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The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

GrGr

Diamond Member
Sep 25, 2003
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The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

By Greg Palast
Reporting for Air America Radio?s Clout

March 14th, 2008

liink

While New York Governor Eliot Spitzer was paying an ?escort? $4,300 in a hotel room in Washington, just down the road, George Bush?s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there?s a BIG difference. The Governor was using his own checkbook. Bush?s man Bernanke was using ours.

This week, Bernanke?s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks? mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers? bordello: Eliot Spitzer.

Who are they kidding? Spitzer?s lynching and the bankers? enriching are intimately tied.

How? Follow the money.

The press has swallowed Wall Street?s line that millions of US families are about to lose their homes because they bought homes they couldn?t afford or took loans too big for their wallets. Ba-LON-ey. That?s blaming the victim.

Here?s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ?sub-prime? mortgage and its variants including loans with teeny ?introductory? interest rates. From out of nowhere, a company called ?Countrywide? became America?s top mortgage lender, accounting for one in five home loans, a large chunk of these ?sub-prime.?

Here?s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain?t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the ?discount? they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.

Now, what kind of American is ?sub-prime.? Guess. No peeking. Here?s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren?t stupid ? they had no choice. They were ?steered? as it?s called in the mortgage sharking business.

?Steering,? sub-prime loans with usurious kickers, fake inducements to over-borrow, called ?fraudulent conveyance? or ?predatory lending? under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.

But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy ? it was OK now to steer?m, fake?m, charge?m and take?m.

But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush?s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of ?federal pre-emption,? Bush-bots ordered the states to NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer?s investigation of ugly racial mortgage steering. Bush?s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup?s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called ?securitization.?

What that means is that they took a bunch of junk mortgages, like the Grinning?s, loans about to go down the toilet and re-packaged them into ?tranches? of bonds which were stamped ?AAA? - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).

When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide?s top man, Angelo Mozilo, will ?earn? a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars ? he pulled in from 1998 through 2007.

But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide?s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.

Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That?s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure ? and got to keep the Grinning?s house. There was no ?quid? of a foreclosure moratorium for the ?pro quo? of public bailout. Not one family was saved ? but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilo?s Countrywide stock rose 17% in one day. The Citi sheiks saw their company?s stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided ? what a coinkydink! ? the man called, ?The Sheriff of Wall Street? was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, ?Take him down today!? Naw, that?s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press ? one was ?Wall Street Declares War on Spitzer? - made clear to Bush?s enforcers at Justice who their number one target should be. And it wasn?t Bin Laden.

It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:

?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.?

Bush, Spitzer said right in the headline, was the ?Predator Lenders? Partner in Crime.? The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.

Spitzer wrote, ?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.?

But now, the Administration can rest assured that this love story ? of Bush and his bankers - will not be told by history at all ? now that the Sheriff of Wall Street has fallen on his own gun.

A note on ?Prosecutorial Indiscretion.?

Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I?m not allowed to tell you the prosecutor?s name, but I want to mention he was recently seen shouting, ?Florida is Rudi country! Florida is Rudi country!?

Not all crimes lead to federal bust or even public exposure. It?s up to something called ?prosecutorial discretion.?

Funny thing, this ?discretion.? For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer ? rarely done in these cases - was made at the ?discretion? of Bush?s Justice Department.

Or maybe we should say, ?indiscretion.?
Heh, Spitzer may be a dispicable scumbag, but he sure was a convenient scumbag for the scumbag Bush Justice Department to take down.
 

senseamp

Lifer
Feb 5, 2006
34,798
4,695
126
Sure smells like political prosecution to me.
Of course, I don't think Spitzer was above that himself, but two wrongs don't make a right.
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Wow, definitely puts things in another perspective.. And continues to make me skeptical of our government.
 

homercles337

Diamond Member
Dec 29, 2004
6,346
3
71
Wow, i had a definite feeling that the repugs were behind this. So the guy spent a TINY, TINY proportion of his wealth on a hot 22 year old. BFD. All of Washington would be in the same situation if a certain executive decided to pursue them.
 

bamx2

Senior member
Oct 25, 2004
483
1
81
Election year politics . And why not a little partisan spice to distract us from the serious problems . I remember kind stuff like this in the past with both parties .

Originally posted by: homercles337
Wow, i had a definite feeling that the repugs were behind this. So the guy spent a TINY, TINY proportion of his wealth on a hot 22 year old. BFD. All of Washington would be in the same situation if a certain executive decided to pursue them.
 

Vic

Elite Member
Jun 12, 2001
47,850
8,167
126
Here?s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ?sub-prime? mortgage and its variants including loans with teeny ?introductory? interest rates. From out of nowhere, a company called ?Countrywide? became America?s top mortgage lender, accounting for one in five home loans, a large chunk of these ?sub-prime.?
Sorry, but this line is utter and complete BS, and I've been in the mortgage industry since 1994. People were selling teaser ARMs back then too, except they used to be just straight 6 month LIBOR ARMs with no 2 or 3 year fixed rate period. God forbid we talk about the time before HOEPA. Oh and Cwide was selling them then too. They've been one of the nation's biggest lenders for as long as I can remember.
Subprime itself has been around for decades in some form or another. IMO you can trace its roots back to the old Midwest farmers' finance companies. The lenders of last resort. High rates and high fees but hey you got the loan after everyone else turned you down. If subprime says no then you sell your soul to the hard money lenders or go BK.
These loans were never intended for prime borrowers but it was never intended for RE speculation to get this out of control either.

And seriously, I was VERY much against this $200 billion pay-out, am VERY much against any further Fed rate cuts at this time, and know (and care) little about Spitzer's downfall, but that's just the tip of the iceberg as to the industry/technical/historical details that this article got wrong.
IF there was wrongdoing here (and I wouldn't be surprised if there was), IMO it would be nice if we could hear about it from a source that actually knew what it's talking about.

edit: BTW, the thing about usurious kickbacks is BS as well. First, kickbacks are illegal under RESPA anyway. What they are talking about are YSP and SRP, which are totally different. Second, Fannie, Freddie, and FHA have ALWAYS paid more YSP and SRP than anyone else. Especially FHA, who might cap the upfront fees but sky's-the-limit on the back. Having to take your borrower subprime has always meant getting less YSP and having to sell a tougher loan to your borrower.
What this article is confused about there is that subprime lenders have always had less stringent requirements for its brokers, particularly the all-important net worth criteria. What this means is that a lot of the buyers were being sold subprime loans, not so their broker could make extra money, but because he didn't have access to prime products to sell them (and probably never told his buyers that, I am sure).
 

jpeyton

Moderator in SFF, Notebooks, Pre-Built/Barebones
Moderator
Aug 23, 2003
25,387
140
116
Aren't there more rate cuts scheduled for next week?

Bush is determined to bail-out as many of his corporate/wall-street cronies as possible before his departure.
 

beyoku

Golden Member
Aug 20, 2003
1,570
1
71
Sad, i have also heard the information that 3/4 of the loans were to people that had high income and good credit as opposed to bad. Is this true? Can anyone verify this information? Also to comment on the quote here

"Now, what kind of American is ?sub-prime.? Guess. No peeking. Here?s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren?t stupid ? they had no choice. They were ?steered? as it?s called in the mortgage sharking business.


Does this mean that the whole thing happened because too many Black and Hispanics were getting screwed and that Racism against brown folks cause our housing market to crash? This country needs to get its act together. I am ashamed, I was this close to being steered into one of those loans as well.
 

nergee

Senior member
Jan 25, 2000
843
0
0
Originally posted by: jpeyton
Aren't there more rate cuts scheduled for next week?

Bush is determined to bail-out as many of his corporate/wall-street cronies as possible before his departure.


those bastards would get bailed out no matter who was in office........
with the Fed spigot wide open, how does it feel to be part owner in all this crap?
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: nergee
Originally posted by: jpeyton
Aren't there more rate cuts scheduled for next week?

Bush is determined to bail-out as many of his corporate/wall-street cronies as possible before his departure.


those bastards would get bailed out no matter who was in office........
with the Fed spigot wide open, how does it feel to be part owner in all this crap?
Alternatives?
 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: LegendKiller
Originally posted by: nergee
Originally posted by: jpeyton
Aren't there more rate cuts scheduled for next week?

Bush is determined to bail-out as many of his corporate/wall-street cronies as possible before his departure.


those bastards would get bailed out no matter who was in office........
with the Fed spigot wide open, how does it feel to be part owner in all this crap?
Alternatives?
Let them fail like they should. At the very least, if these banks like to act in such rash manners, the government should nationalize them or re-instate the Glass-Steagall Act. But no, people have it in their mind that these banks are too big to fail. The truth is there is something call FDIC and >95% of depositors would get their money back from whatever bank that goes under. If FDIC is broke, then Bernanke can lend money to the FDIC instead of the clowns on Wall Street. The only suckers would be those that bought into these schemes (and those people are rich).
 

Jhhnn

No Lifer
Nov 11, 1999
61,657
13,735
136
You're only part right, Dari. Not all investments are secured- not the ones in people's 401K or pension accounts, for example. And many businesses, honest going concerns, depend on short term lines of credit to finance their day to day operations. Allowing the investment banks to go belly-up would lead to a really huge contraction of credit and the economy.

I'll agree, however, that much of the current situation has arisen because of poor regulation of and within the industry, which will need to be addressed down the road. Overplaying that now will just lead to even less stability, more chaos, greater losses for everybody, not just the banks.
 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: Jhhnn
You're only part right, Dari. Not all investments are secured- not the ones in people's 401K or pension accounts, for example. And many businesses, honest going concerns, depend on short term lines of credit to finance their day to day operations. Allowing the investment banks to go belly-up would lead to a really huge contraction of credit and the economy.

I'll agree, however, that much of the current situation has arisen because of poor regulation of and within the industry, which will need to be addressed down the road. Overplaying that now will just lead to even less stability, more chaos, greater losses for everybody, not just the banks.
You're right. But the thing that really bothers me is how these banks can come up with "innovative instruments" and the Feds makes low-level complaints until it blows up in everyone's face. Then they go and bail them out. My professor, who is on the Federal Reserve board, once admitted to me that the financial reform act that was passed in 1999 was actually written by bankers. How's that for regulation? It all stinks and these motherfuckers get away with it all the time. Glass-Steagall should make a comeback with much, much tougher provisions. The Chinese wall these banks have is beyond rediculous (sic?).
 

nergee

Senior member
Jan 25, 2000
843
0
0
Nationalization of all this crap is right outside the front door....in fact it is happening right
now...The big money grubbers think they are untouchable, and unfortunately they are...
 

Pliablemoose

Lifer
Oct 11, 1999
25,197
0
56
If Spitzer hadn't been shuffling money around and paying off hookers with so much money that the general public was pissed they couldn't have laid a hand on him.

As far as blaming the victim-those that took out sub prime ARM's I have not a moment's sympathy for them, they failed grade school level math and assuredly are culpable in what happened.

The actions the Fed is taking now is going to avert another depression, it's gonna be a bitter pill, but we earned it, and BTW, who the hell didn't see this coming?

 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: Pliablemoose
If Spitzer hadn't been shuffling money around and paying off hookers with so much money that the general public was pissed they couldn't have laid a hand on him.

As far as blaming the victim-those that took out sub prime ARM's I have not a moment's sympathy for them, they failed grade school level math and assuredly are culpable in what happened.

The actions the Fed is taking now is going to avert another depression, it's gonna be a bitter pill, but we earned it, and BTW, who the hell didn't see this coming?
That's why the banks should not be given a free pass. they too need to be punished. I see a double standard when you don't care for the regular folks who "failed at math" but have no problem helping the Feds cause "it can't be help."
 

Pliablemoose

Lifer
Oct 11, 1999
25,197
0
56
Originally posted by: Dari
Originally posted by: Pliablemoose
If Spitzer hadn't been shuffling money around and paying off hookers with so much money that the general public was pissed they couldn't have laid a hand on him.

As far as blaming the victim-those that took out sub prime ARM's I have not a moment's sympathy for them, they failed grade school level math and assuredly are culpable in what happened.

The actions the Fed is taking now is going to avert another depression, it's gonna be a bitter pill, but we earned it, and BTW, who the hell didn't see this coming?
That's why the banks should not be given a free pass. they too need to be punished. I see a double standard when you don't care for the regular folks who "failed at math" but have no problem helping the Feds cause "it can't be help."
Mr. Market is taking care of the lending institutions (and their shareholders), trust me...
 

event8horizon

Senior member
Nov 15, 2007
675
0
0

heres an interesting guy that owns ameriquest/ACC Capital Holdings (ACCCH) that is a national mortgage lender based in Orange, California. The company is the largest privately held retail mortgage lender in the United States and the largest subprime lender by volume. ACCCH is owned by Roland Arnall.
As well as Ameriquest Mortgage, the company also owns Argent Mortgage which makes wholesale loans through mortgage brokers, and AMC Mortgage Services which carries out customer services activities for all ACCCH mortgages.

Roland Arnall is the U.S. Ambassador to the Netherlands and billionaire previous owner of Ameriquest, which was once one of the United States's leading wholesale sub-prime lenders. The company was one of the largest privately held retail mortgage lenders in the United States. In early 2006, the company announced a $325 million settlement with state attorneys general and law enforcement agencies and financial regulators in 49 states and the District of Columbia over allegations of predatory lending practices. Ameriquest faced allegations that, among other things, it misled and overcharged borrowers, and falsified loan applications
In the 2003-2005 period, Arnall and his wife raised more than $12 million for George W. Bush's political efforts, including $5 million for the Progress for America Voter Fund, a self-proclaimed "conservative issue advocacy organization dedicated to keeping the issue record straight."
Mrs. Arnall also served as a co-chair for the 2004 Republican Convention and hosted a $1 million Bush-Cheney fund-raiser at the couple's 10-acre home in Holmby Hills, California. After Bush was reelected, The Arnalls contributed another $750,000 for inaugural balls in January 2005.
On August 1, 2005, Bush nominated Arnall to become the U.S. ambassador to the Netherlands. The senate approved his nomination on February 9, 2006.
Arnall was successfully installed as ambasssador to the Netherlands on March 8, 2006 when the Dutch Queen Beatrix received Arnall's diplomatic letters.
Arnall announced his resignation as ambassador on Feb. 21, 2008, effective on March 7.US ambassador to The Hague to step down.

http://en.wikipedia.org/wiki/Ameriquest

http://en.wikipedia.org/wiki/Roland_Arnall

 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: Pliablemoose
Originally posted by: Dari
Originally posted by: Pliablemoose
If Spitzer hadn't been shuffling money around and paying off hookers with so much money that the general public was pissed they couldn't have laid a hand on him.

As far as blaming the victim-those that took out sub prime ARM's I have not a moment's sympathy for them, they failed grade school level math and assuredly are culpable in what happened.

The actions the Fed is taking now is going to avert another depression, it's gonna be a bitter pill, but we earned it, and BTW, who the hell didn't see this coming?
That's why the banks should not be given a free pass. they too need to be punished. I see a double standard when you don't care for the regular folks who "failed at math" but have no problem helping the Feds cause "it can't be help."
Mr. Market is taking care of the lending institutions (and their shareholders), trust me...
How many have gone under? That's right...none. And they won't either because they're "too big to fail."
 

GroundedSailor

Platinum Member
Feb 18, 2001
2,502
0
76
Originally posted by: Dari
Originally posted by: Pliablemoose
Originally posted by: Dari
Originally posted by: Pliablemoose
If Spitzer hadn't been shuffling money around and paying off hookers with so much money that the general public was pissed they couldn't have laid a hand on him.

As far as blaming the victim-those that took out sub prime ARM's I have not a moment's sympathy for them, they failed grade school level math and assuredly are culpable in what happened.

The actions the Fed is taking now is going to avert another depression, it's gonna be a bitter pill, but we earned it, and BTW, who the hell didn't see this coming?
That's why the banks should not be given a free pass. they too need to be punished. I see a double standard when you don't care for the regular folks who "failed at math" but have no problem helping the Feds cause "it can't be help."
Mr. Market is taking care of the lending institutions (and their shareholders), trust me...
How many have gone under? That's right...none. And they won't either because they're "too big to fail."
And how many at the top have lost their jobs and/or wealth/savings? Virtually none except for the symbolic CEO's. And they too left with kings ransoms in golden parachutes.

Time to put the regulators and their bosses in jail. Enough of this administration and it's cronies using taxpayer money as their personal ATM's.

 

Vic

Elite Member
Jun 12, 2001
47,850
8,167
126
Originally posted by: beyoku
Sad, i have also heard the information that 3/4 of the loans were to people that had high income and good credit as opposed to bad. Is this true? Can anyone verify this information? Also to comment on the quote here

"Now, what kind of American is ?sub-prime.? Guess. No peeking. Here?s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren?t stupid ? they had no choice. They were ?steered? as it?s called in the mortgage sharking business.


Does this mean that the whole thing happened because too many Black and Hispanics were getting screwed and that Racism against brown folks cause our housing market to crash? This country needs to get its act together. I am ashamed, I was this close to being steered into one of those loans as well.
Up until just this month, the Fannie, Freddie, and FHA loan limits were capped at $417k, with FHA being much lower in most of the county ($200,160 most counties with some metro counties up to $389k).
So if you lived in an area where home values were rapidly appreciating and you wanted to get in on the boom but didn't have $200k+ to put down on that $600k+ house, then subprime/alt-a was your only alternative.

If you should be ashamed for anything, it's for actually believing the BS in the OP's article.
 

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