July 2011

Despite Lawsuits and Congressional Hearings, Bank Still "Robo-Signing"

Major lenders are still using shady paperwork and "robo-signing" to deal with a glut of foreclosures.

      Less than a month after a federal investigation into unethical banking practices in the foreclosure crisis and we already have evidence of further illegalities by the banking industry. As I pointed out earlier this month on Politics Report, federal investigators slammed through a verdict on some of the largest home-loan lenders in the country over fraudulent documentation (in some cases purely forged court documents) and shady lending practices (such as "robo-signing", where individuals are hired simply to sign foreclosure documents without reading or even acknowledging the underlying paperwork). The institutions, including Citigroup, Bank of America, Wells Fargo, JPMorgan Chase, and Ally Financial, were slapped with fees and penalties totaling $30 billion (a drop in the bucket for them), lowered rates on home mortgages for existing loan-holders, a "transition" program for troubled homeowners (which was not elaborated upon at all). In addition, and this is important, they were made to promise never to use these fraudulent practices, like robo-signing, again. According to a recent Reuter's investigation, it appears that promise has already been broken.

JPMorgan Reports: Corporate Profits Driven by Wage Reductions

JPMorgan's own admissions fly in the face of Republican trickle-down Freakanomics.

    

Republicans have argued for decades that the way to grow wages, and thus the middle-class economy, is to make corporations more profitable. In Washington this phenomenon has reached a kind of religious fanaticism as the conservative right holds their ground against closing corporate tax loopholes at the risk of sending the country into default for the first time in history. GOP hopefuls Newt Gingrich, Herman Cain, Tim Pawlenty, and Michelle Bachmann all propose lowering the corporate tax rate even though the largest corporations in the country have paid little or no taxes since the Great Recession hit in 2007. This, they argue, will spur wage increases for employees and faster hiring, which will then spur a faster economic recovery. 

     However, a new report by JPMorgan Chase, one of the largest financial conglomerates in the country, shows that greater corporate profits do not translate to higher wages, but are a product of not doing either. A direct quote from the report, entitled Twilight of the Gods, "reductions in wages and benefits explain the
majority of the net improvement in margins
. This trend has continued; as we have shown several times over the last two years, US labor compensation is now at a 50-year low relative to both company sales and US GDP." (bold text from original). The conclusion is that corporations, we can safely assume, are well aware of the fact that subsidies, tax breaks, and further federal leniency in allowing corporations to create ever larger profits are not translating into more security for middle-class workers. Furthermore, this trend, as stated in the report, was already well in effect before the Great Recession, beginning around 2000-2007. By the report's own admission, it is this culling of worker compensation that has created "profit margins have reached levels not seen in decades."

The Paradox of Thrift

Our economy runs on people spending money. If no one spends any money, our economy collapses. That is, after all, what an economy is.
So what happens when Americans suddenly start saving money instead of spending it?
This is the "paradox of thrift," an economic concept which has been floating around for a few hundred years. Until recently, it was largely an abstract theory. But as Americans are tightening their belts - or more to the point, having their belts tightened for them, due to tougher credit restrictions and chilly unemployment numbers - it's becoming a significant force in our economy's slow recovery.

Destruction of the Middle Class

MarketWatch has an interesting take on the market crash and subsequent slow recovery. A gruesome take on it, in fact. And the author, Rex Nutting, pulls no punches.
I have watched debate on this story flourish in several places online. It's being debated by a lot of people with a lot of vigor. Some of them seem to have a personal stake in the fight, as if we were talking about the relative ugliness of their children. Others obviously know a million times more on the topic than I ever will. But it's interesting to watch the blaming and finger-pointing, the counter cries of "Blame the poor" and "Eat the rich."