* Second request extends waiting period under HSR Act * Says
will continue to cooperate with U.S. DOJ * Co’s stockholders
approve proposed takeover by Unilever
US President Barack Obama signs into law a tax compromise agreed with the Republicans, averting a rise in income tax for millions of Americans.
In the fall of 2010, in one of the largest scandals to ever hit the American court system, information gathered from lawsuits across the country revealed that tens of thousands of foreclosure filings were likely fraudulent — if not outright criminal. These revelations sparked a nation-wide investigation by all 50 state attorneys general to assess not only the extent of the scandal and its potential impacts but also potential legal and policy responses to such behavior. That investigation is nearing its close. The state attorneys general will have to consider what steps to take in light of this scandal. Some of the weapons in the law enforcement arsenal are consumer protection laws. Once we know all that there is to know about the scandal, the state attorneys general should wield consumer protection laws to not only rein in that scandal, but also make progress on resolving the entire foreclosure crisis. This can be accomplished by using consumer protection lawsuits to apply pressure on banks to engage in mortgage principal reductions. The robo-sign scandal gives them an opening, and the leverage, to do so.
One of the important consumer protection statutes at the disposal of the state attorneys general includes each state’s Unfair and Deceptive Acts and Practices (UDAP) laws. All fifty states and the District of Columbia have some statutory ban on unfair and/or deceptive practices in trade or commerce. Many of these UDAP laws were adopted in the 1970s and early 1980s as states sought new tools to protect consumers from abusive business practices. These laws are modeled on the Federal Trade Commission Act (FTCA), which Congress passed in 1914 and makes unlawful “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” One of the limitations of the FTCA is that it is typically only enforced by the U.S. Federal Trade Commission. Unlike the FTCA, however, many state UDAP statutes grant both consumers and state attorneys general the standing to bring actions alleging UDAP violations.
UDAP laws serve a critical consumer protection function by filling in gaps in the law where other, more targeted statutes might not cover all practices that have a harmful impact on consumers. Since their inception, UDAP laws have been used to stop abusive practices in such areas as used car sales, telemarketing and even the sale of tobacco products. They have also been used to combat abusive foreclosure practices, as more fully described in this briefing paper on the subject. Once a violation of a UDAP law is found, state law enforcement officials can seek civil penalties, actual and punitive damages, and injunctions against offending parties.
In its November 2010 report, the TARP Congressional Oversight Panel described the range of practices revealed in the so-called “robo-sign scandal.” The false affidavits, reckless claims and improper notarizations all violate the essence of most state UDAP laws; accordingly, the remedies available under such laws may be wielded by state attorneys general to halt abusive foreclosure practices throughout the nation. In addition, the actual damages to borrowers wrongfully foreclosed upon would seem quite substantial, especially if they lost equity in their home or were rendered homeless as a result of a faulty foreclosure.
Given the high stakes at risk when deceptive practices are utilized in the foreclosure process, the prospect of substantial civil penalties and punitive damages, as well as injunctions preventing foreclosures from going ahead when tainted by robo-sign practices, is considerable. At the end of the day, however, the prospect of a resolution to such claims that minimizes the threat of stiff penalties or sweeping injunctions barring foreclosures from taking place should be enough to get lenders and servicers to the negotiating table to bring about solutions to the robo-sign scandal that are more acceptable to borrowers, lenders, servicers and investors alike.
The best solution to the foreclosure crisis is mortgage principal reduction: i.e., bringing outstanding debt in line with home values. This both reduces the monthly payments borrowers must make and strengthens incentives to continue to make those payments by restoring the prospect of borrower equity in the home. The threat of significant penalties and injunctions through state UDAP laws for the abuses evident in the robo-sign scandal may be just the type of leverage needed to convince interested parties that such principal reductions are a more palatable resolution to UDAP enforcement actions than allowing such cases to drag out in the courts, where litigants may obtain more costly awards and more burdensome injunctions.
Such principal write-downs would not be unprecedented in the UDAP enforcement context. In litigation filed by Massachusetts Attorney General Martha Coakley against Fremont Bank, and in the lawsuit Bank of America settled by paying $8.4 billion to resolve claims of predatory lending by its subsidiary, Countrywide, those banks faced UDAP and other claims, and ultimately resolved those cases in ways that promoted sustainable mortgage relief, including principal reductions.
Getting banks to the settlement table through the pursuit of UDAP actions for robo-sign abuses could be a primary goal of UDAP actions in the wake of the robo-sign scandal. Should lenders and servicers wish to defend those actions on the merits, and risk judicial intervention that might translate into tens of thousands of dollars in penalties and punitive damages in each case, such would be their right. At the same time, a sensible response to such actions by the institutions caught up in the robo-sign scandal would be to consider more robust foreclosure mitigation strategies, including meaningful principal write-downs. State attorneys general should not hesitate to pursue UDAP remedies for robo-sign abuses. At the same time, they should be willing to discuss resolution of UDAP cases in ways that can promote mortgage principal reductions for those borrowers who might benefit from such relief.
It is pretty audacious for me to claim that any given report is the most important one to be issued in the next two years given that I obviously have no idea what else is going to be published. I am feeling fairly confident about this one, though. It’s not because the facts assembled are so groundbreaking, or the research goes deep to find things no one else could have found. It is because this report is a clear roadmap to the economic and political path the Obama White House should be taking. The report, Big Banks Bonus Bonanza, was issued by SEIU, National People’s Action, the PICO National Network, the Northwest Federation of Community Organizations, and the Alliance of Californians for Community Empowerment. It makes the case strongly for an economic play that would give the country a far bigger economic boost than anything Obama is going to be able to get out of Congress in the next two years, and a political master stroke that would completely shift the political dynamics in the country.
I wrote about the broad economic strategy of forcing the banks to write down mortgages on Tuesday, but this report does a great job of laying out the numbers in stark detail. Bank robber Wee Willie Sutton famously said that the reason he robbed banks was because that was where the money was, and if we are looking to get our economy moving again, we should be looking to get the money to do it where the money is. Right now, more than ever, the Big Banks are where the money is concentrated. The most important fact by far in Big Banks Bonus Bonanza is this one: Right now, 11,000,000 American homeowners owe $766 billion more on their mortgages than their homes are worth, but if the banks were to write down those mortgage principals to market value and refinance them into 30-year, fixed-rate loans, you would get $73 billion pumped directly back into the economy — every year for the next 30 years.
Now unlike extending tax cuts for the rich or reducing the estate tax, which tends to be saved and invested in long term bonds, this money would go directly into stimulating the economy and creating jobs. Think about who those 11,000,000 underwater homeowners are: They are almost entirely middle- and working-class families who have spent the last couple of years sweating bullets to save their main life investment after its value plummeted by 20 percent, 30 percent, or more. They haven’t been spending money on new products, they haven’t been taking any vacation trips with their families, if they own a little mom-and-pop business they sure haven’t been taking any risks to expand it: They have just been desperately scrimping and saving and trying to hang on by the skin of their teeth. But if their mortgage is reduced to what their house is actually worth in today’s market, that means their overall financial situation is far more stabilized, and it means their monthly mortgage payment will go down as well.
With a stabilized debt and lower monthly mortgage payments, with the psychological weight of probable foreclosure off their shoulders, these middle-class homeowners (at least the ones with jobs, which is most of the folks who still have homes) are exactly the kind of people who will be likely to start spending a little money in this economy. Maybe they will finally buy the car they have been holding off on now for years. Maybe they will do a little home improvement now that they know they will be able to stay in their home. Maybe they will feel able to finally make the investment in their small business they have been wanting to make, and hire a few extra folks as a result. The economic multiplier effect of this $73 billion would be as good as any money injected into the economy right now.
You want to know what the second most important fact in this report is? The $73 billion it would cost to write down those mortgages would be only half what the top six banks alone are getting ready to write in bonuses and compensation for 2010. If forced to write down these mortgages, the banks will scream bloody murder, even claiming it would endanger them and the entire economy. But all they have to do is cut their bonus and compensation packages, the vast majority of which go to top executives and traders, by 50 percent. Given all the cash these banks are sitting on, all the profits made and bonuses distributed in recent years, I have no doubt they can afford the hit. The ironic thing is that if they wrote down these mortgages, they would be getting monthly mortgage checks from all these homeowners, plus avoid the costs of all those foreclosure proceedings, but they don’t want to write down the property because of their own phony accounting that claims the properties are worth far more than they actually are.
So here’s the other little nugget the report alludes to: If you injected $73 billion into the economy through these write downs, the multiplier effects I was referencing earlier — homeowners being able to free up cash to buy things and invest in small businesses and do home improvements — would mean 1.8 million new jobs. That is a lot of jobs, folks: enough to drop the unemployment rate from the almost 10 percent it has been sitting at for a very long time down to the mid 8s. And it would finally begin to stabilize the housing market, which would do a lot for the economy all by itself.
All of these good economic tidings would be great for the president politically of course, but what would matter more than anything is that him taking strong action to take on the banks on behalf of economically pressed homeowners would do immeasurable good to his political standing in general. He wouldn’t be going to congressional Republicans hat in hand, begging them to do the right thing on some piece of legislation that would never get passed. He wouldn’t be having to choose what compromise to make. He could show both the Democratic base and middle-class swing voters that he was taking a strong stand on their behalf against a very powerful interest. Working alongside the state Attorneys General and tens of thousands of community activists working on this issue, he could order every agency in government — Treasury, DOJ, Fannie, Freddie, HUD, FHA, etc. — to exert maximum pressure on the Big Banks to write down these loans. That kind of strong decisive leadership would do wonders on his behalf.
Obama showing strength and leadership on this issue could help turn both the nation’s economy and the president’s political fortunes around. For his sake, and the country’s, my biggest Christmas wish this year is that he takes this fight on.
Americans spoke clearly on November 2nd: Congress must get serious about reducing the deficit and become better stewards of their tax dollars. But after endless talk over the last two years about fiscal responsibility, an exploding deficit, and our crushing debt to China, the House voted on a bill that will balloon the deficit by another $858 billion dollars.
Even though this package included several programs I proudly support — an extension of unemployment insurance, and increases in the Earned Income Tax Credit, the Child Tax Credit, and renewable energy tax credits — I could not justify mortgaging our children’s futures to provide a Christmas bonanza to the privileged few.
I refuse to support increasing the deficit by at least $81 billion to provide a tax break to the wealthiest persons in this country. I refuse to support a bill that would grow the deficit by $23 billion to provide an average tax break of more than $1.5 million to only 6,600 families a year. And I unequivocally refuse to threaten the long-term viability of social security with a back-door first step at dismantling of the entire social security system.
Last week, many of my colleagues and I voted to give every American a tax cut by making the middle-class tax cuts permanent for the millions of families, consumers and small business owners who drive our economy. But last night’s revised tax deal — with a deficit-busting, gift-wrapped bailout for millionaires and billionaires — was unconscionable.
Two years ago, I founded the Populist Caucus as a way to advocate for fiscally responsible policies that will help middle-class Iowans and working families across the country. And last night, I voted against this bad deal because we cannot keep kicking the can down the road when it comes to difficult decisions about the deficit, especially with a package that threatens the financial stability of our Nation.
Merry Christmas, billionaires. Check under the tree — you got your holiday wish.
Watch my remarks on the floor last night:
In 2008, at a time of financial peril, the world united to restructure the global banking system.
In 2009, as trade collapsed and unemployment rose dramatically, the world came together for the first time in the G-20 to prevent a great recession from spiraling into a great depression.
Now, facing a low-growth austerity decade with no national exits from long-term unemployment and diminished living standards, the world needs to come together in the first half of 2011 to agree on a financial and economic strategy for prosperity far bolder than the Marshall Plan of the 1940’s.
Time is running out on the West, because both Europe and America have yet to digest the fact that all the individual crises of the last few years — from the sub-prime crisis and the collapse of Lehman Brothers to Greek austerity and Ireland’s near-bankruptcy — are symptoms of a deeper problem: a world undergoing a far-reaching, irreversible, and, indeed, unprecedented restructuring of economic power.
Of course, we all know of Asia’s rise, and that China exports more than America and will soon manufacture and invest more as well. But we have not fully come to terms with the sweep of history. Western economic dominance — 10 percent of the world’s population producing a majority of the world’s exports and investment — is finished, never to return. After two centuries in which Europe and America monopolized global economic activity, the West is now being out-produced, out-manufactured, out-traded, and out-invested by the rest of the world.
Otto von Bismarck once described the patterns of world history. Transformations do not happen with “the even speed of a railway train,” he said. Once in motion they occur “with irresistible force.” If the West fails to understand that the real issue today is responding to the rise of Asian economic power by renewing its own, then it faces the grim prospect of steady decline, punctuated by brief moments of recovery — until the next financial crisis. Throughout it all, millions will be without jobs.
So why, despite this new reality, am I convinced that the twenty-first century can be one in which the United States, by reinventing the American dream for a new generation, remains a magnet for the greatest companies, and in which Europe can be home to a high-employment economy?
Because, fortunately for all of us, soon one billion and more new Asian producers will — first in their tens of millions, then in their hundreds of millions — become new middle-class consumers, too.
The growth of an Asian consumer revolution offers America a road to new greatness. Today Chinese consumer spending is just 3 percent of world economic activity, in contrast to Europe and America’s 36 percent share. Those two figures illustrate why the world economy is currently so unbalanced.
By 2020 or so, Asia and the emerging-market countries will bring double America’s consumer power to the world economy. Already, companies like GE, Intel, Proctor & Gamble, and Dow Jones have announced that the majority of their growth will come from Asia. Already, many Korean, Indian, and Asian multinationals have majority foreign (including US) shareholdings. This new driver of world economic growth opens up an opportunity for America to exploit its great innovative and entrepreneurial energy to create new, high-skilled jobs for US workers.
Asian consumer growth — and a rebalancing of the global economy — can be the exit strategy from our economic crisis. But the West will benefit only if it takes the right long-term decisions on the biggest economic questions – what to do about deficits, financial institutions, trade wars, and global cooperation?
First, deficit reduction must occur in a way that expands investment in science, technology, innovation, and education. Both public and private investment will be needed in order to deliver the best science and education in the world.
Second, new markets cannot be tapped if the West succumbs to protectionism. Banning cross-border takeovers, restricting trade, and living with currency wars will hurt the US more than any other country. In the last century, America’s own domestic market was so big and dominant that it need not worry much about trade rules. But, with Asia poised to be the biggest consumer market in history, US exporters – the greatest potential beneficiaries — will need open trade more than ever. America must become the champion of a new global trade deal.
A commitment to public investment and open trade are, however, necessary but insufficient conditions for sustained prosperity. All the global opportunities of the new decade could fade if countries withdraw into their own national shells.
In another age, Winston Churchill warned a world facing the gravest of challenges not to be resolved to be irresolute, adamant for drift, solid for fluidity, and all powerful for impotence. I believe that the world today does have leaders of Churchill’s stature. If they work together, drift need not happen.
America must now lead and ask the world to agree on a modern Marshall Plan that coordinates trade and macroeconomic policies to boost global growth. America should work with the new chair of the G-20, French President Nicolas Sarkozy, to revive private lending by creating global certainty about the standards and rules expected of banks.
Agreement is also needed that each country’s multi-year deficit-reduction plan will be accompanied by acceleration of consumer spending in the East and of targeted investment in education and innovation in the West. Such a plan must encourage China and Asia to do what is in their and the world’s interest: reducing poverty and expanding the middle class. And
the West must speed up structural reforms to become more competitive while ensuring that fiscal consolidation does not destroy growth.
Through joint action, the G-20 economies can see not just a marginal change, but growth above 5 percent by 2014. Instead of a world deadlocked over currencies and trade and retreating into the illusory shelter of protectionism, we could see $3 trillion of growth converted into 25 million to 30 million new jobs, and 40 million or more people freed from poverty.
Gordon Brown is a former prime minister of the United Kingdom.
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