Category: Finance

Thanks Elizabeth

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The Federal Reserve and the FDIC just rejected the living wills required under Dodd Frank of the 5 largest banks in America:

“The goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal,” Thomas M. Hoenig, the vice chairman of the F.D.I.C., said in a statement.

 The regulators were responding to the so-called living wills that banks must submit to regulators on a regular basis to explain how the banks plan to enter bankruptcy in an orderly fashion in case of a crisis. The living wills are a requirement of the 2010 Dodd-Frank financial overhaul, intended to help make large financial institutions less of a threat to the wider economy.

 The Fed and the F.D.I.C., which jointly oversee the largest banks, agreed that the plans put forward by five of the big banks, JPMorgan, Bank of America, Wells Fargo, State Street and Bank of New York Mellon, were “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code.”

 Only one of the biggest banks, Citigroup, was given a passing grade by both agencies, though it too was told that its plans needed improvements. Goldman Sachs and Morgan Stanley received passing grades from only one of the two agencies.

Of course the Vampire Squid got a passing grade.

BTW, the only reason that this happened is because Elizabeth Warren nailed Fed chair Janet Yellen to the wall over her inaction on this Dodd Frank requirement:

………

 A serious dust-up occurred on July 15, 2014 during a Senate Banking hearing between Senator Elizabeth Warren and Fed Chair Janet Yellen on the matter of these living wills. Warren told Yellen that at the time of its collapse in 2008, Lehman Brothers had $639 billion in assets and 209 subsidiaries and it took three years to unwind the bank in bankruptcy. Warren singled out JPMorgan Chase for comparison, saying that it has $2.5 trillion in assets and 3,391 subsidiaries.

 Dodd-Frank specifically states that these wind-down plans must be “credible” each year or the Fed and FDIC must reject them and force the banks to take remedial steps such as simplifying their structure or selling off assets.

 Yellen was clearly not prepared for this line of questioning and stumbled badly in her answers to Warren. She said the Fed was pursuing a “process,” that the plans are “complex” with some banks submitting plans that are “tens of thousands of pages.” Yellen then summed up with this:

“I think what was intended is this interpretation you’re talking about, whether they’re credible, in other words, do they facilitate an orderly resolution, and I think we need to give these firms feedback.”


This hearing came more than six years after the greatest Wall Street banking collapse since the Great Depression and Warren was visibly agitated by these stonewalling answers from Yellen. Warren responded:

“I have to say, Chair Yellen, I think the language in the statute is pretty clear, that you are required, the Fed is required, to call it every year on whether these institutions have a credible plan — and I remind you, there are very effective tools that you have available to you that you can use if those plans are not credible, including forcing these financial institutions to simplify their structure or forcing them to liquidate some of their assets — in other words, break them up.

 “And I just want to say one more thing about this process, the plans are designed not just to be reviewed by the Fed and the FDIC, but also to bring some kind of confidence to the marketplace and to the American taxpayer that in fact there really is a plan for doing something if one of these banks starts to implode.”


The public has never been allowed to see those 10,000 pages of what it would take to unwind one of the banking behemoths but is instead provided with a mere glimpse of each bank’s plan. Warren’s reference to bringing “confidence to the marketplace” was called into further question yesterday when the Government Accountability Office (GAO) released its own study on the living wills, which they refer to as “Resolution Plans.”

 The GAO noted that the FDIC’s Board of Directors determined that all of the 2013 plans submitted by systemically important banks with more than $250 billion in nonbank assets were “not credible” or “would not facilitate an orderly resolution under the Code.” The Federal Reserve, however, made no such determination and simply said the banks would have to improve their plans going forward.

 The GAO also gave low marks to the regulators in terms of public transparency on the living will process, writing in the report that “FDIC and the Federal Reserve are considering publicly providing more information about their resolution plan reviews. Federal Reserve officials told us that while they were continuously evaluating the release of more plan information into the public domain, they did not have a time frame for reaching a decision on this issue. FDIC officials also told us that the regulator was considering disclosing more information about its review process but had not yet reached the point of sharing such information with the public.”

Warren is one of the good ones.

I Will Dine on His Tears, and They Will Be Sweet

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It looks like I Heart Radio, the company known as Clear Channel before Bain Capital looted it, is on the edge of collapse, and it looks like Rush Limbaugh will be facing a far less generous contract when it is renewed:

One of the favorite pastimes for sports fans is commiserating over the worst contract their home team ever made; guffawing over management’s decision to waste tens of millions of dollars for a player who never justified the huge payday. (See: Gilbert Arenas.)

For talk radio, there’s probably only one contract that enters that realm of notoriety: Rush Limbaugh’s eight-year, $400-million deal, signed in the summer of 2008 with his longtime radio employer Premiere Radio Networks.

Owned by Clear Channel Communications, which has since changed its name to iHeartRadio, Premiere’s Limbaugh deal instantly dwarfed any payout in AM/FM history. (Only Howard Stern’s contract with Sirius was larger.) The contract, which included a staggering $100 million signing bonus, never panned out as the wheels began to come off Limbaugh’s radio empire.
This year, his contract is up and the timing couldn’t be worse. The talker is facing ratings hurdles, aging demographics, and an advertising community that increasingly views him as toxic, thanks in part to his days-long sexist meltdown over Sandra Fluke in 2012. (He’s also stumbling through the GOP primary season.)

Concurrently, iHeartRadio’s parent company, iHeartMedia, is heading to court, teetering on bankruptcy. The once-dominant radio behemoth is saddled with $20 billion in debt, thanks to a misguided leveraged takeover engineered by Bain Capital in 2008, the same year the radio giant inked its disastrous Limbaugh deal.

I am so amused that in its own way, Mitt Rmoney’s bucket shop is involved in Limbaugh’s downfall.

I am VERY amused.

It’s Bank Failure Friday!!!

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No bank failures, but I missed one last week:

  1. ​​Veterans Health Administration Credit Union​, Detroit​, MI

And on Wednesday, the NCUA closed 6 credit unions in Pennsylvania:

  1. Triangle Interests % Service Center Federal Credit Union, Bensalem, PA
  2. Servco Federal Credit Union, Bensalem, PA
  3. O P S EMP Federal Credit Union, Bensalem, PA
  4. Electrical Inspectors Federal Credit Union, Bensalem, PA
  5. Chester Upland School Employees Federal Credit Union, Chester, PA
  6. Cardozo Lodge Federal Credit Union, Bensalem, PA

I gotta figure that these are all somehow tied together, and a quick Google reveals that they all had the same CEO.

Rather unsurprisingly, the FBI is looking into the circumstances of the failures.

    Here is the Full NCUA list.

    Is there Nothing Which Financial “Innovations” Cannot Crapify?

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    It appears that the latest innovation proposed is, “Securitizing Loans for Large Health Care Expenses.”

    I did not think that we could make healthcare delivery worse in the United States.

    To quote Rick Blaine, “I was misinformed.”

    I saw this headline in Kaiser Health News — “Mortgages For Expensive Health Care? Some Experts Think It Can Work” — so I said, “Nah,” and ignored it for a couple days, but then I clicked through to the academic paper Kaiser linked to — if “academic” has any meaning, the times being what they are — and I couldn’t find any tells that it was a parody or some kind of sick joke, so yeah. It’s for real! The paper is called “Buying cures versus renting health: Financing health care with consumer loans,” by Vahid Montazerhodjat, David M. Weinstock, and Andrew W. Lo, and it was published in Science Translational Medicine (STM), February 24, 2016. First, I’ll present the author’s scheme, and after briefly showing how it conforms to the simple rules of neoliberalism, I’ll look at potential scope creep if the proposal is implemented, debt-cropping, and the possibility of predatory servicing. I’ll conclude with a 30,000-foot view of the scheme’s implications. (I’m afraid I’m thinking of this post in terms of somebody who’s take out one of these loans — a consumer patient — rather from the finance perspective that Yves would offer. That said, readers with more nuts-and-bolts knowledge of securization than I have — like most of you — please feel free to chime in; that’s why I’m describing the scheme first.)

    The article goes further into the details, and each detail is more and more horrifying.

    Really horrifying:  Repossessing your kidney horrifying.

    It is a descent into what Matt Stoller calls, “Debtcropping,” which is, as he notes, “An instrument of political and economic control.”

    My Heart is Actually Bleeding Borscht Here

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    After about 40 years, people are starting that hedge funds both under-perform the market and charge outrageous fees, and so the most overpaid professionals on Wall Street can’t pay as much their 35,000 square foot Summer cottages any more:

    This had to happen. Now we’re getting reports that in the Hamptons, on Long Island’s east end, where Wall Street’s richest hobnob over the summer, home prices at the very top, after a phenomenal boom, are getting crushed.

    What’s getting blamed? The crummy performance of the markets last year.

    The average price in 2015 of the ten most expensive homes sold in the area has crashed 20% from a year earlier – to a measly $35.5 million.

    After soaring a mind-bending 180% in five years, from $15.9 million in 2009, the average price of the top ten homes had reached $44.6 million in 2014, according to a report by Town & Country Real Estate in East Hampton, cited by Reuters.

    The year 2009 was when the Fed’s “wealth effect” strategy was kicking in. It was precisely what Bernanke wanted to accomplish. He spelled it out in an editorial. The Fed’s “strong and creative measures” would inflate asset prices, which would lead those benefiting the most from it, including those on Wall Street that extract fees and get paid big bonuses, to feel wealthier and spend a little more, which would crank up the economy. And this is what happened in the Hamptons.

     I am so not crushed by this news.

    Speaking of Unprosecuted Banksters

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    It turns out that former Secretary of the Treasury, Robert Rubin, was referred to the Department of Justice for criminal investigation by the Financial Crisis Inquiry Commission: (FCIC)

    In late 2010, in the waning months of the Financial Crisis Inquiry Commission, the panel responsible for determining who and what caused the financial meltdown that lead to the worst recession in decades voted to refer Robert Rubin to the Department of Justice for investigation. The panel stated it believed Rubin, a former U.S. Treasury Secretary who has held top roles at Goldman Sachs gs and later Citigroup c , “may have violated the laws of the United States in relation to the financial crisis.” Rubin, the commission alleged, along with some other members of Citi’s top management, may have been “culpable” for misleading Citi’s investors and the market by hiding the extent of the bank’s subprime exposure, stating at one point that it was 76% lower than what it actually was.

    No government action was ever brought against Rubin. And there is no evidence that Department of Justice acted on the crisis commission’s recommendations. A source close to Rubin says the former Wall Street executive was never contacted by the Justice Department in relation to the commission’s allegations. Nonetheless, the fact that Rubin was among a relatively small group of top bankers who the crisis commission referred to the Justice Department for potential wrong-doing, and the fact that is appears nothing happened, sheds new light on the financial crisis, and the government’s effort to pursue those who may have broken the law.

    Seven years after the bankruptcy of Lehman Brothers, the fact that no major Wall Street figure was ever prosecuted for crimes related to the financial crisis remains an sticking point for many. It is regularly brought up by presidential candidate Senator Bernie Sanders. When the Financial Crisis Inquiry Commission released its 662-page report nearly five years ago, members of the commission said they had formerly referred evidence of possible misconduct of a number of individuals to the Department of Justice. But it declined to say who. Brooksley Born, a member of the commission and a former regulator, said at the time, “Our mandate was to refer to the attorney general any individual that our investigation found may have violated US laws. We did make several such referrals, but we are not going to talk about any of those.”

    ………

    In the run up to the financial crisis, Citigroup aggressively expanded into the mortgage market and subprime lending. Despite warnings that a bubble was forming in housing and that lending standards had gotten to loose, CEO Prince in mid-2007 famously told the Financial Times that as long as the music is still going he would keep dancing. Rubin at the time was the chairman of the executive committee of Citi’s board. Rubin reportedly blessed the increased risk taking at Citi in the mid-2000s.

    By late summer 2007, Citi’s direct exposure to subprime bonds was $55 billion, according to the crisis commission. The staff notes of the commission say that “based on FCIC interviews and documents obtained during our investigation, it is clear that CEO Chuck Prince and Robert Rubin . . . knew this information.” It says the two top officials were made aware of the extent of Citi’s exposure “no later than September 9, 2007.”

    Yet, according to the commission, on October 15, Citi executives told analysts on a call that the bank’s total exposure to subprime was just $13 billion, or 76% less than it actually was. Two weeks later as pressure began to build on Citi, and values in the mortgage market fell, Citi told the market that its actual subprime exposure was $55 billion, and that its losses from mortgage-related assets could already be as big as $11 billion. Prince also announced he was resigning.

    The staff notes say that “the representations made in the October 15, 2007 analysts call appear to have violated SEC Rule 10b-5,” and that Prince and Rubin, along with “members of the board” may have been “culpable” for “failing to disclose” the bank’s true subprime exposure.

    Rubin should have gone to jail, and he should have been banned from the finance industry for life.

    Rubin isn’t alone in this.

    This wasn’t just some sort of black swan.  It was aggressive, deliberate, and systemic fraud, but there were no prosecutions.

    To mind, this comes down to crass tribalism, where the regulators, and prosecutors, were, or were managed by, people who went to the same schools, and started their careers at the same firms, and so there are no prosecutions.

    It’s why we are seeing the rise of populism on the right and left right now.

    The corrupt elites maintained their grip on power, and so we are likely to see another financial crack-up.

    More Clinton Speeches to Banksters

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    Hillary Clinton’s paid speeches to Goldman Sachs Group have drawn criticism on the campaign trail, but they’re not the only talks she’s given to big banks.

    Bank of America has also paid the Democratic presidential candidate and her husband more than $1 million combined to deliver talks to the Charlotte-based bank and its Merrill Lynch unit.

    The Clintons collected the combined figure from Bank of America over four appearances from 2011 to 2014, according to financial disclosures posted by the nonpartisan Center for Responsive Politics. Former President Bill Clinton was the speaker on three of those occasions, once taking in $500,000 for a 2014 gathering in London.

    The large fees raise concerns about potential conflicts of interest and are likely to remain a hot topic on the campaign trail, said Eric Heberlig, a political science professor at UNC Charlotte.

    “Taking fees like this, particularly from banks that have been bailed out by the taxpayers, it’s certainly hard to argue to the public that you’re not acting in a self-serving way,” Heberlig said.

    My point is not that Hillary Clinton is bought and paid for by the banks.

    I do not think that she is.

    Instead, I am suggesting that she, and Bill, are peas in a pod with the corrupt financial class (see Rubin, Robert), and the speaking fees are a reward for being a member of the tribe.

    This is not someone who is going to go after Wall Street any harder than Barack Obama, and as mind boggling as it sounds, the George W. Bush administration prosecuted more financial criminals than Obama has.

    It’s Bank Failure Friday!!!

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    We have the first commercial bank failure of the year:

    1. North Milwaukee State Bank, Milwaukee, WI

    Full FDIC list

    The failures of credit unions continue apace (actually from last week, sorry):

    1. Education Associations Federal Credit Union, Washington, DC

    Here is the Full NCUA list.

    No graph pr0n, it would be kind of silly with only one commercial bank failure.

    Not clear why credit union failures are outpacing commercial bank failures.

    Didn’t Expect This to Appear in Fortune Magazine

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    This essay eviscerates the claims by the finance industry that it needs to cheat its customers to function:

    There’s a horrendous lie being told by the brokerage industry and its army of lobbying groups. It goes something like this:

    “Middle-class Americans are not worth serving if we can’t charge them egregious fees and sell them products that they do not need.”

    They’re not using that exact language, but this is precisely what they’re saying. This message disgusts me personally and I’m in a unique position to comment on it professionally. As I documented in my book Backstage Wall Street, the business model of selling investment products to investors is hopelessly rife with conflicts.

    ………

    In other industries, higher-priced products are typically superior in both quality and efficacy—think luxury watches and cars, or the difference between a roadside motel and the Ritz-Carlton. With financial services products, however, it works in exactly the opposite way. Virtually every single piece of academic research ever produced on the topic says that the less you pay for an investment product, and the simpler it is, the better off you’ll be over the long-term. 

    Wall Street knows this for a fact. It’s undeniable that high fees and excessive trading costs damage the long-term potential of a retirement account and work against investors. Unfortunately, the brokerage business is predicated on selling the higher cost solutions because that’s where the profit margins are. The incentives paid by fund companies to brokerage firm sales forces across the country are a cancer that must be rooted out. This built-in conflict between advisor and client is partially responsible for the nation’s looming retirement crisis. It also plays a role in the finance industry’s almost universally negative perception among Americans.

    ………

    The logic here is astounding. The argument is literally that some people need to be taken advantage of in order for them to be worthwhile clients. I believe Ryan is on the wrong side of this issue and on the wrong side of history. But more than that, his argument—that somehow conflicted advice is better than none at all—is wrong for at least two reasons.

    It’s a righteous rant.  I suggest that you read the rest.

    Debbie Wasserman-Schultz Really Needs to be Fired

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    Even if you ignore her tenure at the DNC, which is marked by incompetence, careerism, and biased, her history in supporting the most egregious examples of abusive consumer is a reason to force her retirement.

    In November, she voted to allow car dealers to discriminate against minorities:

    Before Thanksgiving, Florida Congresswoman Debbie Wasserman Schultz helped push through congress a bill that would allow automobile dealers and auto finance companies to discriminate against minority and unsophisticated car buyers by charging them more in fees and interest rates.

     The Reforming CFPB Indirect Auto Financing Guidance Act that Wasserman Schultz voted for would basically let lenders and dealers ignore Consumer Financial Protection Bureau rules that bar dealers and auto finance companies from charging unsophisticated borrowers who are mostly minorities hundreds of dollars more in excessive interest and fees on car loans regardless if the car buyer has excellent credit.

     The National Automobile Dealers Association or NADA is pushing this bill because they realized that after dusting off an old marketing book from Wells Fargo, that their members could easily widen their profit margins by adding stealth fees and charging higher interest rates to unsophisticated minority consumers who are just happy they can own a new car.

     The bill is, as Brian O’Connor at the Detroit News points out, “a repulsive layering of racism wrapped in consumer rip-offs wrapped in a layer of lies and stuffed with lots and lots of campaign cash.”

     Like an old sub-prime mortgage, the auto finance company sets a minimum interest rate on car loan made through a dealer, and the dealer can then hike the interest rate to 2.5 percentage points or more with the lender kicking in back end points equaling 1% to 3% of the sale price of the car to the dealer and the salesman. This similar to what used to be called Yield Spread Premiums in lending. In other words, NADA wants and what Wasserman Schultz endorses is really ghetto loans for cars.

    And now she’s tring to hamgstring the CFPB’s attempts to regulate the worst practices of the payday lending industry:

    One of the benefits of America’s unusually stingy welfare system is that it allows our domestic payday-loan industry to thrive. Since the safety net is too threadbare to catch the working poor when they fall on troubled times, payday lenders are able to charge them exorbitant interest on subsistence loans. Nationally, the average interest rate on a payday loan is a stellar 390 percent.

    But Elizabeth Warren’s Consumer Financial Protection Bureau is dead set on sapping all of the dynamism out of the payday-loan industry. The CFPB is about to issue new regulations on payday lenders that are aimed at preventing borrowers from falling into a vicious (or viciously profitable) cycle where they take out high-interest loans just to make the interest payments on their previous high-interest loans. Fortunately, DNC chair Debbie Wasserman Schultz is co-sponsoring a bill that would gut the CFPB’s regulations and allow payday lenders to keep profiting off the desperation of the impoverished.

    According to a memo obtained by the Huffington Post, Wasserman Schultz is trying to rally congressional Democrats around a bill that would delay the CFPB’s new rules for two years and nullify those rules in any state that adopts its own payday-lending law, like the DNC chair’s own home state of Florida.

    The key thing about such state laws is that they’re likely to be much kinder to the profits of payday lenders than what the CFPB is crafting. In Florida, the average interest rate on a payday loan is still 304 percent, according to Pew Charitable Trusts. What’s more, 76 percent of all payday loans in the state are turned loans — loans taken out to pay back another loan — according to Americans for Financial Reform. Thus, Florida’s law has left the highly profitable vicious cycle of payday borrowing intact.

    ………

    With such brave legislators leading the Democratic Party, it’s difficult to understand how Bernie Sanders can get so mad at the “Establishment.”

    H/t Naked Capitalism, where they also note that DWS recently signed onto a letter to the CFPB asking for an exemption for credit unions and banks smaller than $10 billion from consumer protecting regulations.

    Seriously.  What is wrong with the Democratic Party?

    I kind of understand how one might be tempted to make use of an evil person’s evil, but Debbie Wasserman-Schultz is to incompetent that her evil servs no one.

    If she were were in a James Thurber novel, the Todal would have Gleeped her by now.*

    Support Tim Canova, who primarying her.

    *The 13 Clocks. Just go read it.

    Not a Surprise

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    Japan has started engaging in a policy of negative interest rates, where you pay the bank for the privilege of storing your money.

    It’s supposed to encourage people to spend money, because it creates a kind of a doppelganger of inflation to encourage consumption.

    It appears that the only spending that this is encouraging is for safes to store cash in:

    The Japanese are spending—but not in a way that is likely to strengthen the country’s economy.

    Following the Bank of Japan’s decision to lower interest rates below zero in January, many consumers have reportedly rushed to hardwares store in search of one thing: safes.

    Negative interest rates mean customers effectively pay a fee for parking cash in banks, so Japanese citizens are beginning to hoard yen, according to the Wall Street Journal, and they need somewhere to put it.

    Sales of safes have doubled from the same period a year earlier at chain hardware store, Shimachu, according to the Journal. The chain has already sold out of one model worth $700. Others savers are considering more unconventional storage spaces.

    “In response to negative interest rates, there are elderly people who’re thinking of keeping their money under a mattress,” Mariko Shimokawa, a Shimachu saleswoman told the Journal.

    But hoarding cash is exactly what the Japanese central bank wants to avoid.

    Bank of Japan Gov. Haruhiko Kuroda lowered rates to -0.1% for certain deposits on Jan. 29. The idea was to prop up the economy and increase inflation by encouraging consumers to spend and borrow while discouraging banks from keeping large reserves.

    Officials have already noticed the increase in safe sales. The issue of cash hoarding was brought up in a parliamentary hearing Monday, with opposition lawmaker Katsumasa Suzuki saying that the increase in safe sales suggested a “vague sense of unease,” the Journal reported.

    Central banks have been using quantitative easing, essentially printing money, and it hasn’t worked, because the newly printed money has been handed to the banks, who either use it to shore up dodgy loans, or park it in the deposit accounts of those central banks so that they can make money on the spread between their interest payments and their interest income.

    Here’s an idea:  Print the money and give it to ordinary people, or drop it from a helicopter, as Ben Bernanke has suggested.

    Once people pay off their loans, they will spend the money, and the banks will have to find new business to replace their usurious consumer loans.

    It’s Bank Failure Friday!!! (On Saturday)

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    Still no commercial bank failures this year, but we have the 5th credit union failure of the year, ​Mildred Mitchell-Bateman Hospital Federal Credit Union, ​of Huntington, ​WI. (Full list)

    I do not know why credit unions are failing so much more often than commercial banks, the last bank failure was about 5 months ago.

    If my reader(s) have any insights, I would appreciate hearing from them.

    What an Unbelievably Transparent Cop-Out

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    This is why, if Hillary Clinton wins the nomination, she is likely to get beaten by Donald Trump:

    Democratic presidential candidate Hillary Clinton again refused to release transcripts of her paid speeches to big banks, telling a CNN town hall audience Tuesday night that she will only release her transcripts if her Republican opponents release theirs.

     “Earlier tonight, I asked Senator Sanders: Will you give your transcripts of speeches?” said host Chris Cuomo. “He said he doesn’t have the bank speeches. If he can find any of the speeches that he did give for money, he will gladly give the transcripts up. So: Will you agree to release these transcripts? They have become an issue.”

     Clinton replied: “Sure, if everybody does it, and that includes the Republicans.”

     She continued: “Because we know they have given a lot of speeches.” She then went on to offer a defense of her Wall Street regulatory plan.

     And she asked: “Why is there one standard for me, and not for everybody else?”

    Because you are claiming that you are not in Wall Street’s pocket, and the Republicans are in Wall Street’s pockets as an article of faith?

    Because you have made a specific claim that you told them to “Cut it out”?

    Because you got over a half a million dollars for your speeches?

    Because that answer makes you look like a whiny self-entitled jerk.

    Because you are f%$#ing running for f%$#ing President of the f%$#ing United f%$#ing States?

    Even if you believe Hillary Clinton’s argument that she is likely to be more successful at getting things through Congress, which means that you have to ignore the fact that Bernie did more in the House and Senate than she did, this means that she is pretty damn near hopeless as a candidate.

    She is the Martha Coakley of Presidential campaigns.

    Letting her get the nomination likely to make Donald Trump President.

    The Stupidest Argument This Side of a Republican Debate

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    Jim Clyburn (D-SC) has just come up with the stupidest argument against Bernie Sanders plan for free tuition for college students that I have ever heard:

    Days after endorsing Hillary Clinton, Rep. Jim Clyburn has a specific and sharp critique of her opponent: Bernie Sanders’ education plan would threaten the existence of smaller, private historically black colleges, Clyburn told BuzzFeed News in an interview.

     The third-ranking Democrat in the House is one of the fiercest and most prominent champions for historically black colleges and universities (HBCUs) in politics.

     ………

     The next Democratic primary contest is here, where Clyburn is immensely popular. He said he will speak on Clinton’s behalf at Union Baptist Church in Charleston on Sunday — and also to Clinton herself to map out a game plan about whether the two will campaign together in South Carolina before the Feb. 27 primary.

     But on Saturday he told BuzzFeed News in a telephone interview that while he acknowledged Sanders’ campaign is gaining traction with college-aged students in South Carolina, the education plan they’re attracted to doesn’t protect institutions like nearby Claflin University, which is private.

     “You’ve got to think about the consequences of things,” Clyburn said. “[If] you start handing out two years of free college at public institutions are you ready for all the black, private HBCUs to close down? That’s what’s going to happen,” Clyburn said.

     “Tougaloo College in Misssissippi will be closed if you can go to Jackson State for free,” he said.

    Let me get this straight: You want college students, specifically black college students, to start their lives Enslaved by crushing debt because it might inconvenience some institutions that he has a sentimental attachment to.

    This is without a doubt the stupidest thing that I’ve heard all week, and given that it’s an elections year, that is a mind boggling concept.

    Given that Donald Trump is leading the Republican field, it being the stupidest thing that I have heard all week is a complete mind f%$#.

    That Company Foreclosing You May Not Hold the Mortgage, Part MCMLXXVI

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    The California Supreme court just ruled for a plaintiff who claimed that the company that foreclosed on her never held the mortgage:

    The California Supreme Court on Thursday ruled unanimously in favor of a fraudulently foreclosed-upon homeowner in a case that should serve as a wake-up call to state and federal prosecutors that mortgage companies continue to use false documents to evict homeowners on a daily basis.

    “A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands,” the justices wrote.

    ………

    In this case, Tsvetana Yvanova purchased a $483,000 mortgage in 2006 from New Century, a company that went bankrupt in 2007. Four years later, in December 2011, New Century somehow transferred the mortgage to a trust, from which thousands of pooled mortgages had created mortgage-backed securities. But by law, the mortgages placed in that pool had to be put in it by January 27, 2007.

    The eventual trustee, Western Progressive, foreclosed on Yvanova and sold her house at auction in September 2012. Yvanova later argued that her foreclosure was illegal because a bankrupt company (New Century) could not have transferred the deed of trust, and because the trust had closed to new loans four years before the transfer was executed. Therefore, the assignment document was false, and the foreclosure void.

    A state appeals court ruled that Yvanova lacked the ability to challenge the defective assignment, because she was not a direct party to the transfer of ownership. But the state Supreme Court rejected that analysis.

    “We conclude, to the contrary,” the ruling states, that “an allegation that the assignment was void… will support an action for wrongful foreclosure.”

    The 33-page ruling is narrow – the court did not rule on the validity of the assignment itself in the case, nor did it allow state homeowners to pre-emptively challenge threatened foreclosures on these issues. But it did establish that borrowers have a chance to receive compensation for a wrongful foreclosure if they find it to have been executed with false documents.

    ………

    California Attorney General Kamala Harris filed an amicus brief last April supporting Yvanova’s right to challenge her foreclosure. But Harris, like every other state and federal law enforcement official in the country, has not stepped in to prevent the continuing flood of false documents submitted to courts.

    The 2012 National Mortgage Settlement with the five largest mortgage companies (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Bank) included language committing the firms to end the production of false documents. But they continue to be used on a daily basis to evict homeowners. The foreclosure in the Yvanova case occurred in September 2012, seven months after the completion of the National Mortgage Settlement.

    Despite promises from the banks and the mortgage servicers, mortgages and their progress through the financial system continues to be resemble nothing more than Captain Benjamin Willard meandering up stream in his pursuit of Colonel Kurtz in the movie Apocalypse Now.

    Our own heart of darkness.

    I Would Not Expect This from Him

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    Neel “Cash and Carry” Kashkari, current president of the Minneapolis Bank of the Federal Reserve and former minion of Goldman “Vampire Squid” Sach, has called for a breakup of the big banks and utility style management of essential financial institutions:

    What does one make of it when someone whose career has been based on having powerful friends and contacts at the top levels of the financial services industry appears to be acting as a traitor to his class? In this case, the apparent turncoat is one Neel Kashkari, ex Goldman, ex Treasury, ex Pimco employee, now the new President of the Minneapolis Fed, who in his first speech in his new job, said all sorts of unpleasant truths: the financial crisis imposed huge costs on society as a whole, Dodd Frank didn’t go far enough, the authorities won’t be willing to risk using untested new powers in a financial meltdown and will bail out banks again. He also argued that the financial system was now stable enough to make (by implication overdue) transformative changes to end the “too big to fail” problem, such as breaking up banks and regulating them like utilities. Kashkari plans to come up with a comprehensive plan by year end and is seeking public input, including having expert discussions that will be webcast.

    ………

    This is the guts of Kashkari’s speech:

    Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all. The Federal Reserve Bank of Minneapolis is launching a major initiative to develop an actionable plan to end TBTF, and we will deliver our plan to the public by the end of the year. Ultimately Congress must decide whether such a transformational restructuring of our financial system is justified in order to mitigate the ongoing risks posed by large banks.

    ………

    I believe we must seriously consider bolder, transformational options. Some other Federal Reserve policymakers have noted the potential benefits to considering more transformational measures.6 I believe we must begin this work now and give serious consideration to a range of options, including the following:

    • Breaking up large banks into smaller, less connected, less important entities.

    • Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant).

    • Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.

    My guess is that this is an attempt to generate some perceived gravitas as a tactic to be used in bureaucratic, though much like Bernie Sanders, I find this a positive development. (Hillary Clinton is on record as not a big fan of breaking up the big banks)

    Mount St. Mary’s Update: This Is What Happens When You Trust a Finance Guy

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    William Agee, former CEO of Bendix is a man of many failures, but his destruction of Morrison Knudson is particularly instructive on the skill set of finance types:

    ………

     Mr. Agee further estranged insiders by quietly moving the CEO’s office to his Pebble Beach estate, and worse, scoffing at the company’s engineer-oriented culture. “You construction guys have been trying to run the company for 75 years,” Keith Price, who headed Morrison Knudsen’s MK Ferguson unit until he retired in April 1991, recalls Mr. Agee telling him. “Now I’m going to show you how the financial guys do it.”

     The November letter pointed out just how the financial guy did his numbers. Using numbers available from earnings reports and filings with the Securities and Exchange Commission, the letter writers pointed out that the percentage of the company’s pretax income from nonoperating sources such as asset sales and interest for the five years ending 1993 averaged 43%. In other words, Mr. Agee was sweetening profit reports by selling Morrison off piece by piece, and investing Morrison’s cash.

     Meanwhile, lease obligations had rocketed. During the five years ended 1993, they had jumped, to $266 million at the end of 1993 from $38 million at the end of 1988. (To shore up cash, Mr. Agee had begun selling assets, such as equipment, and leasing them back, Morrison executives say.)

    This is how finance works.  Find out a loophole, and use it to benefit personally, the future be damned.

    At Mount St. Mary’s, Simon Newman, the recently appointed college President, a hedge fund type, decided to try to expel 5% of the freshman class to create the illusion that the retention rates.

    When people complained, he fired them including a tenured professor with no due process.

    We are now seeing the push back, with the faculty calling for his resignation by a vote of 87 to 3, which he promptly ignored.

    Additionally, the alumni are freaking out, and the The Washington Post condemned the behavior of the President and the Board of Directors in no uncertain terms:

    Mr. Newman has only himself to blame for the mess at “the Mount,” as the university is known, despite his and the board of trustees’ despicable efforts to deflect fault to what they regard as a cabal of infidels among the faculty and alumni. It was Mr. Newman who, in a conversation with professors, said that struggling freshmen should be culled in order to improve Mount St. Mary’s student retention rate, which affects its standing in U.S. News and World Report’s rankings of colleges and universities.

    (Emphasis mine)

    When I first posted about this, I jokingly suggested that Newman’s plan was to burn down the university for the insurance money.

    More and more, it seems like my joke is reality.

    Not “Flawed”, “Fraud”

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    Morgan Stanley sold worthless bonds, and made a lot of money doing so, and when they got caught, they made what appears to be another “No Declaration of Wrongdoing (DOJ press release) settlement over this, the New York Times described it as Morgan Stanley to Pay $3.2 Billion Over Flawed Mortgage Bonds.

    As former S&L crisis investigator notes, these bonds were not flawed, they were fraud.

    Throw some banksters in gaol, please.

    Ég er Íslendingur

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    When I heard that Iceland has sentenced 26 bankers to a over 70 years in prison, (total, not each) my first thought was, “What’s the Icelandic for, “Ich bin ein Berliner?”

    In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse.

    In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

    ………

    Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

    And how many big banksters have been prosecuted in the United States?

    Crickets.