Just when you think Wall Street could not possibly be uncovered as having influence over yet another arm of government, some Goddamn Ph.D. who actually knows what she is talking about comes forward and exposes the Congressional Budget Office of overtly ignoring the impact of foreclosures on the larger economy.
Dr. Lan Pham, a former senior staffer financial economist for the Congressional Budget Office, was terminated from the CBO for her attempts to measure the effects on home prices and property revenues of foreclosures and foreclosure fraud. The letter she sent to Senator Chuck Grassley, from February 23, 2011, was just released publicly today and can be viewed here. In it she accusses CBO Director Doug Elmendorf, among others, of suppressing views which run counter to popular thinking at the CBO.
When foreclosure fraud and robosigning first became public in or around 2010, Pham attempted to bring her viewpoint to the CBO table. Her analysis was based only upon the data available to her. The data illustrated the detrimental effect the robosigning and foreclosure problems were having on the housing market, and most importantly to the CBO, the potential disastrous ramifications for the banking sector and public confidence. She believes that she was silenced in an effort to downplay public sentiment that the housing sector was weak in order to limit bank losses, and to circumscribe public awareness that the banks were exposed to potentially fatal ramifications.
Phan opined openly concerning the façade of objectiveness at the CBO:
Yet, my brief time as a senior staffer financial economist at the CBO suggests that there is room for doubt about this perception of an objective and non-partisan CBO. Alternative view points are suppressed or questioned as “pessimistic” by CBO Director Doug Elmendorf. Economic facts inconvenient to the CBO’s forecasts of economic growth, recovery and other estimates are omitted or suppressed so the desired message may be delivered. For providing truthful and correct analyses of the issues, I was abruptly fired after 2.5 months at the CBO.
Incredibly, she was pressured not to discuss findings based upon data and sheer common sense:
….CBO leadership insisted:
• Statements could not be made attributing the decline in property tax revenues to foreclosures and the decline in home prices, which runs counter to common sense and the findings by the U.S. Senate Joint Economic Committee of the U.S. Congress.
• Foreclosures had no impact on home prices (negative extemalities, spillover effects). This runs counter to common sense, and a prominent national home price index by Corelogic in the CBO’s key database subscription showing clearly the distressed homes component of the index worsens home price declines.
• The decline in home prices had no impact on household wealth, which runs counter to common sense and the fact that the home is a significant asset or source of ‘wealth’ for most households. According to the Federal Reserve, about $7 trillion in home equity evaporated in the housing collapse.
• The emerging foreclosure fraud problems in September 2010 were due to media ”sensationalism”, “the kind of event of the moment where we should be adding skepticism, not just repeating the hype in the press” and discussing it “lacks judgment about what is important’.
Much of the reasoning behind the CBO cover-up had its foundation in a fear that it would become obvious to all concerned that the value of trillions of dollars in Mortgage Backed Securities (MBS) which held residential mortgages would lose significant value in its collateral. Moreover, banks would face huge buyback demands from investors holding the MBS, which they did not have enough cash to cover
Banks, Private Label MBSs. About $1.5 trillion MBSs are bank-issued, private label MBSs that were collateralized by primarily subprime mortgages, $330 billion of which is delinquent. Banks have publicly acknowledged these risks by recently increasing reserves against repurchase of bad mortgages from investors and litigation costs. As of third quarter 2010, the nation’s largest four banks – Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo - have reserved about $10 billion for potential mortgage buy back demands a “minuscule” amount given the $330 billion in delinquent mortgages. The combined net worth of the largest four banks is about $700 billion.”
She also raised her concerns that due to robosigning and other frauds committed by banks and MERS, that the banks would lack the authority to foreclose on properties and liquidate the collateral in order to make good on the MBS buybacks demands. In other words, Wall Street wanted these concerns silenced, because they could not afford the consequences.
GSEs, Agency MBSs. The other $5.5 trillion MBSs are issued or guaranteed by Fannie Mae and Freddie Mac, whose fate is currently being debated by policy makers. During the first nine months of 2010, Fannie Mae repurchased about $195 billion in delinquent loans from its MBSs;2 Freddie Mac faced $5.6 billion in buy back demands.3 The amount of these repurchases in less than one year alone would wipe out Bank of America, the largest bank in the country. The GSEs hold $266 billion in bank-issued private label MBSs, which have experienced the highest rates of default. Recently, Bank of America paid $2.8 billion to the GSEs to settle $7 billion in mortgage buy-back requests, a private transfer of loss to the public that remains unbeknownst to the public.
It is frightening to think that the CBO would be actively ignoring, silencing, and covering up bona-fide concerns of one of its economists in an effort to shield the large banks from further losses in the mortgage and MBS sector. Most notably when those concerns are based upon sound data.