Category Archives: Banking industry

Matt Stoller: AG Tom Miller Negotiating in Secret with Banks Over Whether to Put Bankers in Jail

By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is http://www.twitter.com/matthewstoller. Cross posted from New Deal 2.0

If NFL fans are demanding negotiations be opened up, why are homeowners kept in the dark?

Zach Carter wrote a good piece on homeowners’ demands of the big banks. National People’s Action has coordinated thousands of homeowners in asking for an aggressive settlement with the banks on their handling of foreclosures. Iowa Democratic Attorney General Tom Miller, who is heading the 50-state investigation, is one of their prime targets.

But it’s this video that makes it interesting.

On the Problem Rising Oil Prices Pose for Central Banks

Ambrose Evans-Pritchard of the Telegraph voices his concern that central banks are going to misread the impact of rising oil prices and therefore make the wrong interest rate decision. Bear in mind that Evans-Pritchard called the 2008 oil spike correctly, deeming it to be a bubble, and was also in the minority then in arguing that deflation was a bigger risk to the economy than inflation.

One leg of his argument is that oil price increases slow economic growth. That’s hardly startling; indeed, this concern has been echoed widely in the last few days. For instance, as David Rosenberg notes, courtesy Pragmatic Capitalism:

NYT’s Joe Nocera Defends Failure to Bring Wall Street Execs to Justice

Aargh, it is frustrating to see how quickly establishment-serving shallow arguments become conventional wisdom. We get a big dose of this line of thinking from the New York Times’ Joe Nocera in an article titled, “Biggest Fish Face Little Risk of Being Caught.”

Now you can’t disagree with the conclusion: no major banking industry figure is going to be brought to justice. But the explanation he offers is incomplete and misleading, and serves to misdirect the public from more fundamental and more troubling causes.

Sanctimonious Wells Fargo ‘Fesses Up That it Will Probably Pay Fines in Enforcement Actions

Although banks are having to pay fines or make settlements now and again that are grossly inadequate relative to the damage they’ve inflicted on consumers and communities, I thought I’d single out this example.

The reason is simple. Wells Fargo has annoyingly tried to maintain that it is as pure as the driven snow, and has gone as making easily proven misrepresentations in meetings with Congressional staffers in doing so (which makes one wonder how much truth-stretching it has engaged in in communications with investors).

So I must confess to a bit of schadenfreude in reading this Bloomberg story:

Banks Pushing Back Hard on Inadequate Mortgage “Settlement” Trial Balloon

No sooner have the preliminary outlines of an inadequate settlement of mortgage servicing abuses been leaked, but the banking industry is engaged in a full court press to stop it.

The astonishing part is that the banking industry continues to maintain that it really didn’t do anything wrong, all it did was make some technical errors. That so grossly understates the degree of its recklessness and malfeasance as to be beyond relief.

It’s no surprise that the so-called Foreclosure Task Force which spent a mere eight weeks reviewing servicer activities and didn’t find much. The timeframe of its exam assured that it would not verify servicer records and accounts against borrower experience and records. It is almost certain that they also did not look at how servicer software credited payments and charges, when there is widespread evidence of violations of agreements with borrowers and RESPA.

And to the extent they looked at “improprieties” in foreclosure documents, it’s a given that they did not go beyond robosigning, when that is arguably the least significant form of malfeasance. There is ample evidence of fraud to cover for the failure to convey notes to securitization trusts, ranging from the misuse of lost note affidavits to document fabrication (bogus allonges being the most common fix).

In addition, pooling and servicing agreements also have specific provisions as to level and procedures for charging certain fees. Yet studies have determined that a specific servicer will apply the same charges across all borrowers and investors, irrespective of the requirements of particular securitizations. So it’s blindingly obvious that this exam was cursory, looking at one or two points of failure in a slapdash fashion and completely ignoring other issues that are at least as important.

Gillian Tett on Losses at Central Banks

Is the old Gillian Tett back? The one-time Financial Times capital market editor has taken to writing less frequently (understandable now that she has head the US operation) and less intrepidly (much of her commentary was prescient, particularly on my pet topic, collateralized debt obligations).

But her latest piece sounds a wee warning, and it’s one we’ve commented on as well, namely, that central banks are vulnerable to losses, and just like the banks they mind, may need a rescue by taxpayers if the err badly enough.

Her object lesson is the Swiss National Bank. Unlike most central banks, the SNB is quite transparent, and publishes periodic statements of the value of its assets on a mark to market basis. The usually conservative SNB made a uncharacteristically aggressive move last year, intervening in currency markets in an effort to suppress the value of its levitating franc.

Even though the locals applauded the move, the central bank was outgunned by currency traders and threw in the towel mid year. As the swissie continued to rise, the bank showed losses at the end of 2010 of SFr 21 billion. The only saving grace was that the gains on the bank’s hefty gold positions exceeded the damage. But that does not reassure its shareholders, who have become accustomed to annual payments out of bank “profits”, and are concerned that the profits this year will be too meager for them to enjoy their customary level of income.

Mortgage Fraud Whitewash: $20 Billion “Get Out of Jail Free” Settlement Floated

American leadership is reliable in one respect: it consistently undershoots my already low expectations.

Or maybe I have it backwards because I keep forgetting who the authorities are really serving, and it clearly isn’t you and me. As we will discuss below, the latest scam is that the banking regulators are finalizing a mortgage “breakdown” settlement, and they’ve evidently decided to let the industry off the hook for a mere $20 billion.

In Saudi Arabia, the royal family has just offered $36 billion worth of concessions in an effort to placate an increasingly unruly public (this appears to be in addition to pledges to spend $400 billion on education, health care, and infrastructure by 2014). This is in a country with a population just under 26 million, including over 5 million non-nationals who presumably aren’t eligible.

Now you can easily pooh pooh this comparison, since Saudi Arabia is an autocratic country desperately throwing around money to buy off dissidents, right? But this is the kind of money a leadership group will shell out when pressed to defend an existing order. And the US was very quick to hand out funds right, left, and center during the financial crisis. It’s continuing to do so now in less obvious ways, by continued life support for the mortgage market through Fannie and Freddie, the Fed’s super low interest rates and QE2, and non-monetary measures, most important its refusal to make any sort of serious investigation into what happened in the crisis and prosecute key actors.

Daniel Pennell: MERS Counsel Calls Me

By Daniel Pennell, a systems expert who has testified before the Virginia House of Representatives on MERS

I wonder if solar flares or something in the ether is prompting officials under attack to have unusually open conversations with people in the opposition. We’ve just had Governor Walker speak to “David Koch”, and I had a mini version of the same experience with MERS’ general counsel, except in my case, I was the recipient of the phone call. But the underlying assumptions of MERS and the Wisconsin executive were similar, in that each is confident of support from powerful allies.

Given that I am a vocal MERS critic, though testimony I have given, opinion pieces I have written and the work on legislation I have done over the last year decrying the legal standing and operational sloppiness of MERS, I was more than a little taken aback to get a call from Richard Anderson of the MERS legal team yesterday.

Bill Fleckenstein and Dylan Ratigan Discuss Commodities and “Individually Smart, Collectively Stupid” Regulators

This is a particularly crisp and straightforward discussion between money manager Bill Fleckenstein and Dylan Ratigan about central bank actions and commodities inflation. Enjoy!

MERS Endgame Nearing? One County Seeks Over $22 Million for Unpaid Recording Fees

Plank after plank of the mortgage recording company MERS’ business model has come under attack. To date, the results do not look good for the embattled company.

MERS has repeatedly insisted that its operations are legal. It would be more accurate to say that insufficient attention was paid to legal issues when the firm was created and the permissibility of its operations were under the radar and hence in a legal grey area for many years. Now that they have been challenged in court, MERS has had to retreat from many positions it took in public. Despite its protestations that everything it did was kosher, the database firm has now retreated from one of its widespread practices, of allowing foreclosures to be made in the name of MERS, after a number of state supreme courts and Federal bankruptcy courts issued rulings to the contrary.

Not surprisingly, MERS has the look of a company in trouble.

Consumer Stress Continues to Rise While DC Goes into “Mission Enough Accomplished” Mode

The officialdom has moved on to a new form of theater, namely legislative mud wrestling, which serves as a useful distraction from the failure to deliver on what ought to have been the first order of business, namely reining in the financiers. As we’ve said repeatedly, cleaning up the banking system is a necessary precursor for recovery from a serious financial crisis. Instead, whether by dumb luck or design, enough Americans have become fixated with various forms of jealousy over advantages they believe their neighbors have (whether accurate or not) that it is providing a great smokescreen for the oligarchs to continue their looting.

The fact that the economy has moved up up from a serious trough is hailed as a recovery. But to the vast majority of Americans, the talk of better times rings hollow. The top echelons are back to spending smartly, and Wall Street bonuses for 2009 and 2010 were lavish.

But even though spending economy-wide perked up in December, some question whether it was savings fatigue rather than a return of consumerism.

How to Foreclose on Your Bank

This is not a joke.

Various Philadelphia media outlets have told the tale of one Patrick Rogers, who was increasingly unhappy over his inability to get satisfaction from Wells Fargo over fees related to his mortgage, and initiated foreclosure proceedings as a way to get their attention.

Now how exactly could he do that? And is his action a possible template for other frustrated homeowners?

Wisconsin’s Walker Joins Government Asset Giveaway Club (and is Rahm Soon to Follow?)

Mike Konczal (thanks to ed at ginandtacos) reported earlier today on the latest release of a movie coming to states and cities all over the US, namely the sale of state and local government assets to alleviate pressures on strained budgets.

For those new to this concept, the term of art is the anodyne “infrastructure sales” and the company that more or less invented this lucrative business is Macquarie Bank of Australia (known down under as “the millionaires factory”), although US firms clearly intend to exploit the once in a lifetime opportunity presented by widespread state and municipal budget distress and downgrades.

The problem, of course, is that these deals put important public resources paid for by taxes (or even worse, financed by bonds and thus potentially not even yet fully paid for) in the hands of private investors. They then earn their returns by charging user fees of various sorts. The public must rely on the new owners for reinvestment and maintenance, and depending on how the deal is negotiated, may have ceded control as far as fee increases are concerned. This is tantamount to selling the family china only to have to rent it back in order to eat dinner.

Haldane Unto the Breach

We remarked before that attempts to nobble Mervyn King would soon bring other UK bank reformers out of the woodwork, and we have a confirming sighting today, via a puzzled tweet from @EconOfContempt: Strange op-ed by Andrew Haldane in the FT. No one is really pushing the argument that he’s trying to shoot down EoC […]

The Project Merlin Back Story

Not a bad couple of week’s work for the banks, since the “Project Merlin” publicity? Actually it’s taken a bit longer than that, and reconstruction of some of the behind-the-scenes action might be instructive. Although other banks get walk-on parts, the story is mostly about Barclays. Let’s start the timeline in September 2010, when John […]