The deregulation of the Savings and Loan (SL) industry in 1982 facilitated the real estate boom and bust of the late eighties early nineties. Congressional deregulation of the derivatives market, specifically credit default swaps, through the 2000 Commodities Futures Modernization Act, has similarly facilitated the most recent real estate boom and bust. These cycles create buying and selling opportunities with concomitant excess profits for those, I believe, behind the manipulations that create these cycles.
Management and analysts that packaged “liar loans” mortgage backed securities (MBS) knew they were high risk. They perpetrated fraud, and they should be in jail. You don’t make 100% loan-to-value loans at historically high prices with no credit and income verification. They then sprinkled magic insurance dust on these securities through AIG credit default swaps and rated them AAA securities. Bull. The cover story that they were enabling home ownership to low income borrowers was nonsense. You are not doing low income borrowers any favors by facilitating their purchase of homes at historically high prices. Theses managers and analysts were facilitating the formation of a real estate bubble that created excess profits for our power elite. I suspect those elite, unsatisfied with their excess profits, pushed the limits of their arrogance and greed and are now stuck with losses and crying for a bailout. F ‘em.
Bailing out Fannie Mae, Freddie Mac, and AIG has been necessary, but this $700 billion bailout, alone, could double the costs of the SL bailout. Housing prices have dropped about 35% since their high in November 2005. These securities are not worth more than the underlying collateral of the loans. It would be reasonable to now estimate them to be worth 65 cents on the dollar. If the Feds pay par they’ll have losses of $245 billion, double the taxpayers’ losses of $124 billion in the SL bailout.
Just like social welfare which enabled dysfunction freeing its recipients from the consequences of their poor life decisions, this corporate welfare is enabling dysfunction. Further, it’s rewarding the corruption that created this mess.
Companies that own these “liar loans” MBS’s are the most motivated and best able to minimize losses on these securities. They should not be freed from dealing with these credits/securities. They should not be freed from the consequences of tolerating the corruption.
I do not have a problem with government intervening to facilitate the MBS’s and derivatives markets. I do have a problem with facilitating corruption.
My Bio – This issue is personal. On 9/8/2000 I contacted the CA State Auditor to report corruption in the CA Department of Financial Institutions. Three weeks later I was out the door. The Department’s Southern California Deputy Commissioner was eventually demoted, but she didn’t lose her job. I did. Nothing changed. Now - the corruption continues.
Please call your Congressmen.
