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TechnoratiThe Mortgage Mess and the Economic Meltdown: What McCain (and the Rest of Us) Should Learn From the Keating Scandal
The nation's escalating economic troubles -- triggered by the growing wave of home foreclosures, declining housing prices,and bank failures -- was entirely preventable. It will take years and trillions of dollars to dig ourselves out of this hole, as the ripple effects of the mortgage meltdown reverberate throughout the economy: millions of families losing their homes. a housing industry in disarray, skyrocketing consumer debt, tight credit, massive lay-offs, neighborhoods in decline, and serious fiscal woes for states and cities.
The issue should be at the forefront of this presidential campaign. John McCain is conspicuously silent, even as George Bush proposes to bail-out Wall Street, which played a major role in getting us into the mess. Barack Obama and Hillary Clinton have offered reasonable ideas for coping with the symptoms (especially homeowners facing foreclosure), but neither has proposed the sweeping reforms needed to address the root causes -- five pillars of which are outlined below.
The problem began in the 1980s, when -- under political pressure from the banking industry -- the Reagan administration and Congress stopped regulating the nation's financial institutions. Commercial banks and savings-and-loans used their political clout -- especially campaign contributions -- to get Congress to loosen restrictions on the kinds of loans they could make.
One of government's important roles is to establish ground-rules, and to regulate companies and industries, to save them from their own short-sighted greed. Government is necessary to make business act responsibly. Without it, capitalism becomes anarchy.
Washington now needs to put a short-term tourniquet on the banking industry to stem the damage, and to get back into the business of protecting consumers, employees, and investors from corporate greed. But in its last year in office, the Bush administration is repeating the same mistakes. It is about to invest huge sums of taxpayer dollars to bail out Wall Street -- including the investment bank Bear Stearns -- without insisting on any quid-pro-quo. And if there's anyone who should be screaming "stop!" before the Bushies gift-wrap the bail-out package, it should be John McCain, a politician who claimed that he'd learned his lesson after getting caught being a sock puppet for a sleazy banker. But so far his silence is deafening.
We're in the current mess because the financial industry has too much influence in Washington. This culture of corruption was epitomized by the Keating Five scandal. Five Senators -- including John McCain and four Democrats (none of them still in Congress) -- tried to intimidate federal bank regulators on behalf of Charles Keating, an Arizona real estate developer and owner of Lincoln Savings who had raised $1.3 million for the politicians. McCain, who received $112,000 from Keating and flew to the banker's home in the Bahamas on company planes, attended several meetings in 1987 with federal bank regulators who were investigating Keating for swindling investors.
McCain says he learned a valuable lesson from that experience about conflicts-of-interest, even though he later repeated the behavior in other instances, including intervening with the Federal Communications Commission on behalf of Paxson Communications, which was seeking to buy a television station license in Pennsylvania and which had donated more than $20,000 to McCain and lent him the company's jet for campaign travel.
But if McCain were alone in participating in this culture of corruption, we wouldn't be in the economic mess we're now in. Unfortunately, McCain's behavior was typical. Congress let the financial industry get away with giant rip-offs. While federal regulators looked the other way, banks engaged in an orgy of risky loans and speculative investments. Every aspect of the financial industry was so short-sighted and greedy that they didn't see the train wreck coming around the corner.
There was a time, not too long ago, when Washington did regulate banks. The Depression triggered the creation of government bank regulations and agencies, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Home Loan Bank System, Home Owners Loan Corporation (HOLC), Fannie Mae, and the Federal Housing Administration (FHA), to protect consumers and expand homeownership. After World War II, until the late 1970s, the system worked. The savings-and-loan industry was highly regulated by the federal government, with a mission to take people's deposits and then provide loans for the sole purpose of helping people buy homes to live in. Washington insured those loans through the FDIC, provided mortgage discounts through FHA and the Veterans Administration, created a secondary mortgage market to guarantee a steady flow of capital, and required S&Ls to make predictable 30-year fixed loans. The result was a steady increase in homeownership and few foreclosures.
In the 1970s, when community groups discovered that lenders and the FHA were engaged in systematic racial discrimination against minority consumers and neighborhoods--a practice called "redlining"--they mobilized and got Congress, led by Wisconsin Senator William Proxmire, to adopt the Community Reinvestment Act and the Home Mortgage Disclosure Act, which together have significantly reduced racial disparities in lending.
But by the early 1980s, the lending industry used its political clout to push back against government regulation. In 1980, Congress adopted the Depository Institutions Deregulatory and Monetary Control Act, which eliminated interest-rate caps and made subprime lending more feasible for lenders. The S&L industry, like Keating's Lincoln Savings, balked at constraints on their ability to compete with conventional banks engaged in commercial lending. They got Congress--Democrats and Republicans alike--to change the rules, allowing S&Ls to begin a decade-long orgy of real-estate speculation, mismanagement, and fraud.
The deregulation of banking led to merger mania, with banks and S&Ls gobbling each other up and making loans to finance shopping malls, golf courses, office buildings, and condo projects that had no financial logic other than a quick-buck profit. When the dust settled in the late 1980s, about a thousand S&Ls and banks had gone under, billions of dollars of commercial loans were useless, and the federal government was left to bail out the depositors whose money the speculators had looted to the tune of about $125 billion.
The icing on the cake was the Gramm-Leach-Bliley Act of 1999, enacted during the Clinton years by the Republican-controlled Congress, which tore down the remaining legal barriers to combining commercial banking, investment banking, and insurance under one corporate roof.
As a result of industry consolidation, between 1984 and 2004, the number of FDIC-regulated banks declined from 14,392 to 7,511. In 1960, the 10-largest banks held 21 percent of the industry's assets; by 2005, the 10 largest banks controlled 60 percent of the assets. Meanwhile, a netherworld of non-bank institutions that lend and invest money emerged, offering complex and risky loan products and investment vehicles that defy common understanding and resist government regulation.
The stable neighborhood S&L soon became a thing of the past. Banks, insurance companies, credit-card firms, and other money-lenders became part of a giant financial-services industry, while Washington walked away from its responsibility to protect consumers with rules, regulations, and enforcement.
Into this vacuum stepped banks, mortgage lenders, and scam artists, looking for ways to make big profits from consumers desperate for the American Dream of homeownership. They invented new "loan products" that put borrowers at risk. Thus was born the subprime market.
Now, as millions of Americans lose their homes, Wall Street institutions face collapse, and the economy is in a deepening recession, all the players within the financial and housing industry are pointing fingers, and lawsuits, at each other. Here's what really happened:
At the bottom rung of the industry ladder are the private mortgage brokers and bank salespeople who solicited and hounded families, encouraging them to take out a loan to buy a house or to refinance their homes. These street hustlers earned fees for bringing borrowers to lenders--the larger the mortgage, the larger the fee. They were often in cahoots with real estate appraisers, who inflated the value of homes (on paper) to make the loans look reasonable. Brokers persuaded many borrowers who were eligible for conventional loans to take out risky subprime loans, including adjustable-rate mortgages start with low rates and jump sharply after a few years. Subprime loans typically have higher application, appraisal, and other fees, as well as higher mortgage insurance payments, principle and interest payments, late fees, and fines for delinquent payments. Many borrowers were snookered into taking loans whose terms they barely understood because the documents were confusing. And in many cases, lenders simply lied about the costs of the loans and whether borrowers could really afford them.
Some of these brokers and banks were engaged in predatory lending, an array of abusive practices that targeted those least likely to be able to repay. Predatory lenders charged unconscionably high fees and interest rates, sometimes running well over 22 percent. Borrowers face hidden fees masked by confusing terms such as "discount points," erroneously suggesting that the fees will lower the interest rates. Many of these loans had prepayment penalties that make it difficult or impossible for borrowers to refinance when interest rates decline. Many banks were so eager to profit on these loans failed to require the documentation needed to evaluate the risks.
Only a decade ago, subprime loans were rare. But, starting in the mid-1990s, subprime lending began surging. They comprised 8.6 percent of all mortgages in 2001, soaring to 20.1 percent by 2006. Since 2004, more than 90 percent of subprime mortgages came with exploding adjustable rates.
Big mortgage finance companies and banks cashed in on subprime loans. These include Household Finance, New Century, Countywide, CitiMortgage, WMC Mortgage, Fremont Investment, Ameriquest, Option One, Wells Fargo, and First Franklin. The executives and officers of some of these companies cashed out before the market crashed, most notably Angelo Mozilo, the CEO of Countrywide Financial, the largest subprime lender. Mozilo made more than $270 million in profits selling stocks and options from 2004 to the beginning of 2007.
At the other end of the financial services industry are the investors -- people and institutions that borrowers never see, but who made the explosion of subprime and predatory lending possible. Subprime lenders didn't hold onto these loans. Instead, they collecting fees for making the transactions and sold the loans -- and the risk-- to investment banks and investors who considered these high-interest-rate loans a goldmine. By 2007, the subprime business had become a $1.5 trillion global market for investors seeking high returns. Because lenders didn't have to keep the loans on their books, they didn't worry about the risk of losses.
Wall Street investment firms set up special investment units, bought the subprime mortgages from the lenders, bundled them into "mortgage-backed securities," and for a fat fee sold them to wealthy investors worldwide. (According to the New York Times, for example, some towns in Australia are suing Lehman Brothers, the Wall Street bank with the biggest mortgage business, for improperly selling them risky mortgage-linked investments).
When the bottom began falling out of the subprime market, many banks and mortgage companies went under, and major Wall Street firms took huge loses. They include Lehman Brothers (which underwrote $51.8 billion in securities backed by subprime loans in 2006 alone), Morgan Stanley, Barclays, Merrill Lynch, Goldman Sachs, Deutsche Bank, Credit Suisse, RBS, Citigroup, JP Morgan and Bear Stearns. These investment banks are now accusing the lenders and mortgage brokers of shoddy business practices, but the Wall Street institutions obviously failed to do their own due diligence about the risky loans they were investing in.
Finally, the major credit agencies -- such as Moody's and Standard & Poor's -- raked in big bucks by giving these mortgage-backed securities triple-A ratings. They had their own conflicts of interest, because these ratings agencies get their revenue these Wall Street underwriters. No politician has yet called on Washington to hold these powerful credit agencies accountable.
So there you have it. The entire financial and housing food chain -- brokers, appraisers, mortgage companies, bankers, investors, and credit agencies -- participated in this greedy shell game. Some of what they did was illegal. But most of it was simply business as usual.
At the heart of the crisis are the conservative free-market ideologists, like former Fed Chair Alan Greenspan, whose views have shaped public policy since the 1980s, and who still dominate the Bush administration. They believe that government is always the problem, never the solution, and that regulation of private business is a misguided interference with the free market.
In 2000, Edward M. Gramlich, a Federal Reserve Board member, repeatedly warned about sub-prime mortgages and predatory lending, which he said jeopardized the twin American dreams of owning a home and building wealth. He tried to get Greenspan to crack down on irrational sub-prime lending by increasing oversight, but his warnings fell on deaf ears, including those in Congress.
"The Federal Reserve could have stopped this problem dead in its tracks," Martin Eakes, chief executive of the Center for Responsive Lending, a nonprofit watchdog group, recently told The New York Times. "If the Fed had done its job, we would not have had the abusive lending and we would not have a foreclosure crisis in virtually every community across America."
As Rep. Barney Frank (D-Mass.), chair of the House Financial Services Committee, wrote recently in The Boston Globe, the surge of subprime lending was a sort of "natural experiment on the role of regulation." testing the theories of those who favor radical deregulation of financial markets. And the lessons, Frank said, are clear: "To the extent that the system did work, it is because of prudential regulation and oversight. Where it was absent, the result was tragedy."
So, what to do now?
First, the federal government should help homeowners who have already lost their homes or are at risk of foreclosure. It should create an agency comparable to the Depression-era Home Owners Loan Corporation, buy the mortgages, and remake the loans at reasonable rates, backed by federal insurance. Created in 1933, HOLC helped distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It purchased mortgages from banks and issued new loans to homeowners. Within a few years, almost one-fifth of all mortgage were owned by the HOLC. A modern version of HOLC would focus on owner-occupied homes, not homes purchased by absentee speculators.
Second, Washington should not bail out any investors or banks, including Bear Stearns and its suitor, JP Morgan, that does not agree to these new ground rules. The Fed brokered the deal between Bear Stearns and JP Morgan without any conditions for the consumers who were ripped off. There will be more Bear Stearns-like failures in the foreseeable future -- institutions that the Fed considers "too big to fail." But if the federal government is about to provide hundreds of billions from the Federal Reserve, as well as from Fannie Mae, Freddie Mac and the Federal Home Loan Banks, to prop up Wall Street institutions, it should require the industry to be held accountable for its greed and misdeeds.
Third, Washington should consolidate the crazy-quilt of federal agencies that oversee banks and financial institutions into one super agency. Federal oversight has not kept pace with the dramatic transformation of the financial services industry. Four federal agencies -- the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation -- have some jurisdiction over mortgage lending. States have jurisdiction over the growing number off nonbank mortgage lenders (which accounted for about 40 percent of new subprime loans) and have no agreed-upon standards for regulating them. States are responsible for regulating the insurance industry (including homeowner insurance), and do so with widely different levels of effectiveness. It is simply absurd to have so many competing and overlapping agencies involved in regulating these financial services institutions, often at cross purposes.
"We need to go in the direction of more regulatory consolidation," Sheila C. Bair, chairwoman of the FDIC, recently told the New York Times. "It would make more sense to have some type of umbrella agency, if for no other reason than facilitating information."
Fourth, the federal government should be a financial services industry watchdog, not a lapdog. Senator Chris Dodd (D-Conn.), chair of the Senate Banking Committee, and Rep. Frank have proposed decent legislation. Congress should require lenders to verify applicants' income and document that borrowers have a reasonable ability to pay. It should puts private mortgage companies and brokers under the umbrella of federal lending regulations, requiring them to be registered and licensed. Wall Street and other investors should liable for the illegal practices of mortgage brokers and lenders. Borrowers should be allowed to sue the current mortgage-holder, even if the original lender sold the loan. Lenders should be prohibited from steering borrowers toward more expensive loans and from influencing an appraiser's value of a house.
These proposals may seem like common sense solutions, but they are already under attack by financial services industry lobbyists. Indeed, under pressure from the lobby, the House already gutted some of the better parts of the Frank bill. For example, the Mortgage Bankers Association and the American Banking Association lobbyists persuaded legislators to allow lenders to continue the insidious practice of paying an increased fee to brokers for steering borrowers into higher cost sub-prime mortgages. It also bars borrowers whose predatory loans have been sold on Wall Street from suing investors for relief until the homeowners are facing foreclosure. In effect, it forces borrowers into foreclosure as a condition for asserting their rights. Wall Street and the big players in the mortgage market won't be held accountable for buying abusive loans.
Fifth, and finally, we need real campaign finance reform, so that the banks, insurance companies, Wall Street firms, and other players in the financial services industry can't use their political influence to avoid adhering to responsible business practices. Washington is awash in Wall Street money. In 2000 George Bush collected nearly $4 million from the securities and investment industry, according to the Center for Responsive Politics. Al Gore received $1.4 million. Four years later, Bush received $8.8 million, double Sen. John Kerry's take. This year, so far, Hillary Clinton has collected at least $6.3 million from the industry, compared to $6 million for Obama and $2.6 million for McCain, who will no doubt start closing the gap. Wall Street has also spread its largesse to candidates for Congress from both parties.
We are now seeing the consequences of this system of legal bribery.
Under Bush, Treasury Secretary Henry Paulson, and Fed Chairman Ben Bernacke, the solutions have reflected the priorities of the financial services industry: bail-outs for Wall Street but resistance to strong regulations and help for troubled homeowners.
This isn't surprising, considering who was at the negotiating table when the administration forged its plans. The key players were the mortgage-service companies (who collect the homeowner's monthly payments, or foreclose when they fall behind) and groups representing investors holding the mortgages, dominated by Wall Street banks. Groups who represent consumers--ACORN, the National Community Reinvestment Coalition, the Greenlining Institute, Neighborhood Housing Services, and the Center for Responsible Lending--were not invited to the negotiation.
John McCain hasn't offered any ideas to seriously address these issues. This isn't surprising. McCain is a free market fundamentalist. And his major economic adviser is former Senator Phil Gramm of Texas, who, while in the Senate, was the key architect of the deregulation of the financial services industry and a fervent opponent of the Community Reinvestment Act. Gramm is now the vice chairman of UBS, the Swiss investment banking giant, and would be a leading candidate to be Treasury Secretary in a McCain administration.
In contrast, both Hillary Clinton and Barack Obama are cosponsors of Senator Dodd's bill and have offered proposals to protect homeowners facing foreclosure and add sensible regulation to the financial services industry. On Monday, in a speech in Philadelphia, Clinton added more details; she called for a $30 billion housing stimulus package to allow cities and states to purchase foreclosed properties and improve neighborhoods blighted by foreclosure. But she also proposed a new nonpartisan housing panel led by the likes of Robert Rubin (a close advisor who runs Citigroup, which is knee-deep in the subprime mess, and was her husand's Treasury Secretary) and Greenspan -- both of whom were part of the problem. So far, neither Democrat has proposed the kind of sweeping reforms needed to restore stability and accountability to the financial services industry and challenge their basic business practices.
Faced with a similar situation, President Franklin Roosevelt worked with Congress to give the federal government the tools it needed to make the banking industry act responsibly. At the time, some critics called him a socialist. But in retrospect, it is clear that what he did was to rescue capitalism. Once again, we have a financial services industry unable to police itself. The next president should tell the American people that "the era of unregulated so-called free-market banking greed and sleaze is over."
Peter Dreier is professor of politics and director of the Urban & Environmental Policy program at Occidental College. He is co-author of The Next Los Angeles: The Struggle for a Livable City and Place Matters: Metropolitics for the 21st Century
42 Comments so far
Show All"Are you familiar with the terms "loaded dice" and "stacked decks"?"
Sure, and I am also familiar with terms that are loaded such as "greed".
"When an entity has this advantage over its opponents, would you call it greed or "reasonable" self interest?"
Simply having an advantage does not prove "greed", and it remains to you to prove whatever advantage it is you are talking about.
"Greed" is a trait of individual persons. Who exactly is it that you calim is greedy? WHt is their name(s)?
"I wouldn't exactly call this "reasonable" self-interest."
You are entitle3d to your opinion. It remains then up to you to make a reasonable argument as to whether there is greed as opposed to self interest, and I would remind you that mere innuendo is no substitute for reasonable argument based on specific facts.
"the majority of the homes that are being foreclosed on are not homes in the $500,000 range"
Since that figure is well above the median house price we would not expect it to be so.
"Would you like to talk about the market manipulation going on in this "free market"? "
I would be interested in your fact based arguments, sure.
"Plunge Protection Team"
Do tell. Your use of the pejorative term belies your agenda. I'll make popcorn.
jakenewton March 28th, 2008 9:02 am
"I repeat: Who is to be the arbiter between what is greed and what is reasonable self interest? You?"
jakenewton,
Are you familiar with the terms "loaded dice" and "stacked decks"? When an entity has this advantage over its opponents, would you call it greed or "reasonable" self interest?
In an alleged "free market" where the G7 Banking Cartel (privately owned I might add) prints money out of thin air; loans it out to the rest of us at whatever interest rate they choose; keeps all the profits in "private" hands; and then convince their government puppets to "socialize" (give to taxpayers) most of the risks......well, I wouldn't exactly call this "reasonable" self-interest.
By the way, the majority of the homes that are being foreclosed on are not homes in the $500,000 range, neither are the balances on the mortgages.
Would you like to talk about the market manipulation going on in this "free market"? Why is there a Plunge Protection Team or the G7 warning us that they would act jointly to "calm irrational market moves", saying they would not say when and how they would do it.
Have you seen the special event scheduled for Monday?
http://www.msnbc.msn.com/id/23853415/
It's all about debt and class warfare!
"The national debt is 9 trillion and rising "
You have to compare it to something like GDP. Around $13 trillion *per year*. Many households routinely go into debt for an amount several times their income when they buy a house. The quwstion isn't the debt, but what you buy with the debt. Let's have that discussion.
"he will never afford his $500,000 house in this lifetime or the next."
Right, so that is why housing prices have been *falling* in case you haven't noticed.
"each act of greed "
I repeat: Who is to be the arbiter between what is greed and what is reasonable self interest? You?
"with it's income falling"
That would be GDP which is *not* falling. It continues a modest rise.
I'm not claiming the economy is in fine shape so don't go there.
Bailing out Wall Street by hundreds of $$billions on a regular basis is one of those "unfunded" liabilities that congressional Republicans or Republicrats will never mention when they piss-and-moan about social security and medicare, both of which they refer to as "unfunded" while we pay into them every week before we take home the remainder of our payroll check.
"Washington now needs to put a short-term tourniquet on the banking industry to stem the damage, and to get back into the business of protecting consumers, employees, and investors from corporate greed."
I think a noose that gets tighter with each act of greed would be more likely to keep it check and prevent further damage to individuals and the economy as a whole. Let's face it - the "fractional reserve" system was designed to increase the wealth of a "few" while the other 99% under this system remain in a state of debt.
"The next president should tell the American people that "the era of unregulated so-called free-market banking greed and sleaze is over.""
That would be the intelligent thing to say and accomplish. Here's what the CEO of Deutsche Bank recently said: "I no longer believe in the market's self-healing power".
It's time for this government to stop the banking fraud and corrupt engineering that is destroying the lives of the people in this country!
"It will take years and trillions of dollars to dig ourselves out of this hole...."
The national debt is 9 trillion and rising and the cost of entitlements in current accounts is bigger yet. We will never dig ourselves out of this hole. Cannot be done. The nation is in the position of a subprime borrower employed by Wal-Mart. No matter how one "restructures" his no doc, no down loan, he will never afford his $500,000 house in this lifetime or the next.
This nation is busted. Mr. Dreier, and with it's income falling, it can only get more busted. In the magical world of finance it is possible to be broker than broke.
Another misconception of this article is that the Federal Reserve is a federal agency like Comptroller, FDIC, Thrift Supe. It is not. It is a private banking system owned and operated in the name and interests of its shareholders, who are anonymous. The Fed cooperates with the USG if it cares to. It is not subject to audit and its decisions are taken in secret. Though the Chairman is appointed by the President, it is the Chairman who informs the USG what monetary policy will be. The Treasury is de facto a subsidiary of the Fed, though nominally a true Federal agency. Paulson is former head of Goldman Sachs.
The activity of the Fed and the private monetary system created the first Great Depression ( Bernanke acknowledged this is '02 on the occasion of Milton Friedman's 90th birthday ) and it is the direct cause of this crisis. It cannot serve the public interest because it is genetically inclined to serve the interests of its shareholders. It has proven record of both incompetence and blind self-interest and betrayed the public interest from its inception.
The private banking system cannot be reformed. The lack of understanding in this article is appalling and so typical of the academic environment where intellectual independence and original thinking only happens if supported by grants from the DOD, which is to say, almost never.
Our monetary system cannot be reformed. It has to be radically changed. And it will be, by the owners and operators of the current failed system. This is because there is no leadership to speak in the public interest and show the way towards government by and for the people. And this is not what Mr. Dreier is talking about, appearances to the contrary notwithstanding.
What did McShame learn from the Keating Scandal?
Well, since he was a principle player in that McScandal, he probably learned that if he could fool some of the people that time "blame on them" and when he attempts to fool the people again, he still won't be blamed.
McNasty. McFake. McSick. McOld. McWhatever.
"Check your history some more. "
I was interested in *now*. Which country *today* has a monetary system that you think the US should adopt?
I would add a 6th item to Peter Dreier's list: There should be a cap on the size of any financial institution. They should never be allowed to become "too big to fail."
jakenewton: ~"Check your history, in EVERY CASE, a fiat money system leads to economic collapse of the host country."
Wow, that means EVERY SINGLE COUNTRY in the world is doomed.~
Check your history some more. There's plenty of countries in the world that have suffered said inevitable economic collapse. Those countries still exist, and people still live in them. Some of them are even major powers in today's world. Someday, even people in Zimbabwe will be able to buy food again. So while things may well get ugly, "doomed" will require something more than economic collapse. Nukular war or ecosystem collapse, for example, will be much more difficult to recover from than a mere economic collapse.
expatincebu and MIMICSS are right about the Fed....its needs to be fired...
BUT there are solutions to how we can transition the money system--and that's where we need to put our energy.
See Ellen Browns, Web of debt www.webofdebt.com
See Riane Eisler, Real Wealth of Nations...creating a caring economics www.realwealtheconomy
Hazel Henderson and a slew of international economists have been laying out the steps for transitioning the global economic system (addressing the WB, IMF, Fed Reserve stuff)....
As Buckminster Fuller said " you never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." WE CAN DO THIS.
Any system where people don't have a right to safe and secure housing is sick and dysfunctional. A system that uses those desiring to own a home as fodder for greedy speculators deserves to crash. Big governance of financial enterprises is an absolute necessity until human consciousness leaves greed behind as a transitory trait of childhood instead of using it as the fundamental premise of society.
"there is too much GREED"
And who is to be the arbiter between what is greed and what is reasonable self interest? You?
"it's true that absolutely every currency in the world today exists by nothing but government fiat."
That's all I was trying to say. I'll add that there are any number of problems with a gold standard.
"Is any of this even a minor problem in Cuba?"
No, that place is like a utopia.
" JConrad March 26th, 2008 12:28 pm
This article does shed some light on how corrupt regulatory practices led to problems, but the root cause of the current meltdown is WAR !"
MAJOR CONTRIBUTOR that is, yes; but the real problem is that U.S. voters too constantly, repetitively elect and re-elect criminals for political representatives. And I do mean discernable, even obvious criminals.
NO country as evil as the U.S. is internationally, and as damn insane as its too many voters are, can stay comfortable for nationals for long; but the voters don't tire of repeating their insane electoral choices, and making the whole world suffer tremendously, until the day arrives with the situation becomes terrifying to them at home.
"You get what you pay for", has long been said. Similarly, we can say that you get what you vote for, if your chosen candidates win the political seats they run for. Choose criminals, and you'll get criminals; if they win the elections, or hijack the "wins", like by being unconstitutionally appointed and going along with this crime.
Also, another contributing factor was (and is) that there is too much GREED.
Combining these factors is a sure "winner".
I have only one question: Is any of this even a minor problem in Cuba?
Well, jake, it's true that absolutely every currency in the world today exists by nothing but government fiat. So none of them are safe from complete collapse. In the US, the money supply is estimated to be increasing at 18%/yr, now that these mega-bailouts are getting rolling. In Canada, the number is more like 9%. In Zimbabwe, the number is more like a gazillion. Unfortunately, history also shows that while these numbers can easily be increased, parabolically, there is almost no way to turn the trend around. Paul Volcker had the solution to this a few decades ago. But once he was gone, it was back to easy money and loose credit. Now the system could not withstand the treatment he administered. Looks like the system can't withstand any form of treatment, at this point, which is why all you'll see in response to the crises that keep popping up is more of the same stuff that gave rise to those crises in the first place. At one time, for many centuries, gold and or silver were used to anchor the amount of money that could be created. This history came to an end in the 1960's as the Vietnam war consumed far more money than could realistically be spent. The currency known as the Pound suffered a similar fate in the early 20th century, largely as a result of defending against the Germans, and the "world reserve currency" mantle was passed on to the US. If we could only stop the warring, and the blind arrogance that goes with it, we could possibly manage currencies responsibly. War is the ultimate malinvestment, and is utterly incompatible with a sustainable monetary system. The managers of the Euro are trying, but have to compromise so their currency does not "rise" too quickly against the dollar.
Well, that's a lot of babbling, but in answer to your question, there is none. Lessons could be learned from the Swiss, or the Austrians, but in a world where wars can be fought on empty assurances and unlimited debt, it seems pretty unlikely.
The Fed is independent of election and the politicians for a purpose and that is so it can do what is best to fight inflation and serve the Public without influence from political agendas-this is good. Unfortunately that concept begin to unravel after Paul Volker gave up the reins and Alan Greenspan took over. Now we have Bernanke who apparently has no idea what the original mandate was all about and is just another tool of the Administration.
The time has come for the women and men of the United States to step up. For far too long generations of Americans have passed the buck to those that followed. The sins of the parents are visited upon the children. If we don't lay our lives on the line now and break this vicious cycle, there won't be many more generations that survive.
I recall seeing a program some time ago; might have been National Geographic, History Channel, Discovery, I can't remember which. In any case, it showed how the simple act of abandoning a nomadic lifestyle had caused the decline and eventual demise of certain groups of hunter-gatherers. Apparently just settling down for too long in one place can be a fatal error. There was a great deal of archaeological evidence from various settlement sites clearly showing how the exploitation of local resources had provided a very comfortable life at first. But after a fairly short period, as the populations grew and the settlements expanded, things began to fall apart. The structures built later and near the apparent collapse of the settlements showed a steady decline in quality and increasing evidence of failing resources. Some skeletal remains showed signs of poor nutrition and extreme hardship. Finally either the sites were abandoned or everyone starved. It wasn't clear which.
Some would argue that sedentary agriculture was the first step on the slippery slope down which we are all now careening at breakneck speed. It can even be linked to the beginning of the current critical cycle of global climate change we are currently facing.
I'm not really sure when it started but for a long time now generations of Americans have been adopting increasingly wasteful lifestyles at an ever higher cost to their successors. I suppose the Industrial Revolution is the point where our ability to use technology finally caused us to abandon our common sense completely. We became so obsessed with what we could do that we neglected to consider what we should do. We opened the floodgates of rampant capitalism which actually took control as the result of an 1886 Supreme Court case called Santa Clara County v. Southern Pacific. A statement by the judge, a mere two sentences, gave corporations the same rights as persons under the fourteenth amendment. It's been all downhill from there.
From that day forward those corporate persons have been brainwashing Americans and much of the rest of the world, with an ever more sophisticated and obfuscatory program of indoctrination, that it was right and good to consume everything imaginable with reckless abandon. Bills were written and passed into law giving these immortal and immoral entities more and more power with less and less restraint. With rapacious greed and unbridled lust for power as their driving forces, these corporate behemoths have become instruments of conquest used by a relatively small number of psychopathic Free Market Capitalists / Libertarians. They have infiltrated and taken control of every aspect of our lives from public education to life and death decisions regarding our health care. They and the politicians that serve them have driven us to the very brink of utter disaster. Yet, as we stare over the precipice, into the yawning abyss of extinction, we can't help but wonder if we have any balance left on that gold card. That new high definition plasma TV would be really sweet. As I have detailed in an earlier essay the money worshippers now own nearly everything, including the souls of the American public.
So this is our dilemma. We can do as our fathers and mothers did to us, as theirs did to them, and pass this disaster on to our children. The problem is there will soon be no chance for salvation. If we don't fix this now, our children won't be able to. It will be too late. The proverbial tipping point to an extinction event will soon be passed. Our children, our grandchildren will be faced with the lives of slaves or refugees on a planet on its way to being uninhabitable. They will stand at the edge of oblivion and there will be no way back unless we stop the cycle.
Every adult American; every man and woman, every grandparent, mother and father must break the hold of the corporate death machine. We can no longer follow the Pied Piper of consumerism. That path leads to annihilation. Business as usual means offering up your children as a sacrifice to the false god of capitalism.
Stop spending.
STOP BUYING THINGS YOU DON'T NEED!
Cut up your credit cards. Don't drive unless it's absolutely necessary. If you were insane enough to buy a gas guzzling SUV sell it. If you can't sell it let it be repossessed. Withdraw your money and close all your bank accounts before the banks fail. Pay cash for everything you can. When you need clothes go to a store like Savers. If you have to mail payments for bills send money orders. If you have any substantial savings use what you can to make your home energy independent. Get as far off the grid as possible. Go solar or wind or both. Localize in every way you possibly can.
DO WHATEVER IT TAKES!
If we stop feeding the monster it will starve or at least morph into something we can possibly live with.
WAKE UP!
The debts of the past have finally come due, with interest. We must meet our obligation to the future.
Accept some pain and suffering now or condemn your children and grandchildren to agony and death.
What would happen if the foreclosed parties simply refused to leave their homes? How many sheriffs and marshals does it take to evict a family/homeowner. Are there enough to perform those duties? Just wondering. I am not a homeowner and was formerly employed by a sub-prime bank/lender.
peace,
st john
I am committed to Oneness through Justice and Transformation
Even mentioning the "American Dream" is a bullshit frame. The underlying issue is the American Denial -- the denial of property at affordable market levels: what people can actually afford out-of-pocket. And instead the proffering of it by all sorts of financial instruments designed to keep bankers, domestic and foreign, rolling in cash.
I'm also extremely dubious about the "protecting homeowners" rationale. It's patently obvious: they are NOT homeowners, they are tenant-occupants, paying a 30+ year mortgage. And perhaps they'll own it when the last payment is tendered.
I've noted that the losing "liberal" strategy has been to position this issue as compassion vs. justice. We need to help these "stupid poor people". God forbid we focus, primarily, on JAILING the predatory lenders and making sure that this doesn't happen again.
4 out of the Keating Five were Democrats. Good luck Obama supporters.
MIMICCS: Very illuminating posting.
Just seems like Divine justice here IF the usury used against the poor and lower income workers does end up costing the big banks... whatever the Fed gives as a band-aid surely can't stop the entire deluge? It looks to me like a tsunami in slow motion as person after person defaulting, degenerates the value of an area's real estate, and offers less in the way of purchase power to the overall pool. We are only seeing the tip of the iceberg right now...
"Check your history, in EVERY CASE, a fiat money system leads to economic collapse of the host country."
Wow, that means EVERY SINGLE COUNTRY in the world is doomed.
The Fed authorized 200 billion dollars to be buy investment bank mortgage backed securities that are somewhat suspect. This is money they create out of thin air, which means we are monetizing crap (don't worry, we do the same for bad 3rd world loans our banks made from the 1980's). That 200 billion will eventually work it's way through they system and become 2 trillion.
This does not cost us anything actually, except perhaps a devalued dollar and some more inflation, an insidious hidden tax).
It is interesting who the eligible receivers of this money are. They are the Feds primary dealers who buy and sell US treasuries. Of the remaining 17 dealers, 10 of them are companies based outside the US. Globalization man, ain't it cool.
The last time the Fed did something similar was in 1930. The Great depression was caused by the unholy alliance of commercial banks that were regulated by the Fed, and investment banks the Fed had no control over. In 1935 the Glass Steagall Act created rules to separate commercial banks and investment banks. In 1999, the Glass Steagall Act was repealed, heavily lobbied by Enron and Gramm, supported by Greenspan, signed by Clinton.
And here we are today. It is interesting that Gramm might become our Treasury Secretary if McCain is elected. He is working for UBS, one of our primary dealers. Obabma and Clinton will be no better, they have both raised over 6 million from the financial services industry, twice what McCain has gotten, although there is more to come for all who end up as the nominees. Hillary recently suggested a team made up of Greenspan, Rubin and Volcker to head up a group to address the housing crisis. Heh heh. LOL.
Obama has his own skeletons with sub-primes (from a CD article)
"Unfortunately, this wasn't the case for the 1,406 people who lost much of their life savings when Superior Bank of Chicago went belly up in 2001 with over $1 billion in insured and uninsured deposits. This collapse came amid harsh criticism of how Superior's owners promoted sub-prime home mortgages. As part of a settlement, the owners paid $100 million and agreed to pay another $335 million over 15 years at no interest.
snip
But this seven-year-old bank failure has relevance in another way today, since the chair of Superior's board for five years was Penny Pritzker, a member of one of America's richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending."
MISSING THE REAL PROBLEM, AGAIN!!!!!
The real problem is the unconstitutional Federal Reserve and the fiat money system. The Fed created this mess by keeping interest rates below inflation and by radically inflating the money supply. Since creation of the Fed the US $ has lost 90% of its value. Who profits? The bankers that own the Fed. JP Morgan is one of these.
Check your history, in EVERY CASE, a fiat money system leads to economic collapse of the host country.
There is only one fix to the current problems. Eliminate the Federal Reserve and return to a gold and silver based money.
Let me withdraw the comment I made to Jim Carville, as he really isn't the problem, but is simply a toady for the Klantons, who are the problem.
The country is owned by the rich. The rich strongly believe that is the way it should be. The people do not count. The owners will do whatever they want because it is their country. The rest of us are just employees of the country. We own and deserve nothing because we are not rich. If you want to have your voice heard become rich, otherwise just be quiet and do what you are told.
Fire the Federal Reserve--a private banking cartel that is unelected and totally unmanaged. The US gov't prints money, sells it to the Federal Reserve, then the Fed 'sells' it back to us and attaches "debt/interest". So, US gov't (us) sell the Fed $10--and they sell it back to us/banks and attach interest/debt and we now owe them $12. This is basically the way our system works. The Fed (a private banking cartel) is rolling in the dough. Hey, it's a great gig if you can get it....
We do not have to perpetuate this insanity any more. The US Constitution allows the gov't to print money, put it into circulation and eliminate the 'middle man/Federal Reserve' altogether. We do not need to keep paying our hard earned money to a private banking cartel who cares only for their own.
Anne Faith wrote, "This administration just bailed out these banks to the tune of TWO HUNDRED BILLION DOLLARS. Tons of our tax money to save these greedy bastards from their own folly, and WE're the ones paying for it!"
really, what is new? the multinationals have for a long time been mostly operations for fleecing we the sheeple. the current scheme is simply a bit more blatant than the usual.
The problem is capitalism. If you support it, then you should not complain. Under capitalism, the house always wins. So keep buying and spending to feed the rich.
nationalize the central bank, nationalize the oil industry. just the threat of a mass movement behind these ideas will bring the mad dogs quickly to heal.
"Faced with a similar situation, President Franklin Roosevelt worked with Congress to give the federal government the tools it needed to make the banking industry act responsibly."
The banking industry is the government.
And while the average American struggles many at the top of the food chain are doing very well for themselves.
During the five years from 2002 through 2006, Bear Sterns CEO James Cayne and the bank's
four top executives were paid $620.8 M. The
five also reported a payout total of $296.4 M
from insider trading of company stock.
Wall Street's five largest investment banks paid a record $39 billion in "executive bonuses" at the end of 2007. (Goldman Sachs, Morgan Stanley, Lehman Brothers, JP Morgan Chase Investment Bank and Credit Suisse Investment Bank.)
This article is good, but it should absolutely have put the blame for the current housing mortgage crisis where it belongs, on Bill Klanton's shoulders, as he was the one pushing all out for banking deregulation which he got through, thus enabling the con artists now going berserk with their rip off adjustable rate mortgages and all the lousy investments that couldn't have happened if Klanton had left the banking regulation which Franklin D Roosevelt's New Deal gave us, but Klanton didn't, and his wife won't be any damn better.
The rest of the coverage of this crisis in Common Dreams needs to put the blame where it belongs, on the Klanton gang, that so completely set this country up for this in a way no predecessor of either major party ever did. Take that Jim Carville, and shove it where the sun don't shine.
It is all "free market" economics until the greed causes a calamaty, and then the tax-payers have to come to the rescue. This would be a satisfactory solution if the perpetrators of the crash would go to prison where they belong, and if subsequently strict regulations were imposed. Unfortunately, neither of these two things is happening in the present bail-out.
Distressed Homeowners are neither academics, or economists. While we enjoy an intellectual discussion, real households are at risk... mortgage foreclosure is the result of deeper financial problems we (as a nation) face.
www.SPOCH.org
This administration just bailed out these banks to the tune of TWO HUNDRED BILLION DOLLARS. Tons of our tax money to save these greedy bastards from their own folly, and WE're the ones paying for it! Add to that the estimated THREE TRILLION DOLLARS this government will spend on the Iraq invasion and occupation. Yet McCain gets away with calling Obama a "tax and spend liberal." How much longer are they going to get away with using this tired old phrase against the Democrats, when THEY're the ones who are taxing and spending us to death.
If the Federal Reserve had left interest rates alone last August when they started lowering them, the US would now be in recession and that recession would be over by this time next year. Unfortunately the Fed. keeps lowering interest rates to help the 1% at the expense of the 99%. This has resulted in stagflation that will create a recession that lasts a decade or more and hurts 99% of Americans far more than a short recession would have.
Unless Congress quickly re-regulates the financial industry to pre-Ronny Raygun era standards, the US will witness ever worsening financial crisis. With each succeeding crisis, more wealth will be transferred from the 99% to the 1%.
This article does shed some light on how corrupt regulatory practices led to problems, but the root cause of the current meltdown is WAR !
"Iraq war 'caused slowdown in the U.S."
http://www.theaustralian.news.com.au/story/0,25197,23286149-2703,00.html
Stiglitz: " The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit."
Ralph Nader was crying about preditory lending before 2000!
Blame CONGRESS! Who turned their heads away while the fat cats got rich. Now we pay for their profits!
JOHN R MARCH/ SOLUTIONS 2: Good posts!
when we began the feminist federal credit union in 1973, the practice was for the credit union to use depositors' money to lend to borrowers. has this changed for credit unions, too?
the need is for all of us to back barney frank of the house and chris dodd of the senate in reintroducing the needed regulation. clinton or obama would probably sign it. not so likely for mccain.