Crooks?

Three years after the big banks drove our economy off the cliff we are beginning to call some of the players to task. It’s been no secret that mortgage entities lured people into buying properties they could not afford. They coached them on deceptive practices, like lying about their income and most everything else. These subprime (read unlikely to be repaid) mortgages were gobbled up largely by the big Wall Street banks who demanded more, ever more from these small time con artists.

The banks bundled them into investment instruments called Collateralized Debt Obligations (CDOs). These mortgage packages were blessed with AAA (the very best) ratings by Standard & Poor’s, Fitch Ratings, and Moody’s Investor’s Service. Soon they were being bought and sold all over the world. This charade* carried on until the rotten mortgages in these packages began to collapse.

The agency that oversees Fanny Mae and Freddie Mac (who live on taxpayer dollars) is gearing up to sue a bunch of the big banks for +/- $30 billion in losses (our money). Add to this, lawsuits from various individuals along with AIG – they got suckered into insuring some of the banks against losses from these loans. And the Attorneys General of all 50 states who are in settlement negotiations with a bunch of the big banks. There’s trouble on Wall Street.

As you can imagine, this has triggered a flurry of finger pointing. The banks shrug and point to the rating agencies, ignoring the obvious. The agencies were seriously overmatched by the fast talking bankers. Plus, the banks are among the rating agencies’ best customers. Everybody is pointing to the “sophisticated investors, who knew what they were buying.” Again, maybe overmatched by the fast talking bankers?

This whole dance is ridiculous. The California farm hand earning $14,000 a year had to be conned into buying a $750,000 house, as did many like him who had never heard of a subprime mortgage. The big banks knew what they were buying; they cynically put decent mortgages on top of the losers in the CDOs to make them smell better. Internally they referred to these CDOs as “Crap.” They hustled this “Crap” to their customers; all the while buying insurance to cover the “Crap” they were holding.

When it all fell apart, the taxpayers were forced to bail them out to keep the banking system from collapsing. A generation ago we had the S&L crisis. An avalanche of bad mortgages threw the nation into a recession. The savings banks took a hit, nearly 750 were closed, about a fourth of the national total. The taxpayers took a $90 billion hit – the beginning of the national debt that has been building over the last decade.

There’s a difference between what happened to the peddlers of “Crap” in the last decade and those responsible for the S&L disaster twenty years ago. The S&L flimflammers (AKA crooks) were nailed for racketeering and other crimes. They were fined and in some cases jailed. The flimflammers who triggered the recession we are now suffering through still have their big jobs, big pay checks and bonuses, just as if nothing happened. Meanwhile the poor and the middle class suffer. What’s wrong with this picture?

*Dictionary.com – “Charade”  A blatant pretense or deception,  

especially something so full of pretense as to be a travesty.  

© 2011 GLG