My Johnny Carson Moment… “I did not know that.”
I did not know that a certain person “cried rape” about the predatory lending which brought about the mortgage/lending crisis. I bet not many others here did either.
Are you tired of hearing the phrase “subprime crisis” without adequate explanation?
The following comment from OPOL’s recent diary put the pieces of the so-called “subprime crisis” story together for me… not to mention the current global economic crisis which has resulted from it all…
But in 2003, during the height of the crisis, Bush invoked a clause from the 1863 National Bank Act that pre-empted all state predatory lending laws and then made new rules that prevented states from enforcing their own consumer protection laws against national banks. thank you tahoebasha3
Ah, but from whence did the information in tahoebasha3’s comment emerge? Kindly bear with me as we look into it all. The “cry of rape” happens in Act Three.
ACT ONE: What’s some obscure Civil War era Banking Act to me?
My specialty for the past three years has been an assignment by a pastor who ran a now-dying website to make the national debt simple for an untutored reader to understand.
Relax, you only need to learn one word: “securities”
A security is a bundle of hundreds of thousands or millions of individual debts put together into one package.
Yes, it takes a lot of money to buy a “share” of the proceeds of such a security. One becomes a landlord to millions by holding shares in securities which are made up of mortgages. This then becomes the story of how foreign nations have become landlords to families in the US.
The mortgage bust is happening because securities made up of millions of families’ mortgages were (indirectly but deliberately) used as collateral for the US to get loans from foreign nations. Only… it turned out that the collateral – the mortgages – weren’t worth what Wall Street said they were.
In other words, your personal mortgage served as a tiny piece of collateral for a larger plan.
There. The national debt and “subprime crisis” in action. Further explanation follows.
funnymoney iz us
It is imperative for the student of all this to understand that in 1971 Nixon took the US dollar off the gold standard. We now have what is known as a fiat currency, which means it is based on trust in the US government to satisfy its debts and obligations. Period. The question “what makes a dollar worth a dollar” can first be answered: certainly not the gold in Fort Knox.
Well, if gold does not back the dollar, then when the US wants other nations to lend to it to the tune of nearly ten trillion dollars, the foreign lenders are going to want to make sure the debt is backed up by… something.
$9,449,059,648,292.01 and counting and counting and counting and counting and counting and counting and counting and counting and counting and counting and counting…
Next step is to understand that the national debt has almost doubled since 2000. And for that matter, that the previous mess was also mostly borrowing for ceaseless sundry wars/police actions etc. since WWII. Constant war runs up constant debt. I think you get the picture.
So the next question to ask yourself: I know that as an individual, I might go to a bank to borrow money. How does a nation do it?
A nation issues, in this case, treasury notes (T-notes) which are sold off en masse at auctions to mostly foreign buyers. And don’t get the idea from the shiny word “treasury” that there’s gold behind it. Done with that, you see? It is merely an IOU from the treasury to the holder. Call it faith-based lending.
The word “Treasury” has become misleading. One must learn that there is no treasure in the treasury. All that gold in Fort Knox has nothing to do with backing up the dollar (or T-notes) anymore.
Meet Your New Lender/Landlord, China (or Japan, or Saudi Arabia, or Russia, or the UK, or Germany, or Switzerland…)
Step two: Say China, for instance, buys 500 million in T-notes. China will probably not want to hang onto all the T-notes because the interest yield is very low, not even keeping up with inflation. Right away the foreign creditor takes the T-notes to swap on Wall Street for juicier “high-yield-debt” (read: extortionary interest) products… such as the notorious phony-value securities made up of US public mortgages and other public debt (pensioners, municipal bond writers, college-bound borrowers, credit card holders, auto loan holders et al, take note!).
Byline: when it was discovered that the securities were… ahem… not what they were valued at, the creditors to the US felt – still feel – shortchanged. This will ever emerge as a growing international problem (and are they ever ticked off! http://www.iht.com/articles/20… http://www.atimes.com/atimes/G… http://wallstreetexaminer.com/…
Repeat: what backs up the value of a fiat currency is faith in the issuer to back up obligations and debts. When the mortgages were found to be of phony value, the collateral attached to the dollar went sour. Now do you see why the world is dumping the greenback?
While this is radically – RADICALLY – simplified, the reader needs to see how the debt gets recycled into other holdings than T-Notes.
(But but but… why are we selling public debt to the same “enemy nations” we used to fight? Isn’t that how we got all that debt, fighting wars in the first place?
Excellent question. This question should lead you to doubt the nature of the constant wars waged by your nation, and everything else the TV tells you – a subject to be reviewed by stonemason in the future…)
So it remained for me to ask: from whence came the information posted by tahoebasha3?????
We now interrupt this play for the next act, an important bulletin from our national capital…
ACT TWO: INSIDE WASHINGTON DC
Sex and corrupt politics in DC is nothing new. For example, during the Civil War there were 450 brothels in the capital. Part of the mythology of Washington, however, is what might be called the Jim Lehrer Illusion, which is to say that all people in DC do is sit around and rationally debate policy alternatives. In fact, Washington politics is also heavily driven by cowardice, bribery, blackmail, deceit, fear, loyalty to old buddies and even older bodies, cooptation, sex, and just plain crime. Journalists who pretend otherwise either don’t understand what is going on or are covering for someone [about everyone, I guess – stonemason].
The public often misunderstands the importance of Washington scandals, assuming them to be a simple dalliance, individual failing, or private offense. What makes both sex and crime in DC different, at least when those in power are involved, is that there is far more opportunity for blackmail and far more skill at covering things up.
The blackmail may be used by members of one branch of government against those of another, by lobbyists against members of Congress, by the police against whomever they wish, and by foreign powers. For example, one way to keep a congress member bought is for a lobbyist to provide him with high class prostitutes. And it is noteworthy that both the Israelis and Boris Yeltsin apparently knew about Bill Clinton’s affair with Monica Lewinsky before the American public did read all about it
ACT THREE: THE CRY OF RAPE – STORY THAT NEVER BROKE
So, who indeed brought up the “national security measure” of gagging states’ rights to regulate lending?
Sorry, pal, but here comes the cane to yank you onstage for yet another encore…
Did he, or didn’t he? Assigning that tormented question to the privacy of New York governor Eliot Spitzer and God, let’s just say that when I googled around for the source of the information in tahoebasha3’s comment, I found a big surprise: Spitzer was mounting a certain campaign in early February to expose a scandal.
My guess is a man with a raging guilty conscience would have known better than to think his campaign for the truth could succeed with a brothel’s worth of skeletons in the closet, and he would have spared himself. Who knows. It doesn’t matter, the allegations were accurate. Below, I print his testimony as of early February of this year on how the mortgage industry was deliberately set up to be overrun by loan sharks.
After all, if one envisions a few trillion dollars’ worth of international borrowing on the horizon (such as the administration did in exactly 2003 when they declared war on Iraq), one has to come up with collateral somehow. Take it away, Eliot:
Predatory Lenders’ Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer
Thursday, February 14, 2008; A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York’s, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
The writer is governor of New York.
Washington Post, February 14, 2008
It turns out I am not the first to notice the strange timing of the sexual allegations…
How to Pull Money Out Of Thin Air and other tales of blowing sunshine…
So, to recap: by allowing every semi-literate, unemployed soul in the US to come by a mortgage, a lot of “fictitious capital” was created. This “fictitious capital” was created to collateralize the mushrooming national debt.
Not only that, but the story goes on in the relaxing of accounting standards. “Creative accounting,” remember that? This allowed the sellers of masses of mortgages to hypothecate future values and then put them on the accounting books as if it all had happened.
An Accounting Technique called “Mark to Make-Believe”…
They could hypothecate that 50% of the mortgage holders would end up owing the balloon payments, and put it on the books long before it came true (or not).
This kind of book-keeping actually functioned as money/collateral, to back up the value of the dollar.
Courtesy of deregulation, one could “cook the books” any which way, imagining future proceeds from these rotten mortgages… and then use those accounting gimmicks as collateral for yet more loans against those securities.
If you’re mentally crying “foul,” you’re right. In the olden days, this was called fraud – to use the value of a so-called asset repeatedly in one scam after another. But in today’s Wall Street, it happens every day, with the blessing of the powers that be.
Hypothecating future returns? And putting them on the black side of your accounting sheets? This is called “creating wealth” in today’s finance sector.
You can see why the Chinese and other foreign lenders are mad.
And to quote Paul Harvey… now you know the rest of the story.
The mortgage lending crisis… the ultimate cost of war.