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T H U N D E R   M O U N T A I N   1 7 7 6 0 ,   U. S. A.

" tO THINK OUTSIDE THE BOX, GET OUT OF THE BOX FIRST!"

m I S S I O N  A R C H I V E S  C O N T A C T      

 

                   

Op-Ed: The Subprime Scandal

 

Robert Kuttner
The American Prospect

March 19, 2007

This excerpt is from The American Prospect.

Why is the market so nervous? Mainly thanks to the latest bitter fruit of financial deregulation: the collapsing $1.3 trillion "sub-prime" mortgage business, which now accounts for one mortgage in three. Here is a textbook case of why financial institutions need to be regulated, to protect both consumers and the solvency of the larger economy.

In the past decade, as regulators discarded rules, shady mortgage banking companies, financed by the bluest-chip outfits on Wall Street, calculated that they could make a lot of money offering bait-and-switch mortgages to poor credit risks. Default and foreclosure rates would be greater, but higher profits would more than compensate for the risks. So the sub-prime mortgage industry, enabled by the big banks, invented amazing gimmicks. These included not just variable-rate mortgages, but mortgages that were initially interest-only, mortgages with introductory teaser rates, mortgages with no down payment. No income verification required! No credit check! Sub-prime operators targeted people with horrific credit histories and families desperate for housing who could not afford the debt they were taking on. Last year, 60 percent of sub-prime loans required no meaningful documentation.

Then came the morning-after: As higher payments kicked in, people couldn't meet them. Defaults skyrocketed, to an estimated 13 percent of all such loans. At least 25 sub-prime lenders have gone out of business. The big dogs on Wall Street, who had invested in the sub-prime operators, took a big hit, too.

It's not clear where this will end. Many low-income families will lose their homes. Innocent investors will suffer the spillover effects on the stock market, and general mortgage rates may have to go up to compensate for these losses of reckless speculation. (laugh!)

But wait. Weren't these sub-prime lenders doing good works by making it easier for low-income borrowers to become homeowners? Sure -- in the same way that the Mafia helps small-business owners desperate for credit. If the goal is to promote low-income home ownership, there are far better ways that don't put financial markets at risk and don't cause people to lose their homes after a few years.

For instance, the Federal Housing Administration has long had a program of insured loans that require only a 3 percent down payment (and have a much lower default rate). Nonprofit and public programs like Neighborhood Housing Services offer long-term help to moderate-income homebuyers on credit counseling. If we were serious about promoting first-time home ownership, we would offer subsidized, low-rate mortgages, as we did in the Great Society era, before Reagan and the Bushes gutted social spending.

The sub-prime mortgage industry had no real commitment to the homebuyer, who was merely a handy means of making a quick buck. Ever since the Wall Street wiseguys invented "securitization" of mortgage loans, a mortgage company with little of its own capital at risk has been able to originate loans and sell them off to middlemen who turn them into bonds. Both the mortgage company and the middlemen make their money on the transactions, and some lucky investor ends up with the bonds and the risks.

Supposedly, the wizards of the private secondary mortgage market, such as Fannie Mae, vet the mortgages to make sure reasonable standards are being met. But Fannie has been reeling from her own scandals, and obviously someone was asleep at the switch.

A spectacular casualty was a sub-prime lender called New Century Financial, which has now suspended loans. Between 2004 and 2006 its three founders, perhaps seeing the coming abyss, realized $40 million in stock-sale profits, and are now under investigation for possible improper trading and rigged accounting.

Congress is also investigating the entire mess, while mortgage industry lobbyists hope to fend off regulation by using the low-income family as poster child for the industry's misdeeds: Regulation would just hurt the poor.

But before the mid-1970s, this kind of meltdown didn't happen, because there were regulations and prudent credit standards; low-income people got government help rather than private-market scams -- and there were hardly any defaults. How many more financial scandals will it take before we get back to that model?

Robert Kuttner is co-editor of The American Prospect. A version of this column originally appeared in the Boston Globe.

This article is available on The American Prospect website.

 

BEJO's STATEMENT OF RELEVANCE:

THE ABOVE  ARTICLE AGREES WITH OUR ANALYSIS AS TO WHO AND WHEN THE MORTGAGE AND HOUSING INDUSTRIES JOINED INTO AN EVIL COALITION TO MAKE MORE LIBERAL LOANS ON NEW HOMES LOOK LIKE AN ACT OF COMPASSION!  IN FACT, THE MOTIVATION WAS  HIGHER PROFITS FOR THE ORIGINATORS OF LOANS, MAINLY HIGH ROLLER SCAM OPERATORS WHO COULD ENTER AND LEAVE THAT RISKY MARKET AREA LIKE FLY-BY-NIGHT OPERATORS.

WHO WERE THESE OPERATORS? MAINLY JEWS AND A CRIMINAL ELEMENT WHO MANAGED TO WORM THEIR WAY INTO THE JIMMY CARTER WHITE HOUSE AT A TIME OF UNUSUAL ECONOMIC UNREST DUE TO THE CRUDE OIL SHORTAGE AND OTHER UNTRIED SCAMS PROMOTED BY JEWS WHOM CARTER HAD JOINED IN AN UNHOLY MESSIANIC ALLIANCE WITH THE PRO-ISRAEL GROUP CALLED THE ZIONISTS.

INFLUENCE BY THE JEWS IN THE USA GREW BY THREEFOLD DURING THE COMBINED PANICS CAUSED BY THE IRAN HOSTAGE INCIDENT, FUEL SHORTAGES, EXTREMELY HIGH INFLATION AND A MAJOR ASSAULT BY CARTER AND HIS JEWISH FRIENDS ON THE HOUSING MARKET REGULATIONS.

THIS ACTIVISM RESULTED IN THE COMMUNITY REINVESTMENT ACT OF 1977, A FEDERAL LAW THAT FORCED CONSERVATIVE BANKERS TO LOAN MONEY TO MINORITIES WHO COULD NOT LEGITIMATELY QUALIFY FOR A HOME LOAN. THE CRA ACT EMPOWERED GRASS ROOTS ORGANIZATIONS LIKE ACORN TO HARASS LOCAL BANKERS, FORCING THEM TO PROVIDE MORTGAGES ON NEW HOMES TO THE POOR. THE INTENT WAS TO LET FREDDIE AND FANNIE GOVERNMENT SECURITIZATION ENTERPRISES (GSEs) ABSORB THESE BAD DEBTS, LETTING MILLIONS OF POOR BLACKS LIVE IN HOMES THEY COULD NOT AFFORD IN AREAS WHERE THEY COULD NOT EVEN PAY THE LOCAL PROPERTY TAXES! WHILE THE JEW-HELD MORTGAGE BROKERS MADE BILLIONS IN MORTGAGE FEES, THE INTEREST RATES WOULD BEGIN TO RISE AFTER A FEW YEARS, TYPICAL OF LOW-INTEREST START-UP RATES THAT WOULD SUDDENLY BALLOON TO HIGHER AND HIGHER LEVELS.

MINORITY BUYERS DID NOT UNDERSTAND WHAT THEY HAD AGREED TO AND REAL ESTATE BROKERS AND SALES ASSOCIATES SCAMMED MILLIONS OF IGNORANT BLACKS TO GET THEM TO SIGN PAPERS THEY DID NOT UNDERSTAND. THE INDUSTRY ESSENTIALLY TOLD THE BUYERS THAT SINCE FREDDIE AND FANNIE GOVERNMENT BANKS  "GUARANTEED" THE LOANS, IF THEY COULD NOT PAY THE MORTGAGE OFF, THE FEDERAL GOVERNMENT WOULD PAY FOR IT!

THIS IS THE POINT AT WHICH BLACK GANGSTERS IN CAHOOTS WITH UNSCRUPULOUS FLY-BY-NIGHT JEW MORTGAGE BROKERS AND REAL ESTATE BROKERS BROKE DOWN THE CONSERVATIVE BANKERS MORE CAUTIOUS APPROACH TO QUALIFYING MINORITY BUYERS. A BLACK ORGANIZATION GREW OUT OF THIS PERIOD OF HOUSING GANGSTERISM, CREATING A VAST ORGANIZATION OF BLACK SCAM ARTISTS WHO ALSO REGISTERED  MINORITY VOTERS, THOUSANDS WHO WERE ILLEGAL IMMIGRANTS, AS WELL.

THIS PROCESS, AUTHORIZED BY THE CARTER COMMUNITY REINVESTMENT ACT OF 1977, WAS AN INTENTIONAL PROCESS AUTHORIZED BY THE CONGRESS AND PRESIDENT CARTER TO CREATE A ECONOMIC DISASTER WHICH EVENTUALLY OCCURRED DURING THE GEORGE BUSH PRESIDENCY, BEGINNING TO EMERGE IN BUSH'S FIRST TERM WHILE THE NATION WAS ENGAGED WITH THE RESPONSE TO THE 9/11/2001 TERRORIST ATTACKS!

THE CLINTON ADMINISTRATION IMMEDIATELY ADOPTED A FOLLOW-UP STRATEGY TO THE CARTER CRA OF 1977 BY AUTHORIZING FREDDIE AND FANNIE GSE'S TO COVER ALL THE BAD MORTGAGES AS YET KEPT AT LOW INTEREST RATES BY FED CHIEF GREENSPAN. DURING THIS PERIOD, THE DEMOCRATS KEPT THE INTEREST RATES SO LOW THAT SENIORS WHO HAD INVESTED IN INDIVIDUAL RETIREMENT ACCOUNTS RECEIVED LITTLE EARNINGS. BILLIONS OF DOLLARS WERE DIVERTED FROM SENIOR EARNINGS TO THE ADVANTAGE OF MILLIONS OF BLACKS, A DELIBERATE THEFT OF SENIOR EARNINGS BY THE DEMOCRAT MEMBERS OF THE CONGRESS!

IN 1999, CONGRESS PASSED THE GRAMM-LEACH-BLILEY ACT OF 1999 WHICH REPEALED A PART OF THE GLASS-STEAGALL ACT OF 1933. THIS ACTION EXPOSED THE SAVINGS OF EVERY ORDINARY DEPOSITOR TO LOSS IF THE LARGE NEW YORK COMMERCIAL BANKS SHOULD FAIL! THEY BEGAN TO FAIL IN 2007 AND THIS LONG-RUNNING CRIME BY THE CONGRESS AND DEMOCRAT PRESIDENTS FINALLY BROUGHT DOWN THE ECONOMY OF THE USA!

THE POLITICIANS WHO WERE DEEPLY INVOLVED IN THESE MANIPULATIONS CONTINUE TO SERVE AS CHAIRMEN OF VARIOUS CONGRESSIONAL COMMITTEES TO THIS VERY MOMENT! EVERY MEMBER OF CONGRESS BEGINNING WHEN JAMES CARTER WAS PRESIDENT HAS BEEN AWARE OF THESE SHENANIGANS BY THE DEMOCRATS WHOSE WHOLE PURPOSE WAS TO REDISTRIBUTE THE WEALTH OF THIS NATION  AND LOCK-IN THE DEMOCRAT VOTE FOR THE LONG TERM! THE REASON THAT THESE EGREGIOUS ACTS AGAINST THE PEOPLE OF THE USA HAVE NOT BEEN STOPPED OR THE GUILTY PARTIES PUNISHED IS BECAUSE THE ZIONIST JEWS NOW CONTROL THE ENTIRE GOVERNMENT PROCESS IN WASHINGTON! MEMBERS OF CONGRESS HAVE VIOLATED THEIR OATH OF OFFICE AND SHOULD BE REMOVED FROM OFFICE BY THE PEOPLE! HOWEVER, CITIZENS WHO WATCH TV CHANNELS THAT ARE PROPAGANDA OUTLETS FOR THE DEMOCRATIC PARTY, ARE VICTIMS OF JEW LIES AND MISREPRESENTATIONS. AS A RESULT, THE PEOPLE OF THE USA HAVE NO IDEA WHAT THE TRUTH IS!

THE SIMPLE TRUTH IS THAT THE POLITICAL PARTIES AND THE MEMBERS OF CONGRESS TAKE THEIR ORDERS FROM THE AMERICAN ISRAEL PUBLIC AFFAIRS COMMITTEE (AIPAC)! 

-- CSF II  DEC. 1, 2009