Our Banking Problem

Last week (02.23.12) Bank of America kissed off Fannie Mae saying it would no longer sell mortgages to the (closet taxpayer backed) mortgage buyer. Published reports say the break is over some of the crappy mortgages BofA sold Fannie in the past. Mortgages, Fannie thinks BofA knew –or should have known – were crap. Fannie apparently wants their money back. BofA says the mortgages went south because of the recession, so Fannie (we the taxpayers) should eat them.

Like a lot of bad things this looks back to 2008. BofA bought subprime mortgage lender Countrywide Financial as it was about to go belly up. BofA says the Feds “made us” buy it; some think BofA thought it was getting a real steal. In any case, BofA is down +/- $30 billion on the deal so far. The once biggest dude in the world of banking has been on a diet slimming down, dumping anything it can and backing away from the mortgage business, whilst dodging its responsibilities and sticking the taxpayers with its problems at every opportunity. Case in point: last August, when BofA ran their manure spreader through Fannie they picked up a half billion dollars of our money.

It’s sickening when you consider how much (+/- $45 billion in TARP) we gave BofA to forestall their potential collapse. Not to mention BofA’s use of the Federal Reserve “Discount Window” where the Fed passes under-the-radar loans to the banks. Late in 2008 as BofA was attempting to take over Merrill Lynch, between them the two entities were living on about $80 billion in the Fed’s stealth loans.

All the while, regular folks, many of whom had been -through their naivety- lured into home loans they could not possibly hope to pay, were getting no help from the banks. Instead of using TARP and the other taxpayer bucks to help little folks they had set up to fail, the banks went back to gambling with more of the shaky financial products like derivatives that got us into this mess.

How big a deal is BofA’s decision to stop selling loans to Fannie Mae? It’s pretty big if you think it’s the people’s job to make sure that these too-big-to-fail banks don’t fail. BofA says it’s no big deal, they can sell off their mortgages to Freddie Mac and Ginnie Mae. These two agencies complete the triumvirate of federal agencies created to help make the American Dream –home ownership- come to be. Like Fannie Mae, Freddie Mac is a publically owned company and is “wink, wink” not backed by the taxpayers. Ginnie Mae was spun off from Fannie and is the only openly taxpayer backed entity of the three.

It’s past time to stop the reckless gambling, to break up these ethically challenged too-big-to-fail behemoths, and get the resultant smaller banks refocused on the reason for their existence, to provide the funds to keep our economy moving. If we could get the banking sector resized and refocused, the two Maes and a Mac might be good for us; right now they are just good for the banks.