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, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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CBO: Homeowner Rescue a Big Bust

| Fri Mar. 19, 2010 10:09 AM EDT

For all the plaudits and praise heaped on Treasury Secretary Tim Geithner lately (profiles, for instance, in the New Yorker and the Atlantic), consistently omitted is the abysmal failure of the Treasury's homeowner relief initiative, the Making Home Affordable program. The core of that program is the Home Affordable Modification Program (HAMP), a multibillion-dollar effort that's done next to nothing to alleviate the ongoing foreclosure crisis. (Read this and this for more.) A year into HAMP, only 170,000 people have received permanent reductions in their monthly mortgage payments. (By contrast, foreclosures last year set a new record, with 2.8 million.)

Now comes the news, via the nonpartisan Congressional Budget Office, that HAMP, which was initially projected to spend $50 billion helping homeowners, will only spend 40 percent of that, or $20 billion. What that means for beleaguered homeowners is that far less help is on the way from an already wounded program. Which shouldn't come as a surprise. Whereas Obama himself said in February 2009 that the Making Home Affordable program "will help between 7 and 9 million families restructure or refinance their mortgages," the Treasury Department's goal, in the case of HAMP, has always been to "offer" 3 to 4 million modifications to homeowners—with no guarantee for help.

The revision for HAMP as well is no surprise given criticism from watchdogs like the Congressional Oversight Panel. Last October, the COP said in its monthly report that "[i]t increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." In other words, the program was outdated a mere six months after it began. And the CBO's recent findings only confirm what others, like the COP, have stated: that Geithner and Obama's tepid homeowner rescue has fallen far short of providing the kind of relief to lift the country out of its housing and economic slump.

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Debunking the Chamber on Consumer Protection

| Thu Mar. 18, 2010 2:55 PM EDT

As our own reporters have shown many times, the US Chamber of Commerce, a lobbying behemoth that's only gaining power by the day, tends to run fast and loose with statistics, facts, even reality. On the financial reform front, the Chamber's latest assault on a new consumer protection agency—proposed by the House and Senate—fits their M.O.

At a press conference this week, Andy Pincus, counsel for the Chamber, laid out for reporters the core of the Chamber's opposition to a consumer protection agency. Essentially, Pincus said creating an agency like the one proposed by the House and Senate would layer on burdensome new regulation and bureaucracy, and moreover would choke off credit to small businesses. As a result, he said, those businesses won't have the funds to hire new employees, pay existing ones, and will ultimately fail, he said:

"Small businesses rely on credit vehicles that are often consumer credit because the small business is just a person…So the question is: How heavily are those kinds of credit vehicles going to be regulated? Are they going to cost more? Or are some of the regulations going to ban those forms of credit entirely on the grounds that they're abusive, whatever that means?"

In one sense, Pincus is right: Most small businesses are average consumers who get off the ground using the same kind of credit you and I have—namely, their credit cards. The Chamber's logic stops there, however. A consumer protection agency, if anything, would crack down on predatory credit card practices, not unlike the Credit CARD Act already in place. The consumer agency in the House bill would not only rein in on predatory practices sure to be harmful to small business owners, but would exempt retailers and other merchants who extend credit and layaway plans to consumers from oversight. (The Senate bill, while in its early stages, would do much of the same.) In short, these kinds of changes would  help small business owners, not hurt them or cut off their access to credit. 

Pincus also claimed that a new consumer agency might ban forms of credit used by small businesses. Perhaps if a small business owner had taken out a toxic subprime mortgage with a floating interest rate for her business, then yes, that owner might have to look for a new mortgage. One with better terms. Not much of a loss there.

In reality, the Chamber's position that a new consumer agency will choke off credit to small businesses just doesn't make sense. "There's no basis for it," says Tim Duncan, chairman of the organization Business Leaders for Financial Reform. "It's so detached from reality. There's nothing to indicate that that's true." And numerous business organizations actually support the consumer agency, including the US Women's Chamber of Commerce, the US Hispanic Chamber of Commerce, and the American Made Alliance. "For the most part, this is a real positive for business owners because they have to personally finance their own businesses," Duncan says. As for the US Chamber, Duncan adds, "I don’t think people are taking seriously the quality of their argument. The more they say this stuff, the more they dig their hole deeper in the ground."

China: World's Biggest Bubble?

| Thu Mar. 18, 2010 11:32 AM EDT

Is China, soon to surpass Japan as the world's second-largest economy, a massive, dangerous bubble? According to one man who's witnessed financial calamity at close range, the answer is an unabashed Yes. "As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," said James Rickards at a recent conference in China, according to Bloomberg News. Rickards is the former counsel for the infamous hedge fund Long-Term Capital Management, an all-star, Nobel Prize-powered fund that proceeded to melt down in 1998 and almost drag the global economy down with it. (For more on LTCM, read Kevin Drum's "Capital City" cover story.) Whether his role helping save LTCM burnishes or blemishes his record is for you to decide, but his time there clearly colors his view of China today. Bloomberg reported that Rickards argued that "Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan."

Echoing Rickards, a recent World Bank report warned of inflation and a property bubble in China. (Here's a PDF of the report's overview.) The World Bank suggested that China tighten up its overall monetary policy by raising interest rates to contain a housing bubble—something, you'll remember, former Fed Chairman Alan Greenspan and current chair Ben Bernanke failed to do.)

To be sure, there are some startling parallels between China's housing boom and the US' bubble circa 2003-2007. There's the economics—$560 billion of real estate was sold in China last year, the Times reported recently, an 80 percent increase from 2008—and the blinding details, too, like the home with crocodile skin bedposts and doors inlaid with Swarovski diamonds. Or the anonymous investor in Shanghai who bought 54 apartments in a single day. Or the $3 billion "floating city" in the north of China. The key question here is whether China's in a boom or inflating a bubble—and without a Chinese version of, say, the Case-Shiller housing index, it's hard to decipher what exactly is going on in the Middle Kingdom.

Figuring out whether China is indeed in the middle of a bubble—or a massive Ponzi scheme—is a lot tougher than in the US simply because China's government is so opaque. Reliable data is hard to come by, which makes it far more difficult to understand what continues to fuel China's rise—and if that's a good thing or not. If it is a bubble, though, the ramifications of it popping could be just as disastrous and far-reaching as the US' recent financial implosion.

Wall St.'s Looming "War Over Money"

| Wed Mar. 17, 2010 9:46 AM EDT

There's a Wall Street war on the horizon. So says best-selling author Michael Lewis, who's making the rounds promoting his new book The Big Short, an autopsy of the financial meltdown and, even more, a narrative of the handful of traders who saw the subprime meltdown looming, shorted that troubled industry (i.e., bet against it—big time), and made billions.

Lewis, in an interview with Reuters, said he anticipates a "collision" within the Senate banking committee's financial reform negotiations, led by Sen. Chris Dodd (D-Conn.), on the issue of whether to bust up big banks like Citigroup, Bank of America, JPMorgan Chase, and Wells Fargo. "To put it in the crudest possible way, these firms have to be smaller and less profitable," Lewis said. "If they were regulated properly and the rules of their game were sane, it would be less profitable to be a trader at a big Wall Street firm...It is really a war over money."

Lewis is almost certainly right. When the Senate banking committee begins marking up Dodd's financial reform bill next week, one of the most contentious issues in Dodd's new bill, released Monday, is the intent to prevent big, supermarket banks from gambling with their own funds for their own gain (also known as "proprietary trading") and to block them from investing in other financial casinos like hedge funds and private equity funds. Conservatives don't like the proprietary trading language at all, saying it's unwelcome government meddling in the markets. Liberals have cried foul because they believe Dodd kneecapped the ban by requiring a six-month review period before taking any action. What's for certain is the prop trading ban will divide the banking committee in the coming weeks, and it'll take a fight for Dodd and his liberal allies to keep the ban in the bill.

Chamber Targeting Banking Senators

| Tue Mar. 16, 2010 2:45 PM EDT

The US Chamber of Commerce, in its battle to defeat a new consumer protection agency and other "burdensome" financial reforms, is aiming a multimillion-dollar ad campaign at influential senators tasked with shaping the Senate's financial overhaul. In a press conference with reporters today, David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, said his organization planned to spend $3 million on ad campaigns to push its financial reform message, which mainly consists of defeating a consumer agency. That money will be focused in Tennessee, Montana, South Dakota, Indiana, Virginia, and Arkansas.

Why those six states? Well, they just so happen to be the homes of six crucial—and mostly undecided—lawmakers with a hand in deciding the fate of the Senate's Wall Street overhaul. Five of them sit on the powerful banking committee tasked with writing new financial reforms:

  • Bob Corker (R-Tenn.) was the GOP's lead negotiator on financial reform until late last week. No doubt he'll continue to figure largely into the Senate's negotiations;
  • Jon Tester (D-Mont.) has staked out a liberal position on financial reform, but has fielded intense criticism for backing Senate Democrats' financial reform efforts like a consumer protection agency;
  • Tim Johnson (D-S.D.) is the second-ranking Democrat on the banking committee, but, as a centrist, is seen as less likely to rally alongside Sen. Chris Dodd's Wall St. overhaul. It doesn't help that Citigroup, one of the world's largest banks, has major operations in Johnson's home state;
  • Evan Bayh (D-Ind.) hasn't taken much of a stand during the Senate's financial reform talks—which means he's more likely to be swayed by constitutients' concerns about a new consumer agency;
  • Mark Warner (D-Va.) has played a leading role in crafting a bipartisan solution with Corker on ending too big to fail banks and creating a bank "resolution," or euthanization, process. Warner's state, however, is hardly a liberal hotbed in lockstep behind the idea of a consumer agency;

The final senator, Blanche Lincoln (D-Ark.), isn't on the banking committee. She is, however, the chairwoman of the Senate agriculture committee, which will help craft future regulation of derivatives. Lincoln, who's facing a tough reelection battle this fall, could use derivatives reform as a way to curry favor with big business in her state. (Businesses who use derivatives for risk management or hedging purposes—known as "end users"—want an exemption from derivatives regulation; if Lincoln delivered that exemption, she'd score points and potential campaign cash with the business community.)

The Chamber has already spent more than $3 million on ads and other messaging efforts to influence Wall Street reform. With this new focused push, keep your eye on these six senators to see whether the Chamber's efforts pay off.

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