The Big Hullaballoo Part 2: The Grope Goes On

I just read over the transcript of this NPR show on the Crisis. If I understood what it told me, and if it was right, then this happened:

First, there were mortgages. People sold mortgages to other people to buy houses. Those other people made payments on their mortgages. The people to whom they made those payments, the mortgage brokers, then sold those mortgages to banks, or to companies. I'm not sure which. So now the brokers made a lot of money, and the banks were getting payments, but then, the banks/companies sold the mortgages to bigger banks/companies. And onward to the big big guys on Wall Street.

And every step of the way everyone was making money. And another funny thing: The littler companies that bought the mortgages from the brokers had to take out loans to do so! Hahahahaha.

And then it gets funnier. Because everyone's buying these mortgages. So the brokers start giving them, selling them, whatever the term is, to shadier and shadier people, until we're at the point (2 or 3 years ago) where someone like ME could probably have gotten one. This thing "NINA loan" turns up; No Income No Assets. WTF! They'd lend to anybody, and then the loan would skip up along this chain until it got to the top.

Other new words I learned include "mortgage pool" and "tranche." A mortgage pool, I think, is a group of mortgages. "Tranche" means slice; it's when you slice up all these groups of mortgages and sell them off to whomever.

So then things got fucked, sayeth NPR, when this happened: People started defaulting on their very first payment!

So in the beginning, it was okay if somebody defaulted and the bank foreclosed. And that's because housing prices were always rising. But all of a sudden there is all this defaulting and foreclosing, and all these damned houses, so, What? The prices fall. And so now if someone defaults and you foreclose, you lose money (by the way "you" are a bank.)

And that's why the crisis happens. The banks are losing, losing, losing money.

And they have to be bailed out. Because they're the banks!

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Here are other fun facts.

The NPR show describes a guy getting a half-million dollar loan he could probably never pay back. The people that got this loan for him represented his income at something like 3 times what it actually was:

Mortgage brokers were walking around East Flatbush, knocking on doors, telling just about anybody: Hey, we can get you a house. If you have a house, we can get you a big home equity line of credit. This happened in poor neighborhoods all over the country. And, while the FBI and other law enforcement folks, say they don't have the exact numbers, it's clear that fraud--like the fraud on Richard's application--was ubiquitous.

The phrase "Fraud was ubiquitous" comes without source or citation, though it seems likely enough. But assuming it's true, will there be any repurcussions for any of that? Well, probably not.

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Speaking of fun facts. Back in February, this article from Eliot Spitzer appeared in the Washington Post. Let's quote it a bit:

The OCC [Office of the Comptroller of Currency] has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

Let's restate that, huh? All 50 states tried to stop the banks from predatory lending practices that helped cause this problem, and the Bush Administration stopped them. Shocking.

I am also shocked in retrospect at how Spitzer was brought down as governor of New York. By "shocked," I mean "not surprised even a little."

And all of this would tend to make one a little leery about all this power given to Henry Paulson, a man who works for this Administration (that should be cause for damnation in and of itself) and as Secretary of the Treasury, presumably approves of its fiscal policies (see previous quotation); and who, in his previous job, was billionaire CEO of one of the companies that caused the whole fucking problem in this first place!

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Now I'm starting to rant and speculate. I still don't probably understand the whole thing, even a little. But it doesn't add up, does it? The Big Bail Out doesn't, especially not in the way it's being done (total authority for Paulson with no oversight at all). Something's totally fucked.