Regional Feds’ Head-Hunting Under Scrutiny Over Insider Bias, Delays
New York/Washington. Efforts to fill top positions at some US Federal Reserve regional branches are casting a spotlight on a decades-old process that critics say is opaque, favors...
New York/Washington. Efforts to fill top positions at some US Federal Reserve regional branches are casting a spotlight on a decades-old process that critics say is opaque, favors insiders, and is ripe for reform.
Patrick Harker took the reins as president of the Philadelphia Fed this week, in an appointment that attracted scrutiny because he served on the committee of directors that interviewed other prospective candidates for the job he ultimately took.
The Dallas Fed has been without a permanent president for more than three months as that search process stretches well into its eighth month. And the Fed’s Minneapolis branch abruptly announced the departure of its leader, Narayana Kocherlakota, more than a year before he was due to go, with no replacement named to date.
The delays and reliance on Fed employees in picking regional Fed presidents can only embolden Republican Senator Richard Shelby to push harder for a makeover of the central bank’s structure, which has changed little in its 101 years.
A bill passed in May by the Senate Banking Committee that Shelby chairs would strip the New York Fed’s board of its power to appoint its presidents. And it could go further, given the bill would form a committee to consider a wholesale overhaul of the Fed’s structure of 12 districts, which has not changed through the decades of shifting US populations and an evolving economy.
The bill is part of a broader conservative effort to expose the central bank to more oversight, and some analysts saw the Philadelphia Fed’s choice as reinforcing the view that the Fed needs to open up more to outsiders.
Nine of 11 current regional presidents came from within the Fed, a proportion that has edged up over time. Twenty years ago, seven of 12 were insiders.
“The process seems to create a diverse set of candidates in which the insider is almost always accepted,” said Aaron Klein, director of a financial regulatory reform effort at the Bipartisan Policy Center.
Since it was created in 1913, the central bank’s decentralized structure was meant to check the power of Washington, where seven Fed governors with permanent votes on policy are appointed by the White House and approved by the Senate.
The 12 Fed presidents who are picked by their regional boards usually vote on policy every two or three years, and they tend to hold more diverse views.
Former Richmond Fed President Alfred Broaddus told Reuters the regional Fed chiefs have more freedom “to do and say things that may not be politically popular” because they are not politically appointed. “On the other hand, there is the question of legitimacy since they are appointed by local boards who are not elected.”
“Tone deaf”
Two-thirds of regional Fed directors are selected by local bankers, while the rest are appointed by the Fed’s Board of Governors in Washington.
Critics question how well those regional boards — mostly made of the heads of corporations and industry groups meant to represent the public — fulfill their mission.
Last year, a non-profit group representing labor unions and community leaders organized by the Center for Popular Democracy, urged the Fed’s Philadelphia and Dallas branches to make the selection of their presidents more transparent and to include a member of the public in the effort.
Philadelphia’s Fed in particular proved “tone deaf” in its head-hunting effort, said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey.
Harker was a Philadelphia Fed director when the board started looking to replace president Charles Plosser, who left on March 1, and he was among the six directors who interviewed more than a dozen short-listed candidates for the job, according to the Philadelphia Fed.
But on Feb. 18, Harker floated his own name, recused himself from the process and a week later his colleagues on the board unanimously appointed him as the new president.
While the selection follows Fed guidelines and was approved by its Board of Governors, it raised questions of transparency and fairness.
“The Philadelphia Fed’s search process might have made perfect sense in a corporate environment, but is obviously problematic for an official institution,” said Crandall.
The board’s chair and vice chair, Swathmore Group founder James Nevels and Michael Angelakis of Comcast Corp, respectively, declined to comment, as did Harker.
Peter Conti-Brown, an academic fellow at Stanford Law School’s Rock Center for Corporate Governance, and an expert witness at a Senate Banking Committee hearing this year, proposed to let the Fed Board appoint and fire regional Fed presidents or at least have a say in the selection process.
In the past, reform proposals for the 12 regional Fed banks have focused on decreasing or increasing their number and their governance.
Changes to the way the regional Fed bosses are chosen could strengthen the influence of lawmakers at the expense of regional interests.
For now, delays in appointments of new chiefs force regional banks to send relatively unknown deputies to debate monetary policy at meetings in Washington, as Dallas and Philadelphia did last month when the Fed considered raising interest rates for the first time in nearly a decade.
The Minneapolis Fed still has time to find a new president before Kocherlakota steps down at year end.
“For now the Fed criticism is just noise, mostly from Republicans,” said Greg Valliere, chief political strategist at Potomac Research Group. “But once the Fed begins to raise interest rates … then the left will weigh in as well.”
Source: Jakarta Globe
A New Front On Immigration: NY Legislation Would Let Undocumented Vote, Drive
Buzzfeed - June 16, 2014 by Adrian Carrasquillo - New York Democrats announced Monday new legislation that would grant state citizenship rights to undocumented immigrants.
The...
Buzzfeed - June 16, 2014 by Adrian Carrasquillo - New York Democrats announced Monday new legislation that would grant state citizenship rights to undocumented immigrants.
The bill could represent a bold new advocacy strategy: using states’ rights to secure legal protections for the undocumented.
York state senator Gustavo Rivera and assembly member Karim Camara’s bill would allow undocumented immigrants to vote, drive, receive professional licenses, run for civil office, and receive Medicaid as well as in-state tuition in New York by making them New York state citizens.
“It’s up to New York to figure out who it’s political community is,” said Peter Markowitz, professor at the Cardozo school of law, who made the legal case for the legislation through the country’s dual-sovereign structure. “New York gets to decide who is and who isn’t a New Yorker. The federal government may not interfere.”
The prospects for federal changes to U.S. immigration law took a hit last week after House Majority Leader Eric Cantor’s primary election loss, attributed by some as directly the result of attacks by Cantor’s opponent on his immigration record.
Flanked by activists in front of the Statue of Liberty Monday, Rivera struck a positive tone about the bill, called the New York is Home Act.
Immigrants would be eligible to become state citizens if they show proof of identity, proof of three years of New York State residency and proof of three years of New York State tax payments; the bill also requires a commitment to abide by state laws and uphold the state Constitution, and a willingness to serve on New York juries and to keep paying state taxes.
Rivera said the idea has been in the works for two years and called the legislation “bold,” not because of the pieces themselves, but because they are all in one bill.
“This is unlike SB1070,” Rivera told BuzzFeed after the event. “Arizona said, ‘We can do this and affect things on a federal level.’ No, you can’t. But the conversation we need to have is: What rights do we have in a state?”
Spokespeople for Mayor Bill de Blasio and City Council Speaker Melissa Mark-Viverito, the first Latina in the role, said Monday they were reviewing the legislation.
“In light of inaction at the federal government, the administration is interested in learning about local initiatives to increase equality among immigrant communities,” de Blasio deputy press secretary Maibe Ponet said.
“Given congress’s failure to address immigration reform, people are obviously becoming increasingly frustrated, a spokesman for Mark-Viverito said. “[The speaker] is supportive of increasing voting rights and will be reviewing the legislation.”
Cesar Vargas, a DREAMer who has been fighting for the right to practice law as an undocumented immigrant, would benefit from the portion of the legislation that would give licenses for professions like lawyers, doctors, dentists, midwives and others. He said he is set to work with the mayor and the city council speaker to “see how they can support undocumented lawyers.”
“As we stand in front of the Statue of Liberty, we’re reminded of the American Dream, and I’m reminded of the dream of my mother for me to be a lawyer,” Vargas said.
Many sought to draw a parallel between the fight for marriage equality — and its stops and starts over the years.
“This will get a lot of attention for New York,” DREAMer Antonio Alarcon, 19, said. “It will take months to pass, we’re going to be fighting for this like they did for marriage equality.”
“Full equality and inclusion will gain momentum in our time,” said Andrew Friedman, co-executive director of The Center for Popular Democracy.
He said his group is in discussion with four to five other states for similar legislation with the stated goal of putting “another horse in the race” in the way those who fought for marriage equality continued to refine what they were asking for.
Jose Davila, the vice president off policy and government relations at the Hispanic Federation echoed the belief that the legislation comes at an important time for the fight for changing U.S. immigration laws.
“Instead of tear families apart, we should be reframing the debate. What kind of state do we want to be?”
Source
Activist With ALS Spearheads Campaign To Punish Lawmakers Who Voted For Tax Law
Activist With ALS Spearheads Campaign To Punish Lawmakers Who Voted For Tax Law
The campaign will involve using digital persuasion ads and get-out-the-vote efforts to vote out incumbents who supported the tax law. Barkan and his team are still developing their strategy, but...
The campaign will involve using digital persuasion ads and get-out-the-vote efforts to vote out incumbents who supported the tax law. Barkan and his team are still developing their strategy, but they plan to focus on congressional races in eight districts around the country. They will be campaigning in Arizona, California, New Jersey, Pennsylvania, Texas, and Wisconsin.
Read the full article here.
Safety coalition: ‘Scaffold Law’ study is ‘flawed’
Safety & Health Magazine - April 18, 2014 - A recent study that questioned the usefulness of New York state’s “Scaffold Law” is flawed, according to a new report from a worker safety advocacy...
Safety & Health Magazine - April 18, 2014 - A recent study that questioned the usefulness of New York state’s “Scaffold Law” is flawed, according to a new report from a worker safety advocacy coalition.
In December, a study from State University of New York’s Rockefeller Institute of Government concluded that New York’s Labor Law 240 – which imposes a strict liability on employers for workplace injuries at height – drives up the cost of business without improving worker safety.
But an April 17 report from the Center for Popular Democracy and the New York Committee for Occupational Safety and Health called the Rockefeller study “biased,” noting that the study was paid for by the New York Civil Justice Institute, a group created by an alliance criticized as working on behalf of employer and industry interests.
The Rockefeller study confused correlation with causation, the two worker safety advocacy groups say, by claiming differences between worker injury rates in construction and non-construction industries in New York and elsewhere are entirely due to the Scaffold Law.
CPD and NYCOSH are partners in a newly launched Scaffold Safety Coalition, a group of workers, advocates and other organizations that have joined to defend the state’s Scaffold Law.
Source
Hold JPMorgan Chase Accountable for Profiting Off Trump’s Attacks on Immigrants
Hold JPMorgan Chase Accountable for Profiting Off Trump’s Attacks on Immigrants
Take Action Now gives you three meaningful actions you can take each week—whatever your schedule. This week, you can take a picture to support Nissan workers in Mississippi, hold JPMorgan Chase...
Take Action Now gives you three meaningful actions you can take each week—whatever your schedule. This week, you can take a picture to support Nissan workers in Mississippi, hold JPMorgan Chase accountable for profiting off-immigrant detention centers, and lobby your members of Congress to think beyond resistance. You can sign up for Take Action Now here.
Read the full article here.
Overnight Finance: Obama huddles with Yellen; Puerto Rico bill markup Wednesday
Overnight Finance: Obama huddles with Yellen; Puerto Rico bill markup Wednesday
TRADING NOTES: President Obama met with Federal Reserve Board Chairwoman Janet Yellen, but interest rates were apparently not on the agenda.
Obama did not plan to...
TRADING NOTES: President Obama met with Federal Reserve Board Chairwoman Janet Yellen, but interest rates were apparently not on the agenda.
Obama did not plan to discuss interest rates with Yellen, according to White House press secretary Josh Earnest. He argued such a conversation could undercut the chair's independence in setting monetary policy.
"I would not anticipate that, even in the confidential setting, that the president would have a conversation with the chair of the Fed that would undermine her ability to make these kinds of critical monetary policy decisions independently," Earnest told reporters ahead of the meeting.
The closed-door discussion is instead an opportunity to "trade notes" on broader economic trends in the U.S. and abroad, as well as on a new set of regulations on Wall Street financial firms.
Obama and Yellen talked about the growth outlook, "the state of the labor market, inequality and potential risks to the economy," the White House said after the meeting. The Hill's Jordan Fabian has more: http://bit.ly/25VuzIZ.
HOUSE TO MARKUP PUERTO RICO DEBT BILL: The House Natural Resources Committee will begin on Wednesday to mark up legislation aimed at saving Puerto Rico from a massive debt crisis.
Lawmakers have been working to make significant changes to the measure, which is expected to unveiled as early as Monday night, since the panel released a discussion draft on March 29.
The Puerto Rico measure, which put the island's finances under federal oversight and authorize a restructuring of some of its debt, will need to strike a balance and attract bipartisan support and the backing of the White House to move forward.
LEW MAKES CASE FOR GLOBAL ECONOMIC LEADERSHIP: Treasury Secretary Jack Lew on Monday made the case for the United States to continue its global economic leadership as the administration faces criticism from Donald Trump and other presidential candidates.
"We know that the global landscape of the next century will be very different than that of the post-war era," Lew said in a speech at the Council on Foreign Relations. "And if we want it to work for the American people, we need to embrace new players on the global economic stage and make sure they meet the standards of the system we created, and that we have a strong say in any new standards."
"The worst possible outcome would be to step away from our leadership role and let others fill in behind us," he added. The Hill's Naomi Jagoda fills us in: http://bit.ly/1qjTIwe.
GOLDMAN SACHS SETTLES MORTGAGE PROBE FOR $5 BILLION: Goldman Sachs will pay more than $5 billion to settle charges that it engaged in "serious misconduct" when selling risky mortgages leading up to the 2008 financial collapse.
The $5.06 billion civil settlement also saw the Wall Street giant admit it failed to properly inform investors of the risks in the subprime mortgage securities the bank was selling.
"This resolution holds Goldman Sachs accountable for its serious misconduct in falsely assuring investors that securities it sold were backed by sound mortgages, when it knew that they were full of mortgages that were likely to fail," acting associate attorney general Stuart Delery said in a statement.
One of the government charges, which Goldman has now acknowledged, was that the bank kept internal concerns about the strength of the mortgage market hidden from potential investors. Here's more from The Hill's Peter Schroeder: http://bit.ly/1qjTJQQ.
SANDERS SAYS GOLDMAN'S BUSINESS 'RIGGED': Bernie Sanders charged Monday that the settlement proves Goldman Sachs's business is "based on fraud."
The Justice Department announced Monday that the Wall Street giant would pay over $5 billion to settle charges it sold risky mortgage investments in the lead up to the financial crisis, and didn't tell investors enough about it.
Sanders, who has built his presidential campaign in large part on big bank bashing, said the settlement proves his point.
"What they have just acknowledged to the whole world is that their system ... is based on fraud," he told supporters in New York.
Sanders also complained that the civil settlement did not include any criminal charges, proving the "corruption of our criminal justice system." http://bit.ly/1TNk2Lm
HAPPY MONDAY and welcome to Overnight Finance, where we're wondering why Herbert Hoover gets to join the racing presidents. I'm Sylvan Lane, and here's your nightly guide to everything affecting your bills, bank account and bottom line.
Tonight's highlights include securities fraud charges for Texas's attorney general, a trillion-dollar national pension gap and a Tax Day delay.
See something I missed? Let me know at slane@thehill.com or tweet me @SylvanLane. And if you like your newsletter, you can subscribe to it here: http://www.thehill.com/signup/48.
ON TAP TOMORROW:
Senate Finance Committee: Hearing on examining cybersecurity and protecting taxpayer information, 10 a.m
Senate Appropriations Subcommittee on Financial Services: Hearings to examine proposed budget estimates and justification for fiscal year 2017 for the Securities and Exchange Commission and Commodity Futures Trading Commission., 10:30 a.m.
House Rules Committee: Business Meeting: H.R. 2666: No Rate Regulation of Broadband Internet Access Act; H.R. 3340: Financial Stability Oversight Council Reform Act; H.R. 3791: To raise the consolidated assets threshold under the small bank holding company policy statement and for other purposes.
Puerto Rico Oversight, Management, and Economic Stability Act expected to be released.
"Getting Her Money's Worth: What Will It Take to Achieve Equal Pay?" discussion featuring Sens. Kirsten Gillibrand (D-NY) and Heidi Heitkamp (D-ND), 11:45 am.
BERNIE FANS LEFT'S FLAMES AGAINST FED: Liberal activists are putting a target on the Federal Reserve for the 2016 elections, much to the delight of the Bernie Sanders campaign.
Denouncing an agenda that they say tilts toward Wall Street, members of the "Fed Up" coalition on Monday unveiled a set of reforms that would alter how the central bank does business.
"No longer are we focused only on fixing the Fed's monetary policy and internal governance positions," said Ady Barkan, the group's campaign director. "We are now beginning an effort to reform the Federal Reserve itself. Peter Schroeder breaks down the fight: http://bit.ly/23yMSBH.
YOU HAVE THREE MORE DAYS TO PROCRASTINATE: For most people, tax returns are due one week from today.
This year's due date for filing federal individual income tax returns is April 18, not April 15. This is because the District of Columbia is observing Emancipation Day on April 15, which falls on a Friday, according to the Internal Revenue Service (IRS).
People living in Massachusetts and Maine have until April 19 to file their tax returns because those states observe Patriots' Day on April 18.
Those who are serving in combat zones or contingency operations or become hospitalized due to injuries from their service can have additional time to pay their taxes. Those affected by federally declared disasters might also have more time, the IRS said: http://bit.ly/1Q3tzHk.
AG GROUPS PUSH FOR PACIFIC TRADE DEAL: The nation's farmers and ranchers are putting their weight behind efforts urging Congress to pass a sweeping Asia-Pacific deal this year.
In a letter to congressional leaders on Monday, 225 food and agricultural groups called on lawmakers to move forward on the 12-nation Trans-Pacific Partnership before President Obama leaves office.
"The TPP presents a valuable opportunity for U.S. agriculture; one that we cannot afford to miss," the groups wrote. The Hill's Vicki Needham explains why: http://bit.ly/1S5QCFD.
SEC CHARGES TEXAS ATTORNEY GENERAL: The Securities and Exchange Commission on Monday charged Texas's top law enforcement official with civil securities fraud for allegedly deceiving investors in a computer company.
Texas Attorney General Ken Paxton (R) received 100,000 shares of Servergy, a Nevada-based technology company, to pitch investors on a server it was selling between 2011 and 2013, according to the SEC complaint. Servergy officials allegedly marketed the server with incorrect information, and Paxton allegedly did not disclose to investors that he would be paid a commission: http://bit.ly/1RPHyG0.
US PUBLIC PENSIONS FACE $3 TRILLION HOLE: The nation's public pension system is facing a $3.4 trillion funding hole that may force cities and states to either cut spending or raise taxes to cover future shortfalls.
The deficit in pension funds is three times more than official figures and is growing, and without an overhaul could weigh on state and local budgets and lead to Detroit-like bankruptcies, according to research reported by the Financial Times.
Joshua Rauh, a senior fellow at the Hoover Institution who put together the report, told the FT that "the pension problems are threatening to consume state and local budgets in the absence of some major changes."
"It is quite likely that over a 5- to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role." Here's more from Vicki Needham: http://bit.ly/1Su85op.
CONSERVATIVES FIGHT ENERGY TAX BREAKS IN FAA BILL: Conservative groups that oppose a proposal to include energy tax breaks in the long-term reauthorization of the Federal Aviation Administration are vowing to take their fight to the House if the Senate moves ahead.
Americans for Prosperity and Freedom Partners said Monday that if the Senate ends up attaching energy tax provisions to the FAA bill, the organizations will ratchet up pressure on lawmakers across the Capitol to oppose the language or pass a clean-extension of FAA.
"If the Senate isn't going to do anything to stop this, we're going to put pressure on the House," Andy Koenig, senior policy advisor at Freedom Partners, said on a press call. "The House is under no obligation to take up a bunch of energy subsidies if they don't want to." The Hill's Melanie Zanona walks us through the battle: http://bit.ly/1RPHrKH.
DEMS CALL FOR GREATER NONBANK MORTGAGE OVERSIGHT: Two Democratic lawmakers are calling on the nation's top consumer protection agency to ramp up its oversight of nonbank mortgage servicers.
Sen. Elizabeth Warren (Mass.) and Rep. Elijah Cummings (Md.) asked the Consumer Financial Protection Bureau (CFPB) on Monday to identify all of and collect more data on the growing number of financial institutions other than banks that service mortgages.
Warren and Cummings pointed to recommendations from a non-partisan government watchdog report published Monday. Warren, a long-time financial industry watchdog, and Cummings, the top Democrat on the House Oversight Committee, requested the Government Accountability Office (GAO) study. I'll fill you in on the rest here: http://bit.ly/1Sc3ldc.
Did you know 67% of all job growth comes from small businesses? Read More
NIGHTCAP: Five Starbucks locations in DC will start serving alcohol and "small plates," which is millennial for paying more money for less food: https://www.washingtonian.com/2016/04/08/5-dc-starbucks-will-sell-beer-wine-small-plates-next-week/.
By Sylvan Lane
Source
New York Questions Big Retailers Over 'On-Call' Staffing
Reuters - April 13, 2015 - New York's attorney general has sent letters to 13 national retailers, including Gap Inc, Target Corp and JC Penney Co Inc, about "on-call shifts" in which workers are...
Reuters - April 13, 2015 - New York's attorney general has sent letters to 13 national retailers, including Gap Inc, Target Corp and JC Penney Co Inc, about "on-call shifts" in which workers are told whether to report to work a day or less before a scheduled shift.
Attorney General Eric Schneiderman's letters, sent on Friday, say on-call systems leave "too little time to make arrangements for family needs, let alone to find an alternative source of income to compensate for the lost pay" on days the employees are not called in to work.
A number of companies with stores in New York are requiring employees to check in by telephone, text message or email before a planned shift to see if their services are needed, Schneiderman wrote in the letters.
The system allows retailers to adjust staffing based on store traffic forecasts made by scheduling software. The companies can then reduce over-staffing and under-staffing.
His requests come as workers' advocates claim success in efforts to increase pay and benefits at fast food companies and national retailers, including recent raises of minimum wages by McDonald's Corp and Wal Mart Stores Inc.
Schneiderman said the "on-call" practice might violate the law in New York, where employers are subject to a rule that says employees who report for a scheduled shift on any day have to be paid for at least four hours at the basic minimum hourly wage.
Target said workers are informed of their schedules 10 days before the start of a work week and it does not employ "on-call" shifts. JC Penney said it has a policy against on-call scheduling. The Gap said it is committed to "sustainable scheduling practices" and is conducting research on the matter.
Worker advocates say unpredictable scheduling is one of the key challenges facing low-wage workers.
"One of reasons it is coming to light now is that people are organizing around it," said Tsedeye Gebreselassie, senior attorney at the National Employment Law Project.
He noted that a 2011 union-backed study of New York retail workers showed a fifth surveyed were required to always or frequently be available for on-call shifts.
Bills addressing on-call scheduling are currently being considered in the state legislatures of Massachusetts, Connecticut, Minnesota, Oregon and California, according to the Center for Popular Democracy, a worker advocacy group.
The U.S. Labor Department said it is aware of the on-call scheduling concerns and is looking into the matter.
"This is an important issue for workers struggling with work-life balance, especially for women," spokeswoman Tania Mejia said.
Schneiderman asked the retailers to provide details on the processes they follow to schedule on-call shifts, such as whether they use computerized systems and penalize employees who do not follow on-call procedures.
He also asked the companies for any analysis they might have conducted on cost savings associated with on-call shifts and the impact on workers' wellbeing. The companies have until May 4 to send in their responses.
The Gap said it was engaged in a research project with the UC Hastings College of Worklife Law to examine scheduling and productivity, and expects to receive some data in the fall of 2015.
"In the meantime, each of our brands also has been working to evaluate and refine their practices to make improvements," a spokeswoman for the retailer said.
Letters were also sent to Abercrombie & Fitch Co, J. Crew, L Brands Inc, Burlington Coat Factory, TJX Cos Inc , Urban Outfitters Inc, Crocs Inc, Ann Inc, Sears Holdings Corp and Williams-Sonoma Inc.
Sears and Ann Inc both said they do not use on-call scheduling. Representatives of the other retailers did not immediately respond to requests for comment. (Reporting by Supriya Kurane and Siddharth Cavale in Bengaluru, Karen Freifeld and David Morgan in New York, Nathan Layne in Chicago, and Lisa Baertlein in Los Angeles. Editing by Anupama Dwivedi, Dan Grebler and Andre Grenon)
Source
A 'striking lack of diversity' at the Fed distorts economic policy in ways most people don’t consider
A 'striking lack of diversity' at the Fed distorts economic policy in ways most people don’t consider
In a new report from the liberal-leaning Fed Up, a coalition of community groups advocating for continued low interest rates from the Fed with a view to helping the country's poorer families enjoy...
In a new report from the liberal-leaning Fed Up, a coalition of community groups advocating for continued low interest rates from the Fed with a view to helping the country's poorer families enjoy some of the benefits of the recovery, the group says a lot of work remains to be done despite recent progress on diversity under Yellen's tenure.
Read the full article here.
A City Invokes Seizure Laws to Save Homes
The power of eminent domain has traditionally worked against homeowners, who can be forced to sell their property to make way for a new highway or shopping mall. But now the working-class city of...
The power of eminent domain has traditionally worked against homeowners, who can be forced to sell their property to make way for a new highway or shopping mall. But now the working-class city of Richmond, Calif., hopes to use the same legal tool to help people stay right where they are.
Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures.
The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt, and a host of cities across the country that are considering emulating Richmond.
The banks have warned that such a move will bring down a hail of lawsuits and all but halt mortgage lending in any city with the temerity to try it.
But local officials, frustrated at the lack of large-scale relief from the Obama administration, relatively free of the influence that Wall Street wields in Washington, and faced with fraying neighborhoods and a depleted middle class, are beginning to shrug off those threats.
“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”
Despite rising home prices in many parts of the country, including California, roughly half of all homeowners with mortgages in Richmond are underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth. On Monday, the city sent a round of letters to the owners and servicers of the loans, offering to buy 626 underwater loans. In some cases, the homeowner is already behind on the payments. Others are considered to be at risk of default, mainly because home values have fallen so much that the homeowner has little incentive to keep paying.
Many cities, particularly those where minority residents were steered into predatory loans, face a situation similar to that in Richmond, which is largely black and Hispanic. About two dozen other local and state governments, including Newark, Seattle and a handful of cities in California, are looking at the eminent domain strategy, according to a count by Robert Hockett, a Cornell University law professor and one of the plan’s chief proponents. Irvington, N.J., passed a resolution supporting its use in July. North Las Vegas will consider an eminent domain proposal in August, and El Monte, Calif., is poised to act after hearing out the opposition this week.
But the cities face an uphill battle. Some have already backed off, and those that proceed will be challenged in court. After San Bernardino County dropped the idea earlier this year, a network of housing groups and unions began working to win community support and develop nonprofit alternatives to Mortgage Resolution Partners, the firm that is managing the Richmond program.
“Our local electeds can’t do this alone, they need the backup support from their constituents,” said Amy Schur, a campaign director for the national Home Defenders League. “That’s what’s been the game changer in this effort.”
Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.
The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.
Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000 in equity.
All of the loans in question are tied up in what are called private label securities, meaning they were bundled and sold to private investors. Such loans are generally the most unfavorable to borrowers and the most likely to default, Mr. Gluckstern said. But they are also the most difficult to modify because they are controlled by loan servicers and trustees for the investors, not the investors themselves. If Richmond’s purchase offer is declined, the city intends to use eminent domain to condemn and buy the loans.
The banks and the real estate industry have argued that such a move would be unprecedented and unconstitutional. But Mr. Hockett says that all types of property, not just land and buildings, are subject to eminent domain if the government can show it is needed to promote the public good, in this case fighting blight and keeping communities intact. Railroad stocks, private bus companies, sports teams and even some mortgages have been subject to eminent domain.
Opponents, including the Securities Industry and Financial Markets Association, the American Bankers Association, the National Association of Realtors and some big investors have mounted a concerted opposition campaign on multiple levels, including flying lobbyists to California city halls and pressuring Fannie Mae, Freddie Mac and the Federal Housing Administration to use their control of the mortgage industry to ban the practice.
Tim Cameron, the head of Sifma’s Asset Management Group, said any city using eminent domain would make borrowing more expensive for everyone in the community and divert profits from the investors who now own the loan to M.R.P. and the investors financing the new program. “Eminent domain is used for roads and schools and bridges that benefit an entire community, not something that cherry-picks who the winners are and who the losers are,” he said.
Representative John Campbell, Republican of California, has introduced a bill that would prohibit Fannie, Freddie and the F.H.A. from making, guaranteeing or insuring a mortgage in any community that has used eminent domain in this way. Eminent domain supporters say such limits would constitute a throwback to the illegal practice called redlining, when banks refused to lend in minority communities.
Opponents have also employed hardball tactics. In North Las Vegas, a mass mailer paid for by real estate brokers warned that M.R.P. had “hatched a plan to make millions of dollars by foreclosing on homeowners who are current on their payments.”
In a letter to the Justice Department, Lt. Gov. Gavin Newsom of California complained that the opposition was violating antitrust laws and that one unnamed hedge fund had threatened an investor in the project.
But not all mortgage investors oppose the plan. Some have long argued that writing down homeowner debt makes sense in many cases. “This is not the first choice, but it’s rapidly becoming the only choice on how to fix this mess,” said William Frey, an investor advocate.
Mr. Frey said that the big banks were terrified that if eminent domain strategies became widespread, they would engulf not only primary mortgages but some $450 billion in second liens and home equity loans that are on the banks’ balance sheets. “It has nothing to do with morality or anything like that, it has to do with second liens.”
Many of the communities considering eminent domain were targeted by lenders who steered minority families eligible for conventional mortgages into loans with higher interest rates and ballooning payments. Robert and Patricia Castillo bought a three-bedroom, one-bathroom home in Richmond because their son, who is severely autistic, would anger landlords with his destructive impulses. They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.
They have watched as their daughter’s playmates on the block have, one by one, lost their homes. But they are reluctant to walk away from the house in part for the sake of their son.
“We’re in a bad situation,” Mr. Castillo, 44, said. “Not only me and my family, but the whole of Richmond.”
Source:
Blow up the deficit!
As most working Americans could tell you, the economy is still not doing well.
Right now, political pressure to fix this tends to focus on the Federal Reserve. When the Fed hikes interest...
As most working Americans could tell you, the economy is still not doing well.
Right now, political pressure to fix this tends to focus on the Federal Reserve. When the Fed hikes interest rates to curb inflation, it also risks squashing job growth. So activists like the Fed Up campaign are pushing Fed officials to lay off their recent interest rate increases. And a bevy of economists just released a letter urging the Fed to target inflation higher than 2 percent.
Read the full article here.
2 months ago
2 months ago