An update on the Rolling Jubilee: Occupy Wall Street reports that the show's over – with enough raised to abolish over $5,000,000 of debt! Keep the Jubilee rolling: click here to donate!

People shouldn’t have to go into debt for an education, because they need medical care, or to put food on the table during hard times. We shouldn’t have to pay endless interest to the 1% for basic necessities. Big banks and corporations walk away from their debts and leave taxpayers to pick up the tab. It’s time for a bailout of the people, by the people.

For every $1 donated, we are able to buy and abolish $20 worth of debt.

By Cora Currier, ProPublica, Sept. 26, 2012

Mortgage giant Freddie Mac did not keep homeowners trapped in high-interest loans in order to boost profits on billions of dollars' worth of complex financial bets it had made. That's the conclusion reached in a report released today by the inspector general that oversees the agency in charge of Freddie Mac.

Last January, ProPublica and NPR reported that Freddie had dramatically expanded its holdings of mortgage-backed securities that would profit if homeowners stayed in their existing high-interest-rate loans. At the same time, the company had taken steps that made it harder for homeowners to refinance at lower interest rates. Our report stated that there was no evidence of a coordinated attempt to bet against homeowners' ability to refinance. The inspector general's report concludes that there was none.

But the inspector general left a key stone unturned: It did not independently evaluate the firewall within Freddie Mac designed to keep Freddie's investment arm from profiting from insider information about the mortgage giant's plans to tighten or loosen homeowners' access to credit. Instead, the inspector general relied on the word of employees it interviewed and conducted no further investigation. It also reported that the agency that oversees Freddie has not tested the firewall's integrity.

Freddie Mac and its sister company Fannie Mae were bailed out by taxpayers after the financial crisis and are now controlled by the Federal Housing Finance Agency. Freddie and Fannie guarantee most of the mortgages in the U.S., and they have a mission to make home loans more affordable. But Freddie also has a massive investment portfolio and has to protect against losses. Sometimes, those two goals can conflict.  

Beginning in 2010, Freddie Mac expanded its portfolio of a particular kind of mortgage-backed security known as an "inverse floater." The company offered investors a relatively safe bond with a floating interest rate. It then kept on its books what is called an "inverse floater," which pays out the highest returns if borrowers stay in their mortgages. When interest rates dropped (as they did during that period), Freddie Mac stood to profit on its inverse floaters, because the rates being paid by the pool of borrowers were higher than the prevailing market rates. Inverse floaters lose that advantage the more that homeowners in the pool refinance at the lower rates. 

The report says that Freddie's investment wing increased its holdings in inverse floaters merely because investors were demanding the floating rate bonds linked to them — not because of any strategy to exploit homeowners trapped in high-interest-rate mortgages.

Freddie Mac has an  "information wall" designed to separate the employees running Freddie Mac's investment strategy from those designing and carrying out its policies that impact the mortgage market, such as programs aimed at helping people refinance or making it more difficult for them to do so. The inspector general's report says that it found "no evidence" that the wall had been breached.

Yet, the inspector general noted that FHFA has not conducted any independent testing of Freddie's information wall. And the inspector general limited its own investigation of the wall to interviewing Freddie executives and FHFA officials and reviewing policy documents. The inspector general "did not independently evaluate the efficacy of Freddie Mac's information wall policy," the report states.

The report emphasizes that there are indeed "tensions between policies aimed at homeowners refinancing and Freddie Mac's retained investments." But it says that such tensions are not unique to inverse floaters but are "inherent throughout [Freddie and Fannie's] various business lines."

At the end of 2011, Freddie held about $5 billion worth of inverse floaters, according to the report, or less than one percent of its $653 billion investment portfolio.

The report also notes that the company hedges to balance its interest-rate risk, meaning that it places many different bets so that no matter whether interest rates rise or fall, its investments will be close to "net flat" — stay roughly the same, recording neither large profits nor large losses. Freddie does not try to balance the risk of each individual investment, but rather hedges "on its portfolio as a whole."   The report explains:

In the context of inverse floaters, although Freddie Mac may on the one hand benefit from a trend of low interest rates and reduced prepayments by homeowners, on the other hand, Freddie Mac's other investments may equally suffer from such a trend. Thus, the end result, if perfectly hedged on interest rates, is that Freddie Mac's overall position will remain the same regardless of prepayments.  

The inspector general did not independently evaluate Freddie's hedging strategies. When ProPublica and NPR first reported on these deals, it was unclear what kind of hedging, if any, Freddie Mac had performed.

The company is also supposed to be reducing its investment portfolio as part of the terms of its government bailout. In a footnote, the inspector general's report mentions that Freddie Mac told the Securities and Exchange Commission that selling the floating rate securities was a way to reduce its balance sheet. But most Freddie and FHFA officials interviewed by the inspector general said that reducing its balance sheet was not the motivation for Freddie to create inverse floaters, even if that was the result.

Separately, the way Freddie structured the inverse floaters leaves Freddie with nearly all of the risk of the assets that no longer show up on its balance sheet. The reason: As the guarantor of the mortgages that back the securities, Freddie is already on the hook if the homeowner defaults. With inverse floaters, it also retains the risks that homeowners might refinance and that overall interest rates might rise. Indeed, independent analysts told ProPublica and NPR in January that Freddie may actually have increased its risk, because inverse floaters are illiquid and hard to sell.

In its written response to the inspector general's report, the FHFA did not address Freddie Mac's statements to the SEC. When contacted by ProPublica, an FHFA spokesperson declined to comment.

The report said that FHFA issued misleading statements to the public on when it ordered Freddie to stop creating inverse floaters. According to the report, in the spring of 2011, the FHFA began a review of Freddie Mac's mortgage securities operation, in large part to determine whether the company held too many complex and risky mortgage products, including inverse floaters.

But an executive at Freddie didn't suspend inverse floaters and certain other complex securities deals until January 6, and FHFA didn't explicitly order Freddie Mac to stop selling inverse floaters until January 30, 2012, after ProPublica's story was published. In fact, according to the report, that day marked "the first time that FHFA's senior leadership met to discuss the Agency's position with respect to inverse floaters."

By then, however, Freddie had long since stopped selling floating rate securities — not because of any order from FHFA but because the market for them dried up in spring 2011 when Federal Reserve chairman Ben Bernanke indicated that interest rates would remain low for at least another year.

That's not how FHFA described what happened after our story broke. In a statement released in response to ProPublica and NPR's reports, the agency said that staff met with Freddie in December 2011 and came to an agreement then to suspend inverse floater trades. The inspector general's report concludes that statement was misleading: "prior to January 2012, neither Freddie Mac nor FHFA made a decision to halt Freddie Mac's creation and investment in inverse floaters; the market for reciprocal floating rate bonds simply disappeared. Had the market reappeared and Freddie Mac found the economics were again profitable, [Freddie] would have been free to structure floating-rate and inverse floating-rate investments."

In a response to the report, the FHFA disputed the inspector general's reading of the public statement, saying that it did not claim "that there was a specific, well-articulated FHFA policy and agreement" in December. The agency also emphasized that it did not take a position on inverse floaters only in reaction to media reports. While acknowledging that "the key stakeholders" had met together for the first time on January 30th, the day ProPublica and NPR released their original stories, the FHFA emphasizes that it had been in communication with Freddie on inverse floaters over the previous year.

The inspector general's report was requested by Senator Robert Menendez, D-NJ, last January, after our story brought the issue to light.

Rolling Stone’s Matt Taibbi spoke to Democracy Now! on July 19, where he discussed the pattern of systemic corruption by 16 banks accused of rigging a key global interest rate used in contracts worth trillions of dollars.

The London Interbank Offered Rate, known as Libor, is the average interest rate at which banks can borrow from each other. Some analysts say it defines the cost of money. Barclays was recently fined $453 million for rigging Libor, and a number of other banks are under investigation. "Ordinary people actually suffered when Libor was manipulated downward, mainly because local governments, municipal governments tended to lose money," Taibbi says. "Even the tiniest manipulation downward, when you’re talking about a thing of this scale, would result in tens of trillions of dollars of losses. The banks weren’t doing this just to make themselves look healthier, they were also doing this just to make money. They were trading against this information in what essentially was the biggest kind of insider trading you could possibly imagine."

Full transcript available here.

A march against rising U.S. student loan debt now exceeding $1 trillion: To make the night more interesting, people put on makeup and assumed the roles of debt zombies, consumers forever enslaved to debt. Activist and performance artist Rev. Billy gave a speech linking student loan debt and the environment; and a die-in was also tried at the end.

Originally posted to ProPublica by Marian Wang: A few months after he buried his son, Francisco Reynoso began getting notices in the mail. Then the debt collectors came calling.

"They would say, 'We don't care what happened with your son, you have to pay us,'" recalled Reynoso, a gardener from Palmdale, Calif.

Reynoso's son, Freddy, had been the pride of his family and the first to go to college. In 2005, after Freddy was accepted to Boston's Berklee College of Music, his father co-signed on his hefty private student loans, making him fully liable should Freddy be unwilling or unable to repay them. It was no small decision for a man who made just over $21,000 in 2011, according to his tax returns.

"As a father, you'll do anything for your child,” Reynoso, an American citizen originally from Mexico, said through a translator.

Now, he's suffering a Kafkaesque ordeal in which he's hounded to repay loans that funded an education his son will never get to use — loans that he has little hope of ever paying off. While Reynoso's wife, Sylvia, is studying to be a beautician, his gardening is currently the sole source of income for the family, which includes his 18-year-old daughter Evelyn.

And the loans are maddeningly opaque. Despite the help of a lawyer, Reynoso has not been able to determine exactly how much he owes, or even what company holds his loans. Just as happened with home mortgages in the boom years before the 2008 financial crash, his son's student loans have been sold and resold, and at least one was likely bundled into a complex Wall Street security. But the trail of those transactions ends at a wall of corporate silence from companies that include two household names: banking giant UBS and Xerox, which owns the loan servicer handling the bulk of his loans. Left without answers is a bereaved father.

The risk of cosigning on Freddy's loans seemed to have been worth it when he graduated in May 2008 and began looking for a job in the music industry. He was on the way back from a job interview on the evening of Sept. 4 when he lost control of his car and it rolled over. Freddy's family learned of his death the next morning.

The grief was relentless; the debt collectors, ruthless. By law, debt collectors must go through a debtor's attorney if one has been hired, but even after Reynoso hired an attorney, he said they continued to call him every day, several times a day, for about a year and a half: "I would tell them to call the lawyer. And they would still say, 'The lawyer doesn't owe us. You're the one who owes us. You're the one who has to pay us.'"

Meanwhile, Reynoso was still reeling: "I was crying for him every day,” he said.

The question of to whom Reynoso's debts are actually owed — and who has the authority to forgive them — is a mystery that thus far neither Reynoso nor his lawyer has been able to solve.

One of Freddy's student loans was cancelled after his death without a problem: his federal loan. That's because the government cancels student loans if a student dies.

But the bulk of Freddy's loans were private student loans, which typically offer less favorable interest rates and fewer consumer protections. Only a few private student lenders offer debt discharges in the event of the borrower's death, though public outcry over specific cases has swayed lenders to grant occasional death discharges.

But for the Reynosos, just figuring out whom to appeal to has been an exercise in futility. Working with a law firm, Francisco Reynoso sent copies of Freddy's death certificate to any company that sent paperwork about the loans. He remembers being told by at least one company that they'd call him to work out a solution. But no one ever did, he said, and the bills kept coming — each time larger than the last with more interest, more late fees.

"We sent out death certificates to all of them," said Dolores Orozco-Serrano, a legal administrator with Borowitz & Clark, the bankruptcy law firm handling the Reynosos' case. Only the federal loan was discharged. "Everyone else was not cooperative at all."

Freddy Reynoso's private loans were originated by two companies — Bank of America and Education Finance Partners. Neither company still holds onto them. ProPublica tried to find out who did.

First, the Bank of America loan: Almost as soon as Bank of America originated it, the loan was sold to a Boston-based company called First Marblehead, once one of the biggest securitizers of student loans. But nowhere in the paperwork sent to the Reynosos and reviewed by ProPublica does the name First Marblehead appear. Instead, the Reynosos have received paperwork emblazoned with the logo of National Collegiate Trust. That's the name First Marblehead gave to bundles of loans that it turned into Wall Street securities and sold to investors. Was Freddy's loan bundled into a security? And if so, who owns it now? First Marblehead has not returned repeated requests for comment.

Freddy Reynoso's other loans followed an even more complicated path — and one tainted by scandal. Education Finance Partners, the private student loan company that originated the largest portion of Freddy's student debts, reached a $2.5 million settlement agreement with the New York Attorney General's Office in 2007 to settle charges that it had paid colleges across the country to steer students toward its high-interest loans. And Berklee College of Music, Freddy's alma mater, was one of the schools singled out in that investigation for accepting the improper payments. Berklee College of Music spokesman Allen Bush acknowledged in a statement to ProPublica that the school accepted a total of $23,000 from Education Finance Partners between 2005 and 2007, but said that "all of these funds were deposited into a financial aid account and disbursed through a need-based grant system to current Berklee students."

Education Finance Partners, Freddy's lender, never admitted any wrongdoing. A year after the settlement, the company declared bankruptcy.

But who holds Freddy's loans now remains a mystery. The company's archives — now kept by a company called Loan Science — show that his loans were scooped up by the Swiss bank UBS in October 2008. But the entire portfolio changed hands again in 2009. "That 2009 sale was private, it was bound by a confidentiality agreement and, therefore, we're not in a position to disclose the identity of the purchaser," wrote a UBS spokesman in an email.

One possibility: Freddy's loan may have been among those acquired by the Swiss National Bank, Switzerland's equivalent of the U.S. Federal Reserve, when it bailed out UBS. (See our sidebar.)

Reynoso and his lawyer don't even know exactly how much he now owes, but it appears to be well into the six figures. The loan that Bank of America originated is clear: At the end of March, the balance was around $7,400, according to Mike Reiber, a spokesman for PHEAA, a company that once serviced that loan. (With the loan in default, it now resides with First Marblehead, Reiber said.) But the other, much larger portion of Reynoso's debt remains murky. A 2009 lending disclosure document indicates that through Education Finance Partners, UBS extended nearly $160,000 in credit to Freddy Reynoso, and projected that if he made all payments as scheduled, the loan for his music education would end up costing him $279,000.

Seemingly the only party who knows — and is obligated to tell Reynoso — about this debt is the servicer, ACS Education Services.

Citing privacy reasons, ACS declined to disclose any specifics about the loans to ProPublica, even with Reynoso's full consent. Three weeks ago, Francisco Reynoso himself sent a letter to ACS asking who currently holds the loans, but he has received no response.

ACS is a subsidiary of Xerox, so ProPublica put in several calls there. Given more than a full week to respond, Xerox's corporate communications team has yet to provide a response to queries about when Reynoso can expect basic information about his son's loans, including the amount he owes and the name of the company that now owns the debt.

Even with the help of a lawyer, Reynoso's options are limited. Unlike most kinds of debt, private student loans are not dischargeable through bankruptcy, though Sen. Dick Durbin, D-Ill., is leading an effort to change that. So for the time being, Reynoso's hope hinges on a narrow provision in the bankruptcy code called a hardship discharge. The bar for proving "undue hardship" is high, but Reynoso still hopes for the best as he waits for a ruling from the bankruptcy judge. As he puts it: "I'm in the hands of God."

Good morning! It's Monday, April 30th, and tomorrow is the General Strike. Are you ready?

Our nation has taken yet another giant step backwards with the criminalization of poverty.

Via:

How did breast cancer survivor Lisa Lindsay end up behind bars? She didn't pay a medical bill -- one the Herrin, Ill., teaching assistant was told she didn't owe. "She got a $280 medical bill in error and was told she didn't have to pay it," The Associated Press reports. "But the bill was turned over to a collection agency, and eventually state troopers showed up at her home and took her to jail in handcuffs."

Although the U.S. abolished debtors' prisons in the 1830s, more than a third of U.S. states allow the police to haul people in who don't pay all manner of debts, from bills for health care services to credit card and auto loans. In parts of Illinois, debt collectors commonly use publicly funded courts, sheriff's deputies, and country jails to pressure people who owe even small amounts to pay up, according to the AP.

Under the law, debtors aren't arrested for nonpayment, but rather for failing to respond to court hearings, pay legal fines, or otherwise showing "contempt of court" in connection with a creditor lawsuit. That loophole has lawmakers in the Illinois House of Representatives concerned enough to pass a bill in March that would make it illegal to send residents of the state to jail if they can't pay a debt. The measure awaits action in the senate.

Illinois isn't the only state locking up residents for being too poor to pay their bills. A report from the ACLU found that Georgia, Louisiana, Michigan, Ohio, and Washington were also doing this, and at "increasingly alarming rates."

A report from the New York University's Brennan Center for Justice found that states are also adding "poverty penalties," including late fees, payment plan fees, and interest:
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Alabama charges a 30 percent collection fee, for instance, while Florida allows private debt collectors to add a 40 percent surcharge on the original debt. Some Florida counties also use so-called collection courts, where debtors can be jailed but have no right to a public defender.

Being denied a public defender seems to me would be a violation of the Constitution, but I'm no law expert. Any of you legal eagles want to weigh in?