Category: Government Failure

Colleges, Universities and Alumni Associations Were Paid 83 Million Dollars To Push Credit Cards On Students

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure, Philosophy of Business

Do university administrators feel guilty about encouraging their students to sign up for credit cards that Handful of cut-up credit cards.provided kickbacks to their schools?

Of course, these administrators should. Over the year, hundreds of colleges gave student credit card issuers amazing access in return for cold cash. Colleges surrendered such personal information as student emails, addresses and phone numbers so these companies could pelt students with promotions. And schools allowed credit card issuers on their campuses where they lured kids into signing up for student credit cards in return for t-shirts or other freebies.

Of course, they don’t. Guilt is for suckers. Winners take their opportunities as they come. After all, those students are adults (most of them). They make their own decisions, right?

Looks to me like shooting fish in a barrel.

For years, colleges pushed credit cards on to their most vulnerable students, often those without income and certainly those without financial savvy. The colleges made a tidy sum. A few of their students committed suicide and a great number wound up in debt that fifteen or twenty years will be required to pay it off.

Of course, they don’t feel any responsibility. It was just business.

Average student credit card debt – $3173.

Hook ’em and Cook ’em.

And the colleges, universities and alumni associations weren’t protecting their students. They were exploiting them.

Business ethics – You don’t rip off your customers. (Apparently this is hard for some people.)

James Pilant

The Big Short

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business

The Big Short is a new book by Michael Lewis. It is reviewed by Larry Swedroe in CBS Money Watch.

From the review –

Lewis has done an incredible job researching the origins of the financial crisis. He then provides a great service by making a very complex subject easily understood. He turned what could have been a dry text on the crisis into a character-driven story that reads like a great novel. In addition, he shows clearly how the interests of much of Wall Street are not aligned with those of even their clients, let alone those of investors in general. Lewis demonstrates this by filling the book with tales no Hollywood writer could even dream up. The following, just one of many, demonstrates this point and shows why Wall Street must be required to provide a fiduciary standard of care.

Danny Moses was a hedge fund trader who related the following tale. “When a Wall Street firm helped him into a trade that seemed perfect in every way, he asked the salesman, ‘I appreciate this, but I just want to know one thing: How are you going to f**k me?’ The trader hemmed and hawed but Moses persisted. ‘We both know that unadulterated good things like this trade don’t just happen between little hedge funds and big Wall Street firms. I’ll do it [the trade], but only after you explain to me how you are going to f**k me. And the salesman explained how he was going to f**k him. And Danny did the trade.”

Here’s the Amazon.com page for it as well as some further reviews. This book looks interesting to me.

James Pilant

The Definition Of Success Depends On Whether Or Not You Work For The Treasury Department

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure, Philosophy of Business, White Collar Crime

President Obama said the program would help three to four million people modify their mortgages. But through September, 728,686 struggling homeowners have been kicked out of the program; just 640,300 remain, the Treasury Department reported on Monday.

That doesn’t strike me as a success. If the intention was to keep people in their homes, it doesn’t seem to be working very well.

“The most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.”

That little quote is from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  He has some more to say though –

“SIGTARP, along with the other TARP oversight bodies (GAO and the Congressional Oversight Panel), has long argued that Treasury should adopt meaningful benchmarks and goals for HAMP – permanent modifications that offer secure, sustainable relief to the program’s intended beneficiaries.  Remarkably, Treasury has steadfastly rejected these recommendations, and now finds itself defending a program that is failing to meet TARP’s goal of “perserving homeownership”.  As a result, a program that began with much promise must be counted among those that risk generating public anger and mistrust.”

But it gets better – at a meeting with administration officials for bloggers – Well, read the following –

On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

You see, HAMP is designed to help the banks not the homeowners. It enabled the banks to manage their foreclosures during a period in which it would have been difficult to keep up the pace.

So, success is defined as making sure the banks are successful.

Gives you a warm feeling doesn’t it?

James Pilant

The Vast Majority Of Foreclosures Were Done Correctly?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime3 Comments

We have been told over and over again during the last few weeks that the vast majority of foreclosures were done correctly. The White House and the various cabinet departments have echoed this claim.

This is all very odd. Since, the foreclosure documents were in hundreds of thousands of cases not even looked at, how would the banks or the Obama Administration know how many were done correctly?

They can’t. It’s impossible for them to have such knowledge.

Why would they say so? I suppose it’s a matter of faith, a belief that these huge institutions are run by competent, moral people. Faith is not a good substitute for factual data.

Well, new information is coming in. I have predicted that this kind of data would be coming in and here is the first.

From the New York Daily News –

Thousands of foreclosures across the city are in question because paperwork used to justify the seizure of homes is riddled with flaws, a Daily News probe has found.

Banks have suspended some 4,450 foreclosures in all five boroughs because of paperwork problems like missing and inaccurate documents, dubious signatures and banks trying to foreclose on mortgages they don’t even own.

So, 4,450 botched mortgage foreclosures have been found in five boroughs. That hardly squares with the idea that virtually all foreclosures were done correctly.

Here’s what one of the judges said, (again from the article) – Schack told The News he expects to see more paperwork snafus. “It’s like an onion we keep peeling,” he said. “It seems to be layers and layers of problems.”

Do you believe that the vast majority of foreclosures were done correctly?

I expect much more data to come out and it will not be to the foreclosure industry’s benefit. Nor will the Obama administration escape blame for its ridiculous unsupported claims about the crisis.

James Pilant

HAMP (Home Affordability Modification Program) Disastrous!

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Government Failure, Philosophy of Business, White Collar Crime3 Comments

What a shock!

The Administration’s signature program to help homeowners is not working.

The banks get a 700 billion dollar bailout with no questions asked and the homeowner goes through mountains of paperwork and winds up getting nailed for late payments and fees they didn’t even incur!

From the article –

The Obama administration’s signature anti-foreclosure effort, unveiled in 2009 with the promise of helping three to four million homeowners modify their mortgages, is such a failure that it now risks “generating public anger and mistrust,” according to a federal audit released Monday.

Far from helping at-risk homeowners, the Home Affordable Modification Program has actually made some homeowners worse off, according to the Special Inspector General for the Troubled Asset Relief Program — also known as the Wall Street bailout. The Treasury Department set aside $50 billion from TARP, plus another $25 billion from taxpayer-owned Fannie Mae and Freddie Mac, to give mortgage servicers thousand-dollar incentives to reduce monthly mortgage payments by modifying eligible homeowners’ loans. But more people have been bounced from the program than have been helped by it.

People who apply for modifications via HAMP sometimes “end up unnecessarily depleting their dwindling savings in an ultimately futile effort to obtain the sustainable relief promised by the program guidelines,” the report notes, putting the imprimatur of the federal government on a claim long made by housing experts and homeowner advocates. “Others, who may have somehow found ways to continue to make their mortgage payments, have been drawn into failed trial modifications that have left them with more principal outstanding on their loans, less home equity (or a position further ‘underwater’), and worse credit scores.

“Perhaps worst of all,” it continues, “even in circumstances where they never missed a payment, they may face back payments, penalties, and even late fees that suddenly become due on their ‘modified’ mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent.”

But don’t worry. The administration has a defense.

Treasury officials are adamant that not only is the program helping those homeowners who remain in it, but it also has helped those homeowners who have been bounced. In fact, those homeowners who ultimately fell out of the program benefited from the equivalent of a “free tax cut” while they were in the program because over that period, they were paying less on their mortgage than was otherwise required. And, officials say, this came without cost to the taxpayer.

That’s right. Even if it didn’t work out for you and we threw you out of the program like yesterday’s garbage (You still lose your home.), you got a “free tax cut.” That makes it all better.

Let’s be clear. There is no amount of evidence, no lack of effectiveness or intelligence, that the current administration does not believe cannot be washed away by good public relations.

I don’t get it. Why even bother to create this program? It’s about ten percent of what the banks got. So, already you knew immediately, average Americans are at best an afterthought.

I supposed it’s better to demonstrate over time you generally loath the American people, than to tell them immediately?

“Oh, you say,” James, “You’re overreacting, the President is constrained from helping these people. It’s the political system.”

No, it’s not. These people are the real victims of an orgy of speculation and they only thing they’ve been getting for two years, is a continuous, mile thick, wall of lectures on personal responsibility.

The President has within in his authority, dozens, hundreds of actions he could take to help these people out, and those things are not being done. At the very least, the mortgage industry could have been held to the simple legal procedures necessary for a proper foreclosure and this administration was not only unable to do that, they see no crisis now.

Where are out political choices?

James Pilant

The Rules!

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, Economic measurement, ethics, Government Failure, Philosophy of Business, White Collar Crime

Right now, all over America, there is a single perception. We, the people, live by one set of rules. The financial institutions of this nation live by another.

The one we live by requires that we obey the law and should we fail, there are many penalties which include fines, jail time and public disgrace.

The great investment firms live by laws that are flexible, that bend with circumstance and desire. When they commit crimes, the offenses are considered civil matters. When they are found liable in civil court, the amount of fines compared to their profits are laughably small. When they violate regulations, the violations are either ignored, minimized or papered over. And when finally they commit such acts as endanger the welfare of the nation and it people, even then the law is not applied to them and they receive money and not punishment.

And never, under any circumstances is the flow of their profits and in particular, their bonuses, to endangered at any time under any circumstances.

The nation is bleeding.

It bleeds every day.

It’s bleeding credibility.

It’s bleeding honor, morality and ethics.

To many in this society, these are all jokes, the subject of humor.

To the great financial houses, the flag means the convenient locale with the least regulations. They live here and obey the rules here only when it is convenient. They are Americans of convenience.

We have spawned a series of institutions in this country that exist to its financial and ethical detriment.

They do not build value. They take it.

They do not limit risk. They increase it.

Can this nation long survive with two standards?

I do not believe this nation can long survive, half held to rules and half not.

It will either become all of one or all of the other.

Which one?

James Pilant

I’m Not The Only One Who Believes The Banks Don’t Have The Documents.

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business, White Collar Crime3 Comments

William K. Black and L. Randall Wray call for putting the Bank of America into receivership!

How about that! Seize the bank and the government go through their books to find out what’s really going on. That’ll stand some CEO’s hair on end. It might get their attention. I’d like to see that.

I’ve talked for the last several days about my suspicion now hardening into belief that the banks do not have proof of ownership tens of thousands of foreclosures. I am not the only one who believes that.

Read –

Nothing short of removing all senior officers who directed, committed, or acquiesced in fraud can be effective against control fraud. We repeat: Foreclosure fraud is the necessary outcome of the epidemic of mortgage fraud that began early this decade. The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents and have committed “fraud in the inducement.” Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents. If the original documents do not exist the securities might be ruled no good. If the original docs do exist they will demonstrate that proper underwriting was not done — so the securities might be no good. Foreclosure fraud is the only thing standing between the banks and Armageddon.

I can’t say it better.

James Pilant

White House Decides To Look Forward Not Back!

On By southwerkIn business ethics, Capitalism, Government Failure

In these modern times, looking back and dealing with offenses is old fashioned and out of place in modern society!

Read (from the Huffington Post) –

The HUD secretary said, however, that the administration is focused on ensuring future compliance, rather than on looking back to make sure homeowners and investors weren’t harmed during the reckless boom years. The administration is “committed to forcing institutions to change the way that they conduct business,” Obama’s top housing official said, “to make sure these problems don’t happen again.”

So, if a bank took your house without actually owning it or charged you for payments you already made or broke a refinance agreement with you, that’s okay but if they do it in the future that will be bad and something will have to be done. Get the logic. Look forward not back.

Now, you may remember something else that the HUD secretary said. It goes like this – “Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended,”

That’s just odd. You see, one statement contradicts the other. We can’t have justice for past events if we’re not going to deal with past events.

Maybe you don’t understand. I don’t either.

To be frank, I don’t think they understand.

I think we better look to the States for enforcement, because these guys just don’t seem interested.

James Pilant

Department Of Housing And Urban Development Leaps Into Action?!

On By southwerkIn business ethics, ethics, Government Failure, White Collar Crime5 Comments

U.S. Housing and Urban Development Secretary Shaun Donovan had this to say on behalf of the Obama Administration.

Get a load of this! –

“Where any homeowner has been defrauded or denied the basic protections or rights they have under law, we will take actions to make sure the banks make them whole, and their rights will be protected and defended,” Donovan said at a Washington press briefing. “First and foremost, we are committed to accountability, so that everyone in the mortgage process — banks, mortgage servicers and other institutions — is following the law. If they have not followed the law, it’s our responsibility to make sure they’re held accountable.”

Wow! So, let me get this straight. The foreclosure industry and many banks have been foreclosing on homes with false affidavits and, very often, little or no documentation. They have been doing this for more than two years.

You have never caught any of them doing anything wrong for that entire two year period.

Tell me, at what point in time, did you discover you were committed to accountability? ‘Must have been sudden!

After you have ignored countless stories in the press over the last two years and finally, days ago, after all fifty state Attorney Generals have announced action, you organize a posse, mount up and ride for justice?

Well, problem solved!! All we have to do is wait for you to bring ’em in!

I’m so pleased. I’m so impressed. I’m touched by your devotion to justice. I’m awed by your dogged pursuit of wrong doers.

Right! And here’s what I really think.

You couldn’t find your butt with a 50,000 watt searchlight.

James Pilant

Why Should We Have A Foreclosure Moratorium?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, White Collar Crime

Ezra Klein from the Washington Post –

Ezra Klein: (Klein has just asked why should we do a moratorium, this is his follow up question.) But won’t that just freeze the markets and throw everything into more chaos? And as for the homeowners, most of them will end up being foreclosed on anyway. We’ll have delayed the inevitable, adding uncertainty to economic pain.

John Taylor: (John Taylor is president and chief executive of the National Community Reinvestment Coalition.) Those are people who don’t understand what’s happening in the crisis. The point of a moratorium is to give the counselors and the attorneys time to negotiate a fairer, more responsible mortgage product. Mortgages where properties have been abandoned and the banks are repossessing them should go forward. But in other cases, where people have just lost jobs, we can be more patient. Citibank has given those people six months to get back on their feet. That’s what we need, not greasing the skids of this process. People need to understand, every time there’s a foreclosure, if you’re near that house, your property value goes down.

Taylor goes on to discuss the time a moratorium should last. I’ve been calling for three months. I’m a piker. Taylor calls for 6 to 8 months.

But he makes sense, a moratorium would encourage banks to renegotiate the loans, not just foreclose. We could do with a little reason, a little intelligence in this process. As I have pointed out before, giving people BMW sport utility vehicles for signing record numbers of foreclosure documents without looking at them is not just illegal, it’s crazy. It doesn’t make any sense to game the system like that. Rewarding people for good performance is not a bad idea. Rewarding people for lunacy, rewarding people for things that get your sanity questioned is not good management practice.

We could do mortgage foreclosures like people, not like process. We can live as decent human beings. We have choices. We can try to keep people in their homes. We can try to make the best of a bad situation. We don’t have to live this way.

James Pilant