by Jack Lee
When we bought our home we thought that was really the price, we didnt understand that was an artificial price due to banks writing bad loans. Joe Getty.
Bad loans and outright fraudulent loans were rampant during the years 2005, 06 and 07 and created billions in profits for many, until gravity finally kicked in and then home prices came tumbling down and took the nation’s economy with it.
The home loan debacle involved so many people in such weirdly connected ways it boggles the mind, but one thing is so abudnatly apparent now, that it has devolved into almost every aspect of our financial lives!
All good times must come to and end and so it was again, all those spculators and unethical lenders started a chain of events that would eventually take down giants of industry. So many big names, General Motors, Chrysler, Lehman Brothers, AIG, Countrywide, they have all fallen from grace. Even Fannie Mae, Freddie Mac, the nations largest semi-private banks were all but wiped out by the fraud of 09. But, despite the all this intensive and pervasive fraud and corruption…no one has yet been punished. Isn’t that odd? Even most of the bankers and mortgage brokers that profited so heavily for a time from writing these bad loans have found shelter from accountability and so have their ill gotten gains.
Wall Street was rocked to its very core by home loans that were eventually bundled into so-called AAA securities, and sold off for hundreds of billions to everybody from public employee retirement funds to other countries in a collosal ponzi scheme called derivatives that still has accountants trying to figure out exactly how much money was really lost!
But, these were triple A rated securities, how could this possibly happen, you may wonder? Simple. Because the rating firms had no better ethics than their clients. The lending institutions that were making a killing off soaring home prices were in bed with the rating companies, and of course the predicable results became a stunning reality as the housing bubble burst and laid bare all the corrupt business practices.
Rating companies like Moodys and Bear Sterns were fairly stodgy old companies that for many decades neither liked nor disliked Wall Street, and had little to do with their jet-set social circle, but then something changed around the year 2000-2001. The rating companies decided it wasnt enough to make a healthy profit, they raised the stakes by going public with their own stock offerings and soon the raters of companies were attending the same cocktail parties as the ratees. it was a cozy relationship and government intervention was nowhere to be seen.
Business was good, very good, almost too good and by not doing much investigation and more or less just accepting the company reports the raters discovered they could make a lot of money in a very short time! And as the rating businesses became ever more addicted to improving their own cash flow, they also became susceptible to bending age old rules and turning an occasional blind eye to obvious irregularities, that in other times would have raised serious red flags for investors that relied and trusted in their independent ratings to keep them safe. This was a setup for disaster and few in government ever saw it coming, but does that surprise you?
These very same companies were also heavy campaign contributors to your elected officials and nobody ever wants to kill the golden goose do they?
Competition between the rating companies also grew as the income grew, big money has that effect. As it did, the corporate industries that were feeding them the lavish commissions started behaving badly. They threatened these stodgy old firms saying they would go shopping for more favorable ratings, if they didnt play ball. Times were good for the rating companies, they could easiloy make $800k-900k in commissions for few a hours work and it was decided almost unanimously why ruin a good thing? Ruin…that was to become a key word in the years taht followed.
Of course unfavorable ratings could spell disaster for a stock or a bundled derivative, so the pressure was intense to avoid unfavorable ratings by hook orcrook. Another key wordcrook. This is why on the very eve of bankruptcy some mega companies still had good credit ratings, Washington Mutual for instance and Lehman Bros for instance. One day before the 150 year old institution of Bear Sterns went broke, the CEOs was saying they had adequate liquidity (of course they didnt) but they still had good ratings!
Is it any wonder now that nobody in their right mind believes the rating companies or securities? This has aggrevated the changes of a recovery too. Investor confidence is at a decades low.
So, where is the accountability, you might wonder? No one is going to jail. Few of the major culprits that got us into this mess in the first place are even going out of business! No, they are being invited to come up with solutions to save our devastated economy (Frank Raines) and are often the benefactors of generous giveaways of taxpayer dollars.
Panic in government has played right into their hands as they bankers said, give us more money, we’re too big too fail! And we did in perhaps a vain effort to save those bad banks that wrote fraudulent loans and coerced and threatened rating companies to cooperate, isn’t that ironic?
Weve all been taken by these rascals in a rampant, unrelenting feeding frenzy of greed and those who have taken us in round one are coming back to take us again in round two.
Dire warning: A depression may be defined as an “economic downturn where real GDP declines by more than 10 percent.” The nation is fast coming to a point where we will either fall through the trap door or we will somehow be able mitigate the damage and start to recover. But, the latter is by no means assured. The trillions already spent may simply delay an inevitable outcome for such unrestrained and widespread fraud. If Obama continues the T.A.R.P. bailouts, the value of the dollar may ultimately crash. This would cause world wide global depression.
The stock market is seeing unprecedented declines with stocks like General Motors at a buck and change, a 75 year low, or Citi Corp dipping under a dollar. Then we have unemployment in key states like California going over 10% and 650,000 jobs lost nationwide in February. There is absolutely no sign of it letting up and the layoffs just keep coming. It would be comical if it were not so sad, corrupt corporations and political leaders got us into this fix and now we are trusting them to get us out?.
Yes, the Obama administration is taking very aggressive action, but is it the right action? There is no evidence the record breaking stimulous package is being spent on anything that will revive the economy, but there is strong evidence of massive pork spending that is fueling more waste, fraud and abuse! There is also evidence of government growing as dependencing on government increases.
We will soon have the answer to the D word question and my prediction is that answer will arrive within the next 120 days. We will soon know if the trap door will be sprung or if we will get a reprieve and walk off the gallows into the light of recovery. I am not optimistic, but miracles do happen. Does this mean only a miracle will save us from a depression? Stay tuned that is coming into focus very soon!