Excerpted from Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street. Published by Sentinel. Copyright Charles Gasparino, 2010.

But despite his trials, [Lloyd] Blankfein had taken time out of his grueling schedule to help a firm that wasn’t a Goldman client, not even a prospective one. The firm was ShoreBank Corporation, a small community bank located in Chicago that lent money to inner-city businesses and was exploring the possibility of financing nascent and as-yet-unprofitable “green” businesses through so-called conservation loans and environmental banking, according to the bank’s Web site.

The bank’s self-described mission was to “change the world.” And yet despite its seemingly good intentions, the bank’s urban commercial borrowers were suffering greatly from the lower property values and high unemployment that stemmed from post–financial crisis recession. Without Blankfein’s help (and the help of other
major Wall Street firms) ShoreBank would follow the fate of dozens of other banks during the great recession and face almost certain collapse and government liquidation.

To be sure, helping out a struggling bank that wasn’t even a client was a most un-Goldman-like thing to do. Goldman dealt with only the biggest companies in corporate America or with superwealthy individuals (typically, those with $10 million or more to invest with the firm). More thanthat, this was a firm that had a reputation for screwing just about any company, clients included, when business was on the line. Goldman, of course, would deny that assertion. Even so, in the normal course of business, a bank like ShoreBank, with its modest funds and do-gooder reputation, wouldn’t even appear on Goldman’s radar as a potential customer.

Yet for some seemingly inexplicable reason, Lloyd Blankfein—who had a net worth close to $500 million and until recently had never heard of ShoreBank—started imploring his friends at other firms, like Morgan Stanley, GE Capital, and others, to help this little bank. Not that Blankfein suggested there was money to be made here. Quite the contrary; it was simply the right thing to do.

To any casual observer, this puzzling scenario raises the question: Why would Blankfein possibly want to save ShoreBank?

(more…)

It’s tough enough to sell a house with home sales in the Twin Cities undergoing the biggest decline in the country, down 42 percent in July year to year. Yet some local governments make it even tougher for homeowners by imposing some of the country’s most onerous before-sale residential inspection ordinances, adding to the cost and red tape of buying and selling a house at the worst possible time.

Currently, fourteen metro-area municipalities have so-called “point-of-sale” ordinances in place, requiring home sellers to pay for a city inspection prior to selling their property. (In some cases, the ordinances are referred to as “time-of-sale” and “truth in housing” inspections.) In fact, in many cases, sellers are required to pay for the inspection before being permitted to put their home up for sale. These inspections are in addition to, not in lieu of, the private inspections for which home buyers routinely pay $300 or more.

That’s because, as several cities readily admit, these ordinances are not intended to help the buyer or seller. They are intended to help the city.

On its website, the City of Richfield states “inspections are not for the benefit of buyer or seller, but are a community effort to maintain the quality of Richfield’s houses and neighborhoods.” Common code violations cited by Richfield inspectors include bare wood, peeling paint, missing or deteriorated window glazing, and clogged gutters.

The laws require sellers to undergo a comprehensive city inspection for potential code violations at an initial cost that varies from $50 to $200, often before allowing the property to go on the market.

(more…)

From Bloomberg:

Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments are listed at $820,000 to $3 million.

(more…)

From the Boston Globe:

Fannie and Freddie were once the most powerful forces in the US housing industry. They pumped liquidity into the sector by buying up mortgages written by banks and mortgage companies. That kept the cost of capital low and increased the volume of mortgages. Government backing allowed the two to borrow money at lower rates than anyone else in the housing financing market.

While Fannie and Freddie operated under some form of congressional oversight, they ultimately answered to their stockholders. Their business was making money. They joined Wall Street firms in making record profits — and hauling in record bonuses — by buying, securitizing, and reselling subprime mortgages that never should have been written in the first place.

The housing market’s collapse sowed destruction and put the nation’s biggest banks on a government lifeline. No lifeline has been bigger than the rope the feds threw Fannie and Freddie, though. In September 2008, the two firms received a bottomless line of credit. So far, their tab stands around $148 billion — more than AIG, the company that insured all of Wall Street’s worst housing bets, is in hock for.

In January, the Congressional Budget Office said the total cost to taxpayers could reach $373 billion.

(more…)

Office of Management and Budget Director, Peter Orszag is one of the first major players of the Obama administration to call it quits.  Orszag was touted as one of the most brilliant minds in number-crunching, especially by Ezra Klein, who deemed Orszag as the most influencial bureaucrat:

In the coming years, no bureaucrat will be as decisive as Peter Orszag — the former director of the Congressional Budget Office who is now the head of Barack Obama’s Office of Management and Budget — and few bureaucracies will be as important as the CBO and the OMB. For every major policy and legislative fight, those organizations will decide the Number: the official price tag of a government program. And you can’t do anything without the Number.

But while everyone was so enamoured with the heartbreaker, stud, and hottie Orszag and his economic brilliance and wisdom to sound alarms of repeated financial unsustainability as the CBO director, what did the USA really get?  Patterico has a quick outline on Orszag which touches on some key points, but with Orszag’s background, people should wonder how he ever got to hold the keys to the budget.

If you look a bit closer at his education, background, and experience, Orszag was everything that the Keynesians/progressives/Democrats could have dreamed of in a budget director.  Let’s explore.  Aside from being the former CBO director, Orszag  was a senior fellow and Deputy Director of Economic Studies at the Brookings Institution, where he directed The Hamilton Project. His education is impressive having studied and receiving two degrees from the London School of Economics (LSE). While all Orszag’s education and experience appears impressive, it should have been more alarming than comforting to Americans.

Orszag’s policies are heavily influenced by his days at the LSE, and Obama has placed others from the LSE in his administration. As prestigous as the LSE may be, it is concerning because of the school’s founding and history, and continual ideological path it has taken since its inception. But how does all of this translate into effective economic policy specific to the capitalistic US economy? It doesn’t.  Although it may not have been apparent, but Orszag’s ideology shaped the US economic policy into exactly what the Obama administration had planned.

(more…)

A must read piece by Peter Wallison in today’s Wall Street Journal:

It’s hard to imagine a worse piece of financial regulatory legislation than the bill Barney Frank and the administration put before the House Financial Services Committee last month. But Sen. Chris Dodd’s effort, introduced last week, clears this hurdle

Much attention has focused on the fact that his “Restoring American Financial Stability Act” differs from the administration and Frank proposals by creating an entirely new agency to function as a “systemic regulator” of nonbank financial institutions, instead of the Federal Reserve. Far more important, however, is the regulatory and bailout powers it gives to the government. Here the Dodd bill follows the same flawed ideas advanced by the administration and Mr. Frank, but in some ways make things worse.

(more…)