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Below the Fold: Feds Pipe Up and Greedy Governors Screw Homeowners

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A wrap-up of stories and posts you might have missed or overlooked -- the ones below the fold.

There's been more than the usual static from the Federal Reserve Banks this month. Late last week, James Bullard, President of the St. Louis Federal Reserve called for splitting up the TBTF banks.

During the same week that JPMorgan announced a $2 Billion loser of a bet, Bullard said, "We do not need these companies to be as big as they are. We should say we want smaller institutions so that they can safely fail if they need to fail."

This isn't the first time we've heard from one of the Federal Reserves on the topic of breaking up the big banks this month. Dallas Fed Chief Richard Fisher, who Business Insider refers to as "a staunch hawk on monetary policy" published a terrific 39-page presentation a few weeks ago titled, "Choosing the Road to Prosperity," with cool charts, nifty illustrations, and is surprisingly simply worded and easy to understand. The slide show makes a cogent argument against TBTF.

Page 36 reads:

Change the "do-or-die" decisionmaking paradigm

Steer the evolution of the financial structure so that theTreasury Secretary is unlikely to be faced with an edge-of-the- cliff decision to provide taxpayer assistance or be held responsible for a great depression.

- Neither the Treasury Secretary nor Federal Reserve Chairman is trained or equipped for making "fate-of-the-world" decisions.

Nobody is, really.

You can see the full presentation here.

The Boston Fed also recently published a paper titled "Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis" that offers enough varied opinions in its 62 pages for anyone to find something they like - no matter what you believe caused the mortgage crisis.

Here's the Abstract from page 1:

This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

The problem with reports like this is that they generally serve only one of two purposes. Anti-foreclosure activists will use it to prove that the crisis had absolutely nothing to do with irresponsible behavior on the part of homeowners and the other side will argue that deadbeat homeowners who want free houses caused this problem and are the reason the economy hasn't recovered.

Meanwhile, underwater homeowners and foreclosure victims continue to get screwed - this time by their own state governments. Remember that $25 Billion settlement with the big banks that was supposed to help millions of homeowners? Remember how excited President Obama was when he called the deal a "landmark settlement" and said that it would "begin to turn the page on an era of recklessness that has left so much damage in its wake?"

As it turns out, the $2.5 Billion that was initially doled out among the states to help homeowners isn't going to help homeowners after all. States are going to use some or all of the money to cover budget holes in state budgets and general funds.

You can see how your state is doing with the help of this interactive map.

Propublica reports:

What stands out is that even states slammed by the foreclosure crisis are diverting much or all of their money to the general fund. In California, among the hardest hit states, the governor has proposed using all the money to plug his state's huge budget gap. And Arizona, also among the worst hit, has diverted about half of its funds to general use. Four other states where a high rate of homeowners faced foreclosure during the crisis are spending little if any of their settlement funds on homeowner services: Georgia, South Carolina, Wisconsin, and Maine.

Protesters in California staged a rally to protest the hundreds of millions of dollars being diverted from struggling homeowners and in Arizona, another state hit hardest by foreclosure, Arizona Rep. Raul Grijalva (D) said,

Working families were given the short end of the stick, and now Gov. Brewer and the Legislature won't even let them have that. This decision takes away the one chance Arizonans had to get some help navigating the banking bureaucracy that greased the skids on millions of foreclosures. It's a clear statement of principles, that's for sure.

In Georgia, the state with fifth highest foreclosure rate, spokesman Brian Robinson said:

The state constitution requires that the money go into the state treasury. The governor would prefer that it go from there to the rainy day fund. The rainy day fund is state savings to cover emergencies and hard times.

The irony of Georgia putting money into a rainy day fund that was intended for underwater homeowners would be funny if it weren't for the tragedy of it all.

It is infinitely flabbergasting that our elected officials seem to have no idea, or simply don't care, what is happening under their own up-turned noses. Home Preservation Network has hundreds of stories from homeowners, told in their own words, that any of these self-serving clowns could read for themselves.

I recently received an email from a homeowner activist that I have immense admiration and respect for. This person has worked tirelessly for nearly eight years (the equivalent of two official terms in elected office) defending her own home as well as helping to defend the homes of others facing, in most cases illegal and unfair foreclosures. It would be nice if a small handful of our actual elected officials could show a shred of the compassion and humanity I know this woman has.

Here is a part of the email I received:

... On more than one occasion I have been 911, the domestic violence hotline, the substance abuse hotline and/or the suicide hotline for homeowners at the end of their ropes. I have been the voice on the other end of the phone for a terrified wife when her husband has locked everyone out of their house full of guns and ammo and refused to let anyone in. I have been the ear for a man contemplating ending his own life that same night but decided for whatever reason to call this house instead. I have been confidant to lawyers who feel the enormous weight of their job crushing down on them leaving them to feel hopeless. I have laughed with these people, I have cried with these people, I have run to the emergency room in the middle of the night when someone is on death's door because their heart is giving out from the stress of litigation, I have provided hope to these people. All that I described above is the job - what has become my job.

I take what I do seriously and personally. I have a high moral and ethical threshold which is not a personal choice, it's just who I am. And at the end of any given day, I don't get to leave my job at some office because I live the same story as most of these folks in my own personal life. Its 24/7/365 for me.

At the end of any given day my actions or inaction have tangible consequences on actual living, breathing human beings and their families. No disrespect to anyone but I don't have the luxury of being buffered by seemingly plausible excuses' I'm on a call with a crying homeowner begging me to do something, anything, to help them...