Open Government Project
A Government Watchdog Group
State of Texas
City of Galveston
Public Interest Groups
"HUD is being run as a Criminal Enterprise!"
A senior staff assistant to the Chairman of one
of the appropriations committees for HUD
by David Stanowski
21 November 2011
When most people first become aware of the issue of Public Housing in Galveston, their common sense tells them that GHA’s proposed plan offers very little opportunity to the people that GHA is supposed to be helping to escape from a life of intergenerational dependency and poverty. Then, as they learn more, and are schooled on the facts, they invariably become outraged at how wasteful and ridiculous the plan is on closer inspection. Eventually, many ask us WHY; why is HUD allowing GHA to implement this plan, and why are some politicians going along with this nonsense and even embracing it.
The following commentary presents excerpts from an article by former HUD assistant secretary Catherine Austin Fitts entitled “HUD is Being Run as a Criminal Enterprise” which should help everyone to understand the political forces and alliances behind the HUD programs that she encountered, which may provide some of the insights that people are desperately searching for.
Also included are excerpts from “Fees for Our Friends” by investigative reporter Lucy Komisar. It is well worth the time to click on the links to read the entire articles!
Those who believe that the GHA’s plan may change dramatically if a Republican is elected President in 2012, will be very disappointed by what Ms. Fitts reveals about her tenure at HUD during a Republican administration, but it should make them more realistic about the likelihood of any political intervention that would be helpful to this city.
If the real reason for HUD’s existence is what Ms. Fitts discovered, then the fact that HUD must often be sued to force it to follow the Fair Housing Act is no longer surprising.
Who is Catherine Austin Fitts?
Ms Fitts is the President of Solari, Inc. http://www.solari.com/.
She is the former Assistant Secretary of Housing-Federal Housing Commissioner during the first Bush Administration, a former managing director and member of the board of directors of Dillon Read & Co. Inc. and President of The Hamilton Securities Group, Inc.
Excerpts from “HUD is Being Run as a Criminal Enterprise” by Catherine Austin Fitts:
In 2000, three and a half years after Andrew Cuomo became Secretary of the Department of Housing and Urban Development (“HUD”), I met with a senior staff assistant to the Chairman of one of the appropriations committees for HUD. When I asked what was going on at HUD, the staff assistant said, "HUD is being run as a criminal enterprise." I replied, “I don’t disagree.”
Cuomo’s reign at HUD was not the first time that HUD had been run by a New Yorker with ambitions for higher office. From 1989-1990, I served as Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration and watched Jack Kemp, a former Congressman from Buffalo, try to balance the politics of getting ahead with the needs of citizens and communities at a federal agency in which special interests had traditionally had the upper hand.
It was our job to regularly estimate or quantify the impact of HUD’s decisions on the federal budget and on communities. Our work was identifying the price that HUD was paying to fund projects in ways that served special interests rather than satisfied objective criteria of financial performance regarding government investment and the health of our housing infrastructure and communities.
At a dinner of the National Multi-Housing Council in early 1996, NHP’s chairman was clear with me. Renewal of expiring long-term HUD subsidy contracts were important to NHP’s profits. The federal government was morally obligated to subsidize him and other HUD landlords, regardless of the cost to taxpayers or performance for communities relative to more economically sound options. Performance was irrelevant compared to the long-term profits “promised” to HUD insiders. He would not say exactly who had made these “promises.”
In 1996, I took the pricings on the HUD defaulted mortgage portfolio to staff of HUD’s Hope VI public housing construction program. I explained that HUD had substantial single-family inventory in those same communities. Empty single-family homes could be bought and repaired at a fraction of the price of new construction of public housing by private developer. The HUD official said, "but then how would we generate fees for our friends?"
Our estimates at that time indicated that the federal government was spending $55,000 a year for a woman and 1.8 children (on average) to live in HUD-subsidized private housing with welfare and food stamps in high-cost areas in a manner such that they would, and indeed could, never become taxpayers and get off the dole. Our analysis showed that the federal government was spending more per person to fund the HUD-housed poor than the annual average income of the American taxpayer who was being asked to fund the rising cost of the debt issued to pay for this.
HUD was spending $150,000-250,000 per unit to build Hope VI public housing while HUD-foreclosed homes that could be bought and fixed up for $50,000 were available a block away.
As the economics of various choices became clearer, tension emerged between HUD landlords and special interests looking for a new and richer round of “fees for our friends” and a new generation of reformers who saw an opportunity to reinvigorate America’s workforce and communities in the face of globalization and the movement of jobs and pension fund capital to countries with younger, more productive populations.
The HUD landlords were best described by a statement made to me by Dick Ravitch, chairman of the AFL-CIO housing trust and a HUD developer from New York, over dinner at the Jockey Club: "As long as I can get government subsidies, what do I care if people have education or jobs?"
Read entire article:
Short clip from a Catherine Austin Fitts Interview:
Excerpts from “Fees for Our Friends: The Scandal that Taints Andrew Cuomo” by Lucy Komisar:
The Department of Housing and Urban Development is renowned for corruption. Historically, fraud has been so pervasive and blatant that the Sopranos episode on it was disturbingly realistic.
Season 4, Episode 46: Senator Zellman, Maurice Tiffen and Tony meet at a Russian Bath House and hatch the latest investment scheme to defraud New Jersey HUD (this is a federal sponsored program, not New Jersey, Housing and Urban Development). All Maurice’s minority organization has to do is take ownership and mortgages on dilapidated properties and the NJHUD will assume the lending risks involved. In the end, everybody will leave with a piece of the pie.
This story starts in 1989 with Catherine Austin Fitts, then a savvy Wall Street investment banker.
Fitts, who everyone called “Austin,” had an establishment pedigree. She was graduated from the Wharton School of Business at the University of Pennsylvania in 1978. She was a partner at Dillon Read, the white shoe investment firm headed by Nicholas Brady, where she made a name for herself when she recapitalized the New York City subway and bus systems and arranged funding for the City University of New York. A February 23, 1987 Business Week article called her the “Wonder Woman of Muni Bonds.” She was a high-profile, successful, Wall Street Republican who knew a lot about financial management.
Fitts got the chance to join the new George H.W. Bush administration as Assistant Secretary of Housing. She recalls, “When I told Nick Brady [who’d become Bush’s Treasury Secretary] that I was going to work at HUD, he said, “You can’t go to HUD — HUD is a sewer.”
She discovered Brady was right. Working for HUD Secretary Jack Kemp, she saw him run the agency to generate fees for friends.
This story begins with Fitts’s discovery of the Bush fees for friends operation, because that’s what Cuomo reverted to after Cisneros left.
Dealing with billions of dollars in defaulted mortgages, Fitts discovered that the big-time beneficiaries of the HUD system were political friends.
Greer confirmed that, adding, “What I liked most about Fitts when she was at HUD as Assistant Secretary and later as a contractor was the fact that she was a stickler for accountability and financial integrity. She did much to improve that at HUD.”
Fitts repeatedly opposed political favors, and in August 1990, after 18 months, Kemp fired her.
She also suspected money laundering. She said, “We found one HUD-owned multi-family mortgage in 1994 that had been in default for 11 years, with no debt service payments, and yet the property had a cash flow.” She explained, “HUD was intentionally not collecting payments in situations where there was sufficient cash flow to do so. Why? On several occasions, I had owners tell me that they had been promised various things outside of their contracts. Then they would freeze and not explain. These side deals seemed to have more weight than the actual contracts.”
She wanted to stop insider deals. She said, “I’ll never forget meeting with owners of apartment properties with mortgages that had been acquired by HUD, mostly because they were in default. When we explained we planned to sell their mortgages at competitively bid sealed auctions, they went wild. They said, ‘But we have a deal.’ When I would say, ‘Can you be more specific?’ they would shut up and walk away. Everything was run according to deals, and we weren’t allowed to know what they were. A couple of people came to me and swore that 100, 200, 300 properties were transferred secretly to this or that guy as part of a political deal. That would help explain the low recovery rates.”
But policies that benefited homeowners and taxpayers didn’t seem to be HUD’s priority. Fitts recalled, “In 1995, we were finding many places where the costs of rehabbing the property underlying defaulted single-family mortgages held by HUD was significantly cheaper than building new public housing or continuing to renew project-based assistance on private apartment buildings.” She went to see an official of the Hope VI new public housing program, which is very expensive on a per-unit basis. Fitts pointed out that HUD could spend $50,000 per unit to rehab single family-homes owned by the FHA rather than spending $150,000-250,000 including HUD overhead to create new public housing in the same community. Fitts said that the official replied, “But how would we generate fees for our friends?”
In fiscal 1999, HUD announced that it required $59 billion of “undocumentable adjustments” to balance the books and that it would not provide audited financial statements as required by law. It had lost track of $59 billion! Cuomo did not order the HUD IG to investigate the reason for the missing billions or to try to get the money back. In the following fiscal year, HUD declined to disclose the amount of the new “undocumentable adjustments.”
Read entire article: