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Record Bank Profits - American Dream Foreclosed
Last week, JP Morgan Chase launched the 2010 Wall Street Bonus Sweepstakes. The bank is still losing money on consumer services, but well-heeled investors and financial traders more than made up the difference. The bank announced $11.7 billion in profits and $26.9 billion in compensation, including bonuses that will run in the multimillions for the top executives. Goldman Sachs reported record profits of $13.4 billion, and is set to dole out a staggering $16.2 billion in compensation and bonuses, which could provide an average of nearly $500,000 per employee. And Morgan Stanley, even having sustained a loss in 2009, has set aside $14.4 billion for compensation and bonuses.
Then there's Roberto Velasquez -- the other face of the foreclosure crisis.
Mr. Velasquez, a general contractor, bought a single-family home in Dedham, Massachusetts six years ago. Unfortunately, his mortgage turned out to be a predatory time bomb. After a few affordable years, the interest rate on his adjustable-rate mortgage ballooned and his payments rose to $4,800 a month. He kept up though; until the Wall Street crash knocked the stuffing out of the construction industry. Then he fell three months behind.
Mr. Velasquez found jobs and came up with the three months' payments, but the bank wouldn't work with him. His home was foreclosed on in November. A local bank offered to buy the home and sell it back to Mr. Velasquez for its present market value, which is the most his bank would get for the house if they sold it at auction. Still no deal. "We did what they asked," says Mr. Velasquez, "but they don't want to work with anybody."
Arrogance like that is going to sink more than Mr. Velasquez, his wife, their nine-year-old and their four-year-old. Foreclosures feed on themselves, taking down the value of nearby homes and putting ever more people underwater. There were 3.4 million foreclosures in 2009. That number is expected to rise in 2010. Unless foreclosures stop, the housing market will keep spiraling downward, and it will take the building and mortgage industries with it, ultimately stalling any economic recovery.
A new report from the McKinsey Global Institute confirms this picture, noting that it usually takes six to seven years to squeeze the debt out of a big bubble. During the first several years, gross domestic product shrinks. "At this writing, the deleveraging process has barely begun," warns McKinsey. "The bursting of the great global credit bubble is not over yet." In short, all of us will be hurting for years because Washington is refusing to make the banks eat the debt bubble they created. Instead, the bailed-out banks are walking away with record profits and fat bonuses.
There's a way to avoid another decade of downturn. United for a Fair Economy's new report, State of the Dream 2010: Drained, outlines key proposals that can stem the massive loss of personal wealth and homes. States and the federal government should put an immediate hold on foreclosures when unemployment causes homeowners to default. Bankruptcy judges must be given the power to cut down mortgages to levels homeowners can afford, as they already can for other types of loans. Both of these reforms would stabilize families and communities, especially communities of color that are seeing hard-earned wealth stripped from them at alarming rates. They would also push the banks to accept realistic write-downs on the inflated property values their books still reflect, squeeze debt out of the economy, and hasten a recovery. And they might even keep the banks from doing this to us again.
President Obama just proposed a "Financial Crisis Responsibility Fee" to be imposed on the Wall Street firms that caused the crash and soaked up most of the relief funds. While this is a good start, the fee is temporary. When it ends, the banks can return to their irresponsible ways. A permanent financial transactions tax would discourage speculative trading in home mortgages and the derivative pyramids that were piled on top of them. Serious financial re-regulation, like that outlined in the State of the Dream report, is also essential.
In the end, recovery is not enough. The banks whose irresponsible behavior led to the meltdown must accept part of the responsibility, or they will do it again. At the same time, we must aid the hardest hit communities where joblessness and foreclosures are still wreaking havoc. That is the only route to a fair recovery and a healthy economy.
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22 Comments so far
Show AllSo you are telling us that the banks are paying out more billions in bonuses than they have taken in in profits???
Taking out what they can before...what, exactly?
Taxes, fees and other feel good band aids will not get the banksters under control, even in the short run.
New Deal financial industry regulations succeeded in controlling the banksters from 1933 until 1983, and would still be controlling the banksters today if Ronny Raygun and his successors had not dismantled them.
Restoring New Deal regulations (and adding regulations to address financial schemes that evolved subsequent to 1933) is the only way to control the banksters ...anything short of that is a total waste of resources.
JP Morgan Chase for example paid out $26.9 billion in total compensation, including bonuses which I believe it has not separately revealed, while it claimed $11.9 billion in profit. The average compensation for its 200,000 employees was $135,000 but I expect that is highly scewed to the upper end.
So the gross income from operations before employee compensation was $26.9+$11.9 or $38.8 billion while salary and bonuses took about 70% of that total.
A Tobin tax has been suggested by many comentators while allowing the judicial system to renegotiate predatory (unethical verging on illegal) mortgages is long overdue.
From the article: "In the end, recovery is not enough."
IMHO I don't think there is going to be a recovery for most average Americans. The policies that have been put in place to destroy the middle class appear to have finally achieved their objective.
Funny all of a sudden, Obama comes out with strong rhetoric against the Banksters (who put him in office). Ho hum, as the Nomi Prins article pointed out, this is just window dressing (as everything Obama says, does). Nothing has been done to prevent abuses in future, or alter the corrupted financial system status quo.
The only thing that will bring about genuine substantive change is thousands of angry mobs with torches surrounding the gated compounds of the CEO's of Goldman Sachs, Citi, B of A, Wells, JP Morgan Chase etc. When the National Guard is called out to violently break up the protests, people will see which side they are on.
History shows the National Guard is ALWAYS used against the People. But now it's quite possible that many Guard members are part of the fast rising pool of poor folks and will refuse deployment against their "kin." Only time and events will tell, of course. I posted the following info from Herbert's op/ed to another thread, but it's appropriate here, too. And there's more info in the op/ed than that displayed below.
http://www.nytimes.com/2010/01/23/opinion/23herbert.html?ref=opinion
"A new study from the Brookings Institution tells us that the largest and fastest-growing population of poor people in the U.S. is in the suburbs. You don’t hear about this from the politicians who are always so anxious to tell you, in between fund-raisers and photo-ops, what a great job they’re doing. From 2000 to 2008, the number of poor people in the U.S. grew by 5.2 million, reaching nearly 40 million. That represented an increase of 15.4 percent in the poor population, which was more than twice the increase in the population as a whole during that period.
"The study does not include data from 2009, when so many millions of families were just hammered by the recession. So the reality is worse than the Brookings figures would indicate.
"Job losses, stagnant or reduced wages over the past decade, and the loss of home equity when the housing bubble burst have combined to take a horrendous toll on families who thought they had done all the right things and were living the dream. A great deal of that bleeding is in the suburbs. The study, compiled by the Brookings Metropolitan Policy Program, said, “Suburbs gained more than 2.5 million poor individuals, accounting for almost half of the total increase in the nation’s poor population since 2000.”
"Democrats in search of clues as to why voters are unhappy may want to take a look at the report. In 2008, a startling 91.6 million people — more than 30 percent of the entire U.S. population — fell below 200 percent of the federal poverty line, which is a meager $21,834 for a family of four."
mike, good luck...
Off with their Heads !!!
you always have a fixed interest rate...
There a fundamental problem with ANY system that measures the "Personal Wealth" by the market value of a "Personal Porperty" like the home. In order to preserve a persons "wealth" in such a system the value of the home MUST Inflate no matter the market conditions or the TRUE value of the same. When that "value" is increased via speculation and propped up via debt you will inevitably end up with boom bust cycles and people thrown into the street.
A point of example is the town of FT MacMurray Alberta. This can be applied to any town or city at a larger scale. There is a housing shortage in that town with many families sharing homes. While wages are high, the price of Real Estate increases faster then wages.
Now free-marketers would claim this simply a matter of supply and demand but such is not the case. House prices are amongst the highest in Canada yet nothing that goes IN TO that home in the way of materials (Lumber labor etc) costs more just because it Ft Mcmurray.
One could claim "Ok it the price of land". Yet 400 miles in any direction is LAND. There is land aplenty and it not out of enviromental concerns that they do not develop it to build new homes.
So why the shortage of homes when there so many people WITH money or willing to go into debt to buy a home? Why are people finding it cheaper to commute from 200 miles away?
It is because if homes were built in order to fuel demand PRICES of existing homes would plummet. This would mean existing homeowners would suddenly see a dramatic loss of "wealth". Bankers who made loans against homes that were appraised at 800k would put those loans in jeopardy were they to suddenly to fall in value to 200k.. Developers would see investments in the land that IS slowly released for new home construction plummet in "value". The City collects taxes on the appraised value of homes and it much "cheaper" for them to run the services for ONE home valued at 800k then 4 homes valued at 200k.
Thus the existing homeowner, the banks, the City Council and the Developers all must work together to ensure the supply of housing remains at a premium. The appraised value of the house is not reflective of the true value of giving a person shelter. The FUNCTION of the home moves from being a place to provide shelter and physical security, to a place intended first and foremost to "Store Paper Wealth".
The motivation to building homes, then becomes primarily not to provide shelter, but to preserve the "paper wealth" in alreay existing homes. That "Free market" then is manipulated wherein the price of a home can never reflect its true value.
The Emperor has no clothes.
" In order to preserve a persons "wealth" in such a system the value of the home MUST Inflate no matter the market conditions or the TRUE value of the same."
This is merely a consequence of our monetary system, where money is created out of thin air as credit to allow you to buy a home. This credit becomes your mortgage debt obligation. Since the money supply then has to expand to create the interest the valuation of real estate needs to increase at the inflation rate to maintain the value of your asset.
True the emperor has no clothes and the global monetary system was within hours of collapse on September 16th 2008 and is now limping along with band-aids and liable to go at any time.
The Fort McMurray situation is interesting. While you might be correct, I've always thought of it as a case of distorted supply and demand. In particular I believe there might be problems getting construction tradesmen into the area when they have nowhere to live and can probably make more money as labourers in the bitumen industry.
>>The Fort McMurray situation is interesting. While you might be correct, I've always thought of it as a case of distorted supply and demand. In particular I believe there might be problems getting construction tradesmen into the area when they have nowhere to live and can probably make more money as labourers in the bitumen industry.
Nope. it not that at all. When my father moved there he bought his home for 40 thousand dollars. (He no longer lives there he sold the house for 300k and it now lists for close to 800k this in the span of some 30 years)
The home is already built yet its "value" has increased by some 20 times simply by "sitting" there. No further costs of labor or of construction worker were incurred. This increase in value is far greater then the inflation rate over that time period.
Furthermore the Construction workers that built that "home" In the first place do not make 20 times the wage they did when he first moved there. The "value" of the house is a totally artificial construct and is propped up in value by the VIRTUE of being an artificial construct.
The system of capitalism can not allow a collapse towards a TRUE value or measured "wealth" is lost. GDP growth and other such measures are all based upon what are in effect "phony and illusionary" increases in wealth. At the micro scale I can grow the GDP of a town faster by creating an artifical shortage of goods, thus driving up the price of a given good, then I can by producing another like good.
"The system of capitalism can not allow a collapse towards a TRUE value or measured "wealth" is lost."
I wouldn't rely on this as conditions in the US show. My house in Greater Vancouver has increased in assessment over 6 fold in the 1980-2010 period. I still think the difference between this 6 fold and the 20 fold increase in Ft. McMurray is in part due to the distorted supply/demand I mentioned, but your point is well taken. I agree that the last 40 years have seen an increase in real estate pricing that is out of line with inflation and salaries. The Bank of Canada gives inflation in the 1980-2009 period as around 2.5 fold, but I don't believe these numbers as salary growth, so far as I am aware, has been greater but seemingly has not generated greater "wealth".
As I said above I think the current style of capitalism is on the verge of collapse and with globalisation it will be a global event.
Thank you for your comment. Property taxes can be determined either by the value of the property or the tax rate. When the value decreases, the city/county raises the tax rate. Why is there no protest in Wisconsin?!? as to how they are taxed and the amount of taxes paid, even in depression times?
"In short, all of us will be hurting for years because Washington is refusing to make the banks eat the debt bubble they created. Instead, the bailed-out banks are walking away with record profits and fat bonuses."
If I owned shares in any of the banks where executive bonuses exceed actual profits, I'd sell them immediately. Their alleged record profits are obviously not going to shareholders!
Until the majority in this country start marching on Capitol Hill and demand that banks eat their losses, we WILL be hurting for dedades to come.
About all this old Indian knows is when I die I will no longer need any of your God of Green Paper, nor will I have to render unto Caesar what is Caesar's anymore in order to live my life.
I wonder if Jesus knew when he said, render unto Caesar what is Caesar's, that while it may look like Caesar is building some really grand swell world on the earth all it will do eventually is become Hell on Earth?
Difficult to know what Jesus knew 2000 years ago since he is so far behind you in time.
Of course if the Europeans nor anyone else ever showed up then I might have never needed your God of Green Paper in order to live life upon God's creation the earth, nor even had to render unto Caesar what is Caesar's.
Of course there are stories from within Tribes that Jesus lived with them long ago in this land. As well as Mormons in their book say Jesus lived with Tribes.
And now your modern day Rome is in this land. Except Jesus 2000 years ago didn't have anything to do with the Politics of Rome. Maybe he know what was going to happen to Rome? Perhaps when he gave the Prophet John the prophecy of Mystery Babylon he knew Mystery Babylon would be your Nation eventually?
Difficult to say what Jesus knew when he gave the Prophet John that prophecy?
Yes, history in this land goes a lot further back than 1491, 1620, and 1776. History in this land goes back 1000's and 1000's of years.
And here we all are now. Well I'll be having cheap-o pizza with friends and watch mindless clueless football tomorrow & listen to even more mindless clueless sports announcers.
Rah Rah.
If I could travel back in time 1000 years & tell the Tribes what things would be like in this land now they would think I was telling them some whopper of Sci-Fi Horror story that could never happen.
But if Jesus actually did live in this land then he was able to travel through time or at least from one dimension to another & back into time at a different time in a different land.
And without even needing a Visa or Passport.
How would he do such a thing? Who knows?
About all I know is the days of the Tribes are long gone. And now the world built by the Europeans in this land, problems, problems, problems. Not much I can do but shrug my shoulders as myself & mine don't have any money.
So cheap-o pizza & football tomorrow
Well you know that they bought them a Tv
What else was there for them to do
And they bought them a cheap-o pizza
The days of living with the earth, over & through
Heyoka hey hey hey
Say goodbye to the good old days
Living by the old ways
Now it's the nuclear age
But at least you got a little
Money money money
For their Moola Hoop
You got a little money money money
For their cash register machines
Because Indian boys & girls
Your gonna pay pay pay for it now
To live in their world
Your gonna pay pay pay for it now
As their Beast of Civilization didn't think twice
About destroying this particular slice
Of God's paradise
No no no no no no
Their Beast of Civilization didn't think twice
About destroying this particular slice
Of God's paradise
I am the egg sammich man, I am the egg sammich man, I am the Walrus
Prenups, Sir Paul, Prenups
Life is good. What an experience! It's always best to forgive
True, true...but you forget the lilies will bloom again and the birds will migrate north as they always have. Life will go on--for everyone. And these bad times will pass--as they always have--and better times will come. (But don't think they will last either!)
Shadowdancer.......your people lived on this continent a long time before white men came. And I suspect that when the current "civilization" runs it's course and the degeneration of the world into chaos runs it's course, then, our descendants will go back to the ways of the tribes. It's the only way. And we must all start teaching our children now why we should not use metals, why we should never speak the names of the dead, why oral history and tradition is far more important that books and football games, why family is far more important than moving anywhere you can find a "good job". On and on and on.
We all have to remember that honor and family are the only important things.
These are old tricks. If you were a veteran and they helped you get the loan they would not approve these loans because untimately they would be stuck paying for them. The rules have changed and what protected you before is no more. Only do business with people you know and trust, you should know by now that list is small. Greed teaches a hard lesson.
1970 to now
Congress opens up free trade,,,
Reagan kills unions,
American corporations start manufacturing overseas
More lost jobs
Banks give out millions of credit cards,
Manufacturing plants start closing,
More lost jobs,
Peoples wages start declining,
Start using credit cards to make up for lost income,
More jobs shipped over seas,
More lost jobs,
New jobs to replace manufacturing jobs pay less,
Gulf War on Iraq, Bill Clinton , Repeal Glass Stegal Act,
More lost jobs,
More credit , to make up for lost wages,
Banks start gambling, 9/11, War on Terror Afghanistan,
Patriot Act, Bush tells everyone to go shopping,
More debt, no regulation loans, bad choice to war with Iraq,
More lost jobs,
Billions spent, 600,000 Iraq die, 5500 Americans Soldier die,
Loans start going bad, bankruptcies up ,
Banks start going broke.
Banks need loan from government,
Government says ok, start printing the money,
Government loans the money to the banks after the banks print it.
Banks pay back some of the loans to the government,
The government gives the loan money back to the bank with interest.
WHO THE HELL RUNS AMERICA , THE BANKS .......
THEY GET RICH ,,, WE GO BROKE,,,,
SO MUCH FOR TRICKLE DOWN ECONOMICS.
THAT WORKED OUT REAL WELL.
I agree with who is running America. I wish someone would answer my questions
If we are all out of work because of jobs going overseas, who pays the taxes?
If we lose our houses, who pays the taxes?
If Climate Change is as destructive as predicted, where will the rich people live?
If we all lose our jobs, how will the rich people live? Who works so they become rich?
These types of questions could go on toward infinity, but the bottom line is
Where will the Rich People live, and how will they continue to get rich?
1. Taxes: Fed prints $$. The tax is hidden. This cannot go on forever, of course, but the jobs return when your wages have fallen sufficiently to become "competitive" with the Chinese, Vietnamese, and Sudanese.
2. Houses typically get owned by foreign concerns in these scenarios. Thatcher's London is probably the closest example for the US, but a look at Chile or Argentina could be informative as well.
3. Climate change: Uphill, guarded communities
4. When someone rich wants something done, that job exists. If no other jobs exist, The rich can pay for more services. The problem is not really a lack of work; it is having to work for the wealthy instead of working for the rest, who need services.
You see, this is not a conspiracy per se, in which a class of more or less rational people gets together to execute a plan to mutual benefit. The rich folk are trying to beat each other to wealth, too. When Lehman Bro's went down, Goldman-Sachs folks may have had some "There but for the Grace of the Godless go I" moments, but they did not mourn, and they were quick to decide that they had succeeded through their own blessings. You're looking at something like the fate of the commons or of their class itself. They're looking at their own individual portfolios.