Other States Bail Out CA Mortgages

by CalWatchdog Staff | February 10, 2012 9:48 am

[1]FEB. 10, 2012

By CHRISS STREET

Just over a week ago I published here on CalWatchDog.com “New California Budget Crisis May Torpedo November Tax Increase Initiative[2].” The report illuminated how state Controller John Chaing had shocked California’s spendthrift politicians by announcing the state would be out of  cash beginning March 8 and would miss up to $5.4 billion in vendor payments through May 1[3].

The timing of the Chaing announcement was disastrous for state politicians because it destroyed any hope that Governor Jerry Brown’s $6.9 billion tax increase initiative on the ballot in November would pass.

Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion mortgage settlement[4] with the five largest U.S. banks, who were accused of fraud in the handling of foreclosures and loan modifications[5].

But as Franklin Center Vice President and CalWatchDog.com Contributing Editor Steven Greenhut asks in a deliciously sarcastic article, “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?”[6]  Greenhut highlights that the mortgage settlement money is really just another accounting entry because the real source of cash to fund the “Left Coast” is “implicitly via Federal Reserve/Government coffers.”

Crony Capitalism

Most Americans still snarl about crony capitalism when they think of multinational banks taking a $1 trillion slurp of taxpayers’ hard-earned cash and then paying themselves record bonuses, while hiking fees and cutting off borrowers.  But with President Barack Obama and the U.S. Congress solemnly telling Americans healthy banks were key to our future, most Americans gritted their teeth and came together to bail out the banks, insurance companies and other financial firms.

When the good people of the other 49 states learn the terms of this bail out, I believe they also come together.  But this time they will be showing their fangs and carrying pitch forks!

With only 13 percent of the GDP of the United States[7], California gets 72 percent of the settlement proceeds.  Undoubtedly the five national banks will pass 100 percent of the cost of this settlement onto all their customers nationally.

Consequently, 87 percent of the increased bank fees will be paid by other states to bail out California’s insolvent budget.

Kamala Harris, California’s attorney general[8], claimed the settlement may help roughly 250,000 California borrowers by requiring the banks to cut mortgage debt amounts and extend $2,000 payments to homeowners who already suffered foreclosure.  But Greenhut points out that powerful interest groups, such as the California Public Employees’ Retirement System[9], which had nothing to do with individual mortgage holders being unfairly foreclosed upon, carved off a piece of the settlement money to bail out some of their investment losses on real estate speculation that resulted from bad advice.  [10]

Bad Advice

According to the Los Angeles Times[11], a 17-month investigation recently found that some of that bad advice came from Federico Buenrostro Jr., the former chief executive of the $250 billion California public employee pension fund.  It seems that he and a couple of his pension board buddies were recently accused of pressuring subordinates to invest billions of dollars of pension money with politically connected firms and strong-armed for a $4 million in fee to be paid to consultant Alfred J.R. Villalobos, who later hired Buenrostro.

Most Californians refer to Jerry Brown as left wing, but I think he just proved he is more left brained.  Left brain thinkers excel in math, language studies and logic problems[12].  Since the banks that settled only control or own only 7.3 percent of all outstanding single-family mortgages[13], every time Brown wants to increase spending, he just needs to do another “settlement.”

After all, California bank customers only pay 13 percent of the settlement costs, while the State gets 72 percent of the proceeds.  Either Brown is very smart or the other 49 governors and their Legislatures are really stupid.

Feel free to forward this Op Ed and or follow our Blog at www.chrissstreetandcompany.com[14]

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Thank you also for the success of Chriss Street’s latest book: “The Third Way”
Available in hard copy or for Kindle at: www.amazon.co.m[16]

 

 

Source URL: https://calwatchdog.com/2012/02/10/other-states-bail-out-ca-mortgages/

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