Trial attorneys are about to give Obama and the nation's tepid recovery another headache because banks did not cross t's and dot i's on foreclosures papers where owners were in arrears on their mortgage payments.
Democrats get much of their funding from trial attorneys and repay them with legislation that lends itself to massive litigation. Now Democrats and Obama may be reaping the boomerang effect.(See 1, 1a and 1b below.)
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Do we now have the best government corporate money can buy? (See 2 below.)
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Feulner believes Hayek will be proven right. (See 3 below.)
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Sowell has a problem believing Barney is being frank about housing. (See 4 below.)
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Roubini discusses the anticipated currency battle which is gathering momentum.
(See 5 below.)
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Sent by a dear friend and fellow memo reader. The LBJ-Israel connection. (See 6 below.)
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In a speech to steelworkers Pelosi stated that we need a government that determines fairness. She did not define fairness but I am sure The Far Left are capable of doing so.
Obama has said he wants to redistribute wealth and Pelosi confirmed this because they both apparently believe Capitalism is evil, the wealthy are too rich and the idea of people being independent and capable of becoming rich as well as failing is a repulsive concept.
Lets face it - we just aren't wired/weird like these two.
The Nov. election, according to Obama, is all about how Americans are wired and the results might prove shocking for Obama and Pelosi. (See 7 below.)
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Now for a little blonde humor again. (See 8 below.)
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Dick
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1)Banks Restart Foreclosures
BofA and GMAC Lift Their Freeze in a Counterattack Against Allegations of Fraud.
By JESSICA SILVER-GREENBERG, ROBBIE WHELAN and DAN FITZPATRICK
Two major lenders at the center of the foreclosure crisis took steps Monday to put the mess behind them by restarting home seizures that were frozen by documentation concerns.
Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.
Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents when foreclosing on homes.
Bank of America, the nation's largest bank in assets, which imposed on Oct. 8 a nationwide moratorium on the sale of foreclosed homes, said it has begun preparing new affidavits for pending foreclosures in 23 states where a judge's approval is required. The paperwork will be submitted to courts by next Monday, and foreclosure sales will resume in those states starting in November, according to the bank.
"This is an important first step in debunking speculation that the mortgage market is severely flawed," said Bank of America spokesman James Mahoney. More details will be disclosed when the company reports quarterly results Tuesday.
Citigroup Inc. Chief Financial Officer John Gerspach said the bank has found no reason to halt foreclosures, calling its internal procedures "sound." "We have not identified any system issues," he said Monday.
Restarting the nation's foreclosure machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation of foreclosure practices. Some state officials have been pushing for a wider halt to foreclosure sales, but Bank of America's moves show determination by at least some lenders to get back to business while the investigation proceeds.
A Bank of America spokesman said the bank has found "no cases" thus far of foreclosures that should not have "gone through." Last week, James Dimon, J.P. Morgan Chase & Co. chairman and chief executive, said that no one has been "evicted out of a home who shouldn't have been."
Some attorneys general said they have little confidence that problems with foreclosures have been fixed. "We've been in discussions with some of the major servicers, and as part of that they've assured us that they are fixing this problem, but we're not just going to take their word for it," said Patrick Madigan, a spokesman for Iowa Attorney General Tom Miller.
It will be hard for lenders to declare the foreclosure crisis over and get back to business as usual. Bondholders are escalating efforts to recover losses on soured mortgage-bond deals containing loans with flawed paperwork. Meanwhile, federal banking regulators are assigning additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal foreclosure requirements.
Bank stocks surged Monday as investors reassessed last week's outlook for the cost of the foreclosure mess. Citigroup shares jumped 23 cents, or 5.8%, to $4.18 a share in New York Stock Exchange composite trading at 4 p.m., on better-than-expected earnings. Bank of America rose 36 cents, or 3%, to $12.34, while J.P. Morgan was up $1.05, or 2.8%, to $38.20.
Bank of America is the only major U.S. bank that announced a halt to all foreclosure sales while it reviewed documents for errors. Bank officials say they're readying new affidavits for 102,000 pending foreclosure actions.
A company spokesman said the largest investors in mortgages serviced by Bank of America have signed off on the new timetable. The bank will continue delaying foreclosure sales in the 27 states where court approval isn't required until a review is completed "on a state by state basis." The bank expects delays on fewer than 30,000 foreclosure sales nationwide.
"Now it may be legal, but I am not sure it's ethical," said Robert Quigley, a 68-year-old retired commercial fisherman, who received a legal notice last week that Bank of America is proceeding with foreclosure on his home in Lake City, Fla. A bank spokesman said the bank never said it would stop all foreclosure proceedings, just final sales.
GMAC, a unit of Ally Financial Inc., declined to comment on the number of foreclosures it has reviewed so far, but said they included loans with affidavits signed by employee Jeffrey Stephan. His testimony in a deposition that he signed 10,000 foreclosure affidavits a month without reviewing the underlying documentation led GMAC to halt evictions in 23 states last month while it scrutinized its procedures.
Several lawyers representing borrowers facing foreclosure by GMAC said affidavits signed by Mr. Stephan were replaced by similar filings with the signature of a different employee.
Michael Holmes, an antiques dealer in Belfast, Maine, thought he would get a chance to save his home because the affidavit used by GMAC to substantiate his loan amount was signed by Mr. Stephan. Instead, GMAC replaced Mr. Stephan's document in the courthouse file for the foreclosure proceeding with an affidavit signed by employee Davida Harriott. Her name also appears on substitute paperwork in pending foreclosure cases in Florida, according to court documents and lawyers representing the borrowers.
Gina Proia, a spokeswoman for Ally, said on Monday: "As each case is reviewed and remediated, it moves on." None of the revised foreclosure documents being filed by the company will bear the signature of Mr. Stephan, though he still works for GMAC, she said. Mr. Stephan and Ms. Harriott couldn't be reached for comment.
Ohio Attorney General Richard Cordray, who last week filed a lawsuit against GMAC alleging hundreds of counts of fraud related to foreclosure documents, said he is suspicious of efforts to replace paperwork. "Substituting new evidence in [cases] where there's been fraud won't help prevent the court from sanctioning them for the fraud that has already been committed," he said. "It doesn't unring the bell."
1a)Foreclosure freeze leads to uneasy politics for Democrats
By Steven Mufson
The details of the foreclosure mess are ugly and complicated. The politics of it are even worse.
But reviving the economy requires repairing the housing market, which won't happen until foreclosed properties and delinquent mortgages are dealt with. So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that "a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike."
It's a recipe for legislative inaction, especially with lawmakers busy campaigning. For a White House seen by Wall Street as too populist, and by many liberals as too close to Wall Street, that might not be a bad outcome. Democratic candidates can strike a populist note, letting the Obama administration take the economic high road while pressing banks to define the scope of the latest financial mess.
"There's a problem here," said one veteran Democratic political consultant, who spoke on the condition of anonymity because of the issue's sensitivity. "The politics are very attractive to say, 'Let's have a moratorium.' But shutting down foreclosures has the potential of shutting down the whole housing market, which isn't helpful to anybody."
For now, most of the biggest banks, sensitive to political winds, have voluntarily frozen foreclosure sales. Some analysts believe the freeze could last until January. That gives banks until the end of the quarter to figure out the extent of their problems, and it delays foreclosures until after the election as well as the Thanksgiving and Christmas holidays.
"I think that they're trying to see how this is playing," said one political consultant working for the financial services industry. "They're trying to gauge the political intensity around the issue."
Democratic pollster Peter Hart says intensity runs high. "There are two things of critical importance to American households," he said. "One is their job and two is their house."
Hart said that the foreclosure issue resembles the unemployment issue. Ninety percent of Americans are employed and more than 9o percent of homeowners pay their mortgages, Hart noted, but "the real issue is the space it takes in peoples' fear and uncertainty. It is the number of people who say, 'This could be me.' "
Most Democratic consultants say President Obama has been able to stay fairly neutral because he isn't on the ballot and because broad economic recovery is more important.
All the same, some political veterans say that Obama could display more sympathy with foreclosure victims. Hart says that former president Bill Clinton, who presided over the booming '90s, is suddenly in demand on the campaign trail because, as Clinton once said, he feels people's pain. "It's not that Bill Clinton is an embodiment of good times, but that Bill Clinton understands the toughness of bad times," Hart said.
Obama and Reid represent the two poles of Democratic opinion - and political exposure.
Reid is running for reelection in Nevada, a state where one in six borrowers was delinquent on his mortgage at the end of 2009, where foreclosure filings hit one in 17 homes during the first half of this year, and where more than half of home sales were foreclosure sales in the second quarter of 2010.
"There's no question that this foreclosure issue is, in certain parts of the country, a huge issue, and anything that can be done to stop foreclosures is important," said Mark Mellman, a Democratic pollster working for Reid. "No one wants to seem like they're on the side of the banks."
Not surprisingly, Reid has called for a nationwide moratorium. "It is only fair to Nevada homeowners to suspend foreclosures until a thorough review of foreclosure processes is completed," Reid said earlier this month.
Other Democrats, including Rep. Chris Van Hollen (Md.), the head of the Democratic Congressional Campaign Committee, have also called for temporary bans.
Obama, by contrast, has been muted while administration officials call attention to dangers to the economy, neighborhoods and people seeking to sell homes.
A freeze in foreclosure sales also hurts private investors - including endowments, pension funds and mutual funds - who in good times greased the wheels of the real estate market by buying mortgage securities, but who have been largely absent the past two years. The void has been filled by government-owned mortgage agencies Fannie Mae and Freddie Mac.
"If the government wants to get out of the mortgage business, then private capital has to come in," said Barbara Novick, vice chairman of BlackRock, a big asset-management firm in New York. "We're moving in the other direction."
The foreclosure mess resembles many of the hot-button political issues earlier in the economic downturn, such as executive compensation. By opposing a national moratorium on foreclosures, Obama risks being seen as a friend of big banks.
HUD Secretary Donovan's article in the Huffington Post was a way to court liberal voters. "The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating - it's shameful," he wrote.
Because the foreclosure mess could cost banks billions of dollars, the president may have to decide again whether the banks are too big to falter at this point in the economic recovery. Some solutions might end up stowing some costs in Fannie and Freddie in less obvious ways, but taxpayers would still pay the price.
Another political factor: people struggling to keep paying their mortgages who are upset that deadbeat borrowers may get a break.
"I pay my mortgage every month; that was the deal I made," Kevin McGrath, a Virginia realtor, wrote in an e-mail. "I know I am currently throwing money into a depreciating asset that every day feels more and more like the Black Hole of Calcutta, but that's ok; I placed my bet, and I am willing to ride this pony until she breaks.
"But wait a minute; now I look over at my neighbor and I see he is in the same situation, upside down on his mortgage, except he has not made a payment in a year or so. He has multiple cars in his driveway, some of them newer than mine, he just got back from a trip to Best Buy, and he is still living in his house. There are all kinds of neat things to do with your money when your housing costs are zero. Where is my free rent?"
1b)Analysis: Foreclosure logjam hits housing, broader economy
The fragile U.S. economy will probably sustain another blow as a result of the latest housing market crisis.
Amid allegations of wrongful evictions, lenders such as Ally Financial's GMAC, JPMorgan Chase & Co and Bank of America Corp have halted at least some of their foreclosures in process, creating a bottleneck that has the potential to restrain both bank lending and consumer spending.
The U.S. recession came to an official end in June of 2009, but it has yet to sustain a meaningful recovery, as unemployment persists above 9.5 percent.
"This creates a headwind for a more substantive recovery in housing and the economy as a whole," said economist Diane Swonk of Mesirow Financial of the slowing foreclosure pipeline.
Housing seems to be ceding the once-crucial role it played in the U.S. economy.
In the second quarter of 2010, it accounted for 15.3 percent of the country's gross domestic product, down from 18.5 percent at its peak in 2005, according to the National Association of Home Builders.
While the sector could once be counted on to lead the nation out of recessions, that too has changed, said Karl Case, co-creator of the Case-Shiller home price index.
And now all 50 U.S. states have started a joint investigation of the mortgage industry
The result of all the halted foreclosures, both explicit and unofficial, is a de facto national moratorium, said Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter.
"We have the traditional holiday foreclosure moratorium coming up so if this just drags on for another month or so, it will be January" before bank repossessions start happening again, Cecala said.
Last year, mortgage finance giants Fannie Mae and Freddie Mac asked mortgage servicers, the banks who collect loan payments even if they don't own the loans, to take a breather on foreclosures during the holiday season.
NO URGENCY
In the very short term, the pileup of properties that had been moving through the foreclosure process could help home prices slightly because it means less supply.
That is especially the case in the original bubble markets of Florida, California, Arizona and Nevada where foreclosures are thickest on the ground, said IHS Global Insight economist Patrick Newport.
"It's a potential short-run positive for home sales," said independent housing economist Tom Lawler. "But it's highly unlikely that this is a longer-run positive."
Indeed, if the spike in foreclosures on lenders' books causes them to dump properties on the market, home prices could drop 20 percent, said Newport.
IHS Global Insight has already forecast a decline of between 8 percent and 10 percent for 2011.
That forecast was based on an assumption that banks would continue following an implicit policy of cushioning home prices by releasing foreclosure inventory gradually, Newport said.
A hit to home prices will cause consumers to feel still poorer, and to restrain spending accordingly, Newport said.
Consumer spending accounts for two-thirds of the American economy.
Home prices could fall even further in the markets hardest-hit by the foreclosure crisis, said homebuilding industry analyst Joel Locker of FBN Securities.
He could see prices dropping as much as 30 percent along the coast in California.
GIMME CREDIT
Foreclosure sales already make up 34 percent of home sales, according to foreclosure data and sales website RealtyTrac.
Many prospective buyers would likely sit on the sidelines until any moratorium is lifted lest prices fall further, which means home sales could fall as well, said John Burns, who runs an real estate consulting firm in Irvine, California.
"We're already seeing consumers saying there's no urgency to buy today, that mortgage rates will be the same in the spring. Home prices might be even cheaper by then," he said.
Lenders' errors in foreclosure processing will come back to hurt them in more ways than one, Lawler said.
Investors dumped bank stocks on Thursday and Friday amid fears their profits could be hit by the growing crisis.
FBR analyst Paul Miller estimates related losses could range from $6 billion to $10 billion for the banking industry.
The banking industry could handle such losses, but if the process of investigating and cleaning up lenders' flawed foreclosure procedures take longer than anticipated, that number could rise, IHS GLobal Insight's Newport said.
In the second quarter, U.S. banks' total loans and leases were down 3 percent to $7.395 trillion, according to FDIC data.
If banks suffer bigger losses, they will have to bulk up their reserves, which will make them even less inclined to lend than they already are, Newport said.
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2)Death of a democracy
Commentary: Good news for corporations, bad news for voters.
By Brett Arends
Will anyone even bother voting in future elections? Will they get involved in political causes? Will they spend one dime of their savings supporting a political candidate or a campaign?
When you look at what is happening with money and politics in 2010, these are not idle questions.
Thanks to changes in the law, company honchos can now buy an election as easily as they order office furniture. The president has tried to make an issue of this in the past 10 days, but I suspect his commentary will have little effect.
In case you missed it, recent Supreme Court rulings mean that corporations can now effectively spend freely on political campaigns, including during elections. Loopholes in the tax code, particularly pertaining to 501(c)4 nonprofits, mean they can do so secretly through anonymous front groups.
It doesn’t matter whether you are a Republican or a Democrat, whether you hate the president or like him.
Under this system, the game is over. Our democracy is dead. We just don’t know it yet.
Don’t believe me? Look at the numbers.
Up until now, the gold standard for campaign fund-raising was set by Barack Obama in 2008. With brilliant creativity and energy, his team harnessed the Internet, and combined it with on-the-ground logistics to tap sources of funds from big cities and little towns all across the country. In the end, 320,000 individual donors sent in money, a remarkable achievement. About 200,000 of them gave less than $1,000. The total raised by the campaign was $750 million.
At the time it was considered the wave of the future — the utopian marriage of grassroots democracy and technology. How naïve that looks. It’s already a period piece.
Compared with the financial firepower in the hands of major corporations, that amount of money is chicken feed. Many CEOs can cut checks for millions, even tens of millions, without blinking. They can match all that effort without breaking a sweat.
A chief executive could match the most successful grassroots, populist fund-raising campaign in history with a single phone call.
According to data from FactSet, there are around 350 companies on the U.S. stock market that have more than $750 million on hand just in cash and equivalents, such as short-term Treasury bills.
Exxon Mobil Corp. (XOM 65.05, -0.07, -0.11%) has $13.3 billion in ready money. That’s 18 times as much as Obama raised in all of 2007-08. Johnson & Johnson (JNJ 63.09, -0.21, -0.32%) has $12.7 billion. UnitedHealth Group Inc. (UNH 35.24, -0.06, -0.17%) has about $10 billion. The list goes on.
In other words, under the new law, the chief executive of any of these companies could match the most successful grassroots, populist fund-raising campaign in history with a single phone call.
That understates the issue; only a small percentage of a company’s true wealth is tied up in ready cash. Exxon Mobil, the biggest company, is valued at more than $330 billion. So $750 million is just one quarter of 1% of its value. A quarter of one percent. Who notices a 0.25% movement in a stock price? Annual cash flow runs to tens of billions of dollars a year.
No one company will have to pay the full tab to buy each election for corporate America anyway: The bill will be shared. How many companies could chip in $20 million or $50 million without even noticing? You think Goldman Sachs Group Inc. (GS 156.68, -0.04, -0.03%) or Citigroup Inc. (C 4.08, +0.02, +0.49%) or Bank of America Corp. (BAC 11.83, +0.03, +0.25%) can’t find that cash around to buy off reform?
That’s plutocracy, pure and simple.
Shareholders will have no say. “Political-speech decisions can be made without input from shareholders, a role for independent directors or detailed disclosure,” law professors Lucian Bebchuk of Harvard and Robert Jackson of Columbia will report in a forthcoming paper on the issue. As Bebchuk told me: “Companies certainly are not required, and do not disclose, contributions to intermediaries that engage in political spending.”
Cornelius Hurley, director of Boston University’s Morin Center for Banking and Financial Law, said companies can bury these types of spending in the budget for marketing, community involvement, or lobbying. Also, under the rules, the bigger the company, the more it can spend and hide.
“It’s incredibly rare that corporate contributions rise to the size that would be material, and only material facts need to be disclosed,” says Stephen Bainbridge, law professor at the University of California in Los Angeles. “You’d have to have contributions on the order of 10% of assets to be deemed material.”
Corporations are only just waking up to the good news. In the last few months, money has started pouring into outside groups. According to the Center for Responsive Politics, a remarkable $180 million has gone into independent political organizations. Most of that, about three-quarters, has gone into organizations on the right.
It just so happens those organizations tend to be favored by top business executives. But if you’re a conservative and you’re cheering, just wait until your interests clash with those of company boardrooms. You think you’re going to win?
What sort of clout does this money buy?
According to data tracked by Media Matters for America, the 10 biggest independent right-wing groups aired 60,052 political ads nationwide between Aug. 1 and Oct. 11. At 30 seconds a commercial, that’s about 500 hours of commercials.
The Chamber of Commerce spent $10 million running 4,700 adverts during a single week.
It’s easy to say, “Oh, we’re too smart to fall for that marketing stuff. You can’t just buy an election. Look at Jerry Brown!” But watch out for the law of small numbers. There will always be the occasional exception. And Brown, who comes from another era, built up a formidable political base before we became a plutocracy.
This election is just the beginning. Expect the amounts spent in the future to be vastly greater. Political ads are merely the tip of the iceberg. The real action will come from hundreds of millions spent in areas of propaganda that you’ll never see — from Astroturfing and smears to slush funds. We’re talking unlimited money. Expect personal scandals to erupt, as if by magic, around any reform politician with half a chance.
Remember, an election isn’t like shopping. In politics, if the majority eats Ring Dings, we’re all eating Ring Dings.
Various experts will try to tell you the new system of unlimited, secret corporate donations can’t survive. “I don’t believe secretly funding our elections can be sustained,” Fred Wertheimer, head of reform group Democracy 21, told the New York Times. “It won’t hold up. The public won’t stand for it. This is guaranteed corruption.”
I’m glad he’s so optimistic. But who is going to stop it? There are no gatekeepers left with any power. How can you fix a broken political system with a broken political system? How can someone in manacles strike off his own chains?
Brett Arends is the author of “Storm Proof Your Money,” on how to survive the slump.
-------------------------------------------------------------------------------------3)FEULNER: From self-reliance to servitude
Americans are unaware their nation's road leads to serfdom
By Ed Feulner
We use a variety of yardsticks to judge whether our country is on the right track. Is inflation up? Has unemployment dropped? What's the stock market doing today?
Here's another one: Are Americans, who have long prided themselves on their freedom and self-reliance, becoming more dependent on government, or less?
It's a yardstick we seldom check. But we should.
Consider health care. Before the 1960s, Americans who didn't get their insurance through work typically got it through civic organizations such as churches and social clubs. Now they're more likely to get it through government programs such as Medicare, Medicaid and the Children's Health Insurance Program (CHIP). The result? Greater dependence on government.
According to the Heritage Foundation's 2010 Index of Dependence on Government, Medicare, Medicaid and CHIP enrolled approximately 98.2 million individuals in 2009. That's almost a third of the population. Combined, these programs accounted for $886 billion in federal spending in 2009. That's more than double the $399.1 billion spent on these programs in 1999, just a decade earlier. To say such a trajectory is unsustainable is putting it mildly.
Another example is lower-cost housing. Until World War II, mutual-aid, religious and educational organizations provided housing assistance to low-income Americans. As with health care, it was a neighbor-helping-neighbor approach. But then the federal and state governments got into the act, offering more generous assistance. Today, government provides nearly all housing assistance on offer. Government housing assistance, in fact, is at its highest level since 1962, the first year charted by the index. As recently as 1980, it stood just above $20 billion (in 2005 dollars). Now government data shows that it tops $52 billion.
Many other areas, alas, also show increasing dependence - in welfare, education and agriculture. The overall trend line is inexorably up.
As a result, the private sector winds up being crowded out. Take the Medicare drug benefit that was added in 2003. Two-thirds of all Medicare enrollees had drug coverage from another source before the Medicare drug benefit was enacted. One study showed that the new benefit resulted in a 72 percent crowd-out of private coverage. For every seven prescriptions paid for by the government, it found, five otherwise would have been financed privately.
Worse, the number of people paying for this largesse is dwindling.
In 1962, the percentage of people who didn't pay federal income taxes themselves and were not claimed as dependents by someone who paid federal income taxes stood at 23.7percent. By 2000, the percentage was 34.1 percent. By 2008, 43.6 percent.
"In short," the Index notes, "the country may be rapidly approaching a point where one-half of 'taxpayers' do not pay taxes while receiving generous federal benefits."
Talk about a perfect fiscal storm. On the one hand, there's more and more spending on dependence-creating programs. On the other, there's an ever-shrinking number of taxpayers to pay for these programs.
It's worth recalling what Thomas Jefferson called "the sum of good government" in his first inaugural address: "a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement and shall not take from the mouth of labor the bread it has earned."
The 2010 Index of Dependency shows we're drifting further and further from this ideal. Let's hope Americans wake up before we go too far down this dangerous path.
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4)Barney Frank Is Anything But On Housing
By THOMAS SOWELL
You would be hard-pressed to find a politician who is less frank than Congressman Barney Frank. Even in an occupation where truth and candor are often lacking, Rep. Frank is in a class by himself when it comes to rewriting history in creative ways. Moreover, he has a lot of history to rewrite in his re-election campaign this year.
No one contributed more to the policies behind the housing boom and bust, which led to the economic disaster we are now in, than Frank.
His powerful position on the House of Representatives' Committee on Financial Services gave him leverage to force through legislation and policies that pressured banks and other lenders to grant mortgage loans to people who would not qualify under the standards which had long prevailed, and had long made mortgage loans among the safest investments around.
All this was done in the name of promoting more homeownership among people who had neither the income nor the credit history that would meet traditional mortgage lending standards.
To those who warned of the risks in the new policies, Frank replied in 2003 that critics "exaggerate a threat of safety" and "conjure up the possibility of serious financial losses to the Treasury, which I do not see." Far from being reluctant to promote risky practices, Frank said: "I want to roll the dice a little bit more in this situation."
With the federal regulators leaning on banks to make more loans to people who did not meet traditional qualifications — the "underserved population," in political Newspeak — and quotas being given to Fannie Mae and Freddie Mac to buy more of these riskier mortgages from the original lenders, critics pointed out the dangers in these pressures to meet arbitrary homeownership goals. But Barney Frank counterattacked against these critics.
In 2004 he said: "I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing." He went further: "I would like to get Fannie and Freddie more deeply into helping low-income housing."
Fannie Mae and Freddie Mac were crucial to these schemes to force lenders to lend to those whom politicians wanted them to lend to, rather than to those who were most likely to pay them back. So it is no surprise that Barney Frank was very protective toward these two government-sponsored enterprises that were buying up mortgages that banks were willing to make under political pressure, but were often unwilling to keep.
The risks that banks were passing on to Fannie Mae and Freddie Mac were ultimately risks to the taxpayers. Although there was no formal guarantee to these enterprises, everybody knew that the federal government would always bail them out, if necessary, to keep them from failing. Everybody except Barney Frank.
"There is no guarantee," according to the congressman in 2003, "there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee." Barney Frank is a master of rhetoric who does not let the facts cramp his style.
Fast-forward now to 2008, after the risky mortgages had led to huge numbers of defaults, dragging down Fannie Mae, Freddie Mac and the financial markets in general — and with them the whole economy.
Barney Frank was all over the media, pointing the finger of blame at everybody else. When CNBC's Maria Bartiromo asked Frank who was responsible for the financial crisis, he said "right-wing Republicans." It so happens that conservatives were the loudest critics who had warned for years against the policies that Frank pushed, but why let facts get in the way?
Ms. Bartiromo did not just accept whatever Barney Frank said. She said: "With all due respect, Congressman, I saw videotapes of you saying in the past, 'Oh, let's open up the lending. The housing market is fine.'" His reply? "No, you didn't see any such tapes."
"I did. I saw them on TV," she said. But Barney Frank did not budge. He understood that a good offense is the best defense. He also understands that rewriting history this election year is his best bet for keeping his long political career alive.
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5)After the Storm Only the Weak Survive
By Nouriel Roubini
TOKYO – The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations. All are playing a game that some must lose.
Today’s tensions are rooted in paralysis on global rebalancing. Over-spending countries – such as the United States and other “Anglo-Saxon” economies – that were over-leveraged and running current-account deficits now must save more and spend less on domestic demand. To maintain growth, they need a nominal and real depreciation of their currency to reduce their trade deficits. But over-saving countries – such as China, Japan, and Germany – that were running current-account surpluses are resisting their currencies’ nominal appreciation. A higher exchange rate would reduce their current-account surpluses, because they are unable or unwilling to reduce their savings and sustain growth through higher spending on domestic consumption.
Within the eurozone, this problem is exacerbated by the fact that Germany, with its large surpluses, can live with a stronger euro, whereas the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) cannot. On the contrary, with their large external deficits, the PIIGS need a sharp depreciation to restore growth as they implement painful fiscal and other structural reforms.
A world where over-spending countries need to reduce domestic demand and boost net exports, while over-saving countries are unwilling to reduce their reliance on export-led growth, is a world where currency tensions must inevitably come to a boil. Aside from the eurozone, the US, Japan, and the United Kingdom all need a weaker currency. Even Switzerland is intervening to weaken the franc.
Meanwhile, China is intervening massively to resist appreciation of the renminbi and thus maintain its export performance. As a result, most emerging-market economies are now similarly worried about currency appreciation, lest they lose competitiveness relative to China, and are intervening aggressively and/or imposing capital controls to stem upward exchange-rate pressure.
The trouble, of course, is that not all currencies can be weak at the same time: if one is weaker, another must, by definition, be stronger. Likewise, not all economies can improve net exports at the same time: the global total is, by definition, equal to zero. So the competitive devaluation war in which we find ourselves is a zero-sum game: one country’s gain is some other country’s loss.
The first salvos in this war came in the form foreign-exchange intervention. To diversify away from US dollar assets while maintaining its effective dollar peg, China started to buy Japanese yen and South Korean won, hurting their competitiveness. So the Japanese started to intervene to weaken the yen.
This intervention upset the EU, as it has put upward pressure on the euro at a time when the European Central Bank has placed interest rates on hold while the Bank of Japan (BoJ) and the US Federal Reserve are easing monetary policy further. The euro’s rise will soon cause massive pain to the PIIGS, whose recessions will deepen, causing their sovereign risk to rise. The Europeans have thus already started verbal currency intervention and may soon be forced to make it formal.
In the US, influential voices are proposing that the authorities respond to China’s massive accumulation of dollar reserves by selling an equivalent amount of dollars and buying an equivalent amount of renminbi. Meanwhile, China and most emerging markets are accelerating their currency interventions to prevent more appreciation.
The next stage of these wars is more quantitative easing, or QE2. The BoJ has already announced it, the Bank of England (BoE) is likely to do so soon, and the Fed will certainly announce it at its November meeting. In principle, there is little difference between monetary easing – lower policy rates or more QE – that leads to currency weakening and direct intervention in currency markets to achieve the same goal. In fact, quantitative easing is a more effective tool to weaken a currency, as foreign exchange intervention is usually sterilized.
Expectations of aggressive QE by the Fed have already weakened the dollar and raised serious concerns in Europe, emerging markets, and Japan. Indeed, though the US pretends not to intervene to weaken the dollar, it is actively doing precisely that via more QE.
The BoJ and the BoE are following suit, putting even more pressure on the eurozone, where a stubborn ECB would rather kill any chance of recovery for the PIIGS than do more QE, ostensibly owing to fears of a rise in inflation. But that is a phantom risk, because it is the risk of deflation, not inflation, that haunts the PIIGS.
Currency wars eventually lead to trade wars, as the recent US congressional threat against China shows. With US unemployment and Chinese growth both at almost 10%, the only mystery is that the drums of trade war are not louder than they are.
If China, emerging markets, and other surplus countries prevent nominal currency appreciation via intervention – and prevent real appreciation via sterilization of such intervention – the only way deficit countries can achieve real depreciation is via deflation. That will lead to double-dip recession, even larger fiscal deficits, and runaway debt.
If nominal and real depreciation (appreciation) of the deficit (surplus) countries fails to occur, the deficit countries’ falling domestic demand and the surplus countries’ failure to reduce savings and increase consumption will lead to a global shortfall in aggregate demand in the face of a capacity glut. This will fuel more global deflation and private and public debt defaults in debtor countries, which will ultimately undermine creditor countries’ growth and wealth.
Nouriel Roubini is Chairman of Roubini Global Economics (www.roubini.com), Professor at the Stern School of Business at NYU, and co-author of Crisis Economics.
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6)The complete story behind LBJ & Israel
A few months ago, the Associated Press reported that newly released tapes from US president Lyndon Johnson's White House office showed LBJ's "personal and often emotional connection to Israel.” The news agency pointed out that during the Johnson presidency (1963-1969), "the United States became Israel’s chief diplomatic ally and primary arms supplier."
But the news report does little to reveal the full historical extent of Johnson's actions on behalf of the Jewish people and the State of Israel.
Most students of the Arab-Israeli conflict can identify Johnson as the president during the 1967 war. But few know about LBJ's actions to rescue hundreds of endangered Jews during the Holocaust - actions that could have thrown him out of Congress and into jail. Indeed, the title of "Righteous Gentile" is certainly appropriate in the case of the Texan, whose centennial year is being commemorated this year.
Appropriately enough, the annual Jerusalem Conference announced this week that it will honor Johnson.
Historians have revealed that Johnson, while serving as a young congressman in 1938 and 1939, arranged for visas to be supplied to Jews in Warsaw, and oversaw the apparently illegal immigration of hundreds of Jews through the port of Galveston, Texas....
A key resource for uncovering LBJ's pro-Jewish activity is the unpublished 1989 doctoral thesis by University of Texas student Louis Gomolak, "Prologue: LBJ's Foreign Affairs Background, 1908-1948.” Johnson's activities were confirmed by other historians in interviews with his wife, family members and political associates.
Research into Johnson's personal history indicates that he inherited his concern for the Jewish people from his family. His aunt Jessie Johnson Hatcher, a major influence on LBJ, was a member of the Zionist Organization of America. According to Gomolak, Aunt Jessie had nurtured LBJ's commitment to befriending Jews for 50 years. As young boy, Lyndon watched his politically active grandfather "Big Sam" and father "Little Sam" seek
clemency for Leo Frank, the Jewish victim of a blood libel in Atlanta
Frank was lynched by a mob in 1915, and the Ku Klux Klan in Texas threatened to kill the Johnsons. The Johnsons later told friends that Lyndon's family hid in their cellar while his father and uncles stood guard with shotguns on their porch in case of KKK attacks. Johnson's speech writer later stated, "Johnson often cited Leo Frank's lynching as the source of his opposition to both anti-Semitism and isolationism."
Already in 1934 - four years before Chamberlain's Munich sellout to Hitler - Johnson was keenly alert to the dangers of Nazism and presented a book of essays, 'Nazism: An Assault on Civilization', to the 21-year-old woman he was courting, Claudia Taylor - later known as "Lady Bird" Johnson. It was an incredible engagement present.
FIVE DAYS after taking office in 1937, LBJ broke with the "Dixiecrats" and supported an immigration bill that would naturalize illegal aliens, mostly Jews from Lithuania and Poland. In 1938, Johnson was told of a young Austrian Jewish musician who was about to be deported from the United States. With an element of subterfuge, LBJ sent him to the US Consulate in Havana to obtain a residency permit. Erich Leinsdorf, the world famous musician and conductor, credited LBJ for saving his live.
That same year, LBJ warned Jewish friend, Jim Novy, that European Jews faced annihilation. "Get as many Jewish people as possible out of Germany and Poland," were Johnson's instructions. Somehow, Johnson provided him with a pile of signed immigration papers that were used to get 42 Jews out of Warsaw.
But that wasn't enough. According to historian James M. Smallwood, Congressman Johnson used legal and sometimes illegal methods to smuggle "hundreds of Jews into Texas, using Galveston as the entry port.
Enough money could buy false passports and fake visas in Cuba, Mexico and other Latin American countries. Johnson smuggled boatloads and planeloads of Jews into Texas. He hid them in the Texas National Youth Administration. Johnson saved at least four or five hundred Jews, possibly more."
During World War II Johnson joined Novy at a small Austin gathering to sell $65,000 in war bonds. According to Gomolak, Novy and Johnson then raised a very "substantial sum for arms for Jewish underground fighters in Palestine." One source cited by the historian reports that "Novy and Johnson had been secretly shipping heavy crates labeled 'Texas Grapefruit' - but containing arms - to Jewish underground 'freedom fighters' in Palestine."
ON JUNE 4, 1945, Johnson visited Dachau. According to Smallwood, Lady Bird later recalled that when her husband returned home, "he was still shaken, stunned, terrorized, and bursting with an overpowering revulsion and incredulous horror at what he had seen."
A decade later while serving in the Senate, Johnson blocked the Eisenhower administration's attempts to apply sanctions against Israel following the 1956 Sinai Campaign. "The indefatigable Johnson had never ceased pressure on the administration," wrote I.L. "Si" Kenen, the head of AIPAC at the time.
As Senate majority leader, Johnson consistently blocked the anti-Israel initiatives of his fellow Democrat, William Fulbright, the chairman of the Senate Foreign Relations Committee. Among Johnson's closest advisers during this period were several strong pro-Israel advocates, including Benjamin Cohen (who 30 years earlier was the liaison between Supreme Court justice Louis Brandeis and Chaim Weizmann) and Abe Fortas, the legendary Washington "insider."
Johnson's concern for the Jewish people continued through his presidency. Soon after taking office in the aftermath of John F. Kennedy's assassination in 1963, Johnson told an Israeli diplomat, "You have lost a very great friend, but you have found a better one."
Just one month after succeeding Kennedy, LBJ attended the December 1963 dedication of the Agudas Achim Synagogue in Austin. Novy opened the ceremony by saying to Johnson, "We can't thank him enough for all those Jews he got out of Germany during the days of Hitler."
Lady Bird would later describe the day, according to Gomolak: "Person after person plucked at my sleeve and said, 'I wouldn't be here today if it wasn't for him. He helped me get out.'" Lady Bird elaborated, "Jews had been woven into the warp and woof of all [Lyndon's] years."
THE PRELUDE to the 1967 war was a terrifying period for Israel, with the US State Department led by the historically unfriendly Dean Rusk urging an evenhanded policy despite Arab threats and acts of aggression. Johnson held no such illusions. After the war he placed the blame firmly on Egypt: "If a single act of folly was more responsible for this explosion than any other, it was the arbitrary and dangerous announced decision [by Egypt that the Strait of Tiran would be closed [to Israeli ships and Israeli-bound cargo]."
Kennedy was the first president to approve the sale of defensive US weapons to Israel, specifically Hawk anti-aircraft missiles. But Johnson approved tanks and fighter jets, all vital after the 1967 war when France imposed a freeze on sales to Israel. Yehuda Avner recently described on these pages prime minister Levi Eshkol's successful appeal for these weapons on a visit to the LBJ ranch.
Israel won the 1967 war, and Johnson worked to make sure it also won the peace. "I sure as hell want to be careful and not run out on little Israel," Johnson said in a March 1968 conversation with his ambassador to the United Nations, Arthur Goldberg, according to White House tapes recently released.
Soon after the 1967 war, Soviet premier Aleksei Kosygin asked Johnson at the Glassboro Summit why the US supported Israel when there were 80 million Arabs and only three million Israelis. "Because it is right," responded the straight-shooting Texan.
The crafting of UN Resolution 242 in November 1967 was done under Johnson's scrutiny. The call for "secure and recognized boundaries" was critical. The American and British drafters of the resolution opposed Israel returning all the territories captured in the war. In September 1968, Johnson explained, "We are not the ones to say where other nations should draw lines between them that will assure each the greatest security. It is clear, however, that a return to the situation of 4 June 1967 will not bring peace. There must be secure and there must be recognized borders. Some such lines must be agreed
to by the neighbors involved."
Goldberg later noted, "Resolution 242 in no way refers to Jerusalem, and this omission was deliberate." This historic diplomacy was conducted under Johnson's stewardship, as Goldberg related in oral history to the Johnson Library. "I must say for Johnson," Goldberg stated. "He gave me great personal support."
Robert David Johnson, a professor of history at Brooklyn College, recently wrote in The New York Sun, Johnson's policies stemmed more from personal concerns - his friendship with leading Zionists, his belief that America had a moral obligation to bolster Israeli security and his conception of Israel as a frontier land much like his home state of Texas. His personal concerns led him to intervene when he felt that the State or Defense departments had insufficiently appreciated Israel’s diplomatic or military needs."
President Johnson firmly pointed American policy in a pro-Israel direction. In a historical context, the American emergency airlift to Israel in 1973, the constant diplomatic support, the economic and military assistance and the strategic bonds between the two countries can all be credited to the seeds planted by LBJ.
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7)How Big Should Government Be?
By William Murchison
Last weekend, President Obama allowed that we voters are too scared right now to "think clearly," but let us gut up and try anyway, shall we? We really can't sort out too often the stakes in this election, including possibly the most important matter of all: whether the federal government can do anything it decides to.
So first, for courage, a few slugs of Old Be Joyful; then we'll contemplate what goes on in the ObamaCare lawsuit that a federal judge in Florida said last week should proceed to trial, the perfervid arguments of the Justice Department notwithstanding.
Twenty states are challenging the supposed mandate to buy health insurance. The Justice Department says the requirement is a tax only. Congress has the power to tax, right? What's the problem?
The problem for the 20 states is attempted federal overreach into the lives of those individual Americans the government wants to "tax" in the interest of universalizing health care. A requirement to buy something, the states contend, isn't a "tax" within the meaning of the Constitution. The judge finds that argument worthy of consideration. On with the trial, he commands. Let the government present its evidence, the states theirs, and we'll see about all this.
The question here is in one crucial sense about health care, but it is in fact about much more than that. It concerns the federal government's claimed entitlement to instruct us concerning the decisions we make about caring for our health. It is possible, no doubt, to claim that ObamaCare, as enacted last spring by Congress, is so wonderful a thing no one should miss out on it. It is another matter entirely to suggest that the end here justifies the means. That's to say because ObamaCare is wonderful/marvelous/you name it, you and you and you should be made to buy into it.
That kind of assertion gives off the odor of tyranny -- a prospect worse, I hope we can agree, than gaps in health insurance coverage. The U.S. Constitution was designed to prevent, among things, tyranny. It specifies with some care and also, yes, with some reasonable ambiguity just what government can do and what it can't do. Among other things government can do, as we all know, is tax. Thus the government (according to the Justice Department) says it can require you to buy insurance and -- if you don't do so -- "tax" you for your stupidity.
Really? How could we have supposed all this time that a tax was a levy on income or consumption -- on a positive activity, that's to say? We suddenly find it's about non-activity: of which there's a lot in this old world. So Congress and the president tax you for non-purchase of insurance. Why not for non-membership in a gym intended to slim down our population of 300-pound pre-diabetics? Once you start grooving on "good ideas," you can command a whole lot of stuff to get done, or not get done, never mind the spirit of limited government that once underlay the Constitution.
No genius can figure out what government could do "for us" if it really tried. Easier to figure is what it might instead do "to us" once it really decided to save us: narrowing choices, curtailing the varied freedoms of action Americans still enjoy. That's why there's this lawsuit in Florida (as in other venues), where the wait-a-cotton-picking-minute spirit has Our Protectors at least momentarily on the defensive.
The upcoming election is about jobs, Lord, yes, and about a lot of other things as well. It's mainly, though -- due to the Obama administration's salivating love of Big Government -- about freedom. The voters may have a lesson in mind for our federal keepers and overseers. That lesson: climb down a ways off our backs. No one pretends we're about to demolish every federal program instituted since Andy Jackson. We might do something actually more fitting: Serve notice on the powerful that power, in a democracy, has limits, and that those who ignore those limits ... well, let's just say we may find out soon.
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8)Three blondes were all applying for the last available position on the Texas Highway Patrol.
The detective conducting the interview looked at the three of them and said,
"So y'all want to be cops, huh?"
The blondes all nodded.
The detective got up, opened a file drawer, and pulled out a folder.
Sitting back down, he opened it, pulled out a picture, and said,
"To be a detective, you have to be able to detect.
You must be able to notice things such as distinguishing features and oddities like scars and so forth."
So saying, he stuck the photo in the face of the first blonde and withdrew it after about two seconds.
"Now,"
He said,
"did you notice any distinguishing features about this man?"
The blonde immediately said,
"Yes, I did. He has only one eye!"
The detective shook his head and said,
"Of course he has only one eye in this picture!
It's a profile of his face!
You're dismissed!"
The first blonde hung her head and walked out of the office.
The detective then turned to the second blonde, stuck the photo in her face for two seconds, pulled it back, and said,
"What about you? Notice anything unusual or Outstanding about this man?"
"Yes! He only has one ear!"
The detective put his head in his hands and exclaimed,
"Didn't you hear what I just told the other lady?
This is a profile of the man's face! Of course you can only see one ear!
You're excused too!"
The second blonde sheepishly walked out of the office.
The detective turned his attention to the third and last blonde and said,
"This is probably a waste of time, but...."
He flashed the photo in her face for a couple of seconds and withdrew it, saying,
"All right, did you notice anything distinguishing or Unusual about this man?"
The blonde said,
"I sure did. This man wears contact lenses.
" The detective frowned, took another look at the picture, and began looking at some of the papers in the folder.
He looked up at the blonde with a puzzled expression and said,
"You're absolutely right!
His bio says he wears contacts!
How in the world could you tell that by looking at his picture?"
The blonde rolled her eyes and said,
"Well, Hellooooooooooooo! With only
One eye and one ear, he certainly can't wear glasses."
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