Sunday, September 19, 2010

Your Problem Is Profligate Government Spending?

Wake up and smell the coffee. Smell bacon? It's your behind that's frying.

Your Honor, for a number of years, I operated a Ponzi scheme and I knew it was illegal. - Bernie Madoff at his sentencing to 150 years in the federal penitentiary

In the great cascade following the bursting housing bubble, pension funds, the assets of school boards and other small government entities and the life savings of many homeowners went down the drain.

Who benefitted?

No one, really. A few hundred bankers made big money on decisions they knew were totally wrong, illegal and – ultimately – based on nothing but greed.

They shot themselves in the foot, but, oh, well, into each life some rain must fall, as they say.

Okay, Mr. Big Shot, where are you customers now? Those homes were meant to be the underpinning of the entire financial network.

When the dust cleared, here is what they lost: $196 trillion. That means there was there was more than the entire Gross Domestic Product of the entire nation at stake.

Bogus. Totally bogus.

What this means is simple enough. There was never any real money involved. Wall Street packaged, re-packaged and marketed as securities shares in funds supposedly underpinned by government-guaranteed home loan mortgages – mortgages which were admittedly predatory because the people involved never had any realistic chance of paying them off.

These loans were brokered by such packagers as Countrywide, targeted people with a credit score cutoff of 620 or less, and were tied to the “federal index,” an arbitrary rating by the Philadelphia Federal Reserve Bank based on a monthly survey of manufacturers in Pennsylvania, Delaware and New Jersey. Such factors as their profit to debt ratio, payroll, and gross revenue are averaged and “indexed” by the bank to help lenders make decisions about the relative worth of mortgages, bonds and any other paper traded on the market.

Need to get some understanding of what happened and why?

Check out the documentary “Plunder, a Danny Schecter Dissection.”

Mr. Schecter proceeds to lay out in no uncertain terms how one Tuesday afternoon, Bear Stearns shares began to tank, plummeted, crashed and burned. That prompted the collapse of Lehman Brothers, AIG, and a lot of other trading companies peripheral to the giant shell game we have come to know as the “housing bubble.”

There are some interesting ideas floated in this film.

Here's one.

White collar crime – and that's what all this really amounted to because you could consider Wall Street a giant crime scene – is based on four levels of culpability.

1. There are those who perpetrate fraudulent trades and loans.
2. Then there are those who know what's going on and do nothing.
3. There are those who participate and grow rich as a result.
4. Then there are government regulators who just can't be bothered.

It's very clear that's what happened here.

Where were the bank examiners?

Where were the SEC investigators?

Out to lunch, no doubt – but for three decades out to lunch? Where did they go do lunch? The planet Uranus?

Let's try it again.

How could those four levels of culpability have ever been placed in motion?

For one thing, a gutless media took no interest in publicizing or investigating what was starting to take shape.

Secondly, there were three conditions precedent that led to this mess. If you wonder where the jobs went, what happened to the pension funds and why your government is now in debt to some people who live in very rough neighborhoods like China, look at this.

The real estate market was exploited by lenders with no compunction about saddling people with way more than they could afford. What's more, when the market began to tank, they would not hear of re-writing the deals so that there would be a win-win situation in which they got some of their money back and the owners got a home.

Secondly, those worthless loans were securitized and marketed as a product to unwitting investors who thought they were getting something backed by the federal government. Actually, it was backed by the God-fearing, ever-loving, hard-working, tax-paying working men and women of the United States of America.

Finally, the insurers such as AIG, insurance carriers who employ some very, very bright young men and women with the advantage of high IQ, the best educations available and a cognitive ability comparable to any wizard in history, somehow failed to notice that those financial statements they were signing off on were about as shaky as cafeteria jello.

See the movie. It might help you make up your mind as to which horse you want to place your bet.

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