11/29/10

Cablegate: Brazil Frames Suspected Terrorists on Narcotics Charges

Brazil - Cablegate: Brazil frames suspected terrorists on narcotics charges

By Natalia Viana

Sao Paulo, Brazil - The Brazilian security forces cooperate closely with US intelligence and law enforcement agencies on counterterrorism in the country, in spite of denials from the Brazilian government, US embassy cables released by WikiLeaks reveal.

According to a secret cable sent to Washington in January 2008 by US Ambassador Clifford Sobel, the Federal Police and the Brazilian intelligence agency ABIN monitor suspected terrorists and have arrested some of them on other charges:

"The Federal Police will often arrest individuals with links to terrorism, but will charge them on a variety of non-terrorism related crimes to avoid calling attention of the media and the higher levels of the government. Over the past year the Federal Police has arrested various individuals engaged in suspected terrorism financing activity but have based their arrests on narcotics and customs charges".

The Brazilian government denies the existence of counter-terrorism operations in the country.

In a 2005 meeting with the US Ambassador, the Brazilian most senior intelligence officer, Minister for Institutional Security Jorge Armando Felix, said that officers were working closely with RMAS (Regional Movement Alert System, a passport database) to target specific individuals.

He also said that the government "was also appealing to moderate, second generation Arabs, many of whom were successful businessmen in Brazil, to keep a close eye on fellow Arabs who may be influenced by Arab extremists and/or terrorist groups". It was in the moderate Muslims interest to "keep potential firebrands in line and keep the microscope off" of the Arab community in Brazil, says the cable sent on the May 6, 2005 (See cable 05BRASILIA1207). The Brazilian government vigorously rejects claims that there are terrorism-related activities going on in the Triborder area with Paraguay and Argentina. Since 2006, the US includes the area as a potential threat in its annual report on terrorism.

In part the rebutal is due to a formal disagreement, since Brazil does not classify Hizbollah and Hamas as terrorist organizations. Both organizations have supporters in the triborder area.

Terror-related arrests

But apart from official discrepancies, WikiLeaks documents show that the Brazilian agencies act on leads provided by the US.

Also in the January 2008 cable, the main terrorism concern lays not in the Triborder Area, but concerns individuals in Sao Paulo and the south of Brazil. "Despite negative rhetoric in Itamaraty and at higher levels of the GOB [Government of Brazil], Brazilian law enforcement and intelligence agencies—principally the Federal Police, Customs, the Brazilian Intelligence Agency (ABIN), and others—are aware of the potential threat from terrorists exploiting the favorable conditions existing in Brazil to operate and actively track and monitor suspected terrorist activity and follow all leads passed to them. "

Brazil doesn’t have specific legislation on terrorism, partly because of the legacy of the military regime - it used to arrest oppositors on charges of terrorism. The lack of a legisation in Brazil annoyes US officials, as another cable sent by Sobel in Abril 2008 shows (See Cable 08BRASILIA504).

Two discourses

Another document published by wikileaks show a December 2009 assessment (See Cable 09BRASILIA1540) of the national anti-terror policy.

In it, Minister Lisa Kubiske stresses that the US sees "two discourses" in the Brazilian government. "politically, Brazil continues to deny the presence and potential threat of terrorists and terrorism in Brazil, while law enforcement and intelligence monitor and cooperate to counter the threat". She mentions the arrest of a senior member of al Qaeda in Sao Paulo in May as an example.

"In October 2009, the Ministry of Foreign Relations did admit, for the first time, that terrorists could become interested in Brazil because of the award of the 2016 Olympics to Rio de Janeiro. Brazilian law enforcement’s recognition of the potential threat from terrorism prompted a reform of the Brazilian Intelligence Agency (ABIN) that could raise the profile of the issue by upgrading the counterterrorism division to the department level", says the cable.

The documents are part of a set of 250 thousand 1966-2010 US embassy files to be released in the coming weeks.

 via wikileaks.org



Wikileaks Secret US Embassey Cables : Cablegate?

Wikileaks began on Sunday November 28th publishing 251,287 leaked United States embassy cables, the largest set of confidential documents ever to be released into the public domain. The documents will give people around the world an unprecedented insight into US Government foreign activities.

The cables, which date from 1966 up until the end of February this year, contain confidential communications between 274 embassies in countries throughout the world and the State Department in Washington DC. 15,652 of the cables are classified Secret.

The embassy cables will be released in stages over the next few months. The subject matter of these cables is of such importance, and the geographical spread so broad, that to do otherwise would not do this material justice.

The cables show the extent of US spying on its allies and the UN; turning a blind eye to corruption and human rights abuse in "client states"; backroom deals with supposedly neutral countries; lobbying for US corporations; and the measures US diplomats take to advance those who have access to them.

This document release reveals the contradictions between the US’s public persona and what it says behind closed doors – and shows that if citizens in a democracy want their governments to reflect their wishes, they should ask to see what’s going on behind the scenes.

Every American schoolchild is taught that George Washington – the country’s first President – could not tell a lie. If the administrations of his successors lived up to the same principle, today’s document flood would be a mere embarrassment. Instead, the US Government has been warning governments -- even the most corrupt -- around the world about the coming leaks and is bracing itself for the exposures.

The full set consists of 251,287 documents, comprising 261,276,536 words (seven times the size of "The Iraq War Logs", the world's previously largest classified information release).

The cables cover from 28th December 1966 to 28th February 2010 and originate from 274 embassies, consulates and diplomatic missions.

  As the documents are released we will be publishing in the effort for greater understanding among the population about whats really going on ( in your name) behind the diplomatic door.

Wikileaks has become as important to the truth for Americans and citizens of the world as any media outlet available . Why do our leaders cringe and cowl from the truth ... The truth will set you free.

 Figgdimension



Jim Quinn: Lies Across America

Posted: 28 Nov 2010 09:40 PM PST

Yves here. While Quinn has a deliberately (some might say overly) provocative style and I quibble with some of his supporting arguments, his overarching observation, that America is wedded to an economic model past its sell by date, and that model has damaging social
and political consequences, is one I believe will resonate with many readers.

From Jim Quinn, who writes at The Burning Platform

Every single empire, in its official discourse, has said that it is not like all the others, that its circumstances are special, that it has a mission to enlighten, civilize, bring order and democracy, and that it has a mission to enlighten, civilize, bring order and democracy, and that it uses force only as a last resort. – Edward Said

The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans. You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers. Aldous Huxley had it figured out decades ago:

Thanks to compulsory education and the rotary press, the propagandist has been able, for many years past, to convey his messages to virtually every adult in every civilized country.

Americans were given the mental capacity to critically think. Sadly, a vast swath of Americans has chosen ignorance over knowledge. Make no mistake about it, ignorance is a choice. It doesn’t matter whether you are poor or rich. Books are available to everyone in this country. Sob stories about the disadvantaged poor having no access to education are nothing but liberal spin to keep the masses controlled. There are 122,500 libraries in this country. If you want to read a book, you can read a book. The internet puts knowledge at the fingertips of every citizen. Becoming educated requires hard work, sacrifice, curiosity, and a desire to learn. Aldous Huxley describes the American choice to be ignorant:

Most ignorance is vincible ignorance. We don’t know because we don’t want to know.

It is a choice to play Call of Duty on your PS3 rather than reading Shakespeare. It is a choice to stand on a street corner looking for trouble rather than reading Hemingway. It is a choice to spend Black Friday in malls fighting other robotic consumers for iSomethings, the latest innovative, advanced TVs, flashy Rolexes, and ostentatious Coach bags rather than spending the day reading Guns of August by Barbara Tuchman, a brilliant Pulitzer Prize winning history of the outset of World War I, which would provide insight into what could happen on the Korean Peninsula. It is a choice to watch 6 hours per day of Dancing With the Stars, American Idol, Brainless Housewives of Everywhere, or CSI of Anywhere rather than reading Orwell or Huxley and discovering that their dystopian warnings have come true.

Conspicuous Consumption Conquistadors

Americans have chosen to lie to themselves. They have persuaded themselves that buying stuff with plastic cards while paying 19% interest for eternity, driving BMWs while locked into never ending indecipherable lease schemes, and living in permanently underwater McMansions bought with 0% down on an interest only liar loan, is the new American Dream. They think watching the boob tube will make them smart. They soak in the mass media hype, misinformation and lies like lemmings walking off a cliff. Depending on their political predisposition, they watch Fox or MSNBC and unthinkingly believe the propaganda that pours from the mouths of the multi-millionaire talking heads who read Teleprompters with words written by corporate media hacks. They tell themselves that buying stuff on credit, giving them the appearance of success as measured by the media elite, is actually success. This is a bastardized, manipulated, delusional version of accomplishment. Americans have chosen to believe the lies because the truth is too hard to accept.

Becoming educated, thinking critically, working hard, saving money to buy what you need (as opposed to what you want), developing human relationships, and questioning the motivations of government, corporate and religious leaders is hard. It is easy to coast through school and never read a book for the rest of your life. It is easy to not think about the future, your retirement, or the future of unborn generations. It is easy to coast through life at a job (until you lose it) that is unchallenging, with no desire or motivation for advancement. It is easy to make your everyday troubles disappear by whipping out your piece of plastic and acquiring everything you desire today. If your brother-in-law buys a 7,000 sq ft, 7 bedroom, 4 bath, 3 car garage, monolith to decadence for his family of 3, thirty miles from civilization, with no money down and a no doc Option ARM providing the funds, why shouldn’t you get in on the fun. It’s easy. Why sit around the kitchen table and talk with your kids, when you can easily cruise the internet downloading free porn or recording every trivial detail of your shallow life on Facebook so others can waste their time reading about your life. It is easiest to believe your elected leaders, glorified mega-corporation CEOs, and millionaire pastors preaching the word of God for a “small” contribution to their mega-churches.

Americans love authority figures who act as if they have all the answers. It matters not that these egotistical monuments to folly and hubris (Bush, Obama, Paulson, Geithner, Greenspan, Bernanke) have committed the worst atrocities in the history of our Republic, leaving economic carnage and the slaughter of thousands in their wake. The most dangerous man on this earth is an Ivy League educated, arrogant ideologue who believes they are smarter than everyone else. When these men achieve power, they are capable of producing catastrophic consequences. Once they seize the reigns of authority these amoral psychopaths have no problem lying to the American public in order to achieve their objectives. They know that Americans love to be lied to, so the bigger the lie, the more likely it is to be believed.

The current lie proliferating across the land of the free financing and home of the debtor is that austerity has broken out across the land. The mainstream media and the government, aided by various “think tanks” and Federal Reserve propagandists insist that Americans have buckled down, reduced spending, increased savings, and have embraced austerity.

They now proclaim that it is time to spend again. It is the patriotic thing to do, just like defeating terrorists by buying an SUV with 0% down from GM was the patriotic thing to do after 9/11. Defeating terrorists by going further into debt was the brilliant idea of those Ivy League geniuses Bush & Greenspan. Let’s critically examine the facts to determine how austere Americans have become:

* Consumer credit outstanding is $2.41 trillion, the same level reached in early 2007, and up from $1.5 trillion in 2000. This is a 60% increase in ten years. Personal income has risen from $8.4 trillion to $12.6 trillion over this same time frame, a 50% increase. Americans have substituted debt for income in order to keep up with the Joneses. The mass delusion lives.
* The MSM declares that the reduction in overall consumer debt from its peak of $2.56 trillion in 2008 to $2.41 trillion today proves that consumers have been cutting back and paying off debt. This is another media lie. Non-revolving debt, which includes car loans, education loans, mobile home loans and boat loans sits at $1.6 trillion, an all-time high matched in 2008. Credit card debt has “plunged” from $957 billion to $814 billion, not because consumers paid down their balances. The mega Wall Street banks have written off $20 billion per quarter since early 2009, accounting for ALL of the reduction in credit card debt. Clueless consumers continue to charge at the same rate as the peak in 2008.

* Average credit card debt per household with credit card debt: $15,788
* There are 609.8 million bank credit cards held by U.S. consumers.
* The U.S. credit card default rate is 13.01%
* In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the U.S. A stack of all those credit cards would reach more than 70 miles into space – and be almost as tall as 13 Mount Everests.
* Penalty fees from credit cards added up to about $20.5 billion in 2009.
* The national average default rate as January 2010 stood at 27.88% and the mean default rate is 28.99%.
* Total bankruptcy filings in 2009 reached 1.4 million, up from 1.09 million in 2008. Bankruptcies in 2010 are on pace to exceed 1.6 million.
* 26% of Americans, or more than 58 million adults, admit to not paying all of their bills on time. Among African-Americans, this number is at 51%.


This data clearly proves that austerity has not broken out across the land of delusion. The billions in consumer loan write-offs by the Wall Street banks that run this country have masked the fact that Americans have not cut back on their spending habits at all. GMAC (taxpayer owned) and Ford Credit continue to dish out car loans to anyone with a pulse and a 600 credit score. The Federal Reserve and the FASB have encouraged, if not insisted, that banks fraudulently value the commercial real estate loans on their books. The Federal Reserve has bought $1.5 trillion of toxic mortgage loans from the criminal Wall Street banks at 100 cents on the dollar. The government’s corporate fascist public relations firms then spread the big lie that the economy is recovering and consumers should join the party and spend, spend, spend.

If Americans were capable or willing to do some critical thinking, they would realize that those in power have created the illusion of a recovery by handing $700 billion of your money to the banks that created the financial meltdown, spending $800 billion on worthless pork barrel projects borrowed from future generations, dropping interest rates to 0% so that the mega-Wall Street banks can earn billions risk free while your grandmother who depended on interest income from her CDs edges closer to eating cat food to get by, and lastly Ben Bernanke’s blatant attempt to enrich Wall Street by buying US Treasury bonds in an effort to make the stock market go up, while the middle and lower classes are crushed under the weight of soaring fuel and food price increases that exceed 30% on an annual basis. The illusion of recovery is not a recovery. With a true unemployment rate of 22%, a true inflation rate of 8% and a real GDP of -1.5% (Shadowstats), we are in the midst of the Greater Depression. You are being lied to, but most of you prefer it.

The Little Lies We Tell Ourselves

Our ignorance is not so vast as our failure to use what we know. – M King Hubbert

When Jimmy Carter gave his malaise speech in 1979, Americans were in no mood to listen. Carter’s solutions were too painful, required sacrifice, and sought to benefit future generations. The leading edge of the Baby Boom generation had reached their 30s by 1979, and the most spoiled, pampered, egocentric generation in history could care less about future generations, long term thinking, or sacrifice for the greater good. They were the ME GENERATION. The 1970s had proven to be tumultuous episode in US history. M King Hubbert’s calculation in 1956 that U.S. oil production would peak in the early 1970s proved to be 100% correct.


The Arab oil embargo resulted in gas shortages and economic chaos in the U.S. Hubbert used the same method to determine that worldwide oil production would peak in the early 2000s. If long term planning had been initiated in the early 1980s, combining exploration of untapped reserves, greater utilization of natural gas, development of nuclear plants, more stringent fuel efficiency standards, increased taxes on gasoline, and more thoughtful development of housing communities, we would not now face a looming oil crisis within the next few years. Instead of dealing with reality, adapting our behavior and preparing for a more localized society, we put our blinders on, chose ignorance over reason and pushed the pedal to the medal by moving farther away from our jobs, building bigger energy intensive mansions, and insisting on driving tank-like SUVs, Hummers, and good ole boy pickups. Kevin Phillips in American Theocracy explained that hyper-consumerism, fear, and inability to use logic have left our suburban oasis lives in danger of implosion when the reality of peak cheap oil strikes:

Besides the innate thirst of SUVs, some of the last quarter century’s surge in U.S. oil consumption has come from Americans driving more – some twelve thousand miles per motorist per year, up almost one – third from 1980 – because they as a whole live farther from work. In consumption terms, exurbia is the physical result of the latest population redistribution enabled by car culture and the electorate that upholds it.

Family values are central – if by this we mean having families and accepting lengthy commutes to install them in reasonably safe and well churched places. In the 1970’s such households might have been fleeing school busing or central city crime; in the post – September 11 era, many sought distance from “godless” school systems or the random violence and terrorist attacks expected to occur in metropolitan areas.

We willingly believe the lies espoused by the badly informed pundits on CNBC and Fox that if we just drill in Alaska and off our coasts, we’ll be fine. The ignorant peak cheap oil deniers insist there are billions of barrels of oil to be harvested from the Bakken Shale, even though there is absolutely no method of accessing this supply without expending more energy than we can access. Environmentalists lie about the dangers of nuclear power, while shamelessly promoting the ridiculous notion that solar, wind and ethanol can make a visible impact on our future energy needs. Ideologues on the right and left conveniently ignore the facts and the truth is lost in a blizzard of their lies. Here is an explanation so clear, even a CNBC “drill baby drill” dimwit could understand:

When oil production first began in the mid-nineteenth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Energy Investment (EROEI). Currently, between one and five barrels of oil are recovered for each barrel-equivalent of energy used in the recovery process. As the EROEI drops to one, or equivalently the Net Energy Gain falls to zero, the oil production is no longer a net energy source. This happens long before the resource is physically exhausted.


After the briefest of lulls when oil reached $145 per barrel, Americans have resumed buying SUVs, pickup trucks, and gas guzzling muscle cars. They have chosen to ignore the imminence of peak cheap oil because driving a leased BMW makes your neighbors think you are a success, while driving a hybrid would make your neighbors think you are a liberal tree hugger. It boggles my mind that so many Americans are so shallow and shortsighted. According to Automotive News, at the start of 2008 leasing comprised 31.2% of luxury vehicle sales and 18.7% of non-luxury sales. This proves that hundreds of thousands of wannabes are driving leased BMWs and Mercedes to fill some void in their superficial lives.

I bought a Honda Insight Hybrid six months ago. It gets 44 mpg and will save me $1,500 per year in gasoline costs. I put 20% down and financed the remainder at 0.9% for three years. My payment is $450 per month. I will own it outright in 2 ½ years. I could have leased a 2010 BMW 328i with moonroof, bluetooth, power seats with driver seat memory, lumbar support, leather interior, iPod adapter, 17″ alloy wheels, heated seats, wood trim, 3.0 Liter 6 Cylinder engine with 230 horsepower for 3 years at $389 per month. At the end of 3 years I’d own nothing. In 2 ½ years I’ll be able to put $450 per month away for my kids’ college education and I’ll be saving more on fuel as gasoline approaches $5 per gallon. The self important egotistical BMW leaser pretending to be successful will need to hand over their sweet ride and move on to the next lease, never saving a dime for the future. I’m sure they’ll make a killing in the market or their McMansion will surely double in price, providing a fantastic retirement.

After the briefest of lulls when oil reached $145 per barrel, Americans have resumed buying SUVs, pickup trucks, and gas guzzling muscle cars. They have chosen to ignore the imminence of peak cheap oil because driving a leased BMW makes your neighbors think you are a success, while driving a hybrid would make your neighbors think you are a liberal tree hugger. It boggles my mind that so many Americans are so shallow and shortsighted. According to Automotive News, at the start of 2008 leasing comprised 31.2% of luxury vehicle sales and 18.7% of non-luxury sales. This proves that hundreds of thousands of wannabes are driving leased BMWs and Mercedes to fill some void in their superficial lives.

I bought a Honda Insight Hybrid six months ago. It gets 44 mpg and will save me $1,500 per year in gasoline costs. I put 20% down and financed the remainder at 0.9% for three years. My payment is $450 per month. I will own it outright in 2 ½ years. I could have leased a 2010 BMW 328i with moonroof, bluetooth, power seats with driver seat memory, lumbar support, leather interior, iPod adapter, 17″ alloy wheels, heated seats, wood trim, 3.0 Liter 6 Cylinder engine with 230 horsepower for 3 years at $389 per month. At the end of 3 years I’d own nothing. In 2 ½ years I’ll be able to put $450 per month away for my kids’ college education and I’ll be saving more on fuel as gasoline approaches $5 per gallon. The self important egotistical BMW leaser pretending to be successful will need to hand over their sweet ride and move on to the next lease, never saving a dime for the future. I’m sure they’ll make a killing in the market or their McMansion will surely double in price, providing a fantastic retirement.

The delusion that cheap oil is a God given right of all Americans can be seen in the YTD data on vehicle sales. Pickups and SUVs account for 48.5% of all sales, while small fuel efficient cars account for only 16.5% of all sales. Americans will continue to lie to themselves until it is too late, again.


Americans are so committed to their automobiles, hyper-consumerism, oversized McMansions, and suburban sprawl existence that they will never willingly prepare in advance for a future by scaling back, downsizing, or thinking. Our culture is built upon consumption, debt, cheap oil and illusion. Kevin Phillips in American Theocracy concludes that there are so many Americans tied to our unsustainable economic model that they will choose to lie to themselves and be lied to by their leaders rather than think and adapt:

A large number of voters work in or depend on the energy and automobile industries, and still more are invested in them, not just financially but emotionally and culturally. These secondary cadres included racing fans, hobbyists, collectors, and dedicated readers of automotive magazines, as well as the tens of millions of automobile commuters from suburbs and distant exurbs, plus the high number of drivers whose strong self-identification with vehicle types and models serve as thinly disguised political statements. In the United States more than elsewhere, a preference for conspicuous consumption over energy efficiency and conservation is a signal of a much deeper, central divide.

M King Hubbert was a geophysicist and a practical man. He observed data, made realistic assumptions, and came to logical conclusions. He didn’t deal in unrealistic hope and unwarranted optimism. He knew that our culture had become so dependent upon lies and an unsustainable growth model based on depleting oil and debt based “prosperity”. He knew decades ago that we were incapable of dealing with the truth:

Our principal constraints are cultural. During the last two centuries we have known nothing but exponential growth and in parallel we have evolved what amounts to an exponential-growth culture, a culture so heavily dependent upon the continuance of exponential growth for its stability that it is incapable of reckoning with problems of non-growth.

Our country is at a crucial juncture. It is time for thinkers. It is time for realists. It is time to deal with facts. It is time to drive the ideologues off the stage. Are you tired of lying to yourselves? Are you tired of being lied to by the corporate fascists that run this country? It is time to wake up. Right wing and left wing ideologues will continue to spew lies and misinformation as they are power hungry and care not for the long-term survival of our nation or the unborn generations that depend upon the decisions we make today. It is time to see how we really are.

Most of one’s life is one prolonged effort to prevent oneself from thinking. People intoxicate themselves with work so they won’t see how they really are. – Aldous Huxley

11/20/10

Fighting the Man

Stoller: A Debtcropper Society

Posted: 18 Nov 2010 11:41 AM PST

By Matt Stoller, a blogger-turned Congressional staffer. He was a policy advisor to Rep. Alan Grayson on financial policy issues. Cross posted from New Deal 2.0.

A lot of people forget that having debt you can’t pay back really sucks. Debt is not just a credit instrument, it is an instrument of political and economic control.

It’s actually baked into our culture. The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers.

They were in hock to the man, and eventually became slaves to him. This structure, of sharecropping and usury, held together by political violence, continued into the 1960s in some areas of the South. As late as the 1960s, Kennedy would see rural poverty in Arkansas and pronounce it ’shocking’. These were the fruits of usury, a society built on unsustainable debt peonage.

Today, we are in the midst of creating a second sharecropper society. I first heard the term “slaves to the bank” from a constituent fighting a fraudulent foreclosure. The details aren’t so important — this couple had been illegally placed in a predatory loan — but at one point, the wife explained that she and her husband were so scared they would have “given their first born to the bank to keep their home”. That was fear speaking, total unadulterated panic. And as we watch debt-holders use the ornaments of fear, such a loan sharking company that set up fake courts to convince debtors they were losing cases, we should recognize that what the creditor class wants is what they’ve always wanted: total dominance of our culture.

Today, the debts do not involve liens against crops. People in modern America carry student loans, credit card debt, and mortgages. All of these are hard to pay back, often bringing with them impenetrable contracts and illegal fees. Credit card debt is difficult to discharge in bankruptcy and a default on a home loan can leave you homeless. A student loan debt is literally a claim against a life — you cannot discharge it in bankruptcy, and if you die, your parents are obligated to pay it. If the banks have their way, mortgages and deficiency judgments will follow you around forever, as they do in Spain.

Young people and what only cynics might call ‘homeowners’ have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens. Debtcroppers don’t start companies and innovate, they don’t take chances, and they don’t claim their political rights. Think about this when you hear the calls from ex-Morgan Stanley banker and current World Bank President Robert Zoellick and his nebulous mutterings pining for the gold standard. Or when you hear Warren Buffett partner Charlie Munger talk about how the bailouts of the wealthy were patriotic, but we mustn’t bail out homeowners for fear of ‘moral hazard’. Or when you hear Pete Peterson Foundation President and former Comptroller General David Walker yearn nostalgically for debtor’s prisons.

Unclogging our constipated economy is not a complex problem — we must simply wipe out the bad debt that cannot be paid back. The complexity of the problem lies in the politics. Debtcroppers have no power, except to stop paying their debts. The constituents I worked with on a fraudulent foreclosure eventually did just that. She and her husband, unshackled by panic, began rebuilding their lives, throwing away their indentured servitude to the bank that abused them. They found their dignity, and used the court system to claim their rights as citizens. They fought the man, successfully, and wiped out their debt. And that is a very scary threat to the creditor class, perhaps the only thing they are really scared of.



Senate, House Hearings On Foreclosure

Senate, House Hearings on Foreclosure Fraud Cast Doubt on Deadbeat Borrower Meme

Posted: 19 Nov 2010 01:28 AM PST  via Naked Capitalism

On Thursday, the housing subcommittee of the House Financial Services Committee held hearings on robo signing, documentation, and servicing issues. This session wasa companion to the Senate Banking Committee hearings on the same topic earlier in the week.

There were some notable differences between the two forums. The House group overall was less well prepared; I’m told that’s due to the fact that Representatives have far fewer policy staffers than Senators. There was also a higher proportion of participating members predisposed towards banks in the House hearings. Nevertheless, the sessions made a major dent in some key bank talking points, the biggest being their assertion that all of the foreclosures made are warranted, and therefore the foreclosure problems are mere paperwork issues.

Some exchanges were effective. Maxine Waters, who chaired the session, grilled the regulators on whether they had fined or imposed sanctions on any banks. She was forced to become prosecutorial when every single regulator present refused to provide simple a simple yes/no answer as requested. One of the less evasive interactions was with OCC acting chairman John Walsh:

Waters: Has OCC taken any enforcement action?

Walsh: We have certainly issued supervisory requirements on matters requiring….

Waters: Have you levied any fines?

Walsh: I do not believe that we have.

Waters: Have you issued any .. orders?

Walsh: I don’t believe there have been any public actions.

Waters: Have you threatened to revoke any charters?

Walsh: No.

Waters: Do you think the servicers really believe you mean business if they don’t fear consequences?

Walsh: I think the consequences are clear and ….

Waters: But you haven’t done that. You haven’t done any of that. Why should they take you seriously?

The banks did not comport themselves terribly well in either hearing. It’s remarkable to see how they all tell the same lies hew to the same talking points: we do everything we can to avoid foreclosures, we don’t benefit from them (huh?), our second mortgage portfolios have no impact on our decisions (!?!), the only people we foreclose on are people who are delinquent. Chase adds some insulting-to-intelligence bromides about treating customers with respect. When told that there have been all sorts of people who have been foreclosed upon who don’t fit their tidy story (victims of compounding and often erroneous servicer junk fees, or told by the servicer not to pay so as to qualify for a mod), the next line of defense is to characterize them as errors, apologize, and profess that they fix mistakes as soon as they become aware of them.

Sadly, when Waters put up the notorious DocX document fabrication price list, all the bank representatives cheerfully piped up: “We don’t use DocX.” Of course they don’t now; DocX was shut down in early 2010. But she did score one when she asked banks to say which investors objected to mortgage modifications and the Bank of America witness ‘fessed up that it was very few.

It was also remarkable to how tightly the bank representatives had been scripted. They were utterly incapable of responding to unanticipated questions. Georgetown law professor Adam Levitin, who was extremely effective in both hearings, was stunned at how tongue-tied they were when Brad Miller asked about why big banks should be in the servicing business:

Rep. Brad Miller (D-NC) asked a panel with some 5 servicing executives on it why it makes sense for a servicer to be affiliated with either a loan originator, a loan securitizer, or a trustee. He might have been speaking Klingon to these executives. They stared blankly at him like he was asking them something that was far beyond their comprehension. None of them had a real answer for him.

This wasn’t a case of the servicers not wanting to speak an uncomfortable truth. There are perfectly legitimate reasons to bundle origination and servicing, for example–servicing is countercylical to origination (this is hardly news; banks’ 10-Ks state as much). Instead, this was a case of silence from ignorance.

As much as I respect Levitin (he was the standout of both hearings, as FireDogLake underscores), these business heads have clearly presented reams of PowerPoint presentations to senior executives that would from time to time discuss the strategic merits of the servicing operations. It’s more likely that they were put on a short leash by whoever prepped them for these meetings.

The problem with the industry defense that that delinquency = justified foreclosure is that they operate in a system where as far as the charges presented to homeowners are concerned, they are judge, jury, and executioner. Levitin debunked this stance in his written testimony (boldface ours):

A common response from banks about the problems in the securitization and foreclosure process is that it doesn’t matter as the borrower still owes on the loan and has defaulted. This “No Harm, No Foul” argument is that homeowners being foreclosed on are all a bunch of deadbeats, so who really cares about due process? As JPMorganChase’s CEO Jamie Dimon put it “for the most part by the time you get to the end of the process we’re not evicting people who deserve to stay in their house.”

Mr. Dimon’s logic condones vigilante foreclosures: so long as the debtor is delinquent, it does not matter who evicts him or how. (And it doesn’t matter if there are some innocents who lose their homes in wrongful foreclosures as long as “for the most part” the borrowers are in default.) But that is not how the legal system works. A homeowner who defaults on a mortgage doesn’t have a right to stay in the home if the proper mortgagee forecloses, but any old stranger cannot take the law into his own hands and kick a family out of its home. That right is reserved solely for the proven mortgagee….

Ultimately the “No Harm, No Foul,” argument is a claim that rule of law should yield to banks’ convenience. To argue that problems in the foreclosure process are irrelevant because the homeowner owes someone a debt is to declare that the banks are above the law.

Levitn and Julia Gordon of the Center for Responsible Lending both argued, forcefully, that many foreclosures were the result of servicer abuses. Gordon, who has handled many cases in her own practice pointed out what I have heard from borrower attorneys: that it is difficult for counsel to obtain the needed information from the servicer as to how it came up with the charges it claims the borrowers owes. And even then, it it not a trivial analytical task to unravel their accounts.

Other commentators find that the evidence supports the contention that defaults are often servicer generated. As Alan White notes at Credit Slips:

Erroneous foreclosures thus come in two flavors. Foreclosing someone who is not actually behind, or whose default was precipitated by junk fees, unnecessary or overpriced forced-place insurance, or payment application errors (common in bankruptcy cases) is obviously wrong. Equally wrong, however, are foreclosures of homeowners who have sufficient income to fund a modified loan that will produce significantly higher investor returns than a distressed foreclosure sale. Contrary to the pronouncements of servicers and Treasury officials, modification and workout consideration is not happening before foreclosure starts, it runs on a parallel track with foreclosure processes. Frequently, the foreclosure train wins the …
The clearest evidence of widespread errors and poor performance in mortgage servicing comes from data on HAMP and other modification programs…A February 2010 HAMP Call Center report of complaints lists more than 36,000 complaints of lost documents, inability to get a servicer response to an application, inappropriate requests for modification fees, and similar problems. An October 2010 ProPublica survey of HAMP applicants found that the average length of time homeowners had been seeking a HAMP modification was 14 months. Treasury guidelines call for a response within 30 days. Given those delays, it is highly likely there are affidavits of default being filed that allege default while the servicer is considering pending trial modification of mortgage terms. In cases where payments are being made on a temporary modification agreement, there are good contracts-based arguments that there is no default.

The banks apparently believe that their numerous abuses are no big deal, and that they can brazen their way through any real problems with a combination of delaying tactics, prevarication and appeals to authority. But it also appears that we still have enough of a semblance of rule of law in this country so as to throw a wrench in their strategy. The longer they dig in their heels, the more the public will come to recognize that nothing they say should be believed.



Senate Apprroves Website Shutdown Bill

—  IDG News Service —  By Grant Gross

The U.S. Senate Judiciary Committee has approved a controversial bill that would allow the government to seek court orders to shut down websites offering materials believed to infringe copyright.

The committee's 19-0 vote Thursday to send the Combating Online Infringement and Counterfeits Act to the full Senate earned it praise from the Motion Picture Association of America (MPAA) and the U.S. Chamber of Commerce.

Update: Oregon Senator Ron Wyden threatens to block copyright bill: Read the full story

The bill would allow the Department of Justice to seek court orders requiring U.S. domain-name registrars to shut down domestic websites suspected of hosting infringing materials. The bill would also allow the DOJ, through a court order, to order U.S. Internet service providers to redirect customer traffic away from infringing websites not based in the U.S.

"Rogue websites are essentially digital stores selling illegal and sometimes dangerous products," Senator Patrick Leahy, the main sponsor of the bill, said in a statement. "If they existed in the physical world, the store would be shuttered immediately and the proprietors would be arrested. We cannot excuse the behavior because it happens online and the owners operate overseas. The Internet needs to be free -- not lawless."

Critics of the legislation have said it would censor free speech online and damage the Internet.

"We are disappointed that the Senate Judiciary Committee this morning chose to disregard the concerns of public-interest groups, Internet engineers, Internet companies, human-rights groups and law professors in approving a bill that could do great harm to the public and to the Internet," Gigi Sohn, president of digital rights group Public Knowledge, said in a statement. "We look forward to working with the committee next year to craft a more narrowly tailored bill that deals with the question of rogue websites."

The bill, with 17 Senate co-sponsors, is unlikely to pass through the House of Representatives this year, with only a few working days left in the congressional session. After the newly elected Congress meets in January, Leahy, a Vermont Democrat and Judiciary Committee chairman, would have to reintroduce it in the Senate.

The bill would allow the DOJ to seek court orders targeting websites that are "primarily designed" for or have "no demonstrable, commercially significant purpose" other than copyright infringement.



Democrats Caving in to Conservatives ...Not on our Watch

Some conservative Democrats have started to cave on Social Security. Senator Mark Warner of Virginia says “we have to” raise the retirement age (link). Peter Orzag, who is President Obama’s former director of the Office of Management and Budget, is urging progressives to support Social Security cuts (link).

With Republicans, Wall Street, and the corporate media already in favor of cutting Social Security, we have to gear up to stop any Democratic capitulation.! That’s why, at Figrd, we're looking to deny these Democrats any grassroots support for their “compromises,” and identify a group of activists who are willing to take further steps fight back. You can help us by signing a pledge to yourself promising you will never support cutting or privatizing Social Security.

Click here to sign the pledge now.



11/17/10



Congressional Oversight Panel Takes Tough Stand on Mortgage Documentation Problems

Posted: 17 Nov 2010 02:55 AM PST

The spectacle of Senators in Tuesday’s banking committee hearings on the mortgage largely siding with articulate, fact-driven critics of the mortgage securitization is a sign that financial services industry misdirection and lame excuses are wearing thin. But far more devastating is the contrast between the long-promised American Securitization Forum paper on mortgage transfers, versus the Congressional Oversight Panel report on the broader issue of mortgage documentation.

A securitization lawyer called me to say he’d gotten calls from investors as soon as the ASF report was out. He said they were surprised at how weak the paper was, and complained that it did nothing to alleviate investor concerns. Georgetown law professor Adam Levitin, in the Senate Banking Committee hearings on Tuesday neatly dispatched the ASF paper. To give a rough paraphrase:

I agree with much of what is in the American Securitization Forum paper, as far as it goes, but it doesn’t go far enough. It is analyzing the wrong law. The paper discusses Article 3 of the UCC, which covers negotiable instruments, and Article 9, which covers promissory notes. But the UCC allows for parties to enter into other contractual arrangements, and the pooling and servicing agreements do that. Most securitization trusts are also governed by NY trust law, and they force additional measures for transfer.

In other words, this is pretty much the same argument that the industry has offered from the outset. There is no mention of the conflicts between the actual steps taken versus. those required by the PSA, no discussion of post closing transfers. There are some citations where courts supposedly held the PSA was a sufficient “assignment” of the mortgage loans to make up for any other transfer failings; I’ll have to read them to see how narrow they are.

It should probably not be a surprise that this report was so flimsy. The ASF had originally indicated its report would be out two dates after it promised it, which should have been the very end of October. It is noteworthy that they released it the same day as both the Congressional Oversight Panel report and the Senate Banking committee hearing. If it had been a potent document, there would be every reason to have gotten it out sooner so it could inform the hearings and the COP report. The fact that it was presented at the same time seems to be a tacit admission that it had little new to add. But having the report come out the same day as the COP paper still serves to blunt its impact. And today, Moody’s issued a report on MERS and robo signing. As a securitization expert remarked,

Great timing by Moody’s – coming out the morning of the COP report and hearings to say that they see no risk. No doubt, this was coordinated by the ASF to be timed with their white paper.

Doesn’t speak well for Moody’s having learned anything in the past three years or for their independence.

By contrast, the Congressional Oversight Panel paper is painstakingly thorough. It ties the robo signing issue into broader concerns:

While these documentation irregularities may sound minor, they have the potential to throw the foreclosure system – and possibly the mortgage loan system and housing market itself – into turmoil. At a minimum, in certain cases, signers of affidavits appear to have signed documents attesting to information that they did not verify and without a notary present. If this is the extent of the irregularities, then the issue may be limited to these signers and the foreclosure proceedings they were involved in, and in many cases, the irregularities may potentially be remedied by reviewing the documents more thoroughly and then resubmitting them. If, however, the problem is related not simply to a limited number of foreclosure documents but also to irregularities in the mortgage origination and pooling process, then the impact of the irregularities could be far broader, affecting a vast number of investors in the mortgage-backed securities (MBS) market, already completed foreclosures, and current homeowners. This latter scenario could result in extensive litigation, an extended freeze in the foreclosure market, and significant stress on bank balance sheets arising from the substantial
repurchase liability that can arise from mistakes or misrepresentations in mortgage documents.3…The severity and likelihood of these various possible consequences depend on whether the irregularities are pervasive and when in the process they occurred.

It also highlights the New York trust law issue we have discussed at length here:

New York trust law requires strict compliance with the trust documents; any transaction by the trust that is in contravention of the trust documents is void, meaning that the transfer cannot actually take place as a matter of law.40 Therefore, if the transfer for the notes and mortgages did not comply with the PSA, the transfer would be void, and the assets would not have been transferred to the trust. Moreover, in many cases the assets could not now be transferred to the trust.41 PSAs generally require that the loans transferred to the trust not be in default, which would prevent the transfer of any non-performing loans to the trust now.42 Furthermore, PSAs frequently have timeliness requirements regarding the transfer in order to ensure that the trusts qualify for favored tax treatment.43

And it draws out some implications:

Failure to follow representations and warranties found in PSAs can lead to the removal of servicers or trustees and trigger indemnification rights between the parties. Failure to record mortgages can result in the trust losing its first-lien priority on the property. Failure to transfer mortgages and notes properly to the trust can affect the holdings of the trust. If transfers were not done correctly in the first place and cannot be corrected, there is a profound implication for mortgage securitizations: it would mean that the improperly transferred loans are not trust assets and MBS are in fact not backed by some or all of the mortgages that are supposed to be backing them. This would mean that the trusts would have litigation claims against the securitization sponsors for refunds of the value given by the trusts to the sponsors (or depositors) as part of the securitization transaction.

If successful, in the most extreme scenario this would mean that MBS trusts (and thus MBS investors) could receive complete recoveries on all improperly transferred mortgages, thereby shifting the losses to the securitization sponsors.

If a significant number of loan transfers failed to comply with governing PSAs, it would mean that sizeable losses on mortgages would rest on a handful of large banks, rather than being spread among MBS investors… in many cases, any put-back liability is likely to rest on the securitization sponsors. Although these put-back rights sometimes entitle the trust only to the value of the loan less any payments already received, plus interest, the value the trust would receive is still greater than the current value of many of these loans. As a number of originators and sponsors were acquired by other major financial institutions during 2008-2009, put-back liability has become even more focused on a relatively small number of systemically important financial institutions.

There is a great deal more informative discussion in the report, and I encourage you to read it. And the discussion above no doubt explains the industry’s dilatory response to these legal concerns. The banks appear to be relying on their TBTF status to bulldoze the law. And even though they are getting pushback in the courts, the industry seems almost constitutionally unable to see that it may not be able to bully its way through the colossal mess it has created.



Senate Hearing on Foreclosure Mess Goes Badly for Banks

Posted: 17 Nov 2010 01:30 AM PST

It’s become conventional wisdom to denounce Congressmen as know-nothings who routinely harass businessmen by hauling them before investigations and asking them uninformed questions.

Tuesday, we saw a refreshing and badly needed contrast to that stereotype in the form of a comparatively short (less than three hour) hearing by the Senate Banking Committee on the foreclosure/securitization crisis. The senators were informed, engaged, and well versed in most of the issues. The rushed timetable also helped, for instead of having the witnesses read their prepared testimony, each had to give a shorter summary, which gave the hearings a sense of urgency and meant most of the hearing time was spent on questions from the committee members.

What was striking was the contrast between the representatives of the banking industry, namely Barbara Desoer of Bank of America, David Lowman of Chase, and R.K. Arnold of MERS, versus the critics, who were Tom Miller, the Iowa attorney general, Adam Levitin, Georgetown law professor, and Diane E. Thompson of the National Consumer Law Center.

I strongly recommend you watch the hearings, they were very instructive and even entertaining at points (several Senators gave long form reports of how badly their constituents were being treated by banks). Even Richard Shelby had his moments. Shelby used to be in the title insurance business and roughed up R.K. Arnold, who looked like a rabbit in the headlights. Or you can read the liveblogs at FireDogLake by David Dayen and emptywheel

The financial services industry members offered not merely tired bromides, but repeated flat out lies: we always try to save borrowers; we don’t foreclose on people who aren’t delinquent; we don’t make money from foreclosing (no joke, the Chase guy said that); we never consider out second liens in our foreclosure decisions (huh? only true on a case by case basis, utter bunk at the institutional level); we don’t have any conflicts (double huh, every business has to make tradeoffs); yes, we make mistakes, but we correct them as soon as we learn about them (yeah, right). And this palaver did elicit reactions. Early on, when Lowman claimed that Chase was committed to working with homeowners, he was called a lair by a member of the audience from the audience. The session had to be halted while the offending truth-teller was removed. And the other witnesses often felt compelled to take the floor after a particularly egregious bank remark, as Levitin did on the claim that banks don’t make money from foreclosing, and offered evidence to the contrary.

Some highlights of the session:

Thompson did a very effective job of debunking the “deadbeat borrower” meme, and her written testimony contains an extensive discussion of servicer-driven foreclosures and abuses with numerous examples. Senator Johans tried to minimize the impact of her account by asking her how many people were being foreclosed upon who hadn’t failed to pay (note Thompson had examples of that too). Thompson was not diverted, and stressed that she as an attorney only fought foreclosures when she thought the borrower should not have been foreclosed upon, and intimated that her views were not unusual among legal services types. After a lengthy exchange, she estimated that 10% of her cases had been where the borrower had never been late (!) and another 50% were the result of improper servicing fees being charged (the balance were people who were in mod programs where the foreclosure was not halted).

Levitin endorsed the failure to convey-New York trust theory that has been discussed at length on Naked Capitalism. He made it clear that there are unanswered questions of fact and law, and the worst case scenario was dire indeed. He also stressed that the problem was not the law but failure to comply.

Dodd comported himself well and gave a very good introductory speech, and in particular, stressed that this was precisely the sort of issue that the Financial Stability Oversight Counsel needed to address.

There was consensus from virtually everyone who spoke save the two bank representatives about the merits of principal mods for viable borrowers, as well as having banks initiate mod discussions before proceeding to foreclosure, and having an expedited foreclosure process for borrowers who are clearly not viable.

It is remarkable to see how much the bank representatives stick to their talking points and do everything they can to not discuss contradictory evidence. It wasn’t convincing in this session, and I imagine it will start wearing thin on the wider public. The one bit of bad news about these hearings is how little media attention they’ve garnered: no mention on the business page of the New York Times, while the weak American Securitization Forum paper is featured in Dealbook. But these issues are not below the radar for the public, as the degree of engagement by the senators attests.



On Bank of America’s Loan-by-Loan Fight in Putbacks

Posted: 17 Nov 2010 01:20 AM PST

It’s more than a bit puzzling when readers get upset when once in a great while, we point out how the case against banks on a particular issue is overstated. The reaction seems to be that we’ve suddenly gone soft on financial firm miscreants, which is about as wide of the mark as you can get.

Overhyped attacks on authority (and unfortunately for us all, banks are very much part of the officialdom) backfire. They allow the defenders of the orthodoxy to paint critics as hysterical, reckless, and ill informed. As a result, the best chance for reining in the industry is to make charges that stick.

One area where the case against banks is exaggerated is non-GSE mortgage putback actions. In very simple terms, the servicer on a securitization, on behalf of the trust, has an obligation to “put back”, as in return to the originator, loans that are in violation of the representations and warranties made in the securitization agreement. There is a big difference between putback provisions on GSE paper, where Freddie and Fannie have strong rights to insist on putbacks, versus in so-called non-GSE (aka “private label”) deals, where the investors have very limited authority.

Despite this disparity, the ongoing GSE putbacks have gotten comparatively little attention in the media, while a flurry of cases filed by the monoline insurers (who have fewer obstacles to overcome in these cases than bond investors) and a letter sent to Bank of America by Pimco, BlackRock, and the New York Fed, among others, that appears to be laying the ground for a putback action have gotten a great deal of attention.

As we have stressed, our dim view of these cases is based on the fact that they are difficult and costly to win. Even though it may seem obvious that folks like Countrywide, which is now part of Bank of America, originated boatloads of bad mortgages and clearly harmed investors, that does not mean that this legal theory is a winner.

And the reason we keep harping on this issue is that there are much better legal theories that investors could be pursuing (notably ones related to the apparently widespread failure of mortgage originators to take the steps set forth in their own contracts to convey mortgage loans to the securitization trusts). So to the extent that the media is unwittingly overselling the merits of costly litigation, it may actually wind up serving the banking industry.

The latest report of the Congressional Oversight Panel sets forth the issue (boldfaced ours):

If any of the representations or warranties are breached, and the breach materially and adversely affects the value of a loan, which can be as simple as reducing its market value, the offending loan is to be “put-back” to the sponsor, meaning that the sponsor is required to repurchase the loan for the outstanding principal balance plus any accrued interest.

The problem with these cases is the plaintiff needs to show that it was the failure to adhere to the terms of the agreement regarding loan quality, and not some other cause, like borrower unemployment job loss, death, or disability, that led to investor losses. Broadly-measured unemployment at 17% and housing prices down 25% to 45% are also major causes of investor losses.

Consider this analogy: someone buys a car that unbeknownst to him has a tendency to partial brake failure which produces nasty skids. The manufacturer knew about this defect but kept selling the cars anyhow. The owner gets in an serious accident when he hit his brakes and the car started fishtailing. Seems like a slam dunk, right?

In court, the driver’s lawyer presents the information about the brake defects and the driver’s testimony. But the other side presents forensic evidence: the street was covered with wet leaves. The skid pattern is consistent with correctly performing brakes where one wheel was not getting traction due to the leaves. Oh, and the analysis of the skid marks and the impact suggests the drivers was speeding before he hit the brakes, and investigator ascertained he had had three drinks at a dinner before getting in his car. Does this lawsuit now sound so clear cut?

You have a similar process with these putback cases. One side claims it was the product defect, the rep and warranty breach, that resulted in the losses, while the other side points to other circumstances. And remember, these cases are fought on a loan-by-loan basis. Consider Bank of America CEO Brian Moynihan’s remarks yesterday as reported by Bloomberg:

Bank of America has said it would review claims “loan-by- loan” to protect shareholders as Fannie Mae, bond insurers and private investors press for so-called putbacks.

While it’s a good reflex to assume that anything said by a bank is probably untrue, it does not follow that everything they say is untrue. I’ve spoken at some length to an attorney who is on the anti-bank side of litigation and drafted one of the early putback suits (much of his language has been copied faithfully in the recent suits). While these suits do get settled, they tend to be not hugely lucrative. And he notes that the bond insurers, which have fewer procedural hurdles to overcome than securities investors, are only in the early stages of these actions, which promise to be a long haul.

Now other commentators have a more optimistic reading of these suits. For instance, a few weeks ago, when BofA last got some press for its “well fight them every inch” posture, Barry Ritholtz posted a lengthy extract from some court exchanges between Bank of America and MBIA on a putback suit. Barry read this as undercutting the Bank of America position. Barry and I are generally in agreement on the mortgage front, but I read this material quite differently than he did.

First, BofA and MBIA are still fighting over BofA’s speed (or alleged lack thereof) in getting information on 386,000 loans (the case has been in litigation for over two years). However, MBIA made a major tactical error in not only asking for the files, but asking BofA (Countrywide) to meta tag the data. This gives Countrywide more latitude in their response speed. MBIA also tried to allege that the files submitted so far weren’t all complete, but did it simply based on the length of some files, when Countrywide argued (and the judge agreed) that the issue was completeness, not length, and they hadn’t provided any proof of their beef.

MBIA also argued that they should be permitted to make their case based on a sample of the files, not on every loan. The judge seemed sympathetic, but said they needed to provide a methodology, which MBIA has yet to do. And of course, both sides will fight over what sampling methodology is appropriate.

Now consider: when these loans in these deals were reviewed by firms like Clayton Holdings prior to issuance, they’d typically look at 25%. So there is industry precedent for a sample being very large. Even if MBIA manages to whittle a sample down to 10%, how long is it going to take to work through why the defaulting borrowers in a sample of 38,000? If you assume a 30% default rate, it still adds up to an case by case analysis of 11,400 borrowers.

I hate to be the bearer of bad tidings, since I really do want the banks to get their comeuppance. But the real question is why did investors sign up for transactions that gave them such weak recourse in the case of originator fraud? Perversely, the banking industry became so careless that investors do have other avenues for recovery, as we discuss in our post on the Congressional Oversight Panel report today.



Rumors of Negotiations on Settlement of 50 State Attorney General Foreclosure Probe

Posted: 16 Nov 2010 10:18 PM PST

Two media outlets tonight, Reuters and a Washington Post blog post, discussed the idea of a relatively quick settlement of the probe by 50 state attorneys general into robo signing and other foreclosure-related abuses.

What is interesting is the timing of these sightings, which came the same day of the release of the Congressional Oversight Panel report on servicing and securitization, the promised American Securitization Forum defense of securitization industry practices, and Senate Banking Committee hearings on foreclosures and securitization.

As we discuss in other posts today, the day went very badly for the industry. The sudden, albeit small, flurry of “settlement talks are on” reports on the attorney general front bears all the hallmarks of a banking industry trial balloon being hyped as something further along to try to create the impression that the mess is on its way to being resolved on terms not terribly painful to banks.

The story seems to have started with a rumor on CNBC, which is being treated with more dignity than it deserves, particularly since the supposed source denied it.

CNBC reported that Iowa attorney general Tom Miller was nearing a settlement of the 50 state probe (we noted yesterday that CNBC ran a credulity-straining report on MERS, so it seems to be the preferred outlet for bank PR these days). But when Reuters contacted Miller’s office, they disputed this account.

Nevertheless, this idea was carried further by the Reuters piece, which quoted Bank of America CEO Brian Moynihan stating that a “quick resolution” of the 50 state investigation would be be the best outcome for all parties involved.

That view strains credulity, unless you are of the “what is best for banks is best for America” school of thinking. The state AGs started their inquiry on October 13, and signaled their intent to go beyond the robo signing scandal. It’s highly unlikely that they have gotten much of anywhere with their probe. And in normal negotiating settings, quick settlements take place only when there is little difference of views between the two sides on the facts or limited resources on both sides, which created a mutual recognition that they have a vested interested in reaching a resolution expeditiously. Neither of those conditions apply here.

So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?

That hidden assumption, that there is real risk should investigations continue for a protracted period, is the polar opposite of the position that the banks have taken thus far, that there is nothing to see here, that the robo signing scandal was merely procedural (as if frauds on the court are mere “procedural” miscues) and the underlying foreclosure actions were all correct.

This evening, we see this rumor carried a step further in a post by Washington Post blogger Ariana Eunjung Cha:

The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.

The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.

While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.

Both sides have tentatively agreed that mandatory third-party mediation if a homeowner requests it is something that should be included. They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures. Many homeowners have complained that they were in the middle of loan modification discussions when they were foreclosed on or told to default on their loans to get a modification, and then ended up having their home foreclosed on.

The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly.

Yves here. Exactly how many sources are there for this story? As I read it, it could be as little as the CNBC and Moynihan statements (if you believe the Miller rumor, he’s a state official, Moynihan is clearly an industry official), plus a conversation with one unnamed official (presumably industry).

And the account simply does not add up. First, we have Ohio, which is one of the lead actors in this 50 state effort, pushing for a speedy trial in a robo signing case in which it is seeking sizeable damages. I can’t see Ohio agreeing to any settlement as long as Ohio attorney general Richard Corday is in office (admittedly only till the end of January). And he is clearly trying to get enough stakes in the ground so as to limit his successor’s ability to make a radical retreat. In addition, the supposed process for these negotiations, which the Washington Post says is bank by bank, assures a protracted process. And it ALSO indicates that any settlement would have to be approved by 50 “separate” state offices. So even by the account presented in the Post, there is not a cohesive front on either side of this supposed initiative, which begs the question of who exactly is driving this train.

The only way you could get fast resolution in situation like this is to get all the parties in a room and treat it as a a two-sided negotiation.

However, we have indicated that efforts by attorneys general need to be regarded with some skepticism. We’ve pointed to instances in which AG initiatives add up to far less than their headlines would lead you to believe. They do have incentives to collect a scalp quickly and declare victory. But given the high level of public ire and the economic importance of the foreclosure crisis, the AGs are likely to appreciate the dangers of appearing to cave in to bankers. They clearly have them on the run now; why act in haste when keeping the pressure on will lead to a more favorable outcome?

The one area where I could see a relatively quick resolution is if the robo signing abuses were carved out from the other issues and negotiated separately. But overall, it appears likely that this convenient story of advanced settlement talks is just that, a mere story. via Naked Capitalism

The Tweet Heard Around the World...

h1

Prague, 1965

May 11, 2010

Hey, these must be those “interesting times” the Chinese were banging on about! Life sure is hella  interesting at the moment, isn’t it? Hung parliaments and that? The freefall feeling is quite bracing in a way. Who knows what’s coming next? Anything’s possible! Wheeeeee!

The thing is, while most of us are waiting for the other shoe to drop, for the full force of these interesting times to come down and do a bit of major league squishing upside all our heads, a young man named Paul Chambers has already had his passport well and truly stamped by them. Paul is the man who, excited about traveling to Belfast to a girl he had met through Twitter, posted the following Tweet:

“Crap! Robin Hood Airport is closed. You’ve got a week… otherwise I’m blowing the airport sky high!”

Yesterday, he was found guilty of sending an “indecent, obscene or menacing” message and received a £1000 fine and a criminal record. On top of all this, he lost his job and Crazy Colours (the girl he was originally flying over to meet) said yesterday “Paul was half way through qualifying as an accountant. This conviction means he can’t qualify now. His career is ruined.”

Ever read ‘The Joke’ by Milan Kundera? It’s good! Not my favourite novel by the man, but holy shit, guess what it’s about!  (Forgive me for copying and pasting the Wikipedia synopsis).

Written and set in 1965 Prague, the novel opens with Ludvik Jahn looking back on the joke that changed his life in the early 1950s. In a playful mood, he writes a postcard to a girl in his class during their summer break… “Optimism is the opium of the people! A healthy atmosphere stinks of stupidity! Long live Trotsky!” His colleagues and fellow young-party leaders do not quite see the humor in the sentiment expressed in the postcard. Ludvik finds himself expelled from the party and college and drafted to a part of the Czech military where alleged subversives form work brigades and spend the next few years working in mines.

Jack of Kent is the man to read on why both prosecution and law are bunk in this case, so I won’ t try to add to that. I just wanted to address just the two or three people who I saw yesterday trotting the old “He was stupid to post the joke and deserves what he got” argument around the paddock. And that includes the Judge on the case, Jonathan Bennett, who said he was ‘satisfied’ the message was of a ‘menacing nature in the context of the time we live in’.

What all these people are essentially saying is this:  because this country was made less safe by  the hasty, reckless, duplicitous way in which  Tony Blair took us into war (a war which only yesterday claimed 114 more lives), and because he will never be brought to justice for that, we must live in a state of paranoid readiness, a state of nervous anxiety, a humorless state that cannot tell the difference between a joke and a threat, for the foreseeable future. Because that one, massive crime will go unpunished, we shall all be punished in thousands of interesting ways.

As Robert Harris said, while we stand at airport security with our shoes in our hands, Tony Blair floats unimpeded through another part of the terminal.

As we sit by a ruined Tube station, picking rubble out of our hair, Tony Blair is on his way to a thousand quid a plate dinner in a bulletproof limo.

To those people who put forward the view that Paul is the one at fault here, I’d like to say,  it’s not supposed to be like this. We’re not supposed to be scared of our shadows. We’re not supposed to be torturing people. We’re not supposed to be letting people get away with murder. We’re not supposed to be prosecuting people for offhand jokes.

If you want to follow the case, the #twitterjoketrial is the hashtag du jour. If you want to contribute to Paul’s fine/legal defence, details are here and here. If you want to complain about the case to the CPS, go here. I urge you to get involved in whatever way you can. We need to show these people that we refuse to live by their arbitrary, paranoid laws. We need to remind them that we are living in England, 2010, not Prague 1965.  While we can’t avoid some of the interesting times up ahead, we can at least carry ourselves with some dignity through them.



Media Matters and more manufacturing of consent

Media Matters: Why are Fox News employees allowed to plug their financial interests without disclosure?

Last December, Fox & Friends co-host Gretchen Carlson interviewed New York Yankee Derek Jeter and, as the New York Times wrote, "lavished praise on the Yankee shortstop." At no point did Fox News disclose to viewers that Carlson's husband is Jeter's agent.

Afterward, Fox News reportedly told the Times that a disclosure should have been made, and a network source claimed management was "stunned" by the way the interview was handled.

Yet on matters weightier than baseball, Fox News has consistently shown it has little interest in asking its on-air talent to disclose their financial interests in the topics they discuss.

Earlier this week, the Wall Street Journal noted that Glenn Beck has been doing "live-read" advertisements on his radio program -- which is not produced by Fox News -- for FreedomWorks. On Fox News, Glenn Beck prominently featured the organization and its president in an October show. Beck never mentioned his financial connections with FreedomWorks. Video of the appearance, along with a "partner with Glenn Beck" promotion, is currently featured on the front page of FreedomWorks' website

Beck's help for radio sponsors doesn't stop there. As Media Matters' Zachary Pleat noted, Beck has done paid radio ads for Food Insurance, and turned those radio ads into monologues for his Fox News show about rising commodities prices (without the explicit pitch for the company).

Beck's had practice doing this radio-to-television shilling: As Media Matters documented last year, Goldline International has an "exclusive" sponsorship deal with Beck's radio program. While Goldline sponsors advertisements on his radio program, Beck tells Fox News viewers to invest in gold to "protect" themselves from a possible economic collapse. (Such radio sponsorships are reportedly appropriate for Fox News hosts, though being a "paid spokesman" and getting paid individually by a company is not.)

Fox News contributors also directly discuss and promote their clients on-air. Take the cases of Fox Newsers Doug Schoen and Frank Luntz. On October 15, Schoen criticized the Democrats' strategy of making a campaign issue out of U.S Chamber of Commerce's funding sources. On October 6, Luntz applauded an ad by the Chamber and said the group has "done some of the best advertising across the country."

At no point did Fox News mention that Schoen and Luntz work for -- and presumably are paid by -- the Chamber. Luntz's website touts the Chamber as one of his clients.

The Schoen/Luntz situation isn't unique. In April of 2009, for instance, Fox News military analyst Tom McInerney -- last seen raising questions about Obama's birth certificate -- criticized the Obama administration's decision to procure only four more F-22 fighters. At no point did Fox News disclose that McInerney may have had a financial reason to be upset about the F-22 decision: he reportedly served as a consultant for the Northrop Grumman Corp., which is a major subcontractor on the F-22.

During the health care debate, Fox News contributor Newt Gingrich appeared on Fox News - and elsewhere - to criticize the public option and regulation of insurance companies. Fox News and other media outlets have neglected to mention that Gingrich runs and reportedly profits from the Center for Health Transformation, a for-profit organization that receives annual membership fees from several major health insurance companies. In other words, Gingrich was speaking against policies that would have hurt companies that were paying his group.

Fox News contributor Rick Santorum appeared on the network repeatedly to discuss health care reform without disclosing that he serves on the board of directors for Universal Health Services, a Fortune 500 health care company headed by Republican and public option opponent Alan B. Miller. Fox News contributor Andrea Tantaros also repeatedly discussed health care reform on the network. Her corporate biography states that she is a "Vice President with Sloane and Company where she specializes in crisis communications, healthcare, and public affairs clients." (The firm's website does not specifically state which clients Tantaros works with.)

The disclosure problem extends to Fox News guests. In March, America Live's Megyn Kelly hosted a "fair and balanced" debate that featured Chris Wilson, who trashed health care reform and was identified as a "GOP pollster and strategist." At no point did Kelly point out that Wilson polls for companies that would be affected by the health care bill he criticized. Fox News also failed to disclose the conflicting interests of anti-healthcare reform interviewees Frank Donatelli, Mary Grealy, and former Sen.-turned Pharmaceutical Research and Manufacturers of America lobbyist John Breaux (D-LA).

And there can be no conversation about conflict-of-interest problems without mentioning Fox News contributor Dick Morris. In at least two Beck-like schemes, Morris has received financial payments from GOP-aligned groups advertising on his email newsletter, and then repeatedly promoted and fundraised for those two groups on Fox News without disclosing the payments.  

Fox News was "stunned" about Jeter and Carlson, but is apparently unconcerned about Morris. In 2008, questions were raised about Morris promoting the National Republican Trust PAC, which has paid him at least $24,000. Fox News offered no response to a reporter's inquiry, instead deferring questions to Morris.

Unfortunately, while Fox News may have some of the most prominent conflict-of-interest disclosure problems on television, concern shouldn't be limited just to them. Media Matters has regularly called out non-Fox News outlets for similar failures, and the Times article noting the Fox & Friends conflict also reported on disclosure failures by NBC's Today.

In February, The Nation found that since 2007, "at least seventy-five registered lobbyists, public relations representatives and corporate officials -- people paid by companies and trade groups to manage their public image and promote their financial and political interests -- have appeared on MSNBC, Fox News, CNN, CNBC and Fox Business Network with no disclosure of the corporate interests that had paid them."