As every child learns in their social studies class, there are three branches of the US government, the executive, legislative, and the judiciary. But there is another quasi-government agency that operates behind a veil of secrecy and yet wields enormous influence over the US economy (and thus indirectly the world economy) and deserves to be considered as a fourth branch. This is the Federal Reserve system of the US, commonly referred to as the Fed.
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Recall all the speculation in housing that resulted in the crash that is currently causing large numbers of people to be foreclosed upon? That was due to mortgages being bundled together into huge slabs, sliced into small packages that were called SIVs (Structured or Special Investment Vehicles) and then traded like stock. (I did a series of posts explaining this debacle back in 2008 and the specific ones that dealt with this topic are #7 and #8.)

The result of this practice was that ownership of mortgages was diversified and it became unclear as to who the actual owner of any given property was, which enabled them to deny any responsibility for the upkeep of abandoned property as required by local ordinances. The blight on neighborhoods caused by this evasiveness was so bad that a Cleveland housing court judge got fed up and started levying penalties on whichever entity he could hold responsible.

But when it comes to selling off properties, the banks are not shy of claiming ownership. It turns out that banks, the very organizations that were instrumental in the crash, are now foreclosing on, and selling off, people’s property without proper documentation showing that they own the property. They decided they could just manufacture documents to show ownership.

Last fall, the banking industry’s foreclosure machine came under intense scrutiny with revelations that low-level employees called “robo signers” powered through hundreds of foreclosure affidavits a day without verifying a single sentence. At the time, analysts warned that the banks’ allegedly fraudulent document procedures could imperil their ability to prove that they owned the mortgages.

The Massachusetts State Supreme Court on Friday upheld a housing court judge’s ruling in that state that ordered a halt to two foreclosures unless the banks can properly documented their ownership. The history of that case can be read here.

To you and me, this would seem a perfectly reasonable requirement: you should not be able to sell something that you cannot prove that you own. But we live in a country in which banks have got used to thinking that normal rules don’t apply to them and these perfectly reasonable court rulings are being greeted with shock by the banking sector.

If this ruling is repeated in other states I wonder how long will it be before the banks demand of the Congressional and presidential clients that they pass special measures exempting them from the tedious business of carefully maintaining records that prove ownership?

Hans Rosling has a knack for making statistics come alive. (via Pharyngula)

In The Road to Wigan Pier, George Orwell argues that it would actually not be a good idea for the poor to budget carefully to eat healthily because if they did and actually started to look healthy, the government would think they were getting too much aid and would reduce it. He writes:
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In The Road to Wigan Pier, George Orwell writes in chapter 6 about how government and social service agencies calculate carefully how much money should be given as public assistance to be sufficient, with careful budgeting, to purchase enough wholesome food to meet their nutritional needs. However, the actual choices of the poor, with its outlays on alcohol, tobacco and sweets, would appall social workers. These better-off people would scold the miners and their families for wasting their money on what should be considered luxuries, when their basic nutritional needs were not being taken care of first.
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Because people have such negative prejudices about the poor and unemployed as being lazy good-for-nothings who are trying to live off the fruits of other people’s hard work, they pay unusually close attention to prevent cheating and fraud by the poor. This explains why some people get more worked up by stories of petty fraud by poor people than by huge corporations and rich people carrying out massive swindles that have a far greater negative impact on almost all of us. People will rail about welfare cheats or workers in the cash economy not reporting all their incomes and thus paying less tax, while ignoring the tax sheltering schemes of the rich.
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My ideas about what being poor and unemployed must be like were shaped by two books by George Orwell that I read at an impressionable age in my late teens that eloquently recounted his own direct experiences of that condition. One is Down and Out in Paris and London (1933), a semi-autobiographical account of a period in his life when he was really poor and at times homeless. The other is The Road to Wigan Pier (1937), where he recounts his experiences after he was sent on assignment to the north of England for an extended period, and lived in the homes of coal mining families at a time when there was widespread unemployment.
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The current high levels of unemployment in the US, hovering around 10% officially and likely around 20% really, seems to be on its way to becoming perceived as ‘structural’, an euphemism among policymakers for ‘permanent’ or close to it. Along with it, the poverty rate has risen to the point where one in seven people are now below the poverty line.

Unemployed people are dangerous to the oligarchy since they are the ones who are most likely to demand changes in the way things are done. What governments try to do to pacify people is make the unemployed feel as if their situation is due to their own fault, that they have no one to blame for their predicament but themselves. One way is to cook the unemployment numbers so as to make the figures seem lower than they really are. Low unemployment rates makes the unemployed feel that they are alone and isolated, and thus make them less likely to organize and protest.
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Dan Ariely of Duke Business School is quite ingenious when it comes to devising experiments to determine how people think and what drives their decision making when it comes to economic matters. In his entertaining book Predictably Irrational, he challenged the traditional notion of economists that people are rational actors on the economic stage, making decisions in their own best interest. Instead he argues that people are irrational (i.e., not really thinking things through to get the best result for themselves) but irrational in a predictable way.
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