Prof. William Black & Zach Carter: Obama’s Housing Plan Misses the MarkOctober 25, 2011
MORE: Zach Carter: New Obama Foreclosure Plan Helps Banks at Taxpayers Expense [via Huffington Post]
RUSH TRANSCRIPT FROM MSNBC.COM:
>>> today, no way to live, once again. good tuesday afternoon to you. i am dylan ratigan. a delight to be seeing you. no shock in any of this data. more bad news for housing. the headline today, home prices down an additional 3.8% from 12 months ago. the good news is the rate of decent is slowing, but putting it in perspective, prices are now down 31% beneath the housing bubble's peak. that is, of course, a third of the value of every home in america. and in the nation's foreclosure capital, las vegas, our president, barack obama, rolled out his latest claimed attempt to ease the housing crisis late monday.
>> there are still millions of americans who have worked hard and acted responsibly, paying their mortgage payments on time, but now that their homes are worth less than they owe on their mortgage, they're having trouble getting refinancing, even though mortgage rates are at record lows. so that's going to soon change.
>> well, don't misunderstood. any help is a welcome improvement to americans struggling to keep up with the mortgage market. but once again, it is proportionally completely off. the proposed band-aid is a pitiful response to a problem whose magnitude i quite honestly do not know whether either political party is prepared to confront. more than 11 million homes in this country, one in four, are underwater. the obama plan at its best-case scenario -- excuse me, or president obama's plan, at its best-case scenario, would assistleassist le less than a million of them, and while it did so, it would be saving struggling homeowners a few hundred bucks each year. it would be nothing to combat the actual problem, which is a housing finance market whose incentive is to manufacture debt at the expense of the people. these homes have zero equity and, obviously, carry excess debt. even more sinister, president obama's proposal has a contingency to allow the banks to get off the hook for all prior liability. shifting even more responsibility to the american taxpayer, and further eliminating liability for banks. with help like that, who needs hurt? we start with one of the chief prosecutors of the banks during the savings and loan crisis a few decades back, bill black. he's currently an associate professor of economics and law at the university of missouri, kansas city. zack carter joins us as well, senior political economy reporter with the " huffington post" and a man we're always happy to see. professor black, what is your assessment of the proposal from president obama?
>> well, first, the numbers are considerably worse than you just showed. that figure of 12 million is actually how many houses are underwater by at least 125%, not 100%.
>> so, again, because it goes to my base criticism, which is, i'm not sure that the political parties, and for that matter, the media, comprehend the magnitude of this problem. why is understanding the size of the problem so important?
>> because, you realize immediately that the proposed solutions, if they worked perfectly, would do virtually nothing, given the scale of the problem. so they haven't even tried to solve. we've gone from yes, we can, to actually, we're not even really going to try. >
>> and zack, in the context of professor black's assessment, have you seen any housing plan, from any political leader, that addresses the scale of the problem or who would you even point us to as any agency who has even attempted to address it on a scale that actually exists?
>> well, politically, nobody's interested in solving this problem. in order to solve problem, you have to force very large banks to recognize losses that are already on their books, that they've buried with accounting tricks. so no one really wants to take on big banks in washington, and that means nobody's really serious about tackling the problem. that's why this plan deals with refinancing rather than negative equity, people being underwater.
>> right. it makes total sense. and you agree with that assessment, i presume?
>> yes. we extorted the financial accounting standard board to change the rules so that the banks wouldn't have to recognize the losses, unless and until they actually sold the place. so they're sitting on this shadow inventory of millions of homes and the markets simply don't clear. millions of people are twisting slowly in the wind. over 10 million people, well over 10 million people, are twisting slowly in the wind. it is a disaster. we just went through a debate in las vegas, which is one of the epicenters of the crisis, in which about two people actually mentioned that housing.
>> and the reason for that goes to the reason why we started get money out and the fact that money is so influential and political the decision making, nowhere is that more apparent or few places is that more apparent than both parties' complete and utter refusal to address this problem. but, there may be a silver lining for all of us. don't lose hope quite yet. we still have our attorney general in each state. granted, so far, a lot of that has not been the most encouraging. but we have recently not only new york state attorney general eric schneiderman, we've seen the attorney general in nevada, and we've seen delaware attorney general and delaware may be a small state, but it's big in the corporate world, in terms of law making, and take a listen to beau biden, the attorney general there, when he was on the show last week.
>> my view of the world, and it's been formed every day the investigation we're doing, these banks have almost -- my hypothesis is, they've lost track of who owns what in america. they literally have lost track of who owns what. the borrower is so disconnected from the person that own the mortgage, the investor, and it's been sliced and diced 15 times.
>> do you agree with that?
>> yes. part of the story is massive fraud in the sale of collateralized debt obligations. a federal agency has sued 17 of the largest banks, claiming that they engaged in endemic fraud and that there's a paper trail establishing that they knew their actions were fraudulent. and there's still no indictments from the federal level. so it's left to the states and to your honor roll, i would add the california attorney general harris, who i applaud in that column, because she too withdrew from the state settlement, which is being pushed by the obama administration to create an utter scandal, where we are going to make crony capitalism official. they want and apparently think they're going to get immunity from the underlying fraudulent loans by giving what is, for them, from their standpoint, chump change.
>> zach, to that end, even in president obama's current proposal, as it was laid out in las vegas, it appears that it comes with an about for banks to eliminate their liabilities. can you educate us about that aspect?
>> right. well, when a bank makes a loan to a borrower, it then typically takes to it fannie mae and freddie mac and say, can you buy this loan or guarantee it against losses for us? when it takes that loan to fannie and freddie, it says it has a certain set of characteristics, it's a safe and affordable loan for the borrower taking it on. if it doesn't meet those characteristics, when the loan defaults, they can take it back and say, you've got to eat this loss. that ability to push back those losses on the banks goes away under this new program. so we don't know how many loans going to be picked up by the program, we don't know how many of them were misrepresented. but there's clearly the potential for a significant amount of upside for big banks, in the way the program is structured.
>> very quickly, why would any sitting president of the united states work -- i don't care who the president is, i don't care what the political party is, work in any way to help prevent honest liability for criminal -- potential criminal action?
>> it is incomprehensibly disgraceful. it is a violation of the oath of office. it is a destruction of america. and the only thing i would add, zach is absolutely right, except we do know something about the percentages of fraud in these loans and they are enormous, starting in the range of 50%, and simply what they found from a paper review with no investigation.
>> those are the dipstick tests, just the anecdotal?
>> no --
>> or an actual physical review?
>> where you look at a sample and see the fraud are so obvious, that with no investigation, you can see it's fraudulent.
>> just because the number's wrong? supposed to be a 10 and it's a 100.
>> make absolutely no sense, it's inconsistent.
>> professor, it's a pleasure. hope to be seeing a lot of you, if only because i'm hopeful that we'll actually start to see some reconciliation with the banks and i think you should be a big part of that. zach, same for you. keep up the sensational work. you should always keep track of zach's publications and writings and journalism on "the huffington post" pretty much every day. and certainly, most days. sometimes the kids got to do some reporting. he can't write every day.