Monthly Archives: April 2011

Arizona Representative Drops Chain of Title Notification Provision After Apparent Bribe by Servicer

If you thought the Friends of Angelo program, via which Countrywide gave very favorable mortgage terms to assorted Congresscritters, was pretty bald-faced, you ain’t seen nothin’ yet.

It appears the best way to get a deep principal mod in America is to represent a clear and present danger to the mortgage industrial complex.

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Join Us At FireDogLake’s Book Salon on Saturday to Discuss Treasure Islands by Nicholas Shaxson

eaders may know that Nicholas Shaxson’s Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, has created a big stir in the UK by shedding light on the scale of offshore banking and the numerous types of harm it does. We’ll be hosting a FireDogLake Book Salon tomorrow at 5 PM Eastern 2 PM Pacific.

Not only did I enjoy this book (it manages the difficult feat of being a lively and accessible discussion of banking and taxation), but it is certain to be one of the most important books of the year.

From the FDL overview of the book:

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The Booger Rule of Antitrust in the Debit Card Fight

Although we were big fans of the HuffPo piece yesterday on the DC war over debit card regulation, Adam Levitin was a bit less happy since the article focused on the politics and was on why the card fees were burdensome to merchants.

Although a few readers tried arguing the bank position and did not get a terribly enthusiastic reception, Levitin explains the real problem: the actions of the Visa/MasterCard duopoly are pretty clear antitrust violations, but as he pointed out via e-mail, the US pretty much does not do antitrust any more. The Chicago school of economics indoctrination of judges via an orchestrated “law and economics” movement (see ECONNED for an overview) has resulted in judges not seeing competitive problems anywhere. The Department of Justice has lost a slew of recent antitrust cases at the Supreme Court, so they’ve lost the appetite to pursue them.

But (to give an indication of how bad the behavior of the card networks is), the normally supine DoJ has been active in payment cards.

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How the Failure to Manage Foreclosed Homes Kills

There’s a sad little story in the “NY/Region” section of the New York Times, which illustrates a not often enough discussed sort of wreckage resulting from the housing mess: that of deaths resulting from foreclosures.

Think I’m exaggerating? There have been cases of suicides, or murder/suicides of people losing their homes. But that can’t necessarily be attributed to foreclosure per se, but of personal financial disaster, with the foreclosure being the literally fatal blow. So while one can attribute their deaths to the financial crisis and therefore to the reckless behavior of major financial firms, it’s hard to pin it on foreclosures per se.

But there are some deaths that can, indisputably, be blamed on foreclosures or more specifically, the negligent management of foreclosed properties.

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Thomas Palley on How to Fix the Fed

The Roosevelt Institute hosted a conference yesterday on the future of the Federal Reserve, with the speakers including Joe Stiglitz, Jeff Madrick, Matt Yglesias, Joe Gagnon, Dennis Kelleher, Mike Konczal and Matt Stoller. Yours truly broke her Linda Evangelista rule to attend.

The discussion included the contradictions in the central bank’s various roles, its neglect of its duty to promote full employment, and its overly accommodative stance as a regulator, which has been enlarged thanks to Dodd Frank.

You can visit the Roosevelt site to view each of the three panels in full (they include the Q&A, which were very useful), the introductory remarks by Joe Stiglitz, or the presentations by each speaker separately. I encourage you to watch some of the panels, and to entice you, I’ve included videos from two talks I particularly liked below.

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David Miles: What is the optimal leverage for a bank?

Yves here. Please be sure to read to the end of the post, where Miles discusses what level of equity he thinks banks should carry.

By David Miles, Monetary Policy Committee Member, Bank of England. Cross posted from VoxEU.

The global crisis has called into question how banks are run and how they should be regulated. Highly leveraged banks went under, threatening to drag down the entire financial system with them. Here, David Miles of the Bank of England’s Monetary Policy Committee, shares his personal views on the optimal leverage for banks. He concludes that it is much lower than is currently the norm.

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HuffPo Expose on the Biggest, Ugliest Fight in DC: Debit Card Fees

If you want to understand inside the Beltway politics, proceed immediately to a superb article by Zach Carter and Ryan Grim at Huffington Post, “The Swipe Fee War”. It is a meticulously reported piece over the number one fight in the nation’s capital, which contrary to headlines, is not the budget battle but proposed regulations over debit card fees, otherwise known as “interchange” fees. As Felix Salmon, Katie Porter, and Adam Levitin have written, the reason this battle is so hard fought is that it pits two big spending constituencies against each other: banks versus retailers, or as one Senator broke it down further:

The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards

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IRS Likely to Expand Mortgage Industry Coverup by Whitewashing REMIC Violations

As established readers know, we’ve been writing since mid 2010 about the widespread, possibly pervasive, failure of mortgage securitization originators to convey the notes (the borrower IOU) to securitization trusts as stipulated in the deal documents, well before the robo signing scandal broke. This abuse matters because the transaction procedures were designed carefully to satisfy certain legal requirements, among them rules contained in the 1986 Tax Reform Act regarding REMICs, or real estate mortgage investment conduits, which required that the securitization trust receive all its assets by 90 days after closing and that all assets conveyed to the trust have to be “performing”, as in not in default. Failure to comply with the rules is a prohibited act and subject to taxation at a rate of 100%, and additional penalties may apply.

Now, with the Federal government under enormous budget pressure, shouldn’t the authorities be keen to go after tax cheats? The headline of a Reuters article, “IRS weighs tax penalties on mortgage securities,” would suggest so. But don’t get your hopes up. The lesson is don’t jump to conclusions when big finance is involved.

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Bill Black: My Class, right or wrong – the Powell Memorandum’s 40th Anniversary

Yves here. Black’s post discusses a turning point that is not as well known as it ought to be. Thanks to reader John M for bring this post to my attention.

By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives

August 23, 2011 will bring the 40th anniversary of one of the most successful efforts to transform America. Forty years ago the most influential representatives of our largest corporations despaired. They saw themselves on the losing side of history. They did not, however, give in to that despair, but rather sought advice from the man they viewed as their best and brightest about how to reverse their losses. That man advanced a comprehensive, sophisticated strategy, but it was also a strategy that embraced a consistent tactic – attack the critics and valorize corporations!

He issued a clarion call for corporations to mobilize their economic power to further their economic interests by ensuring that corporations dominated every influential and powerful American institution. Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.

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