Archive for February, 2011
I write to contrast four recent stories about Countrywide. Here are their headlines and brief synopses provided in the initial paragraphs of the stories.
U.S. drops criminal probe of former Countrywide chief Angelo Mozilo
Mozilo’s actions in the mortgage meltdown — which led to $67.5-million settlement against him — did not amount to criminal wrongdoing, federal prosecutors have determined.
By E. Scott Reckard, Los Angeles Times
4:11 PM PST, February 18, 2011
“Federal prosecutors have shelved a criminal investigation of Angelo R. Mozilo after determining that his actions in the mortgage meltdown — which led to $67.5-million settlement against him — did not amount to criminal wrongdoing.”
Judge OKs Countrywide settlement but big investors opt out
Institutional investors including CalPERS say the Countrywide settlement amount is too little.
By E. Scott Reckard, Los Angeles Times
February 26, 2011
“Major investors opting out of a $624-million class-action settlement with Countrywide Financial Corp. said they would have recouped less than 5% of their losses on the mortgage lender’s stock had they accepted the agreement.
“A settlement on behalf of my clients would have to be a material multiple of that amount,” said Blair Nicholas of San Diego, a lawyer for the California Public Employees’ Retirement System and 15 other institutional investors. Altogether, 33 institutional investors have opted out.
The agreement was approved Friday by U.S. District Judge Mariana Pfaelzer in Los Angeles, who described the settlement as reasonable and substantial given the complexities of the case and the uncertainties of what a jury might decide.
It requires Countrywide and its parent company, Bank of America Corp., to provide $600 million for former Countrywide shareholders remaining in the case. The lender’s outside accounting firm, KPMG, added $24 million.
Countrywide and Bank of America, which bought the Calabasas mortgage lender as it skirted bankruptcy in 2008, contended the near-collapse and the investors’ losses were the unforeseeable result of the broader financial crisis. BofA acquired Countrywide, whose stock was once valued at $25 billion, for $2.5 billion in BofA stock.
The lawsuits contended that Countrywide, once America’s biggest home lender, fraudulently concealed its mounting risks as it loosened lending standards to build its market share during the housing boom.”
How a Whistle-Blower Conquered Countrywide
By GRETCHEN MORGENSON
“Michael G. Winston, a former executive at the Countrywide Financial Corporation. Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages.
Mr. Winston’s story provides a glimpse into how business was done at Countrywide at the height of the subprime craziness — and how assiduously Angelo R. Mozilo, the company’s fallen leader, worked to quash dissent in the ranks. Mr. Winston had the audacity to question Countrywide practices. Mr. Mozilo was not pleased and, before long, Mr. Winston was marginalized and later dismissed.”
October 15, 2010
Lending Magnate Settles Fraud Case
By GRETCHEN MORGENSON
“Angelo R. Mozilo, the former chief executive of Countrywide Financial, once the nation’s largest mortgage lender, agreed to pay $67.5 million on Friday to settle a civil fraud case brought by the Securities and Exchange Commission last year.
Countrywide itself is paying $20 million of Mr. Mozilo’s $67.5 million payment as part of an indemnification agreement he has with the company.”
Here are the key analytical points that emerge from these articles:
1) The SEC and a host of institutional investors and States have sued Countrywide’s senior officials, Countrywide, and its successor (Bank of America) alleging civil fraud. The burden of persuasion is greater in a criminal fraud case (“beyond a reasonable doubt” instead of a “preponderance of the evidence”), but the factual elements that the civil litigants and the prosecutor must prove are the same (e.g., deceit). Indeed, civil fraud must be pleaded with particularity and supporting evidence to survive a motion to dismiss.
2) It is inconceivable that Countrywide engaged in widespread accounting and securities fraud without Angelo Mozilo’s knowledge and acquiescence – which would make him criminally liable for the fraud.
3) Therefore, if the news reports are correct that the Justice Department concluded that Mozilo’s conduct was not fraudulent, then the Justice Department has purportedly found after investigation that Countrywide did not engage in accounting or securities fraud and the SEC suit and related civil suits are baseless.
4) The SEC, States, and institutional investors have conducted their own investigations and believe that they have documented widespread accounting and securities fraud by Countrywide’s senior managers.
5) The successful action by the whistleblower, Michael G. Winston, is consistent with the existence of control fraud at Countrywide.
6) The Department of Justice should either explain to the SEC and the other civil plaintiffs why their civil suits against Mozilo, Countrywide, and Bank of America are baseless because of some unique facts known only to the Department of Justice that establish that the senior managers did not act fraudulently or, if there are no such unique facts known to the Department of Justice but not to the plaintiffs, the Department should prosecute the frauds of Countrywide’s senior managers based on the widespread fraud documented by multiple investigations by the plaintiffs.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
U.S. Treasury Secretary Timothy Geithner told the Senate Finance Committee Feb. 15 that Congress should “revisit” long- standing rules that give businesses a choice of paying taxes as a corporation or through a structure such as a partnership through which they can report business income on individual tax returns.
That’s right – double-taxation is coming here, if Timmae has his way.
Well, here’s my response Turbo: This is one small business that will close the afternoon you do that.
“It strikes me that Secretary Geithner’s proposal to potentially force businesses to be taxed as corporations runs contrary to the administration’s objectives,” he said. “Most small to mid-sized businesses in the U.S. are structured as pass-through entities in order to avoid double taxation.”
Exactly. That’s why Cuda is a single-member LLC. Double-taxation at a 35% rate is outrageous; it results in a total federal income tax rate of about 57%. Add the ~15% in FICA and Medicare to that and I have a marginal tax rate over 60%. I won’t work at all if I only get to keep 36% of my money.
Here’s the math:
$100,000 gross $15,000 FICA/Medicare $29,750 Corporate Income Tax (35%) $19,338 Personal Income Tax (35%) ======== $35,912 Actual Income left, or 36% of what you made
Get taxed twice? No, I won’t. I don’t have to produce. And if you drive the marginal federal income rate to 57%, I will choose to sit on my ass instead. It’s not worth working when I only get to keep 36% of what I earn. I will choose instead to earn zero and become a leech.
You already steal nearly half of my money; stealing even more will result in your getting zero and the economy getting zero.
As such your tax revenues will go down if you make this change.
Go ahead and do it Turbo – given that small business creates most of the jobs in this country, that change will cause the economy and federal revenues to collapse.
Global Economy? 23 Facts Which Prove That Globalism Is Pushing The Standard Of Living Of The Middle Class Down To Third World Levels
From now on, whenever you hear the term “the global economy” you should immediately equate it with the destruction of the U.S. middle class. Over the past several decades, the American economy has been slowly but surely merged into the emerging one world economic system. Unfortunately for the middle class, much of the rest of the world does not have the same minimum wage laws and worker protections that we do. Therefore, the massive global corporations that now dominate our economy are able to pay workers in other countries slave labor wages and import the products that they make into the United States to compete with products made by “expensive” American workers. This has resulted in a mass exodus of manufacturing facilities and jobs from the United States.
But without good, high paying jobs the U.S. middle class cannot continue to be the U.S middle class. The only thing that the vast majority of Americans have to offer in the economic marketplace is their labor. Sadly, that labor has now been dramatically devalued. American workers now must directly compete for jobs with millions upon millions of workers on the other side of the world that toil away for 15 hours a day at slave labor wages. This is causing jobs to leave the United States at an almost unbelievable rate, and it is putting tremendous downward pressure on the wages of millions of jobs that are still in the United States.
So when you hear terms such as “globalization” and “the global economy”, it is important to keep in mind that those are code words for the emerging one world economic system that is systematically wiping out the U.S. middle class.
A one world labor pool means that the standard of living for the U.S. middle class will continue falling toward the standard of living in the third world.
We keep hearing about how the U.S. economy is being transformed from a “manufacturing economy” into a “service economy”. But “service jobs” are generally much lower paying than “manufacturing jobs”. The number of good paying “middle class jobs” in the United States is rapidly decreasing. So how can the U.S. middle class survive in such an environment?
What makes things even worse for manufacturers in the United States is that other nations often impose a “value-added tax” of 20 percent or more on U.S. goods entering their shores and yet most of the time we do not reciprocate with similar taxes.
But whenever someone mentions how incredibly unfair and unbalanced our trade agreements with other nations are, they are immediately labeled as a “protectionist”.
Well, someone should be looking out for U.S. interests when it comes to trade, because the current state of the global economy is ripping the U.S. middle class to shreds.
Right now, the United States consumes far more wealth than it produces. This nation buys much, much more from the rest of the world than they buy from us. This is called a “trade deficit”, and it is one of the most important economic statistics. The U.S. runs a massive trade deficit every single year, and it is wiping out our national wealth, it is destroying our surviving industries and it is absolutely shredding middle class America.
We cannot allow tens of thousands of factories to continue to leave the United States. We cannot allow millions of jobs to continue to be “outsourced” and “offshored”. We cannot allow tens of billions of dollars of our national wealth to continue to be transferred into foreign hands every single month.
The truth is that the global economy is bad for America. The following are 23 facts which prove that globalism is pushing the standard of living of the middle class down to third world levels….
#1 From December 2000 to December 2010, the U.S. ran a total trade deficit of 6.1 trillion dollars.
#2 The U.S. trade deficit was about 33 percent larger in 2010 than it was in 2009.
#3 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.
#4 The U.S. economy is rapidly trading high wage jobs for low wage jobs. According to a new report from the National Employment Law Project, higher wage industries accounted for 40 percent of the job losses over the past 12 months but only 14 percent of the job growth. Lower wage industries accounted for just 23 percent of the job losses over the past 12 months and a whopping 49 percent of the job growth.
#5 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.
#6 In Germany, exports account for approximately 40 percent of GDP. In China, exports account for approximately 30 percent of GDP. In the United States, exports account for approximately 13 percent of GDP.
#7 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.
#8 In 2010, South Korea exported 12 times as many automobiles, trucks and parts to us as we exported to them.
#9 The U.S. economy now has 10 percent fewer “middle class jobs” than it did just ten years ago.
#10 The United States currently has 7.7 million fewer payroll jobs than it did back in December 2007.
#11 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs.
#12 In 2002, the United States had a trade deficit in “advanced technology products” of $16 billion with the rest of the world. In 2010, that number skyrocketed to $82 billion.
#13 The United States now spends more than 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.
#14 In China, working conditions are so bad that large numbers of “employees” regularly try to commit suicide. One major employer, Foxconn, has even gone so far as to install “anti-suicide nets” in an attempt to keep their employees from jumping off of their buildings.
#15 Wages for workers in China are incredibly low. For example, one facility in the city of Longhua that makes iPods employs approximately 200,000 workers. These workers put in endless 15-hour days but they only make about $50 per month.
#16 In Bangladesh, manufacturing workers toil in absolutely horrific conditions and make an average of about $38 per month.
#17 In Vietnam, teenage workers often work seven days a week for as little as 6 cents an hour making promotional Disney toys for McDonald’s.
#18 Since 2001, over 42,000 manufacturing facilities in the United States have been closed.
#19 Half of all American workers now earn $505 or less per week.
#20 In the United States today, 6.2 million Americans have been out of work for 6 months of longer.
#21 8.4 million Americans are currently working part-time jobs for “economic reasons”. These jobs are mostly very low paying service jobs.
#22 When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.
#23 According to Willem Buiter, the chief economist at Citigroup, China will be the largest economy in the world by the year 2020, and India will surpass China by the year 2050.
Those that promote “free trade” can never explain how the U.S. middle class is going to continue to have plenty of jobs in the new global economy.
By merging our labor pool with the rest of the world, we have also merged our standard of living with the rest of the world. High unemployment is rapidly becoming “the new normal” in America, and wages are going to continue to decline in many, many industries.
Already, there are quite a few formerly great U.S. cities (such as Detroit) that are beginning to resemble third world hellholes. If something is not done about our massive trade imbalance, even more cities are going to follow Detroit into oblivion.
Unfortunately, most of our politicians continue to insist that globalism is good for our society. They continue to insist that we should not be worried that jobs formerly done by middle class American workers are now being done by slave laborers on the other side of the globe. They continue to insist that having 43 million Americans on food stamps is a temporary thing and that soon our economy will be better than ever.
Well, it is time to stop listening to the politicians that are promoting “the global economy”. They are lying to us.
Globalism is great for nations such as China and it is helping multinational corporations make huge profits, but for the U.S. middle class it is an economic death sentence.
If you want an America where there are less jobs, where more Americans are on food stamps and other anti-poverty programs and where our cities continue to be transformed into deindustrialized hellholes, then you should strongly support the emerging global economy.
But if you care about the standard of living of the U.S. middle class and you want for there to be some kind of viable economic future for your children and your grandchildren then you had better start caring about these issues and doing something about them.
Please wake up America.
Personal income increased $133.2 billion, or 1.0 percent, and disposable personal income (DPI)
increased $78.3 billion, or 0.7 percent, in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $23.7 billion, or 0.2 percent. In December, personal income increased $56.6 billion, or 0.4 percent, DPI increased $48.5 billion, or 0.4 percent, and PCE increased $56.5 billion, or 0.5 percent, based on revised estimates.
The problem is that this didn’t come from actual earnings:
Contributions for government social insurance — a subtraction in calculating personal income — decreased $94.9 billion in January, in contrast to an increase of $2.5 billion in December.
That’s the 2% decrease (temporary, right? Bahahaha) in FICA taxes. And it was most of the “increase” in income. There was an offset in unemployment insurance costs, but this was where most of the “gains” came from.
What’s disturbing through is that this “gain” didn’t pass through to spending. In fact, ex-inflation spending actually dropped.
Personal outlays — PCE, personal interest payments, and personal current transfer payments — increased $22.1 billion in January, compared with an increase of $54.4 billion in December. PCE increased $23.7 billion, compared with an increase of $56.5 billion.
So spending increased by far less than it did in December. Hmmm….. looks like that “tax decrease” didn’t go anywhere – it simply offset higher food and gasoline prices, effectively shifting that inflation onto the Federal balance sheet in the form of more debt.
That’s not going to work in the intermediate term.
Real PCE — PCE adjusted to remove price changes — decreased 0.1 percent in January, in contrast to an increase of 0.3 percent in December.
Have you ever heard of mob robberies? What happens is that dozens of young people storm a store at the same time, take whatever they want, and then storm out as powerless store clerks watch helplessly. Most of the time these “mob robbers” end up getting caught, but unfortunately “group crime” is a trend that is rising. Is it a sign of the times that large groups of people are starting to recklessly invade retail establishments? Is this the future of America? As I have written about so frequently, the U.S. middle class is being destroyed by this economy and large numbers of our young people are losing hope. Frustration and anger are rising from coast to coast and millions of Americans are losing faith in the system. The thin veneer of civilization which we all take for granted is already starting to disappear. So what is going to happen when the economy collapses? As our economic system fails, mob robberies and rampant looting are only going to become more common. Let us hope that the economy can hold together for at least a couple more years, because once society falls apart things are going to get really, really ugly in our major cities.
Are you prepared for what America is going to look like during the next Great Depression? It isn’t going to be pretty. Over the past couple of decades we have gotten hints of what America is going to look like when society breaks down, and those hints have been very frightening.
This first video is a news report about the mob robberies that have taken place in Minnesota recently. What would you do if you were a store clerk in this situation….
Unfortunately, these mob robberies are not just an anomaly. The American people really do seem to be losing it. Over the past couple of years, some almost unbelievable brawls have been breaking out in restaurants and in retail establishments all over the nation.
In addition, who could forget the wild mob scenes that erupted at stores all over America during the most recent Black Friday holiday sales?
Of course we all remember what happened during the aftermath of Hurricane Katrina. All along the Gulf Coast looting was rampant. Sadly, people were even openly looting stores in front of television news cameras….
This third video contains a compilation of footage from all over the United States over the past few decades. Is this what America is going to look like when the economy breaks down and people are going wild in the streets?….
But don’t think that Americans only act this way in the big cities. The truth is that human decency is breaking down everywhere. This was perfectly illustrated by a recently reported case of horrific child abuse in Oklahoma.
According to CNN, a 9-year-old girl, an 11-year-old boy and a 15-year-old boy were actually forced to eat pet food and had suffered burns all over their bodies due to the nightmarish abuse that they had received from the couple that adopted them.
The 15-year-old boy in this case told authorities that at one point he was forced to live in a plastic dog carrier for two months and that all three of the children have had their tongues burned with a hot spoon by their “parents”.
The following is how CNN described some of the abuse that these children were subjected to….
Authorities said the Kluths are accused of burning the children with hot spoons, choking them and locking them “in the storm shelter behind the residence for long periods of time with only chairs to sit in and plastic buckets for bathroom use. It was also alleged that the Kluths deprived the children of meals for punishment and fed them cat food and dog food,” according to a statement from authorities.
Can you imagine?
As Americans, we like to think of ourselves as “good people”, but is that really true?
In the United States today, the percentage of the population that is in prison is more than ten times higher than it is in Japan.
Part of that is because the U.S. is rapidly becoming a “Big Brother” police state, but we also have to admit that the American people don’t seem to be made of the same “stuff” that they used to.
Something has gone dramatically wrong.
We have lost our way.
Is this country going to be able to handle another Great Depression?
Right now more than 43 million Americans are on food stamps. This is helping keep the population under control. But what is going to happen when the price of food goes up 50 percent and all of these millions of people can’t even feed themselves anymore?
That is a frightening thing to think about.
Most Americans have never known hard times. Most Americans cannot even imagine what deep economic suffering is like.
When the U.S. economy does completely unravel, it is going to blindside most of the population. Many Americans will go completely crazy when they finally realize that the “good times” are gone and are never coming back.
What we are seeing in Wisconsin right now is only a very small foretaste of the kinds of economic protests that we will see in the future. There are tens of millions of Americans that are just not going to quietly accept that their affluence is gone permanently.
Unfortunately, the time to start saying something was years ago. Our economy is being gutted right in front of our eyes and yet most Americans just keep on voting for the globalist politicians that continue to ship our factories, our jobs and our prosperity overseas.
Believe it or not, cities like Detroit, Michigan were once the envy of the world.
In 2011, the rest of the world laughs at Detroit. It has become a global joke.
And you know what?
Hundreds of other communities across the United States are being slowly but surely transformed into new Detroits.
Today, there are many towns across the United States where you can almost reach out and feel the despair. It is almost as if someone has sucked all of the hope right out of the atmosphere.
People are getting desperate. As the economy crumbles crime is only going to increase. In fact, many of our biggest cities have large areas where residents simply do not ever want to venture outside after the sun goes down. Life is getting crazier in America with each passing year.
The America that so many of us so fondly remember is being rapidly destroyed.