Cramdown Returns

The Federal Reserve revealed survey results today showing the economy stabilizing throughout the country and the recession nearing an end. But without jobs, people won't feel that recession's end. As a result, even the Fed survey showed consumer spending "soft," and employment "weak" in all 12 Fed regions. And that will impact the still-unresolved sector of the economy that could easily relapse us into a double-dip recession, the housing market.

Although the ailing residential real-estate market is still weak, it also flashed signs of improvements. The Fed regions of Chicago, Richmond, Boston and San Francisco observed an "uptick in sales." Most regions said buyer demand remained stronger at the low end of the housing market, although Philadelphia did note an "upturn in sales at the high end of the market."

The Boston, Cleveland, Dallas, Kansas City, Richmond and New York regions credited the first-time home buyer tax incentive with spurring sales. Most regions reported downward pressure on home prices, although Dallas and New York said that prices were "firming."

That first-time homebuyers credit will soon expire, and this analysis fails to take into account the problems from those facing foreclosure, particularly those who got into adjustable-rate mortgages. The interest-only loan holders, in particular, could see a real disaster in the months and years to come when their rates reset.

Edward and Maria Moller are worried about losing their house — not now, but in 2013.

That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years [...]

With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.

The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.

“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”

These people are going to lose their homes, with devastating consequences for the rest of the real estate market and the greater economy ($908 billion dollars are tied up in active interest-only loans). Even the Treasury Department expects millions more foreclosures in the same report that they tout their homeowner protection programs.

This is why it's good to see cramdown return. The provision, allowing bankruptcy judges to modify primary home loans unilaterally the way he would a vacation home or a yacht, would give those facing foreclosure a level playing field against lenders who have no incentive to change the terms of their loans.

House Financial Services Committee Chairman Barney Frank (D-Mass.) tells the Huffington Post he plans to revive the effort to give bankruptcy judges the authority to renegotiate home mortgages -- by making it part of this fall's much-anticipated financial regulatory reform bill.

Wall Street banks scored an overwhelming victory in April when they soundly defeated a cramdown measure in the Senate. Only 45 Democrats voted with homeowners, dealing the measure the kind of defeat that often sends legislation off into the wilderness for years, if not for good.

Frank and Senate Majority Whip Dick Durbin (D-Ill.), who led the bill in the upper chamber, both said after its defeat that it was finished. Frank was dismissive when, about a week after the vote, HuffPost asked if cramdown might come back. "Excuse me, what planet were you on last week? The vote was 45 to 51. Why would you ask that? Do I think there's a likelihood we could overturn 45-51? No," said Frank. "I wish it weren't the case."

But since then, foreclosures have continued unabated and the unemployment rate has continued to climb, increasing to 9.7 percent last month. Both forces feed on each other and create a drag on the economy.

The Obama administration had high hopes for the law Congress passed intended to encourage mortgage modifications. The law is all carrot, however, and no stick. Cramdown is the stick. If banks think they could get hit in bankruptcy court, they're more likely to bargain.

Because regulatory reform is a big bill with enough populist-friendly elements in it to be difficult to oppose, it could be a good vehicle for cramdown. Add that to the Consumer Financial Protection Agency and more credit card reform legislation, and that bill will be the subject of a huge fight, perhaps even bigger than the health care bill, at least in terms of lobbyist energy.

Primarying The Federal Reserve

Much in the way that lawmakers can get pulled from the center to the left when primaried by a member of their own party, the Federal Reserve, facing the prospect of a Consumer Financial Protection Agency that would take away some of its power, is shifting to a more consumer-friendly position on lending practices, including getting rid of the dreaded yield spread premiums that incentivize lenders to screw their customers.

The Federal Reserve on Thursday unveiled a proposal to curb abusive lending practices by reining in compensation for mortgage brokers and by helping borrowers better understand the terms of loans available to them.

The plan, which builds on a similar effort adopted by the Fed last year, comes just as the central bank is trying to fend off a legislative initiative that would strip its consumer-protection role by creating an agency to oversee consumer financial products.

"It certainly doesn't hurt the Fed that they came out with mortgage lending rules that were tougher than most of the industry was expecting," said Jaret Seiberg, a policy analyst at Washington Research Group, a unit of Concept Capital.

The toughest part of the Fed's plan deals with compensation for mortgage brokers, who act as middlemen between borrowers and lenders. These brokers can be rewarded with extra fees for placing borrowers in higher-rate loans.

The proposal attempts to end this practice by barring lenders from offering extra compensation based on the terms of the loan, including the rate. Consumer advocates have long argued that incentive-based pay contributed to the subprime mortgage meltdown.

"This plan has got the potential to eliminate one of the worst practices in the mortgage market," said Michael Calhoun, president of the Center for Responsible Lending. "The devil will be in the details. Some of the worst actors in the industry have proven to be adept at exploiting weaknesses in rules. The final rule has to be tightly and carefully written."

However these things get into law is fine with me. Whether the threat of the CFPA entices the Federal Reserve to do its job, or whether a CFPA gets enacted and does it itself, ending the practice of paying off mortgage brokers for screwing their customers is a good thing.

Of course, these are forward-looking proposals. And however solid they may be, they do not deal with the current problem of people struggling to stay in their homes and stave off foreclosures, which is only growing. The current mortgage relief efforts are simply not working. I'm glad that Sheldon Whitehouse is signaling another look at cram-down, the idea of allowing bankruptcy judges to modify loan terms with the broker. You have to give the borrower some opportunity to dictate terms, or as we have seen the bank will not modify the loans.

But there is another option, and that's own to rent. Dean Baker has pushed this proposal prominently, and it's starting to get support on Capitol Hill.

There is a simple solution that requires no taxpayer dollars, requires no new bureaucracy and can immediately help millions of people facing foreclosure. Congress can simply temporarily alter the rules on foreclosure to allow homeowners facing foreclosures the right to stay in their home for a substantial period of time (e.g. seven to 10 years) as renters paying the market rent.

The lender would take ownership of the house and would be free to resell it, but the lease would carry over for the duration of the period designated by Congress, or until the former homeowner decided to move. In this period, normal landlord-tenant laws would apply, with the exception that the lender would not have the option to evict the former homeowner without due cause.

This rule change would provide homeowners with a large degree of housing security. If they like their current home, their neighborhood, their kids' schools, they would have the option to remain there for a substantial period of time. Furthermore, by making foreclosure a less attractive option for lenders, a right to rent law should give lenders much more incentive to pursue mortgage modifications as an alternative to foreclosure.

This change should also be beneficial for neighborhoods that are plagued by large numbers of foreclosures. Keeping former homeowners in their homes will keep homes occupied, preventing the blight that often comes from vacant homes that are not maintained.

The banks will fight this, but the overall housing market will likely rise from diminishing the glut of supply. The banks would get off the hook for a lot of the upkeep of blighted properties, the cycle of foreclosures could get stopped, and they would obtain consistent revenue streams in the form of rental payments, while still holding the potential equity of selling the home. I really, really like this idea.

...of course, the Fed's nods toward consumer protection won't be enough for people like William Greider, who think it ought to be dismantled. I think it's hard to argue with Greider, considering he knows as much about the Fed as any human being alive.

Going To Hell In A Local Handbasket Rather Than An Express

The unemployment figures for may show a loss of 345,000 jobs and a 9.4% unemployment rate. You can plot this on a graph and make it look preferable to the previous six months of extreme losses, and it is. But Felix Salmon notes:

Remember the stress tests? The baseline scenario had unemployment in 2009 at 8.4%, rising to 8.9% under the more adverse scenario. Well, we’re only up to May, and already it’s at 9.4%.

To be clear, the adverse scenario in the stress test was supposed to be the worst things could possibly get. If we've blown past that, the banks will face more losses and write-downs than suggested by the adverse scenario. More people out of work means more foreclosures, less consumer spending, higher deficits, etc. This is but one of the ways where the banksters are making themselves out to be healthier than they are.

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

Remember, the banks haggled over the stress tests, and basically won that argument. They lobbied for mark-to-fantasy accounting rules, and got them. That's because they still own the place.

The defeat of the bankruptcy proposal is a testament to the enduring influence of banks, even as the industry struggles financially and suffers from its role in the economic crisis.

It also shows that in the coming legislative battles that will shape the future of the economy, the financial industry — through a powerful and well-financed lobbying force — may have a far stronger hand to play than might seem evident.

Documents and interviews with lawmakers, lobbyists and administration officials show that the banks defeated the bankruptcy change — the industry picturesquely calls it the “cramdown” provision — by claiming that it would push up interest rates and slow the housing market’s recovery, even though academic studies have countered such claims.

The industry also steadfastly refused offers to negotiate over a weaker version. And it poured millions of dollars into lobbying: four of the industry’s top trade groups spent nearly as much on lobbying in the first three months of this year as they did in all of 2001.

But an industry strategy of dividing the Democrats had the most success.

Everything you need to know about the banksters' power is contained in the header midway through the article: "Surprising Ease."

As the article says, "Bankrupt homeowners do not have a political action committee or lobbyists." But surely lawmakers have an instinct for self-preservation. Because what I'm reading here is that the banks are in as big or bigger trouble now than they were six months ago, and just as powerful in extracting explicit guarantees from Congress and the White House that they'll be spared should they collapse. But as a result of that, we get a "recovery" that feels like a recession, a lost decade where we saunter along without economic growth. There will absolutely be a political price to pay for that. Obama and Democrats in Congress need an economic recovery. But covering for the banksters will delay one. There's a difference between being owned in order to sustain your political career and being owned to destroy it.

...Media Matters also mentions that the Times cites "academic studies" undermining bankster arguments on cramdown, but only after the debate is essentially over. Nice one.

Drip Drip Drip You're Underwater

The reckoning of the next wave of the foreclosure crisis has started to reach critical mass. Bloomberg reports on the record first-quarter numbers.

Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March this week as the government’s effort to fix the housing slump lost momentum.

The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today. Both figures are the highest in records going back to 1972. Fixed rates rose to 4.91 percent, Freddie Mac said, and an increase in bond yields earlier this week shows rates may continue rising.

AP adds that 12% of all homeowners are either behind in their bills or in foreclosure. 1 in 8, with most of the foreclosures coming from the bubble states of California, Nevada, Florida and Arizona. And top economists see this trend continuing through the end of next year.

David Sokol, chairman of Berkshire Hathaway Inc's (BRKa.N) MidAmerican Energy Holdings and a contender to succeed Warren Buffett, warned that the U.S. housing market still has a ways to go before bottoming out [...]

"As we look at the economy, I have to be honest: we're not seeing the green shoots," Sokol said at the annual Ira Sohn Investment Research conference, which drew some 1,200 hedge fund executives to hear top investors share trade ideas.

"That's not surprising to us. It took us 11 years to get into this mess where it is. We went into the emergency room last fall and by January the banking system and economy generally were in intensive care, and we'd expect it to stay there for some time," Sokol said.

If anything, the glut of housing supply could grow larger as a new wave of foreclosures and pending sales breaks on the market.

"We think the official statistics of 10 to 12 months' backlog is actually nearly twice that amount," he told the gathering, which raises funds for the treatment and cure of pediatric cancer.

Other economists agree.

The banks may feel safe and warm right now, but another foreclosure wave will increase the toxicity of their assets exponentially. Unemployment-driven foreclosures and more rate recasts will feed on themselves.

I just don't see a great policy response to this. Maybe that housing bill will help. It'd help a lot more with cramdown.

Chairman Of The New York Fed Resigns

This got shockingly little attention:

Stephen Friedman, the chairman of the Federal Reserve Bank of New York, abruptly resigned on Thursday, days after questions arose about his ties to Goldman Sachs.

Mr. Friedman was chairman of the New York Fed at the same time he was a member of Goldman’s board. He also had a substantial stake in the firm as the Fed was crafting a solution to keep Wall Street banks afloat. Denis M. Hughes, deputy chair of the board, will take over as the interim chairman, the New York Fed said in a statement.

Because the New York Fed approved a request by Goldman to become a bank holding company, the chairman’s involvement in Goldman was a violation of Fed policy, The Wall Street Journal said in an article earlier this week.

Incidentally, Friedman replaced Tim Geithner in this capacity.

Well, score one for the forces of good against the endless culture of cronyism and conflicts of interest between Wall Street and Washington. Now we just need to find out about Byron Dorgan's wife, who lobbied against the cramdown provision as her husband voted against it, and Barney Frank and Nancy Pelosi, who refused amendments capping credit card interest rates in the House reform bill, and just about every manager of every public pension fund in America, and...

Could Have Lifted A Finger

The New York Times takes notice of White House silence in the wake of Sen. Durbin's failure on cramdown.

The Obama administration sat by last week as 12 Senate Democrats joined 39 Senate Republicans to block a vote on an amendment that would have allowed bankruptcy judges to modify troubled mortgages.

Senator Obama campaigned on the provision. And President Obama made its passage part of his antiforeclosure plan. It would have been a very useful prod to get lenders to rework bad loans rather than leaving the modification to a judge.

But when the time came to stand up to the banking lobbies and cajole yes votes from reluctant senators — the White House didn’t. When the measure failed, there wasn’t even a statement of regret.

Digby has mentioned the coming second wave of ARM recasts and accompanying foreclosures, not to mention the acceleration of foreclosures brought on by mounting job loss. As Durbin said in his floor speech, when he first offered up the cramdown option 2 million homes were threatened by foreclosure. Now we're looking at 8 million, and nobody should expect that number to go down the next time the very serious Senate kills the provision. The Times estimates that 14 million homeowners are underwater on their mortgages. As Atrios says today, "I don't want to hear any of this 'nobody could have predicted' crap from Larry and Timmeh."

With opposition that strong, I'm not sure the President could have brought around all twelve Democrats who voted no to his side. But they might have given it a try. Because it's clear now that the best tool for dealing with the second-order foreclosure crisis, which will affect the banks and the greater economy in an exponential way, is lost for the near future, and the consequences will be deep.

Dick Durbin's Searing Indictment of Banksters On The Senate Floor

Dick Durbin is speaking about the destructive greed of the banksters right now, the ones who torpedoed his amendment to allow bankruptcy judges to modify loan terms on primary residences the way they can on second homes, yachts, cars, and other pieces of property. He was unsparing and did not shy away from the statement he made on local radio in Illinois recently, that the bankers "own the place". He set the needs of regular homeowners, who "don't have any paid lobbyists," against the desires of banks who took hundreds of billions of dollars of taxpayer money and face seemingly no consequence for their bad decisions.

Durbin is a close ally of the President and I feel he wouldn't make a statement like this if he thought it too embarrassing to the Administration. He is trying to spark the American people to demand some change. Obama has done this too, albeit with more subtlety. We need to get their backs.

Here are a couple of excerpts (I'm transcribing):

One other argument that I think takes the cake: "Senator, you understand the moral hazard here. People have to be held responsible for their wrongdoing. If you make a mistake, darn it, you've gotta pay the price. That's what America is all about." Really, Mr. Banker on Wall Street? That's what America is all about? What price did Wall Street pay for their miserable decisions creating rotten portfolios, destroying the credit of America and its businesses? Oh, they paid a pretty heavy price. Hundreds of billions of dollars of taxpayer's money sent to them to bail them out, to put them back in business, even to fund executive bonuses for those guilty of mismanaging. Moral hazard, huh? How can they argue that with a straight face? [...]

At the end of the day, this is a real test of where we're going in this country. Next up, after mortgages, credit cards. Next week, the same bankers get to come in and see how much might and power they have in the Senate when it comes to credit card reform. And the question we're going to face, is whether or not this Senate is going to listen to the families facing foreclosure, the families facing job loss and bills they can't pay, or whether they're going to listen to the American Bankers Association, which has folded its arms and walked out of the room. Well, I hope that we have the courage to stand up to them. I hope this is the beginning of a new day in the Senate, a new dialogue in the Senate, that says to the bankers across America that your business as usual has put us in a terrible mess, and we're not going to allow that to continue. We want America to be strong, but if it's going to be strong, you should be respectful, Mr. Banker, of the people who live in the communities where your banks are located. You should be respectful of those families who are doing their best to make ends meet in the toughest recession that they've ever seen. You should be respectful of the people that you want to sign up for checking accounts and savings accounts, and make sure that they have decent neighborhoods to live in. Show a little loyalty to this great nation instead of just your bottom line when it comes to profitability. Take a little consideration of what it takes to make America strong...

I'll offer this Durbin amendment as I did last year. When I offered it last year, they said, "Not a big problem, only two million foreclosures coming up." They were wrong. It turned out to be eight million. And if the bankers prevail today, and we can't get something through conference committee to deal with this issue, I'll be back. I'm not going to quit on this [...] At some point, the Senators in this chamber will decide, the bankers shouldn't write the agenda in the United States Senate.

There's really not much to add to that. Especially when you see the Senate vote, which is happening right now, surely a defeat for the Durbin amendment. The Senators against this bill have lined up with the banksters, and for good reasons - they fund the campaigns, they throw the best parties, they share the interests and perspective of those disproportionately wealthy politicians. Last night, at Obama's press conference, he offered another hint of how the federal government is so immense that he cannot wield the power to "get the banks to do what I want them to do." Today he lashed out at the small group of hedge funds who forced Chrysler into bankruptcy, not just because they thought they could get a better deal from the bankruptcy judge, but because they'll get paid off on their credit default swaps due to the bankruptcy.

The Obama budget, mostly laudatory, stripped out those elements which would have taxed wealth, instead protecting it in many instances. The system of government in this country has become a system of fealty to oligarchs. Democrats like Durbin made one concession after another on the bankruptcy bill, and still couldn't get enough members of the Senate on board.

We have a major problem in this country, when the banksters hold this much control in the corridors of power. Dick Durbin is opening the window and showing the sick, decayed underbelly inside. Actions like the shareholder revolt ousting Ken Lewis from the chairmanship of Bank of America need to happen more and again. At some point, we can affect these people personally, and really damage them where they live. It's the only way, through a broad-based movement, to overturn this horrible dynamic of financial industry control of government.

UPDATE: 45 Yea, 51 Nay, motion fails. Abominable. Will update with a roll call. This Senate is useless.

UPDATE II: Roll call. Nays included all Republicans and Baucus, Bennet, Byrd, Carper, Dorgan (?), Johnson, Landrieu, Lincoln, Nelson (NE), Pryor, Specter, Tester. Also, some video of Durbin's speech here.



UPDATE III: Ryan Grim shouts out to Ted Kaufman, the first Senator from Delaware to vote against the banks maybe in history. Being a caretaker Senator not planning on running for re-election will do that.

Banks Still Rule Washington, But The Shareholder Meetings?

The bad news is that the Senate is on the verge of gutting that mortgage "cram-down" bill, removing the ability for bankruptcy judges to modify the terms of loans for primary residences of people facing foreclosure.

Democrats Ben Nelson (Neb.), Mary Landrieu (La.) and Jon Tester (Mont.) have indicated to the Huffington Post that they oppose the bill's central measure -- giving bankruptcy judges the power to reduce, or cramdown, a homeowner's mortgage payment under bankruptcy proceedings.

That provision is on the chopping block.

"The bill that the House sent us is a very, very good bill, a very good bill," said Reid. "It would be a terrific bill if we had cramdown in it and it'll still be a good bill if that's not in it."

Cramdown, however, is the guts of the bill, House Speaker Nancy Pelosi (D-Calif.) told the Huffington Post.

"Well, it wouldn't be a bankruptcy reform bill without cramdown in it," she said.

The two versions of the bill would need to be reconciled in a conference committee. "I strongly support [cramdown], but we'll see what happens on the Senate floor," said Pelosi.

I can tell you what will happen, the banking lobby refuses to relinquish the power they hold, and will squash efforts to write down these loans. Because the banks, in the words of Dick Durbin, own the place. So despite the facts that the lenders committed clear acts of fraud on practically all of their customers when handing out the loans, the people will get no relief with the only tool available to them to ensure a level playing field when they try to rewrite the terms.

On the flip side, a shareholder revolt led by institutional investors, state pension funds, union leaders and everyday people got Ken Lewis fired as the chairman of Bank of America. He remains on as CEO but lost the chairmanship to Walter Massey. This may not mean a hell of a lot on its own, but it's a powerful symbol of the anger felt by people out in the country with the banksters. And this will only grow. If Congress refuses to take action on these executives, maybe the people will hold them to account.

Pressured By CA Lawmakers, Obama Expands Mortgage Refinance Program

When the Obama Administration's plan to mitigate foreclosures came out, it was clear that it would be insufficient to deal with the particular challenges faced in California. Initially, the plan would only modify loans where the amount owed was 105% of the home's true value. Given that home prices have collapsed here, this would have helped almost nobody in California. State lawmakers, in particular the Democratic point person on mortgages and foreclosures Asm. Ted Lieu, went to Washington to lobby for changes. And today, faced with a sluggish mortgage rescue program attracting few lenders or homeowners, the Administration expanded the plan.

The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.

Under the administration's new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor [...]

Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.

Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.

Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home's current value.

Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home's value. The change would also reduce the program's high fees, which turned off many troubled borrowers.

Loan servicers get a fair bit of cash incentives for participating in the program, which I don't totally support, but if we have to bribe lenders in order to keep people in their homes, that makes more sense than spending the same amount of money on the fallout from a foreclosure. And lenders do take a haircut in the Hope for Homeowners program, the first loss to my knowledge that lenders have been forced to take.

Asm. Lieu responded with this release:

“I am very pleased the Obama Administration today acted on the concerns raised by states such as California and took two steps to expand refinance and foreclosure assistance to distressed homeowners.

First, the Administration announced it would incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners program into the existing Making Home Affordable Program. This is significant because currently, the Making Home Affordable Program has a 105% underwater refinancing cap, which shuts out many Californian homeowners. The Hope for Homeowners program does not have that limitation; instead, the Hope for Homeowners program states that lenders will take a loss on the difference between the existing loan amount and the new refinanced loan, which is set at 96.5% of the appraised loan value.

For example, under the existing Making Home Affordable program, a homeowner whose home is valued at $100,000 but owes $120,000 on the existing loan balance would not qualify for refinancing under the program because the loan is 120% underwater. However, under the Hope for Homeowners program, the homeowner could qualify and the new refinanced loan would be $96,500. The lender would take the loss of $23,500. The Obama Administration would increase the number of lenders participating in the Hope for Homeowners program by offering financial incentives to the lenders.

Second, the Administration announced steps to address the second lien problem. Many distressed mortgages have two liens and often the second lien holder does not want to modify the loan. The Obama Administration will provide financial incentives to allow the second lien to be reduced or extinguished.

These two critical actions will expand assistance to distressed homeowners in states such as California, where many loans are more than 105% underwater or have second liens.”

This is decent news. Unfortunately, the tool that homeowners really need to stave off foreclosure, the ability for bankruptcy judges to cram down the principal of a loan on a primary residence, appears poised for what amounts to defeat in the Senate, a testament to the continued power of the nation's biggest banks.

In order to garner the support of conservative Democrats and a few Republicans, the proposal has been watered down. The bankruptcy legislation will still allow homeowners to renegotiate mortgages in bankruptcy - the so-called cram down provision - but only under strict conditions. The banking industry has lobbied fiercely against cram down, but Durbin said on the Senate floor Monday night that the compromise was supported by Citigroup, which has been at the negotiating table.

"In the past, some of my colleagues understood the need for action but have been uncomfortable with the original language. Let me be clear: this amendment is different," said Durbin. "The amendment I'm going to offer will make a modest change in the bankruptcy code with a lot of conditions. It won't apply across the board. This amendment limits assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the foreclosure prevention efforts already underway - Obama's homeowner assistance and stability plan and the Congressionally-created HOPE For Homeowners, which this bill will greatly improve." [...]

Meanwhile, the banking lobbyists are furiously lobbying against it and Durbin acknowledges it will be difficult to "muster the votes, although I know it will be hard."

It is "hard to imagine that today the mortgage bankers would have clout in this chamber but they do," said Durbin. "They have a lot of friends still here. They're still big players on the American political scene and they have said to their friends, stay away from this legislation."

We will be in a better position with foreclosures by the end of the week than we were at the beginning, but not where we need to be.

Haggling With Taxpayer-Owned Companies

This is a maddening enough situation when you isolate it, but keep in mind that the government has kept these same banks afloat with hundreds of billions of dollars in capital.

The Obama administration has entered a tense showdown with several of the nation’s largest banks that appears likely to determine whether Chrysler survives.

Last week the Treasury Department, which runs President Obama’s automobile task force, presented banks holding $6.9 billion in Chrysler’s secured debt with a plan under which they would get about 15 cents on the dollar, or about $1 billion.

That is roughly the trading level of Chrysler debt in recent days, a reflection of Mr. Obama’s declaration that the firm is not viable on its own, and must put together a partnership with Fiat or go out of business [...]

On Monday the banks, led by JPMorgan Chase and Citigroup, rejected the administration’s plan outright, with some of the debtholders arguing that they would rather break up Chrysler and sell its assets — notably its Jeep brand — because they believed that they would receive more money selling the assets than they were being offered by the administration.

The lenders offered 65 cents on the dollar and a 40% stake in Chrysler, and the government has now counter-offered with 22 cents and a 5% stake in the reorganized company. The union is sitting on the sidelines at this point.

Can I just re-emphasize how ridiculous this is? For all practical purposes, we own the banks that are haggling with us. And this isn't the only area in which the banks are using our money to show leverage over our government. Among the millions of dollars in political lobbying, the banksters are stopping progress on consumer bills:

The banks have made it difficult for Congressional Democrats and the White House to give stretched homeowners a stronger hand in negotiating lower monthly payments on mortgages and to prevent credit card companies from imposing higher fees and interest rates.

Having won some early skirmishes by teaming with Republican allies, the banks now appear to have the upper hand and may wind up killing — or at least substantially diluting — both pro-consumer measures.

I don't think they'll stop the credit card bill - the President has personally stepped in on that one and I expect a decent bill to pass, the way it did yesterday - but cram-down does look dead, with key Democrats jumping ship. James Kwak correctly sources my anger.

The banks leading the charge over Chrysler: JPMorgan Chase and Citigroup. The banks opposed to cram-downs: Bank of America, JPMorgan Chase and Wells Fargo. The banks blocking credit card protections: American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services, and JPMorgan Chase. All or almost all are bailout beneficiaries. But don’t blame them: they’re just doing what they can to maximize their profits at the expense of the taxpayer, which is perfectly legal (and even ethical, depending on your conception of shareholder rights). Instead, you should be wondering why they are in a position to be maximizing profits at the taxpayer’s expense.

If you’re Tim Geithner or Barack Obama, you’re probably thinking that now would be a nice time to have a controlling interest in these banks so they would stop blocking your efforts to help the rest of the economy. But the government has consistently bent over backward to avoid gaining control over the banks. It began with Henry Paulson (Bush administration) taking non-convertible, non-voting preferred shares last October; it continued with the Citigroup and Bank of America bailouts in November and January (during the transition period), in which the banks got underpriced asset insurance in exchange for more non-voting shares; and it peaked in the third Citigroup bailout in February, when the Obama administration insisted on forcing other investors to convert preferred shares into common, precisely to avoid getting a majority stake.

If the government had simply accepted the ordinary consequences of its actions - majority ownership - it would at least not have to plead for favors from Citigroup and Bank of America, who desperately needed help on any terms the government chose to dictate. Arguably JPMorgan and Wells are in a different situation, since the government was never in a position to buy a majority stake, and they are claiming they only took TARP money as an act of patriotic solidarity. But leaving aside TARP capital, the government has gone to extraordinary lengths to protect the financial system - guarantees on money market funds, increased guarantees on deposits, guarantees on bank debt, massive programs to lend against or purchase securities, not to mention the AIG bailout conduit - without which none of these banks would be in a position to make a profit. Yet it has left the banks in a position to capture the entire surplus from its actions, without getting the kind of concessions that would come in handy now.

When government takes its own tools away from itself, this is the consequence - a society governed by oligarchs.

Back Off So I Have Room To Stick The Knife In

Harry Reid wants all these liberal groups with their ideas and principles to just take it down a notch.

Senate Majority Leader Harry Reid said Friday that liberal groups targeting moderate Democrats with ads should back off, saying pressure from the left wing of his party won't be helpful to enacting legislation.

"I think it's very unwise and not helpful," Reid said Friday morning. "These groups should leave them alone. It’s not helpful to me. It’s not helpful to the Democratic Caucus.”

Reid, who said he hadn’t seen or heard the ads, added that "most of [the groups] run very few ads — they only to do it to get a little press on it."

In one respect, Reid is fulfilling his traditional role. The left pushes on the ConservaDems, and the Majority Leader comes to the rescue of the members of his caucus, and the ConservaDems thank him. Thusly bonds are made. Reid won't stop the calls to Senate offices, especially when the likes of Ben Nelson are vowing to vote asking the budget if it includes reconciliation.

In another respect, I have to agree with David Waldman.

But the thing is, you really need to add your two points together to get to something meaningful about how things are going in the Senate. There really are people who only join these groups so that they can say they're moderate. That's true. There's a lot of gaming of the system going on. And at the same time, you really don't like being told it's "my way or no way." No one does.

But just as there are people in those "moderate" groups who aren't really all that "moderate," it's also true that some of the people who say they're "moderate" really are people on the extremes, who are saying to you "it's only my way or no way."

That's the reason -- the only reason, really -- that voting blocs like Evan Bayh's exist. They're formed precisely so that they can use their numbers to say to you, ultimately, that "it's only my way or no way." The power of a voting bloc lies in its ability to deliver or withhold its votes. And as you know, there are only two ways to vote in the Senate. Further, because there's no way to set up a vote in the Senate such that you get to vote all at once for one or the other of two competing proposals, every single vote is really essentially a choice between "only my way or no way." Yes, the very next vote can be on whether or not to adopt some other, compromise way. But each vote, taken by itself, is "this way or nothing," and a no vote is a vote for nothing. Sometimes that's a good thing, sometimes a bad thing. But a no is a no.

That being the case, it's worth noting -- as I'm sure you do in your own internal dialogue -- that Evan Bayh's gang is all about "my way or no way." And that reveals them for what they are. (When and if they ever decide to actually hang together as a group, that is.) "Moderate" may be the label they're hoping people will allow them to cling to, but by your definition, they're people on the extremes.

In other words, Reid spends a lot of time and effort here calling out those on the left for making his life difficult, but precious little for those Democrats on the right who are... um, making his life difficult. Maybe that happens internally, but given this latest outrage, I think we can conclude that the Majority Leader believes exactly as the Evan Bayhs of the world believe.

Senate Majority Leader Reid said today he would drop a cram-down provision from a House-passed banking bill if the language threatened to keep the Senate from passing the overall bill. The provision would allow a bankruptcy judge to reduce a homeowner's mortgage principal. "If we can't get the votes for that, and I am hopeful we can -- I am semiconfident we can -- then what I'll do is take that off [the bill] and do the other banking provisions," Reid said at a Christian Science Monitor breakfast.

Harry Reid doesn't want liberals to back off so he can manage his caucus without intrusion - he wants them to back off so, you know, they back off, without criticizing the decisions for which he is ultimately responsible. Deep-sixing cramdown is just the beginning, if progressives fail to hold their leaders accountable. Reid just made the entire argument for why these calls and advertisements have to go forward - because he will do nothing worthwhile without pressure.

In Charge And Mad You're Not Happy About It

Chris Bowers has the depressing details on the financial services industry, through their advocates in the Senate, continuing to hold up eminently sensible foreclosure reform.

A House-passed bill that would allow bankruptcy judges to modify the terms of troubled homeowners' mortgages has entered a holding pattern in the Senate, where the necessary 60 votes remain elusive.

The bankruptcy provision - often referred to as "cramdown" - is a key component of the Obama administration's housing initiative, but it worries moderate Democrats in both chambers.

Indiana Democrat Evan Bayh and Pennsylvania Republican Arlen Specter are leading a group of Senate moderates in an effort to limit the bill's reach in a way that could attract 60 votes.

Senate leaders had hoped to have the bill go straight to the floor as early as this week, but it may now have to go through the Senate Banking, Housing and Urban Affairs Committee as proponents of the measure search for a deal. On March 11, the bill was referred to the panel.

"There are still significant concerns with the bill on both sides of the aisle," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a group that lobbies on behalf of the banking industry.

Lenders fiercely oppose the cramdown language, which would allow bankruptcy judges to reduce the principal owed on a primary-residence mortgage and order other modifications in mortgage terms.

These lenders lied on forms to get customers into loans, lied to their customers about the terms of those loans, sold these unstable loans around the world and caused a near-collapse of the global financial system.

In America, that not only means they still have a check on legislation, they think the lawmakers are being too mean to them as well.

“When I hear the constant vilification of corporate America, I personally don’t understand it,” (JP Morgan CEO Jamie) Dimon said in his speech. “I would ask a lot of our folks in government to stop doing it because I think it’s hurting our country.”

Jamie Dimon and all his buddies are lucky they aren't sharing the same cell right now. The audacity of these people, to have rewritten the rules of the US economy only to see it fail, and then demand courtesy!? We have paid you our tax dollars, given you the capital to finance your adventure (h/t Jon Stewart), and now you want a chocolate from us?

Oh, they also want all accounting laws changed so they can more easily fudge the numbers, too.

Before financial institutions have collapsed over the past several months, they have come to the Financial Accounting Standards Board, pleading for a change in mark-to-market accounting rules so that they can continue to appear to be solvent on their balance sheets.

Robert Herz, head of the FASB, told a panel of lawmakers Thursday that the loudest critics of fair market accounting practices have been the very same banks that have gone belly up when regulators would not let them adjust their accounting.

"There seems to be a clamoring for changing mark-to-market rules that seems to come largely from institutions that may be insolvent," Rep. Alan Grayson (D-Fla.) said to Herz at a meeting of the Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

Grayson said that, from Herz' testimony, it seemed that "there may be institutions that are insolvent and they haven't been forced to write down their books to the point [of insolvency] yet, and those are maybe the same institutions that are asking us to modify the mark-to-market rules so that they won't have to admit that they're bankrupt. Is that correct?"

Herz said that it was.

As Grayson says, "We have people who break every rule in the book and then they think that the answer to their problems is to break more rules."

I'm all for criticizing the Obama Administration for their failure to come up with a workable plan to fix the banks; heck, I've done it on occasion. But I save some special loathing for these criminals running major companies into the ground, lying to everybody about the inner workings of their companies, exerting the same power and influence over the legislative process as if nothing happened, and coming back for more changes and work-arounds so they can keep the Wurlitzer playing for just a few hours longer. I think trained chimps in the corner offices of every firm on Wall Street could do better. And they wouldn't ask us to stop being so mean to them.

Banksters Still Banksting

There is an expected vote today on the compromise "cramdown" bill in the House. There has already been a recorded vote on the rule today, and not one Republican voted for it, but it passed anyway. They are truly sinking further into irrelevance.

The compromise bill, as I've said, is not bad, although the major concessions are that people "underwater" in their homes (owing more principle than current value) won't get help, and the reductions are likely to be on interest rather than principle. Not great, but if people can stay in their homes as a result, probably OK. Right now 1 in 8 homeowners in the country are behind in payments, so they need whatever relief they can get.

However, the group likely to get the most relief out of the eventual loan modification process are the lenders themselves.

By the Obama administration's account, its new housing rescue plan, which goes into effect on Wednesday, will pull up to 4 million homeowners back from the brink of foreclosure. It also offers another 5 million or so excessively indebted borrowers the chance to refinance into lower-interest loans.

But the biggest winners in the government's $275 billion homeowner bailout just might be the mortgage brokers who were largely responsible for creating the disaster in the first place. Many are now reinventing themselves as heroes of the mortgage crisis by offering loan modification services. And between its new cash support and the refinancing program, through which they can benefit from the federal aid via brokers' fees, the Obama homeowner bailout might as well be a full employment program for them. The Treasury Department's FAQ for borrowers warns, "Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance." But nothing in the homeowner bailout prevents these middlemen from stepping in and taking a cut.

In California, home to nearly one-fourth of all the foreclosures in the country, there are now applications pending from some 500 brokers and real estate agents seeking to get in on this new line of business, which hardly existed six months ago (but now has its own trade group). California's Department of Real Estate, which licenses mortgage brokers and real estate agents, has so far authorized more than 200 companies to negotiate with mortgage lenders to modify loans, and the list grows longer every week. They may charge borrowers whatever they choose for this service, as long as they only collect a portion of the fee upfront and take the rest once the job is completed. The going rate ranges from a flat $2,985 to about 1 percent of the amount of the mortgage, or $4,000 on a $400,000 loan.

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

Especially when you consider that the Administration sets the average price of this modification at around $10,000 a home, which is a pittance, but with interest accruing over 30-40 years could be massive, you see the game being played here. And this is just one way for disgraced brokers to make money out of this chaos. Here's another.

...it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

The Times doesn't call it fraud, but that's a credible accounting of things.

These are the consequences of condensed power, yes, but also the consequence of a lack of accountability for those who caused this crisis. Government could actually go ahead and strip these people of the license to do business in this industry - especially Countrywide, known to have defrauded their customers.

UPDATE: The bill has passed the House. On to the Senate.

Cramdown Deal

This doesn't look all that bad.

Mortgage “cram-down” legislation that stalled in Congress last week will require homeowners to exhaust all options before they could use bankruptcy to reduce their loan payments, according to a summary of the revamped bill.

The House of Representatives may vote as early as March 5 on the amended legislation, which would let federal judges lengthen loan terms, cut principal payments and reduce interest rates for borrowers in Chapter 13 bankruptcy protection, House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters today.

Democratic leaders, who had pulled the bill from consideration, embraced an alternative plan pushed by the New Democrat Coalition, which calls itself a group of moderate lawmakers. The bill would require borrowers to seek loan modifications from their banks before they could qualify to amend their mortgage terms through bankruptcy protection.

Chris Bowers has some analysis. Basically it makes the bankruptcy court a last resort, which I thought it already was. I'm pretty sure nobody wants to go into bankruptcy as a first option. The threat of it hanging out there is what is needed to get loan modification from the lenders, and this just makes the homeowner seek that out first. The Senate staff is read into this as well, so this isn't a House-only compromise and will probably mean that cramdown will be a reality in the near future. Bowers writes:

Clearly, given that she was able to hold up the legislation, and forge a new deal altogether, this is a big victory for Representative Ellen Tauscher. At the same time, the changes seem light enough that the original proponents of the plan, including Representatives John Conyers and Brad Miller, can also claim victory. This is perhaps a true compromise. I might change my mind as more details come to light, but I think tonight that there is reason to be optimistic.

There were some ugly moments for this legislation, but ultimately, we're actually seeing a sensible policy change that will help keep people in their homes. This, of course, isn't the end of housing policy. The banks still own too many homes, and a lot of them haven't even hit the market yet. This means more cheap homes for sale, more blight, more erosion in property values, and more pain for homeowners. And considering that banks are basically toast because of all the bad securities in the housing market, the threat is global and massive. It's a major, major problem, and so far a solution is wanting. Robert Kuttner has some ideas.

It would make much more sense for the government to set up something like the Depression-era Home Owners Loan Corporation, which simply used the Treasury's own borrowing rate -- now about 3.5 percent for 30-year bonds -- to refinance mortgages directly. The outstanding principal could also be reduced, making the mortgage affordable. Bondholders could be compensated at so many cents on the dollar, using the government's power of eminent domain.

This approach would get the aid to where it most needs to go: to distressed homeowners. It would also sop up hundreds of billions of dollars worth of toxic mortgage-backed bonds, which currently are not trading at any price.

Indeed. The crisis in housing and banking are the two elements which is holding back Obama's efforts at recovery so far. It's a dangerous time.

Still A Working Conservative Majority On Some Issues

The proposed cram-down provisions that would allow bankruptcy judges to modify terms of primary residences, the way they can on secondary residences and yachts and all kinds of other assets, are a perfectly sensible way to give homeowners who might otherwise be out of the street after foreclosure a modicum of leverage in the process, freeing up lenders to perform loan modifications on their properties. In the end, nobody is served by millions more homes on the market and millions more homeless. But the banksters don't want to do it. They have spent millions lobbying against it because they would rather pretend that they have larger assets than they do. Perversely, a loan that will go unpaid means more to them than a modified loan that would get paid. So they are desperately trying to add loopholes and conditions and restrictions.

And because we have this group of "New Democrats" who basically parrot whatever corporate lobbyists tell them, it is a successful gambit.

House Democratic leaders have abruptly canceled votes on legislation to let bankruptcy judges reduce the principal and interest rate on mortgages for debt-strapped homeowners.

The measure, backed by President Barack Obama, is the most controversial part of a broader housing package that was expected to pass on Thursday.

It hit a snag after a group of moderates expressed concerns in a closed-door meeting of House Democrats about how the bill would affect homeowners who are still struggling to make their mortgage payments.

The banking industry has lobbied hard against the measure, mounting a successful multimillion-dollar effort last year to kill it. The House is debating the measure and leaders hope to reschedule votes for next week.

It's just revolting. The concern of "moderates" is simply a lie. Homeowners who are struggling to make payments would benefit from having their lender be more inclined to give them a lower payment. After all, we practically own the banks at this point. The least they could do is act in the interest of the majority of Americans. It's not like they'll be hurting for cash, given what is coming out about the Geithner plans for essentially unlimited refills.

This is a structural problem, where incumbents well-heeled with campaign cash have more to fear from industry and multinationals than their own constituents. A new progressive group called Accountability Now is seeking to change that dynamic.

Some of the most prominent names in progressive politics launched a major new organization on Thursday dedicated to pinpointing and aiding primary challenges against incumbent Democrats who are viewed as acting against their constituents' interests.

Accountability Now PAC will officially be based in Washington D.C., though its influence is designed to be felt in congressional districts across the country. The group will adopt an aggressive approach to pushing the Democratic Party in a progressive direction; it will actively target, raise funds, poll and campaign for primary challengers to members who are either ethically or politically out-of-touch with their voters. The goal, officials with the organization say, is to start with 25 potential races and dwindle it down to eight or 10; ultimately spending hundreds of thousands on elections that usually wouldn't be touched.

This will be looked at with an eye toward district realities. There are too many members of Congress representing deep-blue districts who equivocate to powerful special interests. There needs to be a countervailing force, and Accountability Now can become that.

The New York Times has more, although they kind of botch the story. This is a good development for the progressive movement.

ACTION: Ellen Tauscher Needs To Work For People And Not The Financial Services Industry

Chris Bowers advises that the House will be going ahead with housing legislation tomorrow that would allow bankruptcy judges to modify the terms of mortgages to reflect current home values and allow homeowners to avoid foreclosure (commonly known as "cram-down". As I discussed with Rep. John Conyers, the author of this bill, this would not encourage bankruptcy but help people avoid it, giving them a level playing field to get banks to follow through with loan modifications. While practically every other property someone owns can have the terms rewritten by a bankruptcy judge, primary residences are excluded. That is arbitrary and wrong, and changing it would reduce foreclosures and homelessness and bring some stability to the housing market. This legislation is supported by the President and included in his housing plan, but a change in the law like this should be passed by the Congress to make it a federal statute.

Bowers writes:

Tomorrow, the House will vote on Representative Conyer's bankruptcy cram down. The whip count is unclear right now, but some Blue Dogs and New Democrats, including Melissa Bean (D-IL), Dennis Moore (D-KS), and New Democratic chair Ellen Tauscher (D-CA), are working on behalf of the financial services industry to water down the legislation. Tauscher in particular is problematic, both because of her leadership role in one of the ideological caucuses, and also because rumors are that she has organized up to two dozen members thus far. It is about time that Tauscher, and the Representatives she is organizing, stop listening to industry lobbyists who do not have the public interest in mind.

So, let's make Representative Tauscher listen to someone else right now. Contact Ellen Tauscher, and urge her to stop organizing other Democrats to water down HR 200. She needs to listen to honewoners, not to the financial industry that got us into this economic disaster.

Here is the contact information:

Email form (California residents only)
D.C. office: 202.225.1880

Ellen Tauscher's New Democrat ways haven't surfaced much since the threatened primary challenge in 2007, but torpedoing this bill would bring that back all over again. She needs to know that people are watching her and want to be sure that she is protecting homeowners and not the big banks and lenders.

Please contact her now or in the morning.

Roads, Rails And Subways, Please

Rep. Peter DeFazio thinks that Barack Obama's getting some bad advice:

There’s a pretty good consensus among members of the House that it should be more. But the dictate from on high in the negotiations with Obama’s advisers — I don’t think the President is there — I think he’s ill-advised by Larry Summers. Larry Summers hates infrastructure, and some of these other economists — who were very much part of creating the problem. Now they’re gonna solve the problem. And they don’t like infrastructure.

They want to have a consumer-driven recovery. We need an investment- and productivity-driven recovery for this country, a long-term recovery.

It's kind of curious that Obama's public statements and YouTube addresses always speak very highly of infrastructure improvements, but there are substantially less funding toward that in the stimulus that you'd expect if you simply read the public PR instead of the actual bill. Although, there has been a general de-emphasis recently, as energy, health care and education spending take prominence.

The reason you want lots of infrastructure spending in the stimulus is because it can both be spent quickly and leave something behind afterwards. That's true of the health care and energy spending as well, but that's not what infrastructure spending appears to be competing with. It's competing with business tax breaks that do not provide nearly the kind of "bang for your buck" that can multiply the effect of fiscal spending. These Chamber-of-Commerce-friendly provisions being put in the Senate package, for example, are appalling.

The Senate bill includes a pro-business tax provision called bonus depreciation, which would allow companies accelerated write-offs of existing equipment and inventory if they make new purchases.

The Senate version also incorporates a complicated but important provision that the U.S. Chamber of Commerce and other business groups are pushing. This measure, which isn't in the House bill, would allow some companies to reduce taxes if they buy down their debt between late 2008 and 2011. The idea is to encourage companies to lower their debts, a process called de-leveraging, and thus get in better shape for an eventual economic recovery.

"We're very encouraged," said Bruce Josten, the vice president of government affairs for the Chamber of Commerce. "The specific purpose . . . is to create an incentive on a very short-term basis to have an orderly process to de-leverage that debt and strengthen their balance sheets."

The other issue here is that Americans interface with their infrastructure to a far greater degree than any other proposed spending (unless you sit on the Internets all day like me, in which case the broadband spending would apply). Therefore they know intuitively that it's crumbling, and they are desperate to see it fixed, and are even WILLING TO PAY FOR IT. Keep in mind that this passage was written by Frank Luntz.

Consider this: A near unanimous 94% of Americans are concerned about our nation's infrastructure. And this concern cuts across all regions of the country and across urban, suburban and rural communities.

Fully 84% of the public wants more money spent by the federal government -- and 83% wants more spent by state governments -- to improve America's infrastructure. And here's the kicker: 81% of Americans are personally prepared to pay 1% more in taxes for the cause. It's not uncommon for people to say they'd pay more to get more, but when you ask them to respond to a specific amount, support evaporates. (That 74% of normally stingy Republicans are on board for the tax increase is, to me, the most significant finding in the survey.)

This isn't "soft" support for infrastructure either. It stretches from Maine to Montana, from California to Connecticut. Democrats (87%) and Republicans (74%) are prepared to, in Barack Obama's words, put skin in the game, which tells you just how wide and deep the support is.

And Americans understand that infrastructure is not just roads, bridges and rails. In fact, they rated fixing energy facilities as their highest priority. Roads and highways scored second, and clean-water treatment facilities third.

You can see a road or a bridge or a new rail line or a better water treatment plant. You will use it every single day. And so the closest thing to a "bailout for Main Street," to employ that overused phrase, is an investment in immediate and long-term infrastructure spending. That can't all be accomplished by the stimulus, nor should it be - we should work for a long-term funding source through something like a National Infrastructure Bank, and we should try to alter the percentage of mass transit and rail spending in the transportation bill (right now it's 80-20 for roads). But clearly, with all the less targeted and less useful corporate tax breaks in there, infrastructure could be prioritized more.

In my mind, the two things progressives should be fighting for in the recovery bill is increased infrastructure spending at the expense of those corporate tax giveaways, particularly the benefit for lowering debt (which has no short-term benefit to the economy at all), and getting the mortgage cram-down provision into the bill, so bankruptcy judges can lower the amount that people upside down in their homes owe. Let's see how much leverage progressives have.

A New Era Of Comity And Bipartisanship

It's hardly worth pointing out that conservatives like Jim DeMint think they're noble freedom fighters saving the world from the grip of socialism. Incidentally that's verbatim.

"We have to have a remnant of the Republican Party who are recognizable as freedom fighters," Mr. DeMint said. "What I'm looking to do as a conservative leader in the Senate is to identify those Republicans, and even some Democrats, and put together a consensus of people who can help stop this slide toward socialism."

DeMint is out of his gourd, but he's not really the problem. The problem is that Barack Obama remains committed to securing the votes of people like this and will weaken his own legislation in an effort to do so.

President-elect Obama and his advisers are resisting attempts to include a provision in the economic stimulus bill backed by congressional Democrats that would allow bankruptcy judges to shrink mortgages.

In a hastily convened Democratic Caucus meeting last week, Obama economics adviser Jason Furman made it clear to lawmakers that Obama thinks the so-called “cramdown” provision would cost GOP votes and endanger bipartisan support in the Senate.

He committed to dealing with the issue after the bill passes, as did House Speaker Nancy Pelosi (D-Calif.).

Lead supporters of the cramdown provision say the time to deal with the issue is now. Rep. Jerrold Nadler (D-N.Y.) said it’s worth losing some Republican support to help homeowners.

“I would take that risk,” Nadler said. “I don’t think you’re going to get a lot of Republican votes anyway.”

Exactly. "Cramdown" would allow bankruptcy judges to restructure the amount owed on a home in a way that would give lenders and homeowners the impetus to modify terms of the loan. The lenders take a haircut but it's a better situation for them than a foreclosure, and those who get to keep their homes can continue to contribute to the economy. It's a great idea and a major step toward reforming the hideous 2005 bankruptcy bill.

The reason Obama wants it out of the recovery seems purely ideological. He has made a fetish of bipartisan support, and will not risk a few votes on the margins to limit foreclosures now. And what buy-in on this "grand bargain" has he received from the business community? Surprise, calls for more tax cuts.

And anyone who thought K Street would stop seeking its share of the stimulus pie after convincing Democrats to add the mysteriously named "net operating loss carryback" to the stimulus ... well, you'd be wrong. K Street wants more tax breaks for businesses -- and the latest one is called the "cancellation of indebtedness (COI) waiver."

The second half of this Journal article explains the COI tax break well. Essentially, any company buying up its own outstanding debt at a discount price -- which usually means a private equity firm that has taken over a struggling corporation -- the purchaser of debt has to pay taxes on the amount of debt it forgives. If I buy up your $100 debt at a discount of $40, leaving you on the hook to me for $60, the cancelled $40 of debt is still taxable.

The Chamber of Commerce, and 35 other trade associations in the home building and retail sectors, are seeking a COI waiver that would allow cancelled debt to be tax-free.

Here's some more recommendations from those nice fellows at the Chamber of Commerce (who essentially have their hands up the asses of half the Republicans in Washington, if not more). They're concerned about the "balance" of tax and spending provisions and would like it awfully so much if the businesses they represent could be handed bagfuls of money. Isn't the era of comity grand?

The Chamber believes that a truly effective stimulus package must have the proper balance of tax and spending provisions to trigger near-term economic growth while underpinning long-term economic growth. The Chamber supports the tax relief provisions in H.R. 598 [...] However, in sum, the Chamber believes that the tax provisions in H.R. 598 are simply too small to have the desired impact.

In addition to tax relief for debt repurchase, the Chamber believes other provisions could also ease the liquidity problems plaguing the economy. Notably, the Chamber supports:

Temporarily allowing foreign subsidiary earnings of U.S. companies to be repatriated at a reduced tax rate would ease liquidity challenges, relieve stress on the commercial paper market, help companies meet funding requirements in employee pension plans, and generally increase available funds. This could be achieved while generating revenue for the Treasury.

Making TARP funds available to expand access to the Commercial Paper Funding Facility (CPFF) for "Tier 2" commercial paper would ease liquidity problems, thereby thwarting unnecessary job loss and enabling companies to better meet their working capital needs.
Making TARP funds available to capitalize a Federal Reserve liquidity facility for new commercial mortgages and unsecured commercial real estate loans to permit commercial real estate credit markets to restart and clear in an orderly fashion.

Lease newly-available offshore oil and gas resources on the Outer Continental Shelf (OCS), which could yield as much as $1.3 trillion in new royalty income to the federal government, create more than 75,000 new jobs, and reduce the cost of H.R. 598.

Reduce the corporate capital gains rate to 15% to encourage unlocking of appreciated assets held by companies. This would generate substantial tax revenues for the government and provide much needed capital that would be redeployed more efficiently into the economy.

Oh, and they think that all environmental laws should be eliminated so that infrastructure projects can begin "without delay." And they aren't much into expanding health care eligibility for COBRA because it would "impose significant administrative burden on and economic costs to employers."

Other than that, you know, great stimulus.

And here's what the House GOP is up to, using Obama's words against him to create a perception of their own victimhood:

Wednesday, a group of House Republicans will argue that Obama’s Hill colleagues haven’t embraced his vision of shared sacrifice, arguing that Democratic leaders cut the GOP out of negotiations over the new administration’s first big bill.

Some members of the group, organized by Minority Whip Eric Cantor of Virginia and Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee, are upset that Democrats abruptly canceled a meeting last week with Republicans before unveiling the $800 billion stimulus. The GOP group has requested to meet with Obama later this week.

Republicans, led by Minority Leader John A. Boehner, complained that Democrats were refusing to work with the GOP on a package that focuses more heavily on tax cuts for middle-class households and small businesses.

Republicans would love Democrats to “sacrifice” some of their power and negotiate.

See, the President said he would bring people together and yet nobody's working with us to eliminate taxes and destroy government.

Obama would be right not to listen to any of this, but he clearly wants to open with a big bipartisan victory. There's a case to be made that giving Republicans and Blue Dogs some ownership of the stimulus would make it easier to go back to them for other important legislation, like re-regulation of the financial sector. But that assumes that Republicans would take that ownership seriously, that they would even allow themselves to vote for this if they didn't get essentially the bill George Bush would sign, and that they care about consistency or coherence. They don't. They care about trench warfare.

Now With Obama, It's Time To Fix The Foreclosure Crisis In California

Democratic legislative leaders are in Washington today arguing for increased stimulus money for California. I've been arguing that this is required for some time, and hopefully it will be done in such a way that a) it can be applied to the General Fund deficit (so far Arnold has not asked for budget relief in that way) and b) it can be used without up-front money that will be matched, because the cash crisis limits our ability to do that.

However, there is something else that the Obama Administration can do right away to help the bottom line of the state and its citizens, and that is deal with the crisis in the housing market here. It's no secret that California is one of the hardest-hit states by foreclosures; in Stanislaus County, for example, 9 percent of all houses and condos in the county have been foreclosed upon, a staggering figure. That's almost $4 billion dollars worth of foreclosures in Stanislaus alone. In larger counties like San Bernardino and Riverside, you can see how this foreclosure crisis affects new housing starts (there are a glut of cheaper foreclosed homes on the market) and thusly unemployment figures.

Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Although there was a surge in construction employment in the U.S., and about a 50% increase in California (as a percent of total employment), construction employment doubled (as a percent of total employment) in the Inland Empire [...]

With the housing bust, the percent construction employment has declined sharply and the unemployment rate has risen to almost 10%. Is it any surprise that jobless rate in the Inland Empire matches Detroit’s as the highest of any major metropolitan area in the U.S.?

Nobody is calling on the federal government to prop up a sick housing market that will not see a broad recovery for a while. But foreclosures have a disruptive effect on the greater economy. They hurt property values, they hurt banks, and they hurt employment. The crisis is only slated to grow if nothing is done, with homeowners of every income class affected. And so foreclosure aid would be a major boost to California, and it can be done both quickly and effectively. By pledging that $100 billion from the TARP program will go to limit foreclosures, Obama has already begun this effort. Ted Lieu thinks that the Obama Administration understands the nature of the problem.

Time is of the essence. I commend the incoming Obama Administration for pledging up to $100 billion from the Troubled Assets Relief Program (TARP) to help distressed homeowners stay in their homes. In California, which has the highest number of foreclosures in the nation, we experience one foreclosure filing every 30 seconds to 1 minute. The TARP funds, which the U.S. Senate recently released, should be immediately put to use to rescue homeowners from foreclosure. Our economic recovery will not begin until we slow down the astronomical rate of foreclosures and stabilize the housing market.

Strategic direction is of the essence. The haphazard strategy of the Bush Administration’s use of the initial $350 billion in TARP funds resulted in the following: more foreclosures, less market confidence, and zero benefits for the ordinary citizen. How does giving yet another $20 billion to Bank of America so it can complete its purchase of Merrill Lynch’s brokerage arm help anyone on Main Street? Answer: it doesn’t. The only people this TARP money under the Bush Administration has been helping have been Wall Street firms. It is time for change and January 20th cannot come soon enough.

However, more needs to be done. Earlier this month, Democratic Senators got Citigroup on board for what is known as "cramdown" legislation, which would allow bankruptcy judges to restructure mortgages that would give homeowners the ability to pay them. The lenders take a haircut but it's a better situation for them than foreclosure, and those who get to keep their homes can continue to contribute to the economy. It's a great idea and a major step toward reforming the hideous 2005 bankruptcy bill. Yet despite supporting it, Obama's team doesn't want to include this reform in the economic recovery package, which I think is a mistake.

President-elect Obama and his advisers are resisting attempts to include a provision in the economic stimulus bill backed by congressional Democrats that would allow bankruptcy judges to shrink mortgages.

In a hastily convened Democratic Caucus meeting last week, Obama economics adviser Jason Furman made it clear to lawmakers that Obama thinks the so-called “cramdown” provision would cost GOP votes and endanger bipartisan support in the Senate.

He committed to dealing with the issue after the bill passes, as did House Speaker Nancy Pelosi (D-Calif.).

Lead supporters of the cramdown provision say the time to deal with the issue is now. Rep. Jerrold Nadler (D-N.Y.) said it’s worth losing some Republican support to help homeowners.

“I would take that risk,” Nadler said. “I don’t think you’re going to get a lot of Republican votes anyway.”

This is absolutely correct by Nadler, and risking a few votes on the margins is no reason not to limit foreclosures now. There is an urgency here, because each foreclosure hurts the housing market more and makes it less liable to recover quickly. We cannot wait a few months for the sake of political expediency. Cramdown needs to happen fast, particularly for us in California.