An Awfully Painful Way to Convince the President Our Economy Is Not Moving

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Remember when Robert Gibbs justified his attack on the professional left by suggesting that they didn’t understand–but the rest of the country did–that Obama had gotten our economy moving again? Remember Recovery Summer, Obama’s effort to convince Americans that the economy had turned around? Well, we’ve already seen that voters don’t take their understanding of our economic state from the same wonky metrics the White House does.

You think the White House is beginning to understand that no matter how many times you repeat the news that the economy is good, voters know better?

Six in 10 voters named the economy as the nation’s No.1 problem. Roughly four in 10 said their family’s financial condition has worsened under Obama. About six in 10 said the country is on the wrong track.

I assume yesterday’s defeat is the kind of metric that will finally make it clear to the White House that the economy sucks and people are pissed about it.

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Citi’s Fear

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I wanted to return to a detail I mentioned in yesterday’s book salon. As I noted, in his book on the auto bailout, Steven Rattner described Citi as being worried during the Chrysler negotiations that retail customers would retaliate if Citi played hard ball.

Bankers for Goldman and Citi had advised [JP Morgan Chase VP and the Chrysler bondholder’s lead negotiator] Jimmy Lee to make the best of a bad situation. Privately they felt his brinksmanship was embarrassing and potentially costly. Citi especially wanted to avoid a liquidation. Its analysis showed it would recover no more than 20 cents on the dollar in that instance. Citi also feared losing business in its branches in states like Michigan and Ohio where consumers might blame it for Chrysler’s demise. (173)

That didn’t make sense to me given that Citi doesn’t have branches in MI and OH; the closest actual branches are in Chicago. Compare that to Chase, which just took over from Comerica as the biggest bank in MI by deposits and was presumably second at the time of the bailout negotiations. Citi should only fear retaliation from consumers elsewhere, in those urban areas that actually have Citi branches, or they should fear retaliation some other way, presumably through their credit card business. I asked Rattner why Citi was worried, but JP Morgan Chase was not, given its much greater involvement in the auto states. He responded, “Yes, they were definitely worried.”

Frankly, I don’t know what to make of this. Given the context of the claim–in which Goldman and Citi are portrayed as talking Jimmy Lee down from a hardass negotiating position–JPMC appears not to have been sufficiently worried to change its behavior. And the Citi claim doesn’t make sense on its face. Perhaps Citi was worried about something else. Perhaps they were just more worried because they were insolvent? There are a few details he pretty clearly got wrong in his book (such as his claim that Nissan’s consideration of a deal with Chrysler was secret), but this seems instead like one of the abundant examples of where Rattner is an unreliable narrator. Rattner chose to portray Citi as worried (and quickly agree the hard-bargaining JPMC was, too), but it’s unclear whether that was really true or just nice spin on the banks.

What Rattner probably didn’t know was that FDL was trying to increase this worry at the time by encouraging people to take their money out of Chase. That was a mostly unsuccessful effort (let me tell you, Chrysler is  no more popular in this country than the big banks) to target the banksters for actions that hurt the communities they’re in.

As unsuccessful as our effort was in terms of numbers, if Rattner-the-unreliable-narrator’s claim has any basis in fact, then our effort to pressure JPMC to behave better worked. Sort of.

Since then, Arianna’s Move Your Money campaign has more successfully advocated for people and institutions to move their money out of the big banks. By April, they claimed $5 billion had been moved. And it does seem like some of the banks are losing market share to smaller banks.

The largest banks in Michigan are losing market share and Chase Bank now has the most deposits in the state, according to new data released Thursday by the Federal Deposit Insurance Corp.

As of June 30, the five biggest banks in Michigan — Chase Bank, Comerica Bank, PNC Bank, Bank of America and Fifth Third Bank — accounted for 55% of all deposits in the state. That’s down from 57.3% on June 30, 2009.

I raise all this because of another interesting discussion about whether consumer action might more effectively target the banks. Via Yves Smith, I found this Playboy article on Edmundo Braverman’s WallStreetOasis.com’s proposal on How to Destroy a Bank (Yup, it appears you have to have a pierced navel and no pubic hair to be a Playboy model these days).

This article set forth a plan for how consumers could destroy one of America’s four largest banks. Customers would deliver a series of escalating threats against Wells Fargo, Bank of America, JPMorgan Chase and Citibank, demanding policy changes. The threats would culminate in a series of flash-mob bank runs that targeted one of the banks.

In a comment in Yves thread, Braverman acknowledged his idea was a thought exercise to take Move Your Money the next step.

The whole thing was inspired by Arianna Huffington’s “Move Your Money” idea. I thought it was a good idea, but not one that would be dramatic enough to produce any changes in the way the banks did business. So I asked myself, “What would have an impact on the banks?” and that’s when I came up with the Tank-A-Bank plan.

It was always just a thought exercise, and never something I advocated.

Yves seems to be thinking more about this; what can consumers do that won’t get them jailed as terrorists but will get us to a point where the finance industry isn’t dragging our country down even while stealing our money in the process?

Read more →

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FDL Book Salon Welcomes Steven Rattner, Author of Overhaul

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I come to Steven Rattner’s Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry from a very particular perspective. As a Michigander whose husband still works in the auto industry and whose town has benefited from battery subsidies, I’m a grateful direct beneficiary of the work the Obama Administration did to save the auto industry. But that also means I read this book, which might have been subtitled, “Wall Street gapes at Detroit” from the perspective, “Detroit gapes back at Wall Street.”

The Key to the Bailout: Section 363

There are key parts of the story I was eager to read, particularly the inside details on how Team Auto brought GM and Chrysler through bankruptcy in such short time. The decision–which Rattner traces to a suggestion he made in December 2008–to use Section 363 of the bankruptcy code is what made the whole bailout work. It allowed Team Auto to move the viable parts of Chrysler and GM into new companies, leaving much of the debt and underperforming parts of the companies (like Saturn or Pontiac) behind. As Rattner describes, preparing for 363 took a lot of negotiations with stakeholders–notably the UAW and bondholders–ahead of the actual bankruptcy filings to bring the time they’d spend in BK down from the 6 to 15 months originally projected, to the month or two it ultimately took. Much of the book’s narrative is about the deal-making Rattner himself led. Some interesting details of that deal-making: that Tim Geithner instructed Rattner not to make any special demands of TARP recipients who were also Chrysler bondholders, that Citi feared consumers would take their branch banking in MI and OH elsewhere if it played hardball, and that JPMorgan Chase’s chief negotiator Jimmy Lee,

demanded to know why, if the government thought banks important enough to give them tens of billions in TARP money, it wanted to squeeze them on [the Chrysler] deal.

In additional to this central drama, Rattner provides worthwhile details of what he learned over the course of this intervention. Some of these are details widely known in car country, but dismissed by much of the rest of the country: that GM had closed most of the gap in labor costs with transplants by the beginning of the restructuring, that GM plants really were competitive in terms of productivity, and that trimming the number of dealers was crucial to the success of the restructured companies. Rattner also added to my understanding of why GM needed help: he described the sheer ineptitude of GM CFO Ray Young and what Rattner describes as the ineffectiveness of GM’s chief lobbyist.  And the last chapter, in which Rattner provides a partial explanation for the quick departure of Ed Whitacre, answers some, but not all, of my questions about the transition from GM CEO to CEO over the last two years.

One Missing Detail: Cerberus’ Role

One part of the story I wish Rattner had told more fully is the role of Cerberus in the bailout. There were a number of questions about Cerberus’ role in the initial negotiations with the Bush White House, particularly since that initial loan underfunded Chrysler in comparison to GM. But Rattner tells a story that is very favorable to Cerberus. For example, he rather amusingly attributes Cerberus’ offer–in December 2008–to just hand over Chrysler to the government for a dollar, to patriotism. Rattner makes that claim by neglecting any mention of Cerberus’ own desperate straits at the time. He doesn’t mention, for instance, that Cerberus had limited withdrawals from some funds, citing a desire for liquidity and invoking a “‘perfect storm’ in the auto and housing sectors.” And it’s over a hundred pages after his description of that December 2008 offer before he mentions GMAC’s successful effort to gain bank status and receive TARP funds, a move approved in that same December period and which has been an area of TARP that has come in for particularly sharp criticism. It turns out that private equity guy Steven Rattner tells a story that focuses primarily on the incompetence of manufacturing companies, even though private equity fund Cerberus’ failures and demands for a free ride were very much a part of the story of the auto bailout.

And these areas, where Rattner’s Wall Street perspective displays his own biases, are as interesting as the details about the bailout.

The Cost and Benefits of an Outsider

Take Rattner’s inconsistency over whether appointees overseeing industries should have any expertise in those industries. On page 48, Rattner repeats his complaint about politicians (in this case Debbie Stabenow and Carl Levin) questioning his qualifications for the job. But then, on the very next page, he endorses a view that the Treasury Secretary had to be someone with credibility in the financial world, precisely the equivalent of what Stabenow and Levin were asking for the Auto Czar position.

Essentially, only Larry and Tim had the necessary government experience, along with the credibility vital in the financial world.

This unquestioning endorsement of an insider for the finance world is shortly followed, on page 52, by one of the details that shocked me the most in the book: the report that neither Rattner, nor Geithner, nor Summers were cognizant of the degree to which the auto slowdown would affect (and was already affecting) the suppliers.

Automotive suppliers started to fail, which was how I discovered that the scope of my assignment was much broader than I’d anticipated. GM and Chrysler had dominated the conversations with Tim and Larry. None of us appreciated that, with auto sales down 40 percent, the collateral damage among related businesses would be vast.

Now, the stress the suppliers were (and are) under was a known fact to anyone with a basic understanding of the industry. The Center for Automotive Research (a group Rattner later relied on for industry analysis) produced a widely-cited report on the economic consequences of an auto collapse in November 2008, which projected the dire impact on suppliers in case of an auto contraction. And reports explaining Toyota’s support for a bailout covered the supplier issues as well. Yet, even as an inexperienced Rattner was learning this well-known fact on the job, thousands of supplier employees were already losing their jobs. (Rattner describes a similar rather belated discovery–how the financial collapse had dramatically hurt the auto finance companies, and with them the debt-driven market they supported–on page 145.)

Mind you, Rattner makes a good case in this book for bringing in outsiders to restructure any industry the government bails out, even while the evidence he presents, with this story and a few others like it, hint at the costs of having no one with expertise involved.

Which brings me to the question I’ll end this post with. So, to Steven: You suggest that the unhappiness with the bank bailouts has to do with the absence of the same shared sacrifice the auto bailout demanded. But that’s only half of it: The big problem is that finance is still broken, it’s still dragging the rest of the country down. Putting the question of firing CEOs aside, how did the Obama Administration insist on a complete overhaul for one industry, but status quo for the other? And what could be done, particularly as we learn more about the foreclosure fraud engaged in by top TARP recipients, to undertake the kind of overhaul that has served the auto industry so well?  (Note, Rattner does address some of this in the book. He provides several–to me, unconvincing–explanations for the disparate treatment of the bankers and the auto makers–see pages 115, 216–and states he would have fired the bank CEOs that needed government help.)

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Nobody Can Move for a New Job

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Well, apparently just 6.9% can and did.

Just 6.9 percent of job seekers who found employment in the third quarter relocated for the new position. That was down from a relocation rate of 13.4 percent in the same quarter a year ago, according to the latest Challenger Job Market Index, a quarterly survey conducted by global outplacement consultancy Challenger, Gray & Christmas, Inc. among approximately 3,000 successful job seekers from a wide range of industries nationwide.

The relocation rate has been low for four consecutive quarters, averaging just 7.3 percent since the fourth quarter of 2009. The 6.9 percent figure in the quarter ending September 30 was the lowest ever recorded by the firm, which began its tracking in 1986.

“Continued weakness in the housing market is undoubtedly the biggest factor suppressing relocation. Job seekers who own a home – even if they are open to relocating for a new job – are basically stuck where they are if they are unable or unwilling to sell their homes without incurring a significant loss,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

This is a problem. It means that people in FL are going to be screwed until such time as its economy get fixed, because they’re not going to be able to leave. (In the case of AZ, CA, and NV, I would hope that people getting a new job would just walk away.

Yet another reason why simply blaming deadbeats for the foreclosure problem gets us deeper and deeper into an economic hole.

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“We’ve never lost complete command and control and functionality of 50 ICBMs”

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Only, as of this weekend, we have completely lost command and control of a whole bunch of ICBMs.

President Obama was briefed this morning on a power failure at F.E. Warren Air Force Base in Wyoming that took 50 nuclear intercontinental ballistic missiles (ICBMs), one-ninth of the U.S. missile stockpile, temporarily offline on Saturday.

[snip]

On Saturday morning, according to people briefed on what happened, a squadron of ICBMs suddenly dropped down into what’s known as “LF Down” status, meaning that the missileers in their bunkers could no longer communicate with the missiles themselves. LF Down status also means that various security protocols built into the missile delivery system, like intrusion alarms and warhead separation alarms, were offline.

[snip]

“We’ve never had something as big as this happen,” a military officer who was briefed on the incident said. Occasionally, one or two might blink out, the officer said, and several warheads  are routinely out of service for maintenance. At an extreme, “[w]e can deal with maybe 5, 6, or 7 at a time, but we’ve never lost complete command and control and functionality of 50 ICBMs.”

Now, Ambinder quotes a number of sources effectively saying “nothing to see here, there was never a risk.”

But the fact that they appear to have no fucking clue how they lost control of one ninth of our nuclear arsenal leaves me a little skeptical of their reassurances.

The cause of the failure remains unknown, although it is suspected to be a breach of underground cables deep beneath the base, according to a senior military official.

It is next to impossible for these systems to be hacked, so the military does not believe the incident was caused by malicious actors. A half dozen individual silos were affected by Saturday’s failure.

After StuxNet, are we so sure the hackers to pull this off aren’t out there? And the failure of a bunch of cables … well, that reminds me of the failure of a bunch of other cables.

Alternately, given the accelerating speed with which we’re turning into a banana republic, maybe it’s just possible that we can’t keep our critical infrastructure safe from our own increasing incompetence anymore.

I can sympathize. For about  a year I’ve been debating getting a chest freezer, but thus far have not, because I suspect I would lose power so often so as to make the freezer a collection of inedible meat. Perhaps now the government is considering whether it has the infrastructure to keep 450 ICBMs lying around?

Update: Danger Room has more.

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One Reason We Don’t Hear about Income Inequality: Media Execs Among the Richest

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David Cay Johnston has a must-read piece on what the most recent payroll tax data shows about growing income inequality.  He shows that total wages have fallen 5% since 2007, largely because so many fewer people are making any income.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold.

[snip]

Measured in 2009 dollars, total wages fell to just above $5.9 trillion, down $215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $313 billion or 5 percent in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1 percent, the number of idle hands and minds grew by 6 million.

He also notes how the very rich are getting very richer.

The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!

[snip]

In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

At the same time, he notes that this story–which should have been told after the numbers were released on October 15–went unmentioned.

Not a single news organization reported this data when it was released October 15, searches of Google and the Nexis databases show. Nor did any blog, so the citizen journalists and professional economists did no better than the newsroom pros in reporting this basic information about our economy.

Now, Johnston doesn’t provide a list of who those 74 people are that make as much as the 19 million lowest paid Americans. But for shits and giggles, I wanted to see who Fortune–which loves to idolize these people–lists. Mind you, they’re clearly measuring different things, because Fortune’s numbers are smaller than the payroll tax numbers (presumably, this excludes a bunch of executives of privately held companies). But take a look at what industries are dominating Fortune’s best-paid men, plus the two women whose salaries match those of the men in the top 25.

  1. Greg Maffei, Liberty Media, $87.5 million
  2. Lawrence Ellison, Oracle, $70.1 million
  3. Fred Hassan, Merck, $49.7 million
  4. Carol Bartz, Yahoo, $47.2 million
  5. Mario Gabelli, GAMCO Investors, 43.6 million
  6. Mel Karmazin, Sirius, $43.5 million
  7. Leslie Moonves, CBS, $43 million
  8. Safra Catz, Oracle, $36.4 million
  9. Michael Jeffries, Abercrombie & Fitch, $36.3 million
  10. Robert Bertolini, Merck, $35.1, million
  11. Marc Casper, Thermo Fisher Scientific, 34.1 million
  12. Philippe Dauman, Viacom, $34.0 million
  13. John Hammergren, McKesson, $33.9 million
  14. J. Raymond Elliott, Boston Scientific, $33.4 million
  15. Ray Irani, Occidental Petroleum, $31.4 million
  16. Stephen Burke, Comcast, $31 million
  17. Charles Phillip Jr., Oracle, $30.1 million
  18. Glen Senk, Urban Outfitters, $29.9 million
  19. Thomas Montag, Bank of America, $29.9 million
  20. Dennis Strigl, Verizon, $29.0
  21. Thomas Kurian, Oracle, $28.5 million
  22. Ralph Lauren, Polo Ralph Lauren, $27.7 million
  23. Thomas E. Dooley, Viacom, $27.0 million
  24. Thomas M. Rutledge, Cablevision, $26.0 million
  25. Raymond Plank, Apache, $25.8 million
  26. Daniel H. Mudd, Fortress Investment Group, $25.7 million
  27. Timothy Armstrong, AOL, $25.6 million

Now, obviously, this is not an apples to apples comparison to the 74 richest people Johnston is talking about. Indeed, it’s not even clear how many of these, calculated using payroll tax data, would be in Johnston’s group; perhaps only Maffei and Ellison would be (Fortune’s list of top CEO compensation is another list, though only 8 of them make more than Johnston’s $50 million threshold; that list is dominated much more by energy and medical companies). So these are really a snapshot of the paupers among the richest of the rich.

But it provides a list of who the top paid executives in public companies were in 2009.

And 10 of the 27 top paid executives, according to Fortune, were in media.

There’s a reason why no one is telling the story of America’s increasing income inequality. That’s because the people telling the story work for some of the people most benefiting from it.

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Debbie Stabenow v. Ben Nelson; Cherry Orchards v. Con Agra

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This could be an interesting, beneficial outcome of this year’s election: Debbie Stabenow ascending to Chair the Agriculture Committee.

As of his last calculation, Nate Silver gives the Democrats an 84% chance of keeping the Senate. But they’ll keep it without Blanche Lincoln, whom Nate gives a 100% chance of losing to John Boozman. And that’ll open up the Chairmanship on Ag.

The Politico reports that, in spite of the fact that four people have more seniority on the committee, Stabenow stands a decent chance of getting the post, though Bad Nelson might demand it as his reward for staying in the caucus.

Michigan’s Debbie Stabenow is seen as the front-runner to replace Lincoln, but that’s not a given. Nebraska moderate Ben Nelson might win the post as a consolation prize for staying in the Democratic Party, or Kent Conrad of North Dakota could abandon his budget chairmanship to take the helm.

[snip]

“Everybody in town seems to think that she is most likely going to be the next chairman,” said one lobbyist who tracks the committee.

Sources close to the panel say the Michigan Democrat is well-liked by her colleagues and earned their respect during the last round of farm bill negotiations by bridging the interests of states with commodity crops and those with specialty fruit and vegetables.

But because Michigan isn’t your typical Big Ag state, some observers say Stabenow might face opposition from powerful industry lobbies. “There would probably be fear among some of the industry leaders of the cotton people and the wheat people and the barley people if they saw Stabenow take the helm,” said an industry source close to the committee.

Now, Stabenow isn’t always the most hardnosed leader. And on occasions (notably, the bankruptcy bill) she has put corporate interests ahead of her constituents.

But as the Politico article suggests, she would make a very interesting Ag Chair because of the nature of our Ag industry in MI. That’s because MI’s Ag industry has a diversity second only to CA, but (because of the scale) much less dominated by big players. Here’s a snapshot:

  • Michigan is the national leader in the production of tart cherries, having grown 196 million pounds or 77% of the U.S. total in 2007.
  • Michigan also ranks first nationally for the production of pickling cucumbers, geraniums, petunias, squash and vegetable-type bedding plants.
  • Michigan ranks 3rd in the nation in apple production with over 770 million bushels produced in 2007. The estimated farm-level value was $97.1 million.
  • Michigan is 2nd nationally for beans, carrots, celery, plums and 3rd in asparagus production.
  • Over 887,560 tons of fresh market and processing vegetables were grown in Michigan in 2007. The state ranks 8th in fresh market and 5th in processed vegetable production nationally.
  • Michigan ranks 3rd nationally in value of wholesale sales of floriculture products.
  • In 2007, Michigan led the nation in the value of sales for 13 crops, including: Potted Easter Lilies, Potted Spring Flowering Bulbs, Potted Geraniums (seed), Potted Petunias, Potted New Guinea Impatiens, New Guinea Impatiens Hanging Baskets, Geraniums, Impatiens, Begonia and Petunia Hanging Baskets, Impatiens and New Guinea Impatiens (flats) and Potted Geraniums (cuttings).
  • About 335,000 dairy cows produced 7,598 million pounds of milk in 2007. Michigan ranks 7th nationally for milk production
  • Michigan’s hog production totaled 556 million pounds in 2007. Michigan ranks fourteenth in the

    nation in terms of inventory.

  • There were over 1 million head of cattle in the state in 2007 with an estimated value of $1.42 billion.

(Somehow, that list neglected to mention blueberries, where we also lead the nation). MI farms are, on average, smaller than the national average, though they are more profitable per acre. There’s a very healthy farmers market culture here, and also some proactive efforts to develop locally-branded processed food from our harvest, such as the soy processing plant 10 miles from here that offers a non-GMO soy oil. Our local big grocery chains do a pretty good job of promoting locally produced products.

And then there’s Tony the Tiger, which is about as Big Ag culture as we get.

In other words, if Stabenow gets the Chair it’ll put someone who is not beholden to Big Ag the way the Ag Chairmen typically are. At a time when the local Ag movement is picking up steam, we might have someone whose constituency would support such an effort.

Compare that with the most likely alternative: Ben Nelson. Who represents, among other corporations, Con Agra. As big as Big Ag gets.

Mind you, the decision may be made by the margin with which the Democrats keep the Senate. If we keep it by just two votes, I imagine we’ll see Con Agra continue to rule. But if we can eke out a few more seats, it’ll give Bad Nelson much less leverage to demand this Chairmanship.

(Cherry Orchard image by jsorbieus)

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America Is a Beautiful Place, Unaccountable Elite Edition

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It says something about our country that the person who wrote this op-ed could, in a few short years, go on to serve as the primary economic advisor to the President. (h/t scribe)

And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. People tend to make good decisions about their own economic prospects. As Professor Rosen said in an interview, “Our findings suggest that people make sensible housing decisions in that the size of house they buy today relates to their future income, not just their current income and that the innovations in mortgages over 30 years gave many people the opportunity to own a home that they would not have otherwise had, just because they didn’t have enough assets in the bank at the moment they needed the house.”

[snip]

For be it ever so humble, there really is no place like home, even if it does come with a balloon payment mortgage.

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Fannie and Freddie Near a Deal with Title Industry

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As I noted in my last post on the move, led by Fidelity National, to require banks to warrant against “incompetent or erroneous affidavit testimony or documentation,” the move was largely about getting Fannie and Freddie on board and with them making this a standard practice in the industry.

So I’m not surprised by the report that that’s precisely what is happening. But I do find the description of Fannie and Freddie’s role in this process to be noteworthy.

The behind-the-scenes work illustrates how, as banks prepare to resume home repossessions, few entities have a greater interest in helping to put the foreclosure train back on track than Fannie and Freddie, which together own or guarantee half of all U.S. mortgages.

“They’re in a position to pursue good, straight, and solid answers. In that way, they play a quasi-regulatory role,” said Kurt Pfotenhauer, chief executive of the American Land Title Association, a trade group.

[snip]

Still, the foreclosure-document crisis is raising an age-old question that has dogged the mortgage firms: Should they play the role of regulator, or business partner, with the mortgage originators and servicers that are their customers?

On one hand, Fannie and Freddie need to make sure foreclosures are proceeding properly. But on the other hand, they want to move the process along as fast as possible because each day that they can’t repossess homes, they lose more money and ring up a bigger bill for taxpayers.

“Given their public purpose and the special advantages they have in the marketplace, Fannie and Freddie should be a model to the whole industry of how to make sure the foreclosure process is working properly,” said Julia Gordon, a senior policy counsel at the Center for Responsible Lending.

But the firms’ regulator, and the companies themselves, say that the onus is on servicers to fix any problems and vouch for the quality of their foreclosure processes.

Fannie Mae “is not in a position to be the determining body as to whether servicers are putting processes in place that comply with the law,” a company spokeswoman said.

This is basically the government–as the owner and guarantor of Fannie and Freddie–basically saying the banks should just fix their own practices. No wonder that line sounds so similar to what we’re hearing from the Obama Administration.

And couple this disinterested stance toward servicer problems with the news that the government has known, since sometime after May, that there was a,

significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.

Yet it has not done anything about the servicers that it knows (but will not name) which have not followed required practices to try to keep people in their homes.

Note too the reference in the linked article to Fannie’s institution of fines on servicers that didn’t churn through their foreclosures in timely fashion.

The past practice of Fannie and Freddie shows they have every intention of keeping foreclosures churning through the system and government regulators appear to have no intention of slowing that churn. Signing this title insurance agreement is part of that same process.

We, the taxpayers, have become the owners of a system that churns inexorably on to evict us from our homes.

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“The Federal Government Is Moving Comprehensively and Quickly”

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Something has been nagging me about this HuffPo description of HUD Secretary Shaun Donovan’s briefing on the foreclosure crisis the other day. It’s the revelation that, in a review started in May, the government had found that foreclosure servicers are not complying with FHA requirements that servicers attempt to modify loans before they foreclose on them.

Donovan said the administration had yet to complete its review, which began in May. Thus far, though, it had found “significant difference in the performance of servicers, and in particular, information that shows us there is not compliance with FHA rules and regulations around loss mitigation.” Donovan said the findings were limited to firms that deal with FHA loans. He declined to single out servicers. Other HUD officials likewise declined, despite repeated requests.

When it came to the larger issue of what some legal experts describe as a fundamentally-flawed and fraud-ridden mortgage market — fraudulently-underwritten loans that passed through a maze of institutions that failed to properly maintain basic paperwork or follow legal procedures in bundling, securitizing and ultimately selling those mortgages to investors — Donovan said that, thus far, all is well.

“The primary issue that’s been the focus of the moratoria is, is the foreclosure process being followed correctly? Are affidavits being filed correctly, and are notarizations and other things being done correctly? That is one set of issues,” he said. “A second set of issues — and we think this is very important — that we look more broadly at, ‘Are servicers taking steps to help keep people in their homes?'”

The lesser, third issue that has been raised, Donovan said, is whether the process underlying the securitization of mortgages is “in question.”

“So that’s the point that I’m trying to make, is that the issues that we are finding … that we’re focused on are, ‘Are there particular servicers that are not following these processes?'”

Donovan added that “we have not found any evidence at this point of systemic issues in the underlying legal or other documents that have been reviewed.”

Keeping in mind that this review started five months ago, watch this video of Donovan from Wednesday. In it, Donovan seems intent on declaring the overall system of mortgage finance–including MERS–to be sound, even while he reveals that the review showed some servicers were not making the required effort to modify loans before foreclosing on people.

This is not a systematic issue, according to Donovan, but some servicers that he declines to name (as he did in the briefing HuffPo describes) are not following processes to keep people in their homes. Oh, and “the Federal government is moving comprehensively and quickly to ensure that servicers are complying with the law and that they are taking the actions they’re required to take and they should take to keep people in their homes.”

Well over a million homes have been foreclosed on since the government began its review of the foreclosure process. At some point in that time, the government determined that certain servicers were not complying with federal rules about modifications.

So why are we just hearing about it now after those million families have lost their homes?

I appreciate that the government–by refusing to call this systemic fraud systemic–acquires new leverage over servicers to actually do something about their refusal to modify loans. But why have we heard nary a peep out of the government about this before now? And why is the government refusing to make public which deadbeat banks are breaking the rules on loan modifications?

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