Tuesday, December 28, 2010

Last Call

The one thing that Foreclosuregate has really done is rip the cover off of the secret fraud factory the banks have been running for years in the mortgage business.  Now the institutional investors that bought this toxic mess are suing to get their losses back.  It's one thing when a small company does it, but when the nation's biggest auto insurance company weighs in with a big-ass lawsuit against the nation's biggest bank over this, you know it's about to get ugly.

Allstate has sued Bank of America and 18 other defendants over losses it said it suffered on more than $700 million of mortgage debt it bought from Countrywide Financial.

In a complaint filed Monday in Manhattan federal court, Allstate, the largest publicly traded U.S. home and auto insurer, alleged that Countrywide misled it into believing the securities it bought were safe, and that the quality of residential home loans backing them was high.

"Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default," the complaint said. Allstate suffered "significant losses" as a result, the complaint said. 

Among the defendants are several former Countrywide officials, including long-time Chief Executive Angelo Mozilo. 

Allstate won't be the last company to sue the banks over subprime losses either.  And these two corporate heavyweights have the money and the muscle to make this a full 15-round fight.  But it looks like the tale of the tape strongly favors Allstate.  Tyler Durden:

Allstate's sample sizes of Mortgage Loans are more than sufficient to provide statistically-significant data to demonstrate the degree of misrepresentation of the Mortgage Loan characteristics. Analyzing data for each Mortgage Loan in each Offering would have been cost-prohibitive and unnecessary. Statistical sampling is an accepted method of establishing reliable conclusions about broader data sets, and is routinely used by courts, government agencies, and private business. As the sample size increases, the reliability of its estimations of the total population increase as well. Experts in RMBS cases have found that a sample size of just 400 loans can provide statistically significant data, regardless the size of the actual loan pool, because it is unlikely that so large a sample would yield results vastly different from results fro the entire population.

In other words, Allstate used statistical analysis to show that no matter what random package of loans that Countrywide sold them, the loans themselves were all fudged.  In the most damning evidence, Countrywide claimed that 0% of the instruments they sold Allstate contained any mortgages that were underwater, i.e. not a single mortgage loan packaged for investment had a homeowner who owed more than the home was worth.

That of course was complete bull.  Every single tranche of mortgages that Allstate inspected had at least some underwater mortgages in it.

Every. Single. One. Ranging from 3.3% to 14.5%.

Let's say you are a major investor and are looking for something to sink capital into. I come to you and say "I have a chain of used car lots I would like you to invest in." You say, "Okay, let's see your inventory."

I show you all this paperwork that says these cars are popular and will sell well. I say to you "I promise that zero of these cars are defective." You go "Okay, let's invest."

And then you lose your shirt, and you find out later that I was lying about the car's prices and values, and you do some digging on your own and find out from a random audit of my car lots that 3.3% to 14.5% of the cars sold from my lot were lemons. You'd want your damn money back.

Something pretty similar happened here. Allstate is suing to get its money back and they have a pretty devastating case, according to the filing. Countrywide flat out lied.

Mmm, fraudtastic.  This one's going to get nasty, folks.

Stupidinews: Deadly Serious

Eight people were killed in a New Orleans fire.  The building was abandoned, and the people are thought to be homeless folks taking shelter from a rare blast of freezing weather.  While there has always been a large homeless population in New Orleans, this will hopefully drive more people to take advantage of shelters, where they are safer on many levels.

Five teenagers died of carbon monoxide poisoning after leaving a car running in a closed garage below the room they were using.  This is still being investigated, but it seems to be a mistake that took the worst turn possible.  They had come together to celebrate the 19th birthday of one of the people present.

Oklahoma resident Mark Sedille is facing murder charges after fatally shooting his wife in the head.  According to Sedille, they routinely used a gun in their fantasy play in the bedroom.  This time the gun was loaded, and Rebecca Sedille died when the gun discharged.  Sedille is currently held, but formal charges have not been filed because the police report has not reached the prosecutor.

Home, Home I'm Deranged Part 13

The double dip housing depression continues.  Good ol' Asariel snags the Case Shiller numbers for October.

Arriving in the howling arctic wastes that were once the eastern seaboard of the United States of America, the S&P/Case-Shiller Home Price Index is out. The 10-City Composite increased (barely) 0.2% while the 20-City Composite fell 0.8%, and home prices fell in all 20 metropolitan areas covered by the index.

Pay attention to that chart in the PDF:  home prices are officially on the decline as the 20-city composite is negative and the Case Shiller numbers are always 3 months behind.  The real extent of the damage won't be known for some time, but it's going to be fugly.  Remember, for a vast majority of the American people, what little wealth they have is represented by their homes.

That wealth is vanishing as home prices are back into plunge mode.

As bad as 2010 was, 2011 is going to be friggin' brutal.

Double G Has To Regulate Once Again

I may not always agree with Glenn Greenwald, but the dude can shut people down when he kicks in the Indignation Overthruster.  Respect.

Here he dismantles CNN's Fran Townsend (and later, Jessica Yellin) over the issue of Julian Assange and WikiLeaks.  Professor Greenwald teaches some people badly in need of some basic lessons in journalistic integrity and the role of the adversarial press.

Best line:  "Good investigative journalists – maybe CNN doesn’t do it – but good investigative journalists work their sources all the time."

Regulators, mount up.

Depends On What You Mean By "Deficit Control"

House Republicans plan to change budget reconciliation (you remember that, right?  The process that Republicans used many, many times before and brutally attacked during the health care debate as tyrannical?)
in order to use the procedure to prevent spending increases from adding to the deficit...but tax cuts that add to the deficit are 100% okay!

The Center on Budget and Policy Priorities examined the GOP's proposed new rules for the House, and here's what they found.
The new rules would stand the reconciliation process on its head, by allowing the House to use reconciliation to push through bills that greatly increase deficits as long as the deficit increases result from tax cuts, while barring the use of reconciliation in the House for legislation that reduces the deficit if that legislation contains a net increase in spending (no matter how small) that is more than offset by revenue-raising provisions.
To translate: Bush tax cuts are fine, but, say, paying for infrastructure projects by taxing carbon would be forbidden, even if the net result would be a reduction in the deficit.

This is just one key feature of the GOP's playbook: CUT/GO. Under CUT/GO, all new spending has to be paid for, but tax cuts do not. Additionally any new spending must be paid for with parallel spending cuts elsewhere in the budget -- not with tax hikes. So unemployment benefits couldn't be paid for by closing a corporate tax loophole. But a corporate tax loophole could be widened without requiring any offsets.

The practical implications for now are nil. The Democrats still control the Senate, and, even if they didn't, the Senate's rules are more arcane and harder to change. But Democrats are currently weighing a few modest changes to other Senate rules, and you could imagine Republicans in a future Congress taking steps to make tax cuts even easier to pass.

The CUT/GO era is upon us.  Republicans plan to pay for tax cuts for the wealthy -- or pretend to pay for them -- by cutting as much social spending as possible.  Anyone who voted Republicans in to be fiscally responsible really needs to have their head examined, because they are telegraphing their moves to pile on the deficit months in advance.

Epic Governing The Jersey Way Fail

Profiles in leadership time as New Jersey's GOP Gov. Chris Christie and Democratic Mayor of Newark Cory Booker demonstrate what to do in case a major blizzard hits the Garden State...and what not to do.

Following up on an item from yesterday, New Jersey Gov. Chris Christie (R) and his lieutenant governor were told Sunday about the blizzard barreling down on the Garden State. Soon after, they left town at the same time, with Lt. Gov. Kim Guadagno (R) and her family flying to Mexico, and Christie and his family going to Disney World in Florida.

It left state Senate President Stephen Sweeney (D) in charge as the acting governor, and by all appearances, he's handling everything fine -- he declared a state of emergency, dispatched road crews, coordinated with state agencies, and activated the National Guard. The response seems to have gone fairly well, and Sweeney lifted the state of emergency this morning.

But there's still the political fallout to consider. Many are questioning why the Christie administration allowed both the governor and lieutenant governor to go on vacation at the same time, despite warnings about the impending storm. Others have noted that the governor isn't bothering to rush home to deal with the situation.

So both the Governor and the Lt. Gov. were told over the weekend that the state was going to get nailed Sunday night by a major snowstorm, and both of them left town as fast as they could for sunny points south of there.  Nice.

So what did Mayor Booker of Newark do in contrast?

Perhaps even more interesting was how Cory Booker spent his day. Booker, the Democratic mayor of Newark and likely gubernatorial candidate in 2013, grabbed a shovel to help seniors and the disabled, delivered diapers to a housebound mother, helped dig out a stuck police car, and tended to a woman in labor who was waiting on an EMS team to arrive.

So the Republicans bolt town and leave the Democrats to do the responsible governing part of the Governor's job when a mess comes barreling down the pike, and they come through admirably.  Meanwhile, Gov. Christie might be back by the end of the week from Disney World and the important things:  gym, tan, laundry.

Hey, governing is freakin' hard.


A Whole Wide World Of Bank Bailouts

Boy, we sure are generous as Americans, taking it on the chin here at home while taxpayers helped to bail out non-US banks.  CNBC and the Financial Times:

More than half of lending under the Fed’s term auction facility – the largest of its crisis programs – went to foreign banks. Details of the varied uses to which they put it may add to political criticism of the Fed.

The Taf was set up in December 2007 to provide one-month loans to creditworthy banks as markets dried up for lending longer than overnight. In August 2008, it began offering three-month loans as well.

Rabobank of the Netherlands and Toronto-Dominion of Canada, two of the only banks in the world with triple A credit ratings, used more than $20 billion in cumulative Taf loans.

Ed Clark, TD chief executive, said that using Taf was logical even though his bank never had a liquidity problem. “That wasn’t how we made a lot of money. But you make a dollar here, you make a dollar there. What’s the spread you make on a billion dollars?” he said.

In the summer of 2008, TD was borrowing $1 billion from TAF at rates of between 2 and 2.5 percent. For that borrowing it used the lowest quality – and hence highest yielding – collateral acceptable to the Fed.

More than 80 percent of its collateral had a triple B credit rating at a time when such bonds yielded about 7 percent. TD could therefore have made a notional gross spread of about $4m a month during 2008.

So not only were the big US banks making money off this scheme, taking worthless commercial paper, giving it to the Fed at face value as collateral, and getting cheap loans back in return, but overseas and Canadian banks were taking advantage of the TAF as well.

Keep in mind this all happened in early 2008, too -- before Obama took office, this was all Hank Paulson's idea -- and ask yourselves why the same Republicans who are looking to make Americans eat billions in spending cuts are the same guys who had no problem giving away taxpayer dollars to banks in Canada and Europe.

Think about that the next time a Bush-era Republican launches into another tirade about how we must control spending.

Rand Paul's Unkindest Cut

My new Senator-elect says he's going to load down major bills with spending cut amendments, but like most Republicans he has no specifics as to what will get the axe.

Paul (Ky.) — who won his race with strong support from the Tea Party movement — said that he will "pressure" Senate Majority Leader Harry Reid (D-Nev.) to take simple majority votes on spending cut amendments in the next Congress.

"I think that every piece of major legislation that goes forward from now on needs to have attached to it spending cuts," Paul said during a podcast with conservative blogger Ben Domenech. If Congress is serious about the nation's ballooning debt and deficits, "We have to be serious and introduce spending cuts.

"That's one thing that I will do when I am there, is introduce it at every opportunity and we will have votes on it," he said. Many political observers have taken a keen interest in Paul to see if his priorities next year will clash with those of Senate GOP leader Mitch McConnell, who also happens to be Kentucky's other senator. 

Don't believe that last part for a second.   When it comes to McConnell's wishes during the 2010 campaign, Rand Paul fell in line like a good GOP footsoldier, and now that he's in the Senate that will continue.  Don't watch his mouth, watch his votes.

He talks a good game, but he's just another Republican.

Deconstruction Artists

Brian Beutler reports on the GOP stocking up on health insurance lobbyists in order to find a way to dismantle health care reform.

House Republicans are turning to old friends on K Street to lead their legislative attempts to repeal the new health care law.

Three recently hired Republican aides -- two set to work in senior positions on the powerful Energy and Commerce Committee, and one for soon-to-be Speaker John Boehner -- spent the past years lobbying on behalf of insurance companies, pharmaceutical manufacturers, and other corporate interest groups with a vested interest in weakening or repealing the law.

Two weeks ago, incoming Energy and Commerce chair Fred Upton announced he'd hired Gary Andres to be his staff director.

"For over two decades, Gary has been a leading voice in Republican policy, always seeking solutions to advance our principles to limit the size and scope of government," Upton said in a statement at the time.
Andres served as Vice Chairman of Public Policy and Research for Dutko Worldwide, where, according to congressional public disclosure forms, he lobbied for insurance giant UnitedHealth Group and for a corporate umbrella organization called the Coalition to Advance Healthcare Reform.

The coalition's website is now defunct, but you can view an archive of its homepage here and of its membership here

It looks like the GOP may be using these former lobbyists to take a scalpel to the health care reform measure rather than the flamethrower they promised during the campaign season, but the goal of making the law DOA before additional provisions can take effect remains the same.

That's probably not enough to satisfy Tea Party types eager to get in on the "defund and shutdown" action.  House Republicans who don't move fast enough to torch legislation passed in the first two years of Obama's term may not be back in 2013.

Still, I can see why House Republicans are doing this.  They basically want to replace the Obama legislation with their own version of it, and they're going to need surgeons, not demolition men.


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