White House Spokesman: No one is 'Predicting a Recession'.( Both From Think Progress)
Paulson Contradicted by His Former Company Goldman Sachs on Economy.
Spokesman Tony Fratto having the nerve to lie so baldly is typical of the current administration.
They can just as glibly claim that "there is no evidence that the Sun goes down in the West". Bush, for example claims that the U.S. has a "resilient economy", and Treasury Secretary Henry Paulson said that the "economy's going to continue to grow". As you saw, not everyone agrees with those guys.
Here's a little goody from the NYT:
Cleveland Sues 21 Lenders over Subprime Mortgages (01/12/08)
CLEVELAND — Cleveland is suing 21 of the nation’s largest banks and financial institutions, accusing them of knowingly plunging the city into a financial crisis by flooding the local housing market with subprime mortgage loans to people who could never repay.
The city is seeking “at least” hundreds of millions of dollars in damages, Cleveland’s law director, Robert J. Triozzi, said Friday. The list of defendants includes some of the most prominent firms on Wall Street, like Citigroup, Bank of America, Wells Fargo, Merrill Lynch and Countrywide Financial.
Mayor Frank G. Jackson said in an interview on Friday that the companies would be “held accountable for what they’ve done.”
“We’re going after them to get the resources we need to rebuild our city,” Mr. Jackson said.
The financial crisis has hit Cleveland especially hard, with more than 7,000 foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks have been abandoned. The city’s budget has been strained by the effort to maintain thousands of boarded-up homes, and by the cost of responding to a rise in violent crime and arson.The major banks involved did not return calls about the lawsuit. A spokesman for Merrill Lynch, Mark Herr, said, “We’re declining to comment right now.”
The Cleveland suit is separate from one filed Tuesday in federal court by the City of Baltimore against Wells Fargo, accusing it of violating fair-housing laws by singling out African-Americans for high-interest mortgages.
The Cleveland suit, filed Thursday in Cuyahoga County Common Pleas Court under the state’s public nuisance law, asserts that the financial institutions created nuisances across broad swaths of Cleveland because their loans led to widespread abandonment of homes. “We’ve torn down 1,000 abandoned houses, and haven’t even made a dent,” Mr. Jackson said.
The drop in homeownership, and a steep decline in population — to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects.
“The strain on our budget is too much,” Mr. Jackson said. “These companies have knowingly created a public nuisance by exploiting the city of Cleveland.”
Several Cleveland suburbs have expressed interest in joining the case as a class-action suit, Mr. Triozzi said. Because the city is suing under a state statute, cities outside Ohio could not join. “This case is about what these Wall Street bankers did to Cleveland,” Mr. Triozzi said.
Instead of aiming at the banks that originally made subprime mortgage loans in the city, the lawsuit is against those firms that bundled the loans into securities to be divided into shares and sold on the stock exchange. This process, and the large fees the firms generated from the work, Mr. Triozzi said, drove their effort to make as many loans as possible during an era of low interest rates and a prolonged housing boom.
Hope they win big!
Banks Plead They Can’t Follow Rules
When you are shoveling money, keeping track of the paperwork is an awful burden.
As the mortgage mess grows, we are learning more and more about just how sloppy things were in the mortgage-issuing business as loans were churned out, carved into securities and sold off.
Judges have blocked some foreclosures with rulings that purchasers of mortgages could not prove that they owned them. The buyers of the mortgages complain that it is unfair to ask them to have complied with detailed rules.
And now the banks are begging the accounting rule makers to allow them to ignore a rule that has been on the books for almost 15 years. They explain that they never had any idea that they would have to restructure a lot of home mortgages, and thus had no reason to develop systems to deal with the accounting for such restructurings.
“No one anticipated a day when potentially hundreds of thousands of residential mortgage loans would be modified,” said Alison Utermohlen, an official of the Mortgage Bankers Association who has led the effort to get the accounting rules relaxed.
She said many members of the association did not have computer systems adequate to comply with the rule, but she did not identify any specific banks.
Some may doubt that the issue really is a systems problem at the banks, given that the accounting the banks prefer would allow them to report smaller losses as they restructure loans — and thus make their financial statements look better. If the reverse were true, the effort being put into changing the rule might instead be directed at finding ways to comply with it.
But the plea that the banks never saw it coming does ring true. In this cycle, those who lent the money thought that they had no reason to concern themselves with whether it would be paid back.
Instead, they planned to sell the loans, usually to trusts that would then finance the loans by issuing securities. Such trusts have different accounting rules.
In any case, the banks seem to have shared the general belief that house prices would always go up, so anyone unable to meet mortgage payments could sell the house. If losses are never going to appear, why prepare to deal with them?
Now home prices are falling in many areas. The risks of owning mortgage securities began to become apparent last spring, and the securitization markets virtually shut down by summer. Banks now own loans they cannot sell. And many of those loans, made when lending standards were at historic lows, are likely to go bad and need to be restructured.
The accounting rule in question, Financial Accounting Standard 114, was adopted in 1993. Lynn E. Turner, a former chief accountant of the Securities and Exchange Commission, recalls that it was enacted because of abuses by financial institutions during the savings and loan debacle. Under the old rule, banks could avoid reporting losses so long as they expected to get the principal back eventually, even if the borrower did not have to pay interest on the restructured loan. The rule put an end to that.
Or at least it put an end to it for most types of loans. These banks live with F.A.S. 114 for their commercial mortgages and corporate loans, but according to Ms. Utermohlen, they don’t have systems in place to do the calculations for large numbers of restructured residential mortgage loans.
The calculations, it turns out, are not that complicated. You could do them with a decent financial calculator, or an Excel spreadsheet. But the banks argue that would take too much effort, given the volume of loans likely to be restructured. “This would be extremely time-consuming and would likely involve additional staff dedicated to this purpose,” Ms. Utermohlen said in a letter to the Financial Accounting Standards Board this week.
Will the banks win this argument? It appears to be one that they want to win without having to actually admit that any specific bank has a problem at all. I called five members of the Mortgage Bankers Association that are represented on the committee that Ms. Utermohlen said she worked with: Citigroup, JPMorgan Chase, Bank of America, Countrywide Financial and Washington Mutual. Countrywide said that its computer systems were adequate to comply with F.A.S. 114, but that it felt it would be “less burdensome from an operational standpoint” if the rule could be ignored. None of the other four told me whether their systems were adequate.
The decision by the accounting standards board could hinge on whether banking regulators push for such a change. It was banking regulators who originally asked for F.A.S. 114 to be adopted, but some now might prefer to minimize reported losses at a time when the banking system is under great pressure.
No one will admit that the goal is to fudge financial statements, of course. With investors already nervous, the excuse that complying with the rule would cost too much is preferable to an explanation that the reported losses would be too high.
What a choice for the banks to face: report big losses or claim that they are not sophisticated enough to comply with an accounting rule that has been on the books for more than a decade. It’s no wonder they would rather leave the argument to a trade association.
My God, but my heart bleeds for these poor put-upon bastards. They don't deserved to get dumped on like this, especially since their hearts have always been in the right place.
Oh, and to cap off, it seems that the head of mortgage giant Countrywide, who lost their asses in the subprime market, will ride off into the sunset with a whole lot of dough. When companies reach a certain size, their executives are always rewarded for failure--it's the way "business is done" these days.
From abcnews.go.com (1/11/08)
My blog isn't working right, so I can't re-print the article, but here's a very short summary--
Countrywide, the nations largest mortgage lender, bit the dust because of huge losses recently, and barely avoided bankruptcy when Bank of America agreed to buy them for $4 billion. Depending on whether Angelo Mozilo, the CEO of Countrywide, stays or goes after the buyout is completed, he will get a package of cash and perks worth from $88 million and upwards of $115 million. Not bad for a frickin' failure, is it? Never let it be said that these crooks don't take care of their own.