Great Bank Heist!

During the period leading up to the collapse of the economy that reached a crescendo in the fall of 2008, we got trapped into thinking bad credit decisions could be overcome with good collateral. Those of us tied to the mortgage industry saw the poor loan underwriting that added , or maybe even created, the housing bubble.

The mortgage broker did not look beyond his own wallet. The loan he originated smelled but if the loan servicer that he sold the loan to was willing to pay a good price, what did he care. 

The loan servicer had to wear a gas mask to protect himself from the stench of the loan he just purchased, but if Goldman Sachs was willing to purchase it from him at a good price, what did he care. The loan servicer unloaded the risk and made a good profit.

Goldman did not care about the smell of the loan because they were able to buy an investment grade rating from the rating agencies and sell the loans to their clients including wealthy individuals, pension funds and financial institutions around the world. In the process they made a lot of money and were bailed out by our politicians in Washington.

The Washington Politicians did not care because they received big campaign contributions from all entities involved in the transaction and they figured the voter was too stupid to figure out that they were the ones stuck with the resulting calamity.

So far it appears Wall Street and the politicians were right. Their heist worked and we are stuck with the bill.

Bailouts The 1% and The 47%

As a result of comments made by Mr. Romney that was recorded and posted on You Tube by Mother Jones, there is much discussion about the 47% of Americans not paying federal income taxes. Much of the talk comes from conservatives stating that this is unfair. I find it interesting that these conservatives are saying nothing about the near trillion dollars spent by our government for the bail out of banks, hedge funds and other corporations resulting from the market collapse in 2008.

What makes it more bizarre is that many of these institutions contributed to the market collapse by profiting from the sub prime housing fiasco throughout much of the last decade. It seems to me that what is most unfair is that none of these institutions have had to pay much of anything in the form of retribution for all the financial carnage that they have caused. Goldman Sachs is a good example of this.
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Goldman And Justice

“In a statement late Thursday, the Justice Department said there was “not a viable basis to bring a criminal prosecution” against Goldman or its employees after a Congressional committee asked prosecutors to examine if the bank had been involved with any illegal acts related to several mortgage deals.” S.E.C. and Justice Dept. End Mortgage Investigations Into Goldman, New York Times, August 9, 2012

This is a disgrace!

1. How is it that Goldman Sachs convinced the Justice Department that it was feasible to combine thousands of sub prime mortgage loans that were poorly underwritten into an investment grade quality investment?

2. How is it that Goldman Sachs convinced credit rating agencies, that received fees from Goldman, to give an investment grade rating on securities that were backed by a pool of poorly written loans?

Was the convincing done by logic or by contributions and huge fees? Below might provide a clue. The chart was taken from Opensecrets.org and represents what the top contributors paid Sen.Charles E. Schumer since 1989.

Click on Chart To Enlarge

Market Independence

Under current law Goldman Sachs can recommend a security, like sub-prime mortgages, to a client and at the same time decide to sell short the same product for its own account. Therefore, if it happens to own a boat load of securities that they feel are overvalued there may be a temptation to encourage their clients to  buy it.
Someone please post on the front page of the New York Times which congressman or senator would be opposed to changing this law along with the amount of money they received from wall street firms in the form of campaign contributions.
This rule defies common sense, encourages graft and corruption.

FDIC Recommends Banks Work With Commercial Real Estate Borrowers!