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The Mother of All Rip-offs
“Get Ready For A Real Hosing”
By Mike Whitney
THE BANKER'S MASTERPLAN: "Dump the mortgage-backed junk on Uncle Sam"
Everyone should be aware of the massive fraud that is about to be perpetrated on the nation to save a few shifty bankers from default. The basic contours of the plan was laid out in an op-ed in the New York Times last week by Howard P. Milstein, chairman of New York Private Bank and Trust. Milstein made his pitch for a bailout in an article titled “Give The Banks Some Credit”. Milstein says:
“The health of the American — and indeed the global — economy depends on having a financial system that is able to extend credit to businesses and consumers. The losses that have been incurred as a result of the excesses in subprime mortgage lending will take years to work their way through the worldwide financial system.....If banks of all sizes could regain their capital immediately and easily, it would be a tremendous benefit to the American economy."The federal government could make this happen by entering into an arrangement with American banks that hold subprime mortgages, in which homeowners typically pay a low interest rate for two or three years then face much higher payments. Here’s how it would work: The government would guarantee the principal of the mortgages for 15 years. And in exchange the banks would agree to leave their “teaser” interest rates on those loans in effect for the entire 15 years. This would instantly give the lending banks new capital.”
Wait a minute. If “the government guarantees the principal of the mortgages” then there's no risk for the banks. If that's the case then why should they be paid anything, even the “teaser rates”. Investment is risk and risk is investment---Get used to it. What Comrade Milstein is requesting is “nationalizing” the banking system to protect his indolent friends from loss or default. This could have been written by Chairman Mao. // Milstein continues:
“As these mortgages would be guaranteed by the Treasury, they would suddenly be assessed, on bank balance sheets, at their original value — and a significant amount of the banks’ lost capital would be restored. Plus, the banks would receive, from most of the homeowners with subprime mortgages, up to 15 years of teaser-rate payments.”
Unbelievable! So the bank takes NO risk on the investment but---at the same time---is allowed to add the full value of the mortgage to its capital reserves? And, Milstein doesn't even want to reduce the value of the mortgage to current housing prices. He thinks it should be recorded at its "original value" so it can beef up the bank's dwindling capital.
What kind of rubbish is that? Real estate prices have plummeted in the last year and ... the banks assets should reflect those losses. Tough luck, Milstein. Your buddies cooked up this scam. Now take your lumps like a man. // Milstein continues:
“By solving the bank capital crisis immediately, this strategy would ensure that fewer families would lose their homes”...blah, blah, blah. It would “be good for our economy.” .....
....But, back to Milstein. What does he want? He wants to buy back the subprime debt that was sold to gullible foreign banks "at a discount" but then record it on the banks' balance sheets at full value.
Whoa. Now, there's a neat trick. In other words, he wants to pay a nickel for the "debt", but then record it as a dollar to meet his capital requirements.
Is this really how bankers think?
Oh---and by the way---he also wants the American taxpayer to guarantee the debt in case the nickel loses some of its value. Nice touch, eh? Milstein adheres to the old adage, "Privatize the profits, socialize the losses."
Finally, Milstein adds that his only interest is his “concern for the health of the global financial system.” .... The tragedy of the stimulus charade is that some variation of Milstein's proposal is sure to be enacted. Otherwise it wouldn't have shown up in the NY Times. .... The banking establishment and the administration have finally settled on a 'bail out plan' and "We the People" are going to foot the bill. Congress is already on board and Bush is just a swipe-of-the-pen away from another trillion dollar giveaway to big business. The banks and money-lenders always get their pound of flesh while the rest of us get screwed. Some things never change....
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In other words, though no decision about this has yet been made, Mike Whitney is astutely pointing to the all-too-plausible likelihood that the bankers -- together with their friends in Congress -- will devise a way to shift the entire burden of the immense financial losses onto the backs of the public.
Just try to wrap your mind around this. The Wall St community creates the sub-prime mortgage scam (with invaluable assistance from deregulation proponents in Washington). The mortgage originators clean up big-time, selling junk to other financial institutions all over the world, leaving them on the hook for colossal losses. The only problem is that these losses paralyze worldwide lending, threatening the very stability of the financial system. But that could be fixed -- if they stole a few trillion dollars of taxpayer money, to get all the banks off the hook!
If this type of outcome starts to take shape, how could anyone be surprised? The only people who might defend us against such a gargantuan swindle would be our "friends" in Congress. Why don't we all hold our collective breath until they decide to protect our interests, against those of the bankers, simply because "it's the right thing to do"? That would be a safe strategy -- wouldn't it?
