Friday Funnies: You been F@I?*#*

Maxed Out Talks To Wall Street

Support The Foreclosure Prevention Act of 2008

Here's a flash from Americans for Fairness in Lending:

In the aftermath of reckless subprime lending, our nation's economy is in serious trouble. This week the Senate will vote on a new bill that would prevent unnecessary foreclosures and stabilize the housing market. Please take a moment now to tell your Senators to support this bill – call toll-free 1-800-580-5739 to be connected with them. Here’s a sample message:

I understand that the Senate will vote this week on Senator Reid's "Foreclosure Prevention Act of 2008," S. 2636. This is a time to stand up for homeowners and support sustainable mortgages. Please help restore confidence in our economy by giving your full support to this bill.

Please act today

• AFFIL Partners have set up a toll-free hotline so you can call your Senators and tell them to support S. 2636 – just call toll-free 1-800-580-5739 to be connected with your Senators. Every call counts, so make sure to call now!
• Forward this email to your friends and co-workers.
• We expect a vote this week, so act now!
  
• Visit the Center for Responsible Lending for more information or to email your Senators. (Keep in mind that calls will have much more impact!)

Why

• Foreclosure rates are rapidly increasing, and experts agree that, without sensible policy changes, the problem will get worse during the remainder of this decade.
• Voluntary lender efforts are making only the slightest dent in the problem. Loan servicers simply don't have the resources to cope with the magnitude of the problem.
• It isn’t fair that people can modify loans if they run into trouble paying for their second homes, their yachts, their investment properties, or their small businesses – but not their primary residences.
• It also isn't fair that mortgage lenders can get assistance from courts when they get in trouble, but homeowners do not have that option.
• By lifting the ban on court-supervised loan modifications for qualified homeowners, this bill could enable 600,000 families nationwide keep their homes.
• Without this remedy, massive foreclosures will continue to weaken the entire economy.

Background

Previously we asked you to support a foreclosure prevention bill proposed by Senator Durbin. That bill was recently rolled into this new bill, Senator Reid's "Foreclosure Prevention Act of 2008" (S. 2636), which is a broader proposal for minimizing damage caused by abusive subprime loans and strengthening the housing market.

We will keep you posted on the results. Thank you for your support!

Best regards,

Sarah Byrnes

Campaign Manager, AFFIL

A difficult balance between stimulating the economy and controlling inflation

The New York Times has a good story about recent economic data and the difficult task of stimulating the economy without increasing the current rate of inflation. Click here for the full article. Here is an excerpt:

Two worrisome trends for the economy — falling house prices and the rising cost of everything else — picked up speed in data reported on Tuesday, putting policy makers in an increasingly tough position.

If they move too aggressively to cut interest rates and stimulate the economy, they might stoke inflation at a time when consumers are already squeezed by higher prices for food, energy, clothing and other goods. But if they chose more austere measures, the economy may weaken substantially faster.

Default Judgments Driven By Debt Collectors Hit All Time Highs

The Star Tribune has a story about the record high number of judicial defaults, which are the result of lawsuits filed on behalf of debt collectors. Click here for the story. Here is an excerpt:

Default judgments imposed on debtors who failed to make loan payments and then did not respond to lawsuits seeking to collect the money climbed to more than 36,000 in 2007, up 67 percent from 2006, according to state court administration.

The story is a good one, but it doesn't talk much about whether this tactic is legitimate or fair. The tactic is debt collectors' practice of filing thousands of boilerplate lawsuits against debtors. The vast majority of these cases default, meaning that the individual does not file an Answer in response to the lawsuit, and then the debt collector gets a final order from the court in the amount of the debt plus fees.

What's unfair about that? Well, most people don't understand the legal system. And, most debtors don't understand the consequences of failing to respond. In many ways, the boilerplate lawsuit is just another piece of paper that has been sent to them with another seemingly meaningless deadline. The fact that most people don't challenge the lawsuit creates an incentive to inflate attorneys' fees and other charges.

The better question is who is watching out for the debtors? Who's reviewing the fees? Or, are the courts simply becoming a government-sanctioned debt collection firm.

Medtronic fined $10 million

According to a report in the Star Tribune, Medtronic has been fined $10 million for its handling of a spinal cord patent case in Massachusetts. Click here for the story. Here is an excerpt:

U.S. District Court Judge Edward Harrington imposed the fine and ordered Medtronic to pay a portion of the plaintiff’s attorneys fees from the Massachusetts case over spinal screws that resulted in a $226.3 million judgment against Medtronic.

“The defendants prolonged the proceedings unnecessarily (thus unduly imposing upon the jury’s time),” Harrington wrote in a five-page order.

Medtronic’s legal team also “elected to proceed with a defense that threatened to mislead and confuse the jury,” the judge said.

Predatory PayDay Lending At The Minnesota Legislature

The Star Tribune has a good story about the new payday lending bill before the Minnesota legislature this session. They're seeking a 36% cap. Click here for the story. Here is an excerpt:

Minnesota legislators are taking on the underbelly of the lending industry this session, trying to shore up consumer protections on expensive, short-term loans at a time when a faltering economy might send more people looking for them.

Lawmakers want to create a 36 percent annual maximum on interest rates that now can reach more than 600 percent and require flexible repayment options for the $58 million industry in Minnesota commonly known as payday lending.

Legislators also want to force all the lenders back under the state's consumer-loan statute, after several migrated to another law with more lucrative terms.

Funnies: Make a Downer Burger

Click here for the latest cartoon about our beef industry from Mark Fiore.

FDA Releases New and Dangerous Off-Label Drug Rules

For those of you who do not know, "off label marketing" is the selling of drugs for non-approved purposes and it is a billion dollar industry. Often the approved purpose does not yield many sales, and so pharmaceutical companies begin pumping-up sales by touting non-approved uses of the drugs directly to doctors.

Here is a statement from Public Citizen related to the FDA's new rules related to this practice:

The Food and Drug Administration’s (FDA) announcement today to once again permit the promotion of off-label uses of drugs contrasts the current recklessness of the agency with the more consumer-protective FDA of 10 years ago. In 1997, the FDA strongly opposed the principles in today’s guidance because they would have opened the door to the promotion of drugs for treatments for which there was not enough evidence that the benefits outweighed the risks. As a result, the law passed in 1997 – which was in place until October 2006 – required companies to submit medical journal articles in advance to the FDA and agree to file within three years a supplemental new drug application for the off-label use it wanted to promote. These safeguards will no longer be required under today’s proposal.

Almost every week brings new evidence of the FDA’s dangerous attitude about the public’s health and demands a change in leadership at the agency, starting with the commissioner. Today’s proposal, if finalized, constitutes a health threat because it encourages drug companies, who have no reason to fear FDA sanctions, to promote drugs for purposes not proven to be safe and effective.

The fall of the de-regulated economy

The Financial Times has an excellent column related to end of the de-regulated era as the current global recession forces free-marketeers to reassess the wisdom of unfettered markets. The article hits upon some of the themes that I have written about over the past few months. Specifically, efficient and stable markets demand transparency, accurate information, and immediate accountability for wrong-doing. The article also notes the rise of the "activist" shareholder, which is an interesting phenomenon. Unfortunately the recent Supreme Court ruling the requires actual reliance has blunted some of the tools that shareholders were using to hold companies and corporate officers accountable.

Here is a link to the full article (click). Here is an excerpt:

The third crisis is the one rocking financial markets. Unlike the internet bubble, this is not a crisis based on irrational behaviour but one of sophistication and disintermediation. The new risks produced by financial innovation were left to a sector that alone was considered able to understand its instruments. The crisis demonstrates the costs to the real economy and lack of an efficient self-regulating system.

....

The changes in company ownership also call for greater transparency in order to prevent actions that offend business ethics, such as creeping takeovers and speculative strategies that undermine companies’ long-term interests. The board’s role of defining solutions that satisfy shareholders’ divergent interests will have to be strengthened. It should allow for corporate governance that encourages long-term strategies while satisfying shareholder interests. Finally, regulators should supervise the whole of financial markets to assess systemic risk, eliminate off-balance-sheet ambiguities and bring within the scope of supervision actors that have eluded market authorities.

Another Supreme Court Ruling Against Consumers...

Minnesota-based Medtronic won before the United States Supreme Court, when our highest court held that medical device manufacturers cannot be sued under state law when the device has been approved by our ever-vigilant federal regulatory agencies (that's a little sarcasm). Here is a link to the New York Time story (click), here is an excerpt:

The 8-to-1 ruling in favor of Medtronic, the Minneapolis-based maker of cardiovascular devices, made it much more difficult for patients and their families to sue makers of medical devices that have been granted federal approval.

In 1996, a balloon catheter burst and severely injured Charles R. Riegel while he was undergoing an angioplasty. Mr. Riegel and his wife, Donna, sued the company in federal court, contending that the catheter had been designed, labeled and manufactured in a way that violated New York state law, and that those defects had caused severe and permanent injuries to Mr. Riegel.

But a federal district court and the United States Court of Appeals for the Second Circuit, in Manhattan, dismissed the Riegels’s suit on the ground that the catheter had been given pre-market approval by the Food and Drug Administration, thus protecting the manufacturer from liability under state law. (The case of Riegel v. Medtronic was tried in federal court because the plaintiffs and defendant were based in different states.)

Let us all pray for the continuing health and vitality of the one sane, dissenting justice: Judge Ruth Bader Ginsburg

Supreme Court Re-Victimizes Hurricane Katrina Victims

The Supreme Court turned down a request to review a decision by the 5th Circuit Court of Appeals, which denied victims of Hurricane Katrina flood insurance coverage. Here is an excerpt from the Associated Press:

The justices on Tuesday rejected appeals from Xavier University and 68 other individuals and businesses seeking to allow their lawsuits against the insurers to go forward.

Xavier asked the court to step in after the 5th U.S. Circuit Court of Appeals ruled that the policies did not cover damage from floods, even those that resulted from man-made failures such as the collapsed levees in New Orleans.

Obama on Subprime Lending and Foreclosures

From a speech yesterday in San Antonio, Texas:



Click here for a link to his economic policy.

Criminal Probe of Subprime Hedge Fund: Following Ralph Cioffi's money

A funny thing happened when folks started to investigate Bear Stearns and the two subprime, hedge funds that went belly-up: the Bear Stearn's manager withdrew his own money while he was advising others to invest.

The Wall Street Journal has the story (click here). Here is a little excerpt from the WSJ blog:

Citing people familiar with the matter, Kelly writes that on an April 25 conference call Bear fund manager Ralph Cioffi told participants he was “cautiously optimistic” about the bank’s ability to hedge its holdings of securities tied to subrime. Meanwhile, back in March, Cioffi moved $2 million of his own money out of one of the troubled Bear funds, Kelly’s sources say. Also, Cioffi allegedly continued to voice his concern to colleagues about the withering states of the credit markets and subprime securities, and wondered aloud whether they could ruin his funds.

During the April conference call, the story says, a participant wondered whether packaged mortgage securities in the fund — called collateralized debt obligations, or CDOs — were tied to subprime assets. Cioffi allegedly replied that he didn’t have time to teach “CDO 101.”

Sometimes you get what you pay for...

Paul Krugman has an interesting column in the New York Times about making the reduction in poverty and poverty rates a priority for the government. Specifically, he links poverty to health problems and creating certain physical limitations that are going to make it hard to break the cycle of poverty. (Click here for the article) Here is an excerpt:

Poverty rates are much lower in most European countries than in the United States, mainly because of government programs that help the poor and unlucky.

And governments that set their minds to it can reduce poverty. In Britain, the Labor government that came into office in 1997 made reducing poverty a priority — and despite some setbacks, its program of income subsidies and other aid has achieved a great deal. Child poverty, in particular, has been cut in half by the measure that corresponds most closely to the U.S. definition.

But here are graphics and charts from his blog, which is often times more informative than the column itself. (click here)

Who are the superdelegates?

To impress friends and family with trivia and current events, here is a link to the list of all of the Democrat's superdelegates. (click here)

Here is a list of the Minnesota's fourteen superdelegates from the Washington Post:

MINNESOTA

  Democratic National Committee    DNC Affiliation Type
  Donna Cassutt                    MINNESOTA DNC MEMBER
  Ken Foxworth                     MINNESOTA DNC MEMBER
  Nancy Larson                     MINNESOTA DNC MEMBER
  Brian Melendez                   MINNESOTA DNC MEMBER
  Mee Moua                         MEMBERS-AT-LARGE
  Rick Stafford                    MINNESOTA DNC MEMBER
  Jackie Stevenson                 MINNESOTA DNC MEMBER

  U.S. Senate
  Amy Klobuchar

  U.S. House of Representatives
  Keith Ellison
  Betty McCollum
  James Oberstar
  Collin Peterson
  Tim Walz

  Distinguished Party Leader       Leadership Position
  Walter Mondale                   FORMER VR

Government Take Over of Mortgage Lenders

Great Britain announced that it was bringing troubled lender, Northern Rock (also the sponsor of EPL soccer team ) under its control, essentially nationalizing a private company. The New York Times has the story (click here), below is an excerpt:

The British government announced Sunday that it would bring Northern Rock, the struggling mortgage lender, under its control. It was the first nationalization of a bank in more than a decade and a huge blow for the government of Prime Minister Gordon Brown.

The government rejected two takeover proposals for the lender, which ran into trouble last year because of a funding shortage that followed the subprime mortgage crisis in the United States. The government was forced to shore up the company with about £55 billion, or $107 billion, in loans and guarantees.

Short Sale, Negative Equity and Taxes

I want to point out something really positive that Congress and President Bush did that has not gotten a lot of news coverage: eliminating the taxes on a short sale.

With the increasing number of homeowners who have negative equity in their homes, selling their house to avoid a foreclosure is not an option because even if the lender agrees to a "short sale" the homeowner may have had to pay taxes on the forgiven portion of their loan. The Mortgage Forgiveness Debt Relief Act generally eliminates that problem. It was signed into law in late December 2007. Here is an excerpt from President Bush when he signed the bill into law:

The bill I sign today will help this effort by ensuring that refinancing a mortgage does not result in a higher tax bill. Under current law, if the value of your house declines and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as money that can be taxed. And of course, this makes a difficult situation even worse. When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes.

Click here for the full press release.

Friday Funnies: The Spies Who Love You

Here is the latest from Mark Fiore and the "Security Bear" in a little ditty called "The Spies Who Love You."

Click here for the video

Mortgage-Backed Bond Insurers Going Under...

As the riskiest bonds go under, expect the insurers of those bonds to follow behind them. It's difficult to determine whether the companies that insured residential and commercial mortgage backed securities were greedy, stupid, defrauded or all of the above. What we do know is that they are in serious trouble.

Billions of dollars of mortgages are going into default and foreclosure, and the insurers are the entities that are supposed to provide the real estate investors a parachute---that, however, isn't going to happen.

Calculated Risk has a good post about and excerpting the testimony of Patrick M. Parkinson, Deputy Director, Division of Research and Statistics of the Federal Reserve Board. Here is a little of what he had to say or click here for the full post:

...downgrades [of bond insurers] might adversely affect financial stability through several channels. These include: (1) the potential for disruptions to municipal bond markets, (2) potential losses and liquidity pressures on banks and securities firms that have exposures to the guarantors, and (3) the potential for further erosion of investor confidence in financial markets generally.

Naked Cowboy vs. Naked M & M

Okay, so this isn't exactly serious or consumer related...or is it?

According the Wall Street Journal Law Blog the Naked Cowboy of Times Square has sued the Naked M & M of the Mars Candy Company for $6 million. I'm not sure what the claim would be, but it's rumored to be trademark infringement. Click here for the full Wall Street Journal post.

UnitedHealth Group Investigated for Fraud By New York Attorney General

The New York Times has a story about an investigation by New York Attorney General Andrew Cuomo about whether Minnesota's UnitedHealth Group systematically forced patients to pay more than they should when using out-of-network doctors and hospitals. In fact, he said it wasn't just an investigation at this point and that he is going to file a lawsuit. Click here for the story.

Here is an excerpt:

Mr. Cuomo’s inquiry focuses on a fundamental industry practice: how insurers determine what portion of a doctor or hospital bill they will pay if a patient receives care from a provider not under contract to the insurer. Individuals who go out of these contract networks are typically required to pay a certain percentage, typically 20 percent, of the so-called usual and customary charges — a calculation that is supposed to reflect the prevailing market rate in a given geographic area for a doctor visit, a procedure like a colonoscopy or various other medical services.

But Mr. Cuomo contends that the industry has consistently underestimated the prevailing market rates, forcing policyholders to pay greater portion of their own medical bills than their insurance policies are supposed to require. About 70 percent of Americans choose health plans that allow them to go to doctors and insurers outside of the plan’s network, and they pay higher premiums for the privilege, Mr. Cuomo said.

Is Project Lifeline Really Just A Bandaid?

The Bush Administration/Treasury Department along with some major lenders announced a new plan to help the thousands of homeowners facing foreclosure: Project Lifeline.

In short, the plan is a 30 day reprieve from foreclosure. The question I have is this---How much can be accomplished in thirty days? If lenders aren't going to do uniform loan modifications, and, instead, insist on applications for loan modifications or repayment programs, then the thirty days seems to be inadequate. The good news is that the crazy restrictions on the original foreclosure prevention program do not apply to the 30 day "lifeline."

Here is a link to the full story in the New York Times.

Here's an excerpt from the article:

“If they reached all 425,000, they could have a measurable impact,” said Mark Zandi, the chief economist and co-founder of Economy.com. Projects like Project Lifeline are steps “in the right direction, but they are all very small steps. They are likely to be overwhelmed by the eroding housing and job markets. I am very skeptical these efforts will be successful in stopping what will be a record year.”

Politicians and investors who follow the financial industry appeared equally skeptical about the plan’s prospects.

“This is like giving six students a homework assignment but not requiring that they turn in the assignment or even report on its progress,” wrote Ted W. Lieu, a Democrat who is chairman of the banking and finance committee of the California State Assembly. “The banking industry’s track record of following through on their public commitments to help homeowners has been — to put it charitably — sorely lacking.”

On Wall Street, stock markets fell back slightly after the plan was announced late Tuesday morning, though the Dow remained up for the day.

“It didn’t look like any of it had teeth,” James W. Paulsen, chief investment officer at Wells Capital Management, said of the plan. “I didn’t see where there was anything new.”

And we're off...

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Minnesota Attorney General Settles American Equity Case And Files Another Against Amerus

Attorney General Swanson settled a lawsuit against American Equity Investment Life Insurance Company, the third largest issuer of equity-indexed deferred annuities in the United States. The lawsuit alleged that American Equity sold unsuitable long-term high surrender fee annuities to senior citizens. The settlement, modeled after the Office’s settlement with Allianz Life Insurance Company of North America, announced last October, allows up to 2,400 seniors to make claims for refunds totaling $125 million.

The office also filed a new lawsuit against AmerUs Life Insurance Company and American Investors Life Insurance Company, now part of Aviva USA Corporation, (“AmerUs/American Investors”), which make up the second largest issuer of equity-indexed annuities in the United States. This is the fourth insurance company Swanson has sued since taking Office last January as it relates to the sale of long-term deferred annuities to seniors. (Click here for the full press release)

Public Citizen Sues Federal Government for Failing To Create Database Intended To Protect Consumers Who Purchase Used Cars

Public Citizen and two other groups sued the Department of Justice for failing to create a national database to track stolen and wrecked cars. Here is a link to the press release (click here). Here is an excerpt:

More than 15 years after Congress required the federal government to set up a national database to allow car buyers to determine whether a vehicle has been stolen or rebuilt after a wreck, the system is still not in place, three consumers groups said Wednesday in a lawsuit filed against the Department of Justice (DOJ).

Public Citizen, Consumers for Auto Reliability and Safety (CARS) and Consumer Action sued in the U.S. District Court for the Northern District of California. The groups want the court to order the DOJ to move forward with creation of the National Motor Vehicle Title Information System.

The database would help consumers avoid purchasing a potentially dangerous used car by allowing them to instantly check the validity of a car’s title and mileage and learn whether it had been stolen or was a junk or salvage vehicle. A salvage vehicle is one that was totaled in collision, fire, flood or other event to the extent that its value, plus the cost of repairing it for legal operation, is more than its fair market value immediately before the event that caused the damage.

Rating Agencies: The Essential Element of a Subprime Debacle

What is often forgotten in the subprime debacle is the role of rating agencies, such as Standard & Poor's and Moody's. Without their Triple-A seal of approval, none of the subprime mortgages that were securitized and sold as bonds would have actually been sold. Their ratings mean that the product is "investment grade," which obviously the subprime-backed securities were not.

If the rating agencies would have actually looked at a sampling of the mortgages they rated, they would have seen rampant fraud and misrepresentation (inflated appraisals, sloppy underwriting, falsified income, etc.) The SEC has now proposed some rules for these largely forgotten gatekeepers. (click here for the story in the Wall Street Journal) Here is an excerpt:

The Securities and Exchange Commission may soon propose rules that require credit-ratings firms to disclose the accuracy of past ratings and distinguish between various products they rate, the first indication how the industry might be regulated in the wake of the subprime crisis.

SEC Chairman Christopher Cox said the potential rules "would require credit-rating agencies to make disclosures surrounding past ratings in a format that would improve the comparability of track records and promote competitive assessments of the accuracy of past ratings."

Friday Funnies: Basic Budget Training

Here are a few tips for presidential candidates related to our federal budget and military spending:

Click here for the Mark Fiore video.

McCain and Huckabee on Subprime Lending, Foreclosures, and Mortgage Fraud

I thought that it would be a good idea to set forth what the various presidential candidates had to say related to subprime lending, foreclosures, and mortgage fraud. Yesterday, I did the the Democratic candidates and today I'm focusing on the remaining Republican candidates: John McCain and Mike Huckabee.

I searched the John McCain website and there is no position paper related to subprime lending, foreclosures, or mortgage fraud. Then, I did a "search" of the entire website. There was no mention of foreclosure, foreclosures (plural), subprime, or mortgage fraud. I actually was a little surprised, since concern about the economy, foreclosures, and a potential recession have been in the news almost every day for the past three months. His homestate of Arizona has also been hit extremely hard by the foreclosure crisis and fraud has been pervasive. So I did a little research, and here is a summary of John McCain's view of the economy from a post at Think Progress (click here for the full post):

The New York Times’ Paul Krugman noted recently that, in a moment of candor, John McCain admitted economics isn’t his thing. “The issue of economics is not something I’ve understood as well as I should,” he said. But, “I’ve got Greenspan’s book,” he assured the audience.

If any needed evidence of McCain’s weakness on the economy was needed, simply witness how he has dealt with the need for economic stimulus. After last week’s debate in South Carolina, U.S. News wrote that the question of whether the economy needs a stimulus “vexed” the GOP front-runners, who “appeared unaware of the fiscal stimulus debate currently happening in Washington and being closely watched by Wall Street.”

As for Mike Huckabee, he also didn't have anything on his website related to subprime lending, foreclosures or mortgage fraud. There is, however, a nifty little opinion piece on judges and a whole bunch of stuff on immigration. So, once again, I did a little research and here is an excerpt from a National Public Radio interview (click here for the full interview):

In an interview on Fox News recently, you said that the government should not be bailing out people whose mortgages are about to reset to interest rates that they can't afford. Foreclosures are at record rates right now. Wouldn't doing nothing — as millions of Americans risk losing their homes — smack of Herbert Hoover deferring to the market as 25 percent of Americans were unemployed in the Depression?

Not at all. What you have is a situation where you have culpability on the part of the lenders and the borrowers. The fact is you need to encourage the lenders to try to work with those who have borrowed to keep from foreclosure because ultimately nobody wins. The banks don't need an enormous inventory of property on their hands that they can't move any more than the market can. The lender doesn't need to be in default and ultimately bankruptcy and out of a home.

But what we don't need is a government bailout. That is not the purpose of government, to prop people up from every poor decision they make. In fact, when you do that … whether it's in the world of finance or the world of drug addiction … it creates an enabling codependency. It's the last thing that really helps people.

Is there some way to bring some resolve to it? Yes. But it needs to be handled by the … people who made the mistake in the first place: overambitious borrowers and greedy lenders, who saw a way to suck people into interest rates that they should have known they couldn't afford in the long term.

But apart from assigning an ethical or moral responsibility to the players in this problem, where does the government step in? What's the role of the federal government, and if you were president and this crisis were deepening, what would be the role of the Huckabee administration in approaching it?

I think you would do similar to what the Bush administration has done. You wouldn't bail people out with other people's taxpayer money. You would ask those parties to sit down and find out is there a way they can resolve it. And the reality is, in some cases, yes, they can work it out. In some cases, they cannot. And there are consequences for people's actions. If I drive 95 miles an hour and drive on icy roads, there are consequences. And there are a lot of consequences that the government can't fix. And a government that can do everything for you is a government that can take everything from you. We don't want that kind of government.

But there's a different degree of danger in somebody who takes the risk of driving 95 miles an hour on icy roads and somebody who notices that real estate prices are going up all around them and buys a house one size too big. To your mind, moral hazard is still at work — you don't want to encourage that kind of decision?

Well, the question still comes: If you're a taxpayer, and you've responsibly made financial decisions, should you be made to involuntarily pay your house payment and that of your neighbor, who bought more house than he could afford, even though you acted prudently?

Obama and Clinton on Subprime Lending, Foreclosures, and Mortgage Fraud

Now that the field has narrowed and we don't have a dozen people running for president, I thought it would be a good idea to see where the current candidates stand on subprime lending, foreclosures and mortgage fraud. I tried to find the most complete and relatively short statements on these issues from the candidate's own websites. Today, the Democrats. Tomorrow, I'll do the same for the Republicans.

Barack Obama from his website (click here):

Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.

Create a Universal Mortgage Credit: Obama will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.

Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama's STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.

Mandate Accurate Loan Disclosure: Obama will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.

Create Fund to Help Homeowners Avoid Foreclosures: Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama's increased penalties on lenders who act irresponsibly and commit fraud.

Close Bankruptcy Loophole for Mortgage Companies: Obama will work to eliminate the provision that prevents bankruptcy courts from modifying an individual's mortgage payments. Obama believes that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.

Hillary Clinton from her website (click here):

Hillary will challenge lenders and financial institutions to take three immediate steps today: 1) Voluntarily support a moratorium of at least 90 days on home foreclosures; 2) freeze the fluctuating rates on subprime loans for at least 5 years until they can be converted into fixed rate, affordable loans; 3) Require regular status reports on the progress they’re making in converting unworkable mortgages into loans families can afford so we have real accountability.

Hillary is proposing a comprehensive work out - not a bail out - that would end the foreclosure crisis. If Wall Street refuses to act, Hillary will propose legislation to tackle the problems in the housing market head on.

As we see growing economic challenges - from the housing crisis to rising energy costs-- it’s clear that we need a leader with Hillary Clinton’s strength and experience to create the change America needs. Hillary has proposed allocating up to $5 billion in immediate assistance to help communities and distressed homeowners weather the foreclosure crisis, and called for $1 billion in emergency energy assistance for families facing skyrocketing heating bills this winter.

FORECLOSURE MORATORIUM: Hillary will call for a moratorium on home foreclosures of at least 90 days so that a rate freeze can take effect and at-risk homeowners can get financial counseling to help them transition to affordable loans.

FREEZE ADJUSTABLE RATE LOANS: The rate freeze must last at least 5 years, or until subprime mortgages have been converted into affordable loans. A typical subprime adjustable rate loan is raising monthly payments by 30% to 40% for many families, causing a wave of housing defaults across the country.

REQUIRE ACCOUNTABILITY: Hillary will ask for regular status reports on the progress Wall Street is making in converting unworkable mortgages into loans families can afford.

Medical Problems for Austin Workers at Quality Pork Processors

The New York Times has an interesting story about neurological disease (fatigue, pain, weakness and numbness in the legs) among workers at the Quality Pork Processing Plant in Austin, Minnesota.

According to the story, Quality Pork Processors butchers 19,000 hogs a day and sends most of them to Hormel. It employs about 1,300 employees and work a conveyor belt, carving up specific parts of each animal. (click here for the full story) Here is an excerpt:

A man whom doctors call the “index case” — the first patient they knew about — got sick in December 2006 and was hospitalized at the Mayo Clinic for about two weeks. His job at Quality Pork was to extract the brains from swine heads.

“He was quite ill and severely affected neurologically, with significant weakness in his legs and loss of function in the lower part of his body,” said Dr. Daniel H. Lachance, a neurologist at Mayo.

Tests showed that the man’s spinal cord was markedly inflamed. The cause seemed to be an autoimmune reaction: his immune system was mistakenly attacking his own nerves as if they were a foreign body or a germ. Doctors could not figure out why it had happened, but the standard treatment for inflammation — a steroid drug — seemed to help. (The patient was not available for interviews.)

Neurological illnesses sometimes defy understanding, Dr. Lachance said, and this seemed to be one of them. At the time, it did not occur to anyone that the problem might be related to the patient’s occupation.

By spring, he went back to his job. But within weeks, he became ill again. Once more, he recovered after a few months and returned to work — only to get sick all over again.

By then, November 2007, other cases had begun to turn up. Ultimately, there were 12 — 6 men and 6 women, ranging in age from 21 to 51. Doctors and the plant owner, realizing they had an outbreak on their hands, had already called in the Minnesota Department of Health, which, in turn, sought help from the federal Centers for Disease Control and Prevention.

Predatory Lending: Debunking new study touting the benefits of Payday Lending

Coming to a state legislature near you is a recent "study" that touts the benefits of payday lending. (click here for the study) As the Minnesota legislature considers new fairness standards for such lending, the study will undoubtedly come our way as well.

The study is called "Payday Holiday," which in and of itself is a ridiculous description of the payday lending industry. Payday lending is rarely a one time "holiday." It is a trap. Even in states that attempt to limit the churning of consumers, the reality is that people take these loans out again and again---paying high interest and fees as they spiral down the debt hole.

The first thing about this report/study is that it was not released by the New York Federal Reserve or the position of the Federal Reserve Bank. Industry lobbyists will likely introduce it as a "new federal reserve study." This is not true. The report expressly states that it is not a federal reserve study.

The Center for Responsible Lending ("CRL") kicks down all of the other assumptions and points out the sloppy research of Donald Morgan and Michael Strain. Click her for the CRL's full critique or click here for the critique by Harvard Professor Elizabeth Warren. Here is an excerpt from the CRL, which critiques Morgan and Strain's conclusion that Georgians and North Carolinians are not better off from the ban of payday credit:

Morgan and Strain’s data and research methods are not adequate to support these findings or overall conclusion. The authors consistently confuse or intermingle data from Georgia and North Carolina—which outlaw payday lending—with data from states which allow it. They also ignore important data that does not support their arguments.

• The returned check data used to report increases for Georgia and North Carolina after payday lending was banned includes not only these two states, but also returned checks from Alabama, Louisiana, South Carolina, southern Mississippi, and Tennessee—states where payday lending is legal. The authors did not separate out Georgia and North Carolina-specific data from these others states which allow payday lending.

• The claim that returned check rates are higher in states without payday lending is contradicted by data showing that returned check rates increased at the Boston check processing center—which covers all of New England—after New Hampshire and Rhode Island legalized payday lending.

• The assertion that borrowers have no other alternative to payday loans than to bounce a check, is in direct conflict with academic and industry research showing a variety of less expensive alternatives for dealing with a financial shortfall.

• While FTC complaints increased after payday lending was banned in Georgia, the District of Columbia actually experienced the highest rate of complaints—a jurisdiction that—until 2008—had almost no limitations on payday lending.

• In analyzing variances in bankruptcy rates among states, the authors fail to account for several factors that greatly influence a person’s chances of filing for bankruptcy protection, including health insurance coverage, foreclosures, divorce rates, and demographic factors such as income.

I am not a betting person, but if I were...my money would be on the CRL and the Harvard Professor over a grad student and an obscure researcher "affiliated" with the federal reserve bank.

Chinese Inflation, Another Drag On U.S. Economy

The New York Times has an interesting article on inflation in China and how it is effecting the costs of consumer goods in the United States. (