Author Archives: Darwin BondGraham

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Former Department of Homeland Security assistant secretary for Immigration and Customs Enforcement Julie Myers Wood, currently a board member of the Geo Group, smiling for a photo with the winner of an ICE Halloween costume party.

Two weeks ago the private prison corporation Geo Group added yet another former government official to its inner circle. On July 2 Geo Group’s management voted unanimously to expand their board of directors to seven seats, adding Julie Myers Wood. From 2006 to 2008 Wood was the Department of Homeland Security assistant secretary in charge of Immigration and Customs Enforcement, or ICE.

Wood is now the second member of Geo Group’s inner circle to have been employed by ICE. Geo Group’s executive vice president for corporate development, David Venturella, was an executive within ICE for 22 years before joining Geo Group in 2012.

Of course ICE is a major customer of Geo Group. Geo Group’s federal prison contracting began in 1987 when ICE signed a deal with the company to build and operate an immigrant prison in Colorado called the Aurora ICE Processing Center. Later this year Geo Group will open a new 400 bed immigrant “transfer center” in Louisiana. ICE will pay Geo Group $8.5 million a year to hold detainees in this prison.

Some might remember Julie Myers Wood for presiding over an infamous Halloween costume party at ICE’s Washington D.C. headquarters in 2007. Some ICE employees dressed up as immigrant fugitives. Wood awarded the best costume prize to an ICE employee who donned a dread lock wig and blackface paint, explaining to amused colleagues that he was a Jamaican detainee who had escaped from ICE’s Krome prison near Miami. Wood was accused by the House Committee on Homeland Security of exercising “poor judgement” when she rewarded the employee for the costume, and also of covering up the incident afterward when she ordered the deletion of pictures. The pictures included a photo of her smiling next to the make-believe Jamaican immigrant prisoner. (The pictures were later recovered.)

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Network map of the Geo Group’s board of directors and executive officers.

Other top Geo Group managers provide natural links to the other federal branch of government that contracts out prison facility construction and operations work: the Justice Department’s Federal Bureau of Prisons. Geo Group director Norman Carlson was the director of the Federal Bureau of Prisons for 17 years before retiring in 1987. John Hurley, Geo Group’s senior vice president for corrections and detention was a warden in the Federal Bureau of Prisons for 26 years. Today Geo Group operates multiple Department of Justice prisons housing federal inmates.

Julie Myers Wood’s recent appointment to the Geo Group’s board of directors also connects Geo Group to new corners of the private security industry. After her brief and controversial term running ICE, Wood, as is now the custom among top federal officials, set up her own consulting firm in 2012, ICS, LLC. ICS stands for “Immigration and Customs Solutions.” Wood’s consulting shop was then bought by GuidePost Solutions, a large private security consulting firm that was already doing business with the Geo Group through a consulting agreement with B.I., Inc., a Geo Group subsidiary that specializes in providing electronic ankle bracelet monitors and other surveillance equipment to track prisoners and parolees.

GuidePost Solutions has become a repository of revolving door law enforcement figures. Among the influential executives at GuidePost Solutions is former prosecutor and Mayor of New York Rudolph Giuliani. Giuliani is also a named partner at the Bracewell & Giuliani law firm, the same firm where Anne Foreman used to be an attorney. Anne Foreman is currently a director of the Geo Group, and former under secretary and lawyer for the Air Force.

Wood is also a member of the American Bar Association’s Commission on Immigration, and the executive committee chair of the Border Security Technology Consortium. The latter is an industry lobbying group comprised of companies that sell surveillance equipment and weapons to the Department of Homeland Security.

The world of private, for-profit prisons, border security contracting, and surveillance technology is quite small really. If you follow an individual’s professional network out a few degrees, it’s likely your search will boomerang back around to where you started. It’s personal relationships forged on corporate boards, and as government officials, that connect the growing private prison and surveillance industry to the current government officials and lawmakers who are in a position to award contracts.

For Wood, her new spot on Geo Group’s board will provide pay and stock awards valued at about $250,000 a year. Her connections to other private prison and surveillance companies and trade associations will strengthen Geo Group’s already formidable lobbying prowess and help the company to secure a bigger slice of the growing market for privatized prisons.

On December 19, 2013 the Consumer Financial Protection Bureau, 49 state attorneys general, and the District of Columbia reached a settlement agreement with Ocwen to resolve the company’s illegal foreclosure practices. The settlement allowed Ocwen to escape prosecution in return for a promise to cease at least 17 illegal practices it used to over-charge and mislead homeowners, to file false documents, and to wrongfully foreclose.

So has Ocwen lived up to its promise of change?

Data compiled by the CFPB shows that in the months after the settlement was announced there was actually a spike in the number of complaints against Ocwen. So far this month complaints against Ocwen are down, but overall, based on consumer complaint data, it’s hard to see how the settlement has changed Ocwen’s practices.

The following graph shows the number of complains received by the CFPB every day against Ocwen, starting on December 1, 2011 and ending on July 16, 2014. The red arrow points to the day that the Ocwen settlement was announced by authorities. The black trend line shows generally that complaints against Ocwen have continued to rise over time.



Berkeley and Richmond recently upped their minimum wages, and Oakland and San Francisco are also considering significant lifts for their lowest-wage workers. But each city’s minimum wage plan differs in significant ways. These differences reflect the balances of power between workers and employers, unions and business leagues, in each city.

In Oakland, labor and community organizations banded together as a coalition last year and decided to place an initiative directly on the ballot in time for the elections this November. That decision to circumvent the city council prevented what happened in Richmond and Berkeley. In Oakland’s neighbors to the north initial calls by grassroots activists for a $15 minimum wage were translated into a much smaller increase. Final legislation in these two cities was further watered down. Business lobbyists successfully argued that an immediate and significant hike in the minimum wage for all workers would cause unemployment, business closures, and a drain economic activity from these cities.

Berkeley’s minimum wage therefore isn’t very large, and it isn’t indexed to inflation, so it loses value quickly.

Richmond’s minimum wage, while larger on paper, may not impact very many workers in the city because of complicated exemptions that allow lots of employers to simply not pay the new municipal minimum wage, or to pay a lower “intermediate” amount.

In San Francisco the process has been legislative, like Richmond and Berkeley. But instead of starting from $15 and cutting downward, San Francisco’s board of supervisors appear headed toward $15 by 2018. If they pass the minimum wage legislation that was considered at today’s rules committee, San Francisco’s minimum wage will rise from it’s current $10.75 to $12.25 next year.

That would match the proposed increase that Oakland voters will consider in November. But then San Francisco’s minimum wage would jump another 75 cents in 2016, and then a dollar in 2017 and another dollar in 2018. Those increases significantly outpace the rate of inflation.

Here’s what the different enacted and proposed minimum wage increases in the Bay Area look like compared to one another.

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In Oakland the “Lift Up Oakland” ballot initiative would raise the minimum wage for all employees in March 2015 to $12.25 and then increase this wage each year to prevent it from losing value from inflation. The Oakland Chamber of Commerce is attempting to place a competing measure on the ballot that would phase in a minimum wage increase, but the increases charted below for this proposal would not benefit all workers as the Chamber’s proposal carves out certain categories of employers and employees.


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San Francisco’s proposed minimum wage would rise to $15 in 2018, possibly bringing pay just above the bare minimum considered a living wage.


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Differences between Berkeley and Richmond’s recently passed minimum wage laws, and San Francisco and Oakland’s proposed minimum wages are larger than this graph would imply. In Richmond the number of workers excluded from the new minimum wage of $13 by 2018 is probably very large due to exemption of “small businesses” from having to comply, and a complicated provision that establishes an “intermediate” minimum wage halfway between the city and state minimum wages, allowing employers who obtain half their income from sales or services provided outside the city to pay this lesser wage.




A 2000s housing development adjacent to Stockton’s debt-financed new marina. Stockton over-extended itself by borrowing from banks, the state, and other creditors in the 2000s.

In 2007 the city of Stockton, California was riding the nation’s housing boom. Property tax revenues had more than doubled over the previous seven years, and sales tax receipts were up by 65 percent. Two hours by highway from San Francisco, Stockton’s leaders did not want to become just another bedroom community for commuters, and they rejected their past as a sleepy agricultural town. Flush with cash and an influx of tens of thousands of new residents seeking the more affordable housing going up on the city’s periphery, Stockton’s politicians attempted to remake their city into a destination.

Mimicking the borrowing binge in credit markets of housing developers and home buyers, Stockton’s government issued several major series of bonds to finance what was the most ambitious downtown redevelopment scheme in recent California history. Seven bond issues in the 2000s put Stockton deep in debt to build a downtown arena, a minor league ballpark, a marina, to purchase an eight-story office building to serve as the new city hall, and to build a massive parking garage nearby. And Stockton added to this debt with a pension obligation bond issue that was intended to forward fund the city’s retirement system with $124 million, and to free up cash for other projects.

When the economy crashed in 2008, Stockton became the basement floor to which other distressed California municipalities could look and say, ‘at least we’re not down there.’ Stockton’s lawyers frankly described the crisis in their bankruptcy memo:

“The Great Recession hit Stockton hard. Housing prices plunged, causing property tax revenues to fall, and unemployment has soared during the last five years, resulting in a decline in sales tax revenues. Meanwhile, the City’s expenses have remained the same or increased. Poor decisions, lax management, and bad luck have exacerbated the City’s financial woes.”

As Stockton’s revenues dried up, the city’s financial managers slashed virtually every service and program, including basic vital services. At first the cut to the bare minimum. Then they cut far past levels considered minimal and necessary to keep the city safe and functioning. Stockton depleted its meager reserve funds, transferred funds internally between accounts, and then extracted cuts from its workforce. Labor contracts were renegotiated, and when the city’s two largest unions refused further pay cuts, Stockton unilaterally reduced their compensation by $12.5 million. Employees were unilaterally forced to take furloughs, and then the layoffs began. Between 2008 and 2012 Stockton let go 472 employees, 25 percent of its workforce. Still deficits continued. The city shuttered a fire station. All of this happened just when Stockton needed more resources than ever to deal with a record rate of foreclosures surpassing most other cities. Still revenues declined. In 2011 and 2012 Stockton entirely canceled repair and replacement projects meant to keep city infrastructure and vehicles in working order. The city was allowed to crumble.

All through the carnage of one of the largest municipal financial disasters in American history Stockton continued to make payments on its debt. But in March of 2012, after forcing city workers and residents to shoulder spending reductions, the city finally defaulted on $2 million in bond payments. Three months later Stockton filed a petition for bankruptcy.

Stockton’s bankruptcy process, boiled down to its essentials, is an effort to impose a shared pain among the city’s creditors who are owed hundreds of millions. Some of Stockton’s creditors are contractors that are owed pay for construction projects, or goods and services already provided. Others are workers owed pay and benefits for labor already provided. The other big category of creditors includes financial investors who loaned Stockton capital during the 2000s boom.

Although many of Stockton’s financial lenders gave the municipality money understanding fully that their deal with the city was a speculative investment that carried risks, they now are arguing that the compensation owed to current and former city employees should be cut in order to increase the value of their debt claims on the Stockton. In other words, the financial lenders are arguing that the risk they assumed when they bought Stockton’s bonds should be retroactively transferred to the city’s employees in the form of cuts to their pensions.

Franklin Advisors, Inc., part of the Franklin Resources group, better known as Franklin Templeton Investments, a San Mateo-based financial company that controls about $900 billion in assets, has been most aggressive in pushing this argument. Lawyers representing Franklin Advisers are arguing that U.S. federal bankruptcy laws trump California’s law that says pensions administered by CalPERS cannot be reduced through municipal bankruptcy. If they win, Franklin Advisers will reduce their losses by forcing CalPERS, the administrator of many of the city’s retired workers’ pensions, to pay the costs of some of their losses. This cost ultimately falls on the 1.6 million public employees who collect, or someday will collect a CalPERS pension.

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Annual total returns for investors in Franklin Advisers’ California High Yield Mutual Fund. (Source: Franklin Municipal Securities Trust Prospectus, October 1, 2013.)

Franklin Advisers manages several mutual funds which purchased Stockton’s bonds as speculative investments. If you read the bond prospectuses Stockton provided to investors like Franklin Advisers, there’s extensive disclosure of the various risks including potential default on interest payments and even loss of principal. For example, the disclosure statements for Stockton’s 2007 Pension Obligation Bonds included six pages warning investors about various risk factors that could reduce returns or even wipe out their investment. Redevelopment bonds issued by Stockton in 2006 included the warning that a drop in city revenues could lead to losses for investors. All of Stockton’s borrowing from the capital markets came with these boilerplate warnings.

Furthermore, if you read through the prospectuses that Franklin Advisers provides for investors in its mutual funds, the riskiness of investing in municipal bonds of the quality they aimed for is obvious. “You could lose money by investing in the Fund,” explains Franklin Advisers to its clients. “An issuer of debt securities [like Stockton] may fail to make interest payments and repay principal when due, in whole or in part. Changes in an issuer’s financial strength or in a security’s credit rating may affect a security’s value.” It really couldn’t be clearer than that. Well, maybe it can. Franklin Adviser’s California High Yield Municipal Fund also warns investors that:

“Because the Fund invests predominantly in California municipal securities, events in California are likely to affect the Fund’s investments and its performance. These events may include economic or political policy changes, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial difficulties, and changes in the credit ratings assigned to municipal issuers of California.”

Even so, Franklin Advisers is hoping to recoup some losses that it knew were possible when it purchased Stockton’s bonds.

If Franklin Advisers succeeds, who specifically will benefit? First of all, Franklin Resources benefits, as do financial companies like it. If it can establish the precedent that municipalities must cut pensions in order to pay back bondholders, then the value of many of the bonds of distressed municipalities owned by Franklin will increase in value.

So who is Franklin Templeton?


Gregory E. Johnson, grandson of the founder of Franklin Resources, Inc., currently the company’s Chairman and CEO, and owner of $4.9 million shares of Franklin Resources worth $336 million.

The real force behind Franklin Resources is the Johnson family, a clan of billionaires who inherited their wealth from Rupert Johnson, Sr., the company’s founder. In 1973 Rupert Sr. moved Frankling Resources from Wall Street to San Mateo, California. The company grew over the next four decades to become one of the largest institutional managers in the world. And Franklin Resources’ ownership remained rather closely held. Although it has 631 million shares of outstanding stock, members of the Johnson family still control close to 230 million shares, 36 percent.

The Johnsons are billionaires. Rupert Johnson, Jr., and Charles B. Johnson (who I’ve mentioned before on this blog), brothers, both own over 100 million shares in their father’s company. Charles B’s children, Charles E. Johnson, Gregory Johnson, and Jennifer Johnson all own slices of the company.

Ironically CalPERS itself owns over 467,000 shares of Franklin Resources, worth about $63 million. But that’s a mere 0.1% of Franklin Resources total market capitalization, and an even more insignificant sum, two hundredths of one percent, of CalPERS total assets under management. So CalPERS and its retirees gain nothing from their little stake in Franklin.

The investors in Franklin Resources who would benefit from a win in court against CalPERS and Stockton would include the wealthy individuals who own shares in Franklin’s municipal bond mutual funds. Municipal bonds have always been a preferred investment of wealthy households because of their federal tax exemption. Wealthy California investors have the added incentive to buy into funds like Franklin Advisers’ California High Yield Municipal Fund because income from it (which flows from the interest payments that Stockton and other cities pay) is exempt from California’s relatively high state income tax. The after tax value of tax-exempt municipal securities to wealthy individuals and couples in the top federal and state tax brackets is often more than double the value of what’s available in the corporate bond market, and the risk of default is generally less. Now it would seem Franklin hopes to reduce that risk to its wealthy clients even further.

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A luxury house along “Billionaire’s Row” in San Francisco.

The failed economic policies of the Obama administration have been evident in measures of every important fundamental for six years now. Dismal job growth. High unemployment. Weak consumer demand, and so on. The biggest failure of the Obama administration was arguably the refusal to write down mortgage debt and force the top one percent of wealth holders to share some of the losses sustained during the housing market crash. While monetary policies pursued by the Fed, and a bailout of the secondary housing market with taxpayer dollars, temporarily provided a shot in the arm for housing prices, these gains were artificial. They weren’t based on genuine demand for housing by the majority of Americans. The result is that the top one percent of the U.S. housing market, the luxury segment, is booming, while the rest of Americans are having trouble affording homes. Now the housing market appears to be stalling out, except for luxury purchases by the elite whose wealth was protected by virtually every economic policy advanced through the financial crisis.

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A single family home in Oakland.

Let’s review the problem. In the 2000s the U.S. housing market was flooded with cheap credit. Lenders extended giant loans, many of them sub-prime, and the prices of houses shot upward in a bubble. But stagnating wages for American workers meant that the prices of real estate diverged from the reality of the ability of the average household to safely repay these loans. When the financial system imploded, the price of housing collapsed, and it was the borrowers who sustained the brunt of losses in the form of equity. The debt remained to be repaid, however, because Obama and his economic advisers chose to protect the wealth of the top one percent.

As economists Atif Mian and Amir Sufi have pointed out in their book House of Debt, the federal government could have taken over as the servicer of mortgage-backed securities and renegotiated millions of loans, dropping interests rates and principal balances. Or the government could have allowed bankruptcy judges to reduce mortgage debt burdens. The few principal reduction programs there were, like the Home Affordable Modification Program, could have been pushed much further. As is, programs like HAMP served only a small fraction of distressed borrowers with underwater loans. HAMP and other loan modification programs did not meet their original numerical goals.

By not making creditors share the pain of the collapse of real estate prices, the Obama administration enforced a giant wealth transfer from the majority of Americans to a small minority, literally the one percent who own the majority of stocks and bonds, particularly stocks in banks and mortgage servicing companies, and bonds backed by residential mortgage debt.

But the wealthy also cache their fortunes in non-housing related stocks and bonds, and the Obama administration’s quantitative easing program has been good for supporting the value of these securities. So the wealthy never took the same kind of hit the average American did with housing price dips and job losses. Then the wealthy benefited from federal programs that jacked up asset prices.

Should we be surprised then to learn that the top one percent of the residential housing market is booming while sales of literally every home priced below a luxury-grade are dropping? This is one consequence of the Obama administration’s housing and economic policies.

A new batch of numbers from the real estate research firm Redfin illustrates the consequences of the Obama administration’s economic policies by comparing the very top of the American real estate market to everything else. “Sales of the priciest 1 percent of homes are up 21.1 percent so far this year, following a gain of 35.7 percent in 2013,” writes Troy Martin of Refin. “Meanwhile, in the other 99 percent of the market, home sales have fallen 7.6 percent in 2014.”

“For the top 1 percent, the housing market is still booming. But for the rest of the market, the recovery is running out of gas,” concludes Martin. “As home prices have risen, wage and job growth have failed to keep up.”

Redfin’s research shows that in virtually every major metropolitan region the luxury segment of the housing market, the top one percent of homes in price terms, are selling fast and at higher prices. Not surprisingly, there’s considerable regional variation, but it’s a nation-wide phenomenon.

The real estate market in the San Francisco Bay Area is perhaps the most unequal and driven by sales to the super-rich. Luxury home purchases are way up in Oakland, San Jose and San Francisco, with Oakland and San Jose experiencing a virtual doubling of the luxury market over the past year. The top one percent of the market for Oakland, San Jose and San Francisco combined is priced at an average of $3.7 million, but San Francisco has pulled ahead of the rest of the nation with an average home price of $5.35 million for the top one percent of its market. Some of this is likely due to the booming tech sector which is creating thousands of millionaires in the region.

Screen Shot 2014-05-30 at 10.43.54 PMFor the majority of Americans the problem boils down to household debt. There’s still too much debt for the average household to sustain purchasing power that would drive an economic recovery, including a recovery in the housing market. From 2003 to the peak of the housing bubble in the third quarter of 2008, total household debt shot upward by about $5.4 trillion, according to data compiled by the Federal Reserve Bank of New York. From the peak of the housing bubble to the present, total household debt only decreased by $1.5 trillion. That means that about $3.9 trillion in debt piled onto U.S. households during the housing bubble is still weighing down family budgets. Most of this debt, about $2.89 trillion, was mortgage debt.

Over the same time period wages remained flat for most Americans. The median household incomes in the year 2000 was approximately $42,000. In 2012 it was about $51,000. Accounting for inflation, the real value of household income actually declined over this period by $5,000.

The income and wealth gains at the top of America’s economic pyramid over this same time frame should be familiar by now, as they have been extensively explained in recent research. What’s important to point out, however, is that the the average household, the median Americans whose incomes dropped by $5,000, took on significant mortgage debt during the 2000s, altogether in the trillions of dollars, and the lenders of this capital, ultimately, are the top one percent households.

So that’s why we see the luxury housing market booming while virtually 99 percent, the rest of America is stagnating.

How do judges reach conclusions in complex cases where the law is often open to interpretation, or where the laws are still changing in response to the times? Are judges influenced by cultural currents? Do politics sway their decisions? What role does their material interest play in shaping their rulings and legal reasoning?

Appellate Court Judges Fin Holdings 1

A network diagram of the 42 of California’s 105 Appellate Court judges who own at least $2,000 of stock or bonds in a financial company. The larger and darker colored nodes are financial companies. The node size is based on the number of judges who reported an ownership stake in the company. The larger the line connection two node (judges to their investments), the larger the investment in dollar terms.

I don’t claim to have answers to any of these questions. But in searching for some possible reasons for the outcomes of homeowner lawsuits against banks, mortgage lenders, and mortgage servicing companies in California, I thought it might be useful to compile information on the economic interests of the judges themselves. The advantage of focusing on the economic interest of judges, as opposed to other factors that shape their interpretations of law, like political ideology or culture, is that material economic interests are literally material, and therefore easily identified and measured.

Appellate Court Judges Fin Holdings 2

17 California Appeals Court judges reported owning at least $2,000 of stock or bonds in Bank of America, the most of any financial company. Bank of America is one of the largest mortgage lenders and servicers in the U.S., and has been frequently sued by California homeowners over alleged fraudulent and deceptive business practices, and wrongful foreclosure. Justice Elizabeth Grimes reported owning between $100,000 and $1 million of stock in Bank of America in 2012, the most of any judge. Altogether these 17 judges reported owning as much as $2.3 million of Bank of America securities.

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Citibank was the second most commonly held financial company investment by California’s Appeals Court judges. 10 justices reporting owning at least $2,000 in stock or bonds.

From 2008 to the present California’s courts have been swamped with lawsuits, many more than in prior years, contesting foreclosures. Most often the plaintiffs have been homeowners suing banks and mortgage servicers over the foreclosure process. The banks have also initiated lawsuits against each other, against businesses, and against homeowners.

I haven’t done the research that would allow me to discern whether or not the banks are winning more than borrowers, but what I’ve heard from plaintiffs’ lawyers is that they feel the justice system has been biased in the favor of large financial companies. Lawyers and homeowners say that the courts favor the interests of creditors over consumers. Has anyone compiled comprehensive statistics on the outcomes of lawsuits between banks and borrowers through the financial crisis? I’d love to see that data set.

Appellate Court Judges Fin Holdings 8

Judge Donald Franson of the 5th District Appellate Court reported owning stocks or bonds worth significant amounts in multiple banks as well as in the Och-Ziff hedge fund (which was briefly financing a foreclosure to rental business), the credit card powerhouse VISA, and Warren Buffet’s conglomerate Berkshire Hathaway (which owns a bank, a real estate firm, and other real estate and financial sector companies).

One theory to explain what homeowners and their lawyers perceive as judgements biased in favor of financial companies involves the material interests of the judges. In the most direct sense, many judges own stocks and bonds in mortgage lending and servicing companies, and so these judges might be biased in favor these same companies when they are sued by borrowers. Judges should recuse themselves from cases in which they have a financial interests in the profitability of one of the parties before them, but they sometimes don’t. Recusal is meant to avoid any actual biased options stemming from conflicted interests on the part of the justices, but it’s also supposed to prevent even the perception of a conflict of interest. Perception that justice system is fair is as big a deal it seems as the actual fairness of outcomes, however you might measure the latter.

Appellate Court Judges Fin Holdings 9

Justice Arthur Gilbert of the 2nd Appellate District Court disclosed owning stock in three of the largest national banks that dominate the mortgage lending market, as well as having owned a financial stake in Lender Processing Services, a small specialized financial company that describes itself as “a leading provider of mortgage and consumer loan processing services, mortgage settlement services, default solutions and loan performance analytics.” Gilbert has sat on appellate panels hearing foreclosure lawsuits pitting banks and mortgage servicers against homeowners.

A more nuanced version of this conflict of interest theory has it that judges are ideologically influenced by their class position as high income earners, and holders of considerable wealth, a lot of which is invested in the securities of the major banks, and the mortgage lending and servicing companies. Quite a few of California’s Appeals Court judges are millionaires and they vest their wealth in stocks and bonds of large blue chip companies, often ones that pay hefty dividends. The financial sector is a major investment target for judges, and its biggest banking and mortgage lending companies pay them hefty dividends. Under this theory, even if a judge doesn’t hold stock directly in a financial corporation that argues a case in their court, judges are believed to be influenced by their general interest in the banking and mortgage lending sectors of the economy. Judges are said to exhibit bias in favor of the banks, and to respond to borrowers’ legal arguments with a weary skepticism as rulings in favor of borrowers could upset the appreciation of stocks and the yields on bonds of the entire financial sector.

Lastly it should be noted that financial companies are probably not the largest targets of investment by California’s Appeals Court judges. If ranked by the upper end of the disclosed range of investment, finance and banking falls after tech, energy (mostly oil and gas), consumer products, industrial manufacturing, and diversified funds (including private equity, mutual funds, bond funds, etc.) as a sector of the economy where judges like to seed their wealth.

California Appellate Court Judges Ownership of Securities, by Sector of the Economy, Reported as of 2012.
Sector Low Est. High Est.
Technology $3,214,000 $31,620,000
Energy $3,902,000 $27,560,000
Consumer Products $2,474,000 $24,270,000
Industrial $3,272,000 $22,960,000
Funds $3,984,000 $21,770,000
Finance, Banking $4,034,000 $21,270,000
Retail Stores $914,000 $8,820,000
Pharma & Biotech $804,000 $7,770,000
Telecom $752,000 $7,260,000
Real Estate $1,586,000 $6,780,000
Healthcare $386,000 $3,680,000
Entertainment & Hospitality $550,000 $3,400,000
Utilities $328,000 $3,240,000
Government Bonds $240,000 $2,400,000
Misc $226,000 $2,230,000
Consulting $166,000 $1,630,000
Agricultural $142,000 $1,410,000
Insurance $114,000 $1,070,000
Mining $96,000 $930,000
Media $68,000 $640,000
Logistics $64,000 $570,000
Transportation $34,000 $320,000
$27,360,000 $201,700,000



Citibank’s Michael Corbat, 2nd highest paid banker on the list.

In 2013 the top 27 executives at Bank of America, Wells Fargo, JPMorgan Chase, Citibank, and Ally —the five big financial institutions most responsible for the foreclosure crisis, and subject to the National Mortgage Settlement— paid themselves $296 million in cash and stock. Under the National Mortgage Settlement these banks were forced to write down principal debt on home loans in California. The average principal reduction they granted on 1st lien loans was about $137,000. 33,000 California borrowers benefited from this.

Had the banks applied the $296 million to further principal reduction, instead of using it to pay their top 27 executives, they could have wiped out debt on another 2,164 home loans, effectively saving about that many homes from foreclosure.

And if the banks applied the same sum they paid to their top 27 executives over the past 3 years (2011-2013), a total of $735 million, the could have reduced the 1st lien principal debt on 5,367 homes in California.

To put that in perspective, there were about 31,400 foreclosures in California in 2013, and 283,000 foreclosures between 2011 and 2013. It would have made a small, but significant, contribution to reducing the number of foreclosures and freeing up the finances of thousands of struggling households.

But instead the banks paid their CEOs, CFOs, COOs, VPs and Presidents millions. Average pay in 2011 for these bankers was $11 million each. Wells Fargo’s CEO John Stumpf led the list with over $19 million in compensation in 2013, followed Citibank executives Michael Corbat and James Forese. Three of JPMorgan Chase’s bankers (none of them the infamous Jamie Dimon) followed in the 4th, 5th, and 6th position pulling $16 and $17 million salaries and stock grants.

In 2014 the pay for these 27 executives, whose compensation is public record, will most likely be up yet again, easily topping $300,000,000.


Note: The following calculations and tables are a rough work product. If you see errors, or have ideas for how the data can better be presented, please let me know.

For over a decade the largest mortgage lenders issued millions of home loans, producing trillions in debt. Household mortgage debt peaked at $9.3 trillion in 2008, according to the U.S. Federal Reserve Bank of New York. Adding home equity loans, debt tied to housing maxed out over $10 trillion.  Many of these home loans were issued under fraudulent or deceptive pretexts. With the Financial Crisis of 2008 the American mortgage market collapsed, pulling borrowers into distress and leading to millions of foreclosures.

Screen Shot 2014-04-24 at 3.49.23 PMThe National Mortgage Settlement was supposed to be the keystone in a wider effort to halt foreclosures and keep people in their homes. The intention was to provide upwards of $25 billion in financial relief. California’s share was a whopping $18 billion.

The National Monitor for the Settlement released final numbers on the relief —how much, in what form, and where it was delivered— in March. The California Monitor (the only state to set up its own oversight office) released comprehensive numbers for the state in September of 2013. Using this data I plotted this assistance in the context of the foreclosure crisis.

Was the National Mortgage Settlement an adequate means of helping borrowers, stopping foreclosures, and holding the banks accountable for illegal lending and mortgage servicing practices?

California, the state that consumed a big chunk of the settlement provides a good window.

In California approximately 35,961 borrowers benefited from reductions of their 1st lien mortgage principal, wiping out $4.5 billion in debt.

Compared to the scale of the foreclosure crisis this was a rather small amount of assistance. There were over 978,000 foreclosures in California since 2006, according to DataQuick’s research. Relief provided by the banks through reductions in 1st lien mortgage principal represented only about 3.6% of the total foreclosures statewide over that time frame. This relief arrived rather late, after the peak foreclosure and default years of 2008 and 2009.

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Notices of Default and foreclosures peaked in California in 2008 and 2009. The banks began writing down 1st lien mortgage principal in 2012 and into 2013.

For every person that was assisted with a 1st lien write down during 2012 and 2013 there were another 3.5 foreclosures and roughly 7 times as many Notices of Default.

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Reductions in 1st lien mortgage debt is considered by many experts to be the most crucial form of assistance that was promised to borrowers through the National Mortgage Settlement. This graph lumps all 1st lien mortgage assistance under the Settlement into 2012 and compares the level of this assistance to the total number of foreclosures in California since 2006.

Thanks to the establishment of the California Monitor’s office and data compilation by the Monitor Katherine Porter, it’s possible to compare relief provided through the Settlement to total foreclosure and default levels down to the county-level in California.

Alameda County was especially hard hit by the foreclosure crisis. African American and Latino borrowers in Alameda County experienced very high levels of loan default and foreclosure, due in part to predatory and discriminatory loan origination in the late 1990s and early 2000s by banks like World Savings and Countrywide.Screen Shot 2014-05-03 at 11.52.07 PM

Like California as a whole, relief provided to borrowers in Alameda County by the five big banks arrived late and in a relatively small amount compared to the scale of the problem. For every 1st lien mortgage principal reduction provided through the Settlement, there were another 20 foreclosures. For every 2nd lien mortgage principal reduction there were 17 foreclosures.

Using data from the Alameda County Recorder’s office it’s possible to compare levels of relief provided by each of the five banks party to the Settlement to the county’s overall level of foreclosures.Screen Shot 2014-05-03 at 11.54.04 PM

2nd lien mortgage modification forgiveness and extinguishments were a bit more common. Across California the big five banks provided $4.7 billion in financial assistance to 56,047 California borrowers.

Short sales were the most common type of assistance. Across California 63,445 borrowers carried out a short sale in which their lenders sold their home and pocketed virtually all the proceeds. A good portion of short sales were bought up by investors have flipped housing for quick profits, or by large and small landlords who have converted a significant portion of single family homes into rental stock.

So did the National Mortgage Settlement provide meaningful relief and restitution to borrowers hit by predatory lending, the financial crisis, and illegal foreclosure tactics? Did it repair trust in the system? Did it change the financial system?

Digest some of the numbers above, and decide for yourself.

Two weeks ago I reported on one of Oakland’s largest landlords, Neill Sullivan, the man behind the Sullivan Management Company (SMC). Sullivan’s firm manages three real estate investment funds named REO Homes. These three LLCs own approximately 270 properties, mostly single family houses and apartment buildings, mostly in West Oakland.

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Residential properties owned by REO Homes, LLC, REO Homes 2, LLC and REO Homes 3, LLC.

Neill Sullivan’s business is a for-profit venture, but he and his employees say that they’re seeking a “triple bottom line” that will show positive social justice and environmental gains, in addition to monetary gains.

Integral to Mr. Sullivan’s real estate play are the deep-pocketed investors and financial institutions backing him. These investors, and one of the banks supporting his acquisition of Oakland housing stock, also claim to have a triple bottom line emphasis that looks beyond profit.

As I explained in the story, one of these investors is Tom Steyer, a retired San Francisco hedge fund manager who amassed a personal fortune of well over a billion dollars. Steyer put up personal money to support REO Homes, LLC, one of Neill Sullivan’s acquisition funds. And a bank that Steyer and his wife Kat Taylor founded in 2007 also made loans to REO Homes, LLC to finance property acquisitions.

The CEO of One PacificCoast Bank, Kat Taylor, took issue with my presentation of these facts, writing in a letter to the East Bay Express last week that my report was an “outrage,” and a “gross misrepresentation” because of my inclusion of Oakland community voices who are critical of Neill Sullivan and investors like him who have monopolized a good share of West Oakland’s rental housing. Taylor wrote:

“OPCB is a triple-bottom-line bank mandated to achieve social justice and environmental well-being; at the same time, we are financially sustainable. Our ethical standards are beyond reproach and our procedures and safeguards meet or exceed those required by our main regulator, the Office of the Comptroller of the Currency.”

Taylor added that:

“Our ownership reinforces our mission. The bank’s foundation owns 100 percent of the economic rights of the bank. If and when profits are distributed, they can only go to the foundation, which is required by its bylaws to reinvest them into the low-income communities we serve or the environment upon which we all depend.”

But there’s another place that the One PacificCoast Bank’s profits have been going besides philanthropic ventures, according to tax records of the Foundation.

The One PacificCoast Foundation, the non-profit that owns the banks’ stock, has been heavily indebted to Tom Steyer. Steyer loaned the OPC Foundation $26.5 million to allow the Foundation to purchase 100 percent of the One PacificCoast Bank’s stock, effectively capitalizing the bank, according to the Foundation’s recent tax records. The OPC Foundation has been paying back that loan to Steyer, and according to a tax file from 2011, the Foundation paid $2.246 million in balance due.

Thus a lot of the profit generated by the One PacificCoast Bank that was channeled back to the Foundation was used to pay back Steyer for the loan, in addition to being doled out as grants to non-profits.

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Tom Steyer loaned $26.5 million to the One PacificCoast Foundation (then called the One California Foundation) to allow the Foundation to purchase 100 percent of the shares of the bank of the same name. (Source, One PacificCoast Bank IRS Form 990, 2011)

One PacificCoast Bank is linked to other major real estate investors besides Neill Sullivan. In fact, the One PacificCoast Bank and Foundation exist in a complex network of real estate ventures where the lines between for-profit enterprise, and tax-exempt philanthropy are blurred.

The One PacificCoast Foundation’s links to Bridge Housing Corporation are a case in point.

On the board of the One PacificCoast Foundation is Cynthia Parker, the president and CEO of Bridge Housing Corporation, an affordable housing developer. Bridge Housing has numerous real estate projects in the works in Oakland, especially West Oakland. The Mandela Gateway apartments are a Bridge Housing property. So too is the MacArthur BART Station’s planned 625 unit apartment complex called “Mural.”

What qualifies projects like these as non-profit and affordable is that a portion of the units are set aside for renters below the area’s median income level. For example, the Mural apartments going up next to MacArthur BART will include about 90 “affordable” units, or about 14 percent of the total.

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Not-for-profit doesn’t mean the executives aren’t highly paid. The total compensation of Bridge Housing’s CEO in 2012 was $493,000. (Source: Bridge Housing Corporation IRS Form 99, 2012).

The One PacificCoast Foundation directly supports Bridge Housing Corporation.

Also on the board of directors of One PacificCoast Foundation, at least until 2011, is Rick Holliday. Holliday established Bridge Housing in the early 1980s and he remains on Bridge Housing’s board of directors. But Holliday’s main focus these days appears to be his own for-profit real estate company, Holliday Development.

Holliday Development’s first project in 1988 was conversion of an industrial building in San Francisco’s SOMA into lofts. Today one bedroom units in the building, 601 4th Street, are priced at approximately $1 million.

Before the crash in 2008 that brought the Bay Area’s real estate market to a brief standstill, Rick Holliday was betting big money on West Oakland. That year the San Francisco Business Times ran a profile on Holliday and explained his ambitions for West Oakland: “Some developers see West Oakland as the next South of Market, a San Francisco neighborhood transformed from an under-utilized industrial zone to a booming office and residential district.” Holliday said he was “bullish” on West Oakland real estate.

SOMA’s median rent for a one bedroom apartment is currently about $2,500, making it one of the most unaffordable places to live in the United States.

West Oakland’s rents are quickly rising too. Holliday’s marquee West Oakland project, the Pacific Cannery Lofts sold out last year. Prices in the 163 unit property ranged from one quarter million to half a million dollars, according to the San Francisco Chronicle.


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