Americans should feel some value in the fact that the FBI is now investigating toxic firms that have been central to the U.S. financial meltdown. For some time 26 firms have been under intense scrutiny by the FBI. The media has been highlighting investigation of the 4 firms that have collapsed: Fannie Mae, Freddie Mac, AIG and Lehman Brothers.
The mortgage twins, Fannie and Freddie, have already been under investigation for years based on varying problems with financial irregularities and leadership issues. The investigations will focus on the financial firms and the individuals that ran them. Hopefully, middle management will also be scrutinized and judged. The truth is that the FBI needs to find the perpetrators of the fraud rather than single out top dog scapegoats.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke made the joint unilateral decision last week that the only way to stop the U.S. financial carnage was to deal with the root cause of all the troubles by rooting out billions of dollars of bad mortgage debt sitting on the books of major financial firms. This debt has triggered the worst credit crisis in decades, “causing” credit markets to freeze up despite the fact that the Fed joined with major central banks around the world to pump billions of dollars of reserves into the financial system. The billions of dollars pumped into the global economy are creating a crisis of stagflation themselves, a nasty round of inflation coupled with the current economic recession and malaise. The results of those actions cannot be undone and are being ignored by panicked authorities.
The reality behind the liquidity lock down that the Bush administration and U.S. Treasury Secretary are panicking about revolves around interbank lending, a problem that has been noticed publicly for at least a year. Why is there a problem? The crisis boils down to an issue of trust. Bankers know that they cannot trust one another and are unwilling to take the fall for the fraud of other bankers. In other words, the bankers know they have been harpooned by the securities that were supposed to make them wealthy. Bankers have put the thumbscrews on lending to protect their solvency.
selling Wall Street
The Bush adminstration has its game face on. President Bush says he expects Congress to pass “a robust plan” that deals with the nation’s economic problems. The word robust has become another favorite public watchword that should garner your prompt attention. Robust implies a broad emcompassing scope along with complex provisions that could very well be the downfall of any attempts to band-aid the current situation. Currently, an estimate is that 1 of 254 mortgages is actually in some measure of foreclosure. This is a very small percentage to cause a crisis. What the American press and government is acknowleging is merely the tip of the iceberg. The main problem with securitized loans is that when they were developed and created, a system was not developed to track reality. An internal processing scandal within the process of issuing of these securities is implied. However, government has not been eager to breach this area of the mortgage crisis beyond specifying that the regulations and concepts in the entire financial system are dated and ineffective. Somehow, this idea is supposed to get government, regulators and bankers off the hook.
What should be done to resolve the current foreclosure crisis? Not a soul has bothered to shift gears in addressing the real problem regarding predatory financing and usury in place. Each known problem loan triggered by payment issues needs to be evaluated regarding the current real value of the home. If evaluation of home value is an issue because of a weak market, then half the real value of home should be the mortgage value. This action would assist in correcting inflated home prices and counter price inflation. Any failure of the past verification process through bankers or qualification of the homeowner should be ignored as long as the homeowner is gainfully employed and can make the payments on the new loan. The government then needs to reissue a safe government-backed assumable loan that will allow the buyer to stay in the home at a low interest rate. Ultimately, the goal would be for every loan to be converted to a non-predatory government loan with low interest. Loans would not be securitized or bundled for resale as government securities. Banks would not bundle loans into any internal or banking instruments. Bankers would simply make money from compound interest and providing basic banking services. The bailout needs to be on the side of the taxpayer, the basis and stock of capital and wealth, rather than on the side of corporate interests that often pay few taxes in the real world beyond payroll.
losing the Dream
If push came to shove, the nation would be better off giving mortgages away than bailing out the endless debt and failure created by Wall Street and the system in place. Americans would then own their homes fair and square with a new national beginning. Trillions in debt would be eliminated overnight. This idea seems radical and expensive, but is assuredly no more expensive than a long-term bailout of government and corporate fraud. The American population would benefit directly from the bailout, as should always be the case. The main problem is that such an action would destabilize the power structure in place. However, the ideas presented here are no less sane than what is being proposed by the Federal Reserve and the U.S. Treasury in the name of the Bush administration. We are a nation of double standards that bolsters government and corporate power at the expense of the populace, a fascist notion. That needs to change.
The FBI has been in various stages of investigation regarding the mortgage debacle since March of 2007, even before most Americans were aware of a scandal. This proves that the Bush administration has been aware of mortgage fraud and scandal before the nation began to see the sign in the summer of 2007. As far back as the summer of 2004, President Bush beamed with pride about the creativity of the banking and mortgage industry, the single force that had maintained the illusion of national prosperity during the last three political administrations, originating from the Clinton administration.
Where are the people that are being investigated and implicated in fraudulent activities? Is the FBI keeping tabs on the movements of those may be involved in the scandal? What Americans should be concerned about is whether the U.S. government is allowing people that are tied directly into these firms to leave the country if they haven’t left already. ~ E. Manning