Saturday, February 18, 2012

Settlements Galore!

The Chilean curmudgeon Gonzalo Lira says settlements announced in the US and Europe are more smoke and mirrors in a world economy about to be raped by high inflation rates. He makes an interesting case but I remain in the deflation not in flation camp when it comes to contemplating the future.

So this week there were two big settlements: Greece, and the Mortgage Mess.

Completely independent of each other, both settlements not only happened on the same day, they happen to highlight two issues which ought to be bugging us all like cockroaches crawling through our underwear.

Issue One is how in both cases, the Too Big To Fail banksters won—and they won big. Again. Insofar as the mortgage settlement goes, they got what amounted to a speeding ticket, while getting a Get-Out-of-Jail-Free card on the worst of the robo-signing and illegal foreclosures scandal. And insofar as the Greek situation goes, the banksters have gotten the IMF, the ECB and the EC to essentially put the Greek people’s collective nuts in a vise and squeeze until they scream “θείος!” (“Uncle!”)

Issue Two is the mainstream media’s spin on these two settlements: How the completely cheerleadery, near-sycophancy of the MSM serves to both obscure how big the banksters won in both settlements, and to give us all a false sense of security. From the MSM, we hear that Greece has been “bailed out” and the Mortgage Mess has been “fixed”, and that the banksters are “getting their comeuppance”—so we get the false sense that the world is right as rain, and everything can slowly go back to normal.

But the world is not right. We will not be going back to normal any time soon. The banksters are not getting righteous justice.

Rather, the two settlements go to show how crony-corrupt our particular epoch’s Global Capitalism really is: The banksters rape the people of two countries, and the mainstream media cheers.

Let’s go over each of the two settlements, and pick apart their implications.

The Mortgage “Settlement”

The ballyhooed “Mortgage Settlement” is a big ol’ pile of crap—plain and simple. President Obama called the $25 billion deal the biggest settlement since the one with Big Tobacco—but that settlement, at $350 billion, was over ten times the size of this one. Actually, 14 times bigger, to be precise. And when you look at actual out-of-pocket costs (which I will below), you realize the Big Tobacco settlement was sixty times bigger.

And of course, the mortgage mess is a helluva lot bigger than the suits involving Big Tobacco.

To understand why the settlement is a steaming pile of shit, we have to understand two things: What the problem is, and what the settlement brings to the table to solve the problem.

This is the problem: About 20% of all homeowners are underwater, adding up to about $700 billion in negative equity in the U.S. housing market today. That is, if you add up the difference between what underwater homeowners owe on their mortgages and what they could realistically get in the current housing market, it totals $700 billion. On average, that’s about $50,000 per house.

Additionally, 750,000 people lost their homes to foreclosure between 2008 and 2011—of which many (most?) were processed improperly. Processed illegally, in many (most?) cases.

As to whether “many”, “most” or “all” of those foreclosures were processed merely improperly or in fact criminally, we’ll now never know: The settlement releases the banks from prosecution for these 750,000 foreclosures.

That was one part of the settlement: No Federal prosecutions.

The other part of the settlement was how much the banks had to pay. And that dollar figure is pathetic when you look at the headline number—but even worse when you look at the actual number.

The mortgage settlement totals just shy of $25 billion. But of that figure, only $5.8 billion is “fresh money”—that is, money that the banks have to put up out of pocket.

The rest is loan modifications—that is, changing one loan for another. Essentially an accounting move, not a cash-bleeding penalty.

So the banks are paying out—in total—a mere $5.8 billion, while they are getting bullet-proofed from Federal prosecution for all the mortgage shenanigans they were carrying out.

That is what the ballyhooed “Mortgage Settlement” comes down to: The Obama administration plea-bargained a serial killer down to a speeding ticket.

And insofar as the rest of the settlement money goes—the refinancing of about $19 billion—the refinancing marginally lowers the payments for some of the 14,000,000 homeowners who are underwater. Less than half actually, as the settlement does not cover mortgages held by Fannie Mae and Freddie Mac. But it guarantees that the banks have first dibs to recover their money, if and when some of these 14,000,000 homeowners begin to default.

(Yves Smith at naked capitalism has a much more detailed discussion of the financial implications of the settlement here. Her reporting and analysis have been the best in the business, insofar as the Mortgage Mess and this execrable settlement is concerned.)

In other words, the banksters won—again.

The most despicable part is how much the banksters will have to pay to those families whose homes were improperly—illegally—fraudulently—foreclosed upon:

The princely sum of between $1,500 and $2,000.

Now, I’m not saying that someone who didn’t keep up with their mortgage payments and lost their home to foreclosure should get their house back for free just because of faulty paperwork—I’m not saying that at all. Nor am I saying they should get a gazillion dollars from the bank for screwing up the paperwork in a foreclosure that was justified.

The problem is, a non-trivial number of those 750,000 lost their homes even though they were up to date on their payments. Hell, there were even cases where people who were foreclosed upon and had their homes taken away from them who did not owe a mortgage loan on their property. (Example here.)

All of this happened because of the foreclosure mills and the famed robo-signing. Banks declared a loan in default, fobbed off the property to a specialty law firm—a “foreclosure mill”—which then in turn hired minimum wage workers to illegally sign the documentation to carry out the foreclosures. That was “robo-signing”.

The robo-signing was forgery—plain and simple. It was fraud. The fact that many—perhaps even most—of these foreclosures were justified does not excuse the use of fraud to carry out the foreclosures. And the fact that a non-trivial number of those foreclosures were completely unjustified—and in some cases amounted to the bank stealing people’s homes—makes this settlement unconscionable.

With this settlement, there will be no more criminal prosecution—even for cases where the bank literally stole people’s houses!

All the bank has to do is pay between $1,500 and $2,000. For stealing your house.

Prosecuting the robo-signers would have led to prosecutions of the foreclosure mills—which would have led to prosecutions of the banks which pressured the foreclosure mills to hire the robo-signers—which would have meant jail-time for the bank executives who ordered this criminal activity.

That’s how prosecutors work: They go after the small-fry, then get ‘em to flip on the big-fry.

However, with this settlement, the banks are released from further investigation of robo-signing—and therefore, of the improperly foreclosed houses—and therefore, the executives who ordered these illegalities and ordered this fraud are bullet-proofed from prosecution—and thus shielded from their richly deserved jail-time.

Sure, New York’s Attorney General can still proceed with his suit of MERS, the mortgage service provider—but MERS doesn’t have deep pockets, and isn’t even really the instigator of this whole mess.

It was the Too Big To Fail banks, and the criminal banksters who lead them. They were the ones who should be prosecuted, tried, convicted, and jailed.

But the banksters got off scot free: Serial killers, who plea-bargained their way down to a speeding ticket.

The Greek “Bailout”

On March 20, Greece has to pay out roughly €15 billion, to cover maturing bonds. Of course, they don’t have €15 billion. So they need a bailout. Again.

Greece is broke—there’s no other way to put it. It has debts which total 160% of GDP. So they’ve been negotiating with the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission (EC), trying to get more money to avoid bankruptcy.

The Greeks want to avoid bankruptcy—while the Troika of the IMF, the ECB and the EC want to avoid a default. If there is a default, all sorts of events are triggered involving derivatives and other nasty pieces of financial weaponry, which will send the eurozone’s banking system into a tailspin.

Will the European financial system go bankrupt in the event of a Greek default? No one really knows—and no one really wants to find out.

So both sides have an incentive to sit at the table and reach an agreement.

However, because of the ongoing crisis, there is one inescapable problem that both parties are facing:

Greece’s economy is shrinking—fast. Year-over-year, tax revenue has fallen close to 20%. Businesses are shutting down—and the businesses that are opening up are mostly unemployed professionals trying to set up one-man shops. Unemployment is steadily rising, especially youth unemployment, which inevitably leads to streets protests and social unrest.

So when a country’s economy begins to shrink—and its tax revenue falls—and it begins to teeter on the edge of social instability—it begins to lose the ability to meet its financial obligations.

This is what is happening in Greece, because of the four months it has taken to finally find some kind of deal to save Greece.

Now, the deal on the table is for Greek bondholders to take a €100 billion haircut on €350 billion of outstanding debt—which is actually not that much, considering Greek yields are in the 32% range, but whatever.

What’s key is, the European financie ministers are insisting that the Greek levels of indebtedness shrink from 160% of GDP to 120% of GDP by 2020—

—even as the austerity measures the Troika is imposing severely cuts the public sector, reduces the minimum wage by 22% to €8,200 a year, and overall forcibly shrinks the Greek GDP on top of the natural shrinkage taking place because of the Greek depression.

I’m no Keynesian, as Paul Krugman can tell you. But the fact is, if you fire big chunks of your public sector, reduce the minimum wage, and squeeze higher taxes from the population, the GDP is gonna shrink.

So if the GDP starts to shrink, no way can you reduce debt levels from 160% of current GDP to 120% of 2020’s GDP.

In fact, if you’re hell-bent-for-leather on squeezing a country and insisting it pay down the debt, you are essentially setting the country up to ask for yet another bailout in the near-term future.

This is what the Troika is doing—all so that it can keep the European financial sector from realizing the losses on its stupid Greek loans.

So Greece and the Greek citizenry suffer, so that European banks don’t take a giant crap on top of Angela Merkel, Nicolas Sarkozy, Mario Draghi and Jean-Claude Juncker.

Ironically, had Greece been allowed to default and/or go broke back in May of 2010, when this mess first reared its ugly head, the Greeks and the eurozone would have been in much better shape today: Greece would have suffered Iceland’s short term fate—a crash—but then recovered, albeit slowly and painfully, but on a much sounder financial footing.

But in the European banker’s efforts to save their Greek investments, they have prolonged the Greek agony, while killing the Greek economy worse than an outright default and bankruptcy.

In fact, it is still possible to allow Greece to fail and let the chips fall where they may. But the eurozone leaders are so adamant about saving their banking sector, that they refuse to consider the possibility.

So rather than cutting off the gangrenous limb, they’re letting the gangrene spread, and get a lot worse—all in order to save the fucking banks. Again.

The MSM Cheerleading

This is what the New York Times had to say about the mortgage “settlement” when the news came out:

Advocates for homeowners facing foreclosure expressed cautious optimism after the settlement was announced Thursday morning in Washington. “We’re hopeful,” said Joseph Sant, a lawyer at Staten Island Legal Services’ homeowner defense project. “But we had a lot of programs that are good on paper. What will make the difference is that it’s vigorously enforced.”
President Obama declared the deal the largest federal-state settlement in the nation’s history.
“No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American dream wrongly taken from them,” he said. “And no action, no matter how meaningful, is going to by itself entirely heal the housing market. But this settlement is a start.”
Of course, the Times fails to point out that this settlement is not “a start”—rather, it is the end: The end of prosecutions against the banksters for their fraudulent foreclosures, the end of meaningful reform.

The mortgage settlement is a speeding ticket for a serial killer.

Yet the Times has the gall to add:

More than just an attempt to aid consumers and stabilize the housing market, government officials cast the settlement as an effort to finally hold banks accountable for their misdeeds, more than three years after the mortgage collapse brought on a full-scale financial crisis.
“Accountable”. Right. At $2,000 a pop for in many cases outright stealing a home, that’s the New American Accountability.

And talk about burying the lead! The Times piece waits four paragraphs to mention that fraudulently foreclosed homeowners are getting $1,500 to $2,000 as settlement for the illegal foreclosures. And then it waits another twenty paragraphs before acknowledging that it’s pretty paltry, the amount that will be paid to illegally foreclosed homeowners.

But then, the Times gets worse: Almost as if to add insult to injury, this morning—the day after the mortgage “settlement” announcement—it ran an editorial about—get this—how the mortgage settlement highlights the crappy architecture that the housing boom created in America! And how this crappy architecture ought to be fixed somehow! As part of the mortgage settlement!

Other MSM outlets had similar milquetoast coverage.

Over at Salon, Obama apologist Andrew Leonard can’t really spin the agreement as anything other than a complete disaster—so I guess kudos for having at least a shred of honesty for giving the true facts and meaning of the settlement in the first few paragraphs of his piece.

But then Leonard goes and writes:

A more interesting question to consider, however, is how the housing relief contained in this settlement fits into other administration housing policy efforts currently in the works.
First off, government negotiators are still working on roping another nine mortgage providers into the deal, which could raise the overall settlement total from $26 billion to around $40 billion. [Whoopie: All of $14 billion, thrown up at a $700 billion problem.] In March, the rejiggered HARP refinance program will kick in, presumably allowing hundreds of thousands of homeowners to refinance at currently rock bottom mortgage rates. There is also strong pressure coming from the Federal Reserve and the White House to convert currently unoccupied foreclosed homes owned by the Fannie Mae and Freddie Mac into rental properties, a step that would remove excess inventory from the housing market. [And of course, create excess rental inventory.]
Each individual nibble here is unlikely to make a profound difference, but taken together, all these initiatives add up to the most concerted effort the Obama administration has taken to date to bring relief to the housing sector. It’s also worth noting that it’s all happening without any help whatsoever from Congress. The approach does not address the desire for punishment that so many would like to see meted out upon the banks, but it will likely help spur additional economic growth. At a point when the economy already seems to have solid momentum toward recovery, every extra bit of help is gravy.

[Bracketed text and boldface by yours truly.]

I said that Leonard has at least some honesty left in him—but Felix Salmon at Reuters has absolutely none.

His lead sentence:

The long-awaited mortgage settlement is here! And it looks like a good one.
I’m fucking not kidding.

Then Felix Salmon—or rather, Felix Shill—goes on:

If you’re a bank shareholder breathing a sigh of relief, then, don’t. The only thing you’re protected against, now, is lawsuits over robosigning. [But then robosigning and fraudulent foreclosures were the biggest potential criminal and civil litigation issues.] Were those likely to cost $25 billion if they had gone to court? It seems unlikely to me that they could have raised that much. Other big-money lawsuits over securitization can and almost certainly will still be brought — which means that the big banks all still have significant litigation risk hanging over their heads.
So why did they do this deal? Well, for one thing, it’s not nearly as expensive as it might look at first glance. It’s not like they’re paying out $25 billion and getting nothing but a bit of immunity in return. A huge chunk of the money will go towards principal reductions on underwater mortgages — which means that it’s not really a cash outlay at all.
Notice how he starts off saying that bank shareholders shouldn’t breathe a sigh of relief—then deceptively says how the banks are shelling out $25 billion, when in fact it’s only $5.8 billion in fresh cash. But then at the end of the quoted passage, he admits how “a huge chunk of the money” is “not really a cash outlay at all”—as if this is a good thing.

Well, actually, it is a good thing—for the banksters and the bank shareholders. Which is Felix Shill’s—I mean, Felix Salmon’s real audience.

In Geneva recently, I had lunch with FT Alphaville’s Izabella Kaminska, in a restaurant in the old section of town. Izabella is a very smart woman: She was of the opinion that mainstream financial journalists aren’t deliberately dense, or beholden to vested interests—rather, she thought that they were simply sloppy: Pressed for time, not entirely familiar with the matters at hand, Izabella thought that they tended to take the easy way out, by simply regurgitating what they were told by bankers and authorities, and not applying critical thinking.

I wish I could agree with her—but I can’t. The Times piece might be excusable: Though it doesn’t highlight the real issues, and it buries some of the outrageousness of the settlement, there is an underlying tone of not-quite-buying it with regards to the mortgage “settlement”.

That very tone points to how the Times writers and editors realize that the settlement was a bunch of bullshit—a pass on the banksters.

Yet they didn’t follow through. They didn’t slice-and-dice the settlement, and report how pathetic it really is.

Someone like Andrew Leonard—an essentially partisan journalist who nevertheless tries to be somewhat fair—made a try at honesty with regards the mortgage settlement. But then spent a big chunk of his piece saying, basically, “Though it’s just crumbs off the banksters table, we ought to be thankful, because enough crumbs almost make a slice of bread!”

The most despicable is Felix Salmon: He is rah-rah-banksters-hurrah!, insofar as the settlement is concerned—which proves that he is nothing but a shill for the banksters, trying to get in good with them, at the cost of his intellectual honesty, not to mention his moral soul.

That’s the state of the financial MSM: Yeay us.

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