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Live Chat: Robert Scheer on Foreclosures

Posted on Oct 15, 2010

(Page 2)

Truthdig: Yeah. OK, thank you, Bob. The next question [from George in Mexico, Maine]: Can you state what you would like to see done to resolve the housing loan crisis? It is estimated by NBC that as many as 20 percent to 40 percent of the loans Fannie and Freddie have on their records are fraudulent.

RS: Yeah, I know what has to happen, since this whole thing began, which is a moratorium on foreclosures. What the banks are doing now, out of necessity, should have been done from the beginning. And it should not be up to the banks to decide; it should have been by the government, rising through the courts and saying this thing is a bloody mess. We don’t know who owns these things; you can’t foreclose on a house if you don’t know who owns it. And they should have stepped in right away at the beginning of this meltdown, and said, hey, while we unravel this, leave people in their homes. Work to empower the bankruptcy courts to force the banks to make deals. Because if you keep people in the homes, the plumbing doesn’t get stolen, the wiring, the windows don’t get broken, boarded up, and the rest of the neighborhood doesn’t suffer. I mean, the people that are suffering here are not just the people who had these lousy loans that then get foreclosed, it’s everybody in their neighborhood. Because if some houses go down, everybody gets hurt, even if you own your own house outright. And so that’s … the collapse of the housing market has affected everyone. And it seems to me very clear what should be done, which is a moratorium, a freeze on foreclosures. Everybody stay put, you know? Musical chairs. Stay put until we can sort this thing out. Whether it takes a year or two years. Sort it out, figure it out, and then compel the banks that have been saved by the taxpayers. You know, Wall Street was saved by the taxpayers, they’re now making record profits, they’re paying out record bonuses, record salaries to their people, the last two years have been their best years in history as far as their payouts. And you say to them, wait a minute, we made you whole; we saved you. You guys created the problem. And in return, you’ve got to now do something back for the homeowners. Instead we’re getting what Paul Volcker—who was head of the Federal Reserve and is actually supposed to be head of the economic advisers to the president, but he’s obviously not listened to—Paul Volcker, just eight or nine days ago, said, “We have a liquidity trap.” We’ve given the banks all this money, and the low interest rate—a zero interest rate, effectively. The Fed has taken over $2 trillion of these toxic assets off the books of the banks. And instead of the banks using all that money that they’re getting for next to nothing and lending it to people, lending it to businesses, investing in the economy, they’re holding onto it. That’s called a liquidity trap. And so the banks are made whole, and they’re not doing anything to help the rest of the people and the economy.

Truthdig: OK. I have another question: Where should the money come from to allow for the foreclosures to freeze?

RS: Where the money should come from is from the banks that have made out like bandits in this whole thing. They contrived these packages. They’re the ones who sold homes, sometimes to people who couldn’t afford it, terms that were not understood. They’re basically the swindlers in this piece. And it’s in their interest, by the way. We’re not asking the banks to do something that’s not in their long-term interest. Because they’re sitting there holding all this toxic paper—the stuff that the Fed hasn’t taken from them. Every time the housing market looks like it might get a little better, they dump this stuff. And then it gets worse again. And so in terms of where the money should come from, it’s in the long-term interest of the banks to make whatever deals they can to keep people in their homes. And if that means lowering the payments, if it means lowering the loan obligations, it’s still better than the home going belly-up. So really what we’re talking about is forcing the banks to act in their own long-term interest by keeping people in their houses as much as they can. And they’re not doing that. They’re being very, very slow to make adjustments in these loans, and as a result the foreclosure rate keeps increasing.


Square, Site wide

Truthdig: OK. The next question [from Belle]: Why doesn’t the media ever comment on why the government didn’t rescue the actual mortgage holders that were in trouble, versus bailing out the banks?

RS: Because the media is an elite media. We live in a class-driven society now that is quite extreme. And the Washington elite, the pundit class, the people who comment on this stuff—you know, they no longer work at small newspapers. They’re no longer living in regular communities. These people make out like bandits, you know, whether they’re called journalists or they’re called politicians or they’re called bankers. You know, they get enormous … people like Tom Friedman of The New York Times, he gets what, 50, 75, 200,000 dollars for speaking fees—the same thing that Lawrence Summers got when he was advising Obama, [when Summers was] ostensibly a Harvard professor. You know, and he made $4 million in speaking fees while he was advising Obama. So these people are not hurting. The people who edit the big newspapers, who run the big broadcast stations, that are chattering on TV, the politicians that serve them, you know, and of course the bankers behind them—they’re all doing quite well in these rough economic times. It’s the rest of the people that are suffering. And they’re not in touch with that. They don’t care about it, they don’t observe it, it’s not in their face. And as a result, they don’t cover it. They don’t write about it. So we have a crazy society now where we have enormous pain out there, enormous pain. That’s why you have the tea party movement. That’s why you have this rage in the country. And unfortunately, the only people dealing with it are people on the right side of the spectrum—the right-wing side of the spectrum. And we don’t have a progressive populist alternative because too many “progressives,” so called, have sold out to the Obama administration and the Democratic Party leadership. And they’re buying into this thing, “Hey, you know, circle the wagons. We gotta win this election. Let’s just shut up.” You know, the Supreme Court is at stake, it’s social issues, blah blah blah. And meanwhile, they’re letting the whole populist cry be championed by the right wing. And it’s a cynical response on the part of the right wing. They’re getting a lot of corporate money to these tea party things. They’re getting a lot of corporate support for their Republican candidates. And we should remember it was Republicans who initiated this whole radical deregulation. Yes, Bill Clinton signed off on it, and he made it a reality. But the Republicans ever since Ronald Reagan have wanted to take the wraps off, finance wraps off, big business. And that’s what caused this big meltdown, and yet here you’ve got these Republican candidates parading around as if, you know, they’re the real populists. They’re not. They’re faux populists, false populists, and they’re going to betray the people who are trusting them. But we don’t have a progressive populist alternative. We don’t have leading Democrats who are sounding the alarm. And the saddest thing is that the one who comes closest to it, Russ Feingold, the senator from Wisconsin, is in trouble. Here’s a guy who voted against the destruction of Glass-Steagall, he voted against Clinton on radical deregulation, he voted against throwing money at Wall Street on the bailout. And the poor guy’s being held responsible, unfairly in the extreme, for this meltdown. And, you know, we may lose him. That is incredibly disturbing.

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By Craig2, October 18, 2010 at 8:46 pm Link to this comment
(Unregistered commenter)

The Bankers have abused the mortgage market over and over again. Take it away from them. Buy the distressed mortgages at a discount. Say, 30-40%. Then write new mortgages at new property values with the “home owners” at 4-4.5% for thirty years. Use Social Security Treasury Bonds to facilitate these purchases. Invest Americans Social Security funds in Americans mortgages and Social Security will be secure far into the future. Might even pay for some National Health Care with the proceeds.

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By plenum, October 18, 2010 at 1:23 pm Link to this comment

Great article, and “doublestandard”‘s historical perspective was a good contribution.

Folks, we’re fucked.  The only sanity based in honesty that remains is from those who are now 10,15,20 years late to learn of the theft and, then as now, too weak to do anything about it. Those who have lost or losing there homes think they can resort to the courts and Congress to serve some semblance of justice, but those 50 or so State’s Attorneys - who are they really working for: Justice, their ‘constituents’ the Citizens and ex-homeowners, or are their constituents really Bankers?  I don’t know, but I don’t have my hopes up much.  Sure, the news sounds like hope but who doesn’t think they DON’T have 2nd, or 3rd agendas? Armed rebellion is the only thing that will convince the institutional thieves to stop, or change… and I even admit that THAT doesn’t work well (except in FRANCE, of all places.)

Sorry about the pessimism, but that’s what the thinking has been for the last year ++ here.

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By SteveL, October 17, 2010 at 8:22 pm Link to this comment

Come on the banks are going to whine, the stock market will go down and the
government will roll over and give the banks what they want.

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By doublestandards/glasshouses, October 16, 2010 at 12:55 pm Link to this comment
(Unregistered commenter)

Interesting that Grant refused the bankers request.  Aparently presidents back then couldn’t be pressured by the business community.  Nor were they dependent on corporations for campaign cash.

Grant refused their request and the economy eventually recovered.  I wonder if congress would have passed the emergency measures back in September
2008 if they had known a little more US history.

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By doublestandards/glasshouses, October 16, 2010 at 12:46 pm Link to this comment
(Unregistered commenter)

Capitalism has been one disaster after another in this country.  “The American Dream” has been interrupted by many a nightmare.  Here is an excerpt from AMERICAN COLOSSUS, The Triumph of Capitalism 1865-1900 by W H Brands, 2010:

  Morgan, Rockerfeller, and Carnagie were too busy
  making money to worry about the political recon-
  struction of the Union and the moral and constitu-
  tional issues it raised.  But they couldn’t ignore
  an event that, in its own way, marked the end of
  the Civil War.
  Jay Cooke was a Union stalwart no less valuable
  to the Northern cause than Ulysses Grant or William
  Sherman, but like Morgan, Rockerfeller, and  
  Carnagie, he confined his fighting to the
  economic front.  At a time when bonds were some-
  thing only rich folks bought, Cooke sent small
  armies of agents across the Northern countryside
  selling Union war bonds to farmers and mechanics,
  lawyers and merchants, wives and widows, and
  aunts and orphans.  In all he sold more than $1
  billion of bonds, and it was largely because of
  this that the greenbacks of the Union government
  printed during the war didn’t depreciate the way
  Confederate currency did.  Cooke grew rich in the
  bargain, earning around $1 million, but those who
  thought seriously about the subject accounted his
  services cheap at that price (which amounted to a
  commission of one-tenth of 1 percent).
  After the war Cooke devoted that same promotional
  zeal to underwriting railroads.  He hawked $100
  million in bonds for the Northern Pacific, a pro-
  spective second transcontinental, particularly
  targeting European investors whose knowledge of
  American geography was acquired chiefly from
  Cooke’s agents…
  The campaign to unload the bonds might have
  succeeded had peace not broken out in Europe un-
  expectedly.  The Franco-Prussian War ended sooner
  than anyone but Bismark anticipated, causing
  world grain prices to plunge and, with them, the
  prospects of a new railroad to the wheat fields
  of the northern Plains.  Then a second scandal
  regarding the finances of the Union Pacific
  surfaced, prompting a federal investigation and
  blackening the bonds of all railroads.  Not even
  the irrepressible Cooke could overcome this
  double blow and his Northern Pacific issue went
  begging.  So far had he extended himself on the
  road that the failure sealed his business fate.
  In September 1873, in the anniversary week of
  Jay Gould’s Black Friday, Cooke announced that he
  couldn’t meet his obligations and would have to
  close his doors.
  The news staggered Wall Street.  “Dread seemed to
  take possession of the multitude,” the New York
  Tribune reported.  Cooke had been a pillar of
  the financial community; if he could fall, anyone
  could.  A correspondent of the Nation observed,
  “Great crowds of men rushed to and fro trying to
  get rid of their property, almost begging people
  to take it from them at any price.”  Banks
  trembled and collapsed; brokers issued frantic
  margin calls before going under themselves…
  The governors of the stock exchange shut the system
  down, causing the panic to spread to Boston,
  Philadelphia, and even Chicago.  President Grant
  traveled to New York, where the bankers and brokers
  pleaded with him to bolster the banking system
  by an infusion of federal cash.  Grant demurred on
  constitutional grounds but agreed to an emergency
  buyback of government bonds…
  The panic revealed the rickety nature of corporate
  America…  The failure of the financial system,
  starting with Cooke and Company, caused huge
  sections of the capitalist structure to collapse.
  Thousands of firms - railroads, manufacturers,
  merchant houses, commodity traders, law and
  accounting offices - went under, leaving the
  survivors to count their blessings…

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