Matt Stoller

Recent Posts by Matt Stoller

  • HUD Inspector General Hints at a Nuclear Bomb in the Mortgage Settlement

    Mar 14, 2012Matt Stoller

    Did Bank of America just get called out for failing to follow crucial procedures?

    Most of what I have to say about the settlement is in this post over at Naked Capitalism. But there is a remarkable tidbit I left out, which the HUD OIG noted in a wry part of the audit on Bank of America.

    Did Bank of America just get called out for failing to follow crucial procedures?

    Most of what I have to say about the settlement is in this post over at Naked Capitalism. But there is a remarkable tidbit I left out, which the HUD OIG noted in a wry part of the audit on Bank of America.

    Bank of America may have conveyed flawed or improper titles to HUD because it did not establish control environment which ensured that affiants performed a due diligence review of the facts submitted to courts and that employees properly notarized documents.

    Vote for Roosevelt Institute | Pipeline to win a free both at Netroots Nation!

    This is the so-called "clouded title" problem, which is to say that bank servicers might have been foreclosing on properties they had no legal claim to. Yves Smith and Tom Adams jumped up and down on this in 2010 over a lawsuit called Kemp versus Countrywide. In this suit, a Bank of America employee revealed that Countrywide didn't properly follow securitization procedures to establish a clear chain of title. Therefore, the investors should technically get all their money back, because the loans were never actually turned into mortgage-backed securities. This is a multi-trillion dollar problem, a put-the-toothpaste-back-in-the-tube issue that no one wants to even whisper about.

    And the HUD OIG somewhat alluded to the fact that it's out there. Awkward.

    Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

    Share This

  • The Lays Potato Chip Mortgage Settlement Theory

    Mar 12, 2012Matt Stoller

    An initial read through of the settlement documents shows that it's incoherent.

    I've read some of the mortgage settlement documents (read them here). Rather than diving into the details, here's what I've taken away on a broader level. I'll have more soon.

    An initial read through of the settlement documents shows that it's incoherent.

    I've read some of the mortgage settlement documents (read them here). Rather than diving into the details, here's what I've taken away on a broader level. I'll have more soon.

    1) The administration doesn't think the size of the settlement matters. Shaun Donovan believes that the settlement will force banks to write down a few mortgages. Once they do, like a Lays potato chip, they won't be able to stop at just one.

    The deal still provides the largest mandatory principal reduction in the financial crisis to date. Shaun Donovan, the secretary of the Department of Housing and Urban Development, said officials made that push because they believed breaking through the industry's "aversion to principal reduction" could be "truly catalytic" in addressing how banks modify mortgages.

    Vote for Roosevelt Institute | Pipeline to win a free both at Netroots Nation!

    2) Beyond that, there is no coherent organizing principle behind the deal. It's not like you can explain this as "we're going to write down debts for people who can't pay them and foreclose on those that can't pay anything," or "we're going to foreclose on people who aren't paying their debts, period," or "we're going to force the banks to stop using accounting fraud." It's a mish-mash of claims and releases, some of which seem to contradict each other. Some of the signature lines are left blank. If this doesn't become a "catalytic" event, and banks don't write down debts after the credits run out, oh well. Get ready for a policy and legal mess on top of a housing market that is in and of itself a policy and legal mess. There is precedent for a deal like this: the alphabet soup of housing programs from the Bush and Obama administrations.

    3) There is a provision in there to incentivize banks to do more principal forgiveness within the next 12 months. That's a reelection provision.

    Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

    Share This

  • Wall Street Fixer Rodge Cohen: Big Banks Key to American Global Dominance

    Feb 27, 2012Matt Stoller

    Sometimes finance executives let slip the way they really feel: that they hold the world in the palm of their hands.

    Sometimes finance executives let slip the way they really feel: that they hold the world in the palm of their hands.

    It's not often that the people in charge admit what is really going on: a global game for political dominance. I just saw an interview with Wall Street superlawyer Rodge Cohen, the secret force behind (among other things) the expanded emergency lending power of the Federal Reserve through section 13(3). You know, that's the law allowing the Fed to lend unlimited sums based on whatever it wants to lend, a section amended in 1991 at Cohen's behest. He was involved in "more than 17 deals" during the crisis in 2008, including the bankruptcy of Lehman Brothers, the $85 billion AIG bailout deal, and the takeover of Fannie Mae by the federal government. He is, as Bill Black said, the fixer of Wall Street. Here's his quote, at minute 3:39 of this Bloomberg interview:

    Hopefully we will not see the major financial institutions in this country disappear because if we do we will also see a loss of ability to influence events not only financially but also politically throughout the world.

    Check out “The 99 Percent Plan,” a new Roosevelt Institute/Salon essay series on the progressive vision for the economy.

    That's pretty clear. It reminds me of this quote from an anonymous military officer while he was touring JP Morgan's trading floor (emphasis added):

    JPMorgan Chase yesterday hosted about 30 active duty military officers (across all branches and agencies) from the Marine Corps War College in Quantico, Va. The officers met with senior executives, toured the trading floor and participated in a trading simulation. They discussed recruitment, operations management, strategic communications and the economy. Aside from employees thanking them for their service as they passed by, they also received a standing ovation on the trading floor. Said one officer after a senior JPM exec thanked him for his service: “We promise to keep you safe if you keep this country strong.”

    There are always conspiracy theories out there about a global linkage between large financial institutions and American empire. They don't, however, usually come from the people running the place.

    Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

    Share This

  • The Federal Reserve Knew About the Housing Bubble in 2004

    Jan 17, 2012Matt Stoller

    The data -- both anecdotal and otherwise -- was out there, and the Fed even discussed it internally. Let's not let it off the hook.

    The data -- both anecdotal and otherwise -- was out there, and the Fed even discussed it internally. Let's not let it off the hook.

    I noticed something odd about the recent release of the 2006 Federal Reserve Open Market Committee transcripts. Binyamin Appelbaum has a characteristically good article about the inept chatter at the FOMC meetings that year, where the various participants missed the housing bubble completely. And there has been suitable mockery of the Fed.

    What I'm finding, though, is a bit of an apologia for these folks in the form of "no one knew." This is just not true. I remember in 2002-2003 I heard crazy stories about housing, where people would list their home and get 15 bids in 24 hours. It's why I didn't consider buying a home. It wasn't just anecdotal, but the data was out there.

    fedrentprice

    And it's clear, from going into earlier transcripts of FOMC meetings, that the Fed actually knew there was a housing bubble as early as 2004. Or rather, it had the data, both anecdotal and quantitative, and even discussed the possibility of a bubble internally. Ryan Grim and Calculated Risk picked this up in 2010.

    Here's Grim:

    Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties -- selling them quickly at higher prices."

    Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

    And Calculated Risk found that the Fed discussed the rent-to-price ratio that Dean Baker relied on for his accurate diagnosis of the bubble.

    MR. FERGUSON [Roger Ferguson, Fed Vice Chairman in 2004]: The other question I have deals with chart 3, on housing prices. My question is about the footnote, which says that the rent-price ratio is adjusted for biases in the trends of both rents and prices. Is that where you pick up demographics and lifecycle factors? What are these biases in the trends, and how does one think about changing demographics and the relative attractiveness of owning a home versus renting? Give me some sense of whether or not the shape of the curve that you show here is likely to reverse, as you imply, or likely to stay relatively low.

    MR. OLINER [Stephen Oliner, Fed associate research director]: The biases referred to in that footnote were really technical biases in the construction of the two measures shown here, the rent measure and the price measure. Had we not adjusted for them, the rent-to-price ratio would have been much lower at the end point. So it would have looked more alarming. In part we think the published data have some technical problems that need to be taken care of before this analysis can be done in a way that is meaningful. With regard to the question of owning versus renting, it depends to some extent on what is happening to interest rates because that changes that calculation at the margin. So it’s really important to plot any kind of valuation measure relative to an opportunity cost. Just showing the rent-to-price ratio I think would have been somewhat misleading; it’s really that gap that we think is the meaningful measure of valuation. And it looks somewhat rich, taking account of the fact that interest rates are relatively low and income growth has been relatively strong. I don’t want to leave the impression that we think there’s a huge housing bubble. We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.

    Alan Greenspan understood very well the importance of withdrawing equity from homes as a driver of demand, which comprised 6-8 percent of all disposable income from 2003-2006. There was an enormous amount of chatter about a possible housing bubble (see this Google trend search.) It wasn't just heroic figures like Dean Baker and Josh Rosner who were warning of a bubble (and the possibility of a severe recession when it burst) since 2001; there were books coming out in 2003 with subtle titles like The Coming Crash in the Housing Market. Read the reviews of that book, and you'll see discussions by normal people in the industry pointing out how creepy the market had become.

    That the Fed engaged in extreme groupthink is not a surprise. But let's not pretend like no one knew there was a bubble, or that no one knew that it could become a deeply serious problem. Many normal people knew. Non-corrupt policymakers and thinkers got it. And the Fed saw the signals; its officials even discussed the possibility internally. It simply ignored the pricing signals the market was sending. Funny, that.

    Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

    Share This

  • Fed Transcripts: Why Was Congress in the Dark During the Crafting of Dodd-Frank?

    Jan 13, 2012Matt Stoller

    Records of the Fed's meetings at the height of the housing bubble provide more evidence that our central bankers need to be held accountable.

    Records of the Fed's meetings at the height of the housing bubble provide more evidence that our central bankers need to be held accountable.

    The latest release of the Federal Reserve's Open Market Committee transcripts is a doozy. Binyamin Appelbaum read through the transcripts and wrote a great article on what he found. The people on the FOMC straight up did not understand the economy, and that becomes very obvious when you parse their nonchalance through the pivotal year of 2006. That's true as far as it goes, but there's a political angle here as well.

    My question is, why don't we have the transcript for 2007? Or 2008? Or beyond that? Why didn't Congress have the evidence that Bernanke was an incompetent central banker when he was up for reconfirmation in late 2009? Why didn't Congress know any of what was revealed yesterday while it was tasked with rewriting the rules governing our entire financial architecture?!? It might have been useful to know that the Fed was staffed by an inept, embarrassing group of fools fiddling over inflation while Rome was being set ablaze.

    I wrote a piece on this back in May of 2011:

    There’s an easy way, however, for the Federal Reserve to lose its aura of undemocratic secrecy. It could release transcripts of its Federal Open Market Committee meetings within one year — or be compelled to do so with a congressional subpoena.

    These committee meetings are the real guts of U.S. economic policymaking. You can already get a summary of each meeting within three weeks. But the actual transcripts — the debates among Fed policymakers at those meetings — are released with a minimum lag time of five years.

    Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform, had pledged last year to look into this issue. But he has not acted.

    Sign up to have the Daily Digest, a witty take on the morning’s key headlines, delivered straight to your inbox.

    So, we still do not know what top Fed officials were debating from 2006 through 2010 as the housing bubble ballooned and the banking system collapsed. Were Fed officials privately worrying about the housing market? Were they aware of leverage in the system? Did they understand the dangers of credit default swaps?

    The democratically elected Congress should have known these things before attempting to fix the financial system. Several congressional postmortems on the crisis should have had access to these records. And as Congress debates Rep. Mike Pence’s bill to change the Fed’s mandate, it should have access to this information.

    Why doesn't Congress issue a subpoena to get the information about FOMC meetings from 2007-2010, so that we know what the Fed is thinking? They do not deserve the presumption of competence anymore. Darryl Issa promised this during the transition to GOP congressional rule in 2010 but he has not followed through. Perhaps he should.

    Many people did get what was happening -- 2006 was the year that the big banks began cutting warehouse lines of credit to mortgage originators, which would eventually topple the whole housing ponzi scheme. Dean Baker had been trying to sound the alarm about a housing bubble as early as 2003. Yves Smith started her site Naked Capitalism in 2006 and Josh Rosner began noticing what was going on that year; moreover, the dangers of leverage had been recognized as far back as the early 1990s by such economic luminaries as Jane D'Arista.

    It's not just that the people on the Federal Reserve's Open Market Committee -- the real rulers of America -- are insultingly out of touch with reality. It's also that the public does not even get to see what they are doing and that Congress doesn't really want to know. This, more than anything else, is animating figures like Ron Paul, who accuses the Federal Reserve of foisting an unwanted monetary system on the American public.

    The reality of our times is that the people in charge of powerful institutions are driven by nothing so much as a desire to be the maintainers of consensus. That is what the FOMC participants were. And if we don't fix this state of affairs and hold powerful people accountable for being incompetent and wrong at least some of the time, America is done for.

    Matt Stoller is a Fellow at the Roosevelt Institute and former Senior Policy Advisor to Congressman Alan Grayson.

    Share This

Pages