Why Occupy Wall Street is So Angry with Big Banks and Wall Street

I have voiced my frustration and anger with the big banks and their mortgage lending arms many times on this blog. Rather than work out loan restructures to keep homeowners in their homes - and prevent the continued depression of home prices - the banks dither around and ultimately push properties into foreclosure knowing that they will ultimately be bailed out by Fannie Mae, Freddie Mac, HUD, VA, etc. The bill ultimately gets stuck on tax payers who pay for the bailout of these mortgage loans. Meanwhile, the banks flout the law and grant unconscionable bonus to employees who more or less committed securities fraud in selling bundled mortgages as securities. But the transgressions of the big banks do not stop there. A piece on The Daily Beast looks at some of the other fraudulent and arguably illegal gambits of the big banks. What's truly upsetting is that few of the big fish have been held accountable or suffered serious consequences. Instead, prosecutions focus on petty ante loan fraud cases while the wrong doers who committed massive misdeeds and put the economy in the toilet continue to live the good life. Here are some column highlights:

Here’s a taste of the deadliest sins committed by the banks, followed by a full account of all the gory details at each bank. Warning: It isn’t pretty

Seven Deadliest Sins of the Big Banks

1. JPMorgan Chase kicks 54 military families out of their homes—despite a law against doing so.

2. Wells Fargo gives bonuses to loan officers to put minority borrowers into high-priced subprime mortgages—internally dubbed “ghetto loans.”

3. Citigroup, Bank of America, and Goldman Sachs all pay huge fines to settle charges they duped their own clients.

4. Goldman Sachs assists in Europe’s economic collapse by helping Greece mask the truth about its finances.

5. JPMorgan turns a blind eye to Bernie Madoff’s deceptions.

6. Bank of America pays $137 million to settle government claims it rigged the municipal-bond market.

7. Despite these and other unpardonable sins, banks showers tens of millions of dollars in bonus money on top executives.

Where to start? JP MORGAN CHASE

There’s the $211 million fine JPMorgan paid in July to settle charges that it defrauded local governments in 31 states—along with the $130 million it returned to municipalities it was accused of duping.

There’s the $722 million in fines and restitution payments it made after JPMorgan confederates were caught paying off officials in Jefferson County, Alabama (home to Birmingham), to secure a municipal finance deal that nearly bankrupted the county.

There’s the fact the bank was in so great a rush to evict people from their homes that it admits that some of its people might have forged foreclosure documents—a problem so widespread that it felt compelled to suspend 56,000 foreclosures while it investigated its own behavior.

WELLS FARGO Wells might seem small, at least when compared to giants like JPMorgan or Bank of America, and therefore not as worthy of revulsion as the other big boy banks, but then looks are deceiving. Wells is the country’s second largest bank in terms of deposits and its stock is valued at more than that of JPMorgan Chase, Citi, Bank of America, or Goldman Sachs. It’s also the bank with the most shameful record on race.

CITIGROUP The sins of Citi start with Sandy Weill—the perfect poster boy for the subprime era. It was in 1986 that Weill, then a 53-year-old Wall Street castoff looking for his next act, bought a mangy, third-rate lender called Commercial Credit. You’re buying a loan shark, his otherwise loyal personal assistant said of this chain of storefront lenders in the business of gouging working-class customers looking for financing on small purchases like refrigerators and bedroom sets. But Weill saw its potential, aggressively moving Commercial Credit into subprime mortgages and then using the profits to go on a buying spree. A dozen years later, he merged his company with Citibank and took over as co-CEO.


It wasn’t just the origination of subprime home loans that drove profits. Like JPMorgan Chase and other goliaths born with the end of Glass-Steagall, Citi played the securitization game as well. The bank wrangled more than $20 billion in mortgage-backed deals in 2006 alone. On October 19, Citi agreed to pay $285 million (without denying or admitting guilt) to settle a complaint filed by the SEC charging that the bank had defrauded its own clients by selling them shares in a rigged mortgage-backed security. It was just another slap on the wrist, really, given that two days earlier, the bank reported profits of $4 billion in the year’s third quarter.

BANK OF AMERICA Bank of America was the first major bank to get into the subprime-mortgage business when it purchased a multibillion-dollar subprime lender in 1992 (it bought a second huge player several years later). Its employees have as much explaining to do as any bank about the "robo-signing" scandal—which saw bank employees swearing they had done the necessary due diligence to prove the bank had the right to seize an individual’s home, when they had not. During a deposition, for instance, one Bank of America employee asked how she could be expected to actually look over the paperwork when she was signing 7,000 to 8,000 foreclosure documents per month.

Customers of all the big banks complain that being behind on your payments means a Kafkaesque journey through a maze where straight answers are impossible to come by and the odds are high that you’ll need to send in your paperwork several times before the right person actually receives it. Still, Bank of America distinguishes itself even among this crowd. A study by Moody’s released at the end of last year found that Bank of America took longer than any of the other major banks to resolve a delinquent loan. And data from HAMP, the program the Obama administration set up to help homeowners avoid foreclosure, shows that Bank of America has the highest number of customers eligible for a loan modification under HAMP—but the lowest rate of success: it provided loan modifications to fewer than one in three homeowners eligible for the program.

Personally, I moved my accounts from Bank of America a number of years ago during my hostile divorce and related bankruptcy. B of A's idea of "helping you" proved to be little better than consenting to being gang raped. As a consequence, I managed to have my accounts with them discharged. It is truly tragic that institutions that helped create the nation's economic collapse continue to go unpunished and get bail outs while hard working Americans who have suffered job loss, medical bill catastrophes, and other legitimate hardships continue to get shafted with no relief from the government.

Anchorage Daily News Endorses Obama

Sarah Palin's more or less home town paper has endorsed Barack Obama for president in its editorial today. Of note is the fact that the paper flat out states that Palin is NOT ready for prime time noting that putting her one 72-year-old heartbeat from the leadership of the free world is just too risky at this time. If anything, the Anchorgae Daily News was too easy on Palin, but given her history of seeking vengence, the thrust of the editorial is focused on why Obama is the better choice. Here are some highlights:

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Gov. Palin's nomination clearly alters the landscape for Alaskans as we survey this race for the presidency -- but it does not overwhelm all other judgment. The election, after all is said and done, is not about Sarah Palin, and our sober view is that her running mate, Sen. John McCain, is the wrong choice for president at this critical time for our nation.
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Sen. Barack Obama, the Democratic nominee, brings far more promise to the office. In a time of grave economic crisis, he displays thoughtful analysis, enlists wise counsel and operates with a cool, steady hand. The same cannot be said of Sen. McCain.

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Sen. McCain has stumbled and fumbled badly in dealing with the accelerating crisis as it emerged. He declared that "the fundamentals of our economy are strong" at 9 a.m. one day and by 11 a.m. was describing an economy in crisis. He is both a longtime advocate of less market regulation and a supporter of the huge taxpayer-funded Wall Street bailout. His behavior in this crisis -- erratic is a kind description -- shows him to be ill-equipped to lead the essential effort of reining in a runaway financial system and setting an anxious nation on course to economic recovery.

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Sen. Obama warned regulators and the nation 19 months ago that the subprime lending crisis was a disaster in the making. Sen. McCain backed tighter rules for Fannie Mae and Freddie Mac, but didn't do much to advance that legislation. Of the two candidates, Sen. Obama better understands the mortgage meltdown's root causes and has the judgment and intelligence to shape a solution, as well as the leadership to rally the country behind it.

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Sadly, maverick John McCain didn't show up for the campaign. Instead we have candidate McCain, who embraces the extreme Republican orthodoxy he once resisted and cynically asks Americans to buy for another four years. It is Sen. Obama who truly promises fundamental change in Washington.

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[F]ew who have worked closely with the governor [Palin] would argue she is truly ready to assume command of the most important, powerful nation on earth. To step in and juggle the demands of an economic meltdown, two deadly wars and a deteriorating climate crisis would stretch the governor beyond her range. Like picking Sen. McCain for president, putting her one 72-year-old heartbeat from the leadership of the free world is just too risky at this time.

USA in Recession

Well, I could have told you this and have in fact hinted in prior posts that I thought the USA was headed toward financial trouble a number of times. It is nice to see that others concur as indicated by this Financial Times article (http://www.ft.com/cms/s/0/6a7a056a-af37-11dc-880f-0000779fd2ac.html?nclick_check=1). I truly believe that until the housing and mortgage markets revive, there will be a tremendous downward pressure on the economy as a whole. Note how the founder of Pimco, one of the world’s largest fixed-income managers, things very little of what the Chimperator and the Federal reserve have proposed to date. Here are some story highlights:

Bill Gross, founder of Pimco, one of the world’s largest fixed-income managers, has sounded a downbeat note on the US economy by saying it has gone into recession. “If I had to be bold I’d say we began a recession in December,” he said in a Financial Times interview, in which he called on the Federal Reserve to bring interest rates down to 3 per cent. The recession would last “four to five months”, he thought, but he added it would be prolonged if the administration and Congress failed to “take some rather unperceived and unforecasted measures in terms of fiscal stimulation”.

Mr Gross, whose company has $750bn of assets under management, was critical of US attempts to stabilise credit markets, describing the “Super Siv” and plans to freeze mortgage teaser rates as a “temporary fix”. He said: “What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that you’re fiscally conservative.”

He was highly critical of the complicated financial instruments that have exacerbated the credit squeeze, saying the trend of over-leverage was a “dying concept” that will “lead to an implosion at the edges . . . of this new financial marketplace.” He also had stern words for hedge funds, describing them as a “con”.

Mr Gross founded Pimco in Newport Beach in 1971, building it into a powerful bond manager that continues to operate from southern California. With California one of the first places to feel the effects of the subprime crisis, Mr Gross said, the company’s location alerted him early to the danger that has since wreaked havoc in world markets. Pimco switched out of mortgage-backed securities in 2006 and for the first half of 2007 fell behind its competitors. However, in the second half it has outperformed the market as Wall Street has racked up billions of dollars in subprime-related losses.

I also recommend Paul Krugman's column that looks at the failure of regulators who let the motgage disaster ensue: http://www.nytimes.com/2007/12/21/opinion/21krugman.html?_r=1&hp&oref=slogin

Freddie Mac Sees $5.5B-$7.5B More in Mortgage Loan Losses; More Than 50% of Public Believes a Recession Has Begun

As the Huffington Post (and AP) is reporting, Freddie Mac, which along with Fannie Mae provides the largest portion of the secondary market for home mortgage loans expects that it will be hit with additional huge losses. I agree with Freddie's chairman that it will get worse before things begin to improve. As discussed yesterday, the Chimperator's rescue plan is too little too late and will do little to stop the red ink and distress to families losing their homes. Here are some highlights:

WASHINGTON — The chief executive of Freddie Mac estimated Tuesday the mortgage finance company will lose an additional $5.5 billion to $7.5 billion over the next few years as the housing crisis worsens and home-loan defaults rise. The government-sponsored company has already logged about $4.5 billion in projected losses during the first nine months of this year. "I honestly think it's going to get tougher before it gets better," Richard Syron, the company's chairman and CEO, said in a discussion with financial analysts in New York.

Freddie lost $2 billion in the third quarter, and Syron said Tuesday that results aren't expected to be any better in the October-December quarter. Fannie's third-quarter loss was $1.4 billion.

While the mortgage crisis has brought a rising wave of foreclosure notices into public view, less evident have been "pictures of people standing with furniture on the lawn" after being forcibly evicted from their homes, Syron said. "As that begins to happen, and it will happen, I am afraid of the impact that this has." Syron's remarks came a day after Freddie Mac and its larger government-sponsored rival Fannie Mae said they are changing their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors.

Fannie and Freddie, which together own or guarantee around two-fifths of U.S. home-mortgage debt, have cut their dividends and sold billions of dollars of special stock recently to buttress their finances after posting stunning third-quarter losses. They have been forced to set aside billions of extra dollars to account for bad home loans, eroding their profits at a time when home prices are falling and defaults are spiking on high-risk mortgages made to borrowers with weak credit histories.

Meanwhile the news at Washington Mutual Savings and Loan is not much better even though the Chimperator and most of the GOP presidential candidates act as if the economy is great (how do we say delusional?) (http://www.huffingtonpost.com/huff-wires/20071210/washington-mutual/):

SEATTLE — Washington Mutual Inc., the nation's largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000 workers and set aside up to $1.6 billion for loan losses in the fourth quarter.

After dismantling much of its subprime mortgage operation in September, Seattle-based WaMu will now get out of the business entirely. The company said it will close about 190 of its 335 home loan centers and sales offices, shut down nine call centers and eliminate 2,600 home loan workers and 550 corporate and support jobs.

It had already cut 1,000 jobs related to the sale of home loans to people with questionable credit. The company also said it will shutter WaMu Capital Corp. and rely on third party broker-dealers to sell mortgage-backed securities. On top of that, WaMu now expects to set aside between $1.5 billion and $1.6 billion for loan losses in the fourth quarter, from the $1.1 billion to $1.3 billion predicted by executives in early November. For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, WaMu added.

Apparently the public understands better than the Chimperator the nature of what's happening in the economy (http://politicalticker.blogs.cnn.com/2007/12/11/poll-over-half-believe-economy-is-in-recession/). I hope the Democrats will open their eyes and take notice:

WASHINGTON (CNN) – More than half the American public — 57 percent — now believe the nation is in a recession, compared to 42 percent who do not, according to new CNN/Opinion Research Corporation poll released Tuesday. (Full poll results [PDF])

Thanks to that unease, the economy has now topped the war in Iraq as the issue most poll respondents identified as the most important in helping them decide which presidential candidate to support. Twenty-nine percent of poll respondents said the economy was their top issue, compared with 23 percent who listed the Iraq war – a reversal from October’s results, when 28 percent listed the war and 22 percent pointed to the economy.

Henry Paulson’s (and the Chimperator's) Misplaced Priorities

Paul Krugman has a great column in today's New York Times (http://www.nytimes.com/2007/12/10/opinion/10krugman.html?_r=2&hp&oref=slogin&oref=slogin) that looks at George W. Bush's mortgage bailout proposal and finds it sadly lacking in many ways, not the least of which is that lenders are the main beneficiaries. Are you surprised? I am not - it is typical of Bush to not give a damn for the average citizen while floating a smoke screen to give the appearance that he is dong something. Here are highlights form the column:

By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy. He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war, justify torture or protect corrupt contractors. But Mr. Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.

The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features. In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it. As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Given the Bush record, that should come as no surprise.

There are, in fact, three distinct concerns associated with the rising tide of foreclosures in America. One is financial stability: as banks and other institutions take huge losses on their mortgage-related investments, the financial system as a whole is getting wobbly. Another is human suffering: hundreds of thousands, and probably millions, of American families will lose their homes. Finally, there’s injustice: the subprime boom involved predatory lending — high-interest loans foisted on borrowers who qualified for lower rates — on an epic scale. The Wall Street Journal found that more than 55 percent of subprime loans made at the height of the housing bubble “went to people with credit scores high enough to often qualify for conventional loans with far better terms.” And in a declining housing market, these victims are stuck, unable to refinance.

But Mr. Paulson’s plan is entirely focused on reducing investor losses. Any minor relief it might provide to troubled borrowers is clearly incidental. And it is does nothing for the victims of predatory lending. Relief is restricted to borrowers whose mortgage debt is at least 97 percent of the house’s value — which means that in many, perhaps most, cases those who get debt relief will be borrowers who owe more than their house is worth. These people would be nearly as well off in financial terms if they simply walked away. And what about people with good credit who were misled into bad mortgage deals, who should have been steered to loans with better terms? They get nothing: the Paulson plan specifically excludes borrowers with good credit scores.

Still, you might say that the Paulson plan is better than nothing. But the relevant alternative isn’t nothing; it’s a plan that — like Barney Frank’s proposal — would actually help working families. And that’s what the administration is trying to avoid.

Credit Bubble Just starting to unwind, Credit-Derivative Insider says. While U.S. borrowers are being blamed for the mess, they were really just pawns

This MSN Money Central story (http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx)further describes the melt down going on in the mortgage/housing/credit industry/stock market. Unlike many articles, however, it names those responsible for the current debacle and how the mess came to be. One can only hope that remedial measures are taken as soon as possible to minimize the economic fallout. Given the magnitude of the problem, one would think the GOP and Christianists would be better served worrying about the economy as opposed to having vapors over gay marriage and gays in the military. But then, the GOP's failure to focus on what really counts as opposed to pandering to religious zealots is part of the reason the current mess is about to come crashing down on us all. Here are some story highlights:

I started by asking [Satyajit Das, author of a 4,200-page reference work on the subject] the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy. He thinks we're on the verge of a bear market of epic proportions. The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way.

[H]e foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates. Like an ex-mobster turning state's witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen -- mostly banks and hedge funds that pay him consulting fees -- that the jig is up.

[H]e points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn't understand; and financial engineers who built towers of "securitized" debt with math models that were fundamentally flawed. "Defaulting middle-class U.S. homeowners are blamed, but they are merely a pawn in the game," he says. "Those loans were invented so that hedge funds would have high-yield debt to buy."

Here's how it worked: In olden days, like 10 years ago, banks wrote and funded their own loans. In the new game, Das points out, banks "originate" loans, "warehouse" them on their balance sheet for a brief time, then "distribute" them to investors by packaging them into derivatives called collateralized debt obligations, or CDOs, and similar instruments. In this scheme, banks don't need to tie up as much capital, so they can put more money out on loan. The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door -- a task that was accelerated in recent years via fly-by-night brokers now accused of predatory lending practices. Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at low interest rates in Japan and the United States, these managers leveraged up their bets by buying the CDOs with borrowed funds.

Now it may seem hard to believe, but much of the past few years' advance in the stock market was underwritten by CDO-type instruments which go under the heading of "structured finance." I'm talking about private-equity takeovers, leveraged buyouts and corporate stock buybacks -- the works. So to the extent that the structured finance market is coming undone, not only will those pillars of strength for equities be knocked away, but many recent deals that were predicated on the easy availability of money will likely also go bust, Das says. That is why he considers the current market volatility much more profound than a simple "correction" in prices. He sees it as a gigantic liquidity bubble unwinding -- a process that can take a long, long time.

The Ripple Effect Contunues to Grow: Citigroup Plans New Round Of 'Massive' Job Cuts

The negative effects of the housing market melt down and sub-prime mortgage loan bust is continuing to spread. As CNBC is reporting (http://www.cnbc.com/id/21974307), Citigroup may be about to announce a huge layoff of personnel. Some estimates put the number as high as 45,000 employees. Obviously, as more lenders lay off employees, the number of families put in danger of not being able to pay bills and/or at risk losing their homes will grow. Locally, there are MANY Realtors, loan officers, settlement companies and others already in severe financial straits - and Virginia is less hard hit than many states. The outlook is ugly. Here some story highlights:

Citigroup, Wall Street’s largest financial services firms, is planning its second round of large-scale layoffs in less than a year, CNBC has learned. People inside Citigroup say the firm hasn’t set a target number of cuts from its roughly 320,000 employees. But people with knowledge of the matter have described the pending job reductions as "massive" and "large." The total number could reach as high as 45,000, these people estimate.

[I]n recent months, Citigroup has been hit with big losses from its exposure to the decimated mortgage-bond market. After initially announcing a $5 billion write-down because of mortgage-related losses, Citigroup announced that the write-down in profits could be as high as $11 billion. In the meantime, senior officials inside Citigroup are telling people that the firm is preparing for large layoffs. In some cases, the layoffs have already begun, with managers being told by their supervisors that they have to eliminate whole departments.

Obviously, the holiday season is NOT going to be very nice for a lot of people.

The Carnage on Wall Street is All About the Great Housing Slump.

Paul Krugman has a good column in the New York Times (http://www.nytimes.com/2007/11/23/opinion/23krugman.html?em&ex=1195966800&en=3aec75ee4c87fe35&ei=5087%0A) that looks at how the country arrived where it is in terms of the housing market/mortgage industry melt down. He likewise focuses on the fact that many of those responsible are getting a free pass in terms of NOT being held accountable. Here are some highlights:

“What were they smoking?” asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose. The answer, of course, is that they were high on the usual drug — greed. And they were encouraged to make socially destructive decisions by a system of executive compensation that should have been reformed after the Enron and WorldCom scandals, but wasn’t.

In a direct sense, the carnage on Wall Street is all about the great housing slump. This slump was both predictable and predicted. “These days,” I wrote in August 2005, “Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.” It wasn’t. But even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate.

Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay. The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn’t understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset. And then there’s the collateral damage to the economy.

[B]ad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly. How did things go so wrong?

Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you. But another part of the answer lies in what hasn’t happened to the men on that Fortune cover — namely, they haven’t been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent.

The point is that the subprime crisis and the credit crunch are, in an important sense, the result of our failure to effectively reform corporate governance after the last set of scandals.

Will Bad Mortgages Hurt the GOP?

If, as I suspect it will, 2008 turns out to be a very bad year for housing and the number of widespread foreclosures continues to increase, I suspect that the GOP will be hurt. As Time magazine reports here (http://www.time.com/time/nation/article/0,8599,1685301,00.html many in the GOP has been very resistant to passing regulations that might have avoided some of the worse subprime loans. Since the housing market hits directly at voters' sense of security, the Democrats need to focus on this issue as one of the big stories of the campaign cycle. Here are some story highlights:

As the subprime mortgage crisis has worsened and Democrats have moved to pass legislation to the address the problem, they are accusing their G.O.P. counterparts of doing too little to prevent the predicament. The issue could become a potent campaign issue in '08, as the Democrats have targeted several vulnerable G.O.P. members, including Walberg, who voted against last week's bill.

The Republicans "were asleep at the wheel while this problem was heading straight at us," said Congressman Chris Van Hollen, head of the Democratic Congressional Campaign Committee, which works to elect Democratic candidates. "This is affecting people across the country in Michigan, in Florida, in Ohio — all important swing states. This will be part of the debate about the economy overall. And people who ignore it do so at their own peril."

Democrats accuse the Administration and Republican-led Congress of ignoring the problem until it was too late. "This was the result of the Republican philosophy that you never have regulation, so yes, they could've done something," said House financial Services Committee Chairman Barney Frank. Frank blames Republican leaders for killing a bipartisan measure to tighten regulations on subprime lending in 2005.

Democrats have already ramped up the pressure on Walberg and his colleagues. "Even as Americans go deeper and deeper into debt with mortgages from shady lenders, Representative Tim Walberg is protecting predatory lenders at the expense of America's middle-class families," said Jennifer Crider, communications director for the Democratic Congressional Campaign Committee. "Representative Walberg clearly values his special interest pals more than middle-class Americans struggling to keep their homes."

After Walberg's narrow victory in 2006 (a race in which he outspent his opponent by $1.2 million to $46,000), the Democrats this time have recruited a top-tier opponent: State Senator Mark Shauer, who has championed the predatory lending issue in the state legislature, co-sponsoring legislation that would tighten oversight on loan officers and support programs to help homeowners refinance their mortgages. Schauer plans on campaigning on the issue and accuses Walberg of turning his back on people in need. "The people in Michigan are struggling, and we're doing what we can to help at the state level," Schauer said. "But Washington and my opponent need to step up."

Stocks Fall Amid Economic Jitters

On the eve of the onset of the biggest consumer shopping period of the year, the economic front does not look cheery. Not surprisingly, with all the bad economic news and high oil prices, retailers are worried and rightfully so. In my view, things are going to get much worse before they get better. Note how the housing market free fall and high energy costs combine to play through out the news. Here are some highlights form a mew Washington Post story (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/21/AR2007112100362.html?hpid=moreheadlines) that some some of the unpleasant economic news:

NEW YORK -- Wall Street resumed its slide Wednesday as unease about the wilting mortgage market and the broader economy triggered selling ahead of the unofficial start of the holiday shopping season. The Standard & Poor's 500 index and the Dow Jones industrial average each fell by more than 1.5 percent, with the Dow giving up more than 210 points. The decline in the S&P 500 left the index in negative territory for the year. Many investments such as mutual funds either track or are measured against the S&P.

Economic readings did little to instill confidence among investors. The Mortgage Bankers Association said mortgage application volume fell 3.6 percent last week. Meanwhile, the slump in housing suggested banks will continue to face souring mortgage debt. Government-sponsored lender Freddie Mac, which reported a $2 billion quarterly loss Tuesday and saw shares plummet nearly 29 percent, declined again Wednesday after an analyst downgrade. Countrywide Financial Corp., the nation's largest mortgage lender, also lost further ground.

In other economic news, the Conference Board suggested an economic slowdown could accelerate in the coming months amid rising costs and further weakness in the housing market. Also, the Reuters/University of Michigan consumer sentiment survey showed its lowest reading in two years _ an unwelcome development for retailers entering what is for many the most important period of the year.

And with oil prices briefly reaching a high of $99.29 a barrel in overnight electronic trading, the question among investors is no longer if oil will reach $100 a barrel, but when _ and how long it will stay there. Crude futures fell 74 cents to settle at $97.29 per barrel on the New York Mercantile Exchange after an Energy Department report showed supplies at a closely watched oil terminal in the Midwest rose for the first time in weeks.

"The high price of oil has hurt retail, entertainment, restaurants and clothing," said Don Hodges, chairman of Hodges Capital Management in Dallas. He attributes the market's recent retrenchment to concerns about energy, the consumer, housing and banking among other factors and notes that previous sharp drops in the market have occurred when investors have faced a similar confluence of worries.

More Home Loan Defaults in 2008 - US Mortgage Losses Could Be $300 Billion

It looks like the Fed is finally waking up to what some of us in businesses related to the housing industry have seen coming for a quite time now: a very rough 2008 with even higher mortgage default and foreclosure levels. This in turn will cause negative pressure on home prices and more negative economic spin off. Remember, already, the number of foreclosures had doubled nationally from a year ago and in some markets the rate is up 500%. Here are highlights from a CNBC story (http://www.cnbc.com/id/21909849):

U.S. Treasury Secretary Henry Paulson said the number of potential U.S. home-loan defaults "will be significantly bigger" in 2008 than in 2007, the Wall Street Journal's online edition reported. "The nature of the problem will be significantly bigger next year because 2006 (mortgages) had lower underwriting standards, no amortization, and no down payments," Paulson said in an interview with the Wall Street Journal on Tuesday, according to an excerpt on the newspaper's Web site.

"We'll watch carefully mortgages that will be reset," Paulson was quoted as saying. The newspaper said Paulson was pressing the mortgage-service industry to help a broad range of borrowers become eligible for better loans instead of dealing with mortgage problems on a case-by-case basis.

Also from CNBC are these additional highlights (http://www.cnbc.com/id/21912074):

Overall losses from the U.S. mortgage market crisis could be up to $300 billion but financial firms and policymakers need to buy time to ensure an orderly work-out, the Organization for Economic Co-operation and Development said on Wednesday.

But the Paris-based forum said the worst of the U.S. housing market downturn had not yet been seen and would continue to depress mortgage-related debt products and derivatives held by banks, hedge funds and insurance companies. "We still have not hit the worst point in resets, delinquencies and ultimate losses on mortgages," the OECD said, adding some $890 billion of sub-prime, or poor credit quality, mortgages will have rates reset in 2008 -- with the peak expected about March.

I hope I am wrong, but personally I think a recession is close at hand if not already upon us.

Freddie Posts Loss, May Cut Dividend; Citigroup Takes Huge Hit; Expectations of Recession Increase

The housing market and subprime melt down continues and has hit Freddie Mac, one of the two largest makers of the secondary market for home mortgage loans, as reported by Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=atzHj5IWr2ms&refer=home). Meanwhile Citigroup may take a hit of up to $15 billion overall from problem loans. Here are highlights from the Bloomberg story:

Nov. 20 (Bloomberg) -- Freddie Mac, the mortgage buyer that has helped almost 50 million Americans purchase a home, posted its largest-ever loss and said ``significant deterioration'' in the housing market may force it to cut its dividend and raise capital. The shares tumbled 35 percent, the biggest decline since the stock began trading in 1988. Freddie Mac reported a net loss of $2.02 billion, or $3.29 a share, at least triple what some analysts' estimated, after providing $1.2 billion for credit expenses and reducing the value of assets by $3.6 billion.

``It's as bad as it possibly could be,'' said Howard Shapiro, an analyst at Fox-Pitt Kelton in New York. Shapiro today downgraded Freddie Mac shares to ``sell'' from ``overweight.'' The biggest slump in the housing market in 16 years broadened its reach to Mclean, Virginia-based Freddie Mac and the larger Fannie Mae, two institutions set up by Congress to help foster American home ownership. The companies, which own or guarantee 40 percent of the $11.5 trillion U.S. home loan market, are recording more losses as mortgage defaults and foreclosure filings rise to record levels.

Wells Fargo & Co. Chief Executive Officer John Stumpf last week said the housing market was the worst since the Great Depression. Banks and securities firms worldwide have already reported about $50 billion in losses from subprime mortgages, loans given to borrowers with weak credit that have been defaulting at a record pace. The total damage may reach $400 billion, Deutsche Bank analysts said last week. Foreclosure filings doubled to 223,538 in September from a year earlier as subprime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc. said last month.

Of course, the Chimperator and Emperor Cheney continue to pretend that the U. S. economy is strong. Meanwhile, here's highlights on the Citigroup disaster (http://www.bloomberg.com/apps/news?pid=20601103&sid=aQk5LGM7y06M&refer=news):

Nov. 20 (Bloomberg) -- The risk that banks and brokerages from Citigroup Inc. to Bear Stearns Cos. will default on their debt is accelerating as analysts increase their estimates of losses from subprime mortgages, credit-default swaps show.

The increases are the biggest in two weeks as more analysts predict that writedowns by banks and securities firms, already $50 billion worldwide, will continue to grow. Goldman Sachs Group Inc. estimates Citigroup's losses will expand to $15 billion in the next two quarters and CreditSights Inc. analysts said UBS AG, Europe's largest bank by assets, may have lost as much as $9 billion on collateralized debt obligations. ``There's still a lot more uncertainty to come,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. ``We understand the risks now, but we don't know how to measure them yet.''

The losses at banks and securities firms are fueling concern that rising delinquencies on home loans to people with poor credit will drag down the economy. The slump in global credit markets may force banks, brokerages and hedge funds to cut lending by $2 trillion, Goldman Sachs economists said last week.

The number of economists forecasting a U.S. recession almost doubled in the past two months, according to a survey by the National Association for Business Economics. Nine of 50 economists pegged the odds of a contraction over the next 12 months at 50 percent or higher, according to a poll taken from Oct. 22 to Nov. 6. Five of 46 held a similar view in September.

$100 Oil May Mean Recession as U.S. Economy Hits `Danger Zone'

The financial news just seems to be getting increasingly sour. Bloomberg.com is reporting that oil prices are setting the stage for even more bad news (http://www.bloomberg.com/apps/news?pid=20601109&sid=a1aGJ64Na3g8&refer=home), particularly if other economic shocks occur. Here are brief highlights:

Nov. 12 (Bloomberg) -- Rising fuel prices that businesses and consumers took in stride earlier this year may now be near the point of pushing the weakened U.S. economy into recession. `We are in a danger zone,'' says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. ``It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock.'' Crude-oil prices are poised to cross the $100-a-barrel mark while the U.S. economy is still reeling from a surge in corporate borrowing costs. Europe and Japan are vulnerable as well, after the U.S. subprime-mortgage collapse contaminated their credit markets.

The world economy may still dodge recession as emerging markets continue to expand. A report last week by Deutsche Bank AG said gains in energy efficiency mean the effect of more expensive oil will ``remain muted.'' Even so, gloom is spreading at a speed that suggests ``we're walking a really fine line,'' says John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. ``Even a month ago, you probably wouldn't have thought we'd be seeing a sustained credit problem and oil holding up above $85 a barrel.''

Meanwhile, the New York Times is reporting that the deal structured last week to prop up subprime loan investment securities probably will not work (http://www.nytimes.com/2007/11/12/business/12siv.html?ref=business):

When the country’s three largest banks reached agreement on Friday on how to structure a $75 billion fund to prop up distressed securities, an exhausted group of its top planners gathered in a Bank of America conference room to toast their success with 12-packs of Bud Light. But the big question is: Will it actually help? The answer, some analysts and big investors say, is probably not much.

The backup fund will not save troubled structured investment vehicles, or SIVs, that hold billions of dollars in packaged loans, though it could delay their demise. It may help calm the turbulent credit markets by preventing a sharp sell-off of securities, though analysts say the fund will probably not be able to offset the deteriorating prices of the securities.

The backup fund will not purchase the most distressed assets in the SIVs. Bank organizers agreed that it would not accept any subprime mortgage-related assets and only certain types of risky complex instruments like collateralized debt obligations. But the criteria means that SIVs, or the banks that sponsor them, will be left holding their most battered securities or worse — they may be forced to sell them at fire-sale prices.

A Catastrophe Foretold

Paul Krugman's column in today's New York Times (http://www.nytimes.com/2007/10/26/opinion/26krugman.html?hp) says a lot about how the current US mortgage and housing melt down came about. Too bad that no one paid attention to the warning signs. It is par for the course with the current regime and its mind set of anything goes (unless it's gay marriage and equality):

“Increased subprime lending has been associated with higher levels of delinquency, foreclosure and, in some cases, abusive lending practices.” So declared Edward M. Gramlich, a Federal Reserve official. These days a lot of people are saying things like that about subprime loans — mortgages issued to buyers who don’t meet the normal financial criteria for a home loan. But here’s the thing: Mr. Gramlich said those words in May 2004. And it wasn’t his first warning. In his last book, Mr. Gramlich, who recently died of cancer, revealed that he tried to get Alan Greenspan to increase oversight of subprime lending as early as 2000, but got nowhere.

A new report from Congress’s Joint Economic Committee predicts that there will be two million foreclosures on subprime mortgages by the end of next year. That’s two million American families facing the humiliation and financial pain of losing their homes. At the same time, investors who bought assets backed by subprime loans are continuing to suffer severe losses. Everything suggests that there will be many more stories like that of Merrill Lynch, which has just announced an $8.4 billion write-down because of bad loans — $3 billion more than it had announced just a few weeks earlier. In fact, both borrowers and investors got scammed.

So, once again, why was nothing done to head off this disaster? The answer is ideology. In a paper presented just before his death, Mr. Gramlich wrote that “the subprime market was the Wild West. Over half the mortgage loans were made by independent lenders without any federal supervision.” What he didn’t mention was that this was the way the laissez-faire ideologues ruling Washington — a group that very much included Mr. Greenspan — wanted it. They were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing.

Mr. Frank is now trying to push through legislation that extends moderate regulation to the subprime market. Despite the scale of the disaster, he’s facing an uphill fight: money still talks in Washington, and the mortgage industry is a huge source of campaign finance. But maybe the subprime catastrophe will be enough to remind us why financial regulation was introduced in the first place.

Treasury Secretary says U.S. housing crisis is ‘significant’ economic risk

I am not sure where these folks have been for the last six months to a year. I have been discussing the housing crisis for some time. An article yesterday indicated sales of homes in Southern California were down almost 50% from a year ago. The ripple effect from that is huge in terms of lost business and related revenues. Combine that with the sub-prime mortgage melt down and it makes for one toxic economic stew. Locally, word has it that some smaller title insurance agencies have folded due to the business slow down. Here are some highlights from an MSNBC report (http://www.msnbc.msn.com/id/21322471/):

WASHINGTON - Treasury Secretary Henry Paulson called Tuesday for an aggressive response to deal with an unfolding housing crisis that he said presents a significant risk to the economy. In the administration’s most detailed reaction to the steepest housing slump in 16 years, Paulson said that government and the financial industry should provide immediate help for homeowners trying to refinance current mortgages before they reset at much higher rates. He also called for an overhaul of laws and regulations governing mortgage lending to halt abusive practices that contributed to the current crisis.

. . . the housing decline is still unfolding and I view it as the most significant current risk to our economy,” Paulson said in a speech delivered at Georgetown University’s law school. “The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.” In his most somber assessment of the crisis to date, Paulson said that the housing correction is “not ending as quickly” as it had appeared it would and that “it now looks like it will continue to adversely impact our economy, our capital markets and many homeowners for some time yet.” Paulson spoke a day after officials from the nation’s three biggest banks announced the creation of a fund with up to $100 billion in resources to buy troubled assets such as mortgage-backed securities.

People I know in the mortgage industry are saying that we are only seeing the tip of the ice berg. Paulson should have spent a little time before now focusing on regulation. Much of the mess could have been avoided. Fasten your seat belts.

Few Heard Ticking Credit Time Bomb

I believe things are going to get much worse in the credit melt down before they get better. We have received three alerts from out title underwriter in the last two days advising NOT to schedule loan transactions with certain lenders due to those lenders' recent difficulties funding loans. This somewhat lengthy article in today's New York Times (http://www.nytimes.com/2007/08/19/business/19credit.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1187457020-MnSAEfjgneVe9emJz3+X+g) makes it clear that warning signs were there for some time. People simply chose to ignore them and got away with it until the house market slow down became pronounced. Locally, foreclosures have doubled from a year ago. Here are some highlights from the Times article:

All through last year, Jim Melcher saw the signs of a rapidly deteriorating American housing market — riskier mortgages, rising delinquencies and more homes falling into foreclosure. And with $100 million in assets at his hedge fund, Balestra Capital, he was in a position to do something about it.

So in October, as mortgage-backed bonds were still flying high, he bet $10 million that these bonds would plunge in value, using complex derivatives available to any institutional investor. As his gamble began to pay off in the first months of 2007, Mr. Melcher, a New York-based money manager, plowed the profits into ever bigger wagers that the mortgage crisis would worsen further, eventually risking some $60 million of the fund’s money.

In December, the first subprime lenders started failing as more borrowers began falling behind on payments, often shortly after they received the loans. And in February, HSBC, the large British bank, said it would write off $2 billion in losses from its American subprime lending business. Over the last two weeks, this slowly building wave became a tsunami in the global financial markets.

On Friday, the Federal Reserve was forced into a surprise cut of the discount rate it charges banks to borrow money, steadying shaky stock and credit markets and reassuring investors, bankers and traders who were reeling from a month of market turmoil. And for the first time, the Fed bluntly acknowledged that the credit crisis posed a threat to economic growth. “Until recently, there was a lot of denial, but this is a big deal,” said Byron R. Wien, a 40-year veteran of Wall Street who is now chief investment strategist at Pequot Capital. “Now the big question is: Will this spill over into the broader economy?”

“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses,” said Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo. “The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at easy.”

Other companies face far more immediate problems. Countrywide Financial, the nation’s largest independent mortgage lender, found itself defending reports this month that bankruptcy could be looming as its stock plunged 41 percent. To make matters worse, all borrowers are now likely to face higher borrowing costs for years to come, even those with stellar credit histories. Already, mortgages of more than $417,000, known as jumbos, carry interest rates of 7.5 to 8 percent, up from 6.5 percent last month.

What is more, subprime mortgages offered to homebuyers in 2005 and 2006, when credit standards were at their most lax, will soon begin to reset, forcing up monthly payments for the weakest borrowers practically overnight. As a result, Mr. Goldstone predicts that banks and other lenders could eventually see losses reach into the tens of billions.

Stopping the Subprime Mortgage Crisis

As an attorney with a law practice that handles a great deal of real estate work, I have a good vantage to observe the rising number of foreclosures, the increased number of families being forced from their homes, and the step decline in real estate sales and new construction, all of which undermines the larger economy as a whole. Therefore, I found this op-ed in the New York Times of interest (http://www.nytimes.com/2007/07/25/opinion/25rosner.html), portions of which are highlighted as follows:

FOR five months, it has been clear that rising delinquencies and foreclosures, coupled with higher interest rates on adjustable mortgages and declining home price appreciation, would undermine the market for mortgage securities. Yet it took Moody’s Investors Service, Fitch Ratings and Standard & Poor’s, the three leading agencies that rate long-term debt, until this month to react to this looming financial crisis, which involves more than $1.2 trillion of subprime mortgages originated in 2005 and 2006 alone. As one investor asked during a recent S.&P. conference call, “What is it that you know today that the markets didn’t know three months ago?”

The subprime crisis has not been averted. In fact, it is still largely ahead of us. The downgrades represent only a small fraction — about 2 percent of the mortgage-backed securities rated for the year between the fourth quarters of 2005 and 2006 — of what the rating agencies suggest could be a mountain of bad debt held by investors, including pension plans, banks and insurance companies. The agencies are primarily downgrading assets with expected losses that are already working their way through the pipeline. They are not projecting future losses.

And the ratings agencies are far from passive arbitrators in the markets. In structured finance, the rating agency can be an active part of the construction of a deal. In fact, the original models used to rate collateralized debt obligations were created in close cooperation with the investment banks that designed the securities.

Fitch, Moody’s and S.&P. actively advise issuers of these securities on how to achieve their desired ratings. They appear to be helping investment banks, hedge funds and fund companies, all of which have a fiduciary obligation to investors, to develop the worst possible product that would still achieve a certain rating.

Unless the government acts, the credit ratings agencies will stand on the sidelines of the coming crisis, doing nothing until it’s already happened.

I believe that we have only seen the leading edge of a huge looming disaster. When the housing industry and mortgage industry take a dive, the entire economy follows in a domino effect. Where is political leadership calling for action on this problem before the bottom falls out?