FedUpUSA

Archive for October, 2010

Did you ever think that things in America would get so bad that we would need to put armed guards into our unemployment offices?  Well, that is exactly what is happening in Indiana.  Armed security guards will now be posted at all 36 full-service unemployment offices in the state of Indiana.  So why is this happening now?  Well, Indiana Department of Workforce Development spokesman Marc Lotter says that the agency is bringing in the extra security in anticipation of an upcoming deadline when thousands upon thousands of Indiana residents could have their unemployment benefits cut off.  But it is not just the state of Indiana that could have a problem.  In fact, one recent study found that approximately 2 million Americans will lose their unemployment insurance benefits during this upcoming holiday season unless Congress authorizes another emergency extension of benefits by the end of November.  At this point, however, that is looking less and less likely.

So perhaps all the states will have to start putting armed security guards in their unemployment offices.  The truth is that frustration among unemployed Americans is growing by the day.

Could we soon see economic riots similar to what we have seen in Greece and France?

Let’s hope not.

The following is a video news report about the armed guards that are going into Indiana unemployment offices….

So could things really get out of hand when thousands of unemployed workers in Indiana find out that they aren’t going to get checks any longer?

Indiana Department of Workforce Development spokesman Marc Lotter makes it sound like that is very much on his mind….

“Given the upcoming expiration of the federal extensions and the increased stress on some of the unemployed, we thought added security would provide an extra level of protection for our employees and clients.”

So who is paying for all of this extra security?

The Feds of course.

The additional cost of the new security will be approximately $1 million, and it will be paid for with U.S. government funds designated for the administration of the unemployment system according to Lotter.

This is not a good trend.  As you go through your daily life, just start taking note of the places that now have armed security that did not have armed security five or ten years ago.

Unfortunately, as the U.S. economy goes downhill even further, the amount of security that people feel is “necessary” is likely to go up even more.

So is America going to become an armed camp where the people and institutions with money are protected by armed guards from the hordes of frustrated unemployed workers that can’t feed themselves or their families?

Americans are certainly not in a good mood about the economy.  According to a recent poll conducted by CNBC, 92 percent of Americans believe that the performance of the U.S. economy is either “fair” or “poor”.

The lack of jobs is the main thing that the American people are so mad about.  In fact, it is hard for even highly educated people to find work in 2010.  In America today, 317,000 waiters and waitresses have college degrees. 

People are really hurting and they are getting to the end of their ropes.  Over 41 million Americans are now on food stamps, and one out of every six Americans is enrolled in at least one federal anti-poverty program.  It is getting hard to believe that this is even America anymore.  For many more statistics that reveal the economic horror we are now facing as a nation, please see my previous article entitled ”30 Reasons Why People Should Be Getting Really Nervous About The State Of The U.S. Economy“.

But it is not just unemployment that is the problem.  In recent years, millions upon millions of Americans have been forced to take reduced hours or a cut in pay due to the economy.  Millions of others have had to take jobs that barely enable them to survive.  In fact, the number of Americans working part-time jobs “for economic reasons” is now the highest it has been in at least five decades.

So why aren’t there even close to enough jobs for everyone?  Well, there are a number of contributing factors, including the fact that we have been “offshoring” and “outsourcing” millions of our jobs and now it is really starting to catch up with us.  I have discussed this so many times now that I am starting to sound like a broken record.

But instead of fixing the fundamental problems with our economy, the Federal Reserve wants to print yet another gigantic pile of paper money and throw it at the problem.  It is called “quantitative easing“, and it may help smooth things over for a few months, but it is also going to make our long-term problems even worse.

Unfortunately, the Federal Reserve does not really seem concerned about protecting the value of the U.S. dollar at this point.  Not that they ever did, but it would be nice to see Fed officials paying at least some lip service to the dangers of inflation.

Instead, various Fed officials have been publicly making statements about the need for more quantitative easing for weeks.  Right now they seem desperate to put the American people back to work – even if it ends up crashing the value of the dollar.   

But now even the IMF seems supportive of a dollar devaluation.  On Thursday, the IMF actually said that the U.S. dollar is “overvalued” and that adjustments need to be made.

We’ll see what the Fed decides to do next week.  Most analysts believe that they will announce a quantitative easing program of some sort or another.

But what have we come to as a nation when those who control our economy believe that the best solution to our economic problems is to print another big pile of paper money and chuck it into the system?

We’ve got an absolutely gigantic economic mess on our hands, and none of our “leaders” seem to have any idea about how to fix it.

Meanwhile, millions of unemployed Americans are just going to become more and more frustrated – especially when it gets to the point when they aren’t receiving unemployment checks anymore.

The Economic Collapse

“It’s the DEBT, Stupid!”
We’re Doing Something About it! Come Join the Swarm!

The disappearing middle class in the United States is a troubling consequence of the culmination of economic and political policies of many decades.  There is a sense, and probably why so much frustration is out in the country, that the once comfortable life of being middle class is slowly slipping through our hands.  The American public senses something is amiss with the economic system and clearly is not happy.  When we look at income data from the Social Security Administration records, we realize that even in years that Americans have suffered greatly, the wealthiest in our country actually became a lot richer.  The jump is incredible and begs the question that in a year where millions lost their jobs and witnessed collapsing home values how was it possible for a few to make hundreds of millions of dollars and sometimes billions of dollars?  Let us first examine the income data for this elite group.

Social Security provides data on taxes paid by each income group.  This is a great way to view the cutoff points for many Americans.  The top bracket is reserved for those making $50 million a year or more:

Source:  Social Security Administration

I find the above data fascinating.  In 2008 we had 131 Americans earning $50 million or more and the average amount earned was $91 million.  In 2009 however the group shrank to 74 and the average was up to $518 million.  How someone could earn half a billion dollars in this economic calamity begs the question of how people are earning their money.  We know, that there are many hedge funds on Wall Street, many as opaque as night that makes money betting on the failure of U.S. economy.  A few well known hedge funders have come out with their giant bets on the subprime industry and made billions of dollars.  Yet this bet was not free or purely free market play.  On the other side of the bet, the companies and banks that should have failed were bailed out by taxpayers.  In other words, this was a rigged system that had a societal cost and those that won big really provided no service to the country.  In fact, they were the fuel that kept the housing bubble going longer and longer because someone was willing to bet on the failure of Americans.  Ironically it is the failed American public that is paying the big bet payoff.

The above chart is only one corner of our economy with major problems.  Many of the top earners in the U.S. now have little to do with producing anything of value.  Many are simply glorified gamblers and manipulators of government policy.  Think of the bailouts of Goldman Sachs through AIG.  This didn’t need to occur yet it cost taxpayers billions of dollars for this move.  The rich are getting richer but it is at the cost of the working and middle class.  It would be one thing if the economic pie was growing for everyone else.  It isn’t.  How so?  Just look at total wage compensation for the following years:

So overall, the amount subject to Federal income taxes in 2009 fell for the aggregate of the country yet shot up for the wealthiest in the country.  It would be one thing if this was increasing and was increasing across the middle class.  To the contrary, over the past decade wages for middle class families have remained stagnant and the latest Census data shows that the average median household income in the U.S. is $50,000 and that is a drop of $2,000 from the previous year.

The last time we saw this kind of income inequality was in the year that brought on the Great Depression.  Yet after the crash of 1929 the rampant embezzlement from Wall Street was reigned in to a certain degree.  Today, that massive fraud not only continues but rewards those at the top at the expense of all others.  American worker productivity has gone up over the last decade but wages have not.  Companies say they operate in a free market but they don’t.  China artificially keeps its currency low and U.S. policymakers complain but what can you do to your largest creditor that allows you to finance your new plutocracy?  The public is starting to follow the money and not the rhetoric.

Here is an interesting break down of where things have gone:

2009

Top 1 percent:                                                   Begins at incomes greater than $200,000

Total earnings share of all country:           14%

1989

Top 1 percent:                                                   Begins at incomes greater than $100,000

Total earnings share of all country:           11%

The above is crucial because it shows the growing plutocracy in the country.  I would go further back but the data on the Social Security site only goes to 1989.  If we go further back the inequality only grows.  The top 1 percent in 2009 earned 14 percent of all income (and this is only the income that is subject to Federal taxes but we know with the multitude of loopholes, not all is subject to pay or even that the government knows about).

Unless something is done to address the flaws in the system, we are going to see that the number one export provide by the United States is our middle class.

My Budget360

IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills. 

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program. 

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality. 

The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.” 

Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation. 

However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process. 

When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service. 

This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer. 

A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages. 

The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed. 

Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork. 

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges. 

As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world. 

Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee. 

The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan. 

That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy. 

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable. 

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee? 

There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort. 

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance. 

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

Yves Smith is the author of the blog Naked Capitalism and “Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism.”

It’s pretty simple, really.

Deliver this speech:

When you elect me this coming Tuesday, I make you one solemn pledge:

All who committed fraud over these last ten years will be investigated, prosecuted and jailed, starting with those who did the most damage.

This means I will spearhead calls for investigation of each and every bank and financial institution in America.

I will work tirelessly to have auditors go over each of these firm’s books and financial statements, and for each and every instance where someone was ripped off or bamboozled, we will refer that to a prosecutor.

Your home was never an ATM.  You were told it was.  You were lied to.  These lies were deliberate.  We have major financial institutions in this nation that have admitted, under oath, that by 2006 the majority of the loans they were giving out – to you, to your neighbor, to your friends – were fraudulent.  They knew you couldn’t pay and they didn’t care.  They refused to stop it, and they both made those loans and sold them to other people with the intent that you would lose your house.

Those other people were you – again – through the back door.  Your pension fund.  Your annuity.  Your retirement account. 

The American People were screwed not once but twice.  First, by hucksters claiming that your home price was really going up by 10, 20, 30% in a year, and that you should “tap that equity” to pay off your credit cards and maintain a lifestyle you could no longer afford – a shift that happened because we allowed our large corporations to offshore their labor to China, India and other places in Asia.

Then, a second time, when your pension funds were sold the garbage loans, packaged, sliced and diced into complex securities where the fact that they were making bad loans was intentionally hidden – victimizing you again.

The truth is that your home is worth no more today than it was in the mid 1990s, as the truth is also that on average, not including the Wall Street Bankers, you’re not making any more than you were in the mid 1990s.  Houses can’t go up in real value unless wages go up in real value.  It’s that simple.

Someone has to eat these losses.  They’re real.  We cannot paper them over forever.  We can either make the banks eat them, which will make those who did this go out of business, or we can make the American People eat them.

Foreclosuregate – the “robosigners” and other frauds being played out in our courts now – are nothing more than an attempt to hide what these banks and other institutions have done.  The argument that these are all “technicalities” is just another lie; the truth is that the original documents are not being produced because they would expose what really happened during the last ten years to scrutiny, and might bring civil and criminal charges upon the guilty.  As with Watergate, the true crime is being covered up with yet more crime, and you’re being told it’s “no big deal.”

Wall Street and Washington think you should “suck it up” and eat it, just as Richard Nixon thought you should in 1974.  Thus, we have 10% unemployment, we have 42 million people on food stamps, and real economic recovery is non-existent.  The Federal Government is borrowing 12% of our gross domestic output every year, and has been for the last three years, in a futile attempt to keep the truth from being recognized. 

While this may go on for a while longer, just as you can keep using your credit card after you’re laid off until the bank figures out that you will never pay them back, it cannot continue forever.

We can either face the facts and force those who committed these acts to bear the consequences, or we can continue on the path we are on today.

If we face reality there will be short-term pain in the economy for everyone.  But within a short period of time – a year or two – our nation will recover and rebuild. Atop the ashes of the old businesses that go bankrupt entrepreneurs will build new businesses.  New banks, with no bad loans, will rise where the old, bankrupt banks once were, and unburdened with fraudulent lending that they’re trying to cover up, your cost of borrowing will come down.  Freed from the hidden taxes and costs that these bankrupt institutions and Washington impose on you, businesses will be started and grow.  Interest rates will normalize and once again savers and retirees will be able to earn a fair and safe income.

If we choose to continue to deny reality then one of two outcomes will occur.  The first possibility is that the Federal Government may find it impossible to continue to borrow 12% of our domestic output – over $1.4 trillion a year – we will be faced with what is called a “sudden stop.”  The federal budget will have to be cut by more than 50% immediately – with no warning.  Social Security, Medicare, Medicaid and Welfare will collapse.  Your benefit checks will stop coming.  Nearly half of America currently receives some sort of federal assistance - that will cease with virtually no warning.  If this comes to pass there is a very real possibility of civil unrest or worse, as a quarter or more of the nation will suddenly find itself homeless, hungry and jobless.

The second possibility is worse: Ben Bernanke and The Fed will continue to play games with “Quantitative Easing.”  This is nothing more than a fancy way of saying “print money.”  But that is the same thing as taking the $20 in your wallet, cutting it in half with a pair of scissors, and then claiming that you have two $20 bills because you now have two pieces of paper.  Prices will of course go up to reflect what you really have done, whether the government admits to “inflation” or not. 

You are already seeing some of the latter happening.  Social Security recipients will get no cost-of-living increase for the second year in a row this coming January.  Yet prices have been rising at the grocery store, often masked by making packages smaller.  Corn, Wheat, Oats, Soybeans and Rice have all doubled in price – or more – over the last two years.  Oil is near $80 despite actual demand for fuel being down more than 10% from the peak consumption registered before the stock market and economic collapse in 2007.  Companies like Kimberly-Clark, the maker of toilet paper and other necessities, have said they are seeing cost pressures greater than any other time in their corporate history – including the 1970s when inflation was in double digits.  Because it takes time for prices to move through the chain of supply to the products on the shelf in your grocery store, typically six months to a year or more, by the time you see the price changes it will be too to do anything about it.  A quarter of Americans will soon be severely impoverished and some will even find themselves unable to afford enough food to eat and fuel to keep warm in the winter.  Finally, ten years from now, when you retire, your pension fund will be bankrupt and you will get nothing, because the “exceptionally low for an extended period” interest rates will have prevented that fund from earning the money it needs to pay your pension.

The choice is yours America.  You can vote for the “status quo” – those who claim that it will all be ok and we’ll “work through this” – that we should “move on.”  But if you do that, you are voting to give a pass to those people who caused this collapse.  You are voting to allow them to keep their Porches, their fancy homes in The Hamptons and their Yachts – all of which they got by stealing from you, the common man and woman in this nation.  They will, if you allow it, continue to steal – and in doing so they will make you more poor by continuing with the same sort of scams they pulled in the 1990s with the Internet Bubble and then again in the Housing Bubble.

Or you can vote for true change.  You can vote for locking up all the brigands and thieves.  You can vote for deposing Ben Bernanke and returning to a sound monetary policy.  You can vote for home prices – and everything else in America – returning to affordable levels.  You can vote for penalizing those firms and individuals who orchestrated this mess – and who profited massively from it, while the rest of America got screwed.

The vote for the status quo is a vote for your own destruction – with certainty – in a few years.  The vote for true change is a vote for temporary economic pain now, but justice for all Americans and, once that has happened, true economic recovery.

The choice is yours.

Will any candidate for office this coming Tuesday stand up?