The Seattle Times: Sound Economy with Jon Talton

Less than meets the eye in mortgage settlement

Thu, 09 Feb 2012 13:45:13 PST

Five big banks have agreed to a $25 billion settlement over mortgage abuses. There's much reason to be suspicious about the deal. About $20 billion is supposed to be "spent" by Bank of America, JPMorgan Chase, Citigroup, Ally Financial and Wells Fargo to help underwater homeowners refinance and give relief to others in danger of foreclosure. What this really means is open to question. Only about $5 billion in bank money is really involved, a slap on the wrist. It's unclear whether second liens will be addressed.

The best journalism on this issue has been committed by the blog Naked Capitalism. Breaking down the settlement figure, it points out that "roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1,500 to $2,000 per borrower foreclosed on between September 2008 and December 2011."

In addition,

We've now set a price for forgeries and fabricating documents. It's $2,000 per loan. This is a rounding error compared to the chain of title problems these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180,000, so the settlement represents about 1 percent of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It's a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

Boiling point at the port

Thu, 09 Feb 2012 11:53:39 PST

I cover the waterfront, but today I was out at the Teamsters hall in Tukwila giving a speech to a group of retirees. Meanwhile, the Teamsters are supporting an effort by non-union drayage (short-haul) truckers to shut down the Port of Seattle. These drivers haul containers from the port to rail terminals. They make low wages, complain of poor working conditions and are responsible for such things as safety violations in their trucks. They're targeting discretionary cargo that must move on specific days to make rail schedules.

The Seattle Times' Mike Lindblom reported on the issue last week. Today, cargo is barely moving. It's a compelling human story. I listened to a Teamsters organizer talk about the plight of these drivers, many of whom are immigrants, trapped in low-wage jobs. Many walked off the job in protest and the trucking companies allegedly withheld their paychecks. The Teamsters and the port have been at odds over this for years, port officials saying they have limited ability to micromanage the private drayage companies on wages. Of course, the Teamsters would love to organize these drivers.

But it's also a regional competitiveness story. Without the ability to move cargo quickly from dockside to rail container terminals, Seattle is sunk (Tacoma has dockside rail access and is less dependent on drayage truckers.

Chrysler, Dirty Harry and the bailout

Wed, 08 Feb 2012 07:04:52 PST

Clint Eastwood's powerful and moving "Halftime in America" Super Bowl ad for Chrysler has been denounced by some Republican operatives as partisan shilling for President Obama. Eastwood and Chrysler deny it. What's undeniable is that Mr. Obama, despite tremendous political pressure to do nothing, used federal money to keep Chrysler and General Motors out of bankruptcy. (Help for Chrysler began in the waining days of the Bush administration). Challenger Mitt Romney opposed the bailout, an irony coming from this son of the man who rescued American Motors.

Playing counterfactual history is always risky, but what if Washington had done nothing? Ford didn't need federal help. The Japanese transplant factories were also safe. Still, it's unlikely that GM and Chrysler could have gone through Chapter 11 proceedings like an airline and come out fine. Union-haters would have enjoyed seeing the United Auto Workers decertified and pensions eliminated (and this helps the middle class...how?).

But the auto industry is much more than two or three companies. Had GM and Chrysler shut down, an entire economic ecosystem of suppliers would have been destroyed and the damage might well have taken Ford down, too. It would have devastated a Midwest already reeling from bad trade deals and offshoring of jobs. Millions of jobs might have been at risk.

Inside the jobs report

Tue, 07 Feb 2012 12:59:50 PST

Friday's unemployment report, with 243,000 jobs added in January, shows the economy healing slowly. With growth in gross domestic product more than 2 percent in the last part of 2011, the huge demand hole of the Great Recession is slowly being filled. If this continues for another three or four months, it might indicate a self-sustaining trend of recovery.

The downsides: The percentage of the working-age population that has jobs is only 58.5 percent. That's better than the 58.2 percent six months ago but strikingly low vs. the 63.3 percent before the recession. The broadest measure of unemployment is still an unacceptable 15.1 percent. Local government woes continue to drag on the economy. Pimco's Mohamed A. El-Erian argues that long-term unemployment and joblessness among the young continue to be severe, and under-appreciated, problems.

Most importantly, at this rate of job creation it will take until at least 2019 to regain anything near full employment. Considering how recessions hit every seven to nine years, we might face another economic shock that further sets back job creation. Even without that, hasty "austerity" to fight a perceived deficit crisis will be damaging (ask the U.K.).

Vote: Should corporations pay more taxes?

Tue, 07 Feb 2012 13:00:27 PST

Corporate profits are at records and major companies are sitting on enormous piles of cash. Corporate tax rates are at their lowest level since 1972. According to the Wall Street Journal, "total corporate federal taxes paid fell to 12.1 percent of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office." From 1987 to 2008, the average rate was 25.6 percent.

One big reason is the "bonus depreciation" temporary tax break, supported by both parties. Another, less discussed, is the many ways the biggest companies deploy massive resources to use perfectly legal tax dodges. This might not matter so much if the country didn't face a $10 trillion deficit, shrinking funding for education and research, and was stuck with a 1970s infrastructure, and that falling apart. So, today's poll:

Mea Culpa Department: In Sunday's column on manufacturing, I discussed Henry Ford's influence on raising wages, also noting he was a crank and no friend of unions. I neglected to note he was also an anti-semite, especially through his writings in the Dearborn Independent, a newspaper he owned. Later, he tried to do a Ron Paul and claim he didn't know of the vile slanders published in his name. It won't wash and stains his legacy. Anti-semitism is a special evil that culminated in the Holocaust. No wonder Hitler admired Henry Ford. I regret my omission.

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