China Rising, II

Yesterday, it was announced that Geely, a Chinese auto company bought Volvo, formerly owned by Ford (a little known fact to all the Volvo drivers who thought it was a company from Sweden, which it once was).  Geely's major financier?  Goldman Sachs.  And Goldman Sachs  is funding this deal.

Great article here about why American taxpayers may end up holding the bag, again, with these "too big to fail" banks.

Staying Foreclosures...Can We Get It Right?

Looks like the Obama Administration is going to take another swing at this horrible debacle.

What a testament to the mess we put ourselves in that we can not seem to help those folks who are in trouble, much less clean up the problems.

An American Hero

Elizabeth Warren did this fabulous interview with The New Yorker. Watch it, it will make you feel better about American's trying to help with this economic nightmare.

It's Unemployment, Mr. Buffet

I rarely enjoy citing Arianna Huffington, but she nailed the economy and the dissonance between our "leaders" and the rest of us when she wrote this appeal to Warren Buffet, asking him to "put down the pom-poms" and think of real solutions to the economy.

Sure all the banks and Wall Street are doing well. But Main Street? With unemployment to probably go over 10% and the under-employed hovering around 20%?

Remember the 1992 Clinton Campaign sign in the campaign office: it's the economy, stupid? Well, Mr. Buffet, it's unemployment, living wages, and some benefits....

Signs of Economic Problems

Elliot Bay Book Company, an iconic book store in an old Seattle brick building is either going to downsize and move or go out of business.

"Bookies" will lament that this is another in the decade long epic battle between bricks and mortar independent book sellers and big box/Amazon retailers. Or they will say electronic media readers like Kindle are making books themselves obsolete.

I think this tale may have something to do with those struggles, but more to do with the current economy and the failure of government agencies in Seattle to understand the difficulties, the actual difficulties, of small businesses.

First, Elliot Bay is not a small independent book seller. Years ago the original owner sold the business to it's current owner who is well versed in marketing, book selling, and owning businesses. He owns two other book stores as well as several other retail operations. However, Elliot Bay is a different animal than the other two stores, one located in a smallish mall and the other is a used book store. Elliot Bay has been part of Seattle for over 30 years. It's a landmark.

But the City of Seattle has been on a mission to reduce automobile traffic, so finding parking in the Pioneer Square area takes obsessive zeal. Just darting out to buy a book is not that kind of obsession. And the location of the book store is a mere few blocks from the professional sports stadiums. Seattle Department of Transportation and the police make getting in and out of the neighborhood on a game day a navigational nightmare. And add to it last winter's debacle with the City of Seattle failing, no neglecting, no intentionally NOT plowing the streets for two weeks during a snowstorm (the key two weeks for holiday shopping when most book sellers make the bulk of their annual income) and the recipe for failure is written. Then of course, there is credit. The book store's credit (used to buy inventory) is tapped out and no lender wants to write a new loan (you know, those banks we bailed out?).

For all the talk by politicians that they want to help businesses, they really don't know what to do. So-called business lobbying groups, like the Chamber of Commerce really don't have small business interests at heart. They really represent their own professional staff and large mega-businesses, like, say Barnes and Noble who would be delighted to see Elliot Bay shutter it's windows. And politicians take money from the Chamber of Commerce's Political Action Committee, not from small time owners of little shops in Seattle. So the mayor and city council will wring their hands (it's an election year) about the loss of Elliot Bay, but really, nothing will get done.

But the story of Elliot Bay is applicable to every town and city in America right now. And sooner or later there will be shuttered windows and empty store fronts unless those in power in finance and in managing cities and towns figure out there are ways to help this economy and it ain't bailing out banks too big to fail. That really it's helping out small book stores so small they need to succeed.

Wall Street Happy - Main Street Losing 1 Out of 20 Jobs

The financial system is broken. When headlines say things like Washington state is losing 1 out of 20 jobs (as in jobs vanished) yet Chase Manhattan, beneficiary of government bailout monies, reports earning huge profits and will award the largest bonuses, something is wrong. Wall Street celebrated today by going over 10,000.

Main street, however, isn't doing enough to let policy makers know the system is broken except for the lucky few in the financial industry. Where is the anger, the revolt, demanding better regulation and more commutarian financial services, which benefit those who make deposits, pay interest, and take risk in the stock market?

The system is broken.

Banking's Deaf

In today's New York Times is an article about pre-paid debit cards, or cash cards. How this is the new way for banks and the financial industry to ding owners of these cards (and oh, surprise, surprise, surprise, most people who have these cards are unable to open accounts at banks and are usually poor!). Activation fees, monthly fees, fees for using ATMs, fees if they go over the amounts on their cards. Yikes!

The financial industry is deaf. They clearly can not hear that we are more than fed up. Or maybe the problem is we're not mad enough.

Stop the Madness

I swear if I hear the line "we need to give this compensation or bonus in order to keep good people," one more time I am going to keel over laughing. Are these the same Lords of Wall Street who drove us into what is now being called The Great Recession? Wow. I really think we need to keep these people in the same jobs, because, who knows, we may dig ourselves into even deeper holes!

And keep them from what? Apparently banks, you know, the places where you deposit money, they lend it, making you some interest and giving themselves a little profit, well banks also invest their own money. These bonuses and fat compensation packages are going to the traders, the folks who are making trades on Wall Street, investing dollars in all sorts of exotic financial instruments. Frankly, if they leave the banks and the Glass-Stengal Act which prohibited banks from trading, is re-instituted, we could solve many many problems.

But we all know that isn't going to happen. The huge compensations are also not going to be trimmed. This Administration and Congress lost their window of opportunity to change and reform America's financial institutions. Now we're getting lame credit card regulation, which gave the credit card companies a year running start to up interest rates, change late fees, and reduce credit limits. A consumer credit agency that will, what, monitor how these credit card companies are doing, and no further regulation on banks or Wall Street.

We had a chance to stop the madness. Now we're just getting business as usual. Except for this one case, where a judge is actually questioning the cozy relationship between Bank of America and the Securities and Exchange Commission. Count to ten and wait for someone to label him the new judge slime word: activist. I'd call him a hero.

You've Earned It, Now Enjoy It...

Recently, I went to a "resort community" near the border between Washington State and Canada. The focus of the resort is a hotel, Semiahmoo, and two golf courses. Clustered around the courses are housing developments, all behind gates. Along the spit of land jutting into the entrance of the Strait of Georgia, is the hotel and several condominiums. It is an area ripe for extensive real estate development.

And indeed, like ship wrecks washed up on the shore, there are two buildings next to the Semiahmoo hotel which are abandoned and in foreclosure. The Marin at Semiahmoo. With prices averaging in the high 600,000's, because, as the web site says, "you've earned it, now enjoy it." The developers, a couple from White Rock, British Columbia, were recently sued over the loan guarantees they made and the property itself is slated for a foreclosure sale in October. The development was intended to be elegant, a statement of good taste and enjoying the good life.

There is a second development, up near the golf courses, away from the marvelous spit and marina, called Horizon. It was supposed to be a planned unit development, placing over 400 hundred units on former pasture land of 140 acres. Oh, but it was going to be sustainable. On this beautiful piece of property are two more ghost buildings, a preview office and apparently a "show" home. There are hinges on rock pillars where apparently the gates were to be hung, wires sticking up from the ground, and pvc pipe everywhere. The self-described country boy developer apparently was put into receivership by his lender late in July.

Meanwhile, the land is torn up, concrete has been poured, and hulking, empty structures sit, attracting pigeons, sea gulls, and other wildlife.

Between these two projects, lenders are holding onto over 50 million dollars in loans. The two primary banks are relatively small and regional. 50 million must be a lot of money to them. The banks were egged on by amped up realtors and developers who, believed that rich Canadians like "hockey players who want to hide their money in the US," and others who desire the good life of the Pacific Northwest, would buy their projects. Bankers, developers, realtors foresaw millions in profits. They spun stories of quality materials, sustainable housing, elegant details, and rich life experiences if only we would buy their product.

There was nothing sustainable, elegant, rich, or of quality in what they produced. They were, like their brethren mortgages and re-finances, collateralized debt obligations, or derivatives, modern day economic Elmer Gantry's, promising something they could never deliver, believing they would be long gone before anyone caught up with them. Hidden behind limited liability corporations controlled by other limited liability corporations, these real people, probably don't even think they are or were part of the problem.

Meanwhile, the wind in Semiahmoo howls the motto of the past decade through the empty buildings: "you've earned it, now enjoy it."

The Obama Foreclosure Plan Is Not Enough

The numbers are disappointing. No, the numbers indicate failure on the part of the Obama Administration in addressing the foreclosure nightmare.

And part of the reason for this failure is the dismal response by the Administration to the proposal to change current bankruptcy law allowing "cram downs" of loan modifications (now, remember, bankruptcy judges can cram down loan modifications for corporations in bankruptcy or for your second home, but not a primary residence). The lack of this leverage, I think, is allowing banks to dilly-dally in modifications.

But allowing foreclosures diminishes property values in an economy of already souring real estate. The diminishing values, in other words, the amount of equity already lost, will apparently pay for the health care changes the Obama Administration wants.

Hmmm. Once again, isn't it time to stop these foreclosures?

Trying to Negotiate with a Bank

In today's New York Times, the editorial board wrote a great piece about the failure of the US Senate and the Obama Administration to pass legislation allowing federal bankruptcy judges from modifying first mortgages on single family residences, the so-called cram down provisions.  Banks and the financial industry lobbied long and hard to ensure these provisions were not passed.  These are the same banks who have received our taxpayer dollars.

And like every industry who dislike regulation, the same old line came out: cram down provisions will increase the costs of home loans (or land use regulation will eliminate affordable housing, or the Clean Air Act will increase the cost of automobiles...you get the drift).  The reality is not allowing federal bankruptcy judges (not a wild-eyed bunch, I can assure you) to modify a small number of home loans will increase the cost of mortgages because the toxic assets of bank ledgers is causing the cost of credit to increase.

But a much more significant point is that without the threat of bankruptcy and a possible "forced" loan modification, there is no, none, zip, leverage for a distressed home owner in negotiating with a bank.  Think about what is happening right now with GM and Chrysler, the threats of bankruptcy brought unions and creditors to the table.  

So, why is it Democrats and the Obama Administration allow for cram-downs with every one else but regular Americans?

Remember AIG?

Great short piece on AIG in yesterday's New York Times.  Essentially, in the negotiations over who was going to run AIG and how it was going to be managed, AIG beat the federal government.  We have loaned AIG billions and billions of dollars with no control over spending, much less management of this insurance behemoth.  

I think about my father, giving me an allowance.  Every week he would go over how I was going to spend the money, line by line, down to the candy I snuck from a local dime store.  But here, we lend money without any clue how to retain control.

And really the issue isn't the bonuses or the past, it's about the future.  It's whether this company can manage it's way out of a paper bag from here on in.  In a larger context is whether our government is being consistent in the micro-managing of the Chrysler and GM and yet hands off of the very culprits who were in the epicenter of this financial tornado.  While we can heap blame over the futurists at GM, Chrysler, and Ford not seeing an end to cheap oil and building smaller, more fuel efficient cars (and hello, who bought those cars?), 99.9% of the blame for this depression lies at the wing-tipped feet of the financial industry.  Yet they still seem amazingly in control of their daily work world and continue to lobby Congress and the Administration for lax regulation on them and tough bankruptcy laws on the very victims of their follies.  

What is up with that?

Credit Card Racket: What's in Your Wallet?

Several years ago I contacted one of my credit cards.  After navigating the automated voice tree, I found out that to make a phone payment, I would be assessed a fee!  I hung up and wrote a check, grumbling that as a small business owner myself, I would never think of charging clients a fee to pay me!

Then, of course, like millions of Americans, I have received a letter from my credit card company (one of the recipients of TARP money, by the way) telling me my interest rate is going up.  No reason other than they are suffering from the economy.  So apparently they need to make even more money on the spread of the no-interest loans from my taxpaying dollars.  I just got stung twice.

So it is great to read that President Obama is convening a sit down with the heads of the major credit card companies on Thursday to talk them out of their most egregious acts like charging to make a payment, unilaterally raising rates, charging interest on fees, giving virtually no time between billing and due dates...the list goes on.

But there are even worse issues.  Our country, our culture, has become so addicted to credit cards that we capitulate to a corrupt system.  Companies like Equifax and other credit rating monopolies tell us that unless we have credit and use it, our credit ratings decline.  If we have closed accounts our credit ratings go down.  It's disgusting symbiotic relationship.  If you want to live without credit, you seemingly do not exist to the very companies that can decide the interest rates you get on home loans.  The most responsible among us are punished.  Does that make sense?

Or how about small businesses, unable to get business loans from a lender are forced into using high interest credit cards from the same lender who turned them down for a more reasonable loan? Who makes the money?

It's great that Obama is going to cajole the credit card executives.  We'll see the photo-op, and the executives in their gorgeous suits standing in front of the White House proclaiming they will work with the Administration.  And minutes later, out of the camera's eye, they will be meeting with their K Street lobbyists figuring out how to kabash the proposed legislation on Capital Hill which would begin requiring the companies to behave in slightly less disgusting manner.  

But like a monopoly, or like a Mafia mob, the tentacles of the credit card companies (which are mostly owned by the "too big to fail banks) are intertwined into our culture, our "way of life," and into all of the policy makers pockets.  Unravelling their power will be long, difficult, but rewarding work.  

Time not paying credit card bills?  Priceless!

Shell Games with Bank Numbers

Finally, the stock market used it's x-ray vision and saw through profit statements from a bank!  It took a few days, but the analysts realized bally-hooing banks might not be such a good idea since there really hasn't been any change in banking assets except deposits of enormous amounts of taxpayer bail-out money.

Indeed the announcement of Bank of America's numbers sent the stock market on a tail spin.  Maybe investors are beginning to wonder who the heck they can believe?

In the meantime, confidence that boomers can retire and live comfortably is at an all time low level.  In other words, we're more than slightly worried that all those nifty investments we were sold are not going to help us live like we thought when we turn 65.  

All of this is beginning to remind me of the lessons we try to teach children.  About decision making for long term gain rather than short term joy.  It seems to me that so many of the CEOs only thought about short term joy.  Money lining their pockets, not the long term health and welfare of their companies, much less their customers.  

It's beginning to feel a bit like a sophisticated robbery scheme, isn't it?

Foreclosures: What Is Your Bank Doing?

The two articles made my stomach turn.  First, banner headline in yesterday's Wall Street Journal that banks are ramping up foreclosures.  According to the article, now that the lenders "understand" what the Obama Administration's requirements for assisting defaulting homeowners, the lenders apparently, in a matter of a few weeks, have managed to survey their portfolios, determine who is qualified to re-negotiate their loans and who shall be foreclosed and evicted.  

Meanwhile, the changes to the bankruptcy code which would permit federal bankruptcy judges to modify home loans, the cram-down provisions, remain bogged down in the US Senate.  Banking industry lobbyists apparently can control 100 US Senators far better than that unruly US House of Representatives who did pass the modifications to the bankruptcy laws.

As appalling as the realization that lenders who are essentially being bailed-out unconditionally, turn around and pull the plug on thousands of homeowners, is what is happening to elder borrowers.  Folks who have lived in their homes for dozens of years, had significant equity, could pay their taxes on the miniscule incomes they had, but were swayed by mortgage brokers who trolled the public records looking for just these kinds of people.  They were told by these mortgage brokers that they could take the equity, live a better life, perhaps use the money to pay the loan...many of them didn't make enough money to pay the first mortgage payment.  Meanwhile the mortgage brokers walk off laughing with thousands of dollars in commissions and fees.  And of course, these elders, our mothers, fathers, grandparents, are in foreclosure or out of their beloved homes.

While there have been several very public criminal investigations of mortgage brokers committing fraud, the victims have been lending institutions.  Not people.  Not elders seduced in classic huckster style, to borrow way more than they could afford, eventually losing their homes.  So while we as a society are so busy saving banks, we have done a horrible job helping our neighbors.  We are not protecting their homes, we are not prosecuting the fraudulent lenders and brokers who preyed on people (not banks).  We are not standing up to the US Senate telling them to do everything they can do to help homeowners.  Pass the cram down provisions now!

Meanwhile, stop into your bank.  Ask to speak with the branch manager.  Tell him or her that you are upset your bank, your money, is being used to foreclose on your neighbors.  Tell them you don't want that to happen.  That you want your bank to work with every single homeowner until that homeowner calls it quits.  Tell them you want the bank to look at the mortgage brokers who brought them the loans, to send cases to prosecutors where the loan was clearly predatory and the victim is hurting.  Tell them you are embarrassed and ashamed of their behavior.  Talk to them, all their ads claim they listen.

Since I posted this this morning, I read this great piece on the status of the cram-down provisions in the US Senate.  If you live in one of the states with the Democratic Senators opposing the re-institution of the cram-down provisions, or even if you don't, call the folks on the list in the article. Call them every day.  It's important not only for the folks trying to work with the banks, but for your own neighborhood, community, and conscience.

We Don't Need No Stinking Regulation!

We just knew this would happen.  I'm not talking about President Obama's concerns over international regulations on financial institutions (although we'll get to that).  I am talking about something that usually makes normal people doze off: accounting rules.  Accounting rules, when it comes to corporations, are controlled by the Financial Accounting Standards Board (FASB).  For years, they had a rule called "mark-to-market" which means that assets on corporate ledger sheets had to be valued at what market, the least best market, would pay.  

Banks have been having fits over this rule recently, because it has meant that the so-called "toxic assets" were valued as, well, toxic.  Rather, banks wanted to value those assets at mark rather than market.  In other words, what they paid for those assets or what they think, in best case scenario, they could get in the market.  The old FASB rules were essentially realistic, but required banks, therefore, to beef up collateral for Federal regulatory requirements.  If an asset is only worth $100 and the federal regulators require $1000 of collateral, there was a $900 deficit that banks had to find in order to stay in business.  

Today, under enormous pressure from financial institutions and policy makers (read: politicians) who want magic dust spread over this economic and financial mess to make it go away, FASB changed the mark-to-market rules, allowing financial institutions to mark the assets with pie-in-the-sky values.  Voila, an insolvent bank suddenly becomes solvent.  It's like saying a debt you know you will never collect on suddenly looks valuable!  Overnight!  It's magic!  

And dangerous.  It's breathing life into dead bank walking.  But, I guess, those banks don't care because they know (speaking of moral hazard) that the taxpayers will continue to bail them out.  Why?  Because they are "too big to fail!"

Meanwhile, President Obama, at the Group of 20 (G-20) meeting in London, refuses to accede to German and French requests that global leaders begin to think of ways to internationalize regulation of financial institutions.  While President Obama certainly has justifiable concerns about sovereignty issues, it seems to be the failure to institute international regulations defies the "globalized" economy.  

These "too big to fail banks," and even AIG, are all international in scope.  Their tentacles reach into almost every country (isn't there a Citibank branch in Tibet doing sub-prime loans for a yurt?).  AIG's division that created the insurance on the mortgage backed securities (still following me, here?) was based in London.  And then there are the issues of the "off-shore" hedge funds and countries amenable to lax banking regulations which drive business away from prying eyes an into these havens, meanwhile, they fail and cause the same problems we have now.  

I think the Germans and French leaders have justifiable concerns which Americans should not dismiss because of our anathema to international regulation.  Surely there must be ways to address these concerns.

On the other hand, we're still not doing such a great job figuring out how to reign in the financial institutions on our own soil, so maybe we still need to focus on that for awhile.

Note:  Since I wrote this piece Thursday morning, the stock market went up to over 8,000 points before settling in just below that mark.  The reason?  Elation over the new mark-to-market rules.  No offense, but when Wall Street goes ga-ga over an accounting rule, you know it smells bad...right?

Meanwhile, Real People Are Being Foreclosed

Yesterday was spent with friends who have purchased their dream lot.  Right on Puget Sound.  The view is breathtakingly spectacular.  In a year, maybe two, there will be their house.  Rock fireplace, nice wood beams, wood garage doors.   It was quite wonderful, almost like spending a few minutes in a bubble, to talk with them about their plans.

But the reality for many Americans is still stomach churning.  Layoffs beget delays in paying bills, a monthly juggling act that keeps anyone awake at night.  Frequently, the bill that does not get paid is the largest, the mortgage.  And so, while my friends enjoy their dream, many people's homes have become their nightmare.

And, so far, nothing effective is being done to stop foreclosures.  The fear is that with these recent and soon to be more layoffs, people who lose their homes will also not have sufficient money to rent or find other housing.  And thus, this country begins to spiral into a greater disparity of homelessness, the haves and the have nots, the wealthy and poor.  We may worry over Mexico becoming a failed state, but from where I sit, we may become Mexico in the gap between rich and poor.

While our policy makers jet about, dealing with auto manufacturers, trying to patch up failed financial institutions, and engaging in the elegance of international dialogue, real people, your neighbors, your cousin, a family friend, is staring at a Notice of Foreclosure.  His or her stomach is in knots.  Many tears have been shed.  Fear gnaws at them.  Every day they receive letters from predators telling them they can help them out of their problems when really, letting them in the door will only make matters worse.  Greed and corruption know no bounds and no one is doing much to stop this nightmare.  

It's time for a moratorium.  If the White House can ask Rick Wagoner of General Motors to quit, they can tell the financial institutions to stop foreclosures all together.  Just stop.  Let's gather our wits, not trying to apply band-aids, but rather find solutions for every single one of these foreclosures.  We can do it.  Yes we can.

Laughing All The Way To The Bank

One of the standard ways for media to draw attention to itself is to pick a fight with other, perhaps rival, parts of the media.  Readers of New York tabloids know this strategy well.  Last year we witnessed an MSNBC news "anchor" constantly flame a Fox News commentator.  Ratings, apparently went up all around.

It's not surprising then, that this past few days Jon Stewart of Comedy Central has taken on financial media types like Jim Cramer of CNBC, accusing them of fueling the economic bubble from the past 8 or so years and failing to take responsibility.  Stewart's Exhibit A is Cramer's endorsement of Bear Stearns stock days before the company went belly-up.  

NBC, the owner of CNBC, loved the attention, just as Fox did when their commentator was attacked by MSNBC.  In this game, the idea that attention, good or bad, is good for ratings, holds true.  Jon Stewart invited Cramer on his show, and NBC milked it.

While Stewart apparently was not a comedian with Cramer, and engaged in some fairly serious accusations about media types failing to investigate the extent of the financial institutions failures and hyping the "bubble," it's still odd, in some conventional sense, to think of a comedy show doing the work of journalists and opinion "leaders."

In reality, Stewart makes his living off of current issues.  And the economy is front and center.  Picking on Cramer (who is way too hyperbolic for my taste) was like shooting fish in a barrel.  Easy pickings for Stewart, especially since he probably couldn't get John Thain or any other Lord of Wall Street on the show.  It was a win-win for Stewart as well as Cramer.

However, the economy is a real problem impacting everyone.  It's global reach is devastating.  And there are serious details in the reconstruction work that needs to be done, which require attention of everyone, pushing leaders to do the right thing, not short change us as they have in the past.  One of those issues is quite technical but extremely urgent if we want to have a long term sustainable economy built on (to use the current vernacular which I think has lost meaning) transparency.  Mark-to -market is an accounting rule that requires financial institutions to value assets on what they could get on the market, not what they paid for the asset.  In other words, what it is worth.  It is like saying the 10 year old Ford you own is still worth what you paid for it, rather than what you could get if you listed it on Craigslist.  

Financial institutions, now scrambling to demonstrate to Treasury and the Federal Reserve that they are solvent (to avoid federal take-overs and loss of that oh-so sweet corporate jet and huge salaries), want to mark the assets value at something closer to what they paid, rather than what the market will bear.  In other words, fluff up their assets.  Then they can claim they have the reserves to function and voila, the financial problems go away.

The problem is, some Members of Congress are actually listening to them (remember I have discussed the lobbying advantage these banks have over us?)!

So while Jon Stewart and Jim Cramer can "fluff" up their ratings railing at each other about who is responsible for the economic debacle, we all need to keep our eyes on the ball, follow what our leaders are doing, to make sure it doesn't happen again.  This is serious stuff.  And only we can make sure the right policies are set into place so we are not here, again, or our children are not left picking up the pieces.

Where's Your Lobbyist?

Recently I read a short article about transit planning in Seattle.  The commentator said that he was at a meeting where the Seattle Department of Transportation (SDOT) was unveiling yet another "street diet" where the city removes one lane of traffic from use by automobiles and devotes it to bicycles.  This "street diet" thing has been going on for several years and on several major arterials.  Trust me, it bogs up traffic enormously.  But, here is the point: when the commentator asked the SDOT representative about who speaks against the "street diets," the SDOT employee said: "I speak with a lobbyist from Cascade Bicycle Club everyday.  Where is your lobbyist?"

Holy Cow Batman!  You mean we all need lobbyists to speak to government?  Much less to be listened?  The irony of that encounter is that it happened at an open house where SDOT was supposedly listening to input on the street diet.  But we all know that so-called public meetings are really a way of "letting the public let off steam" even though the decision is already made.

Today, the Obama Administration announced that it will begin describing it's ideas for regulatory reform of the financial sector.  Of course, this means everything, I assume, from how different countries interact financially to how we monitor individual financial transactions in this country.  And, I wonder, who will be speaking to the Pooh-bahs of decision making on these financial reforms?  Certainly not the average American who was foreclosed out of their house or the retired couple struggling to stay afloat when their so-called safe investments went south this month.

Indeed, the financial sector lobbyists in Washington, DC alone ensure that politicians and their staffs are well feted and their campaigns stuffed with cash.  The average person doesn't stand a chance, much less the non-profits based in DC who purportedly advocate for the "little guy."

In all of the economic restructuring that is occurring, I believe the examination and proposals to monitor and regulate the financial industry, although late in being thrust into the policy spheres, is critical.  Each of us should pay attention.  Find allies or organizations to represent you views.  Call your Congressman or Senator.  Because how the financial sector is restructured will really be the crux of our economic security in the decades to come.  We can no longer rely on the Lords of Wall Street to do what is right but on the other hand we can not stifle our ingenuity.  Just know, however, that the banks, investment houses, mortgage lenders, credit card companies, real estate industry, are swarming Capital Hill, they're calling presidential staff members, having drinks with friends of Barack Obama, writing checks for campaigns.  

We need to pay attention or else things we care about will be "street dieted" because we couldn't talk to anyone every day.

Laying Blame At The Wrong Place

In today's Wall Street Journal  former US Senator from Texas, Phil Gramm, opined on the economy.  Now, this is the same Phil Gramm who said this summer that we had become a nation of whiners.  And this is the same Phil Gramm whose wife was on the board of directors of Enron during the whole period of criminal activity led by Jeff Skilling and Ken Lay.  So, keeping that in mind, Mr. Gramm talked about what he perceives to be the two causes of the economic meltdown (another note, here, Mr. Gramm is an economist by training).

The first cause, he asserted, was monetary policy related to moving inventory which had stockpiled due to the September 11th recession.  By lowering interest rates as an incentive for businesses to borrow and acquire computers, machines, materials, the Federal Reserve also, in Gramm's opinion, threw fire on an already stable housing market, thus causing a sustainable market to become a boom.

But it's the second cause that I dispute.  Gramm has always been an opponent of the Community Reinvestment Act (CRA) which was originally signed into law by President Jimmy Carter as a result of glaringly obvious discriminatory lending practices by FDIC insured banks.  These discriminatory lending practices were known as redlining.  Essentially banks looked at maps, determined where the "poor sections" were and rarely if ever made a loan in those neighborhoods.  A redline was drawn around the area.

Now, the CRA was more of a feel good law than anything with regulatory teeth.  It simply "asked" banks to look at their loans and attempt to make investments in areas that they had previously redlined, as long as the investments were made with sound lending practices.  

It was not until 1989, under a Republican president, that some teeth was added to the law, which allowed community groups and researchers to access the lending information and perform more rigorous quantitative analysis on a bank's lending strategies.  But really, the whole idea of the CRA was more carrot than stick.  If a bank wanted to merge or to open more branches, the CRA was a vehicle for community groups to protest the expansion if the institution was not making investments in previously redlined communities.  However, not one bank merger or expansion was held up because of CRA complaints.

President Clinton further sought to open up the information on CRA based lending but did not promote any further regulatory bite.  In 1999, Mr. Gramm lead the charge to repeal the Depression era banking laws, commonly known as Glass-Steagall, and forced President Clinton to back off his ideas of strengthening the CRA by giving the FDIC and Office of Thrift Supervision more power to examine banks CRA compliance.  

In fact, in 2005, the Bush Administration did loosen the CRA requirements, allowing banks to include the acquisition of mortgage backed securities as a means of compliance.  In other words, banks looked at the zip codes of loans within the pool of mortgages and essentially said: "hey, there are some loans within a poor neighborhood, we're all good here!"  They were also allowed to include all of their services as part of the CRA "investments," so if a bank sold an annuity or a CD to someone within a suspect neighborhood zip code, it met the CRA "obligations."

Now folks like Mr. Gramm are maintaining the the CRA is responsible for sub-prime loans.

In fact, over 50% of all sub-prime loans made in the past 9 years, particularly those which are causing so much trouble, were made by non-federally regulated institutions.  Institutions not under the umbrella of CRA.  Another 25% to 30% came from banks, like Countrywide Bank (part of the infamous Countrywide "family") which are only partially obligated to follow the CRA.  

On the other hand, banks that did follow the traditional CRA requirements have significantly lower default rates.  They followed "sound business and lending practices."  They educated their borrowers on issues of credit, borrowing, and homeownership, instead of seeking the fast buck and selling the mortgage way down the road.

To blame a toothless law, intended to guide banks toward viewing the whole communities in which they lend, is gutless.  It reeks of sound bite moments that we witnessed during debates over welfare or other issues, when it became fashionable among some politicians to blame the poor because they didn't have expensive lobbyists in Washington, DC.  

In fact, if the numbers are accurate, it seems to me that strictly following the CRA may have saved some lenders from the crisis larger banks are now experiencing.  And those borrowers who were the beneficiaries of true CRA lending are also smiling as they sit at their kitchen tables in their homes.