Bundling mortgages, packaged together and made into securities to sell far and wide, targeting naïve and trusting investors who foolishly thought that their triple-A ratings meant something, comprised a large part of what encouraged all the wild subprime and Alt-A financing. Mortgage brokers couldn't find people fast enough to set up with mortgages. No job, no problem.

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What follows is a synthesis, summary and abridgement of recent discussions with veteran journalist and Truthdig.com editor Robert Scheer about his new book, The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street.

Try as he might, President Reagan was unable to reverse the very sensible regulations of the New Deal that were designed to prevent us from getting into another depression. Those regulations, principally Glass-Steagall , stated that investment banks gambling with rich people's money should not be allowed to merge with commercial banks that were using regular bank deposits insured (FDIC) by our government. Because of the savings and loan scandal at the end of his term, Reagan actually had to sign off on increased financial regulation. But when Clinton took over at the White House, he brought in one of the big players on Wall Street, Robert Rubin, former head of Goldman Sachs, and asked Rubin this question: "What do I need to do to get Wall Street on my side?" Rubin's reply was simple: "Reverse onerous financial regulation." And Clinton complied. Then he selected Rubin as his Treasury secretary, and Rubin was followed by another Wall Street toady, Lawrence Summers, who's now the top economics adviser (guardian-protector of Wall Street interests) in the Obama White House.

In addition to approving the Gramm bill that reversed Glass-Steagall, Clinton laid still more of the groundwork for our current crisis. After Summers had pushed it through, and Congress approved, the Commodity Futures Modernization Act of 2000, Clinton signed off on it as well. And this lies at the very root of our recent housing meltdown.

You see, we had these things called derivatives that a few sensible people in the administration, like Brooksley Born, had tried to warn everyone about. However, few people besides her seemed to know what these often dangerous investments were all about. And those who did know would not allow themselves to think about anything other than the enormous amounts of money that could be made from them. The bundling of mortgages, packaged together and made into securities to sell far and wide, targeting naïve and trusting investors who foolishly thought that their triple-A ratings meant something, comprises a large part of what encouraged all of the wild subprime and Alt-A financing. Mortgage brokers couldn't find people fast enough to set up with mortgages. No job, no problem. Mortgage applications became increasingly fraudulent. But who cared? -- these mortgages would be packaged together with hundreds of others so that even if one or two went bad, the security package as a whole would still be worth something. Supposedly.

Besides, once the sliced and diced investment units (individual securities) were sold to a wide variety of unsuspecting buyers around the world (as deregulation now allowed), it would no longer be the problem of the person or institution that put the package together. Then too, these packaged securities were being backed by credit default swaps -- a kind of insurance issued by companies like AIG, who made plenty of money off of the premiums that were paid to them, but who ultimately had nowhere near enough capital on hand to pay off the claims when the housing market collapsed, thus requiring the taxpayers to bail them out.

Bottom line: these gimmicky investment vehicles that eventually spiraled out of control were made possible because of the aforementioned Commodity Futures Modernization Act, which Clinton signed and which clearly stated that no existing government regulation and no existing government regulatory body would be allowed to supervise them or regulate them. Especially not to be permitted was any regulation of the the credit default swaps and collateralized debt obligations that Brooksley Born had warned everyone in the Clinton administration about, (to no avail, her pleas falling on deaf ears).

As a result of no one listening to Born, we had this wild run-up of irresponsible mortgage lending. The banks no longer, as in the old days, worried about whether the borrower could make his payments or whether there was sufficient value in the house. Why not? Because they weren't going to hold that mortgage for thirty years like in the old days. To repeat, and thus stress this key point: They were going to bundle it with hundreds of other mortgages, securitize it, and sell it, ASAP, just like they were now allowed to do, thanks to Clinton signing off on the Commodity Futures Modernization Act. That's why the wild run-up of the market should be known as the Clinton bubble.

And now, as a result, we're threatened with the very real possibility of another steep socioeconomic decline, perhaps even a decade of Japanese-style stagnation. And the reason is because we taxpayers (via our underwater mortgages and via the toxic debt purchased from the big banks by the Fed) are holding trillions of dollars of these toxic investments. As a result, housing right now is in a terrible state of affairs. There are 11 million homeowners that are underwater (mortgage debt exceeds the price for which the house can be sold). That means 50 million people living in houses that are now worth less than what is owed on them. Not surprisingly these people are increasingly tempted to simply walk away from these houses, and many are doing so (especially the well-heeled), thereby leaving ever more banks with the loss of the money that is owed to them via the abandoned mortgages. And then the Fed buys this toxic debt from these banks, to help them out, and this indebtedness ultimately lands back in the lap of the American taxpayer. Sweet!

Many millions of Americans have invested their life savings in their homes only to see the market value of these homes plummet, essentially wiping out much of their life savings, which is why we don't have much in the way of consumer spending right now. With much of their life savings having been thereby taken from them, by the doings of Wall Street sharpies taking full advantage of the gift (to them) of government deregulation, many Americans are now scrambling to replace at least some of their retirement savings. And it's not just the people who are financially in trouble with their own houses who are the victims, but their neighbors as well -- for even if someone has made every payment on their home, or even if they own their home outright, if one or two houses in their neighborhood are vacant and boarded up, with a lawn that looks like hell, it brings everyone else's home value down.

All this stuff that Obama has been talking about really does not address this problem. Instead of throwing money at Wall Street, which is what Bush did and what Obama continued to do, they should have imposed a moratorium on housing foreclosures. They should have said, "OK, Wall Street, we'll help you, but you are now going to be forced (through bankruptcy courts and the new rules we're going to put in place) to adjust people's mortgages so they can stay in their home."

Spending $50 billion on infrastructure, as Obama has recently proposed, is chump change compared to, say, the $300 billion of toxic investments made by one bank, Citigroup. (After he left the Clinton administration, Rubin became a top executive at Citigroup, whose $300 billion worth of investments were made possible by the reversal of Glass-Steagall, a reversal for which he, Rubin, was in large part responsible.)

Three months after Robert Rubin had given a speech at Cooper Union saying we had no financial problem and no crisis, Obama, at that same institution, acknowledged that this crisis is all due to the reversal of Glass-Steagall -- all due to reckless, radical deregulation. He spelled it out. And then, mysteriously -- well, maybe not so mysteriously when you consider that Wall Street and the larger financial community became his biggest campaign contributors -- he, Obama, turned to the disciples of Robert Rubin (e.g. Lawrence Summers, Timothy Geithner and the very people who had, with Rubin, created this mess) and naively ordered them to "Fix all this." And of course they haven't fixed any of it! Instead they've taken care of their buds on Wall Street . . and mugged Main Street.

What could Obama do, starting today?

He could immediately push to give bankruptcy courts the power to force banks to readjust these mortgages. We the taxpayers bailed out the banks. So why shouldn't they in turn be compelled by the federal government to return the favor by helping taxpayers who are now stuck with a house worth less than what they owe on their mortgage? As already mentioned, abandoned houses bring down the value of all surrounding houses, underwater or not, so everyone would thereby be helped.

The Tea Partiers yell about "getting the government off our back." But this government did not get big (and the debt did not rise as high as it is) due to the fact that we're trying to help firemen or school teachers keep their jobs. It happened because we have, through the Fed and through the federal government, committed three or four trillion dollars to bail out the banks.

Therefore Obama should call for a moratorium, for two or three years, on mortgage foreclosures. He could call for, and push through legislation, that would allow people to stay in their homes. The goal would be to prevent all those boarded-up buildings in the suburbs of South Florida, Riverside, California, and elsewhere.

If you travel in this country and look closely, you'll see that there's enormous pain stemming from the fact that people's life savings as well as their sense of their worth, their piece of the American Dream, were tied up in their family home. When you lose that home or when you're facing foreclosure, you lose not only your pride, you lose your ability to retire and/or to send your kids to college. The dreams of Americans are wrapped up in their home. And I don't know why we're talking about anything else right now. If we want to get the economy going again, if we want to get people back to work, if we want to get consumption up, what you've got to do is help people with their nest and their nest egg, which is their home. And so far there's precious little in Obama's speeches, and certainly almost nothing in his actions, to help those homeowners in that way.

Fannie Mae and Freddie Mac were as rapacious as Citigroup or Goldman Sachs. People like Barney Frank and even many in the Black Caucus, said, "No, no, don't touch Fannie Mae and Freddie Mac because they're going to help poor people get into homes." Sure, a lot of minorities got into homes, but many of those homes were lost to foreclosure. So now, as a result of such a bad investment, plenty of folks have lost their life savings (to the banksters and Wall Street sharpies).

If we can't stop housing foreclosures, if we can't stem this bleeding right now, we're simply not going to get consumption and spending back, and so we're not going to get anywhere near enough jobs back -- jobs in construction, and jobs generally. Therefore one should not divide the interests of homeowners (and keeping them in their homes), from the interests of the rest of the population.

Has Obama done anything different about the economy than Bush?

Obama has been a disaster. Perhaps if he appoints Elizabeth Warren to the new consumer protection agency, there will be a bit of value in this new regulatory agency. Problem is, there's a quiet campaign in the White House and at the Treasury Department, among people like Wall Street guardians Rahm Emanuel and Tim Geithner, to prevent her from getting this appointment.

Unfortunately we can't look to the Democratic Party, hacks that they are, for leadership on this. First of all, most of these people are veterans of the Clinton administration and are the same people who destroyed Brooksley Born, who was one of the most competent lawyers in this country in dealing with banks. She understood more about derivatives than anyone around, and she was appointed to what was supposed to be a lesser agency, the Commodity Futures Trading Commission. Seventeen times, in testimony before congressional committees, Brooksley Born sounded the alarm that there was going to be a housing meltdown, that this whole thing had gone wild, and that we had inadvertently enabled Wall Street graft and corruption. It's people like Summers, now firmly entrenched in Obama's administration, who don't want Elizabeth Warren--Timothy Geithner for instance, and there are plenty of others. There are many Goldman Sachs veterans and other big Wall Street veterans entrenched in Obama's administration. They destroyed Brooksley Born and now they feel threatened by Elizabeth Warren because Elizabeth Warren all too competently represents consumers. She's a brilliant legal mind who scares them just as Brooksley Born did. Elizabeth Warren said, "Wait a minute, what kind of government is it when you're caring about Wall Street and you're ignoring the pain out there on Main Street?" And banksters don't want to hear that kind of talk. They want unprotected consumers in the millions who they can then more easily prey upon en masse, and profit from, obscenely. Their successful predation and the growing wealth that stems from it depends on having consumers remain unprotected. And nothing else matters to them. Therefore Elizabeth Warren must be stopped. Discretely stopped, but stopped.

These folks on Main Street invest their whole life providing shelter and all manner of other basics for their family. And when you go out in these communities, it's so very depressing. There are people in Riverside, California who diligently cleaned office buildings 50 miles away in Long Beach. They commuted every day from Riverside so their kids could live in a better neighborhood. They bought their affordable house in a nice neighborhood, worked hard, and reliably made the payments month after month. They did everything they were supposed to do. And then they lost their jobs to low-wage workers from south of the border, mortgages started getting foreclosed and the neighborhood went to hell, and they eventually lost everything. And that story is being repeated millions of times across America, as the wealth holdings of the banksters and CEOs multiply into the stratosphere.

And the guys who did this to America, they weren't those vicious right-wingers. It wasn't all the people that we liberals like to attack. It was our friends! Let's get that straight: This was a product of the Clinton Bubble. It was our friends who helped make it happen. It was people like the heads of Fannie Mae and Freddie Mac, who identify themselves as liberal Democrats. But they were being rewarded with enormous bonuses. (In fact they made out just as well as the people running Citigroup.)

As for Fannie Mae and Freddie Mac, these were not government agencies. These were companies whose shares traded on the stock market, yet they posed as government-supported agencies. And the fact of the matter is that the damage that was done to America was done by people who talk a very good game. Robert Rubin contributed money to the Harlem dance group. Jesse Jackson was one of those who supported the reversal of Glass-Steagall. It was the Clinton Democrats (who now run the Obama administration) who turned the hen house over to the foxes. And the record of Obama on this has been abysmal. He has essentially been a front man for Wall Street. Why? Because he thinks he needs their money to get re-elected in 2012.

Authors Bio:

Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've always been more interested in political economics and what's going on behind the scenes in politics, than in mechanical engineering, and because of that I've rarely worked more than 8 months a year, devoting much of the rest of the year to reading and writing about that which interests me most.