The San Francisco Chronicle has a piece today on the “Mortage Meltdown.” The gist is that the “freeze,” proposed by Treasury Secretary Henry Paulson, isn’t really a fix to help working families keep their homes, but a fraud, instituted to “prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth.”
Go figure… The Bush administration, as we all know is all about bailing out corporate whores and not about helping Americans. Sean Olender explains in the San Fran Chronicle:
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies – all the way up to senior management – knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new “hot” industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer “he can’t refuse.”
Despite Thursday’s ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem Olender says is “the entire mortgage market,” not just sub prime loans.
As home prices fall, defaults will rise sharply – period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
The whole mess is very ugly and Olender says “talking about criminal fraud”:
It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.
I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as “helping working families stay in their homes.” That’s why these meetings were secret, and reporters and the public weren’t invited.
What’s that…. Secret meetings involving BIG industry and members of the Bush adminstration? Been there, done that.
Oleander notes “We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.”
The economy is in the toilet… No let me rephrase that… It’s in the sewer. AP News reports, that the housing crisis is “killing holiday-shopping spirit,” and this could be the “weakest retail season” in 5 years. Color me not at all surprised. As a small business owner that caters to the retail industry, this has been the worst, I repeat the worst holiday season for my business in 5 years, and I’ve watch sales decline now, for the past 4. I don’t know what it’s going to take to fix our economy at this point, but one thing is for certain — it won’t happen on Bush’s watch.