Archive for October 6th, 2010

The following appears in Tuesday’s UK Guardian Newspaper.  Up until this point, I have been interviewed by Hong Kong newspapers, French newspapers and and Icelandic publication – but never a domestic news outlet.  So, what does that say about US media?  Thank you to Ed Pilkington for such an accurate reflection of our interview.

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How the Tea Party movement began

A tea bag protest on a web forum and a call to action from CNBC commentator Rick Santelli were the origins of the modern Tea Party movement

Rick Santelli of CNBC, who made an early call to action.

Photo: NBCUPHOTOBANK/Rex Features

Even before Barack Obama was inaugurated as president on 20 January 2009 the talk boards of several websites frequented by conservative voters were already humming with angry conversations about the global economic meltdown. Why were the banks being bailed out, correspondents wanted to know, why were billions of their tax money being spent on government programmes, what would happen to their children saddled by public debt?

One website that proved to be key in the inception was Market Ticker, an investment site run from Florida by Karl Denninger. “I saw everybody fawning over Obama with the inauguration and yet here he was appointing people like Larry Summer and Tim Geithner to his team who were all part of creating the problem,” he said.

Stephanie Jasky, a paralegal from Detroit, Michigan, was one of the angry voices that took part in the Market Ticker chats. She and her husband had a business fixing up and selling houses, and they were hit when the housing market collapsed.

“We were haemorrhaging money. I was looking for answers – I wanted to know what had happened. The more I looked the more it became clear to me that the problem was our government, that the government had become the criminal.”

The chat boards started to fill with calls to protest. But what was the best way to express anger?

Somebody on Market Ticker suggested posting tea bags to their elected representatives in Congress as a form of protest. Jasky immediately leapt on the idea.

“All these bailouts and stimulus packages, that was taking our money and spending it without our permission. Taxation without representation. We thought, didn’t that happen to us in the Revolutionary wars? Hello! Anyone remember King George?”

Jasky bought an economy box of tea bags and posted one to every member of Congress. Other people did too. The practice spread so much so that by the time that CNBC reporter Rick Santelli made his famous rant on 19 February 2009, he did so standing in front of Chicago traders who all had tea bags stuck to their computer screens and phone banks.

Should the tea party movement prove a lasting phenomenon, the Santelli rant will go down in history as one of its main birth pangs. While broadcasting from the floor of the Chicago Mercantile Exchange he accused the Obama administration of “promoting bad behaviour” and subsidising “losers’ mortgages”. His criticisms evoked a huge cheer from the traders behind him, particularly when he said: “We’re thinking of having a Chicago tea party in July, I’m thinking of organising it.”

The two-minute diatribe quickly went global. It was grabbed by Conservative campaigns such as FreedomWorks and aggressively promoted.

Angry voters began to respond to Santelli’s call and set up their own tea party groups linked loosely through the internet. It all happened with tremendous speed. Within 10 days of the rant, on 27 February, the first Tea Party rally was held in Washington, Chicago and other cities across the US.

The tea party phenomenon had been born.

The UKGuardian

Hoh hoh hoh….

This is big news. I just got off a conference call with Richard Cordray, the Attorney General for the state of Ohio. He has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous robo-signer who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as hundreds of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

That’s because it is a separate violation.

That’s north of $10 billion dollars, potentially, for GMAC/Ally alone.  In one state.

And by the way, he’s also calling it what it is: fraud upon the court.  That is, a crime.

There is a hidden bomb in here as well:

Now that has potential.  If MERS didn’t (and couldn’t) actually have the note….. who did?

Here comes the REMIC question!

One of the best parts of this suit’s filing is that it will make possible discovery, during which we’re likely to find out a whole lot about the origination practices of these firms, and exactly how, and if, they conveyed what was supposed to be conveyed – or if the entire securitization structure is a house of cards.

Go get ‘em.

Congressman Grayson: “Breaking and Entering Does Not Become Legal Just Because a Big Bank Does It. The Rule of Law Must Apply Equally to Everyone”

Congressman Alan Grayson’s office sent me the following statement by the Congressman on the rampant foreclosure fraud, and the unlawful breaking and entering into people’s homes by the banks:

First we see systemic fraud in the foreclosure process. Now we’re literally seeing banks breaking into people’s homes and terrifying homeowners. The big banks claim these confrontations are a result of innocent errors. Come on! How many times are we going to force a woman to cower in her bathroom for fifteen minutes and dial 911 while a man breaks into a home, before we do something about it?

Breaking and entering does not become legal just because a big bank does it. The rule of law must apply equally to everyone. It’s long past time to halt this blatantly illegal activity. We need investigation and law enforcement, not coddling of failed institutions. We need justice for all.

Conyers and Kilpatrick Demand Lenders Extend Housing Foreclosure Moratorium to Michigan; No More Foreclosures Until Fraudulent Paperwork is Resolved

From the office of: Fourteenth District, Michigan
Congressman John Conyers, Jr.
Chairman, House Judiciary Committee
Dean, Congressional Black Caucus

Press Release

Conyers and Kilpatrick Demand Lenders Extend Housing Foreclosure Moratorium to Michigan; No More Foreclosures Until Fraudulent Paperwork is Resolved

Contact: Nicole Triplett
202-226-5543

Washington, DC- Today, Congressman John Conyers, Jr. (MI-14) and Congresswoman Carolyn C. Kilpatrick (MI-13) called on lenders to extend their foreclosure moratorium to Michigan and other states and to cease administering foreclosures until the problem of fraudulent paperwork is resolved.

The revelation that large mortgage lenders may have been evicting families from their homes based on flawed and erroneous documentation is no small matter. These lenders may have presented false affidavits – that is, sworn legal testimony – in thousands of cases fraudulently stating that a homeowner was in default or that the lender had the legal right to foreclose on the property, without the proper verification of the facts asserted in those affidavits. Moreover, the admission by these lenders of inaccurate documentation raises broader questions about whether they are proceeding with foreclosures in non-judicial foreclosure states based on faulty documentation or information. It is crucial that these lenders are held accountable.

Michigan is among the hardest-hit foreclosure states in the Nation. In August 2010, the state’s foreclosure rate increased 128% over August 2009 and it remains among the top five states in the Nation in foreclosure totals. Michigan’s foreclosure rate rose 29% in the first half of 2010 over the first half of 2009. Metropolitan Detroit showed an increase of 35% during that same time period, rising to the highest level since 2007. In July 2010 alone, 1 in 241 housing units in Michigan received a foreclosure filing. In Wayne County, the number was 1 in every 158.

In response to numerous recent reports of false foreclosure affidavits and other apparently fraudulent activities by home mortgage lenders, Reps. Conyers and Kilpatrick, today, sought the following actions:

· Lenders should extend moratoriums on home foreclosures to all states, including Michigan, rather than just those states with judicially supervised foreclosures.

· Lenders that have initiated moratoriums should insure that they actually prevent foreclosures rather than just evictions subsequent to foreclosures.

· The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, thereby controlling a major portion of mortgages subject to foreclosure in the U.S., should review its procedures for proper compliance and also consider initiating a foreclosure moratoriumAt the same time, Conyers announced plans to investigate mortgage lenders to learn more about their foreclosure practices, including paperwork violations and false affidavits, and ascertain what can be done to protect homeowners from possible abuses. As part of this effort, Conyers is asking the Federal Housing Finance Agency – the federal agency charged with overseeing Fannie Mae and Freddie Mac – to ensure that they abide by the law, to consider initiating a moratorium, and to conduct an audit of their actions. In addition, Conyers will be calling upon the DOJ’s Executive Office for U.S. Trustees to investigate the extent to which false affidavits have been filed in bankruptcy cases by lenders seeking to foreclose on debtor’s homes.

Thus far, only three lenders – Ally Financial (parent of GMAC Mortgage), Bank of America, and JP Morgan Chase – have ceased post-foreclosure enforcement actions in 23 states that have court- controlled foreclosure proceedings: Connecticut, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin. Even those lenders appear to have only ceased evictions, while they continue to engage in foreclosures, which take title from homeowners.

At this point Michigan and 26 other states are not on the moratorium list for these lenders, purportedly because they have a non-judicial foreclosure process. However, without judicial oversight, the possibility of abuse can be even greater in these states. As a result, elected state officials in non-judicial foreclosure states such as California, Colorado, Texas, Massachusetts, and Maryland have recently asked lenders to suspend their foreclosures.

Widespread concern about documentation abuses in the mortgage industry is not limited to state officials. Yesterday, House Speaker Nancy Pelosi and other members of the California congressional delegation called on the Justice Department, the Treasury Department, and the Federal Reserve to investigate large mortgage lenders’ handling of delinquent mortgages, mortgage modifications, and foreclosures. Additionally, Senators Robert Menendez (NJ) and Al Franken (MN) called on the Government Accountability Office to investigate the role of federal government entities charged with overseeing the mortgage lending industry to determine how they allowed lenders’ misconduct to occur without detection for so long. Also, Members of Congress from Maryland and Arizona – two non-judicial foreclosure states – called on large lenders to halt foreclosures in their states.

“It makes little sense to limit the moratoriums to judicial foreclosure states when many of the same errors and paperwork flaws likely plague non-foreclosure states,” said Conyers. “When the very same lenders that ignored the rules which helped get us into the real estate bubble are placed in charge of the foreclosures that are exacerbating the problem, locking millions of Americans in a financial trap they cannot escape from, we have a situation that is spiraling out of control and cries out for intervention.”

“Given the depth of the financial calamity in Michigan and other states, the huge number of foreclosures, and the chain reaction of problems involving foreclosures that has impacted communities and individuals, I would urge home mortgage lenders to cease their foreclosure activities,” said Conyers. “Rather than spending their time running mass production foreclosure mills, the lenders should be working with individuals to keep families in their homes and restructure their loans.”

“Home foreclosures affect individual families and devastate entire communities,” said Congresswoman Kilpatrick. “For home foreclosures to proceed under false pretenses is patently unwarranted and unfair. I am proud to join one of the founders of the CBC and Chairman of the House Judiciary Committee in this clarion call for justice, fairness, and equality to Michiganders and all Americans.”

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Can anyone explain the very strange behavior that we are seeing in world financial markets right now?  Corporate insiders are bailing out of the U.S. stock market at a very alarming rate.  Investors are moving mountains of money into gold and other commodities.  In fact, there is such a rush towards gold that shortages are starting to be reported in some areas.  Meanwhile, some very, very unusual option activity has started to show up.  In particular, someone is making some incredibly large bets that the S&P 500 is going to absolutely tank during the month of October.  Central banks around the world have caught a case of “loose money fever” and are apparently hoping that a new flood of paper money will shock the global economy back to life.  Meanwhile, the furor over the foreclosure procedure abuses of the major U.S mortgage companies threatens to bring even more turmoil to the U.S. housing industry.

There are some very ominous signs that something is just not right in world financial markets right now.  Some of the signs listed below may be related.  Others may not be.  That is for you to decide.

Often, just before something really bad happens, you can actually see the rats leaving a sinking ship if you know where to look.  The truth is that if things are going to go south it is the insiders who know before anyone else.

So are some of the signs below actually clues for what we should expect in the months ahead?

Maybe.

Maybe not.

You make your own call.

But it is becoming hard to deny that there are some serious danger signs out there at this point….    

#1 Corporate insiders are getting out of the U.S. stock market at an absolutely blinding pace.  It is being reported that the ratio of corporate insider selling to corporate insider buying last week was 1,411 to 1, and this week the ratio has soared even higher and is at 2,341 to 1.

#2 Many of the world’s wealthiest people are buying absolutely massive quantities of gold right now.

#3 It is being reported that J.P. Morgan is gobbling up the rights to as much physical gold as it possibly can.

#4 The United States Mint has announced that it has run out of 1-ounce, 24-karat American Buffalo gold bullion coins and that it will not be selling any more of them in 2010.

#5 It is becoming increasingly difficult to explain the unusually high option volume that we are witnessing right now.

#6 Some very large investors are making massive bets that the S&P 500 is going to take a serious tumble during the month of October.

#7 On Tuesday, the Bank of Japan shocked world financial markets by cutting interest rates even closer to zero and by setting up a 5 trillion yen quantitative easing fund.

#8 The president of the Federal Reserve Bank of New York and the president of the Federal Reserve Bank of Chicago are both publicly urging the Fed to do much more to stimulate the U.S. economy, including beginning a new round of quantitative easing, even if it means a significant rise in the U.S. inflation rate.

#9 Nobel Prize-winning economist Joseph Stiglitz told reporters on Tuesday that the loose monetary policies of the Federal Reserve and the European Central Bank are throwing the world into “chaos”.

#10 At the end of September, federal regulators announced a $30 billion bailout of the U.S. wholesale credit union system.

#11 Bank of America, JPMorgan Chase and GMAC Mortgage have all suspended foreclosures in many U.S. states due to serious concerns about foreclosure procedures.  Now, Texas Attorney General Greg Abbott is actually demanding that all mortgage servicing companies in the state of Texas immediately suspend all foreclosures, the selling of foreclosed properties and the eviction of people living in foreclosed properties until they have completed a review of their foreclosure procedures.

#12 Not only that, but Nancy Pelosi and 30 other members of Congress are requesting a federal investigation of the foreclosure practices of U.S. mortgage lenders.  Needless to say, this controversy has the potential to turn the entire U.S. mortgage industry into an absolute quagmire.

So are dark days ahead for world financial markets?

Well, yeah, but it is incredibly hard to predict exactly when things are going to fall apart.

The truth is that there are going to be a whole lot more “crashes” and “collapses” in the years ahead.

The important thing, as discussed yesterday, is to keep your eye on the long-term trends.

The U.S. economy is undeniably in decline.  The only thing keeping the economy going at this point is a rapidly growing sea of red ink.  Debt is literally everywhere.  It is what our entire financial system is based on in 2010. 

In the months and years to come, the major players are going to try very hard to keep all the balls in the air and to continue the massive shell game that is going on, but in the end the whole thing is going to collapse like a house of cards.

Unfortunately, we have been destroying the U.S. economy for decades and there is simply not going to be a happy ending to this story.

The Economic Collapse

Is it possible to live a middle class lifestyle in America with a household income of $50,000?  The recent Census survey puts the median household income at $50,000 for American households.  So technically speaking, this is the middle class.  Yet what we think of a middle class lifestyle including affordable public colleges, accessible healthcare, and affordable housing keeps getting further out of reach for most Americans.  Part of this has to do with the slow systematic destruction of the U.S. dollar.  Most in the public did not notice this shift since it has occurred in very slow methodical stages.  We can find the first roots of this reversal of fortune in the 1970s but the latest credit bubble has really highlighted the struggle for most middle class Americans.  Owning a home with no equity is renting with a massive debt liability.  Most articles don’t make the attempt to run the budget for a household at this level.  With new Census data I wanted to run the household numbers for a hypothetical family living in California.

43 percent of all California families live on $50,000 or less compared to 50 percent nationwide.  Let us take a look at what $50,000 buys a family over one year in the Golden State:

Source:  Census data, average costs via BLS

Right off the top 21 percent goes to various forms of taxes including Social Security, Federal taxes, and state taxes.  The monthly gross income of $4,167 is lowered to $3,287 once the check arrives in the family’s bank account.  In California with a median home price of $318,000 according to the California Association of Realtors, there is no way this family can even think about buying a home.  We are using market rents for apartments in many areas.  $1,350 will get you a two bedroom apartment which is sufficient for a married couple with no kids.  Before we examine the expenses here, it is important to note that the reason $50,000 doesn’t go so far anymore is because the U.S. Treasury and Federal Reserve have embarked on a trajectory to push the value of the dollar lower:

The dollar has lost nearly 30 percent of its value in the last decade (it gets worse if we go even further back).  This is a hidden tax to most American families here.  Let us now explore the expenses by area.

Utilities

In terms of utilities, most apartments run fairly lean here (temperatures don’t fluctuate much here).  Gas shouldn’t cost you more than $25 per month (we’re looking at an apartment under 1,000 square feet here).  For electric, $50 a month should be sufficient to power your typical modern day gadgetry.  For phones, I’m using pre-paid phones from Virgin Mobile which can save you a tremendous amounts of money.  You’ll be surprised how cheap these are.  I know a handful of friends who don’t even make $50,000 a year yet spend $99 or more a month just to have a Smart Phone.  Many people with these phones spend a bulk of their time updating Facebook and Twitter.  Maybe I’m old fashioned here but I just see it more bottom line.  You can save $1,000 a year just in this area.

The next important saving item is getting Naked DSL with no phone or cable service.  Many times these things come bundled and run up to $100 per month.  With Naked DSL, you can get a solid internet connection for $38.99 a month.  Plus, many of your cable shows are now available on the web via Hulu or directly from their sites.

Automobile Coverage

For auto insurance we are going purely with liability coverage here.  We are assuming you have a paid off car here.  Ideally an efficient car and no gas guzzlers.  We are assuming that you have a car that gets you at least 25 miles per gallon.  We’ll allocate $150 per month for gas here.  That should get you:

$150 / $3 per gallon = 50 gallons x 25 = 1,250 miles per month you can drive

This fits right in line with federal data that shows the average mileage driven per year is 15,000 miles.  This is an area where I see many young people messing up on.  They get their first job and all of a sudden they have a 5 to 6 year monthly payment of $350 to $400.  Of course, your insurance has to be comprehensive and this adds a bill of $200 or more a month.  So run the numbers here; you go from spending $75 a month on insurance with a paid off car (maybe not the nicest thing on the road) to spending $200 on insurance and a $400 car payment.  This can be a monthly savings of $500 (or $6,000 per year) here.

Food

We’re allocating $500 per month for a couple here.  If you shop at local regional markets you will find great deals.  Heck, if you wanted to go on the extreme cheap Costco is now selling a survival package of food for one year for $800 (for each person so $1,600 for two people).

“Full package includes:

The THRIVE 1 Year Food Supply comes complete with 84 #10 (gallon size) cans of grains, fruits, veggies, protein & beans, dairy, and baking essentials. With over 5,000 servings and many foods with a shelf life of up to 25 years, this package will give you variety, nutrition, and peace of mind.

* 12 month food supply for 1 Person

* 6 month food supply for 2 People

* 3 month food supply for 4 People

* Shipment arrives in 14 separate boxes

* Grains and rice have a shelf life of up to 30 years

* Freeze-dried foods have a shelf life of up to 25 years

* Dehydrated foods have a shelf life of up to 15 years

* Simple rehydration instructions, recipes, and helpful tips are included on each can

* 5,011 total servings

* 84 gallon-sized cans”

But we’ll assume that you still shop at the store.  $500 should be enough for a couple if they cook and manage their provisions correctly.  We’re also throwing in $20 a month for the occasional fast food run just in case that occurs.

Entertainment

We’re throwing in $100 per month for entertainment.  With this, you can find a membership at a local park gym and use Netflix for movies.  Thankfully, this should keep you covered and overall the best healthcare prevention is taking care of your body.  Consider the gym membership as part of your healthcare budget (you need it because the $300 coverage you have is barebones).  For haircuts, sorry folks, you need to go on the cheap here.  I realize that many women spend a lot more here but that will have to come from somewhere else in the budget.

Healthcare

For healthcare coverage, a healthy couple in their 30s will be paying $300 a month.  This is basic coverage with relatively high deductibles.  You can go cheaper but then you are likely to have nothing backing you up for catastrophes and many hidden clauses.

Emergency Fund

Ideally you should have 6 months of expenses saved up here.  But as you can see with this, monthly expenses are getting over $3,000 already so this would mean a total fund of $36,000.  At savings of $250 per month it will take 120 months (10 years) to even get to this point.  We are only setting aside $125 into a retirement account since the stock market is incredibly volatile right now with no actual reform so it is still operating like a casino.  So it may just be best to plow money away into your retirement account first.

Now I know many will have opinions and ideas about the budget above.  But I think when many throw out the word middle class lifestyle the above is not thing they envision in their mind.  Where are the funds for a college education?  What about a major health illness?  There is no way someone will buy a home with the above in California (possibly in another state but this will stretch the budget).  Keep in mind the median $50,000 household income includes the highest percentage of two income households in history as well.  So you have more workers working for less in dollar terms.  The stress many are feeling is the weakness of the dollar brought on by poor banking policies over the decades.

I hope the above budget provides a general idea of where the $50,000 a year is going.

My Budget360