This hasn't been a very good week for the one percenters, has it? Anti-NATO protesters chanting outside their cozy dinners, bloggers releasing the details of ALEC's latest schemes, people showing up at Timothy Geithner's door to bitch, bitch, bitch! Don't they know who he is - and who his friends are? I guess the National People's Action and National Domestic Workers Alliance don't really care:

Yesterday, more than 1,000 clergy, homeowners, students, family farmers, unemployed workers and community leaders with National People’s Action and National Domestic Workers Alliance went to Treasury Secretary Timothy F. Geithner’s home to demand he support a Robin Hood tax and a thorough investigation of the bankers who caused the mortgage crisis.

“We didn’t want to be at Geithner’s house,” Bobby Tolbert of VOCAL-NY, an affiliate of NPA and a leader at the action. “But we want a treasury secretary that stands with people over bankers. Geithner has consistently undermined proposals for a Robin Hood tax and stalled the mortgage fraud task force investigation.”

Barb Kalbach, a family farmer and member of Iowa CCI, an NPA affiliate, said community leaders have met with Geithner before but little progress has been made to ease the crushing impact of the mortgage and financial crisis on the American people.

Geithner must “quit protecting the big banks, write down the mortgages and keep us in our homes and stop the foreclosure crisis around the U.S.,” Kalbach said speaking into a microphone while standing on Geithner’s driveway. “Right now, today, he continues to impede the process of investigating the banks that crashed our economy. And he’s blocking a tiny tax of less than half of one percent. It’s small change for Wall Street, but big change for America.”

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Alan Grayson on the original problem with Bank of America

As part of the mortgage settlement announced earlier this year, Bank of America announced that they sent out 200,000 letters to underwater mortgage holders they own or service, offering them the opportunity to reduce their principal. Eligible letter recipients can receive reductions as high as $150,000. Sounds good, right? Not so fast.

David Dayen points out that this isn't really going to hurt Bank of America much at all:

In other words, this is exactly as we suspected; BofA will try to extinguish cash penalties by modifying principal on loans they service but don’t own. And they’re trying to load up on the modifications with those loans.

...

I’m generally happy to see any principal reduction happening, though of course these are letters and not actual principal reductions. BofA sent out the letters to 200,000 borrowers, and now they can pick and choose on whom to bestow these benefits. And additionally, BofA will build in a three-month trial period where borrowers will have to pay the mortgage at the new rate. This was the trap in HAMP, as borrowers didn’t get an answer on a permanent modification after three months, waited, and were then hit with a denial and a demand for the difference between the trial payments and the original mortgage within days to avoid foreclosure. Looks like BofA may be setting the same trap.

To call this a “penalty” for these banks, or a first step or a down payment or whatever it is Shaun Donovan is calling it these days, should only provoke laughter.

So the question is, how many people will actually be able to obtain the reductions? The process of getting it doesn't seem easy. Only the recipients of the letters are eligible and, as a Bank of America official points out, if someone misses the letter in the avalanche of mail that BoA sends its customers, they lose their opportunity. In order to qualify:

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be more than 25 percent of gross income, and the borrower must show they are unable to afford that.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

...

Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.

Even if all 200,000 borrowers were to successfully participate in the program, Bank of America services a million loans that are currently underwater, so the vast majority of the struggling families that BoA deals with will get no assistance.

So right before the company has its shareholders meeting, it announces a big program to reduce principal and goes on a media campaign to make it seem like they're taking a chance of possibly paying out more than they are required to, yet they are making it difficult for people to actually obtain the reductions and they aren't actually making any promises. It remains to be seen how much reduction they'll actually follow through on.

I will be celebrating (mourning?) my twentieth year since coming to work in Washington next year. I came here with the Clinton team, and even though I was President Clinton’s liaison to the progressive community, I still came to town with a bunch of moderate Democrats. Given my banging away on so many topics in my blog posts, I do get asked from time to time whether I have moved to “the left” over the years. The answer is absolutely not. I still believe virtually the same things about politics and the economy I believed a couple of decades ago, including:

1. That the America I grew up in during the 1960s and ’70s, which had a broad and prosperous middle class and a sturdy safety net for those down on their luck or too old to work, was a great country to live in for most Americans, but that the middle class had been squeezed right and left by big corporate interests and the conservative movement.

2. That the growing extremist conservative movement, which had taken over the Republican Party, blindly worshiped the free market along with the wealthiest and most powerful among us, and was determined to roll back social progress of all kinds.

3. That the Democratic Party was deeply flawed because too many Democrats were not willing to fight for progressive policies that would help the middle class and poor, but that they sure were better than the scary extremists who controlled the Republican Party.

4. That party politics alone would never win the progress we needed; that we need a strong progressive movement to fight the good fight.

5. That the New Deal and Great Society policy victories of the 1930s through the early ’70s were what moved this country forward more than any other set of policies. Social Security and Medicare gave senior citizens a measure of economic security they never had before. Labor unions were able to grow and expand, ensuring that middle-class incomes would rise, and that more working class people would get a secure foothold in that middle class. Banks were strongly regulated and kept to a reasonable size, ensuring that the financial crises that periodically wracked the country’s economy in the decades before and after those years didn’t happen. The minimum wage, the end of child labor, OSHA, and the 40-hour work week ensured more dignity and safety on the job. A wave of school building, the GI Bill, Pell Grants, the development of community colleges, and other educational initiatives meant that more Americans got good educations than ever in history. Civil rights, voting rights, and new anti-discrimination laws for women meant far more fairness and equality of opportunity for all Americans. Unemployment compensation, Medicaid, school lunch programs, food stamps, Head Start, and legal services meant that even low-income Americans had a modest amount of financial security in the hard times. The Clean Air, Clean Water, and Superfund acts made our environment far cleaner for all citizens. All of these new policies helped create the wealthiest economy, and most prosperous middle class in world history, and that our goal in politics should be to build on that success rather than tear it down.

I believed all that the day I moved to Washington to be part of the Clinton administration, and I believe it still, so I don’t feel like I have moved to the left at all. I feel very certain that I am solidly within the mainstream of the Democratic Party and progressive thought in America.

But I do think something important has changed. The corporate stranglehold on our media, government, and ideological parameters has shifted, and the Bob Rubin wing of the Democratic Party has grown steadily stronger.

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My mother used to quote my nana's favorite sayings, and one of them was, "The fishmonger never yells 'Rotten fish for sale!'" Nana, of course, didn't understand that with the right financial instruments, the fishmongers could not only sell rotten fish, they could make quite a bundle of money on the back end by explaining to selected people that they were indeed selling rotten fish:

As homeowners were falling behind on their subprime mortgages, wreaking havoc for investors that owned slices of their mortgages in securities peddled by Wall Street, Goldman Sachs was "well positioned," according to internal company emails from top executives.

The firm had "the big short," declared chief financial officer David Viniar -- Goldman Sachs was making money off the souring of the very securities it had peddled to the market.

The internal emails released Saturday by the Senate Permanent Subcommittee on Investigations paint a picture long known by most of the country, yet never before so vividly and explicitly articulated by Goldman officials. (Scroll down to see the full text of the emails.) As early as May 2007, as homeowners were being crushed under the weight of subprime mortgages, the most profitable firm on Wall Street had long taken out a form of insurance on those delinquencies.

The firm made money on the upside -- originating, securitizing and selling subprime mortgage-based securities to investors -- and on the downside, thanks to the insurance.

"Bad news," a May 17, 2007, email began from one Goldman employee to another. A security the firm had underwritten and sold had just lost value, costing Goldman about $2.5 million.

Further down in the email, the employee, Deeb Salem, wrote "Good news...we own 10mm protection...we make $5mm."

The firm made $5 million betting against the very securities it had underwritten and sold.

This is the second wave of the mortgage crisis, one that was predicted by the liberal economists who inhabit the blogosphere. It's unlikely that we'll see a sustained economic recovery until after this shakes out:

By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."

As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010.

I hope this works. But we're facing a wave of commercial mortgage failures, and I don't think we have a stable enough economy to take it:

For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates.

Now, whether the housing market is ready or not, the government is pulling out.

The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama's efforts to get the economy on track.

Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.

"We did what we thought was necessary to stabilize the market, but we don't think the government should continue special efforts forever," said Michael S. Barr, an assistant secretary at the Treasury Department. "As you bring stability, private participants come back in. We do expect this now that the market has stabilized. I'm not going to say there will be no effect on rates, but we do think you are seeing market signs and market signals that there should be an orderly transition."

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.

Who could have guessed? Apparently all those people losing their homes are helping the economy recover faster than expected. So let's look on the bright side of all those homeless, helpless families:

The pain of millions of people across America losing their homes hardly inspires confidence in the future. But in a brutal way, it could be restoring the financial health of the U.S. consumer faster than many recognize.

One of the biggest clouds on the economic horizon is the vast amount of debt U.S. households took on during the boom years. The Federal Reserve puts total household debt, including mortgage debt, at about $13.7 trillion, or 125% of annual after-tax income, a burden that many economists believe will take several years to pare down to what they see as a more sustainable level of 100%. During that "deleveraging" process, the logic goes, U.S. consumers -- whose spending makes up more than two-thirds of the U.S. economy and about one-fifth of the global economy -- won't be able to play a leading role in any recovery.

The gloomy forecasts, though, miss an important point: Debts have value only to the extent that they are being paid, and a rapidly rising number of U.S. households aren't doing so. Those defaults are leading to losses at banks, a wave of foreclosures, trouble for neighborhoods and strife for families. But they are also providing an immediate, albeit radical, form of debt relief.

"It's not ideal, because it carries other costs," said Karen Dynan, a consumer-finance specialist at the liberal Brookings Institution think tank who recently served as a senior adviser to the Federal Reserve. But it is "going to help get household balance sheets back to the right place."

If one accounts for defaults, U.S. households' debt burden is shrinking a lot faster than the official data suggest. First American CoreLogic, which tracks the performance of mortgage loans, estimates that some 9.3% of the nation's 52.4 million mortgage holders were 60 or more days behind on their payments as of July. That represents relief on about $1.2 trillion in loans. The official data miss most of that, because the Fed doesn't erase debts until banks have foreclosed, sold the homes and taken the loans off their books, a process that can drag out for more than a year.

As a result, some economists are expecting a sharp improvement as widely watched indicators of consumers' finances catch up to reality. Joseph Carson, director of global economic research at AllianceBernstein, expects the share of households' after-tax income that goes to pay loans, rent and other financial obligations to fall to 16.3% by the middle of next year, well below the average for the 20-year period leading up to the housing boom. As of June, it stood at 18.1%.

"It's part of the cleansing process of a downturn," he said. "And it's happening a lot faster than people realize."

Via Raw Story, this very enlightening news that the Bush administration blocked efforts to enforce laws against predatory lending. We are so shocked:

Federal regulators in the Bush administration blocked attempts by state governments to prevent predatory lending practices that resulted in the financial crisis now stalking the American economy, a new study from the University of North Carolina says.

In 2004, the Office of the Currency Comptroller, an obscure regulatory agency tasked with ensuring the fiscal soundness of America's banks, invoked an 1863 law to give itself the power to override state laws against predatory lending. The OCC told states they could not enforce predatory-lending laws, and all banks would be subject only to less-strict federal laws.

Now, a research paper (PDF) from UNC-Chapel Hill's Center for Community Capital shows that those anti-predatory lending laws had actually worked. States that had stricter regulations on issuing mortgages were found to have fewer foreclosures.

"We believe that these findings are remarkable, since they suggest an important and yet unexplored link between [anti-predatory lending laws] and foreclosures," the study's authors state.

The study may be the first scientific evidence to back up claims made by many critics that the Bush administration and earlier administrations allowed last year's financial crisis to happen by not enforcing common-sense regulations on lenders.

Last year, seven months before the collapse of Lehman Brothers and the ensuing government banking bailout, then-New York Governor Eliot Spitzer wrote a Washington Post column in which he described how the Bush administration blocked states' efforts to prevent a crisis in the mortgage industry.

Spitzer wrote:

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Spitzer's Post column ran a month before the New York Times reported that federal authorities were investigating Spitzer as a patron of high-end hookers, ending his political career and long-running crusade against corporate malfeasance. Some observers, including investigative reporter Greg Palast, say this was not a coincidence.

Just when you thought it couldn't get any worse, it does. But hey, isn't it great that lobbyists have managed to prevent Congress from letting bankruptcy judges lower mortgage payments? Win-win!

SOUTH BEND, Ind. — Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

After Ms. James had her tenants move out, vandals hit the home. It is set for demolition, but the title is still in her name.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.