Michael Moore Smears Chris Dodd

I haven't seen Michael Moore's new movie, but Howie Klein has, and while he praises it he excoriates Moore for dredging up the discredited Chris Dodd Countrywide story, which has been picked over to death, with nobody finding any impropriety.

First, everyone who has seriously looked at the claims of a sweetheart deal has dismissed them: the Senate Ethics Committee; an independent compliance firm; the (not exactly Dodd-loving) Hartford Courant. And not once, but twice.

This is not the definition of the word "is." The man got a mortgage. He was told that he would get enhanced customer service, and assumed it was because of his good credit score. He got the exact same mortgage rate that anyone else buying a mortgage at the time would have gotten. He didn't know the CEO of Countrywide, nor anything about a Friends of the CEO program [...]

Why does this feel like, in the interest of being able to sit on Leno and say, "I went after Democrats too!," Moore passed up the real story here? It would have been really powerful if he made the connection between the bullshit allegations about Dodd and the banking industry desperately wanting to put the breaks on important housing and foreclosure legislation that Dodd was championing in the Senate at that very moment. Well, mission accomplished assholes, excuse me, the Sheriff is here to foreclose on my house (is it possible its the same one from Roger and Me? Oh, the irony) [...]

All in all, still love Moore, still want everyone to see the movie, but kind of wish he hadn't decided to jump ugly with one of the most progressive Senators in the Senate -- the guy responsible for the Family and Medical Leave Act, the Credit CARD Act, who voted for cramdown, worked to make that disaster of a bankruptcy bill better, then voted against it twice, voted for a 15% cap on interest rates, and is co-sponsoring another cap that is likely to come up again, is a leader on direct-student-loan reform, is in favor of a consumer financial protection agency and stripping the fed of some of its regulatory authority, and just last week introduced legislation to reign in the diabolical overdraft fee practice-- all stuff, if you are keeping score, which Moore clearly wasn't, that banks would rather paint a hammer and sickle on their walls than accept! I wish Moore hadn't got played like a three dollar harmonica. He should donate the 10 grand to Dodd's campaign.

It appears that the premise of Moore's film is that banking interests have taken over the government and prevented any meaningful regulation on the industry. Dodd's case can be an example of that, but not in the way Moore thinks. The banking lobby has consistently kneecapped him, with old charges that have a Whitewater quality to them, with all the same innuendo and the same lack of factual detail, right at the moments when Dodd was trying to get things passed to crack down on them. Dodd could have given away the Banking Committee Chair to completely-in-the-pocket Tim Johnson, but he didn't. And in the last few days, Dodd has introduced the aforementioned legislation to end the practice of banks charging overdraft fees on debit cards automatically, with 1000% interest, instead of giving customers the opportunity to have a transaction denied; introduced a plan for a single bank regulator that is at odds with the Obama Adminstration and his House counterpart Barney Frank, as well as being hated by the banking industry; and has taken the lead on weakening the power of the Fed, which is deeply desirable. In other words, despite the many slings and arrows, Dodd is basically doing the job Michael Moore would expect someone in his position to do, and doing it with gusto. He should be commended and not smeared.

Best To Chris Dodd

Sen. Dodd has been diagnosed with early-stage prostate cancer. My dad had this, and my grandfather too. It's very common and eminently treatable in this day and age, and hopefully Dodd will be able to beat it as quickly and painlessly as possible. He still plans to run for re-election and be back at work after the August recess. Here's part of his letter to supporters:

I want to assure you that I'm feeling fine. As you know, we've been working hard to pass health care legislation and reform our nation's financial system to protect consumers, and that hard work will continue.

After the Senate adjourns at the end of next week, I'll have surgery to remove the cancer. After a week or two of recuperation, I expect to be right back to work.

After all, as a Member of Congress, I have great health insurance. I was able to get screened, seek the opinions of highly skilled doctors, consider all the available options, and choose the treatment that was right for me.

And I know you'll agree that every American deserves the same ability.

We have health care legislation to pass - and an election to win. And I can't thank you enough for your support.

I had the opportunity to meet and talk with Sen. Dodd when he ran for President last year. I found him smart, engaging and focused on the right issues. He's been hammered back home for being the fall guy in the AIG bonus scandal - falsely, I might add - and for this alleged sweetheart deal on his mortgage from Countrywide, which his hometown paper states in two editorials today were not at all sweetheart deals but widely available mortgage terms.

I hope he's back on his feet soon.

Banksters Still Banksting

There is an expected vote today on the compromise "cramdown" bill in the House. There has already been a recorded vote on the rule today, and not one Republican voted for it, but it passed anyway. They are truly sinking further into irrelevance.

The compromise bill, as I've said, is not bad, although the major concessions are that people "underwater" in their homes (owing more principle than current value) won't get help, and the reductions are likely to be on interest rather than principle. Not great, but if people can stay in their homes as a result, probably OK. Right now 1 in 8 homeowners in the country are behind in payments, so they need whatever relief they can get.

However, the group likely to get the most relief out of the eventual loan modification process are the lenders themselves.

By the Obama administration's account, its new housing rescue plan, which goes into effect on Wednesday, will pull up to 4 million homeowners back from the brink of foreclosure. It also offers another 5 million or so excessively indebted borrowers the chance to refinance into lower-interest loans.

But the biggest winners in the government's $275 billion homeowner bailout just might be the mortgage brokers who were largely responsible for creating the disaster in the first place. Many are now reinventing themselves as heroes of the mortgage crisis by offering loan modification services. And between its new cash support and the refinancing program, through which they can benefit from the federal aid via brokers' fees, the Obama homeowner bailout might as well be a full employment program for them. The Treasury Department's FAQ for borrowers warns, "Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance." But nothing in the homeowner bailout prevents these middlemen from stepping in and taking a cut.

In California, home to nearly one-fourth of all the foreclosures in the country, there are now applications pending from some 500 brokers and real estate agents seeking to get in on this new line of business, which hardly existed six months ago (but now has its own trade group). California's Department of Real Estate, which licenses mortgage brokers and real estate agents, has so far authorized more than 200 companies to negotiate with mortgage lenders to modify loans, and the list grows longer every week. They may charge borrowers whatever they choose for this service, as long as they only collect a portion of the fee upfront and take the rest once the job is completed. The going rate ranges from a flat $2,985 to about 1 percent of the amount of the mortgage, or $4,000 on a $400,000 loan.

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

Especially when you consider that the Administration sets the average price of this modification at around $10,000 a home, which is a pittance, but with interest accruing over 30-40 years could be massive, you see the game being played here. And this is just one way for disgraced brokers to make money out of this chaos. Here's another.

...it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

The Times doesn't call it fraud, but that's a credible accounting of things.

These are the consequences of condensed power, yes, but also the consequence of a lack of accountability for those who caused this crisis. Government could actually go ahead and strip these people of the license to do business in this industry - especially Countrywide, known to have defrauded their customers.

UPDATE: The bill has passed the House. On to the Senate.

Jerry Brown Did More To Help Homeowners Than The Entire US Government

Yesterday, Bank of America announced that they would settle their lawsuit with a parade of states Attorneys General that began before BofA bought out the defendant, Countrywide Financial. The initial suit alleged that Countrywide engaged "in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market." At the time I thought it would be difficult to hold Countrywide responsible for what the mortgage market is intended to do, but I suppose they didn't want to face a jury at a time when the financial industry is melting down.

This settlement, which could provide up to $8.68 billion dollars for as many as 400,000 homeowners nationwide (and up to $3.5 billion in California), has some very laudable parts to it:

Under the terms of the settlement, eligible subprime and pay-option mortgage borrowers with loans from Countrywide will be able to avoid foreclosure by obtaining modified and affordable loans. Here is the information released by Brown’s office:

The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America’s foreclosure crisis. Assuming every eligible borrower and investor participates, this loan modification program will provide up to $3.5 billion to California borrowers as follows:

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

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

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

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

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

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

This is exactly what should have been in the bailout bill - a large-scale workout for homeowners on the brink of foreclosure to modify their loans and stay in their homes. It's arguably costlier to the bank at this point for the mortgages to go completely bust and to deal with the foreclosure. In addition, BofA is SUSPENDING subprime loans and negative amortization loans as well as loans with little or no documentation from the borrower, which is in a way more significant because that's at the root of the financial crisis.

These are also the kind of steps that Ted Lieu sought in his AB 1830 which was vetoed by the Governor - banning predatory lending and unsustainable mortgage loans. Ultimately, Attorney General Brown was forced to seek remedy in the courts because the regulatory structure had broken down and the Congress was unable or, more likely, unwilling to give struggling homeowners a hand.

This shouldn't be Jerry Brown's job, but the systemic failure fell to him, and he performed brilliantly. And he's not done:

And this is not the end of this chapter. The settlement does not include Angelo Mozilo, the former Chairman and Chief Executive of Countrywide Financial Corporation or David Sambol, formerly the President of Countrywide Home Loans and the President and Chief Operating Officer of Countrywide Financial Corporation. Brown will continue to prosecute separately his case against Mozilo and Sambol.

Lawmakers like Dianne Feinstein and others should be a little ashamed that they were able to do so little in the wake of this crisis while Jerry Brown could do so much more.

AG Brown Sues Countrywide

Here's a statement from the Attorney General's office:

California Attorney General Edmund G. Brown Jr. today sued Countrywide Financial, its chief executive Angelo Mozilo, and president David Sambol, for engaging in deceptive advertising and unfair competition by pushing homeowners into mass-produced, risky loans for the sole purpose of reselling the mortgages on the secondary market.

“Countrywide exploited the American dream of homeownership and then sold its mortgages for huge profits on the secondary market,” Attorney General Brown said. “The company sold ever-increasing numbers of complex and risky home loans, as quickly as possible. Countrywide was, in essence, a mass-production loan factory, producing ever-increasing streams of debt without regard for borrowers. Today’s lawsuit seeks relief for Californians who were ripped off by Countrywide’s deceptive scheme.”

It is certainly true that lenders like Countrywide had to feed the beast of mortgage-backed securities, which investors were gobbling up at the height of the housing boom. They absolutely valued getting a mortgage into the secondary market over securing a mortgage that the buyer could actually pay back. The question is the level of criminality here. Atrios, an economist who's been following "Big Shitpile" for quite a while, isn't fully convinced:

We do know that at some point the product that mortgage companies were selling essentially flipped. They went from providing mortgages to people, to providing bundled mortgage securities to Wall Street. While it's quite possible that there was actual fraud going on with respect to mortgage borrowers, the greater fraud might have been perpetrated against the investors which eagerly bought up their chunks of big shitpile. Obviously I sympathize less with the latter who are paid big money to, you know, have some idea what they're doing.

Tanta at Calculated Risk is similarly unimpressed with a similar lawsuit out of Illinois, saying that it it trying to sue over established industry practice.

Volume-based compensation structures? There have been volume-based compensation structures in this business since long before Tanta got into it. Does it create perverse incentives? Sure. Do we have to like it? No. Has it operated all these years in plain sight of regulators, investors, and the public? Yes. Is CFC's pay structure all that different from anyone else's? I profoundly doubt it.

And if anyone who has ever underwritten a loan in 30 minutes has to go to jail, the jails will be full indeed. I wonder if they'll let me take my new Kindle. Jesus H. Christ on a Process Re-engineering Consultant Binge, folks, anybody who didn't tell the analysts on the conference calls that they'd got their average underwriting time down to 30 minutes was Nobody back in 2000. Not to mention the AUS side of the business where underwriting had gotten down to 30 seconds.

The problem with Countrywide valuing volume over quality is that they appear not to have to pay the price for that. In a traditional system, Countrywide getting stuck with a lot of bad loans would hurt them, creating a disincentive. Now, they're passing on that pain to investors, and the feds are swooping in to bail the financial institutions out anyway, so it's guilt-free. I don't know that the remedy here is a lawsuit, other than allowing the market to punish bad actors, something we never do in this country, because for decades we have socialized risk and privatized profits.

State Of The FISA Fight

I'm with Marcy Wheeler here, I think Sen. Reid believes in the housing bill's need to pass, and he's going to leverage the Iraq supplemental and FISA in order to get the housing bill done. However, he's also said he will give time to Sens. Dodd and Feingold to let their views on the subject be known (that means allowing them the maximum time allowable to Senators to speak on a bill, including perhaps a traditional filibuster). And there simply isn't enough time, if he holds to that, to get everything passed, by my calculations.

Dodd got some love from his home-state paper today.

But the promise in question concerns the Democrat's vow to fight a provision in a bill on warrantless eavesdropping that is headed for the Senate. During his short-lived presidential run, Connecticut's senior senator made a great show of opposing a clause that would retroactively forgive telecommunications firms for helping the government spy on Americans without a warrant.

It was the right move then, and would be again, now that the House of Representatives has revived the language and, once again, sent it on to the upper chamber. Dodd should pick up the fight where he left off, and do all he can to see that this bill does not become law.

The basis for opposing this bill is simple: The United States is not a tyranny. The president, even in times of emergency, must follow the law. And everyone, including corporations, even when asked by the government, must themselves uphold the law.

Dodd is taking a real risk speaking out. He's up to his eyeballs in this Countrywide mortgage incident, where there is the appearance of impropriety in a loan he received (some are wondering whether that was intentional timing on somebody's part). Most Senators would go into hiding at this time, but Dodd made a promise and he's keeping it. And I believe he has the ability to delay this thing, after which anything is possible. I previously thought there was a 0% chance of salvaging the Constitution and stopping the bill; now I'm up to 2%. Progress!

Looming Recession Update: Nobody Wants Your House

I don't even think a pessimistic reading of the economy would have presaged this bit of bad news:

Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.

The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.

The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.

The housing weakness has dragged down overall growth and sent shockwaves through the rest of the economy including the financial sector, which is dealing with billions of dollars in losses in subprime mortgages.

Yowza.

This looks like a protracted slowdown in the housing market, and considering that manufacturing doesn't really take place here anymore, that means a protracted slowdown, period.

On a somewhat related note, in a show that public pressure really can have an impact, Angelo Mozilo is giving back $37 million dollars of his reward for ruining Countrywide.

In addition to $36.4 million cash severance payments, Mozilo also walked away from $400,000 per year he was to be paid under an agreement to serve as a consultant to the company following his retirement, and perks including the use of a private airplane, the company said.

"I believe this decision is the right thing to do as Countrywide works toward the successful completion of the merger with Bank of America," Mozilo said in the prepared statement.

Damon Silvers, associate general counsel of the AFL-CIO, which operates a Web site that tracks executive pay, said that by giving up his severance pay Mozilo "seems to recognize that there's something wrong with this picture."

"It would be best if Countrywide and Bank of America froze all of his compensation until a thorough inquiry could be completed as to exactly what happened at Countrywide," Silvers said, referring to allegations raised in some shareholder lawsuits filed last year that the company failed to warn investors about the depth of its financial troubles.

These balloon payments and golden parachutes are maybe the first thing that must be reversed as part of a greater effort to reverse the almost-historic level of inequality we have today.

Greed

How do you deal with something like this? Really, how do you stop a process where someone who destroyed his company, caused pain for thousands of employees and hundreds of thousands of homeowners, ends up with this kind of windfall?

Countrywide Financial Corp. founder Angelo Mozilo, one of the nation's highest-paid chief executives, stands to reap $115 million in severance-related pay if his troubled company is acquired by Bank of America Corp., regulatory filings show.

Free rides on the company jet are also included in Mozilo's departure deal, and the company will pick up his country club bills until 2011 [...]

"This is a failed chief executive -- a failed and overpaid chief executive -- who has driven his company to the brink of bankruptcy," said Daniel Pedrotty, director of the office of investment at the AFL-CIO. "I think shareholders are going to be especially outraged if he walks away with another pay-for-failure package."

But the idea that shareholders control the process is a myth. The board does what the board wants. And more than anything, this is what causes recession; the redistribution of wealth upwards means that ordinary consumer spending suffers due to a lack of resources. And yet so many of these corporations rely on that same consumer spending.

Government has mechanisms to deal with corporations that break the public trust. They apply for charters which are reviewed periodically. They have "personhood" status under the law which doesn't have to remain.

There's a way to channel this outrage.

The California Report

Let me clear out my Inbox and set you on your weekend way:

• The Megan's Law website apparently is being used as a hit list and may have led to at least one death. This is the downside of a "what about the children?" über alles mentality.

• I'm not entirely certain about this claim that state lawmakers could have solved the mortgage crisis back in 2001 by cracking down on predatory lending practices. It's a boilerplate story, a typical "they bought off the politicians" frame. But the problem, as Paul Krugman notes today, is that home prices lowered, leading to negative equity for homeowners. Not sure what the lawmakers could have done about that. This is a national crisis that required federal action. And what action could be taken on the state level is in the purview of the Attorney General. Jerry Brown is investigating home loans from Countrywide Financial for improprieties, particularly forcing buyers with good credit into subprime mortgages.

• For all the talk about Steve Poizner, he is doing his job in suing Blue Shield for their loathsome practice of dropping patients retroactively after they seek coverage. Blue Shield's response?

The state's interpretation of laws governing policy cancellations "is simply wrong."

Stupid state, not knowing their own laws as well as a private entity!

• Nancy Pelosi is under fire for saying that Republicans like this war. Juan Cole is right to slam her for assuming that Republicans would act in good faith and help to end the war after the 2006 elections. What Republican Party was she talking about?

• Anthony Wright has the new amendments released to the public on the new health care reform. I should have a lot more on this over the weekend.

• I know that I didn't execute a House roundup in November, but honestly there wasn't a whole lot going on in the races. So I postponed it and will have a December roundup in the next few days.

• And finally, I would be remiss if I didn't mention the California Democratic Party buying three grand in French wine from Fabian Nuñez, who's now a wine salesman, I guess. I have to acknowledge Kevin Spillane (two Republicans in one day, I know) from the No on 93 campaign for the funny move of sending a bottle of Two Buck Chuck to Nuñez' office. It is an award winner.

Bailout Time

UPDATING THE UPDATE: We're apparently all paying to bail out Countrywide:

Countrywide Financial Corp. fell more than 10 percent in New York Stock Exchange trading after U.S. Senator Charles Schumer urged the regulator of the Federal Home Loan Bank system to probe cash advances to the largest U.S. mortgage lender.

Schumer said he was alarmed by the volume of advances the system's Atlanta bank has made to Countrywide considering "the rapid deterioration'' in the credit quality of some of the Calabasas, California-based company's mortgages. Schumer expressed his concerns in a letter sent today to Federal Housing Finance Board Chairman Ronald Rosenfeld.

The Atlanta bank has made $51.1 billion in advances to Countrywide as of Sept. 30, representing 37 percent of the bank's total outstanding advances, Schumer wrote, citing U.S. Securities and Exchange Commission filings.

No respectable company would assume 37% of Countrywide's debt. The Federal Loan Home Bank system, however, isn't a company at all. It's as close as you can get to a federal bailout.

The Federal Home Loan Bank is what the British call a quango — a quasi-non-governmental organization. Although it isn’t legally backed by taxpayer money, it’s widely perceived as having an implicit federal guarantee. And at first glance, it appears that taxpayers’ trust is being used to bail out one of the biggest bad actors in the subprime story.

More here.

That Housing Bubble? Bursting Faster Than You Think

Paul Krugman, whose new blog I am enjoying, notes that statistical analysis is masking the depth of the housing slump.

Reading various stories on the latest grim housing news, I notice that almost all of them talk about the decline in sales over the past year – which is, to be sure, pretty grim. For example, August 2007 new home sales were off 21% from a year earlier.

But the reality is even grimmer, since the housing bust was already well underway in 2006. And you don’t have to do a lot of digging to make the right comparison. The same Census release (warning, pdf) that gives you that 21% figure also reports average sales data from 2005, back when Alan Greenspan was assuring us that there was no housing bubble, just a bit of local “froth”. And comparing the seasonally adjusted August 2007 numbers with the average rate of sales in 2005 tells us that home sales are off 38%.

We forget more than we remember when it comes to statistics like this. He's right, this is at least a two-year trend. But it was propped up just enough for the CEO of Countrywide, a leader in the subprime mortgage industry, to make a killing in the market.

Countrywide Financial Corp. Chairman and CEO Angelo Mozilo cashed in $138 million in stock options over the last year, switching his trading plans as the mortgage company went into a tailspin, it was reported Saturday.

Between November 2006 and August, Mozilo changed the plans outlining how many of his shares would be sold monthly, the Los Angeles Times reported.

Mozilo unloaded 4.9 million Countrywide shares, most of which he bought through exercising options.

Hundreds of executives use similar trading plans, approved by federal regulators in 2000 as a way to defend against insider trading allegations. While not illegal, it is highly unusual for the plans to be changed so often in a short period, experts said.

I believe they call that insider trading, and this guy should go to jail. Krugman, in a non-blog column, has more on Mozilo and Countrywide, and it's shocking. The company was pushing people into bad loans to maximize their commissions. They are reluctant to work out any deals that would let people keep their homes. And they are CASHING IN on foreclosure fees, incented to force people onto the street. Krugman calls them "Enron's second coming." He may be right.