You don’t know Orwellian until you know Frank Luntz

The guy who told the GOP to brand financial reform a "bailout"? Every word he speaks seems to be a lie

By Gabriel Winant

Frank Luntz in 2009.

Topics:Bank Reform, War Room, Bank Bailouts, Republican Party

Fools these days just fling around the word “Orwellian” like it doesn’t mean anything. Please, guys. Despite what some people would have you think, not everyone out there is some budding totalitarian. Let’s try to keep the word meaningful and useful for later.

But that doesn’t mean we can never take note of modern practitioners of Newspeak. I’m thinking here of pollster and GOP image guru Frank Luntz. If we’re holding on to “Orwellian” for when we really need it, well, this guy represents a downright special occasion, so let’s splurge.

It was Luntz who suggested, in a now-infamous memo, that Republicans mask their assiduous service of Wall Street in the fight over financial reform by accusing the Democrats of assiduously serving Wall Street. The ceaseless claims that the proposed bill would authorize a new “bailout” come directly from Luntz’s playbook. Senate Minority Leader Mitch McConnell, for example, warned, “We cannot allow endless taxpayer-funded bailouts for big Wall Street banks.”

Here’s what Luntz advised: “[A] vote in favor of creating a permanent bailout fund of private companies is like committing political hari-kari. Frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout.”

Of course, the proposed bill doesn’t create a permanent bailout. The measure that Republicans have criticized, borrowing language from Luntz, in fact levies a tax on banks, and would use the money to dismantle — not reward — companies under financial duress. But I guess that still fits under Luntz’s rubric of “any legislation.”

Obviously driven up the wall by this dishonesty, the White House took the unusual step of singling out Luntz’s work for some entirely accurate criticisms. “The bill does the exact opposite of what these critics say it does,” wrote Deputy Communications Director Jen Psaki, on the White House blog.

Luntz responded yesterday, at length, at the National Review. It’s not for the weak-stomached. To start out with, the guy inadvertently makes himself sound like Stephen Colbert, in character. “I examine every side of the issue from every perspective, but more importantly, I listen to the American people and what they want. Maybe that’s why my memos attract so much attention — it’s really the language of America.” Frank Luntz is America, and so can you!

Luntz continues, “When we presented dial session participants the Financial Reform legislation as it was written in the House, they reacted most negatively to the bailout provisions contained within the bill.” Since the bill in fact has no bailout provisions, this is, to put it extremely generously, not informative. What Luntz could tell us that would be informative is what, exactly, he told or showed to the focus group and described as a “bailout” to elicit the pre-cooked negative reactions that his clients had ordered up.

Then there’s this paragraph. If irony were dead, this thing would dig it up and reanimate it, just to put another stake through its heart.

Unfortunately, the leaders of this Congress are hell-bent on pushing through legislation without reasonable public information, and that has to stop. Too many mistakes are made when important legislation is rushed. Even President Obama, who first denied there was a bailout, is now asking that the $50 billion bailout administrative fund be eliminated from the Senate bill.

Obama, of course, is not now admitting the error of his ways and asking to eliminate “the bailout.” He’s just decided that there’s no way to win an argument with people who live in Wonderland, so he’s prepared to let the idea drop if it will shut them up. To even put that sentence in the same paragraph as a high-minded claim about “reasonable public information” during political debates — well, you have to hope that Luntz is well-compensated enough to buy a nice mattress and some Ambien.

Almost a year ago, Luntz did an interview with Deborah Solomon of the New York Times Magazine. To say the guy came off as creepy doesn’t begin to capture it. For a public relations guy, he’s astonishingly not self-aware. For example, he tells Solomon that words starting in “b” sound angry. So she baits him, “What if I call someone a bunny. That’s not angry.”

Luntz takes the bait, and makes up on the spot a P.R. campaign against bunnies. “If I wanted to demonize a bunny, I would use a word like rabbit. The rabbit will ravage your garden. This is a language pivot. A bunny is cute; a rabbit that ravages your garden is a pest.”

And then there was this exchange.

Where did you grow up?

Who cares?

Are you married?

No. I may have perfected the language that gets people to vote certain ways, and buy certain products, but I haven’t perfected the language to get some woman to buy me.

It might help if you didn’t speak about yourself, not to mention health care, as a product to be bought and sold.

It’s a throwaway line, that’s all. In politics it’s called a pivot. It’s a pivot to a topic I am more interested in. Not all words have equal meaning

“Not all words have equal meaning” – indeed. Some are worse than worthless.

: Gabriel Winant is a graduate student in American history at Yale. More Gabriel Winant

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Wells Fargo is not your amigo

The banking giant preys on minorities while its executives donate to anti-immigration Republicans

By Tim Fitzsimons

Demonstrators picket outside the Wells Fargo corporate headquarters in San Francisco. (Credit: Reuters/Stephen Lam)

Topics:Bank Reform

After allegations of racially based predatory lending tarnished its image, Wells Fargo is making renewed efforts to increase its customer base among Latinos, the fastest-growing segment of the U.S. population. The San Franciso-based banking giant, which has long touted its support for the Hispanic community, is now embarked on a new “educational campaign” that it says will help Latino customers enter into the financial mainstream.

As part of its push for “under banked” customers, Wells Fargo has partnered with a firm called SABEResPODER (“Knowledge is Power”). In April, the two companies announced a three-month “educational campaign” to provide Spanish-language tutorials on how to access the banking system. Has Wells Fargo changed the dubious practices that generated negative news coverage? Or has it simply changed its marketing?

The answers matter. Though Wells Fargo is the smallest of America’s Big Four banks with a mere $1.2 trillion in assets, it is the nation’s top consumer lender. Behind the new advertising push lies the reality of Wells Fargo’s lending practices, investments and political contributions, which should interest anybody who banks there.

Wells Fargo has a history of targeting vulnerable communities for risky financial products. At the height of the subprime lending mania in 2006, the bank was more likely to loan subprime mortgages to Latinos and African-Americans than whites, according to a September 2009 report by the Center for American Progress, a process known as “reverse red-lining.” For financially stable borrowers, the targeting was even starker: Middle-class blacks were four times more likely than middle-class whites to get a dangerous mortgage. Middle-class Latinos were nearly three times more likely.

This allegedly illegal, race-based lending led the city of Baltimore to file suit against Wells Fargo in 2009, claiming it had robbed the city of tax revenue by mounting a systematic campaign to push risky mortgages on African-Americans through the targeting of black churches and neighborhoods. The suit was dismissed and reintroduced many times as lawyers from both sides battled, and is still unresolved.

Former employees have gone public with concerns about Wells Fargo’s lending policies. The company “targeted African-Americans through special events in African-American communities called ‘wealth building’ seminars,” according to an affidavit in the Baltimore lawsuit submitted by former loan officer Elizabeth Jacobson. She said the seminars steered Maryland suburbanites into risky subprime mortgages they were unlikely to be able to keep up with.

Internally the company referred to these buttered-up subprime mortgages as “ghetto loans,” according to another former Wells Fargo loan officer, Tony Pachal. He described the ways in which Wells Fargo coached loan officers to push risky mortgages onto African-American homeowners. Wells Fargo – like other big banks –profited by quickly repackaging and reselling these loans into complicated mortgage-backed securities.

Even since the subprime market collapsed in 2008, Wells Fargo continues to offer risky, racially tinged financial services. It is the only one of the Big Four banks that offers payday advance loans, which it calls “Direct Deposit Advance.” The bank argues this is not a payday loan because of additional protections it provides. But like payday loans, the interest rate of this service is in the triple digits. The Center for Responsible Lending says the advance translates into “a 261% annual interest rate over a two-week pay cycle.”

Wells Fargo is also invested in the payday loan industry. The bank guaranteed lines of credit to of six of the seven top payday lender agencies, according to a 2007 report by the center. Payday lending, which offers a small cash advance with an astronomical interest rate, often traps the poorest in a cycle of debt. In 2007, Ben Popkin of consumerist.com described banks’ financing of these lenders as “kind of like finding out the hardware store owner sells crack on the side.”

Payday lenders target black and Latino communities, according to other reports from the center. In an analysis of Los Angeles area municipalities, the geographic disparity of these lenders was stark: Pacific Palisades, an extremely wealthy community that is 88.6 percent white, has zero payday lenders. Van Nuys, a middle-income community north of the Hollywood, is 60.5 percent Latino and has 24 payday lenders.

The bank justifies such practices by saying it wants to serve the Latino community. Latinos are an “underbanked” customer pool, said Lisa Westerman, a Wells Fargo communications representative in a recent interview. She told Salon that the average Wells Fargo customer uses under six products, while the average Latino customer uses over eight.

The bank, for example, has expanded its remittance services that enable customers to send money to family and friends in their home country. Westerman said the service is not hugely profitable; she referred to it instead as a “gateway product.”

“They tend to start out with remittances and then by coming into the bank they feel more comfortable coming in … for services,” she explained. “It’s a great way to introduce the ‘under banked’ to the banking system.

Wells Fargo has pursued the Latino market for at least a decade, says Amir Hemmat, cofounder and CEO of SABEResPODER. In 2001 the bank became the first to accept the “matricula consular,” a form of ID provided by the Mexican government to its citizens living abroad. “It is assumed that the matricula ID largely services the undocumented population,” Hemmat said.

SABEResPODER, founded as a nonprofit in 2002, is key to Wells Fargo’s efforts to attract customers. It seeks to “improve the lives of Latinos in the U.S. by providing free printed guides on select topics of interest.”

These guides are distributed in waiting rooms, places where Latinos – and, often, undocumented immigrants – spend significant amounts of time. According to SeP, these educational materials – which have expanded to include videos and interactive displays – reach more than 8 million Latinos annually as they wait for consular services, identification documents and medical treatment. Today, the nonprofit information brand that has become ubiquitous for Latino consumers across the country still provides free information — but now with product placement.

This type of advertising works particularly well for companies looking to crack the Latino market, Hemmat said.

“You have to communicate solutions in order to influence behavior,” he explained. “Show someone who looks like them, talks like them, going through the process and achieving success.” Accessing these customers at this stage, he said, creates “generational brand loyalty.”

Hemmat says that SeP’s partnerships with companies such as Wells Fargo, Ford and T-Mobile are just that – partnerships. He insists partners have “no editorial control” over the educational materials offered by the company.

SeP is a certified “B Corporation,” which is a social responsibility rating provided by a nonprofit organization B Lab. But there is no mechanism to ensure a B Corp’s for-profit side does not surreptitiously harm its public benefit. Learning about how to buy a car from a two-minute “educational” video that flashes over 20 different photos and clips of only Ford automobiles and dealers is probably beneficial to a Latino customer who does not know the ins and outs of negotiating a car purchase in America. The benefits of a video about banking that shows a Latino customer “achieving success” at a Wells Fargo branch are more dubious given the bank’s record of selling hazardous financial products to the Latino community.

Wells Fargo does not scant when it comes to giving money to Latino groups. The bank’s press Web page has many announcements of scholarships , donations and political alliances. Wells Fargo has even partnered with the National Council of La Raza, the national civil rights group. La Raza is working with the bank to “beef up their internal fair lending scheme,” according to Janis Bowdler, deputy director of La Raza’s Wealth Building Policy Project.

Noting that Wells “has made some investments in foreclosure prevention,” Bowdler said, “we have not seen the final product yet but it is something that they tell us they are working on.” Wells Fargo’s partnership with NCLR includes a donation, the “lion’s share” of which goes to funding 55 foreclosure prevention counselors across the country, she said.

Is the bank showing a good faith effort to improve? Or is it seeking to co-opt its critics?

Jesse Van Tol, director of communications at the National Community Reinvestment Coalition, an advocate for economically neglected communities, said Wells Fargo “weathered the storm” of the financial meltdown better than other banks. The bank also has “a huge incentive to do well. They care about their reputation and brand, so they invest heavily in doing well in those areas.”

“It’s a good thing that banks are trying to serve low-income communities,” Van Tol stressed. “The question is whether or not they are doing predatory things in the process.”

Bartlett Naylor, financial policy advocate at Public Citizen, a D.C.-based consumer advocacy group, is more skeptical. “I’d be highly suspect if these efforts were little more than window dressing.” Calling Wells Fargo “acquisitive,” he noted that such outreach efforts “can be profound or frivolous.”

The partnerships often result in testimonials from community organizations, he noted.

“If you pay them $1,000 or $100,000, they’ll sing your praises under their letterhead,” Naylor said. He advised customers to beware of feel-good outreach efforts.

“Any bank that begins a sales pitch saying, ‘Trust me, I’m here to help,’ should cause somebody to keep a tight grip on their wallet,” he said.

Wells Fargo also continues to engage in investment and donation practices at odds with the human rights of Latinos and immigrants in the United States. According to information provided by SEIU and verified by Salon, Wells Fargo’s leadership makes political contributions to vehemently anti-immigrant politicians such as Reps. Michele Bachmann and John Kline. Over the 2008 and 2010 election cycles, Wells Fargo’s PAC, executives and directors have together given $9,500 and $12,250, respectively, to the two candidates.

As Wells Fargo recovers from the shellacking its image suffered over the past decade among minority and low-income communities in America, it continues its campaign of outreach. The bank denies all charges of race-based lending.

An aide to a Democratic senator, who is not permitted to speak publicly, said he expected all the big banks, Wells Fargo included, to circumvent new regulation by inventing creative products like prepaid and business cards that “nickel and dime” consumers.

“It’s clear that minorities are targeted for any number of these bullshit products,” he said. While the Dodd-Frank bank reform bill “rooted out” a lot of predatory practices, he said, that “doesn’t mean we won’t see a new product that on its face looks good but in 10 years’ time blows up in your face.”

“It happened in the past and it continues to happen,” he said. “It’s difficult to outsmart banks.”

: Tim Fitzsimons is a freelance print, photo and radio journalist based in Washington, D.C. More Tim Fitzsimons

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Mayor Bloomberg, partner diagnose what's wrong with America: You

New York's elite ask that regular folk please be more respectful of their betters (and stop protesting them)

By Alex Pareene

New York's First Couple (Credit: Reuters/Joshua Roberts)

Topics:Michael Bloomberg, Great Recession, Bank Reform, Wall Street, New York, New York City, Unemployment, Bank Bailouts

The 90,000 New Yorkers who control 99% of the city’s wealth are completely segregated, geographically and intellectually, from everyone else in the city and the nation at large, so its no surprise that they tend to be tone-deaf and blind to the inequities and frustrations and resentments of Regular Folk, but billionaire Mayor Michael Bloomberg and his charming and powerful partner Diana Taylor are really out-doing themselves in terms of blinkered elite thickheadedness these days.

Let’s start with Mayor Michael Bloomberg, who is at the moment clearly struggling with his natural impulse to throw every protester in jail without charges for the crime in interrupting the business of the city’s truly important people. His impassioned plea to the people currently participating in the Occupy Wall Street protest: The banks are our friends!

“The protesters are protesting against people who make $40-50,000 a year and are struggling to make ends meet. That’s the bottom line,” Bloomberg said, presumably meaning service workers on Wall Street, adding that “we all” share blame for taking on too much risk, not just the financial industry.

“And people in this day and age need support for their employers. If the banks don’t go out and make loans we will not come out of our economic problems, we will not have jobs so anything we can do that’s responsible to help the banks do that is what we need.”

Wonkette’s Kirsten Boyd Johnson correctly notes that every single word the mayor says here is utterly nonsensical, unless you are, say, a billionaire mogul with deep ties to the financial industry.

Everyone else knows that the banks exist to make huge amounts of money by screwing everyone over, but banks are generally run by human beings (with the exception of Goldman Sachs, a Lizard Person From Outer Space operation), and those human beings have largely convinced themselves that they are very good and productive members of society. Hence, this sort of talk.

Which working-class people making $50,000 a year are the protesters protesting against, exactly? I’m not sure. The people who clean the offices of the financial firms that are actually being protested, maybe? The people who sell them fancy coffees? (This is just a slightly confused version of the old hostage argument against attacking the pillars of the vast, corrupt financial industry — if you hurt the banks they’ll hurt everyone else in America in retaliation.)

Still, Mayor Mike is to be commended for his political acumen. Desperate, terrified fealty to “employers” is a great, inspiring message. That should be his independent presidential campaign slogan. “SUPPORT YOUR BETTERS, OR ELSE.”

Diana Taylor, the mayor’s partner (in a personal/romantic sense, not in terms of business), gives an interview to Elizabeth Spiers, the editor of the New York Observer, boy real estate magnate Jared Kushner’s newspaper of record for New York’s media and real estate elite. Taylor manages to be less astoundingly dense as the mayor, but she still illuminates the mindset of the Gotham’s ruling class.

They hate democracy, or at least they hate the decisions made by voters (and who among us doesn’t, much of the time), but she is positive that everyone would see the light and support people like her (or her, specifically) if only those damned left-wing nuts and right-wing nuts who control the political parties hadn’t rigged the whole system.

Here’s the classic “I WOULDA WON IF I WANTED TO!” cry of the elite centrist who declines to messy themselves with an actual run for office, after flirting with the idea:

Last year, Senate Republicans approached Ms. Taylor about the possibility of running against incumbent Senator Kirsten Gillibrand, and for a while she considered it. “The Senate Republicans basically asked me to run and I thought about it, talked to a lot of people,” she said. “But then when I really thought about it, what attracted me to the idea was the race because I knew I could win that race. It was the thought of actually having to go and do that job, that was really not all that appealing.”

I bet Taylor would’ve been just as successful as her handpicked ridiculous Congressional challenger to Rep. Carolyn Maloney, the hilarious Reshma Saujani.

Taylor explicitly defines herself in the traditional “centrist” way: socially liberal (she is pro-choice!) and “fiscally conservative” (she is pro-corporatist!). Contrary to popular belief, this is basically the opposite of how “most Americans” — especially genuine swing voters — actually feel. (To drastically oversimplify, your generic “swing voter” is uncomfortable with changing social mores and thinks the government should soak the rich to pay for regular folks’ schools and healthcare, basically.)

Of course, Taylor identifies as a Republican, but her platform is basically the same as that of the “moderate” wing of the Democratic party, which Barack Obama mostly belongs to, despite occasional liberal rhetorical flights. But it is those liberal rhetorical flights that Taylor deplores about him, because she doesn’t think he’s polite enough to her class:

She was even less sanguine about Obama. “I think that he’s a very intelligent man,” she said carefully. “And he has a lot to learn.”

Her voice took on a sharper edge. “For somebody’s who’s going to come in and be the great unifier—you know, that hopey-changey stuff—it hasn’t worked very well. The country is more divided now than it’s ever been. And he doesn’t appreciate other people and what they do. “

He doesn’t… “appreciate other people.” If only he knew how much the world’s top 1% had done for him!

Having given this some thought, she had a three-pronged list of his biggest mistakes. “There are probably more,” she said, but here were three. He wasn’t supporting business, Ms. Taylor said. “He should be a champion for this country and he’s not. Because that’s where the jobs are going to come from. They’re not going to come from government; they’re going to come from the private sector.” The second: Obamacare. He basically told Congress, ‘you know what? I want a health care bill, do something.”

“The last time I checked, the president was supposed to sit down and figure out what he wanted and then get Congress to go along with it. And we got a mess. And exactly the same thing with financial regulation and regulatory reform.” This was number three. “And we have a mess.”

This boilerplate center-right political analysis is self-evidently stupid to anyone who’s been paying attention to the legislative process over the last, say, 20 years (it is the “magic president” school of analysis) but it is always useful to understand how our betters think about the world. In Diana Taylor’s mind, the unemployment crisis is a result of… Barack Obama being insufficiently respectful of business, or somehow not “championing” business. The jobs will come from the private sector, once… Obama thanks them, profusely, for their goodness.

Next: Barack Obama mistakenly allowed Congress to craft legislation, a clear violation of the Constitution, which holds that Congress should sign or veto bills sent to it by the president. That’s what the Constitution says, right? I seem to have misplaced by pocket copy.

“The last time I checked, the president was supposed to sit down and figure out what he wanted and then get Congress to go along with it.” What a wonderful line! The last time you checked what, Ms. Taylor? Your email? “Doonesbury”? The Thursday Styles section?

Taylor goes on to decry “uncertainty,” claiming Dodd-Frank is somehow stopping banks from lending money to people who need money, and throws in this exasperated cry to the heavens:

“And this whole business of the FHFA suing all the banks around Fannie and Freddie; it’s crazy!” Inasmuch as Mr. Taylor would ever be inclined to pound her fist on a table to make a point, she seemed on the verge of it. “I’ve never—I mean, it just makes no sense at all to me!”

They’re suing the banks because the banks committed mass fraud, basically? It’s pretty easy to understand! (And don’t worry, they’ll let your bank friends off easy, probably.)

But Taylor doesn’t blame the banks for what the banks did. No, she places the blame where her class knows it belongs: On All of Us.

“I think it’s a problem with Congress. I think it’s a problem with the ratings agencies. I think it’s a problem with the banks. I think it’s a problem with the population at large. Everybody’s going like this” she threw her hands up in the air. “And at the end of the day, everybody’s responsible in some way or another.”

Everybody! Did you know that you, citizen, are responsible for the financial disaster and the ensuing mass unemployment crisis? You should probably call up Diana Taylor and apologize personally. You are making her so upset!

: Alex Pareene writes about politics for Salon. Email him at apareene@salon.com and follow him on Twitter @pareene More Alex Pareene

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Sensitive banker Jamie Dimon comforted by Mitt Romney

Still smarting from an off-hand insult to the all-powerful financial sector, JPMorgan's CEO cozies up to the GOP

By Alex Pareene

Jamie Dimon and Mitt Romney (Credit: AP)

Topics:2012 Elections, Bank Reform, Mitt Romney, Mortgage Crisis, Bank Bailouts, Barack Obama

Jamie Dimon, CEO of JPMorgan Chase, is not supposed to endorse a presidential candidate, because he sits on the board of the Federal Reserve Bank of New York, but he is out partying and attending fundraisers with former Massachusetts governor Mitt Romney. (Of course, Dimon also probably shouldn’t have accepted billions of dollars from the Fed while sitting on the New York Fed board either, but that happened.)

Dimon is a Democrat and former BFF of President Barack Obama, but one day Obama said “fat cat bankers” and everyone on Wall Street threw a tremendous tantrum. The president has gone on to lightly criticize the financial industry and endorse a plan to slightly raise income taxes on very wealthy people, which has reportedly driven scores of Democratic backers from the finance industry into the open arms of the GOP.

Here’s someone explaining the switch (this is an anonymous source talking to the New York Post, which has a vested interest in presenting the Democratic Party and Barack Obama as avowed enemies of capitalism and free enterprise, but I assume this is a fairly accurate explanation of Dimon’s thinking):

One insider said, “There is not a person on Wall Street, with the exception of the genetic Democrats, who would get anywhere near supporting Obama. The hostility to the administration is huge. Dimon will continue to look bipartisan, then work behind the scenes to get a Republican elected.”

Dimon supporting a Republican is only natural. Billionaire financial executives have obvious reasons to support a Republican presidential candidate. The Republican party line is that rich people should keep more of their money and the financial sector should be lightly or not-at-all regulated. But when the “longtime Democrats” who also happen to be bank executives make the switch to the Republican party, they for some reason feel the need to come up with justifications beyond material self-interest. Thus, flailing attempts at sustaining the Democratic party’s disappearing middle-class base by lightly soaking the rich are seen as horrific personal attacks on innocent bankers. This makes these billionaires seem like hypersensitive children, but that is apparently preferable to being seen as attempting to maximize their profit by directing political support to the people most likely to allow them to continue vacuuming up and hoarding the world’s wealth.

The Democratic party has been extraordinarily friendly to the interests of the financial sector since the Clinton era, but they are learning now what should’ve been obvious all along: It is impossible to be more billionaire-friendly than the Republican Party, because the Republican Party’s entire political philosophy is that government should exist solely to serve the interests of the wealthy.

Dimon’s argument hinges on the idea that it’s unfair to tarnish his industry as a whole because of the actions of a few bad apples. JPMorgan Chase, you see, is one of the “good banks,” which means it is one of the banks that survived the 2008 financial crisis and remains incredibly profitable. It does not mean that the bank is in any sense a positive force for good or a productive arm of a healthy economy, unless you think illegally foreclosing on military families and driving counties to the brink of bankruptcy while bribing officials are good, productive things for Jamie Dimon’s firm to be doing with its billions of dollars of revenue.

The moral is that we as a nation must never spook the skittish “job-creators” like Dimon, lest they leave us for greener pastures, as Dimon has left Obama for Romney.

: Alex Pareene writes about politics for Salon. Email him at apareene@salon.com and follow him on Twitter @pareene More Alex Pareene

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The bungled politics of bank bashing

The federal government finally accuses Wall Street of mortgage fraud, and then buries the news

By Andrew Leonard

President Obama

Topics:Mortgage Crisis, How the World Works, Bank Bailouts, Bank Reform

Last Friday, right before a three-day weekend, the Federal Housing Finance Agency filed 17 lawsuits accusing a motley crew of some of the biggest financial institutions in the United States of fraudulently misrepresenting the value of mortgage-backed securities. Pick any one of the lawsuits, for example, the complaint against Merrill Lynch, and you will read language sure to get the heart pumping of any American still seething at the role Wall Street played in precipitating the Great Recession:

These securities were sold pursuant to registration statements, including prospectuses and prospectus supplements that formed part of those registration statements, which contained materially false or misleading statements and omissions. Defendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans.

To most people who have followed the mortgage crisis closely from the beginning, the FHFA would seem to have a slam-dunk case. As Felix Salmon pithily summarizes: “These banks lied to investors when they put together mortgage securitizations.” The evidence is simply overwhelming — the only real question here is why the government hasn’t moved more quickly to call the banks to account.

But listen to the industry response! Paul Miller, a former bank examiner now working as an analyst for FBR Capital Markets & Co., declared in a research note that it was time to “stop punishing banks.” Demanding that the banks make restitution for the losses would hurt the economy, he argued.

The Federal Housing Finance Authority is “reacting in their own self-interest as opposed to that of the broader U.S. economy,” Miller wrote. Their claims “drain capital from the banking system, and they cause banks to overly tighten credit standards, which pushes potential home buyers onto the sidelines.”

Securities analyst Richard Bove warned that the lawsuits proved that the U.S. government “is committed to breaking up the banking industry.”

The audacity! Talk about your all-purpose, gilt-edged get-out-of-jail-free cards! The U.S. government should refrain from punishing the malefactors who brought down the economy, because doing so would negatively hamper the economy! And even better, the Obama administration, which helped to inspire Tea Party anger and alienated its own left-wing base by moving heaven and earth to keep the banking industry intact, is now supposedly “committed” to breaking up the banking industry.

If only!

The economy argument simply doesn’t hold water. First of all, banks have already tightened their credit standards and are reluctant to make loans. If they wouldn’t make loans when their profits were high, the government needn’t worry over much about the effect that draining more capital from the banking system might have. But secondly, there is no way that legal action on this scale will be resolved in any kind of short-term time frame. Goldman Sachs, Citigroup and Bank of America will have access to the best legal teams money can by, and any resolution will likely take years, by which point, one hopes, the economy will be on sounder footing, and the banks will be able to pay their fines without causing undue economic sabotage.

And then there’s the reasoning offered by FHFA itself, in a note released Tuesday clarifying the rationale behind the suits:

Some have claimed that these suits will disrupt economic recovery, or endanger the targeted banks, or increase their cost of capital. While everyone is concerned with these important issues, the long-term stability and resilience of the nation’s financial system depends on investors being able to trust that the securities sold in this country adhere to applicable laws. We cannot overlook compliance with such requirements during periods of economic difficulty as they form the foundation for our nation’s financial system. Therefore, through these lawsuits, FHFA turns to the courts to adjudicate the violations that it has alleged in its complaints.

Of course, it’s probably also worth noting that nothing particularly economically advantageous is likely to happen, in the short term, as a result of the FHFA’s move, aside from some modest deficit-reducing benefits in the event that some of the losses the government was forced to eat bailing out Fannie Mae and Freddie Mac are offset by any restitution from the banks.

Which brings us to one final observation. Could this have been managed any less effectively, from a political point of view? After bailing out the banks, and becoming widely perceived as more concerned about Wall Street than Main Street, the feds waited three years to aggressively confront the banking industry, and then buried the news of their action on a Friday before a three-day weekend. More people probably remember the score of a college football game played Saturday than what the FHFA did on Friday.

: Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard

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Banks get more time to submit foreclosure plans

In April the government called on 16 mortgage lenders to reimburse homeowners incorrectly foreclosed upon

By Associated Press

Banks get more time to submit foreclosure plans

Topics:Mortgage Crisis, Bank Reform

Federal regulators are giving the nation’s largest mortgage lenders an extra month to show how they plan to address problems with their foreclosure practices.

In April the government called on 16 mortgage lenders and servicers to reimburse homeowners who were incorrectly foreclosed upon. The lenders and servicers were also given 45 days hire auditors to show how many homeowners could have avoided foreclosure in 2009 and 2010. They would then be required to submit plans that show how they intend to fix their practices.

Regulators said Monday that Department of Justice asked that they give the banks and financial firms another 30 days to coordinate with state and federal agencies.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo were among the lenders cited in the report.