Revisiting the Financial Crisis: Predatory Lending

According to a Wall Street Journal article, former Federal Reserve Governor Edward Gramlich proposed in 2000 to crack down on predatory lending in the subprime mortgage industry. Chairman Alan Greenspan shot down the proposal.

"I would have liked the Fed to be a leader" in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

"He was opposed to it, so I didn't really pursue it," says Mr. Gramlich, a Democrat who was one of seven Fed governors.

Predatory lending was very real. Washington Mutual Bank was bought by JP Morgan Chase. The United States District Court for the Central District of California ruled against JP Morgan Chase.

The first formal complaint was filed against Washington Mutual Bank on January 6, 2012 by the Kenneth Eade Law Firm. Washington Mutual was eventually purchased by JP Morgan Chase. The complaint alleges that Washington Mutual Bank issued both a traditional mortgage and a home equity line of credit in order to finance a customer's Southern California home purchase. In 2008 both loans fell into foreclosure, and the owner's request for a short sale was denied.

After JP Morgan Chase took ownership of Washington Mutual, the bank attempted to collect approximately $250,000 additional dollars from the home equity line of credit. The delinquency also negatively affected the customer's credit score. According to anti-delinquency statutes in California, a bank is prohibited from collecting on money mortgages after a foreclosure has occurred. The suit alleges that JP Morgan Chase is in violation of the federal Fair Credit Reporting Act as well as the California Consumer Legal Remedies Act.

JP Morgan Chase was trying to quickly collect cash from homeowners. In Florida, the defunct David J. Stern law firm attempted to foreclose on homeowners with forged documents.

JP Morgan Chase bought Washington Mutual so they could sell the bad mortgages as mortgage-back securities. The problem was JP Morgan Chase didn't tell investors that the mortgage-backed securities were toxic. JP Morgan Chase was forced to agree to a $13 billion settlement with the state of New York. $4 billion of the money went for relief to homeowners.

New York Attorney General Schneiderman had less than kind words for JP Morgan Chase.

“Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Attorney General Schneiderman, co-chair of the RMBS working group. “This historic deal, which will bring long-overdue relief to homeowners around the country and across New York, is exactly what our working group was created to do. We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

Goldman Sachs bought derivatives that bet on the housing market crashing. Goldman Sachs sold to their investors bad mortgage-backed securities.

Sen. Carl Levin questioned CEO Lloyd Blankfein about about Goldman Sachs betting against investments they are selling.

Levin reads internal emails of Goldman Sachs sale force telling each other that Timberwolve was a "shitty deal" for their clients.

An internal email shows that Goldman Sachs knew they making money betting against their clients.

The predatory lending placed homeowners at risk. The mortgages were then bundled up into toxic mortgage-backed securities that hurt such investors as pension funds. Alan Green span did nothing about this when he had the chance in 2000.

Quote of the Day: Barney Frank Edition

"I do want to add one thing though to your question about those poor beleaguered bankers who have been forced to do so much to keep from not being able to pay their debts, that they can’t lend money. If they really are running businesses that are so stressed that they can’t do their basic work, why are they paying themselves so much money?"

Barney Frank, on Meet the Press

Daily Kos has the video of Frank's MTP appearance. Host David Gregory, former Treasury Secretary Henry Paulson and CNBC anchor Maria Bartiromo were left speechless. These Wall Street apologists couldn't believe Frank spoke the truth about the unjustifiable executive bonuses.

Lloyd Blankfein was at the helm when Goldman Sachs almost went under. In 2012, Blankfein received a $26. million bonus. So much for the saying about cream rising to the top.

Sen. Portman Protested at Townhall Meeting

I wrote earlier today that Congressional Republicans proposing cuts to Medicare and Medicaid is political suicide. Sen. Rob Portman experienced this first-hand at a townhall meeting. The protesters interrupted Portman's speech. I will give Portman credit for handling the protest with humor.

The townhall meeting was set-up by Fix The Debt. Fix the Debt was started by Fortune 500 CEOs pushing for entitlement cuts to pay for tax cuts. This wouldn't fix the debt. It would help the bottom line of Lloyd Blankfein, Goldman Sachs CEO, and Jamie Dimon, Chairman & CEO, JPMorgan Chase & Co. Blankfein and Dimon fail to mention that the bailouts of their banks didn't help the debt.

Glenn Hubbard Must Not Become Treasury Secretary

Glenn Hubbard is a political hack of epic proportions. It would be a disaster for America if Mitt Romney won the presidency and appointed Hubbard as Treasury Secretary or chairman of the Federal Reserve. Hubbard has argued for the Federal Reserve raising interest rates during the the economic downturn.

Hubbard served as chairman of the Council of Economic Advisers during the beginning of the Bush administration. Former Treasury Sec. Paul O'Neill told Hubbard that the surplus needed to be used to shore up entitlements.O'Neill also warned that the surplus would disappear with the tax cuts Hubbard was drafting. Hubbard has convenient amnesia about the conversations O'Neill had with him.

HUBBARD: "I don’t ever recall Paul O’Neill sharing that observation at the time. I will say that early on in the Bush campaign for president, while he was still governor, Social Security reform was an issue that came up in any discussion of budget surpluses. However, it was Governor Bush’s conclusion that, politically, using the surplus for Social Security was not likely to happen."

O'Neill told Ron Suskind of the level of Hubbard's hackery in the book "The Price of Loyalty." Hubbard pushed for tax cuts after the September 11th attacks shook the financial markets and the likelyhood of America paying for war in Afghanistan.

"I believe that any large tax cut proposal that is not a product of consultation with Democratic leadership will begin to unravel the fragile trust and bipartisanship we are currently experiencing," Weinberger wrote. After opposition from O'Neill, Greenspan and former Treasury Secretary Bob Rubin to acting before facts about post-Sept. 11 economic effects became clear, a cut of $48 billion was passed six months later. But an internal administration debate about whether the Sept. 11 attacks should be used to carry forward a partisan agenda had begun.

Hubbard is an extremely unpleasant man who wishes to hide his ties to the financial sector. This scene from the movie Inside Job should give people pause about Hubbard serving again in government.

Hubbard worked as an adviser for Goldman Sachs. Hubbard co-wrote a study with then Goldman Sachs economist William C. Dudley that urged for selling toxic derivatives for mortgages.

“The capital markets have helped facilitate a major transformation of the U.S. mortgage financing system over the past 25 years. … The result has been a dramatic decline in the cyclical volatility of housing activity.”

The short answer is Hubbard and Dudley were encouraging Goldman Sachs to sell garbage mortgage-backed securities to their investors and then bet on mortgages to go bad. The investors lose money, but Goldman Sachs makes a killing.

An example of how big of economic hacks are Hubbard and Dudley. The stupidity of this would be laughable, if it wasn't for the 2008 crash.

“This use of derivatives leads to improved economic performance,” they wrote, insisting, “The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur.”

Is there anything this man hasn't been wrong on? Hubbard is now going around claiming Mitt Romney will explain the tax base and create 12 million jobs in 4 years. Hubbard and the Romney campaign are adding the numbers of jobs from three studies to come to the magic number of 12 million. One study says that if China starts honoring U.S. patents it would create two million jobs. Good luck getting China to do that.

If Romney wins, Democrats need to block Hubbard from ever getting confirmed to head Treasury or the Federal Reserve. There isn't a more greedy, fantasy-based and incompetent economist out there. Hubbard is unfit to serve in government.

Quote of the Day

“The one thing you pay any lawyer to have is balls. Our nation’s top attorney has none."

Matt Taibbi, on Attorney General Eric Holder dropping charges on Goldman Sachs.

Meet the Obama Financial Sector Donors

Obama supporters wonder why I am so skeptical about the President. The reason is that every domestic policy that President Obama has initiated has been to please lobbyists. Obama doesn't give a damn about progressive causes. A perfect example of how Obama places the needs of corporate donors above his constituents. A 2010 meeting with Sen. Bernie Sanders is proof that Obama values protecting corporate profits more than cunsumers.

Last summer, during a White House meeting with first-term Democrats, Sen. Bernie Sanders, an independent from Vermont, asked Obama whether he'd nominate Warren for the role.

Obama held up a half-full glass of water and told him: "That's the problem with you progressives. You see this as half-empty.

It turns out that Obama never nominated progressive darling Warren. It is hard to imagine a President whom received $1,013,091 from Goldman Sachs, $808,799 from JPMorgan Chase, and $736,771 from Citigroup would see eye to eye with Warren on financial policy. The last thing Obama wants to do his have Warren reform Wall Street.

Obama supporters will say look what the president has done for the gay community. In 2009, the Obama administration pressured Rep. Alcee Hastings to drop an amendment that would repeal "Don't Ask, Don't Tell. Democrats had super-majorities in both houses of Congress. Yet, Obama didn't want to touch DADT. The gay community started raising a record amount of money for Obama. The President had a sudden change in heart on DADT.

Obama proposed Medicare cuts that made even some Republicans flinch during the debt ceiling negotiations. Obama is as much a deficit peacock as the Republicans. Obama gave PhRMA lobbyist Billy Tauzin everything he wanted. Including Medicare being prohibited from negociating lower drug prices with pharmaceutical companies. Obama wasn't thinking about the deficit or controlling entitlement spending when he made that deal. It is no coincidence that drug companies donated big-time to Obama's 2008 campaign.

If you want to understand Obama, all you need to do is follow the money.

Why Goldman Sachs is Not A Job Creator

Republicans will argue that corporations must get tax breaks and cuts because they are the job creators. The media should ask these same Republicans what they think about Goldman Sachs' upcoming layoffs.

Goldman Sachs (GS: 132.53, +3.27, +2.53%) may lay off as many as 230 employees, according to a filing with the New York State Department of Labor.

The filing dated June 29 cites economic reasons for the potential layoffs, which could begin in late September and extend through March 31, 2012.

State law requires that businesses with 50 or more employees notify the Labor Department when significant layoffs are planned. In the filing, the job losses are described as a “plant layoff.”

Goldman Sachs report 90 percent increase in profits in 2010. The Securities and Exchange Commission charged Goldman Sachs with $1 billion in defrauding investors last year. 953 Goldman Sachs employees received $1 million or more bonuses after receiving bailout money. I am willing to bet those Goldman Sachs employees that received huge bonuses will not get laid off.

Rush Limbaugh Feels Goldman Sach's Pain

Stand-up comedian Rush Limbaugh strikes again.

Goldman Sachs Plays the Delay Game

Goldman Sachs testified to the Senate Permanent Subcommittee on Investigations. Their strategy was to deny any wrongdoing and run the clock out on each of the senators time of questioning.

Sen. Carl Levin nailed Goldman Sachs for knowingly selling investors Timber Wolf Securities. An internal e-mail described Timber Wolf as a "shitty deal." Short answer: Goldman Sachs knowing bilked investors.



The most sickening moment was Goldman Sach's Vice-President Fabrice Tourre doing the Jesus Christ pose.

Fabrice Tourre, the 31-year-old, Stanford-trained, French whiz kid working for Goldman out of London, was indignant. "I have been the target of unfounded attacks on my character and motives," Tourre told the Senate Permanent Committee on Investigations.

Those attacks include Goldman Sachs betting against the housing market and making a fortune. The result of Goldman Sachs actions was helping the housing market crash. So Mr. Tourre can spare us the martyr act.

Goldman Sachs intentionally sold high-risk bonds to home-owners. Goldman Sachs wanted to rid themselves of risky bonds and make money by leveraging the housing market. The e-mails tell the story.

Clients’ Questions

The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk.

“A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?”

Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday.

‘Net Long’

At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said.

Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring.

“We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.”

Targeting Clients

In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.”

“Makes sense to me,” responded Kevin Gasvoda, a Goldman Sachs colleague.

Now you may understand why I don't feel sorry for Mr. Tourre.

Is This Change?

Treasury Sec. Tim Geithner has funneled repaid bailout through AIG to pay Goldman Sach's naked credit default swaps. Repaid bailout money was suppose to be given to community banks to loan out to small businesses.

The President increased the Defense Department budget by 4 percent.

The White House has been against Sen. Chris Dodd's attempts to reform the Federal Reserve. The current administration desperately wants to protect the status quo of the financial and insurance sectors that caused the recession.

So must for "change." I know we are in a economic crisi but it would be nice if Obama pretended to care about spending. Actual caring is another matter.

TARP Money Being Repayed

Derek Thompson is correct. President Obama should get credit for the TARP gamble.

Half a year ago, our financial system was in catastrophe, and the debate was over how much money it would take to bail them out, or even take them over. Today, the biggest banks are -- or at least appear to be -- on stable footing, and the debate is over how much TARP money they will be allowed to give back. To be clear, this is a statement of confidence from the banks, not evidence that they will be OK in four or six months. But it is still a remarkable turn of events, one we can credit to the Obama administration's overall strategy of ... what again?

The New York Times reports Morgan Stanley, Northern Trust, JPMorgan Chase, Goldman Sachs, American Express, Bank of New York Mellon, the BB&T Corporation, Capital One Financial, State Street Corporation and US Bancorp will start repaying TARP funds. Obama said the taxpayer "actually turned a profit."

“I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds,” Mr. Obama said. “It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.”

The conservative stimulus plan: Rush Limbaugh and Hugh Hewitt are calling on Americans to boycott General Motors. Limbaugh's and Hewitt's plan is to bankrupt an American company, put American workers out of jobs and have the taxpayers lose money for attempting to bail GM out. Limbaugh and Hewitt showed they don't care about fiscal discipline kick-starting the economy. They just want to see Obama fail.