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Showing posts from 2009

Foreclosures

In March 2009, according to CNN, during the first half of 2009 1.5 million homes began the trek down the foreclosure process—representing 1 in every 89 households.

CNN which used data provided by realtyTrac broke down the data to show the 10 states where the most mortgage foreclosure activity is taking place. Here’s the data:
Nevada 1 in every 70 houses in foreclosureArizona 1 in every 30Florida 1 in every 33California 1 in 34 housesUtah 1 in 69Georgia 1 in 70Michigan 1 in 74Illinois 1 in 76Idaho 1 in 79Colorado 1 in 80Ohio 1 in every 86 According to a story on the Washington Post, the rate of home foreclosures in 2009 is expected to crest over 1.8 million (vs. 1.4 million in 2008). The main cause for the sharp uptick in foreclosure filings is not the continuation of the sub-prime crisis—but actually the sharp increase in unemployment rates.

A.according to a regular monthly report from RealtyTrac, the online marketer of foreclosed properties, nearly 1.2 million have been los…

The Negligence of Credit Rating Agencies

On October 22, 2008 the Congressional Committee on Oversight and Government Reform held a hearing on “Credit Rating Agencies and the Financial Crisis. Chairman Henry Waxman said that the story of the “credit rating agencies was a story of colossal failure” in the subprime mortgage debacle by rating debt obligations with incredibly high ratings at a time when the ability of the issuer to make timely payments was highly doubtful. He accused the credit rating agencies (the leading credit rating agencies are Standard & Poor’s, Moody’s, and Fitch) of breaking their trust with millions of investors.

During the Committee hearing, emails were released that demonstrated credit rating agency analysts were well aware of the fragile nature of many of the loans. Several people testified highlighting how the credit rating agencies are compromised by the issuers since that is who pays them. And that’s the rub. Where do credit rating agencies get their money? from the people who wan…

The Greed of Credit-Rating Agenices

There are three major credit rating agencies: Standard & Poor’s, Moody’s Investors Services, and Fitch.  These three agencies assign risk to corporate investment.  They can deliver a top-tier rating of AAA to a corporate investment that they consider an excellent investment.

The shock to Americans who relied upon their credit ratings was that these three agencies assigned “AAA” ratings to investments that were backed by subprime mortgages. Of course, their response is that they were fooled just like you and me, although unlike you and me, they had a stable full of bright well educated MBAs to conduct in-depth analysis of these investments. Of course, if that excuse doesn’t work, they fall back on credit ratings are constitutionally protected free speech and are thus protected from lawsuits.

Fortunately, a federal judge in New York, Shira Scheindlin, stopped such excuses in their tracks and said that indeed companies that provided credit ratings are indeed liable from …

Leverage or Banks Running Amock

For those over 50, when we think about banks, we think about our neighbor who operates the local bank that gave our neighbors mortgages. Not any more. Now we are dealing with huge multinational banking corporations. In 1989 the five largest firms controlled just 7% of the mortgage servicing industry; by 2007, the five largest firms controlled 46%.  The Nation tells us that after Bank of America merged with Countrywide, three banks, Bank of America, Wells Fargo and Chase controlled 48% of the nation’s $11.5 trillion in mortgages. These banks have become so large that any financial problems they meet will become the nation’s problems. And indeed that has happened.

Banks became too highly leverage particularly in the mortgage business. Until recently, homeowners were required to put 20% down on any mortgage they sought. However, terms changed as deregulation of the marketplace was encouraged after President Reagan was elected.  Banks began offering mortgages with little or n…

How the rich use access to money during fiscal crises to control the nation’s politicians.

Author Lynne Weikart is available for radio, television and print interviews on how the fiscal elite use access to capital to undermine the voters’ will. She puts a human face on each of New York City’s fiscal crises, analyzes their historical patterns, and compares the tenure of several mayors. This timely book, Follow the Money: Who Controls New York City Mayors, has become an invaluable book for those interested in the future of American cities during the nation’s severe financial crisis.
Through the history of politics, Weikart reveals how financial elites in New York City have exploited recurring fiscal crises and sharply curtailed the range of choices open to mayors in setting priorities and implementing budget choices. In the face of enormous pressure during a fiscal crisis to defer programs and compromise promises to constituents, however, committed mayors from Fiorello LaGuardia to Michael Bloomberg have at times managed to overcome obstacles and achieve their go…

Usury

Usury (lending money at excessive interest)

Why are we in such a financial mess? It started in 1978 when the U.S. Supreme Court ruled that banks could lend at interest rates set by the state where the bank is chartered and not where the loan is made (Marquette National Bank v. First of Omaha Service Corporation). In effect Minnesota could not enforce its usury law against a credit card issued by a Nebraska bank. The effect of that was that banks set out to find states that had no ceilings on interest rates. And you wondered why credit cards were being issued from South Dakota?

Reasonable state limits of 5 to 9 percent were cast aside as states repealed their limits and lessened any usury laws in order to meet the competition. Interest rates spiked.

Of course, ceilings on interest rates are still on the books in many states and you will often read that it is against the law to charge too much interest. However, Congress took care of those state laws when it comes to mortgages and cre…

Follow the Money through the Criminal Justice System

I usually write about finance but I saw this article the other day on fusion centers and I thought I would share this with you.
We should always follow the money. The way we spend our resources defines who we are. If you as an individual like to buy lots of books, it defines you just the same way you are defined if you like to buy lots of clothes. This nation likes to buy safety and it is under the illusion that it can do so by putting people in jail. According to a study by Office of Justice Program’s Bureau of Justice Statistics, almost 7.2 million people were under federal, state, or local probation or parole at the end of 2006. 298 million people lived in the United States in 2006. The rate of incarceration in prison at year-end 2006 was 501 sentenced inmates per 100,000 U.S. residents, up from 411 in 1995. This amounts to 1.5 million people which means 8.7 million people were involved either in prison or on probation in the United States in 2006; that is 3% of the United States …

Follow the Money: Who Controls New York City Mayors.

Author Lynne Weikart puts a human face on each of New York City’s fiscal crises, analyzes their historical patterns, and compares the tenure of several mayors. This timely book, Follow the Money: Who Controls New York City Mayors, has become an invaluable book for those interested in the future of American cities at a time of the nation’s severe financial crisis. Through the history of politics, Weikart reveals how financial elites in New York City have exploited recurring fiscal crises and sharply curtailed the range of choices open to mayors in setting priorities and implementing fiscal policy. In the face of enormous pressure during a fiscal crisis to defer programs and compromise promises to constituents, however, committed mayors from Fiorello LaGuardia to Michael Bloomberg have at times managed to overcome obstacles and achieve progressive goals. Weikart concludes: “As the world center of financial services, New York City is an informative case study of the power that financ…

Deregulation

I bet you have never heard of the Depository Institutions Deregulatory and Monetary Control Act of 1980 (DIDMCA) or the Garn-St. Germain act of 1982. Those acts, one signed by President Carter and the other signed by President Reagan, helped create the financial mess in which we find ourselves. The DIDMCA effectively ended all the states usury laws. It meant that if a state decided that interest rates on mortgages and credit cards should be capped at 5%, that state was stopped from doing so. The Garn-St. Germain Act permitted a “shadow banking system” to develop without any of the regulations required of banks. In effect the Garn-St.Germain Act cut the savings and loan institutions loose from any regulation. There are other Congressional acts as the financial elites slowly carved their way out of Glass-Steagall Act of the Great Depression (which required commercial and investment banks to be separate and required insurance and brokerage houses to be separate) until banking regulat…

Solutions to the Credit Crunch

There are solutions for the credit crunch that too few policymakers are talking about. Here is the list: Short term: Federally insure subprime mortgages, restructure troubled mortgages, extend unemployment insurance benefits, provide funding to state governments for infrastructure. Long term: Limit subprime mortgages or outlaw them, require transparency in all mortgage dealings, pass legislation regulating financial markets to prevent highly leveraged deals, stop predatory lending. So when are we going to see such solutions debated in Congress. Don’t hold your breath. Solutions offered by our federal government so far rescue financial markets but not people. If it weren’t for Gordon Brown of Britain, we would not even be talking about the federal government buying prepared stocks in banks. Buying stocks in banks may be beneficial to the taxpayer, we might even make money on it. Eliot Spitzer was a dynamite Attorney General. He wrote a column in the Washington Post on February 14, …

The Higher Education Ripoff

Students are now paying outrageous amounts to pay off their private college loans. Unlike federal loans, which are limited to 6.8%, loans from private banks can have interest rates in excess of 20%. Graduating college students faced with a bleak job market are at a loss as to how to repay thousands of dollars in tuition debt. And students have no recourse to repayment. Unlike other loans for housing or cars, college debt cannot be forgiven in bankruptcy. If students cannot get a decent job and keep up their payments, they are faced with a mountain of debt that keeps growing because of high interest rates their entire lives. Students have reported in Congressional hearings of owing hundreds of thousands of dollars because of late fees and interest.Because Congress is lobbied intensely by banking interests, there are few Congresspeople interested in the problem of mounting student debt. Two senators who were willing, Senators Kennedy and Clinton, are no longer advocating for helpin…

Our Cities and the Environment

Recently Mayor Bloomberg in New York City sought to install congestion pricing for automobiles in Lower Manhattan. Yielding to cries from the city’s suburbs, at first, the State Legislature refused to permit the Mayor to introduce congestion pricing. The action by the State Legislature is an example of the difficulty mayors face as they attempt to respond to the challenges of climate change. How do we make our cities green when politicians respond so quickly to political pressure of those uninterested in protecting our environment? There is no easy answer to this but there are answers. Some cities have succeeded in initiating major changes to their environment. Seattle is the leader in environmental awareness. The city has established an Office of Sustainability and Environment which coordinates the implementation of the city’s environmental plans which include light rail, green buildings, cleanest city cars and trucks, rapid bus transit and an urban leader in recycling. Why don’t ot…

A Once Generous City

New York City has been a city of progressive thought and provider of generous social services for its citizens beginning with the Great Depression of 1929. The Great Depression was the opportunity for progressive elected officials to construct a safety net of social services for citizens. New York City did so by embracing redistributive policies. During the Depression, Mayor Fiorello La Guardia, with financial support from President Franklin Roosevelt, established extensive governmental services for city residents – public housing, new public schools, rent control, expansion of public health services and public hospitals, to name some of the most important actions. The Great Depression brought substantial progressive services for citizens of the city for over 40 years until the fiscal crises of the 1970s unraveled the progressive social services safety net of that earlier period.[1] Today, the city retains a semblance of rent control, to the consternation of the powerful real estate …

Creditors and Debtors

The history of the United States can be examined through several lenses. It is the history of the power of ideas centering upon the natural rights of the individual. It is a history of our military power, fledging at first in Concord and Lexington, and later the supreme military power in the world in the destruction of Hiroshima. It is a history of the power of creditors over debtors as recession after recession demonstrated the struggle between the two. When Americans declared their freedom from Britain, they did so in part because of the struggle between British creditors and American debtors. In 1777, the Virginia legislature passed an act to sequester British property. Virginia citizens could nullify their debts to the British by paying the amount they owed to the Virginia’s treasury.[1] Of course payments could be made in Virginia’s paper currency, not British pounds, and the paper currency was worth only a tenth of the British pounds. Shay’s Rebellion (named after Daniel Shay,…

Lower Manhattan after 9/11

Much of Lower Manhattan has been rebuilt with little concern for input from the city’s residents. Although the 9/11 families have had input into the World Trade Center (WTC) site, citizens have been shut out of the rest of Lower Manhattan. Only a few weeks after 9/11, a group of highly organized business men called for the creation of a public authority that would be responsible for the reconstruction of Lower Manhattan. Who were these business and real estate leaders? - The Partnership for the City of New York and Chamber of Commerce, the Real Estate Board, and the Alliance for Downtown New York. The Governor and State Legislature created the state Lower Manhattan Development Corporation (LMDC). LMDC’s territory runs from Houston Street to the tip of Manhattan, from the East River to the Hudson, and oversees the revitalization and rebuilding of all businesses and housing except for those areas that are governed by other authorities; namely, WTC site governed by the Port Authority, …

The Struggle over the 15th Amendment continues today

Professor Sonia Jarvis told me she saw parallels between the struggle for passage of the 15th amendment in 1870 and the struggle for the Democratic nomination today. So I examined the issue. Why did Susan B. Anthony form the National Woman Suffrage Association in 1869 and leave the abolutionist movement? Did it have anything to do with the passage of the 15th amendment giving black men the right to vote but ignoring the demands of white women who wanted the 15th amendment to include the word, “sex” and not only “race.” Of course it did. White women who were advocating for the vote were furious that Congress would allow black men to vote before white women. The woman’s suffrage movement split over the issue - Fraces W. Harper and Lucy Stone worked for passage of the 15th amendment while Elizabeth C. Stanton and Susan B. Anthony refused. Anthony “exclaimed disparingly that two million more men were now made tyrants over an equal number of women who had formerly been their equals” (Rieg…

Conference on the Lack of Access to College

We held a one-day conference on The Lack of Access to Higher Education last year, October 4th, 2007, at Baruch College School of Public Affairs. It was an inspiring event to discuss not just the structural, racial and financial problems about access to college but also innovative solutions that some states and universities have implemented to help students get into college. We began with Martha Lampkin from the Lumina Foundation that deserves so much credit for recognizing this problem and providing funding to colleges and universities that create programs to solve this issue. And then we heard from Kati Haycock from the Education Trust, a place that conducts research and analysis about the issues around access. They were both excellent speakers and we were encouraged that perhaps there is something to be done about the fact that millions of young people do not know who to apply, are discouraged from applying, and cannot afford to attend college. We then had a panel of folks who ran…

Sometimes the Good Guys Win

Red Hook is a neighborhood in Brooklyn right on the water with an incredibly active port on the East River of New York City. Red Hook has a rich maritime tradition - the movie, “On the Waterfront,” was filmed there, and the docks still bustle with container cargo from dozens of large ships. One of the few industrial zones left in the City, many Brooklynites are fighting against high-end real estate developers who see luxury housing rather than shipping docks in Red Hook. Why waste their beautiful views with jobs? The Red Hook port is owned by the Port Authority, not by the City of New York. The city has tried to acquire the waterfront in Red Hook. City officials would like to see high-end real estate developed on the waterfront in Red Hook; in their minds, container shipping simpy doesn’t provide enough jobs. City officials may lose out to saner heads, particularly Congressman Jerry Nadler. Congressman Nadler would like to see the city’s economic base far more diversified than it is…

Denying Welfare Mothers the Right to a College Education

The U.S. Congress passed and President Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRW) and the accompanying block grant, Temporary Assistance for Needy Families (TANF), which became the most dramatic restructuring of federal aid to mothers and children since its beginnings in the Great Depression of 1929 (Personal Responsibility Law 1996). These laws limited welfare to a total of five years over an individual’s lifetime. TANF effectively allowed only one year of post secondary education, and only vocational education was accepted under the statute. Although TANF did not specifically prohibit welfare recipients from attending any other type of higher education program, the statute put states under such enormous pressure to fulfill work requirement quotas so that it became a practical impossibility for states to offer four years of higher education to their welfare recipients. The states were mandated to have 50% of welfare recipients wor…

Higher Education and Black Men

The American Council on Education has issued its annual report on minorities in higher education. In their latest report (2007), ACE announced that although more black students enrolled in college than previously, blacks continued to “trail whites in the % of 18- to 24-year-old high school graduates enrolled in college. 42.8% of all white 18 to 24 year olds enrolled in higher education while only 32.7% of blacks and 24.8% of Hispanics enrolled. In addition, there is a dramatic difference between black men and women. Only 28% of black men 18 to 24 were enrolled in college while 37.1% of black women were enrolled. A similar trend exists for Hispanics – 20.7% of men and 29.5% of women. The report concluded that there are contributing factors that lead to young black and Hispanic men failing to enroll in college. These factors include poverty conditions within which young black and Hispanic men live, preference for immigrants over black males in considering hiring, lack of jobs where mo…

Affirmative Action

What is it about affirmative action that makes people so angry? For hundreds of years, American minorities have not had the same rights as white men. Finally almost 500 years after Columbus landed, we got a law, the Civil Rights Law of 1964, which said we can not discriminate against race in employment. The term “affirmative action” was first used by President John F. Kennedy in creating the Equal Employment Opportunity Commission in 1961 and required that projects receiving federal funds take “affirmative action” to ensure that employment decisions are free from racial discrimination. Slowly, the idea of affirmative action evolved to encompass programs that actively sought to increase the participation of racial minorities. We went so far as to say that we can consider race when students apply to college. Minorities got extra points in admissions. Think about it. We were not saying – take minorities that were not qualified. We were saying take them if they were. What happens? Some w…

Who is in the Room in the Financial Crunch?

We have the worst financial crisis since the Great Depression of 1929. And who do we put in charge - investment bankers who started it.Let’s look at how this got started. There is a MIT professor, Thomas Kochan, who demonstrates that in the last quarter of a century, productivity in U.S. manufacturing rose by 70% but real wages remained flat (see http://kochan.lerablog.org/). At the same time as wages remained flat, half of the income gains went to the top 10% of the income distribution. Top that off with inflation rising over 400% since the 1970s and that means those who make a median income in this country are being squeezed - they work harder, earn less and watch while the rich take the bulk of the money. What a country! Obama wins and guess what - he surrounds himself with investment bankers. Way to go! What are Democrats to do? Long ago, a friend of mine who was an Assemblyman said the influence of the rich was quite seductive. He gets home from a long night of meetings and h…

The Impact of Globalization

Dani Rodrik is a Professor of International Political Economy at the John F Kennedy School of Government at Harvard University, writes “the revolutions in transportation, communications and information technologies have considerably increased the speed with which global markets react to changing realities and procedures. But the flows of goods, services, and capital across national boundaries are not significantly larger today- in relation to national product - than they were during the classical gold standard.” There are 3 potential sources of tension between global markets and social stability. First, globalization makes large segments of the working population more easily substitutable across national boundaries, and, therefore, it fundamentally transforms the employment relationship. The post-World War II social bargain between workers and employers, under which the former received a steady increase in wages and benefits and a degree of job security in return for labor complacenc…