Category: Philosophy of Business

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

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

Jail Time For False Affidavits? Is It Possible For A Banker To Go To Jail?

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

Alain Sherter writing for BNET covers many of the angles in the foreclosure mess. In fact, his article is a good general guide to the controversy and the continuing crisis. Nevertheless, I am focusing on one part of that article.

The Following –

In looking into cases of improper foreclosure, federal officials are also raising the heat by exploring whether financial institutions broke the law in filing fraudulent paperwork. Such inquiries are usually left to the states, which usually have jurisdiction in real estate disputes. Since government housing agencies buy and guarantee bank mortgages, however, a criminal investigation could have teeth. And unlike private investors, obviously, the government has enormous power to compel banks to provide evidence of faulty documentation involved in originating and securitizing loans:

“In more than 25 years dealing with major financial crisis issues, I have never seen this many agencies focused on a single issue,” said Andrew Sandler, a lawyer who works on government investigations. “We are beginning to see signs of extensive governmental investigation that may also have criminal law implications.”

So, are we about to see some actual criminal justice? It would be a strange thing indeed to see justice done to those so high in their own estimation.

James Pilant

White House Refuses To Act! Administration Will Not Call For Foreclosure Freeze!

On By southwerkIn business ethics, Capitalism, Corporate Social Responsibility, ethics, Government Failure, Philosophy of Business, White Collar Crime2 Comments

What a shock! The White House siding with the banks! Who would have thought it? Well, me. I was shocked the President pocket vetoed the legislation that would have retroactively made the banks false affidavits a non problem, but I needn’t have worried this meant a change of policy.

The banks will be protected. Homeowners are not that big a deal, but banks, no matter what they’re doing (unethical, illegal, cruel, vicious, incompetent- those things), will be protected.

Well, the President figured he’d stand firm, conduct a cursory investigation, which would be kept well in hand, and it would all go away.

Wrong, the crisis keeps rolling and keeps getting bigger.

Now, listen up, this is not the fault of Rahm Emanuel, Larry Summers, the President’s Council of Economic Advisers, or the Fed. The President of the United States is making these decisions. There is only one guy in charge at the White House and unless they’re holding his family hostage, he is the architect of his own decisions.

The President once said, “My administration is the only thing between you and the pitchforks.” How about, “and the law, and justice and accountability?”

I think those ought to be in there too.

Well, the crisis continues. This is Jill Schlesinger from CBS’ Moneywatch –

Banks are against the moratorium because it could call into question larger documentation issues, which could in turn put the nation’s biggest financial institutions on the hook for breaches of representations and warranties made to buyers of mortgage-backed securities. If there were a breach, the buyers of the loans in question could “put back” the loans to the banks, forcing the banks to repurchase them for face value or to make the owner of the mortgage whole for the losses incurred. Some analysts have estimated the potential cost of putbacks to banks to be over $100 billion.

Let’s talk about this “putback” thing a little bit. Soon, you may hear about little else in the news!

You see the banks unloaded all these nasty securities packages on pensions funds, etc., selling them as if they were good values without disclosing their inherent flaws because the purchasers were “knowledgeable investors,” a legal status that is essentially a license for investment banks to lie to them. If the banks misrepresented these loans, the pension funds, etc. can demand their money back. What terrible thing could the bank have lied about that would get them in trouble? Well, they might have told the buyer that they owned the mortgages when they didn’t have the actual documents of ownership. Whoops! One hundred billion dollars! That a lot of money.

Remember that phrase, “putback.”

James Pilant

Sign Mortgage Documents, 500 In The Morning and 500 In The Afternoon, For Week After Week – Get A Brand New BMW Sport Utility Vehicle!

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

So, there are rewards for signing documents without any concept, any inkling of what is in them! Now the poor stupid schmucks who bought the mortgage, they’re going to lose their homes and pay the losses based on almost random documentation. Is this a great country or what?

From the Huffington Post –

Florida authorities are investigating the law offices of David J. Stern over how it handled foreclosure paperwork. As the AP notes, Cheryl Salmons, an office manager at the law offices of David Stern, “would sign 500 files in the morning and another 500 files in the afternoon without reviewing them and with no witnesses,” according to Kelly Scott, a former assistant at the firm.

The perks for good performance were considerable, according to Scott’s statement. Tampa Online notes office employees were lavished with gifts:

“As a perk of Samons’ [sic.] job, Stern’s office would routinely pay her personal mortgage, a car payment, her electric bills and her cell phone bill, according to Scott, who told investigators Stern also bought Samons [sic.] a new BMW sport utility vehicle every year and gave her and other employees jewelry. Additionally, Stern purchased employee David Vargas a house, a car and a cell phone, Scott claims in her statement.”

I try to tell my students about reality. Sometimes, I wonder whether or not that is a good idea. I try to teach them to do what’s right. BMW Sport Utility Vehicles may well be a stronger argument than my moral exhortations.

Are any of these financial pirates going to pay anything bigger than a small fine? I doubt it.

Reality is dirty and messy. It tears your guts out. It means you live in a country where money is bigger than common decency, bigger than relationships, bigger than family, bigger than patriotism, – bigger than God. It is for a great many Americans, the only measure of success.

I challenge you to talk the language of morality, justice and Christianity and apply it to business and see how many uncomprehending looks you get or worse yet, the rolled eyes from the denizens of that strange ethereal plane, “the real world.”

But the “real world” bears the same resemblance to reality as the land of Oz. You see in reality, the vast majority of Americans live trying to do the right thing. In the “real world,” these people of honor are fools, marks to be taken, unrealistic clowns to be victimized by bank fees, credit card scams and every kind of bizarre internet rip off.

Millions of Americans work in jobs where they make less money than they could have in another field, they are teachers, firemen, policemen and soldiers. They live lives of service and sacrifice. This is just a joke in the “real world.”

I could go on.

But I suspect that anyone who claims to live in the “real world,” might not be someone you want to do business with.

I prefer those living lives of honor, those working in fields of service, those people trying to fulfill their duty to God and country, than the denizens, the predatory locusts of the “real world.”

James Pilant

Gael O’Brien Reviews The Documentary – “Inside Job”

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure, Philosophy of Business, White Collar Crime5 Comments

From the article –

While of course we know the outcome of the unfolding events Ferguson describes, his interviews with many of the players in the crisis provide additional insight into the larger question of how could so many very bright people be involved in a failure so huge? The film shows the consequences when thought capital is wrapped around the dogged pursuit of an ideology, in this case deregulation, so that conflicting data or opposing viewpoints are not allowed to interfere.

The band of men from Ivy League economics departments wielded a lot of power in the 30-year push for deregulation. They served as consultants to the industry and were selected for significant regulatory or White House advisor positions. Ferguson raises questions about their objectivity as scholars, as well as whether their integrity was compromised by conflicts of interest and accepting fees from Wall Street, or to testify before Congress, or as expert witnesses.

I’ve already written a recommendation style review of the documentary and this one is very positive as well.

You need to read it to get the full flavor of O’Brien’s prose.

James Pilant

Is A 398,264.69 Square Foot House Big Enough For You Or A Bit Much?

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

It’s bigger the the French Palace at Versailles. (Versailles is pictured at the left.)

Its price tag – One billion dollars (American).

Location – Mumbai

Owner – The Richest Man in India – Mukesh Ambani.

Named Anitlla, the entire structure is 27 stories high, although to be fair the first 6 floors are a 160-car garage.

From CBS Moneywatch –

The amenities are as extravagant as they are endless, but what would you expect from the fourth richest human on the planet? The most expensive house in the world has:

* Private gym
* Ballroom
* 50-seat movie theater
* Health spa
* Several swimming pools
* 3 helicopter pads

The house, well, building, also features small trees in the residence in an elevated garden with high ceilings.

Why?

I just don’t get it. (There’s room for 600 servants.) I don’t think I am ever going to get it.

Don’t be mistaken I don’t believe that he should give it all to charity, but isn’t there a point at which diminishing returns kicks in? I mean after the first 100,000 square feet, wasn’t there a pause? And then didn’t someone think at least in the back of their mind, “This is crazy?!”

Well, probably not. But I still don’t understand.

James Pilant

The Dumbest Quote for the Day

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Philosophy of Business, Teaching3 Comments

I teach in Northwest Arkansas. Students here tend to feel that because they are from Arkansas and go to a small college that they are going to have trouble competing with students from name schools. I always tell them that they are just as smart as students from anywhere in the country. As evidence of this, I point to the litany of stupidity, overreaching and greed by these graduates of name universities in the banking industy.

Well today, I got a new quote to use:

It’s not a surprise that we know we have crises every five or ten years. My daughter came home from school one day and said, ‘daddy, what’s a financial crisis?’ And without trying to be funny, I said, ‘it’s the type of thing that happens every five, ten, seven, years.’ And she said: ‘why is everybody so surprised?’ So we shouldn’t be surprised…

This is from JPMorgan CEO Jamie Dimion. That’s right. You heard it clearly. This financial crisis is just “the type of thing that happens every five, ten, etc.” Do you mean the financial crisis that destroyed a large proportion of the value of American homes, came within an inch of destroying the international banking system and has put millions of people out of work? That one? It seems to me the others were a lot smaller – much, much, much smaller. I hope he is better in other aspects of teaching his children. The story of Santa Claus has more validity.

Mr. Dimion has an MBA from Harvard Business School. You see, my students are just as smart as their students. The evidence is clear. I don’t think I could get any of my students to claim that the current financial crisis is a kind of “seasonal” phenomenon and that we shouldn’t be surprised when the elite educated bankers screw up on in a manner barely conceivable in fiction.

James Pilant

(First published in January of this year.)