FedUpUSA

Archive for April 4th, 2011

Here’s one big difference between you and me and a large bank: if we break into someone’s home and take their possessions and then have the misfortune to be caught, we’re going to face criminal prosecution and maybe even jail time. But as Mimi Ash discovered, when the Bank of America broke into her home, changed the locks, and took all of the possessions in the house, including her late husband’s ashes, even though the foreclosure behind these actions was a mistake, no one at the bank faced criminal charges. And the difference between us and a government entity: if we promise to make payments and then renege on that commitment, we will be in trouble, and may even face fraud charges if we made the promise knowing that we did not have the means to fulfill our obligations. But when the town of Prichard, Alabama, stopped making pension payments to its retired employees, something that was both predicted and violated state law, the city officials who made promises they didn’t keep faced few consequences.

The difference between what happens to individuals and organizations may help explain why there is so much persistent organizational malfeasance. After all, deterrence is a central concept in our criminal justice system. The idea is simple: if people think they can get away with misbehavior, they will misbehave. Thus, to stop murders, robbery, and assaults, it is incumbent on law enforcement to ensure that perpetrators of crime will face a high probability of being caught and enough punishment for their crimes to deter the undesired behaviors.

Companies face a very different landscape. When and if caught, companies may get sued–witness all of the foreclosure cases for damages winding their way through the courts. But who pays? A company’s fine comes out of its general funds, not from the pockets of those who actually did or oversaw the harmful behavior. As the recent news from Bank of America, JP Morgan Chase, and other large banks that have set aside billions of dollars in reserves against anticipated future costs from the foreclosure fiasco illustrate, the shareholders are the ones who are ultimately on the hook. Corporate directors and officers are invariably covered by indemnity agreements. There is almost never individual prosecution for actions that, in a different context, would generate harsh prison sentences.

This even includes murder. Companies have sold tainted food (peanut butter, ground beef, spinach) that resulted in deaths, operated unsafe workplaces that wound up killing people (remember the Texas City refinery of BP), and dumped toxic pollutants into the air and the water. But no individuals went to jail.

This state of affairs is not just a problem for society and the past and future individuals who are harmed by corporate criminal activity. As Sarbanes-Oxley nicely demonstrates, all companies and managers incur the costs that arise from the misbehavior of a relative few. And when there was tainted spinach, bad ground beef, and other food scares, sales of the product category as a whole suffer, not just the companies responsible. That’s why it is actually in everyone’s interests, including businesses, to ensure that there is effective deterrence of corporate criminal behavior.

What’s appropriate for common criminals should be appropriate for people working inside corporations as well–as the saying goes, people who do the crime should serve the time. If the findings of the research on deterrence hold true here, and executives inside companies started facing criminal prosecution for criminal actions, there would be less criminal behaviors. That means fewer business consequences for companies, and less damaged reputations.

Punishment is obviously not the only way to modify behavior, but it works. Executives have unfortunately learned that they face virtually no consequences for approving break-ins and the theft of people’s property or food and workplace safety practices that result in death. No wonder all of these criminal actions continue unabated.

Jeffrey Pfeffer, BNet

Better late than never, I guess.  60 Minutes on CBS Sunday, April 3, became the first major network program to cover the mortgage fraud perpetrated by the banks that we have been covering for more than 3 years now.

If you know someone that believes that the U.S. economy is in great shape, just show that person the following statistics.  But please don’t show these statistics to anyone that is feeling depressed or that has just lost a job – it might push such a person over the edge.  The sad truth is that the U.S. economy is in the midst of a long-term decline and it is coming apart at the seams.  Right now the Obama administration and the Federal Reserve are attempting to “paper over” our economic problems with massive amounts of government debt and paper currency, but in the end it is not going to work.  When you analyze the numbers objectively, it leads to the inescapable conclusion that we are headed for another Great Depression.  That is a very depressing thought, but there is no denying that decades of debt and incredibly bad decisions are starting to catch up with us.  The economic pain that is coming is going to be absolutely mind blowing.

It would be nice if our politicians and our business leaders suddenly started making incredibly wise decisions so that we could bring the U.S. economy in for a “soft landing”, but the chance of that happening is so small that it is not even worth mentioning.

It is time for all of us to face up to the truth.  In this day and age it is really easy to get caught up in the trap of feeling depressed, but once we understand exactly how bad our problems are it can be empowering because then we can start focusing on solutions.

The following are 27 depressing statistics about the U.S. economy that are almost too crazy to believe….

#1 The Obama administration projects that the federal budget deficit will be approximately $1,600,000,000,000 this year.  Right now the Republicans and the Democrats are fighting tooth and nail over budget cuts.  The Republicans are proposing to cut the budget deficit by 3.8%.  The Democrats only want to cut it by 2.1%.

#2 The U.S. economy actually grew more between 1930 and 1940 than it did during the decade that recently ended.

#3 Over the last decade, the number of Americans without health insurance has risen from about 38 million to about 52 million.

#4 Agricultural commodities are absolutely soaring.  The price of corn has more than doubled over the last 12 months.  Considering the fact that corn is in literally thousands of our food products, that is a very frightening statistic.

#5 Between 1999 and 2009, real median household income in the United States declined by 5.0%.

#6 It is being estimated that total U.S. government debt will grow by 42 percent by the year 2015.

#7 According to the Pentagon, the cost of the first week of attacks on Libya was 600 million dollars.

#8 The average American now spends approximately 23 percent of his or her income on food and gas.

#9 According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.

#10 It is being projected that for the first time ever, the OPEC nations are going to bring in over a trillion dollars from exporting oil this year.  Their biggest customer is the United States.

#11 According to the Economic Policy Institute, almost 25 percent of U.S. households now have zero net worth or negative net worth.  Back in 2007, that number was just 18.6 percent.

#12 China produced 19.8 percent of all the goods consumed in the world last year.  The United States only produced 19.4 percent.

#13 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

#14 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

#15 U.S. home values have fallen an astounding 6.3 trillion dollars since the peak of the real estate market in 2005.

#16 According to RealtyTrac, one out of every 45 U.S. households was hit with a foreclosure filing in 2010.

#17 The number of homes that were actually repossessed reached the 1 million mark for the first time ever during 2010.

#18 New home sales in the United States set a brand new all-time record low in the month of February.

#19 Now home sales in the United States are now down 80% from the peak in July 2005.

#20 The financial condition of American families continues to deteriorate rapidly.  In 2010, one out of every eight American families had at least one family member that was unemployed.  That number was the highest it has been since the U.S. Labor Department began keeping track of that statistic back in 1994.

#21 There are now more than 6 million Americans that the government says have given up looking for work completely.

#22 According to the U.S. Bureau of Labor Statistics, the average length of unemployment in the U.S. is now an all-time record 39 weeks.

#23 Americans now owe more than $900 billion on student loans, which is also an all-time record high.

#24 Average household debt in the United States has now reached a level of 136% of average household income.

#25 According to the Federal Reserve, between 2007 and 2009 median household net worth in the United States fell by 23 percent.

#26 The Federal Reserve also says that median household debt in the United States has risen to $75,600.

#27 According to a recent article posted on the website of the American Institute of Economic Research, the purchasing power of a U.S. dollar declined from $1.00 in 1913 to 4.6 cents in 2009.  Sadly, the Federal Reserve is working very hard to get rid of the little bit of purchasing power that the U.S. dollar has left.

The Economic Collapse

Costs to bail out bondholders of Irish banks has now soared to $142 billion. Worse yet, the new Irish government completely caved in to the EU and ECB and will attempt to balance the entire amount on the backs of taxpayers.

Please consider Ireland Bows to Trichet on Bondholders as Bank Rescue Reaches $142 Billion

Ireland yielded to the European Central Bank to protect bondholders even as its bailout bill for the region’s worst banking crisis moved to as much as 100 billion euros ($142 billion) after stress tests.

The ECB in Frankfurt was “solidly opposed” to imposing losses on investors in senior bank debt, Finance Minister Michael Noonan told broadcaster RTE today. The ECB agreed to provide “ongoing” funding for the banks, he said.

Ireland agreed yesterday to inject as much as 24 billion euros into four banks, while leaving bondholders untouched. The government already funneled 46.3 billion euros into the financial system and set up an agency that paid more than 30 billion euros to assume risky property loans. The total equates to about two-thirds the size of the Irish economy.

During an election campaign last month, Eamon Gilmore, now deputy prime minister, dismissed ECB President Jean-Claude Trichet as a “civil servant” who would answer to politicians. As recently as March 28, Agriculture Minister Simon Coveney said the government planned to impose losses on senior bondholders in the banks to cut the costs of its bailout.

“Taking all of the losses of the banking system and putting them on the balance sheet of the government doesn’t make sense,” Nouriel Roubini, co-founder of Roubini Global Economics LLC, said today in an interview from Cernobbio, Italy, with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “Eventually, the back of the government will be broken.”

“Rather than go after over 20 billion euros in unguaranteed bonds, the government is making ordinary citizens bear the burden of this debt,” Gerry Adams, leader of nationalist party Sinn Fein, said in statement today. “Rather than act in the interests of the Irish people they are acting in the interest of the banks.”

Backs of Irish Taxpayers Will be Broken

What is the point of throwing the bums out in a massive repudiation of government policy if the new bums have the identical policies as those they replace?

The Euro reacted positively to this turn of events and also to expected interest rate hikes by Trichet. Those hikes with further exacerbate the problems of Greece, Ireland, Portugal, and Spain.

I am sticking to my long-held position “what can’t be paid back, won’t.” The timing is uncertain, and Roubini phrased it well: “Eventually, the back of the government will be broken.”

I might add, so will the backs of taxpayers. The pertinent question is how long the taxpayers put up with another set of politicians who cave in to bankers.

Mike “Mish” Shedlock
Global Economic Analysis

To people like Steve Southerland and Jeff Miller who think I’m being “shrill” when I point out that if they don’t cut the crap in Washington we’re going to be severely screwed, you need to read this:

After a consolidation process that took up most of the 1990s, the United States went through a substantial fiscal deterioration since 2001 as a result of the 2001 and 2003 tax cuts, the expansion of Medicare and the rapid increase of per-capital healthcare costs.

The “consolidation” in the 1990s?

Where was the “consolidation” in the 1990s?  The above chart, again, is simply computed by:

(?GDP – ?Debt) / 12-Month-Ago GDP

That is, how much GDP growth (in percentage) did you generate from organic growth?  Backing out the growth from promising to pay tomorrow is both appropriate and necessary, since all such promises to pay tomorrow are simply shifting tomorrow’s GDP into today’s column.  Such consumption thus will not occur tomorrow.

To the best of my knowledge The Market Ticker is the only place I’ve seen that chart.  It is simply ignored everywhere else, even though all the data required to compute it is in the GDP series and Fed Z1, and is part of the quarterly series that I opine on with every release.

If you remember, I said that a plausible budget would require $500 billion in cuts for at least the next three years, sequentially.  What does the IMF say right up front?

In other words, fiscal revenues and spending would need to change so that the primary balance predicted under that scenario improves by over 15 percentage points of U.S. GDP every year into the indefinite future starting next year.

$3.8 trillion X 15% = $570 billion in tax increases, spending cuts or some combination of the two.

Or is that really $14.7 trillion X 15% = $2.06 trillion in budget reductions, tax increases or both?

Now they see a one-timer as possibly-effective if done and held.  I don’t.  The only way out of a debt trap is to pay down the debt, not stop the rate of increase.  Therefore it is required that we run a primary surplus, which, on the path I have put forward, would require approximately four years.  And incidentally, 4 years X $500 billion a year = $2 trillion – roughly.

Since the federal government has historically collected about 18.4 percent of GDP in tax revenues, mandatory programs may hence absorb all federal revenues sometime around 2050, or as early as 2026 when the cost of servicing the debt is included in the calculation.

Yep.  And long before that date – probably in the next two to three years – the market will discern that we’re going to go off that cliff.  When it does our ability to raise funds by the Federal Government through further borrowing will rise dramatically in cost. 

Once that occurs we are no longer able to make choices on entitlement reform and tax changes – they are forced upon us by creditors.

Under most scenarios, the fiscal adjustment needed to eliminate the fiscal and generational gaps would entail significant adjustments in taxes and/or transfers. Under the baseline scenario, for example, the federal government can restore fiscal balance by raising all taxes and cutting all transfer payments immediately and for the indefinite future by 35 percent.

Were the U.S. government to finally repeal the tax cuts enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), and were the IPAB to succeed in curbing healthcare spending growth as provided in the IPAB mandate, reining in the fiscal gap would still require an immediate and permanent increase in all taxes and cut in all transfers of 26 percent.

I’ve been pounding this drum since 2007, because back then the adjustment was about 20%.  Our actions of the last four years have led us to where we are now, and place the adjustment at thirty five percent. 

More importantly, if we don’t do it now and we keep spending more than we make, the required downward adjustment in spending (and upward in collected taxes – not rates, actual collected funds) will only get worse.  There is a point, impossible to accurately determine in advance, where the public simply revolts against the changes that need to be made and we instead get an economic and political collapse.

IMF Working Paper US

Grassroots Assembly for Mortgage Fraud Victims, LLC are members who are mortgage fraud victims, business owners and professionals who have come together to get justice and fairness for you. We have utilized our experience over the years in handling our legal cases “Pro Per,” with that our primary goal is to help, guide shield and recover loses for homeowners through education and awareness.

On Facebook

Website (coming soon)

215 N 2nd Avenue, Suite B
Upland, CA 91786

1 (888) 547-8885