Yearly Archives: 2012

Matt Stoller is a fellow at the Roosevelt Institute.  You can follow him on twitter at http://www.twitter.com/matthewstoller

Over the past three years, the big four servicers have been keeping hundreds of billions of dollars of second mortgages on their books (mostly in the form of Home Equity Lines of Credit, or HELOCs).  Many of these mortgages would seem effectively worthless, because a home equity line of credit or second mortgage on top of an already deeply underwater first mortgage has no value.  You can’t use it to foreclose, because you’d get nothing out of the foreclosure – all of that would go to the first mortgage holder (usually some investor in a pension fund somewhere).  It has only “hostage value”, or the ability to stop a modification or write-down from happening.  The best way to clean up this situation is to have the regulators (FDIC, OCC, Federal Reserve) simply tell the banks that they must write down their second mortgages on collateral that has been impaired.  That way, the incentive problem goes away.  By forcing the bank to recognize the loss now, the bank will no longer stop a modification on a first mortgage.  And in fact, the regulators pretty much agreed that this is what their examiners should do, when they issued new rules earlier this year on accounting for second liens.

As the next INET conference begins in Germany, George Soros has a piece out discussing the Eurozone crisis.  He points out that the Eurozone has been quietly restructuring its financial arrangements along national lines, ending an era of co-mingled assets and liabilities across national borders.  This is something I hadn’t realized, but it presents, as he shows, other dangers.

At the onset of the crisis, the eurozone’s breakup was inconceivable: the assets and liabilities denominated in the common currency were so intermingled that a breakup would cause an uncontrollable meltdown. But, as the crisis has progressed, the eurozone financial system has been progressively reoriented along national lines.

This trend has gathered momentum in recent months. The LTRO enabled Spanish and Italian banks to engage in very profitable and low-risk arbitrage in their own countries’ bonds. And the preferential treatment received by the ECB on its Greek bonds will discourage other investors from holding sovereign debt. If this continues for a few more years, a eurozone breakup would become possible without a meltdown – the omelet could be unscrambled – but it would leave the creditor countries’ central banks holding large, difficult-to-enforce claims against the debtor countries’ central banks.

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

There seems to be a pattern emerging as stressed Eurozone nations struggle against the austerity based policy that slowly strangles them. The first stage is a denial that anything is wrong, the second is that there is some problems but with renewed vigour the issues will be solved and the third stage is when reality finally begins to sink in that the country is in serious trouble and some form of external “help” is inevitable.

“I’m flabbergasted. I’m embarrassed. This is the biggest screw-up electorally that I’ve ever been involved in,” said one progressive activist still sorting through the wreckage.

“Why Ilya Sheyman And Progressives Lost Big In Illinois’ 10th District Primary”, Huffington Post

Delaney defeated state Sen. Rob Garagiola, 54 percent to 29 percent, in the Democratic primary. The result is notable since most people believe Democrats in Annapolis drew the district with Garagiola in mind and the legislator enjoyed support from organized labor, progressive groups, and Gov. Martin O’Malley (D).”

Rothenberg Political Report

At this point, even Moveon members won’t vote for self-proclaimed progressive candidates.  And labor and DC liberals can’t deliver votes, but money can.  Those are the lessons that insiders are drawing from two important but little noted Congressional primaries that happened late last month, one in Illinois and one in Maryland.

Matt Stoller is a fellow at the Roosevelt Institute.  You can follow him on twitter at http://www.twitter.com/matthewstoller

Yesterday, the President gave a speech in which he demanded that Congress raise taxes on millionaires, as a way to somewhat recalibrate the nation’s wealth distribution.  His advisors, like Gene Sperling, are giving speeches talking about the need for manufacturing.  A common question in DC is whether this populist pose will help him win the election.  Perhaps it will.  Perhaps not.  Romney is a weak candidate, cartoonishly wealthy and from what I’ve seen, pretty inept.  But on policy, there’s a more interesting question.

By Thomas Ferguson, Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems. Cross posted from Alternet

“No one can serve two masters. Either you will hate the one andlove the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.” — Matthew 6:24 (NIV)

As Rick Santorum exits and Newt Gingrich fades out, who would have imagined that the Gospel of St. Matthew would provide the best handle on the GOP primaries this year?

This post is by investigative reporter Lee Fang.  Fang knows the ins and outs of DC corruption better than almost anyone else I’ve met.  Here he has documented one of the little noticed but important ways that money sluices in and out of our political system, and heavily influences policy.

One of the biggest problems with lobbying in Washington D.C. is the extent to which so many influence peddlers work behind closed doors, refusing to disclose their clients or register their work with the ethics office. Newt Gingrich became the poster boy for this phenomenon with the revelation that he was paid $1.6 million by Freddie Mac’s lobbying office, a fee the former Speaker laughably tried to downplay as part of a contract for “history” lessons. But Gingrich isn’t the only politician working as an unregistered lobbyist.  I have uncovered video that shows liberal icon Howard Dean discussing his government affairs work for corporate interests.

By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check

On Thursday, April 5th U.S. District Court Judge Rosemary M. Collyer announced she had decided to sign off on the “$25 billion” Mortgage Settlement. By “announced”, I mean she signed the consent orders all our major law enforcers and the biggest bankers had agreed to, and entered them into the record. Judge Collyer didn’t actually say anything about the deal. She didn’t let anyone else say anything, either: she didn’t hold a public hearing on the deal.

By Lambert Strether, who blogs at Corrente.
The Law is the true embodiment
Of everything that’s excellent.
It has no kind of fault or flaw,
And I, my Lords, embody the Law.

–The Lord Chancellor, Iolanthe, Gilbert and Sullivan

We can look at the foreclosure crisis as the pre-emininent law enforcement crisis of our time: Elite impunity for crimes committed and still being committed by lenders and servicers (“banksters”) on a massive scale. We can also look at the foreclosure crsis as an issue of jurisprudence, where a revolutionary oligarchy seeks to change the nature of law itself.