reboot the republic daily July 22, 2010

Government Watchdogs: Mortgage Program is not Working

Posted: 22 Jul 2010 09:33 AM PDT

If I could label this as “obvious”, I would.

From Yahoo News

WASHINGTON (AP) — Government watchdogs told a Senate panel Wednesday that the Obama administration’s effort to help homeowners avoid foreclosure isn’t working and that the Treasury Department has failed to fix the program.

Special inspector general for the financial bailouts Neil Barofsky said the program has not “put an appreciable dent in foreclosure filings,” during a Senate Finance Committee hearing on the $700 billion bank bailout. He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program.

Elizabeth Warren, who chairs a separate Congressional Oversight Panel on the bailouts, said Treasury’s failure to act more quickly could be hurting the recovery.

More foreclosures could force down the price of homes and further hurt the already-ailing housing industry.

The homeownership program aims to reduce mortgage payments for millions of homeowners who can’t afford their monthly bills. Recent data suggest it has helped about 400,000 households avoid foreclosure. About 530,000 have fallen out of the program.

The bailout has provided up to $50 billion for the mortgage modification programs. So far, about $248 million in bailout money has been spent on the program.

Barofsky said Treasury is giving mortgage companies too much leeway to decide which homeowners will qualify for a program to reduce the principal balance of their mortgages.

The program relies on voluntary cooperation from mortgage companies, Warren said. She said many of the mortgage debt collectors make more money when they foreclose than they do when helping homeowners.

“We have a crisis, and the consequences of not having cooperation from (mortgage) servicers is . . . felt by this entire economy,” Warren said. “We need a program with far more urgency and some real teeth in it.”

Also appearing at the hearing is a leader of the Government Accountability Office.

Their three offices are designated to provide transparency and oversight for the bailout program that Congress passed in October 2008.

Most of the financial bailout programs have ended as the financial system regained its footing. Treasury lent out a total of $385 billion from the $700 billion fund. As of June 30, about $198 billion had been repaid, according to the independent Government Accountability Office.

Treasury also has collected $25 billion in fees and interest payments from companies that received money.

President Barack Obama was preparing Wednesday to sign into law the most sweeping rewrite of financial regulations since the 1930s. The law includes changes aimed at reassuring Republicans, who worry the bailout fund could become permanent.

The size of the fund is reduced to $475 billion from $700 billion. Money that has been repaid must be used to repay the national debt, rather than expanding other programs. And the overhaul blocks Treasury from using the money to create new programs.


Related posts:

  1. Government Responds to Economic Woes by Making More Bad Mortgage Loans
  2. Mortgage Modification? Yeah, Right
  3. Government Report: DC Voucher Program Still a Success

Did BP Keep Drilling Even Though It Had Lost Control of the Oil Well Much Earlier?

Posted: 22 Jul 2010 08:28 AM PDT

From Washington’s Blog

The New York Times noted yesterday:

Even though it was more than a month before the explosion, the [Deepwater Horizon] rig’s safety audit was conducted against the backdrop of what seems to have been a losing battle to control the well.

On the March visit, Lloyd’s investigators reported “a high degree of focus and activity relating to well control issues,” adding that “specialists were aboard the rig to conduct subsea explosions to help alleviate these well control issues.”

As I pointed out last month:

The Deepwater Horizon blew up on April 20th, and sank a couple of days later. BP has been criticized for failing to report on the seriousness of the blow out for several weeks.

However, as a whistleblower previously told 60 Minutes, there was an accident at the rig a month or more prior to the April 20th explosion:

[Mike Williams, the chief electronics technician on the Deepwater Horizon, and one of the last workers to leave the doomed rig] … says going faster caused the bottom of the well to split open, swallowing tools and that drilling fluid called “mud.”

“We actually got stuck. And we got stuck so bad we had to send tools down into the drill pipe and sever the pipe,” Williams explained.

That well was abandoned and Deepwater Horizon had to drill a new route to the oil. It cost BP more than two weeks and millions of dollars.

As Bloomberg reports today, problems at the well actually started in February:

BP Plc was struggling to seal cracks in its Macondo well as far back as February, more than two months before an explosion killed 11 and spewed oil into the Gulf of Mexico.

It took 10 days to plug the first cracks, according to reports BP filed with the Minerals Management Service that were later delivered to congressional investigators. Cracks in the surrounding rock continued to complicate the drilling operation during the ensuing weeks. Left unsealed, they can allow explosive natural gas to rush up the shaft.

“Once they realized they had oil down there, all the decisions they made were designed to get that oil at the lowest cost,” said Peter Galvin of the Center for Biological Diversity, which has been working with congressional investigators probing the disaster. “It’s been a doomed voyage from the beginning.”


On Feb. 13, BP told the minerals service it was trying to seal cracks in the well about 40 miles (64 kilometers) off the Louisiana coast, drilling documents obtained by Bloomberg show. Investigators are still trying to determine whether the fissures played a role in the disaster.


The company attempted a “cement squeeze,” which involves pumping cement to seal the fissures, according to a well activity report. Over the following week the company made repeated attempts to plug cracks that were draining expensive drilling fluid, known as “mud,” into the surrounding rocks.

BP used three different substances to plug the holes before succeeding, the documents show.

“Most of the time you do a squeeze and then let it dry and you’re done,” said John Wang, an assistant professor of petroleum and natural gas engineering at Penn State in University Park, Pennsylvania. “It dries within a few hours.”

Repeated squeeze attempts are unusual and may indicate rig workers are using the wrong kind of cement, Wang said.

In other words, the well started losing integrity in February, and may have never been permanently stabilized. If cracks in the well were never properly sealed, then the well may have been unstable starting in February and continuing until the April 20 explosion. (There is substantial evidence that there are cracks in the well now.)

Bloomberg continues:

In early March, BP told the minerals agency the company was having trouble maintaining control of surging natural gas, according to e-mails released May 30 by the House Energy and Commerce Committee, which is investigating the spill.***

While gas surges are common in oil drilling, companies have abandoned wells if they determine the risk is too high.


On March 10, BP executive Scherie Douglas e-mailed Frank Patton, the mineral service’s drilling engineer for the New Orleans district, telling him: “We’re in the midst of a well control situation.”

The incident was a “showstopper,” said Robert Bea, an engineering professor at the University of California, Berkeley, who has consulted with the Interior Department on offshore drilling safety. “They damn near blew up the rig.”

And the wives of oil rig workers killed in the blast testified that their husbands reported that the rig had problems controlling well pressure weeks before explosion.

In other words, not only is it possible that the well casing was somewhat unstable for months before the blow out, but BP may have ignored standard drilling practices by failing to abandon the well when the natural gas began surging too violently.Sure, the rig didn’t actually catch fire and sink until April, but cracks in the well and dangerous natural gas surges may mean that BP never fully had control of the well.

Damaged Blowout Preventer

Whether or not BP had lost control of the well earlier, it was confirmed yesterday that BP had damaged its key piece of safety equipment – the blowout preventer – earlier, yet kept drilling.

The Los Angeles Times reported Monday:

BP officials knew about a problem on a crucial well safety device at least three months before the catastrophic April 20 explosion in the Gulf of Mexico but failed to repair it, according to testimony Tuesday from the company’s well manager.

Ronald Sepulvado testified that he was aware of a leak on a control pod atop the well’s blowout preventer and notified his supervisor in Houston about the problem, which Sepulvado didn’t consider crucial. The 450-ton hydraulic device, designed to prevent gas or oil from blasting out of the drill hole, failed during the disaster, which killed 11 men on the Deepwater Horizon rig and set off the worst offshore oil spill in U.S. history.

Investigators said BP did not disclose the matter to the appropriate federal agency and failed to suspend drilling operations until the problem was resolved, as required by law.

The New York Times adds the following details:

Federal investigators said Tuesday at a panel that continuing to drill despite problems related to the blowout preventer might have been a violation of federal regulations that require a work stoppage if the equipment is found not to work properly.

While the equipment report says the device’s control panels were in fair condition, it also cites a range of problems, including a leaking door seal, a diaphragm on the purge air pump needing replacement and several error-response messages.

The device’s annulars, which are large valves used to control wellbore fluids, also encountered “extraordinary difficulties” surrounding their maintenance, the report said.

And as I pointed out in May:

Several weeks before the Gulf oil explosion, a key piece of safety equipment – the blowout preventer – was damaged.

As the Times of London reports:

[Mike Williams, the chief electronics technician on the Deepwater Horizon, and one of the last workers to leave the doomed rig] claimed that the blowout preventer was then damaged when a crewman accidentally moved a joystick, applying hundreds of thousands of pounds of force. Pieces of rubber were found in the drilling fluid, which he said implied damage to a crucial seal. But a supervisor declared the find to be “not a big deal”, Mr Williams alleged.

UC Berkeley engineering professor Bob Bea told 60 Minutes that a damaged blowout preventer not only may lead to a catastrophic accident like the Gulf oil spill, but leads to inaccurate pressure readings, so that the well operator doesn’t know the real situation, and cannot keep the rig safe.

There are many other examples of criminal negligence by BP as well. See this, this, this, this, this, this, this, this, this, this, this, this, this, this, this, this, this, this and this.


Related posts:

  1. If the U.S. Won’t Drill Oil Offshore, Other Nations Will
  2. BP Oil Leak Rate Called 8 Times Worse Than Earlier Estimate
  3. Geologist on BP Well: ‘We know the formation is destroyed’

What Would Mises Do?

Posted: 22 Jul 2010 08:03 AM PDT


“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final total catastrophe of the currency involved.” ~ Ludwig von Mises

I believe we are facing a future collapse of our debt and dollar as Mises outlines in the above quote. We should forgo the macho, “Apocalypse Now smelling napalm in the morning rhetoric” and ask ourselves, “what did Mises do in a similar situation?”

In 1934, Mises left Austria for Switzerland rightly fearing a Nazi Anschluss or annexation with Germany which most of the population eventually supported in 1938. Later in 1940, he left Switzerland for the US fearing a successful German invasion of Switzerland. What could a little Jewish man have done fighting the German Wehrmacht or the Waffen-SS? Absolutely nothing!

“Not mythical material forces but reason and ideas determine the course of human affairs. What is needed to stop the trend towards socialism and despotism is common sense and moral courage.” ~ Ludwig von Mises

Mises chose a smarter course of action which we should follow today to win the battle for freedom and liberty over those who would enslave our children in poverty for generations after they have finished looting our liberties and wealth today. His solution did not involve violence or material forces but rather reason, education and ideas. The ideas of Mises and the Austrian School of Economics might not even exist today were it not for Mises escaping to America with his philosophy and dedication. He fought smart with common sense and courage and this is what we all need to do today.

My Personal Recommendations:
Political Options – Worthy long-term political options are state nullification, the tenth amendment and in the most extreme case after other remedies have been exhausted, democratic, constitutional secession. Also consider supporting political efforts and individual candidates who seek to restore the original Articles of Confederation or a return to our original republic and the Constitution protected and defended by state sovereignty and a real Bill of Rights. But, do not depend on the entrenched, two-party monopoly to save your freedoms or defend your wealth. If you don’t do it yourself, no one will.

Educational Options – Support the few think tanks and foundations in the U.S. and abroad that don’t compromise and actively seek to restore real political and personal freedom. Question foundations predominately funded by large corporations or contributions from mainstream organizations as over time, many 501(c)3 foundations tend to move away from their stated goals as money pressure mounts and the mission is compromised by the reality of budgetary necessities.

Make your contributions over a long period of time because some organizations, boards and presidents change as does the philosophy and direction. You can retain some impact on future programs by making your contributions on a regular but long-term basis. Also be sure to remember your favored foundations in your will and trusts.

At the present time my preferred organization for tax-deductible contributions is the Mises Institute but a warning is in order. There will likely come a time when 501(c)3 organizations offering tax deductible contributions may become so controlled by Washington that they will be rendered ineffective in the fight for personal liberty. My last freedom contribution was to but without a deduction because they have more freedom to engage in educational and political actions and use my contributions where it is best needed.

Secure Wealth Options – Many readers have asked about my personal strategies and recommendations during these perilous financial times. My overriding concern is to prepare a defense for our wealth and remaining liberties before a run on the dollar and Washington revenue needs tramples everything that hasn’t been carefully shielded. It is important to secure your wealth not so much for yourself but for future American generations. We must use our excess wealth to fund educational, philosophical and political efforts to restore the original patriot dream of America’s founding fathers.

Get most of your wealth outside the dollar and the United States while of course following all reporting requirements and tax requirements. When possible and if your level of net worth permits also take your business, vocation, family and yourself. Then live relatively frugally rather than wasting your wealth on high living and excess consumption. Be able to use your wealth to restore what was once the greatest nation and jurisdiction of freedom and liberty in the entire world with the following actions:

1. Decrease Your Exposure To U.S. Markets & Political Risk – Continue to diversify your stock and bond portfolio outside the U.S., moving to offshore investments and quality mining share opportunities.

2. Sidestep a Future Liquidity Trap – Increase your holdings of non-dollar denominated assets in bank accounts, money market and mutual funds, insurance products and gold storage. Use reputable, long-established foreign custodians and financial firms to avoid the liquidity trap of American markets being closed by a financial crisis.

3. Buy More Gold & Silver – Add to your gold and silver holdings. If they’re substantial, store most of the metal in secure programs outside the U.S. This will protect you from the growing risk of gold confiscation. Consider Global Gold in Switzerland and/or The Perth Mint in Australia.

4. Increase Your Participation in Mining Shares – Move more money into mining shares during any short-term pullbacks in the price of gold.

5. Consider A Safe-Haven Retreat & Vacation Property Outside the U.S. – Choose a location you’ve visited before and where you would like to live full or part-time. But even if it’s only for investment purposes, don’t buy real estate in a country you’re not yet very familiar with.

6. Reduce Your American Real Estate Holdings – The tax benefits of home ownership will soon vanish for most Americans because the government is going to be desperate for revenue.

7. Get A Second Passport – If possible, get a second passport for use when traveling or living overseas. When the dollar and U.S. Treasury debt bubble collapses, the world will blame Washington and Wall Street for plunging it into the Greatest Depression. The last thing you will want to show when visiting or living offshore is an American passport.

8. Move Outside the USA – If practical, move your business, job and person offshore and outside of the U.S. One way or another, you’ll pay taxes wherever you go. Why not pay them to a government that gives you stability in return, instead of to a government that repays you with incompetence and tyranny.

9. Dodge the Coming Obama Retirement Trap – If you have a substantial amount in an IRA or other tax-advantaged retirement plan and are approaching retirement, start taking distributions now. For balances over $200,000, consider shutting down the plan. A cash-strapped Washington could eventually force your IRA to put everything into Treasury bonds or even impose a special tax on “excess” benefits.

10. Take Social Security As Soon as You are Eligible – Collect what you can, while you can, before you get shut out by a “means test” and lose your promised benefits.I urge each of you to battle the enemies of freedom with courage and intelligence using your wealth and the internet to promote our vision for a restored America. Follow the peaceful but wise path chosen by Ludwig von Mises and we will achieve victory in our lifetime.


Related posts:

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  2. The Mises Institute To Offer Online Classes
  3. The Man Who Predicted the Depression, Ludwig Von Mises