Oversight? We don’t need no stinking oversight!

Today’s Washington Post reports.

(Arrrrggggghhhhhhh. Just read it. )

(And then think of Henry Paulson throwing the moral equivalent of bales of money from a pick-up truck…. And then think about billions and billions of dollars worth of executive bonuses…..and then….Oh, never mind. You know what’s going on. We all know.)

By the way, if you haven’t yet read last month’s letter from United Steelworkers President, Leo Gerard, to Paulson, now would be a good time. (You might want to get yourself a stiff drink first.)

So far, the Bush Administration has mostly been giving gobs of money to those who had a significant part in causing our economic tsunami.

However, as of this morning, California Attorney General Jerry Brown may have reversed that fiscal flow and started taking it away.

At the end of June, he sued Countrywide for their predatory lending practices. Countrywide, you may remember, is the nation’s largest mortgage lender (or was before they were bought by B of A) and one of the main purps in the subprime debacle.

Early this morning, the AG’s office announced that they had obtained a big, fat $8.68 billion settlement—all of which is slated to be used as foreclosure relief, with $3.5 billion of that money going specifically to help California borrowers—perhaps as many as 125,000 of them.

“Unlike last week’s congressional bailout,” said Brown in his statement about the settlement, “this loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending.”

Shamelessly is exactly the word.

Here are some of the hoped for benefits of the settlement:

In a nutshell, this settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan. The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America’s foreclosure crisis. Assuming every eligible borrower and investor participates, this loan modification program will provide up to $3.5 billion to California borrowers as follows:

• Suspension of foreclosures for eligible borrowers with subprime and pay-option adjustable rate loans pending determination of borrower ability to afford loan modifications;

• Loan modifications valued at up to $3.4 billion worth of reduced interest payments and, for certain borrowers, reduction of their principal balances;

• Waiver of late fees of up to $33.6 million;

• Waiver of prepayment penalties of up to $25.6 million for borrowers who receive modifications, pay off, or refinance their loans;

• $27.9 million in payments to borrowers who are 120 or more days delinquent or whose homes have already been foreclosed; and

• Approximately $25.2 million in additional payments to borrowers who, in the future, cannot afford monthly payments under the loan modification program and lose their homes to foreclosure.

More specifically, the modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower’s first payment was due between January 1, 2004 and December 31, 2007. The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or one of its affiliates. In addition, the borrower’s loan balance must be 75% or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the terms of the modification.

Ten other states participated in the settlement, but AG Brown led the negotiations.

“Countrywide’s lending practices turned the American dream into a nightmare for tens of thousands of families,” harrumphed Jerry, “by putting them into loans they couldn’t understand and ultimately couldn’t afford.”

Yep.

But in this case, instead of the tax-payers taking the hit, the bailout bucks are for homeowners, and are being helpfully—if not altogether willingly—provided by those who made big money off of selling, then reselling, those infamous toxic mortgages.

Go Jerry!

(And, yes, this very cheery announcement gives Jerry the kind of bragging rights that he will assuredly use when the 2010 race for the California governorship begins to heat up.)

The LA Times has more.

At the top of the list of this weekend’s MUST READS, is a actually a MUST VIEW and a MUST LISTEN.

************************************************************************************************************

1. THE MUST VIEW

On Sunday, 60 Minutes did an excellent segment on Credit Default swaps, the completely invented financial contraption that is, in essence, a side bet, that in combination with the subprime mortgage pyramid schemes, started the financial hurricane that you and I must now pay for and ride out the best we can.

(NOTE: If you’re still a bit fuzzy on the term, the beginning of the segment has a fairly good explaination of credit default swaps. This segment of This American Life has an even better one, but I’ll get to that down in a minute.)

And surprisingly for mainstream old 60 Minutes, the story concluded with the suggestion that the willfully reckless behavior that made billions for some and wrecked the economy in the process, is not just irresponsible, it is criminal.

Here are a few snips.

Asked what role the credit default swaps play in this financial disaster, [UCSD economist] Frank Partnoy tells [Steve] Kroft, “They were the centerpiece, really. That’s why the banks lost all the money. They lost all the money based on those side bets, based on the mortgages.”

[SNIP]

The result is a huge shadow market that may control our financial destiny, and yet the details of these private insurance contracts are hidden from the public, from stockholders and federal regulators. No one knows what they cover, who owns them, and whether or not they have the money to pay them off.

One of the few sources of information is the International Swaps and Derivatives Association (ISDA), a trade organization made up the largest financial institutions in the world. Many of them are the very same companies that created the vast shadow market, lobbied to keep it unregulated, and are now drowning because of unanticipated risks.

ISDA’s CEO, Robert Pickel, says there is nothing wrong with credit default swaps, and that the problem was with underlying mortgage securities.

“It is something that we all need to look at and learn lessons from,” Pickel said blandly to Steve Kroft, as if talking about something no more weighty than improving his golf game. “And we all need to work together to understand that and design a structure in the future that works more effectively.”

“These people understand the nature of these products. They understand the risks,” Pickel said when Kroft challenged him further.

Well if they understood the risks, why, when everything went bad, why do we have to pick up the pieces?

“These are very useful transactions. And the people do understand the nature of the risk that they’re entering into…but I’m not sure that…,” Pickel says.

“Useful?” Kroft interrupts. “How come they brought down the financial system?”

Read the rest of this entry »

Okay, the Senate passed the damned thing. Are we happy or sad? (Lovely to know that the conservatives demanded $100 billion dollars worth of tax cuts and God knows what other “sweeteners.” Fiscal responsibility triumphs again.)

Whatever. I think the House will go for it. We’ll see on Friday.

*************************************************************************************************************

But forget THEM let’s talk about US—-namely, let’s talk about how much we do—and don’t—understand the events that led to this whole stinking pile of dung we’re about to buy.

One of the bothersome issues about these weeks of financial crises and bailouts is the failure of so many news outlets to do much to educate the public on the issue.

Part of the problem, as this NPR story notes, is the stunning pace of the news.

The breakneck pace of developments means a lot of news worth knowing receives the briefest burst of attention before being dropped for something hotter.

Yet, it’s more than that. No one is stopping to explain—intelligently—the basics of the issue.

How, for example, did the detonation point for this whole mess—the subprime mortgage debacle—really occur? Cable news talking heads keep saying that there’s lots of blame to go around. But I’ll bet you my nearly vaporized retirement account that most of them, if forced to actually explain that remark, would find themselves pulling a Palin. (Freeze like deer in the headlights before spouting utter B.S.)

Well, soon you’ll be able to answer just that question by listening to a story from an unlikely source—NPR’s This American Life.

In a segment called The Giant Pool of Money, NPR’s Alex Blumberg and Adam Davidson, explain the mortgage crisis to the rest of us. And they do so in a way, that, I promise you—whether you’re already brilliantly economically savvy or not— will make you feel smarter.

The show was produced back in May of this year, but it’s still better than anything else out there in terms of pulling apart the mechanics of the mortgage crisis—from boom to bust. Apart from its urgent and timely subject matter, The Giant Pool of Money is a piece of great explanatory journalism.

It’s so good that the New York Times wrote a story about the making of the story—including how the reporters used ads on Craig’s list to track down their “remarkably likable rogues gallery of participants [for the story] up and down the subprime food chain.”

Starting tomorrow, Friday, TAL will run Lesson #2, a follow-up story about the financial dramas of the past two weeks It’s called Another Frightening Show About the Economy.

(Who needs horror movies when we’ve got this.)

I can hardly wait.

*************************************************************************************************************

P.S. Here are a couple of additional not-so-obvious places to go for info on the financial crisis:

1. Two excellent editions of Fresh Air, in which Terry Gross interviews Michael Greenberger, a former director at the U.S. Commodity Futures Trading Commission…here and here.

2. And for quirky but informative stories daily: Planet Money

PPS: One more thing, after you listen to This American Life, listen to Jon Stewart interviewing Bill Clinton on the bailout and the solution. Bill drives me nuts much of the time, but he’s also extraordinarily bright—as is evident from even this tiny clip. (He still can’t manage to say much good about Obama, but that’s not the point today.)

Okay, today the Senate has (incredibly) added tax cuts to the Bailout plan, raised the FDIC guarantee ceiling from $100K to $250K, and then with a few more tweaks, hopes to pass the thing tomorrow.

Monday night, after the House rejected the previous version of the bailout and the Dow began drilling for China, TV pundits on all channels shrieked about the NO votes being due to the most immoral kind of partisanship (on the Republican side) and a craven fear of being tossed out of office for those with vulnerable seats (on the Democratic side).

Most also mentioned the bill’s massive unpopularity among angry lunk-headed voters who flooded Congressional phone lines because they “failed to understand” the dire necessity to pass the bailout bill as written.

Yet, in truth, the NO vote was a bit more complex than a decidely wild-eyed and accusatory Suze Orman and others wanted to admit. (I normally like Suze Orman but she was a bit on the shrill side Monday night.)

Here, for instance, are two reasons why the Bailout went down in flames on Monday:

************************************************************************************************************

REASON #1: THE BAILOUT PROPOSAL SUCKED

Yes, it was better than the original three-pager, in much the same way that purgatory is better than hell. But it’s still purgatory.

In his final speech before the House in which he ordered his fellow Republicans to vote for the bill, Minority Leader, John Boehner, yelled that the bailout was “crap sandwich.” “Nobody wants to vote for this! Nobody wants to be anywhere near it. … You all know how awful it is. I didn’t come here to vote for bills like this!” But, he went on, “I believe the risk in not acting is much higher. … These are the votes that separate the men from the boys and the girls from the women. What’s in the best interest of our country? Vote yes,” And then Boehner stalked away from the podium in tears.

Not exactly the ideal endorsement.

Similar sentiments were expressed yesterday by one of the most vocal No voters on the Democratic side, Dennis Kucinich, who sent out a letter to supporters and others in which he was not in the least apologetic for possibly being part of the cause of the US economy melting into the molten core of the earth. Here are a few clips:

Congressional Democrats and Republicans alike took on full responsibility to protect the interests of taxpaying Americans, and defeated the deceptive bail out bill, defying the dictates of the Administration, the House Majority Leadership, the House Minority Leadership and the special interests on Wall Street.

[CLIP]

The legislation did not regard in any meaningful way the plight of millions of Americans who are about to lose their homes. It did nothing to strengthen existing regulatory structures or impose new ones at the Securities and Exchange Commission and the Federal Reserve in order to protect investors. There were no direct protections for bank depositors. There was nothing to stop further speculation, which is what brought us into this mess in the first place.

Kucinich went on to say that he’s all for passing something quickly. But it has to be a better something that has certain improvements, in particular a structure that will provide some mortgage-holder protection.

As I mentioned Monday, normally mild-mannered Brad Sherman (whose seat is NOT at risk, thank you very much, idiot pundits) wrote his own strong statement about why he went against his party, and with his conscience, in voting no.

(Sherman had the best quote out of the whole debacle when he described Paulson’s original 3-page plan as “a ransom note that said if you ever want to see your 401(k)s again, send us $700 billion in unmarked bills.”)

*************************************************************************************************************

REASON #2: TRUTHINESS COMES HOME TO ROOST

There has been much talk about how the American people deluged Congress with emails and phone calls because no one had adequately explained to them—the poor rubes—-the virtues of the package.

But Time Magazine’s Michael Sherer wrote on Tuesday that there was a bit more to it, that the crisis exposed a deep and “fundamental problem: “a crisis of political credibility that now threatens to harm our nation further, should the markets freeze up and more companies begin to fail, as many experts predict.”

The problem, wrote Sherer, predates the vote on Monday, and even the mistakes on Wall Street. (duh!)

Read the rest of this entry »

These are scary days.

Nobody liked the bailout bill. But a lot believed it was better than nothing.

Yesterday and today’s market meltdowns would suggest they might have been right. Yet, at best the Wallstreet rescue package seemed like a case of damned if you do, lots more damned if you don’t.

Not pretty either way.

The fact that the democratic shot callers felt they had to settle for such a flawed plan in the first place, and that they did not take a few days longer in order to get a bill that their rank and file could more fully support, then tried to pass it prematurely without the requisite votes, showed a failure of will and of leadership.

Yet, it was far more troubling that so many Republicans voted against the bill for the most cynical of reasons—either out of ruinously childish partisanship or because they refused to be parted from some ideological “free market.” fantasy.

Whatever. It’s all blood-soaked water under the bridge now.

The question is, where do we go from here?

The New York Times editorial this morning has some broadstrokes of what fixes are needed to get this puppy passed a second time around.

Since last week, this page has urged Congress to take the time to get the bailout right. Over all, lawmakers have given too little consideration, in public at least, to alternatives to the Treasury’s plan to buy up the bad assets from various financial firms.

In the bill rejected on Monday, the unlimited powers that the Treasury Department had initially sought were curbed, and Congressional oversight was added. But judicial review of Treasury’s purchases was not adequately ensured. The courthouse door was not closed entirely; lawyers could still seek effective remedies for actions that violate the Constitution. But that’s a much higher hurdle than the already formidable barriers in place to discourage lawsuits against the government.

Homeowners were also given short shrift with provisions that mainly urged lenders and the Treasury to do more to help them. That’s unconscionable. The financial crisis is as much a problem for homeowners as for Wall Street investment bankers. Appeals to lenders’ better natures have not worked to bring lasting relief to homeowners. If they are still not working in the coming months, Congress will have to revisit the issue.

Taxpayer protections are also iffy, such as a requirement that in five years, the president must give Congress a plan for recouping any losses from financial firms. What will happen then is anyone’s guess. Lawmakers could decide at that point that taxpayers are the only pit bottomless enough to absorb those losses.

Today’s LA Times editorial is less specific but, in its general way, says the same thing.

Congress may take up a very similar bailout proposal later this week. In the meantime, Bush and top administration officials need to speak more often and more persuasively about the nature of the problem. They need to distance themselves from Paulson’s initial request for unfettered authority and embrace the oversight Congress demanded. Meanwhile, lawmakers need to stop trying to turn the bailout plan into a referendum on the administration’s policies, presidential candidates or anything other than the specifics of the proposal. Opponents can and should try to reduce its cost and increase market discipline. But they can’t pretend that it’s someone else’s problem to fix.

No. They can’t. Again, Congress needs to improve the bailout the best it can, and pass it.

Then let’s elect a president with some sense and begin to reform and rebuild. Please.

(NOTE: Only the chorus of this song really applies to the subject at hand. But, Tom Waits still feels like he’s right for this week’s soundtrack.)

Defeating the bailout package was a BIG gamble. But passing it was, I think, a bigger gamble. After reading conflicting opinions by economists and commentators long after I should have gotten to bed last night, I found that the prospect of what seemed to be an almost certain passage of the 110-page bailout plan…..filled me with dread.

So of the two possible rolls of the dice, I was secretly hoping for the one labeled: BACK TO THE DRAWING BOARD.

As everyone said, there was much improved about the extra 107 pages (over the original three pages offered by Paulson). But it wasn’t enough to justify the risk that no one really wanted to talk about.

Yes, after that not-so-lucky triple seven drop of the Dow, a part of my brain is shrieking: You idiot! Retirement account? What retirement account!!!

Still (my inner Paulson notwithstanding) David Corn’s post, written before the vote, reflects my view likely better than I can:

(Chapeau tip to commenter reg for flagging the Corn post.)

For my money, the $700 billion bailout plan is being rushed through Congress with too much haste. There’s been little debate of the plan’s basics and not much consideration of alternative approaches to the administration’s preferred choice: buying up the bad paper of Big Finance firms that screwed up royally. Yet few in Washington–including John McCain and Barack Obama–want to go out on a limb. Any politician who stands up to Wall Street and opposes this thing has to fear being blamed should the plan not go through and the financial meltdown worsen. In politics, there’s safety in numbers. So if everyone jumps aboard and this plan doesn’t work out, nobody stands to lose politically. It’s the safe political play: get on the train with everyone else.

But there are some legislators who are saying, slow down. House Republicans tried to put on the brakes last week. But their alternative–cut taxes–was a non sequitur. On the Democratic side, Representative Brad Sherman has pulled together a Skeptics Caucus. He drew 30 or so House Democrats to meetings on the weekend.

Then Corn goes on to post the entirety of what Sherman had to say about why he favored a NO vote. Sherman, by the way, is a mild-mannered California Congressman from the San Fernando Valley (with offices a few miles from me), whose mother always used to give out plastic hair combs at her balding son’s campaign events.

I’ve posted the whole thing below. It’s worth the read.

BIZARRE RANDOM NOTE: It’s been almost impossible to get on any Congressperson’s website today. At first I thought it was my WiFi, which has been acting up on me. It’s not. It’s the whole .GOV system. Evidently the natives are definitely restless. (That would be you, me and the rest of the ordinary folks across the country.)

Here’s Brad:

Million Dollar a Month Salaries
Tens of Billions to the Bank of China

The Troubling Secrets of the Bailout Bill

It is widely known that the Bailout Bill does not provide any source of revenue to pay for its enormous cost. It is equally well known that the Bailout Bill will not modify our bankruptcy laws in any way or provide any mechanism by which the terms of a mortgage can be changed without the consent of the owner of the mortgage. The purpose of this article is to outline other troubling provisions.

Stop the Panic. We do not have to pass a bad bill on Sunday. The last two sections of this article demonstrate that the sky will not fall if we don’t pass a bad bill Sunday night.

Read the rest of this entry »

Not even close: 207 to 228 Here’s the breakdown: 141 Democrats voting yes; 94 no; 66 Republicans yes; 132 no. One member not voting.

LA Times has live blogging of the sequence of events.

WSJ BLOG – DEAL JOURNAL: “Ahead of the effort, Wall Street was lobbying like there’s no tomorrow. (Which, considering the history of the past three weeks, there may not be.)” (Their opinion, not mine)

Here’s the roll call.

Those voting against are an unusual mix: In California, for instance, Barbara Lee, Lucille Royball-Allard, Grace Napolitano and Darrell Issa are among the NOs. Henry Waxman was a yes. Brad Sherman a no.

Irritatingly enough—according to the LA Times live blog, Republs are blaming Dems, Dems are blaming Repubs…..and partisanship has kicked into overdrive.

Republican John Boehner just told WaPo that there will be no more votes. Members are headed for the airport for recess. ” Boehner said he had no idea when there could be a new vote. This appears not to be true.

Okay, I admit I’m secretly relieved (and surprised) the thing has gone down in flames—at least until there are improvements. When the best thing that could be said about this plan is that “it’s better than it was”—-why is that a good reason to roll the dice with our future?

I turns out, as Brad Sherman just said on KPCC, the country is not as stupid as the Bush adminstration thinks.

*****************************************************************************************************************

PREDICTION: This news will benefit Obama. Bigtime.

The Republicans killed this bill. But John McCain pushed all his chips to the middle of the table and said that his flight to Washington was the thing that helped make the deal. The fact that he could not persuade his own party is now a big problem for him, and no amount of blaming Obama can fix it.

You want lipstick? We got lipstick! Plus intelligence, knowledge, experience, and guts (and no aerial wolf shooting). I give you the honorable representative from Ohio, Marcie Kaptur.

(Chapeau tip to commenter Listener.)

UPDATE: McCain wants to postpone Friday’s debate with Obama in order to “help on a Wall Street rescue plan.” Yeah, I’ll bet he does. (Like the candidates can’t have a larger influence from the bully pulpets of the campaign trail?)

Note to Barack: Don’t fall for it. Go to DC to cast your vote, but stay with the debates. This is another Hail Mary.

UPDATE 2: I just called Obama headquarters and was told they are getting a ton of calls encouraing Obama not to allow the debates to be cancelled.