Paul Krugman Presses for Rule of Law in Foreclosuregate

I never thought I would agree with the Nobel laureate on anything economics or finance.

Well, well. Never say never.

In the Op-Ed column in New York Times titled "The Mortgage Morass", Krugman writes:

"American officials used to lecture other countries about their economic failings and tell them that they needed to emulate the U.S. model. The Asian financial crisis of the late 1990s, in particular, led to a lot of self-satisfied moralizing. Thus, in 2000, Lawrence Summers, then the Treasury secretary, declared that the keys to avoiding financial crisis were “well-capitalized and supervised banks, effective corporate governance and bankruptcy codes, and credible means of contract enforcement.” By implication, these were things the Asians lacked but we had.

"We didn’t.

"The accounting scandals at Enron and WorldCom dispelled the myth of effective corporate governance. These days, the idea that our banks were well capitalized and supervised sounds like a sick joke. And now the mortgage mess is making nonsense of claims that we have effective contract enforcement — in fact, the question is whether our economy is governed by any kind of rule of law.

"...Now an awful truth is becoming apparent: In many cases, the documentation doesn’t exist. In the frenzy of the bubble, much home lending was undertaken by fly-by-night companies trying to generate as much volume as possible. These loans were sold off to mortgage “trusts,” which, in turn, sliced and diced them into mortgage-backed securities. The trusts were legally required to obtain and hold the mortgage notes that specified the borrowers’ obligations. But it’s now apparent that such niceties were frequently neglected. And this means that many of the foreclosures now taking place are, in fact, illegal.

True to form, the Obama administration’s response has been to oppose any action that might upset the banks, like a temporary moratorium on foreclosures while some of the issues are resolved. Instead, it is asking the banks, very nicely, to behave better and clean up their act. I mean, that’s worked so well in the past, right?

The response from the right is, however, even worse. Republicans in Congress are lying low, but conservative commentators like those at The Wall Street Journal’s editorial page have come out dismissing the lack of proper documents as a triviality. In effect, they’re saying that if a bank says it owns your house, we should just take its word. To me, this evokes the days when noblemen felt free to take whatever they wanted, knowing that peasants had no standing in the courts. But then, I suspect that some people regard those as the good old days."

Well, it was not just fly-by-night lenders. All major banks did.

And it is not just the Obama admin or conservatives. State attorney generals have started a joint investigation into this foreclosuregate, but I was disappointed to hear what one of them had to say on CNBC today. The attorney general of Texas told Larry Kudlow that he and his colleagues are confident that they can move very quickly to resolve [how?] problems regarding foreclosure documentation so that this doesn't interfere negatively with the financial systems and that the housing market doesn't suffer. [What "housing market"?] See the video for yourself, here.

The Texas attorney general is basically saying this investigation is nothing but token to appease small people (us), and he and his colleagues will do their best not to inconvenience the big banks and big investors and powerful lobbies (banking and real estate).

So what if the notice of default or the affidavit you received was signed by someone pretending to be working for a trustee but in fact he/she is working for some fly-by-night outfit whose job is to pretend he/she is a VP of Bank of America, Chase, Wells Fargo, all at once and sign away the documents?

But isn't it an outright fraud, to pretend to be someone that they are not, and sign a document that will take away the biggest investment that we ever have in our lives?

Clearly, an outright fraud means nothing to the political class (you can call them the ruling class, if you like).

State and federal governments doing their best to put the welfare of an industry before that of the citizens, and ignore the rule of law or arbitrarily apply it as they see fit - as Krugman says, America no longer has any moral standing to lecture any country.

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3rd Largest Single-Day Debt Increase - Let's Blame Bush

"White House officials said that big a jump is not the norm and that Mr. Obama has worked with the hand he was dealt by Mr. Bush." (from the Washington Times article linked below.)

The rhetoric is getting really tired. (If Obama didn't like to inherit what was there, he didn't have to run for presidency.)

U.S. marks 3rd-largest, single-day debt increase
(Stephen Dinan, 7/8/2010 Washington Times)

"The nation's debt leapt $166 billion in a single day last week, the third-largest increase in U.S. history, and it comes at a time when Congress is balking over higher spending and debt has become a key policy battleground.

"The one-day increase for June 30 totaled $165,931,038,264.30 - bigger than the entire annual deficit for fiscal year 2007 and larger than the $140 billion in savings the new health care bill will produce over its first 10 years. The figure works out to nearly $1,500 for every U.S. household, or more than 10 times the median daily household income.

"Daily debt calculations jump and fall, and big shifts are common. But all three of the biggest one-day debt increases have occurred under the tenure of President Obama, and all of the top six have been in the past two years - an indication of just how quickly the pace of deficit spending has risen under Mr. Obama and President George W. Bush.

""What matters is the overall trend line, and the overall trend line is shooting up," said Robert Bixby, executive director of the Concord Coalition, a bipartisan deficit watchdog group, who said it is one more reason for a fiscal wake-up call." [Emphasis is mine.. The article continues.]

$166 billion, by the way, is about 29% of the entire public debt of Greece.

In case you haven't noticed, there are an increasing number of pundits (analysts, court-economists) these days who basically call this aversion to government spending by the tax-paying middle class as "austerity hysteria" or "deficit hysteria" that would stifle the economic "growth" at best, and would plunge the entire world into deflationary depression at worst.

Tax-paying middle class (or what's left of it) wanting the government to stop wasting their money is "hysteria" in this new age of Obamanomics, Newspeak and Crimestop.

By the way, to avoid this "hysteria", Congressional Democrats have gone stealth. The article duly notes later:

"Fears over red ink have stalled key parts of Mr. Obama's agenda in Congress in recent weeks, including his push for another round of stimulus spending. Just last week, House Democrats had to use a tricky parliamentary tactic to pass an emergency war-spending bill, aid for teachers and new spending caps."

Yup. The Supplemental Appropriation Bill of 2010 included $25 billion to be given to the public union workers - teachers, firefighters, and policemen, who enjoy much securer job prospect in this worst recession since the GD and higher average pay than the private sector workers, and many of whom will retire as "millionaires" (as their pensions will be worth $millions, to be paid by the taxpayers as their pension funds are almost all underfunded).

May I recommend reading this article by Lew Rockwell for a start, on how to beat back Obamanomics which is the result from almost willful ignorance of economics?

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Evans-Pritchard: Soros tells Germany to step up to its responsibilities, or leave EMU

According to Soros, those responsibilities include increased debt issuance and debt purchase by the German government (which he calls as "growth strategy"), and they are vital to "democracy".

Soros tells Germany to step up to its responsibilities, or leave EMU
(Ambrose Evans-Pritchard, 6/23/2010 Telegraph UK)

"Legendary investor George Soros has called on Germany to leave the euro unless it is willing to embrace a growth strategy, describing Berlin’s austerity doctrine as a threat to democracy and political stability in Europe.

""German policy is becoming a danger that could destroy the European Project. A collapse of the euro cannot be excluded," he told the German weekly Die Zeit.

""Unless Germany changes policy, its withdrawal from the currency union would be helpful for the rest of Europe. At the moment Germany is pushing its neighbours into deflation: this threatens a long phase of stagnation, leading to nationalism, social unrest, and zenophobia. It endangers democracy," he said.

"Mr Soros saw the political effects of wage cuts first-hand during the Great Depression, and narrowly survived the Holocaust as a Jewish boy in Nazi-controlled Budapest. He has since dedicated much of his wealth to philanthropic works promoting freedom and pluralism across the globe, mostly through Open Society institutes.

"His comments reflect growing alarm in influential circles on both sides of the Atlantic over the 1930s-style policies of wage cuts and debt-deflation being imposed up the Club Med bloc, Ireland, and parts of Eastern Europe by the EU authorities, at the behest of Berlin." [The article continues.]

Cutting the government spending and lowering wages ARE a "growth strategy" for a country like Germany, which has many things to export to other countries that people actually want and even want to pay premium to get them. Cutting the government spending frees up capital which otherwise goes to the government coffer to be squandered in bureaucracy (look no further than the US's TARP, so-called stimulus packages) to be directed to wealth-creating private enterprises. Lowering wages means input cost will be lower for their export products.

No way, says George Soros. He says that would destroy other eurozone economies like the Club Med. According to Evans-Pritchard,

"Mr Soros said Germany was treating the deeply-flawed Maastricht Treaty as it were a "sacred text", warning that monetary union cannot endure for long as a narrow construct based on debt and deficit ceilings. He said wage rises in Germany are imperative to help lift the whole eurozone, allowing peripheral economies to claw their way out of trouble without fighting the extra headwinds of deflation."

In other words, Mr. Soros is calling for self-immolation by Germany in order to save Greece, Spain, Portugal, Italy, Ireland, and possibly France. I guess he wasn't expecting resistance.

The article also mentions the US economist an Nobel Prize winner (as well as a candidate for Obama's new budget director) Paul Krugman, who basically said the same thing to Germans recently and pissed off the entire nation. (Some sweet snippet from Zero Hedge: "Germany daily Handeslbatt, which ran an interview with the "economist" in which Krugman stick not a foot, but an entire SS-20 nuclear warhead armed ICBM, in his mouth". To read the article, click here.)

Germans are more than happy, I suspect, to leave the EMU and get their Deutsche Mark back. One of the large financial portals in Germany, BoersenNews.de, has started to quote in Deutsche Mark alongside euro.

Great Britain, which is outside the EMU, may be embarking on the unthinkable - drastically cutting the government spending and raising taxes to achieve fiscal solvency.

Evans-Pritchard ends the article by recalling the famous George Soros maneuver on British Pound in the 1992 when George Soros' fund shorted pound sterling against Bank of England intervention to prop up the currency:

"Investors are likely to pay close attention to the views of Mr Soros, whose Quantum fund played a key role in the crisis of the Exchange Rate Mechanism in 1992. He famously pounced on sterling and the Italian lira after a top Bundesbank official described both currencies as over-valued, an invitation for a speculative attack.

"The crisis proved a blessing in disguise for Britain, which was liberated early from a destructive policy of job wastage. Mr Soros yet to receive a a knighthood for his services."

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Paul Krugman for Office of Management and Budget

I really thought this was either a spoof or a belated April Fool's joke.

Paul Krugman for OMB (Simon Johnson, 6/22/2010 Huffington Post)

"This post originally appeared on The Baseline Scenario.

"The president should nominate Paul Krugman to replace Peter Orszag as director of the Office of Management and Budget (OMB). (Orszag resignation details are here.)

"We have previously reviewed Krugman's outstanding qualifications for this (or any other top level) job (link to details). The main reason Krugman himself has been reluctant in the past relates to a potentially difficult Senate confirmation hearing -- for example, if Krugman had been put forward to replace Ben Bernanke.

"But for the OMB position, the dynamic of a hearing would be terrific for the president's specific agenda and broader messages. Krugman, of course, is the leading advocate for continued (or increased) fiscal stimulus. This is exactly President Obama's message to the G20 this weekend.

"Plus, when Republicans push back against Krugman on this issue, he will let them have it full blast on fiscal policy during the Bush administration. Krugman has, again and again, been an outspoken critic of the Bush era fiscal policy. He has precise chapter and verse on where the Bush team went off the deep fiscal edge.

"Krugman also stands for responsible medium-term fiscal policy -- he wrote the original definitive work, after all, on balance of payments crises. But the point is not to engage in precipitate and panicky fiscal austerity (as announced in the UK today), but rather to put the overall debt onto a sustainable path. It is very hard to do that when the people claiming the represent "fiscal prudence" are actually the ones who created this massive mess in the first place. Krugman can set the public record straight on this -- it would be great television and very good economics.

"This is exactly what the debate on our current deficit and future debt path needs. The Obama administration lost the narrative on this point also (as well as on banking and much more). Paul Krugman can get them back on track. "

Great television?? (Krugman is in perpetual need for a good haircut and shave.)

Get them (Obama's narrative - oh I hate that word) back on track? To where?

Yes, just what the stimulus-weary American taxpayers and even politicians need: another Keynesian who wants to keep repeating what hasn't worked.

I'm sure Obama would love to stuff his cabinet with Nobel Prize winners. He himself won the Prize by campaigning for the presidency, remember?

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Paul Krugman Strikes Again

Speaking of inflation, New York Times columnist Paul Krugman is one of the pundits calling for more inflation as something good.

I simply don't have stamina this morning to pick apart his strange and simplistic (and often inaccurate) argument, so I will link two articles, one by Peter Schiff on his April 9 Op-Ed on the need for the government to inflate more, and another by Bill Anderson on today's Op-Ed on the need for the government to basically micromanage who gets what money (fresh off the government press) to achieve the noble goal of "protecting consumers".

Krugman Strikes Again (Peter Schiff, 4/12/2010 Euro Pacific Capital via Lewrockwell.com)

Regulate Inflation? I Don't Think So! (Bill Anderson, 4/12/2010 Krugman-in-Wonderland)

Taken together, the Nobel laureate columnist is strongly advocating more government-induced inflation which is good for the debtor government and destructive to citizens, and more government regulation which will further restrict the flow of capital, bloodline of a free market. I don't understand his blind faith in all things "government", the benevolent and omniscient dictator who knows what's good for you and me.

He is (or was, at least) also a staunch defender of Fannie and Freddie; "Fannie and Freddie can’t be allowed to fail", he opined back in July 2008.

I was totally at a loss when he once said people should buy cheap houses in middle-of-nowhere inland suburban sprawl, instead of buying houses in pricier neighborhood. To him, it was irrational that people wanted to live in nicer neighborhoods, paying more for the housing.

Russians must be really shaking their heads. (And Swedes, too.)

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Paul Krugman’s Advice to the Fed, 2002, from the LRC Blog

Amusing find from Lewrockwell.com's blog site:

Paul Krugman’s Advice to the Fed, 2002 (6/15/09, The LRC Blog)

It has a link to Krugman's article on August 2, 2002. About 2 months later in early October, instead of double-dipping, Nasdaq bottomed. Mr. Greenspan did exactly what Krugman recommended, and here we are, 7 years after.

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