Relevant and even prescient commentary on news, politics and the economy.

Yves Smith will be on Harry Shearer’s Le Show today (Sunday)

Yves Smith will be on Harry Shearer’s Le Show today (Sunday), originating at 1 pm ET live on many public radio stations, and aired on many others throughout the day. Good streams are available all day, each hour, at The topic is the Independent Foreclosure Review fiasco.

(check local listings here…)

The Great Recession captured in 1 minute of comedy

Just watch this.  It is 1 minute long.

Could it be anymore surreal?


Obviously, the lesson has not been relearned since at least sometime before 1992.  If it had been relearned, we would not be here still proposing solutions that sound just like, almost word for word like the 1920’s.  (start reading at 1920) I mean, it’s not like people haven’t been sounding the horn on what the results would be from the proposed solutions in 1992.   Nope, it’s the same proposals as in 1992, which will produce more of the same.


First take on AG agreement on foreclosure

Naked Capitalism posts today on the AG agreement in Settlement Breakdown by State Plus Other Official Propaganda:

This agreement is very significant in how it addresses the fraud that these banks committed against many homeowners across our state,” said ___.“ This agreement not only provides much needed relief to (STATE) [Ha ha, fill in the blank!!!] borrowers, but it also puts a stop to many of the bad [criminal] behaviors that contributed to the mortgage mess in our state and across the country.

Addresses the fraud is part of the news announcement?

Update:  Also listen to William Black on Econtalk about bank fraud.

Cleveland = The New India?

My Economics Professor in MBA School, Peter Klein, lectured fondly of the Indian (as in subcontinent, not AmerInd) “entrepreneurs” who risked life and limb going through rubbish heaps looking for scrap metal and other items that could be sold. Despite the risk—I’m not writing metaphorically when I say “risked life and limb”—it was the best opportunity they had of making a better life for themselves.

Apparently, that Indian entrepreneurial spirit (or, as Newt Gingrich might call it, “work ethic”) is being mirrored these days in Cleveland. But now a former county treasurer wants to put a stop to it:

[Former Cuyahoga County Treasurer] Jim Rokakis: We’re looking at a neighborhood that has almost as many vacant houses awaiting demolition as there are houses with people living in them. We have one here. One here. One here. One there.

[Narration?] Rokakis is leading the effort to tear down thousands of abandoned homes because they’re rotting their neighborhoods from the inside out. It often starts, he told us, when a vacant house becomes an open house to thieves.

[TV Correspondent] Scott Pelley: It’s a nice house from the roof to about here. And then down here it’s been ripped to pieces. What’s goin’ on?

Rokakis: Well this is typical because this is as high as they could reach without using ladders. They ripped off the aluminum siding, which you’ll see on most of these houses. The aluminum and the vinyl siding comes off. It’s getting’ about a buck a pound.

Pelley: Essentially foreclosure scavengers have been through here?

Rokakis: The thieves have gone high tech. They know when evictions are occurring ’cause they’re posted online. And they will follow the sheriff. They’re usually there that afternoon or that evening.

Rokakis: So, in here, what you’re gonna see, well. I guess they took everything including the proverbial kitchen sink, right? The sink is gone. The plumbing is gone in this house. All the copper. Anything metal that had value is gone. The furnace is gone.

Pelley: The light fixture–

Rokakis: Light fixture came out–

Pelley: Is gone. How often is this happening in Cleveland?

Rokakis: This happens every day. And the foreclosure crisis creates this spiral, because as a result of this people are now more likely to leave neighborhoods like this. And as they leave, the scavengers come in and do the same thing to the house next door or across the street.

Apparently, Mr. Rokakis objects that houses are starting to look like Bruce Willis’s after the opening scenes of RED. Maybe someone will set the former treasurer straight that the employment of “reuse, reduce, and recycle” techniques in the service of entrepreneurial activities is an Economic Virtue.

(Though, speaking strictly for me, I’m glad that my wife and eldest daughter are willing to delay their hoped-for move to Cleveland for at least the next few years.)

Foreclosures and Mass. Attorney General make the news

From comes news of:

Massachusetts Attorney General Martha Coakley is suing five major US banks for allegedly seizing properties unlawfully and failing to help struggling borrowers keep their homes by lowering mortgage payments.

The civil lawsuit — filed yesterday in Suffolk Superior Court — targets Bank of America Corp.,Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., and GMAC, a subsidiary of Ally Financial Inc. Also named are Mortgage Electronic Registration System Inc., a widely used mortgagerecording firm, and its parent company.

‘‘Our suit alleges that the banks have charted a destructive path by cutting corners and rushingto foreclose on homeowners without following the rule of law,’’ said Coakley, citing whatshe called their illegal behavior.

It is the first major legal action taken against the nation’s biggest banks since they startedforeclosure-settlement negotiations with the 50 state attorneys general in the spring. The talksbegan after the attorneys general launched an investigation into reports of fraudulent and sloppy foreclosure-related practices by the banks.

[Update…Yves Smith on GMAC’s threat to withdraw its business from Mass.]

Bank of America, Kafka, and I – A Continuing Relationship

by Mike Kimel

Bank of America, Kafka, and I – A Continuing Relationship

A year and a half ago I wrote a post about how Countrywide, by then a division of Bank of America, had filed to foreclose on our home, apparently on the basis that someone with a similar name to the previous owner of the home owed them money. Needless to say, we were surprised given that a) we had no relationship with B of A, b) we had made a point to always pay more than was due on our mortgage each month, c) nobody with the name of the person they were trying to collect from had ever owned the home (I’ve seen the property records going back to when the house was built) and d) as surreal and the whole thing was, we had to hire an attorney to make the whole mess go away.

In part because of that experience, some time after that my wife and I closed out all of our B of A accounts. Or so I thought. In the process of closing out my account, our account balance by definition became zero. This is important because when one’s balance is below $2,500, one is charged a monthly service fee. Apparently, we have been assessing monthly service fees since the point where we thought we closed our accounts. It seems that now we are carrying a negative balance that happens to equal a multiple of the service fee on an account that I closed a while ago.

Now, the Supreme Court has stated that corporations are essentially similar to a person. But imagine if a person did something like this. Imagine what would happen to me, for instance, if I filed papers to foreclose on a branch of B of A using, as an excuse, the fact that someone that B of A had no relationship with owed me money. And what would happen if I followed that up some time later by sending B of A a bill for services they not only had not requested, but had been most vehement that they didn’t want. In addition to being charged with fraud, I imagine at this point it would also be considered harassment.

In general, a human being behaving this way would face consequences. Even a human being well-connected enough not to have to worry about being arrested by the cops or prosecuted by the DA still has to worry about whether the next time his intended victim would be waiting with a shotgun. B of A, on the other hand, truly has no constraints on its behavior. No matter how unprofitable its behavior, it has been deemed too big to fail. And society, having made the decision to privilege some sociopaths, also implicitly made the decision that everyone else qualifies as prey.

Home Values: Delusional Buyers, Bank Squeezers and Zillow

by Mike Kimel

Home Values: Delusional Buyers, Bank Squeezers and Zillow

Via Barry Ritholtz, a link to a post at Time Moneyland post which led to a post at the Zillow blog:

Zillow recently compared the asking price of 1 million for-sale homes with those homes’ previous purchase price, then factored in the change in the Zillow Home Value Index at the ZIP code level to determine the home’s current market value.

We found sellers who bought after the housing bubble burst, in 2007 or later, price their homes 14 percent above market value. Those who bought before the housing run-up, prior to 2002, overprice by nearly 12 percent. Somewhat surprisingly, sellers who bought during the run-up, from 2002-2006, seems to be the most realistic, pricing their homes 9 percent over market value.

The Moneyland post goes on:

How to explain this pattern? We suspect that homeowners who bought around the market peak are painfully aware of having bought at the height of the market and have no real hope of getting back what they paid upon re-sale. Homeowners who bought after the market peak, on the other hand, may be patting themselves on the back a bit too much for having bought after prices began to correct — not realizing just how much prices have continued to fall even after their purchase.

It also states:

Two underlying impulses appear to lead sellers who purchased after 2006 to over-price their homes. First, there’s classic loss aversion: Sellers who purchased more recently are loath to sell for a loss. Second, they may be unaware that home values have declined further since their home purchase – a mistake that leads them to view their purchase price as a useful criterion in setting their selling price.

Zillow has a lot of data, but I suspect they are missing something because their categories are too broad. (This is something I’m keenly interested in because, being on the job market and living in a relatively small city, I expect we will be moving in the foreseeable future… which means I expect we will be selling our house, and we bought ours in December of 2009. We also expect (and hope) it would sell for quite a bit more than we paid for it, and more than the Z-estimate of the price based on the sales of comparables since that time.)

I think what Zillow is missing is that by late 2009 and early 2010, in some markets, home sales in many markets had dried up. I can’t prove it – I don’t know where one can find data on this – but my experience is that many banks started accepting a lot of short sales at this time. It also seems to me that many banks seemed not to have much of an idea of what their inventory was worth. I can tell you from my own two eyes that at that time you could see two otherwise very similar homes on the same block owned by the same bank, and the one with the enormous crack in the foundation that ran all the way up the living room wall was priced twenty five percent higher than the other. We made a few offers on homes at the time that our real estate agent considered ludicrous, and she didn’t even want to turn in the offer to her counterpart. The ludicrous offer that got accepted was the one we bought.

On the other hand, I noticed that houses that weren’t short sales or REOs were selling for prices that assumed a steady upward trajectory. That is to say, among those buying at the time were many who weren’t aware of the process for buying short sales or REOs, or who didn’t have the willingness (in many cases, the patience) to go through process. And plenty of homeowners were willing to oblige by trying to sell their homes at prices that were higher than 2007 and 2008.

I remember commenting to our real estate agent that there were two categories of home sales going on at the time: those involving people unaware of the downturn in prices and sales and who thought was the same as it always was, and those involving people squeezing banks. I suspect the buyers in former group is in trouble now, and buyers in the latter group are not. Now, there are two dynamics at play. First, the delusional buyers from the time bought less house for the buck than the bank-squeezers. But, perversely, the Z-estimate price of the homes bought by the delusional buyers is, today, higher than the Z-estimate price of the home bought by the bank-squeezers. After all, the Z-estimate price of the home depends a lot on the previous sales prices of the home; if two similarly situated homes (same number of bedrooms and bathrooms, same square footage, etc.) sell for very different prices in December 2009, I assume Zillow’s algorithm is going to assume that the one that if one sold for a better price, it was in a better state of repair or otherwise had better features that aren’t measurable by Zillow’s data (e.g., it is more aesthetically pleasing or has a better view), and that the differences carry on today.

So the question is… what should Zillow do? Is it possible to determine if a home sold for way below Zillow’s Z-estimate because it was trashed v. because someone squeezed the bank on a short sale? Theoretically, property taxes would take care of the problem – homeowners who acquired a trashed home, in theory, would have an easier time getting their property taxes reduced. In practice, I suspect bank squeezers are more likely to go through the effort and successfully argue for a a reduction in their property taxes. Regardless, that clearly isn’t the solution to the problem.

Because foreclosures (and people requiring a short sale) are contagious, I imagine Zillow must track how many homes on a block or within a given radius have gone into foreclosure or are otherwise sold for well below Z-estimates at a given time. I imagine having information about the home owners (which I assume Zillow does) must help. A former flipper who found himself with eight homes in 2010, and unloaded most of them for well below Z-estimates is clearly someone who worked out a deal with the bank. And perhaps it is possible to correlate unemployment rolls with home ownership – I don’t know.

What would you do if you worked for Zillow?

Foreclosures and key to economic upturn??

If you have the stomach for it and want to learn more about the gory details about the policy side of all this, there are a bunch of good writers you can turn to, including Yves Smith, David Dayen, and Marcy Wheeler, all of whom have put up great pieces worth looking at in the last couple of days. Numerian has a great post I have already linked to a couple times in past pieces this week on the truly scary implications of what is going down.

via Alternet

Pay no attention to the man behind the curtain.

As the title indicates, this will be a more than usually confused post.
The stimulus was the now famous grief over elementary fairness which errupted when “[Judge] Scott Fairgrieve of Nassau County District Court, wrote that ‘swearing to false statements reflects poorly on the profession [of law] as a whole” and fined lawyer Steven J Baum $20,000 for false statements in support of a foreclosure. Baum also suffered a Schack attack when Judge Arthur M. Schack referred to one filing as “incredible, outrageous, ludicrous and disingenuous.”

Baum wrote “Pay no attention to the man behind the curtain.”

In Toto not a good time to be a sleazy lawyer in New York (when was the last time that was true?).

The part which stunned me was

Anne Reynolds Copps, the chairwoman of the real property law section of the New York State bar, said, “We had a lot of concerns, because it seemed to paint attorneys as being the problem.” Lawyers feared they would be responsible for a bank’s mistakes. “They are relying on a client, or the client’s employees, to provide the information on which they are basing the documents,” she said.

So her view is that lawyers do not have the responsibility to check the claims of fact they make to judges, to look at the evidence. So what exactly do they do? Is the claim that their job is to look good in a suit and speak proper English with a confident tone?

Lawyers have discovered that they can make a whole lot more money by not doing their jobs and claiming they have done their jobs. Big surprise. Now the idea that they might have to give up that income, because they don’t have time to do what they have been claiming they have been doing is shocking.

I think that this is a very general phenomenon.

I don’t know how much money Baum made, but it is clear that one lawyer with a huge income must have been mainly taking money for doing what he didn’t bother to do

“David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork.” One firm [working on] 20% of the foreclosures, how many partners? How many associates with law degrees? How many robo signers?

Bankers and lawyers used to earn good money for, among other things, due diligence, keeping records, keeping proof if the records were contested, and complying with burdensome laws and regulations.

Relatively recently, they have earned immense incomes claiming they had done those things without bothering to do them. I guess that the fee charged by the lawyers who didn’t glance at the evidence is the same as the fees charged by lawyers who check if something is true before telling it to a judge. Clearly, one can make a lot of money claiming to have done something difficult and time consuming without bothering to do it.

Banks charge fees for handling transactions, but clearly stopped bothering to, say, handle transfer of a mortgage in a way that the entity which paid them could foreclose when the time came.

Banks charge to exchange currencies. If they are trading pieces of paper for pieces of paper, then they have to hold money to do that and they have to keep people from stealing it. If I am taking money out of an ATM in a country with a different currency from my bank account, I am forcing some computer somewhere to multiply two numbers. Ouch. But they charge as if they were doing it with pen and paper (or maybe an abacus).

I’d guess that most of the huge profits of the financial services sector are based on separating gamblers from their money, but a large part come from charging for services not rendered and another large part come from charging a lot for services which cost very little to provide now that they have computers.

The terror at the idea that judges won’t accept “because I say so” as proof shows how much the system depends on no one checking what was actually done in exchange for the huge flow of fees.

Make yourself heard on mortgage abuses

Naked Capitalism points us to a letter to ‘sign’ today in support of the FDIC and Congressman Brad Miller’s advocacy for servicer regulation:

This time, though, there is a way to stand up against the banks. And the reason is because in this case, Sheila Bair at the FDIC actually wants to do the right thing. There’s an open letter from Wall Street reformers to regulators advocating a wide range of new measures on the mortgage and securitization fronts. Congressman Brad Miller, who has been on predatory lending since 2004, penned a letter to the regulators. His effort is getting traction.

And now there’s a petition that you can sign, at If you missed it before the holidays, sign it now. We will be submitting the signatures today by the end of the day today. We up to 12,000, which is a large number for this sort of initiative, thanks to the efforts of Credo, FireDogLake, Mike Konczal, Chris Whalen, and Josh Rosner (the total on the site does not reflect the signatures obtained through some of these channels). We added a comment field, so your comments will be delivered to Geithner, Bair, Bernanke, and Walsh. Tweet it. Put it on Facebook. Send it to your friends and family.

This is meaningful action that every citizen can take.