The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
By Greg Palast
Reporting for Air America Radio’s Clout
March 14th, 2008
While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.
This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.
Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.
How? Follow the money.
The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.
Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’
Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.
Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.
‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
But when the Bush regime took over, Countrywide and its banking brethren were told to party hearty – it was OK now to steer’m, fake’m, charge’m and take’m.
But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.
Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their consumer protection laws.
Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.
Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”
What that means is that they took a bunch of junk mortgages, like the Grinning’s, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).
When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars – he pulled in from 1998 through 2007.
But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.
Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.
The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bailout. Not one family was saved – but not one banker was left behind.
Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.
And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.
Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.
It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:
“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.”
Bush, Spitzer said right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.
Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”
But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that the Sheriff of Wall Street has fallen on his own gun.
A note on “Prosecutorial Indiscretion.”
Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”
Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.”
Funny thing, this ‘discretion.’ For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him in diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done in these cases - was made at the ‘discretion’ of Bush’s Justice Department.
Or maybe we should say, ‘indiscretion.’
Greg Palast, former investigator of financial fraud, is the author of the New York Times bestsellers Armed Madhouse and The Best Democracy Money Can Buy.
From the Washington Post:
Misplaced Blame in the Loan Crisis
Thursday, March 6, 2008; A20
In his Feb. 14 op-ed, "Predatory Lenders' Partner in Crime," New York Gov. Eliot Spitzer tried to blame the Office of the Comptroller of the Currency (OCC), which regulates national banks, for all the current problems caused by subprime loans. Nice try, governor. The facts tell a very different story.
The overwhelming majority of the subprime loans causing so many problems today, including the most predatory loans, were originated by state-regulated mortgage brokers and lenders. That's a fact, and here's another: The OCC doesn't regulate those brokers and lenders; that's the job of the states. The national-bank preemption that Mr. Spitzer complained about -- recently upheld by the U.S. Supreme Court -- did nothing to handcuff state efforts to prevent lenders from making loans that borrowers had no reasonable prospect of repaying.
More facts: The OCC extensively regulates national banks' activities, including mortgage lending. We established strong protections against predatory lending years ago, and we enforce them rigorously. And we have been a recognized national leader in addressing problems that can arise from such nontraditional products as "payment option" mortgages.
The results: Predatory mortgage lenders have avoided national banks like the plague. The abuses that consumers complain about most -- such as loan-flipping and equity-stripping -- are not tolerated in the national banking system; nor are the looser lending practices of the subprime market.
Effective regulation of subprime mortgage lending is a job for both federal and state agencies. But the most urgent need today is for the states to use the authority they already have to effectively regulate the institutions that caused most of the problems.
JOHN C. DUGAN
Comptroller of the Currency
Eliot Spitzer's tirade against the Office of the Comptroller of the Currency so profoundly muddles the law of federal preemption that one wonders whether he has read the many cases -- including those in which he was a losing litigant -- that have applied this rule for almost 200 years.
The rule derives from the Supremacy Clause of the U.S. Constitution and is quite simple: The states have no authority to interfere with the operations of nationally chartered banks. For Mr. Spitzer to characterize the OCC's enforcement of this rule as "an unprecedented assault on state legislatures" is nonsense.
The OCC has a good record on predatory lending. When the OCC put out the regulation that Mr. Spitzer attacked, we included strong provisions addressing such lending. The OCC was also the first federal banking agency to sanction banks for engaging in unfair and deceptive practices in violation of the Federal Trade Commission Act, and it maintains a world-class ombudsman and consumer assistance office that has helped myriad bank customers in their dealings with banks.
Mr. Spitzer was also off the mark in repeatedly characterizing the OCC's actions as those of "the Bush administration." I was appointed comptroller by President Bill Clinton for a term that carried into the next administration, and the OCC's actions during my tenure were those of the OCC alone.
At no time did we receive any direction from anyone in the Bush administration with respect to our enforcement of the long-standing rules on preemption.
JOHN D. HAWKE JR.
The writer was comptroller of the currency from 1998 to 2004.
what ever...the funny thing... there is no way I can believe mr or ms anonymous...why wouldn't they post where they are from so they can be found out...but then again I understand...
...for some odd reason I believe this blog and story...it is called "lets kill the real news with bs news that the public and media will hang onto every single word" all of a sudden the prosecutors are turning on one of their own...the emperor's club and others like it...didn't get rich on spitzer alone and how come no other names have been leaked to the media...thats the 200 billion dollar question!
Your logic is sound gioperation . . . just too much stink coming from the feds and requirements for us to disbelieve all logic and surrounding facts to buy into the garbage the administration and its branches are selling. (This administration burned its "trust me" capital long ago . . . let's see, "enriched uranium in Nigeria for Saddam?", "pardoning the leakers and obstructors of identities of cia agents-- SURE THAT does great things for national security", "trips to Africa to 'smooth over' criminal charges and $7+ billion claims by Nigeria against Bush's friends at Pfizer", "firing 9 U.S. Attorneys who didn't play the nasty rules of 'correct' prosecutorial indiscretion", "stripping our citizenry of its 4th and 1st amendment rights", "selling our country piece by piece to the Chinese, Dubai, etc.", "cutting funding for regulation that has left the FDA, Consumer Product Safety Commission and other agencies incapable of protecting us from tainted drugs, toys, fish or lettuce", "privatizing a war with unaccountable corporate profiteers that have left our REAL troops in increased danger" . . . and I'VE been a F@#$ing Republican my whole life, so this is NOT political jargonning, but a pissed off tirade at what a corrupt administration has done to our country that Reagan and Teddy Roosevelt would be rolling over in their graves over.
But yes, all that corruption and ineptitude can be placed aside and this time we actually CAN trust what the administration and its underlings are saying. How gullible do they really believe the American people are?
I puke on what this administration has done to this country in no less than 6 of the last 8 years.
To the OCC, your regulations aren't worth spit . . . they're as big of a joke as the FDA regulations (how about Vioxx, Bextra, Avendia, etc.-- great job there feds!) and the whole of our consumer product safety commission regulations and our FEMA safety plans. They've got too many loopholes and WHERE was the enforcement? I don't need to hear how "we're really working hard, stop picking on us" when millions of people are suffering because these facts from Spitzer (and he's not the only A.G. saying them, O.C.C.) are true.
The O.C.C. is either more corrupt than Enron's former, Alberto Gonzales, or more inept than American Quarter Horse Association to FEMA Chief Mike Brown, but their arguments are falling on ears that say, "fool us once, shame on you . . . you will not fool us twice!"
*I'm pretty sure that Bank of America and CitiBank aren't "local state banks" "subject only to local state laws", O.C.C. wipes. Why don't you try looking at the FEDERAL regulations that were violated, and then at the interference the feds (you) gave to states trying to enforce STATE laws. THAT'S the point with this article, Spitzer's complaint, etc. So you can stop the disingenuous song and dance, because not even us Republicans are buying it from this administration anymore.
amen...opps did I just use some religion...maybe that is what we need.
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