Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Guardian, Men's Journal, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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Is Fannie Mae Sabotaging Obama's Housing Rescue?

| Fri Aug. 6, 2010 3:50 PM EDT

The utter failure of the Obama administration's flagship homeowner rescue is, by now, common knowledge. But has Fannie Mae, the government-backed and taxpayer-supported housing finance company, played an active role in sabotaging Obama's $75-billion bust of a program?

That's the most explosive allegation leveled by Caroline Herron, a former Fannie executive who worked closely with the Treasury Department on the housing program, called the Home Affordable Modification Program. Herron's claims appear in a suit, first reported on by Michael Hudson at the Center for Public Integrity, in which she alleges that Fannie fired her for criticizing the corporation's handling of HAMP and blackballed her from working at Treasury, where she'd hoped to start a new job. Herron's suit, available here, offers a damning critique of Fannie's handling of HAMP, saying the company put the pursuit of easy profits above helping American homeowners—even though it's ultimately American taxpayers who've kept Fannie afloat with more than $85 billion in bailout funds.

Here's one passage from Herron's suit:

"It appeared that Fannie Mae officers were focused on maximizing incentive payments available to Fannie Mae under various federal programs—even if this meant wasting taxpayer money and delaying the implementation of high-priority Treasury programs."

As the suit explains, Fannie received "substantive" incentive payments by getting homeowners modified mortgage deals on a temporary basis. In HAMP, you see, the homeowner first goes through a multiple-month trial run with lower payments. If the homeowner stays current during the trial run, the modification should theoretically be converted into a permanent modification, with the lower terms applying for three to five years. A three- or four-month trial mod doesn't do a homeowner much good—but those trial runs did put money in Fannie's pocket. As CPI's Hudson reports,

Herron charges that Fannie Mae continued in headlong pursuit of “trial mods” even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial, a Congressional oversight panel found. Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009.

Another key part of Herron's suit is her description of Fannie's handling of what's called a "borrower portal." A chief complaint about HAMP is the sheer amount of paperwork involved, how that paperwork gets lost when sent to mortgage servicers, and how the application process creates a major bottleneck for the program. A borrower portal is basically an online application website, which, its proponents claim, would cut down on the paperwork debacle and speed up the application process. 

To its credit, the Treasury Department wanted a portal for HAMP, and asked Fannie to get one into place. Herron, however, alleges that Fannie did everything it could to block the portal and resist Treasury's request, which would've boosted HAMP. In other words, the company Treasury hired to run large parts of HAMP actively prevented the program from helping as many homeowners as it could. Herron's suit says she fought Fannie's attempts to block the portal, and that action led to her firing.

In all, Herron's allegations, if accurate, offer a damning look at how Fannie, already marred by years of mismanagement and accounting controversies, repeatedly undermined HAMP, the bailout-funded program created with regular Americans (and not big banks) in mind. Still, HAMP has mostly been a disaster and waste of taxpayer money. And little wonder why: The people running the show are dooming it fail.

Read former Fannie Mae executive Caroline Herron's suit against Fannie Mae:

Herron Lawsuit Against Fannie Mae

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More Grim News on Jobs Front

| Fri Aug. 6, 2010 10:52 AM EDT

The Labor Department's monthly numbers are out, and it's mostly dark clouds in the jobs world. The unemployment rate remains 9.5 percent. The public sector shed more than 200,000 jobs in July, most of which were expired Census gigs. The ratio of employed Americans to the adult population dwindled slightly, but for did so for the third month in a row—a troubling sign. And the real unemployment figure—accounting for unemployment, underemployment, and discouraged workers—is stuck at 16.5 percent.

A silver lining: The private sector added 71,000 jobs in July, which, as Ezra Klein points out, is the most since April and third-best in 2010. He adds optimistically, "The 71,000 jobs we did gain came from the right place, and the jobs we lost are job losses we can prevent if Congress finds the will and the votes."

That optimism don't appear to shared by most other observers, nor backed by the Labor Department's data when you dig deeper in. For instance, the Labor Department went back and revised its jobs figures for June, reporting that 267,000 jobs were lost instead of 125,000 as initially thought. That's a major revision—and further proof that the economic recovery is far weaker than already thought.

Although the unemployment rate didn't budge, that's not because the jobs picture is getting rosier. Rather, people are still leaving the work force, quitting their search for a new job. As Zero Hedge points out, the employment-to-population ratio is the same today as it was in October 1983, per this chart:

Via Zero Hedge.Via Zero Hedge.

When the jobs picture finally begins to improve in earnest, those same people, encouraged by the positive signs they see on TV or read in the papers, will begin looking for work again. As a result, the jobless rate could inch even higher.

Meanwhile, the ranks of the long-term unemployed—out of work for six months or more, but still looking—remain at near-record levels, at 6.6 million, or 45 percent of all unemployed. That's still a staggering number.

All in all, this is more bad news for the Obama White House and Congress, especially the downward revision for June. It's telling that Christy Romer, the White House economic aide now on her way out the door, downplayed today's report: "It is important not to read too much into any one monthly report, positive or negative."

Yes, Congress' efforts to send more fiscal aid to state governments and small businesses (though the math behind the latter is somewhat flawed) are urgent and necessary, it's up to private employers right now to get the Great American Jobs Machine chugging along again. Many private employers have the money to increase hiring, but are spooked by new regulations or the instability of the economy and remain on the sidelines. We won't get growth until they start opening their doors again.

Ben Nelson's Economic Hypocrisy

| Thu Aug. 5, 2010 11:11 AM EDT

Should we extend the Bush tax cuts? Let them expire for all Americans? Or lapse just for the very wealthy? These are the questions being asked in the latest economic battle that's playing out here in Washington. If the Bush tax cuts, implemented in 2001 and 2003, were allowed to expire for everyone, the average American household's tax payment could increase by about $1,500, according to the LA Times. So far, the fate of the Bush tax cuts is dividing lawmakers along the typical partisan lines, with Democrats and the Obama administration demanding an end to them and Republicans arguing for their extension.

And then there's centrist Sen. Ben Nelson (D-Neb.). He says he opposes increasing taxes, and thus supports extending the tax cuts. Nelson supported his un-Democratic position with this statement: "I think we're at a point in our economic recovery that anything that would adversely affect it, we ought to avoid."

Hmm. That sounds awfully hypocritical. After all, the veteran senator voted against or failed to show up to vote on an issue that's arguably the best tonic for our ailing economy: unemployment benefits. Nelson opposed or ignored jobless benefits five separate times over the last two years. Nelson cited concerns that adding to the deficit "could jeopardize the recovery."

Too bad that's utterly inaccurate. As countless economists (pdf) and studies have shown, unemployment insurance is an effective form of stimulus and a way to bolster the economic recovery. Weekly unemployment insurance checks mean money in the pockets of out of work Americans, who in turn will spend that money on groceries, health care, or searching for a new job, which, if they find, puts them back in the tax-paying workforce. As White House budget guru Peter Orszag put it, "Research has shown that the unemployment insurance system is among the most effective dollar-for-dollar economic stabilizers that we have in terms of counterbalancing periods of economic weakness."

So Ben Nelson says he's against anything that hurts the economic recovery, yet repeatedly blocked jobless benefits even though they're one of the best tools out there for boosting the economic recovery—a position that makes no sense at all.

The End Of The Kilpatrick Dynasty?

| Wed Aug. 4, 2010 12:45 AM EDT

[MoJo has more primary coverage: Read my report on Michigan's gubernational results, and Nick Baumann's take on Missouri's primaries for US House and Senate.]

"This is the final curtain: the ending of the Kilpatrick dynasty."

So concluded Detroit political consultant Eric Foster in the Detroit Free Press' report on the primary defeat of Rep. Carolyn Cheeks Kilpatrick.

Cheeks Kilpatrick, a seven-term Democrat, represented Michigan's 13th congressional district, which includes large parts of Detroit. Her defeat is largely attibutable to one of the worst scandals in that city's history. The salacious saga centered on her son, Kwame, Detroit's disgraced former mayor, who had an affair with his chief of staff, lied about it under oath, and spent millions in city funds fighting public disclosure of text messages and secret settlements. The former chairwoman of the Congressional Black Caucus, Cheeks Kilpatrick lost to state Senator Hansen Clarke;  at 11:45 p.m., Clarke had 46 percent of the vote and Cheeks Kilpatrick 40 percent. The Free Press described Hansen's win as a "stunning upset victory."

Here's more from the Freep as the results roll in:

The defeat could spell the end of a 14-year congressional career for Kilpatrick, who has been dogged by the legal problems faced by her son, former Detroit Mayor Kwame Kilpatrick, now serving time for violating probation on state felony charges and awaiting trial on federal charges of tax evasion and mail and wire fraud.

The race has been among the most watched races in the state.

A subdued crowd at Kilpatrick’s election night party in downtown Detroit waited for the final numbers to roll in, hoping that absentee ballots might reverse the trend...

At Clarke's party at the Centaur Bar in Detroit, the mood was much more upbeat. Cheering erupted as Clarke greeted the crowd.

"What’s missing is a congressman willing to work in the city," said Detroit city councilman Gary Brown. "I hope he can bring the Michigan delegation in Washington together."

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