The news from the world of finance has been incredibly depressing of late, as the big Wall Street banks keep winning round after round in their battles with regulators. The flurry of deals, which in part were closed pre-Jan 1st to allow the banks to clean up their books before the end of the year, were just one big win for the banks after another: the $10 billion Bank of America deal with Fannie Mae; the deal between 2 regulatory agencies and 10 major banks to come up with $3.3 billion dollars for 3.8 million homeowners; the international Basel 3 capitulation caving into everything the big international banks were asking for on regulation. Compared with the size of the crimes, the number of people who got badly hurt, and the amount of money these banks made off the fraudulent deals they committed, this money is pocket change, an insult to the millions of hard working families who have had their lives ripped apart by bank fraud.

Now even the Consumer Financial Protection Bureau, the one agency which has been rightly lauded for fighting for consumers on other issues since it got created due to Elizabeth’s Warren’s work, has caved into Wall Street demands on a new rule they just issued relating to mortgages and given the big banks a major edge against homeowners in legal issues going forward. People at Americans for Financial Reform and the other groups working on these issues tell me they are appalled by these new rules.

The best hope for investigating and prosecuting fraudulent bankers has been in the inter-agency task force co-chaired by NY AG Eric Schneiderman, but the DOJ has refused to give the task force the staff that it needed, and as a result things have been moving slower than molasses, and it is not at all clear at this point whether anything is going to come of it.

Media figures enamored of Wall Street think all this is a swell thing. WP writer Neil Irwin thinks it’s terrific because “every dollar a bank holds as part of its liquidity buffer is a dollar they are not lending out…as a loan to build a factory.” This was Obama’s argument in his first State Of The Union speech, where he talked about how he hated to bail out the banks but only by helping them would they be able to start making loans again so that the economy would recover. It has pretty much been Geithner’s entire philosophy while at Treasury: anything that gets in the way of the big banks’ ability to make money will hurt the economy. The problem is that while the big banks have been swimming in money most of the last 4 years, making record profits and handing out record bonuses to execs in some years, the rest of the economy is flat. Small businesses are still having trouble getting loans, factory start-ups have been slow, housing remains weak even with its recent uptick, and in case nobody has noticed in a DC obsessed by deficits, unemployment is still appallingly high.

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I'm sure the banks will be dealt with just as severely as they were the last time they engaged in massive fraud. Oh, wait:

(Reuters) - Mortgage finance giants Fannie Mae and Freddie Mac may have suffered more than $3 billion in losses due to manipulation of the benchmark interest rate known as Libor, according to an internal memo by a federal watchdog.

The estimate was provided in a memo obtained by Reuters that was sent to Freddie and Fannie's regulator, the Federal Housing Finance Agency, by its inspector general. The watchdog urged the regulator to consider whether or not the losses warranted a lawsuit against the banks that set Libor.

"We conducted a preliminary analysis of potential Libor-related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of the issue," a spokeswoman for the inspector general's office said when asked about the memo.

Dozens of U.S. and European banks are under scrutiny for allegedly rigging Libor, which has an impact on borrowing costs throughout the global economy. Libor is intended to measure the rate at which banks lend to one another and is used as a benchmark to set borrowing costs on financial instruments, including derivatives and mortgages.

The federal regulator for government-backed mortgage giants Fannie Mae and Freddie Mac said Tuesday that he would not allow the firms to reduce loan balances of troubled borrowers, saying there would be no clear-cut financial benefit and that such a move could cause some homeowners to intentionally default in hopes of getting taxpayer aid.

“We concluded that the potential benefit was too small and uncertain, relative to the known and unknown costs and risks,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency.

The decision came after months of internal analysis at FHFA and sustained pressure from the Obama administration, Democratic lawmakers on Capitol Hill and housing advocates, who argued that so-called “principal reduction” was an essential tool needed in helping to soften the fallout of the housing crisis.

Reaction to DeMarco’s decision came swiftly Tuesday afternoon.

Treasury Secretary Timothy F. Geithner struck an unusually personal tone in chastising DeMarco for his decision, even while acknowledging DeMarco’s role as an independent regulator of Fannie and Freddie.

“Five years into the housing crisis, millions of homeowners are still struggling to stay in their homes and the legacy of the crisis continues to weigh on the market,” Geithner wrote in a letter to DeMarco on Tuesday. “You have the power to help more struggling homeowners and help heal the remaining damage from the housing crisis.”

Paul Krugman responded by calling for DeMarco to be fired:

DeMarco’s basis for the rejection was that this forgiveness would represent a net loss to taxpayers, even if his agency came out ahead.

That’s a very arguable point even on its own terms, because the paper he cited (pdf) in support of his stance took no account of the positive effects on the economy of debt relief — even though those effects are the main reason for offering such relief. Since a reduction in debt burdens would strengthen the economy, this would mean greater revenue — and this might well offset any losses from the debt forgiveness itself.

Furthermore, even if there’s a small net cost to taxpayers, debt relief is still worth doing if it yields large economic benefits.

In any case, however, deciding whether debt relief is a good policy for the nation as a whole is not DeMarco’s job. His job — as long as he keeps it, which I hope is a very short period of time — is to run his agency. If the Secretary of the Treasury, acting on behalf of the president, believes that it is in the national interest to spend some taxpayer funds on debt relief, in a way that actually improves the FHFA’s budget position, the agency’s director has no business deciding on his own that he prefers not to act.

I don’t know what DeMarco’s specific legal mandate is. But there is simply no way that it makes sense for an agency director to use his position to block implementation of the president’s economic policy, not because it would hurt his agency’s operations, but simply because he disagrees with that policy.

This guy needs to go.

Krugman's right. It's not DeMarco's job to impose his philosophical orientation on his agency.

Times business columnist Joe Nocera, who's sometimes a little too trusting about business, seems to have had an epiphany - namely, that the right wing message machine makes sh** up to suit themselves. He parses the construction and dissemination of the false wingnut meme that Fannie Mae and Freddie Mac crashed the economy:

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he’s an “expert”; out of thin air, he devises “data.” You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You’re chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

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In order for me to feel truly optimistic, I'd have to believe that these lawsuits are intended to break up the banks and bankrupt them, and of course that's not going to happen. Plus, I can't help but notice this isn't the Justice Department and we're not seeing criminal charges. So is this a real come-to-Jesus moment for the bankers -- or kabuki? Are the Feds really going to recover enough of the money they stole? Of course it would be good if they did, but nothing but some high-profile perp walks will really make up for the devastation these bastards have left behind:

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims.

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.

Private holders of mortgage securities are already trying to force the big banks to buy back tens of billions in soured mortgage-backed bonds, but this federal effort is a new chapter in a huge legal fight that has alarmed investors in bank shares. In this case, rather than demanding that the banks buy back the original loans, the finance agency is seeking reimbursement for losses on the securities held by Fannie and Freddie.

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It is, of course, an article of wingnut faith that Fannie and Freddie crashed the economy by helping undeserving black and brown people get mortgages (Wall Street didn't have a thing to do with it). So if Obama actually implements such a proposal, it will trigger yet another wave of right-wing outrage:

President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter.

The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government’s role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions.

A decision to preserve a major government role would mark a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled.

In a statement, the White House said it is premature to say that senior officials have agreed on any of the three main options outlined earlier this year in an administration white paper on reforming the housing finance system.

“It is simply false that there has been a decision to move forward with any particular option,” said Matt Vogel, a White House spokesman. “All three options remain under active consideration and we are deepening our analysis around how each would potentially be implemented. No recommendation has been made to the president by his economic advisers.”

But progressive economist Dean Baker hates the idea:

It would be difficult to find an economic rationale for this policy other than subsidizing the financial industry. The government can and does directly subsidize the purchase of homes through the mortgage interest deduction. This can be made more generous and better targeted toward low and moderate income families by capping it and converting it into a tax credit (e.g. all homeowners can deduct 15 percent of the interest paid on mortgages of $300,000 or less from their taxes).

There is no obvious reason to have an additional subsidy through the system of mortgage finance. Analysis by Mark Zandi showed that the subsidy provided by a government guarantee would largely translate into higher home prices. This would leave monthly mortgage payments virtually unaffected. The diversion of capital from elsewhere in the economy would mean slower economic growth and would kill jobs for auto workers, steel workers and other workers in the manufacturing sector.

In the wake of the mortgage meltdown, a dangerous theme is emerging. On its face, it seems perfectly reasonable and even attractive, especially to the youngest generation of workers, who is already mired in student loan debt, credit card debt, and struggling to find a job. It goes like this:

The U.S. has long seen home ownership as an unquestioned virtue, dating to a 1918 government "Own Your Own Home" campaign. Herbert Hoover, Franklin Roosevelt, Bill Clinton and George W. Bush all talked as if owning a home was the only way to join the middle class. Not only did it promote social stability—recall Mr. Bush's "ownership society"—and build well-maintained neighborhoods, home ownership became a hedge against inflation and a way to save for retirement. Until it didn't. [read more...]

And also:

Some of those new homeowners, including those sold outrageously inappropriate subprime loans, should have remained renters. Many couldn't afford to maintain the houses they bought. Others were dependent on refinancing to keep their homes, an approach that worked only as house prices kept climbing. They didn't. At last tally, the U.S. home ownership rate was at 67.2% and sinking.

Even NPR has jumped on the story.

"The world we live in today is not quite the world that existed in 1950," he noted. "The nature of households and the rate at which they dissolve and reform, the nature of work and its transient nature across geographies are all things that suggest that maybe, just possibly, a middle-class American shouldn't stake themselves to an illiquid, very large, concentrated, leveraged asset —- that is to say, a house." [read more...]

Everything old is new again. Both of these articles blame Fannie Mae and Freddie Mac for the mortgage meltdown, when the opposite is true. It isn't the middle class, minority or lower income buyers who caused the meltdown. In fact, the wealthy walked away from their mortgages when they found themselves upside down in a weak housing market -- not the middle class.

The subprime market made a lot of money for a lot of people. Easy credit and low interest rates enabled homeowners to sell for prices far above a realistic market price, while misleading buyers into believing they could actually afford a home at a price that was two to three times the value of the property. It drove developers to build at a record pace and in some cases, to self-finance their developments so they could pull more profit when the developments sold.

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I can think of very few reasons (none of them good) why Obama is so determined not to fix the actual problems in the banking industry. Economist James Galbraith spells out what needs to be done:

When the crisis went public in August 2007, Henry Paulson's Treasury took every step to prevent the final collapse from happening before the 2008 elections, extracting billions from the Federal Housing Authority and from Fannie Mae and Freddie Mac to relieve the pressure on bank balance sheets. It worked until it didn't. In September 2008 the collapse of Lehman triggered the collapse of American International Group (AIG) and the steps that led to the Troubled Assets Relief Program (TARP) and to the effective nationalization of the commercial paper market, meaning that the Federal Reserve has become the primary short-term funder of major American corporations.

Upon taking office, President Obama had a chance to change course and didn't take it. By seizing the largest problem banks, the government could have achieved clean audits, replaced top management, cured destructive compensation practices, shrunk a bloated industry, and cut the banks' lobbying power and therefore their capacity to obstruct financial reform. The way to write-downs of bad mortgage debt and therefore to financial recovery would have been opened.

None of this happened. Instead the Treasury administered fake "stress tests" and relaxed mark-to-market accounting rules for toxic assets which permitted the banks to defer losses and to continue to carry trash on their books at inflated values. This reassured the banks that they would not be permitted to fail—and so back to bonuses-as-usual they went. The banks survived, and the administration today claims this “proves” they didn’t need to be taken over. But to what end did they survive? The banks are bigger, more powerful, and more obstructionist than ever—and largely uninterested in making new commercial, industrial, or residential loans.

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One of the most tragic consequences of the subprime mortgage crisis has been the toll minorities have paid. Republicans point to Fannie Mae, Freddie Mac and ACORN as the mortgage Satans of the 21st century, but the truth is something else entirely.

Here's one example:

For two decades, Tyrone Banks was one of many African-Americans who saw his economic prospects brightening in this Mississippi River city.

A single father, he worked for FedEx and also as a custodian, built a handsome brick home, had a retirement account and put his eldest daughter through college.

Then the Great Recession rolled in like a fog bank. He refinanced his mortgage at a rate that adjusted sharply upward, and afterward he lost one of his jobs. Now Mr. Banks faces bankruptcy and foreclosure.

“I’m going to tell you the deal, plain-spoken: I’m a black man from the projects and I clean toilets and mop up for a living,” said Mr. Banks, a trim man who looks at least a decade younger than his 50 years. “I’m proud of what I’ve accomplished. But my whole life is backfiring.”

Like so many, Mr. Banks was lured by the promises made by the big banks like Wells Fargo and others: Refinance your home, take out some money for yourself, and hey, the interest rate will be low...for awhile, anyway.

The squeeze came for him when the interest rates on that variable rate mortgage rose and his income dropped. While it's not limited to minority borrowers, the impact on minority communities has been deeper than on white communities, largely because the unemployment rate is much higher.

Black middle-class neighborhoods are hollowed out, with prices plummeting and homes standing vacant in places like Orange Mound, White Haven and Cordova. As job losses mount — black unemployment here, mirroring national trends, has risen to 16.9 percent from 9 percent two years ago; it stands at 5.3 percent for whites — many blacks speak of draining savings and retirement accounts in an effort to hold onto their homes. The overall local foreclosure rate is roughly twice the national average.

It appears that the higher foreclosure rate is no accident. In fact, it seems that Wells Fargo targeted minorities to market higher-risk loans. At least, that's the accusation causing federal authorities to take a closer look at their lending practices there.

Camille Thomas, a 40-year-old African-American, loved working for Wells Fargo. “I felt like I could help people,” she recalled over coffee.

As the subprime market heated up, she said, the bank pressure to move more loans — for autos, for furniture, for houses — edged into mania. “It was all about selling your units and getting your bonus,” she said.

What follows next is a story told across the country, but when the scam is played on a community just beginning to get a toehold on forward economic progress, the setback is one that may take more than a generation to overcome.

She described tricks of the trade, several of dubious legality. She said supervisors had told employees to white out incomes on loan applications and substitute higher numbers. Agents went “fishing” for customers, mailing live checks to leads. When a homeowner deposited the check, it became a high-interest loan, with a rate of 20 to 29 percent. Then bank agents tried to talk the customer into refinancing, using the house as collateral.

Ask a conservative and they'll tell you those people shouldn't have believed they'd get something for nothing. Well, I beg to differ. In the subprime heyday, phone calls rolled in here at record pace, promising us we could refinance our home and pull out enough cash to retire. When our middle son graduated from high school we were inundated with offers to refinance to send him to college. We had already been stung during the S&L crisis, so we knew it was a scam. But to the uninitiated, it seemed like a step up.

But then, look what happens:

Two years ago, his doorbell rang, and two men from Wells Fargo offered to consolidate his consumer loans into a low-cost mortgage.

“I thought, ‘This is great! ’ ” Mr. Banks says. “When you have four kids, college expenses, you look for any savings.”

What those men did not tell Mr. Banks, he says (and Ms. Thomas, who studied his case, confirms), is that his new mortgage had an adjustable rate. When it reset last year, his payment jumped to $1,700 from $1,200.

We've heard all of these stories before, but in Memphis the result is deep, dire and depressing.

“We’re wiping out whatever wealth blacks have accumulated — it assures racial economic inequality for the next generation,” said Thomas M. Shapiro, director of the Institute on Assets and Social Policy at Brandeis University.

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It was Glenn Beck's turn to host new Fox News Analyst Sarah Palin yesterday. It was actually an incredibly boring interview, since Beck mostly seemed interested in whether Palin hung on his every word or not and bought into his theory that Obama is a radical black Marxist bent on destroying America. She did, of course.

It featured all of Beck's tired schticks, including his claim that Republicans like George W. Bush and John McCain are actually "progressives":

Beck: It killed me to vote for John McCain. And I voted for John McCain because of you. Um, John McCain is a progressive. John McCain -- he's an honorable man.

Palin: He is an honorable man.

Beck: He is an honorable man. And that goes a long way -- there's, I mean, that's a rare island to find. He's an honorable man. But he's also a progressive.

He's big government, he was for the bank bailouts, he was for the uh, uhm, health care. He's for all of it. He's for all of it.

Palin played along, pointing out: "Look what he's doing now!" and generally suggesting that those naughty wayward conservatives had gotten the gospel of Glenn and were back on the right track.

Beck seems utterly unaware that, in fact, Palin was for the bank bailouts too.

As you can see from the additional footage we included in the above video, Palin vocally supported the bailouts in her vice-presidential debate with Joe Biden, praising McCain's supposed work in trying to get the bailout package passed:

John McCain thankfully has been one representing reform. Two years ago, remember, it was John McCain who pushed so hard with the Fannie Mae and Freddie Mac reform measures. He sounded that warning bell.

People in the Senate with him, his colleagues, didn’t want to listen to him and wouldn’t go towards that reform that was needed then. I think that the alarm has been heard, though, and there will be that greater oversight, again thanks to John McCain’s bipartisan efforts that he was so instrumental in bringing folks together over this past week, even suspending his own campaign to make sure he was putting excessive politics aside and putting the country first.

As Dave Weigel noted awhile back, this was just after McCain had "suspended" his campaign to return to Washington to attempt to push the bailout through.

In late September, Palin also defended the bailouts in her interview with Katie Couric:

Palin: That’s why I say, I, like every American I’m speaking with, were ill about this position that we have been put in where it is the tax payers looking to bail out.

But ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up the economy– Helping the — Oh, it’s got to be about job creation too. Shoring up our economy and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions and tax relief for Americas. A

And trade we’ve got to see trade as opportunity, not as a competitive scary thing. But 1 in 5 jobs being created in the trade sector today. We’ve got to look at that as more opportunity. All those things under the umbrella of job creation.

This bailout is a part of that.

That is, it's a defense of sorts. Actually, it makes no sense whatever -- it's just a big pot of policy-wonk words thrown together in a way that I think Palin hoped sounded like it made some kinda sense.

The only thing that's really clear from all this is that not only was Palin a full supporter of the bailouts, she was a big fan of health-care reform. In fact, she seems to have believed the bailouts would help reform health care. Eh?

No wonder her followers are similarly awash at sea.

Not to mention her interviewers.