Tuesday, April 1, 2014

The truth is out: money is just an IOU, and the banks are rolling in it

The Bank of England's dose of honesty throws the theoretical basis for austerity out the window

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Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.

The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.

It's this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say "there's just not enough money" to fund social programmes, to speak of the immorality of government debt or of public spending "crowding out" the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."

In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with "quantitative easing" they've been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite.

Why did the Bank of England suddenly admit all this? Well, one reason is because it's obviously true. The Bank's job is to actually run the system, and of late, the system has not been running especially well. It's possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.

But politically, this is taking an enormous risk. Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

Historically, the Bank of England has tended to be a bellwether, staking out seeming radical positions that ultimately become new orthodoxies. If that's what's happening here, we might soon be in a position to learn if Henry Ford was right.

Fighting the Militarized State

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The Barack Obama administration, determined to thwart the attempt by other plaintiffs and myself to have the courts void a law that permits the military to arrest U.S. citizens, strip them of due process and indefinitely detain them, has filed a detailed brief with the Supreme Court asking the justices to refuse to accept our petition to hear our appeal. We will respond within 10 days.

“The administration’s unstated goal appears to be to get court to agree that [the administration] has the authority to use the military to detain U.S. citizens,” Bruce Afran, one of two attorneys handling the case, said when I spoke with him Sunday. “It appears to be asking the court to go against nearly 150 years of repeated decisions in which the court has refused to give the military such power. No court in U.S. history has ever recognized the right of the government to use the military to detain citizens. It would be very easy for the government to state in the brief that citizens and permanent residents are not within the scope of this law. But once again, it will not do this. It says the opposite. It argues that the activities of the plaintiffs do not fall within the scope of the law, but it clearly is reserving for itself the right to use the statute to detain U.S. citizens indefinitely.”

The lawsuit, Hedges v. Obama, challenges Section 1021(b)(2) of the National Defense Authorization Act (NDAA). It was signed into law the last day of 2011. Afran and fellow attorney Carl Mayer filed the lawsuit in January 2012. I was later joined by co-plaintiffs Noam Chomsky, Daniel Ellsberg, journalist Alexa O’Brien, Tangerine Bolen, Icelandic parliamentarian Birgitta Jonsdottir and Occupy London activist Kai Wargalla.

U.S. District Judge Katherine B. Forrest of the Southern District of New York, in a rare act of courage on the American bench today, declared Section 1021(b)(2) unconstitutional. The Obama administration immediately asked Forrest to lift her injunction and thereby put the law back into effect until it could appeal her decision. She rebuffed the government’s request. The government went to the U.S. Court of Appeals for the 2nd Circuit to ask it to stay the district court’s injunction until the government’s appeal could be heard. The 2nd Circuit consented to the request. The law went back on the books.

Afran, Mayer and I expected the Obama administration to appeal, but we did not expect the government to mount such an aggressive response to Judge Forrest’s ruling. The law had to be restored because, our attorneys and I suspect, the administration well might be holding U.S. citizens who are dual nationals in some of our black sites. If Forrest’s ruling was allowed to stand, the administration would be in contempt of court if it was detaining U.S. citizens under the statute. This suspicion was buttressed during the trial. Government attorneys, when asked by the judge, refused to say whether or not the government was already using the law.

The U.S. Court of Appeals for the 2nd Circuit overturned Forrest’s ruling last July. It cited the Supreme Court ruling in Clapper v. Amnesty International, another case in which I was a plaintiff. The Clapper v. Amnesty International case challenged the secret wiretapping of U.S. citizens under the FISA Amendments Act of 2008. The Supreme Court in Clapper v. Amnesty International ruled that our concern about government surveillance was “speculation.” It said we were required to prove to the court that the FISA Act would be used to monitor those we interviewed. But we could never offer the court proof of anyone being monitored because the government does not disclose whom it is targeting. It was only later, because of Edward Snowden, that we discovered that not only were those we interviewed being monitored but so was everyone else, including ourselves. The 2nd Circuit relied on the spurious Supreme Court ruling to say that because we could not show the indefinite-detention law was about to be used against us we could not challenge it.

After the Obama administration won its appeal in the 2nd Circuit we petitioned the Supreme Court in what is known as a certiorari, or cert, to hear our appeal. The Supreme Court takes between 80 and 100 cases a year from about 8,000 requests. The court is likely to make a decision in a few months.

The government, whose open defiance of the Constitution is brazen, has tacked back and forth before the courts as to why we have no right to bring the suit. It has, throughout the case, contradicted itself. In its current brief, for example, it claims that we as plaintiffs have nothing to fear from the indefinite-detention law. This assertion is at odds with the refusal by the government attorneys in the Southern District Court of New York to provide assurances that my co-plaintiffs and I would not be affected by the law. The government brief charges that because none of us has been threatened with imminent arrest we have no credible fear and no right to bring the case. But anyone arrested under this law would disappear into a black hole. A seized person would not have access to a lawyer or the courts. By the time you were detained under this provision all avenues of judicial appeal would be closed.

The brief also says that the Authorization for Use of Military Force Act (AUMF) already gives the president power to take such actions. This is a gross misinterpretation of the limited powers authorized under the AUMF. It also raises the question of why, if that statute does give the state this power, as the lawyers claim, the government would need to pass a new law as it did when it approved the AUMF.



The brief argues that journalists are already protected under Article 79 of Additional Protocol I to the Geneva Conventions. This protocol calls for journalists to be treated as civilians. But this last assurance has no legal weight. The United States never ratified Additional Protocol I. Finally, the government attorneys selectively use the case Hamdi v. Rumsfeld, which permits the detention of a U.S. citizen only if he or she is an enemy combatant engaged in an active armed conflict with U.S. forces. They cite the Hamdi case to argue that the government has the legal authority to order the military to detain U.S. citizens who “substantially support” a terrorist group.

The government in the brief makes it plain that all of us can be subject to this law:

Petitioners further assert that at the initial hearing in the district court, the government declined to offer assurances that they would not be detained under any circumstances. Pet. 14, 34-38. But no legal principle requires the government to provide litigants with such advance assurances or otherwise to delineate the bounds of its authority—particularly in the context of armed conflict—in response to speculative fears of harm asserted in litigation.

“The brief argues that the government reserves the right to use the military to detain and indefinitely hold journalists under this law, although the 2nd Circuit stated that the law did not apply to U.S. citizens,” Mayer told me Sunday. “We have already seen journalists such as [you] and Laura Poitras detained and denied access to a lawyer and due process. This law will make legal any such detentions. It will permit the military, on American soil, to throw journalists and activists in a military prison without trial or due process.”

If Section 1021(b)(2) is not struck down by the Supreme Court it will effectively overturn nearly 150 years of case law that repeatedly holds that the military has no jurisdiction over civilians. A U.S. citizen charged by the government with “substantially supporting” al-Qaida, the Taliban or those in the nebulous category of “associated forces” will be lawfully subject to extraordinary rendition on U.S. soil. Arrested citizens will languish in military jails, in the language of Section 1021(b)(2), until “the end of hostilities.”

This obliteration of the right to due process and a fair hearing in a court of law, along with the mass surveillance that has abolished our right to privacy, will be the legal foundation of our militarized, corporate state. Judge Forrest warned in her 112-page opinion that whole categories of Americans could, under this law, be subject to seizure by the military. She drew parallels between Section 1021(b)(2) and Korematsu v. United States, the 1944 Supreme Court ruling that supported the government’s use of the military to detain 110,00 Japanese-Americans in internment camps during World War II. Our case offers the court an opportunity, as several lawyers have pointed out, to not only protect almost 150 years of domestic law that forbids the military to carry out domestic policing but to repudiate the shameful Korematsu decision.

Once arbitrary and indefinite detention by the military is lawful, the government will use it. If we do not win this case, all those deemed to be hostile or critical of the state, including some Muslims, journalists, dissidents and activists, will find themselves under threat.

I spent 20 years as a foreign correspondent, 15 of them with The New York Times. I interviewed numerous individuals deemed by the U.S. government to be terrorists, including some members of al-Qaida, and traveled with armed groups labeled as terrorist organizations. When I reported the statements and activities of these individuals and groups, U.S. officialdom often made little distinction between them and me. This was true during the wars in Central America. It was true in the Middle East. And it was true when I covered global terrorism. There was no law at the time that permitted the government, because of my work as a reporter, to order the military to seize and detain me. Now there is. This law, if it is not struck down, will essentially replace our civilian judiciary with a military one. Those targeted under this law will not be warned beforehand that they will be arrested. They will not have a chance to get a lawyer. They will not see the inside of a courtroom. They will simply vanish.

The Weight of Chains: US/NATO Destruction of Yugoslavia

If you thought you knew why Yugoslavia broke up, get ready for 2 hours of shocking facts that will shed a different light on Western intervention in the Balkans. Boris Malagurski exposes the root causes of the Yugoslav wars and explain that the goal was for the West to create economic and geopolitical colonies in that part of the world.

Church Ordered to Stop Giving Homeless People a Warm Place to Stay in Freezing Cold Weather

The Pastor says that they'd found people under bridges, on park benches, and that's likely where they'll return.

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This past winter, the Apostolic Pentecostal Church in Rockford, Illinois opened a shelter and warming center for the city's homeless. For understandable reasons -- record freezing temperatures and a need for more shelter -- their services were in high demand. Pastor Dave Frederick tells AlterNet that up to 50 people filled the church's pews some nights. They only shut their doors for three days in December, because his wife had a heart attack.

"Anyone who wanted to spend the night got blankets and pillows. Ladies would make dinner," he says.

Now, the city's homeless will have to find other arrangements. As Rockford's WIFR 23 News [3] first reported, last week city officials told the Pastor that using the space as a shelter breaks zoning laws. His options include spending a lot of money on renovations or spending a lot of money -- $300,000 -- to buy a new building.

The only other shelter in town, Rockford Rescue Mission, is often full and doesn't allow alcohol and drugs, so people who drink or do drugs can't go there anyway.

"Everybody that left is back out on the street," says Thomas Stirling, who volunteers at the shelter. "It still drops below freezing at night. It's a really sad thing."

Pastor Frederick says that they'd found people under bridges, on park benches, and that's likely where they'll return. "What are they going to do? Go back to that bridge? One man is getting a tent and going into the woods."

Given that the woods, park benches and the undersides of bridges likely do not meet zoning requirements for shelter either, the city's official explanation has raised suspicions. The Pastor thinks they're using the zoning law as a pretext to disperse the homeless from the area.

"To be honest I think Rockford doesn't want to accommodate homeless people. They seem to think that if you accommodate the homeless, they'll come, if you don't accommodate them they'll leave," he says. "Since many have been homeless for years, obviously that's not true."

Attempting to solve homelessness by making life harder for the homeless is common -- and similarly unsuccessful -- around the country. As Adam Peck notes in Think Progress [4], shutting down the center is one example of a larger pattern of the criminalization of homelessness and poverty. Instead of investing in resources to aid the needy, authorities restrict the activities of homeless people and groups that offer services. Ironically, when they lead to fines and arrests they cost cities much more than it would cost to provide adequate housing.

Laws that ban sitting or lying down in public, camping, and panhandling enable police to move the homeless out of the nice parts of town.  Going after groups who feed or shelter the homeless can serve a similar function, preventing them from assembling in certain spaces.

In several cities, authorities have cracked down on groups who give out food to the hungry, as Peck points out. In Raleigh, North Carolina volunteers were threatened with arrest over the summer. No one was led away in cuffs, but that's not unprecedented. In 2011, over 20 Food Not Bombs volunteers [5] were arrested when they refused to comply with an ordinance that limited food-sharing in parks to only twice a year. The Mayor called them "food terrorists."

More than 30 cities [6]now have or have sought to establish laws that restrict food sharing and penalize groups that feed the needy in public places the New York Times reported, even as more Americans go hungry.

The need for shelter in Rockford is dire, according to Pastor Frederick. He says that Rockford, a city 80 miles west of Chicago which is known for cargo shipping and manufacturing, was hit hard by the recession. Those who sought the comfort of the church warming center included a guy with a PhD, a woman with a degree from DePaul, and a man who once owned a roofing company. He points out that the city is hurting itself by not taking care of people who could be productive members of the community if they got a little help.

"There's so much need, that if they open up another place, it'll just fill up."

[1] http://alternet.org
[2] http://www.alternet.org/authors/tana-ganeva
[3] http://www.wifr.com/home/headlines/Local-Church-Told-Not-to-Help-Homeless-During-Winter-251360101.html
[4] http://thinkprogress.org/economy/2014/03/23/3417952/rockford-church-homeless/
[5] http://www.thenation.com/blog/161677/food-not-bombs-members-arrested-feeding-hungry#
[6] http://www.nytimes.com/2013/11/26/us/as-homeless-line-up-for-food-los-angeles-weighs-restrictions.html?_r=0

There’s a Secret Patriot Act, Senator Says

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You think you understand how the Patriot Act allows the government to spy on its citizens. Sen. Ron Wyden says it’s worse than you know.
Congress is set to reauthorize three controversial provisions of the surveillance law as early as Thursday. Wyden (D-Oregon) says that powers they grant the government on their face, the government applies a far broader legal interpretation — an interpretation that the government has conveniently classified, so it cannot be publicly assessed or challenged. But one prominent Patriot-watcher asserts that the secret interpretation empowers the government to deploy ”dragnets” for massive amounts of information on private citizens; the government portrays its data-collection efforts much differently.
“We’re getting to a gap between what the public thinks the law says and what the American government secretly thinks the law says,” Wyden told Danger Room in an interview in his Senate office. “When you’ve got that kind of a gap, you’re going to have a problem on your hands.”
What exactly does Wyden mean by that? As a member of the intelligence committee, he laments that he can’t precisely explain without disclosing classified information. But one component of the Patriot Act in particular gives him immense pause: the so-called “business-records provision,” which empowers the FBI to get businesses, medical offices, banks and other organizations to turn over any “tangible things” it deems relevant to a security investigation.
“It is fair to say that the business-records provision is a part of the Patriot Act that I am extremely interested in reforming,” Wyden says. “I know a fair amount about how it’s interpreted, and I am going to keep pushing, as I have, to get more information about how the Patriot Act is being interpreted declassified. I think the public has a right to public debate about it.”
That’s why Wyden and his colleague Sen. Mark Udall offered an amendment on Tuesday to the Patriot Act reauthorization.
The amendment, first reported by Marcy Wheeler, blasts the administration for “secretly reinterpret[ing] public laws and statutes.” It would compel the Attorney General to “publicly disclose the United States Government’s official interpretation of the USA Patriot Act.” And, intriguingly, it refers to “intelligence-collection authorities” embedded in the Patriot Act that the administration briefed the Senate about in February.
Wyden says he “can’t answer” any specific questions about how the government thinks it can use the Patriot Act. That would risk revealing classified information — something Wyden considers an abuse of government secrecy. He believes the techniques themselves should stay secret, but the rationale for using their legal use under Patriot ought to be disclosed.
“I draw a sharp line between the secret interpretation of the law, which I believe is a growing problem, and protecting operations and methods in the intelligence area, which have to be protected,” he says.
Surveillance under the business-records provisions has recently spiked. The Justice Department’s official disclosure on its use of the Patriot Act, delivered to Congress in April, reported that the government asked the Foreign Intelligence Surveillance Court for approval to collect business records96 times in 2010 — up from just 21 requests the year before. The court didn’t reject a single request. But it “modified” those requests 43 times, indicating to some Patriot-watchers that a broadening of the provision is underway.
“The FISA Court is a pretty permissive body, so that suggests something novel or particularly aggressive, not just in volume, but in the nature of the request,” says Michelle Richardson, the ACLU’s resident Patriot Act lobbyist. “No one has tipped their hand on this in the slightest. But we’ve come to the conclusion that this is some kind of bulk collection. It wouldn’t be surprising to me if it’s some kind of internet or communication-records dragnet.” (Full disclosure: My fiancĂ©e works for the ACLU.)
The FBI deferred comment on any secret interpretation of the Patriot Act to the Justice Department. The Justice Department said it wouldn’t have any comment beyond a bit of March congressional testimony from its top national security official, Todd Hinnen, who presented the type of material collected as far more individualized and specific: “driver’s license records, hotel records, car-rental records, apartment-leasing records, credit card records, and the like.”
But that’s not what Udall sees. He warned in a Tuesday statement about the government’s “unfettered” access to bulk citizen data, like “a cellphone company’s phone records.” In a Senate floor speech on Tuesday, Udall urged Congress to restrict the Patriot Act’s business-records seizures to “terrorism investigations” — something the ostensible counterterrorism measure has never required in its nearly 10-year existence.
Indeed, Hinnen allowed himself an out in his March testimony, saying that the business-record provision “also” enabled “important and highly sensitive intelligence-collection operations” to take place. Wheeler speculates those operations include “using geolocation data from cellphones to collect information on the whereabouts of Americans” — something our sister blog Threat Level has reported on extensively.
It’s worth noting that Wyden is pushing a bill providing greater privacy protections for geolocation info.
For now, Wyden’s considering his options ahead of the Patriot Act vote on Thursday. He wants to compel as much disclosure as he can on the secret interpretation, arguing that a shadow broadening of the Patriot Act sets a dangerous precedent.
“I’m talking about instances where the government is relying on secret interpretations of what the law says without telling the public what those interpretations are,” Wyden says, “and the reliance on secret interpretations of the law is growing.”

New Lawsuit Alleges That Wells Has a Manual for Mass Fabrication of Foreclosure Documents

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Recall that some of the most damaging documents released by Edward Snowden were NSA manuals. They discuss in detail how certain abuses are performed and provide strong proof that that behavior is routine and presumably widespread.

Catherine Curan of the New York Post has an important new story on a Federal lawsuit that looks to have unearthed a smoking gun about systematic document fabrication at Wells Fargo. As the article notes, this filing confirms a report we received from a whistleblower in 2013.

Recall that we’ve long been critics of Wells Fargo, not simply for its bad conduct, but for the intelligence-insulting manner in which it keeps asserting that it is better than other mortgage servicers, when the evidence is overwhelmingly the reverse. For instance, during the not-really-supervised-by-the-OCC Independent Foreclosure Reviews, whistleblowers told us how Wells Fargo’s serving conduct was worse even than that of Bank of American, which took over subprime miscreant number one Countrywide. For instance, both by statute and via the mortgage securitization contracts, borrower payments are required to be applied in a specific order: interest first, then principal, then fees. If a borrower had incurred a late fee, Wells would apply the payment to fees first, guaranteeing the payment would be too small. That would enable Wells to declare the payment to be insufficient for the current month and charge another late fee. That scam is called “pyramiding fees” and because the amount the borrower supposedly owes grows rapidly, almost always means that the delinquent borrower is never able to dig his way out of his hole and loses his home.

The reason this new case is a bombshell is that so far, the cases against Wells, both in court and in the court of public opinion, have specific. Even though the abuses are often grotesque, they are noise to Wells, since the allegations of particular borrowers or individual whistleblowers seldom gets traction outside foreclosure-defense-oriented sites and local newspapers. By contrast, this suit has the potential to demonstrate that Wells constructed a well-oiled machine to flout the law.

Key sections of Curan’s article:

In a filing in New York’s Southern District in White Plains for a local homeowner in bankruptcy, attorney Linda Tirelli described a 150-page Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and updated February 24, 2012. According to court papers, the Manual details “a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges.”…

Attorneys, forensic accountants and consumer advocates have long suspected that banks were systematically creating improper documents to prove ownership of loans. Foreclosure defense lawyers use the term ‘ta-da’ endorsement to describe situations in which they say a document appears, as if by magic, in the bank’s possession as needed in a foreclosure case—even though the proper endorsement was not included in the original foreclosure filing. It might sound like a technicality, but correct proof of ownership lies at the heart of the foreclosure crisis for securitized loans, which were sold by the lender that originally issued the mortgage. To legally transfer a securitized loan, the endorsements and allonges have to be created in a very specific way and within a specific time frame, usually 90 days after a residential mortgage trust closes. For many loans in foreclosure now, which were originated years ago and then sold, it’s way too late to correct incomplete documents, experts said.

If the allegations in Tirelli’s court filing are true, this manual represents the first time ‘ta-da’ endorsements are “being described and admitted to be a procedure” at a major bank, as Tirelli claimed to The Post.

The manual, a copy of which was obtained by the Post, appears to provide step-by-step instructions for a Wells Fargo Home Mortgage “Default Docs Team” and foreclosure attorneys if a blank endorsement is in a file and the attorney wants that note executed. In addition, the manual outlines steps for attorneys and the Default Docs Team to create allonges, endorsements to a note on a separate sheet of paper when there is no room left at the bottom of the note. Step 3 under the header “Allonge” on page 17 reads: “WFHM Default Docs Team: If file was ordered and received, review … to determine what entities the attorney needs the note endorsement to reflect.”

Foreclosure experts called these procedures shocking.

Of course, sanctimonious Wells claims the manual has been updated 30 times since the version filed in the lawsuit, and it’s only a piece of the process, since Wells has internal checks. If you believe that, as Wells asserts, they are in full or even substantial compliance, I have a bridge I’d like to sell you.

Our Wells whistleblower saw evidence first hand of document fabrication at a Wells facility, indicating that the idea that the internal procedures were intended to follow the law is a canard. The notion was clearly to complete as many foreclosures as cheaply as possible, the law be damned. From our 2013 post:

A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.

A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly.

Not only is having Wells Fargo tamper with documents in this way dubious in many cases (more detail on that shortly), but amusingly, the bank does not even appear to be terribly competent at this sort of falsification. The bank changed procedures frequently, and did not go back to redo its prior work. In addition, it regularly took loans that appear to have been endorsed properly and changed them as well. Finally, even if the procedures had been proper, the temps were required to meet such aggressive production timetables and were so laxly supervised that it seems unlikely that their work was done well.

This account confirms what foreclosure defense attorneys have reported for some time: that servicers have been engaging in document fabrication for some time. It’s not uncommon for a servicer or foreclosure mill to present “tah dah” documents that miraculously remedy the problems that homeowner attorneys have raised, sometimes resulting in clear proof of fabrication, like two different notes (borrower IOUs) having been presented to the court, each supposedly an original.

But what is striking about this practice is both the brazenness and the scale. Our source was told that Wells Fargo added a second shift to its mortgage review operation in November 2011 [update: it is likely the related doctoring activities were increased correspondingly]; he* did not know when it had been established. Bank employees claimed that some of these operations had formerly been done by outside firms and the cost of doing it in-house was much lower than the cost of doing it externally. Apparently having plausible deniability was too expensive.

For those with an appetite for train wrecks, the post contains much more granular detail.

I don’t know how much stamina the attorney, Linda Tirelli, has, but the fact that the core of the case revolves around a manual would enable her to do wide-ranging, potentially very damaging discovery on related policies and procedures. Wells would be nuts not to settle this case.

But bank has consistently been arrogant and obstructionist. So as much as Wells allowing her to proceed with discovery will be a longer, harder road than a quick and quiet settlement, it has the potential to do a tremendous amount of good for beleaguered borrowers by exposing the deliberate, orchestrated nature of Wells’ bad conduct. Stay tuned.

Trading Away Democracy


Far from simply removing tariffs, the proposed “free trade” agreement between the United States and the European Union undermines representative
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Earlier this month in Brussels, U.S. and EU negotiators held a fourth round of secret talks on the proposed Transatlantic Trade and Investment Partnership (TTIP). The agreement would remove so-called “trade barriers” between the United States and Europe by eliminating tariffs and weakening the regulatory authority of nation states.
The talks in Brussels come on the heels of a new public relations push by the Obama administration. In February, U.S. Trade Representative Michael Froman, speaking at the Center for American Progress (CAP), outlined the administration’s new “values-driven” trade agenda. Ostensibly stronger on labor and environmental standards, the approach promises to boost job growth at home by removing foreign tariffs on U.S. exports.
Given that already ballooning corporate profits have not created a U.S. jobs boom, an increase in corporate export profits is unlikely to help. What’s more,recent trade agreements have failed to increase U.S. exports in the first place.
But engaging this argument misses the real issue. TTIP is much less about reducing tariffs, which are already fairly low between the United States and the EU, and more about weakening the power of average citizens to defend themselves against corporate labor and environmental abuses.
The key issue on this point is a controversial TTIP provision called Investor-State Dispute Settlement (ISDS). ISDS allows foreign corporations to sue governments before special international tribunals over domestic laws that interfere with corporate profits. The tribunals are not accountable to any national public or democratically elected body. Corporations around the world are using similar ISDS provisions under existing trade agreements to extract taxpayer money from national governments. Actual or potential government losses then serve asstrong deterrents to future public interest legislation.
At CAP, Froman accused trade critics of being stuck in the past. Trade policy has “evolved” substantially since the 1990s, he said, and new trade agreements will not only take into account labor and environmental concerns, but will actually raise standards.
The opposite is true. As corporations have become more adept at exploiting provisions like ISDS, trade agreements are getting worse for the rest of us. And the same corporate interests responsible for previous bad agreements are still in charge. Of the 700 U.S. trade advisers who have exclusive access to negotiators and draft agreements, 90 percent represent private industry. Less than 9 percent come from labor, health, consumer, or other public advocacy groups. Meanwhile TTIP talks remain closed to the public with limited press access.
The “free trade” threat to regular Americans is no longer just economic, but political as well. Out of public view and under the influence of global corporations with little to no national loyalties, negotiators are trading away our most fundamental values: representative democracy and the rights of citizens to protect themselves.
President Obama has asked Congress to renew so-called “fast-track” negotiating authority, which expired in 2007. Fast-track empowers the executive branch to negotiate trade agreements like TTIP in secret before sending them to the Senate for an up-or-down vote, with only a simple majority required for approval. Unable to filibuster or offer amendments, senators could not remove provisions such as ISDS.
But opposition to Fast-Track is growing on both sides in Congress. Senate Majority Leader Harry Reid (D-NV) and 151 House Democrats have voiced their opposition. Even reliably pro-free trade Republicans are weighing in against it. Elsewhere, public outcry in Europe over ISDS has forced EU Commissioner for Trade Karel de Gucht to open a three-month public comment period on the issue. U.S. advocacy groups have called for a similar move here.
Now is an opportune time for Americans to voice their concerns. Tell your representatives in Congress to oppose fast-track authority and demand that U.S. Trade Representative Froman open a public comment period on ISDS. By weighing in now, Americans can put an end to the disastrous era of “free trade” agreements negotiated in secret for the sole benefit of global corporations and their super-rich investors. The rest of us have suffered enough economic pain from these agreements. We must not suffer the final indignity of losing our democracy to them as well.