Sadly, the explainer in chief did not elaborate, did not remind the country that Wall Street firms made billions of dollars securitizing these loans, then turning them into exotic products with misrepresented values. After financing rip-offs of homebuyers, they ripped off investors by selling infected "bundles."
None of these con-artists have been prosecuted; many have been rewarded.
According to economist James Kwak, for banks, "there is no contradiction between fleecing customers and making lots of profits (which is what makes you safe and sound). (a) Originate bad loans; (b) pocket fees; (c) sell bad loans to an investment bank for distribution; (d) repeat. What threatened to bring down banks was the fact that they held on to too much of the risk of those loans, either on their balance sheets or in their off-balance-sheet entities."
These assetless products had no underlying value, and had to be written off. leading to massive losses. It was the implosion of these fraudulent "toxic" mortgages that brought down the economy. The FBI cites "an epidemic" of criminality.
The Administration is not going after the people who were "pedaling loans that they knew could never be paid back." They are, instead, proposing a new consumer protection agency to make sure that the slick salesmen who take advantage of a widespread lack of financial literacy can no longer bamboozle the uninformed.
Everyone advocating responsible lending wants new rules with teeth. They support an agency to safeguard consumer rights. Who is against it: almost all the banks that the government has bailed, and all the sleazebags who should be jailed. They are mounting a slick campaign to kill the agency using a pricey PR agency led by Jim Wilkinson, the Bush operative and former Paulson aide who ran the propaganda war for the Iraq war. (You can't make this up!)
And guess who has just joined this backlash against reform? None other than Ben Bernanke, the overlord of the Federal Reserve Bank, an organization, quiet as it's kept, that is actually run by big banks and totally unaccountable to Congress or the people.
The Fed had stood by and none nothing to stop the subprime/subcrime wave, and nothing to stop the millions of foreclosures for years. Now, the Fed is proposing to step in, arguing that the new agency is not needed.
"I'll handle it," says big Ben.
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