Crossposted on California Political Review
Two weeks ago I published in Big Government and on the Pacific Research Institute’s CalWatchdog website: “New California Budget Crisis May Torpedo November Tax Increase Initiative”, a report illuminating how State Controller John Chaing had shocked California’s spendthrift politicians by announcing the State would be out of cash beginning March 8th and would miss up to $5.4 billion in vendor payments through May 1st. The timing of the Chaing announcement was disastrous for state politicians because it destroyed any hope that Governor Jerry Brown’s $6 billion tax increase initiative on the ballot in November would pass.
Now it appears that Brown successfully lobbied for California to get $6 billion in cash and siphon off a total of $18 billion from the $25 billion national mortgage settlement with Bank of America, Wells Fargo, JP Morgan, Citigroup, and Ally Financial, who were accused of fraud in the handling of foreclosures and loan modifications. But as Franklin Center Fellow, Steven Greenhut asks in a deliciously sarcastic article: “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?” Greenhut states the “real source” of money to initially fund the national mortgage settlement money to bail-out the “Left Coast” is “Federal Reserve/Government coffers.”
Kamala Harris, California’s Attorney General, claimed the settlement may help 250,000 California desperate homeowners avoid foreclosure by requiring the banks to cut mortgage debt amounts. But Greenhut points out that powerful interest groups, like the $250 billion California Public Employees’ Retirement System, which have nothing to do with individual mortgage holders, have already carved off a piece of the national mortgage settlement cash to bail-out some of their losses in real estate speculation supposedly due to bad investment advice. A seventeen month investigation by the Los Angeles Times recently found some of that bad advice appears to have come from the former Chief Executive Officer of California’s public pension fund, Federico Buenrostro Jr. It seems he and other pension Board buddies are accused of pressuring subordinates to invest billions of dollars of with politically connected firms and strong arming staff to pay $4 million in fees to Alfred J.R. Villalobos, who later hired Buenrostro.
Most Americans still snarl about crony capitalism when they think about how multinational banks were bailed out a $1 trillion slurp of taxpayer’s hard earned cash, then funded pay back the money by hiking customer fees and cutting off borrowers. But with the President and Congress solemnly telling Americans healthy banks were key to our future, most of us just gritted our teeth and came together to bail-out of the banks, insurance companies, and other financial firms.
With only 13% of the GDP of the United States, California is getting 72% of the settlement proceeds. Undoubtedly, national banks will pass 100% of mortgage settlement costs onto customers their nationally customers in the form of higher fees. Consequently, 87% fees increased nationally will go to bail-out California’s insolvent budget. When the good folks of the other 49 states learn that this huge chunk of what is advertised as helping Americans avoid foreclosure is actually going to bail-out California’s “Left Coast” politicians, I believe they will come together again. But this time they will be showing their fangs and carrying pitch forks!
Most Californians refer to Jerry Brown as left wing, but I think he just proved he is more left brained. Left brain thinkers excel in math, language studies and logic problems. Given that the five banks that just settled only control or own only 7.3% of all outstanding single-family mortgages, every time Brown wants to increase spending, he just needs to find some more banks and do another “settlement.” After all, with bank customers across the country destined to pay 87% of the increases in bank fees and California 72% of settlement proceeds, Governor is a mathematical genius or governors and their Legislatures in the other 49 states are really stupid!
(Chriss Street is a financial writer and speaker, and is author of the book, ”The Third Way.” Visit his blog.)