Archive for November, 2019

Where Did all the Houses Go After the Financial Crisis of 2007-2008?

Tuesday, November 19th, 2019

Homewreckers; How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream, Aaron Glantz, 2019

Steve Mnuchin, Poster Child of the Homewreckers

10 million Americans lost their homes as a result of the Financial Crisis of 2007-2008. By 2010 more than 10% of Americans were unemployed. The Financial Crisis left 45 more million Americans below the poverty line. This book focuses on a handful of predators whose actions would not have been possible without the full cooperation and assistance of the Federal government and the Obama administration. Most of those houses became rentals owned by a handful of huge LLC limited partnerships. The new owners of all these houses are holding them waiting for real estate prices to recover sufficiently to satisfy their greedy requirements to profit from a disaster. These houses are not available to individual home buyers which is artificially driving the prices of homes higher. Charts (not shown in this book) illustrate the changes.

The financial crisis of 2007-2008 was the direct result of a Federal government failure of regulation of the banking industry and the confusion of FDIC banking with Wall Street style speculation. Three critical changes were required to assure it didn’t happen again: 1) Reestablish the Glass-Steagall Act to again separate FDIC regulated banking from Wall Street Speculation. This act was passed in 1933 and repealed in 1999 under Clinton. 2) Severely Regulate or outlaw financial derivatives, created by the Commodity Futures Modernization Act of 2000 signed into law by Clinton. 3) Break up the big banks and separate their FDIC insured portions from their Wall Street operations. Since all banks were insolvent by 2008, the FDIC had full authority to take over all banks, remove all management, and do whatever was necessary to restore sound banking practice. See also Sheila Bair’s book. The Obama administration did none of these things. These three changes were necessary and possible but re regulation would have required even more changes before banking could return to its rightful boring self. The blame for what happened to those 10 million American families who lost their homes couldn’t be clearer. Clinton broke banking and Obama didn’t fix it even though he could have. Now this book;

Through all of this, the administration of Barack Obama, like George W. Bush’s before him, did very little to stem the tide of foreclosures. …Congress passed a massive bank bailout that did little to help individual borrowers. The terms of the deals the federal government brokered afterward, like the sale of IndyMac to Steve Mnuchin’s group of hedge fund managers, encouraged foreclosures.
Then, as foreclosures spiraled out of control and the number of vacant and foreclosed homes mounted, the federal government did almost nothing to prevent communities from collapsing entirely…The Neighborhood Stabilization Program, extended grants to hard-hit communities to provide “emergency assistance to stabilize communities with high rates of abandoned and foreclosed homes.” …A typical NSP grant went to Riverside, California, where fourteen thousand homes were lost to foreclosure… The city…received just $6.5 million–barely enough to buy fifty homes (not even 1 percent of Riverside’s foreclosures).

The Barracks

The Depression era HOLC, by contrast, acquired nearly two hundred thousand properties through foreclosure. 90 percent of those home were sold to families. The Obama Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, simply bundled foreclosed houses into blocks sized between 500 and 10,000 homes at a time to be sold to the Federally subsidized (bailed out) banks and eventually to vulture LLCs. The banks had no intention of finding individual buyers and issuing mortgages so all these homes so they unloaded then in bulk to the vulture LLCs. No attempt was made to determine if the buyers were qualified to manage these properties. There were no promises by buyers to maintain the properties, keep rents affordable, or engage with the community. The home were simply dumped by the government and the banks. And house prices kept dropping through 2012. Las Vegas, Phoenix, Spokane, Riverside and San Bernadino County saw prices drop more than 50 percent. By late 2011 the fire sale was on. The book features Tom Barrack whose source of money to make the home purchases is murky but involves the Cayman Islands and strong suspicions of money laundering and tax evasion. It all ends with Delaware (Biden) LLCs and ultimately to Barrack’s parent company, Colony Capital LLC. Colony eventually amassed an empire of 31,000 houses, rivaling the size of Blackstone’s house empire. Chase lent Colony $1.1 Billion for 7,563 homes. This giant bundle created a derivative that was carved up into tranches and sold on the bond market. But the two LLC predatory vulture groups featured in this book taken together total about 60,000 houses which represent about .6 percent of the 10 million houses lost. Where are the rest of those 10 million houses?

The book outlines the takeover of two failed banks, BankUnited of Florida, and IndyMac of California. Both deals were very costly for the government and resulted in private equity LLC ownership by wealth seeking individuals without a shred of empathy for who was hurt by their actions. The preditors see themselves as simply taking advantage of market opportunities presented by the federal government.

Attention is also given to the unloading of OneWest bank to a who’s who of investors for $1.6 billion. The deal left the government on the hook for any losses incurred in dumping the bank’s mortgages. When the new owners stripped and sold the bank, their return was $5 billion tripling their investment in less than 5 years. The investors included George Soros, John Thain, John Paulson, J.C. Flowers, and others.

Sandy Jolley Reverse Mortgage Whistle blower

Drawing special attention here is the reverse mortgage for the elderly, pioneered during the Reagan years but kept small by government rules. By 2006, the cap was raised to 275,000. Even the government was selling them and packaging its own fully guaranteed reverse mortgages into mortgage backed securities, sold and sliced by the same speculators that brought down the whole system. Most troubling, subprime specialists like IndyMac started selling reverse mortgages using “boiler room” sales tactics and preying on seniors lacking the mental capacity to understand the contracts they signed. Glantz features one deal involving an elderley wife with Alzheimer’s and a dying husband unable to understand the reverse mortgage he was agreeing to. When the husband died, the daughter Sandy Jolley moved back home to care for her mother and fight off foreclosure. In any system with a functioning justice system, the reverse mortgage contracts would have been vacated, the home restored, and damages assessed. None of this happened but Jolley kept fighting, assembling a large group of similarly displaced homeowners and becoming a federal whistle blower. Twelve years after her parent’s reverse mortgage was signed, the case was settled in 2017 with a typical slap on the wrist award and no admission of wrongdoing. Sandy Jolley’s whistle blower’s reward was $978,000.

Too big to fail ($50 billion plus in assets enshrined under Dodd-Frank now raised to $250 billion) Chase bank acquired Bear Sterns and Washington Mutual Bank in 2008. Wells Fargo acquired Wachovia Bank in 2008. Bank of America acquired Merrill Lynch in 2008. All banks accelerated their foreclosure and bundled them for sale to vulture capital LLCs as the easiest way to get the houses off their books, and the Obama government was guaranteeing any losses incurred. All banks greatly decreased their mortgage business and offered mortgages only to customers with high income and impeccable credit. From 2014 to 2016 Chase issued six thousand mortgages under the FHA program (usually used by first time buyers). During this same period Chase loaned Tom Barrack’s Colony $3.3 billion as it created six mortgage backed securities covering 23,000 homes. For first time home buyers an entire generation has had no reasonably priced starter homes and no way to buy the few that were out there. Yet the Federal Reserve held interest rates at near zero throughout the period. Practically, this has meant FDIC deposits are practically free for banks and cheap money was available for speculation and vulture purposes.
The Vulture LLCs that acquired all these houses, bundled them into large groups and securitized them using the same vehicles journalists were calling weapons of mass destruction in 2008. The bundles were diced into trenches to receive different ratings by the same agencies like Moodies who contributed to the 2008 collapse. Typically 80 percent of the bundles received AAA ratings. Glantz researched a tiny Los Angeles Home which listed a mysterious LLC as owner and a lien for $500 million (later refinanced for $900 million).

When housing prices reach a suitably high level, no doubt the LLCs will start selling their huge collections of houses but for the time being they can continue to collect ever increasing rents while spending a minimum on maintenance. Expect these houses to be in awful shape when they eventually reenter the housing market as single family homes.

An article in RCLCO real estate advisors in 2016 found that the seven largest LLCs owned and rented out a total of 170,000 single family houses. A chart in this article shows that single family rental units now comprise 35 percent of total rentals. If there are 43 million renters, then 15 million would be renting single family units. The 10 million foreclosed homes must represent a very sizable portion of these rentals. The article puts the increase in occupied single family rentals during the period 2005-2014 at 3.8 million (probably under estimated) while the increase in single family ownership increased by just a tiny 482,000. It appears the government does little to actually track statistically what happened to foreclosed houses or to track what the deals assuring that banks or LLCs wouldn’t lose money from foreclosures actually cost the government. Mother Jones in 2009 put the financial crisis federal bailout cost at a staggering $14.4 trillion. At present, we seem to have no accurate way to determine what happened to the bulk of those 10 million foreclosed houses. The $14 trillion figure also appears in Ron Suskind’s 2011 Book.

Many of the vultures moved to the Trump administration and the administration’s big tax reduction giveaway showered particular largess on corporations and LLCs.

Ed Snowden In His Own Words

Thursday, November 14th, 2019

Permanent Record, Edward Snowden, 2009

Ed and Lindsay out in Moscow

Ed Snowden was only 29 years of age when he blew the whistle on NSA’s mass surveillance of all Americans (in fact on everyone in the world). Here is the story of his own arc of growing up, engaging in a highly successful technical career, and then deciding to throw it all away to tell journalists and the world what their government was secretly doing.

Ed was born in 1983, the year that ARPA (Advanced Research Projects Agency, later DARPA adding Defense to the title) made the ARPAnet (using the TCP/IP protocol) publicly available for the first time. In 1983 the Mosaic pioneer browser existed at the University of Illinois. The world wide web (WWW) was invented at CERN in 1989 by Tim Berners-Lee. IBM introduced the PC in 1981, and Ed’s first computer, a Commodore 64 was introduced in 1982. In other words, Ed grew up at precisely the time that PC’s and the Internet were new. Ed became a very young, natural self described Geek and is mostly self educated since computers and the Internet were far more interesting than school and Ed was very talented in this new world.

Ed claims to be able to trace his ancestry on his mother’s side from the Mayflower itself and his fathers side to fighting in the Revolutionary War and every war thereafter. Early on his family moved from North Carolina to Maryland where his father worked on technology for the Coast Guard, and his mother worked at the NSA in human resources. Both parents held security clearances. Government service was the natural career path for his family. Unfortunately, modern government service requires a college degree and Ed finished high school with a GED. When the 9/11 attacks happened, Snowden signed up for army special forces and at 5’9″” and 124 pounds he went off to Fort Benning for basic training. He stress fractured a leg and the army, to avoid liability, granted Ed release from service with no black marks. While recovering from his injury, Ed came up with plan B. He would apply for a high level security clearance (requiring one year of vetting). The security clearance was granted and the CIA, much reduced after its failures in the 9/11 attack, hired Ed to babysit its headquarters computer systems. Thus started Ed’s meteoric but short career of government service which saw Ed stationed at the US embassy in Geneva Switzerland, and then, with the NSA, a stint at the Yokota Air Force Base on Honshu in Japan, and finally assignment to the NSA facilities near Waipahu Hawaii.

In 2009, while Ed was in Japan, a single document was flagged by the NSA’s repository as not belonging there. He noticed the document was classified TOP SECRET//STLW//HCS/COMINT//ORCON/NOFORN. STLW stands for STELLARWIND. Ed says only a few dozen people would have access to this document (plus system administrator Ed Snowden). This document was the authorization for mass surveillance of all American’s communications. Neither anyone in Congress nor the White House would have access to this document. The NSA continued to deny it was mass surveilling Americans. Daniel Ellsberg, in his Doomsday Machine book about our nuclear program describes the security classification system and security clearances that are understood by almost noone in politics nor the public.

Meanwhile the age of surveillance capitalism was fast arriving with Google, Facebook, Amazon, Microsoft, Apple, etc. gathering and exploiting users data for profit. Worse, they were freely sharing this private data with the government. Ed says he (his right to privacy) was first betrayed by his government, then by his beloved Internet, and finally, by his own body. He was diagnosed with epilepsy (not the grand mal seizure variety) and took the job in Hawaii to reduce his level of stress. In Hawaii, he had the leisure to start collective data to prove the NSA was spying on everyone and to further understand the different programs and tools available to the NSA and its contractors. His final exploration was of the program XKEYSCORE which allowed the government and its contractors to find anything about a persons digital history.

Bill Binney

Ed here honors his whistleblower predecessors from Daniel Ellsberg and Anthony Russo to Thomas Tamm who reported extensively on warrantless wiretapping in the mid 2000’s. Included are Perry Fellwock, who in 1971 revealed the existence of the NSA for the first time. He also lists Bill Binney, The Good American, Drake, Wiebe, and Loomis. Finally special mention of Chelsea Manning for leaking war crimes documents via Wikileaks. He gives special thanks to Sarah Harrison, journalist and editor for Wikileaks, who arrived in Hong Kong to assist Ed in his search for asylum and who accompanied Ed to Moscow.

Poitras Greenwald Lindsay Citizenfour Oscar

Ed does a good job of describing the ever increasing use of contractors by the government. He attributes this trend to budget issues and seems unaware of the worldwide neo liberal political movement to attempt to privatize all previously public functions of government from education to defense to incarceration to water. This privatization is highly profitable, leads to corrupt revolving door policies where government officials are able to grant contracts and special privileges to private for profit corporations with the understanding that they will be rewarded when they leave government to join the very companies they enriched.

For more on the surveillance state, see this work that includes Snowden’s disclosure.

Ed believes that the only current way to control surveillance is through the extensive use of encryption which the government cannot break. He also advocates the use of TOR or “onion routing” which uses a worldwide network of TOR servers to break the connection between the originating IP address and the destination IP address making it impossible to track communications using IP addresses. TOR was developed by a mathematician and a computer scientist at the Naval Research Laboratories and was designed to protect military and government communications using the public Internet. Ed was teaching classes in these subjects in Hawaii when he blew the whistle. Ed was also handing out printed copies of the US Constitution to his coworkers. This at the same time a supposedly constitutional law professor, Barrack Obama, was in the White House busily ignoring the very Constitution he was supposedly so expert at.

Ed decries the rise of cloud computing as a return the bad old days of centralized mainframe computing and points out your cloud computing authorization contract passes ownership of all your data to the cloud’s owners. If your data including photos are in a cloud they are no longer yours.