Loan Bailout Rips Off Middle Class

FEB. 13, 2012


In a modern version of one of Aesop’s classic fables, a whooping crane swoops down and gobbles up a frog. But the frog reaches an arm out of the crane’s mouth and grabs its throat so that the bird can’t swallow him. The crane says: “O unhappy me who have found in that which I thought was a happy windfall the source of my destruction.”

Last week State Attorney General Kamela Harris was reportedly whooping up what the Wall Street Journal calls an “election windfall” for California from the Obama Administration’s new $25 billion foreclosure settlement with commercial banks.

Reportedly, $18 billion of this shadow bailout will be for California.  Only $5 billion will be in actual cash. The rest will be in loan write-downs.  Of the $5 billion, only $1.5 billion will be to compensate borrowers who suffered foreclosures from 2008 to 2011.  This will be in the form of $2,000 “gifts” having no connection to the unpaid balance on loans or anything else.

The other $3.5 billion will be for state and local government regulatory programs. So government will end up getting 70 percent of the cash. Big whoop!

Liberal columnist Michael Hiltzik of the Los Angeles Times calls the Obama foreclosure bailout “the Big Whoop” –- a slang term sarcastically meaning “big deal,” typically used in the negative to indicate something is not a big deal (“So you got $2,000 from Obama four years after you lost your house? — Big whoop!”.)

How these $2,000 retroactive payouts don’t violate the California Constitutional prohibition against giving a gift of public funds to private persons is anyone’s guess.  But hey, in California, they’ve been giving developers gifts of private property for decades. So the line between what’s yours and what’s mine has all been blurred anyway. The law and social “reality is what I can get away with.”

Here’s more of why there is little to “whoop” about.

Cranes Will Swoop Up More Frogs by Foreclosure

The loan write-offs are likely to eventually lead to more, not fewer, foreclosures. Forgiven homeowners will face the reality that they still can’t make payments even on lowered loan balances with even lower interest rates.  Without incomes from well-paying jobs, all this will be is a tax write-off for commercial banks. Banks will no longer be delaying foreclosures to appease politicians and will begin filing more Notices of Default.  With the national election over in November and unpaid loans paid off for the “rentier class,” it will be full speed ahead with foreclosures. If Obama loses the election, the proverbial “Plague of the Frogs” will be inherited by the new president.

There is an indication that banks have already begun processing foreclosures in preparation for Obama’s “Big Deal.” In the fourth quarter of 2011 in California, 61,517 Notices of Default were filed, according to the Dataquick real estate data service. Of these, 60,289, or 98 percent, were homeowners who were delinquent on multiple loans, such as a primary mortgage and a home equity loan. Those who were using their homes as a piggybank during the Mortgage Bubble are not coincidentally having their homes put into pre-foreclosure right before the bailout. The proverbial frogs are going to be fattened up before the banks swallow them up.  But the frogs have long arms.

And loan-defaulted homeowners with Fannie Mae and Freddie Mac loans cannot participate in this bailout, which may lead to more voter outrage.  If you’re name is Froggie you can have your loan wiped off the books.  If it’s Freddie or Fannie, you can’t because your loan was so sliced and diced up and sold to so many foreign lenders that it is impossible to figure out how to forgive it.  So, ironically, maybe Fannie and Freddie may make out better than poor Froggie.  Who knows?

Who Gets the Built-Up Future Equity: The Cranes or the Frogs?

Another huge problem with the foreclosure bailout program is the component to help those with “underwater” mortgages — meaning the loan is more than the market value of the home.

Any public housing agency in California is required to include a clause in any subsidy program that any increase in value of the property has to go to the agency.  Otherwise, it would be a violation of the “gift of public funds” prohibitions.

According to, the average amount of unpaid loans on homes in default in California is $19,950.  That apparently does not include unpaid taxes, interest and accrued late payment penalties.

The median California home price as of December 2011 was $246,000 and the average mortgage for homes in foreclosure was $333,036.  That reflects about an $87,000 gap on average on an underwater mortgage.

At $87,000 a pop, the $10 billion in loan write-downs authorized under the Obama Foreclosure Bailout law would help about 115,000 homeowners. That would reflect about 1 percent of all the underwater mortgages in California as of mid 2011. It will be interesting to see what zip codes are selected by the Obama-Harris team to get bailed out of underwater mortgages — Whoopville or Froggie Town?

From this writer’s experience in working in affordable housing programs for public agencies, it would not be surprising if many homeowners with underwater mortgages refused a bailout if it meant foregoing any future equity buildup in their home.  Once again, the frogmen have long arms and may want revenge, not government help.

The Resurgence of the Tea Party Frogmen

Harris’ equivalent of an ancient Roman giveaway of “bread and circuses” to the peasants will likely only galvanize the Tea Party all the more. This is because the loan write-downs come at the expense of savers, investors and pensioners.  As Georgetown Law School professor Adam Levitin is quoted in the L.A. Times, most of the settlement “is being financed on the dime of MBS (mortgage-backed securities) investors such as pension funds, 401(K) plans, insurance companies, and the like — parties that did not themselves engage in any of the wrongdoing covered by the settlement.”

The frog feeders will be punished.  But whooping will go unpunished.  This is justice in the Obama administration’s topsy-turvy world of “social justice.”

The investor class has only been allowed “near zero” percent returns on their investments and pensions while monetary inflation has been running at 3 percent or so.  In the meantime, banks have reaped a windfall from Federal Reserve borrowing policies that now can be used as a bailout for California. This may buy votes for California Democrats.  But it is likely to lead to voter blowback in swing states such as Ohio, Missouri and Florida in November. Even those who do not like the Tea Party are more likely to agree that such shenanigans only ended up making them and everyone else worse off.

The original Boston Tea Party was a direct action by British colonists, the frogmen of their time, against the monopolistic East India Company and the British government.  The Tea Party frogmen boarded the East India Company ships and threw the tea into Boston Harbor.  But will the frogmen be able to throw the Party of Government out of office in November?

Beware of Frogmen with Prescription Snorkeling Masks

What the Obama Foreclosure Bailout may mean is a clarifying moment to average people who haven’t got a clue to what caused the Mortgage Meltdown, the loss of their jobs, the wipeout of the equity in their homes, or the loss of their homes by foreclosure.

In the Big Whoop Foreclosure Settlement, they can see clearly how government uses Big Banks to do their bidding.  This isn’t conspiracy talk. It is happening right before their very eyes from where they live on fictional Lily Pad Lane in Lake Wobegon.

The U.S. Federal Reserve has been allowing commercial banks to accumulate huge reserves since Obama came into office.  By policy, investors have been only allowed returns at less than monetary inflation. Now, at the end of his four-year term, it is time for Obama to cash in his chits and capitalize on the political capital of his Kleptocratic state.  As defines a Kleptocracy, it is “a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often without pretense of honest service. This type of government corruption is often achieved by the embezzlement of state funds.”

Obama has run around Congress and the U.S. Constitution to create his own foreclosure bailout slush fund. Who needs a Congressional appropriation if you can control the banks through the Federal Reserve?  Obama is for the separation of religion and state, but not banks and the state.

Maybe even the “Occupiers” — those mutant one-eyed crabs who clawed their way into the Port of Oakland — can now see that it wasn’t just Wall Street that corrupted government. It was government social and financial engineering policies that provided an incentive structure for institutional “greed.”  But we’re hearing little outrage from the Occupiers about Obama’s “Big Whoop.”  They believe it is social justice for insurance companies, pension funds, and 401(k) plan investors to have their savings plundered because they are members of the wrong Bourgeoisie Capitalist class.

We’re hearing little outrage from the Occupiers because Obama and Harris can control “emotional” communication.  They can make people feel good that the little guy is being given justice.  And for those who feel alienated by Big Banks and Wall Street, they only care that people like themselves — the rentier class — have been symbolically compensated.  If those who invested their money in Wall Street are the losers so much for the better is the logic.  This is more akin to Leftist bourgeoisie Maximilian Robespierre’s “reign or terror” than it is to any exercise of U.S. Constitutional rights.  Whatever happened to the Fifth Amendment to the U.S. Constitution and prohibition against the taking of property without just compensation?  It is government policy, not markets, that have given investors a return less than monetary inflation. And the public purpose behind this policy isn’t to fight a war to protect the nation but to create a slush fund to buy political patronage.

Perfect Storms, Black Swans, and Bad Faith

The Republican candidate who can capitalize on this voter resentment may find some traction at the polls. As Obama boasts about loan bailouts for a few Californians, Republicans only have to ask: “How is that bailout working out for the rest of you?” A lot of government paid loan counselors in California will be making a windfall. But how about everyone else?

Voters vote with their proverbial pocketbook. And when they figure out that what was pickpocketed out of their pocketbook was given to others for pure political gain, they may want to vote against more social engineering of their investments. This is why the Federal Reserve is reviled by libertarians.

The metaphor of a “black swan” was used by statistician Nassim Taleb in his famous book, “The Black Swan: The Impact of the Highly Improbable,” to describe the supposedly unforeseeable Mortgage Meltdown of 2008 right before the last national election. Such metaphors of chance and statistical probability are often used as a way to explain away human responsibility.  During the California Energy Crisis of 2001, it was the “perfect storm” metaphor that was employed to cover up government complicity. These are metaphors in what might be called “bad faith” that denies human responsibility for man-made disasters.

The term “black swan” goes back to a Latin expression from the Roman Empire. The Roman satirist Juvenal wrote: “a good person is as rare as a black swan.”

Without good leaders a society must depend on sound laws and legal institutions.  Whoever ascends to be the next president of the United States or attorney general of California must restore the rule of law and its institutions in its classical framework and not the social justice ideology of the Community Reinvestment Act or the Obama Foreclosure Bailout if there is to be any economic recovery.

Beware the revenge of amphibious frogmen at the polls in November.



Write a comment
  1. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 February, 2012, 10:55

    Like tobacco windfall, the public will not see a dime of this. It will go to gov and gov insiders.

    Reply this comment
  2. Beelzebub
    Beelzebub 13 February, 2012, 11:26

    This is just another example of a cover-up that precludes individual states from civilly or criminally prosecuting the financial goons who committed heinous felonious acts of perjury, document fraud and robosignings which culminated in illegal evictions and violations of basic contractual rights that are supposed to be guaranteed by the US Constitution. It suppresses the truth and permits the individual banksters to walk away unscathed. All of them laugh in the face of justice. This is the same crap Kenny Lay and his goons from Enron got prosecuted for: Financial fraud and perjury. Just another example of how America operates off two separate and distinct books of laws: One for you and one for the oligarchs. How could this blatant collusion between government and corporate America not be obvious to even the casual observer?

    You might ask why none of the criminal financial lords are being prosecuted? Well, an obvious reason is because they are bankrolling the politicians. Go look at who the major contributors are to the presidential candidates, the senators, the congressmen, etc… All of you know that Barack Obama received about a million dollars from Goldman Sachs in 2008, right???

    Another less obvious reason for the non-prosecutions is that with the massive deficit spending ($1.3B for fiscal 2012)it is the banks that the government needs to bring the debt offerings to the markets. Go take the time to look at who the primary dealers are. All very familiar names. These are the firms that make possible both deficit spending and the rollover of existing Federal debt that is outstanding. Without their cooperation in financing the federal debt the Federal government would collapse in less than 24 hours.

    And do you know that some states are using the Fraudclosuregate funds to bail out their sagging pension funds??? 😀

    The fix is in, my friends. It is part and parcel of the two-party system that works together to screw you. Until there are limits to corporate political contributions and we get a viable third party that affords some choice in our elections – you might as well get used to bending over.

    Reply this comment
  3. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 February, 2012, 15:59

    This was a great deal-for the banks.

    Harris had originally pulled out of these talks b/c she said the $25 billion was a joke-and it was, yet she signed on the dotted line when the deal was inked, the same deal she rejected 6 months ago.

    BTW-this was what they call a “global settlement” which means to wipes out liability for ALL previous misdeeds and law breaking. No other charges, civil or criminal, can ever again be brought over the mortgage meltdown against these clowns.

    Reply this comment
  4. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 February, 2012, 16:04

    And do you know that some states are using the Fraudclosuregate funds to bail out their sagging pension funds???

    Did you read my earlier post?? ALL of this money will go to gov employees and insiders.

    When the tobacco companies did a $250 BILLION settlement 4 years ago San Diego received a WHOPPING $150 million annuity, paid out over 25 years (that is who all of these big settlements are paid-over decades, you don’t get the $$ all upfront). So what did SD doe with their $150 MILLION annuity?? They went right to Wall Street, cashed it in for 25 cents on the dollar and then put the $37 million lump sum right into the San Diego city pension system, which is still bankrupt.

    Reply this comment
  5. SkippingDog
    SkippingDog 13 February, 2012, 17:48

    “The Republican candidate who can capitalize on this voter resentment may find some traction at the polls.”

    That’s truly a funny line, whether you intended it to be or not, Wayne. Capitalizing on voter resentment is the central theme of the contemporary Republican Tea Party, whether that resentment is over taxes, illegal aliens, public pensions, social safety net programs, or nearly anything other than jingoistic support for blind patriotism in the form of ever increasing military budgets, uncritical support for anything done by Israel, or the old Norquist line about being able to drown our government in a bathtub.

    The modern Republican party will go down in history as the “know nothings” of the early 21st Century.

    Reply this comment
  6. Rex The Wonder Dog!
    Rex The Wonder Dog! 13 February, 2012, 19:56

    That’s truly a funny line, whether you intended it to be or not, Wayne. Capitalizing on voter resentment is the central theme of the contemporary Republican Tea Party, whether that resentment is over taxes, illegal aliens, public pensions, social safety net programs, or nearly anything other than jingoistic support for blind patriotism

    This is also the central theme of the Occupy Wall Street/Oakland?San Diego too. Not limited to just republicans, or democrats. Most Independents- like me – feel the same way too.

    Reply this comment
  7. Jonathan Eddy
    Jonathan Eddy 14 February, 2012, 07:58

    Does the word “revolution” mean anything?

    Reply this comment
  8. Rex The Wonder Dog!
    Rex The Wonder Dog! 14 February, 2012, 09:06

    OWS is the start of the revolution IMO.

    Reply this comment
  9. Beelzebub
    Beelzebub 14 February, 2012, 11:53

    >>>>>>>>>>>>>>>>>>>>>>>> “BTW-this was what they call a “global settlement” which means to wipes out liability for ALL previous misdeeds and law breaking. No other charges, civil or criminal, can ever again be brought over the mortgage meltdown against these clowns” <<<<<<<<<<<<<<<<<<<<<<<<<<<.

    There it is!!! This was the main purpose of the agreement. To give AMNESTY and IMMUNITY FROM THE LAW to financial frauds.

    Look, MG Global stole $1.6B from customers who had their money in segregated accounts and so-called "safe" accounts. The company STOLE the customer accounts and used it to plug their own financial holes. They claimed that the customer's funds just 'vanished' and they have no idea where it went. NOBODY HAS BEEN ARRESTED, INDICTED OR PROSECUTED FOR THIS HORRENDOUS ACT!!! Jon Corzine, former MF Global CEO was also a former Senator, Governor and CEO of Goldman Sachs – a BIG Obama supporter. Walking around free as a bird!

    Anyone who tells you that Wall Street was a victim or that WS was just following the government's orders has their head up their ***.

    Reply this comment
  10. Beelzebub
    Beelzebub 15 February, 2012, 19:27

    Thank God we got that Fraudclosuregate settlement out of the way the other day with the TBTF’s so that we don’t have to worry about little trivialities like laws or the justice system or holding people accountable anymore! Now we can just move on to creating the next financial crisis.

    Reply this comment

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