by Zach Carter, TMC MediaWire Blogger 

Earlier this month, President Barack Obama rolled out a new plan to limit the use of offshore tax havens and crack down on corporate abuse of the tax system. These tax havens siphon over $100 billion a year from the government, and have allowed many U.S. banks to duck paying taxes despite receiving massive, taxpayer-funded bailouts. The president's plan is far from perfect, but comes as a welcome acknowledgment of the unfairness embedded in the current tax code.  

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The finance industry has been getting its own way for years, and as it happens, that way has been a disaster for everyone. These are the people who know better than everyone else how economies should be run and markets (de)regulated:

... As recently as March, [Lehman Brothers CEO Richard] Fuld was awarded a $22 million bonus for 2007 -- a generous pay package to be sure, but one that also reflected a year in which the bank's net profit had risen 5 percent to a record $4.2 billion.

But Lehman soon emerged as Wall Street's next domino as real estate loans and other toxic assets increasingly weighed on its balance sheet, especially after the collapse of Bear Stearns Cos Inc in March. ...

After a buyout deal fell through on Sunday, Lehman Brothers is facing bankruptcy, with Merrill Lynch and AIG following close behind.

Funny how even the favorite institutions of the free market fundamentalists can't survive in an unregulated free-for-all.

But unlike you or I, businesses like Lehman, Merrill Lynch and AIG are too important to be allowed to fail, so the public is going to have to pay for their obscene private profit taking:

... With  both Merrill Lynch and AIG seen as extremely weak (both lost more than 30% of their market value on Friday alone), a liquidation of Lehman could bring them, and others, down, in a collapsing house of cards.

The reason is that in a liquidation, all the liabilities become immediately due, whereas the assets need to be sold to willing buyers. So the "loss" in such a collapse is not, as it would be in normal times, the difference between the liabilities and the assets, it is the difference between the liabilities and what money can be realised fast with the assets. It's the difference between the value for you of a mobile phone, and its value for a junkie that needs to raise cash quick to get its cash. ...

We're all going to have to pay for their greed and arrogance as taxpayers, as in the government takeover of Freddie Mac and Fannie Mae, even as we've already had to pay for their predatory business practices. But what did the leading lights of the finance industry think was going to happen when they destroyed the financial security of the very customers who keep the market humming? What did they think was going to happen when the industry was based on pyramid scheme resellings of the only type of loan industry-favored regulation lets people walk away from anymore, their home loans?

Something had to give. People started mailing in their house keys instead of their mortgage payments. The glorified crap shoot of hedge fund real estate portfolios, 'safe' paper that all the major institutions are relying on either to guarantee accounts payable or that accounts receivable can pay, came to a squishy halt. Lenders kept insisting that the real estate market had nowhere to go but up, reality had other ideas.

Earlier this year, I talked with Rep. Brad Miller (D-NC) and Colorado 2nd District Democratic congressional candidate Jared Polis about the roots of this credit crisis and the effect it's been having on ordinary people. Join me on the flip ...

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Minnesota Campaign Report's Joe Bodell has an excellent recap of the House Financial Service Committee's Thursday hearing on Predatory Lending, held in Minneapolis.  

From Bodell's post:

Chairman Frank noted in his opening remarks that "foreclosures are not occurring in little houses on the prairie -- they're happening in neighborhoods." He went on to discuss the issue of the unregulated, non-FDIC mortgage market, saying that "if only regulated banks made mortgage loans, we might not have this problem -- this is largely a problem in the unregulated segment of the mortgage market."

Predatory lending has been all over the news this week, but the MSM seems mostly interested in how the rapidly rising number of foreclosures will affect the market overall.  Not much is being said about the families and individuals who stand to lose their homes.  The committee hearing however focused more on the human element of this probable financial crisis.

Many panelists focused pointed questions on Dick Todd of the Minneapolis Federal Reserve.  Ellison asked whether the Fed has a role in regulating so-called "exotic" mortgage produts, and Todd responded that while the local Fed branch can write rules governing such products, it cannot enforce those rules.

Sharon Glover of Golden Valley told her tale:  she made an accident getting into a refinancing deal in which she extracted no equity, never received loan documentation, and her payments increased drastically twice:  once when her loan was refinanced and again when her loan was sold to another lender, Ocwen.  She said she never missed a payment, but nevertheless was  served with a foreclosure notice.  "I was planning to sell the house anyway because it had become too much for one person, but I hadn't planned to lose everything." She detailed the predatory practices undertaken by the mortgage lender, who was forced to withdraw the sheriff's sale on her home when her lawyer presented the company with a class action lawsuit.

I'm not a financial analyst so I have no idea if a crash is imminent or what its affects will be on markets worldwide.  What worries me is that the needs of home owners who bought or refinanced into sub-prime loans will get lost in the shuffle.    We can't count on corporate interests concerning themselves with  individual losses, but government at the federal and state level can and should be advocates for those who stand to lose their homes.  

Hillary Clinton released her plan to fight the effects of predatory lending this week and Chris Dodd responded by releasing a time line of his own efforts.  I expect that in 2008 predatory lending will become a key issue for Democratic candidates from the Presidency down to State House seats across the country.  Sub-prime mortgages won't always be front page news but the increase in foreclosures will have long term effects for families and communities.  Voters will be pressing candidates to offer a solution.  
 

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According to the Center for Responsible Lending, 2.4 million U.S. homes are projected to foreclose as a result of recent subprime lending. ACORN offices have been taking action to inform homeowners at risk of losing their homes of the options available to them to avert foreclosure. They are also putting pressure on lenders and legislators to place a one-year moratorium on seizures.

A new study released March 26 by Policy Matters Ohio, a nonprofit research group, showed Ohio to be the worst in the nation with regard to home foreclosures. The state's foreclosures were up 25 percent since last year with more than 79,000 homes at risk.

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Millions of homeowners who assumed subprime mortgages during the past decade are feeling the pressure, as adjustable interest rates have risen up to 40 percent while incomes have stagnated.

Foreclosure rates are at an all-time high with projected foreclosures estimated at 2.4 million, according to the Center for Responsible Lending.

Sub-prime loans - high interest loans usually made to borrowers with poor credit records - are contributing to 60 percent of foreclosures.

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