Tell Mitt: Don't run campaign on drug money

Imagine if U.S. politicians took financial contributions skimmed from the ill-gotten gains of bloody Mexican drug cartels and terrorists.

Imagine further that those who profited off the drug gangs used their murder-tinged cash to lobby the U.S. Congress.

You don’t have to strain yourself, this is not some sordid fantasy concocted by Hollywood to horrify and entertain you. This is the reality created by Wall Street’s finest and our leading politicians.

The latest sorry chapter in Wall Street’s waltz with the drug-dealers is laid out in a report by the Senate Permanent Committee on Investigations. Officials of the British too big to fail bank HSBC acknowledged that despite repeated warnings, they failed to stop drug and terror-tainted deposits from moving through the bank.

According to the report, HSBC, one of the world’s largest banks with a strong U.S. presence, “exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering controls.”

In 2007 and 2008, the Senate committee found, HSBC moved $7 billion in bulk cash from Mexican to its U.S. operations, even though authorities warned that the money was proceeds from drug sales.

HSBC was doing a thriving business with well-known cash exchange businesses used by the drug cartels known as casas de cambio, despite repeat warnings that they were fronts. Years after other banks had cut them off, HSBC continued to do business with the casas de cambio.

Mexican drug cartels weren’t the only ones taking advantage of HSBC’s lax controls. Middle East bankers with links to Al Queda also found HSBC a hospitable environment in which to conduct business.

You might think that the authorities would have roast HSBC officials on a spit.

Far from it: in 2008, regulators rewarded HSBC with $3.5 billion from taxpayers in a backdoor bailout, in payments funneled to the bank’s U.S. subsidiary through AIG.

Now HSBC’s bankers have been humiliated at a public hearing and the company’s shareholders may be forced to pay as much as $1 billion in fines.

Still, from the bankers’ perspectives, you would have to say money laundering and bailouts have been very, very good to them. Even after they pay the fine, they’d have more than enough to pay for the $125,000 they’ve given to congressional candidates so far this election cycle, and the $5,700 they’ve doled out to Mitt Romney. The left-over laundered money will also help defray the costs of the $900,000 worth of lobbying the bank has done this year.

I’m confident now that the full extent of HSBC’s misdeeds has become known, Romney and the other politicians will want to have nothing to do with this dirty money and will be clamoring to give it to charity.

But just in case it slips their minds in the rush of doing the people’s business, we should help them out. Mitt can provide a good example by being the first to get rid of the drug and terror money.

 

 

 

Freakout in the Bonus Bubble

Did you hear the one about the hedge fund employee complaining that he’s got to scrape by on $350,000 this year because of his lower bonus?

This is not an anti-banker joke, it’s a Bloomberg News story.

In the story, reporter Max Abelson gets finance industry workers to open up about their feelings about their financial sacrifices in the wake of a reduction in bonuses this year.

One hedge fund marketing director acknowledges that he is “freaking out, like a rat in trap on a highway with no way out” because he will be unable to keep up with his kids’ private school tuition, summer rental and the upgrade to his Brooklyn duplex.

Bonuses were down about 14 percent across the financial industry last year in the wake of a second annual plunge in profits of more than 50 percent.

Noting that profits plunged a lot more steeply that the bonuses, the New York Times Dealbook column, which often takes the Wall Street view, couldn’t summon much sympathy. Reporter Kevin Rose sniffed, “It is apparently going to take more than shrinking bank profits to put a big dent in Wall Street bonuses.”

Wall Street bankers remain by any measure well paid, with an average annual compensation, including bonuses, of $361,180 in 2010, the last year for which averages are available. That’s 5 ½ times the average pay for Americans.

So to help put the bankers’ problems in perspective for the rest of us who might be having a hard time working up any empathy, Bloomberg rustles up a high-priced accountant.

“People who don’t have money don’t understand the stress,” said Alan Dlugash, a partner at accounting firm Marks Paneth & Shron LLP in New York who specializes in financial planning for the wealthy. “Could you imagine what it’s like to say I got three kids in private school, I have to think about pulling them out? How do you do that?”

What a load of malarkey.

What the Bloomberg report neglects to mention is that the financial industry actually compensated for the lower bonuses by raising bankers’ salaries.

While some bank defenders claim the brouhaha over bonuses is just envy, a report from New Bottom Line earlier this year puts the bankers’ bonuses into sharp focus. It found that bankers’ total compensation at the six biggest banks amounted to $144 billion last year – second only to the total paid out in 2007 before the meltdown.

Since the 2008 financial collapse, the banks we bailed have paid out a total of half a trillion dollars in compensation.

According to the report, if the bankers let go of just half of their compensation packages, banks could afford to underwrite principal on all the underwater mortgages in the country.

If bankers chose to forgo just 72% of their bonuses, they could fill the nearly $103 billion budget gap plaguing the nation’s city and states.

The bankers aren’t getting this money because they have contributed so much to the well being of the country. They’re getting it because they’ve captured both the political system and their regulators, who continue to do the bankers’ bidding. We can’t expect them, the bankers or the politicians or the regulators, to stop on their own.

We’re going to have to do it.

Check out our constitutional amendment to undo U.S. Supreme Court’s Citizens United ruling, which opened the gates wide for bankers and other corporate titans to influence our government with an unlimited and anonymous tidal wave of cash.

 

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.”

 

 

 

 

For foreclosure relief, occupy the Legislature

Two years ago, California legislators bowed to bankers when they failed to pass legislation that would require mediation between a bank and borrower before banks could foreclose on the borrower’s home.

But a recent report by the U.S. Justice Department should cause the Legislature to take another crack at making a critical choice: Do they want to provide tools to reduce foreclosures, or do they want to keep kowtowing to bankers?

California remains among the hardest hit by foreclosures: third worst in the country.

While foreclosure rates are going down nationally, that’s more a reflection of the continuing mess in the foreclosure process itself rather than any fundamental restoration of health in the housing market.

So the problem hasn’t gone away by itself.

Federal efforts to help homeowners have been ineffective because they’re voluntary for the banks, with inadequate government oversight. For the feds, foreclosure reduction efforts have consisted mainly of offering banks modest incentives for loan modifications, incentives that are less than the profit the bank, in its role as loan servicer, makes from foreclosing on homes.

As demonstrated by the California legislators’ previous refusal to embrace mediation, government officials at all levels have so far lacked the political will to force banks to take the action needed to stem foreclosures. Two years ago, Assemblyman Pedro Nava spearheaded the foreclosure mediation effort,  AB 1639,  which passed the Assembly but died in the Senate under fierce banking opposition. Consultant on the bill was Los Angeles mediator Laurel Kaufer, chair of the State Bar's ADR committee.

Around the country, there  have been a host of mediation programs around the country, with mixed results. ¶

Programs in Connecticut and Philadelphia successfully settled about three of every four cases, avoiding foreclosures. In Nevada, officials reported that about 42 percent of the cases in mediation settled without foreclosure. Nevada also reported another significant finding – the banks dropped many of the foreclosure attempts during the mediation process because there paperwork wasn’t in order.

But in late December, the Florida Supreme Court closed down its foreclosure mediation program after state officials determined it wasn’t working because so few cases eligible for mediation ended in settlement.

Then, just a couple of weeks later, the U.S. Justice Department issued a promising report calling for wider federal use of mediation in foreclosure and more research into how well it works.

The details of foreclosure mediation programs vary widely. The most successful programs, the Justice Department explained, are those that begin early in the foreclosure process, require mandatory participation, include some form of financial counseling for homeowners, are well publicized and require a high degree of transparency by the banks  – meaning that banks have to disclose how their foreclosure process works, including the secretive, often confusing criteria by which they grant loan modifications.

Will the feds blow this opportunity to attack the foreclosure crisis, as they bungled their earlier efforts? Or will finally get a clue and start taking effective action?

In California, we shouldn’t wait to find out.

This Justice Department report should give a boost to a renewed effort to require mediation in California foreclosures, and offers some guidance to California in how to create a successful mediation program.

But it will only happen if people mobilize against the banking lobby, which is sure to oppose any attempt to weaken bankers’ complete control over the foreclosure process.

We keep hearing how the Occupy movement has changed the debate, how issues that couldn’t gain traction six months ago can now get a fuller hearing. We should seize the opportunity to give legislators the opportunity to get the bankers off our backs.


Where’s Our Bailout? (Redux)

Between August 2007 and April 2010, the U.S. Federal Reserve handed out up to $1.2 trillion in public money to banks and other companies in the form of short-term loans to help them cope with cash flow problems, according to a recent report by the Bloomberg news service. In addition to U.S. banks and speculators, big bucks went to financial institutions owned by foreign governments; domestic firms like Ford and G.E. as well as Toyota and Mitsui and a German real estate investment firm.

While American taxpayers kept big businesses all over the planet alive, no such loans are available to taxpayers to cover their own personal cash-flow problems, including not being able to pay their mortgages, monthly bills, put food on their tables or a few holiday presents under the tree.

New figures, ironically also issued by the Federal Reserve, show how much help $1.2 trillion could be – if put in the hands of Americans. According to the Fed, the total amount of all money Americans owed on their credit cards as of last September was $693 billion. All of that could be paid off – in full – leaving another $500 billion, say, to help people avoid foreclosures or give every consumer in the United States a hefty tax cut.

Imagine the “stimulus effect” on our economy of paying off every credit card in the nation.

Although the Fed has portrayed the bailouts as the only way to keep money flowing in the economy, the Money Industry has yet to open its spigot and expand lending. Instead, they’ve used our dollars mostly to inflate CEOs’ executive salaries and pay themselves even more ridiculous bonuses.

Zeroing out America’s credit cards would solve that problem instantly. The credit card companies would get the money, of course, but Americans could start fresh and begin investing in their families, their businesses and their local economies.

Unfortunately, our country’s leadership owes its allegiance to the multi-national mega-corporations that grease the system with billions of dollars in campaign contributions. Wall Street’s “investment” in Washington caused the financial depression we are in today, and its no wonder that Washington’s attention is focused so narrowly on the welfare of the wealthy and large corporations. In fact, with its infamous decision equating corporations to human beings, the United States Supreme Court has turned the corruption of our democracy by money into a principle of our Constitution. Until we change that, Americans will be second class citizens in a country controlled by wealth and power.

 

`Bloodbath' in Taxbreakistan

Welcome to Taxbreakistan, where the same guys who profited from the financial crisis have launched a treacherous two-fisted propaganda campaign: attacking the benefits of the increasingly fragile middle class while protecting the gains the wealthiest accumulated from the bubble economy and the bailout.

The propaganda war is couched in terms of paternal sobriety and facing up to financial realities, making tough choices and sharing sacrifices.

According to the propaganda, the only thing preventing the anemic economy from taking off is that the wealthiest Americans who have an ever-increasing share of the nation’s wealth don’t have enough money yet. Aside from the wealthy not having their permanent tax cuts, the main impediment to the economic recovery, according to the propaganda, is continuing to pay unemployment checks to those out of work.

What a load of twaddle.

While the U.S. Chamber of Commerce and right-wing think tanks are leading the propaganda campaign, one of the leading bomb throwers in this war is former Wyoming senator Alan Simpson, who President Obama appointed to co-chair a commission to examine options to reduce the federal deficit. A fierce advocate of budget cutting, Simpson, a Republican, said recently that he couldn’t wait for the `bloodbath’ that will ensue when Republicans take a meat cleaver to the federal budget in exchange for raising the federal debt limit.

You may recall Simpson’s earlier colorful quote, in which he compared Social Security to a “milk cow with 310 million teats.”

A couple of weeks ago, Simpson threw down the gauntlet in a draft report he wrote with his co-chair Erskine Bowles, a former Democratic Party honcho and hedge fund partner. They proposed cuts to Social Security and Medicare and a host of other sweeteners long sought by big business, such as caps on medical malpractice verdicts, that have little to do with deficit reduction but everything to do with a corporate political agenda. The full commission’s report could be released this week.

Meanwhile, Congress jockeys over how to deliver a sloppy wet kiss to the nation’s wealthiest in the guise of continuing their Bush era tax cuts, supposedly as a means to stimulate the economy, even though the tax cuts themselves add $700 billion to the deficit. While President Obama expresses opposition to extending the tax cuts for those making over $250,000 a year, the president hasn’t been much of a force in the propaganda war over our economic future.

For their part, the Republicans have dug in their heels on behalf of the nation’s gajillionaires.

The whole propaganda campaign is based on the fraudulent notion that tax cuts for the rich help the economy. That’s not how they started out, before the second George Bush was elected president. He intended them as a way to “starve the beast” – giving back the government surplus that had built up during the Clinton era boom as a way to shrink government. His advisers argued that if the government kept that money it was likely to spend it.

Only later, as the economy began to soften, did Bush add the economic stimulus argument. But the evidence that the tax cuts did anything to boost the economy has always been slim at best. Deficit hawks like Simpson and Bowles are trying to jack up the public’s fear about the deficit in a slow-motion version of the fear-mongering that preceded the no-questions asked bank bailout of 2008, and subsequent highly secretive Federal Reserve money giveaway to the nation’s big banks. We shouldn’t fall for it.

A coalition of progressive-leaning nonprofits have offered an alternative, which favors stimulating the economy first, then cutting the deficit. You can check it out here.

Hurricane Katrina & Wall Street

Hurricane Katrina, once considered the disaster of the decade, is the subject of a new exhibition at the Newseum, a high tech museum devoted to journalism in Washington, D.C., timed to coincide with the fifth anniversary of our national failure in New Orleans.

NewseumFirst you walk down a hall lined with the front pages of newspapers that chronicle the progress of Katrina from a natural disaster when it hit New Orleans with unprecedented force on Monday, August 29, 2005, to a few days later, when, as the world watched, Katrina became a man-made catastrophe, with the levees collapsed, the city underwater and the vaunted United States government unable to come to the aid of its citizens. The September 3 headlines range from “Unbelievable” to “Is This America?” 1800 Americans died, and the entire city evacuated – more than a million U.S. citizens rendered homeless.

The rest of the exhibit focuses on how journalists covered the story, without electricity and often at great risk. Suffice it to say that the blogosphere will never substitute for professional reporters when it comes to these kinds of events.

It is an infuriating and emotional visit. Boxes of Kleenex are strategically placed through the exhibit, and you’ll need them.

Katrina invites comparison to 9/11, when the failure of U.S. intelligence, military planners and airline security personnel combined to render our nation powerless against a throng of determined fanatics. Congressional investigators said, “If 9/11 was a failure of imagination then Katrina was a failure of initiative.”

A court later held the federal Army Corps of Engineers responsible for the collapse of the levees and thus the destruction of New Orleans once Katrina hit. You can read the congressional report chronicling the government’s failure to prepare for and then manage the disaster here.

Conservatives seized on Katrina as more proof that big government is bad, although it’s hard to fathom how “market forces” could fill the shoes of a national government.

After a viciously hot summer throughout the nation, you wonder whether Katrina was the result of yet another failure of political imagination, at the US and global level: the failure to acknowledge and reverse global warming while there was still time.

Meanwhile, Katrina has been superseded by an even more devastating man-made disaster: the economic collapse in 2008. Like Katrina or 9/11, the initial catastrophe was not government’s doing, it was Wall Street greed and speculation. But, like 9/11 and Katrina, government bears responsibility for allowing it to happen. As I noted in the introduction to our report on the crash, Wall Street paid off Congress to let “market forces” run amok, and when the bubble inevitably burst, Washington quickly rescued the financiers.

But like the residents of New Orleans, many Americans are struggling to stay afloat and some have gone under. In terms of lives ruined, families sundered, pensions lost, people made homeless or left without health care, who knows whether the toll from this disaster will exceed that of Katrina or, for that matter, 9/11.

Bailout Beat Might Be His Last

Most of official Washington operates in a state of slow-mo lethargy when it comes to working on financial reform.

Not Neil Barofsky, who is saddled with the cumbersome acronym SIGTARP.

That stands for Special Inspector General of the Troubled Asset Relief Program, also known as the federal bailout.

He’s a one-time federal prosecutor who in his former life prosecuted Colombian drug gangs and white-collar criminals.

As one Republican senator told him when Barofsky got the inspector general’s job, if he did his job properly, he’d never be able to get another.

Barofsky seems to have taken it to heart.

Last week, along with New York Attorney General Andrew Cuomo, he filed suit against former top Bank of America officials, charging them with fraud for concealing how bad Merrill-Lynch’s losses were from B of A’s own stockholders while B of A was in the process of acquiring Merrill during the melt-down.

Barofsky also recently launched an investigation into the shady federal bailout of AIG and its counterparties, including Goldman-Sachs.

Meanwhile his regular quarterly reports to Congress continue to pack a punch. He has consistently warned against the administration’s rosy predictions of how taxpayers will benefit from TARP.

He’s focused instead on the continuing dangers of doing nothing to rewrite the rigged rules of the financial game that favor bankers’ bonuses and betting with taxpayers’ money over the interests of consumers and homeowners.

“Even if TARP saved our financial system from driving off a cliff back in 2008,” Barofsky wrote in his most recent report, “absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.”

In fact, the whole focus on whether taxpayers are getting “paid back” is a smokescreen for TARP’s failures. While the administration has touted banks’ repayments of their TARP money, the repayments are backfiring on the administration, giving it less leverage over the banks. Released from their TARP obligations, the banks are free to return to lavishly rewarding their employees for risky trades that rack up short-term profits.

Barofsky, writing in plain language that consumers and concerned citizens can understand, states that while the TARP program stabilized the financial system, it hasn’t met most of its other goals. “Lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury,” Barofsky wrote in the January 30 report. “The TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation.”

Barofsky was appointed by Congress to monitor TARP. Yet Congress has done nothing to hold the current administration accountable for the bailout’s failures. Meanwhile the Senate continues to pursue what appears to be its quest to squelch reform, in direct contradiction of what a majority of Americans want. Specifically Sen. Christopher Dodd appears to be on the brink of negotiating away a stand-alone Consumer Financial Protection Agency, a linchpin of President Obama’s reform plan. The financial industry fiercely opposes such an agency.

Contact your representative and senator today and let them know you support Barofsky’s strong work on TARP. While you’re at it, let your senator know you’re paying attention to the battle over financial reform, and that they should start paying attention to the will of the majority instead of the bank lobbyists.