Wednesday, February 23, 2011

Why The Left Is Lame

From Yves Smith of Naked Capitalism this dissection of the built-in need of leftist politicians to bend down before their opponents and give the store away. It is a permanent source of frustration to me and it seems we can expect at best a slowing action in defense of our former rights. I keep hoping some Messiah will open to help us but so far from the President on down, leftists are lame.

The chattering classes of the left are encouraged by the spectacle of 14 Wisconsin state senators having the intestinal fortitude to deny the governor a quorum for a budget vote that includes provisions to strip most state employees of virtually all of their collective bargaining rights. They were in turn emboldened by large scale demonstrations in the capitol, which seemed to get their momentum from the fact that students, rather than taking the day off when teachers called in sick so they could protest, turned out in large numbers to support them.

Don’t underestimate the ability of the Democrats to trade this opportunity away. All the defecting Senators are asking for is to slow down the process and negotiate the bill. Sounds reasonable, right?

As someone who been party to deal-making, the problem with being reasonable and measured is that that only works with fair-minded and/or experienced opponents. Being non-negotiable is not only terribly effective (you throw a tantrum and then make only token concessions to let the other side save a teeny bit of face), it also takes comparatively little in the way of bargaining skills.

The right wing, for the most part, has made being unreasonable and non-negotiable part of its branding. The left, peculiarly, has not adapted. And the result is that it too often winds up ceding way more ground than it needs to.

Many readers will point out that this ineffectiveness serves as useful protective cover, particularly with the Obama Administration. It has repeatedly sought to have its cake and eat it too, by appealing to as much as possible of the traditional Democratic base (which they figure they can abuse, since it has nowhere to go) while also playing up to corporate backers. The true state of play has reached the point that even purveyors of leading edge conventional wisdom like Jeffrey Sachs are now willing to say that we have two center-right parties in the US.

But this, while true, misses an underlying pathology. Reader Deus-DJ pointed out, “The problem is capitulation. There is always going to be conflict…acting like we should all just get along and that conflict is inherently bad is the problem.”

Let’s give an example I received by e-mail from a group that no doubt sees it self as dedicated progressives, untainted by corporate influences. I’ll take the liberty of reproducing it in full and then parsing it. The cover note read,

Hi xxxx –

Wanted to run by you a campaign by New York Communities for Change against JP Morgan Chase’s mortgage policies. Starting next week, high-profile elected officials, clergy, unions and legislatures across New York state will stop doing business with the bank unless they change their modification system. Particularly interesting as the Madoff angle heats up.

The main text:

“Tell JP Morgan Chase: Foreclosing on Families is Not the Way Forward”

In early February, New York Communities for Change released a report detailing how only a tiny fraction of New Yorkers with JP Morgan Chase mortgages who apply for modifications receive them – just 6 percent of all applications.

Until JP Morgan Chase changes its mortgage policies, a coalition of elected officials, unions, clergy and community leaders will publicly demonstrate that they have stopped doing business with the bank.

The launch of the statewide campaign, including two major unions (United Federation of Teachers and Transport Workers Union), was covered in the NYTimes:

Pulling Money Out of JP Morgan Chase:

Starting next week, the “Not the Way Forward” campaign will be calling for JP Morgan to change its practices and start modifying mortgages. Campaign tactics will include:

· Individuals, unions, community organizations pulling their money out of JP Morgan Chase

· Cities throughout the state debating resolutions to stop doing business with JP Morgan

· Urging the legislature to cancel contracts with JP Morgan Chase

· Weekly actions with affected homeowners and elected officials

These actions build up to the JP Morgan Chase stockholder meeting in May.

Until These Demands Are Met:

In order to protect the residents, communities and governments of New York, JP Morgan Chase should:

· Stop all filed and unfiled foreclosure actions.

· Put in a place a mortgage modification process that produces permanent, affordable, transparent, timely modifications whenever these have a positive net present value.

· Pay for an independent reviewer and pay for borrower representation for an independent appeal process for all mortgage modification requests that are denied by the bank.

· Pay restitution to homeowners who lost their properties unfairly – that is when a modification under the above terms would have been possible.

· Release data about Chase’s proprietary and HAMP mortgage modifications to the City Comptroller and the State Banking Commissioner.

Copy of the Report:

I hate to single a no doubt well meaning group out, but this is just lame. I suspect readers can offer more, um, constructive criticism, but let me go down a short list:

The branding sucks. It’s “Not the Way Forward”. It’s neither specific to mortgages nor evocative. “Stop Servicer Scams” “Shame The Banks” and “Foreclosure Fraud” are more targeted and forceful.

The pressure mechanisms are inadequate. First, this campaign has not started. There is no assurance that meaningful numbers will join in. Second, even if there is a decent level of participation, there appears to be no mechanism for relating the actions of this group to actual account closures. People close accounts all the time. Unless JPM sees a big enough spike to give it pause, it will not relate the account terminations to this campaign (trust me, branch manager will not tabulate it and pass it up the chain even if people tell them “I’m canceling my account due to your foreclosure practices”). The best shot is to do it according to the “Tank a Bank” plan, to pick a target date in the hopes that that the cancellations and withdrawals will be large enough for JPM to notice. But even if they constitute a meaningful blip, so what? You’ve taken you best shot, and the bank knows that was your only bullet.

Similarly, “canceling contracts” with JP Morgan is naive. You can’t just exit them; you might be able to negotiate your way out of them, but that would involve spending hard legal dollars to pay for attorneys, almost certainly paying some sort of settlement for terminating it early, and then having to spend the time to find a replacement vendor and incurring the cost of getting them signed up. And my understanding is that JP Morgan is the dominant provider in some services, such as EBT cards for food stamps. It might be possible to get JP Morgan excluded from consideration for certain contracts and contract renewals, but that is the best you could hope for. And how can an effort like this maintain staffing and momentum long enough (let alone find out about contracts scattered among various New York State government entities) to make this a believable threat?

Third, the most important part of the “ask” is not specific enough and not well thought out:

Put in a place a mortgage modification process that produces permanent, affordable, transparent, timely modifications whenever these have a positive net present value

It should instead say something like, “Provide deep principal mods (minimum 30% reduction in loan balance) on serviced first mortgages to borrowers who can demonstrate sufficient income. The process is to be administered by a credible independent party [such as NACA].” You’d need to add a statement as to what to do about the seconds when Chase owns the second.

Fourth, other “asks” are non-starters. Now there is sometimes value in demanding something that will be painful for the other side to trade away as a bargaining chip, but I doubt that sort of thinking is at work here. There are too many demands that are in the “never gonna happen” category.

Take “Stop all filed and unfiled foreclosure actions.” I hate the servicers and will still tell you that is patently ridiculous. As much as there are a lot of homeowners being treated badly, there are also homeowners who cannot afford their house even with a deep mod. Now there are lots of creative ways to deal with this issue that the banks are refusing to consider (like auctioning homes and letting the borrower remain if he can afford a mortgage at an amount slightly above the highest bid). But a blanket “stop all foreclosures” request just discredits the party asking for it.

“Pay restitution to homeowners who lost their properties unfairly – that is when a modification under the above terms would have been possible” is even more poorly thought out. What criteria do we use to judge this? I can see a demand for penalties of some sort for people who lost their homes during failed HAMP mods, particularly if they received a letter saying they were getting the mod or had been given repeated promises and were also told to ignore foreclosure notices. But how do you set parameters for anything less cut and dried? And even if you did establish criteria, how would you devise a process that does not involve huge documentation requirement on both the borrower and JP Morgan’s end? Who adjudicates? And how pray tell do you set the restitution level for a probably underwater borrower?

Fourth, trying to embarrass executives at shareholder meetings has never been effective and is even less so now. Annual meeting are more controlled by management and less meaningful to investors than they were twenty years ago.

There are far better models for action, such as UK Uncut. If New York Communities for Change wanted to help struggling homeowners, they’d achieve far more in the way of tangible results if they simply raised money for mortgage counselors and legal aid lawyers focused on foreclosure defense.

And if they wanted to pressure JP Morgan, a more direct route would be to set up and publicize a website, say ask customer service and customers reps to leak docs or register complaints, and post them publicly. It would create far more leverage than this campaign.

Wall Street people are overly fond of quoting Sun Tsu, but at two of his saying are nevertheless germane:

Tactics without strategy is the noise before defeat.

Know your enemy and know yourself and you can fight a hundred battles without disaster

As we indicated, this “Not the Way Forward” plan demonstrates perilous little understanding of the opponent.

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