapur, the strategist behind the plutonomy thesis, said the forces that put the United States into his plutonomy category appear to have peaked, and he has shifted his investment focus to emerging markets where returns look sweeter.

Although he did not see the financial crisis coming back in 2005, he accurately predicted what would eventually undermine his investment strategy. Time will tell whether he also foreshadowed shifts in U.S. attitudes toward inequality.

"Perhaps one reason that societies allow plutonomy is because enough of the electorate believe they have a chance of becoming a Pluto-participant," he wrote back then.

"Why kill it off if you can join it? In a sense, this is the embodiment of the 'American Dream'. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to be truly rich."

(Additional reporting by Nick Carey and Kim Dixon; Editing by Jim Impoco and Claudia Parsons)

Copyright 2010 Thomson Reuters.

Read More: American International Group, Banks, Emmanuel Saez, Great Depression, Great Recession, Income Distribution, Income Gap, Income Inequality, Middle Class Wages, Paul Krugman, Raghuram Rajan, Third World America, Wage Stagnation, Wealthy, Business News

Food Stamp Usage Soars Among Working Families

by MARK NIESSE | 10/22/10 04:45 PM |  From Huffington Post

HONOLULU — Lillie Gonzales does whatever it takes to provide for three ravenous sons who live under her roof. She grows her own vegetables at home on Kauai, runs her own small business and like a record 42 million other Americans, she relies on food stamps.

Gonzales and her husband consistently qualify for food stamps now that Hawaii and other states are quietly expanding eligibility and offering the benefit to more working, moderate income families.

Data from the U.S. Department of Agriculture reviewed by The Associated Press shows that 30 states have adopted rules making it easier to qualify for food stamps since 2007. In all, 38 states have loosened eligibility standards.

Hawaii has gone farther than most, allowing a family like Gonzales' to earn up to $59,328 and still get food stamps.

Prior to an Oct. 1 increase, the income eligibility limit for a Hawaii family of five was $38,568 a year.

"If I didn't have food stamps, I would be buying white rice and Spam every day," said Gonzales, whose Island Angels business makes Hawaiian-style fabric angel ornaments, quilts, aprons and purses.

Eligibility for food stamps varies from state to state, with the 11 most generous states allowing families to apply if their gross income is less than double the federal poverty line of $22,050 for a family of four on the U.S. mainland. The threshold is higher in Alaska and Hawaii.

With more than 1 in 8 Americans now on food stamps, participation in the program has jumped about 70 percent from 26 million in May 2007, while the nation's unemployment rate rose from 4.3 percent to 9.2 percent through September of this year.

"We've seen a huge increase in participation due to the economic downturn," said Jean Daniel, a spokeswoman for the USDA's Food and Nutrition Service. "That's the way this program was designed."

In addition to helping alleviate economic pressures, many states embrace the popularity of food stamps because their cost – $50 billion last year – is paid entirely by the federal government. States are only responsible for paying half of their programs' administrative costs.

Food stamps have been blasted by some Republicans in this midterm election season as just another federal entitlement program, with former House Speaker Newt Gingrich framing the vote as a choice between "the party of food stamps" and Republican policies that create jobs.

Participants in the food stamp program, technically called the Supplemental Nutrition Assistance Program, receive a per person average of $133 per month to buy staples including milk, bread and vegetables.

Shortly after Hawaii announced it was raising its eligibility limits starting this month, three carloads of 10 seniors drove to the Kauai Independent Food Bank to ask if they qualified. Nine of them did, said Judy Lenthall, executive director for the food bank, which helps people apply for food stamps.

"We saw an immediate and overwhelmingly wonderful response," Lenthall said. "It surprised us how fast it's spreading."

States that have relaxed food stamp eligibility did so by moving to a system where applicants could qualify based on their income, and their other assets such as real estate, vehicles and savings accounts could be ignored.

Basing food stamps on income alone allows the newly unemployed and the elderly to seek government food aid without having to first sell their property or exhaust every dollar they've earned, said Sue McGinn, director of the food stamp program in Colorado, which will expand eligibility beginning in March.

"They won't have to wipe out their savings to apply for benefits," McGinn said.

Many of these states also raised income limits, although applicants still have to show they're essentially living at the poverty line after accounting for allowable deductions, including elder medical expenses and child support.

"It helps moderate and low-income people who are struggling," said Stacy Dean of the Washington-based Center on Budget and Policy Priorities. "They're doing everything we want: they're working, paying all their bills, taking care of their kids, and they still don't have enough money at the end of the month to put food on the table."

Since 2000, the only states that haven't enacted the lower food stamp eligibility requirements are Alaska, Arkansas, Indiana, Iowa, Kansas, Missouri, Nebraska, South Dakota, Tennessee, Utah, Virginia and Wyoming.

In Hawaii, where everything from milk to gasoline is typically the highest in the nation, the changes are welcomed by Gonzales and others.

"As long as my kids have good food, that's all I care about," Gonzales said. "It makes a tremendous difference."

Ten Questions for Tea Partiers

Published on Friday, October 22, 2010 by CommonDreams.org

by Ralph Nader

Here are ten questions for Tea Partiers that they want or do not want to answer. I say it this way because people who call themselves Tea Partiers do not have the same view of politics, government, Big Business or the Constitution. Their opinions range from pure Libertarian to actively furthering the privileges of plutocracy. Their income and occupational background vary as well, though most seem to be middle-income and up.

My guess is that most Tea Partiers come from the conservative wing of the Republican Party who are fed up with both the corporate Republicans like Bush and Cheney, as well as the Democrats like Barack Obama and Nancy Pelosi.

With the above in mind, the following questions can serve to go beyond abstractions and generalizations of indignation and get to some more specific responses.

1. Can you be against Big Government and not press for reductions in the vast military budgets, fraught with bureaucratic and large contractors’ waste, fraud and abuse? Military spending now takes up half of the federal government’s operating budgets. The libertarian Cato Institute believes that to cut deficits, we have to also cut the defense budget.

2. Can you believe in the free market and not condemn hundreds of billions of dollars of corporate welfare-bailouts, subsidies, handouts, and giveaways?

3. Can you want to preserve the legitimate sovereignty of our country and not reject the trade agreements known as NAFTA and GATT (The World Trade Organization in Geneva, Switzerland) that scholars have described as the greatest surrender of local, state and national sovereignty in our history?

4. Can you be for law and order and not support a bigger and faster crackdown on the corporate crime wave, that needs more prosecutors and larger enforcement budgets to stop the stealing of taxpayers and consumer dollars so widely reported in the Wall Street Journal and Business Week? Law enforcement officials estimate that for every dollar for prosecution, seventeen to twenty dollars are returned.

5. Can you be against invasions of privacy by government and business without rejecting the provisions of the Patriot Act that leave you defenseless to constant unlawful snooping, appropriation of personal information and even search of your home without notification until 72 hours later?

6. Can you be against regulation of serious medical malpractice (over 100,000 lives lost a year, according to a study by Harvard physicians), unsafe drugs that have serious side effects or cause the very injury/illness they were sold to prevent, motor vehicles with defective brakes, tires and throttles, contaminated food from China, Mexico and domestic processors?

7. Can you keep calling for Freedom and yet tolerate control of your credit and other economic rights by hidden and arbitrary credit ratings and credit scores? What Freedom do you have when you have to sign industry-wide fine print one-sided “contracts” with your banks, insurance companies, car dealers, and credit card companies? Many of these contracts even block your Constitutional access to the courthouse.

8. Can you be for a new, clean system of politics and elections and still accept the Republican and Democratic Two Party dictatorship that is propped up by complex state laws, frivolous litigation and harassment to exclude from the ballot third parties and independent candidates who want reform, accountability, and stronger voices for the voters?

9. If you want a return to our Constitution—its principles of limited and separation of power and its emphasis on “We the People” in its preamble—can you still support Washington’s wars that have not been declared by Congress (Article I Section 8) or giving corporations equal rights with humans plus special privileges and immunities. The word “corporation” or “company” never appears in the Constitution. How can you support eminent domain powers given by governments to corporations over homeowners, or massive week-end bailouts by the Federal Reserve and Treasury Department of businesses, even reckless foreign banks, without receiving the authority and the appropriations from the Congress, as the Constitution requires?

10. You want less taxation and lower deficits. How can you succeed unless you stop big corporations from escaping their fair share of taxes by manipulating foreign jurisdictions against our tax laws, for example, or by letting trillions of dollars of speculation on Wall Street go without any sales tax, while you pay six, seven or eight percent sales tax on the necessities you buy in stores?

Let’s hear from you Tea Partiers. Meanwhile, see the work of video-journalist, Steve Ference, who has interviewed and given voice to those among you in his new paperback “Voices of the Tea Party” published by Lulu.com on July 4, 2010. Contact [email protected].

Ralph Nader is a consumer advocate, lawyer, and author. His most recent book - and first novel -  is, Only The Super-Rich Can Save Us. His most recent work of non-fiction is The Seventeen Traditions.

German Grid Aching Under (Too Much) Solar Power

Published on Thursday, October 21, 2010 by UPI.com

BERLIN - The German electricity grid faces instability because of too much solar power, an expert said.

A thin film solar array at Dimbach, Germany. Experts forecast between 8 gigawatts and 10 GW of solar power capacity to be installed this year -- the equivalent of roughly 10 large coal-fired power plants. In 2009, only 4 GW were installed.

Thanks to a generous feed-in tariff, the installation of rooftop solar panels and large-scale photovoltaic plants has exploded in Germany.

Stephan Kohler, chairman of the DENA agency, an energy adviser to the government, has warned that the green boom could turn into a disaster for Germany's aging power grid.

"The network is facing a congestion due to solar power," Kohler told the Berliner Zeitung newspaper. "That's why the expansion of solar power has to be cut back quickly and drastically."

Experts have long called for an overhaul of the European power grid to integrate the fluctuating renewable energy sources such as solar and wind power.

Experts forecast between 8 gigawatts and 10 GW of solar power capacity to be installed this year -- the equivalent of roughly 10 large coal-fired power plants. In 2009, only 4 GW were installed.

Well aware that the industry is maturing more quickly than anticipated, Berlin this year agreed to reduce subsidies for rooftop panels by 16 percent.

The decision helped the German industry to a first-half sales boom, as private customers ordered panels in droves to beat feed-in-tariff reductions set for this summer.

Strong sales have continued until now, however, with experts forecasting a similarly strong 2011 when it comes to new installations. If the current trends continue, Germany would have a solar power capacity of nearly 50 GW by 2013.

"That would be a catastrophe for the grids," Kohler said, urging the German government to cap the installation of new solar panels at 1 GW per year. "Then we could reach the manageable benchmark of 30 GW in 2020," he said.

The German government through the Renewable Energy Law, or EEG, regulates the feed-in-tariff aimed at boosting power production from renewable energy sources. Paid by German taxpayers via their electricity bill and guaranteed for 20 years, the levies vary from 21 cents per kilowatt-hour for offshore wind turbines to 46 cents per kw/h for roof-mounted solar panels.

Berlin has vowed to gradually reduce subsidies but EEG-related costs will nevertheless rise significantly over the coming years, experts have warned.

The German consumer association VZBV claims that the solar panels installed in 2010 will result in additional costs of $36 billion during the next 20 years.

The German government has so far not voiced plans to limit solar power installations; an overhaul of the EEG isn't planned until 2012.

© 2010 United Press International

How to INsource American Jobs

by Stephen H. Unger

From Steven Unger's blog Ends and Means, October 14, 2010

So the terrible recession is finally over. Wall Street banks [Guerrera] and big corporations are doing fine now with profits soaring [Schwartz]. Well, maybe there are a few little problems. About one out of every six Americans who would like a full time job can't find one [BLS][Gallup][mybudget360]. And many of the employed are unhappy with their jobs [Thibodeau]. (E.g., computer programmers reluctantly working as real estate agents.) Many of those currently employed are worried about their futures as it does not appear that we are on the road to a real recovery.

I think a good case can be made that the root cause of these problems is the phasing out of manufacturing in the US. This view, while not accepted by most conventional economists, who are mesmerized by the phrase, "free trade", regardless of real world consequences, is shared by people from all over the political spectrum [Buchanan], [Kar]. Below is my effort to explain why manufacturing is so important, why it is being phased out, and to suggest what can be done about it.

The Importance of Manufacturing

Consider a factory where refrigerators are produced. Even where there is a considerable amount of automation, there will still be some low-skilled workers associated with the assembly line, and skilled technicians operating and maintaining the various machines involved. Various kinds of engineers are needed to develop the manufacturing process and to modify it as needed. Prior to consideration of the manufacturing operation, engineers are needed to design the refrigerators, specifying the necessary components (such as motors, relays, electronic controls), and there will inevitably be ongoing design work to refine the product and to develop different models, varying in size, etc.

Construction workers are needed to erect the building housing the factory and to modify them as requirements change. A building maintenance staff is needed. There will be managers at various levels, a human relations staff, finance people, a computer department, people to load, unload and drive trucks. Most likely there will also be a cafeteria with associated staff. I am sure that this list is not complete.

There is more. A refrigerator or similarly complex product is not built from scratch at a single facility. All kinds of components are needed, many with unique specifications: valves, circuit breakers, door latches. These needs are often subcontracted out to other companies, and it is usually convenient to have these companies nearby to facilitate shipping and interactions with respect to design. Other local businesses also benefit from the presence of the factory, selling it such standard items as stationery, screws, and lubricants.

The refrigerator factory, and probably its local suppliers of components, employ people with a great variety and range of skills. It is not uncommon for an employee to start at some very low-skilled position, and then, via a combination of experience and some additional education, often night school, to rise to higher positions. Factories have served as very effective ladders enabling people to better themselves economically. It should not be surprising that the closing of a factory is generally a devastating event in any community [Greenhouse].

The Demise of US Manufacturing

The number of American workers employed in factories has fallen by about 5 million over the past decade [McCormack][Snyder]. This represents a continuation of a trend going back to about 1990. The proportion of US economic output represented by manufacturing fell from 28% in 1959 to 11.5% in 2008. This is not simply a case of advancing technology affecting people producing horseshoes or typewriters. There are actually fewer Americans employed in the manufacture of computers today than there were in 1975! Of course it has been a long time since any consumer electronics equipment has been produced on US soil. What is the explanation?

One factor is automation. Certainly, sophisticated machines have greatly increased output per worker. But this doesn't account for much of the overall loss of jobs. Automation increases productivity and much of its effect is in increasing output using the same size labor force. The result is increased sales due to lower costs and prices, and the manufacture of new products. The fact is a great many jobs have not been abolished, but rather have been moved elsewhere.

The elsewhere is outside the US, with China being by far the greatest repository of work formerly performed in the US. This is due to a combination of factors. Chinese workers are paid a small fraction of US wages and factories there can be operated at lower costs because they are more free to abuse the environment with waste products. This alone would not account for the one-way nature of "trade" with China.

Under true free-trade conditions, Ricardo's principle of comparative advantage would ensure that, whereas it would be profitable for the US to import certain items from China, there would be other items that China would want to import from the US. The Chinese deliberately impede this reverse flow by such means as artificially undervaluing their currency, imposing artificial restrictions on imports, and via government subsidies.

It is not simply a matter of US wholesalers importing goods made by Chinese companies. Many US companies have built costly factories in China to produce there what they formerly produced domestically [King]. For example, General Motors employs over 30,000 people in China to manufacture automobiles (as opposed to 50,000 in the US). Much of what is produced in these overseas US owned factories is sent to the US, some is sold in China, and some is sent elsewhere in the world. In addition to manufacturing, GM, as well as other companies such as Microsoft, IBM, Motorola, GE, Intel, and Dell have set up design and research laboratories in Asia, thus exporting jobs of engineers and scientists as well as of factory workers [Rampell].

While China is the biggest destination for disappearing American jobs, it is not the only one. Other Asian nations also play similar, tho lesser, roles as do some countries in the Western hemisphere. GM, Ford and Chrysler all have shifted much of their auto production to Mexico. A secondary incentive to move US manufacturing abroad, apart from the obvious one of reducing labor costs, is that there are tax incentives encouraging it.

An added factor depriving Americans of jobs in their own country is the importing of people from low-pay countries to work under conditions and for compensation well below normal US standards. This is done via various special visas such as H-2A, H-1B, L-1, issued for limited periods of time. The jobs involved range from agricultural labor, to nurses, engineers, and computer programmers [Unger1]. Also, there is a large amount of illegal immigration, usually from south of our borders of impoverished people who take low-pay jobs, such as yard work, in restaurants and hotels, and in meat packing plants. (I have elaborated on this matter elsewhere. [Unger2][Unger3]).

As matters stand, it is difficult to blame individual companies for exploiting this method of cost cutting. Under our economic system, the duty of corporate management is to maximize profit, regardless of the effects on the country as a whole [Friedman]. They can reasonably argue that, if they did not employ this tactic, they would be at a disadvantage with respect to competitors who did. What we can blame them for is their failure to demand that the government take action to halt this pernicious, destructive practice via legislation. (It is gratifying that Andy Grove, a founder of Intel who served as its CEO for many years, has recognized the problem and, in a recent article, proposed a solution [Grove]).

Ruining Christmas: 1.2 Million Will Lose Benefits by Year's End Unless Congress Acts

by Arther Delaney

First Posted: 10-22-10 12:26 AM   |   Updated: 10-22-10 12:37 PM,

Published by Huffington Post

If Congress fails to reauthorize extended unemployment benefits by the end of November, it will spoil the holidays for 1.2 million people, according to the National Employment Law Project.

"The program deadline falls in the midst of the holiday season, when unemployed families do their best to put food on the table and hold on to their family traditions," said NELP in a release. "It's also a time when the economy, especially the retail sector, is counting on consumer spending -- supported in part by unemployment benefits -- to maintain the recovery."

Around this same time last year, NELP raised the alarm about Congress playing Scrooge as expiration loomed for federally-funded extended benefits. Congress dutifully reauthorized the benefits, but that was before several months of jobs gains, GDP growth, and the coming campaign season brought about a surge in deficit worries among conservative Democrats in the House and Senate. Whether Congress will act on time this fall is an open question.

Over the summer, the Senate spent nearly two months fighting over the reauthorization as 2.5 million people who've been unemployed for six months or longer missed checks. States fund jobless aid for the first 26 weeks after a layoff, and during recessions Congress routinely makes additional benefits available. Right now in the hardest-hit states, the unemployed are eligible for an additional 73 weeks of benefits. According to the latest data from the Labor Department, 4.3 million people receive state benefits and 5.1 million people receive federal benefits.

There will be very little time to reauthorize the federal benefits, as Congress returns from its recess mid-November and the deadline will be two weeks away. NELP estimates there will only be three or four likely voting days. "Today's unemployed families and the nation's economic recovery urgently need for Congress to prioritize reauthorization of the federal UI programs during this brief window. Neither jobless workers nor the economy can afford another round of prolonged debate and destructive delay, yielding another lapse in benefits."

An additional complication is the fact that some Senate seats currently held by Democratic appointees may be immediately re-filled with Republicans, who have been steadfast in opposition to reauthorizing the benefits without massive spending cuts elsewhere in the budget. Given Congress' demonstrated willingness to go on vacation even though jobless aid will lapse in their absence -- it's actually happened three times this year -- NELP has launched an aggressive lobbying effort.

 

The Arctic Shifts to a New Climate Pattern in Which "Normal" Becomes Obsolete

By Lauren Morello and ClimateWire October 22, 2010, Published by Scientific American

Warming continues to shrink the snow and ice cover that defines the Arctic, signaling the region's shift to a new climate pattern, scientists said yesterday.

The area covered by sea ice hovered near its historic low this summer. In Greenland, record-high temperatures this year have helped accelerate the melting of the country's massive ice sheet. Throughout the Arctic, permafrost is warming and the blanket of snow is shrinking.

Those changes appear to be long-lasting, said an international team of climate experts who wrote the National Oceanic and Atmospheric Administration report.

Its blunt headline? "Return to previous Arctic conditions is unlikely."

"The Arctic is a system, and the system is changing," said Don Perovich, a sea ice expert with the U.S. Army Corps of Engineers who worked on the report. "It's not just that sea ice is being reduced. There's changes in Greenland, the atmosphere, the ecosystem, and these changes are affecting human activity."

That includes densely populated areas of the globe that lie outside the Arctic.

More cold air blasts head south

The polar region acts as the world's air conditioner, helping to regulate weather patterns worldwide. Now there is evidence that Arctic warming is affecting conditions in other regions of the globe, said NOAA oceanographer Jim Overland.

The unusually heavy snows that blanketed the eastern United States, northern Europe and parts of Asia last winter were a consequence of the shift to a warmer Arctic, he said.

"This connection was one of the real surprises that we've seen over the last decade or so," he said. "Normally, the cold air is bottled up in the Arctic, but we had two experiences last year where rather than winds blowing from west to east, they strongly blew from north to south. So first last December and then last February, we actually had cold air blowing from north of Alaska and in northern Canada blowing all the way in the central eastern U.S."

The seeming paradox of Arctic warmth sending blizzards to mid-latitudes has occurred just three times in the past 160 years, including last year. But it is likely to become more common as polar sea ice shrinks, Overland said.

That's due in part to a powerful feedback loop scientists call "polar amplification." Warmer Arctic springs and summers increase the amount of sea ice that melts each summer, leaving huge swaths of dark ocean water that trap heat. That warmth cycles back into the atmosphere each fall, when the amount of sunlight dips and sea ice re-forms.

Meanwhile, Greenland's melting accelerates sea level rise

That's driving Arctic ocean and land temperatures higher, which scientists believe helped cause the unusual weather patterns observed in mid-latitudes last winter.

Meanwhile, historic warming observed in Greenland this year has implications for sea level rise, said Jason Box, an Ohio State University glaciologist who also worked on the new report.

Conditions have been warmer this year in Greenland's capital, Nuuk, than at any other time since record-keeping began there in 1873.

The effects of that heat are evident in the behavior of the glaciers that connect Greenland's massive ice sheet with the sea, Box said.

The massive Petermann Glacier calved a chunk four times the size of Manhattan in August, the largest single glacier area loss ever recorded in Greenland. But it was not an isolated event. Box says three other glaciers lost more than 10 square miles of area this year, and Greenland's ice sheet is melting faster than it has since at least 1958.

"There is no doubt that Greenland ice loss has not just increased above past decades, but it has accelerated," Box said. "The implication is that sea level rise estimates will again need to be revised upward."

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net

America's Social Safety Net is Being Torn Apart by Budget Cuts

 

Joel John Roberts

CEO of People Assisting The Homeless, Publisher of www.PovertyInsights.org

Posted: October 11, 2010 12:22 PM on Huffington Post

State and municipal governments are slashing their appetite for spending, while more and more personal pocket books are lean if not empty. Slimming down is always good for personal health, but forced economic diets can provoke havoc on those struggling with poverty.

The Urban Institute recently confirmed what many on the front lines of America's homelessness already know -- the institutional caregivers are cutting their budgets. In fact, 82 percent of America's human-service agencies are scaling back their operations because of this dire economy.

Social service agencies have been hit hard with government cuts. During the recent political battle over California's budget, Governor Schwarzenegger vetoed nearly $1 billion of spending for social welfare and services.

Reducing the "fat" in an agency's budget is one way to survive the worst economic recession since the Great Depression, but cutting essential programs, or the "meat," causes suffering for those people desperately in need of help.

The outcome is stark. Eliminate a 45 bed homeless shelter for the sake of saving money, and 45 people end up on the streets. Cut a jobs program, and less people will find employment.

I recently shared with the Board of Directors of the agency I run that three homeless agencies recently closed their doors because of severe funding cuts. One agency had been in operation for more than half a decade.

Almost every agency director I know has told me they are making severe budget cuts, from 20 percent layoffs or furloughs, to eliminating crucial programs.

The capacity for this country to serve and house our poor is being starved to death. It will take decades for our social service safety net to be woven back together.

With the recent passing of California's state budget, experts already have called the balanced budget a farce. Political leaders have basically forwarded $19 billion of expenses onto next year for the next Governor to grapple. With a projected multi-billion dollar deficit already in the works, everyone knows social service spending will be the first on the chopping board.

A bail out is needed for America's social safety net in order to rebuild a tattered, under-funded anti-poverty system on a scale of the $700 billion bank bailout in 2008. Otherwise, this country teeters on the brink of social insolvency.

Gibbs: White House 'Committed To Holding Accountable Any Bank That Has Violated The Law'

First Posted: 10-19-10 12:05 PM   |   Updated: 10-19-10 12:05 PM by Huffington Post

The White House said Tuesday that the government is committed to holding banks accountable for any laws that are broken during an ongoing foreclosure fraud scandal that led the nation's largest banks to briefly halt foreclosures across the country.

"As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law," said White House spokesman Robert Gibbs in a statement.

Gibbs also said that the Federal Housing Administration and the Financial Fraud Enforcement Task Force are investigating the foreclosure process. The Justice Department is investigating as well, and the administration has also said it supports the investigations of attorneys general in all 50 states.

"It's good that they're doing that, for sure, but most of the investigations should have happened three or four years ago," said John Taylor, president of the National Community Reinvestment Coalition. Taylor and other consumer advocates have said the problem spans from the loan origination that inflated the housing bubble to the failure to modify mortgages after it burst, not simply when a foreclosure is already inevitable. "What they're responding to is all this 'robosigning' and improper processes for ensuring proper documents are included. That's kind of the tail end of the process."

Members of Congress have demanded a national foreclosure moratorium after mortgage servicers' employees admitted they didn't review information in thousands upon thousands of foreclosure documents. The admissions have led consumer advocates to question the propriety of foreclosures everywhere, but mortgage servicers say they have found no evidence that anybody was wrongly foreclosed.

Bank of America announced on Monday that it would resume foreclosures in 23 states where a court's approval is needed to foreclose.

The Obama administration has resisted a national moratorium, saying it would be more harmful for homeowners than allowing foreclosures to continue.

Story continues below

One top bank regulator told HuffPost that the fraud is limited to paperwork errors affecting only seriously delinquent borrowers who are doomed to foreclosure. Consumer advocates say there is ample evidence of sloppy servicing leading to improper foreclosure proceedings.

"The problem is we have such a backlog around this country of homeowners who need a modification or a refinance and are not getting it. Most of these people simply need more collaboration on the part of servicers and lenders in order to get those loans modified or refinanced," said Taylor. "That's what a moratorium would address. It would give the counselors, the legal services people the time to do a workout that would make sense."

Foreclosure Lawsuits

by Frank Thomas

Regarding the possibility of foreclosure lawsuits against the banks by individual homeowners, an obvious way people can afford to do this is by bringing a class action lawsuit or, perhaps better still, the same is first done by a 50 state attorney generals' class action suit on behalf of all citizen plaintiffs.This is exactly what occurred in the 1998 46 state successful class action suit precedent against the major tobacco industry firms on behalf of those who get sick from tobacco smoke. This case ended in a court damage ruling for a +$200 billion award to the 46 states (paid over 25 years).

During the prior period 1954-1992, individual and small class action tobacco case suits based on negligence, deceit, failure to warn, breach of express warranties, strict liability were lost. Plaintiffs went broke legally fighting the rich tobacco firms that took thousands of dispositions, filed every conceivable motion and legal delay tactic, eventually bleeding dry plaintiffs' financial and emotional resources.

Then came a stronger class action suit filed by flight attendants in Florida claiming personal medical injury and costs related thereto from second-hand smoke in planes. This resulted in over 3000 individual lawsuits and a major settlement in 1997. This was part of a wave of smaller class action lawsuits in the 90s brought by those injured by tobacco products as well as medical reimbursement suits brought by states'attorney generals and insurance firms of a few states (which led to 46 state class action suit).

Medical, legal and criminal theories were used successfully in the flight attendants' case -- most of which would have a direct application in a possible class action suit against the illegal mortgage documentation acts of major U.S. banks. Legal theories used included fraud, intentional and negligent misrepresentation (sound familiar to banks' prior knowledge of illegal non-transfer of proper mortgage documentation/property title to suck in investors for pooled mortgages faster -- driven by banks' fee greed), unjust enrichment or indemnity (sound familiar to banks' quick buck actions), and criminal theories under the RICO Act ... criminal law that also has direct application possibilities against banks' massive illegal mortgage documentation, false documentation, and subsequent possible criminal homeowner foreclosure acts.

Thus, as the tobacco firms were forced to seek a national settlement in late 90s under the 1998 medicare-related class action U.S. Master Agreement involving 46 states, so should the banking industry be forced to negotiate a class action settlement for their gross misdemeanors and deceit around the mortgage closure and foreclosure casino stings perpetuated on millions of homeowners. If this also means ultimately applying existing legislation to break up the big banks on the basis their behavior has posed and is posing a threat to U.S. financial or economic security, then so be it.

Why Germany Has It So Good -- and Why America Is Going Down the Drain

Germans have six weeks of federally mandated vacation, free university tuition, and nursing care. Why the US pales in comparison.

by Terrence McNally

Published by AlterNet, October 14, 2010 

While the bad news of the Euro crisis makes headlines in the US, we hear next to nothing about a quiet revolution in Europe. The European Union, 27 member nations with a half billion people, has become the largest, wealthiest trading bloc in the world, producing nearly a third of the world's economy -- nearly as large as the US and China combined. Europe has more Fortune 500 companies than either the US, China or Japan.

European nations spend far less than the United States for universal healthcare rated by the World Health Organization as the best in the world, even as U.S. health care is ranked 37th. Europe leads in confronting global climate change with renewable energy technologies, creating hundreds of thousands of new jobs in the process. Europe is twice as energy efficient as the US and their ecological "footprint" (the amount of the earth's capacity that a population consumes) is about half that of the United States for the same standard of living.

Unemployment in the US is widespread and becoming chronic, but when Americans have jobs, we work much longer hours than our peers in Europe. Before the recession, Americans were working 1,804 hours per year versus 1,436 hours for Germans -- the equivalent of nine extra 40-hour weeks per year.

In his new book, Were You Born on the Wrong Continent?, Thomas Geoghegan makes a strong case that European social democracies -- particularly Germany -- have some lessons and models that might make life a lot more livable. Germans have six weeks of federally mandated vacation, free university tuition, and nursing care. But you've heard the arguments for years about how those wussy Europeans can't compete in a global economy. You've heard that so many times, you might believe it. But like so many things, the media repeats endlessly, it's just not true.

According to Geoghegan, "Since 2003, it's not China but Germany, that colossus of European socialism, that has either led the world in export sales or at least been tied for first. Even as we in the United States fall more deeply into the clutches of our foreign creditors -- China foremost among them -- Germany has somehow managed to create a high-wage, unionized economy without shipping all its jobs abroad or creating a massive trade deficit, or any trade deficit at all. And even as the Germans outsell the United States, they manage to take six weeks of vacation every year. They're beating us with one hand tied behind their back."

Thomas Geoghegan, a graduate of Harvard and Harvard Law School, is a labor lawyer with Despres, Schwartz and Geoghegan in Chicago. He has been a staff writer and contributing writer to The New Republic, and his work has appeared in many other journals. Geoghagen ran unsuccessfully in the Democratic Congressional primary to succeed Rahm Emanuel, and is the author of six books including Whose Side Are You on, The Secret Lives of Citizens, and, most recently, Were You Born on the Wrong Continent?

Foreclosure Moratorium Is Only Sane Response to Shocking Wall Street Mortgage Scams

by Dean Baker

The highest rates of foreclosure are on the quick and dirty loans made at the peak of the bubble.

Published by Alternet, October 18, 2010  |     

As we all know there is a major philosophical divide in U.S. politics. One the one hand there are those who think it is the role of government to help ensure that the vast majority of the population can enjoy a decent standard of living. On the other side are those who believe the role of government is to transfer as much money as possible to the rich and powerful. The latter group seems to be calling the shots these days.

This is seen clearly in the " liar lien" scandal: the flood of short order foreclosures that ignore standard legal procedures. The banks have been overwhelmed by the unprecedented volume of defaulting mortgages in the wake of the housing crash. Even under normal circumstances foreclosure rates that in some areas exceed ten times normal levels would create an administrative nightmare.

But these were not ordinary loans. The highest rates of foreclosure are on the quick and dirty loans made at the peak of the bubble. These loans were issued to be sold. Almost immediately after the ink was dry, the issuers would sell these loans off to Citigroup, Goldman Sachs, or other investment banks to turn them into mortgage backed securities. The investment banks themselves were running short order operations. More rapid securitization meant more profits.

In this process, the paper work often came as an afterthought. As a result, necessary documents weren' t signed, title transfers weren' t properly registered, the notes tying loans to specific properties may not have been properly filed and other paper work errors went uncorrected.

If the law were being followed, these issues would create serious problems for servicers trying to foreclose on homes where the owner has defaulted. Banks would have to spend the necessary time, paying high cost lawyers for their work, to reconstruct the paper trail needed to establish clear title to the house and the documentation that would allow them to foreclose on a delinquent borrower.

In some cases this may not even be possible. Many of the issuers that dominated the non-prime mortgage market at the peak of the bubble are no longer in business. They probably did not make sure that all the documentation went to the right place before they closed their doors.

If the Wall Street banks were like the rest of us, the policy response would be simple: follow the frigging law. If banks want to foreclose then they should have to present the court with the proper documents, end of story. Anyone who has ever bought a house or refinanced a mortgage knows the headaches involved. Everything must be in order, a process that can cost thousands of dollars in fees, as a long sheaf of documents is signed in the presence of a lawyer. This process can easily take two hours.

The banks don' t think that they should have to endure the same expensive tedium as the rest of us. For them, these processes are simply formalities that can be circumvented. Hence, the " robo-signers" who are paid to put their names to documents that they know nothing about.

Some people have been wrongly foreclosed in this process, precisely the sort of mistake that the bureaucratic formalities are intended to prevent. More frequently, homeowners have probably been assessed fees and penalties that they do not actually owe. To the banks this is just another unfortunate error in the high-speed foreclosure process.

In this context the demand for a foreclosure moratorium makes perfect sense to those who think that it is responsibility of government to protect the majority of the population. After all, if someone has fallen behind in paying their bills, they still have a right to expect that the law get followed.

A foreclosure moratorium would allow regulators to ensure that the servicers have systems in place that guarantee that the right procedures are followed. A moratorium on foreclosures would serve the same purpose as the moratorium on deep sea drilling following the BP disaster. The alternative - that we should trust the banks - doesn' t pass the laugh test.

By contrast, those who believe that government exists to serve the rich and powerful point out that these procedures will raise costs for banks. In some cases, they may not even be able to carry through a foreclosure, since the proper documentation does not exist.

The result could be billions of dollars in losses for the Wall Street banks. That may not put them out of business, but it certainly could knock a few million dollars off the bonuses of some the top executives.

So there you have it: the question of whether the Wall Street banks should have to follow the same rules as the rest of us. It is one of the most central philosophical questions underlying politics today.

This column is cross-posted at Truthout. Dean Baker is co-director of the Center for Economic and Policy Research and author of the new book, False Profits: Recovering from the Bubble Economy (PoliPointPress, 2010).

Crumbling America Has a $2.2 Trillion Repair Bill

Published on Sunday, October 17, 2010 by The Independent/UK

The US needs to update its roads, railways and airports – but recession and a shift to the right have put big infrastructure projects in jeopardy.

by Rupert Cornwell

First, a tale of two rail tunnels. One of them is in Switzerland – the 35-mile Gotthard Base tunnel, the cutting of which was completed on Friday amid great national rejoicing, and which, when it opens for business in 2017, will be the longest of its kind in the world. It will have cost $10bn (£6.2bn), representing $1,300 of taxpayer's money for every citizen in the land of William Tell. But it will bestow huge benefits not only on Switzerland, but on north-south freight and passenger traffic for all Europe.

The other rail tunnel is (or rather was) in New Jersey, and would have linked the Garden State to Manhattan, vastly improving clogged access to New York City, with long-term economic benefits to match. The project, 20 years in the planning, would have cost around $9bn, or roughly $1,000 for each inhabitant of one of the richest states in the US.

Alas, it is not to be. A few days ago, Governor Chris Christie of New Jersey announced his state was pulling out, in effect dooming the tunnel even though digging has started and $500m has already been spent. The cost was simply too high, he declared; in these cash-strapped times, New Jersey had better things to spend its money on. And so you start to understand the silent crisis that is undermining America: the creeping decay of its public infrastructure.

It's happening everywhere, from potholed interstate highways and grimy railways, to congested airports and a creaking air traffic control system that only adds to the increasingly third world experience of flying in the US. And hold your breath when you cross an American bridge: a 2005 study found that fully a quarter of them were structurally inadequate or obsolete.

Every now and then, the defects explode into the national consciousness – when breaches in scandalously neglected levees led to the flooding of New Orleans by Hurricane Katrina, or when the Interstate 35 bridge in Minneapolis collapsed one sunny rush hour afternoon in August 2007, sending 13 people to their deaths as their cars plunged into the Mississippi river.

Another reminder is when friends return from foreign trips marvelling at the high-speed rail networks in Europe, Japan and China, or at other man-made wonders such as the Millau Viaduct in southern France. Why, they ask, can't we have this sort of thing?

To be fair, they can and do. Yesterday saw the opening of the stunning new bridge 890ft above the gorge of the Colorado river, linking Arizona with Nevada and bypassing the congested old road across the top of the Hoover Dam – that earlier Depression-era miracle of infrastructure building, dedicated by President Franklin Roosevelt in 1935.

The new bridge took five years to complete and is said to have the longest single-span concrete arch in the Western hemisphere. As other great achievements of its kind (the Golden Gate bridge in San Francisco, for example) it actually adds to the magnificence of its setting. Sadly such triumphs of design, functionality and economic farsightedness have become the exception these days in the US.

When he won the 2008 election, Barack Obama was being hailed as Roosevelt redux. Just like FDR, he had come to power in miserable economic times, a Democratic president promising to unleash the power of the government on vast public works to revive the economy and generate jobs. Thus far at least, it hasn't happened – for several reasons.

The first of course is Governor Christie's objection. When state and federal budgets are under so much pressure such projects, it is argued, cannot be afforded. Americans like bold infrastructure spending, but not if it expands the deficit even further.

Second, among the presidents separating Obama from FDR is a certain Ronald Reagan, whose hostility to big government shifted the whole spectrum of US politics to the right. Since Reagan, public suspicion of government intervention has taken a quantum leap. Whatever you think of the Tea Party movement, the hottest thing in American politics right now and which holds the Republican party to ransom, one thing is sure. Tea Partiers are not into building bridges and modernising airports out of the public purse, or endowing the US with a state-of-the-art passenger rail system.

Europeans who visit the East Coast are the mirror image of Americans heading in the opposite direction, often astonished that there is no true high-speed rail link between Washington, Philadelphia, New York and Boston. However it's not for want of trying.

Last month Amtrak, the national passenger rail network, unveiled a plan that would put Washington within 96 minutes of New York and barely three hours of Boston. The only problem was, it would take 30 years and cost $117bn. But even that is nothing compared to the $2.2trn which the American Society of Civil Engineers estimates is needed to get the country's infrastructure into good shape. In that context, the $50bn scheme announced by President Obama to improve roads, railways and airports is a drop in the ocean.

But opportunity still beckons. Long-term borrowing rates are rock-bottom; a 9.6 per cent unemployment rate underlines how much spare capacity exists in the economy. As the infrastructure declines, so does the country's international competitiveness. In short, everyone knows something must be done. Indeed, even Governor Christie is said to be open to a rethink over that Manhattan tunnel.

Copyright 2010 Independent Print Limited

--Rupert Cornwell

Robert Reich Tells It Like It Is!

The Perfect Storm

by Robert Reich

Monday, October 18, 2010

It’s a perfect storm. And I’m not talking about the impending dangers facing Democrats. I’m talking about the dangers facing our democracy.

First, income in America is now more concentrated in fewer hands than it’s been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent of Americans.

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.

Who are these people? With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers. They include the Koch brothers, whose wealth increased by billions last year, and who are now funding tea party candidates across the nation.

Which gets us to the second part of the perfect storm. A relatively few Americans are buying our democracy as never before. And they’re doing it completely in secret.

Hundreds of millions of dollars are pouring into advertisements for and against candidates  — without a trace of where the dollars are coming from. They’re laundered through a handful of groups. Fred Maleck, whom you may remember as deputy director of Richard Nixon’s notorious Committee to Reelect the President (dubbed Creep in the Watergate scandal), is running one of them. Republican operative Karl Rove runs another. The U.S. Chamber of Commerce, a third.

The Supreme Court’s Citizens United vs. the Federal Election Commission made it possible. The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.

Just before it recessed the House passed a bill that would require that the names of all such donors be publicly disclosed. But it couldn’t get through the Senate. Every Republican voted against it. (To see how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Here’s the third part of the perfect storm. Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful.

Yet their state and local taxes are rising. And their services are being cut. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

There’s no jobs bill to speak of. No WPA to hire those who can’t find jobs in the private sector. Unemployment insurance doesn’t reach half of the unemployed. 

Washington says nothing can be done. There’s no money left.

No money? The marginal income tax rate on the very rich is the lowest it’s been in more than 80 years. Under President Dwight Eisenhower (who no one would have accused of being a radical) it was 91 percent. Now it’s 36 percent. Congress is even fighting over whether to end the temporary Bush tax cut for the rich and return them to the Clinton top tax of 39 percent.

Much of the income of the highest earners is treated as capital gains, anyway — subject to a 15 percent tax. The typical hedge-fund and private-equity manager paid only 17 percent last year. Their earnings were not exactly modest. The top 15 hedge-fund managers earned an average of $1 billion.

Congress won’t even return to the estate tax in place during the Clinton administration – which applied only to those in the top 2 percent of incomes.

It won’t limit the tax deductions of the very rich, which include interest payments on multi-million dollar mortgages. (Yet Wall Street refuses to allow homeowners who can’t meet mortgage payments to include their primary residence in personal bankruptcy.)

There’s plenty of money to help stranded Americans, just not the political will to raise it. And at the rate secret money is flooding our political system, even less political will in the future.

The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.

We’re losing our democracy to a different system. It’s called plutocracy.

Response to "Why College Doesn't Have to be a Financial Nightmare"

by John Lawrence

 
Radek Gadek took the side of the debate in which he argued that going to college is a good deal because it could "mean the difference between living paycheck to paycheck or finally living life." Although Mr. Gadek has some good ideas about saving money while attending college, a college degree does not guarantee you that you won't be living paycheck to paycheck. In fact it doesn't guarantee that you'll even have a paycheck at all. Many college graduates are finding themselves laid off, their job outsourced and no new jobs available especially for those over 50. "Finally living life" could mean that you're in the unemployment line like everybody else. A college degree is a ticket of admission to a corporate job providing there is a corporation that needs your services and then only so long as they need them. Your paycheck is entirely at their discretion. The self-employed, on the other hand, can never be laid off by definition.

Mr. Radek has a good point about attending community college and living at home if possible for the first two years. It is much, much cheaper than moving into a dorm at a four year school. And the first two years of college are basically a repeat of high school. They're just additional padding which provides job security for professors while giving you nothing in terms of job skills. I would add that community colleges are much more flexible and that you can combine work or a self-employed business along with attending classes. Many people have done house painting, yard work, house cleaning, handyman work or started a myriad of other businesses on the side while attending college. Some have found it more lucrative and rewarding to continue these businesses even after having attained a college degree! I remember Jack's College Crews that offered their services as painters and then built up such a good business that it seemed like Jack spent his whole life as a student. He kept the "College Crew" name even after he finished or dropped out of college and this became his career.

Now to Mr. Radek's point about going into business - that you'd have to borrow $50,000 to $100,000. First of all he is correct that it is much easier to get a student loan than it is to get a business loan. However, there are a lot of businesses that don't require this kind of initial investment or anywhere near it. Painting, cleaning, handyman and landscaping are just some examples. Secondly, with a business loan, if your business doesn't work out, you can go bankrupt and discharge your debt; with a student loan, they'll follow you to the grave especially with a private student loan which, until Obama's recent student loan reform, was all you could get. Now with the government back in the student loan business, there are finally some decent terms for student loans. The private student loans turned out to be nightmares for many students because there were draconian penalties involved if you slipped up and defaulted for any reason. Business loans, on the other hand, since they can be discharged in bankruptcy, encourage entrepreneurialism. Henry Ford went bankrupt several times before he was finally successful with the Ford Motor Company. Bankruptcy doesn't have to be a totally devastating experience. It clears the air and gives one the ability to start over while retaining basic assets one needs to live on. Student loans, on the other hand, even if they're from the government, I believe, can never be discharged in bankruptcy.

Mr. Radek implies that, if you don't have a college education, you will be making minimum wage for the rest of yourt life. Nonsense! Tell that to Bill Gates, Larry Ellson, Michael Dell, Paul Allen or any of a long list of college drop-outs. By the way the above mentioned are all billionaires. When they do those surveys purporting to show that college graduates make more money over the course of their lifetimes than those without a college degree, you can bet your booty they are not including the likes of the above named gentlemen in their survey! Warren Buffet, the second wealthiest American after Bill Gates only went to college and obtained a degree at his parents' insistence. His degree contributed nothing to his career in investing which he started in high school and continued after college. The fact of the matter is that four out of the five wealthiest Americans are college drop-outs!

There is also the possibility of obtaining micro loans. These loans have been set up to provide Third World people access to capital so they can start their own small businesses. Now they're starting to be available for low income Americans as well. This is from Arianna Huffington's recent book Third World America:

Providing credit to small businesses is an innovation for which Muhammad Yunus won the Nobel Prize in 2006. In 2008, Yunus's Grameen Bank opened a branch in New York. In 2010 it opened a branch in Omaha, Nebraska. The Grameen Bank's slogan: "Banking for the unbanked." Hoping to serve one million American entrepreneurs, Grameen America plans to expand into more than fifty cities across the country, including Washington, DC and San Francisco. A practice most closely associated with helping struggling Third World countries has now arrived in America. By February, 2010, the New York branch had extended loans to 2,500 clients, mostly women. The average loan amount is $1,500 (no collateral necessary) and more than 99 percent of the recipients make their payments on time. [Ed. note: this is more than can be said for student loans!] Grameen Bank is not the only organization committed to providing microcredit to small businesses here at home. Since 1991, ACCION USA has lent over $119 million, in the form of more than 19,500 small-business loans, to low- and moderate-income entrepreneurs. Luis Zapeda Alvarez, for example, who was once homeless and out of work, now runs his own business delivering baked goods to New York City restaurants and delis - in large part due to the assistance he received. After banks refused to lend him start-up capital, Alvarez approached ACCION and borrowed enough money to buy the delivery truck he needed to get his business off the ground. ... Another New Yorker, Kyn Genet Recitas, opened Neighborhood Holistic, a yoga studio and spa, in Harlem with the help of a microloan from ACCION USA. Within a year the studio was profitable, and Recitas expanded her venture, bringing on twelve part-time employees and providing yoga scholarships for low-income community members.

So you see there really is more than one way to skin a cat! Don't expect Bank of America or JP Morgan Chase to provide you with a business loan! They would be more than happy to provide you with a student loan, however. I leave it to the reader to figure out why. Hint: it has something to do with profit. But read some of the horror stories associated with student loans. If you feel the need for a college diploma and many people do for irrational reasons in my opinion involving incipient inferiority complexes, I would recommend that you also diversify your skills by learning a trade on the side. Or starting a side business. Don't put all your eggs in one basket! You don't need a college education to become "educated." Reading one book a month will probably make you a better educated person than the majority of college graduates. Don't put yourself in the position where you have to be a supplicant to corporate America for a job, and that's all you can do. Diversify! You want to be in the position (even if you never do) to tell your boss "Take this job and shove it." And I challenge you to get through college without taking one cent in student loans! 

 

 

 

 

 

Why College Doesn't Have To Be A Financial Nightmare

 by Radek M. Gadek

 
If you haven't had the chance to read the recent article, titled: Why Get a College Education When There Are No Jobs for College Graduates?, then perhaps you should. It's packed with a lot of great information and makes a pretty good point on why investing $50,000-$100,000 for a college education can be a downright colossal failure – for some.

I know that spending $100,000 on a college education can probably be better converted into profit from starting your own small business. However, as 95% of businesses fail in the first five years, coupled with the inexperience or lack of drive on behalf of the business owners, this idea would probably yield unrealistic expectations and can further lead into the financial abyss.

What I propose, instead, is to give our higher education system a try. Yes, the economy is at its lowest point, job prospects totally suck, and starting a small business of your own may seem like the most cohesive idea, but, for the average Joe in us, it’s that college diploma that can mean the difference between living paycheck to paycheck or finally living life.

Here are two ways you can save some major cash while investing in you:

1. Forget about spending $50,000-$100,000 on college. How does $25,000 sound for a four year college education? Wait, it gets better! Don't forget about FAFSA (Free Application for Federal Student Aid); there are grants you know. A four-year college education can run you about $15,000-$30,000 on average when attending college in your state's University system.

2. If you're really financially enterprising, you can cut the cost in half. One of the best things to consider is attending a community college in order to obtain an Associates degree and then going into a 4-year school to obtain your Bachelors. For the most part, community colleges can be subsidized by the grants you get with your FAFSA. Some people even get more money for books and other study essentials that way.

I must admit, however, that this is often the best case scenario for most who already have a roof over their head and who qualify for grants. Despite that, an investment in your education is more than a financial gamble. It's an opportunity to better yourself, while having the opportunity to contribute and earn more than the minimum wage.

I know, for a fact, that college education does pay off. However, all of the following points have to be considered to avoid a financial nightmare:

Always, and I mean always, attend a college or university that is regionally accredited. There are six regional accreditation agencies in the United States. Caveat emptor to those looking at or presently attending schools without proper accreditation. The two forms of accreditation that are supported by the United States Department of Education are national accreditation and regional accreditation. Despite the grander scope of national accreditation, it is the regional accreditation you want to seek.
Never even think of taking out a private student loan, unless you're planning to invest in amazing quality education – Ivy League schools, for example – and you know you will be able to successfully finish your studies. The interest rates on these suckers are out of this world. If you can't pay for the college education in cash – which most of us can't – make sure to fill out your FAFSA (a requirement at all schools nowadays). You never know, you might have some free money coming in the form of grants. Worst-case scenario, you will be able to borrow money at a fairly decent interest rate in the form of government student loans. I wanted to make a point of filling out FAFSA, because most schools would love their incoming students to have it filled out way before the classes start in the fall or winter. Otherwise, you might be stuck waiting a semester or two before you can afford to go to school.

Don't borrow more than you really have to, because paying off student loans in your 20s and 30s isn't that much fun. Oh wait… Some people continue paying for their student loans over the course of a lifetime because they really didn't know how to manage their money. They borrow too much, or they went to a college, or a few, and never finished or they defaulted on their payments with the consequent addition of interest and penalties. Avoid for-profit colleges at all costs. These are usually really expensive. Please, don’t confuse private with for-profit. There are many great private colleges and universities that give you an excellent education for a decent buck. 

So why go to college anyway? “These reasons aren’t really that convincing to me.” Ahhaaa! Nothing is really that convincing. Thus the debate: Go to College vs. Don’t Go to College.

The idea of starting a business may seem like the smart idea, but think of the odds, the economy, and the cold hard cash it takes to invest into it. Do you have cold hard cash? Do you qualify for a decent business loan, especially when the banks are as tight as they are now?

Unless you’ve defaulted on previous student loans, you can start college now. Simply put, it's much easier to get a student loan than it is to get a business loan. It’s more readily available to a student, and if you learn something interesting in college, perhaps you can use that knowledge to open a kick-ass business and take your chances then. In the meantime, college is the safer way to a better tomorrow in my opinion. If “safer” seems too chicken to you, then consider investing in the stock market, lottery tickets, or roulette – tell me how that turns out?

Bio: My name is Radek M. Gadek, and presently, I write about Criminal Justice careers and law enforcement training. I’m open for comments and questions at radek [at] criminaljusticeonlineblog [dot] com or leave comments here!

 

 

The Foreclosure Crisis: Will the Government Stand Up for Middle Class Americans Who Have Been Screwed Illegally by the Banks?

by John Lawrence

It now turns out that many Americans may have had their homes foreclosed on and been evicted illegally based on faulty documentation by the banks. If so these Americans have had their property rights violated and in many cases been reduced to penury and homelessness by powerful institutions which have done so fraudulently. Now many potential foreclosees are challenging the banks in court. But what of the poor souls who have already lost their homes? What agency or entity is going to stand up for them to redress their grievances and get their homes back for them. Will the Obama administration do that? Probably not. The Obama administration has stood with the banks ever since the financial crisis began. This is Phase II of the financial crisis. Will average middle class Americans obtain justice this time around?

Now the light dawns, the light bulb comes on as to why the banks were ignoring the congressional statute that asked them voluntarily to modify mortgages. They were in a huge hurry to foreclose and evict before it came to the light of day that they were doing all this illegally. In the first place the banks did not have the proper paperwork so they were hiring fast food workers, hail stylists and Wal-Mart employees to be robo signers, i.e. to hurriedly and hastily sign documents that purported to replace the official documents of ownership that the banks did not have in their possession. If the banks could hurry this whole procedure and not be challenged by the homeowner in court, they could obtain possession of the property and evict the homeowners before they knew that they had been screwed. The courts are set up in such a way in many states that they will believe the banks unless they are challenged in court and many homeowners didn't know what was going on much less than they had the right to challenge their foreclosures and evictions in court. But now the tables have turned, and everyone and his brother knows that the banks have been screwing them. That's why all 50 states have declared a moratorium on foreclosures. Duhhh!

Arianna Huffington, in her naivete before the crisis hit, says in her recent book, "Third World America": "The single most valuable thing the government could do to help people facing foreclosure is to pass a cramdown bill allowing homeowners in bankruptcy to renegotiate their mortgages under the guidance of a bankruptcy judge.

...

"We should make it mandatory that homeowners and lenders engage in mediation prior to any final foreclosure. ... Currently, many homeowners don't even talk to their lenders until they have been foreclosed on - partly because the lenders often make it next to impossible to reach them. Or, if your mortgage has been sliced up and sold to speculators, to even find them."

Jeez, I wonder why??!! You don't think that the bank, knowing that they were operating illegally, were hesitant to engage in open discussions with homeowners on whom they were about to foreclose, do you? You don't think that the banks' modus operandi was to hurry up and "get 'er done" before the homeowners realized they were being screwed? Ms. Huffington's wishful thinking never actually got anywhere in Congress after Congress gave lip service to it in the Emergency Mortgage Loan Modification Act of 2008: H.R. 5579 which never actually made it into law.

The H.R. 5579 summary is summarized as follows:

Establishes a standard for loan modifications or workout plans for pools of certain residential mortgage loans. States that the servicer of such pooled loans owes a duty to the securitization vehicle to maximize recovery of proceeds for the benefit of all investors and holders of beneficial interests in the pooled loans, in the aggregate, and not to any individual party or group of parties. Deems the loan servicer to be acting on behalf of the securitization vehicle in the best interest of all such investors and holders if the servicer makes certain loss mitigation efforts for a loan in or facing payment default in the reasonable belief that the particular modification, workout plan, or other mitigation actions will maximize the net present value to be realized over that which would be realized through foreclosure. Declares that, absent contractual provisions to the contrary, a servicer acting in a manner consistent with such duty shall not be liable to specified persons (including any person obligated pursuant to a derivatives instrument to make specified payments) for entering into a qualified loan modification or workout plan for loss mitigation purposes. Defines "qualified loan modification or workout plan" as one that: (1) is scheduled to remain in place until the borrower sells or refinances the property, or for at least five years from the date of adoption of the plan, whichever is sooner; (2) does not provide for a repayment schedule that results in negative amortization at any time; and (3) does not require the borrower to pay additional points and fees. States that, for purposes of a qualified loan modification or workout plan, negative amortization does not include capitalization of delinquent interest and arrearages. Defines "securitization vehicle" as a trust, corporation, partnership, limited liability entity, special purpose entity, or other structure that: (1) is the issuer, or is created by the issuer, of mortgage pass-through certificates, participation certificates, mortgage-backed securities, or other similar securities backed by a pool of assets that includes residential mortgage loans; and (2) holds such loans.

You know, even if this had made it into law, it does not really protect the homeowner. It protects the investor as one would expect from the heavily lobbied Congress. Statements like "the servicer of such pooled loans owes a duty to the securitization vehicle to maximize recovery of proceeds for the benefit of all investors and holders of beneficial interests in the pooled loans" make it clear that loan modification should take place not to protect the homeowners being foreclosed on, but only if it maximizes returns for the investor. How cold is that? And even this statute which might have afforded some mitigation for the homeowner didn't even make it into law! Instead of mortgage modification, the banks went full steam ahead to foreclose and evict. Congress and the whole Federal government should be ashamed of themselves for protecting the interests of banks and letting the average American be thrown out on the streets. Mortgage modification should have been mandatory, not just at the banks' discretion and not just in bankruptcy court as Ms. Huffington suggests, and then not even the most lenient, voluntary - on the part of the banks - mortgage modification made it into law!

Well, one might pause and ask why don't the banks actually have in their possession the proper legal documents that would give them legal ownership of the properties they are hastily foreclosing on (before anyone finds out). There are two reasons and they both have to do with saving the greedy banks money. 1) They didn't want to pay real estate taxes on the properties they were mortgaging and 2) They didn't want to pay recording fees to local county governments. So they invented REMICs, Real Estate Mortgage Investment Conduits. What they claimed was that they were just a "pass through" that they really didn't own the properties they were selling mortgages on, but they were just passing through ownership to investors or to some other entity. Well, if they don't actually own the property, they don't have a right to foreclose, do they? And if they are now claiming that they really did own the properties after all, well, a lot of past real estate taxes are due, aren't they? And they are doubly up a creek because at least in some states they are required by law to actually have the piece of paper in their possession that gives them title to the property which would have required them to go to the local county recorder's office and pay a recording fee. No legal title, no right to foreclose. No ownership because you were just a pass-through, no right to foreclose. If the glove fits, you must acquit! In short the banks don't have legal ownership of the properties even though now in hindsight they are trying to reconstruct a paper trail. Good luck in paying all those back taxes and maybe some fees to local county governments too! But wait a minute - you can't just justify taking a person's home away from them by reconstructing a paper trail in hindsight. In fact the case that can be made which is legally much stronger is that the loans in question should be written down to zero giving the homeowner legal title and possession of his or her house mortgage free!

So now we understand why banks weren't eager to engage in foreclosure prevention programs or loan modification programs which would have kept homeowners in their houses. They weren't interested in loan principle "cramdowns" in which the principle would be modified to make monthly payments doable for homeowners. Neither were they interested in modifing interest rates although interest rates in the nation have dropped several percentage points from many of the loans. No, they wanted to hurry up and foreclose and evict as many homeowners as possible before anyone found out that they were doing all this illegally. But will state, local or national governments now stand up and give justice to the aggrieved homewoners, finally? Don't bet on it. Up to now they have bent over backwards for the banks at the expense of average Americans. They have bailed out the banks at taxpayer expense while letting the banks screw average Americans. As Paul Krugman said in his recent op-ed, nobles used to take peasants' property at will because the peasants had no standing in the courts. Well the more things change, the more they stay the same. For an excellent primer on the foreclosure crisis, click here.

 

 

A Primer On The Foreclosure Crisis

Published: Monday, 11 Oct 2010 | 2:48 PM ET by cnbc.com

By: John Carney

Senior Editor, CNBC.com

Last week, Bank of America announced that it was halting foreclosures in all fifty-states while it reviewed its foreclosure process for defects. Now several lawmakers on Capitol Hill are calling for other banks to initiate nationwide foreclosure freezes—a move which the Obama administration is currently opposing.

Photo: Jeff Turner

So what’s going on here? Why is the foreclosure machinery of our nation’s largest banks suddenly grinding to a halt? What does this mean for the financial sector and the economy?

Let’s start with the most basic questions first. Then I’ll explain some of the possible implications for homeowners, banks, and the economy.

How did this thing get started?

Ever since the housing bubble burst, there have been signs that there are serious problems with foreclosure practices. In some cases, the financial institution claiming it owns the mortgage has not been able to produce the underlying loan documents. In 2007, a federal judge held that Deutsche Bank lacked standing to foreclose in 14 cases because it could not produce the documents proving that it had been assigned the rights in the mortgages when they were securitized.

This decision was followed by similar rulings in other states stopping foreclosure proceedings. Typically the judges would find that the banks that were servicing mortgages pooled into bonds weren’t able to prove they owned the mortgages.

Why can’t they prove they own the mortgages?

Every time a mortgages changes hands, the new owners are supposed to receive an “assignment” of the mortgage notes from the buyers. The assignment is typically a short little document signed by both the seller and buyer of the mortgage acknowledging the sale, which is then attached to the mortgage documents themselves and delivered to the new owner.

When a mortgage is securitized it is typically sold to a Wall Street firm, which pools the mortgage with thousands of others. Investors buy slices of the pool, entitling them to cash-flows from the mortgage payments. The actual mortgages are assigned to a newly created investment vehicle. A servicer is tasked with ensuring the payments to borrowers get divided up properly and that delinquent borrowers get foreclosed upon.

Here’s where things get tricky. When a mortgage is securitized, the investors in the mortgage bonds don’t get assignments or notes. The investment vehicle doesn’t get the assignments or notes either. Instead, the physical notes are typically sent to a document repository company. The transfer of interests is noted in an electronic database.

But during the height of the housing bubble, investment banks were churning out mortgage bonds in such a frenzy, sometimes the assignments never got executed and mortgage notes never got delivered. Keep in mind that this was during the years when lenders were giving out low-doc and no-doc mortgages. It was inevitable that the fast and loose and slightly documented culture would not stop at the mortgage originator but stretch all the way through the process. (For more on this, see RortyBomb’s excellent discussion of the securitization process, complete with nifty and highly informative charts.)

For most mortgages, the note probably still exists somewhere. One problem that has arisen, however, is that some of the original mortgage lenders have gone under or been acquired by a larger bank. This can make tracking down the notes difficult, if not impossible.

Why am I just learning about this mess now?

This issue has been quietly simmering in the background of the housing crisis for quite some time. Gretchen Mortgenson of the New York Times wrote about it back in 2007. It gave rise to a “show me the note” movement of people contesting foreclosure proceedings.

But what really kicked off the latest developments was the deposition of a GMAC loan officer named Jeffrey Stephan, which revealed deep and perhaps pervasive flaws in the foreclosure practices of our largest banks.

Stephan admitted in a sworn deposition in Pennsylvania that he signed off on up to 10,000 foreclosure documents a month for five years. He said that he hadn’t reviewed the mortgage or foreclosure documents thoroughly. He quickly became known by the pejorative “robo-signer” for this way of getting mortgages through. This prompted Ally, which owns the GMAC mortgage company, to halt foreclosures in 23 so-called “judicial states.”

Because Stephan also signed foreclosures for hundreds of other mortgage companies, including J.P. Morgan Chase [JPM  37.75    0.60  (+1.62%)   ] , the problem is not limited to GMAC. In fact, JP Morgan Chase also halted foreclosures in the judicial states.

Wait, what’s this about judicial states?

The majority of states in the country allow banks to foreclose on defaulted mortgages without going to court. They simply deliver the borrower a notice of the foreclosure sale. This is the method of foreclosure preferred by banks, since it is much faster and easier to execute the foreclosure sale, and much more difficult for borrowers to contest.

Twenty-three states, however, require banks to go to court to get a foreclosure order. These are the “judicial states.” In these states, banks are typically required to produce a sworn and notarized affidavit of a loan officer and submit the mortgage documents. Often, however, judges will issue foreclosure orders without the mortgage documents so long as the borrower doesn’t contest this point.

Keep in mind that in both judicial and non-judicial states, there are strong legal presumptions that favor the banks. So long as they have the mortgage note and the loan is delinquent—or so long as no one argues that they aren’t the owners of the mortgage or that borrower is not in default—the bank will almost always get the foreclosure.

But as the “show me the note” movement took off, more and more homeowners began to contest foreclosures by demanding to see the notes and, if the loan had been transferred or securitized, the assignment agreements. This typically was not fatal to banks seeking foreclosures. They could make up for the lost notes with lost note affidavits and retro-actively build an assignment chain. The worst that would happen, from the bank’s perspective, was that the foreclosure would be delayed.

In some cases, however, banks seem to have not even been able to manage even this kind of corrective action. Evidence has been produced to show that notarizations have been faked, documents forged, and folks like Stephan have simply been operating as foreclosure bots.

So is this just a concern for “judicial states?”

Although banks first shut down foreclosures in judicial states, the lack of documentation is a problem in any jurisdiction. Homeowners contesting foreclosures in both non-judicial and judicial states can win if the bank cannot provide documents proving it owns the mortgage.

In judicial states, however, the banks are especially exposed because they must initiate a lawsuit to get a foreclosure. If they have been submitting false documents to the court, they could be sanctioned and fined. Realizing that they had few internal controls over their own foreclosure practices, banks wisely shut down foreclosures in the states where they had the most exposure.

In non-judicial states, banks aren’t required to submit anything to the court until they are sued by a homeowner seeking to stop a foreclosure. That means that they are far less likely to submit fraudulent documents, since the process has already been slowed. Nonetheless, banks may still find themselves swamped by challenges. No one really knows how badly the missing documentation problem is at the banks.

The Wall Street Journal told me this is just about “paperwork” and politics. Are we making a mountain out of a molehill?

Our friends at the Journal are seriously misguided on this issue. (Note: my brother, Brian Carney, is on the editorial board of the Journal.)

The requirement that banks be able to prove ownership of mortgages by producing notes and assignments reflects a long-settled view about the necessity of written contracts in real estate transactions. Long before the founding of our Republic, England adopted what is commonly called the “Statute of Frauds.” It required that real estate conveyances be recorded in writing and signed. Similar laws apply in almost every state in the Union.

Part of the point of the writing requirement is to allow the government the transparency it needs to enforce property rights, including the right to foreclose on a home. If courts were to treat this as mere “paperwork” that was irrelevant to the cases, both property rights and the rule-of-law would suffer. It’s surprising that the Journal’s editorial page would take this stance.

Now, if the problem truly is just sloppy work on the part of robo-signers, banks can likely resume foreclosures before too long. But many suspect that the reason banks were falsifying their knowledge about the possession of loan documents is that the banks do not actually have the documents and don’t know where to find them. This could permanently impair their ability to foreclose on some properties.

What does this mean for the banks?

In the first place, the slowdown in foreclosure sales might hit the revenues of the banks. The defaulted loans aren’t spinning off revenue and now the foreclosures aren’t producing revenue either. If the foreclosure freezes last long enough, this could it the bottom lines of the banks. At the very least, banks should be adjusting the estimates on the likelihood of short-term recovery values for their mortgage portfolios.

The fact that banks securitized loans but did not get proper assignments of the mortgage notes may find themselves liable to lawsuits from investors. A typical mortgage bond issuance includes representations and warranties that all the proper documentation has been obtained. Banks could find themselves liable for a breach of these warranties.

This could also turn into a fight between investors of junior and senior tranches of mortgage bonds. Here’s how the Journal describes this fight:

When houses that have been packaged into a mortgage bond are liquidated at a foreclosure sale—the very end of the foreclosure process—the holders of the junior, or riskiest debt, would be the first investors to take losses. But if a foreclosure is delayed, the servicer must typically keep advancing payments that will go to all bondholders, including the junior debt holders, even though the home loan itself is producing no revenue stream.

The latest events thus set up an odd circumstance where junior bondholders—typically at the bottom of the credit structure—could actually end up better off than they expected. Senior bondholders, typically at the top, could end up worse off.

Not surprisingly, senior debt holders want banks to foreclose faster to reduce expenses. Junior bondholders are generally happy to stretch things out. What is more, it isn't entirely clear how the costs of re-processing tens of thousands of mortgages will be allocated. Those costs could be "significant" said Andrew Sandler, a Washington, D.C., attorney who represents mortgage companies.

The most damaging thing that could happen to banks would be the discovery that they simply cannot prove they hold a mortgage on a house. In that case, the loan would probably have to be written down to near zero. Even for current loans, the regulatory reserve requirements would double as the loan would no longer be a functional mortgage but an ordinary consumer loan. Depending on the size of the “no docs” portion of the loan portfolio, this might be a minor blip or require a bank to raise new capital to fill the hole in the balance sheet.

What does this mean for the housing market and the economy?

Get ready to hear the phrase “pig through the python” a lot. For example, “We need to get the pig through the python very quickly so that the market can be free of uncertainty.”

This is the favorite metaphor of bankers discussing the foreclosure crisis. The idea is that anything that slows down foreclosures will unsteady the housing market. There’s a lot of truth to this. Buyers will hesitate to bid on foreclosure sales if they are not confident the foreclosure is legitimate. Other buyers may worry that the lack of foreclosure sales in an area is a false indicator of the health of the local housing market.

Banks concerned about the recovery values of their mortgage portfolios and higher capital requirements, may pull back lending even further than they already have. In short, this could be the beginning of the second leg of the credit crunch.

Foreclosure Problems "Shameful": Housing Secretary

By Caren Bohan and Thomas Ferraro

WASHINGTON | Sun Oct 17, 2010 1:14pm EDT

WASHINGTON (Reuters) - President Barack Obama's housing secretary said on Sunday "it's shameful" that financial institutions may have made the housing crisis worse by improperly processing foreclosures.

Shaun Donovan, secretary of the Department of Housing and Urban Development, said in a column on the Huffington Post website that a comprehensive review of the foreclosure crisis was under way and that the administration would respond with "the full force of the law where problems are found."

There have been allegations that banks failed to review foreclosure documents properly or submitted false statements when they foreclosed on properties.

In addition to inquiries by attorneys general in all 50 U.S. states, the Justice Department and banking regulators, the Securities and Exchange Commission has begun a preliminary investigation.

Federal Deposit Insurance Corp. Chairman Sheila Bair said in an interview on C-SPAN's "Newsmakers" that regulators needed to gauge the scope of the improper processing.

"We have been told that this is a process issue - that all of the information is in the file, the problem is the person who needed to sign the affidavit had not been looking at the file before they'd done so. So we need to independently verify that," Bair said.

"Foreclosure is a very serious thing and it should only being undertaken after loan modification efforts are not feasible. And that the files are fully documented."

Donovan, in his column, wrote: "The recent revelations about foreclosure processing -- that some banks may be repossessing the homes of families improperly -- has rightly outraged the American people."

"The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating -- it's shameful," Donovan added.

The housing secretary said investigative agencies are sending out a clear message: "Banks must follow the law -- and those that haven't should immediately fix what is wrong."

"Given the problems that have already been found and admitted to by some servicers, the Obama administration fully supports the voluntary moratoria that are already in place and others should they be deemed necessary," Donovan wrote.

"Some have suggested, however, that all foreclosures in every state, under every servicer, should be stopped. But a national, blanket moratorium on all foreclosure sales would do far more harm than good -- hurting homeowners and home-buyers alike at a time when foreclosed homes make up 25 percent of home sales," Donovan added.

Bair also urged banks to do "rigorous internal analysis" about the range of possible risk exposures in the foreclosure crisis.

"We need to get a full handle on all of these issues," she said. "If it turns out this is just a process issue then I don't anticipate the exposures to be significant.

"If it turns out to be something more fundamental then we'll have to deal with that. But I think we need to get all the information before we jump to any conclusions."

(Additional reporting by Deborah Charles)

(Writing by Thomas Ferraro and Deborah Charles; Editing by Doina Chiacu)

Arianna: "Wall St Is Not Making Things, They're Making Things Up!"

 

If Mortgage Companies Can't Produce Legal Documentation, The Homeowners Own Their Homes Free and Clear

by John Lawrence

The big bank muckety mucks, having screwed the country once and then been rewarded handsomely for it are on the verge of screwing it again. There's only one problem. The law isn't on their side this time. It seems that the law states that in order to foreclose on someone's house, you must have legal documentation that you actually own that house. Now it comes out that the banks (for they are the ones trying to foreclose) can't produce the documents. So LEGALLY they do not have the right to foreclose. Legally speaking the homeowners have a right not only to stay in their houses without fear of eviction, but they also have the right to stop making any more mortagage payments until such time that the banks can produce the proper documents, and chances are, they can't produce them. If they could, they would have done so by now instead of having robo signers sign fake and fraudulent documents. Jeez, if these guys were on the level you would think that they could do better than to hire Wal-Mart employees and other minimum wage earners with no formal training in the field to robo sign thousands of these fraudulent documents. This is what the foreclosure moratorium is all about.

But the deeper issue is that the banks don't possess the correct documents, and they were never recorded with local counties. Therefore, for all their fancy schmancy CDOs, credit default swaps, tranches, derivatives and every other form of high blown finance, the banks don't actually and legally own the houses they are trying to foreclose on. Now if you accept that this is true, what it means is that these large banks will again fail and expect the taxpayers to bail them out. This is a bridge the Obama administration does not want to cross. Nor does it want to cross the bridge of the spectacle of having all these large denizens of Wall Street actually fail after they have been bailed out once. It is a huge embarassment not only to capitalism but to the US version of it. To put it mildly the US is up a creek without a paddle. On the one hand it can subvert the law and say, what the hell, we don't care if the banks have the proper legal documentation, let the banks screw the homeowners anyway. Because how else to maintain order and sanity in the banking system? We just can't have another meltdown, can we. On the other hand, if the Obama administration and the legal system is consistent with itself and maintains the law in the interests of justice and the property rights of the aggrieved homeowners, the whole damn edifice of the banking system goes kerplop. Talk about moral hazard and the ultimate Greek tragedy.

The only ethical way out of this morass is for the government to honor the Kanjorsky amendment to the financial reform bill that slipped past the lobbyists' notice and allows the government to step in. The Kanjorski amendment allows federal regulators to preemptively break up large financial institutions that pose a threat to US financial or economic stability. And this situation poses a definite risk to US financial and economic stability. Homeowners are not going to allow themselves to be screwed (again) just to maintain the big banks in their current positions, massive bonuses and all. They're going to sue the bastards and they're already doing it. Why do you think there's a foreclosure moratorium?

The Obama administration has sided with the big banks every step of the way so far, bailing them out without cracking down and then letting them go on feathering their own nests in a gargantuan display of financial gluttony. Now the banks are caught with their pants down (again), and this time the law is clearly on the side not of the banks but of the homeowners. They have even foreclosed on people who were paid up on their mortgage and at least in one case foreclosed on a person who didn't even have a mortgage! How would you like to be evicted from your home even when you owned it free and clear. It happened!

The Obama administration's plan for mortgage modification either by reducing principal or interest rate never went anywhere and was never actually put into effect by the banks. The banks thought it to be more profitable for them to go ahead and foreclose on everything they could get their hands on. Homeowners be damned! The banks got themselves into this mess because they wanted to bypass paying local recording fees. So they are totally culpable of wallowing in their own greed. Now let them wallow in their own puke. They deserve it. The homeowners, finally, and not the banks deserve a break. It's almost unimaginable that after the mess they created, the banks are at it again creating another mess. Although the first mess was created legally after the Glass-Steagall Act was nullified in 1999 by the Financial Modernization Act, the present mess does not have any legal backing whatsoever. Legally, the banking greed gluttons are clearly on the hook, but how much do you want to bet that they will try to weasle out of this one. Let us hope that the Obama administration comes to its senses and says to the banks: Enough! No more! We've been screwed once. We're not letting it happen again. It's the only morally right thing to do!

The Mortgage Morass

By PAUL KRUGMAN

Published: October 14, 2010 in the New York Times

American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were “well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement.” By implication, these were things the Asians lacked but we had.

We didn’t.

The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

The story so far: An epic housing bust and sustained high unemployment have led to an epidemic of default, with millions of homeowners falling behind on mortgage payments. So servicers — the companies that collect payments on behalf of mortgage owners — have been foreclosing on many mortgages, seizing many homes.

But do they actually have the right to seize these homes? Horror stories have been proliferating, like the case of the Florida man whose home was taken even though he had no mortgage. More significantly, certain players have been ignoring the law. Courts have been approving foreclosures without requiring that mortgage servicers produce appropriate documentation; instead, they have relied on affidavits asserting that the papers are in order. And these affidavits were often produced by “robo-signers,” or low-level employees who had no idea whether their assertions were true.

Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

This is very, very bad. For one thing, it’s a near certainty that significant numbers of borrowers are being defrauded — charged fees they don’t actually owe, declared in default when, by the terms of their loan agreements, they aren’t.

Beyond that, if trusts can’t produce proof that they actually own the mortgages against which they have been selling claims, the sponsors of these trusts will face lawsuits from investors who bought these claims — claims that are now, in many cases, worth only a small fraction of their face value.

And who are these sponsors? Major financial institutions — the same institutions supposedly rescued by government programs last year. So the mortgage mess threatens to produce another financial crisis.

What can be done?

True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?

The response from the right is, however, even worse. Republicans in Congress are lying low, but conservative commentators like those at The Wall Street Journal’s editorial page have come out dismissing the lack of proper documents as a triviality. In effect, they’re saying that if a bank says it owns your house, we should just take its word. To me, this evokes the days when noblemen felt free to take whatever they wanted, knowing that peasants had no standing in the courts. But then, I suspect that some people regard those as the good old days.

What should be happening? The excesses of the bubble years have created a legal morass, in which property rights are ill defined because nobody has proper documentation. And where no clear property rights exist, it’s the government’s job to create them.

That won’t be easy, but there are good ideas out there. For example, the Center for American Progress has proposed giving mortgage counselors and other public entities the power to modify troubled loans directly, with their judgment standing unless appealed by the mortgage servicer. This would do a lot to clarify matters and help extract us from the morass.

One thing is for sure: What we’re doing now isn’t working. And pretending that things are O.K. won’t convince anyone.

Invasion of the Robot Home Snatchers

Published on Thursday, October 14, 2010 by TruthDig.com

by Robert Scheer

The Titanic that is the U.S. housing market has just sprung its biggest leak, and even some of the largest banks responsible for this mess, like Bank of America and JPMorgan Chase, are now imposing a temporary moratorium on foreclosures. They have done so very reluctantly and only after courts throughout the nation, and the attorneys general of 40 states, questioned the legality of a securitized system of homeownership that has impoverished tens of millions.

How do you foreclose on a home when you can’t figure out who owns it because the original mortgage is part of a derivatives package that has been sliced and diced so many ways that its legal ownership is often unrecognizable? You cannot get much help from those who signed off on the process because they turn out to be robot signers acting on automatic pilot. Fully 65 million homes in question are tied to a computerized program, the national Mortgage Electronic Registration Systems (MERS), that is often identified in foreclosure proceedings as the owner of record. 

MERS was the result of a partnership formed back during the Clinton years between Fannie Mae, an ostensibly government-sponsored agency that morphed into a very much for-profit mega-Wall Street hustler, and Countrywide, the largest and most rapacious of the private mortgage marketers. The scam of computerized credit approval and mortgage certification they came up with was subsequently embraced by Freddie Mac, the other huge housing agency, and the leading Wall Street banks joined in the feeding frenzy. MERS owners now include Wells Fargo, AIG, GMAC, Citigroup, HSBC, the two housing agencies and Bank of America. But the courts are increasingly challenging MERS claims to the right of foreclosure since this whole racket, which bypasses the power of counties to register property ownership, was never authorized in the law.

Yet the White House on Tuesday once again manifested an indifference to the suffering of victimized homeowners when press secretary Robert Gibbs warned of the “unintended consequences to a broader moratorium.” Which presumably would be worse in his view than the intended consequence of evicting people from their homes, which has already affected some 20 million Americans and threatens many more. What arrogance for an administration featuring Timothy Geithner and Lawrence Summers, who created this mess back in the Clinton era, to evidence such slight compassion for the victims of their folly.

The disastrous disarray in the housing industry is a direct result of decisions taken during the deregulation frenzy of the Clinton presidency when the securitization of mortgage and other debts was removed from any regulatory supervision. Instead of mortgages being between customers and banks and then being properly recorded by local government agencies, they became poker chips in the Wall Street casino. Tens of millions of home mortgages were recklessly issued with scant reference to their true values and bundled into securities to be sold on the unregulated derivatives market. But in order for there to be sufficient fluidity in the rapid-fire swapping of stock bundles of individual homes, those mortgages had to be unhinged from the valid legal restraints that had governed their issuance throughout most of human history.

To engage in the recklessness of turning people’s homes—their castles and nest eggs—into playthings of Wall Street market hustlers, or securitization of the assets, as it was termed, homeownership record-keeping had to be mangled beyond recognition. Throughout the preceding centuries of this nation’s history, the origination of housing loans was between the homebuyer and a lender, both of whom expected to be connected through decades of payments. Until the nuttiness that began in the 1990s when homes became ciphers in a marketable security, the verification of homeownership was a straightforward transaction dutifully recorded by local county governments. If the house was sold, the physical records were changed and available for all to see. 

But that didn’t suit the newfangled collateralized debt obligations based on collections of mortgages to be cut in tranches as to their expected risk and sold as securities in an unregulated futures market. To facilitate the scam, the records of homeownership came to be largely maintained without the traditional local paper trail in a new computerized national database. The ensuing difficulty in tracing such ownership is now at the heart of the courts’ objections and the compelling argument for a government-enforced national moratorium on home foreclosures to provide sufficient time to sort this mess out.

Copyright © 2010 Truthdig, L.L.C.

Robert Scheer is editor of Truthdig.com and a regular columnist for The San Francisco Chronicle.

Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks?

Published on Friday, October 15, 2010 by YES! Magazine

With risky behavior by big finance again threatening economic stability, how can we get things right this time?

by Ellen Brown

Looming losses from the mortgage scandal dubbed "foreclosuregate" may qualify as the sort of systemic risk that, under the new financial reform bill, warrants the breakup of the too-big-to-fail banks. The Kanjorski amendment allows federal regulators to pre-emptively break up large financial institutions that-for any reason-pose a threat to U.S. financial or economic stability.

The Kanjorski amendment-which slipped past lobbyists largely unnoticed-allows federal regulators to preemptively break up large financial institutions that pose a threat to U.S. financial or economic stability. If the current foreclosure scandal doesn't qualify, what would? (Graphic: ABC news)

Although downplayed by most media accounts and popular financial analysts, crippling bank losses from foreclosure flaws appear to be imminent and unavoidable. The defects prompting the "RoboSigning Scandal" are not mere technicalities but are inherent to the securitization process. They cannot be cured.  This deep-seated fraud is already explicitly outlined in publicly available lawsuits.

There is, however, no need to panic, no need for TARP II, and no need for legislation to further conceal the fraud and push the inevitable failure of the too-big-to-fail banks into the future.

Federal regulators now have the tools to take control and set things right. The Wall Street giants escaped the Volcker Rule, which would have limited their size, and the Brown-Kaufman amendment, which would have broken up the largest six banks outright; but the financial reform bill has us covered. The Kanjorski amendment-which slipped past lobbyists largely unnoticed-allows federal regulators to preemptively break up large financial institutions that pose a threat to U.S. financial or economic stability.

Rep. Grayson's Call for a Moratorium

The new Financial Stability Oversight Council (FSOC) probably didn't expect to have its authority called on quite so soon, but Rep. Alan Grayson (D-FL) has just put the amendment to the test. On October 7, in a letter addressed to Timothy Geithner, Shiela Bair, Ben Bernanke, Mary Schapiro, John Walsh (Acting Comptroller of the Currency), Gary Gensler, Ed DeMarco, and Debbie Matz (National Credit Union Administration), he asked for an emergency task force on foreclosure fraud. He said:

The liability here for the major banks is potentially enormous, and can lead to a systemic risk. Fortunately, the Dodd-Frank financial reform legislation includes a resolution process for these banks. More importantly, these foreclosures are devastating neighborhoods, families, and cities all over the country. Each foreclosure costs tens of thousands of dollars to a municipality, lowers property values, and makes bank failures more likely.

Grayson sought a foreclosure moratorium on all mortgages originated and securitized between 2005-2008, until such time as the FSOC task force was able to understand and mitigate the systemic risk posed by the foreclosure fraud crisis. But on Sunday, White House adviser David Axelrod downplayed the need for a national foreclosure moratorium, saying the Administration was pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation. "Our hope is this moves rapidly and that this gets unwound very, very quickly," he said.

According to Brian Moynihan, chief executive of Bank of America, "The amount of work required is a matter of a few weeks. A few weeks we'll be through the process of double checking the pieces of paper we need to double check."

"Absurd," say critics such as Max Gardner III of Shelby, North Carolina. Gardner is considered one of the country's top consumer bankruptcy attorneys. "This is not an oops. This is not a technical problem. This is not even sloppiness," he says. The problem is endemic, and its effects will be felt for years.

Rep. Grayson makes similar allegations. He writes:

The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents.

There are now trillions of dollars of securitizations of these loans in the hands of investors. The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts. The result of this is foreclosure fraud on a massive scale, including foreclosures on people without mortgages or who are on time with their payments. [Emphasis added.]

Why Wasn't It Done Right in the First Place?

That raises the question, why were the notes not assigned? Grayson says the banks were not interested in repayment; they were just churning loans as fast as they could in order to generate fees. Financial blogger Karl Denninger says, "I believe a big part of why it was not done is that if it had been done the original paperwork would have been available to the trustee and ultimately the MBS owners, who would have immediately discovered that the representations and warranties as to the quality of the conveyed paper were being wantonly violated." He says, "You can't audit what you don't have."

Both are probably right, yet these explanations seem insufficient. If it were just a matter of negligence or covering up dubious collateral, surely some of the assignments by some of the banks would have been done properly. Why would they all be defective?

The reason the mortgage notes were never assigned may be that there was no party legally capable of accepting the assignments. Securitization was originally set up as a tax dodge; and to qualify for the tax exemption, the conduits between the original lender and the investors could own nothing. The conduits are "special purpose vehicles" set up by the banks, a form of Mortgage Backed Security called REMICs (Real Estate Mortgage Investment Conduits). They hold commercial and residential mortgages in trust for the investors. They don't own them; they are just trustees.

The problem was nailed in a class action lawsuit recently filed in Kentucky, titled Foster v. MERS, GMAC, et al. (USDC, Western District of Kentucky). The suit claims that MERS and the banks violated the Racketeer Influenced and Corrupt Organizations Act, a law originally passed to pursue organized crime. Bloomberg quotes Heather Boone McKeever, a Lexington, Ky.-based lawyer for the homeowners, who said in a phone interview, "RICO comes in because the fraud didn't just happen piecemeal. This is organized crime by people in suits, but it is still organized crime. They created a very thorough plan."

The complaint alleges:

53. The "Trusts" coming to Court are actually Mortgage Backed Securities ("MBS"). The Servicers, like GMAC, are merely administrative entities which collect the mortgage payments and escrow funds. The MBS have signed themselves up under oath with the Securities and Exchange Commission ("SEC,") and the Internal Revenue Service ("IRS,") as mortgage asset "pass through" entities wherein they can never own the mortgage loan assets in the MBS. This allows them to qualify as a Real Estate Mortgage Investment Conduit ("REMIC") rather than an ordinary Real Estate Investment Trust ("REIT"). As long as the MBS is a qualified REMIC, no income tax will be charged to the MBS. For purposes of this action, "Trust" and MBS are interchangeable. . . .

56. REMICS were newly invented in 1987 as a tax avoidance measure by Investment Banks. To file as a REMIC, and in order to avoid one hundred percent (100%) taxation by the IRS and the Kentucky Revenue Cabinet, an MBS REMIC could not engage in any prohibited action. The "Trustee" can not own the assets of the REMIC. A REMIC Trustee could never claim it owned a mortgage loan. Hence, it can never be the owner of a mortgage loan.

57. Additionally, and important to the issues presented with this particular action, is the fact that in order to keep its tax status and to fund the "Trust" and legally collect money from investors, who bought into the REMIC, the "Trustee" or the more properly named, Custodian of the REMIC, had to have possession of ALL the original blue ink Promissory Notes and original allonges and assignments of the Notes, showing a complete paper chain of title.

58. Most importantly for this action, the "Trustee"/Custodian MUST have the mortgages recorded in the investors name as the beneficiaries of a MBS in the year the MBS "closed." [Emphasis added.]

Only the beneficiaries-the investors who advanced the funds-can claim ownership. And the mortgages had to have been recorded in the name of the beneficiaries the year the MBS closed. The problem is, who ARE the beneficiaries who advanced the funds? In the securitization market, they come and go. Properties get sold and resold daily. They can be sliced up and sold to multiple investors at the same time. Which investors could be said to have put up the money for a particular home that goes into foreclosure? MBS are divided into "tranches" according to level of risk, typically from AAA to BBB. The BBB investors take the first losses, on up to the AAAs. But when the REMIC is set up, no one knows which homes will default first. The losses are taken collectively by the pool as they hit; the BBBs simply don't get paid. But the "pool" is the trust; and to qualify as a REMIC trust, it can own nothing.

The lenders were trying to have it both ways; and to conceal what was going on, they dropped an electronic curtain over their sleight of hand, called Mortgage Electronic Registration Systems or "MERS." MERS is simply an electronic data base. On its website and in assorted court pleadings, it too declares that it owns nothing. It was set up that way so that it would be "bankruptcy-remote," something required by the credit rating agencies in order to turn the mortgages passing through it into highly rated securities that could be sold to investors. According to the MERS website, it was also set up that way to save on recording fees, which means dodging state statutes requiring a fee to be paid to establish a formal record each time title changes hands.

The arrangement satisfied the ratings agencies, but it has not satisfied the courts. Real estate law dating back hundreds of years requires that to foreclose on real property, the foreclosing party must produce signed documentation establishing a chain of title to the property; and that has not been done. Increasingly, judges are holding that if MERS owns nothing, it cannot foreclose, and it cannot convey title by assignment so that the trustee for the investors can foreclose. MERS breaks the chain of title so that no one has standing to foreclose.

Sixty-two million mortgages are now held in the name of MERS, a ploy that the banks have realized won't work; so Plan B has been to try to fabricate documents to cure the defect. Enter the RoboSigners, a small group of people signing thousands of documents a month, admittedly without knowing what was in them. Interestingly, it wasn't just one bank engaging in this pattern of coverup and fraud but many banks, suggesting the sort of "organized crime" that would qualify under the RICO statute.

However, that ploy won't work either, because it's too late to assign properties to trusts that have already been set up without violating the tax code for REMICs, and the trusts themselves aren't allowed to own anything under the tax code. If the trusts violate the tax laws, the banks setting them up will owe millions of dollars in back taxes. Whether the banks are out the real estate or the taxes, they could well be looking at insolvency, posing the sort of serious systemic risk that would bring them under the purview of the new Financial Stability Oversight Council.

No need for disaster

As comedian Jon Stewart said in an insightful segment called "Foreclosure Crisis" on October 7, "We're back to square one." While we're working it all out, an extended foreclosure moratorium probably is in the works. But this needn't be the economic disaster that some are predicting - not if the FSOC is allowed to do its job. We've been here before, and not just in 2008.

In 1934, Congress enacted the Frazier-Lemke Farm Bankruptcy Act to enable the nation's debt-ridden farmers to scale down their mortgages.  The act delayed foreclosure of a bankrupt farmer's property for five years, during which time the farmer made rental payments. The farmer could then buy back the property at its currently appraised value over six years at 1 percent interest, or remain in possession as a paying tenant. Interestingly, according to Marian McKenna in Franklin Roosevelt and the Great Constitutional War (2002), "The federal government was empowered to buy up farm mortgages and issue non-interest-bearing treasury notes in exchange."  Non-interest-bearing treasury notes are what President Lincoln issued during the Civil War, when they were called "Greenbacks."

The 1934 Act was subsequently challenged by secured creditors as violating the Fifth Amendment's due process guarantee of just compensation, a fundamental right of mortgage holders. (Note that this would probably not be a valid challenge today, since there don't seem to be legitimate mortgage holders in these securitization cases. There are just investors with unsecured claims for relief in equity for money damages.) The Supreme Court voided the 1934 Act, and Congress responded with the "Farm Mortgage Moratorium Act" in 1935. The terms were modified, limiting the moratorium to a three-year period, and the revision gave secured creditors the opportunity to force a public sale, with the proviso that the farmer could redeem the property by paying the sale amount. The act was renewed four times until 1949, when it expired. During the 15 years the act was in place, farm prices stabilized and the economy took off, retooling it for its role as a global industrial power during the remainder of the century.

We've come full circle again.  We didn't get it right in 2008, but with the newly empowered Financial Stability Oversight Council, we already have the ready-made vehicle to avoid another taxpayer bailout, and to put too-big-to-fail behind us as well.

This work is licensed under a Creative Commons License

Time for Economic Democracy

Peter Tatchell says democratising economic decision-making is the key to a fairer, more stable economy

by Peter Tatchell

From TribuneMagazine.co.uk, Saturday, October 16th, 2010

Three years after a banking crisis that pushed Britain – and much of the world – into the worst recession for decades, the major political parties still have no policies to prevent a repeat economic meltdown. They have still failed to put in place adequate checks and balances to overcome the structural flaws in the private-ownership, free market system which allowed the credit crunch to occur.

The Labour, Conservative and Liberal Democrat leaderships support the highly centralised, largely unaccountable neo-liberal economic system – a system that allowed irresponsible financial decisions by banks and big businesses. This failure to remedy the causes of the crisis leaves this country vulnerable to more chaos in the future.

A major cause of the near-catastrophe of the past three years is the way economic power and decision-making is organised: highly centralised, exclusive, autocratic, secretive and unaccountable. These factors predispose the economy to risk-taking and recession, as well as being inherently anti-democratic and unfair.

One element of a sounder and more just economy is greater economic democracy, participation, transparency, decentralisation, and accountability. Here are a few suggestions to achieve this transformation.

Make corporate negligence and recklessness an explicit criminal offence, to reign in big business cowboys and ensure more responsible economic management. Bankers and company bosses should not be able to wreck whole economies and squander people’s jobs, pensions and savings with impunity. They ought to be personally liable for damaging corporate decisions, in the same way that doctors and others can be held liable for professional negligence. The threat of legal penalties is likely to result in more prudent corporate governance.

Require medium and large-sized companies with boards of directors to be accountable to their employees and to the wider public by including on their boards employee-elected directors and independent directors to represent the interests of consumers. Similar proposals were included in the
1973 Bullock Report and Labour’s 1976 programme.

Under this system, employee and consumer directors would promote non-corporate interests and act as watchdogs and whistleblowers against corporate irresponsibility. If these directors had been on the board of Northern Rock, I doubt the management would have got away with so many reckless decisions. Having directors who are not driven by the profit-motive also increases the likelihood of company policies that are more socially inclusive and environmentally responsible.

Give trade unions a majority stake in the management of their members’ pension funds, to decentralise and democratise investment decision-making and give it a social and ethical dimension. The nearly £1,000 billion invested in pension funds is a massive counterweight to the economic clout of big business. It could be invested in ways that help make the economy more people-centred and public welfare-oriented. Trade union-controlled pension funds are, for example, less likely to invest in the arms trade and clothing sweatshops. They are more open to investment to meet social needs, including renewable energy, affordable housing and quality public transport.

Retain the current full or part public ownership of the banks that were rescued by the last Government, to ensure they operate in the public interest and use their future profits for the public good. Why should the banks be returned to the private sector when it made such a mess of running them? Publicly-controlled – or remutualised – banks could be the means to fund new social housing and low-interest loans to poorer families and to employee-owned enterprises.

Give employees the legal right to buy-out their companies and turn them into workers co-operatives, with funding coming from the publicly-owned banks. This would weaken the power of big corporations, localise and socialise economic decision-making and give employees incentives for greater productivity. Evidence shows that people employed in workers’ co-operatives tend to have higher output, better job satisfaction and greater social solidarity.

Limit corporate bonuses to a percentage of profits and defer their payment for a decade. This would deter short-term, high-risk investments. It would make bonuses conditional on the long-term success of a business. Only people who made successful, sustainable investment decisions would therefore be rewarded.

Legislate for the progressive transfer of share ownership into trade union-administered employee share funds. This is a variation on the “wage-earner funds” proposed by Rudolf Meidner of the Swedish trade union federation, the LO, in the 1970s. It would obligate all private share capital companies to assign to a union-controlled fund a proportion of their annual profits in the form of a new share issue.

Gradually, probably over many decades, it would give employees, through their unions, a controlling interest in their firms – transforming them into self-governing workers’ co-operatives. The great strength of this scheme is not only its democratic and social justice elements. It also provides incentives and rewards employees for economic success. The more productive and profitable a company, the more shares it has to issue to the employees’ funds and the sooner employees gain a controlling stake.

As well as redistributing wealth and power in favour of employees and the wider public, these reforms would reduce the chances of a re-run of the economic crisis. They would achieve these twin goals by a combination of decentralising economic power, democratising economic decision-making, improving corporate social responsibility and strengthening the accountability of businesses to their staff and consumers.

Most of these policies could be implemented unilaterally by a British government. However, given the globalised economy, they would work most effectively if they were adopted by the European Union. Although still predominantly a big business cartel, there is nothing to stop the EU pioneering this new economic model, if the peoples of Europe elect parties that demand it.

The EU’s massive share of international finance, production and trade would enable it to withstand pressure to conform to the dominant neo-liberal economics of the United States-China axis. In other words, Britain and the EU could lead the way in the structural transformation of autocratic, dog-eat-dog capitalism into a more democratic, co-operative and accountable green socialised economy. Why not?

For more information about Peter Tatchell’s human rights and social justice campaigns: www.petertatchell.net

The Fed’s New Bubble (Masquerading as a Jobs Program)

by Robert Reich

Saturday, October 16, 2010

The latest jobs bill coming out of Washington isn’t really a bill at all. It’s the Fed’s attempt to keep long-term interest rates low by pumping even more money into the economy (“quantiative easing” in Fed-speak).

The idea is to buy up lots of Treasury bills and other long-term debt to reduce long-term interest rates. It’s assumed that low long-term rates will push more businesses to expand capacity and hire workers; push the dollar downward and make American exports more competitive and therefore generate more jobs; and allow more Americans to refinance their homes at low rates, thereby giving them more cash to spend and thereby stimulate more jobs.

Problem is, it won’t work. Businesses won’t expand capacity and jobs because there aren’t enough consumers to buy additional goods and services.

The dollar’s drop won’t spur more exports. It will fuel more competitive devaluations by other nations determined not to lose export shares to the US and thereby drive up their own unemployment.

And middle-class and working-class Americans won’t be able to refinance their homes at low rates because banks are now under strict lending standards. They won’t lend to families whose overall incomes have dropped, whose debts have risen, or who owe more on their homes than the homes are worth — that is, most families.

So where will the easy money go? Into another stock-market bubble.

It’s already started. Stocks are up even though the rest of the economy is still down because of money is already so cheap. Bondholders (who can’t get much of any return from their loans) are shifting their portfolios into stocks. Companies are buying back more shares of their own stock. And Wall Street is making more bets in the stock market with money it can borrow at almost zero percent interest. 

When our elected representatives can’t and won’t come up with a real jobs program, the Fed feels pressed to come up with a fake one that blows another financial bubble. And we know what happens when financial bubbles get too big.

Banks Screw Homeowners With Foreclosures

For foreclosure processors hired by mortgage lenders, speed equaled money

By Ariana Eunjung Cha and Zachary A. GoldfarbWashington Post Staff Writers
Saturday, October 16, 2010; 12:57 AM

Millions of homes have been seized by banks during the economic crisis through a mass production system of foreclosures that was set up to prioritize one thing over everything else: speed.

With 2 million homes in foreclosure and another 2.3 million seriously delinquent on their mortgages - the biggest logjam of distressed properties the market has ever seen - companies involved in the foreclosure process were paid to move cases quickly through the pipeline.

Law firms competed with one another to file the largest number of foreclosures on behalf of lenders - and were rewarded for their work with bonuses. These and other companies that handled the preparation of documents were paid for volume, so they processed as many as they could en masse, leaving little time to read the paperwork and catch errors.

And the big mortgage companies overseeing it all - including government-owned Fannie Mae - were so eager to get bad loans off their books that they imposed a penalty on contractors if they moved too slowly.

The system was so automated and so inflexible that once a foreclosure process began, homeowners and consumer advocates say, there was often no way to stop it.

"The problem is when you try to fight back against this machine, well, it's a machine," said Michael Alex Wasylik, an attorney for homeowners in Dade City, Fla. "You have to be able to get your case off the mass production line and to someone who will take the time to read what they file, but in many mortgage firms that person doesn't exist."

The financial incentives show that the problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved - loan servicers, law firms, document processing companies and others - made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.

"This was a systemic problem. It's not like a few renegade employees made mistakes," said lawyer Peter Ticktin, who defends Florida homeowners facing foreclosure. "It was industry-wide and pervasive, and everyone knew about it."

$1,300 per case

The law firm of David J. Stern in Plantation, Fla., for instance, assigned a team of 12 to handle 12,000 foreclosure files at once for big financial companies such as Fannie Mae, Freddie Mac and Citigroup, according to court documents. Each time a case was processed without a challenge from the homeowner, the firm was paid $1,300. It was an unusual arrangement in a legal profession that normally charges by the hour.

The office was so overwhelmed with work that managers kept notary stamps lying around for anyone to use. Bosses would often scream at each other in daily meetings for "files not moving fast enough," Tammie Lou Kapusta, the senior paralegal in charge of the operation, said in a deposition Sept. 22 for state law enforcement officials who are conducting a fraud investigation into the firm. In 2009 alone, Stern's law firm handled over 70,000 foreclosures.

"The girls would come out on the floor not knowing what they were doing," Kapusta said. "Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents."

Fannie Mae, Freddie Mac and Citigroup said they no longer do new business with Stern's firm.

Law firms were rewarded with additional bonuses from document processing companies if they met deadlines for preparing and filing foreclosures in courts. One of the nation's major processors, Lending Processing Services in Jacksonville, Fla., confirmed that it had paid such bonuses but said it no longer offers them. The company is under investigation by federal and state law enforcement.

Meanwhile, Fannie Mae imposes a $100 fee on contractors for each day they fail to notify the firm that the foreclosure process was a success and that it has the right to move ahead with the resale of a home. On top of that, Fannie charges a penalty - which escalates for larger mortgages - on contractors who delay selling off such properties.

Fannie declined to comment on these fees. But in a memo to loan servicers dated Aug. 31, Gwen Muse-Evans, Fannie Mae's chief risk officer, warned mortgage servicers that fees may be imposed based on "the length of the delay and any costs that are directly attributable to the delay."

Speed is also rewarded by the nation's credit-rating agencies, which give higher grades to mortgage service firms that accelerate the foreclosure process and generally hand out lower grades to those who hold onto delinquent loans. A Fitch Ratings manual calls the speed of foreclosures "the key driver in the servicer rating," according to a report by the National Consumer Law Center.

Untrained hires

To keep up with the crush of foreclosures, document processors and mortgage service firms rushed to hire anyone they could - hair stylists, Wal-Mart clerks, assembly-line workers who made blinds - and gave them key roles in their foreclosure departments without formal training, according to court papers.

A number of these employees have testified that they did not really know what a mortgage was, couldn't define "affidavit," and knew they were lying when they signed documents related to foreclosures, according to depositions of 150 employees for mortgage companies taken by the law firm run by Ticktin, the Florida lawyer.

These problems were compounded as banks began to rely more heavily on computer systems to quickly move people through the foreclosure process. That automation came at a price for the homeowners who had difficulty fighting incorrect decisions by inexperienced, anonymous employees who took what was in the computer as fact even when homeowners said there were data-entry errors.

"These guys were caught off-guard with the onslaught of foreclosures," said Clifford Rossi, a former chief risk officer for consumer lending for Citigroup who now teaches at the business school at the University of Maryland. "So there were a lot of errors."

In one case in Fort Lauderdale in July, for instance, Bank of America foreclosed on a man after a computer glitch and resold his home even though he had paid his mortgage in full.

Homeowners and their attorneys say the automated system especially hurts borrowers who may qualify for loan modifications through federal rescue programs.

Chandra Anand, 59, a telecommunications consultant from Germantown, called his lender in the fall of 2008, before he missed any payments, to warn the company that his wife's open-heart surgery might cause the family financial difficulty. He was told that in order to qualify for a loan modification he needed to miss payments. So he did and applied for a modification. He never heard back from his lender until he got a foreclosure notice in January 2009.

Every time he calls his lender to resolve his situation, an official tells him "to be patient, that it could take 60 more days to review things," Anand said. "It's now been a year and a half."

Andrea Bopp Stark, a lawyer with the Molleur Law Office in Biddeford, Maine, said that a number of her clients should be eligible for loan modifications through a Treasury Department program but that servicers "are in such a state of disarray that they often can't give homeowners basic answers about the state of their loan modification request."

Then a few weeks or months later, the same servicers evict homeowners as if those applications were never filed.

"Their whole bureaucratic procedure," Stark said, "is working against helping homeowners."

[email protected] [email protected]

 

 

Report From University of Massachusetts Says Spending on Infrastructure More Likely to Create Jobs Than Tax Breaks

by John Lawrence

A new report, "How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth," by James Heintz, Associate Research Professor & Associate Director, Robert Pollin, Professor of Economics & Co-Director and Heidi Garrett-Peltier, Research Assistant, from the Political Economy Research Institute at U Mass shows that the way out of our economic morass is spending on infrastructure. This would not only create jobs but bring the US up to par with other advanced nations which are puilling ahead of the US.

This is from their summary:

"The United States system of civilian public infrastructure has deteriorated badly over the past generation. The breaching of New Orleans’ water levees in 2005 in the wake of Hurricane Katrina and the collapse of the I-35W bridge in Minneapolis in 2007 offered tragic testimony to this long-acknowledged but still neglected reality.

"After this generation of neglect, the project of rebuilding our infrastructure now needs to be embraced as a first-tier economic policy priority, and not simply to prevent repetitions of the disasters in New Orleans and Minneapolis. The more general point is that infrastructure
investments are essential for the functioning of the U.S. economy. According to the U.S. Bureau of Economic Analysis, total public assets, excluding defense, were valued at $8.2 trillion in 2007. This represents approximately 50 percent of the stock of all non-residential
private assets—a formidable asset base which underpins the national economy.

"Core economic infrastructure—in the areas of energy, transportation, and water and sewerage—is particularly important in maintaining economic performance. However, the rate of public investment in these core areas began falling in the 1970s and has not returned
to its previous levels since then. As an average since 1980, the growth of infrastructure investment has lagged behind overall economic growth. The result has been a worsening infrastructure deficit and mounting investment needs.

"With the rapid deterioration of economic conditions in recent months and rising unemployment, public investment is back on the policy agenda—as a job-creation program linked to the need to revitalize the nation’s crumbling infrastructure. In November 2008,
President-elect Obama announced his intention of creating 2.5 million jobs by introducing a large-scale public investment program during his first two years in office. Since this initial announcement, the proposed size of the stimulus package and the job-creation targets have varied. Nevertheless, public investment remains at the center of thinking about the ‘new New Deal’—the set of policies that are needed to address the ongoing crisis.

"In this report, we examine the employment impacts of an expanded infrastructure investment program and what it would take to create millions of jobs. We develop specific policy scenarios based on an assessment of the nation’s infrastructure needs in four core
areas—transportation, energy, water systems, and public school buildings—and estimate the employment that would be created if the policies were implemented, with a specific focus on manufacturing employment. We also examine what the long-run impacts of such a program would be in terms of productivity and overall economic growth. Finally, we offer some brief observations on both U.S. competitiveness and environmental sustainability that emerge
directly from our main findings."

The report shows that public infrastructure investment and the overall economy rise and fall together. From 1950 to 1979 public infrastructure investment grew at an average annual rate of 4%. GDP also rose at the rate of 4.1% over the same period. In the period of 1980 to 2007 public infrastructure investment fell to an average of 2.3% and GDP growth correspondingly fell to a 2.9% average annual rate. The report states: "The change in the public investment growth rate is a significant contributor to GDP growth."

The report states that spending on infrastructure is a much more effective job creating strategy than tax breaks:

"Three types of job creation: direct, indirect, and induced effects. Direct job creation refers to the jobs directly involved in constructing the new infrastructure projects. Indirect job creation refers to the jobs generated when supplies are purchased for the infrastructure projects. Induced jobs are created when the overall level of spending in the economy rises, due to workers newly receiving incomes when
they are hired to build the infrastructure projects, and to produce supplies for the project.

"All forms of spending will produce jobs. But infrastructure investment is a highly effective engine of job creation. Thus, infrastructure investment spending will create about 18,000 total jobs for every $1 billion in new investment spending, including direct, indirect, and induced jobs. By contrast, a rise in household spending levels generated by a tax cut will create, at most, about 14,000 total jobs per $1 billion in spending, 22 percent less than infrastructure investments."

The report notes that more domestic jobs will be created if the various projects use supplies made in the US rather than imported from abroad. They note that public private partnerships are necessary for many facets of infrastructure development in addition to direct public investment. They focus on transportation (the road system, railroads, aviation, mass transit, inland waterways and levees), public school buildings, water infrastructure (drinking water, wastewater, and dams) and energy (electrical transmission from all sources including renewables, and natural gas pipeline construction).

As for the connection between imports and jobs:

"The job-creation impact of infrastructure projects will be sensitive to the relative proportionof total supplies that are imported from other countries. If imported goods are used to produce the kind of infrastructure we are discussing here, then the U.S. employment impactof increased investment will be lower. Imports represent a leakage from the domestic economy—the greater the leakages are, the less employment will be created for a given level of spending. This is not a serious concern for the construction and service industries. Most
of the activities tied to construction and services are closely linked to the domestic economy and do not rely on imports. Given that about 90 percent of the total amount of economic activity generated by infrastructure investments will either be within the construction or
service sectors, this in turn means that, overall, the level of imports generated by infrastructure investments will be low. At the same time, for the manufacturing sector, leakages from purchases of imported materials represent a more serious concern."

As for the effect on the unemployment situation:

"We estimate that the baseline infrastructure investment program—consisting of a total of $87 billion in additional infrastructure investment each year—would generate a total of 1.6 million jobs each year, including approximately 150,000 manufacturing jobs. Within the
context of the December 2008 labor market situation, this job expansion would be sufficient to bring the unemployment rate down to 6.2 percent—assuming that the economic situation does not deteriorate further. A more ambitious infrastructure program is required to make a
larger impact on unemployment. In our accelerated, high-end scenario, involving an additional $148 billion in infrastructure investment each year, 2.6 million jobs would be created, including about 250,000 manufacturing jobs. Again, within the context of the December 2008 labor market, this level of job creation could reduce the unemployment rate to 5.5 percent. It should be noted that the level of infrastructure investment required for the accelerated program—particularly, public investment—represents a significant increase over current levels. Such a program would constitute a large-scale public investment initiative in many respects more ambitious than the building of the interstate highway system from 1959-80."

The report also offers proof that public investment actually improves the return on investment in the private sector as the private sector is enhanced by the ameliorated infrastructure development. The report concludes with the following:

"Our focus in this study has been to give careful attention to the needs this country faces in terms of improving our infrastructure; and, in meeting those needs, establishing what the benefits will be for employment generation and overall economic growth. We have not
focused in detail on the benefits that would accrue in terms of two additional crucial factors, i.e. U.S. competiveness and environmental protection. But when one does consider these additional benefits, the imperative before us becomes even more clear. This is to rebuild the
country’s infrastructure, and thereby restore what has always been a key pillar of the country’s economic achievements."

 

 

Carly Fiorina Destroyed 30,000 American Jobs as CEO of HP

 

Do You Want Tax Breaks for the Rich or Infrastructure Repair?

A Generation of Termites

Posted on Truthdig Oct 13, 2010

By Joe Conason

When American politicians talk about the legacy we are leaving to the next generation, their usual theme is financial deficits, as if there were no other kind. Figured on a per capita basis, the real and imputed debt that today’s children will assume someday as taxpayers can seem daunting. But what our political leaders rarely even attempt to calculate is the other debt that we are leaving to our heirs—a decayed and inadequate infrastructure that doesn’t deserve to be compared with what earlier generations bequeathed to us.

The best recent estimates by civil engineers and government experts indicate that we would have to spend well over $2 trillion during the next five years on roads, bridges, airports, railways, transit, sewers, waterways, ports, dams, parks and schools simply to maintain them in decent condition. Such estimates do not include the kind of modernizing improvements that the United States requires to remain competitive with other nations or to protect the global environment from disaster. But the political momentum appears to favor politicians who have no will to preserve—let alone better—the national inheritance that we have allowed to fall into sorry disrepair.

The destructive dynamic was illustrated again in recent days, when President Obama offered a very modest $50 billion program that would begin to address America’s infrastructure needs, and not incidentally create jobs in a deflated economy. Although he sought bipartisan agreement, flanked by former transportation officials from Republican administrations, his partisan opponents instantly dismissed his proposals as political. The Senate Republican leader, Mitch McConnell—who has directed millions of federal dollars to his home state for boondoggles named after him—now sees no benefit in federal spending on basic transportation and environmental projects.

Perhaps it is understandable, if still deplorable, that Republicans like McConnell prefer to stop any Democratic or bipartisan initiative that might give hope to voters frustrated by slow growth and high unemployment. More troubling by far is the absence of any plausible suggestion from the Republicans as to how they would address the need to rebuild and restore a country that is literally falling apart.

Listening to them—and looking over their scant policy pronouncements—it is clear that they plan to spend less, not more, on these critical needs. Republican promises to reduce the deficit while cutting taxes are unfulfillable, but the only way they can even pretend to fulfill them is by slashing domestic spending (especially because they consider the defense budget untouchable). So the physical deficit will continue to swell—and the cost of the repairs that will someday become absolutely unavoidable will continue to rise, as well.

The great inheritance left to those of us who grew up in the postwar era was the product of decades and even centuries of planning, construction and maintenance, from the building of the Erie Canal to the Interstate Highway System and the Clean Water Act. Restoring what we inherited to a tolerable level of usefulness would require difficult choices, from cutting wasteful military budgets to raising taxes, which are now lower than at any time in the postwar era.

Yet the Republicans insist that we should not only preserve the George W. Bush tax cuts favoring the wealthiest few, but lavish still more cuts on them—while slashing spending on infrastructure below the cost of crucial maintenance, let alone real renewal. Their ironically named budget “road map” created by Rep. Paul Ryan, a Republican from Wisconsin, would cut in half the taxes for the richest 1 percent of taxpayers, while freezing spending on infrastructure for the next 10 years.

Such schemes are worthy of a generation of termites—but not of Americans who revere our forebears and value our posterity.

Joe Conason writes for The New York Observer.

© 2010 Creators.com

 

What If the Only Remaining Viable Alternative for Creating Jobs is for the Government to Create Them?

by John Lawrence

Job creation seems to be the Big Deal in the upcoming elections. It's the issue that most concerns the American people, more than health care, more than illegal immigration more than the war in Aghanistan, more than the national debt. And the politicians talk endlessly about private sector job creation as if it were the only alternative. In fact the Obama administration dares not even to mention the alternative of public sector job creation even as states and municipalities lay off thousands of teachers, firemen and policemen. To even mention public sector job creation is seen as socialistic and hence anathema.

However, everything that has been done to create jobs in the private sector has been a complete and utter flop. Reagan with his emphasis on supply side economics made everybody believe that only tax breaks for the rich, who after all were the "job creators", could bring about private sector job creation. But now the historical record has shown it just didn't work. Tax breaks for the rich did not create jobs. This Republican mantra has been shown to be an utter sham. But still Republicans continue to go on trying to sell it. Even the Obama administration goes along with it devoting a huge portion of the stimulus package to tax breaks. When are they going to wake up and admit that the only thing tax breaks have accomplished in the last 30 years is to drive the US more and more into debt without creating any jobs. In fact one third of all manufacturing jobs in the US have disappeared since 2000 and manufacturing jobs are the backbone of a middle class economy.

What other alternatives are being mentioned for creating jobs? Well, nothing really. Monetary policy, printing money, making the prime interest rate zero, has done nothing to create jobs either. It has only served to enrich Wall Street even further. Republicans continue to mouth a policy that has been historically shown to be a total failure and Democrats continue to espouse a policy of a lite version of this agenda because they are too timid to get up and say that what we need to do to create jobs is for the government to create them directly instead of giving tax breaks to the rich in the hopes that they will create jobs. At least, this would be a distinct alternative that hasn't really been tried in recent history. FDR tried it in the 1930s with some success. Nobody on the Democratic side has the guts to say that we should try this alternative because the Republican alternative, that has been tried for 30 years, has been a complete and utter failure.

To espouse a public policy that the role of government should include the possibility of using taxpayer money for the direct creation of public jobs would seem like anathema in the current climate of concern over the national debt. To borrow money and then use that money to create jobs would only drive the government further into debt. Well, yes, if the government uses borrowed money. However, if the government enhances its revenues and uses this money to create public jobs, the job creation project could be revenue neutral. There are many ways that the government could raise money which I have gone into at some length before. Since our economy has largely become financialized, a tax on financial transactions seems most appropriate. US corporate profits in the financial sector stood at 41% of all profits just before the crisis hit in 2008. There are many other ways for the government to compose a healthier balance sheet, and these ideas are not new.

The other objection to government spending to create jobs directly is that they would be make work jobs, that is, jobs not really needed but just made up as excuses for funneling money to jobless people. This is a patently false excuse as American infrastructure literally falls apart before our very eyes. The American Society of Civil Engineers' infrastructure report card gives a D to practically every manifestation of US infrastructure including aviation, roads, bridges, dams, energy, levees, hazardous waste, schools, transit, solid waste and wastewater - all Ds!! They calculate that a $2.2 trillion investment is needed to bring these infrastructure components up to par. Well who's supposed to do this? Private enterprise, the private sector? Give me a break. The private sector only makes infrastructure worse by not paying for the degradation of infrastructure that it causes. So there's a good area for public sector jobs just as it was when FDR built the Hoover dam or funded the Tennesse Valley Authority with public money in the thirties. Many schools and parks were built by the WPA in the thirties as well as repairs to all kinds of infrastructure. Here is a fruitful and much needed area in which publicly created jobs, that is jobs created by the Federal government, could put people back to work and make a real and substantial difference in the viability of American infrastructure. In its wake private industries would be more likely to develop just as they did after the building out of the railroads in the 19th century and the building of the interstate highway system in the 20th.

No one can argue that direct government creation of jobs would not actually create jobs while waiting for tax breaks to work is like waiting for Godot. No one can argue that jobs repairing and creating infrastructure are not necessary. So what is the hold-up or the hang-up? It is basically ideological. The direct creation of jobs by the government would be decried as socialism by conservatives. So what? The question isn't whether or not it's socialism but whether or not it would work. And it's clear that it very well would work as long as the money for it is revenue neutral. It would work to create actual jobs that would put middle class Americans back to work, and it would work to build and repair much needed infrastructure. It would help reduce foreign dependence on oil from the middle east which drives up our trade deficit. It would improve the private sector of the economy by putting money into the pockets of people that would create a demand for consumer goods. It would improve the private sector by providing new business opportunities based on an improved infrastructure, and it would improve government revenues by increased income tax revenues as more people are employed.

So why wouldn't anyone want to try this alternative? Vested interests don't want a changed dynamic in the American economy. They are making money by keeping things just the way they are. Never has the gap between the rich and the poor been so great. Never have corporations been sitting on so much cash. Vested interests and ideology are standing in the way of not just making the economy and the US, in terms of its infrastructure, stronger, but they are standing in the way of Democrats even mentioning the public creation of jobs as a viable alternative to tax cutting. Wouldn't it be a shame if the US descends to Third World nation status just because its ideology prevents it from even thinking about creative solutions to its problems. Meanwhile, other nations which don't have these hang-ups, are surging ahead.

Bankers Ignored Signs of Trouble on Foreclosures

By ERIC DASH and NELSON D. SCHWARTZ

Published: October 13, 2010 by the New York Times

At JPMorgan Chase & Company, they were derided as “Burger King kids” — walk-in hires who were so inexperienced they barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

“I don’t know the ins and outs of the loan,” a Litton employee said in a deposition last year. “I’m not a loan officer.”

As the furor grows over lenders’ efforts to sidestep legal rules in their zeal to reclaim homes from delinquent borrowers, these and other banks insist that they have been overwhelmed by the housing collapse.

But interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials. The issue gained new urgency on Wednesday, when all 50 state attorneys general announced that they would investigate foreclosure practices. That news came on the same day that JPMorgan Chase acknowledged that it had not used the nation’s largest electronic mortgage tracking system, MERS, since 2008.

That system has been faulted for losing documents and other sloppy practices.

The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.

Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst, many of these operations languished with inadequate staffing and outmoded technology, despite warnings from regulators.

When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to deal the foreclosure process.

“We waited and waited and waited for wide-scale loan modifications,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, one of the first government officials to call on the industry to take action. “They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.”

In recent weeks, revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar and prompted lenders like Bank of America, JPMorgan Chase and Ally Bank, which is owned by GMAC, to halt foreclosures in many states.

Even before the political outcry, many of the banks shifted employees into their mortgage servicing units and beefed up hiring. Wells Fargo, for instance, has nearly doubled the number of workers in its mortgage modification unit over the last year, to about 17,000, while Citigroup added some 2,000 employees since 2007, bringing the total to 5,000.

“We believe we responded appropriately to staff up to meet the increased volume,” said Mark Rodgers, a spokesman for Citigroup.

Some industry executives add that they’re committed to helping homeowners but concede they were slow to ramp up. “In hindsight, we were all slow to jump on the issue,” said Michael J. Heid, co-president of at Wells Fargo Home Mortgage. “When you think about what it costs to add 10,000 people, that is a substantial investment in time and money along with the computers, training and system changes involved.”

Other officials say as foreclosures were beginning to spike as early as 2007, no one could have imagined how rapidly they would reach their current level. About 11.5 percent of borrowers are in default today, up from 5.7 percent from two years earlier.

“The systems were not ever that great to begin with, but you didn’t have that much strain on them,” said Jim Miller, who previously oversaw the mortgage servicing units for troubled borrowers at Citigroup, Chase and Capitol One. “I don’t think anybody anticipated this thing getting as bad as it did.”

Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners. Gregory Hebner, the president of the MOS Group, a California loan modification company that works closely with service companies, likened it to transforming McDonald’s into a gourmet eatery. “You are already in chase mode, and you never catch up,” he said.

To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.

“Investment in people, training, and technology — all that costs them a lot of money, and they have no incentive to staff up,” said Taj Bindra, who oversaw Washington Mutual’s large mortgage servicing unit from 2004 to 2006.

And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids.” In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.

The result was chaos, said Tammie Lou Kapusta, a former employee of Mr. Stern’s who was deposed by the Florida attorney general’s office last month. “The girls would come out on the floor not knowing what they were doing,” she said. “Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents.”

Citigroup and GMAC say they are no longer giving any new work to Mr. Stern’s firm.

In some cases, even steps that were supposed to ease the situation, like the federal program aimed at helping homeowners modify their mortgages to reduce what they owed, had actually contributed to the mess. Loan servicing companies complain that bureaucratic requirements are constantly changed by Washington, forcing them to overhaul an already byzantine process that involves nearly 250 steps.