Photo: abc30.com

By rank, U.S. Reps. Erik Paulsen, R-Minn., and Leonard Lance, R-N.J., are among the lowliest members of the House Financial Services Committee, which this morning holds an AIG-related hearing. Yet some politically astute casting Tuesday elevated the freshmen to point men in the House Republicans’ response to the AIG bonus scandal. The pair are among the rarest of species in Congress: newly elected Republicans from districts that favored Barack Obama for president.

Of the 34 Republicans House members — three freshmen and the rest veterans — from districts in which Obama beat Sen. John McCain last November, Paulsen is one of only seven who received a lower percentage of district votes (48 percent) than did Obama in his race (52 percent). (Lance, for example, polled evenly with Obama at 50 percent.)

But it happens that both Paulsen and Lance serve on the House finance committee, where they hold down the bottom of the seniority list. But perhaps no other Republicans in Congress could make better electoral use of some high-profile surfing on what their committee colleague Rep. Gary Ackerman, D-N.Y., today called the nation’s “tidal wave of rage” over AIG.

At House GOP leaders’ direction, Paulsen’s and Lance’s will be the leading names on a bill that demands Treasury Secretary Timothy Geithner recover the AIG bonuses — a “rehash of what President Obama is already doing to address the issue,” in ThinkProgress’ estimation.

Indeed, Paulsen professed to be all about working with Obama in comments last month after the president spoke before Congress: “The President issued a bipartisan call for cooperation,” Paulsen said, “and I stand ready to work with him on solutions to solve the big problems facing our Country.”

But with the country in an uproar, House Minority Leader Rep.  Boehner said:

I applaud the legislation unveiled today by Reps. Erik Paulsen, Leonard Lance, and all of our House Republican freshmen to increase accountability in bailout funds and to recover the AIG executive bonuses. … It is time for the Administration to provide Congress and American taxpayers an exit strategy that will get the federal government out of the private sector and out of the bailout business.

Paulsen followed suit at the press conference he and Lance held Tuesday: ”This is clearly another example of not only how Congress is broken, but how the administration has dropped the ball.“

Marcus (left) said retailers who don't donate to Coleman "should be shot."

Did bailout money end up boosting Norm Coleman’s senatorial campaign? Hard to say, but damning new evidence unearthed by Huffington Post suggests that the former U.S. senator was heavily promoted by corporate opponents of the Employee Free Choice Act, including bailout recipient Bank of America Corp. On Oct. 17, three days after the financial institution received $25 billion in bailout funds, Bank of America hosted a conference call with conservative activists who charged that the proposed legislation would turn America “into France” and spell “the demise of a civilization,” according to leaked audio of the call. Former Sen. Coleman campaigned against the measure (erroneously at times) and was supported by a series of TV commercials made by the anti-labor Coalition for a Democratic Workplace — and his name came up on the call.

Home Depot co-founder Bernie Marcus said: “If a retailer has not gotten involved in this, if he has not spent money on this election, if he has not sent money to Norm Coleman and all these other guys, they should be shot. They should be thrown out their goddamn jobs.”

During the call, a man, presumed to be an employee of Marcus’ foundation, suggested that listeners could influence the election without violating campaign finance laws by giving to the foundation. “Some organizations have written checks for $250,000, $500,000, some $2 million for this.”

“I strongly believe that those financial institutions receiving federal aid through the TARP must quickly provide a full accounting for their funds received, and I sincerely hope that the Department of the Treasury will move quickly to address this massive transparency gap,” said Klobuchar. “The Treasury Department’s failure to collect information on how companies are using TARP funds is, quite simply, unacceptable.”

Klobuchar said, “[R]eports of questionable uses of TARP funds, still-frozen credit markets and the continued slowing of the economy … called into question whether the funds were being used appropriately.”

The full letter after the jump.

The Honorable Henry M. Paulson, Jr.
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220

Dear Secretary Paulson:

I am writing to you today regarding my concerns about the Troubled Asset Relief Program (TARP). I strongly believe that those financial institutions receiving federal aid through the TARP must quickly provide a full accounting for their funds received, and I sincerely hope that the Department of the Treasury will move quickly to address this massive transparency gap.

In the nearly three months since the Emergency Economic Stabilization Act was signed into law, American families have anxiously waited for its benefits to reach Main Street. But recent economic statistics show that these benefits are not helping those who are the most in need. Credit is not loosening up. Sales of existing homes dropped by 8.6 percent in November, and we have lost at least 1.9 million jobs this year. It is not surprising that the Conference Board’s consumer confidence index fell to an all-time low of 38 last week.

The Treasury Department’s failure to collect information on how companies are using TARP funds is, quite simply, unacceptable. Therefore, I hope that you will work with the Office of Financial Stability to determine a path forward that will enable us to once and for all answer the growing number of questions regarding appropriate expenditure of TARP funds.

Thank you for your consideration of my request. I look forward to your prompt reply.

Sincerely,

Amy Klobuchar

Now MSNBC presents a GOP memo, reportedly circulated to Senate Republicans Wednesday morning, that shows there might be a political motive behind the votes: Entitled “Action Alert – Auto Bailout,” it characterized the defeat of the industry bailout — which is what the sub-60-vote Senate tally delivered — the “first shot against organized labor.” The memo went out to GOP senators, but perhaps Rep. Bachmann got a copy too. The same day the email was sent, she released a statement on her opposition to the bailout: “Unfortunately,  the Democrat-led Congress has chosen to blindly oblige Big Labor at every  turn, regardless of whether it’s in the best interest of taxpayers.”

From the Michigan Messenger: Big Three bailout spotlight reveals Detroit’s decay

Democratic Reps. Betty McCollum and James Oberstar joined with Republican Rep. Jim Ramstad in supporting the bill, while Democratic Reps. Tim Walz and Collin Peterson joined Republican Reps. John Kline and Michele Bachmann in opposing the measure. Rep. Keith Ellison did not vote.

Walz (pictured) explained his vote in a statement Wednesday. “Nothing in this bill will prevent the auto manufacturers and their suppliers from continuing to move jobs overseas,” he said. “And we have no guarantee that spending $15 billion in taxpayers’ money will actually solve the Big Three’s problems. We must preserve and create jobs in America but this isn’t the way to do it.”

Bluestem Prairie, a blog that follows news about Walz, notes that the Star Tribune reprinted a New York Times article that incorrectly states that Walz and Peterson voted for the bill. In another area of the paper, they reprint an Associated Press article that got the votes correct.

House Minority Leader John Boehner, R-Ohio, said, “The speaker had to give a partisan voice that poisoned our conference, caused a number of members that we thought we could get to go south.”

Pelosi’s speech chastised the Bush administration for its part in the economic crisis, something Boehner said was responsible for them abandoning conviction and switching their vote.

But Bachmann flatly rejected Boehner’s rationale. “I want to assure you that was not the case. We are not babies who suck our thumbs. We have very principled reasons for voting no,” reported Roll Call Monday evening.

Her comments were almost identical to those of Democratic leaders. Rep. Barney Frank, D-Mass., said, “Here’s the story: There’s a terrible crisis affecting the American economy. We have come together on a bill to alleviate the crisis. And because somebody hurt their feelings they decide to punish the country.”

The expansion was fueled by innovations–including the development of credit scoring–that made it easier for lenders to assess and price risks.  In addition, regulatory changes and the ongoing growth of the secondary mortgage market increased the ability of lenders, who once typically held mortgages on their books until the loans were repaid, to sell many mortgages to various intermediaries, or “securitizers.”… This “originate-to-distribute” model gave lenders (and, thus, mortgage borrowers) greater access to capital markets, lowered transaction costs, and allowed risk to be shared more widely.

The originate-to-distribute model seems to have contributed to the loosening of underwriting standards in 2005 and 2006.  When an originator sells a mortgage and its servicing rights, depending on the terms of the sale, much or all of the risks are passed on to the loan purchaser.  Thus, originators who sell loans may have less incentive to undertake careful underwriting than if they kept the loans.  Moreover, for some originators, fees tied to loan volume made loan sales a higher priority than loan quality.  This misalignment of incentives, together with strong investor demand for securities with high yields, contributed to the weakening of underwriting standards.

Yet barely anything was done to clean-up the subprime mess ruining neighborhoods nationwide, and  the investment firms continued to run unabated even after the August warning, often with debt far exceeding capital and with SEC exemptions allowing them to do so. And while the federal government stalled on creating any regulations for lenders, states began enacting their own anti-predatory lending laws to temper the feeding frenzy and fraud.

Then, in July of this year, nearly a year after the harbinger of doom that caused the crisis in August of 07, the Treasury Department discussed creating regulations that would be “slow and difficult.” When Barney Frank asked Bernanke and Treasury Secretary Henry Paulson, “I gather what you’re saying is, it is better, in this very complex and very important set of issues, that we do it right than that we do it very quickly?” both Bernanke and Paulson nodded in agreement.

Now today, just like the swift-vote resolution in 2002 that gave Bush the authority to invade Iraq, Bush, Bernanke, and Paulson are urging a lightening-fast resolution in order to avert serious financial “panic” and meltdown.

It begs these questions: Why did it take so long for Bernanke and Paulson to enact any sort of regulation given that they knew what was coming? And if they wanted to wait to create such a “thoughtful” resolution to the crisis, why are they moving so quickly to get a bailout passed that has little regulation and a handout to the investors who helped create the mess in the first place? And one more thing: Should Paulson and Bernanke still have jobs?

Why so low? According to Housing Wire, WaMu’s $231.1 billion loan portfolio included $52.9 billion in  ARMs and $62.5 billion in home-equity loans and lines of credit.  J.P. Morgan said it would write down WaMu’s loan portfolio by roughly $31 billion to account for losses.

Still, other questions remain: Some of the loans J.P. Morgan Chase now holds (via WaMu and Bear Stearns) will be eligible for sale to the U.S. government when a bailout package is finalized. So just how much will J.P. Morgan Chase make on the backs of taxpayers given that they snatched up these tenuous loans at next-to-nothing prices? The WSJ notes: “The deal will vault J.P. Morgan into first place in nationwide deposits and greatly expand its franchise.” In other words, J.P. Morgan Chase has billions to gain from a federal bailout while homewoners and consumers still have much to lose.

The Sunlight Foundation has put together a fascinating animated graph that tracks the political donations from the finance, insurance and real estate sectors and to which party the money has gone. Utilizing Google Motion Chart and 20 years worth of data gathered by the nonpartisan Center for Responsive Politics, the chart seeks to demonstrate how Wall Street came to carry such influence in our government.

More: Explore the Google Motion Chart

“The answer is revealed by the fact that the finance, insurance and real estate (FIRE) industries that collectively are at the center of the current crisis are the single-largest sector by far of all the major economic and interest groupings that give campaign contributions to federal politicians,” Ellen Miller of the Sunlight Foundation explains.

A press release this week from the CMPS Institute, an organization responsible for training and certifying mortgage bankers and brokers, reveals the lengths the industry’s heavyweights will go to in order to get a sale and keep Americans in debt, even after it’s common knowledge that years of reckless practices brought us here today.

Titled “Hurricane Wall Street: Four Steps Consumers Can Take to Protect Themselves,” the press release seems innocuous enough. It’s help for consumers, right? Wrong. In fact, there were “steps” here that were so rich (and so priceless) we couldn’t pass up shedding light on them.

The CMPS suggests: #3 – Max Out Your Home Equity Line of Credit Before Your Lender Cuts Off the Limit
“Lenders have been arbitrarily reducing credit limits on home equity lines of credit,” said Gibran Nicholas, Chairman of the CMPS Institute. “If you still have credit available on your home equity line, it could be very beneficial for you to draw out the money now before the lender reduces your limit. In this environment, it’s probably a safer bet to have the cash sitting in your FDIC-insured bank account in case you lose your job or in case you need the funds for any other reason.”

In other words, who cares if home prices nationwide have dropped nearly 16 percent since June of 2006? Take out all of that equity in your home now, because in a few years your home could be worth 30 percent less, according to some analysts, and when you go to sell it, your equity will be all eaten away and you might have to unload it in a short-sale. So use the cash now, pay the interest rates on the home-equity line–which is likely higher than your mortgage rate–and worry that you’re tens of thousands in the whole later!

#4 – Stop Making Extra Mortgage Payments and Take Out a Mortgage Even If You Don’t Need One
“Cash is king in a liquidity crunch,” said Nicholas. “The worst thing you can do in this environment is dump more of your cash into your home equity because you may not be able to get access to it if you run into financial difficulties, if the housing market continues to decline, or if the credit crunch gets worse.  Although it sounds counter-intuitive, you should have as big a mortgage as possible – even if you don’t need it – and leave as much cash as possible in a safe, liquid place that is readily available to you. This empowers you to weather the storm and also have your funds available to take advantage of bargain opportunities that are becoming available because others have not followed this advice. In this environment, the one with the most cash wins.”

Yes, the one with the “most cash” wins. And the one with the second mortgage on their house and a bunch of cash available for spending–but with increased debt, interest on that debt, and a home value that’s less than the debt owed–also wins the opportunity of a lifetime! A lifetime to pay, that is.

Let’s just recap here: The organization responsible for certifying mortgage brokers is issuing a press release masquerading as consumer aid that encourages Americans to take out more loans, increase debt, and spend on credit. And we should do this because of the credit crisis, they say. Still, pundits and free-market fundamentalists say the mortgage industry and Wall Street aren’t to blame for this mess despite proof and continued spin-fast marketing. If they’re so unimpeachable, perhaps the the CMPS is willing to bet the farm on it. They might go into debt forever, but at least they’d have cash for a few months. Now that’s American.