naked capitalism

Any of you who are market oriented no doubt are all over the news of central bank coordinated liquidity efforts. This is from the Federal Reserve’s announcement:

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.

I’m not certain this changes things as much as markets assume. The ECB is ultimately responsible for creating euros. I’m not certain how much of a policy stance this move represents. If the ECB is committed to “printing”, then why the need to turn to other central banks for a coordinated effort?

In fact, what would help the Eurozone most is a MUCH cheaper euro, since the only way out of their fundamental problem (that of Germany running big trade deficits with periphery countries, but no longer wanting to fund the trade deficits that result) is by cheapening the euro greatly, so that Germany runs big trade surpluses with non-Euro countries, and the rest of Europe has more or less balanced trade. And the euro, which was not cheap, has rallied strongly today, amped up due to the 17 year high level of shorts outstanding.

The open question is whether this increases confidence enough to get major European countries through critical bond auctions, not just this week, but most important, a series of major refundings Italy has in February.

By Andrew Dittmer, who recently finished his PhD in mathematics at Harvard and is currently continuing work on his thesis topic. He also taught mathematics at a local elementary school. Andrew enjoys explaining the recent history of the financial sector to a popular audience.

Simulposted at The Distributist Review

This is the second installment of a six-part interview. For the previous part, see here. Red indicates exact quotes from Hans-Hermann Hoppe’s 2001 book “Democracy: The God That Failed.”

ANDREW: Do other libertarians agree with your idea of a libertarian society?

CODE NAME CAIN: Well, we do have our differences. For example, the Cato Institute is severely compromised by numerous left-leaning libertarians such as David Boaz. The Cato tag-alongs and certain other prominent libertarians imagine that an extremely small government would be better than no government at all. They are, of course, wrong. They have not yet recognized that every government is destructive of what they want to preserve [235-236].

ANDREW: It sounds like you and Dr. Hoppe and Murray Rothbard are strongly critical of those other libertarians. But when I looked through the Cato web site, I found that while they sometimes express disagreements, they are surprisingly respectful of Rothbard and Hoppe. Why do you think this is?

CNC: Three reasons. First, pro-government libertarians have probably realized how difficult it is to refute Rothbard and Hoppe, and so prefer instead to learn from their ideas. Second, many agree with Tibor Machan, who says that libertarians should not let their small differences over this issue “distrac[t] from the far more significant task of making the case for libertarianism in the face of innumerable bona fide statist challenges.” But third, you have to reckon with the Human Shield Effect.

ANDREW: The what?

CNC: Libertarian Bryan Caplan says that “hard-core libertarians’ comparative advantage is to play watchdog for moderate libertarians – and make them seem reasonable by comparison.” You see, on many areas other libertarians secretly agree with us, but they are afraid to acknowledge it openly. Instead, they prefer to let us take the heat for our principled positions, and to wait for us to turn previously “radical” ideas into common sense.

ANDREW: So you can count on at least some support from other libertarians. But in order to make your revolution happen, you will have to convince other people as well. Are you going to try to get a majority of U.S. voters to support the future libertarian society?

CNC: It won’t work – persuade a majority of the public to vote for the abolition of democracy and an end to all taxes and legislation? [...] is this not sheer fantasy, given that the masses are always dull and indolent, and even more so given that democracy… promotes moral and intellectual degeneration? How in the world can anyone expect that a majority of an increasingly degenerate people accustomed to the “right” to vote should ever voluntarily renounce [it]? [288].

ANDREW: If it’s not a good idea to try to persuade a majority of Americans to surrender the right to vote, what is the right approach?

CNC: It has to start with a small elite. As Étienne La Boétie said, these are “the men who, possessed of clear minds and farsighted spirit, are not satisfied, like the brutish mass, to see only what is at their feet, but rather look about them….” These people will start to secede from the United States.

ANDREW: Meaning?

CNC: It means one regard[s] the central government as illegitimate, and… treat[s] it and its agents as an outlaw agency and “foreign” occupying forces [91].

ANDREW: You don’t pay your taxes?

CNC: One tries to keep as much of one’s property and surrender as little tax money as possible. One considers all federal law, legislation and regulation null and void and ignores it whenever possible [91]. One needs to be ready in case the government makes a move, and invest in such forms and at such locations which withdraw, remove, hide, or conceal one’s wealth as far as possible from the eyes and arms of government [92].

ANDREW: Is this why you have a code name?

CNC: It took you a while, but you figured it out in the end.

ANDREW: How will a few people seceding lead to an anti-state revolution?

CNC: It won’t. … it is essential to complement one’s defensive measures with an offensive strategy: to invest in an ideological campaign of delegitimizing the idea and institution of democratic government among the public [92].

ANDREW: Did you say earlier that trying to convince the public would be difficult?

CNC: With the secession strategy, you don’t need a majority. That’s good, because [t]he mass of people … always and everywhere consists of “brutes,” “dullards,” and “fools,” easily deluded and sunk into habitual submission [92]. Still, there can be no revolution without some form of mass participation. … the elite cannot reach its own goal of restoring private property rights and law and order unless it succeeds in communicating its ideas to the public, openly if possible and secretly if necessary… [93].

ANDREW: Even if you do it secretly, convincing the masses that they are inferior sounds tricky.

CNC: That’s true, but you don’t have to convince Joe the Plumber that he is a brute. You can convince him instead that he is a hardworking, productive individual, and that other people are brutes who are making it so Joe has no control over his life.

ANDREW: I see.

CNC: Still, you’re right. Convincing the masses of the superiority of the natural elite is not the most important part of our communications strategy. The central task of those wanting to turn the tide… is the “delegitimation” of the idea of democracy… [103] It is not enough to focus on specific policies or personalities… Every critic and criticism deserving of support must proceed to explain each and every particular government failing as an underlying flaw in the very idea of government itself (and of democratic government in particular). [94]

ANDREW: Now that I think of it, I have heard people saying things like that.

CNC: There is still a long way to go. There remain far too many people who make unnecessary compromises with the idea of democracy. In fact, there must never be even the slightest wavering in one’s commitment to uncompromising ideological radicalism… Not only would anything less be counterproductive, but more importantly, only radical – indeed, radically simple – ideas can possibly stir the emotions of the dull and indolent masses. And nothing is more effective in persuading the masses to cease cooperating with government than the constant and relentless exposure, desanctification, and ridicule of government and its representatives [94].

ANDREW: A lot of Americans think that democracy has helped the country to be prosperous.

CNC: What better evidence of the limited mental horizons of the so-called “ordinary person”? Hans-Hermann Hoppe has debunked this idea entirely, but too many people still think that the collapse of the Soviet Union had something to do with the absence of democracy! [A]s for the economic quality of democracy, it must be stressed relentlessly that it is not democracy but private property, production, and voluntary exchange that are the ultimate sources of human civilization and prosperity. [105]

ANDREW: So let’s see if I understand. At this point, there will be a small elite dedicated to revolution. Meanwhile, many ordinary people will no longer believe that democracy is a good system. Will you try to do this everywhere, or just in a few key places?

CNC: It doesn’t matter if people in any one city think that what we’re doing is wrong and dangerous. As long as the people who oppose us continue to wring their hands together and to talk only to people who already agree with them, they will not obstruct our efforts to find or create secessonist majorities… at hundreds of locations all over the country [290].

ANDREW: Aren’t you a little worried about how the government might respond to all of these people choosing not to obey the law?

CNC: You mean, considering how the U.S. government has become entangled in hundreds of foreign conflicts and risen to the rank of the world’s dominant imperialist power[?] [How] nearly every president [since 1900] has also been responsible for the murder, killing, or starvation of countless innocent foreigners all over the world [244]? Of course I’m worried. The U.S. president in particular is the world’s single most threatening and armed danger, capable of ruining everyone who opposes him and destroying the entire globe. [244]

ANDREW: But then, what will you do?

CNC: We will work to create a U.S. punctuated by a large and increasing number of territorially disconnected free cities – a multitude of Hong Kongs, Singapores, Monacos, and Liechtensteins strewn over the entire continent [291]. This approach offers two advantages. First, a “piecemeal strategy” will make secession seem less threatening. Second, the more the secession process continues, the more the government’s strength will be eroded.

ANDREW: But there could still be conflicts between the new libertarian mini-states and the existing democracies.

CNC: If there is a conflict, it will be because a democracy has not respected the rights of the free mini-states. But you are forgetting that the mini-states will not be defenseless in such a conflict.

ANDREW: What will they do?

CNC: Since they will be no-tax free-trade haven[s], large numbers of investors and huge amounts of capital would begin to flow immediately. [132] It will therefore be possible to pay large multinational insurance companies to develop military forces capable of defending the free mini-states against government aggression. Keep in mind that, unlike the military forces of the democracy, these military units will be provided by private firms, and so will be much more efficient. If there were to be a conflict, these insurers would be prepared to target the aggressor (the state) for retaliation. That is, insurers would be ready to counterattack and kill, whether with long-range precision weapons or assassination commandos, state agents from the top of the government hierarchy [from the] president…. on downward… They would thereby encourage internal resistance against the aggressor government, promote its delegitimization, and possibly incite the liberation and transformation of the state territory into a free country. [264-265]

ANDREW: Will it stop there? Or will you eventually get rid of the small city-states as well?

CNC: At the correct moment, all remaining governments will be dissolved. Protection against violence will be provided exclusively by insurance firms. As I see it, public property should be distributed among taxpayers, with shares based on how much each individual or firm, up to now, has been forced to pay in taxes. Since public employees and welfare recipients are obviously recipients and not victim of taxes (theft), they will receive nothing.

ANDREW: Would you like to say anything else before I end this part of the interview?

CNC: Let me quote the conclusion of “Democracy – The God That Failed.” If and only if we succeed in this endeavor, if we then proceed to return all public property into appropriate private hands and adopt a new “constitution” which declares all taxation and legislation henceforth unlawful, and if we finally allow insurance agencies to do what they are destined to do, can we be truly proud again and will America be justified in claiming to provide an example to the rest of the world. [292]

In part 3 of this interview, Code Name Cain will show that he is unafraid to explain how a libertarian society will work in detail.

The Étienne La Boétie quote is from “The Politics of Obedience: The Discourse of Voluntary
Servitude,” New York, Free Life Editions, 1975, p. 65 (cited at Hoppe, p. 93).

Apologies for a stretch of being light on my own posts. This will probably continue for a bit. I am buried in personal and site related administration.

Cutting their own throats Charlie Stross. On e-books

Eating fish reduces risk of Alzheimer’s disease MedicalXpress

Up to two million set for UK strike BBC. This is an anti-austerity protest. And how much play is it getting in the US? Not much. Don’t want to give the natives ideas.

Businesses plan for possible end of euro Financial Times. This is just amazing, and I wish I had time to post on this. Shorter version: “Businesses assume brace position for Eurozone crash landing.”

European Officials Agree to Bolster Bailout Fund New York Times

France and Germany want the stability and growth pact hurdle to move to zero percent by 2016 Ed Harrison

Euro Zone Falls Short on Fund Wall Street Journal. Duh!

More European financial chicanery MacroBusiness

What the IMF should tell Europe Martin Wolf, Financial Times. The IMF is really Wolf’s stand-in for someone smarter and more detached than the Eurocrats. His piece contains a key factoid: the IMF has only $440 million of uncommitted funds, too little to be of much help in Europe now.

Evangelicals Flocking Toward Newt Gingrich Daily Beast (hat tip reader May S)

Will Dr. Goebbels please pick up the white courtesy phone? Lambert Strether

The End of Poverty? Information Clearing House (hat tip reader May S)

New York probes military foreclosures Financial Times

Score A Big One For #OccupyRochester The Albany Project (hat tip reader Timotheus)

Hundreds of officers surround protesters Los Angeles Times

Pepper Spray Developer: It Has Become Fashionable to Use Chemicals on People with Opinions Firedoglake

Chase to Hedge Funds: Drop Dead Barry Ritholtz (hat tip reader Scott)

A New Shot at Mortgage Relief New York Times. This has been pre-debunked widely. See in particular Adam Levitin at Credit Slips. Oh, he is leaving nothing to chance: HARP’s Dirty Little Secret: Most HARP Refis are of Positive Equity Mortgages

BofA, Goldman, Citi Credit Ratings Cut by S&P Bloomberg

Yes, Virginia. The banks really were bailed out Steve Waldman. Please read and circulate to those who still don’t get it. I love the golf buddy analogy.

Antidote du jour:

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

Assignments of mortgages are the legal instruments that transfers ownership of a mortgage from one party to another. In a securitized mortgage, a trust holds thousands of mortgages on behalf of investors. The investors in the various bonds that get cash flows from a single trust expect the trust to be in a position to take advantage of the rights conferred by the mortgages when certain events occur, usually payoff or default.

I used my crowd-sourced online software, www.findthefraud.com, to help categorize 2,500 assignments in Palm Beach County, FL, which were recorded in late 2008 and early 2009. Palm Beach County, like any Florida county, is a high foreclosure state and, thanks to strong public records laws in Florida, serves as a good bellwether about bank business practices both in Florida and around the country.

Common sense would say that an assignment should be executed either by a lawyer for the trustee for the trust, or an agent of the trust, which in this case would be a servicer or a lawyer working for the servicer. Lawyers should be geographically close to the foreclosed property, because they will need to eventually appear in court. Bankers should be close to major banking operations, since they almost always sign as senior officials: Vice President is the most typical title.

We know from the robo-signing scandal that the signers don’t read what they’re signing, but it is also apparent that they’re scattered almost randomly around the country.

In my 2,500 sample size I studied the county of notarization, which indicates where the primary signers are since the notary attests the documents were signed in front of him or her. This batch of assignments were signed in 35 different states, and 101 different counties. So much for consistency.

The most common county is San Bernardino, CA, which filed 746 mortgage assignments, 29.8% of the total. California overall notarized 815 Florida assignments, 32.6% of the total. Florida, which you’d expect, came next with 610 assignments, or 24.4% of the total, followed by Minnesota (9.3%), Texas (7.3%), Ohio (4.8%), Georgia (4.5%), Louisiana (2.8%), and Nebraska (2.6%). All other states had less than 2%.

Certain counties really stood out from others.

It isn’t clear why San Bernardino, a large portion which consists of the Mojave desert, signed off on almost one in three assignments for Palm Beach County, FL, a tropical oasis on the other side of the country. The overwhelming majority of these assignments involved HSBC or US Bank. Virtually every assignment from San Bernardino had the notarization page entirely separate from the actual assignment, despite more than adequate space for the notarization on the first page, the practice virtually everywhere else. The notary is signing, under penalty of perjury, that the document was signed in front of them and that everything on it is kosher. If I didn’t know better — and, actually, I don’t — it almost looks like the notarization pages and the assignments were being prepared separately then put together after the fact.

After California and San Bernardino comes Florida. Of the 610 assignments inked in a more reasonable state 330, over half, were signed in Broward County. Broward, which adjoins Palm Beach County, seems more reasonable except that the overwhelming majority of these assignments were executed either by the law firms of David J. Stern or Marshall Watson.

Stern’s firm, the poster child of foreclosure fraud, was shut down after the GSEs banned him. That resulted in a mad dash by banks and the GSEs to recover about 100,000 files. Edward DeMarco, head of the FHFA that oversees the GSEs, Stern’s largest client, testified to Congress a couple weeks ago he was “puzzled” why crooked lawyers hadn’t yet been disciplined, a clear reference to Stern. Like DeMarco, every person I know in FL is also puzzled, and many are more than a little annoyed with our state’s bar association. Marshall Watson, the other high-volume signer, paid a $2 million fine to the FL Attorney General then was dropped by Freddie Mac. OK, so maybe closer geographic proximity does not lead to higher quality.

Next comes the 219 assignments inked in Dakota County, MN, out of a total of 233 signed in MN. Dakota County is apparently home to a branch of Lender Processing Services (LPS), an organization that, as Matt Stoller pointed out earlier this week, appears to be perennially in trouble yet which — except for a large decline in their stock price — seems to miraculously escape unfazed. To summarize, mortgage assignments for homes in a tropical paradise are being assigned in the desert and a frozen tundra; maybe this is an odd climate diversity experiment? The Dakota County assignments, like the Broward assignments, are from a hodge-podge of banks; none stood out.

Fulton County, GA had 105 assignments, out of 113 signed in GA, all but one from LPS-owned and now defunct DocX. Of those, the overwhelming majority involved American Home Mortgage Servicing, Inc. or American Brokers Conduit. DocX is the now-shuttered company that was featured on 60 Minutes because they employed teenagers to act as “surrogate signers” for infamous robosigner Linda Green.

Another notable county is Franklin County, OH, with 89 assignments, out of 120 signed in OH. Franklin County was singled out by the former Ohio Secretary of State, Jennifer Bruner, for notary fraud related to foreclosures. Bruner went so far as to refer foreclosure fraud to the US Dept. of Justice and publicly urged President Obama to take a leadership position on foreclosure fraud. Bruner’s appeal fell on deaf ears by the President that promised Hope but instead delivered HAMP, the disastrous program that tricks borrowers into foreclosure via fake modifications.

Two other interesting counties in the top-ten are Ouachita Parish, LA (65 assignments), and Scotts Bluff County, NE (64 assignments). Ouachita is the larger of the two counties, with 150,051 people, and includes Monroe, LA. Scotts Bluff, which Wikipedia touts having the third largest airport in Nebraska, and the census says contains 36,970 people. It isn’t clear why these two tiny counties seem to be cranking out mortgage assignments for far-away Palm Beach County. All but one of the Ouachita assignments involved JP Morgan/Chase Home Finance. Similarly, all but one of the Scotts Bluff assignments involved Aurora Home Loans.
I don’t know if these assignments are illegal, or even if they’re unethical, but stealthily moving vast amounts of property for far away communities seems strange: an eye popping amount of mortgages changed hands with these assignments.

Robosigning is not a victimless crime. The reason we have careful, document-intensive processes for handling real property is that it is the foundation of a nation’s wealth. A home is most families’ biggest asset. The practice of having independent parties verify the validity of signatures dates back to the 1677 Statute of Frauds. It was implemented because the lax evidentiary standards of the early 1600s allowed rich people to hire experts who would swear falsely in court about the ownership of property. The result was court-sanctioned theft and rising disorder.

There are plenty of legal, ethical, economic, and financial problems with document abuses and fraud. But more than any single problem, robos rob trust. Banks are using faceless robos in rural California, Louisiana, and Nebraska to rob the people of Palm Beach County of the protection of the law and in many cases, their homes. This irrevocably destroys trust, not only with the banks that employ the robos but with everybody else too. Since banks are realistically a commodity but-for trust, you’d think that banks, especially brand-aware consumer banks, would have moved long ago to stem these practices.

Indeed, many banks now claim that they have changed or are in the process of changing. As the new documents roll in to public records we’ll find out. But while banks may have “moved on” plenty of families who lost their homes to these documents have moved out. Parents shelter their children with family, friends, in motels that rent rooms by the night, or in cars. These banks — who have received trillions of dollars of bailout money — can’t simply decry, again, “whoops – our bad,” then expect yet another Get Out of Jail Free card.

The federal government has obviously decided not to bother investigating the extent of the fraud, so I’ll continue my studies, hoping from help from the public and publishing results as the datasets expand. But hopefully, one day, law enforcement and regulators — government employees funded by taxpayer who are trained and tasked to do this type of work — will pick up the burden on their own.

Nevada notary Tracy Lawrence, who was due to be sentenced today to up to a year in jail for a single count of misdemeanor fraud, went missing from her sentencing hearing today and was found dead. Per the Associated Press (hat tip reader Scott):

Las Vegas police say it could be weeks before investigators know how 43-year-old Tracy Lawrence died.

Her body was found about 11:30 a.m. Monday at her Las Vegas apartment.

Police Sgt. Matt Sanford says there’s no apparent sign of foul play, and coroner toxicology tests could take up to eight weeks.

Lawrence would have faced up to a year in jail and a $2,000 fine earlier Monday for her guilty plea Nov. 17 to one criminal charge of notarizing the signature of a person not in her presence.

KSNV-TV reports ( http://bit.ly/vWSDtv) that Lawrence admitted notarizing tens of thousands of fraudulent documents as part of a wider foreclosure fraud scheme.

Reader Peter W fills in the blank (pun intended) that Lawrence’s document chicanery involved the staff of Lender Processing Services. The version of the story posted at The Fly on the Wall has as its final sentence:

Lawrence had earlier admitted to notarizing “tens of thousands of fraudulent documents” as part of a wider foreclosure fraud scheme involving employees of Lender Processing Services (LPS).

As sad as this is for Lawrence’s friend and family, the more the foot soliders of foreclosure abuses start to face real costs, meaning jail time, the harder it will become to perpetrate these sorts of frauds. That is the way the law is supposed to work, after all.

Update: Holy moley, the initial press reports omitted the key fact: it was Lawrence who turned Nevada Attorney General Catherine Cortez Masto on to two mid level LPS employees who face up to 30 years in jail each if found guilty. From MSNBC:

Lawrence came forward earlier this month and blew the whistle on the operation, in which title officers Gary Trafford, 49, of Irvine, Calif., and Geraldine Sheppard, 62, of Santa Ana, Calif. — who worked for a Florida processing company used by most major banks to process repossessions — allegedly forged signatures on tens of thousands of default notices from 2005 to 2008.

Trafford and Sheppard were charged two weeks ago with 606 counts of offering false instruments for recording, false certification on certain instruments and notarization of the signature of a person not in the presence of a notary public. You can read a .pdf version of their indictment here.

Our post on this case, which includes the indictment, is here.

Needless to say, this puts a very different complexion on things..

By Dylan Ratigan, MSNBC host and author of the new book Greedy Bastards. Cross posted from DylanRatigan.com

Shahien Nasiripour has a great scoop in the FT – bank regulators have uncovered up to 5000 military families who were foreclosed on illegally by mortgage servicers. Foreclosures on active duty troops is usually a big no-no, for a lot of reasons – for instance, when your credit rating is damaged by a foreclosure, it can impact your national security clearance. In addition, there’s enormous stress that the soldier goes through when his or her family is facing a threat of eviction, and it’s the kind of stress that makes him or her less equipped to be ready in a warzone. Congressman Bob Filner has even accused banks of “homicide” against American troops, blaming the banks for suicides resulting from the increased stress brought on by aggressive debt collection techniques.

There have been laws to protect troops from unscrupulous lending practices going all the way back to the First World War. The most recent revision to these laws is the Servicemember Civil Relief Act, which was signed in 2003. Congressman Brad Miller, who helped author the most recent version of this law, explained the rationale for the law as follows:

The Service Members Civil Relief Act is very clear: if you’re in harm’s way in our nation’s military, you can devote your whole energy to our nation’s service without worrying what’s happening in a courthouse back home. And if you have a claim against someone in our military, you can wait until they get home and can defend themselves.

Miller is a Democrat from North Carolina, but the bill was signed by George W. Bush, so there’s a bipartisan consensus on not foreclosing on troops fighting in wars.

Yet, as the FT story shows, it has become clear that big banks are routinely ignoring the law. Miller noted,

The SCRA is not some obscure legal technicality that might just have escaped the attention of mortgage servicers. Those servicers are all affiliates of the biggest banks, but they’re huge and specialized. Servicing mortgages is all they do, and they really don’t have that many laws to keep up with. They have got to have known what the law required, and consciously decided that they could just ignore it, the same way they apparently decided it was okay to file false affidavits in legal proceedings.

In all likelihood, these banks simply never set up their management processes to handle anything but an aggressive foreclosure steam-roller. And so, they are breaking the law.

Banks admit this. JP Morgan apologized back in February in a Congressional hearing for overcharging 4000 military families and illegally foreclosing on 18 of them. In that hearing, one foreclosure defense attorney pointed out that jail time for officials of the bank doing the foreclosing would be a deterrent to these practices, an apology would not be.

Much has been made of President Obama’s argument that the banks did nothing illegally, and various other scholars and officials have argued that prosecuting the banks is far too expensive and difficult. Yet, the SCRA is a simple law with teeth; it carries real jail time, and the parties have already confessed to the crime. Here’s Section 303(d)(1) of that law, which spells out penalties. (PDF)

(1) MISDEMEANOR.—A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.

Interestingly, the Department of Justice seems to agree with this interpretation. Here’s a press release from the Department of Justice on a settlement of some of these claims, from Bank of America. I’ve bolded the important part.

The Justice Department announced today that, as part of its settlement with BAC Home Loans Servicing LP, a subsidiary of Bank of America Corporation, servicemembers whose homes were unlawfully foreclosed upon will each receive a minimum $116,785 plus compensation for any equity lost to compensate them for the bank’s alleged violation of the Servicemember Civil Relief Act (SCRA).

Note the use of the word “alleged.” Bank of America isn’t admitting anything, and the Eric Holder’s Department of Justice isn’t making them admit anything. Otherwise, the penalties might come into play. Sometimes, law can get very complex. But sometimes, it isn’t. JP Morgan admitted to violating the law. There are up to 5000 more cases, and each one carries up to a year in jail.

Eric Holder and various US Attorneys around the country aren’t prosecuting bank foreclosures on active duty troops, even though they know it is happening. Bank regulators know about the problem. Congress knows about the problem. Certainly, the Pentagon knows about the problem. Where are the prosecutions? Is there an internal policy that certain crimes are not to be prosecuted? Isn’t that something the public should be aware of?

As Congressman Miller put it, “The continued failure to pursue criminal charges in the face of flagrant violations of the criminal law is destroying Americans’ faith in their government and democracy. In a democracy, no one is too big to prosecute.”

I’ve deliberately waited a bit before examining the remark of one Jason Barker, an employee of the New York Fed, on a New York Post article that ran the day after the November 17 Occupy Wall Street protests. My initial negative reaction to his comment still holds.

The Post piece itself presented itself as a celebration of police bloodlust, but it was actually more nuanced and fairminded than you’d expect. Its headline screamed, “Ready riot cops whack back at OWS hooligans.” And the “whack” part is an understatement. Anyone who is concerned about the rise of police state tactics and the use of undue force would be put off by the conduct described in the article. This is how it starts:

It was a blur of batons, beatings and blood.

Police in riot gear answered the Occupy Wall Street mobilization with a display of force that overwhelmed protesters everywhere they gathered.

“I saw somebody kick the [barricade] — and all of a sudden the police kicked in and cracked his head,” a protester named Tim, 20, said after witnessing a Zuccotti Park confrontation that left a comrade bleeding profusely before he was hauled off to a police van.

“They were stepping on his face . . . They were hitting with batons. They bum-rushed him and tackled him and slammed his head down,” said the bystander. “One put his foot on the guy’s head.”

The article fails to mention that the crowd was estimated at 32,000 by the city and 40,000 by Occupy Wall Street. It’s hard to believe the police “overwhelmed” the protestors at all points given the size of the turnout. But this is the sort of “resistance is futile” message we’ve also noted in the New York Times accounts of the demonstrations.

The article continues:

In another Zuccotti showdown, cops chased a male protester into the park. They pushed him into a flower bed. He was stomped, and his head hit the concrete edge.

He left behind a pool of blood and a boot.

“I was screaming, ‘Be peaceful, be peaceful,’ ” said Seana, 38. “And then they [police] rammed. They pushed me down, and I fell backwards — and they just kept coming at us.

“It was completely intentional; they were trying to start a riot.”

The entire article continues in this vein. Despite the drive by shooting of OWS in the headline, the Post describes police violence in gory detail and has quite a few quotes from demonstrators saying how unwarranted it was. The only incident depicted where the framing could lead a reader to think the Occupiers had brought the reaction on themselves is:

Chaos erupted again at around 11 a.m., when demonstrators took down police barricades.

Streaming into the park, protesters grabbed a metal barricade and started dragging it, screaming, “Whose fences? Our fences!”

Bottom line: the story gives a pretty graphic account of acts police brutality, and for the most part, presents the Occupiers as peaceful protestors, not aggressors.

This is the first of 69 comments on the article:

Yes, this is the name of a real New York Fed employee. I’ve called the New York Fed and there is a Jason Barker working there. It seems unlikely that a third party would make use of the name and Facebook profile (the NY Post comment links to Facebook) of a junior Fed staffer. See his Linkedin profile:

And this is from his Facebook account:

Now you might say it is unfair to draw conclusions from public snippets, but these in fact are all what Barker has chosen to present about himself, not some out-of-context, overheard remark. And they not only say interesting things about Barker, but also about the New York Fed.

Note that Barker went to a third tier business school yet managed to land a job at the New York Fed when unemployment among recent graduates is at record highs. And that is curious. While the image of the Fed is that of a bastion of white male privilege, that is more true of the Board of Governors than the New York Fed. Under pressure from Fed nemesis Representative Henry Gonzalez, Greenspan answered a query in 1993 on the background of Board of Governors’ staff making more than $125,000 a year. Out of nearly 2000 employees, there was one woman and one minority group member in that tier. Goldman’s investment banking division in 1981 scored better on diversity than the Board of Governors did more than a decade later.

The New York Fed, by contrast, has been far more ethnically diverse, but don’t mistake that for intellectually diverse. One staffer who worked in multiple policy areas at the New York Fed the early 1980s said all the second tier leaders in his areas were women, which was rare in business, let alone financial services, in those days. However, the New York Fed places a great premium on academic credentials. That does not mean simply “good schools” but someone who is or could be on the tenure track. There is a lack of appreciation that what it takes to be a good academic and a good policy maker are often two different things (for instance, Arthur Burns, who was an accomplished scholar, made for a lousy Fed chairman).

Bank supervision, where Barker works, is not where the hot shots go. The prestigious staff roles relate to the central banking functions: economic research, macro modeling, and of course, monetary policy. PhD monetary economists rule the roost. And there is considerable group think. The organization is very vertical, with little lateral hiring except at the very top levels. The result is intellectual inbreeding. I’m told the public rejection of perspectives that ruffled the Fed’s world view, such as Robert Shiller being pushed off the the New York Fed’s economic advisory board after he suggested that there was a housing bubble pre crisis and the dressing down of Raghuram Rajan at Jackson Hole in 2005 is consistent with an internal posture of ignoring people who don’t fall in with the party line.

Having said that, the New York Fed has been trying off and on to improve its bank oversight functions. A contact wrote:

Years ago bank supervision was run by a male Irish mafia and in many ways it was a backwater. It is no longer the case even as the size and prestige of Bank Sup has fluctuated as crises have ebbed and flowed. It is not stocked top to bottom with Ph.D.s but there some very good people their including people who were rotated in from the Markets Group and Research. Recently they have successful in hiring people laid-off by the Street. Hopefully these people will bring a new mind set and insight in to the Street mind set.

So let’s return to Barker. He can’t even spell “hippie” correctly. He’s presumably a libertarian (the anti-immigration and “53%” identifiers are tells). Libertarians profess to be against the coercive use of state power, yet Barker eagerly advocates inflicting severe injuries onto protestors with no due process. So he looks to be an authoritarian and a hypocrite.

But let’s go further. His job as a bank examiner means that he is tasked with gathering information, making interpretations, and enforcing laws and regulations. Yet his remarks and his Facebook page reveal he’s not at all well suited to that sort of task. The “We are the 53%” is propaganda meant to suggest that the Occupiers are unemployed non-taxpayers, when unemployment rates among the protestors are lower than among Tea Partiers. Similarly, I know quite a few people (investors, hedgies, well off retirees) who make a lot more than Barker does who also support OWS.

The most damning bit, of course, is that Barker advocates police brutality and seems unwilling to consider that any issues regarding public safety (which have been asserted far more than proven) still need to be weighed against considerations of due process and First Amendment rights. The city clearly was not even remotely interested in public safety. If their concerns really did relate to the conditions in the park, they would have allowed OWS to rent port-a-potties, and would have negotiated or set forth minimum conditions for continued overnight presence (say, expulsion of anyone found using drugs, weekly cleanings of the park, and leaving 1/4 completely free for use of the locals). The eviction was clearly to quash an annoyance to the powerful.

The interesting question is why a new employee like Barker would make a provocative remark in a public place in his own name. Possibility one is that simply he has terrible judgment and is foolishly putting his career at risk. His comment appears to run afoul of the New York Fed Code of Conduct:

Query whether advocating violence by the police, which shows a disregard for due process and will be presumed to reflect a bias in favor of powerful interests against those of frustrated, disenfranchised citizens, is an appropriate posture for someone involved in bank regulation.

Possibility two is that he judged correctly that his bloodthirsty views were widely shared at the New York Fed and there would be no negative repercussions. I suspect the latter.

Earlier in this thread, I suggested that bank examiners ought to examine banks, which means assess the caliber of their operations and management and determine whether they are in compliance with the laws and regulations. But we discussed repeatedly in the runup to the financial crisis that the Fed was not terribly interested in supervising financial firms. It stopped examining primary dealers in 1992. It failed to enforce the Home Ownership and Equity Protection Act, which mandated supervision of and restrictions on high cost mortgage lenders. Even the bank friendly Office of the Comptroller was more serious about HOEPA than the Fed.

Similarly, I met a Fed officer in the Fed’s Regulation and Supervision division in the spring of 2007, and he simply refused to consider that originator fraud existed (and since he helped brief Roger Cole before met with the Senate Banking Committee in April 2007 to defend the Fed’s conduct regarding subprime lending, there was good reason to think his views were representative of those held within the central bank). Not surprisingly, pro-bank, anti-borrower sentiments appear to be widely held within the Fed. Colleagues who’ve met with Fed staffers to discuss the mortgage market have reported that they are firm believers that strategic defaults are common (when, as we’ve discussed, the studies on them are embarrassingly bad) and are outraged at the idea that people are not paying their mortgages (have they not heard of job losses and medical bankruptcies, or has it not occurred to them that defaulting six months before you hit the wall, so you have enough cash to move and put down a deposit on a rental, is something a financial planner would recommend?). Even though the New York Fed is trying to improve its regulatory staff, it is looking to the industry for “talent”. That’s unlikely to challenge the existing world view.

So Barker has made some underlying truths blindingly obvious. The central bank doesn’t want independent thinkers who actually might know something about banking as regulators; it apparently wants staffers who are unabashedly pro bank and will follow simple-minded formulas regardless of whether they have anything to do with the law. Jason, who is dumb enough to identify himself as one of a 53%, is in fact a willing tool of the 1%, to be discarded when he is no longer of any use to them. In some ways, these foot soldiers of corruption are more contemptible than the higher ups, for they’ve sold what little integrity they ever had for for promises and crumbs.

By Andrew Dittmer, who recently finished his PhD in mathematics at Harvard and is currently continuing work on his thesis topic. He also taught mathematics at a local elementary school. Andrew enjoys explaining the recent history of the financial sector to a popular audience.

Simulposted at The Distributist Review

Recently journalist Philip Pilkington has interviewed authors with unconventional perspectives on economic issues, including Satyajit Das and David Graeber. I thought it would be fun to interview someone too – but the man I interviewed uses a pseudonym. This is a six-part series.

ANDREW: Some people say that you represent a fringe view, and so interviewing you is a waste of time.

CODE NAME CAIN: If people obsessed with inside-the-Beltway conventional wisdom underestimate libertarians, so much the better.

ANDREW: Can you give any evidence that your ideas are taken seriously?

CNC: Well, people used to think that the financial crisis was caused by antisocial behavior in the finance sector. In September 2007, Tom DiLorenzo pointed out on the Lew Rockwell website that the crisis was actually the result of the government forcing banks to make risky loans to low-income borrowers. Although initially ignored, DiLorenzo’s thesis is now widely accepted among careful observers.

ANDREW: Is that your only convincing example?

CNC: Hardly. Did you notice how over the last year or so, everyone started to talk about how the threat of new taxes and regulations was making producers uncertain? And when producers are uncertain, the economy fails to improve? Well, the fact that worries about taxes and regulations cause uncertainty and so damage the economy is a key insight of Austrian economics that we have proclaimed for decades.

ANDREW: Wait, I thought people said that Obama was causing the uncertainty.

CNC: Obama is causing the uncertainty now. Before Obama, George W. Bush was causing the uncertainty. In general, democratic government causes uncertainty. Hans-Hermann Hoppe made all of this clear in his 2001 book “Democracy: The God That Failed.”

ANDREW: Are there things you have learned from the work of Dr. Hoppe that you had not found in the writings of other libertarians?

CNC: “Ludwig von Mises and Murray Rothbard were great men, but they lived in a time when supporters of freedom needed to be careful about what they said. As a result, libertarians often fail to describe their ideal future society in clear detail. But, as the Cato Institute’s Patri Friedman has recognized, Hans-Hermann Hoppe is an exception to this reticence. He is willing to speak the truth, no matter how much it makes “politically correct” people squirm, and he is so logical and eloquent that I routinely quote from his classic book on the failure of democracy. Please color such quotes in red – I would never try to pass off my own ideas as if they were on his level.

ANDREW: Tell us now about the libertarian society you are working to make possible.

CNC: It will be a free society – no government, no coercion. People will have their rights respected. Everyone will be free to do whatever they want as long as it doesn’t interfere with anyone else’s rights… why are you looking at me like that?

ANDREW: I was kind of hoping for less speeches and more details.

CNC: What do you mean?

ANDREW: In our society, the government is the only organization allowed to kill people. In the libertarian society, which organizations will kill people?

CNC: There will be no government that is allowed to use force against people and kill them.

ANDREW: Some people will be very rich, right?

CNC: Of course. Some people will always be stronger and more brilliant than others.

ANDREW: Will the wealthy people still be worried about people stealing from them?

CNC: Obviously – all property… is necessarily valuable; hence, every property owner becomes a possible target of other men’s aggressive desires. [255]

ANDREW: So who will protect property owners?

CNC: Insurance companies in a competitive marketplace.

ANDREW: So in your society, insurance companies will be sort of like governments. Can we call them security GLOs (Government-Like Organizations)?

CNC: Sure, as long as we stress that the insurance companies, as security GLOs, will be very different from the statist, coercive governments we have today.

ANDREW: Will security GLOs be different from governments because they will be small family firms?

CNC: No. One reason that insurance companies will be well-suited for the role of security GLOs is that they are “big” and in command of the resources… necessary to accomplish the task of dealing with the dangers… of the real world. Indeed, insurers operate on a national or even international scale, and they own substantial property holdings dispersed over wide territories… [281]

ANDREW: Will security GLOs be different from governments because they don’t use physical force against criminals?

CNC: You gotta be kidding, right? … in cooperation with one another, insurers [will] want to expel known criminals not just from their immediate neighborhoods, but from civilization altogether, into the wilderness or open frontier of the Amazon jungle, the Sahara, or the polar regions. [262]

ANDREW: So the security GLOs will be allowed to kill people, if they are known criminals?

CNC: The security GLOs will not kill people, they will just expel them to the Sahara or polar regions. What happens then is up to the criminals.

ANDREW: Can we say that the security GLOs will effectively kill them?

CNC: I really don’t like that choice of wording. You make it sound like the security GLOs will be committing aggression against the criminals. That’s backwards – the criminal commits aggression, and security GLOs will just defend people. They won’t violate anyone’s rights.

ANDREW: Maybe you would prefer that we say: the security GLOs will effectively kill people in a rights-respecting manner.

CNC: Yeah, that’s better.

ANDREW: Will everybody be able to get insurance from the security GLOs?

CNC: Of course – in a market economy, shortages are impossible. Anyone can get anything by paying the market price.

ANDREW: What if the market price of insurance for some people is more money than they can pay?

CNC: Don’t worry, competition among insurers for paying clients will bring about a tendency toward a continuous fall in the price of protection… [281-282].

ANDREW: In the future everyone will pay less for security than they currently pay in taxes?

CNC: Well, certain government-induced distortions would be eliminated. Government taxes more in low crime and high property value areas than in high crime and low property value areas. [259] Security GLOs would do the exact opposite.

ANDREW: So in rough neighborhoods, most people might not be able to afford security insurance.

CNC: Possibly.

ANDREW: Suppose there are people who aren’t covered by any security GLO – would it effectively be legal to kill them?

CNC: They would definitely be rendered economically isolated, weak, and vulnerable outcast[s] [287].

ANDREW: Then people are effectively forced to join a security GLO?

CNC: Maybe you haven’t realized it yet, but this will be a free society. The relationship between the insurer and the insured is consensual. Both are free to cooperate and not to cooperate. [281] No one will force people to buy protection, and no one will force insurers to offer protection at a price they think is too low.

ANDREW: What are some other ways that you think this would be a good system?

CNC: Well, every property … can be shaped and transformed by its owner so as to increase its safety and reduce the likelihood of aggression. I may acquire a gun or safe-deposit box, for instance, or I may be able to shoot down an attacking plane from my backyard or own a laser gun that can kill an aggressor thousands of miles away. [256] In a free society, security GLOs would encourage the ownership of weapons among their insured by means of selective price cuts [264] because the better the private protection of their clients, the lower the insurer’s protection and indemnification costs will be [285].

ANDREW: Let’s see if I understand. In poor neighborhoods, most people will not be insured, and it will be legal to kill them. The people that are insured will be encouraged by the security GLO to carry weapons that are as technologically advanced as possible. It sounds to me like this would be bad for the poor neighborhoods.

CNC: On the contrary – in “bad” neighborhoods the interests of the insurer and insured would coincide. Insurers would not want to suppress the expulsionist inclinations among the insured toward known criminals. They would rationalize such tendencies by offering selective price cuts (contingent on specific clean-up operations). [262]

ANDREW: Suppose that security GLOs, or private groups that they sponsor, are looking for criminals. When the enforcers catch the criminals, will they always transport them to an uninhabited area, or will they sometimes put them in prison?

CNC: Prisons like the ones we have? With basketball courts and televisions for the criminals? How would that be fair?

ANDREW: Maybe other kinds of prisons?

CNC: Look, it’s not about putting people in prisons. It’s about people getting what they deserve. And in the libertarian society of the future, people will get what they deserve. Security GLOs can be counted upon to apprehend the offender, and bring him to justice, because in so doing the insurer can reduce his costs and force the criminal… to pay for the damages and cost of indemnification. [282]

ANDREW: So they’ll have to do forced labor for the security GLO?

CNC: How can you possibly think this could be worse than our current system? Where instead of compensating the victims of crimes it did not prevent, the government forces victims to pay again as taxpayers for the cost of the apprehension, imprisonment, rehabilitation and/or entertainment of their aggressors [259]?

ANDREW: Still, as a libertarian, aren’t you against coercion?

CNC: Coercion? Obviously you don’t understand what you’re talking about. Coercion is only when someone interferes with rights someone else actually holds. Criminals can forfeit their rights through their own choices. When that happens, requiring them to make restitution for their actions doesn’t violate their rights.

ANDREW: Will there be any other people in the free society who will be slaves?

CNC: Slaves?! Don’t you know that the first condition of a libertarian society is that everyone owns themselves?

ANDREW: Sorry, I meant to say: effectively slaves in a rights-respecting manner.

CNC: Oh. Hmmm. Let me think about that.

ANDREW: For example, suppose someone signs a business contract and then, later, can’t fulfill the terms of the contract. What would happen?

CNC: In a libertarian society, sanctity of contract is absolutely fundamental.

ANDREW: Let me be a little more specific. Suppose some guy can’t pay his debts. Would he be allowed to declare bankruptcy and move on, or would he become, in a rights-respecting manner, the effective slave of whoever had loaned him the money?

CNC: That would depend upon the debt contract that the lender and borrower had together voluntarily signed. If they had chosen to include a bankruptcy proviso, then the borrower could declare bankruptcy.

ANDREW: Suppose that in the libertarian society, lenders would rather encourage borrowers to focus on repayment – and so they decide not to give borrowers an easy way out. Suppose that no lenders offer loans with a bankruptcy proviso. Would that be okay?

CNC: Economic theory tells us that loans without a bankruptcy proviso will be made at lower interest rates than loans allowing borrowers to go bankrupt. So if no loans contain a bankruptcy proviso, it will just mean that borrowers prefer low-interest no-bankruptcy loans.

ANDREW: I see some problems here.

CNC: Look, it sounds from your question like you think that the lenders should be coerced into allowing borrowers to be irresponsible and go bankrupt! That would effectively make them loan their hard-earned money in ways that they don’t want. How is that any different than forcing them to work at hard labor?

ANDREW: Obviously it would be better to have defaulting borrowers be effectively enslaved in a way that fully respects their natural rights.

CNC: Obviously. Now that we’ve cleared that up, can you turn off the tape recorder? I want to get started on my steak.

Now that Code Name Cain has indicated the promise of a libertarian society, in the next part of the interview he will give a step-by-step plan for how we can make this society a reality.

How food manufacturers turn mouldy, mislabelled or outright contaminated foods into edible — and profitable — goods Daily Mail (hat tip reader May S)

Arizona gun club lets children hold high-powered guns while posing for Christmas pictures Sideshow (hat tip Lambert Strether)

Study: Over Time, Even a Little Too Much Tylenol Can Kill Discover (hat tip reader Robert M). I don’t take Tylenol, period. Anything that can kill you if you take too much is not worth using, particularly when there are lots of alternatives.

3 Asset Managers Win $254 Million Powerball Lottery New York Times (hat tip reader Scott). I thought lotteries were a tax on people who were bad at math…

AT&T’s 11th-Hour Plan to Save Its Deal With T-Mobile New York Times

Have we passed peak travel? MacroBusiness

Crisis in Europe Tightens Credit Across the Globe New York Times. Did you notice the Times is now using more NC-like orange in its layout? We are apparently ahead of the MSM in more ways than one.

Moody’s Signals Possible Cut For Europe Banks Bloomberg

Foreign News: The missing 20,000 Greek pensioners Ed Harrison

Just Another Goldman Sachs Take Over CounterPunch (hat tip reader 1 SK)

Back From China? American Prospect (hat tip reader Tim F)

Black Friday sales fail to dispel retail gloom Financial Times

Money Found in Britain May Belong to MF Global New York Times. Hhm, and JP Morgan, which was owed the money, asked a few, but not enough, questions.

Fannie and Freddie watchdog under fire Financial Times

Occupy This: Crazy Tom the FBI Provocateur rsn

US lenders review military foreclosures Financial Times. This is a disgrace. Violations of the Servicmans Civil Relief Act are criminal. So where are the prosecutions?

Lawyers’ Bonuses Under Pressure Wall Street Journal

Top 10 List of What Might Be Next For Barney Frank Outside the (Cardboard) Box (hat tip reader TomoftheNorth)

A Columnist Recants, but the WSJ Edit Page Won’t Hear it Columbia Journalism Review

Should the Courts Appoint an Equitable Receiver for Bank of America? Chris Whalen

At Top Colleges, Anti-Wall St. Fervor Complicates Recruiting New York Times. Mirabile dictu!

Antidote du jour. A capivara, photographed by reader Rodolfo in the Pantanal mid-west region of Brazil.

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Cross posted from New Deal 2.0

Without prosecutions, there’s nothing keeping fraud from becoming a standard business practice.

In 2004, the FBI warned Congress of an “epidemic of mortgage fraud,” of unscrupulous operators taking advantage of a booming real estate market. Less than two years later, an accounting scandal at Fannie Mae tipped us off that something was very wrong at the highest levels of corporate America.

Of course, we all know what happened next. Crime invaded the center of our banking system. Wall Street CEOs were signing on to SEC documents knowing they contained material misstatements. The New York Fed, riddled with conflicts of interest, shoveled money to large banks and tried to hide it under the veil of central bank independence. Even Tim Geithner noted that Lehman had “air in the marks” in its valuations of asset-backed securities, as the bankruptcy examiner’s report showed that accounting manipulation to disguise the condition of the balance sheet was a routine management tool at the bank. There’s a reason Charles Ferguson got an Academy Award for his work on the documentary Inside Job.

And yet, no handcuffs. The big news on prosecutions in the traditionally high-powered Southern District of New York are convictions for relatively petty insider trading that are unrelated to the collapse of the economy. The criminal charges could have been filed in the 1980s. U.S. Attorney Preet Bharara has brought minor civil suits against banks, but nothing significant, and no criminal indictments for the Ponzi scheme of the last four years.

And what happens when this kind of fraud goes unprosecuted? It continues, even today. The same banks that ran the corrupt home mortgage securitization chain are now committing rampant fraud in the foreclosure crisis. Here’s New Orleans Bankruptcy Judge Elizabeth Magner discussing problems at Lender Processing Services, the company that handles 80 percent of foreclosures on behalf of large banks (emphasis added):

In Jones v. Wells Fargo, this Court discovered that a highly automated software package owned by LPS and identified as MSP administered loans for servicers and note holders but was programed to apply payments contrary to the terms of the notes and mortgages.

The bad behavior is so rampant that banks think nothing of a contractor programming fraud into the software. This is shocking behavior and has led to untold numbers of foreclosures, as well as the theft of huge sums of money from mortgage-backed securities investors.
Here’s how the fraud works: Mortgage loan notes are very clear on the schedule of how payments are to be applied. First, the money goes to interest, then principal, then all other fees. That means that investors get paid first and servicers, who collect late fees for themselves, get paid either when they collect the late fee from the debtor or from the liquidation of the foreclosure. And fees are supposed to be capitalized into the overall mortgage amount. If you are late one month, it isn’t supposed to push you into being late on all subsequent months.

The software, however, prioritizes servicer fees above the contractually required interest and principal to investors. This isn’t a one-off; it’s programmed. It’s the very definition of a conspiracy! Who knows how many people paid late and then were pushed into a spiral of fees that led into a foreclosure? It’s the perfect crime, and many of the victims had paid every single mortgage payment.

A lack of criminal prosecutions means that unethical business practices like this one drive out ethical business practices. After all, why should a bank hire an ethical default servicer that charges a high price for its product when it can pay nothing to one that simply extracts from investors and homeowners?

The joke that is the U.S. Attorney network has become very old and very stale. And unfortunately, because of Attorney General Eric Holder, that joke is on us.

Judge Jed Rakoff’s latest ruing, nixing a $285 million settlement between the SEC and Citigroup over a billion dollar fund that came a cropper, has broader implications than simply embarrassing the securities regulator (which given the fallen standing of the agency, and low standards in Washington generally, is harder to do than it ought to be). Rakoff has effectively said judges have no business sanctioning settlements in which the accused party admits to nothing.

What has Rakoff’s dander up is that the allegations made by the SEC in its lawsuit were that Citigroup stuffed the fund full of crappy CDO tranches and went short against them, and got investors to buy it by telling them the assets were selected by an independent party. Citi was a typically inefficient looter, earning about $160 million while investors lost $700 million (note that Rakoff had to pry that information out of the parties). Citi is admitting only to negligence when the violations the SEC described its filing and in a related case amount to fraud, or in securities speak, scienter.

Rakoff’s ruling calls the entire process a sham:

Here, the S.E.C.’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations, deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.

Rakoff’s job is to determine whether the ruling is “whether the proposed Consent Judgment … is fair, reasonable, adequate, and in the public interest.” Since Citi admits to essentially nothing, he has no factual foundation for determining the adequacy of the settlement. He also notes that this deal clearly helps the big bank, since it’s a screaming deal if Citi did the bad things the SEC claimed it did in its initial lawsuit, and is a mere cost of doing business if it didn’t. It isn’t obvious to him what the SEC gets, beyond a headline. And he notes it leaves investors worse off, since the SEC has not said whether or not it will give any of its fines to them, plus the settlement means they cannot pursue private securities law claims based on negligence, so they are actually worse off.

The settlement includes injunctive relief, which in this case is to permanently restrain and enjoin Citi from violating certain provisions of securities regulations, and for three years to implement certain internal programs to prevent staff from undertaking this fraud. Rakoff pooh poohed that, noting that the SEC showed Citi to be a recidivist. The New York Times confirmed Rakoff’s dim view:

A recent analysis by The New York Times of the agency’s fraud settlements with Wall Street firms found 51 instances, involving 19 companies, in which the agency claimed that a company had broken fraud laws that they previously had agreed never to breach.

Dealbreaker (hat tip reader Alexis) raises a related issue: why should the SEC file suits when it can just use administrative actions and collect fines and slap wrists that way? Author Matt Levine points out that they get better headlines, and I assume better settlements (more potential for embarrassment makes it even more important for a suit to go away). The New York Times concurred:

Securities law experts said that the ruling presents the agency with a tough dilemma. In future cases, it will have to consider the risk that another judge may be reluctant to approve a settlement given the Rakoff ruling.

But it isn’t as if the SEC can avoid the court system either. As Levine notes:

Bringing lawsuits in the Southern District of New York is a good way to get the SEC’s failings noticed. Bringing SEC administrative actions, announcing big fines with upbeat press releases, and not having them subject to any review, is a good way to sweep them under the rug. The more scrutiny that the SEC gets when it goes to court, the more tempted it will be to handle cases like this on its own.

One thing that might give them pause, though. The SEC has, in the wake of recent expansions of its powers under Dodd-Frank, experimented with moving away from the courts and towards administrative actions when its case against supposed wrongdoers maybe isn’t so hot. It’s already been slapped down for doing so. By Jed Rakoff.

Rakoff announced a trial date of July 16. It’s going to be hard for the SEC to wriggle its way out of this one.

By Warren Mosler, an investment manager and creator of the mortgage swap and the current Eurofutures swap contract and Philip Pilkington, a journalist and writer based in Dublin, Ireland

Politics in the Eurozone has turned into a strange and tragic farce in the recent weeks and months. While the peripheral countries continue to judge successful economic policy on the amount of tax liabilities they can levy to smother their depressed economies, the big dogs play various games in which they try to hide their shame behind ever more sophisticated veils.

Their ‘shame’, of course, being that the ECB, the issuer of the euro, has to ultimately write the check in order to fund the peripheral countries whether they like it or not. Being the liberated fiscal nudists that we are, we fully embrace such actions, but we recognise that our brothers and sisters within the Eurocracy may need some time and, excuse the pun, cover to adjust before they can embrace their inner MMTer.

And so we praise what works, even with the ever more bizarre choices of clothing that they care to don. This time they have chosen something akin to a shiny faux fur plastic coat in the middle of a California summer. And while they have yet to wear it with pride, we encourage them to come out of the closet and move in the said direction for all our sakes.

The latest Euro fashion is for the IMF to fund distressed sovereigns while being, in turn, funded by the ECB – while all this includes the fashiony gimmick that the IMF guarantees the loans.

The end result, of course, is that the ECB writes the check – which is precisely what it takes to make any of these schemes work. In fact, whenever you hear of any of these wacky evasions… er… sensible proposals, you can be safe in the knowledge that it will always work as long as it is the ECB writing the check. But we digress; and so here is how this latest one scheme will function.

When the ECB buys European national government bonds it credits member bank accounts on the ECB’s spreadsheet. Those accounts count as ‘money’ while the bonds did not count as ‘money’ and so, this action is said to be ‘printing money’ – and printing money is bad for some reason or other according to our German friends… and so the ECB undertakes a further step: sterilisation.

The ECB offers different euro accounts – which are also just numbers on an ECB spreadsheet – with relatively short maturities that pay interest. This is called ‘sterilisation’ because these deposits don’t technically count as money. Cool, huh?

Now, the German Eurocrats have made it clear that they do not want any of this currency issuing ‘foolishness’ no matter what amount of sterilisation is occurring. So, instead they call up their friends at the IMF.

When the ECB buys Special Drawing Rights from the IMF it credits an IMF account with the required euros. This does not count as ‘printing money’. And when the IMF loans those funds on to Italy or whoever, it does not count as ‘printing money’ either even though, when all is said and done, the same euros sit in the same ECB accounts and they effectively come from the same place. How clever.

Now stretch your mind’s logical capacity with us for a moment because the IMF was originally set up after World War II to deal with balance of payments issues. And we can kinda sorta say that various European nations suffer from balance of payment issues – so, when the IMF steps in its kinda sorta playing its supposed institutional role.

But here is the really great part: the IMF is already a well-known (and much hated) institution obsessed with imposing austerity on the countries they ‘assist’. This means that they have plenty of experience ruining economies… er… promoting ‘expansionary fiscal consolidations’. With all this experience the IMF will be in a prime position to ignore all the evidence coming out of the Eurozone and continue the drive to force the periphery into depression. Hoorah!

I suspect many Naked Capitalism readers would regard “democratic governance” as something of an oxymoron in the US. Our favorite curmudgeon, political scientist Tom Ferguson, discussed the failure of the supercommittee negotiations and what it means for politics and the economy. He sees the danger of government by technocrats, meaning experts who are really fronts for banking interests, as rising.

Dear readers,

My e-mail problems seem to be fixed. It was my fault. I had used up my allotted disk space and needed to do some housekeeping.

In addition, some of you seemed concerned re my talk of a site redesign. Not to worry, what I have in mind is more like a site facelift. I want it cleaned up and streamlined further. That is one reason I’ve been so loath to move ahead. Most “web designers” seem to favor busy “look at me” treatments, when that it the LAST thing I want.

Big emitters aim for climate delay BBC

Phone Deals Raise Coverage Problems Wall Street Journal

Disruptions: Fliers Must Turn Off Devices, but It’s Not Clear Why New York Times. This is complete BS, they are on different frequencies. I never turn off my cell out of general cussedness, and I never have a signal in the air (if I have gotten any calls, I don’t get the message until I land).

‘Journalism, not truth, is the first casualty of war’ Tehelka (hat tip reader May S)

The Stench of Elitism in Defense Spending Winslow T. Wheeler, Center for Defense Information (hat tip reader Alexis). Two months old but still worth reading.

Pakistan has had enough Guardian (hat tip reader May S)

Greeks Balk at Paying Steep New Property Tax New York Times

Diary: In Greece London Review of Books (hat tip reader Crocodile Chuck)

Reports Of IMF Package For Italy Not Credible – International Financial Officials eFXNews (hat tip reader SteveA)

European rumourthon misses the mark MacroBusiness

IMF Says No Talks Under Way With Italy Bloomberg

Central Banks Ease Most Since 2009 to Avert Contagion Bloomberg

The eurozone really has only days to avoid collapse Wolfgang Munchau, Financial Times

High school student reprimanded by principal for tweet criticising Kansas governor Daily Mail (hat tip reader May S)

Senators Demand the Military Lock Up American Citizens in a “Battlefield” They Define as Being Right Outside Your Window ACLU (hat tip readers Andy B and Parvaneh Ferhadi)

Bank debit card fee plans face Justice Dept. antitrust review Los Angeles Times. OMG, the DoJ is gonna wake up and actually do something?

Occupy LA await eviction deadline BBC

Banks scramble to plug capital deficits Financial Times. Typical stupid pro cyclical behavior. Where the hell were the grownups in 2009 and 2010? Why weren’t the regulators making a stink about dividends and pay levels then?

Hedge fund chief backs transaction tax plans Financial Times

Wall Street Pay Hits a Wall Wall Street Journal. The securities industry is supposed to be a high-risk, high return arena. But high risk means downside. I guess everyone thought the real deal was looting, which is a much safer business.

Antidote du jour (I think this is from reader Helene. I grabbed the photos from her message when forced to downsize my mailbox and failed to record her name. Apologies if I got it wrong):

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

We stand for the withering away of the state. At the same time we stand for the strongest state power that has ever existed. Is this “contradictory”? Yes, it is contradictory. But this contradiction fully reflects Marx’s dialectics.

– Josef Stalin in remarks to the Soviet Party congress in 1930

Such is the contorted nonsense that flows from doctrine and dogma when these become institutionalised. When dogma is confined to the armchair of the intellectual or the blackboard of the social scientist it is innocuous – simply an attempt by one individual to make sense of a world that they will never, in truth, ever make sense of. But when it comes to occupy a seat of power it becomes like a steamroller that can crush common sense and practicality in a misled attempt to change the world for the better.

Stalin and The Party came to call Marx’s (or Engels’?) philosophy of dialectical materialism ‘diamat’ – a phrase that perfectly captures the bureaucratic, narrow mindset that Orwell invoked when he referred to his semi-fictitious ‘newspeak’. In like manner I propose that we rename neoclassical economics whenever it comes to truly occupy a real seat of power; that is, when this set of ideas takes control over peoples’ lives in a wholly unmediated manner. When this occurs… well, welcome to the topsy-turvy world of ‘neocla’.

In times past when neocla grabbed power it was either through the IMF (as, for example, happened in Latin America during their various crises) or through the co-opting of some hapless government in search of answers (as happened in Russia under Yeltsin and Chile under Pinochet). When neocla gained real power its faceless bureaucrats then went about wrecking the society and the economy through various ‘microeconomic’ ‘reforms’ – taxation-based, usually, but also through privatisation, deregulation etc.

The reason these policies were enacted is because adherents of neocla claim that they have a model worked out in their heads of the world really works – just like Stalin’s, but the details are a little different. So, they figure that if they can just get the world to look a little bit more like their model and a little less the existing world, they figure we’ll eventually establish a sort of utopia – again, like Stalin, except the details are a little different. When they encounter failure they assure themselves that it is only a temporary setback; after all, they have this model in their heads and they simply know that it describes the inner-workings of the outside-world – again, like Stalin except the details are a little different.

(Note that the adherents of neocla will often bend language through the prism of their own ideas to suit their purposes and justify their crimes – just like Stalin does in the above quote. They will claim that they are not, in fact, imposing policy at all when they ‘reform’ the tax system or privatise certain institutions. Instead they will claim that they are actually rescinding policies. The logic of this is so twisted that I will leave it to some philosopher to explore in any depth. For now, it can safely be said that these folks step in and make changes in policy. In that they are imposing policy, no matter how they like to twist this to claim that when they impose policy they are actually not imposing policy but are, in fact, getting rid of already existing policy etc.)

In the past the adherents of neocla were kicked out of positions of power in the economies they wrecked after a few years of imposing nonsensical policies. The reason for this was that democracy, or at the very least popular opinion, pushed in a way that it could not in the stifled, totalitarian USSR. In this the populations exerted enough pressure on the government to change tack or elected a government that would do so.

But we are now seeing the birth of a new centre for neocla policymaking in Europe that I fear will be far more difficult for its victims to do away with. We see this new centre – let us call it the ‘Politeuro’ – emerge slowly through the centralisation of fiscal policy that is currently taking place in Europe; as yet its constitution is indeterminate, but even now we can start to make out its general shape and nature. We can see a broad sketch of it here, as written by Professor Bill Mitchell:

Basically it is setting up a centralised surveillance unit to further usurp the fiscal capacity of the member states without at the same time establishing a fully-fledged “federal” fiscal capacity to meet asymmetric aggregate demand shocks (across the region).

The plan would require all member states (17 nations) to send draft budgets to the EC by October 15 each year. The Commission could then reject the plan and force the nation to alter the spending and taxation proposals. There would also be stricter rules under the “Excessive Deficit Procedure” which would seek to enforce the Stability and Growth Pact more closely.

All member states would be forced to set up “independent fiscal councils” which would be involved in the preparation of budgets and official forecasts.

If a nation needed financial assistance there would be federal support it would have to be obedient under these rules.

Short conclusion: it would be a total disaster.

And that doesn’t even take into account the subcommittees of neocla that will enforce privatisation and various other microeconomic policies on governments that cannot comply with their impossible demands.

Soon a bunch of neocla policymakers will have significant control over the minutiae of government policy in the peripheral countries. And, since they are unchecked by the populations – not being subject to democratic control – and basically have free rein to implement their policies from a distance, we can be sure that they will concoct a most outlandish and stupid grab-bag of neocla policies which they will then force down the necks of the periphery governments.

They will tinker with taxes and impose privatisations, all of which will fly in the face of common sense – and all of which will be undertaken in reverence to a ‘free market’ that only exists in the foggiest corners of their own minds.

The economies and the societies of the periphery will suffer to no end, but these neocla technocrats will be particularly difficult to get rid of. They will be allied neither to a single government, nor will they be tied to a strictly international institution like the IMF. Instead they will be built into the European ‘chain of command’.

The Politeuro will be listened to by governments in the periphery and the citizens that elect these impotent governments will pay for it in real living standards. Meanwhile, these citizens will not have within their grasp any lever of power that they can pull to change the rules of the game.

In saying all this, I, like many others, recognise that we need the ECB to step in and write the check in order to stymie the crisis in Europe. And I fully recognise that, at this juncture, we have no real choice but to hand over fiscal powers so as to convince them to do so.

But we should not walk into this with our eyes closed. It is all too clear what is taking place here: the birthing of a sickly neoliberal superstate in which neocla technocrats will be able to impose their fantasies on people from a safe distance with complete freedom from democratic accountability. Once the ECB steps in and the eurocrisis is wound down, this will be the world in which many of us will have to live. And a brave a new world it will be – with all the Huxleyian associations that particular phrase calls to mind.