Category: regulation

A Solution to Our Energy Needs Forever

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Just attach generators to the Obama administration’s revolving door. Problem solved:

Coming off a grueling four-year stint at the Justice Department, Lanny A. Breuer is poised to make a soft landing in the private sector.

Covington & Burling, a prominent law firm, plans to announce on Thursday that Mr. Breuer will be its vice chairman. The firm created the role especially for Mr. Breuer, a Washington insider who most recently led the Justice Department’s investigation into the financial crisis.

For Mr. Breuer, who will now shift to defending large corporations, Covington is familiar turf. He previously spent nearly two decades there.

………

“We’re proud to welcome him home,” said Timothy C. Hester, Covington’s chairman.

FWIW, I think that “welcome” is spelled “Ka-Ching.”

He did his job, and now Mr. Breuer is going to be paid for, “not bringing cases against the banks and executives at the center of the crisis.”

At Least the IMF Isn’t Being Run By Crooks ……… Ummmm ……… Nevermind

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Her apartment in France just got raided as a part of a corruption investigation:

Police have searched the Paris home of the head of the International Monetary Fund as part of a fraud investigation centred on a supporter of former president Nicolas Sarkozy.

Christine Lagarde’s flat was raided along with that of her office manager and the home of businessman Bernard Tapie, a former politician, actor, singer and television celebrity.

The IMF chief has been the subject of preliminary investigations for “complicity in the embezzlement of public funds”, since 2011, when Tapie was awarded €284m of public money in compensation in a financial dispute while she was economy minister.

The search came hours after the French government was rocked by a separate scandal after the budget minister Jérôme Cahuzac was put under criminal investigation amid claims he hid money from the French taxman in a secret Swiss bank account. Lagarde and Cahuzac have vehemently denied any wrongdoing.

………

The accusations against Lagarde centre on her role in what is known as the Tapie Affair, a row that has rumbled for two decades, which ended when she made a controversial decision to refer the businessman’s dispute with the public bank Crédit Lyonnais to arbitration. Critics say she abused her authority. Investigators are looking into whether Tapie was given a secret deal in return for supporting Sarkozy during his successful 2007 presidential election campaign.

Of course, a police raid does not imply guilt, but it does show just how corrupt the political elites are as a class, and why the idea of apolitical “technocrats” is a fraud.

New Zealand Decides Looks at the Mess that is Cyprus, and Decides that it Has a Purty Mouth

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When Troika (really, the Germans) decided that the solution to Cyprus’ problem with its banks was to take money from insured accounts, they had no idea the firestorm that it would unleash.

It appears that the Troika (really, the Germans) have found the limits of the authority, and hence the misery, that they can inflict, and so the Cypriot Parliament voted down the proposal to take money from depositor accounts:

The Cypriot parliament has thrown out a controversial plan to skim €5.8bn (£5bn) from savers’ bank accounts, in a move that risks plunging the eurozone into a fresh crisis and heightens expectations that the cash-strapped country will seek a funding lifeline from Russia.

Cyprus has just 24 hours to find a solution to its funding gap before its banks are due to reopen following the dramatic no vote on Tuesday night, which failed to support a hastily renegotiated change to the original deal.

Late on Tuesday night the eurozone governments said that despite the vote Cyprus would still need to raise the €5.8 bn – a third of the €17bn bailout.

There are limits to bailing out hedge funds and large European banks, I guess.

Unfortunately, the good folks in New Zealand, which, as Yves Smith observes is already a haven for fraudulent corporations, had decided to abandon the whole concept of insuring bank deposit:

Picture this: you check your bank balance and see that your $1000 lies safely in your savings account.

That night you switch on the evening news and find to your horror that your bank has failed.

It turns out that the Government has had to move quickly, and has placed your bank in statutory management.

The next day you check your bank balance and you find that you have taken what is referred to in the banking industry as a “haircut”.

In other words, part of your savings remain, let’s say 80 per cent, but 20 per cent of it has been frozen – perhaps forever – while the statutory manager sorts out the mess.

You have just entered the world of Open Bank Resolution (OBR).

It may come as a surprise that the Reserve Bank already has the power to freeze bank deposits. The problem for the central bank has been a lack of technical infrastructure to implement the policy, should the need arise. The bank said last week that it was in discussion with the banks on “pre-positioning” their systems for OBR.

Un f%$#ing believable

A press release from the a New Zealand Green Party MP follows after the break:

National planning Cyprus-style solution for New Zealand

Tuesday, 19 Mar 2013 | Press Release
Contact: Russel Norman MP
Tags: Banking & Finance, Smart Economics, Economics

The National Government is pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.

“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

“OBR is not in line with Australia, which protects bank deposits up to $250,000.

“A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure.

“Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.

“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

“OBR is not in line with Australia, which protects bank deposits up to $250,000.

“A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure.

“Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”

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

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No banks, but I just noticed some credit union closings:

  1. Amez United Credit Union, Detroit, MI  <===My bad, this one was on Feb 19, I missed it.
  2. I.C.E. Federal Credit Union, Inglewood, CA
  3. Pepsi Cola Federal Credit Union, Buena Park, CA

Full NCUA list

I think that this is the first time since I started following this that credit union closings were the same as bank closings.

It probably means nothing.

That Sound You Hear is Millions of Eurozoners Moving Their Money to Swiss Bank Accounts

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Well, we have already seen how the economic crisis is treated around the world.

The tax payers take it on the chin, and the bond holders, who under laws have no claim to payment from bankrupt banks, get all (or nearly all of) their money.

Well, the EU powers that be have taken it a step further, by stealing money from the account holders to pay the bond holders:

European finance ministers have agreed an £8.7bn bailout for Cyprus which includes all Cypriot bank customers handing over up to 10% of their savings.

 Cyprus becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the eurozone for financial help amid the region’s debt crisis, but also faces a possible run on its banks as depositors try to avoid losing up to 10% of their savings.

 The savers, half of whom are thought to be Russian, will raise almost €6bn. It is the first time a bailout has included such a measure.

 “I wish I was not the minister to do this,” the Cypriot finance minister, Michael Sarris, said after 10 hours of late-night talks in which eurozone finance ministers agreed the package. “Much more money could have been lost in a bankruptcy of the banking system or indeed of the country.”

 Without a rescue, Cyprus would default and threaten to unravel investor confidence in the eurozone, a renewed confidence fostered by the European Central Bank’s promise last year to do whatever it takes to support the euro.

They do not understand what this means.

Something north of 50% of the deposits in Cypriot banks will be gone in the next few months, going to banks in Germany, Switzerland, or into mattresses.

This comment is delusional:

Such levies break the taboo of hitting bank depositors with losses, but [ Dutch finance minister Jeroen] Dijsselbloem said it would not have otherwise been possible to salvage its financial sector, which is around eight times the size of the economy.

They have just destroyed the financial sector in Cyprus, and perhaps through much of the Euro Zone.

Since the 1930s, in the developed world, at least, deposit insurance that makes the the depositors, at least the smaller ones, whole has been the core of our banking system.

This will likely precipitate a return to the days before the FDIC and its brethren around the world, when people stored kept their wealth in safes, or in commodities like gold, and the (temporarily)better off of members of the EU have just made it insane for anyone to ever put more than a few days walking around money in the banks of any Euro Zone nation. (Except perhaps for Germany and the Netherlands, for now.)

H/t Atrios.

Tentacles of the Vampire Squid

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It was nice when the last remaining New England Republican, Christopher Shays, was defeated.

Unfortunately, he was by former Goldman Sachs executive Jim Himes, who is doing his level best to gut the most effective provisions of Dodd Frank: (See also here)

Connecticut Congressman Jim Himes said a provision in the Wall Street reform legislation aimed at limiting taxpayer exposure to risky elements of financial products sold by banks goes too far and must be changed.

 Himes, a Greenwich resident and member of the U.S. House Financial Services Committee, joined with Republicans from North Carolina and Illinois and a fellow Democrat from New York to introduce the Swaps Regulatory Improvement Act this week that would amend the 2010 Dodd-Frank Act. A similar bill has been brought forward in the Senate. An attempt to amend the provision last year failed.

 ………

 As part of the Dodd-Frank Act, banks with access to the Federal Reserve’s overnight lending program and insured by the Federal Deposit Insurance Corp. would be required to set up independent subsidiaries in order to continue selling the financial instruments, called swaps.

 Underfunded swap positions among big banks and other financial institutions were a major reason for the 2008 financial disaster. Swap trades were not made on any exchanges and many of them were based on mortgages. Fearing bank failures of staggering proportions, Congress bailed out the largest institutions.

So, he’s trying to put tax payers on the hook for the gambles at the big casino yet again.

So, what does this mean? It means that the Democratic leadership will make him head of the DCCC finance committee for the 2014 elections:

Rep. Jim Himes of Connecticut will be the new national finance chairman for the Democratic Congressional Campaign Committee in the 2014 cycle, according to two well-placed Democratic sources on Capitol Hill.

 Officials announced the new position for Himes, a three-term Democrat from Connecticut, at a morning meeting for members.

Jeebus.  The Vampire Squid owns us all.

Simon Johnson was right when he said that the first step in recovery from the implosion of your finance system is to break grip on power of the elites who  f%$#ed us like a drunk sorority pledge.  (I’m paraphrasing)

Quote of the Day

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Attorney General Eric Holder hails from the corporate law firm Covington and Burling, which has heavy ties to Wall Street. The head of Holder’s criminal division, Lanny Breuer, hails from the same firm. White is a partner at Debevoise and Plimpton and has represented JPMorgan, Morgan Stanley and UBS. Her husband, John W. White, is a partner at a Wall Street law firm, Cravath, Swaine & Moore. It’s becoming crystal clear that the problem in America is not bad laws; the problem is finding someone other than deeply conflicted Wall Street lawyers to enforce them.

—Pam Martens

Speaking of Back Loaded Bribery………

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Did you hear the one about the SEC chair who got a choice gig on the GE Board of Directors for protecting the banksters?

Well, now you have:

Mary L. Schapiro is starting to get a taste of opportunities in the private sector after stepping down as chairwoman of the Securities and Exchange Commission in December.

General Electric announced on Monday that it had nominated Ms. Schapiro to serve as one of its directors. She will stand for election at the company’s annual meeting on April 24.

The G.E. board position will certainly pay her more than she made in government service. G.E. paid its directors about $250,000 in 2011; at the S.E.C., her annual salary was around $165,000. Presumably, there will be other board positions and job offers, although Ms. Schapiro has not hinted at her future career aspirations.

“Future career aspirations?”

I believe that her “future career aspirations” are spelled “Ka-Ching!“

If we could hook a generator to the revolving door that she is using, we could power the world.

Unfortunately, this is a feature, not a bug of live in the nation’s capitol.

God Bless the Swiss People*

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The Swiss voters just overwhelmingly approved a referendum for executive compensation reform, including binding shareholder votes on executive pay, bans on golden parachutes, and merger bonuses:

Swiss voters have approved measures to curb executives’ pay and outlawed golden parachutes that can result on directors pocketing multimillion-pound payoffs.

Exit polls suggested almost 68% of those who turned out for Sunday’s referendum, and all of Switzerland’s 26 cantons, were in favour of the measures, which also include giving shareholders a binding vote on executive pay, banning golden hellos and banning bonuses that encourage buying or selling firms. Boards of directors that fail to comply face jail terms.

………

Minder says the massive sums demonstrate that company boards have lost control of pay and prefer to fork out “astronomical” salaries rather than pay dividends to shareholders.

Minder told the Swiss daily Le Temps that the only solution was to give shareholders the power to set pay. If his law is passed all compensation packages to board members and company heads would need their approval.

According to the proposed law, executives of listed companies who failed to abide by the new rules could face up to three years in jail and fines amounting to up to six years’ salary.

Needless to say, the elites are freaking out over this:

The Swiss government and the upper house of parliament opposed the initiative, warning it could provoke an exodus of big companies.

Minder rejected this, saying that the level of disquiet over executive pay and bonuses in other countries meant his initiative could become Switzerland’s “best export product”.

“It’s a great advantage for investors,” he said, suggesting that instead of chasing companies away, such a law would entice investors to set up firms in Switzerland.

I’m inclined to agree that this will make businesses more competitive, not less competitive.

The amount of capital that has been wasted on paying people about whom little is exceptional but their own sense of self-worth is staggering.

If the Swiss vote triggers a race to the bottom in executive compensation, the rest of us will benefit.

*I cannot f%$#ing believe that I f%$#ing said that.

Obamacare Fail

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Employers are required to cover children, but not spouses, and they are looking at canceling coverage on spouses to save money:

By denying coverage to spouses, employers not only save the annual premiums, but also the new fees that went into effect as part of the Affordable Care Act. This year, companies have to pay $1 or $2 “per life” covered on their plans, a sum that jumps to $65 in 2014. And health law guidelines proposed recently mandate coverage of employees’ dependent children (up to age 26), but husbands and wives are optional. “The question about whether it’s obligatory to cover the family of the employee is being thought through more than ever before,” says Helen Darling, president of the National Business Group on Health.

While surcharges for spousal coverage are more common, last year, 6% of large employers excluded spouses, up from 5% in 2010, as did 4% of huge companies with at least 20,000 employees, twice as many as in 2010, according to human resources firm Mercer. These “spousal carve-outs,” or “working spouse provisions,” generally prohibit only people who could get coverage through their own job from enrolling in their spouse’s plan.

Such exclusions barely existed three years ago, but experts expect an increasing number of employers to adopt them: “That’s the next step,” Darling says. HMS, a company that audits plans for employers, estimates that nearly a third of companies might have such policies now. Holdouts say they feel under pressure to follow suit. “We’re the last domino,” says Duke Bennett, mayor of Terre Haute, Ind., which is instituting a spousal carve-out for the city’s health plan, effective July 2013, after nearly all major employers in the area dropped spouses.

But when employers drop spouses, they often lose more than just the one individual, when couples choose instead to seek coverage together under the other partner’s employer. Terre Haute, which pays $6 million annually to insure nearly 1,200 people including employees and their family members, received more than 20 new plan members when a local university, bank and county government stopped insuring spouses, according to Bennett. “We have a great plan, so they want to be on ours. All we’re trying to do is level the playing field here,” he says.

It’s a race to the bottom. Whee!

This was foreseeable.  

Adverse selection/the race to the bottom are the most salient feature of our current healthcare clusterf%$#.  To assume that insurance providers would not avail themselves of every opportunity to benefit from this is policy malpractice.

But Of Course

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The National Futures Association, the organization responsible for “self-regulating” the industry, wanted to ban Jon Corzine from the group for life.

They had a problem though, it turns out that the former head of the non-bankrupt MF Global was not a member:

The comedian vowed to avoid “any club that would accept me as one of its members.” Mr. Corzine, the former Democratic senator who ran MF Global until it collapsed in 2011, faced expulsion from a group to which he did not even belong.

The National Futures Association, the futures industry’s self-regulatory group, convened on Thursday to consider a lifetime ban of Mr. Corzine. Two of the group’s newest board members championed the plan as retribution for Mr. Corzine’s role in the demise of MF Global, which improperly took $1.6 billion from its customers before filing for bankruptcy.

If a majority of the board members voted yes, the group would have moved to hold a hearing over Mr. Corzine’s status before enacting the ban.

But when the board emerged from its meeting late on Thursday, the group issued a cryptic statement suggesting that Mr. Corzine could not be so easily ostracized because of, well, a small flaw in the plan: “Mr. Corzine is not currently a member of N.F.A.,” the board’s chairman declared in the statement.

………

His plan to expel Mr. Corzine grew from mounting frustration over the slowly developing federal investigation into MF Global. After more than a year of investigating Mr. Corzine, regulators and criminal investigators have not filed any charges, feeding concerns that Mr. Corzine will escape unscathed.

Of course, he’s going to emerge unscathed.

Silly rabbit, consequences are for little people.

Tell Me That This Is Not a Bribe

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Jack Lew, Obama’s nominee for Treasury Secretary, appears to have a deal with his current employer, Citigroup, that looks an awful lot like a bribe:

Jack Lew is the nominee for Treasury secretary whose own bonus as an investment banker was bailed out by the Treasury Department when it rescued Citigroup Inc. (C) in 2008. He owes much to America’s taxpayers. He should also be grateful to Citigroup for agreeing to let him rejoin the government without suffering much for it financially.

An intriguing revelation from Lew’s Senate confirmation hearing last week was that he stood to be paid handsomely by Citigroup if he left the company for a top U.S. government job, under his 2006 employment agreement with the bank. The wording of the pay provisions made it seem, at least to me, as if Citigroup might have agreed to pay Lew some sort of a bounty to seek out, and be appointed to, such a position.

………

Lew’s employment agreement with Citigroup said his “guaranteed incentive and retention award” wouldn’t be paid if he quit his job, with limited exceptions. One was if he left Citigroup “as a result of your acceptance of a full-time high level position with the United States government or regulatory body.” This applied if he left “prior to the payment of any incentive and retention award for performance year 2008 or thereafter.” Such an award wasn’t guaranteed but would be consistent with the company’s practice, the document said.

A similar provision concerned his stock-based compensation. If Lew left in 2008 or afterward to accept a high-level U.S. government position, all of his outstanding equity awards, including restricted stock, would vest immediately, the document said. Alternatively, Citigroup had the option of paying Lew the cash equivalent of any shares he forfeited upon leaving. The terms didn’t mention other kinds of public-service work, such as a midlevel U.S. government job, a position in municipal or state government, or working at a nonprofit organization such as a university.

The payoff here is very clear: You go and work for the government, and you are our boy, bought and paid for.

First, the Cayman Islands accounts, and now this.

This guy is going to be an even bigger creature of the Wall Street banksters than than Geithner was.

This is deeply corrupt, in reality if not by law, but I think that the Obama administration sees this as a feature, not a bug.

It’s Jobless Thursday!!!!

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Not good news. Initial unemployment claims rose by 20K to 362K, as did the 4-week moving average and continuing claims, though extended claims fell, probably because of exhaustion of benefits.

Of more concern is that the Fed’s Open Market Committee minutes came out, and it looks like they are losing their nerve on quantitative easing:

The Federal Reserve signaled it may consider slowing the pace of asset purchases as officials extended a debate over whether record monetary easing risks unleashing inflation or fueling asset-price bubbles.

Several participants at the Federal Open Market Committee’s Jan. 29-30 meeting “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the gathering released yesterday.

This is not the right time for the Fed to take its head off the accelerator pedal.

This is a Good Thing

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Map courtesy of the Kaiser Family Foundation

Notwithstanding the statements of the Obama administration that it was essential that the states should run their own health insurance exchanges, it’s good news that the Federal Government will run 26 of 50 of the exchanges:

Friday was a very important day for health policy days. It was the last day for states to tell the federal government whether they wanted any part in running the Affordable Care Act health exchanges come 2014.

The federal government did not get many takers. Some of the most closely watched states, including Florida and New Jersey, decided to leave the entire task to the federal government. All told, the federal government will run 26 of the state health exchanges. It also will partner with seven states, where state and federal officials take joint responsibility for the marketplace. Seventeen states and the District of Columbia will take on the task themselves. Here’s what that looks like in map form, via the Kaiser Family Foundation.

………

The big question moving forward is: Does this split matter? Is it better or worse for the federal government to be running the majority of the state health exchanges?

In the health policy world, there are essentially two schools of thought on this. The first is that states opting out of the exchanges is horrible for the Obama administration. All along, Health and Human Services has urged states to move forward on their own. Now, HHS has the massive task of setting up 26 separate state exchanges.

………

That is the pessimist’s take on the federal government’s very big workload. But there’s also an optimist’s take, one that suggests that federal oversight of most Affordable Care Act marketplaces will ultimately strengthen the health overhaul.

Remember, House Democrats originally wanted one national health exchange, where everyone in all 50 states could purchase coverage. That idea was nixed in the Senate bill, which aimed to give states a larger role in setting up the Affordable Care Act.

In a way, all these states turning over their exchanges to the federal government brings Obamacare a little closer to the more liberal House bill, which had the federal government running one big marketplace. It allows the White House to have more control over setting up its signature legislative accomplishment. It also creates some economies of scale, as HHS can develop one template exchange that all 26 states it handles will use.

I’m not sure why the Obama administration was so big on the state run exchanges.

My guess was that they are worried about the inevitable teething problems, and wanted as many opportunities as possible to spread the blame around.

The state based insurance system has resulted in a lot of oligopolies in healthcare, and has allowed the insurance corporations to purchase legislators and regulators, so I see this as an unalloyed good.

It moves us away from the inevitable race to the bottom that will occur in state based systems.

The New York Times Notices that the Bank Settlements are Bullsh%$

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You see, they are making modifications to 2nd mortgages while continuing to foreclose on 1st mortgages.

This might sound like a meaningless difference, but banks are given credit for modifying a 2nd mortgage, but in the event of a foreclosure, they are subordinate to 1st mortgages, and so are wiped out.

This means that the foreclosure modification means nothing, though the banks get credit for it anyway:

In January, federal regulators announced an $8.5 billion agreement with 10 mortgage servicers to settle claims of foreclosure abuses, including bungled loan modifications and the wrongful evictions of borrowers who were either current on their payments or making reduced monthly payments.

Under the deal, announced by the Federal Reserve and the Office of the Comptroller of the Currency, the mortgage servicers will pay $3.3 billion to borrowers who went through foreclosure in 2009 and 2010 and an additional $5.2 billion to reduce the principal or the monthly payments of borrowers in danger of losing their homes.

………

The problem involves second mortgages, which millions of homeowners took out during the housing bubble. It’s estimated that as much as a quarter of all mortgage debt in the United States is in the form of second mortgages. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an “80/20 mortgage,” in which 80 percent of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage, often with a much higher interest rate.

The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.

It’s a real problem: when it comes to keeping your home, it’s the first mortgage that counts.

………

Why would a bank forgive a second mortgage completely but move forward with foreclosure on the first mortgage?

Surprisingly, such a tactic often makes sense for banks. When a lender forecloses on a first mortgage, the house in question is typically sold at auction. If the house is worth less than the loan amount, the bank gets only part of its money back. But after the sale, of course, there’s no asset left to pay off any of the second loan. The holder of that second loan — which has lower priority than the holder of the first — gets nothing.

So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.

I would note here that the author, Elizabeth M. Lynch who is a lawyer who provides free civil legal aid,is being rather charitable:  she thinks that the banksters are taking advantage of loopholes in the settlement.

I believe that the intention of the deal on the part of the Fed and the OCC was to create a meaningless “Potemkin Agreement”.  They never intended to create better behavior.

Their goal was to indemnify the banks and to generate some propaganda to deflect moves toward real accountability.

No, I Did Not Watch the State of the Union

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I just don’t like listening to him, so I read the official transcript.

Rather unsurprisingly, he wants to throw mama from the train put forward “entitlement reform”, and he is patting himself on the back about the successes Obamacare (time will tell, but I doubt it), and killing bin Laden.

He also waxes eloquent over lowering the deficit, because austerity has worked so well where it has been tried. (Not)

He also proposed infrastructure repair, but that’s not going to go anywhere.

I think that the most substantive proposal he made was to raise the minimum wage to $9.00/hour in stages through 2015.

As compared to his promise from the 2008 campaign, raising the minimum wage to $9.50 by 2011, this barely keeps up with inflation.

At least he is proposing an automatic inflation adjustment.

The real problem is that the minimum wage has plummeted relative to median and mean wages over the past 40 years

Source of data.

Based on this chart, it would appear that the minimum wage needs to increase by about 20% immediately to hit the trend (mid to upper 40% range), but the reality is that boosting the minimum wage has a big effect on boosting the lower half of the wage scale, so it probably needs to go up by about 40% to return to trend in the longer term.

Note also how the lines for median (50th percentile) and mean (average) have diverged.  This is an artifact of the increasingly inequality in our society.

I call this the “Bill Gates walked into the room, so we are now all millionaires” effect.  It makes the mean and the median diverge.

Setting the minimum wage to slowly, and automatically, converge to 45% of the minimum wage over the next half decade or so would serve to do a lot to reverse the income inequality .

Least Surprising Study Discovery Ever

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I’m shocked, shocked to find that gambling is going on here!

The Project on Government Oversight (POGO) has completed a study that shows that the revolving door at the SEC may have short circuited effective regulation:

Former U.S. Securities and Exchange Commission staffers who now work in the private sector may have helped derail last year’s effort to reform the $2.6 trillion money market fund industry, according to a report released on Monday.

The case study on money market fund lobbying is part of a 60-page report by the Project on Government Oversight (POGO). It is one example within a broader review by the non-profit government watchdog that examines in detail how the “revolving door” at the SEC may have impacted policy and enforcement decisions over a 10-year period.

The publication of the report comes a few weeks after President Barack Obama nominated Mary Jo White, a former prosecutor and high-profile white collar defense lawyer, to lead the SEC.

While White’s nomination has generated little controversy so far, some have questioned whether her past defense of Wall Street executives could impact how she does on the job.

“The revolving door is deeply embedded at the SEC and throughout the federal government,” the report said.

“The close linkage between the regulators and the regulated can influence the culture, the values and the mindset of the agency – not to mention its regulatory and enforcement policies.”

Well, duh.

But this is not an unfortunate linkage, it is bribery.  If you are a regulator, you know for a fact that when you leave public service, if you have played nicely with the finance industry, and haven’t murdered a prostitute, that you will get a job that would make you set for life in just a couple of years.

I’m not sure how to put an end to this, but a way needs to be found to stop this.