A Thanksgiving Message on Family, Country & The Good Fight

Nov 24, 2010William K. Black

flag-150What can progressives be thankful for this year?A lot, says Bill Black.

flag-150What can progressives be thankful for this year?A lot, says Bill Black.

This Thanksgiving, progressives should be thankful for the same things everyone else should be thankful for: most of us were raised by loving parents who sacrificed for us and taught us by their words and actions the values that have made America great. Many of us have wonderful spouses and children. In the process of raising our children we learned even more about how much we should appreciate our parents -- and we experienced the joy they received from the care we provided. I am thankful first and foremost for my family.

I am personally thankful to the scientists that developed treatments for pneumonia and the doctors and nurses that provided the treatments. I suffered from pneumonia three times in my youth and had I been born a decade earlier I would have died as a child. I am grateful to my teachers, who recognized and cultivated a love of learning in their students. I am grateful to Social Security, which made it possible for our family to avoid economic disaster when my father died of a second heart attack when he was 41. (The moderately successful governmental effort against cigarettes came too late to save him.) The Social Security survivors' benefits prevented my mother (and we three kids) from losing the home and allowed me to go on to college and post-graduate education.

I am grateful to a nation in which I could be a serial whistle blower exposing the misconduct of two presidential employees, the Speaker of the House James Wright, and the "Keating Five" -- and survive. I became the target of Charles Keating and Speaker Wright, and they made considerable efforts to get me fired and destroy me. In any other nation they would have succeeded. Instead, two presidential appointees resigned in disgrace, Speaker Wright resigned in disgrace, and the Keating Five were at least embarrassed. I am grateful for my colleagues who contained the S&L debacle before it became an economic catastrophe in the face of immense political pressure and the destruction or crippling of their careers. To this day, I do not know the political affiliation, if any, of my three regulatory colleagues at the Keating Five meeting -- and I worked with them for years. Party was irrelevant to us. We simply detested the frauds and their political patrons and believed in our nation and in our oath of office. I am grateful to my friends and to my (past and present) colleagues.

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While my effective colleagues and I are no longer employable as regulators (and that is sad, for I believe that we have much to offer the nation based on our experience), the University of Missouri-Kansas City was happy to grant me tenure. I am grateful that we live in a nation that values academic freedom.

Progressive values are age-old values that have made the world a far better place. We simply draw on the Wisdom of the Ancients:

If I am not for me, who will be?
If I am only for me, who am I?
And if not now, when?

I am grateful to the Ancients, who faced a vastly crueler world and recognized that the key was for each of us to try to repair it, and whose advice has led generations to make those repairs rather than accepting cruelty, greed, exploitation, and indifference as the natural state. I am thankful for all who came before and worked to make things better.

William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist and was a senior financial regulator. He is the author of The Best Way to Rob a Bank is to Own One.

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Two Cords of Wood: An Intimate Look at Unnecessary Foreclosure

Nov 22, 2010Thomas A. Cox

home-foreclosure-documentRobo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

home-foreclosure-documentRobo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our “Foreclosure 411” series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the fifth part, volunteer lawyer Thomas Cox recounts some tough advice he had to give a client facing foreclosure.

Back in September, I was asked to give some unusual advice to a client. This woman, a resident of rural Northwestern Maine, wanted to know if she should buy the two cords of wood that she needed to heat her $48,000 home for the winter. I had previously told her that my bag of legal tricks was empty, and that I could not stop KeyBank from completing a foreclosure of its $28,000 second mortgage on her home. She was having trouble accepting the fact that it would really evict her, since she owed $50,000 on her first mortgage to a local bank, a loan on which she was current in her payments, which meant that KeyBank could recover nothing by foreclosing on its second mortgage. She told me again how, even though she had lost her job in the local paper mill, she had found other, but much lower, employment income and that she was able and willing to make reduced payments on the second mortgage. But KeyBank refused to accept reduced payments.

I had to tell my client that she should not buy the firewood, as I knew that it was planning an eviction within days. I had managed to penetrate the executive offices in Cleveland, Ohio, telling the "Executive Client Relations" person in the "Office of the President" how foolish it was to evict this woman, who had reduced income but a real willingness to devote as much of that as she could to continued second mortgage payments. The letter that I received in response told me how much KeyBank "valued" this woman as a client, how it "is committed to providing her with excellent service," and how it regrets "any inconvenience or frustration your client may have experienced." The letter closed by telling me, "[W]e appreciate the opportunity to respond to your concerns with quality and integrity." That letter also told me that it was not willing to do anything at all to restructure this woman's loan or to stop the eviction process.

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After spending over $4,000 on foreclosure costs and legal fees, it purchased my client's interest in the property at its foreclosure sale (there were no other bidders for this worthless second interest) and it did evict this woman from her home at the beginning of October. She is now living in the basement of her daughter's house. Since the interest in this home that it purchased was still subject to the outstanding first mortgage, it then paid $50,000 to the first mortgage holder so that it could own full title to the property as it made plans to re-sell it. Thus, at this point it had over $54,000 invested in gaining full title to this property. Last week, KeyBank listed this property for sale for $44,000. It will surely net no more than $40,000, if it can sell it at all. This will leave the bank with a real cash loss of over $14,000, a woman living in her daughter's basement who was willing to pay at least some level on her second mortgage, her community with an empty and devalued property in its midst, and a very sour taste for all of us who try to help these people.

Looking only at this loan and the personal situation of its borrower, KeyBank's actions make no sense at all. However, along with all of the other major lenders and loan servicers in this foreclosure crisis, it does not look at these loans from a personal perspective. Everything is driven by "the numbers." Those numbers tell financial institutions like KeyBank that it makes economic sense to avoid the costs of evaluating these loans on an individual basis. The numbers tell them not spend the money to pay employees to make individual decisions on whether a situation such as the one described here makes sense or whether ways can be found to work with the homeowner. KeyBank and the other large financial institutions and loan servicers do not care if they needlessly ruin the lives of some of their customers, as long as they can minimize the expense of dealing with their individual situations. The only "quality and integrity" that these institutions care about is the quality and integrity of their bottom lines.

I used to represent KeyBank back in my bank lawyer days. It grew out of purchases of two venerable old-line Maine banks with roots going back into the mid-1800s. Even as late as the 1990s, when I was representing KeyBank of Maine, it was still a "local bank." There were bank officers assigned to dealing with loans such as this one who would make real human decisions on appropriate courses of action. Since these banks have gone national, they no longer care about how they hurt their individual customers, and they no longer care about the communities where those customers live. They are entirely willing to sacrifice a certain (and substantial) percentage of those customers on the altar of corporate profits. They can get away with this because they can lend money more cheaply then our local banks can -- Federal monetary policies allow them to borrow money at a cheaper rate. Is this what we want from our Federal government?

Sadly, my advice to my client was correct. It was good that she did not waste her limited resources on the two cords of wood, as she no longer has a house to heat for the winter.

Thomas Cox is a retired bank lawyer in Portland, Maine who serves as the Volunteer Program Coordinator for the Maine Attorney's Saving Homes (MASH) program. He represents homeowners in foreclosure and assists and consults with other volunteer lawyers in providing pro bono legal services to these Maine homeowners.

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The First Steps in the Revolution Against the Banks

Nov 22, 2010Joe Costello

raised-fist-150So you want a revolution? Challenge those at the top and reclaim independence for the working class.

raised-fist-150So you want a revolution? Challenge those at the top and reclaim independence for the working class.

'Red Will' Danaher: "So, the IRA's in this too, huh?"
Hugh Forbes: "If it were, 'Red Will' Danaher, not a scorched stone of your fine house be standing."
Michaleen Flynn: "A beautiful sentiment."
-- John Ford's The Quiet Man

There's no denying this world is full of prejudice. And if you spend some time in non-industrial areas of this planet, you'd find one of the greatest prejudices is against rural farming folks from city slickers. In South America, Africa, Indonesia, you hear the urbanites level the same charges: "lazy and stupid." Among renowned political thinkers in Europe and America, where rural life has mostly disappeared, you'd be hard-pressed to find a good word for farmers over the past couple centuries. Most took Marx's view of the "idiocy of rural life." Probably the greatest exception was Jefferson. There are many reasons for his difference, but one of the biggest was his view that a small farm provided the population with the economic power and independence they needed to be democratic citizens. But Jefferson's yeoman farmer republic passed from the scene well over a century ago. In the industrial age, America never found a substitute to replace the elegance of Jefferson's small farm economic democracy. Maybe unions could have, but prejudice against workers quickly replaced that against farmers. In the last four decades, as Wall Street and the bankers sold off American industry, this was met with little opposition, particularly from the servant class.

The Irish have been well behind much of the continent and the US in industrialization; in fact, it's only been during the last several decades that the nation really began to industrialize. So we can look at Sinn Fein's late response to banking events as maybe a remnant of a still slower rural life, but they certainly make up for it with a little Irish flair. And it looks like the government will fall.

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But this begs the question: What's the excuse for the lack of an American response to our banking crimes? How long the list would be if we were to charge "economic treason;" it would be filled with the most illustrious Democrats and Republicans of the past several decades. How do we begin the long road to justice? How do we begin the discussion on reforming democracy, and what in the 21st century is the Jeffersonian equivalent of the yeoman farm, providing the economic independence necessary for democratic citizenry?

The Guardian has a piece (h/t Yves Smith) on football legend Eric Cantona's call for an organized banking panic. The whole concept has a beauty in that it turns on its head the historical view of panics into some much needed political creativity. It can also start people questioning what banking really is and how it is reformed so that its decision making is much more widely spread across society. How do we make banking more democratic? One can judge from the spokeswoman for the French Banking Federation's response that it makes officialdom nervous: "'My first reaction is to laugh. It is totally idiotic,' she told the Observer. 'One of the main roles of a bank is to keep money safe. This appeal will give great pleasure to thieves, I would have thought.'"

But what of the thievery that is modern banking, mademoiselle? Don't we have the responsibility to keep ourselves from being victims? And understand, brothers and sisters, the first reaction from any establishment against a threat is to make it ridiculous, "to laugh." Mr. Cantona is on to something.

Check out Move your Money for an American effort.

Joe Costello was communications director for Jerry Brown’s 1992 presidential campaign and was a senior adviser for Howard Dean’s effort in 2004.

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Top Questions from a Foreclosure Attorney

Nov 19, 2010Bubba Grimsley

foreclosure-gavel-150Robo-signers. Moratoriums. Botched documents.

foreclosure-gavel-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our “Foreclosure 411” series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the fourth part, foreclosure attorney Bubba Grimsley quizzes himself on some telling numbers coming out of the crisis.

Q. How many clients have come to my group and said, "we would like our house for free, we are deadbeats, and we hear that you can get us a free house"?

A. ZERO.

Q. How many of our clients have a servicing error, or are what we call "servicer driven defaults" ?

A. ALL OF THEM (187 +/- at press time).

Q. How many robo-signers, if you slow them down enough, can turn back time? After all, the assignments they are executing MUST have been completed, in order to make them legal, in 2007 (best case scenario) but 2003, 2004, or 2005 is more likely.

A. ZERO.

Q. How many servicers have servicing software that recognizes a mortgagee currently in bankruptcy court (or protected by the automatic stay)?

A. I'm not terribly sure here, but our sources say ZERO.

Q. How many bankruptcy cases are filed each year in this country?

A. Roughly 1.5 million.

Q. What percentage of Chapter 13 cases fail?

A. 60%.

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Q. How many of these Chapter 13 cases are servicer driven?

A. GOD only knows, but it has to be HUGE. Once a Chapter 13 debtor loses their home, there typically isn't anything left to fight for.

Q. How many presidents have the guts to force a vote on Elizabeth Warren as Director (not some watered-down pantywaist position) for the Consumer Financial Protection Bureau?

A. ZERO.

Q. How many of us wish we had the money back we sent to Obama's campaign?

A. Me, for one.

Q. How does Bradley Arant Boult Cummings get to be GMAC's national foreclosure defense firm (cleaning up the mess the mills have made) and also get to "investigate" servicer abuses for Fannie and Freddie?

A. Beats me, but it's very funny, in a sick sort of way.

Q. How many businesses besides GM (which owns Ally Bank), other than banks, got saved by government bailouts?

A. NONE. Oh, and Halliburton doesn't count.

Q. Who will get the naming rights to the Treasury? AIG or Goldman Sachs?

A. Let's flip a coin.

Q. How many homes could have been saved if the Fed had used the $600 billion they are using to buy treasuries to pay down underwater mortgages? And what stabilizing effect would that have on the economy?

A. A hell of a lot.

Bubba Grimsley is a foreclosure attorney in Alabama.

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The Story Behind Obama's Remarks on FDR

Nov 18, 2010Tom Ferguson

What really went on in the first few months after FDR was elected?

"We didn't actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly." - President Obama

What really went on in the first few months after FDR was elected?

"We didn't actually, I think, do what Franklin Delano Roosevelt did, which was basically wait for six months until the thing had gotten so bad that it became an easier sell politically because we thought that was irresponsible. We had to act quickly." - President Obama

Sometimes a chance remark trains a searchlight on aspects of the historical record that would otherwise be shrouded in Stygian blackness for a generation. So I think it was yesterday when in the Huffington Post, Leo J. Hindery, Jr. quoted from a transcript of President Obama's remarks to a group of liberal bloggers who were querying his handling of the financial crisis.

Many readers responded in shocked disbelief: The President can't mean what he said. He must have misspoken -- he can't really be claiming that Roosevelt sat on his hands, deliberately letting the Depression get worse and worse.

Perhaps it was just a slip. But in 2010, even slips can be revealing -- and this one comes from a definite part of the political spectrum. The President was repeating a canard that goes back to the circle of die hards around President Herbert Hoover as he exited the White House in a cloud of bitterness in 1933. In recent years, as a vast campaign against the memory of the New Deal has gathered steam, such claims have gone mainstream. For example, take the carefully hedged version recently put forward by Amity Shlaes in her study of the New Deal, "The Forgotten Man": "But Roosevelt was not interested in cooperation. We will never know all his motives, but it was clear that a crisis now could only strengthen his mandate for action come inauguration in March."

We are unlikely ever to know for sure. But as President Obama took office, the Council on Foreign Relations was cranking up a remarkably one-sided conference purporting to be a "Second Look at the Great Depression and the New Deal." Ms. Shlaes was a prominent participant, as was the Council's co-chair, one Robert Rubin, whose myriad protégés thronged the Obama Treasury and economic councils.

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Whether our highly intellectual president picked up the idea by reading it or hearing somebody else say it, it was, and is, in the air. And you can be sure that his words will now be rattling around for years to come and likely cited as proof of Franklin D. Roosevelt's "irresponsibility."

So it makes sense to look more closely at what really happened between Roosevelt and Hoover. This is not too easy to do, though one or two studies, notably Elliot Rosen's "Hoover, Roosevelt, and the Brains Trust", have written with insight on the subject.

I often joke that North America is the true "Dark Continent." We probably know more about tribes in the Amazon jungle than we do about the real nature of power in the United States. Neither political science, nor history, nor economics do very well on this. If you want to understand what really happened between Hoover and Roosevelt between November 1932, when FDR won the election by a landslide, and March 1933, the old inauguration day before passage of the 20th Amendment to the Constitution, you need to comb through the papers of private bankers and the material in more easily available public sources such as the splendid Roosevelt Library in Hyde Park, New York. I have been engaged in this over more decades than I now care to admit. The bottom line is this: Hoover and a substantial bloc of New York bankers wanted Roosevelt to commit to staying on the gold standard and US participation in the upcoming London Economic Conference. These commitments would have meant continued austerity and completely destroyed any chance of fundamental reform -- which was why the banks and Hoover were so insistent. In effect, they were hoping to continue with Hoover's policies, if not Hoover himself.

Roosevelt exchanged some messages with them, but finally refused the whole package. He and his advisers correctly concluded that the idea was to suck them into a foolish set of commitments. FDR was simply not willing to make the kind of arrangements with bankers that President Obama was. That's the heart of the matter.

Thomas Ferguson is Senior Fellow at the Roosevelt Institute and Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.

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Foreclosure: Destroying Neighborhoods, Depressing Demand and Growth

Nov 17, 2010Dean Baker

house-in-hands-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

house-in-hands-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our "Foreclosure 411" series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the second part, Dean Baker warns that foreclosures have a corrosive effect on communities and consumers.

There are two obvious reasons that foreclosures should be viewed as a problem even by those who are not worried about being thrown out on the streets. The first is that depressions are a blight on neighborhoods. Banks often neglect properties following a foreclosure. This means both not doing appropriate cosmetic care and neglecting maintenance of the house. The result is that foreclosed properties can be eyesores that depress property values throughout the neighborhood. They can also be physically dangerous -- for example, if they contain exposed wiring or become a drug house. Either way, a neighborhood with a large number of foreclosures will be facing problems.

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The other issue related to foreclosure is that families often struggle to meet their mortgage payments, pulling money away from other types of consumption. This means that instead of spending money in restaurants or other types of demand-generating consumption, families struggle to send enough money to the bank to hang onto their house.

This situation could be rectified either with a mortgage modification that lowers mortgage payments, or alternatively by allowing the homeowners to stay in their home as a renter paying the market rent. In most of the markets that were formerly bubble-inflated, rents can be half as much as the monthly mortgage payment from a home purchased near the peak. By allowing either a modification or for people to remain in their home as renters, tens of billions of dollars can be freed up to support increased consumption.

Dean Baker is the co-director of the Center for Economic and Policy Research.

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A Housing Market That Works for Us

Nov 16, 2010Joe Costello

mortgage-crisis-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis.

mortgage-crisis-150Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 asked leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our "Foreclosure 411" series focuses on the values inherent in explaining why we should care and what the crisis means to all of us. In the first part, Joe Costello argues that we have to measure the economy not by the size of bonuses but the well-being of Americans.

My new house
You should see my house
My new house
You should see my new house
According to the postman
It's like the bleeding Bank of England
My new house
Could easily crack a mortal in it
-- The Fall

The National Association of Realtors recently released a housing report (h/t Calculated Risk) that states:

The Pending Home Sales Index,* a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. However, the index remains 24.9 percent below a surge to 107.8 in September 2009 when first-time buyers were jumping into the market to take advantage of the initial deadline for the tax credit last November.

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Whatever other numbers you want to use to measure the economy, housing remains key. Housing was the center of the bubble and it continues to deflate. And judging from every historical precedent, it's going to continue to deflate, no matter how many times Mr. Bernanke presses ctrl-alt-shift-$. Currently 25% of people are underwater in their mortgages, with estimates that it will reach 40% within two years. Which means that all the losses the banks are hiding are only going to grow larger. Now remember, the whole housing bubble was created to literally paper over the great imbalances in the American economy that had developed over several decades, and most significantly, the stagnation of wages. Which is also why all the cries for dumping ever greater amounts of fiscal stimulus into the economy without a serious look at correcting these imbalances is just as much a crack-pipe policy as they're smoking at the Fed.

We should stop the foreclosures, write down the mortgages so people can stay in their houses, and make the banks and bondholders take their losses, breaking up and recapitalizing where necessary. We need a reevaluation of how our economy works. Instead of judging the health of the economy by Wall Street bonuses and bank profits, we need to ask what sort of life it is providing for the vast majority of Americans. Are people living better? Not just in the amount of stuff they own, but are they more secure, healthier, and living fuller lives? GNP and profit/loss numbers aren't great metrics for measuring these things. We need a societal value shift.

Joe Costello was communications director for Jerry Brown’s 1992 presidential campaign and was a senior adviser for Howard Dean’s effort in 2004.

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Our Financial Infrastructure in Tatters: Announcing New Series on the Foreclosure Crisis

Nov 15, 2010Mike Konczal

mike-konczal-2-100Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 is asking leading thinkers and activists to help navigate the maze of the foreclosure crisis.

mike-konczal-2-100Robo-signers. Moratoriums. Botched documents. In the midst of a complicated and crooked mess, New Deal 2.0 is asking leading thinkers and activists to help navigate the maze of the foreclosure crisis. Our new "Foreclosure 411" series will focus on the values inherent in explaining why we should care and what the crisis means to all of us. Mike Konczal introduces the series.

Why, with so many problems in the world, should you care about the current foreclosure crisis? Isn't this just a problem on the fringe, a case of deadbeats not paying their bills?

I wish it was that simple. However, this crisis is a complete breakdown in the infrastructure that handles the most important financial asset for a majority of Americans, and one of the primary means by which intergenerational mobility occurs.

The foreclosure crisis sits at the heart of each of the crises that are destroying our economy. There's a massive amount of bad debt and over-leverage as we emerge from a burst credit bubble. There's the broken financial system that was created in the past two decades, rife with incentives to rip off both investors and borrowers in order for middle-men to profit. There's the macroeconomic crises of deflation and mass unemployment, which are devastating households trying to survive. And finally, there's the tepid response from the Obama administration, embracing the idea that the problem would go away by now with a growing economy. This plan hasn't worked and there isn't any plan B in place.

These aren't new problems. We've known about them for a while now, and we are living out the consequences. In light of the likelihood of continuing unemployment and a lost decade for America, New Deal 2.0 has reached out to a variety of writers to look at the foreclosure crisis and its causes, problems and solutions.

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The financial system's ultimate goal should be to mediate the transferring of funds from borrowers to savers. Starting in the early 1980s, the private mortgage securitization system was supposed to bring the best in deregulation to this market. Private servicers could manage assets better with tax-free protection, the ratings agencies could dynamically assess credit risk, and the wonders of a deregulated financial market and a financialized economy would get credit exactly where it needed to go.

This has not happened. But beyond puffing up a credit bubble in housing, it has destroyed our ability to move on afterward, to dig out of the collapse. Bad investments happen all the time. People buy at the wrong time, get in over their heads, etc. The question is: what railings are around the system? In the private system, those railings are the servicers. For the public, it is our bankruptcy courts and property record systems. Both are being corrupted by this foreclosure crisis.

This alone is reason enough to be worried. All it takes is a random problem in our servicer system to get the average homeowner into trouble. This isn't about deadbeats or responsibility. All this system does is make it profitable to be a big bank (profitable as long as it doesn't have to record its losses). However, we don't want a financial system with only this objective -- we want a financial system that finds investment opportunities, provides contracts that are valid and well-informed, that makes sure property rights that involve debt and uncertainty are maintained properly, and that the borrowing and lending markets are as complete as they can be without being exploitative. This series will show you how that has failed.

Mike Konczal is a Fellow at the Roosevelt Institute.

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The 2010 Elections: Now What Do We Do?

Nov 15, 2010Daniel Berger

question-mark-150In the second post of a two-part series, Daniel Berger explains that Democrats must approach messaging like marketing -- and try to forge partnerships with our elites.

What Is To Be Done?

question-mark-150In the second post of a two-part series, Daniel Berger explains that Democrats must approach messaging like marketing -- and try to forge partnerships with our elites.

What Is To Be Done?

In a previous post, I identified some of the serious deficiencies in the political strategies followed by the Democratic Party and, to a lesser extent, the progressive political movement in general. A general policy approach as a political strategy or a so-called "centrist" strategy -- while not without their positive aspects -- is simply not effective. Moreover, the Democrats need to figure out a way to engage business and professional elites without totally abandoning their progressive ideals and base. Fortunately, alternatives to current approaches exist on both scores.

Values/Belief-Based Politics

One of the principal insights of modern advertising is that marketing efforts are most effective when focused on the attributes not of the product but of the audience to whom it is being sold. In the advertising industry, promotional efforts are geared to the demographic, financial, social and cultural attributes of consumers in marketing segments, not the product.

Politics can be seen as analogous to advertising or product promotion, since it involves the "selling" of candidates or ideas to the public -- a target audience -- with analogous "marketing" characteristics. Beliefs in and of themselves and as characteristics of the electorate are central to the political persuasion process. This strategy could be called a "values- or belief-based approach" to politics.

There are two general approaches to values/belief-based political strategies. The first approach focuses on a set of basic principles or values, which a political party claims to represent. For example, the Republican Party has purported to represent the values of individualism, property rights, free enterprise and patriotism. More recently, it has added religion and family. The Democratic Party has also had a long history of advocating values and ideals that are central to the American experience and ethos. These broadly shared values include equality, fairness, justice, community, support for the little guy and underdog and making the world a better place. However, it would be difficult to identify the Democratic Party now -- or even the progressive movement -- with any recognizable broad-based set of shared values, because of their current political strategies.

Articulating a set of beliefs is important. Studies of public opinion show that voters often make political decisions based on their belief systems and affinities they feel for candidates, rather than specific policy issues. The Republicans are deep into the values/belief approach to politics. They have gone to great lengths to differentiate Obama from the average voter, attempting to portray him as either not sharing the values of the average person or simply different, even against accusations of racism. They have also charged the President and Democrats as being "un-American," even as it strikes reasonably informed people as both ludicrous and reprehensible. Despite persistent questioning of their integrity, the Republicans persist in these efforts, suggesting that they may have public opinion data showing that these strategies are effective.

Whatever the effectiveness of this ploy, Democrats cannot and should not cede the definition of "American" to the Republican Party. Let us not forget that the Republican leadership has acquiesced, if not openly supported, advocacy by its members and spokespersons of violent overthrow of the government or secession from the United States, tantamount to the commission of sedition. Moreover, their reckless domestic and foreign policies have destroyed the U.S. economy, including fighting disastrous wars without paying for them and, inter alia, the deregulation of the financial markets, which directly led to the current economic emergency. This sorry record is real un-Americanism.

A second approach to a values-based political strategy is to apply sophisticated advertising techniques to political messaging. Like a typical advertising campaign, the target audience is segmented into sub-groups, analogous to market segments for marketing purposes, who share common affinities. This process is similar to public opinion surveying in the polling process, except much more detailed (through interviewing) and focused on actual values and beliefs expressed by each of the electorate sub-groups.

Whether generalized or specific, the merits of a values-based political strategy needs to be seriously considered by the Democratic Party and its moderate and progressive allies. The Republican Party's vision of an "ideal" world is incomplete, self-contradictory, largely wrong and has brought American society to the brink of collapse. But it still can win out if there is no alternative. Politics, like nature, abhors a vacuum. Democrats must respond with their own vision or the Republican "vision" -- like a bad product, relentlessly promoted -- will appeal by default. Democrats can and should say what they believe in.

For example, Democrats could say that they believe in a society that is not only free, but one that is also decent, humane, just, and environmentally responsible. In such a society, individual liberties are guaranteed and circumscribed by the principle of fairness. Private property rights and free enterprise are viewed as important ideals, but not absolute. Government has a key role in assuring that private interests don't get out of control and that the public interest is protected and upheld. Taxes are necessary to pay for public needs. Finally, Democrats believe in a strong national defense, but don't believe in nation or empire building -- except at home.

A Strategy To Deal With The Elites

The importance of pursuing a new approach for dealing with the elites is illustrated by the fact that in early October 2010, Michael Bloomberg sponsored a private and unpublicized dinner for the 100 richest people in the United States. The day of the dinner, one of the participants published an op-ed piece in the Wall Street Journal dealing with six fundamental problems facing the country, although without reference to the dinner that was scheduled to take place that evening. According to one of the participants, the sense of the assembled group was of deep concern about the state of the nation, the political situation in the U.S. and, in particular, the political will of the country to address its fundamental problems. No further information was provided on the issues addressed at the dinner or possible solutions proposed, if any.

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The good news is that the elites appear to be both concerned about the condition of the country -- and the responsiveness of the political system -- and open to a non-ideological policy approach currently favored by the Administration and the Democratic leadership in Congress. Without specifically saying so, they also appear to recognize that action by the government, if any, needs to be taken on the national level. This suggests that the elites could become natural allies if an understanding could be reached with them on two other fundamental issues: "market failure" and the problem of inequality. This would create a rational framework within which a meaningful dialogue could take place. On the other hand, an unwillingness on their part to consider one or both of these issues would probably make discussion impossible.

Market Failure

Sometimes markets fail to do the job assigned to them, namely, to allocate resources efficiently. Market failure, even in limited situations, has important implications from an economic organizational standpoint. First of all, the fact that markets can fail does not mean that the system is a failure and requires replacement by some other system of economic organization. Although there was a huge political fight about this subject in the 20th century, the weight of historical evidence is that a market system is superior to others. Market failure simply means markets and the system are not perfect, reflecting the unremarkable fact that human social institutions are imperfect. However, a commonly accepted corollary to the principle of the superiority of markets -- that nothing should be done to correct market failures -- does not in any way follow or hold true. Both economic theory and historical experience show that corrections for market failure can and do improve economic efficiency and social welfare.

Additionally, market systems are not self-correcting, self-regulating economic systems. Regulation to correct and/or prevent market excesses and abuses is fully justified from the standpoint of economic efficiency and social welfare, as these terms are defined in standard economic theory. Thus, a more optimal form of economic organization than a pure "free market" system is a mixed system of private markets and government oversight and regulation to correct for instances of market excesses and abuses.

The financial crisis, as was the case with the Great Depression, both clearly and spectacularly illustrate that markets fail, even egregiously. Most of the other pressing problems facing the nation -- such as energy, environment, climate change, health care, etc. -- also involve situations where markets fail or don't work well. Thus, any dialogue between the Democratic Party and the elites around a policy approach must at least recognize the problem of market failure and the reality that the market system is not completely (or always) self-correcting and self-regulating. If the elites accept this premise, a serious policy approach would be possible and a real prospect for a consensus could develop.

Inequality

A second issue that the elites must ponder long and hard is a policy issue almost always absent from lists of fundamental problems: inequality. Inequality was the driving political issue of the 20th century on a worldwide basis, and it split the world between capitalism and socialism and along economic, social and political lines.

An economic system based on private property and free enterprise inherently produces vast inequalities in wealth because, inter alia, the economic returns to capital are far higher than the economic returns to labor. The unrestrained operation of market forces in capital and labor markets will necessarily concentrate wealth in the hands of property owners and their heirs, which invariably means in the hands of the few.

The original arguments against inequality (and capitalism) were based on the proposition that massive inequality of the scope which capitalism and market forces produce is fundamentally unfair. Social scientific research has now also weighed in. Over the last 30 years, there has been an accumulation of research on the effects of wealth inequality in modern society. The result is that there now is a growing body of knowledge (including quantitative social scientific evidence) that wealth inequality is strongly correlated with virtually every social ill, dysfunction and pathology in modern society including crime, drug and alcohol abuse, divorce, domestic violence, illiteracy, illegitimacy, homelessness, truancy, school drop-out, and job absenteeism, among others. It is also highly correlated with medical illness, both physical and mental, accidents, premature death and suicide.

Inequality also costs society hundreds of billions of dollars a year in lost productivity, and in the direct costs of medical treatment, even without taking into account the associated psychological pain and suffering or deleterious social effects. In a rational world, it would be cheaper for society to eliminate or materially reduce inequality than to continue to absorb its huge financial and other tolls. Although shocking, the U.S. has the highest level of economic inequality among the 35 leading industrialized nations as of 2009.

There is also evidence that growing income disparities in the U.S. have caused middle class household income to stagnate over the last 30 years. Slow (if any) growth of this income was, in part, responsible for the unprecedented increase in household debt in the last 15 years, as middle class families borrowed on an unprecedented basis to maintain their standard of living. Increased private debt levels played a major role in the financial crisis and its associated fall-out, including the current unexpected slow recovery. As such, growing wealth inequality, because of its effects on middle class and working class purchasing power, is a threat to the short-run stability of the economy and places the economy more at risk of cyclical collapse.

If these findings about the effects of wealth inequality are confirmed by subsequent research, the U.S. must reconsider the issue of inequality and determine whether social policies should be adopted to at least reduce its levels and/or its attendant effects. If the elites can set aside ideology and self-interest and recognize wealth inequality as a fundamental issue facing the country, then real progress could be made in fashioning a policy and political consensus with the Democratic Party and its progressive allies.

Daniel Berger is an attorney in the field of complex litigation, including securities and anti-trust litigation, and has a broad-based knowledge concerning the structure and functioning of the US economy and US financial markets. He practices in Philadelphia.

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FDR and Banking: In a Time of Crisis, it’s Leadership that Counts

Nov 12, 2010David B. Woolner

Roosevelt historian David Woolner shines a light on today’s issues with lessons from the past.

Few Americans today can envision what life was like in the dark winter of 1932-1933. Imagine a country where unemployment nationwide was more than 25%; where the stock market had lost roughly 90% of its pre-1929 value; where people no longer trusted their local bank to keep their money safe; not hundreds, but thousands of banks had closed their doors, unable to stem the flood of withdrawals precipitated by the profound fear that gripped the American people.

Roosevelt historian David Woolner shines a light on today’s issues with lessons from the past.

Few Americans today can envision what life was like in the dark winter of 1932-1933. Imagine a country where unemployment nationwide was more than 25%; where the stock market had lost roughly 90% of its pre-1929 value; where people no longer trusted their local bank to keep their money safe; not hundreds, but thousands of banks had closed their doors, unable to stem the flood of withdrawals precipitated by the profound fear that gripped the American people.

Imagine too that the crisis that gripped the nation was not confined to the United States. By the early 1930s, America had become the world's largest creditor. As our economy and banking system collapsed, so too did many of the banks in Europe, turning what began as a severe domestic economic downturn into a global economic catastrophe.

In the United States, and indeed much of the rest of the world, what was needed more than anything else was leadership. Leadership that would replace the sense of panic and fear with hope and confidence. Leadership that did not exploit people's anxieties and prejudices, but rather sought to convince people to make sacrifices for the common good of all. Leadership that sought to restore the people's faith in themselves and in the democratic institutions of government.

It was in the midst of this crisis of confidence that a paralyzed world turned to Franklin D. Roosevelt. Inaugurated on the 4th of March 1933, on the very day that the global banking calamity had reached its apogee, FDR famously called upon the American people to recognize that "the only thing we have to fear was fear itself-nameless unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance." He also went to work immediately on the banking crisis, proclaiming a three day "banking holiday" in which all the nation's banking transactions were to be suspended and calling Congress back into an emergency session to deal with the crisis. He then ordered his Treasury officials to draft an emergency banking bill aimed at restoring the people's confidence in the banks -- a bill that he insisted had to be ready for passage on March 9, the day Congress was set to reconvene.

Working round the clock for three days, the Bill was completed at 2:00 a.m. on the 9th, introduced to Congress at noon (where it was read aloud as there were no printed copies yet available), passed by the House at 4:00 and by the Senate at 7:00, and was on the President's desk for signature at 8:36 that evening. FDR then issued a Presidential proclamation extending the banking holiday until March 13. On the evening of March 12th, he took to the nation's airwaves to deliver his first -- and perhaps most important -- "Fireside Chat."

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Here, in reassuring and conversational tones, the President said he wanted to talk to his "friends," the American people, about banking. He then went on to explain what the Government had done in the past few days, why it was done, and what the next steps would be. The latter included the re-opening of those banks that the government had deemed solvent, assistance for and the gradual re-opening of those banks that needed a bit of help, and the closure or complete reorganization of those few remaining banks that were beyond repair.

After explaining what the government intended to do, FDR assured the American people that it was "safer to keep your money in a reopened bank than under a mattress." He also admitted frankly that the "success of our whole great national program depends, of course, upon the cooperation of the public -- of its intelligent support and use of a reliable system."

His administration then waited with baited breath to see what would happen when the banks started to reopen the next day. No one knew for sure, but when more money flowed into the banks on March 13 than was withdrawn, they knew the President had succeeded -- and just like that, the banking crisis was over.

In those few minutes that FDR was on the radio, he established a bond of trust with the American people that was unprecedented and would last until the day he died. In doing so, he not only restored their faith in government, but also in democracy. The paralyzed President had used his skills as a leader to lift a crippled nation from its knees.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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