Detroit Is Demolishing Homes With Federal Money Meant "To Save Them"

Contrary to popular perception, not all of the money approved as part of the federal government’s emergency effort to save the American financial system in the fall of 2008 went to the big banks. Some of it – nearly $10 billion, all told – went to support the government’s “hardest hit” program, meant to help forestall foreclosures in 18 states.

And unsurprisingly, nearly a decade after the program was signed into law, government investigators are finding that much of this money was squandered by state governments. Money initially earmarked to help troubled homeowners struggling with underwater mortgages was instead spent on demolitions meant to boost prices of surrounding homes and help ward off crime in city neighborhoods. Except the money was often squandered by state governments, disproportionately robbing poor citizens in cities like Detroit of a program meant to save them from homelessness.

As the Detroit Metro Times reports, Detroit"s decade-long wave of tax and mortgage foreclosures has wiped out large swaths of the city"s neighborhoods as Wayne County continues to seize thousands of occupied homes a year. The city"s neediest homeowners were supposed to receive federal assistance to save their homes as part of the Treasury Department"s seven-year-old Hardest Hit Fund. But the State of Michigan squandered its money by adopting unnecessarily stringent requirements — according to a scathing audit issued in January by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

In 2010, Michigan originally received nearly $500 million to provide loans to eligible homeowners who were facing tax or mortgage foreclosure. But the program, called Step Forward Michigan, rejected funding for about 5,000 Detroiters, while assisting more than 2,000 homeowners who earned at least $70,000 a year. That number eventually swelled to $761 million, and of that amount, half was committed to demolitions.

As a result, more than 80 percent of Detroiters making $30,000 or less a year were denied assistance to save their homes from tax or mortgage foreclosure. By contrast, the other 17 states with Hardest Hit Funds rejected 53 percent of homeowners making less than $30,000.

"Michigan and Ohio are among the states that have the most TARP dollars set aside, but also have some of the highest percentage of people turned down for the Hardest Hit Fund," the audit reads.”

SIGTARP said Michigan"s high rejection rate "raises questions about whether these programs are as effective and efficient as they can be to reach those people who are the hardest hit." But perhaps even more galling than the state government’s decision to turn away needy homeowners, is how Michigan instead became the first state in 2013 to demolish homes using money intended to save them.

As the paper explains, the idea was that demolitions would revitalize neighborhoods by increasing the property values of surrounding houses, attracting new homeowners, and reducing crime rates.

The plan was only marginally successful: A report commissioned by the Skillman Foundation and Rock Ventures found that each demolition in Detroit increased the value of adjacent homes by only 4.2 percent. Since 2013, Detroit has razed more than 10,000 blighted and abandoned houses using the federal funds. But in its criticism of Michigan’s program, the Treasury Department investigators didn’t focus on its effectiveness, or the unconscionable notion that Michigan decided to destroy homes instead of saving homeowners from being put out on the street.

Instead, Michigan and several other states’ decision to use the money for demolitions has come under fire because the federal government created no rules or controls to prevent fraud, waste, and abuse, according to a 2016 SIGTARP investigation.

Their negligence allowed the program to be riddled with waste and fraud, as contractors started raising their bids, and the bidding process for demolitions has become rife with bid-rigging and other tactics for fraud and abuse that were once famously associated with the American mafia. Soaring demolition costs in the state caught the attention of federal investigators, and now the Detroit Land Bank"s handling of the demolitions has become the subject of an ongoing federal grand jury investigation.

“The investigation found that demolition programs are ‘vulnerable to the risk of unfair competitive practices such as bid rigging, contract steering, and other closed door contracting processes’ because the "Treasury conducts no oversight" and therefore cannot determine whether the cost of demolition is ‘necessary and reasonable.’

The SIGTARP report added that "the vulnerability of the Hardest Hit Fund to fraud, waste, and abuse significantly increased with blight elimination, which Treasury could have mitigated, but did not."

In a report to Congress in April, a federal inspector slammed the state of Michigan for "skyrocketing demolition costs," indicating that the average price to raze a house had increased 90 percent, from $9,266 to $17,643 by the second quarter of 2016.

The Detroit Land Bank"s handling of the demolitions has become the subject of an ongoing federal grand jury investigation. The Land Bank declined to comment for this story.”

Foreclosure experts question why Michigan, one of the states hardest hit by the Great Recession, would prioritize demolition over foreclosure prevention. Over the past decade, more than one in three homes in Detroit, a total of about 140,000, have been foreclosed because of unpaid taxes or mortgage defaults. Yet, requirements for the TARP relief program, a program that most homeowners probably aren’t even aware of, have been incredibly strict.

"Many of the houses now being demolished could have been saved if there wasn"t a lack of preventing foreclosures," says Jerry Paffendorf, co-founder and CEO of Loveland Technologies, a Detroit-based property and mapping company. "If you don"t prevent foreclosures, you"re going to have more houses to demolish."

Michigan’s eligibility requirements were unusually strict, according to the report. For example, the state declines assistance to homeowners whose income was not cut by at least 20 percent, unlike other states that don’t require a specific pay reduction to be eligible. Michigan also denies funding to homeowners whose unemployment benefits ran out more than a year ago.

"The Michigan requirement does not reward a responsible worker whose paycheck was cut more than one year ago and has exhausted unemployment benefits, savings, family help, or low-paying part-time work to pay their mortgage," SIGTARP wrote in January 2017.

And while the Metro Times doesn’t bother asking why Michigan would favor contractors over poor urban homeowners, for anyone familiar with how statewide political campaigns are financed, the answer should be obvious. State contractors are often major donors to politicians. So, is it any surprise that politicians would favor their benefactors over a handful of voters?
 

Fitch Warns Biggest Threats To The Dollar's Global Supremacy Are At Home

The US dollar will almost certainly remain the world"s most important reserve currency for the foreseeable future but the lack of a ready substitute does not mean the dollar"s current position is entirely assured, says Fitch Ratings in its latest Global Perspectives commentary.

No other currency offers the same set of advantages to money managers, including central banks, or is as deeply embedded in the global financial system. Crucially, the dollar is underpinned by the fact that the US Treasury market is the world"s largest and most liquid for risk-free assets, and the Federal Reserve operates independently of government with respect to the market, and in implementing policy more broadly.

Calls for the dollar"s displacement were relatively infrequent - although not entirely absent - when US monetary policy was exceptionally accommodative in the aftermath of the global financial crisis. That changed in mid-2013 when the Federal Reserve announced it would begin to slow its asset purchases, causing considerable turmoil in emerging markets (the "taper tantrum") and appeals to the Fed for greater consideration to be given to the international implications of its policy decisions. The Fed now appears poised not only to continue with policy interest rate hikes that began in December 2015, but to also consider the pace and magnitude of eventual balance-sheet reductions.

Perhaps the most plausible scenario for the dollar being meaningfully displaced does not begin with the emergence of a viable alternative, but rather it being undermined at home.

Two pieces of legislation currently working their way through Congress are the Federal Reserve Transparency Act (FRTA) and the Financial Choice Act (FCA).

The first would allow the Government Accountability Office to audit the monetary policy decisions of the Fed and make subsequent recommendations for administrative or legislative actions.

The second would restrict the Fed"s ability to provide financial sector support to avert or address a crisis, and empower a commission to review and recommend changes to the Fed"s operations, as well as to consider a rules-based rather than discretionary monetary policy framework.

It is the unambiguous intention of these legislative initiatives to curtail the independence of the Fed and allow for greater congressional oversight of monetary policy as well as the Fed"s regulatory decisions and interventions related to financial stability.

If implemented, the proposals would diminish the appeal of the dollar as a reserve currency over time. Investors considering dollar assets and other dollar exposures would weigh the risk of political interference in monetary policy decisions and the possibility of the Fed"s remit being broadened to include congressional priorities such as indirect funding of infrastructure investment. There may also be concerns about episodes of financial sector stress being deeper and more prolonged if the Fed"s policy response options were explicitly limited.

Parties in favour of the FRTA and FCA might argue that the risks identified by those concerned about the Fed"s independence - and, incidentally, the dollar"s global role - are, in fact, the purpose of the proposed legislation, and that the overall economic interests of the US would be better served by their implementation. The debate is unlikely to end soon no matter the fate of the FRTA and FCA.

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So Fitch is warning that if the world is granted more transparency into what The Fed does then that could end US hegemony? Just lucky that we elect the people who run what appears to be the world"s most important institution... oh wait.

As we noted previously, US global geopolitical dominance is on the wane – driven on the one hand by the historic rise of China from its disproportionate lows and on the other to a host of internal US issues, from a crisis of American confidence in the core of the US economic model to general war weariness.

This is not to say that America’s position in the global system is on the brink of collapse. Far from it. The US will remain the greater of just two great powers for the foreseeable future as its “geopolitical multiplier”, boosted by its deeply embedded soft power and continuing commitment to the “free world” order, allows it to outperform its relative economic power. As America’s former Defence Secretary, Chuck Hagel, said in 2014, “We (the USA) do not engage in the world because we are a great nation. Rather, we are a great nation because we engage in the world.”

Nevertheless the US is losing its place as the sole dominant geopolitical superpower and history suggests that during such shifts geopolitical tensions structurally increase. If this analysis is correct then the rise in the past five years, and most notably in the past year, of global geopolitical tensions may well prove not temporary but structural to the current world system and the world may continue to experience more frequent, longer lasting and more far reaching geopolitical stresses than it has in at least two decades. If this is indeed the case then markets might have to price in a higher degree of geopolitical risk in the years ahead.

Peak Euphoria: Dow Shy Of Record Overbought

With the Dow Jones less than 100 points away from 20,000, it is moot to say that the only sentiment driving the market here, with the S&P trading at 25x actual GAAP P/E, is adrenaline and pure euphoria.

Just last night, we showed that the Dow was the most overbought in the past 20 years, while options traders have never been more bullish. Today, following the Dow"s surge right out of the gates, it is safe to say that the "Industrial" average, where Goldman Sachs has been the star performer, and which as of last night, was more overbought on just 4 previous occasions in the past century, is at record euphoria.

Putting similar RSI levels in comparison: August 1927, June 1944, July 1955, November 1996, and now December 2016... after each of the previous spikes, stocks fell back 4 to 5% within days.

"Nothing Good Can Come Of This Election" ...And That's Good

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

We the citizens and voters have to stop being enablers of systemic corruption.

The overwhelming consensus of the punditry across the political spectrum is that "Nothing Good Can Come of This Election"--and that"s a very good thing. The handwringing goes like this: The country is deeply divided by schisms that cannot be bridged, every institution from the two parties to the mainstream media to the Department of Justice has been tarnished by cover-ups, collusion or worse; whomever wins the election will enter the presidency without a mandate, and so on.

Why is "nothing good can come of this" good? Because ridding the nation of its political corruption will require hitting bottom.

Just as an alcoholic or drug addict is incapable of making any truly positive changes until he/she hits absolute bottom, so it is with our tolerance of a corrupt political system that is poisoning the nation, one injection of corrupt cash, collusion and pay-to-play at a time.

If our rotten-to-the-core politics as usual is indeed flying off the cliff to complete destruction, that is an unalloyed good.

Just as alcoholics continue down their self-destructive path with the aid of enablers, so too has the corrupt political order expanded with the aid of the Mainstream Media, insiders in the Department of Justice, K Street lobbyists and a veritable army of well-paid lackeys, pundits, academics, apparatchiks and assorted toadies in the organs of governance and in the big-money private sector and philanthro-capitalist dynasties of pay-to-play foundations.

The only way anything will truly change in the political order is if every Establishment insider politico loses every election, from the presidency to dogcatcher. Nothing will change until the mere existence of a private foundation like the Clinton Foundation triggers a landslide loss for the politico with ties to such corruption.

Nothing will change until the collusion of the mainstream media (supplying the insider candidate with debate questions, etc.) alone causes the colluding candidate to lose by a landslide.

Nothing will change until candidates who refuse to accept any donation larger than $100 from anyone or any entity beat the Goldman Sachs/Saudi prince-funded insider candidates by a landslide.

Nothing will change until candidates who fund costly negative TV advertising campaigns with millions in pay-to-play "contributions" from Goldman Sachs et al. lose by a landslide.

You get the point: we the citizens and voters have to stop being enablers of systemic corruption. We have to stop being bamboozled by insiders with promises of "hope and change" and the usual negative TV blitzes funded by corrupt big money.

It"s easy to blame lax campaign laws or the corrupted candidates and their insider toadies, but ultimately we"re responsible for enabling corruption, collusion, pay-for-play and a political and financial Elite that"s above the law.

From the point of view of the corrupted, colluding insiders, MSM flunkies, Department of Justice lackeys and well-paid parrot-pundits, nothing good can come from this election because half the voters may actually cast off the shackles of the nation"s corrupt and corrupting political and financial Elites.

This mass rejection of the politics as usual of corrupt and corrupting political and financial Elites is the highest possible good--a public good that eludes the hand-wringing corrupt insiders, pundits and toadies who have sucked up fortunes from the trough of putrid systemic corruption.