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California Attorney General Harris Now Signaling Willingness to Rejoin Foreclosure Talks

California Attorney General Harris Now
Signaling Willingness to Rejoin Foreclosure Talks

Posted: 07 Oct 2011 03:49 AM

Dave Dayen saw this one coming.
When Kamala Harris said she was not willing to participate in the so called “50
state” attorney general mortgage negotiations, he recognized Harris’ refusal to
join the New York attorney general Schneiderman’s group as a bad sign. Note that
the state of the talks is persistently misreported in the MSM as being only
Schneiderman, when Delaware, Massachusetts, Kentucky, Nevada, and Minnesota are
also out of the talks.

It is a safe bet that the
Democratic party has been muscling Harris since her defection last week. The
Administration is desperate to have the AGs provide legitimacy to their planned
“settlement as coverup” strategy. Not that it will be that effective in the end.
The threat of the two states where all securitization trusts are domiciled (New
York and Delaware) has the potential to undermine the value of any settlement,
particularly since New York has the potent weapon of the Martin Act. Merely
those two states moving forward (and remember, it is more than those two states)
has the potential to be extremely embarrassing to the Administration and the AGs
who continue to serve as human shields for the Administration.

But the belief appears to be that
even with this group pushing forward, nothing all that earth shattering will
happen prior to the 2012 elections. That is an awfully risky bet. The filings
this year by Schneiderman, Beau Biden, and Catherine Masto alone have provided
ample evidence of bank misconduct, and also provide ideas and cover for private
sector litigants (particularly investors, who are a very conservative bunch).
And any settlement will not restrict the rights of private plaintiffs, such as
aggrieved homeowners, to act.

Note that Harris’ body language is
ambiguous: she has only said she is would take a better deal from the banks if
she offered one, which merely means she is willing to negotiate with them
separately. So narrowly, this is just a reiteration of her position as of last
week. But this reaffirmation also opens the door to her rejoining the talks if
the banks make meaningful movement, and Reuters concurs with this
. I don’t see this happening (and neither does
Massachusetts AG Martha Coakley, as quoted in the Wall Street Journal account).

From the Journal:

California Attorney General
Kamala Harris, who dropped out last week from talks aimed at wringing a huge
settlement from banks accused of foreclosure abuses, remains open to a deal if
it involves “a stronger proposal” from lenders, according to a person familiar
with the situation….

Negotiators believe they can
still reach a broad-based settlement if enough states sign on and are able to
lure back others that have balked at certain terms…

But no agreement has been reached
on some of the most divisive issues, such as the extent to which banks should be
released from additional legal claims.

Yves here. This is why whether
Harris is in or out ultimately will not matter. There is no bargaining overlap
between what the banks want (a big release) and what a fair number of the AGs
are willing to give (a narrow release). Back to the article:

Ms. Harris’s decision to walk
away from the negotiating table last week has contributed to a sense of urgency
in the negotiations, said one person familiar with the banks’

Obama administration officials
have worked behind the scenes for months to try to keep the process on track.
Some senior officials view a deal as an opportunity to widen the use of
principal reductions for underwater mortgages.

Yves here. The principal
reductions talk is PR. We’ve done the math before, and the dollars that the
assembled parties are likely to get will not allow for deep enough mods to
enough homeowners. They’d be better off applying it to writedowns of seconds and
mortgage counseling (or to Adam Levitin’s impish suggestion, funding Legal Aid).

The Administration seems
determined to keep up the belief that a settlement is imminent, which has been
the party line since January. Penelope was able to keep her suitors at bay for
20 years by, among other things, dragging out the weaving of her Odysseus’
burial shroud. I don’t think the Administration will prove to be that

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Attorney Generals Settlement and the Biggest

Attorney Generals Settlement and the Biggest
Bank Bailout Yet

Rolling Stones.20111007

Matt Taibbi


Amidst all the bad news coming out of Wall Street and the economy,
here’s something good: California has backed out of the talks for
the long-awaited foreclosure settlement, now making it far from likely that the
so-called “Attorneys General” deal will happen anytime soon.

California Attorney General Kamala Harris sent a letter to state and
federal regulators explaining that she pulled out because the proposed
settlement amount for banks guilty of bad securitization practices leading up
to the mortgage crisis – said to be in the $20 billion range – was too small.
From Business Week:

Harris says in a letter to state and federal
negotiators that the pending settlement is “inadequate” and gives
bank officials too much immunity.

I’m convinced that the deal will eventually go
through, however, after some further concessions are made. Certainly the
absence of both New York (whose Attorney General Eric Schneiderman gamely
started this mess by refusing to sign on or abandon his own investigation into
corrupt securitization practices) and California will make it difficult for the
banks to do any kind of a deal. But there is such an awesome amount of
political will to get this deal done in Washington that it almost has to happen
before the presidential election season really gets going.

If it does get done, expect a great deal of public debate over whether
or not the size of the settlement was sufficient. Did the banks pay enough?
Should they have paid ten billion more? Twenty? Even I engaged
in a little bit of that
weeks ago.

But if and when that debate takes place, it will actually obscure the
real issue, because this settlement is not about getting money from the banks. The deal being
contemplated is actually the opposite: a giant bailout.

In fact, any federal foreclosure settlement
along the lines of what’s been proposed will amount to a last round of
post-2008-crisis bailouts. I talked to one foreclosure activist over the
weekend who put it this way: “[The AG settlement] will be a bigger bailout than

How? The math actually makes a hell of a lot of
sense, when you look at it closely.

Any foreclosure settlement will allow the banks
to pay one relatively small bill to cover all of their legal liabilities
stemming from the monstrous frauds they all practiced in the years leading up
to the 2008 crash (and even afterward), when they all schemed to create great
masses of dicey/junk subprime loans and then disguise them as AAA-rated paper
for sale to big private investors and institutions like state pension funds and
union funds.

To recap the crime: the banks lent money to
firms like Countrywide, who in turn created billions in dicey loans, who then
sold them back to the banks, who chopped them up and sold them to, among other
things, your state’s worker retirement funds.

So this is bankers from Deutsche and Goldman and Bank of America
essentially stealing the retirement nest eggs of firemen, teachers, cops, and
other actors, as well as the investment monies of foreigners and hedge fund
managers. To repeat: this was Wall Street hotshotsstealing money from old ladies. 

Along the road to this systematic thievery, a
great many other, sometimes smaller offenses were committed. One involved the
use of the MERS electronic registration system. By law, banks were supposed to
register with county-level offices in each state every time they sold or resold
a mortgage, and pay fees each time.

But they didn’t, instead registering with the
private deed-transfer agency MERS, allowing them to systematically, and
illegally, bypass local taxes.

So any “AG settlement” might allow the banks to
avoid legal damages being sought from three different set of enraged creditors:
the public institutions who invested in these sham securities, the private
investors who did the same, and the localities who were cheated out of their

Let’s take a look at each of those three

As far as private investors go, we’ve already had one lawsuit directed at Bank of America,
over losses linked to purchases of bad MBS (mostly from Countrywide mortgages),
which resulted in an $8.5 billion settlement.

That one settlement, covering 22 mostly private plaintiffs, cost one
bank, Bank of America, nearly half the size of the entire proposed AG
settlement. This is from the Times story about that deal, in June:

In a research note, Paul Miller of FBR Capital
Markets projected that Bank of America could face a total of $25 billion of
losses from the soured mortgages, the most of any of the major banks.

So a private analyst this summer was estimating that just one bank, Bank
of America, could face more in damages than the Obama administration and the
AGs are now trying to “wrest” from all the major banks, combined, for all their liabilities.

Just a few days ago, news of more such suits came in. An Irish company
called Sealink Funding is suing Chase and Bank of America, seeking $4.5 billion
combined in connection to losses in mortgage-backed securities sold to them by
those banks. Meanwhile, a German bank, Landesbank Baden-Wurttemberg, is suing
Chase for an additional $500 million in losses.

These huge amounts – a few billion here, a half
a billion there – are coming from single companies, directed at single banks.
And think about the Bank of America settlement for $8.5 billion: what’s the
usual payoff in a lawsuit settlement? Ten cents on the dollar? Five?

In fact, the settlement amount in that case was just 2% of the face value of the loans when they were
securitized ($424 billion)
, and represented just 4% of the
principal still outstanding ($221 billion).

Why do those figures matter? Because the way
these securitizations were structured, legally, Bank of America is obligated to
buy back any loans that were sold fraudulently at face value – that is part of
the legal language in the “pooling and servicing agreements” under which all of
these mortgages were pooled.

So minus a settlement, Bank of America – one bank — had a potential
liability of $424 billion just from its Countrywide holdings!
And it got off for $8.5 billion, a major victory.

All of which puts in perspective the
preposterously small size of the proposed AG settlement. $20 billion would be a
lousy number if we were just talking about Bank of America. But all the big
banks combined?

And that just covers legal exposure to private investors. How about
public agencies and institutions? Well, just recently, the Federal
Housing Finance Agency sued
group of the major banks (Chase, Barclay’s, and Citi, among others) over losses
connected with, again, bad MBS.

This suit covers sales to the two GSEs, Fannie
Mae and Freddie Mac, and they’re seeking $200 billion. The’re asking for $25
billion from Merrill Lynch (which is now owned by Bank of America) and $6
billion from Bank of America proper, meaning they’re claiming $30 billion in
damages from just one bank.

This, again, puts into perspective the idea of
a collective $20 billion settlement covering all the major banks.

But wait, there’s more. The FHFA lawsuit only
covers the GSEs. How about state pension funds?

Well, over the summer, Bank of America caught another lawsuit, when a
group of union and state pension funds sued Merrill Lynch for misleading them in a $16.5
offering of, you guessed it, MBS certificates. The suit included claims from
Mississippi and Los Angeles County employees, the Connecticut Carpenters’
Annuity Fund, and others.

So again, just with those two lawsuits, one
bank, Bank of America, is facing nearly $50 billion in damages. And this
doesn’t even cover all of the other states and localities that were wiped out
by sales of fraudulently-conceived MBS. California’s state pension fund,
CalPERS, lost $100 billion all by itself between 2008 and 2009, largely due to
plummeting MBS values.

That would explain why Kamala Harris had to
pull out of the settlement talks: she must have realized that going through the
courts, her state could probably recover far more than whatever California’s
share of $20 billion would have been. It’s incredible that other states have
not already come to the same conclusion.

Lastly, of course, there is the matter of lost
taxes. To date, most of the lawsuits filed by counties over unpaid fees have
been directed at MERS, the private electronic registry company through which
the banks “legally transferred” all of these mortgage deeds.

For example, my old home county of Essex County, Massachusetts, recently
sued MERS for $22 million
unpaid fees. Dallas County, Texas, lost even more, suing MERS and claiming it
lost between $50 and $100 million in fees.

You can do the math. That’s two counties – not
states, but counties – claiming they lost a total of at least $70 million. And
yes, they’re suing MERS, but ultimately the real liability probably rests with
the banks, who would probably have been paying those fees had MERS not existed.

Will any AG settlement cover that potential
liability? I have no idea. But if the settlement is broad enough, and covers
all activities connected with securitization, it might very well cover these
unpaid fees.

How many hundreds of millions in fees will the
states lose if that deal goes through? Has anyone even asked? Have any county
officials even been consulted?

The point of all of this is, if you add up all
of the MBS-related liability out there, the banks as it stands are facing an
Armageddon of claims from all sides. It can’t possibly be less than a trillion
dollars, and it’s probably much, much more.

But the Obama administration’s current plan is
to let them all walk after paying a few shekels apiece into a $20 billion

Certainly, of course, one can see the logic of
a universal deal that avoids the probable end result minus a federal settlement
– bankruptcy for one or more of the big “TBTF” companies (especially Bank of
America). After all, if all the suits go through, then the final settlement for
most of those defrauded parties will be squat or close to it, since there won’
tbe any money left to recover. So if they can come up with a deal that
satisfies plaintiffs at least in part and keeps the banks solvent, I suppose
that might be a good thing.

But the negotiators really have three actors
they have to consider: the banks, the investors, and the homeowners, who of
course were also victims of this artificial bubble.

The current proposed deal is a huge giveaway to
the banks, a major shafting to most of the investors, and would probably give
homeowners either next to nothing or some cosmetic reward, i.e. a little bit of
principal forgiveness, counseling, etc.

If the Obama administration was serious about
helping actual human beings through this settlement, then it would be fighting
for homeowners to get the same bailout the banks would get. If the banks are
getting a trillion or more dollars of legal immunity, why shouldn’t homeowners
get that much debt forgiveness? Or, half that much? A quarter?

It’s encouraging that California and New York
have already come to this conclusion. Hopefully, down the road, there will be a
settlement, but one that’s fair to everyone. It’s probably up to the states to
stop this TARP-on-crack of a deal.


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By Michelle Crouch

October 2011

1. They teach us
that all debtors are compulsive liars,

no matter what you tell us, we’re supposed to keep pushing. So we ask, Can you
borrow the money from friends and family? Can you take money out of your 401k?
Can you pay it with another credit card? All horrible ideas that would make a
good financial planner cringe.

2. Like us or not,
we’re a vital part of keeping the cash flow going in this country.

2010, more than 10,000 collection agencies collected over $8 billion. Can you
imagine the impact on the economy — and on all the companies that were owed
money — if that $8 billion hadn’t been collected?

3. We’ve heard every
tale of woe.

may listen and act sympathetic, but in our notes, all those excuses are summed
up as HLS, for “hard-luck story.” You’re wasting our time, and time is

4. The more money I
get out of you, the bigger my bonus will be.

month, we watch top performers get bonus checks of $10,000 or more.

5. We also have an
astounding power to wipe out thousands of dollars of your debt.

accounts have a one-time settlement rate that’s preapproved (typically 15 to 35
percent on credit card debt).

6. A lot of agencies
buy debt for pennies on the dollar,

always start your settlement offer low, maybe 25 cents on the dollar. Say
something like “I have $200 that I can apply toward this debt. Will you accept
that as payment in full?” If I say no, ask what I’m willing to accept as a
settlement and negotiate from there.

7. Sometimes when
we’re negotiating, I’ll say I have to get a manager involved,

then I’ll have another collector be the “bad cop.” The theory is that just
having another voice on the line will open up your wallet.

8. Always check
whether the debt has passed the statute of limitations

your state (see a list at If it
has, we can’t sue you or put it in your credit report. However, if you make any
kind of payment or even acknowledge the debt, that usually starts the clock

9. If you decide to
settle, I am trained to “take your application.”

a bored voice, I ask for your cell number, your spouse’s work phone, and so on,
as if I’m filling out a form. But it’s just a way to get the information we
need to find you in case the settlement falls through.

10. We love calling
you at work

of the extra pressure it puts on you. If you specifically ask us not to, by law
we have to stop, but we’re not going to tell you that.

11. Don’t ask for a

or she will not help you. You’re better off just calling back and getting
another collector on the line.

12. Many times when
we leave a message on your phone,

just a recording of a made-up person. Our office uses the name Jim Taylor. When
you call back and ask for him, we say he’s out to lunch and offer to help you

13. If I threaten to
have you arrested, use profanity, or call before 8 a.m. or after 9 p.m.,

me to your state attorney general’s office ( and the
Federal Trade Commission ( Those are violations of the Fair
Debt Collection Practices Act.

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Walsh Outlines Complaint Process for Those Stung by Foreclosure

Walsh Outlines Complaint Process for Those Stung by Foreclosure

By: Kate Davidson
Publication date: September 20, 2011
Published in: American Banker

WASHINGTON — Foreclosed borrowers will be able to lodge complaints about their lender and seek a review of their case under recent consent orders issued against the 14 top servicers, a senior regulator said Monday.

Speaking at American Banker’s regulatory symposium, John Walsh, the acting comptroller of the currency, said cases will be reviewed by an independent consultant, who based on the findings may require a servicer to develop a remediation plan. Each remediation plan will be subject to approval by the Office of the Comptroller of the Currency and the Federal Reserve Board. A review may also result in a bank paying restitution.

“As we explored the best means of ensuring that injured homeowners had the opportunity to seek relief, it became clear that what was needed was a robust, transparent, and accessible complaint process that will give borrowers the opportunity to request an independent foreclosure review,” Walsh said. “I’m happy to say in the next several weeks you’ll see the roll out of just such a process.”

Also addressing the symposium, Martin Gruenberg, the acting Federal Deposit Insurance Corp. chairman, announced several initiatives to address challenges faced by community bankers. The agency will hold a conference next year on the future of community banking, the FDIC’s research division will study how community banks have evolved in the past two decades and Gruenberg said he will hold regional roundtables with community bankers around the country.

“The FDIC is also reviewing key challenges facing community banks such as raising capital, keeping up with technology, attracting qualified personnel, and meeting regulatory obligations,” Gruenberg, who was nominated by the Obama administration to become the permanent FDIC chairman, said in his first public remarks since taking the acting job. “Additionally, we are looking at our own risk-management and compliance supervision practices to see if there are ways to make the process more efficient” for community banks.

The April consent orders against the large mortgage servicers were in response to alleged borrower mistreatment from flawed documentation and other problems in the foreclosure process. The orders require each servicer to submit an action plan and implement an independent foreclosure review to identify borrowers who were harmed as a result of foreclosure-related errors.

Walsh said any remediation and restitution required of banks through the new complaint process will likely vary by each case.

“Remediation and restitution will not be approached as a one-size-fits-all proposition,” Walsh said. “It will depend on the facts of the individual case and that requires thorough and careful consideration, as well as a strong quality control process to ensure each institution is treating cases of financial harm in a consistent way.”

To inform the public about the complaint process, Walsh said borrowers with a foreclosure either pending or completed between Jan. 1, 2009, and Dec. 31, 2010, will be contacted through direct mailings as well as a coordinated advertising campaign by the independent consultants who will be carrying out the reviews. The consultants will use a claims processing vendor to create a Web site and phone number for eligible homeowners to request a review.

A review could take several months, and a letter will be provided to the parties involved explaining the outcome and providing information about restitution, Walsh said.

“All of this takes time, and the full effect, full cost, and full benefit of remediation will be known only at the end,” he said.

Meanwhile, Walsh said the OCC is still cooperating with other federal and state officials, including the Department of Justice and state attorneys general, on a comprehensive set of servicing requirements.

“I continue to believe that we will be able to harmonize the mortgage servicing requirements in our orders with those of other regulators if and when they are reached,” he said. “In fact, I think it is absolutely essential that we do so.”

Asked about reports of ongoing problems with foreclosure documentation, Walsh said, “We will not tolerate the process continuing going forward. So if we find any evidence of that, that will certainly be part of … enforcement.”

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Homeowners Say California A.G. Is ‘Doing Bank of America’s Bidding’

Homeowners Say California A.G. Is ‘Doing Bank of America’s Bidding’



     LOS ANGELES (CN) – More than 300 homebuyers accuse California Attorney General Kamala Harris of “doing Bank of America’s bidding” by seizing legal files from their attorney, Mitchell Stein, denying them the right to the legal counsel of their choice. They say Harris “acted as the pawn of America’s most powerful banks, rather than in the interest of California homeowners,” to silence their attorney in lawsuits against mortgage lenders.
     Similar complaints have been filed in Miami and New York. The allegations in this article come from the 54-page complaint in Los Angeles Federal Court.
     The plaintiffs claim that Harris’ raid on their attorney’s law firm is an attempt to prevent homeowners from gaining ground in lawsuits against Bank of America and other banks which, they claim, “have committed various types of mortgage fraud and then stolen, or tried to steal, the homes of these plaintiffs in violation of state and federal laws.”
     The plaintiffs include more than 300 homeowners from several states who hired Mitchell J. Stein’s law firm to represent them in lawsuits against Bank of America and 13 other financial institutions.
     According to the complaint: “On Aug. 17, 2011, defendant Kamala D. Harris, Attorney General for defendant State of California, grossly violated plaintiffs’ civil rights by seizing plaintiffs’ legal files and denying plaintiffs the right to the legal counsel of their choice. Defendant Harris did this under the cover of secrecy without any public airing of the facts, without proper court approval, and without allowing either plaintiffs or their counsel or any court a chance to respond. Harris did so based on an inadequate investigation while citing demonstrably false accusations against plaintiff Mitchell J. Stein, an attorney. And Harris did so at the behest of Bank of America, whose attorneys had been deeply alarmed by the substantive progress that attorney Stein has achieved in plaintiffs’ mass joinder case against the bank.
     ”Defendant Harris took this action while making the transparently false claim that she was protecting ‘consumers.’ Plaintiffs herein are among the consumers she purports to be protecting and they hereby vigorously reject Harris’ jaded interpretation of ‘protection.’ Plaintiffs’ desire is to continue to be represented by the LLP – and one of its partners, Mr. Stein – and for him to continue to unravel the worst systematic fraud committed by any financial institution in United States history.
     ”On Aug. 17, 2011, defendants intentionally violated the due process of all plaintiffs herein when they invaded the offices of the LLP in Agoura Hills and seized plaintiffs’ client files and personal property not belonging to the LLP, claiming to have a court order that allowed them to do so, when such court order did not even name the LLP as a defendant in the underlying action that defendant Harris had filed in superior court.”
     Harris sued several law firms and attorneys on Aug. 15, accusing them of using deceptive marketing to induce thousands of homeowners across the country into joining mass joinder lawsuits against mortgage lenders.
     Stein’s clients claim: “Rather than protecting consumers, defendant Harris’ actions primarily benefitted Bank of America, which has sought repeatedly to discredit attorney Stein ever since he filed in the original lawsuit against Bank of America in 2009, a lawsuit that the attorney general herself described as the ‘granddaddy’ of mass joinder bank cases.
     ”Defendants’ lawsuit against Stein and 26 other persons claimed, among other things, that attorney Stein had participated in illegal and unethical soliciting of clients through mail advertising. On Feb. 3, 2011, Bank of America lawyer Keith Klein went into Superior Court with the very same allegations, and was told that the bank had not presented a legitimate complaint against attorney Stein. Bank of America then took those same claims to defendant Harris and arranged for her to do their bidding, after Bank of America corruptly funneled money to Harris and other defendants through the bank’s counsel of record against plaintiffs.
     ”Defendant Harris formed a mortgage fraud task force to great political fanfare just three months ago. Yet that task force has taken no action whatsoever against Bank of America or any other bank. Instead, Harris attacked Mitchell J. Stein, who has achieved the greatest progress in seeking to hold the large banks accountable for their misdeeds that helped to create the country’s current economic crisis.
     ”Helped by attorney Stein’s work and cooperation with federal authorities, the United States of America sued Bank of America again, on Friday, Aug. 2, 2011, alleging the same wrongdoings that attorney Stein alleged back in 2009. Thus, defendant Harris’ and Bank of America’s attempt to silence Stein – their most feared enemy – backfired.”
     Stein’s clients claim that in her attempt to protect Bank of America, Harris failed to attend a meeting with the Department of Homeland Security to discuss California’s compliance with federal directives affecting large banks.
     ”Defendant Harris disingenuously stated that ‘her office takes no position as to the legal merits of any claims asserted in the mass joinder lawsuits filed by defendants,’” the complaint states. “Yet she clearly has taken a position by seeking to remove the single most effective lawyer in prosecuting those cases.”
     Stein’s clients say that despite Bank of America’s and Harris’ efforts, Stein managed to expand the lawsuit against the bank by adding 160 more plaintiffs on Aug. 1.
     To top it off, they say, Harris has allowed competing law firms, some of which have been prohibited from illegal marketing activities by the Federal Trade Commission, to publish and distribute “a blatantly illegal marketing mailer” to homeowners across the country.
     The mailer, which Harris approved in July, “states unequivocally that anybody signing up with Brookstone Law will receive $75,000 from a ‘class action settlement.’ The facts are that such $75,000 ‘class action settlement’ does not exist and is not close to existing,” according to the complaint.
     Brookstone Law is not named as a defendant.
     ”Defendant Harris has never explained why she is relying on testimony from discredited attorneys and their agents who have FTC Consent Orders against them for illegal marketing practices, all to build a case against Mr. Stein who she knows has been actively assisting the United States Department of Homeland Security,” the complaint states. “Is it because Mr. Stein is the most serious threat to Bank of America?”
     The homeowners claim that Harris authorized law enforcement agents, armed with guns and Tasers, to raid Stein’s office and confiscate his firm’s equipment, documents, employees’ personal property, client files and files belonging to the Department of Homeland Security, without a court order.
     They say Harris seized the records of homeowners from states in which she has no jurisdiction.
     And they say Harris failed to contact Stein’s firm before the raid or to verify Stein’s involvement in illegal marketing practices.
     ”Harris’ core substantive allegations are that Mr. Stein used deceptive and fraudulent advertising to get clients and then he failed to produce results for those clients,” the complaint states. “Both allegations are false and were easily refutable had Harris bothered to conduct an adequate investigation. But Harris did not. Her investigator admitted that his primary focus was on attorney Phillip Kramer. The investigator did not interview Mr. Stein. He did not interview Mr. Stein’s staff. He did not interview Mr. Stein’s associates in other states. He did not interview Mr. Stein’s partner in the LLP, [former Florida state prosecutor] Mike Riley. Thus, armed with no evidence, instead Harris decided that ‘guilt by association’ was a sufficient standard when seeking to achieve Bank of America’s goals.”
     Stein’s clients claim that, contrary to Harris’ allegations, Stein has never participated in loan modifications and has not used illegal mailers or other deceptive marketing practices “to lure unsuspecting clients into ‘scam lawsuits.’”
     They say Harris never spoke with Stein’s clients, most of whom were referred to Stein by the offices of Sen. Dianne Feinstein and the Department of Homeland Security.
     And they say Stein is representing many hardship clients pro bono.
     ”In her zeal to protect Bank of America, defendant Kamala D. Harris simply threw attorney Stein in with dozens of lawyers, law firms, marketers and loan modification businesses and then tarnished him with the blanket accusation of fraud and conspiracy,” the complaint states. “This is how Bank of America wanted it. With a little lying and cheating, the bank took a shot at removing from the playing field the superstar who had been beating the bank to a pulp for two and a half years.”
     Stein’s clients claim Harris omitted from her complaint that a Superior Court judge supported the validity of Stein’s claims against Bank of America, and that several state attorneys general have filed similar lawsuits against the bank.
     The complaint states: “The simple truth is this: Mitchell Stein and his legal associates, who have built their case load not through fraudulent mailings but through tens of thousands of hours of detective work, are Bank of America’s biggest nightmare. And while defendant Harris claims to be on the side of the California homeowner, she is effectively trying to provide Bank of America, one of the nation’s worst corporate citizens in history, who is now being sued again by a very recent federal lawsuit, a ‘get out of jail free card’ by silencing attorney Stein.”
     Stein’s clients add: “Since defendants unlawfully shut down the LLP by duping a superior court into believing that it was only shutting down Mitchell Stein’s practice, the LLP’s clients have not been given any information about their lawsuits from the attorney general or by defendant California State Bar, which has reportedly taken over their cases nationwide. Many plaintiffs are fearful that defendant Harris has shared their files with the very banks they are suing. Some have been told they cannot get their personal legal files for at least three years. By that time, if the evidence of fraud is correct, their homes will be long gone, Bank of America will no longer exist and they will have been denied their day in court.”
     They seek more than $1 billion in compensatory and punitive damages for civil rights violations, and want the defendants enjoined from prosecuting Stein and his clients.
     Named as defendants are the State of California, Los Angeles County, the City of Los Angeles, Attorney General Kamala Harris, Deputy Attorneys General Benjamin Diehl and James Toma, and the State Bar of California.
     The homeowners are represented by Erikson Davis, and by Mitchell Stein.  



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Economic Myths: We Separate Fact From Fiction

Economic Myths: We Separate Fact From Fiction

by Michael Grabell
ProPublica, Aug. 18, 2011, 3:44 p.m.


A sign about jobs created is posted at the Caldecott Tunnel construction project on Aug. 17, 2011, in Oakland, Calif. (Justin Sullivan/Getty Images)

With the recent Iowa straw poll [1] and President Obama’s bus tour [2], Americans are hearing a cacophony of arguments about the wobbly economy. The federal stimulus package passed in 2009 was either a deficit-busting failure full of wasteful projects or an unparalleled rescue that would have been more successful if it had only been bigger. Taxes are either stifling or the lowest they’ve ever been. America needs to invest in infrastructure, or “infrastructure” is merely a euphemism for more government spending. So, here’s our guide to the most prevalent economic myths.

1. Taxes have been going up and are high compared to levels in other countries.


The first part is wrong; the second is also wrong but contains a grain of truth.

The percentage of income that Americans spend on taxes is the lowest it’s been since 1958, according an analysis by USA Today [3]. And with the exception of five years after the 1986 Tax Reform Act, the highest marginal income [4] and corporate tax rates [5] are the lowest they’ve been since World War II.

Federal taxes as a share of GDP are at their lowest point since 1950 [6], according to the nonpartisan Congressional Budget Office [7]. When all taxes, including state and local, are added up, the proportion of GDP going to taxes has been essentially flat for nearly half a century, according to the Organization for Economic Cooperation and Development.

The OECD figures also show that, as a share of GDP, taxes in the United States are lower than in most other developed nations:

Graphic by Paul Kiel and Krista Kjellman Schmidt, ProPublica
Source: Organization for Economic Cooperation and Development

The only income tax hike passed during the Obama administration was part of the health-care reform bill, through which Congress, among other things, raised the Medicare payroll tax for high earners, said Curtis Dubay, a senior tax policy analyst at the Heritage Foundation [8]. The excise tax on cigarettes [9] and other tobacco products was also raised as part of a children’s health insurance bill in February 2009.

The problem, he said, is the federal corporate tax rate [10], which stands at 35 percent.

“We have the highest corporate tax rate in the industrialized world,” Dubay said. “It’s driving new investments overseas and the jobs that come with that overseas as well.”

While it’s true the official rate is high, few corporations pay it, said Roberton Williams of the Tax Policy Center [11].

“The effective tax rates that corporations pay actually goes down a lot with deductions and puts us closer to the middle of the pack,” he said. “It complicates the tax system substantially and makes it more difficult for corporations to figure out what their taxes are.”

A study he oversaw at the Congressional Budget Office [12] illustrates the point. While the United States has one of the highest tax rates for investments in machinery financed with equity (Figure 2-14), it offers a generous deduction for investments in machinery funded by debt (Figure 2-23).

2. The stimulus failed./The stimulus rescued the economy.

Neither. It clearly hasn’t hauled the country back to full employment, but widely-cited economic models show it probably prevented a deeper downturn.

Many economists and nonpartisan forecasting firms have credited the American Recovery and Reinvestment Act with increasing employment by at least two million jobs [13] (see Table 8). Although the unemployment rate remains stuck at 9 percent, several economists estimate that unemployment would have been as high as 12 percent and remained high longer without the act.

One of the most prominent studies on the stimulus [14] was put out by the economists Alan Blinder and Mark Zandi in July 2010. The pair concluded that while the bank bailout and actions by the Federal Reserve had a greater impact in ending the recession, the stimulus was a critical part of the remedy. “We do not believe it a coincidence that the turnaround from recession to recovery occurred last summer, just as the ARRA was providing its maximum economic benefit,” they wrote.

Other analyses have shown less of an impact—that aid for state budgets and education “funded staffing that would have occurred anyway [15]” and that the stimulus saved government jobs [16] while doing little to boost private-sector employment.

Critics say it failed because it fell short of what administration officials claimed it would do. They point to a chart, produced shortly before Obama’s inauguration by two of his economic advisers, Christina Romer and Jared Bernstein, which showed that if the stimulus plan were passed, unemployment wouldn’t top 8 percent [17]. But the recession turned out to be much more severe than they and blue-chip economists realized.

The goal of the stimulus “was to end the Great Recession and jumpstart our recovery,” said Zandi, who has advised John McCain but has said he’s a registered Democrat [18]. “It did that. It was never intended nor should it be expected to be the source of long-term growth. The plan was always to hand the baton to the private sector. And that was going smoothly until we got creamed” by the European debt crisis and rising gas prices.

3. The stimulus should have been bigger.

This is a red herring. Politically, the initial stimulus package almost certainly couldn’t have been bigger because the moderate senators who provided the key votes wouldn’t stomach a package over $800 billion. Indeed, late in the game, Sen. Susan Collins, R-Maine, and others were looking to trim the bill to $650 billion [19].

Regardless of the politics, many economists, including New York Times columnist Paul Krugman, insist the stimulus was too weak to deal with the crisis. Other economists, including John F. Cogan and John B. Taylor at Stanford University and the Hoover Institution, argue that the amount of stimulus spending wouldn’t have mattered [20] because it mainly reduced borrowing by state and local governments rather than increasing spending. So, they contend, the predicted benefits were washed out.

In any case, the total stimulus is bigger than you might have thought. Since the Recovery Act, Congress has approved hundreds of billions of dollars in additional stimulus measures, including the renewal of unemployment benefits, this year’s payroll tax cut and the extensions of the education jobs fund and the homebuyer tax credit. The total is now well over a trillion dollars.

But even that isn’t sufficient knowing what we do now, according to Romer. As she recently told the Washington Post’s Ezra Klein, the economy “probably needed about $2 trillion given what we were actually up against.” [21]

4. The stimulus was all projects.

Nope. The Recovery Act as passed was estimated to cost about $787 billion. More than a third of that was tax cuts, [22] and another third was entitlements, such as unemployment benefits and Medicaid assistance. Of the $275 billion in spending by federal agencies, less than $200 billion was dedicated to projects [23].

The projected cost of the Recovery Act is now $830 billion [24], largely because of the qualification of more people for entitlements and the popularity of some tax credits.

5. The stimulus will have no lasting legacy.

False. It’s been said that while the New Deal left behind a landscape of bridges and dams, the stimulus did little more than fill potholes and create a lot of temporary jobs. In truth, the Recovery Act provided critical funding for a number of projects that people will be able to point to generations from now.

Here are 10 significant projects, most under construction, funded by the Recovery Act:

Name Description State Money
BrightSource Ivanpah Solar Project [25] With a capacity to generate 400 megawatts, the array in the Mojave Desert will be one of the largest solar power plants in the world. Under construction; targeted for completion 2013. CA $1.6 billion loan guarantee
Caithness Shepherds Flat Wind Farm [26] At 845-megawatt capacity, it will be the largest wind farm in the world.* Under construction; expected to start commercial operation 2012. OR $1.3 billion loan guarantee
Savannah River Site Environmental Cleanup [27] Thousands of workers cleaned up radioactive waste at the Cold War nuclear plant and sealed up two reactor buildings with cement. Mostly completed 2011. SC $1.6 billion
Johnson Controls battery plant [28] The new plant is part of a $2.4 billion program [29] to create a battery industry for hybrid and electric vehicles in the United States. Completed 2011. MI $299 million
Caldecott Tunnel Fourth Bore [30] The new tunnel will ease traffic on the heavily traveled highway between Oakland and the suburbs. Under construction; targeted for completion late 2013/early 2014. CA $176 million
Cleveland Innerbelt Bridge [31] The funding is helping to replace a 50-year-old bridge in downtown Cleveland. Under construction; targeted for completion 2014. OH $79 million
Crow Creek Tribal School [32] A new K-12 school on the Sioux Tribe’s Crow Creek Reservation. Under construction; targeted for completion 2012. SD $37 million
Moynihan Station [33] A new Amtrak train hall at the site of the Beaux Arts monument James A. Farley Post Office building. Under construction; targeted for completion 2016. NY $83 million
Coast Guard headquarters [34] The first phase of the new Homeland Security headquarters, which the White House has called the largest federal building project since the Pentagon. Under construction; targeted for completion 2013. DC $650 million (for DHS headquarters project)
Camp Pendleton Naval Hospital [35] The new military hospital will contain four levels and 500,000 square feet. Under construction; targeted for completion 2014. CA $394 million

*House Republicans have argued [36] that an internal White House memo [37] indicates that subsidies for the wind farm might be overly generous.  

Are the jobs only temporary? A lot of stimulus money allowed schools to retain permanent employees, and some short-term workers landed full-time jobs. As for construction work, it’s by nature a compilation of temporary jobs. When business is strong, workers move from one project to the next earning steady paychecks. During cold spells and downturns, work dries up and the firms lay off their crews for months at a time.

6. The stimulus has been full of/free of fraud, waste and abuse.

After Hurricane Katrina and the Iraq reconstruction, many analysts predicted that the federal stimulus program would be rife with fraud, waste and abuse. At least so far, it hasn’t been.

Earl Devaney, the inspector general put in charge of stimulus oversight, testified at a congressional hearing in June that “there have been only 144 convictions involving a little over $1.9 million.” That’s less than 0.01 percent of the total program.

Still, criminal fraud cases take a long time to develop. Since Devaney spoke, 41 new convictions have been added to the books, and more could come. The Recovery Accountability and Transparency Board has received more than 7,000 complaints [38] leading to 1,500 open investigations.

None of this accounts for waste, which is ultimately subjective. Sen. Tom Coburn has now released three reports detailing hundreds of projects that didn’t pass his smell test. Here they are if you want to judge for yourself:

7. Infrastructure is the answer for unemployment.

Partly, but not as much as advocates have claimed. After the debt-ceiling compromise, President Obama said:

“We also need to give more opportunities to all those construction workers out there who lost their jobs when the housing boom went bust. We could put them to work right now by giving loans to private companies that want to repair our roads and our bridges and our airports, rebuilding our infrastructure.”

The construction industry was one of the hardest-hit sectors in the recession, with 27 percent unemployment at its worst. (It’s now 14 percent.) But building homes requires skills different from building infrastructure, said Ken Simonson, economist for the construction trade group Associated General Contractors of America. And unemployment is running high in heavy and civil engineering construction, which has lost 160,000 jobs since July 2007, nearly twice as many as the stimulus transportation projects created. Those workers are likely to land infrastructure jobs ahead of the 400,000 homebuilders who lost their jobs over the same period.

For all sectors of the economy, a grim problem is the long-term unemployed—those out of work six months or longer—who now make up 44 percent of the total jobless pool. The Federal Reserve reported in July that workers unemployed a month or less had a three in 10 chance of finding a job while the odds for the long-term jobless were one in 10 [42].

Author Michael Grabell is working on a book Money Well Spent?: What Really Happened to the Trillion-Dollar Stimulus Plan [43], due out in January from PublicAffairs.

Correction: An earlier version of this story incorrectly said the only tax increases passed during the Obama administration were part of the health-care reform bill. In fact, the excise tax on cigarettes and other tobacco products was also raised as part of a children’s health insurance bill in February 2009.


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Taxes: The percentage of income that Americans spend on taxes is the lowest it’s been since 1958

Only if you look at federal income taxes and neglect state and local taxes. While federal taxes have remained pretty consistent between 17.5% and 20%, local taxes have gone from about 5% in the late 50’s to nearly 10% today. So yes, the percent of income Americans spend on taxes is much higher than in 1958.

Ahhh manipulated statistics … a reporters best friend!

Mark Erickson

Aug. 18, 5:30 p.m.

Red Herring?!? Do you know what that means? Because you go on to discuss the claim after your first paragraph. And while pitting “many” liberals vs. “other” conservatives (with the quoted two being paid to be conservative) economists is technical balance, it terrible journalism. See Jay Rosen on the “view from nowhere.” Unfortunately, it prevents you from declaring an answer, like you do in every other point.

Most of this article was fine, but number 3 is a joke and an embarrassment to ProPublica.


Aug. 18, 5:33 p.m.

Not sure what state you are noting but living in Tenn, I have no state income tax. And when i lived in some states with taxes, the rate never increased as noted 100%?! Most are getting additional revenues from lotteries, property taxes and voter approved tax increases (eg, sales, etc) so one can build huge stadiums to watch sports normally.
Net, the report as outlined was to compare FEDERAL TAXES WITH OECD NATIONS.


The independent Tax Foundation calculated that the per capita tax burden for 2010 was 27%. Under President Reagan, it ranged from 29-31%. 

This calculation included federal (including taxes labeled something other than taxes like Social Security), corporate, state (including sales, property taxes, and fees), and local taxes.

Daniel De Groot

Aug. 18, 7:51 p.m.

“Politically, the initial stimulus package almost certainly couldn’t have been bigger because the moderate senators who provided the key votes wouldn’t stomach a package over $800 billion”

I have yet to see any evidence that Collins/Snowe/Specter had a hard ceiling figure in mind for stimulus prior to the Obama admin releasing its proposal.  Instead, their “ceiling” was simply “less than Obama asked for” – if Obama had asked for $950B, they would have demanded it be $850B, if he had asked for $1 trillion, they would have demanded it be $950.

Obama’s approval was over 70% in spring 2009.  I find it really hard to believe the Republicans would really have utterly blocked the stimulus.

At any rate, in a “myth busting” article, this is a subjective opinion of the author and really doesn’t belong, at least absent some strong proof that there were 41 Senators willing to actually block anything over the amount that passed.

Bill Cole

Aug. 19, 3:04 a.m.

Regarding the earlier comments on tax burden, it is helpful to read the text. As it says, the graph of tax burden over time is for *ALL* taxes, and while that graph is crippled by a lack of grid lines (fire your designers or at least train them!) it does show that we are at the lowest total tax load of the period shown. The reason this may *feel* wrong for many people in the middle class (and especially upper middle class) is that de facto tax burdens actually peak in the low 6-digit income range and fall rather swiftly above the last bracket level due to the fact that most people with much higher incomes are able to manipulate it into forms that legally are treated as capital gains: taxed at 15%. That 15% tax rate creates a big incentive to find ways to divert income into capital gains, especially at the very high end.

Jaime Pero

Aug. 19, 5:14 a.m.

Resdidential and building construction is seasonal only in the northern states , but even there work continues once indoor work begins. In midle an southern states work goes year around. My advice: promote resiiedential poejects “for rent”where onerous new credit requirements will not prevent people from having a decent roof over their heads.

To Mike H,

State income taxes are deductible from Federal income taxes. Congratulations.

Ah, the smell test.

The bottom 50 % of income earners pay no income tax at all. That is why tax revenue is low. A flat tax is the solution. Everyone should have skin in the game and a flat tax could be adjusted to help the poorer of our society.

The comment about 50% of income earners pay no income tax maybe true, but 80% of the US population lives on 15% of the wealth, according to a Pew report.  It is best to have lots of money and pay some taxes, or have some money and pay lots of taxes than to have no money and pay no taxes.  What do you spend money on when you have no money?  You don’t spend money on anything.

geoff, that is a fox news talking point that has no basis in reality. The bottom 50% struggle to afford daily necessities. Creating jobs for those in the bottom 50% who are unemployed or under-employed should be priority number one, not protecting the wealthy.

@ Daryl

A deduction is not the same as a credit. Thanks for trying though.

As regards Point 6:

You don’t mention the $41 billion dedicated to the Iraq reconstruction that just disappeared into thin air. To this day, it has been unaccounted for. Can you say “graft” or “corruption”? This is related to blindly paying grossly inflated invoices from firms “rebuilding” targeted areas.

When it’s the taxpayers’ money, what the hell, right? You don’t feel the pain. You just spend the money.

#1 – “…the highest marginal income and corporate tax rates are the lowest they’ve been since World War II…”

I don’t have the time now to do the proper research, but why cherry-pick which are the “lowest they’ve been” if the assertion that taxes are high is false?  It seems like what we want is total tax, fee, toll, etc. revenue per capita taken in by governments, no?  Any other measurement is playing with semantics.

#2 – So the fact is that it might have helped, but nobody knows?  Really?  Nobody has actually looked at where the money went and analyzed the possible alternative options?  If they haven’t, then no economist you cite should have been given their degree.

#3, #5, #7 – The money should have gone into a single large-scale, public science project.  The most successful investment ever made in our history was the Apollo program, which netted a 15:1 return, all told, catapulted science and technology through the roof, and created an obscene number of permanent, well-paid jobs throughout the country, either directly or by turning the science into products.

This trickle-down/trickle-up (Reagan/anti-Reagan, I guess) methodology of trying to find the right person to give free money to is never going to fix things more than trivially (and never has), because it doesn’t attack the root problem that American companies don’t employ Americans to make things that anybody wants to buy.

Giving rich people money to hire Chinese kids to work in a sweat shop doesn’t work.  Giving poor people money to buy Chinese-manufactured plasma TVs doesn’t work.  What’s so hard about this?

If we must spend directly on people, at least subsidize food and oil prices so that people can survive on less (and make it to their jobs!) and companies can function with fewer surprises.

Anyway, it’s a nice try at debunking, but a lot of this seems just as much opinion and half-factual as the myths themselves.

Michael Grabell

Aug. 19, 11 a.m.

Mike H:
The tax burden being the lowest since 1958 includes federal, state and local taxes. Here’s the link:

“Americans are paying the smallest share of their income for taxes since 1958, a reflection of tax cuts and a weak economy, a USA TODAY analysis finds.

The total tax burden — for all federal, state and local taxes — dropped to 23.6% of income in the first quarter, according to Bureau of Economic Analysis data.”

Please send a link if there’s another source that you’re using.

The full situation on taxes has been dissected by Reagan adviser Bruce Bartlett at

As he says, Americans remain the most lightly taxed major nation in the developed world by far.

However, excessive health insurance costs soak up all of the benefits of our lighter taxation. If we had European style taxes and European style benefits, the budget would be in surplus.

As, of course, it was before the tax cut of 2001.

Joel, there’s a mild flaw in your (and Bartlett’s) argument in that such a path may well also grant us the blessing of European-style debt crises and European-style rioting.

It’s further off-topic, but the healthcare problem could be pretty easily solved by charging people for the actual cost of treatment, rather than whatever the AMA decides doctors are going to charge.  When it doesn’t cost fifteen thousand bucks to tie a splint to a broken leg, I’ll be happy to pay for public healthcare.  But paying for extortion and to drug our kids senseless?  That doesn’t strike me as a bargain, frankly.

Another flaw in Bartlett’s article is simply mathematical.  He tells us European taxes are higher than ours, then tells us that families with children get an allowance from the tax revenue that should be viewed as “negative taxes,” showing why Europeans pay them with less of a burden.  I’m not sure what to make of it, but either they pay more per person (or household) or less, but he wants it to be both.

As I said earlier, I’m too busy to go off and pull the numbers together, but it seems like Europe is only attractive if you ignore that Greece, Ireland, Iceland, Sweden, France, Germany, and England have all been undergoing some serious problems, these days, far worse than anything we see here on our worst days.

The following are quotes by FDR which could be said today and be 100% adequate:

The test of our progress is not whether we add more to the abundance of those who have much it is whether we provide enough for those who have little.

But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.

Competition has been shown to be useful up to a certain point and no further, but cooperation, which is the thing we must strive for today, begins where competition leaves off.

Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle.

In our personal ambitions we are individualists. But in our seeking for economic and political progress as a nation, we all go up or else all go down as one people.

Let us never forget that government is ourselves and not an alien power over us. The ultimate rulers of our democracy are not a President and senators and congressmen and government officials, but the voters of this country.

Not only our future economic soundness but the very soundness of our democratic institutions depends on the determination of our government to give employment to idle men.

The school is the last expenditure upon which America should be willing to economize.

Are you sure this article wasn’t vetted (it certainly was not edited for balance, fairness, completeness and accuracy) with the White House or Axelrod/Plouffe?

What is so so sad is how journalists have lost their way.  This story lacked so much depth and scope it reads like a hardly veiled re-election message explaining why nothing is Obama’s responsibility.  WHY is there no discussion of the restraining impact on businesses and the economic recovery of this administration’s choking regulatory initiatives (EPA, NLRB, Interior, Energy, etc…), the large and still being determined cost of Obamacare, the smothering and costly impact of Dodd-Frank without addressing the real cause of the financial meltdown, government housing and mortgage policy executed though Fannie, Freddie and FHLA, the bashing/demonizing of business and the class warfare against the job creators.

Net-net the Obama Administration’s policies do not engender growth, but rather retard it, block it a almost every turn, all while playing to special interests including creating incentives that no business person with any common sense would accept.

I thought Propublica was supposed to bring to the public’s attention information the main stream media didn’t adequately address.  Somewhere you have lost your way.  This story reads more like you’re making excuses for Obama’s policies being only modestly effective, rather than getting to the heart of the matter, that those policies are infact the headwinds we’re facing.

Being truly supportive of business with actions that drive real growth is what’s needed, NOT more of the same one-time “stimulus” injections of money (we don’t have); transfer payments and one-time projects do NOTcreate any type of sustained economic growth needed for everyone to experience a better life style.

You might consider a followup story unless of course you’re writing to like minded people who have no vision of reality and what it takes to create jobs and growth.

The bottom 50% of the population control 2% of the wealth! Lets raise their taxes so they have even less wealth! The bottom 50% earn on average $25k and if the average family is 4 people, lets raise their taxes so they can live on even less.  Why do they need refrigerators as Fox said,questioning why they need them and I agree. With less money they won’t need one because they won’t be able to buy food

Michael Rogers

Aug. 19, 3:19 p.m.

FDR said all that needs to be learned/done!
I’d guess that his standards are the exact opposite of those of the tea party

Albert Meyer

Aug. 19, 3:40 p.m.

The author must debunk the argument below:

Government cannot spend anything that it does not confiscate from us. Every government program results in a net loss of jobs. If we give the government, say, a hundred million dollars of our hard-earned wages to spend on a government program, it would create jobs [A]. If we withhold the hundred million dollars and instead spend and invest it ourselves, it would also create jobs [B]. If [A] > [B], we should give government at least 90% of our hard-earned wages and, still, there would never be enough workers to go around to fill all the vacancies. (The Soviet Union was run on this myth that [A]>[B])

However, if [B] > [A], as is always the case, we should only give government our hard-earned wages to take care of essential service, not try and encourage home ownership, not subsidize education (government subsidies are the greatest cause of price inflation in education*), not wage wars abroad to democratize or build nations, change regimes and annex oil fields, etc. etc.

* When the home-buy credit expired, home prices dropped. The tax credit just allowed sellers to ask more, because buyers were deluded in believing the government was paying $8,000 of the purchase price.

Singapore’s GDP per capita was $600, below that of Guatemala, 44 years ago. They decided to keep the size of government at about 12% of GDP.  Such a small government means the highest individual tax rate is 20% and corporations pay 18%, but manufacturers get tax holidays. Hence, manufacturers, especially those in California, are relocating to Singapore. Malaysia is now copying Singapore.

Small government and low taxes meant that today, GDP per capita in Singapore is close to $43,000, making it the 4th richest country in the world. It has a population of 5 million and it generates $240 billion in GDP for a country one-eight the size of Delaware. Government spending does not create prosperity. Singapore is the 40th largest economy in the world. Greece’s GDP is $300 billion, so large that the global economy is being shaken by its economic woes. Imagine if Greece had adopted the Singapore model. Singapore has no natural resources and has to import all raw materials and agricultural products. United Emirates and Venezuela, just above Singapore in the GDP race have huge oil revenues, without which they would fall well below Singapore. Singapore produces more GDP than Egypt, Nigeria (with its 80 million population and huge oil reserves can’t match Singapore’s GDP), Israel, Chile, Portugal and Algeria. Singapore is still growing at 9% p.a., its long-term growth rate. At this rate, five years from now, Singapore will be in top 30 in the GDP contest. (Washington take note: the highest paid politicians in the world are is Singapore.)

We live in a totally different world. We are now competing against the likes of China, Singapore and even Canada, where they have brought the corporate tax rate down to 15%. Talking about Canada. The country can afford universal health care because it only spends $20 billion a year on defense. They rely on us to defend them. So do Korea, Europe, Taiwan, Australia and a 130 other countries. Including the wars we will spend a trillion dollars on the military this year. Canadian taxpayers won’t spend that in fifty years, sponging of us. It makes no sense to waste money on infrastructure projects in Afghanistan and Iraq (a billion dollar embassy the size of the Vatican and 14 military bases).

As noted, many US corporations have moved their manufacturing facilities to Singapore, in part to enjoy the tax holiday and lower labor costs. Capital flows to areas where the returns are the highest. High labor costs and high taxes depress returns, hence capital goes abroad. We can’t create jobs without capital. Higher taxes chase capital abroad. It is self-evident logic.

The government collects less than $250 billion a year in corporate tax, and that is at a 35% rate. If they cut the rate, like in Canada to 15%, a lot of capital will come back from abroad and create jobs here in the US. We think they should give manufacturers here in the US a tax-free holiday for at least five years, and lower corporate tax for all others to 15%. They can fund these tax cuts by cutting the defense budget by $500 billion a year and tell our allies that in future they would have to take of their own defense.

Firing missiles into Libya has nothing to do with our safety: oil and military interests alone drive these military misadventures. Excluding Social Security and Medicare (self-funding through payroll contributions), the 2011 budget will amount to $2.215 trillion. Military spending of $712 billion (not including cost of wars, Veterans Administration and Homeland Security) comprises 32% of the budget. We are defending 130 countries with 900 military bases. Homeland defense would cost a fraction, but this budget item evidence of the overbearing influence of the military-industrial complex.

clarence swinney

Aug. 19, 4:40 p.m.

6   can you recall 6 numbers
a few simple numbers tel what Warren buffett said:“Class warfare?Yes! My side is winning”

No Warren Your Side has WON.

5% own 62% Net Wealth
80% own 15%

20% own 93% Financial Wealth
80% own 7%

25% get 62% individual income
70,000,000 get 13%

62/15   93/7   62./13 = class warfare won

Democrats will not tell the people Will You?  6 numbers
6 numbers that could win an election
clarenceswinney Lifeaholics of america 2008 tax summary

Jon Stewart had an excellent segment on 8/18 regarding the Republican view that we can’t solve our debt problem by increasing taxes by 4% (from 35 to 39%) on the richest Americans which is about $700 Bn over the next decade. He shows the usual Fox News demagoguery and, then takes the other side. He goes along with Fox by taking half of the total net worth of the bottom 50% of the population which also equals $700 Bn. In other words, if slightly increasing taxes by just 4% on the upper income earners is not practical, how can the rich argue that taking half of the entire net worth of the bottom 50% of Americans is somehow fair? The facts are undeniable.—-the-poor-s-free-ride-is-over?xrs=share_copy

You’re misrepresenting Singapore, it’s is one of the most tightly regulated mixed economies in the world – more than half of their economy is composed of state owned monopolies and government imposes very strict economic planning.  While base taxation rates may seem low, you’re ignoring high import taxes and fee-based usage of public facilities, and value added taxes. 

Holding up tax rates as the primary condition for growth is too simplistic, it’s like saying all you need to build a good race car is to slap on the biggest engine you can find.

Albert Meyer

Aug. 19, 6:34 p.m.

Stephan, I am not advocating Singapore’s social or political systems. I am saying that when you analyze the country’s phenomenal economic success, it is closely linked to low taxes and small government, not unlike Hong-Kong. Cuba, on the other hand, is the antithesis of Singapore where government expenditures are equal to 85% of GDP. Nothing wrong with government imposing strict economic planning, but then it steps aside and allow private capital to operate within the planning limits. No I am not ignoring those taxes. This is the way to tax. Allow people to keep their hard-earned wages and then tax them indirectly. These taxes are more than adequate to meet government expenditures because of the small size of the government.

If government expenditures and budget deficits create jobs, then no country in the world has ever seen the kind of spending and deficits that we have experienced during the past decade, and we have the highest unemployment rate in 50 years… maybe longer.

Nomi Prinz writes, “Basically, what all these numbers show is that; public debt has nearly doubled since before the big bailout, while intragovernmental debt has increased just 15%. Some (like Geithner, Bernanke, etc.) may argue that this balloon in public debt was required to save our economy, though there’s little evidence of it doing anything but cheaply floating our financial system, not least because nearly half of the additional $4.4 trillion of public debt that was created is stashed at the Fed as either excess reserves or QE2.

John Taylor was on NPR a few days ago with Stiglitz.  Taylor spewed the list of Republican talking points, without anything of value.  Are you sure you want to use him as a credible source?

Bill amichtom

Aug. 20, 2:35 a.m.

Another reason the “red Herring” claim is fallacious is that Obama provided no pressure to get the conservative Dems to change their votes. When the Progressive Caucus said they would not vote for war funding, Obama told them they wouldn’t get DNC funding for their campaigns. They came around.

He never did this with the DINOs.

Roger Burgess

Aug. 20, 2:37 a.m.

Albert said, “Government cannot spend anything that it does not confiscate from us.”

And with that, you lost your credibility.  Anything further you have to say on the topic of political or economic policy should not be given much weight. 

I mean, you could, at the very least, update your political philosophy to John Locke’s era.

Libertarians have spent the last 30 years debunking their own arguments by practicing them.  They didn’t work so well in the era where slavery was legal, what makes you think they work well now?

I saw a poll just before the 2010 election that verified 60% of Republican voters believed their taxes had risen between 2008 and 2010 when they had, in fact, fallen.  Voters who believed their taxes had risen often cited the Affordable Care Act, which the CMS actuaries now tell us is reducing Medicare spending preemptively because most of the provisions have not kicked in yet.  I don’t think its honorable to rail against parts of the polity because they are misinformed or uninformed – we are all in this together, sink or swim – but what the media now calls “low information voters” is becoming a national problem when these huge economic considerations become part of national elections.  The Founders said we needed an informed electorate to make this republic work and we are failing them very badly.  To reiterate, taxes have not gone up and the stimulus bill’s main problem was that it contained anothr $284 billion in unneeded tax breaks instead of more direct aid to the states for infrastructure projects.  Did it work?  Yes and no, but probably as well as it could have given our divisive politics and voter apathy.  We are in real trouble if the next election is a repeat of the last one.

No Public Works Admin here. Perhaps, when the next major Act of God
strikes a very Red state, we should stand & watch. If they scream, we
should calmly & politely noted they’ve been shouting how Uncle Sam
is a monster. Not a scenario I wish but the shock that’s needed. BTW,
what makes us Americans? That is, in significant part, an economic &
financial question.

Albert Meyer, where can I read more of your stiff?

Singapore is a very much government directed success story. Their educational & health systems, housing & transportation infrastructure
did not pop out of nowhere. It is very dynamic but not a democracy. Should there be any governments? If not, who makes the decisions & controls the assets, including especially the human ones?

This person MAY have the facts correct, BUT the conclusion that wealth should be equal is…wrong and …well communism,… the best, brightest, and hardest working WILL have more wealth then the vast majority of us. That is just a fact, and the sad fact is I’m not one of them…yet?
clarence swinney
Yesterday, 4:40 p.m.
6 can you recall 6 numbers
a few simple numbers tel what Warren buffett said:“Class warfare?Yes! My side is winning”
No Warren Your Side has WON.
5% own 62% Net Wealth
80% own 15%
20% own 93% Financial Wealth
80% own 7%
25% get 62% individual income
70,000,000 get 13%


Aug. 20, 12:59 p.m.

It’s US the Government of this Representative Republic responsibility to impeach President and recall every Representative of US the Government. That defies demands of Natural Law: what Mother Nature, God, or Whatever Power decreed to be the reality of the real world, democracy, capitalism, the US Constitution, and free, fair, and affordable commerce?

Demanding every corporation, farmer, business, outsourcer sweatshop, and nonprofit, tax-exempt, organization and Church markets the cost in the wholesale and retail price of his or her product and service. Of every workers, consumers, and taxpayers living including pension and health care. Enabling parents to love, nurse, nurture, discipline, protect, and provide, for every child (job) they conceive and fund schools, infrastructure, local and national security, government services, and etc.; with money derived from wages or independent business profit.

Greg D, the conclusion is that a nation’s long-term prosperity (meaning prosperity for the greatest number of people) and well-being depends on it being able to meet its very legitimate needs, and we are seeing that this is increasingly impossible under conservative economic philosophy and policy.  If the U.S. can’t do that then there really is no reason to pretend we are the UNITED States of America.

Additionally, conservatives don’t seem to grasp that we’re a complex state level society with various forms of built in stratification, not an unusually large band of egalitarian hunter gathers.

Half of the people in America pay no taxes so the “average” is mathematically irrelevant.  Over the period of time that this article purports to cover, taxes on those that actually have a tax burden have gone up.  Also, the cost of compliance of exponentially increased regulations on investing, business, etc. have become a further burden on those that pay taxes and create jobs.  Those costs are not accounted for here as an obligation to the government that further takes from those that are successful.

The author of this piece did a lousy, cursory job that unfairly distorts the facts.  Continue the distortion and class warfare and those with money will continue to find other ways to deploy it besides creation of jobs.

This continues to be the Marxist checklist towards Socialism plain and simple.  See #‘s 15, 30, 32, 36, 37 specifically as it relates to this article.

You state opinions as facts! I say it’s a bunch of manipulated propaganda crap! And you’re spouting it like we’re mental incompetents. Go back to good reporting and stop allowing yourself to be the mouth piece of corporate interests.

I really can’t stand the way the GOP keeps coming up with one fantasy after the next to lure voters and simultaneously blow smoke in their eyes: so they won’t see the party’s true aims and their true raison d’être: to keep chipping away at the wealth, happiness and rights of those without super piles of money.

The NYT ran letters the other day with people pro and con Warren Buffett’s editorial on taxing the rich. One of them, from a Club for Growth person I think. was to the effect that of course there are people with huge piles of capital because this is a capitalist society.

“Of course.” But what this nutjob does NOT realize is that:1) the idea that some just happen to grow superrich under capitalism is not supposed to be true of modern rational capitalism.

This kind of capitalism where only a few profit immensely and disproportionately is what Max Weber labeled ‘BOOTY’ capitalism.Weber said that booty capitalism was both technically pre-rational capitalism [remember the ‘Robber Barons”] and that not only did it run counter to whatever was good rational capitalism could do, it would actually DESTROY capitalism if it continued to run unfettered.

2) the fact that NO ONE can really accumulate huge riches without impoverishing their neighbor. I don’t think moderate capitalism MUST always do this, but BOOTY capitalism always does.

Remember the Reagan epoch, “the one who ends up with the most toys wins?” …. Up until about a year ago, it seemed we were experiencing vampiric capitalism—- now, cannibalistic capitalism appears more exacting. The financial & extractive industries are in overdrive to destroy all life & for good measure – disembowel the planet – simply because it can be done.

Albert Meyer

Aug. 20, 8:19 p.m.


Today, 8:39 a.m.

Albert Meyer, where can I read more of your stuff?

Tom, here: Change the XX to tt… scroll down and look for my name

Albert Meyer

Aug. 20, 8:36 p.m.

Roger Burgess

Albert said, “Government cannot spend anything that it does not confiscate from us.”

And with that, you lost your credibility.  Anything further you have to say on the topic of political or economic policy should not be given much weight.” 

Come on Roger. I never claimed to have any credibility. However, you know I’m right when I say that “it is all self-evident logic.” So, you have to attack my credibility. Well, I have zero credibility. I’m just am old bum. Spare me dime, guy.

Now, if you want more wars, more money for the war profiteers, more money for special interests, more deficits, more debt, more stimulus spending, more welfare, more warfare, look up the Treasury’s website and make some additional contributions to this great machine of economic growth, the creator of wealth and prosperity, called the government.

Fact is (self-evident) all George Bush and Barack Obama’s horses and men could not get this Humpty Dumpty economy together again, despite record deficits, record borrowing, record stimulus spending, record money printing, yeah, even a record number of trillion dollar wars (Paul Krugman’s favorite means of stimulating the economy).

Time to look at other alternatives. The smaller the government, the greater the people’s prosperity. Incontrovertible truth. Ask the folks in Cuba and Venezuela about big government spending. I own stock in a steel company that had a subsidiary, huge steel mill, in Venezuela. It was very profitable. The government nationalized it a couple of years ago. The bureaucrats ran it into the ground. Now they are importing steel from the parent company of the subsidiary that they nationalized. This is not unique to Venezuela, as the Soviet Union, East Germany and North Korea taught us.


The 50 percent you alluded to is a FAUX talking point and a misguided one at that, for multiple reasons.

First, that figure was from 2009; an anomaly. In that year, two things occurred which exempted a greater number of people – the “Making Work Pay” tax cut and the exemption from taxes on the first $2400 for the unemployed.  Generally, the 50 percent you refer to is in the 38-39 percent range.

Also, that figure does not include payroll tax.  Given that incomw tax is just one of several FEDERAL taxes, your FAUX induced talking points are very misguided.

BTW, the top 400 Americans own more than the bottom 150 million Americans.

Robert Holmgren

Aug. 20, 9:41 p.m.

“but widely-cited economic models show it probably prevented a deeper downturn.”

Nice use of weasel wording.  Measuring ‘what ifs’ and ‘probably’ isn’t proof of of anything except the ability of people to make stuff up.  The FACT is that things did not improve by the measure set out at the time.

Winston Smith

Aug. 20, 11:23 p.m.

the most important myth to debunk about the amerikan economy, let alone the global economy, is that you can’t have infinite growth on a finite planet: period.

this article does not separate fact from fiction.

and it certainly isn’t, “Journalism in the public interest”.

it is propaganda in the corporate-fascist-capitalist debt-as-money System interest.

the cold, harsh, indifferent fact is, we’re not going to grow, consume, indebt and complicate our way out of the problems of growth, consumption, debt and complexity:

“The world population, currently at seven billion, is well beyond Earth’s ability to sustain. By 2050, with a projected population of 10 billion people and without a change in consumption patterns, the cumulative use of natural resources will amount to the productivity of up to 27 planet Earths, the study found.

“Sustaining the current seven billion people on the planet requires a major shift in resource use. At present, the average U.S. citizen’s ecological footprint is about 10 hectares, while a Haitian’s is less than one. The planet could sustain us if everyone’s footprint averaged two ha, Mora said.”

doesn’t matter which modern, industrial, infinite-growth political-fantasy you subscribe to: fake-Left, nonexistent-Middle or real-Right.

until pseudo-journalists (State propagandists) like Michael Grabell find the guts and integrity to report the Truth, People will continue to get the Shaft.

and rebuilding car-dependent infrastructure—roads, highways, bridges, etcetera—in the age of Peak Oil (1) will be a tragic waste and counterproductive boondoggle.

i continually return to Kirkpatrick Sale’s prescient words from his 2005 article titled, Imperial Entropy:

“Jared Diamond’s recent book detailing the ways societies collapse suggests that American society, or industrial civilization as a whole, once it is aware of the dangers of its current course, can learn from the failures of the past and avoid their fates. But it will never happen, and for a reason Diamond himself understands.

“As he says, in his analysis of the doomed Norse society on Greenland that collapsed in the early 15th century: ‘The values to which people cling most stubbornly under inappropriate conditions are those values that were previously the source of their greatest triumphs over adversity.’ If this is so, and his examples would seem to prove it, then we can isolate the values of American society that have been responsible for its greatest triumphs and know that we will cling to them no matter what. They are, in one rough mixture, capitalism, individualism, nationalism, technophilia, and humanism (as the dominance of humans over nature). There is no chance whatever, no matter how grave and obvious the threat, that as a society that we will abandon those.

Hence no chance to escape the collapse of empire.”



From the Article:  “One of the most prominent studies on the stimulus [14] was put out by the economists Alan Blinder and Mark Zandi in July 2010. The pair concluded that while the bank bailout and actions by the Federal Reserve had a greater impact in ending the recession, the stimulus was a critical part of the remedy. “We do not believe it a coincidence that the turnaround from recession to recovery occurred last summer, just as the ARRA was providing its maximum economic benefit,” they wrote.”

@ Robert Holmgren

“What if” you read the whole analysis instead of making things up or quoting half-sentences out of context.


Aug. 21, 2:39 p.m.

People need to spend a little time thinking about just exactly what the Republicans have already done and now wish to inflict upon the American people.

1)  Our economy works because of the flow of wealth

2)  Our economy’s circulatory system has had great gushing wounds inflicted upon it which are inhibiting that flow:

  a)  Flood-up/trickle-down economics allows the wealthy to sequester vast amounts and effectively remove that wealth from circulation forever, and further incentivizes the suppression of American salaries and wages…what they don’t pay you, they can keep.

  b)  Deregulation allows the wealthy to drain the savings of the American people…so what they do pay you, they can siphon off at a later date (at their whim, and strangely routinely, don’t you think? with “S&P downgrades”?)

  c)  Enforced oil payments – payments that not only drain our economy, but fund the purchase of the materials of war that the Middle Eastern nations use against their own citizens, Israel, Europe, the former territories of the U.S.S.R., and us

  d)  Monster trade deficits…deficits we’re destined to keep not only because our wealthy are making great sums of money eradicating American jobs but because offshore nations realize that it is to their advantage to rig their currency exchange rates to keep America non-competitive; we have taught them that wars can be won both with weapons and by accumulating the means of transforming raw materials into useful things (which would also include weapons, of course)

  e)  And apparently because the other methods weren’t working fast enough, the enormous expenses of a mismanaged war in Afghanistan and a totally and outstandingly bogus war in Iraq.

3)  To date, we have coped with these great gushing wounds in the circulatory system that is our economy in much the same way the emergency room saves you after you introduce your car to a bridge abutment:  By pumping new blood in…or printing money, as it were.

4)  The right – lead by Perry – is beginning to demand that we stop printing money; they’re even going so far as to label the act “treason”.  Understand that if we keep bleeding at the rate we are and we stop printing money, our economy will die when the flow of money that is its lifeblood stops.

Understand that when the economy stops in a capitalistic society, then the tens…hundreds of millions who are dependent upon the that economy perforce will suffer and likely die.  I see no alternative to concluding that is what, in fact, the right seeks….that is what Perry and the Republicans seek:  Suffering and, eventually, death; on a massive scale…at a level that will even surpass the 1930s, for the right have despised and sought to destroy all things FDR continuously over the intervening 80 years and will do what they can – anything and everything they can – to ensure we cannot be saved again.

That is not hyperbole; look at what the Republicans have done to America…look at where America stands (wobbles, rather) today…look at what the Republicans seek in speech after speech after speech.

We are at war…get used to the idea, and you might be able to save your kids, if not yourselves.

Albert Meyer

Aug. 21, 4:21 p.m.

ibsetve, your analysis is pretty good, except for the fact that you blame it on the Republicans. (I hate the GOP Politburo with a passion.)

The same special interests that fund the political campaigns of Republicans also bankroll Democrats. Correct?

The two parties both espouse welfare and warfare; maybe in varied proportions, but in the end it’s a wash. Correct?

Regardless of who is in power, the war profiteers, the bankers and special interests continue to loot the Treasury through lucrative contracts, tax loopholes and a host of others means in which they enrich themselves as our expense – as you so lucidly point out. Correct?

Congress (except for Ron Paul) is utterly beholden to special interests. Both parties bequeathed $14 trillion of debt to us, our children and our grandchildren. Heaven help us when interest rates start to go up. Our current $200 billion interest bill could reach a trillion dollars. Correct?

Go Green. Recycle Congress.

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Attorney Seeks High Court Review in MERS Foreclosure Case

Attorney Seeks High Court Review in MERS Foreclosure Case

Kate Moser ContactAll Articles

The Recorder

August 19, 2011


Susan Ferguson is fighting foreclosure through a legal strategy that’s being deployed by homeowners in courts across the country.

If successful, the Southern California criminal defense lawyer could change the landscape of foreclosures in California.

Ferguson, appearing in pro per, is trying to get the California Supreme Court’s attention on the foreclosure of her former two-bedroom home in Burbank.

One of her legal arguments attacks the legitimacy of MERS Inc., which, through its private mortgage registry, claims to hold title to roughly half of all the home mortgages in the United States, including at one time Ferguson’s.

MERS, which stands for Mortgage Electronic Registration Systems, was conceived as a way to streamline record keeping and facilitate the transfer of loans. A privately held company, it stands in as the owner or owner’s nominee in mortgages transferred by lenders, eliminating the need to make a public record of mortgage assignments. It’s drawn increasing scrutiny as homeowners fighting foreclosures deal with the fallout from America’s real-estate craze.

Ferguson argues that MERS illegally and fraudulently assigned the deed of trust and promissory note on her house to Avelo Mortgage, and that the original lender, New Century Mortgage, remained the holder of the note.

Avelo Mortgage’s lawyer, Frederick Levin, an attorney in the Los Angeles office of Dykema Gossett, declined to comment.

While big lenders are under attack over questionable foreclosure documentation and procedures, going after MERS is one of the tools available to homeowners fighting foreclosure. Courts all over the country are deciding the extent of MERS’ powers different ways.

The California Supreme Court has yet to weigh in, but homeowners in other states and in federal courts — including several bankruptcy courts in California — have had some success.

Ferguson says that with the country still in the middle of a foreclosure crisis, California’s high court should scrutinize the mortgage industry’s foreclosure procedures.

“I almost see myself as a private attorney general,” Ferguson said. “I can’t understand why there aren’t more of them, but nobody can afford to challenge these decisions. All these cases are just getting kicked out.

“Everything’s set up so the borrowers never really get their day in court.”

The stakes are particularly high in California, which far and away led the nation in new foreclosure filings last month, according to RealtyTrac, a foreclosure listing company. One in every 239 homes is facing foreclosure, totaling 56,193 properties.

But so far, the courts of appeal in California have been siding with the lenders.

George Holland Jr., an Oakland attorney who is arguing the MERS issue in foreclosure cases frequently these days in the courts of appeal, said the courts are finding any avenue they can to get rid of foreclosure MERS cases.

“If one plaintiff wins, quote unquote, you can just about imagine how the floodgates would open,” he said.

Holland lost one appeal earlier this month. In Fontenot v. Wells Fargo, A130478, he argued that his client was the victim of a wrongful foreclosure, in part because MERS was never the owner of the promissory note or the true beneficiary under the deed of trust, so it never had a right to assign the deed of trust to HSBC Bank USA. The court didn’t buy it.

“This aspect of the system has come under attack in a number of state and federal decisions across the country, under a variety of legal theories,” wrote First District Court of Appeal Justice Sandra Margulies in the case. “The decisions have generally, although by no means universally, found that the use of MERS does not invalidate a foreclosure sale that is otherwise substantively and procedurally proper.”

The California Supreme Court seems to be at least potentially interested in Ferguson’s case. The court recently gave Avelo Mortgage more time to file a brief opposing her petition for review.

But if the court were going to review a MERS case, it passed over an opportunity to so in May.

In that case, Gomes v. Countrywide, D057005, a unanimous panel from the Fourth District in San Diego wrote a definitive opinion on MERS.

“Because California’s nonjudicial foreclosure statute is unambiguously silent on any right to bring the type of action identified by Gomes,” wrote Justice Joan Irion, “there is no basis for the courts to create such a right.”

Irion suggested the plaintiff take his argument to the Legislature.

Last week, Gomes’ lawyer, San Diego attorney Ehud Gersten, filed a petition for certiorari. He says it would be the first MERS case to make it to the U.S. Supreme Court.

“The use of MERS has created a system with a total lack of transparency that can be — and has been — used to mask fraud, negligence and incompetence,” Gersten wrote in the cert petition. “In ruling to uphold the dismissal of petitioner’s suit, the state of California, through its judicial branch, has said to petitioner and to thousands of homeowners across the state: ‘You have no right to proof that the claim on your home is legitimate.’ This ruling deprives homeowners of due process under the Fourteenth Amendment of the Constitution.”

As for Ferguson’s case, not everybody’s confident that the California Supreme Court will or should review it.

Santa Clara attorney Thomas Spielbauer, who represents homeowners in foreclosure, has asked the court the depublish the decision. He takes no position either way on Ferguson’s petition for review, but acknowledges that the case’s unusual fact pattern “is not a desirable one from a homeowner’s perspective.”

Ferguson had been renting the Burbank house when its former owner, Joseph Huynh, was foreclosed on. He continued to collect rent even after going into default, Ferguson alleges in her suit. Huynh quit-claimed his interest to Ferguson and her co-tenant in 2009.

Ferguson said that if the court were to take her case and if she were to prevail, it would be good for homeowners because it would give borrowers more leverage in the face of the mortgage banking industry.

“It would make the lenders more accountable,” she said.

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Wall Street Aristocracy Got $1.2 Trillion From Fed

Wall Street Aristocracy Got $1.2 Trillion From Fed


By Bradley Keoun and Phil Kuntz -Aug 22, 2011 5:19 AM PT


Enlarge image Wall Street Aristocracy Got $1.2 Trillion

Wall Street Aristocracy Got $1.2 Trillion

Wall Street Aristocracy Got $1.2 Trillion

Scott J. Ferrell/Congressional Quarterly/Getty Images

Lloyd Blankfein, CEO of Goldman Sachs; Jamie Dimon, CEO of JPMorgan Chase and Co.; Robert P.Kelly, CEO of the Bank of New York; Ken Lewis, CEO of the Bank of America; Ronald E. Logue, CEO of State Street; John Mack, CEO of Morgan Stanley; Vikram Pandit, CEO of Citigroup; and John Stumpf, CEO of Wells Fargo, testify during the House Financial Services oversight hearing of the Troubled Assets Relief Program (TARP).

Lloyd Blankfein, CEO of Goldman Sachs; Jamie Dimon, CEO of JPMorgan Chase and Co.; Robert P.Kelly, CEO of the Bank of New York; Ken Lewis, CEO of the Bank of America; Ronald E. Logue, CEO of State Street; John Mack, CEO of Morgan Stanley; Vikram Pandit, CEO of Citigroup; and John Stumpf, CEO of Wells Fargo, testify during the House Financial Services oversight hearing of the Troubled Assets Relief Program (TARP). Photographer: Scott J. Ferrell/Congressional Quarterly/Getty Images

Fed Handed Out $1.2 Trillion in Secret Loans


Aug. 22 (Bloomberg) — The Federal Reserve’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money. The largest borrower, Morgan Stanley, got as much as $107.3 billion, while Citigroup Inc. took $99.5 billion and Bank of America Corp. $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress. Erik Schatzker and Sara Eisen report on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Bank ‘Aristocracy’ Borrowed $1.2 Trillion from Fed


Aug. 21 (Bloomberg) — Robert E. Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis, now vice president at the Kansas City, Missouri-based Kauffman Foundation, Richard Herring, a finance professor at the University of Pennsylvania, Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc., and Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University, talk about the U.S. government’s $1.2 trillion bailout of the banking system and the outlook for regulatory overhaul of the industry. (Source: Bloomberg)

Fed Loans Needed More Oversight, Barofsky Says


Aug. 22 (Bloomberg) — Neil Barofsky, former special inspector general for the Troubled Asset Relief Program and a Bloomberg Television contributing editor, talks about the Federal Reserve’s emergency loans during the financial crisis. Fed Chairman Ben S. Bernanke’s effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress. Barofsky speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

U.S. Banks in `Pretty Good' Shape, Analyst Says


Aug. 22 (Bloomberg) — Charles Peabody, an analyst at Portales Partners LLC, and Bloomberg reporter Bradley Keoun discuss the Federal Reserve’s emergency lending programs and the capital position of U.S. banks. They speak with Erik Schatzker and Michael McKee on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Brendan Smialowski/Bloomberg

Chief executive officers from eight of the largest U.S. banks receiving government aid testify at a House Financial Services Committee hearing in Washington, D.C on Feb. 11, 2009.

Chief executive officers from eight of the largest U.S. banks receiving government aid testify at a House Financial Services Committee hearing in Washington, D.C on Feb. 11, 2009. Photographer: Brendan Smialowski/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Jeremy Bales/Bloomberg

Two weeks after Lehman Brothers Holdings Inc.’s bankruptcy triggered a global credit crisis, Morgan Stanley countered concerns that it might be next to go by announcing it had ‘strong capital and liquidity positions.’

Two weeks after Lehman Brothers Holdings Inc.’s bankruptcy triggered a global credit crisis, Morgan Stanley countered concerns that it might be next to go by announcing it had ‘strong capital and liquidity positions.’ Photographer: Jeremy Bales/Bloomberg


Enlarge image Wall Street Aristocracy Got $1.2T in Loans

Wall Street Aristocracy Got $1.2T in Loans

Wall Street Aristocracy Got $1.2T in Loans

JB Reed/Bloomberg

A Wall Street sign stands outside the New York Stock Exchange in New York, U.S. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

A Wall Street sign stands outside the New York Stock Exchange in New York, U.S. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret. Photographer: JB Reed/Bloomberg


Enlarge image Wall Street Aristocracy Got $1.2T in Loans

Wall Street Aristocracy Got $1.2T in Loans

Wall Street Aristocracy Got $1.2T in Loans

Robert Caplin/Bloomberg

Citigroup Inc., along with Morgan Stanley and Citigroup Inc., were the biggest borrowers under seven U.S. Federal Reserve emergency-lending programs.

Citigroup Inc., along with Morgan Stanley and Citigroup Inc., were the biggest borrowers under seven U.S. Federal Reserve emergency-lending programs. Photographer: Robert Caplin/Bloomberg


Enlarge image The Fed’s Secret Liquidity Lifelines

The Fed’s Secret Liquidity Lifelines

The Fed’s Secret Liquidity Lifelines


The Federal Reserve provided as much as $1.2 tillion in public money to banks and other companies from August 2007 through April 2010 to head off a depression.

The Federal Reserve provided as much as $1.2 tillion in public money to banks and other companies from August 2007 through April 2010 to head off a depression. Source: Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Peter Foley/Bloomberg

Morgan Stanley, along with Citigroup Inc., and Bank of America Corp., were the biggest borrowers under seven Fed emergency-lending programs. The three banks’ combined $298.2 billion in hidden Fed loans was triple what they received in publicly disclosed bailouts from the U.S. Treasury.

Morgan Stanley, along with Citigroup Inc., and Bank of America Corp., were the biggest borrowers under seven Fed emergency-lending programs. The three banks’ combined $298.2 billion in hidden Fed loans was triple what they received in publicly disclosed bailouts from the U.S. Treasury. Photographer: Peter Foley/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Jeremy Bales/Bloomberg

Bank of America Corp., along with Morgan Stanley and Citigroup Inc. was one of the biggest borrowers under the U.S. Federal Reserve’s emergency-lending programs. The three banks’ combined $298.2 billion in hidden Fed loans was triple what they received in publicly disclosed bailouts from the U.S. Treasury.

Bank of America Corp., along with Morgan Stanley and Citigroup Inc. was one of the biggest borrowers under the U.S. Federal Reserve’s emergency-lending programs. The three banks’ combined $298.2 billion in hidden Fed loans was triple what they received in publicly disclosed bailouts from the U.S. Treasury. Photographer: Jeremy Bales/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Simon Dawson/Bloomberg

The Royal Bank of Scotland took $84.5 billion in loans from the U.S. Federal Reserve’s emergency-lending programs.

The Royal Bank of Scotland took $84.5 billion in loans from the U.S. Federal Reserve’s emergency-lending programs. Photographer: Simon Dawson/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Gianluca Colla/Bloomberg

UBS AG, Switzerland’s biggest bank, got $77.2 billion in loans from the U.S. Federal Reserve’s emergency-lending programs.

UBS AG, Switzerland’s biggest bank, got $77.2 billion in loans from the U.S. Federal Reserve’s emergency-lending programs. Photographer: Gianluca Colla/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Scott Eells/Bloomberg

Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets.

Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets. Photographer: Scott Eells/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Judith White/Bloomberg

U.S. Federal Reserve borrowings by Societe Generale SA, France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorizedstock-index futures bets by former trader Jerome Kerviel.

U.S. Federal Reserve borrowings by Societe Generale SA, France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorizedstock-index futures bets by former trader Jerome Kerviel. Photographer: Judith White/Bloomberg


Enlarge image Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Finance ‘Aristocracy’ Took $1.2 Trillion in Loans

Antoine Antoniol/Bloomberg

U.S. Federal Reserve borrowings by Societe Generale SA, France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.

U.S. Federal Reserve borrowings by Societe Generale SA, France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel. Photographer: Antoine Antoniol/Bloomberg

Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.

By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.

Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.

“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”

(View the Bloomberg interactive graphic to chart the Fed’s financial bailout.)

Foreign Borrowers

It wasn’t just American finance. Almost half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.

The largest borrowers also included Dexia SA (DEXB), Belgium’s biggest bank by assets, and Societe Generale SA, based in Paris, whose bond-insurance prices have surged in the past month as investors speculated that the spreading sovereign debt crisis in Europe might increase their chances of default.

The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.

Peak Balance

The balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001, the day after terrorists attacked the World Trade Center in New York and the Pentagon. Denominated in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

The Fed has said it had “no credit losses” on any of the emergency programs, and a report by Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.

“We designed our broad-based emergency programs to both effectively stem the crisis and minimize the financial risks to the U.S. taxpayer,” said James Clouse, deputy director of the Fed’s division of monetary affairs in Washington. “Nearly all of our emergency-lending programs have been closed. We have incurred no losses and expect no losses.”

While the 18-month U.S. recession that ended in June 2009 after a 5.1 percent contraction in gross domestic product was nowhere near the four-year, 27 percent decline between August 1929 and March 1933, banks and the economy remain stressed.

Odds of Recession

The odds of another recession have climbed during the past six months, according to five of nine economists on the Business Cycle Dating Committee of the National Bureau of Economic Research, an academic panel that dates recessions.

Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed. Citigroup’s shares are trading below the split-adjusted price of $28 that they hit on the day the bank’s Fed loans peaked in January 2009. The U.S. unemployment rate was at 9.1 percent in July, compared with 4.7 percent in November 2007, before the recession began.

Homeowners are more than 30 days past due on their mortgage payments on 4.38 million properties in the U.S., and 2.16 million more properties are in foreclosure, representing a combined $1.27 trillion of unpaid principal, estimates Jacksonville, Florida-based Lender Processing Services Inc.

Liquidity Requirements

“Why in hell does the Federal Reserve seem to be able to find the way to help these entities that are gigantic?” U.S. Representative Walter B. Jones, a Republican from North Carolina, said at a June 1 congressional hearing in Washington on Fed lending disclosure. “They get help when the average businessperson down in eastern North Carolina, and probably across America, they can’t even go to a bank they’ve been banking with for 15 or 20 years and get a loan.”

The sheer size of the Fed loans bolsters the case for minimum liquidity requirements that global regulators last year agreed to impose on banks for the first time, said Litan, now a vice president at the Kansas City, Missouri-based Kauffman Foundation, which supports entrepreneurship research. Liquidity refers to the daily funds a bank needs to operate, including cash to cover depositor withdrawals.

The rules, which mandate that banks keep enough cash and easily liquidated assets on hand to survive a 30-day crisis, don’t take effect until 2015. Another proposed requirement for lenders to keep “stable funding” for a one-year horizon was postponed until at least 2018 after banks showed they’d have to raise as much as $6 trillion in new long-term debt to comply.

‘Stark Illustration’

Regulators are “not going to go far enough to prevent this from happening again,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.

Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.

“The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread,” the council said in its July 26 report.

21,000 Transactions

Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.

Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.

Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world’s largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.

Morgan Stanley Borrowing

Two weeks after Lehman’s bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had “strong capital and liquidity positions.” The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley’s Fed loans.

That was the same day as the firm’s $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley’s available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company’s total profits over the past decade, data compiled by Bloomberg show.

Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to “fundamentally re- evaluate” the way it manages its cash.

“We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward,” Lake said. He declined to say what changes the bank had made.

Acceptable Collateral

In most cases, the Fed demanded collateral for its loans — Treasuries or corporate bonds and mortgage bonds that could be seized and sold if the money wasn’t repaid. That meant the central bank’s main risk was that collateral pledged by banks that collapsed would be worth less than the amount borrowed.

As the crisis deepened, the Fed relaxed its standards for acceptable collateral. Typically, the central bank accepts only bonds with the highest credit grades, such as U.S. Treasuries. By late 2008, it was accepting “junk” bonds, those rated below investment grade. It even took stocks, which are first to get wiped out in a liquidation.

Morgan Stanley borrowed $61.3 billion from one Fed program in September 2008, pledging a total of $66.5 billion of collateral, according to Fed documents. Securities pledged included $21.5 billion of stocks, $6.68 billion of bonds with a junk credit rating and $19.5 billion of assets with an “unknown rating,” according to the documents. About 25 percent of the collateral was foreign-denominated.

‘Willingness to Lend’

“What you’re looking at is a willingness to lend against just about anything,” said Robert Eisenbeis, a former research director at the Federal Reserve Bank of Atlanta and now chief monetary economist in Atlanta for Sarasota, Florida-based Cumberland Advisors Inc.

The lack of private-market alternatives for lending shows how skeptical trading partners and depositors were about the value of the banks’ capital and collateral, Eisenbeis said.

“The markets were just plain shut,” said Tanya Azarchs, former head of bank research at Standard & Poor’s and now an independent consultant in Briarcliff Manor, New York. “If you needed liquidity, there was only one place to go.”

Even banks that survived the crisis without government capital injections tapped the Fed through programs that promised confidentiality. London-based Barclays Plc (BARC) borrowed $64.9 billion and Frankfurt-based Deutsche Bank AG (DBK) got $66 billion. Sarah MacDonald, a spokeswoman for Barclays, and John Gallagher, a spokesman for Deutsche Bank, declined to comment.

Below-Market Rates

While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.

The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.

JPMorgan Chase & Co. (JPM), the New York-based lender that touted its “fortress balance sheet” at least 16 times in press releases and conference calls from October 2007 through February 2010, took as much as $48 billion in February 2009 from TAF. The facility, set up in December 2007, was a temporary alternative to the discount window, the central bank’s 97-year-old primary lending program to help banks in a cash squeeze.

‘Larger Than TARP’

Goldman Sachs Group Inc. (GS), which in 2007 was the most profitable securities firm in Wall Street history, borrowed $69 billion from the Fed on Dec. 31, 2008. Among the programs New York-based Goldman Sachs tapped after the Lehman bankruptcy was the Primary Dealer Credit Facility, or PDCF, designed to lend money to brokerage firms ineligible for the Fed’s bank-lending programs.

Michael Duvally, a spokesman for Goldman Sachs, declined to comment.

The Fed’s liquidity lifelines may increase the chances that banks engage in excessive risk-taking with borrowed money, Rogoff said. Such a phenomenon, known as moral hazard, occurs if banks assume the Fed will be there when they need it, he said. The size of bank borrowings “certainly shows the Fed bailout was in many ways much larger than TARP,” Rogoff said.

TARP is the Treasury Department’s Troubled Asset Relief Program, a $700 billion bank-bailout fund that provided capital injections of $45 billion each to Citigroup and Bank of America, and $10 billion to Morgan Stanley. Because most of the Treasury’s investments were made in the form of preferred stock, they were considered riskier than the Fed’s loans, a type of senior debt.

Dodd-Frank Requirement

In December, in response to the Dodd-Frank Act, the Fed released 18 databases detailing its temporary emergency-lending programs.

Congress required the disclosure after the Fed rejected requests in 2008 from the late Bloomberg News reporter Mark Pittman and other media companies that sought details of its loans under the Freedom of Information Act. After fighting to keep the data secret, the central bank released unprecedented information about its discount window and other programs under court order in March 2011.

Bloomberg News combined Fed databases made available in December and July with the discount-window records released in March to produce daily totals for banks across all the programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, Commercial Paper Funding Facility, discount window, PDCF, TAF, Term Securities Lending Facility and single-tranche open market operations. The programs supplied loans from August 2007 through April 2010.

Rolling Crisis

The result is a timeline illustrating how the credit crisis rolled from one bank to another as financial contagion spread.

Fed borrowings by Societe Generale (GLE), France’s second-biggest bank, peaked at $17.4 billion in May 2008, four months after the Paris-based lender announced a record 4.9 billion-euro ($7.2 billion) loss on unauthorized stock-index futures bets by former trader Jerome Kerviel.

Morgan Stanley’s top borrowing came four months later, after Lehman’s bankruptcy. Citigroup crested in January 2009, as did 43 other banks, the largest number of peak borrowings for any month during the crisis. Bank of America’s heaviest borrowings came two months after that.

Sixteen banks, including Plano, Texas-based Beal Financial Corp. and Jacksonville, Florida-based EverBank Financial Corp., didn’t hit their peaks until February or March 2010.

Using Subsidiaries

“At no point was there a material risk to the Fed or the taxpayer, as the loan required collateralization,” said Reshma Fernandes, a spokeswoman for EverBank, which borrowed as much as $250 million.

Banks maximized their borrowings by using subsidiaries to tap Fed programs at the same time. In March 2009, Charlotte, North Carolina-based Bank of America drew $78 billion from one facility through two banking units and $11.8 billion more from two other programs through its broker-dealer, Bank of America Securities LLC.

Banks also shifted balances among Fed programs. Many preferred the TAF because it carried less of the stigma associated with the discount window, often seen as the last resort for lenders in distress, according to a January 2011 paper by researchers at the New York Fed.

After the Lehman bankruptcy, hedge funds began pulling their cash out of Morgan Stanley, fearing it might be the next to collapse, the Financial Crisis Inquiry Commission said in a January report, citing interviews with former Chief Executive Officer John Mack and then-Treasurer David Wong.

Borrowings Surge

Morgan Stanley’s borrowings from the PDCF surged to $61.3 billion on Sept. 29 from zero on Sept. 14. At the same time, its loans from the Term Securities Lending Facility, or TSLF, rose to $36 billion from $3.5 billion. Morgan Stanley treasury reports released by the FCIC show the firm had $99.8 billion of liquidity on Sept. 29, a figure that included Fed borrowings.

“The cash flow was all drying up,” said Roger Lister, a former Fed economist who’s now head of financial-institutions coverage at credit-rating firm DBRS Inc. in New York. “Did they have enough resources to cope with it? The answer would be yes, but they needed the Fed.”

While Morgan Stanley’s Fed demands were the most acute, Citigroup was the most chronic borrower among the largest U.S. banks. The New York-based company borrowed $10 million from the TAF on the program’s first day in December 2007 and had more than $25 billion outstanding under all programs by May 2008, according to Bloomberg data.

Tapping Six Programs

By Nov. 21, when Citigroup began talks with the government to get a $20 billion capital injection on top of the $25 billion received a month earlier, its Fed borrowings had doubled to about $50 billion.

Over the next two months the amount almost doubled again. On Jan. 20, as the stock sank below $3 for the first time in 16 years amid investor concerns that the lender’s capital cushion might be inadequate, Citigroup was tapping six Fed programs at once. Its total borrowings amounted to more than twice the federal Department of Education’s 2011 budget.

Citigroup was in debt to the Fed on seven out of every 10 days from August 2007 through April 2010, the most frequent U.S. borrower among the 100 biggest publicly traded firms by pre- crisis market valuation. On average, the bank had a daily balance at the Fed of almost $20 billion.

‘Help Motivate Others’

“Citibank basically was sustained by the Fed for a very long time,” said Richard Herring, a finance professor at the University of Pennsylvania in Philadelphia who has studied financial crises.

Jon Diat, a Citigroup spokesman, said the bank made use of programs that “achieved the goal of instilling confidence in the markets.”

JPMorgan CEO Jamie Dimon said in a letter to shareholders last year that his bank avoided many government programs. It did use TAF, Dimon said in the letter, “but this was done at the request of the Federal Reserve to help motivate others to use the system.”

The bank, the second-largest in the U.S. by assets, first tapped the TAF in May 2008, six months after the program debuted, and then zeroed out its borrowings in September 2008. The next month, it started using TAF again.

On Feb. 26, 2009, more than a year after TAF’s creation, JPMorgan’s borrowings under the program climbed to $48 billion. On that day, the overall TAF balance for all banks hit its peak, $493.2 billion. Two weeks later, the figure began declining.

“Our prior comment is accurate,” said Howard Opinsky, a spokesman for JPMorgan.

‘The Cheapest Source’

Herring, the University of Pennsylvania professor, said some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.”

Whether banks needed the Fed’s money for survival or used it because it offered advantageous rates, the central bank’s lender-of-last-resort role amounts to a free insurance policy for banks guaranteeing the arrival of funds in a disaster, Herring said.

An IMF report last October said regulators should consider charging banks for the right to access central bank funds.

“The extent of official intervention is clear evidence that systemic liquidity risks were under-recognized and mispriced by both the private and public sectors,” the IMF said in a separate report in April.

Access to Fed backup support “leads you to subject yourself to greater risks,” Herring said. “If it’s not there, you’re not going to take the risks that would put you in trouble and require you to have access to that kind of funding.”

To contact the reporters on this story: Bradley Keoun in New York at; Phil Kuntz in New York at

To contact the editor responsible for this story: David Scheer in New York at

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Homeowner Beats Bank Of America In Small Claims Court

A California homeowner sued Bank of America in small claims court and won $7,595 from the bank after it burned him on a mortgage modification.

“It was a good victory for me and I think for homeowners around the country,” Dave Graham told HuffPost.

Graham, who lives in Big Bear City, Calif., applied for a loan modification under the Obama administration’s Home Affordable Modification Program, which is supposed to give eligible borrowers a “permanent” five-year modification if they make reduced payments during a three-month trial period.

Graham said his trial dragged on for 18 months. He said he made every payment until Bank of America told him in May that he didn’t qualify for HAMP, and that he’d lose his home unless he paid about $7,000 to make up the difference between his normal monthly payments and the reduced payments he made during the trial period.

“Each month when I did talk to them I was informed it’s still under review — as long as you keep making this trial payment everything will be fine,” said Graham, 53. “At some point I started receiving notices from my credit cards that they were reducing my credit amount due to recent problems making my mortgage payment on time.”

Bank of America mortgage service specialist Anthony Lopez admitted during a Dec. 15 hearing that the bank continued taking Graham’s payments even after Graham had no chance of getting a modification, according a transcript of the hearing provided by Alan Sims, a forensic real estate specialist who helped Graham make his case.

“People that do take these calls arenʼt letʼs say experienced or certified negotiators. They are collectors,” Lopez said, according to the transcript. “They have minimal training in the modification process.”

Graham, who faces reduced income after retiring from his job as a shift foreman at a grocery distribution center, said he never would have bothered with HAMP had the bank not sent him a packet saying he should apply. “I would have found some way to [make my payments] if I had to,” he said. “It may even been that we’d have fallen behind a month or two. I certainly wouldn’t have been in this sort of shape.”

It’s the classic HAMP bait-and-switch: Homeowners are told they’re eligible for the program but eventually discover the foreclosure process, triggered by the reduced payments, moved faster than the modification process.

More people have been bounced from the program than have received permanent modifications, and federal auditors have even pointed out that the program sometimes causes the foreclosures it was created to prevent. Bank of America has stood out for its poor HAMP performance. The Obama administration has done almost nothing to hold servicers accountable and improve HAMP.

Big Bear Grizzly, which broke the news of Graham’s victory, reported that Bank of America is expected to appeal. A Bank of America spokesman couldn’t immediately confirm for HuffPost whether that will happen.

Lots of people have sued big banks for their bad faith HAMP efforts, but Graham may be the first to try it in small claims court. It won’t save his home, but it gives him some dignity.

“Both small claims courts judges and juries often have a refreshing sense of justice that allows these sorts of bellwether decisions,” HAMP expert Alan White told HuffPost. “Judges are also less reticent to denounce unfair practices in small stakes individual cases than in government enforcement or class actions.”

The National Consumer Law Center is involved in several class-action lawsuits against banks and others over broken HAMP promises. (Those lawsuits, if successful, will prevent foreclosures.) The NCLC’s Charles Delbaum told HuffPost that Judge John Pacheco’s “terrific decision” in Graham’s case picked up on the same theme of more than a dozen actions against the likes of Bank of America, JPMorgan Chase, Wells Fargo, and CitiMortgage.

“[I]t is unconscionable to string homeowners along far beyond the three month trial periods they and their banks have agreed to,” Delbaum emailed, “allowing them to become more and more behind on the payments due under their original loan, making the hole they are in ever deeper and harder to dig out of, and then to tell them they weren’t eligibile for the program in the first place — something the banks are required to determine within the three month trial period.”

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