MARIN COUNTY'S NEWS
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(415)868-1600 - (415)868-0502(fax) - P.O. Box 31, Bolinas, CA, 94924
Doing Unto Others The Wall Street Way
By Edward W. Miller, MD
"Thou hast taken usury and increase, and thou hast greedily gained of thy neighbors by extortion, and thou hast forgotten me saith the Lord." - Ezekiel 22:12 (King James
The present economic slowdown, which Bush and his Wall Street financial advisors deny is: "not a Depression." didn't sprout over night like a mushroom, but has been developing like a mold in our financial structure for some years.
Last summer's tumble and shaky recovery of the stock market bubble which, as it burst toward the end of August, had cost investors over $6 trillion in US dollars, was echoed in England where thousands of Brits stood in line to demand their money back from one of the country's largest banks. (San Francisco Chronicle).
After this precarious weekend, Asian stocks were sharply lower, Japan's Nikkei Index fell more than4% and the dollar was down sharply against the Yuan, yen and Euro, since the Fed's $200 Billion in paper money had diluted out the supply of US dollars.
As the March 17th Washington Post reported: "The Federal Reserve took dramatic action on multiple fronts to avert a crisis in the global financial system." The Feds, promised some $200 Billion as a "lender of last resort" for 20 major Wall Street firms a role it had played, since its founding in 1913, but only for commercial banks. In 1902 and again in 1909, J.P. Morgan had personally set aside funds to bail out failing banks.
This $200 billion offer of ultra-safe Treasury securities to our nation's banks, and several major brokerage firms, was in exchange for a variety of collateral options -- including the very mortgage-backed securities that caused the financial crisis. Banks thus unloaded some of their not so secure assets, freeing up money "to keep the nation's economic bloodstream flowing." It was a central banking move that many investors had been waiting for.
However, like New Orlean's weakened levees, this gesture by the Feds did little to stem the coming financial storm. As Peter Schiff noted (DINL March 16th) " Apparently the Fed now stands willing to assume any mortgage-related risk that no other private entity would touch."
Since I wrote my April column: GREED, THE WORM IN THE CAPITALIST APPLE, the US economy has taken another turn for the worse and evidence that "corporate greed " has played a significant role is becoming more obvious. The 9 July SF Chronicle said Levi Strauss and Co. had announced their profit in the second quarter had plunged 98% to $701,000 compared to $45.7 million the year before. General Motors was closing four US plants and laying off 20,000 workers, while asking many of their management-level employees to accept early retirement. The SF Chronicle also reported that by June, the US workforce had lost 709,000 jobs in 2008, plus STARBUCKS was closing 600 stores and laying of 12,000 workers, and (THE PROGRESSIVE May, 2008) noted The SHARPER IMAGE is declaring bankruptcy and closing ninety-six US stores
Fuelled by the virtual deregulation of the financial capital market since the 1990's ...widespread corruption and fraud had produced a housing bubble of epic proportions ...mortgage borrowing rose more than $4 trillion between 2003 and 2006 with $2 trillion of this issued in sub prime mortgages.
"Sub prime" is a fancy word for " inadequately-funded" or sometimes "criminally-managed" mortgages. Sold often to ignorant buyers, many of them blacks or Spanish-speaking families, completely unaware of what they were signing at the bank.
As the Stock market continued to tumble, First on the list, the Feds gave JP Morgan Chase, a major Wall Street bank, $236.2 million, allowing them to buy out the 85 year-old Bear Steans investment firm, at a price representing only 1% of what Bear Stearns had been worth only ten days before this buyout... The investment forms' stock had fallen from $70 a share to only $2 a share in that short period.
Fallout from the Bear Stearns collapse and buyout was not long in coming. KPFA's financial reporter on Amy Goodman's "Democracy-Now" noted that the California Teachers Retirement Plan, investment in Bear Stearns, had just lost $85 million. Meanwhile mortgage foreclosures, by the tens of thousands were presenting themselves across the country, while the HOPE NOW data program reported "More than 2 million loans were at least 60 days delinquent in April 2008."
While the big boys in Wall Street were enjoying the Fed's bounty, a smaller largess has been directed at the American Taxpayer from Bush and Congress: On January 24th, 2008 The Bush administration and leaders of the House of Representatives agreed to provide almost $100 billion in tax rebates to 117 million taxpayers and another $40 billion in tax reductions for businesses in a bid to avert a recession. Individuals with adjusted gross incomes of $3,000 to $75,000 would get rebates worth $300 to $600. Joint filers with annual incomes up to $150,000 would receive up to $1,200. Most checks to families and individuals were arriving throughout July. Like all of these "bail-out" deals, the Fed's is promised money will eventually come out of the taxpayer's pocket. Printing extra money simply dilutes out the basic value of the US dollar on the world market, making everything we buy more expensive, and threatening the economy of other countries.
As Peter Schiff noted (DINL March 16th) "The Fed may have been partially spurred to take the step as a result of the rapid collapse of Carlyle Capital Corp. a publicly traded private equity firm that is a subsidiary of the Carlyle Group. This Dutch firm could not meet margin calls on its depreciating collateral of AAA-rated mortgaged-backed securities guaranteed by Fannie Mae and Freddie Mac.
On 16 July: The FBI seized INDYMAK, one of the world's largest banks, after it reported a $36 billion loss. The FBI also stated "there are another 150 US banks in danger of bankruptcy."
Frightened by the INDYMAC collapse, rhe U.S. government announced a "massive aid" package to the two shareholder owned companies: Fannie Mae and Freddie Mac.
According to a Reuters dispatch, the plan, which won approval from Congress, was designed to "head off a potential meltdown in financial markets."
The government offered Fannie and Freddie:
1. Access to its emergency cash-the so-called discount window
2. A huge "temporary" increase in the line of credit available
3. The U.S. Treasury will, for the first time ever, purchase equity in both companies should it be needed
4. Investigation by the Securities and Exchange Commission to stop the spread of "false information."
Both Fannie and Freddie buy mortgages from banks and other lenders and either keep them or repackage them into securities that are sold to investors, hedge-funds etc.
According to the SF Chron 25 June, 2008: "Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, these government-chartered finance companies are doing what critics in the Federal Reserve and Congress had predicted. Instead of using powers granted by Congress to buy jumbo loans, Fannie Mae and Freddie Mac are purchasing their own mortgage-backed securities, helping reduce losses... Since the rule-change took effect, in March, Fannie Mae has packaged $24 million in jumbo loans into securities, while Freddie Mac added $220 million. In April the companies spent more than $ 32.4 billion to buy their own instruments. " Doing it to others" again, in typical Wall Street fashion.
The ongoing failure of millions of "sub-prime" mortgages with foreclosures across the country, the increasing demand for "affordable housing", a consumer debt of $2.52 trillion, and the daily not-quite believable assurances by Wall Street, our president and big money that " the economy is basically strong", comes as no surprise to those keeping a close eye on our economy for the past half century.
Our economic downturn could have been predicted by anyone following our Congressional responses to Wall Street lobbying over the past half century. Beginning not too long after June 23rd, 1947 when a newly elected Republican Congress passed the Taft-Hartley Act over president Truman's veto, the economic signposts have been out in the open for all to see. Following this Republican assault on American labor, the downhill slide of our economy could have been anticipated.
The results of labor's defeat presented itself gradually over the next decade as American dads, who for years had fed and clothed their families, educated their kids and provided a safe retirement, found their paychecks no longer covered all the bills, and began to accept 50 or 60 hour weeks or found a second job. A few years later mother pitched in to bring home extra cash.
According to Steve Fraser, author of a recent book on Wall Street-" Beginning in the Reagan Administration markets became deregulated and a relationship called "crony capitalism" developed between the government and big business.
The huge pyramid of debt was made possible by thirty years of relentless deregulation of financial markets, culminating, during the Clinton Administration, in the 1999 repeal of the Glass-Steagall Act which had prohibited banks from dealing in high-risk securities. In effect, Washington regulators had become passive enablers to Wall Street's financial binge drinkers.
As Robert Scheer pointed out in his March 12th column in the SF Chronicle, "The Clinton-backed Act called Financial Services Modernization Act, permitted banks, stock brokers, and insurance companies to merge and was exacerbated by Bush's appointment of rapacious corporate foxes to watch the corporate hen house. They will take care of their own...The action was made possible only by the federal government using your tax dollars to pick up the bad debt of the banks. "
The WALL STREET JOURNAL had reported that Congress' attempt to rein-in Wall Street's reckless pursuit of sub prime money with the 1994 HOME OWNERSHIP AND EQUITY PROTECTION ACT which polices high-interest loans, proved ineffective, because its trigger was set too high." The WALL STREET JOURNAL also reported "between 2002 and 2006, industry lobbyists poured tens of millions of dollars into state-level campaigns to prevent or undue sub prime lending regulations."
The next step down the economic slide was the subtle onslaught of the Credit-Card industry which began mailing their plastic cards out by the millions to the unwary shoppers who, lacking enough cash at the Safeway checkout, found it increasingly easy to run that pretty piece of plastic through the machine. "In 2006 banks sent out 8 billion credit card applications, a 30% increase since 2005. Credit card companies spend an average of $56 to sign up a new customer and since 1996 when the Supreme Court struck down limits on credit card fees, the average late penalty has jumped 102% and the average fee for exceeding credit card limits is up 138%. Mother Jones Sept 2007 pg 28) Before long Americans found themselves with billions in credit-card debt.
The 1994 Congressional: Home Ownership and Equity Protection Act, which polices high-interest loans, " has proven ineffective because its trigger was set too high." The acceptance by banks of sub-prime mortgages began over ten years ago as deregulation began to cover corporate theft in both Republican and Democratic administrations... Bill Clinton signed the Gramm-Leach-Baily Act of 1999, which permitted banks, stockbrokers and insurance companies to merge, overturning one of the major regulatory achievements of the New Deal.
According the WALL STREET JOURNAL," between 2002 and 2006 industry lobbyists, poured tens of millions of dollars into state-level campaigns to prevent or undue sub prime lending regulations." Both Georgia's and New Jersey's legislatures passed laws to strengthen the Home Ownership and Equity Protection Act, but in both states, surrendering to threats from STANDARD AND POOR to withdraw their rating of securities and sub primes, both legislatures unanimously deleted effective sections of their bills.
A J.P.Morgan Chase internal memo titled: "Zippy Cheating Tricks", sneaked to the press by an employee who has since been fired, says it all: The piece was originally obtained by reporters at THE PORTLAND Oregonina newspaper and printed on March 27th, 2008.
The memo outlines step-by-step instructions on how to beef up mortgage applicants' stated incomes in order to help them qualify for home loans.
They read as follows:
1. Make sure your assets input all income in base income. DO NOT break it down by overtime, commissions or bonus.
2. If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds.
3. If you do not get (the desired results), try resubmitting with slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same for assets.
(April 1st, 2008 (Reuters) - An internal JP Morgan Chase (JPM) memo titled "Zippy Cheats & Tricks" offers a peek into just the sort of dubious lending tactics that underpinned the housing market's deepening downward spiral.
What is the likelihood that a new Congress will both intelligently weather the depression and return this country to the people? Not one of our politicians campaigning for the 2009 election, except Ralph Nader, has mentioned that repeal of the Taft-Hartley Act should be one of the first items on our new Congress's agenda. Confining political campaigns to six weeks with taxpayer funding for both incumbent and challengers plus free TV and radio time for each would do much to return control of this country to its long-suffering people, who must become more active in politics in order to pry Congress away from Wall Street the military and foreign lobbies such as AIPAC. Don't hold your breath!
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