Banks: We’re breaking the law, OK?

60 Minutes (2/15/09)

How did the mortgage industry destroy itself and set off an economic collapse that ruined the finances of millions of Americans? Executives tend to hold themselves blameless, saying that no one could have seen the disaster coming.

Well, judge for yourself after you hear the story of Paul Bishop, who worked at the nation’s second largest savings and loan. World Savings Bank was among the industry’s most admired mortgage lenders. But Bishop says the kind of lending practices he saw were leading to a world of trouble that would ultimately result in billions in losses and a federal investigation.

What does Paul Bishop say he told executives at World Savings, three years before the crash?

“We’re breaking the law, okay? We’re breaking the law. You know we’re breaking the law. I know we’re breaking the law. What the hell do you think is going on here? You know, you’re granting too many people loans who simply can’t qualify,” Bishop told 60 Minutes correspondent Scott Pelley.

Bishop’s story is a rare inside look at forces that tore the economy apart, as seen by a plain-spoken loan salesman who is now suing World Savings, claiming that he was fired for telling executives what they didn’t want to hear.

“I definitely talked to him about Enron. I said, ‘We’re sitting on an Enron.’ This is…bigger than Enron. I mean, we’re doing four billion a month in loans. If housing drops, housing value drops, people start to default, you know? This is a nightmare. These people will not survive it,” Bishop told Pelley.

Bishop was a mortgage salesman at World Savings San Francisco Loan Origination Center. He’d been a top salesman at IBM and spent years as a stock broker. Most everywhere he went, he had a reputation for speaking his mind and ruffling feathers. He joined World in 2002, in part, because of its history.

Bishop says the owners were Herb and Marion Sandler.

“And their reputation at the time was what?” Pelley asked.

“It was flawless, near as I could tell,” Bishop said.

In fact, Herb and Marion Sandler were legendary. In 1963, they started Golden West Financial and grew to 285 branches under the name World Savings. The Sandlers’ were known for careful, conservative lending. They’ve given away millions of dollars to charity and started an advocacy group for low income borrowers called the Center for Responsible Lending.

In 2006, just before the housing crash, the Sandlers sold their bank to Wachovia and pocketed $2.3 billion.

Trouble is, some of their money came from people like Betty Townes, who is financially ruined after being sold a series of World Savings mortgages she couldn’t afford.

Asked how many times she refinanced, Townes said, “Well we refinanced practically every year.”

World salesmen convinced Betty to refinance her mortgage four times in four years. She got about $20,000 each time. “Well, all I know that they told me this loan was best for me,” she told Pelley.

But how could it be best when Betty’s pension couldn’t qualify her for the loans?

“They told me that they would go by my husband’s payroll,” she said.

“Even though he’d been laid off from the shipyard?” Pelley asked.

“No, he’d passed away,” Townes replied.

Banks buy politicians — on sale, now!

Bill Moyers on PBS, February 13, 2009

On Tuesday, February 10, 2009 Treasury Secretary Timothy Geithner unveiled the Obama administration’s plan to address the crisis in the financial sector. The strategy he outlined calls for the largest Federal intervention in banks and finance since the Great Depression, flooding as much as $2.5 trillion into the system. Given its size and scope — the bill’s lack of detail drew a widely negative response from analysts and economists.

Although he thinks the details are important, Simon Johnson, Professor of Economics at MIT, worries more that Geithner and the Obama administration won’t address a big underlying problem and be tough enough on the politically powerful banking lobby.

 

Too Big To Fail?

Johnson explains to Bill Moyers on the JOURNAL that the U.S. financial system reminds him more of the embattled emerging markets he encountered in his time with the International Monetary Fund than that of a developed nation. As such, Johnson believes that the U.S. financial system needs a “reboot,” breaking up the biggest banks, in some cases firing management and wiping out shareholder value. Johnson tells Bill Moyers that such a move wouldn’t be popular with the powerful banking lobby: “I think it’s quite straightforward, in technical or economic terms. At the same time I recognize it’s very hard politically.”Without drastic action, Johnson argues, taxpayers are merely subsidizing a wealthy powerful industry without forcing necessary systemic changes: “Taxpayer money is ensuring their bonuses. We’re making sure that banks survive. And eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money. And they will cash out. And we will be paying higher taxes, we and our children, will be paying higher taxes so those people could have those bonuses. That’s not fair. It’s not acceptable. It’s not even good economics.”


Bank on America

Bank on this.

Bank on this.

 

Community-based movements to halt the flood of foreclosures have been building across the country. They turned out in Cleveland once again in October, when a coalition of grassroots housing groups rallied outside the Cuyahoga County courthouse, calling for a foreclosure freeze and constructing a mock graveyard of Styrofoam headstones bearing the names of local communities decimated by the housing crisis. (They did not, unfortunately, stop the more than 1,000 foreclosure filings in the county the following month.) In Boston the Neighborhood Assistance Corporation of America began protesting in front of Countrywide Financial offices in October 2007. Within weeks, Countrywide had agreed to work with the group to renegotiate loans. In Philadelphia ACORN and other community organizations helped to pressure the city council to order the county sheriff to halt foreclosure auctions this past March. Philadelphia has since implemented a program mandating “conciliation conferences” between defaulting homeowners and lenders. ACORN organizers say the program has a 78 percent success rate at keeping people in their homes. One activist group in Miami has taken a more direct approach to the crisis, housing homeless families in abandoned bank-owned homes without waiting for government permission.

It’s unlikely, though, that any of these activists will be able to relax soon. 

The Nation

 

When I was a lad, I ran off to San Francisco, like hippies from all over, to be free and unconventional and rid of the whole corporate America trip.

I ended up working at the Bank of America, thanks to a pink collar stoner chick who fudged my typing test.

While working at their headquarters, I learned about the proud heritage of the bank, which had rebuilt San Francisco in the early 20th century, in the wake of its great earthquake. 

Today, of course, bankers are universally regarded as monuments to heroic greed, spectacular corruption and epic incompetence–one short step above child molesters on the social scale. Adrift in their bubbles, intoxicated by their own emissions, only they remain unaware of this downward turn in public perception.

When a reporter for the AP politely asked them what they were doing with billions of dollars of the taxpayers’ bailout ransom, they sniffily replied to this effect: “Listen, you tawdry little man–we don’t give a fig about you and your shabby readers. We have parties to attend. Kindly pay up and shut up. Then find your way out.”

Men have short memories. It wasn’t so long ago in the long view of history that, faced with a similar situation, the rabble roused themselves in the streets of Paris and handed the nobility their heads. Good times.

Today, gun shops can’t keep up with demand.

Being a peaceful sort and averse to noise, I got to thinking that maybe it doesn’t have to come to bloodshed and armed insurrection.

Is it conceivable that bankers today are capable, if only in theory, of once again doing the right thing? Could they ever, even in an imagined world, earn their fat paychecks and lead us out of the mess that is largely their own creation? 

Trying to wrap my head around that wild notion, I am once again transported back to a more innocent era.

All across the nation

Such a strange vibration …

 

 

 


Letter to a friend

Here’s an item from today’s Washington Post that might interest you.

Sorry to hear you have to lay off people — that’s a hellish amount of stress on all sides. On the other hand, I’m glad it’s you and not some heartless bastard who will make the situation even worse and possibly cause the other party to go postal.

I look around me when I’m out running errands and I see lots of people whose faces are frozen masks of pain, anger and resentment. A reporter on a news program recently said how the people he interviews on the street are incensed at what’s been going on — and that the anger is beginning to turn to fear. Not good.

Entering “multiple robberies” on Google News returns pages and pages of results.

So, yes, you’re quite right about the possibility of a severe recession and that would be bad enough — add in all the effects of economic distress and … Well, you get the picture. Not to add to your troubles, but … forewarned is forearmed, right?

On the other hand, I’m mindful of the danger of self-fulfilling prophecies and of the fact that what happens tomorrow depends on what we do today.

As for me, I try to do everything I can to buck people up — including myself, ‘cuz it’s hard to be around people who are stressed out without absorbing some of their distress. Humor and kindness can work wonders, of course, as can helping people vent so that they can move past their anger toward problem-solving.

Do you know about all the networking sites like ecademy and LinkedIn? They’re among the oldest and the best of their kind — like Facebook, for adults, they can go a long way toward helping the unemployed find new opportunities and also alleviate social isolation, with all the problems that brings.

Anyway, those are my thoughts for the day. Please take good care of yourself, OK?

The social cont(r)act

Money is where the rubber of economic theory meets the road of mundane reality.

At once a tangible thing — be it paper, coins, checks, credit cards — money is also an abstraction, standing in for, representing all those goods and services we value.

Money is emblematic of the social contract — the often tacit arrangement whereby we live, the agreement we enter into as citizens of a nation, as members of a people, and made explicit in another, yet larger, set of abstractions which govern our lives, the law.

We are in the middle of a financial crisis and so these issues come to the fore.

Further urgency arises from the ongong environmental disasters that threaten to undo our civilization as a consequence of global warming.

The entire contract, I submit, is due to be renegotiated.

Like so many others around the world, I am deeply heartened by our recent election of a man who truly understands the magnitude of the problems before us.

As brilliantly capable as he clearly is, however, Obama is just one man and the issues before us are global in scale, requiring all who can to shoulder a share of the burden.

Having recognized the problems facing us, we have taken a crucial first step.

How best to proceed?

We need to put our heads together and pool our vast wealth of personal intelligence, talent, energy and expertise — and so achieve a consensus as to what our next steps must be.

So saying, I am offering a letter from an old friend whose wisdom I have often relied on, as a contribution to a truly planetary dialog already unfolding:

Yes, I am aware of the multiplier effect and I knew the use of statistics would be problematic for some, but I’ve always been an odd duck that likes to juxtapose emotional situations with empirical evidence and, conversely, “hard facts” with emotions.  Regardless, my point is that I don’t think governmental fiscal policy should be used in a surgical manner to fix an immediate problem without considering the whole economy and the long-term first.

If we decide the problem with our economy is basically ‘how do we get people and goods from Point A to Point B,’ why not factor in the whole of the transportation sector?  Wouldn’t a fiscal intervention program that is focused on a target model in (say) 30 years be more appropriate?  Then we can look at the mix of known transportation networks (water, land and air) to begin a more comprehensive project.  Regardless of how we feel about our auto industry (or France, its agricultural) maybe its time for an infusion of $50B into the light rail or steel industries instead.  I believe that Americans also have emotional investments in those areas of manufacturing as well.  Why fix the symptom before we have an opportunity to diagnose the disease?

On another note, I liked Clinton’s plan of somehow relaxing credit to allow more (marginal) families the opportunity to purchase homes in the late 1990’s; and Bush’s more deregulated banking, finance and insurance ideas, but the two didn’t work well in conjunction with one another.  In Clinton’s case many of the marginal new property owners were our best renters.  By removing the cream of the renters we undercut the small real estate investor.  As it became harder to find solid renters many middle class investors moved back into the financial markets creating an overvalued bubble effect which will right itself.  In Bush’s case the effective deregulation of the banking industry – through lax oversight, expansion of services offered by financial institutions and no push for stricter new regulations – allowed many to engage in “the bigger fool theory” that property values always rise.

Again, a longer term approach to what our objectives are might be helpful in aligning both fiscal and regulatory policy with the direction of the society.  I’m beginning to feel as though “free markets” need to be constrained in economic and market terms as “free will” is constrained in spiritual and social terms.

From my simple perspective I note that in the last twenty years I have operated small businesses (we now have 32 employees) our insurance (50% is health care, 75% including workers compensation insurance) has risen from .5% to 3.5% of gross sales and our banking and finance charges have risen from .25% to 2.75%.  On the national level health care has increased from 2% GDP to 15% GDP (not to be confused with health care insurance costs).  I can only assume that Americans value our health 7.5 times as much as the generation before this.  Are we willing to value it double within the next twenty years?  Oops, there are those statistics again.  At any rate, at what point do we stop looking for victims (sorry to you trial lawyers and malpractice insurance people) and start recognizing that we are mortal and that it is economically, socially and ethically detrimental to prolong life at every cost?  What does the “the bigger fool theory” look like in the health care industry?

Stop, you’re killing me

Letter to a friend:

As you have rightly intuited, the inflammatory politics is merely symptomatic of a larger crisis — the end of the time we know and the beginning of another — as presaged by war, famine, fire, flood and reality TV.

This just in:

NATIONAL (NBC ) – Does the financial crisis have you feeling stressed out? Well, you’re not alone.

A newly released survey by the American Psychological Association shows the declining economy is causing stress levels to skyrocket.

The annual report takes a look at the stress level of Americans, and this year, stress is on the rise.

As things get worse on Wall Street, it seems Americans are hitting the wall. They’re stressed out and letting it show.

Dr. Katherine Nordal, the Executive Director for Professional Practice, says they have “irritability, depression, sleeplessness, problems concentrating…”

A new survey by the American Psychological Association finds eight out of ten Americans say the economy is now a significant source of stress.

Almost half say their stress has increased in the past year and they are now increasingly worried about their ability to provide even their families basic needs.

Dr. Nordal says, “What we’re seeing is more and more people coming in because they are more stressed about financial situations, having homes foreclosed on.”

According to the survey, women are being hit the hardest, feeling more stress than men about money, the economy, job stability, housing costs and health problems.

Since I’m the canary in the coal mine when it comes to stress, I can tell you with an uncertain amount of authority that exercise, rest, vitamins, meditation, prayer, soothing music and talking things over with trusted friends are all terrific for smoothing you out. Humor, where appropriate, can also work wonders.

That said, the sheer numbers of wobbling blobs of bobbling blubber among us — I speak, of course, of our fellow Americans — tell us that not everyone “gets” this. We therefore have a lot on our plate. Not as much as them, but you see my point.

The foregoing does not cover all those who resort to drugs and alcohol, of course, who can be counted upon to spiral out into all sorts of lunacy, not all of them comical.

You can, again, mightily empower yourself, being such a good ear and wise counsel, by helping others at this time of crisis, always bearing in mind the final temptation.

Now is my way clear, now is the meaning plain:
Temptation shall not come in this kind again.
The last temptation is the greatest treason
To do the right deed for the wrong reason.

My love to you and the gang!

Our transcendent splendor,

Brian J. Flanagan