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Saturday, February 6, 2010

A Conversation with Wade Rathke

At the end of last year, I spoke on the phone with Wade Rathke on three occasions. Mr. Rathke maintains a busy schedule and he's since been all over the country and the world since. He did, however, have some time this past Wednesday for another conversation. In the news, leading up to our conversation were all the events surrounding the arrest of James O'Keefe. His arrest, it's consequences for ACORN, and for O'Keefe's future were the subject of my first question.

First, Rathke made it clear that O'Keefe's arrest didn't change what his videos revealed about ACORN and he called O'Keefe's expose a

knife in the heart for ACORN.

Still, Rathke has spent a lot of time writing about this matter on his blog and so it seemed personal to me. Rathke denied this was personal. He's never met O'Keefe. Rather, Rathke believes that this arrest vindicates him because he doesn't like O'Keefe's methods. He doesn't consider O'Keefe a journalist. Furthermore, when you practice Gotcha methods, they can boomerang. In Rathke's view, there were other ways to accomplish O'Keefe's goals.

Rathke said one other that at first seemed peculiar. He said that such provocative methods that O'Keefe practices are

no way to build a movement.

Instead, O'Keefe was mostly promoting himself. This is peculiar, to me at least, since I don't think that O'Keefe was trying to build any movement. Of course, everyone should keep in mind that Wade Rathke has spent his entire life organizing and he views the world through that prism.

I also asked him why ACORN has gone from the center of attention last fall to an afterthought in six short months. Rathke referred to ACORN as

no longer a moving target

Furthermore, the organization is no longer effective weakened significantly by O'Keefe's sting. As such, there's little new to report since there's little new they're doing. As such, there's little to report.

I next asked Rathke why some in the media are fixated on ACORN while he, himself, generally goes under the radar.

I don't think I can answer that

Rathke replied but he also called the media "lazy and inept" and that went for the media as a whole and not any one segment. That was a question that always puzzled me. If ACORN is an important story then, by nature, Wade Rathke is an important story. There's no ACORN without Wade Rathke. It was, after all, Wade Rathke that grew ACORN from an idea to an organization of several hundred thousand. Whatever you think of ACORN, if you think its newsworthy that's because of what Rathke accomplished at the helm.

Yet, Rathke is rarely newsworthy these days. He's almost never asked about his current projects. Reporters, when they inquire, want to know what he thinks of something related to ACORN. Yet, ACORN is disintegrating whereas Rathke's current project, ACORN Intl., is expanding. Whether you think that Rathke is a criminal, a genius, or a combination of both, it's hard to understand how you can be fixated by ACORN itself and not pay any attention to Rathke.

As for his current projects, I asked him for an updated on remittance. Remittance is the process by which ex pats send money home. It's the single largest, sadly enough, industry in Mexico for instance. Often, the fees charged by the Western Unions of the world are predatory to procure these transactions. Rathke said he's seen fees as high as 20%.

Rathke said that Scotia Bank in Canada has created an online mechanism for transferring money from any computer. That's a small step so I asked him what his vision for remittance is. His vision is a seemless system in which money can be transferred from one account to another within a bank and also from one account in bank to another account in another bank. Even further, individuals could simply use banks to do the remittance. As such, I could go to my Chase Bank and have them transfer money to a bank in Mexico city and have that waiting for whoever I was giving it to. If banks are in charge of remittance, the fees go down dramatically. By Western Union being in the lead, it's a virtual monopoly and the fees are much higher.

Next, I asked him why the Tea Parties have succeeded as an organizing force whereas the Minutemen ultimatelty became counter productive and divisive. Rathke responded,

once you put a gun into some one's hand, it's hard to get someone to

The opponents of the Minutemen were effective in portraying them as vigilantes and that made them toxic. I told Rathke that the Minutemen were trying to organize around a divisive issue, illegal immigration, whereas the Tea Parties are organized around an inclusive issue, fiscal conservatism and government run amok. He agreed there was some truth to that analysis.

Finally, I asked Wade Rathke what he thought of Obama's performance. He was "disappointed". He wished Obama's "actions were more aligned with his talk". He said on issue after issue bailouts, foreclosure, health care, immigration, it was a series of unfulfilled promises. Rathke has no use for either Tim Geithner or Larry Summers. He sees Geithner as an extension of Wall Street that perpetuates a policy that helps the big wigs while leaving the middle class to fend for itself.

This analysis says much less about Rathke than it is a warning for Obama. No one can accuse Wade Rathke of wanting to see President Obama fail. In fact, Wade Rathke would like to see him succeed. Wade Rathke is not alone as a supporter that has been disappointed by Obama's supporter so far. There are many Americans Obama will never win back. He can win Wade Rathke back but Wade Rathke represents a lot of his constituency that is none too happy with the presidency.

Finally, during the course of our discussion of Obama's first year, I found a topic that Rathke and I both have a great deal of knowledge about, loan modifications. In March, President Obama announced a $75 billion loan modification program that would save up to 7 million homeowners.

Rathke and I see loan modifications much differently except in one very important place. That is that it's been an unmitigated failure so far. Very few people have received a loan modification and even less have been able to pay the new loan.

I've been following loan modification since before the 2008 elections. In fact, I like to say that I predicted the Tea Parties with my analysis of loan modifications. The center piece of the Rick Santelli rant was his disgust for the loan modification program. (now, it's another excuse to play that clip)

The biggest problem in the view of Wade Rathke is that the government isn't forcing the banks to write down the loans to more accurately reflect the value of the homes. By this he means that there's a plethora of $300,000 loans on homes that are only worth $200,000. Unless you do that, the balance sheets of the banks aren't going to accurately reflect reality. As such, the government is allowing banks to balloon their balance sheets to something that doesn't conform to reality.

Beyond that, you're forcing people to pay a mortgage on a home they can't keep. In fact, he's currently giving some the advice that they should walk away from their mortgage.

I've always viewed Rathke's vision as the ultimate loan modification nightmare. A person gets a loan modification because they can't afford their current mortgage. They're then rewarded with a lower rate. Rathke also simply wants them to have their balance shaved. This is a moral hazard. Rathke countered that the only moral hazard now is with the banks.

They created so called 2/28 and 3/27 to create a new excuse to refinance under the assumption that real estate would go up forever and now they're allowed to inflate the value of their portfolios. 2/28 refers to a two year Adjustable Rate Mortgage. It then adjusts once a year for the next 28 years. (3/27 should be obvious) It's absolutely true that banks, and frankly everyone, believed that real estate values would continue to go up in perpetuity. That's why I think everyone should pay and loan modifications themselves are a bad idea.

On this, we disagreed. Rathke believed that writing down mortgages would save millions from foreclosure and stabilize real estate values. I think forced removal of borrowers, through foreclosure, who got loans that should have never been created is the best approach.

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