Blame game won't help distressed homeowners

There’s a big pile-on, calling for President Obama to fire the housing bureaucrat who’s blocking the latest administration housing initiative to reduce principal for underwater homeowners.

Ed DeMarco, who heads the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is a Republican holdover appointed by President Bush.

Though DeMarco is supposed to be only acting head of the agency, President Obama has never replaced him.

Now DeMarco is refusing to allow Fannie and Freddie to implement a recent initiative that would offer principal reduction to homeowners who owe more or their mortgages than their homes are worth since the housing bubble burst.

DeMarco’s position is full of holes: he’s worried that if the government doles out principal reductions to some homeowners, homeowners who don’t qualify will lower their incomes and get behind on the their mortgages just to get in line for a principal reductions.  And DeMarco claims that principal reduction would be bad for taxpayers, even though his own agency’s research proves him wrong.

Lots of smart folks, including the New York Times’ Paul Krugman, are calling on the president to fire DeMarco. For Krugman and the Democrats, it’s just the latest example of Republicans blocking the President and the Democrats at every step from fixing the economy.

It’s certainly true that Republicans have done nothing themselves to get the economy going and focused solely on demonizing the president and the Democrats.

But do you remember that fiery speech the president gave blasting the presumed Republican presidential candidate, Mitt Romney, for his do-nothing approach to the foreclosure crisis?

Do you remember the president’s strong speeches blasting Republicans’ efforts to blame the foreclosure crisis on borrowers rather than the big banks?

Neither do I.

Is it the Republicans’ fault that the president and his administration have pursued one failed strategy after another that propped up too big to fail banks while not substantially helping homeowners?

Is it Republicans’ fault that the president abandoned one of his campaign promises and failed to push for what could have been one of the most effective strategies to force intransigent banks to renegotiate with strapped borrowers – so-called judicial cram-downs of mortgage debt in bankruptcy court.

That would have allowed bankruptcy judges to reduced mortgage debt as they can other kinds of debt. But it would have accomplished the larger purpose of encouraging bankers to renegotiate with borrowers before they ever got to bankruptcy court.

Only now, after more than three years, when there is a real, live Republican to blame, has Treasury Secretary Timothy Geithner come out swinging – not with aggressive new policies, but against DeMarco.

Two astute observers of government response to the foreclosure crisis, David Dayen at Firedoglake and Yves Smith of Naked Capitalism have pointed out that the Obama administration has been slow to embrace principal reduction in the first place or to convince the public that it’s needed.

In addition, the administration needs to do more to overcome another huge hurdle: under the tax law, the amount of principal reduction will be taxable when a temporary exemption expires at the end of the year.

By all means, the president should fire DeMarco. He should embrace a fight with Republicans when they try to block a permanent appointment to the post. But that should only be the beginning. He should also fire Tim Geithner, who has directly overseen so many of the administration’s previous attempts to deal with housing, which range from the merely feeble to incompetent and downright disastrous. As Neil Barofsky points out, it’s Geithner himself who has stood in the way of principal reductions previously.

If the president and the Democrats are just interested in politics, using DeMarco as a scapegoat will probably help them score some points. But if they’re serious about using principal reductions, the president needs to tackle the opposition directly and convince the public that principal reduction can be a useful tool. And President Obama needs to confront the arguments against them forcefully, whether those arguments come from foot-dragging bankers and investors or dug-in Republicans.

 

Foreclosures / Martin Column - 08/06/2012

Betrayals and Bailouts

In the latest betrayal from Freddie Mac, the same clever devils who helped bring us the financial collapse three years ago, there is unfortunately no surprise.

The high rollers who run the company, whose mission is supposed to be to support homeowners, apparently still think it’s a good idea to use our homes as a casino.

That’s the conclusion reached in an investigative report by NPR/Pro Publica, which found that Freddie Mac had placed billion-dollar investment bets that paid off when borrowers couldn’t refinance from high-interest mortgages into more affordable loans.

According to the NPR/Pro Publica report, Freddie Mac increased “these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.”

In effect, Freddie Mac combined high interest mortgages into packages of securities and sold some to speculators, but it kept the ones that would result in the biggest profits so long as the homeowner never refinanced. Freddie Mac stands to lose if its customers refinance and taske advantage of lower rates.

Freddie Mac was betting against homeowners even though taxpayers had bailed out it and its larger sister, Fannie Mae and the government placed the under a conservatorship after the housing bubble burst in 2008 and it faced mounting mortgage losses.

Though Freddie Mac and Fannie Mae are known as government-sponsored entities, they in fact have been private, profit-making entities for four decades.

Congress created Fannie and Freddie as private companies with a public mission ­– supporting homeownership, by insuring the mortgages issued by commercial lenders. But the companies had government officials sitting on their boards, and got breaks on taxes and recordkeeping requirements.

During the real estate bubble, the two firms adopted all the bad behavior of other big financial institutions – and worse. Authorities found that at Fannie Mae, senior executives cooked the books between 1998 and 2004, making it look like they hit profit targets in order to justify $115 million in bonuses. Three top executives eventually reached a $31.4 million settlement [with govt or private private pre-bailout] – without admitting guilt.

Executives at the Freddie Mac and Fannie Mae spent millions on campaign contributions and lobbying, courting both Democrats and Republicans (including presidential contender Newt Gingrich) in a successful campaign to ward off more stringent regulation and tighter reins on their bookkeeping, all the while taking on greater amounts of risk, establishing close ties with one of the worst offenders in spreading toxic loans, Countrywide Bank. Meanwhile executives at the two firms were paid lavishly, even after the bailout.

Republicans love to blame the GSEs for the financial collapse, labeling them do-gooder agencies who went wrong in pursuing too aggressively an agenda of providing housing to low-income people.

In his excellent autopsy of the financial collapse, “The Great American Stick-up,” Robert Scheer finds merit in much of the conservative critique. He labels the Fannie Mae and Freddie Mac “highly culpable” for causing the financial crisis – but not for the reasons Republicans say. While the GSEs used the rhetoric of helping people, their efforts to boost low-income and middle-class wasn’t their primary mission, or the reason for their downfall.

Fannie and Freddie didn’t go under because they were trying too hard to help people; it was because they were doing everything they could to super-charge their profits, just like the Wall Street firms.

Scheer quotes the testimony of a one-time regulator, Armando Falcon, who faced stiff opposition from Republicans as well as Democrats when he tried to rein in Fannie and Freddie. Falcon testified in April 2010 before the Financial Crisis Inquiry Commission, which investigated the causes of the meltdown. “The firms would not pursue any activity…unless there was a profit to be made,” Falcon said. “Fannie and Freddie invested in subprime and Alt A mortgages in order to increase profits and regain market share. Any impact on meeting affordable housing goals was a by-product of the activity.”

 

 

 

 

Executive Pay / Foreclosure / Martin Column - 02/07/2012

Mr. President, Keep Your Promise

President Obama got generally high marks earlier this month for “getting it” after he struck a populist tone in his speech at Osawatomie, the Kansas town where he evoked the progressive spirit of former president Teddy Roosevelt.

But if he really wants to do something about the economic pain Americans continue to suffer, the president could start by keeping a campaign promise he made – to lead a fight to reform bankruptcy laws to allow judges to modify mortgage loans in their courts.

Under heavy pressure from bankers, the Senate defeated such a proposal in 2009, while the president and his administration remained silent on the sidelines.

At the time, Illinois Sen. Dick Durbin said bitterly, referring to Congress, the big banks “frankly own the place.”

The administration’s refusal to address the foreclosure crisis remains one of the sorriest aspects of its consistent underestimation of the depth of the economic crisis.

Earlier this month, the non-profit investigative journalism outfit Pro Publica filled in the details on how the administration pooped out on the president’s campaign promise. It turns out that many on the president’s bank-friendly economic team were never enthusiastic about cram-down.

The idea behind judicial cram-downs is to treat mortgage debt the same as other debts which bankruptcy judges are permitted to reduce as part of a bankruptcy.

The impact would be to encourage bankers to reduce principal on mortgages before they ever got to bankruptcy court. Judicial cram-down would be far more effective than the Obama administration’s previous failed programs intended to address the foreclosure crisis, which offered banks insufficient incentives to voluntarily modify loans with inadequate government oversight.

Part of the reason the president can’t hammer the Republicans for their lack of any plan to address foreclosures is that he hasn’t come up with a decent plan of his own – and that he didn’t fight hard enough for a solution like cram-down, which lost by six votes in the Senate, including 12 members of the president’s own party.

In addition, 11 Republicans who represent states among the hardest hit by the foreclosure crisis also voted against cram-down.

Couldn’t a tougher, savvier, more committed fight by the president come up with the seven or so votes needed to win this fight?

As the  president takes on the big banks. he may take encouragement from these words from the predecessor he evoked so successfully at Osawatomie:

“The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

 

Foreclosure / Martin Column / President Barack Obama - 12/28/2011

An Enforcer For the 99 Percent?

 California’s attorney general, Kamala Harris, has staked out the high ground in promising to hold bankers accountable and protect borrowers in the continuing foreclosure crisis.

So far she’s formed a mortgage fraud task force and walked away from the weak settlement with the banks over mortgage servicing fraud that the Obama administration and the majority of state attorney generals have been trying to foist on the public.

Then earlier this week she told the executive who oversees Fannie Mae and Freddie Mac, the federally bailed out quasi-public agencies, he should quit if he won’t consider principal reduction as a tool to help underwater homeowners.

Here’s hoping that Harris can build on the foundation she’s laid.

She has a real opportunity to set herself apart from other Democratic Party politicians, from the president to the congressional leadership and others who have opted for strong PR rather than real enforcement.

But she has her challenges ahead of her.

An ambitious politician who chaired the president’s campaign in California in 2008, Harris will have to go against the political grain if she really wants to hold bankers accountable and fight for homeowners.

Prosecuting bankers is never easy. Her agency, the state attorney general’s office, has had a woeful record on consumer protection. It’s been a long time since John Van de Kamp, when he was attorney general, launched his aggressive antitrust campaign.

As we know, bankers have been lubricating the political system to protect themselves against the consequences of the excesses. They spare no expense in hiring legal talent and defend themselves with a self-righteous fury. The legal system has had an unfortunate tendency to show great deference when the lords of the universe show up.

But as William Black, the former bank regulator turned law professor, has pointed out, it can be done. Bankers can be held accountable. It was done after the savings and loan debacle in the 1980s.

If prosecutors have the tenacity, the resources and the chops, they can go after bankers like they do gang members. First you go after the less powerful, more vulnerable players, squeezing them to gain information, and find documents to gradually build cases against the higher-ups.

Harris will be at a disadvantage without federal help – when prosecutors decide to take out a gang, they form a multiagency task forces, using all the agencies of federal, state and local officials.

We’ve seen just how disinterested the feds are in going after bankers. Local prosecutors around the country haven’t shown much stomach for the job either.

But if she is pursues her task in a determined and savvy way she will find wide and enthusiastic support among a crucial group that have become disenchanted with other politicians – the 99 percent.

If you’re in the Los Angeles and you want to hear more about this from William Black himself, he’s scheduled to participate in a stellar panel at Occupy LA at City Hall moderated by Truthdig’s Robert Scheer. Black, a law professor at University of Missouri-Kansas City, will be joined by Michael Hudson, Joel Rogers, a professor of law, political science and economics at the University of Wisconsin, and via live stream, Michael Hudson, a financial analyst who also teaches economics at UM-KC.

 

California Attorney General Kamala Harris / Martin Column / Occupy - 11/05/2011

Channel surfing at the White House

I went to the White House Friday week for a full day listening and talking back to top White House officials with about 100 Democratic activists and organizers from California, organized by the Courage Campaign.
The White House folks seemed to listen hard. Gathered in an auditorium in the Eisenhower Executive Office Building, we heard from top staff including chief of staff Bill Daley, senior advisors David Plouffe and Valerie Jarrett, EPA chief Lisa Jackson, and Labor secretary Hilda Solis, along with other staff on specific issues. They asked us not to offer specific quotes from people, but they didn't offer up any juicy secrets or stray from the administration talking points we've all heard before.
They got an earful of what they have certainly heard before as well: like many others across the country, we wanted the president to fight harder for bolder programs to reduce unemployment and address the foreclosure crisis.
There were a series of breakout sessions on a variety of issues: immigration, lesbian and gay rights, labor and environment. But the concerns were the same. Would the president fight harder? When would he compromise and how much would he give away? I was disappointed that the White House didn't offer a breakout session on a especially critical issue for Californians: the foreclosure crisis.
According to the White House, President Obama doesn't get credit for how he hard he has fought against tough foes and and an economic crisis he didn't create. They cited his recent, trip to the bridge between Rep. John Boehner's and Sen. Mitch McConnell's districts where he channeled former president Ronald Reagan, exhorting the Republican leaders, "Help us repair this bridge."
I keep wishing President Obama would channel FDR, who thought that government could actually work with people to solve problems, instead of Reagan, who preached that government was itself the problem, and that it should be starved, shrunk and gotten out of the way.
Channeling one of Reagan's pithy phrases might be OK, but we'll never reduce unemployment right now using the Gipper's approach.
For that, we'll need the fearless, positive, can-do approach of FDR, who knew that government could help when the private sector wouldn't. He never achieved his goal, according to William Leuchtenberg, in Franklin D. Roosevelt and the New Deal. That was to put ALL unemployed Americans in the Depression to work. His programs only created jobs about a third of them, but not for lack of trying.
Not all of his program was so simple, but some of it was. For example, he gave unemployed white-collar workers jobs teaching people to read.
While he didn't face the monolithic, intransigent opposition President Obama faces in Congress, he offered a bold and pragmatic vision that included vilifying the bankers whose wild speculation threw the country into Depression, and acknowledging that the country was a in a deep crisis that would require dramatic, sustained government action.
Measuring Obama's Jobs Act by the standard of what FDR was able to accomplish, you can see how his proposal falls short. If Republicans passed it whole, which is unlikely, it would create at most 1.9 million jobs, providing work for nowhere near one-third of the nation's unemployed.
Obama's plan appears to be motivated by fear - fear of failure, fear of Republican rejection, fear of alienating independent voters, when what we need is audacity.
It does not seem to be motivate by an audacious vision of government action that would actually get the country back to work.

The jobs plan still might not pass, but what people are hungry for, more than bipartisanship, is that audacious vision that Obama promised and FDR delivered.
Has President Obama been so busy channeling Reagan that he forgot what FDR said about fear?
Mr. President, tune in to the right channel!

Martin Column / Outrage / Uncategorized - 09/26/2011

Bold Lite

Maybe President Obama's jobs plan will succeed in making congressional Republicans look bad before the 2012 election, especially if they reject it and demonize it as another socialist plot.

But even in the unlikely event that the congressional Republicans pass it whole, would the president's $440 billion grab bag offer significant solutions to Main Street’s most pressing problems – reducing the unemployment rate and halting the foreclosure crisis?

Probably not.

It’s true that the president and his administration did not dig the deep economic hole the country is in. And the president deserves some credit for stepping out of Washington’s deficit obsession bubble just long enough to recognize that nothing the government has done so far has been enough to lift those outside Wall Street out of that hole – the worst economic downturn since the Great Depression.

But throughout his administration, and again last night, he has not offered big enough shovels, to dig us out of it.

As Paul Krugman [who labels the plan “a lot better than nothing”] points out, the collapse of the housing bubble blew a  $1 trillion a year hole in the economy, a hole that last night’s jobs plan won’t come close to filling.

But a comparison of the jobs plan’s $440 billion price tag with the unsuccessful $16 trillion bank bailout suggests its relative timidity. Remember that the federal government handed over that money to the bankers with no strings attached and no questions asked.

While the administration likes to tout the bank bailout’s success by bragging that most of the money has been repaid, by its most important measure – ensuring that the banking system helped restore the Main Street economy - it remains a costly failure.

Still you have to at least acknowledge that the bank bailout was a bold scheme. The same can’t be said for the American Jobs Act, which as the president stressed, was a collection of non-controversial proposals that even corporate Republicans have endorsed in the past.

Call it Obama’s “bold lite.”

Yes, it was bolder than what the president has suggested since the original $700 billion stimulus. It includes $240 billion of tax cuts and about $200 billion in infrastructure spending and aid to local governments, along with regulatory review, a vague housing scheme, plus a significant new round of budget cuts to pay for it, including unspecified threats to Medicare.

According to an estimate by Economic Policy Institute, the new plan, if passed whole, would create 2.6 million new jobs over the next several years and prevent the loss of another 1.6 million jobs.

That’s not chopped liver – but the country is still staggering under the weight of persistent 9 percent unemployment, with 14 million Americans unemployed, another 8.8 million working part-time but seeking fulltime work, and another 2.6 million who don’t show up in unemployment numbers because they’ve given up looking for work. In addition, we face a continuing foreclosure crisis and the threat of future budget cuts.

While I hope that the congressional Republicans don’t just decide to block the proposal, experience suggests that they are stuck on that strategy as a way to undermine the president. Will “a lot better than nothing” be good enough to help millions of Americans for whom the recovery has only been a mirage? Or is the president setting himself up, and the rest of us, for another round of dashed hopes and failure?

Uncategorized - 09/10/2011

Real Fraud, Faux Enforcement

The number one question people ask me when they find out I write about the financial crisis is: “How come nobody has gone to jail?”

I think I have found an explanation. His name is Robert Khuzami and he works as chief of the Securities and Exchange Commission’s enforcement division.

He is not the literal reason. SEC enforcement is civil, not criminal. So he’s not responsible for putting people in prison.

But focusing on Khuzami puts into sharp focus the conflicts at the heart of the government’s efforts to regulate and hold accountable the big banks.

Khuzami is a former federal prosecutor. But he came to the SEC from a high-profile position he took after his stint as a lawman: he served as general counsel to Deutsch Bank, one of the world’s largest investment banks, which had a massive business in the securitized mortgage loans, and was the recipient of nearly $12 billion in “backdoor bailout” federal funds funneled through AIG.

The Wall Street Journal reported that Khuzami was the first SEC enforcement chief to come directly from a big bank. He is one in a long line of Obama economic appointments with strong ties to the financial industry, who either worked for the banks directly or in their interests by favoring deregulation that was one of the major causes of the economic collapse.

Now Khuzami’s former employer, Deutsch Bank, is in hot water with the feds, who sued the bank earlier this month alleging that the “bank committed fraud and padded its pockets with undeserved income as it repeatedly lied so it could benefit from a government program that insured mortgages,” Business Week reported.

For the SEC, it’s all kosher because its stringent recusal policy assures that Khuzami won’t work on any Deutsche Bank cases.

Remember that Khuzami was not just a guy punching a clock. He was the bank’s general counsel, so he supervised legal issues for the firm.

So here was a former federal prosecutor who, in the midst of the go-go real estate boom, apparently thought it was OK for his bank to commit mortgage fraud. Zero Hedge dug up his financial disclosure statement, which reveals he was compensated nearly $4 million in salary and bonuses between 2006 and 2009, and may lose money if Deutsche Bank suffers as a result of the government’s lawsuit.

The president and the SEC, knowing what kind of mischief the too big to fail banks were engaged in during the boom, and how Khuzami had profited from it, thought it was a terrific idea to appoint somebody like him to go after his former cronies.

Khuzami’s tenure at SEC has been marred by accusations that he gave two Citibank executives preferential treatment in agreeing to drop charges against them after he met secretly with their lawyer. In January, the SEC’s inspector general said it was investigating the matter.

Is there no one but former bankers available to work in the financial sector? The president, with $1 billion to raise to fund his reelection effort, has been unwilling to dig into the fraud at the heart of the financial collapse. Until he does, the economic recovery will be built on quicksand.

 

AIG / Martin Column / President Barack Obama / Securities and Exchange Commission (SEC) / Too Big To Fail - 05/11/2011

Will Afghan Bailout Trump U.S. Homeowners?

At least you know where the Tea Party stands. If it’s a government program, they want to end it.

The Democrats are murkier. They propose tepid solutions to serious problems like the foreclosure crisis, then when their programs don’t work it, ends up reinforcing the Tea Party’s arguments that government doesn’t work.

So the Tea Party-driven Republicans come along and want to whack the Obama administration’s failed foreclosure prevention scheme known as the Home Affordable Modification program. They would probably want to whack it even if it was working, but that’s another subject.

The Tea Party doesn’t offer anything in its place. Homeowners are pretty much on their own at the mercy of the banks.

So much for the American Dream.

Many people have pointed out that the HAMP program is something between an abject failure and a scam that rips off already beleaguered homeowners.

The Obama administration doesn’t offer so much of an argument in its defense as a hapless shrug. In this video, Treasury Secretary Timothy Geithner acknowledges that the foreclosure prevention program amounts to a “tragic, terrible mess.”

But hey, the administration says, it’s better than nothing.

Meanwhile, the foreclosures continue while authorities investigate massive fraud by the banks in the foreclosure process.

This is not a debate calculated to offer much confidence that our public officials can deal effectively with the problems that afflict those of us who live in the reality-based community.

I was reflecting on this tawdry spectacle while reading about the latest developments in the latest “too big to fail” bank bailout to strike at U.S. taxpayers – this one in Kabul, Afghanistan. My colleague Harvey Rosenfield warned about this brewing fiasco several weeks ago.

Apparently the wildly corrupt officials and their cronies used the bank as their private piggy bank, and the bank’s imminent collapse is now a greater threat to Afghanistan’s security than the Taliban.

As recently as last September, officials were offering assurances that U.S. taxpayers would not have to pay for a bailout. Now apparently if we don’t cough up $1 billion the war and the country will be lost and all the previous billions we’ve squandered there will have been wasted.

So we can’t afford a dime to help homeowners in this country but we must spend $1 billion to bail out the Afghans.

I don’t expect the Democrats to put up much of a fight against such an outrage.

I hope the Tea Party stands strong on this one.

 

 

 

Around the Web / Foreclosures / Martin Column / Outrage / Too Big To Fail - 03/02/2011

Fill In the Blanks

A New Yorker story published online this morning describes yet another example of a financial debacle abetted by government corruption. As I read the first paragraph, it struck me that the basic plot is always the same – all you need to do is fill in the blanks:

In the spring of _______, as the reelection campaign of ______ was gathering momentum, a group of prominent _____ businessmen met for breakfast at the ________ to see the candidate. Among them was _____, the chief executive officer of _____, a fast and freewheeling financial institution that had brought together some of the most colorful and politically well-connected _____ in the country….

Last week’s final report of the Financial Crisis Inquiry Commission explains in intricate detail why and how the U.S. economy imploded in 2008, but isolates no single, primary cause of the crisis. The Commission says that the crisis was “avoidable” and notes that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets,” but this is just one Commission conclusion of many. As Joe Nocera points out, the report never gets to the bottom line.

Our report, “Sold Out: How Wall Street and Washington Betrayed America,” published in March 2009, got right to the bottom line in its title. We didn't need subpoena power or a large staff to figure out what happened, just the willingness to say what everybody in the Wall Street/Washington axis of power already knew. Between 1998 and 2008, Wall Street invested $5 billion in Washington, a combination of money for lobbying and campaign contributions that won deregulation and other policy decisions that enabled the financial industry to do as it pleased. The ensuing orgy of unbridled speculation, based on "derivatives" and other financial schemes that even the CEOs themselves didn't understand, came to a halt when the housing bubble burst and Wall Street couldn't even figure out the value of the investments it held. The financial industry panicked, threatened to shut down the system, and got the government to undertake the mother of all bailouts - trillions of dollars in loans, tax breaks and other goodies.

In short: the power of money poisoned our policies and our politics, with dire consequences for all of us who don't enjoy the special favors that only vast quantities of money can buy.

The Commission, created and appointed by Congress and composed of members of the political elite, could not possibly issue that indictment. Which is why the discussion of the bailout – the most obvious example of the special status of the privileged in our country – is a measly five pages out of 410.

The American public deserves better. In other man-made national disasters, like the explosion of the Challenger space shuttle 25 years ago, experts in the field – astrophysicists, geologists, academics – were asked to undertake an independent investigation. Their reports secured the confidence of the public, and led to remedial actions. NASA was not allowed to investigate itself, and lo and behold, it turned out that the culture at NASA was ultimately responsible for a design defect in the rocket.

Because it retreats from the fundamental truths, the Commission's report does nothing to help us come to grips with the root cause of the financial crisis: the corruption of our democracy by special interest money.  I know from more than thirty years of fighting for consumer rights – particularly in the insurance marketplace – that industry lobbyists and unlimited money to politicians almost inevitably kill  legislation that would help average people. Even the feeble, loophole-ridden campaign laws that limited how much big corporations could spend in elections are in jeopardy, thanks to the United States Supreme Court’s decision last year in the Citizens United case, which decreed that corporations have the same First Amendment rights as human beings. Here in California, the voters have the ability to go around a paralyzed legislature and put matters on the ballot for a direct vote of the people, but even this populist process is increasingly abused by special interests that want to block consumers from having their day in court, or by a single company like Mercury Insurance, who thought it could fool the voters into permitting auto insurance overcharging.

Naming a thing for what it is aids understanding, which leads to action and ultimately recovery. Absent the cleansing force of honesty, we remain rooted in fear for our kids, for America’s future. Indeed, there is something deeply foreboding about the country’s degraded democracy and disabled economy. Some of the old clichés are becoming a sickening reality. We used to idly wonder, are we Rome, a corrupt empire in the process of collapse? A thoughtful, almost poetic book by that name, written by Cullen Murphy, suggests we are.

The term “third world” was once a sneer, connoting abject poverty, corruption, gross disparities between rich and poor, the absence of government services, a state controlled by a cabal of self-perpetuating leaders. Now consider the statistics on post-collapse America, which Arianna Huffington marshals in her latest book, "Third World America."

This would be a good point to fill in the blanks in the piece I excerpted above from the New Yorker story. The missing words are: 2009, President Hamid Karzai, Afghan, presidential palace, Khalil Ferozi, Kabul Bank, Afghans. Yesterday’s New York Times reported that fraud and mismanagement at the largest bank in Afghanistan has resulted in $900 million in losses, potentially triggering a financial debacle. Kabul Bank is “too big to fail,” according to Western diplomats quoted by the Times. It's the same story everywhere, and thus it would hardly come as a surprise if U.S. taxpayers ended up funding the bailout of Kabul Bank.

Congress / Financial Crisis Inquiry Commission / Harvey Column / Too Big To Fail - 01/31/2011