From Al Jazeera's People and Power--Taking on the Banks:

The opportunity for reform of the US financial system is probably greater now than at any time since the Great Depression.

But a year after the economic meltdown, temperatures are rising in the US over President Barack Obama's proposals to reform Wall Street.

Central to his effort to revamp the US financial system is his call for a new Consumer Financial Protection Agency to prevent the lending practises that cost millions of Americans their homes, brought banks to their knees, and set the stage for the 'Great Recession'.

The banks and the financial services industry are pulling out all the stops to defeat the establishment of a new agency to protect consumers.

But with as many as 3.5 million new home foreclosures expected in 2010, citizens are taking to the streets and public pressure to regulate powerful financial institutions is growing.

People & Power's Bob Abeshouse investigates the potential for reform, and what the banks have done in the past year in return for the billions they received to bail them out.

You see why the bully boys of Wall Street dislike Sheila Bair - and Elizabeth Warren? Because they actually think of the people hurt by the financial industry's long, drunken binge and are trying to repair the damage. No wonder these women are unpopular with the in crowd:

FDIC Chairman Sheila Bair indicated Thursday that she is exploring the idea of reducing the principal on as much as $45 billion in mortgages her agency has acquired from failed banks.

That would be the first significant government attempt to employ a measure that some economists and consumer advocates have long argued is the only really effective way to stop foreclosures.

Although the $45 billion in mortgages only amounts to less than half of one percent of mortgages nationwide, the move would be significant because the idea of reducing principal has been all but dismissed for the last nine months by the Obama administration.

Economists like Yale University's John Geanakoplos, however, have argued that cutting the principal on delinquent loans should have been the administration's practice all along. For the nearly quarter of American homeowners who owe more on their mortgage than the house is worth, it's by far the best way to keep them in their homes and reduce foreclosures, Geanakoplos said in an interview last month.

Bair made her comments in an interview with Bloomberg News. She has not yet discussed her proposal with the Treasury Department, a senior administration official said Thursday in a brief interview. Though unfamiliar with the details of her proposal, the official said it was promising.

The Federal Deposit Insurance Corporation no longer owns the mortgages directly; but when it sold them to solvent banks, it agreed to shoulder some of the future losses. Bair's move would effectively make sure that homeowners directly benefit from that guarantee, not just the lenders.

This is really sad. This is going to hit even harder in big cities, where so many of the poor live in multi-unit buildings:

NEW YORK -- A new wave of foreclosures stands to hurt people who may have never taken out a mortgage: renters. In cities such as New York, Chicago and Los Angeles, where many investors are carrying upside-down mortgages on large rental buildings, some tenants are watching their homes fall apart along with the financing.

Janeia Sandiford, a 24-year-old GED student in New York, has two young children and a deteriorating apartment. When a leak over Sandiford's bathroom and kitchen caused the ceiling to flake off and then cave in, nobody came to fix it for a year, she said. She lacked heat most of last winter, and she has duct-taped her loose-fitting windows in place to cut down on drafts.

"I'm really worried about the kids," she said.

The real estate investment company Ocelot Capital Group bought the building where Sandiford lives and about two dozen others in the Bronx in 2006 and 2007. As the new owners struggled to keep up with payments, 10 of the buildings appeared on the city's list of most dilapidated rental properties in 2007 and 2008. Last winter, as Ocelot defaulted on its loans amid the deepening financial crisis, the buildings plummeted further into decline. Together, they racked up thousands of Code C violations --the most serious kind -- from housing inspectors.

Fannie Mae, which had bought much of the debt from the original lender, entered foreclosure proceedings for Sandiford's building early this spring. A state court appointed receivers.

In the meantime, the building on Manida Street has been beset by problems, according to tenants and their advocates, whose accounts were confirmed by the crumbling walls and damaged plumbing apparent on a tour of the property and its neighbor, also owned by Ocelot. Vandals stole the lock on the front door, giving squatters access to vacant apartments to sell drugs. Plumbing in the building was disrupted after the squatters broke through the walls and stole pipes to sell as scrap metal.

Similar conditions could crop up across the country this winter as foreclosures climb for large rental-unit buildings. In the first three quarters of 2009, 475 foreclosure proceedings were begun against multifamily rental or cooperative homes in the District, according to NeighborhoodInfo DC, a partnership between the Urban Institute and the D.C. Local Initiatives Support Corp. That figure already eclipses the 458 foreclosures for all of 2008.

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Michael Moore had a few things to say about the Dow rallying past 10,000 today on the set of Morning Joe. First on how well the markets are doing.

Moore: Oh! It’s so incredible. Yes. Fifteen million people out of work.

Scarborough: Isn’t this a perfect example for you? Isn’t this a great example of what you’re trying to say? How there’s a disconnect between what’s going on on Wall Street, 10,000, and Main Street, 10% unemployment?

Moore: Oh, it’s not a disconnect. It’s connected very well. It’s connected just the way our economic system is set up. It’s set up so that the pyramid scheme that we call capitalism—it’s become a pyramid scheme now—the very few at the top get away like bandits making billions and billions of dollars. And everybody else in the lower parts of the pyramid are told to work really hard and maybe some day they can come up and be on top of the pyramid too. Well guess what? There’s only a few people that can sit on top of the pyramid and it’s just so revolting and so immoral when we live in a country—the wealthiest country on earth—fifteen million people unemployed. One in every eight homes right now is in foreclosure or delinquency. And they’re celebrating on Wall Street? And they’re paying each other bonuses?

Surprisingly Moore gets some agreement from Joe and Mike on the disparity of wealth in the United States. Maria Bartiromo however disagrees with Moore’s view of the news on Wall Street. Shocker right? The Wall Street flack tries to come to their defense.

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As you may already know, in 2005, the credit card companies lobbied mightily and won provisions that made it much more difficult to file Chapter 7 bankruptcy. That successful effort put in place the current law, which has made it impossible to simply discharge consumer debt in order to keep paying the mortgage. Thanks, Congressional corporatists!

"Who could have seen this wave of foreclosures coming?" Don't make me laugh:

Cash-strapped families are seeking bankruptcy protection at nearly the same rate and in the same manner as they did before the much-debated 2005 bankruptcy law reform, a trend critics say proves the reform was a failure.

Congress wrangled for eight years before passing a reform act aimed at curbing abuse and ending an alarming rise in bankruptcy filings. With the economy in tatters and personal fortunes often in even worse shape these days, the bankruptcy law is beginning to undergo scrutiny again.

I suppose it never occurred to them that the bankruptcy filings were a symptom of economic stress - and not the problem itself?

For now, Congress is focused on efforts to stem home foreclosures by altering the law so that bankruptcy court judges will be allowed to modify certain mortgages to help people keep their homes. But once that's settled, attention will turn to the 2005 bankruptcy reform.

"There is continuing concern about the bankruptcy-reform bill and what its effects have been," says Sen. Sheldon Whitehouse, D-R.I., who leads the Senate Judiciary subcommittee that oversees bankruptcy law. "We are looking at a number of things that we can do to address the problems."

On Tuesday, Whitehouse will hold a hearing that will discuss legislation he has introduced that would allow families burdened by exorbitant credit card rates and fees to more simply discharge their debt under bankruptcy. He is considering several other proposals.

Critics of the 2005 reform say filing is more tedious, more difficult and costlier for ordinary debtors. They also believe the reform benefited banks over consumers. An independent study says the reform has helped contribute to the surge in home foreclosures. Supporters, however, say the reform has helped reduce fraud and has not trampled on debtors who really need to file for bankruptcy.

Hey, I'd love to see Rick Santelli sit down with these families and explain to them what losers they are - compared to the Masters of the Universe like Santelli who got the country into this mess, I mean. Moral hazard, my ass:

The orders came while Navy Lt. Adam Diaz was winding down a one-year stint in Baghdad: Report to the Navy Annex in Arlington for a new assignment in April. -- Given the military lifestyle, the prospect of a move came as no surprise to Diaz, 31, who has spent his adult life in the Navy. The shock came when he spoke with his wife, Stephanie Diaz, about the value of the Jacksonville, Fla., home they bought in June 2006, near the height of the housing bubble. -- "Hey, by the way," she recalls telling him. "The house has been valued for about 50 grand less than when we bought it."

The housing crisis is hitting military families particularly hard, according to real estate agents and service member advocacy groups. Many who bought during the boom and must now relocate because of fresh orders are faced with selling their homes at a big loss. They are finding few buyers, or even renters, particularly in the hardest-hit markets. That is leaving some families facing options including renting at a loss, separation from their loved ones or, in some cases, foreclosure.

The issue has caught the attention of Congress, which included language in the economic stimulus package to compensate service members who sell their home at a loss or have been foreclosed upon because they were forced to move after a base closure, reassignment or a combat wound required them to be relocated near a health facility. The program also covers surviving spouses of those killed in combat.

Under the new provision, the government will cover 95 percent of a loss if a service member is forced to sell. The government can also choose to acquire the title of a home by paying off the balance of a service member's mortgage or paying the owner up to 90 percent of the home's previous value. No dollar ceiling has been set.

The $555 million undertaking expands the Defense Department's Homeowners Assistance Program, which helps military and federal personnel whose homes have lost value because of a base closure. The new measure would likely help the Diazes, and would expand the homeowner assistance program to as many as 17,000 claims, according to the office of Sen. Tim Johnson (D-S.D.), who sponsored the measure.

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Hallelujah. This plan not only offers help for families in foreclosure, but also for owner-occupants of underwater mortgages. True, it doesn't address the root cause of inflated housing values (and that must be addressed at some point), but it's a smart, comprehensive plan of attack - and as a whole, a very good beginning. Color me impressed:

MESA, Ariz. — President Obama pledged on Wednesday to help as many as 9 million American homeowners refinance their mortgages or avert foreclosure, an initiative he said would shore up distressed housing prices, stabilize neighborhoods and slow a downward spiral that he said was “unraveling homeownership, the middle class, and the American Dream itself.”

The plan, more ambitious than many housing analysts had expected, was unveiled by Mr. Obama in a high school gymnasium here, in a community that is among the nation’s hardest hit by the foreclosure crisis.

“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” the president told the crowd. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The plan has three basic components. One would help homeowners who continue to make loan payments on time, but are paying high interest rates and would otherwise not be able to refinance because they do not have enough equity or their houses are worth less than they borrowed. A second would assist people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners. The third would try to assure there is plenty of credit available for mortgages by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies.

The announcement came a day after Mr. Obama signed his $787 billion economic recovery package, and administration officials like Timothy F. Geithner, the Treasury secretary, made the case that they will work in tandem. In announcing the housing plan, Mr. Obama struck a populist note, criticizing speculators and “lenders who knowingly took advantage of homebuyers” with the same vehemence he used in going after Wall Street bankers for giving themselves bonuses as their companies were seeking government help.

“It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell,” he said, adding, “And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

The plan will take effect March 4, when the administration publishes detailed rules explaining it. Most of the plan can be enacted by Mr. Obama though his executive powers, although part of it — including changing the bankruptcy laws to allow homeowners to seek changes to their mortgages through bankruptcy proceedings — will require legislation. Mr. Geithner said the administration is already in discussions with lawmakers on how to proceed.

In allowing homeowners who are not delinquent to qualify, the plan marks a sharp break from the housing policies of Mr. Obama’s predecessor, George W. Bush. Mr. Geithner and the new Housing secretary, Shaun Donovan, said the administration’s research had determined that, with 10 percent of American homeowners either in foreclosure or in danger of it, it was better to intervene early.

As if the foreclosures alone weren’t wreaking enough havoc on our economy, we also find out the whole process is starting to hurt our local cities in other ways we didn’t imagine:

Cincinnati wants Deutsche Bank and Wells Fargo to pay for what officials say is neglect of foreclosed-upon properties that's worsening blight in city neighborhoods.

The banks own more than 100 properties in Hamilton County.

Representatives appear often in local courts to prosecute foreclosure actions against property owners, the city says in a lawsuit, but don't show up when Cincinnati asks them to maintain abandoned properties titled to them. The city wants repayment for boarding up, demolishing and the other work done to Deutsche and Wells Fargo properties. The suit didn't specify an amount.

It really upsets me when I hear people on the right try to say the foreclosure problem is from greedy people trying to live outside of their means, and we should let them suffer. Sure there are a lot of foreclosures that are the product of people over-extending themselves, but just ignoring that leads to these costs being passed onto struggling local governments. Not only that, but it also effects the former neighbors of these foreclosed homeowners. People sit there and pay their mortgages on time, take pride in their home ownership and try to make something good out of the largest investment they will most likely ever make. In turn, they get rewarded with lower property values, because of a foreclosed house turned abandoned by the bank, now devaluing up their neighborhood.

I got a feeling the lawsuit being brought on by Cincinnati is only the start of it. We will see more cities follow suit (no pun intended) down the road as they realize how much this nightmare is costing them. Then the banks will want to recoup the costs of these lawsuits and having to actually maintain the properties they couldn’t wait to foreclose on. Of course the banks are only worried about their own well being. Why should they worry that your own property value is also being decreased, or that your local government is having to absorb some big costs associated with the foreclosures?

Pandora’s Box is just now opening, and without interaction by Congress, in the form of a homeowner bailout/rescue, we will be facing a vicious cycle that will continue for some time to come and cost all of us more than we could imagine. Until that happens, merry Christmas from the Bush/Republican economy.

(cross posted at IntoxiNation)

Desperate to resuscitate his diminishing hopes for the White House, John McCain during tonight's presidential town hall meeting dramatically reversed course on a mortgage bailout for home owners. This spring, McCain adamantly stated "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." Now with his presidential campaign and the economy in dire straits alike, John McCain decided to open the federal wallet after all.

McCain's born-again concern for American home owners represents a 180 degree turn from his Scrooge-like posture in March:

"Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates," he said. Later he added that "any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't."

But right out of the gate tonight, McCain conjured up a massive new program to save his ailing campaign, if not Americans on the brink of foreclosure. Now, he insisted, the government should buy existing mortgages and reprice them at new market rates. That's a far cry from his hard line only months ago. On March 25, McCain pronounced that when all else fails for distressed homeowners, Americans should just join the rapidly growing ranks of those:

"Doing what is necessary -- working a second job, skipping a vacation, and managing their budgets -- to make their payments on time."

Now down if not out in the polls, McCain has dropped his past moralizing about not helping either "big banks or small borrowers." Of course, all along John McCain was only interested in helping himself.

UPDATE: Sadly for John McCain, he chose tonight of all nights to praise eBay and its former CEO Meg Whitman as his possible choice for Treasury Secretary. On Monday, eBay announced it was laying off 1,600 employees, 10% of its entire workforce.

(This piece was crossposted at Perrspectives.)