Now that the ferocious and inevitable finger-pointing has begun as to who is to blame for the $700 billion corporate welfare bail-out, it’s time for those with cool heads and common sense to review the simple laws of nature in business – who controls the purse strings – to see how predictable the mortgage crisis was.
Fact: as home prices kept rising and banks and other lenders had lent to everyone who was credit-worthy, the quest began to write loans to anybody with a verifiable pulse. Centuries of underwriting standards were thrown out in the race to write loans. Hence the birth of the NINJA loan: No Income No Jobs or Assets.
Fact: borrower stupidity (and investor greed) aside, it was and still is the lending institution that decides whether the loan should be written or not. These decisions directly led to, and are therefore responsible for, the massive real estate fraud, mortgage fraud, appraisal fraud and other real estate crime such as foreclosure fraud that occurred and are which now occurring in new forms to take advantage of both real estate market chaos and the lack of sufficient law enforcement capabilities to respond.
Fact: Former Fed Chairman Alan Greenspan lied when he stated that he had no idea that large-scale defaults and price re-setting to numbers roughly equivalent to the days leading up to the lending splurge. So did Secretary of the Treasury Henry Paulson of Goldman Sachs. They both knew this was a great opportunity to make a lot of money for their industry, they knew the inevitable fall-out, and they knew that Congress – which had eagerly accepted industry largess for their own campaign coffers – would ride to the rescue with the taxpayer skewered at the end of its lance.
Fact: Congress willingly put no conditions on the bail-out: not on golden parachutes, not on year-end bonuses – some amounting to $600,000 EACH to managers and executives in “failed” lending institutions receiving bail-out money, not on corporate pork. Both political parties are as guilty as Greenspan and the Fed, Paulson and his Treasury (it’s apparently not yours and mine) and the lenders, who have not let up a bit on rewarding themselves for a combination of incompetence and fraud. See the many articles below on WaMu / Washington Mutual in the California Real Estate Fraud Report.
Fact: did you – or Congress – ever ask how Henry Paulson came up with the $700 billion figure for the bail-out? As opposed to $600 billion or $800 billion? This is just the start – there will be more bail-out money demanded by continuing to manipulate public fear and the markets.
Fact: this further leap into enormous deficit spending by the federal government is inevitably leading to the bankruptcy and selling off of the United States. Treasury bills and bonds are being sold to foreign interests because America has not lived within its means and there are few American takers for those financial instruments. Bulk sales of banks’ REOs are also finding primarily foreign purchasers as investors’ confidence in the dollar’s value continues to erode. Don’t be surprised if the next “tsunami” is uncontrolled inflation.
This is the biggest con of the 21st century.
For an excellent write-up on the man-made mortgage crisis, read this article by real estate broker Madeline Zook.