The best news I've heard all day

California and New York Attorney Generals are going to start prosecuting loan origination fraud, including lenders who ignored borrower's ability to repay.  The laws have always been on the books, so they can go as far back as the statute of limitations will allow them.

If I were a lender who had done business in one of those two states I would be packing right now, headed for a non-extradition territory with as much of my loot as I could carry.

I don't think that is going to happen.  I think that the banks are going to stall the lawsuits and finance competitors to these AGs.  And I am afraid that the cost for all of this is going to be borne by the little people, as banks raise fees and/or lower interest rates.

But it is the right thing to do.  The past cannot be fixed, but the future can only be salvaged if we start enforcing the rule of law.

The rule of law

I am very impressed by Barry Ritholtz.  His latest article is one of his best ever.

The rule of law must apply to the big banks.  The government should not be in the bail-out business because it undermines their willingness to apply the rule of law to those banks.  Barry has the details.  Go and read.

The shadow government

If you care about government spending, debt, or the future of America, then go read this article.  Warning: It's Rolling Stone, so there's ample profanity.  If you understand how we're being stolen from then you'll be tempted to partake in the profanity.

American Oligarchs

I've been writing about Democracy 2.0 / Evolving Democracy for a while now.  I've been treating it as a purely academic exercise, because I've assumed that there would be no chance for anything like it being adopted in my lifetime.  I just wanted to leave a challenging idea behind for future generations to chew on, in the hopes that a revolution would occur someday, and that my ideas would help form the next new best government without resorting to violence.

I'm starting to believe that there will be revolution in America in my lifetime.  These two commentaries mirror my own thoughts on the subject:
Joseph Stiglitz details the extreme income imbalance.
Paul Farrell identifies the delusion of the Super-Rich.

Kareem Adbul-Jabar's recent Op-Ed in Time also mirrors my own thoughts on this.  Mr. Adbul-Jabar's Op-Ed is in response to the recent unrest in Ferguson, Missouri.

"It's class warfare. My class is winning, but they shouldn't be."
     -Warren Buffet

Warren Buffet is right.  The rich are waging war on the poor.  Government is supposed to be the protector of the people; the mediator of class struggle. But the rich have infiltrated the government and undermined its ability to judge impartially.

Princeton University recently conducted a study of politics in America (summary - full results.)  The researchers concluded that America is no longer a democracy, but has transformed into an oligarchy--rule by the wealthy elite.

I hate the idea of America being an Oligarchy.  But if the shoe fits.....

I've been thinking about the right criteria for determining who the American oligarchs are:

Simply identifying the 1% or the 0.1% would get you a close approximation.  But the real oligarchs probably hide their assets in order to stay off of the Forbes list.

Tracking lobbyist spending will get you closer.  But the real oligarchs will not likely appear on that list--they have people who do that stuff for them.

Such a list has not been disclosed, but I'll bet every penny I have that the NSA has a "Do Not Track" list.  These are people that their government masters have told them are above suspicion.  Their phone calls are not recorded.  Their emails are not read.  Their license plates are not tracked.  All of the American Oligarchs are on that list.  How do we get a copy of that list?

Bankers talking about moral hazard

Bankers talking about moral hazard is something like rapists talking about chastity.

The New York Times is reporting that Bank of America is refusing to write down mortgages, as they have been paid and ordered to do by the government.  Their main argument is moral hazard.  They believe it would be bad business to reward home owners who took out larger loans than they could actually afford.  Seriously.

Tar and feather is too good for these people.  I have a strict non-violence policy, but the gall of these people is pushing my limits.

They are busy paying billions in bonuses to themselves, the crooks who wrecked the economy, and they claim to worry about the moral hazard of rewarding someone else?

Their secondary argument holds a little water.  They claim to be unable to figure out who to give how much write-down to.  This boils down to claiming that they are incompetent.  "Oh, the figures are just too hard to compute."  I've worked with the mortgage modification program people at Wells Fargo, and I would accept the argument that they are incompetent to do the math.

Well, I'll help them out.  We'll make it simple for them.  Any mortgagee who wants it gets a free re-fi, on these specific terms--regardless of their credit rating, payment history, LTV, etc.  If they currently do not pay PMI then they do not have to pay PMI on the new mortgage, either.
* Take the current principle balance and refinance that amount for 30-years at a low fixed rate.
* The rate they get depends upon the amount of their current principle balance, according to this sliding scale:
- Less than or equal to $100k -> 3%.
- Between $100k and $150k -> 3.125%
- Between $150k and $200k -> 3.25%
- Between $200k and $250k -> 3.375%
- Between $250k and $300k -> 3.5%
- Between $300k and $350k -> 3.625%
- Between $350k and $400k -> 3.75%
- Between $400k and $450k -> 3.875%
- Between $450k and $500k -> 4%
- Between $500k and $600k -> 4.25%
- Between $600k and $700k -> 4.5%
- Between $700k and $800k -> 4.75%
- Between $800k and $900k -> 5%
- Between $900k and $1M -> 5.25%
- Between $1M and $1.5M -> 5.5%
- Between $1.5M and $2M -> 5.75%
- Between $2M and $5M -> 6%

Obviously the sliding scale will be endlessly debated and negotiated, but I think that the government could cram this down the mortgage companies' throats.  And I think it would do a tremendous amount of good for the economy.

I'll take myself as an example.  We're not in the moral hazard set.  We paid down 10% and took out an 80% and a 10%.  We owe less than the market value of the property.  We have never been late on a payment.  And our credit ratings are still excellent.  We've been in our house a few years.  We would take this deal.  Based upon that sliding scale we would save about $350 per month.

Tunisia

If you make time to read one article about the unrest in Tunisia, make it this article.  As usual, the Telegraph produces commentary that is thoughtful, compelling, and takes a broad view of the issues.

Their true colors

The Republican party has finally officially openly declared their priorities.  Guess what.  It's not you.

The lame duck Congress has several major issues that it needs to deal with.  The senate Republicans have announced that they will filibuster every bill other than an extension to the Bush tax cuts that includes all of the cuts.  If they were willing to accept only some of the cuts then they would have that bill passed already.  The Republican party is holding out for the cuts for the top income brackets.

One of the bills that they refuse to vote on until after the tax cuts is funding unemployment benefits.  Now I may be a little biased here, because my unemployment benefits have expired because they refused to pass the funding bill before they left for Thanksgiving.  I'll be getting my last unemployment benefits check in two weeks.

But the top income earners are going to get their tax cuts.

I understand the socio-economic theory.  The top earners have been successful, and the unemployed have not.  So the successful should be rewarded ahead of the unsuccessful.  Rewarding the unsuccessful first just encourages more unsuccess.  The top earners are more likely to spend their wealth and drive the economy.  The unemployed are merely going to pay their bills,which does not help the economy recover as much as new spending does.

I understand the theory.  I think it is probably mostly correct.

However, it is against my interests to vote for this theory.  I will do so no longer.

The problem with the two-party system is that I have no good alternative to support now.  The Democrats (and Tea Party) are fools and incompetent.  The Republicans are less foolish and less incompetent, but their policies are contrary to my best interests.  I am left no way to participate in the system.  So, from this moment on I am officially against the system.  The system left me no choice.

Arrest them!

There is a small minority of people who are arguing for the principles of the financial meltdown.  I've been part of the group for many months, for whatever my membership is worth.  Welcome to the party, Joseph Stiglitz, nobel prize winner in economics!

He has an interesting and thoroughly pragmatic take on the whole affair.  The long form is in this article.  The short form is that if we don't punish this behavior it will be repeated, and in larger doses.

The big trends

The life expectancy metric is obvious and clearly the best possible measure of health.

I would be happier with a wealth metric that better respected cost-of-living variations from place to place.  Clearly these numbers have been adjusted for inflation over time.  But a better metric would be something like percent of income spent on food.  The big trend would be similar, but the differences between the west and the rest would not be quite as large; I think.

If this video doesn't brighten your day then I have to question whether you have a heart and a brain.

I love Jon Stewart

Funny guy.  Good perspective.  I think he actually tries harder to be fair and balanced than any "real" news program out there.  This interview made me love him more.

Come on, Jon.  Get out on the field.  Let's set up that 24-hours new channel dedicated to fighting corruption.  You, me, and Bill Moyers.  And maybe Jon Stossel.

More in-depth on the mortgage fraud crisis

A new deep article in Rolling Stone takes apart the mortgage fraud mess (warning: potty mouth.)

"You've heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud. Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can't admit to it — and so we are working feverishly to rubber-stamp the problem away..."

File it under funny

The Center for Tactical Magic has revived the ages-old tradition of placing curses on repressive and harmful organizations.  Their implementation is both hysterical and poignant.

Read it all the way through, especially if you have no background in witchcraft.

I do not believe in curses.  But I recognize the history and applaud the modern interpretation.  I'm almost tempted to stick a few of these, but I can't afford the gas to drive where the stickers really belong.

The church needs something like this.  I'll bet the Catholics have something that I'm just not aware of.

More rumblings on the street

If you care about the economy then you must read The Big Picture every day.  After the election TBP will surpass Drudge as the single most important source of news as the lawsuits against the banks hit the street and the financial services sector's stock take a beating.

I won't copy and paste their excellent work today in rounding up the current state of the mess.  It's unclear whether the big scary lawsuits will hit before or after the election.  This is the only major issue on the American radar where the Democrats are more in synch with the public than the Republicans.  So I would not be surprised to see them turn up the heat on this issue as a way to get some favorable press running up to the election.  Go read the round-up on TBP.

This is the only time when the will of the people matters more than the will of the donors.  About three weeks out of every two years.  Let this be a warning to other industries.  Don't get yourselves in trouble during the last month of the election cycle.

The other shoe is about to drop

The financial crisis was bad.  Round two will be worse.

This crisis was caused by bankers who made risky mortgage loans and then re-sold them as safe investments (CDOs.)  In round one the banks got bailed out and the people on Main Street were thrown a bone (HAMP, which I can personally attest is a huge sink-hole of bureaucracy and incompetence.)  In round two the investors who bought the CDOs will get thrown a bone while the banks get bailed out again.  Or the market as we know it will not survive.

The banks engaged in a risky game of fraud.  They gave mortgages to people who could not afford them, and then repackaged and sold those risky mortgages with AAA credit ratings.  Investors bought those CDOs thinking that they had little risk.

The banks were in a hurry to make as many of these mortgages as they could.  And the loans didn't really meet lending standards anyway.  So the banks didn't actually do their paperwork properly on those mortgages.

Borrowers have been aware of this for years.  Many people have successfully fought foreclosure by arguing that their bank could not show that they have the right to foreclose because they didn't have the paperwork showing that they owned the property.

In an effort to counter that argument, banks have been arguing to streamline the foreclosure process.  They have taken to having a "qualified" employee evaluate the paperwork and sign a legal affidavit saying that the paperwork is all in order.  They succeeded in getting some courts in some jurisdictions to accept their signed summary and foreclose on property without demonstrating the actual paperwork in court.  This practice is now being called "robosigning" because there is strong evidence that these employees are not looking at any paperwork whatsoever and are bald-faced lying to these foreclosure courts.

We know this because there have been numerous cases where the summary documents were quite wrong, and banks have foreclosed on the wrong homes.  Foreclosure agents have literally picked locks and entered homes, with genuine legal paperwork in hands from the foreclosure courts, where the home in question was owned outright by the person living there.  They didn't have a mortgage, and they certainly didn't have a mortgage with the bank that had foreclosed on their home.

Lawsuits followed, of course.  The depositions from those lawsuits revealed the robosigning practice.  And that led directly to the current moratorium on foreclosures for many banks.

The moratorium has caused the investors to get quite nervous.  They have started reviewing the paperwork that the banks gave them.  What are they finding?  The second shoe.

Surprisingly enough, the banks who did shoddy paperwork on the mortgages also did shoddy paperwork on the CDOs that they sold.  So instead of buying tranches of secure mortgages, the investors bought tranches of incomplete paperwork that fail to meet the standards of being "mortgages" in a court of law.

At this very moment investors are consulting their lawyers to determine what to do.  If all investors could somehow agree to not sue the banks for fraud then everyone and everything would be fine.  As long as their is no lawsuits from the investors' side then the banks will find a way to conduct business as usual and will pay those investments in a reasonable manner.  But that is a classic prisoners' dilemma game--a scenario where the first one to defect wins.  Someone will understand that and sue--any minute now.

These lawsuits will cause a huge problem for the banks.  There isn't any way to look at the physical evidence and not see systemic, intentional, wide-spread, large-scale fraud.  Trillions of dollars worth of fraud.  Their only defense is pleading gross negligence and incompetence.  And no one will buy that defense.

The only hope that the banks have is that the federal government still has their claws dug in.  In some of these cases the federal government will be listed as a co-defendant because the federal government owns a large stake in the bank.  And the federal government has a long history of writing ex post facto laws to legalize past bad behavior, especially for the banks.

The moral dilemma here is that convicting those banks of fraud and punishing them appropriately will crash the economy.  The 1930s will look fun by comparison.  Thirty percent unemployment.  Trillions of dollars will be lost.  No one will benefit except the lawyers.  We would genuinely be better off if we could avoid that fate.  But the only way to do it would be to let the crooks get away with fraud.

If you can think of a solution that brings the crooks to justice, keeps the investors from losing everything (even pennies on the dollar would work), and doesn't crash the market, then please speak up.

Do you care about the internet?

Cory Doctrow has a brilliant op-ed in The Guardian concerning freedom, copying, paying artists, and the many bone-headed attempts to police the internet.  If you care about the internet then you need to read this article.

I particularly like this quote:

"copying isn't going to get harder, ever."

That sentence fragment is fairly important.  If you are hoping to never live in an Orwellian nightmare then you need to digest and understand that point.

Professional journalism

I love Wikipedia.  I link to it often for simple stories and scientific notes.  But Wikipedia has a huge problem.  It lacks professional journalistic ethics and backbone.

This article in the Village Voice is the best example I have found of Wikipedia's failure.  Warning: this article is primarily about a wealthy man committing incest with his daughter.  It's professionally written, but the subject matter is disturbing, even handled professionally.  But the end of the article outs Wikipedia for its lack of backbone.

I did search Wikipedia in order to confirm the accusations in the Village Voice article.

Professional journalism is dying.  That is a shame.  We should endeavor to find a way to maintain the investigative research and ethics of truth-telling that exists in some parts of the journalism animal.  We will all be worse off if that spirit dies.

More Congressional incompetence

Once again, Congress shows that it does not understand the consequences of it's actions.  They passed this big healthcare overhaul without really thinking through how businesses and people would react to it.

If you raise the taxes on milk then people buy less milk.  But if you raise the taxes on alcohol then people buy less milk.

People rarely respond to rules, like taxes or healthcare mandates, the way they are intended to.  If you pass a tax on alcohol then you are probably expecting people to buy less alcohol.  When Congress passed their healthcare mandates they expected companies to just suck it up and pay for the additional coverage.  But the Department of Health and Human Services has realized that many employers will simply drop their healthcare coverage entirely and leave their employees worse off.  So the DHHS is now handing out exemptions to the healthcare mandate.

Soon every company in America will apply for a waiver.  Those that don't get it will drop their employee healthcare coverage.  Those employees will be forced to buy their coverage from the government.

So the mandate will end up having no effect except to leave many workers worse off, and to improve the profits of companies that don't get the waivers.  This is stupid.  Even if you think that Congress's goal was to socialize healthcare then you must agree that the whole DHHS waiver maneuver seriously undermines it.

You have to design laws with people's responses in mind.  When we do this, how will people react?  What could people do to subvert this rule?  What will the long-term effects be?

If you really want every employee in America to be insured then a mandate is the wrong way to do it.  That's a stick.  You need a carrot, or at least a carrot and stick approach.  How about a graduated scale of payroll taxes?  Uninsured employees cost X% more in payroll taxes than insured employees.  I'm sure there are many similar approaches that would make companies choose to provide appropriate minimum levels of insurance.

I don't really know who Urban Institute is, but they wrote a great article describing what they call 'Evidence-Based Policy'.  This is the sort of planning and thinking that I believe needs to happen before a law is written.

But those implementation issues are not the real problem.  Adding health insurance increases the cost of each employee.  If push comes to shove, many companies will choose to lay off workers rather than absorb the extra cost of providing additional insurance.  There isn't a carrot that you can attach to that.  It's simple math.  So your healthcare mandate (or whatever other rule you implement to replace it) will decrease overall employment.  And it will do it at the bottom end of the employment scale--low earning part-time jobs go first.

This is why the Democrats are going to lose big in this coming election.  They chose to decrease overall employment during a recession.

Business as usual

I'm toying with another side project--something related to Democracy 2.0.  That's a long story.  Anyway, as I was brainstorming for that project I wrote this sentence:

Donating money has replaced voting in the American government.

I stopped there and almost cried.

Then tonight I came across this story.  What really strikes me here is that Alabama state legislators were arrested by the FBI today.  They must have been remarkably sloppy.  This is business as usual.  Sure it is unethical and probably illegal if you don't use the right words and signals--remember that the people who are accepting the bribes are the people who wrote the laws against bribery.  But no one gets in trouble for buying or selling votes any more.

This won't stick.  And it won't stop anyone else from doing it.

The future of work

I found an interesting article on RedHat's OpenSource.org site discussing the ways in which the workplace will change with the presence of the Facebook generation.  None of this is surprising to students of Future Shock.  But it is much clearer and more concise than anything Toffler ever wrote.  If you plan on working with or for these innovators, then I would suggest that you give the article a little attention.

Why do you do what you do?