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The Bank Robbers Strike Again

October 20, 2010

A while back, I wrote a short, satirical play — “Bank Robbers” — about how Wells Fargo rips off consumers through excessive overdraft fees. What I didn’t know at the time was that the banks have been resorting to far more outlandish tactics with respect to foreclosures. Amy Goodman reports:

Back in February 2009, Ohio Rep. Marcy Kaptur advised homeowners to force lenders to “produce the note.” People facing foreclosure were being taken to court while the bank alleging default couldn’t even prove it owned the mortgage. The mortgage document often had been lost in the tangled web of financial wheeling and dealing. Kaptur told me: “Millions and millions of families are getting foreclosure notices. They don’t have proper legal representation … possession is nine-tenths of the law; therefore, stay in your property.”

If you stay in your home, your mortgage lender may break in. Nancy Jacobini of Orange County, Fla., was inside her home when she heard an intruder. Thinking she was being burglarized, she called 911. Police determined the intruder was actually someone sent by JPMorgan Chase to change the locks. And Jacobini wasn’t even in foreclosure!

The difference between JPMorgan Chase and your average thug, of course, is that the government occasionally prosecutes the latter. As for the government’s response to the former, here is what Paul Krugman has to say:

True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?

The robbers, it would seem, have paid off the cops.

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10 Comments leave one →
  1. October 23, 2010 8:25 pm

    I agree with PK every once in a while. Of course Krugman’s criticism of Obama in this case also shows why PK’s economic policies are doomed for abject failure and why Keynesian stimulus also doesn’t work. It’s called Public Choice. Politicians will do what they do to stay in power. Obama is doing this because he knows where the campaign cash is. He isn’t going to upset daddy moneybags.
    The problem with liberal economics, and yes I consider Keynesian as liberal, is that it assumes that politician (of course only liberal politicians) are virtuous. Wasn’t that what the whole 2008 about? Isn’t that why Obama was elected, because Democrats mistakenly (it was obvious to everyone even some democrats) thought that Obama was the One, the true virtuous politician that works for the people instead of himself. What has the last two years shown us except that Obama only cares about himself?
    I know you won’t agree with me 100% but even you have to admit that I’m right.

  2. innocentsmithjournal permalink*
    October 24, 2010 11:10 am

    I think you’re absolutely correct that liberals tend to put too much faith in government. Yet, whatever the faults (and they are many) of the democrats, their professed goals are, in my view, laudable: regulating the banks, expanding health care coverage, protecting the environment, and so on. Wells Fargo and JP Morgan Chase, by contrast, pay no mind to the social consequences of their activities, since maximizing profit is the only acceptable motive for a large corporation. The language of vice and virtue is altogether alien to a large bank, as I had the misfortune of learning a year ago when I incurred over $300 in overdraft fees from Wells Fargo (see the “Bank Robbers” link).

    Yes, it’s true that markets generate wealth, but a functioning society needs to be about more than encouraging the profit motive. How it is libertarians have failed to learn that lesson in the wake of the 2008 financial crisis — which was, let us not forget, 30 years in the making — is beyond me.

    (Ultimately, neither government nor business is the solution. In my view, unbridled capitalism amounts to the same thing as state socialism: ownership concentrated in the hands of the few. What we need, rather, is widespread ownership of the means of production; we need more private property, not less.)

    As for Obama, I’m not sure what you have in mind when you say that the last two years have shown us that he “only cares about himself.” As a liberal, I think his record is quite impressive, given the total obstructionism of the GOP and the powerful influence of special interests.

  3. October 24, 2010 11:58 am

    I’m sure you do. GOP obstructionism? Really? Do you know how many times Reid invoked cloture, meaning he had 60 votes to stop any filibuster, these last two session?
    (quick and dirty Google so the numbers aren’t all up to date)http://politicalticker.blogs.cnn.com/2010/02/03/cnn-fact-check-senate-cloture-votes/

    I think our getting your definitions mixed up. Unbridled capitalism has never ever happened in history, much less for the last 30 years. What we had was state capitalism, which is a nice way of saying fascism. Fascism is not what the Left usually envisions when they think of Bush. Fascism is merely the State controlling, through excessive regulation, how the private market operates. If you read through the history of Italy and Germany, the wealthy were the politicians and the businessmen that the politicians favored. It was only in Russia where they went completely socialist and outlawed private business.

    Basically your criticism of “capitalism” should really be against state capitalism, which isn’t that far from socialism, remember it didn’t take Chavez long to go from a state capitalistic to socialistic society in Venezuela.

    Here is a good paper on the cause of the crisis. It’s important to remember that in the absence of Government intervention, bailouts, and of course Barney Frank (the embodiment of a politician using legislation and regulation for his own self (and his lovers) interest.)
    http://www.criticalreview.com/crf/pdfs/Friedman_intro21_23.pdf

  4. October 24, 2010 12:10 pm

    Hmmm something happened at the end…what I was saying was in the absence of the State, the crisis would never have happened. Capital flows would never have gone so hard and heavily into housing if it wasn’t for the State. I mean really….the only economists that don’t think that are PK and his lapdog DeLong. Even John Taylor, whom should never be confused for a libertarian, says that the Fed and the State were the cause.

  5. innocentsmithjournal permalink*
    October 24, 2010 1:30 pm

    You left out Simon Johnson and James Kwak. I don’t have 13 Bankers in front of me, but Johnson and Kwak claim that by 2003/2004 the bulk of subprime mortgage loans came not from Fannie Mae and Freddie Mac — whose profitability was sharply limited by precisely the regulation you criticize — but from the private loan industry.

    More generally speaking, your analysis is a bit tough to swallow, given the overall trend toward deregulation since Reagan. Is the problem that the government hasn’t deregulated enough since 1980? Really?

    Your assertion that “unbridled capitalism has never existed in history” is right on. Under the guise of “freedom,” libertarianism permits high levels of economic inequality, which in turn leads to wild imbalances of political power — since, as the distributist slogan puts it, “power follows property.” Once inequality has reached a certain point (e.g. when nearly 25% of pre-tax income flows to the top 1%, as is currently the case), the libertarian project is doomed; large corporations capture government regulators, and the result is state capitalism.

    In order for this outcome to be avoided, what would be needed is a more robust definition of freedom — a definition in which it is recognized that there can be no liberty without equality. But this is precisely what the libertarian would deny.

    With all of that said, I will check out the paper. As I have said before, my background is in philosophy and literature, rather than economics, so any commentary from me on the latter is based on an admittedly rudimentary understanding of the field.

    • October 24, 2010 4:42 pm

      “large corporations capture government regulators, and the result is state capitalism.”

      And you think giving the State more control is going to fix that?

      So if all this was because of improper regulations like you say, why not just put all those regulations back into place? Why don’t they just do that?

      The problem here is the notion of “deregulation” which is a farce. The Government doesn’t deregulate. They merely shift the regulation from one agency to another. I mean if there were actual deregulation like you say, wouldn’t the CFR have gotten smaller? Or how about regulatory spending? Did you know that Bush saw the highest levels of regulatory spending while in office?
      http://www.gwu.edu/~regstudies/20100518_Dudley_Warren_Regulators_Budget.pdf

      One thing I love about the “it’s all deregulation’s fault” is that the repeal of Glass Stegal was signed by which POTUS?

      • October 24, 2010 4:46 pm

        One can argue that the State’s real spending on regulation between the year Ronald Reagan was first elected to the White House (1980) and the year Bush left the White House (2009) did not rise by enough. Which I’m assuming is your argument? But you can’t legitimately argue that the past 30 years were marked by a general retreat of government from the economy and a blooming of laissez-fairism.

  6. October 24, 2010 4:43 pm

    Oh and here is another good paper on the crisis.
    http://mercatus.org/publication/gambling-other-peoples-money

  7. innocentsmithjournal permalink*
    October 24, 2010 8:36 pm

    I’m glad you asked about deregulation because it has provided me the opportunity to crack open 13 Bankers and review. Here are a few landmarks (quoted out of the book):

    — In 1982, the “Garn-St. Germain Depository Institutions Act” deregulated the savings and loan industry, allowing it “to expand further into new businesses, such as commercial lending and investing in corporate bonds (including junk bonds), to compensate for the collapse of the ‘boring banking’ business model” (72)

    — In 1984 the “Secondary Mortgage Market Enhancement Act” gave investment banks the go-ahead to create mortgage-backed securities (73). A bill in 1986 created tax advantages for securities.

    — In the 1990s, Glass-Steagal was gradually repealed. (Under Democrats, yes — so what?). The Gramm-Leach Bliley Act of 1999 was, according to Johnson and Kwak, the last straw for Glass-Steagal (89)

    — In 2001, the Commodity Futures Modernization Act “succeeded in foreclosing the possibility of regulation by the CFTC or the SEC” of derivatives (137).

    So there you have it. Is this really controversial information? As far as I am aware, it is widely accepted that the past 30 years have been a march toward deregulation.

    Of course, the solution isn’t as simple as creating new regulations. I’m with Johnson and Kwak: too big to fail, too big to exist!

    • November 1, 2010 8:03 pm

      You know the one thing that is in common with all these bills you cite? They were written by Congress, so why on earth would you ever think they’d get it right anyway? That’s the one question that I never get a good answer too. Any regulation can be repealed. Any regulation can be altered. And more importantly any regulation can be gotten around. Regulation will not stop people from doing what they want. Prohibition should have taught that lesson.

      Re: Garn-St. Germain
      A little SNL history is in order here. http://www.econlib.org/library/Enc/SavingsandLoanCrisis.html

      “Borrowing short to lend long was the financial structure that federal policy effectively forced S&Ls to follow in the aftermath of the Great Depression. S&Ls used short-term passbook savings to fund long-term, fixed-rate home mortgages. Although the long-term, fixed-rate mortgage may have been an admirable public-policy objective, the federal government picked the wrong horse—the S&L industry—to do this type of lending because S&Ls funded themselves primarily with short-term deposits. The dangers inherent in this “maturity mismatching” became evident every time short-term interest rates rose. S&Ls, stuck with long-term loans at fixed rates, often had to pay more to their depositors than they were making on their mortgages. In 1981 and 1982 the interest rate spreads for S&Ls (the difference between the average interest rate on their mortgage portfolios and their average cost of funds) were −1.0 percent and −0.7 percent, respectively.”

      The short of it….government policy caused the S&L crisis, for which they used tax payers money to “rescue.” All of the banks died anyway….costing the tax payer billions in money that had a better use. Garn-St Germain was a last ditch effort to give S&Ls some leeway but they were already toast.

      I agree SMMEA was a horrible law, it authorized Fannie Mae to purchase and deal in subordinate lien mortgages. I’m surprised that you would use this as an example since it implies that Fannie Mae was partially responsible for the crisis, something that most Liberal don’t want to admit…kudos for that.

      Re: Gramm-Leach

      Glass-Steagal’s repeal was inconsequential. Bear Stearns, Lehman Brothers, and Merrill Lynch all went belly up as investment banks without commercial bank divisions. AIG is an insurance company with no commercial banking division. Washington Mutual was a savings bank that went bankrupt because of the many sub-prime mortgage loans it made that went bad. Lastly, Fannie Mae and Freddie Mac did not fall under the jurisdiction of Glass-Steagal and their bailouts are on target to hit $1 trillion at the rate home prices continue to fall. So please explain how the repeal of G-S would have done anything to stop the crisis from happening?

      Re: Commodity Futures Mod Act.

      They still had the SEC and the CFTC regulating them….the problem is that they all fell down on the job. They were surfing porn while it all happened. Remember that story…

      I do agree with the too big to fail, too big to exist…we never should have bailed them out in the first place.

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